TaxTMI 
TaxTMI 
2012 (12) TMI 621
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....ituated at Hyderabad. The objects of the petitioner company is to take over the business, carried on by "Satyam Construction Company Limited", as a going concern with all its existing assets and liabilities; to continue to carry on the existing construction activity of Satyam Construction Company; to carry on the business of undertaking all types of civil contracts, to act as consultants and fabricators, to carry on electrical and mechanical works, civil construction, project construction, dam construction, supply works, railway works and other engineering works; to carry on activities of construction, execution, undertaking, running, acquiring, developing, taking on lease, purchasing or acquiring, on any other terms and conditions, any hospitals, clubs, tanks, hotels, schools, restaurants etc; to promote and develop infrastructure projects within the country or outside in various areas like State and National Highways, Auto Bahns, Flyovers, Elevated Roads etc; to construct transmission lines, and take over distribution of power, purchase power from generators and distribute it to their consumers over the distribution network etc, to take up turnkey contracts within the country and....
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....d on 09.12.2011. The quorum of the meeting was fixed at five. Pursuant thereto, individual notices were issued to the preference shareholders, and notices of the said meeting was published in Business Standard (English daily) and Andhra Prabha (Telugu daily) newspapers. The Chairman of the meeting, in his report dated 09.12.2011, stated that nine members had attended in person, holding preference shares valued at Rs. 319,59,90,500/- divided into 3,19,59,905 preference shares of Rs. 100/- each; and the scheme of arrangement was unanimously approved by all the preference shareholders. 6. C.A. No.1651 of 2011 was filed before this Court seeking a direction for convening a meeting of the secured creditors of the petitioner company (twelve in number) to approve the scheme of arrangement. This Court, by order dated 04.11.2011, directed that the meeting of the secured creditors of the petitioner-company be convened on 09.12.2011 at 12.00 noon. The quorum for the meeting of the secured creditors was fixed at five. Pursuant to the directions of this Court, notices were issued individually to all the secured creditors. Notices were also published in Business Standard (English daily) and And....
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....r to him seeking adjournment of the meeting pending adjudication of C.P. No.199 of 2010 filed before the High Court by them; however, as the meeting was convened under the directions of this Court, he had turned down the request of the said unsecured creditor. 8. The Company Petition was admitted on 26.12.2011, and notice of the hearing of the petition was published in Business Standard (English daily) and Andhra Prabha (Telugu daily) Hyderabad main editions. The petitioner was also permitted to take out notice to the Central Government represented by the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad, and the Registrar of Companies, Hyderabad. 9. Pursuant thereto only the respondent-objector has filed its objections, to the scheme, before this Court. Oral submissions were made by Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioner, Sri Ch. Ramesh Babu, Learned Counsel for the respondent-objector, and the Learned Asst. Solicitor General for the Central Government. Sri Ch. Pushyam Kiran, Learned Counsel for the petitioner and Sri Ch. Ramesh Babu, Learned Counsel for the respondent-objector, have also placed their written sub....
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.... Coal Co. 1948 SC 360. Petitions, for approval of such schemes, are usually matters where the court can sanction the scheme without more than a careful check that all the correct steps have been taken. Although the court must be satisfied that "the proposal is such that an intelligent and honest man, a member of the class ... might reasonably approve" - yet the underlying commercial purposes need not be investigated. The court will not be concerned with their commercial reasons for approval. (M B Group plc., In re [1989] BCLC 672; Dorman, Long and Company Ltd. v. South Durham Steel and Iron Company [1934] 1 Ch. 635. 11. Where the reduction of capital forms part of the scheme of arrangement, the overall duty of the Court is to satisfy itself that the scheme of arrangement, together with the reduction of capital, is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve and might reasonably consider to be fair and equitable. (Hindusthan Commercial Bank Ltd. v. Hindusthan General Electrical Corpn. [1960] 30 Comp. Cas. 367 (Cal.); Scottish Insurance Corporation Ltd. (supra); Dorman Long and Co. Ltd. (supr....
