TaxTMI 
TaxTMI 
2007 (3) TMI 803
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.... on the Petitioner Company; (b) That the Petitioner Company do within 30 days from the date of sealing of the order cause a certified copy of the order sanctioning the Scheme of Arrangement to be filed with the Registrar of Companies, Gujarat, Ahmedabad for registration and upon such certified copy of the order being so delivered, the Registrar of Companies, Gujarat, Ahmedabad be directed to consolidate all relevant files, documents, records relating to the De-merged Company maintained by him with the files, documents, records of the Resulting Company. (c) For such incidental, consequential and supplemental orders and directions may be given as may be made in the premises as to this Hon'ble Court may deem fit and proper; (d) Costs of this petition and the order to be made thereon be provided for. 2.1. According to the petitioner-Company, the object of the petition is to obtain sanction of the Court to the composite Scheme of Arrangement in the nature of compromise with the lenders and reconstruction of Core Healthcare Limited, the petitioner demerged Company, reorganisation of capital of Nirma Limited, and demerger and transfer of undertaking (as d....
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....s Court, the three companies, namely, Nirma Detergents Limited, Nirma Soaps & Detergents Limited and Shiva Soaps & Detergents Limited, were amalgamated with Nirma Limited. Under order dated 13th August, 2003 passed by this Court, the operating division of Nirma Industries Limited was demerged and transferred to Nirma Limited. 2.6 As per the latest audited balance sheet as on 31st March, 2005, the authorised, issued, subscribed and paid-up share capital of Nirma consist of the following: Share Capital as on 31.03.2005 Authorised: 9,50,00,000 Equity Shares of Rs. 10/- each Rs. 95,00,00,000 5,00,000 6% Redeemable non-cumulative Non-convertible Preference Shares of Rs. 100/- each Rs. 5,00,00,000 Total.... Rs. 1,00,00,00,000 Issued and Subscribed: 7,94,01, 376 Equity Shares of Rs. 10/- each Fully Paid-up Rs. 79,40,13,760 2,79,285 6% Redeemable non-cumulative Non-convertible Preference Shares of Rs. 100/- each Rs. 2,79,28,500 Total.... Rs. 82,19,42,260 Paid-up: 7,93,82,484 Equity Shares of Rs. 10/- each Fully Paid-up Rs. 79,38,24,840 2,79,2....
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....n in 1993-1995, involving investment of about Rs. 600 crores for expansion of its existing facility and also diversification into manufacture of medical devices. The plan was validated by the Board of Directors, consultants, lenders and also appraised by all lenders while sanctioning the loans. Based on the same, the company set up one of the world's most modern and largest pharmaceutical manufacturing facility across 600 acres of land with most modern manufacturing technology from world-renowned suppliers. The company continued to achieve appreciable growth in sales and financial performance despite significant increase in costs, overheads and fixed charges upto 1996. The company's new manufacturing facility for I.V. Fluids won the prestigious IDMA award for 1994-95 in its very first year of operations the highest recognition for quality assurance in Indian Pharmaceutical Industry. The facility at Sachana also received ISO 9002 approval and also was certified for GMP as per World Health Organisation (WHO) standard. The medical devices products of the company were awarded 'CE Mark'. Such quality recognitions of the new plant at Sachana reinforced the commitment of t....
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....ting Company, according to Core, is a leading multi-location, multi-product company and an established player in the fast moving consumer goods segment. It is engaged in the business of manufacture of synthetic detergents, toilet soaps, linear alkyl benzene and soda ash, etc. having a turn over of approx. Rs. 2,150 crores during the financial year ended on 31st March, 2005. The operating profit for the year was Rs. 510 crores. The company has reserves and surplus of more than Rs. 1,792 crores. The shares of the company are listed on Mumbai Stock Exchange and National Stock Exchange. 'NIRMA' today is one of the largest selling detergent brand with a sustained growth in the Indian market. The company has also penetrated and developed toilet soap segment as well as premium segment and successfully acquired substantial market share. It has established integrated soaps and detergent plants, employing the state-of-the-art technology located at Mandali, Chhatral, Moraiya, Trikampura, Kalatalav and Alindra in the State of Gujarat. The logistic advantage with the geographical dispersal of the manufacturing bases has enabled it to respond to the emerging and hitherto untapped market ....
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....as substantial balance in its Share Premium Account and on the other hand, there is substantial reduction in the value of investments, debtors, loans and advances over a period of time. The company has balance of miscellaneous expenditure as well as debit balance of profit and loss account. Similarly, as a consequence to the proposed compromise, the value of the liabilities of the company also undergoes a substantial change. The net effects of the above are to be reflected in the reconstruction account. In order to realise the realistic financial position of the company, it is proposed that an amount not exceeding Rs. 5.66 crores standing in the Share Premium Account of the company be utilised to adjust/write off the balance of the said reconstruction account. Under Clause 46 of the Articles at Table 'A', which is Schedule I to the Act, and which have been adopted by the applicant generally as its Articles of Association, subject to the provisions of Sections 78 and 100 of the Act, the petitioner-Company is authorised to use its Share Premium Account for the said purpose. 2.16 Accordingly, the Board of Directors of the petitioner-Core resolved in their meeting held on 25....
