TaxTMI 
TaxTMI 
2007 (10) TMI 407
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.... of Incorporation granted by the Registrar of Companies dated October 26, 1992, with it registered office at Plot No. 231, 8-2-293/82/A/231, Road No. 36, Jubile Hills, Hyderabad-500 033. The authorized share capital of the company, a on March 31, 2006, is Rs. 235,00,00,000 divided into 23,50,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid up share capital of the company, as on March 31, 2006, is Rs. 176,47,68,900 divided into 17,64,76,890 equity shares of Rs. 10 each. The main objects for which the petitioner-company was formed are; (a ) to generate, harness, develop, accumulate, distribute and supply electricity by setting up thermal power plants by use of liquid, gaseous or solid fuels for the purpose of light, heat, motive power and for all other purposes for which electrical energy can be employed. To carry on and generate power supply either by hydro, thermal gas, air, diesel oil, or through renewable energy sources such as solar, photovoltaic, windmill and/or other means. To transmit, distribute, supply and sell power either directly or through transmission lines and facilities of Central/State Government or private companies or electricity boards to i....
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....infrastructure at the site of the project in November, 1996, and also a fire accident in April, 1997, affecting gas turbine-II in addition to the failure of the generator transformer supplied by BHEL and the delay in replacement of the same and the strike by transporters all over India in April, 1997. It is stated that the Central Electricity Authority had approved the project with a capital cost of Rs. 748.43 crores on January 3, 1994. The petitioner-company had executed a long-term power purchase agreement (hereinafter referred to as "PPA") with the erstwhile Andhra Pradesh State Electricity Board (hereinafter referred to as "APSEB")- The obligations of the PPA, which were vested with APSEB, were transferred later on to the Transmission Corporation of Andhra Pradesh Ltd. (hereinafter referred to as "APTRANSCO") as a result of the Electricity Reforms Act, 1998. However, after the enactment of the Electricity Act, 2003, the Government of Andhra Pradesh, in exercise of the powers conferred to it, had issued G.O. Ms. No. 58, dated June 7, 2005, ordering the transfer of the bulk supply of undertaking and power purchase agreements from APTRANSCO to the distribution companies, viz., ....
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....y has been incurring losses since the year 2003. The petitioner-company had accumulated losses to the extent of Rs. 14,03,08,843 as on March 31 2003, which had subsequently aggravated to Rs. 244,49,98,645 as on March 31, 2006. The earnings generated during the year 2006, even before the adjustment of depreciation, amortization/taxation, was not sufficient to service the interest and finance charges. Therefore, the petitioner-company is not in a position to service the principal and Interest amount. It is pertinent to note that the secured loans taken by the petitioner-company have increased from Rs. 866,98,91,494 in the year 2003 o Rs. 1100,40,31,924 in addition to the losses that had increased by the year 2006. As on march 31, 2006, the petitioner-company's reserves were negatived by Rs. 244,49,98,645 and the operating surplus generated every year was not even sufficient to meet the interest obligation of the petitioner-company. Thus, based on the current financials, there was no prospect of the lenders being even able to recover any part of the principal dues, without enhancement of the petitioner-company's power generating capacity, restructuring of debt, infusion of equity a....
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....the petitioner-company stands the risk of going into liquidation. The petitioner-company, while analysing the situation, had concluded the for securing repayment of the debt revival of the petitioner-company, for maintaining the existing levels of operation and for the successful resolution of the involved issues, it would be imperative to streamline the management infuse managerial and technical expertise of the highest level, restructure the petitioner-company's capital and execute expansion of generation capacity etc., The options available in this regard were hampered by the limited flow out of the PPA entered into by the petitioner-company with the purchase the limited holding held by financial institutions in the petitioner-company the compulsions of retaining assets within the same corporate entity and the necessity of ensuring implementation of the expansion project, etc. In the said background,; the Asset Reconstruction Company (India) Ltd. (hereinafter referred to as "ARCIL") had issued an invitation for expression of interest inviting bids from prospective bidders for the realisation of the debt due from the petitioner-company. Pursuant to which, ARCIL had received va....