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.... capital is conferred on the court to enable it to protect the interest of persons who dissented or even of persons who did not appear. OCL India Ltd., In re [1999] 19 SCL 331 (Ori.) (supra) Rafter Group plc. (supra); Hindalco Industries Ltd. (supra); Indian National Press (Indore) Ltd., In re [1989] 66 Comp. Cas. 387 (MP.). 13. Sections 101 and 102 of the Act, and Rule 85 of the Rules, are attracted only in case of a compromise or arrangement involving reduction of capital. (G.V. Films Ltd., In re [2009] 150 Comp. Cas. 415 (Mad.); Asian Investments Ltd; In re [1992] 73 Comp. Cas. 517 (Mad.). Rule 85 requires the prescribed procedure, for effecting reduction of share capital, to be gone through even though it forms part of such a scheme. (Maneckchowk and Ahmedabad Manufacturing Co. Ltd., In re [1970] 40 Comp. Cas. 819 (Guj.); G.V. Films Ltd. (supra). These provisions envisage a reduction in capital in the context of an existing or a continuing company. The object of seeking confirmation from the Court, for reduction of capital, is to safeguard the interests of the creditors of the company, and other obligations or rights coming into existence in the light, or on the strength, of t....
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....hareholders of the company. Clause A (c) of the Scheme states that the debit balances standing in the profit and loss account, as on 31.3.2011, include losses incurred by the petitioner for the financial years 2008-09 and 2009-10 aggregating to Rs. 739.42 Crores; the loss for the financial year 2008-09 was Rs. 489.788 Crores, and it was Rs. 249.64 Crores for the financial year 2009-10; the aggregate losses for both the financial years 2008- 09 and 2009-10, after setting off Rs. 11.05 Crores against the general reserve account for the year 2008-09, was Rs. 728.379 Crores which is the "Gross debit balance in the profit and loss account"; the gross credit balance, in the profit and loss account of the company, was Rs. 295.958 Crores comprising of the balance of Rs. 293.48 Crores as on 31.3.2008, and Rs. 2.91 Crores being the profit made in the year 2010-11; and it was felt that the Balance sheet of the company needed to be restructured by writing off past losses. 16. The profit and loss account, for the year ending 31.3.2011, reveals a profit after tax of Rs. 2.91 Crores which was adjusted against the accumulated losses, carried forward from the previous years, of Rs. 435.33 Crores a....
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....hare premium account", of Rs. 612.24 Crores which would result in reducing the accumulated losses to Rs. 116.14 Crores. This accumulated loss is sought to be adjusted against the profit, for the year ending 31.3.2008, of Rs. 293.05 Crores. Through this process of reverse adjustments, the petitioner intends to reflect, in their books, the net profit as Rs. 176.91 Crores which, coupled with the net profit for the year ending 31.03.2011 of Rs. 2.91 crores i.e., a total of Rs. 179.82 Crores, is sought to be freed for utilization later in any manner they choose, including for declaration of dividend to their shareholders. 19. If, instead, the petitioner had adjusted the accumulated losses, for the year ending 31.3.2011, of Rs. 432.42 Crores against the "securities premium account" of Rs. 612.24 Crores, then the remainder in the "securities premium account" would still have been Rs. 179.82 Crores. The scheme, in effect, is to make Rs. 179.82 Crores available as profits to enable the petitioner to adjust it against its future losses, if any, or to declare dividend to their shareholders without the need of obtaining sanction from this Court again. On the other hand, if the accumulated los....
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.... are extremely wide and general. There are then given three particular instances of ways, but they are expressly given without prejudice to the generality of the foregoing "in any way". (Ratners Group plc (supra). The statute has not prescribed the manner in which the reduction is to be carried out nor has it prohibited any method of effecting that object. (OCL India Ltd. (supra); British American Trustee and Finance Corporation Ltd. v. Couper 1894 AC 399; Westburn Sugar Refineries Ltd., In re [1951] 1 All ER 881; Rafter Group plc (supra); Hindalco Industries Ltd. (supra). The law authorises a company to reduce its capital in any manner, and to any extent, authorised by its articles of association and decided upon by the prescribed majority of its shareholders. Grosvenor Press plc In re (supra); Westburn Sugar Refineries Ltd. (supra). II. ARTICLES OF ASSOCIATION: HOW SHOULD ITS CLAUSES BE INTERPRETED? 23. For a company to reduce its share capital, in any manner set out in Section 100, it must have the power given to it under its articles to do so. Subject to confirmation by the Court, as required under Section 101 of the Act, a company may, if authorized by its articles, effect a....
