2015 (7) TMI 1347 - HC - Companies Law

Petition Dismissed for Non-Maintainability: Necessity of Full Disclosure

The court dismissed the petition due to non-maintainability caused by the pending BIFR reference at the time of filing, suppression of material facts, and ... Dispensation with the scheme of arrangement - mandatory requirement of Section 101 of the Companies Act - pendency of reference before the BIFR - HELD THAT:- It is clear that when the petitioner has preferred this petition in September, 2008, the reference filed by the petitioner was pending before BIFR. The same was recently disposed off by BIFR by an order dated 16.7.2014 on Miscellaneous Application moved by the petitioner-company. Thus, when the present petition was filed in September, 2008, the petitioner was not entitled to file this petition and it was not maintainable. This Court is required to consider what was the position on the date of filing of this petition. If on the date of filing of this petition, the same is not maintainable, merely because now it is pending since last seven years, the same cannot be considered on merits. Thus, this Court is of the opinion that this petition is required to be dismissed The petitioner-company has not proceeded with this petition within reasonable time. After a period of eight years, now the proposed scheme cannot be sanctioned in the present format and learned advocate Mr.Maulin Raval appearing for the objector is right in submitting that this scheme can be said to be a stale scheme. Hence, the same is not required to be sanctioned on this ground also. It is also clear from the record that SEBI has passed an order on 6.6.2008 which is produced by the objector at page 289 of the compilation. The said order was passed giving direction under Sections 11 and 11(B) of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Security Market), Regulations of 2003 against the company and its directors. SEBI, by way of the said order, restrained the petitioner-company from accessing the securities market and prohibiting from buying, selling or dealing in securities directly or indirectly for a period of five years - It appears from the record that this aspect is also not stated by the petitioner-company in this petition nor it was pointed out before the respective shareholders and lenders that such proceedings are pending before the SEBI. It is clear that though the petitioner-company was not a party to the said proceedings, however, the proceedings were initiated in pursuance to the transactions with the petitioner-company. Therefore, the petitioner-company and its group companies were described as target companies. Thus, from the record it is clear that the petitioner-company has not placed aforesaid important details with regard to pendency of proceedings before SAT in the respective meetings of the shareholders as well as lenders - The petitioner-company has also not disclosed the material fact with regard to the order dated 5.6.2008 passed by SAT in this petition also and, therefore, this petition is not required to be entertained on this ground also. It is clear from the record that all the material facts were not disclosed before the voters in the respective meetings nor the same was placed before this Court along with the petition and, therefore, this Court is not satisfied with the scheme proposed by the petitioner-company and, therefore, also the present petition is required to be dismissed on this ground also. Petition dismissed. Issues Involved:1. Maintainability of the petition due to pending BIFR reference.2. Compliance with mandatory requirements under Section 391 of the Companies Act.3. Allegations of suppression of material facts by the petitioner.4. Objections raised by the shareholder and Registrar of Companies.5. Applicability of the principle of res judicata.6. Legality of the voting process in the shareholders' meeting.7. Impact of SEBI's prohibitory orders on the scheme.Detailed Analysis:1. Maintainability of the Petition due to Pending BIFR Reference:The petition was filed in 2008 when the petitioner-company was registered as a sick company with BIFR. The reference was only deregistered by BIFR in 2014. The court emphasized that the petition's maintainability should be assessed based on the circumstances at the time of filing. Since the reference was pending before BIFR when the petition was filed, the petition was deemed not maintainable. The court referenced the Supreme Court's decision in NGEF Ltd. v. Chandra Developers Pvt. Ltd., which held that the jurisdiction of the Company Court is subject to the provisions of SICA.2. Compliance with Mandatory Requirements under Section 391 of the Companies Act:The petitioner argued that Section 391 is a complete code and that the principle of single window clearance permits all necessary formal requirements to be addressed in a single petition. The court, however, noted that the petitioner had not complied with all the requirements, particularly the disclosure of material facts as mandated by Section 391(2) of the Companies Act. The court referenced the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd., which outlined the broad parameters for the court's jurisdiction in sanctioning schemes of compromise and arrangement.3. Allegations of Suppression of Material Facts by the Petitioner:The objector claimed that the petitioner suppressed material facts, including SEBI's prohibitory orders and the SAT's decision against Nirma Industries. The court found that the petitioner had indeed failed to disclose these crucial facts, which could have influenced the shareholders' and lenders' decisions. The court emphasized the importance of full disclosure under Section 391(2) and concluded that the petition could not be entertained due to this suppression.4. Objections Raised by the Shareholder and Registrar of Companies:The objections included allegations that the scheme was not bona fide, was designed to benefit Nirma Industries unfairly, and was oppressive to minority shareholders. The Registrar of Companies also raised concerns about the petition's maintainability due to the pending BIFR reference and the lack of a special resolution under Section 100. The court found these objections valid, particularly the issue of maintainability and the suppression of material facts.5. Applicability of the Principle of Res Judicata:The objector argued that the principle of res judicata applied because similar schemes had been proposed and withdrawn previously. The court dismissed this argument, noting that the terms of the current scheme were materially different and had been duly approved by the requisite majority of shareholders and lenders.6. Legality of the Voting Process in the Shareholders' Meeting:The objector claimed that the voting process was illegal and that Nirma Industries and its sister concerns should not have been allowed to vote. The court found that the voting process complied with the required procedures and that even without the votes of Nirma Industries, the scheme had been approved by the requisite majority.7. Impact of SEBI's Prohibitory Orders on the Scheme:The court noted that SEBI had passed prohibitory orders against the petitioner-company, restraining it from accessing the securities market and dealing in securities for five years. This fact was not disclosed in the meetings or the petition. The court agreed with the objector that this non-disclosure was significant and could have affected the approval of the scheme by the shareholders and lenders.Conclusion:The court dismissed the petition on multiple grounds, including the non-maintainability due to the pending BIFR reference at the time of filing, suppression of material facts, and the staleness of the scheme. The court emphasized the importance of full disclosure and compliance with statutory requirements under Section 391 of the Companies Act.