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...., voted against the resolution. It is stated that as a result of the notices issued by the chairperson to the shareholders, convening the meeting of the shareholders, one of the shareholders, viz., R.R. Godavari Power Limited/Mauritius had sent a communication dated March 16, 2007, proposing certain modifications in the scheme of arrangement. The proposed alterations relate to the alternation in the capital clause. The alteration proposed is that the authorized share capital of the company shall be enhanced from Rs. 235,00,00,000 divided into 23,50,00,000 equity shares of Rs. 10 each to Rs. 700,00,00,000 divided into 50,00,00,000 equity shares of Rs. 10 each and 0.05 per cent, or 20,00,00,000 redeemable preference shares of Rs. 10 each. It further provides that upon coming into effect of the scheme, the existing equity share capital of the company shall be restructured by converting the entire existing equity share capital of the company into redeemable preference shares with a coupon rate of 0.05 per cent, payable at the end of 15 years. The amendment further proposes to add in Part II of the scheme as under: "As far as the secured creditors and secured debt in respect of th....
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....amount to be paid by issuance of compulsorily convertible debentures to the secured creditors, as specified in the appendix-A which will carry a coupon rate of 5 per cent, per annum payable half yearly to be converted into equity of the company at such price, that would convert to 10 per cent, equity stake of the fully diluted equity share capital of the company post the equity infusion for the expansion project of up to 350 MW additional capacity. The said conversion shall happen at the time of achievement of financial closure in respect of the equity shares of the company. It further provides that from the date of conversion of CCDs into equity as above till the date of the IPO, the company shall pay to the secured creditors pro rata inter se, an additional amount calculated at the rate of 5 per cent, per annum on the said amount of Rs. 325 crores. In case the IPO does not materialize within 5 years from December, 12, 2006, the secured creditors shall have the put option on the bidder for selling equity stake/CCDs of the secured creditors for a total value of Rs. 325 crores together with accrued interest at the abovementioned rate. In addition to the above, a further amount....
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....as proposed by the petitioner-company and opposed the objections raised by the other parties. Identical affidavits are filed by the same person in all four applications. In the affidavit, it is stated that the applicant trust along with other trusts have acquired more than 80 per cent, of the financial assets pertaining to the company in question, and the company is stated to have committed various defaults in payment of amounts to its lenders on account of fiscal mismanagement leading to the said accounts being classified as non-performance account. It is stated that in accordance with the provisions of SARFAESI Act, the financial assets of the company were acquired by the applicant and other trusts through its trustee, Asset Reconstruction Company (India) Limited (ARCIL) being a securitisation and an asset reconstruction company. Pursuant to the said acquisition and in accordance with the provisions of the said Act, ARCIL has invited expressions of interest for realisation of the dues of the company. It was clearly specified that the expressor has to mention its proposed transaction structure along with the offer for evaluation by ARCIL of the feasibility of the structure, ....
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....esidual debt of all existing lenders shall be written off; and (f) the existing equity capital of the company shall be restructured through composite scheme by converting entire existing equity share capital of the company into redeemable preference shares with a coupon rate of 0.05 per cent, payable at the end of 15 years from the composite scheme becoming effective and by issuance of fresh equity in favour of the bidder. It is stated that ARCIL is satisfied with the said offer of the Pinnacle Overseas Assets Limited and accordingly, issued a letter accepting its offer. Pursuant to the said letter of acceptance, the bidder deposited Rs. 50 crores as stipulated. Further, the nominees of the said company were also co-opted on the board of directors of the company. Thereafter, the company has filed the present application under section 391 of the Companies Act, 1956, seeking sanction of the scheme of arrangement to reconstruct the debt and capital of the company. The said scheme as proposed is approved by majority of the creditors, as well as the shareholders. It is further stated that with reference to the pledged shares, the pledgee had exercised the option of voting at the meet....
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....tees also ceased to exist in the light of the recent developments wherein ARCIL took over the applicant-company under the Securitisation Act and through a sham and dubious bidding process allotted the same to a company, viz., Pinnacle Overseas Assets Ltd. It is stated that the entire bidding process conducted by ARCIL was during the period when the board of the applicant company consisted of an illegally elected chairman and directors whose election through a never held extraordinary general meeting on March 10, 2006, was challenged by him through a suit being O. S. No. 329 of 2006 on the file of the Second Addl. Chief Judge, City Civil Court at Hyderabad. It is stated that an interlocutory application was also filed as I.A. No. 3023 of 2006, wherein an order was passed against the chairman and directors, preventing them from acting. But, however, the said order was modified in appeal by the High Court, confining the restriction from taking any major decision. When such is the case, it is surprising how the illegally elected chairman and directors could correspond with ARCIL and could do all in finalizing the bidding process in collusion with ARCIL. It is stated that there ar....