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....roper way to construe the articles of association of a company is as a "commercial" or "business" document. (Rayfield v. Hands [1960] Ch. 1). Articles of association should not be interpreted as meticulously as, e.g. conveyances. In interpreting them, the maxim ut res magis valeat quam pereat should be applied which directs to 'validate if possible'. (Palmer's Company Law, Volume 1, Page Nos.2166 and 2167, para 2.1108; Hartley Baird Ltd. [1955] Ch. 143; Rayfield (supra)). In cases where some term must be implied if the intention of the parties is not to be defeated, some term of which it can be predicated that 'it goes without saying', some term not expressed but necessary to give to the transaction such business efficacy as the parties must have intended, the implication must arise inevitably to give effect to such intention. (Luxor (Eastbourne) Ltd. v. Cooper 1942 AC 108; Someshchandra v. Jivanlal C. Chinai AIR 1956 Bom. 190). As share premium is also a class of capital, and the Articles of Association are required to be read as a "commercial document" giving its terms a liberal construction, reduction of share capital, as empowered by clause 10, must be so interpreted as to incl....
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....dustrial Estate (P.) Ltd. (supra). 29. In examining whether Section 189(2)(b), (which requires the notice under the Act being duly given of the general meeting), is satisfied, it is necessary to bear in mind that Section 172(1) requires every notice, of a meeting of a company, to specify the place, the day and the hour of the meeting, and to contain a statement of the business to be transacted thereat. Section 173(2), which stipulates that the statement annexed to the notice must set out all material facts concerning reduction of capital (read "share premium"), including particulars of the nature of the concern or interest, if any, thereof, of every director, is mandatory. Firestone Tyre & Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp. Cas. 377 (Bom.); Vardhaman Publishers Ltd. v. Mathrubhumi Printing and Publishing Co. Ltd. [1991] 71 Comp. Cas. 1 (Ker.). As Section 393(1) also requires particulars of the interest of directors to be made known to the members, the requirements of both these sections can, conveniently, be examined together. 30. The object of enacting section 173 is to secure that all facts, which have a bearing on the question on which the shareholders....
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....of the scheme. (National Bank Ltd., In re 1966 (2) Ch. 193). It is easy to overstate the requirement of Section 173 of the Companies Act, 1956. (Sitaram Jaipuria v. Banwarilal Jaipuria AIR 1972 Cal. 105). Any breach of the provisions of Section 173 does not, necessarily, have the effect of invalidating a meeting and nullifying the proceedings thereof. (Gopal Das Gujarati (supra); Surajmull Nagarmull v. Shew Bhagwan Jallan [1973] ILR 1 Cal. 207). 32. Section 393 is mandatory in terms. The statement, in strict conformity with section 393(1), must be annexed to the notice convening the meeting, and sent to the members or creditors. (Navjivan Mills Co. Ltd. (Kalo), In re [1972] 42 Comp. Cas. 265 (Guj.). Unlike the explanatory statement under section 173(2), Section 393(1)(a) does not ordain disclosure of all material facts. Clause (a) not only enumerates the categories of particulars, but it deliberately makes a departure by omitting any reference to material facts. As the Legislature has used a different phraseology in the said two provisions, it must be held that the legislative intent, under Section 393, was not to provide for disclosure of all material facts. (United Bank of India....
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....rking, on which a certain consequence or result would flow from the scheme, is not required to be stated. It is only the resultant effect of the scheme which is required to be stated. (Jitendra R. Sukhadia v. Alembic Chemical Works Comp. Ltd. [1988] 64 Comp. Cas. 206 (Guj.). The legislature has contemplated that, in general, shareholders ought always to be informed of the directors' material interests. The onus on a company or directors of a company, who are placing a scheme before the court and have failed to disclose to the court the material interests of the directors, is a very heavy one. (Jessel Trust Ltd. In Re (supra). 35. Under Section 393(1)(a) the special interest of the director, which is required to be brought home to the voters, must satisfy the following requirements before it can treated to be a relevant special interest: (1) the director's interest must be a special interest different from the interest of other members who are the voters at the meeting; (2) the compromise or arrangement, which is put to vote, must have an effect on such special interest of the director; and (3) such effect must be different from the effect of compromise and arrangement on similar i....