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.... and Class 'B' lenders for considering the Scheme of Arrangement in the nature of compromise with the lenders and reconstruction and reorganisation of the capital of demerger between M/s. Core and Nirma and their respective shareholders. Despite objects raised by M/s. HDFC, one of the lenders, the Court allowed the application and directed as under: (a) That separate meetings of the equity shareholders, Class A lenders and Class B lenders (of the demerged undertaking, as defined in the scheme) of the applicant company be convened and held at the registered office of the company at village Sachana, Taluka Viramgam, Dist. Ahmedabad on Friday, 9th day of December, 25 at 9.30 a.m, 10.30 am and 11.30 am respectively, for the purpose of considering, and if thought fit, approving with or without modifications, the composite Scheme of Arrangement in the nature of compromise with the lenders and reconstruction of Core Healthcare Limited, the applicant demerged company, Reorganisation of capital of Nirma Limited, the Resulting Company and demerger and transfer of undertaking (as defined in the scheme) of Core Healthcare Limited, the applicant company to Nirma Limited, the re....
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....that the proxy in the prescribed form and duly signed by the person entitled to attend and vote at the aforesaid meetings, or by his authorized representative, is filed with the applicant Company at its registered office at village Sachana, not later than 48 hours before the said meetings. (h) The value of the vote of each equity and preference shareholder of the company shall be as per the entries in the Registers and/or books of accounts of the company and where the entries in the records or registers are disputed, the Chairman of the meetings shall determine the value or number for the purposes of the meetings and his decision in that behalf would be final. (i) The Chairman do report to this Court, the result of the said meetings within 14 days of the conclusion of the meetings and the said report shall be verified by his affidavit. The Court also observed that in view of the special circumstances and the facts of the case, the requirements, to meet the provisions of Section 101(2) of the Act with the procedure, as is required under Rules 48 to 65 of the Companies (Court) Rules, 1954, could be conveniently dispensed with. 3. Company Petition No. 9 of 2006....
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....th the lenders and reconstruction of Core Healthcare Limited, the applicant demerged company, Reorganisation of capital of Nirma Limited, the Resulting Company and demerger and transfer of undertaking (as defined in the scheme) of Core Healthcare Limited, the applicant company to Nirma Limited, the resulting Company and its shareholders. (b) That at least 21 days before the meetings be held as aforesaid, notice convening the said meetings, indicating the day, the date, the place and the time as aforesaid, together with the copy of the scheme of Agreement, copy of the explanatory statement required to be sent under Section 393 of the Companies Act, 1956 and the prescribed Form of Proxy shall be sent by a pre-paid letter posted under Certificate of Posting, addressed to each of the equity and preference shareholders of the applicant Company at their last known address. (c) That at least 21 clear days before the meetings to be held as aforesaid, notice, convening the said meetings, indicating the day, the date, the place and the time as aforesaid be published, stating that copies of the scheme of Agreement, the explanatory statement required to be furnished pursuant ....
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....all be verified by his affidavit. The modifications proposed and approved by the shareholders and different classes of lenders are annexed with the company petition and shall now become integral part of this judgement in the Scheme. 3.2 According to Core, the meeting of the shareholders and separate meetings of Class 'A' and Class 'B' lenders of the Company were duly convened on 9th December, 2005. In accordance with the orders passed by the Court, Shri Chinubhai R. Shah chaired the meeting. Shri Chinubhai R. Shah reported the results of the meeting to this Court which are as under: (a)(i) The said meeting of the equity shareholders of the company was attended by 29 (Twenty Nine) equity shareholders of the said company entitled to together Rs. 16,36,12,800/- being 163,61,280 Equity Shares of Rs. 10/- each. The said Scheme of Arrangement was taken as read with the permission of all the equity shareholders present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29th November, 2005, for the a....
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....so put before the Class 'A' lenders of Core and the same were explained. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified Scheme of Arrangement submitted to the meeting. (b)(iv) Vote for the approval of the modifications showed the following result: Class 'A' Lenders Nos. % of total present and voting Value of Debt (Rs. in lacs) % of total holding present and voting In favour 7 70 111,545.40 90.42 Against 3 30 11,816.45 9.58 Invalid Votes 2 n.a. 3,095.8 n.a. Total Present 12 126,457,65 Total valid voting 10 123,361.85 Out of total 12 ballot papers, two ballot papers representing the value of debt at Rs. 3,095.8 lacs were treated as invalid as the same did not indicate whether the votes were cast in favour or against the proposed modifications. Thus, the proposed modifications were approved by majority of 70% in number and 90.42% in value of the Class 'A' lenders pres....
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....t the registered office of the company at 11:30 a.m. The said meeting was attended either personally or by proxy by 75 (seventy five) members of the Class 'B' lenders (including the debenture holders) of the said company entitled to together Rs. 34,810.05 lacs being the value of their debt. The compromise or arrangement which was circulated among them with the individual notice served upon them was taken as read with the permission of the lenders present at the meeting. The scheme was explained in detail to the meeting and elaborate deliberations were made to consider the scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29th November, 2005 for the approval of the scheme, were also put before the Class 'A' lenders of Core and the same were explained. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified Scheme of Arrangement submitted to the meeting. (c)(iii) Vote for the approval of the modifications showed the following result: Clas....