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....ompared to the real intrinsic value of the applicant-company. Therefore, sought for impleadment as respondents so as to bring on record all the facts so as to consider the scheme on its merits. It is stated that the applicant along with his sons and group concerns together with National Thermal Power Corporation (hereinafter referred to as "NTPC") and Spectrum Technologies USA Inc. have started the company. The installed capacity of the company is 208 MW of power generation. The applicant and his associates have invested a sum of Rs. 26.50 crores in equity of the petitioner-company. Further, helped to raise loans to the tune of Rs. 5.44 crores from the banks and financial institutions, by giving personal guarantees as well as giving guarantees of assets of the applicant and his associates and family members. It is stated that Dr. A.V. Mohan Rao joined the company as additional director in the year 1994 and ever since his induction, he turned hostile and created umpteen number of problems and filed numerous cases either by himself and his associates against this applicant and company and created obstacles in running the company smoothly though/ at no point of time/ he gave any....
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.... the banks and other financial institutions that the pledge of the shares holds no more good, as the pledge was not even registered, therefore, it was claimed by the applicant that he and his associates would continue to be shareholders of the company, despite which, the institutions and the company deprived the applicant and his associates from participating and exercising their rights at the shareholders meeting. It is stated that the ARCIL after taking over the secured assets and management of the company, invited bids for expression of interest without following any uniform rule, rhyme or terms and conditions and the same was done with an intention to favour the present bidder. It is stated that the applicant understood that ARCIL has not entertained the better bids received from others and finalized the offer in favour of one Lehman Brothers Commercial Corporation Asia Limited, for the reasons best known to them. The scheme itself is silent as to how the affairs of the company were conducted and how the company was for a long time under the illegal management by Dr. A. V. Mohan Rao and how the bidding process was conducted. The whole bidding process conducted by ARCIL is fa....
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....t for the year March 31, 2006, was approved by the board of directors on January 27, 2007. It is also stated that the board of directors have approved the scheme on January 27, 2007, if it is a fact, the same ought to have been find place in the annual report for the year ending March 31, 2006, which is conspicuously absent. It is stated that in terms of section 217 of the Act, any material change that has taken place from the end of the financial year till the date of approval of the balance-sheet, the same should reflect and found as part of balance-sheet which was not shown, thereby violating the mandatory provisions of section 217, It is also stated that even though the pledge was not got registered with the company by the ARCIL for the purpose of exercising the rights of the shareholders, but improperly exercised which is contrary to the terms of the pledge, and therefore, the result of the meeting of the members of the company is vitiated by the illegal exercise of the rights by the ARCIL with reference to the pledged shares. It is stated that the appointed date was fixed as December 13, 2006, mischievously so as to circumvent the provisions of BIFR, as the company became ....
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....s conducting the meetings itself is illegal and vitiated. It is stated that even the board's resolution does not reflect the approval of the scheme. It is stated that the interest of the directors was not disclosed as is contemplated under the provisions of the Act, and therefore, the scheme as proposed, seeking approval of the court, is liable to be rejected. Counters are filed, opposing the implead applications filed by the objectors, opposing the sanction of the scheme, while at the same time, denying the allegations that are made therein. It was stated that the opposing shareholders have pledged their shares in favour of the financial institutions with a right to vote by participating in the shareholders meeting under the terms of the pledge. Exercising such right, the pledgee had participated in the shareholders meeting and voted in favour of the scheme. When once the rights in respect of the pledged shares have been exercised by the pledgee, viz., creditor financial institutions, the original holders of such shares cannot come on record to oppose the scheme as if they can again exercise their rights in respect of such shares. Even with reference to other allegations also, ....
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....ity capital by paying 16 per cent, return on the same, but no incentives under the PPA agreement were released. It is stated further that due to breakdown, the unit was closed for shorter periods, which had, aggravated the situation. In the light of the above said circumstances, ARCIL which took over majority of the secured loans which are due to other financial institutions and banks, took over the management in 2003. Thereafter, in view of mounting losses by 2006, it felt that it would be imperative to streamline the management, infuse managerial and technical expertise of the highest level, restructure the petitioner-company's capital as well as to execute expansion of generation capacity. Since the options available for the ARCIL to initiate any steps towards the above are limited, therefore, the ARCIL thought it fit to invite third parties having interest in the company for the purpose of securing additional capital as well as managerial and technical expertise, apart from expanding the generating capacity. In the process, ARCIL identified POA as the successful bidder. As a result of which, the board of directors of the petitioner-company had executed a definitive agreement....