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....annexed to the notice, the petitioner stated that there was no cash outflow pursuant to approval and implementation of the scheme though it amounted to reduction of capital to the extent of setting off of accumulated losses against the securities premium account. The aforesaid statement, as is evident from the affidavit dated 10.09.2012 filed before this Court, is, to put it mildly, erroneous. In the affidavit dated 10.09.2012, it is stated that the petitioner was under an obligation to pay dividend, on preference shares of Rs. 324.85 crores, aggregating to Rs. 34.65 crores (including dividend tax thereon) for the financial year 2011-12 (as extended upto 30.09.2012), failing which the preference share capital investment would become a non-performing asset which would hamper the ability of the company to carry on its business operations. The explanatory statement annexed to the notice, and the scheme of arrangement enclosed thereto, make no reference to the facts stated hereinabove, including that the petitioner was obliged to pay dividend to its preference shareholders aggregating to Rs. 34.65 Crores. The obligation to pay dividend to the preference shareholder banks by 30th Septem....
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....as doubtful; the credit status of each creditor with their value, vis-a-vis the value shown in the books maintained by the petitioner, should be examined; if any discrepancy is found, it should be construed that the Chairperson was mislead, and had held the meeting based on the inflated or the scaled down value of the debt due to the creditors of the petitioner; the respondent had attended the meeting on 09.12.2011, and had submitted a representation expressing their grievance; the Chairperson had neither considered nor examined the correctness of the value of the credit given to the respondent under the entry pass, vis-a-vis the debt confirmation letter dated 03.04.2009; the Chairperson had also not examined the other grievances pointed out in paragraphs 8 and 9 of the representation; as such, his report is vitiated; and the correctness of the majority votes shown in favour of the scheme is doubtful. 42. The creditor at Sl.No.8 is Sarala Projects Works Pvt. Ltd. to whom a sum of Rs. 11,18,64,757/- is said to be due; the creditor at Sl.No.13 is IL&FS Financial Services Ltd to whom the petitioner company claimed to be due Rs. 144,79,22,472/-; and the creditor at Sl.No.53 is Infrast....
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....o the interests of the creditors; the effect of adjusting the debit balance (losses) in the profit and loss account with the paid up share capital (share premium), as proposed in the scheme of arrangement, was to enable the company to pay dividends, which was otherwise impermissible in law i.e., under Section 205 of the Act; and, as the necessary statutory compliances were not fulfilled, this Court should not grant approval. Section 205(1) of the Act stipulates that no dividend shall be declared or paid for any financial year except out of the profits of the company for that year, arrived at after providing for depreciation, or out of the profits of the company for any previous financial year arrived at after providing for depreciation. The statutory prohibition in Section 205 is for companies not to declare dividend when there are accumulated losses. Subject to an order of confirmation by this Court, what the petitioner seeks is to do is to utilize the balance in the securities premium account to write off all its accumulated losses for the years 2008-09 and 2009-10, and to revive the profits for the year 2007-08. It is from out of the revived profits for the year 2007- 08 that th....
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.... capital is paid to any shareholder, I must examine the submission of Sri S. Ravi, Learned Senior Counsel, that, in the present case, payment of "dividend", to the preference shareholders of the petitioner, is not payment of paid up share capital of the company to its shareholders. "Capital" has become a rigid yardstick fixing the minimum value of the net assets which must be raised initially and then, so far as possible, retained in the business. While they are primarily intended for the protection of creditors, they are also designed to protect shareholders, present and future, against action by the directors which might covertly diminish the value of their shares as long-term investments. (Gower's Principles of Modern Company Law (Fourth Edition) Chapter 10). A Company, as a going concern distributing profits of the year or accumulated profits, is regarded as distributing dividend among the shareholders. (CIT v. Girdhardas and Co. (P.) Ltd. AIR 1967 SC 795). The ordinary meaning of "dividend" is the receipt by the shareholder, by reason of his being a shareholder, of a part of the profits of the company of which he is a shareholder. (Kantilal v. CIT AIR 1956 Bom. 381). 49. One ....