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....sion of all the equity shareholders present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. Some of the equity shareholders proposed certain modifications in the proposed scheme. The modifications as proposed by them were explained and discussed at the meeting. They were put to vote for approval and the same were approved by requisite majority. (b) Out of 110 votes cast at the meeting, 107 votes representing the value of shares of Rs. 64,39,03,440 were found to be in favour of the proposed modifications. One vote representing the value of share at Rs. 2,000/- was cast against the modifications and 2 votes representing the value of shares at Rs. 3,920/- were found to be invalid as the Folio Number and the name of the shareholder did not match with that of the register of the company. Thus, the modifications were approved by the majority of 97.27% in number and 99.99% in value by the equity shareholders present and voting at the meeting. (c) Since the proposed modifications were approved by the said meeting with requisite statutory majority, the duly modified scheme was then put for consideration and to vote. The poll was....
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....any Limited has filed its objections. It is submitted by them that the scheme is detrimental to the interest of the creditors, the meetings were not properly classified, the description of the lenders as Class 'A' and Class 'B' was ambiguous, incorrect and mischievous. It is submitted by them that from the facts, it would appear that various Banks have assigned their loan in favour of ARCIL by executing a deed of assignment and that ARCIL had taken the possession of the assets of the company under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act for brevity) and ARCIL is working as a trustee of ARCIL-Core Healthcare Trust. According to them, once ARCIL had exercised the powers under the SARFAESI Act, it can never be defined as Class 'B' lender. According to them, as various creditors and Banks have assigned their loans in favour of ARCIL, neither the Banks nor ARCIL can be classified in Class 'A' lenders. Conduction of the meeting was condemned alleging that it was done in violation of the principles of natural justice, no appropriat....
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....rt in the earlier Company Application. It is also submitted that in the reference made to the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as SICA for brevity), various secured creditors of Core, who have now voted for the scheme, had requested the BIFR to make investigation into auditing of Core. The BIFR vide its order dated 24th January, 2003 in Case No. 149 of 2001, after observing that various doubtful and unjustified, unexplainable entries in the books of accounts of Core and siphoning away of the funds, ordered to carry out special investigative audit. Accordingly, IDBI was appointed as an operating agency and IDBI, in its turn, appointed M/s. Ernst & Young, a firm of Chartered Accountants, as a special investigative audit to conduct audit of Core. M/s. Ernst & Young, vide its Special Investigative Audit Report, made several observations with respect to the working of the company. According to the objector, the said report revealed various acts of malfeasance and misfeasance by the Directors of Core. It was observed by M/s.Ernst & Young that the company failed to show its books of accounts and other materi....
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....he guarantees against the Bank, have been revalidated at the instance of the company entitling the refund of the entire amount of guarantees enforced against the Bank. The Director General of Foreign Trade has vide his letter dated 27th December, 2005, issued no objection for refund of Rs. 1,887.04 lakhs forfeited against the Bank Guarantees. Such benefit or refund due has not at all been reflected in the books of accounts of the petitioner-Company. The Bank is entitled to the entire amount of refund along with interest payable by the Custom Authorities. (v) By proposing and passing a Scheme of Arrangement, the company has acted against the interest of the Bank in compromising the Bank's position with the Custom Authorities without giving true and proper disclosures to the Court and in effect attempting to defraud public monies of the Bank. 6.1 It is also submitted by them that Core has obtained revalidation for compliance of export obligation till 8th October, 2007 and the Government of India, Ministry of Commerce has, by a letter dated 27th December, 2005 addressed to the company with a copy to HDFC, stated, inter alia, that he has no objection to refund the sum o....
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.... the companys assets under Section 13(4) of the SARFAESI Act, then, the properties/assets of the company can be dealt with under the provisions of the SARFAESI Act only and the company cannot deal with the said assets under the guise of the scheme and the company is not capable or entitled to hand over the possession of any of its assets to anyone. Their further submission is that the settlement amount is shown of Rs. 138 crores, which Nirma will pay to Core for acquiring demerged undertaking of Core at Sachana, but, it has not been disclosed how the figure of Rs. 138 crores is worked out. According to them, no valuation report for the assets of Sachana Unit was placed before the Court or before the creditors. According to them, the book value of fixed assets is more than Rs. 699 crores as on 31st March, 2004 and the market value thereof is likely to be much more than the depreciated or book value. They also submitted that Nirma is acquiring Sachana Unit of Core as a going concern and as per Clause (8) of the Scheme, Nirma is claiming set off of the accumulated losses and unabsorbed depreciation. According to the objector, Nirma is likely to claim set off of more than Rs. 1,200 cro....
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....e meeting to postpone the meeting as no adequate time was given to the lender to study the scheme and apply its mind. 7.2 According to the objector, the proposal must point out the terms of the proposal (scheme) in a manner it could be understood. They submitted that details about the availability of the assets, market value of the assets, details of the creditors who have first claim over the amount, sacrifice that is being given by the creditors, whether the company is going to continue the business, what additional benefits are likely to get if the proposal is accepted, what is the need for compromise and whether by the proposed demerger that need can be achieved by the proposer and what incentive is given to the creditors for effecting any sacrifice of their dues. According to the objector, such details if are not supplied, then, the scheme/proposal would come under the shadow of doubt and would not make the proposal a valid proposal. They submitted that the Scheme of Compromise does not disclose the particulars of the secured as well as unsecured creditors and the amount due to each of the said class of creditors. According to them, the petitioner did not give the detailed ....