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...., representing 0.01 per cent, of the total value of the shares as is stated in the report of the chairperson. Therefore, learned counsel sought for approval of the scheme. It is stated that an affidavit was filed on behalf of the Regional Director of the Company Affairs by the Registrar of Companies. The only objection taken by the Registrar of Companies is that by conversion of the existing share capital into redeemable preference shares and bringing in fresh capital by the POA, there may be a gap, which would result in creation of vacuum in the equity capital, which could not be allowed. The Registrar of Companies also raised another objection with reference to the voting right of the shareholders, exercised by the ARCIL as a pledgee. It is stated that as per the letter of ARCIL addressed to the chairperson, ARCIL had stated to have been exercising voting power in respect of 2,64,89,700 equity shares which were pledged with them. But, however, the chairman's report shows that the value of the shares was only to the extent of Rs. 21,47,92,690 the balance shares were not considered and nothing was specifically mentioned in the report of the chairperson. Learned counsel contended....
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....ot appellate, and the court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. Therefore, learned counsel sought approval of the scheme as the same is in accordance with the broad guidelines formulated by the apex court in Miheer H. Mafatlal Industries Ltd. v. Mafatlal Industries Ltd. [1996] 87 Comp Cas 792; [1997] 1 SCC 579. Learned senior counsel also relied upon the judgment of the apex court in Hindustan Lever v. State of Maharashtra [2003] 117 Comp Cas 758 where the principles formulated by the apex court in Miheer H. Mafatlal Industries Ltd. v. Mafatlal Industries Ltd. [1996] 87 Comp Cas 792; [1997] 1 SCC 579 were reiterated while holding that the jurisdiction of the court is to see the compliance of the statutory requirements. Therefore, ARCIL sought for approval of the scheme. Learned counsel for the petitioner also relied upon the following decisions in (1) PMP Auto Industries Ltd., In re [1994] 80 Comp Cas 289 (Bom), (2) Spartek Ceramics India Ltd., In re [2006] 1 ALT 589 ; [2007....
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.... banks were in charge of the management as directors of the company till 2006, during which period, the loss of Rs. 14 crores in the year 2003 had gone up to Rs. 245 crores by the end of March 31, 2006. The said financial institutions nominees continued in the management till they were illegally thrown out by Dr. Mohan Rao and his group without even getting themselves as elected as directors. It is stated that even though the applicant has complained of the said illegal act of Mr. Mohan Rao, the financial institutions, including ARCIL, did not take any action. Therefore, the applicant was constrained to file a civil suit to restrain Mr. Mohan Rao and his group from continuing in the management illegally. Though the trial court granted an injunction against them, but, however, the appellate court modified the order so as to carry out day to day work without taking any policy decision, pending disposal of the appeal. It is stated that during the management of the said Mohan Rao, who had illegally usurped the office, the present scheme has been put forth with the assistance of ARCIL. It is contended by counsel for the applicant that there is a hidden agenda in the scheme, which is ....
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....d mounted up to such an extent, and there was absolutely no such explanation. It is further stated that the scheme does not comply with the provisions of section 391 since the scheme is not accompanied by all the particulars, including the latest financial position and the audited balance-sheet. In addition, it is stated that the applicant and his associates were prevented from participating in the meeting convened by the chairperson, as per the orders of this court to consider the scheme for approval or otherwise. It is stated that though the shares were pledged to the original lenders, the said pledge gets lapsed or even otherwise also since ARCIL did not get itself registered with the company for the purpose of exercising the right of vote with reference to the pledged shares, it has no right to exercise such right of vote on behalf of the pledged shares, belongs to the applicant and his group. It is stated that the applicant and his associates have given guarantee for the repayment of the loans advanced to the company creating charge over their assets. Since the applicant was eased out as managing director as well as a director of the petitioner-company in the year 2003 and ....