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....on the issue of shares, which has been transferred to the share premium account. Distribution of the share premium as dividend is not permitted, (save sanction of the Court), and is taken out of the category of divisible profits. (Addl. CIT v. OM Oils and Oil Seeds Exchange Ltd. [1985] 57 Comp. Cas. 592 (Delhi); First National City Bank v. CIT [1964] 42 ITR 17 (SC) ; Heckett Engineering Co. v. CIT [1979] 120 ITR 417 (Pat.). The statutory restrictions which apply to the share premium account prevent sums, held at credit of that account, from being distributed as distributable profits of the company. But once they have been released from the share premium account, following upon its cancellation, they are available to be distributed, as profits distributable by way of dividend. Once the statutory requirements for the cancellation of share premium account have been satisfied, the funds transferred to any reserve will be available for all purposes to which distributable profits may be applied. (Quayle Munro Ltd, AIR 1992 SC 24; Drown v Gaumont British Picture Corporation 1937 Ch. 402). This Section, which is a new departure in legislation, and was intended to make compulsory that which....
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....er of a capital distribution carried out by means of a notional reduction of paid up share capital. (Duff's Settlement National Provincial Bank Ltd. In Re (supra). 51. The scheme of arrangement, now under consideration, envisages (albeit through a circuitous route) utilization of a part of the share premium account for payment of dividend to the preference shareholders. Where share premium is utilized for payment to the shareholders, Section 78(1) requires the provisions of the Companies Act, relating to reduction of share capital, to be applied as if the share premium were the paid up share capital of the company. The legal fiction in Section 78(1) would require this Court to deem reduction in share premium as reduction of capital, and apply the provisions of the Act relating thereto. A conjoint reading of Section 78(1), with Section 101(2) of the Act, would require this Court to deem that such payment of share premium to the shareholders is the payment of paid-up share capital to the shareholders necessitating compliance of clauses (a) to (c) of Section 101(2) of the Act. 52. Sri S. Ravi, Learned Senior Counsel, would submit that, while it is mandatory to follow the procedure u....
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....been provable in winding up. (Dicido Pier Co., In re, [1981] 2 Ch. 354; Meux's Brewery Co. Ltd. (supra); Eastern & Australian S.S. Co., Ltd & Reduced, In re, [1893] 68 LT 321). Clauses (a) to (c) of Section 101(2) require the Court to settle a list of creditors so entitled to object, and to ascertain the names of the creditors and the nature and amount of their debts and claims; to cause publication of a notice, and fix the date or dates within which the creditors, not entered on the list, are to claim to be so entered, or are to be excluded from the right of objecting to the reduction; and in cases where the creditor entered on the list, (whose debt or claim is not discharged or has not been determined), does not consent to the reduction, to dispense with his consent on the company securing payment of his debt or claim, by appropriating an amount to be fixed by the Court, after a like enquiry and adjudication as if the company were being wound up by the Court. 55. As noted hereinabove, pursuant to the directions of this Court, in C.A. Nos. 1651 and 1652 of 2011 dated 04.11.2011, meetings of the secured and unsecured creditors of the petitioner company were convened and held. In t....
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....etitioner's version, of the claim of the respondent-objector regarding the debt due to them, is detailed in the Company Petition, and needs no reference in this order as they are matters for consideration in C.P. No.199 of 2010. Suffice to note that the petitioner filed O.S.687 of 2010 before the III Additional Judge, City Civil Court, Hyderabad seeking damages for Rs.16,00,20,000/- against the respondent-objector which has filed its counter claim thereto. 57. While the respondent-objector claims that the petitioner has neither discharged nor secured their debt of Rs.70.02 Crores, the petitioner would dispute the claim and contend that it is not Rs.70.02 Crores, but only Rs.1.21 crores which is due and payable by them to the respondent. Section 101(2)(c)(ii) enables this Court to dispense with the consent of a creditor on the company securing payment of his debt or claim as the Court may direct. In cases where the company does not admit the full amount of debt or claim, the enquiry this Court is required to make, under Section 101(2)(c)(ii), is a like enquiry and adjudication as if the petitioner is being wound up by the Court. The respondent-objector has filed C.P. No.199 of 2010....