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.... to him, he is a shareholder of Core and has a right to submit his objections. It appears that he is challenging the working of Core and is making various allegations against the management. His submission is that various notices were issued by him through his Lawyer to the Company, but, no replies were received by him. The objections of Mr. P.S. Modi can be dealt with right now. 8.1 Section 529A of the Act provides that notwithstanding anything contained in any other provision of the Act or any other law for the time being in force, in the winding up of a company- (a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pari passu with such dues, shall be paid in priority to all other debts. Sub-section (2) of Section 529A provides that the debts payable under Clause (a) and Clause (b) of Sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 8.2 Section 530 of the Act provides that in a winding up, subject to the provisions of Section 529A, there shall be paid in priority to all other d....
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....o due and payable towards penalty. 9.1 According to the objections, an amount of interest of Rs. 7,10,30,821/- is recoverable as on 31st January, 2007. They submitted that so far as Sachana Unit is concerned, an amount of Rs. 1,93,19,641/- is due. They submitted that Nirma would not take the statutory liability of Rajpur Unit and under the circumstances, they object to the grant of the Scheme. 9.2 The objections, in the opinion of this Court, are misconceived. Undisputedly, Rajpur Unit is neither being transferred nor demerged. As per the Scheme, Sachana Unit, with its excise liability, is to be demerged with Nirma and Nirma is undertaking to clear the statutory liability raised against Sachana Unit. If the Excise Department has to recover an amount of Rs. 1,93,19,641/- against Sachana Unit, and such statutory liability is accepted by Nirma, then, the Excise Department would be entitled to recover the said amount from Nirma. I have already observed while dismissing the objections made by Mr.Modi that in case a company is to be put under liquidation and the entire property of Core, including both the Units, namely, Rajpur and Sachana, are auctioned, then too, money to discharg....
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....oved by the majority in principle as required under the law, the objection like present deserves to be rejected. It was submitted that the petitioner company did not suppress anything from anybody, but in fact, produced the order passed in Company Application in the said meetings and thereby facts of pending litigations etc. were brought to the notice of all concerned. As a fact, it is submitted that litigation of HDFC Bank and injunction obtained by it were discussed in the meetings. They also submit that letter dated 7.1.06 addressed by the HDFC Bank to the Chairman, specifically refers to the injunction order operating in favour of the HDFC Bank and the said letter was fully read out at the said meeting and was subject matter of discussion. They submit that when the facts were known to all concerned, then it would not be proper to say that the facts were suppressed. 11. It is also submitted that the objection that some of the creditors wanted audit of Core when the matter was pending before the BIFR would lead to nothing, because present is not a case to find out whether the company is sick or not, present is a case for restructuring a company and Scheme is for compromise and....
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....vances. According to them, it is only first two items, namely stock-in-trade and book debts with the subject matter of security available to all working capital lenders. The same is about 13 crores. As against this, worth of fixed assets would be much higher, say, a sum of Rs. 250 crores. They say that on the appointed date, principal amount payable to persons having first charge over the fixed asset would be more than Rs. 1300 crores while the total amount payable to the persons having charge over the current assets was approximately Rs. 350 crores. They submitted that considering the large amount of statutory dues payable by Core, it was decided to propose a Scheme whereby Nirma would discharge all liabilities of lenders at the total price of Rs. 138 crores. According to them, total worth of the security of the Scheme of Class-B lenders on the basis of its market value today is lower than 10% which is coming to their share. They submitted that this matter is purely in the realm of the discussion, negotiations and satisfaction between the respective creditors, inter se and between one and another group and between all of them at one end and Nirma on the other. According to them, t....
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....DFC Bank, they further state that Oman International Bank Limited cannot be considered to be a class different simply because it is a foreign bank. According to them, Class-A lenders, whether they are Indian or foreigners, would be taken to be Class-A lenders only. They also submit that in the meetings held in the office of ARCIL for considering the terms of the present Scheme, every objection raised by the objector was recorded and from that it would be clear that the objector had information with him and objector being Class-A lender would not be careless in discussing the Scheme. It is submitted that the Scheme was approved by statutory majority and out of Class-A lenders, Oman International Bank is the only one lender which objects to the Scheme. It is submitted that in the Scheme of demerger, valuation of assets is immaterial. If any lender had any objections, then the same were to be projected in the meetings. Once statutory majority which includes international banks, financial institutions, foreign banks and private banks, had considered everything, then it would be too much to say that the other institutions which had higher stakes approved the Scheme without understanding....
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....own in the balance sheet of the petitioner. According to them, ARCIL would be getting much more and would be making very small sacrifice in comparison to those who have not agreed to the Scheme. According to HDFC Bank, it would have to forego 96.2% of its claim, while sacrifice of ARCIL, which is the purchaser of the debts would not be to such an extent. It is reiterated that the explanatory statement circulated by the petitioner was incomplete, vague and was not providing required material. The petitioner filed its affidavit dated 5th December, 2006 in reply to objections raised by the HDFC. They submit that M/s.ICICI, IFCI, IDBI, SBI, SBM and SBT had assigned debt to the extent of Rs. 37,191.00 lacs in favour of ARCIL, Dena Bank assigned debt of Rs. 5,932.57 lacs in favour of M/s. Niya Finstock Pvt. Ltd., and M/s. Indus Ind Bank assigned debt of Rs. 1,289.56 lacs in favour of Astramed Technologies Limited. Their submission is that purchaser of the debt, specially, ARCIL has acquired financial assets from the banks and financial institutions under Section 5 of the SARFAESI Act and it has become lender. It is further submitted that minority was not forced to accept the settlement i....