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....t communicated or circulated to the other members of the company before the date of meeting, as is contemplated under section 190 of the Act. In view of the non-communication of the amendment that was sought for, which was put for consideration in the meeting and in fact, approved, by incorporating the same as part of the scheme, the convening as well as conducting of meeting itself is illegal and vitiated. It is further stated that though the board passed a resolution, the same does not reflect the approval of the scheme, as is evident from the annual report for the year ending March 31, 2006, as the alleged meeting of the board of directors had taken place on January 27, 2007, on which date even the financial results of the company were approved. The non-reference of the alleged resolution dated January 27, 2007, approving the scheme clearly shows that what was claimed on behalf of the company, is not true and correct, with reference to the proposed scheme, therefore, sought for rejection of the scheme. Learned counsel relied upon the decision in St. Mary's Finance Ltd. v. R. G. Jayaprakash [2000] 99 Comp Cas 359 (Ker.), in support of his contentions. From the above the issues....
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....as party respondents in the company petition to oppose the scheme of arrangement. The contention of the opposing applicants is that even though their shares were pledged in favour of the financial institutions, which have transferred in favour of ARCIL, even assuming that ARCIL had exercised its right under the terms of pledge in favour of the scheme, still the petitioners have got a right in respect of their shares to oppose the proposed scheme. Since the rights of the opposing applicants have not been completely wiped off from their shares, they can come on record to oppose the scheme. Learned counsel relied upon the decision of the apex court in Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 , where the rights of the pledgee and the pledgor were considered. In the light of the said judgment, learned counsel sought to allow their scheme. In the present company petition, there are two sets of applicants; one set is by ARCIL representing four trusts. Applications have been filed on its behalf to get itself impleaded with an intention to support the scheme as proposed by the company. The company did not oppose the said applications as in fact, the said applic....
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....cessary to secure the debt. The pawnor, however, has a right to redeem the property pledged until the sale. The apex court, after referring to the decision in Bank of Bihar v. State of Bihar [1971] 41 Comp Cas 591; AIR 1971 SC1210, held that in the case of pledge, however, the legal title to the goods pledged would not vest in the pawnee. The pawnor has only a special property. A pawnee has no right of foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law. In this sense a pledge differs from a mortgage. In view of the foregoing the pawnee in the instant case, i.e., the Government of Uttar Pradesh could not be treated as the holder of the shares pledged in its favour. The Cotton Mills Co., continued to be the member of the company in question in respect of the shares pledged and could exercise its rights under section 169 of the Act. A perusal of the above judgment of the apex court dearly shows that even after the pledge, the pledgor or original owner would not lose his interest in entirety. As is observed in the above judgment of the apex court, the pledgee would get a special right over the ple....
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.... all the statutory requirements. Further, the scheme as proposed was already approved by the board of directors at their meeting, subject to the approval of the shareholders, creditors and the court, and further, as the scheme was approved by the shareholders as well as creditors, therefore, there can be no further for approving the scheme as proposed. It was also contended by learned counsel, appearing for the petitioner, as well as the ARCIL that in view of the settled proposition of law, as is laid down in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp Cas 792 (SC) ; [1997] 1 SCC 579 since this court is not sitting as an appellate authority, the scheme as proposed is to be approved. It was also stated that though a formal objection has been raised by the Registrar of Companies on behalf of the Regional Director, the said objection has no merit, since the existing share capital is being converted into redeemable preference share capital, while at the same time, the new shareholder is bringing share capital of Rs. 150 crores of which Rs. 50 crores have already been paid with the ARCIL, therefore, there cannot be any gap between the conversion of the existing share c....
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....nt of Rs. 150 crores in 60 monthly instalments, which bears interest at the rate of 10 per cent, quarterly payable, apart from the bulletin payment of Rs. 175 crores at the end of five years, which shall also carry the interest at 10 per cent, per annum, quarterly payable. In addition to the above payments, a sum of Rs. 325 crores would be converted into convertible debentures to be issued in favour of the creditors of the company, which would be converted at the option of the creditors at the end of five years, before the petitioner-company goes to the initial public offer of equity. The same also shall carry interest at the rate of 5 per cent, per annum, payable half yearly. The scheme also further provides that POA would mobilize the finances required to set up another power generating plant of the capacity of 350 MWs. The scheme also provides for payment of Rs. 8.50 crores to be paid to the secured creditors within seven days of the sanction of the scheme in lieu of past interest, over dues and other charges to that extent. According to the secured creditor ARCIL, this is the best offer received from the bidders that have been participated in the bid when it had invited express....