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....he absence of special circumstances, give any direction, under the section, but it will do so if it is satisfied that, having regard to the value of the company's liquid assets, or for any other reason, no creditor, who might otherwise be entitled to object to the reduction, will be prejudiced by it. If it is established that the company has cash and securities of a sufficient value to cover all the provable liabilities as well as any amount proposed to be returned to the shareholders with a reasonable margin of safety to cover oversights or contingencies, this will usually be regarded by the court as a special circumstance justifying exemption under the section, or if the discharge of all the company's provable debts is guaranteed to the court's satisfaction, this may be regarded as a sufficient special circumstance. Some recognition of reality must be admitted in the exercise of the court's discretion under the section. (Lucania Temperance Billiard Halls (London) Ltd., In re [1965] 3 All ER 879 (Ch.D). 61. In his affidavit dated 20.9.2012, the authorized signatory states that the petitioner's annual turnover is in excess of Rs.1500.00 Crores; as on 31.3.2011, the depreciated fix....
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....he affidavit dated 10.09.2012, the authorized signatory of the petitioner states that the petitioner undertakes to furnish a bank guarantee for Rs.1.21 crores to secure the admitted liability subject to the outcome of the civil suit in O.S. No.687 of 2011 pending before the III Additional Chief Judge, City Civil Court, Hyderabad. The petitioner shall, within two weeks of this order, funish an unconditional bank guarantee from a Nationalized bank for Rs.1.21 crores in favour of the respondent-objector, and deposit the guarantee with the Chief Judge, City Civil Court, Hyderabad to be retained to the credit of O.S. No.687 of 2011. The bank guarantee shall be renewed periodically till the final outcome of the suit. 63. The bonafides of the remaining dues, as claimed by the respondent-objector for Rs.68.81 crores, (i.e., 70.02 crores less the admitted liability of Rs.1.21 crores), is disputed by the petitioner. The dues of the other two unsecured creditors (who voted against the scheme) is Rs.8,38,239, and is not in dispute. Securing the interests of the minority creditors for Rs.68.90 crores (i.e., Rs.68.81 crores + Rs.8,38,239) is all that this Court needs to do. While I was initiall....
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....nst losses, if any, in the normal course of its business operations from April, 2011 onwards. 65. The court ought not, usually, to require that a reserve be set aside indefinitely to safeguard the interests of future creditors and shareholders. Anyone who gives credit to or acquires shares in the company after the reduction takes effect is, prima facie, adequately protected by existing statutory safeguards. (Grosvenor Press Plc. In Re (supra)). It is unnecessary, therefore, to set apart any further sums in the "special reserve". 66. Section 102(2)(a) of the Companies Act enables this Court, if it makes an order confirming reduction of capital on such terms and conditions as it thinks fit, and if for any special reasons it thinks proper so to do, to make an order directing that the company shall, during such period commencing on or at any time after the date of the order, add to its name as the last words thereof, the words "and reduced". Rule 62(b)&(c) of the Rules stipulate that, when the Judge makes an order confirming a reduction, the order shall include directions as to the period commencing on or after the date of the order, during which the words "and reduced" shall be adde....
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....d reduced" shall be added to the name of the Petitioner company from the date of the Order. Since there is no cash flow from the Petitioner Company to the shareholders and the Secured Creditors of the Petitioner have given their consent to the proposed reduction, I am of the view that the words "and reduced" need not be added to the name of the Petitioner company from the date of this Order. Therefore, I dispense with the requirements to comply with the provisions of Rule 62(b) and (c) of the Rules..........." 71. Adherence to the statutory prescription, under Section 102(2) of the Companies Act, would necessitate examination by the court whether there are special reasons requiring it to make an order directing that the company add to its name, as its last words, the words "and reduced", and to make an order requiring the company to publish reasons for reduction of capital or such other information in regard thereto as the court may think expedient with a view to giving proper information to the public. What are the matters which are required to be examined by the court to decide whether special reasons exist for so directing the company? While passing an order, confirming reducti....