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....ass of them; the Tribunal may, on the application of the company or of any creditor or member of the company, or, in the case of accompany which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. [2] If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed [under the rules made under Section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and the contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that....
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....on 433 of this Act. [3] The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act under Section 153 of the Indian Companies [Amendment] Act,2001, sanctioning a compromise or an arrangement. Information as to compromises or arrangements with creditors and members. 393 [1] Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under Section 391,-- [a] with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing director or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if and in so far as, it is different from the effect on the like interests of other persons; and [b] in every notice calling the meeting which is given by advertisement, there shall ....
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.... that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and [b] that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme [in this section referred to as a transferor company] is to be transferred to another company [in this section referred to as the transferee company]; the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters; [i] the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company; [ii] the allotment of appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; [iii] the continuation by or against the transferee company of any legal proceedings pending by or agai....
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....g of this Act; but transferor company includes any body corporate, whether a company within the meaning of this Act or not. Section 391 provides for compromise or making arrangement with creditors and members. Section 392 refers to power of the High Court to enforce compromises and arrangement. Section 393 provides that what in relation to the compromise or arrangement is to be provided to the creditors and members, while Section 394 deals with the provisions for facilitating reconstruction and amalgamation of Companies Act. 17. Though details of pleadings, objections and their replies have already been summarized above, but parties have submitted their written arguments and the Court now is required to deliver judgment after deciding the written objections in the form of written arguments. 18. Nobody appeared for Gannon Dunkerly to support their objections, therefore, the same are rejected. 19. HDFC Bank says that creditors of Core have not been properly classified, Core had clubbed secured creditors other than Class 'A' lenders, unsecured creditors and debenture holders in the category of Class 'B' lenders. The said creditors have different interests a....
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....therefore, the Scheme is bad. Demerged undertaking has not been transferred at a fair value since the same has been valued by Core at Rs. 596.22 crores and the transferee would also avail benefit of carrying forward of accumulated losses and unabsorbed depreciation of Rs. 1,200 crores entailing a tax saving of Rs. 400 crores. The shares above 50% are held by directors/promoters of Core and each of them would be benefited. ARCIL had taken over possession of Sachana unit from Core and transferred the same to Nirma under the provisions of the SARFAESI Act. Under Section 13[4] and Section 13[6] of the SARFAESI Act, transferee is vested with all rights as if the transfer had been made by the owner of such secured assets. Therefore, the Scheme seeking demerger of the said unit is wholly misconceived. Company Petition No. 48 of 1999 filed by Jost's Engineering Company Limited has been filed for winding up of the company and the same has already been admitted for hearing. They submit that under the circumstances, the Scheme be rejected. 20. Oman International Bank has also summarized their arguments and has submitted written arguments after completion of the oral hearing. They submi....
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.... the first part deals with disposal of assets with liability and the second part deals with waiver of debts in full by the secured creditors. According to them, no reason worth the name is offered for the second part of the Scheme; why debt is to be waived off and what is the nexus of the waiver of debt with the first part of the Scheme. They submit that in the guise of the Scheme, defaulting borrower wants to force upon secured creditor to waive its debts without any reason or rhyme which is nothing but coercion by majority over the minority. According to them, the report of M/s.Ernst & Young, was not produced in the meeting dated 10th January, 2005 and the Company's explanation that, it was sent to the consortium leader would amount to service would be a bad argument. They submit that even if the objector knew about the report, then too, the question that whether proper informations were supplied or not would be a material question. They submit that there was no offer on the part of the company to get the report produced and concept of adverse inference in case of statutory requirement has no room. They submit that ARCIL cannot be considered in the category of secured credito....
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....otes 2 1.82 3,920 0.0007 Total Present 110 100 64,39,09,360 100.000 (ii) Outcome of the meeting of Preference shareholders of Nirma Limited: Preference Shareholders Nos. % of total present and voting. Value of shares held in Rs. % of total holding present and voting In Favour 7 100 2,79,28,500 100 Against Nil N.A. Nil N.A. Invalid votes Nil N.A. Nil N.A. Total Present 7 100 2,79,28,500 100 (iii) Outcome of the meeting of shareholders of Core Healthcare Limited: Equity Shareholders Nos. % of total present and voting. Value of shares held in Rs. % of total holding present and voting In Favour 29 100 16,36,12,800 100 Against Nil N.A. Nil N.A. Invalid votes Nil N.A. Nil N.A. Total Present 29 100 16,36,12,800 100 (iv) Outcome of the meeting of Class-A lenders of Core Healthcare Limited was as under: Class A Lenders Nos. % of total present and voting Value of Debt(Rs.in lacs) % of total holding present and voting In Favour 7 70 &nb....
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.... 69.5800 JP Morgan Chase Bank NA 1 5,371.6000 Mihir Nanavti C/o. Mushirabad Gramin Bank 1 69.5800 Other Debendure Holders 58 0.2835 Against 4 5.33 3,267.42 Etah Gramin Bank 1 69.5800 Aligarh Gramin Bank 1 313.1200 Pragati Gramin Bank 1 14.0000 HDFC Bank 1 2,870.7200 Invalid votes -- -- -- -- Total Present 75 34,810.05 They submit that Section 391 requires that the Scheme must be approved by the majority members having not less than 3/4th in value,....