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....yond the period for which they were executed. It is also stated that the amounts that were payable to O & M Contractors have been jacked up. It is their further objection that even though the balance sheet for the year March 31, 2006, was approved on January 27, 2007, on which date the directors of the company also approved the scheme but no mention of it was made in their annual report. Therefore, sought for rejection of the scheme as proposed. In reply the contention of the petitioner-company is that the bidding process conducted by the ARCIL is not part of the scheme. The scheme is confined only to the restructure of equity capital as well as strengthening of the management and the financial position of the company. With reference to the furnishing of the relevant material, all the material was made available, including the financial statement that was available as on the date of the filing of the company petition. Further, subsequent statements were filed at the time of hearing of the C. P. In fact it was contended that even the limited review of the balance-sheet prepared by the auditors up to December 2006 was also filed. In addition it is stated that in order to comply th....
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....he decision which had obtained even sanction from the jurisdictional High Court, raised an objection with reference to the transferee company, which was within the jurisdiction of the Gujarat High Court. The company judge of the Gujarat High Court, after considering the objections raised, by a detailed order, sanctioned the scheme, as proposed by the transferee company that was confirmed by the Division Bench in appeal. Hence, the matter came up before the apex court in further appeal. The apex court while considering the scope and jurisdiction of the company court and the scheme that was presented for its approval, laid down broad guidelines. It would be appropriate to refer those guidelines here-under (pages 811 to 815 of 87 Comp Cas) : "The aforesaid provisions of the Act show that a compromise or arrangement can be proposed between a company and its creditors or any class of them or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another. When such a scheme is put forward by a company for the sanction of the court in the first instance the court has to direct holdi....
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....t be supported by the requisite majority if the court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently, it cannot be said that a company court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the company concerned, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the company court while putting its seal of approval on the concerned scheme placed for its sanction. It is, of course, true that so far as the company court is concerned as per the statutory provisions of sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding on a disse....
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....ently, the propriety and the merits of the compromise or arrangement have to be judged by the parties who are sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement The court cannot, therefore, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial and economic interest by majority agree to give the green signal to such a compromise or arrangement" The apex court finally on merits, confirmed the order of the court below. In Hindustan Lever v. State of Maharashtra [2003] 117 Comp Cas 758, the apex court while considering the provisions of section 391 read with section 394 with reference to the amalgamation of the companies, considered the scope and jurisdiction of the company court. The apex court while reiterating the principles laid down in Miheer H.....
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.... provisions of section 391, concluded as under (page 560 of 75 SCL) : "A perusal of the said provision shows that what is sine qua non is in the first instance holding a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, and the majority in number representing three-fourths in value to the creditors or class of creditors, or members or class of members, as the case may be, present and voting either in person or by proxies at the meeting, agree to such compromise or arrangement. The court shall satisfy when approached for sanctioning of the compromise or arrangement that the petitioner-company disclosed the court all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigating proceedings in relation to the company under sections 235 to 251 and the like. If the procedure of holding the meeting, of the creditors or members, as the case may be, is followed and a resolution is passed with the requisite majority as enjoined under sub-section (2) of section 391, the court has only to satisfy about the oth....
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....the Allahabad High Court, while considering the objections with reference to the non-filing of the latest financial statement, after referring to various judgments that are relied upon by the parties, observed that thus, it would appear that as the law stands today, when there is a long gap between the filing of the petition and its hearing, the concerned company should itself produce the latest financial position which may be available before the court. But, if the same has not been produced by the company, the court should call for it, and give an opportunity the company to produce the relevant record and examine the same instead of dismissing the petition on this technical ground. It also appears that this requirement of furnishing the latest financial position is to be examined in the light of objections about any such drastic change in the financial position as would make sanction to proposed scheme undesirable. In J.S. Davar v. Dr. Shankar Vishnu Marathe, AIR 1967 Bom 456, the apex court while considering the provisions of section 153(2) of the Companies Act, 1913, which corresponds to the present provision of section 391, with reference to the scope and jurisdiction of th....