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....essman taking a commercial decision. (Sesa Industries Ltd. v. Krishna H. Bajaj [2011] 106 SCL 239. Likewise, if the transaction is itself competent the court should only refuse its confirmation if what is proposed to be done is somehow unfair or inequitable; and the consideration of what is unfair or inequitable cannot well extend beyond consideration of the interests of creditors, shareholders and the general public, by which term is meant persons who may in the future have dealings with the company or may be minded to invest in its securities. (Grosvenor Press Plc. In Re (supra); Poole (supra). On the issue of fairness, the burden of proof devolves on those supporting the reduction to prove that it is fair. Unless this burden is discharged, confirmation of the reduction will be refused. (Holders Investment Trust Ltd, In re [1971] 2 All ER 289 (Ch.d)). 74. Section 391(1) enables the Court, on the application of the company, to order a meeting of the creditors/members, as the case may be, to he held and conducted in such a manner as the Court directs. Section 391(2) stipulates that, if a majority of 3/4th in value of the creditors/members agree, at the meeting, to any compromise o....
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....d submit that the debt of the objector is seriously disputed; there is a petition for winding up (C.P. No.199 of 2010) pending and being contested; the petitioner has filed O.S. No.687 of 2010 on the file of the II Additional Chief Judge, City Civil Court, Hyderabad, claiming damages from the objecting creditor, in which the objector has filed a written statement and a counter claim; and that is pending adjudication. 77. Under the proviso to Section 391(2), no order sanctioning any compromise or arrangement shall be made unless the Court is satisfied that the company has disclosed to the Court, by affidavit or otherwise, 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 investigation proceedings in relation to the company under Sections 235 to 251, and the like. In every case the court needs to know at least the general purpose of what is proposed. Since many applications are unopposed, and the Company Court hears only from the applicant company, it would be undesirable to dilute in any way the applicant's duty of full and frank disclosure to the court. (....
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....mpany; the company also filed compounding applications, for the above alleged violations, u/s 621 A of the Companies Act, 1956 which are pending before the Company Law Board for disposal; and that, apart from these proceedings, there are no other proceedings pending against the petitioner company under Sections 235 to 251 and 398 of the Companies Act, 1956. The petitioner has also disclosed the pendency of the winding up petition, filed by the respondent-objector in C.P.No.199 of 2010, to this Court in C.A. No.1652 of 2011 and in C.P. No.240 of 2011. It is thus evident that the petitioner has made all the relevant disclosures, including pending investigations, as required under the proviso to Section 391(2). The requirement of the proviso to Section 391(2) is satisfied. 79. Section 394 A of the Act requires this Court to give notice of the application, made to it under Sections 391 to 394, to the Central Government, and to take into consideration the representation, if any, made to it by the Government before passing any order under any of these Sections. In his affidavit, filed on behalf of the Central Government, the Regional Director, South East Region, Ministry of Corporate Af....
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....air and reasonable. The wisdom or otherwise of the scheme is for the shareholders to decide and, since all the shareholders, all the secured creditors, and around 80% of the unsecured creditors, who attended the respective meetings, have supported the scheme, it is not for this Court to go into the merits of the scheme or to sit in judgment over the wisdom of the shareholders of the company in seeking reduction of capital. 82. It is convenient to examine together both the questions (1) whether failure to disclose the material facts to the shareholders/creditors would necessitate refusal by this Court to confirm the reduction of capital?; and (2) whether the scheme of arrangement (involving reduction of capital) is in public interest? 83. It is for the first time, by way of the affidavit dated 10.9.2012 filed before this Court, that the petitioner has explained the purpose of seeking to have the entire share premium account written off and, thereby, freeing Rs.179.82 crores for their utilization in future. The petitioner would state that, under the present management, the petitioner was sanctioned a corporate debt restructuring (CDR) scheme by the CDR Cell of the secured creditors....
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....75 5,25,875 IL&FS Trust Co. 21,81,500* 0 0 21,81,500 TOTAL 57,49,500 2,50,00,000 17,36,280 3,24,85,780 85. It is evident from the aforesaid tables that all the ten institutions are Schedule Banks, of whom eight are public sector banks. In the very same affidavit, the petitioner has given an undertaking (subject to approval of the scheme by this Court) that the surplus available in the profit and loss account of Rs.179.88 crores (Rs.179.82 crores ?) would not be utilized for the purpose of declaration of dividend to its equity shareholders; the said surplus would be used only for the purpose of payment of dividend on preference shares; and adjustment against losses, if any, in the normal course of its business operations or for redemption of preference shares; but not for payment of dividend to the equity shareholders. 86. The petitioner company could well have furnished the aforesaid details to, and informed, their shareholders/creditors of the need to pay dividend to the preference share-holder banks, both in the explanatory statement and in the scheme, instead of making this information available to this Court later by way of affidavits. 87. Faced with a similar sit....