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.... which reads as under: 392. [1] Where a High Court makes an order under Section 391 sanctioning a compromise or an arrangement in respect of a company, it- [a] shall have power to supervise the carrying out of the compromise or arrangement; and [b] may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. [2] If the court aforesaid is satisfied that a compromise or arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under Section 433 of this Act. [3] The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act under Section 153 of the Indian Companies Act, 1913 [7 of 1913], sanctioning a compromis....
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.... the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which it is empowered to bind, or some blot is found in the scheme. In the case of Alabama, New Orleans, Texas and Pacific Junction Railway Co., In re [1891] 1 Ch 213, the relevant observations regarding the power and jurisdiction of the company court which is called upon to sanction a scheme of arrangement or compromise between the company and its creditors or shareholders were made by Lindley L.J., as under [at pp.238-239]: What the court has to do is to see, first of all, that the provisions of that statute have been complied with: and, secondly, that the majority has been acting bona fide. The court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can reasonably be taken by bu....
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.... merger and amalgamation of companies [at page 695]: It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefited or will be able to economise in the matter of expenses is a matter for the shareholders to reconsider. If three companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However, the court is really not concerned with the exact details of the matter and if the shareholders approved the scheme by the requisite majority, then the court only looks into the scheme as to find out that it is not manifestly unfair and/or is not intended to defraud or do injustice to the other shareholders. We may also in this connection profitably refer to the judgment of this Court in the case of Hindustan Lever Employees' Union v. Hindustan....
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....haliah C.J., also toed the line indicated by Sahai J., about the jurisdiction of the company court while sanctioning the scheme and made the following pertinent observations in paragraph 84 at page 528 of the report [at p. 65 of 83 Comp Cas]: An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr. Dhavan has argued that TOMCO is not yet a sick company. That may be right, but TOMCO at this rate will become a sick company, unless something can be done to improve its performance. In last two years, it has sold its investments and other properties. If this proposal of amalgamation is not sanc....
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....of apparent corporate purpose underlying the scheme and can judiciously x-ray same. [7] That the company court has also to satisfy itself that the members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. [8] That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. [9] Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there could be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a s....
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....criticisms set out in the applicant's affidavit show that a good case could be made out for the formulation of a better scheme, of a fairer scheme, one of one which would have been more attractive to the shareholders if they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have been evolved, but is that enough? Is it necessary to establish the validity of such an offer as put forward in the present case? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment might have been offered to persons whose shares are sought to be expropriated? A better and fairer offer might have been made, possibly, but I do not think that because a scheme is not 100 per cent fair or right there is the kind of unfairness with which Maugham J. was dealing in the case to which I have referred. The mere finding of items, or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment. A scheme must be obviously unfair, patently unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be effective to....
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....shares as contemplated in Section 395 does not require sanction of the court. Only dissenting shareholders can move the court against compulsory acquisition on the allegation that the whole attempt of take-over is unfair. It is, therefore, necessary to find out whether this is a scheme of compromise and arrangement which would fall squarely and fairly within Section 391. If it falls under Section 391, it would be presently pointed out that even if it achieves the same result which would be achieved under Section 395, it would nonetheless be a scheme under Section 391 and can be sanctioned as a scheme of compromise and arrangement under Section 391. Section 391 provides for sanction of a scheme of compromise and arrangement. Such a scheme may provide an exceptional procedure to modify or abrogate the rights of shareholders, debenture holders and creditors. They are variously described as reconstruction, reorganization, schemes of arrangement, amalgamation, mergers or takeovers; but none of these terms is clearly defined and connotes a distinguishable legal meaning. As Gower in the principle of Modern Company Law third edition, observed in general, the expression 'reconstruction,....
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....Section 484. The question, therefore, is whether a particular scheme is one which falls under Section 391 or Section 395 or Section 484 must be examined in the background of its own facts. It may be that the ultimate result may be the same but that would not mean that it is a scheme not under one but other sections. The principal question is whether such a scheme by which one company is covered from independent public limited company into a wholly owned subsidiary company of the other public limited company could be sanctioned under Section 391. Mr. Shah may be right in saying that such a thing can be done under Section 391. That is not the test. The test is whether it could be done under Section 391. Now before referring to a decision on this point, I should like to notice that Sections 391, 393, 394 and 395 are in pari materia with Sections 206, 207, 208 and 209 of the Companies Act, 1948 [United Kingdom]. In fact we have almost bodily incorporated those provisions. The interpretation of identical provisions of the Companies Act, 1948 [United Kingdom] would undoubtedly assist in finding out the true scope and ambit of the identical provisions included in our Companies Ac....
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....ompany wanted to take over Reliance Marines Insurance Company Ltd., by proposing a scheme of compromise and arrangement under Section 120 of the Companies [Consolidation] Act, 1908, which again is in pari materia with Section 391 of our Companies Act. The proposed scheme was an extreme case to which the word 'arrangement' could be stretched to cover. By the proposed scheme, the capital of the Guardian was to be consolidated and redivided and such redivided shares were to be issued to the shareholders of Reliance Marine Insurance Company Ltd. [hereinafter referred to as Reliance] in proportion of 2:1. Now, the Guardian was not in a position to issue fresh capital. It was, therefore, provided that that portion of the shares held by shareholders of Guardian shall be compulsorily acquired for allotment to the shareholders of Reliance. The scheme in a nutshell was that for one share of Reliance two shares of Guardian would be issued and Guardian shall acquire such number of shares for allotting it to the shareholders of Reliance by acquiring the same from its shareholders. Therefore, the shareholders of Guardian had to compulsorily part with a portion of its shares for being all....