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....ed (provisional) financial results. To say the least, it is not in compliance with the above referred provision of the statute. Therefore, the court rejected the petition filed, seeking sanction of the scheme. In KEC International Ltd. v. Kamani Employees Union [2000] 1 Comp LJ 351; [2002] 109 Comp Cas 659 , a learned single judge of the Bombay High Court, while considering the scheme of amalgamation for sanction, reiterated the legal position with reference to the compliance of proviso of section 391(2) of the Act, and observed that the next issue is with regard to non-disclosure of latest financial position. The proviso to section 391(2) makes it abundantly clear that no order of sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied with regard to the latest financial position. Admittedly, in this case, the petitioner has filed an audited financial report, as on March 31, 1997, and not subsequent thereto. Learned counsel sought to argue that what is contemplated as latest financial position is as at the time of the meeting and also at the time of filing of the present petition. It would be rather strange in the sense that if the pet....
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....f negligence in not drawing the attention of the chairman to what they considered to be a defect in voting on behalf of the two creditor companies, viz., Bhandani Brothers and the Hindustan Coal Co., and no less negligent in not bringing this to the court's notice at the earliest opportunity. Laches on the part of some creditors cannot however justify the chairman or the court in disobeying the requirements of the Act. If in law the two votes cast by Arjun Prasad for these two creditor companies were not validly cast the three-fourths majority requisite under section 153(2) would not be there and so no further action under section 153 could be taken by the court in the matter. How can the court turn a blind eye to the fact, if proved, that on the basis of valid votes at the meeting the requisite majority was not obtained, merely because the chairman's attention was not drawn to the defect or it was not brought to the court's notice earlier ? In our opinion, the learned judges who heard the appeal were right in thinking that however deplorable the delay by opposing creditors in raising the objection might be, that would not be a sufficient reason for refusing to entertain the object....
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....he parties, and the jurisdiction of the court while considering such scheme for approval is only supervisory to see that the statutory formalities required, are to be complied with, and the scheme shall not violate any provisions of law or contrary to public policy. It should not be unconscionable and the scheme should be beneficial to the company. Though the scheme is approved, by the statutorily required majority, the same shall not conclude and bind the court and it is only one of the elements for consideration. It is obligatory on the part of the company seeking approval of the scheme to disclose all the relevant material including the latest financial position before the court, i.e., showing the financial position of the company up to the date of hearing of the petition for approval. The scheme can also be approved even after the same is implemented, since it takes effect from the date of the stipulation in the scheme and not from the date of the order approving the scheme. Finally, the company court is not a rubber stamp to approve the scheme, merely it was approved by the majority of the members and the creditors of the company. Therefore, the facts of the present case ar....
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.... the same would have found place in the annual report for the year ending March 31, 2006. Since there is no reference to the scheme in the annual report, it should be inferred that the same would not have been approved on January 27, 2006. But the stand of the petitioner-company is that it is not material relevant since the decision of the board does not lead to anywhere unless approved by the shareholders, creditors and the court. Therefore, the same was not mentioned in the annual report. Coming to the other objection that there is no transparency in the bidding process conducted by the ARCIL, there was no proper publicity while inviting expression of interest and further the scheme was approved by illegally elected chairman and directors, the answer of the company is that the bidding process is not the subject matter of the scheme. Further, the expression of interests was invited by ARCIL, which is the leading secured creditor which took over the assets of the company, having lost the hope of recovery of loan amount, which was mounted to the tune of Rs. 1,235 crores. Therefore, thought it fit to invite bidders who can invest capital and bring in technical and managerial exper....
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....re capital; agreed to pay Rs. 150 crores with interest at the rate of 10 per cent, per annum quarterly payable in 60 instalments ; Rs. 175 crores as bulletin figure at the end of five years with interest at the rate of 10 per cent, per annum quarterly payable and further agreed to convert Rs. 325 crores into cumulative convertible debentures which carry 5 per cent, interest payable half-yearly, which would be converted into equity capital at the end of five years and further agreed to convert the existing share capital into redeemable preference shares carrying a coupon rate of 0.05 per cent, interest, redeemable at the end of 15 years. No other bidder has come up with any better offer than the one that was offered by POA through its representatives, Layman Brothers Commercial Corporation (Asia) which has set up POA as a special purpose vehicle. Therefore, it was decided that it is the best offer in the facts and circumstances of the case. Therefore, the objections raised are devoid of merit. The objectors claim that they ceased to be directors of the company after 2003 and thereafter, they did not renew the pledge of the shares. Therefore, the pledge ceases to be in operation. ....