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....facts namely whether it would amount to fraud thereby vitiating the very order sanctioning the scheme........ ..........We are of the opinion that had this fact been disclosed it would not have resulted in non sanction of the scheme of amalgamation of the two companies. Instead, the company Judge would have passed a conditional sanction order............." (Emphasis supplied) 88. In this context it is necessary to note that C.P. No.3 of 2009 was filed, before the Company Law Board (CLB), Principal Bench, New Delhi, by the Government of India under Sections 388B, 397, 398, 401, 402 and 403 read with Sections 406 and 408 of the Companies Act, 1956 to declare that none of the then Directors of the petitioner-company should be eligible for appointment as a Director in any other Company; and the Central Government be empowered to appoint 10 nominee directors on the Board of the petitioner company under Section 408 of the Companies Act. The Company Law Board, by its order dated 5.3.2009, authorized the Central Government to appoint four nominees on the Board of the petitioner-Company making it clear that one of them shall be chairman, and the Board would have complete powers in regard t....
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....een impossible to say a little bit more to explain what was going on, and the reasons in particular, rather than have that information dragged out in the course of the proceedings on the petition. This conduct on the part of the company does not help to commend their petition to the court. The question is whether it is fatal, given the reality of the position procedurally and the view taken on the substance of the matter. Whether production of the information would have made any difference is, however, a material consideration. Although the information furnished by the petitioner to their shareholders/creditors was far from forthcoming as to the true nature and background of the proposed course of action as a whole. Nevertheless, because the scheme as a whole is fair, and there is a legitimate degree of urgency in the case, the scheme can be upheld. (Ransomes plc; Palmer's Company Law (Vol.I); 25th Edition para 4.313 page: 4.313). 92. As part of the corporate debt restructuring scheme, the secured creditors converted Rs.250.00 crores of their principal term loan, and Rs.57.50 crores of their funded interest term loan, into OCCRPS and CRPS. Conversion of a part of their secured deb....
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....g conditions: i. the petitioner shall, within two weeks of this order, furnish an unconditional bank guarantee for Rs.1.21 crores in favour of Wardha Power Ltd, and deposit the guarantee with the Chief Judge, City Civil Court, Hyderabad to be retained to the credit of O.S. No.687 of 2011. The Bank Guarantee shall be renewed periodically till the final outcome of the suit. ii. The petitioner shall set apart of Rs.68.90 crores as a "special reserve" of which Rs.68.81 crores shall be retained therein till the final outcome of C.P. No.199 of 2010, or any directions passed therein, and the remainder Rs.9.00 lakhs shall be kept in the said reserve till the dues of the other two creditors are settled. iii. the petitioner shall add to its name as its last words, the words "and reduced" for the period upto and until the end of the financial year 2012-13; and in the Balance sheet, the profit and loss account, and the annexures thereto for the said year. 94. ORDER CONFIRMING REDUCTION OF CAPITAL AND APPROVING MINUTE Upon the petition of IL & FS Engineering and Construction Limited, presented on the 20th day of December, 2011 (upon hearing Sri S.Ravi, Senior....
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....was in the words and figures following viz: "RESOLVED THAT, subject to the sanction of the Hon'ble High Court of Andhra Pradesh of the annexed Scheme of Arrangement between IL & FS Engineering and Construction ("the Company") and its members and creditors u/s 391-394 read with Sections 78, 100-104 and other applicable provisions, if any, of which is duly initialed by the Chairman of the Meeting for the purpose of identification, be and is hereby approved, subject however, to such alterations and modifications thereof, if any, as may be directed by the Hon'ble High Court of Andhra Pradesh, Hyderabad." "RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorized to implement the Scheme once sanctioned by the Hon'ble High Court and to do everything that may be necessary in connection therewith." be and the same is hereby confirmed. 2. That the minute set forth in the schedule hereto be and is hereby approved. 3. That a certified copy of this order including the minute as approved be delivered to the Registrar of Companies within 30 days from the date of receipt of the order. 4. That notice of the registration by the....