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....he Guardian Company and its shareholders which would make it obligatory upon a few dissentient shareholders in the Guardian Company if there be any dissentients, to contribute out of their own shares a certain proportion, and that proportion is made more workable by sub-dividing the shares of the Guardian into fully paid preference and ordinary shares not fully paid up. The details seem to me to be worked out with great care and great accuracy in the agreement, but it is not necessary in any way for me to discuss them here. I think what is proposed to be done in perfect good faith, and for very good business reasons, is not compromise, but is an arrangement proposed between a company and its members, using the words of Section 120, and that there is no necessity to put such limitation upon those words as Younger J. felt bound to do. Warrington L.J. and A.T. Lawrence J. concurred and the scheme was sanctioned. I would also refer to In Re National Bank Ltd. The Scheme which was submitted to the court for its sanction under Section 206 of the Companies Act, 1948 (U.K.) (Which is in pari materia with Section 391 of our Companies Act), was as under: The proposals invol....
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....verting the first mentioned company into a wholly=owned subsidiary company of the second mentioned company, it can nonetheless be a scheme of compromise and arrangement which if found to be just, fair, legal and workable and if properly approved can be sanctioned under Section 391. Even if the effect of sanctioning the scheme is take-over of the first company by the second company, it would be no answer to say that it can only be done under Section 395. In the aforementioned case, the contention raised was that where arrangement under Section 206 is in essence a scheme or contract for the purchase by an outsider of all the issued shares of the company, the court should not approve the arrangement unless both [1] the petitioner proves on full disclosure that the price is fair, and [2] the arrangement is approved by the 90 per cent majority referred to in Section 209. It was urged that arrangement brought before the court was one of Section 209 character and was not approved by the appropriate majority. Repelling this contention, it was observed as under: As regards Mr. Suenson-Taylor's second objection, namely, that the scheme really ought to be treated as a Se....
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....1 is sponsored, at the outset, it must come before the court and the court has supervision over it at every stage. When it is proposed, the court can prima facie examine it while giving directions under Section 391[1] for convening meetings and the scheme cannot finally go through unless sanction under Section 391[2] and the court, apart from various legal technicalities, can refuse to exercise discretion in favour of the scheme if it is shown to be oppressive to the dissenting members or if it is shown that the majority has almost imposed itself upon the minority. The scheme or contract of transfer of shares as contemplated in Section 395 may not even come to the court. It can only come to the court if the dissenting minority challenges the proposed offer as unfair and the burden will be on them to show that the proposed offer is unfair. In a scheme under Section 391 the fact that the scheme is fair and reasonable and is such that honest men guided by best of commercial instincts would approve, has to be established by the sponsors and the dissenting minority has only to show that the court should not exercise discretion in favour of such a scheme. But in a scheme under Section 39....
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....e said that the scheme of arrangement in question is not maintainable or not sustainable. The scheme is affecting the shareholders and the creditors as the cement division of the petitioners is being transferred to the transferee company. There is no objection raised even by the Regional Director about the maintainability of the scheme of arrangement. It is difficult to reject the whole scheme of arrangement like this, which has definitely an element of demerger and reduction of shares which are a permissible mode of various schemes under the provisions of Sections 391 to 394 merely on technical grounds. Investment Corporation of India Ltd., In re [1987] 61 Comp Cas 92 [Bom.], the word arrangement has been interpreted in a wider manner. Another case is Guardian Assurance Company, In re [1917] 1 Ch D 431 [CA] to demonstrate that the word arrangement has a wide meaning and interpretation, even under the English laws. The extract of the relevant paragraphs are: Mr. Bulchandani has next argued that Section 391 of the Companies Act contemplates that where a compromise or arrangement is arrived at between the company and its creditors and/or the company and its shareholders; it ....
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....section. Guardian Assurance Company, In re [1917] 1 Ch D 431 [CA]. the Chancery Division observed as follows: In think what is proposed to be done in perfect good faith, and for very good business reasons is not a compromise, but is an arrangement proposed between a company and its members, using the words of Section 120 and that there is no necessity to put such a limitation upon those words as Younger J. felt bound to do. With the greatest possible respect to him, having carefully considered his very able judgment, I am unable to come to the same conclusion as he did. I think the order ought to be made as asked by the petition. Warrington L.J. I am of the same opinion. The scheme which we are asked to sanction is no doubt one of a somewhat unusual nature, but for all that it may still be an arrangement within the meaning of the 120th section of the Act. At this juncture, it is necessary to refer to the arrangement in the present scheme in question. It is not a case of amalgamation as contemplated under the provisions of Sections 391 to 394. In the present scheme, there is no transferor company merging into a transferee company and/or i....
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....e objectors that such Scheme is not envisaged under the Companies Act is not a good ground to oppose the sanction of the Scheme. In fact, all the petitioners are correct in submitting that the objections are raised by the objectors on an incorrect assumption that both the units of Core are being dealt with under the present Scheme. After going through the entire Scheme, I am of the considered opinion that in fact, the Scheme deals with only one unit of the petitioner-Core. In the opinion of this Court, demerger of one unit of a company would also come under an agreement/arrangement, because, if demerger is not taken to be an arrangement, then the Company would not be able to deal with its property in accordance with law. 27. According to the objectors, directors and promoters of Core are holding more than 50% equity shares of Core and would be benefited under the Scheme. The objections raised by the objectors, in the opinion of this Court are misconceived, firstly because it is undisputed that the promoters have already pledged their shares and the person holding shares would now be benefited and secondly, because ARCIL has clearly stated that the benefit of share exchange ratio....
