2019 (7) TMI 1190 - AT - Companies Law

Appellate tribunal upholds dismissal of arrangement scheme, imposes cost on appellant to protect depositors' rights.

The appellate tribunal upheld the NCLT's dismissal of the scheme of arrangement with FD holders, imposing a cost of Rs. 50 lakhs on the appellant for the ... Scheme of Compromise - Scheme of arrangement with the FD holders - maintainability of application - HELD THAT:- The Scheme of Compromise with FD holders is outside the purview of Section 391/394 of the Companies Act, 1956. The legal right available to the FD holders for filing prosecution for non-repayment of Fixed Deposit cannot be withdrawn under any Scheme. The impugned order has rightly protected the interest of the FD holders. Shares already trade are not disturbed to avoid legal complications. If pending litigation shares are received subject to outcome, those shares still in the hands of FD holders on the date of impugned order lose protection and such FD holders cannot insist on holding on to them as Scheme has been rejected. Intervenors whether they fall in one category or the other category as per impugned order dated 12.3.2018 would be regulated accordingly. Application disposed off. Issues Involved:1. Scheme of arrangement with Fixed Deposit (FD) holders.2. Jurisdiction and authority of NCLT to dismiss the scheme.3. Compliance with Section 391/394 of the Companies Act, 1956.4. Role of SEBI and Ministry of Corporate Affairs.5. Legal status of shares issued to FD holders.6. Applicability of Supreme Court judgments and relevant laws.7. Rights of intervenors and FD holders in the scheme.Detailed Analysis:1. Scheme of Arrangement with FD Holders:The appellant company, a public limited company, faced financial difficulties and defaulted on repayments to FD holders. The National Company Law Tribunal (NCLT), Chandigarh, dismissed the scheme of arrangement proposed by the company to repay FD holders through a structured plan. The scheme included various payment schedules and interest rates for different deposit amounts. The NCLT found that the company had not complied fully with previous orders and faced prosecutions for accepting deposits beyond prescribed limits and non-filing of returns.2. Jurisdiction and Authority of NCLT:The appellant argued that once the scheme was approved by the High Court of Himachal Pradesh, NCLT did not have the right to dismiss it. However, the NCLT, stepping into the shoes of the earlier Single Judge, heard the matter afresh and passed the order dated 12.3.2018. The NCLT's authority to take a comprehensive view of the procedure and legality of the scheme was upheld, and it was determined that the scheme was not legally tenable.3. Compliance with Section 391/394 of the Companies Act, 1956:The NCLT and the appellate tribunal found that the scheme of arrangement with FD holders was outside the purview of Section 391/394 of the Companies Act, 1956. The rights and remedies for FD holders, governed by Section 58A, could not be nullified by a scheme of compromise. The appellant's argument that FD holders are creditors like any other was rejected, emphasizing the special legislative protection provided to FD holders.4. Role of SEBI and Ministry of Corporate Affairs:The appellant contended that SEBI should have been heard, especially since it had taken a stand that shares once issued could not be reversed. However, the tribunal found that SEBI had no role in a scheme under Section 391/394 of the Companies Act, 1956. The Ministry of Corporate Affairs, through the Regional Director, had the right to make representations under Section 394A of the Act. The NCLT's decision did not require SEBI's input for the scheme's legality.5. Legal Status of Shares Issued to FD Holders:The NCLT's order stated that shares issued to FD holders who had traded or transferred them would not be affected, but shares still held by original FD holders would be canceled. The tribunal emphasized that the scheme's implementation was subject to the final decision in the main appeal, and thus, shares issued under the scheme could be legally canceled if the scheme was ultimately rejected.6. Applicability of Supreme Court Judgments and Relevant Laws:The tribunal relied on the Supreme Court judgment in Integrated Finance Company Ltd vs. Reserve Bank of India, which rejected a similar scheme of arrangement with deposit holders. The judgment clarified that deposits regulated by Section 58A of the Companies Act, 1956, could not be included in a scheme of compromise under Section 391/394. The tribunal also referenced the Bombay High Court's decision in IPCO Papers Ltd, reinforcing that FD holders' rights could not be compromised through such schemes.7. Rights of Intervenors and FD Holders in the Scheme:Intervenors argued that they were unaware of the objections and believed the allotment of shares was final. The tribunal noted that shares already traded would not be disturbed to avoid legal complications, but shares still held by FD holders would be canceled. The tribunal upheld the NCLT's decision, protecting the legal rights of FD holders and ensuring compliance with the law.Conclusion:The appellate tribunal upheld the NCLT's order dismissing the scheme of arrangement with FD holders. It imposed a cost of Rs. 50 lakhs on the appellant, to be deposited with the Ministry of Corporate Affairs for the welfare of depositors. The tribunal emphasized the protection of FD holders' rights under Section 58A of the Companies Act, 1956, and the illegality of compromising these rights through a scheme of arrangement.