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....any fact. 29. The objection of the objectors say that valuation report was not supplied to them and therefore, the Scheme should not be accepted. Submissions of the petitioners are that Core and Nirma have stated on oath that they did not have copy of the report of valuation which was carried by M/s.Ernst & Young at the instance of ICICI and a party is not expected to place on record the documents which it does not have. According to them, report of M/s.Ernst & Young is available with Oman International Bank and HDFC and they are suppressing the same and are not producing it on the record. 30. It would be clear from the letter dated 10th February, 2005 [page-166 of the Company Petition No. 9/06] of ARCIL whereby it has sent copies of the said valuation report to various lenders as per the list at pages 167-169. HDFC Bank and Standard Chartered Bank are named in the same. Standard Chartered Bank was provided two copies; one in its personal capacity and second in its capacity as representative bank having foreign exchange exposure in Core, in capacity as lead Trustee and Agent of the Consortium, of which Oman International Bank is a member. The said Standard Chartered Bank, in ....
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....idator and Anr. are concerned, those were on different facts. The said cases related to winding up. In the said cases, the Court held that before disposing of the property, High Court would be entitled to obtain fresh valuation report. The said decisions have no bearing on the present matter, because Core is not in winding up. If majority shareholders and the majority of the lenders are of the opinion that particular decision should be taken to receive best of the benefits and avoid delay, then further valuation report is not necessary. 32. So far as the respondents' objection regarding transfer of funds to subsidiaries by giving interest free loans is concerned, in the opinion of this Court, the objection cannot be considered in these proceedings. The act of the Board of Directors or the management of Core have nothing to do with the present Scheme. It is also to be noted that Core is not amalgamated in Nirma nor is in winding up. If ultimately it is found that the Board of Directors, Managing Director or Director or the management of Core is guilty of an act of commission or omission, misfeasance or malfeasance, then it could certainly be brought before the Court, their li....
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....ce to the liability if any, in the civil and criminal proceedings in respect of past transactions. The sanction is hereby accordingly accorded to the scheme of compromise and arrangement and restructuring of the debt of the petitioner-company, copy whereof is annexure D to the petition. This Court hereby accords sanction to restructuring of the debt of the petitioner-company as envisaged in the scheme annexure D, subject to and without prejudice to the liability if any, in the civil and criminal proceedings in respect of past transactions. 33. From this judgment, it would be clear that the Scheme can always be sanctioned subject to and without prejudice to the liability, if any, in the civil and criminal proceedings in respect of the past transactions. The argument of objectors that the Scheme is vague and incomprehensible should not detain this Court unnecessarily because the Scheme is clear, nobody either raised an objection in the meetings held for the purpose or at the time of the discussion that the Scheme was vague and incomprehensible. The liability, if any, of the Board, Directors, management etc., in civil and criminal proceedings would continue, and I accordin....
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....ossession of the assets of Core, then it was mandatory for BIFR to terminate the proceedings. If this is statutory legal position, then any action on the part of the trio, namely ARCIL, Core and Nirma, cannot be termed as conspiracy or collusion. 36. The objection of the objector in relation to Section 13 of the SARFAESI Act is that assets of Core were not valued nor any reserve price was fixed as was required under the rules framed under the said Act. It is also submitted by the objectors that under Section 35 of the Act, Scheme proceedings are not maintainable. Section 13 of the said Act reads as under: 13. Enforcement of security interest.-[1] Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 [4 of 1882], any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. [2] Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt....
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.... the debt; [c] appoint any person [hereafter referred to as the manager], to manage the secured assets the possession of which has been taken over by the secured creditor; [d] require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. [5] Any payment made by any person referred to in Clause [d] of Sub-section [4] to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. [6] Any transfer of secured asset after taking possession thereof or take over of management under Sub-section [4], by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. [7] Where any action has been taken against a borrower under the provisions of Sub-section [4], all costs, charges and expenses which, in the opinion of the secured....
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....ed, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmens dues, such creditor shall be liable to pay the balance of the workmens dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmens dues, if any. Explanation.-For the purpose of this sub-section,-- [a] record date means the date agreed upon by the secured creditor representing not less than three-fourth in value of the amount outstanding on such date; [b] amount outstanding shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. [10] Where dues of the secured creditor are n....
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....r or borrower. ARCIL does not become absolute owner of the property, but simply acquires certain rights under the Act in regard to selling the property and distributing the receipts. Present proceedings are under Sections 391 to 394 of the Act. There is no sale of assets nor part of the undertaking under the SARFAESI Act and if there is no sale of assets, then question of valuation, fixation of reserve price, authority of ARCIL to sell the property under the Act and the Rules framed thereunder would not arise. Even otherwise, it is to be noted that report of Ernst & Young is available on the record, was available with ARCIL and they had invited public offers for disposal of the property. If Nirma was the only company to make its offer then, ARCIL could sell the property in favour of Nirma or could allow Core to float the Scheme for demerger so that in terms of Scheme, the property is demerged with Nirma for the same value which ARCIL was to receive otherwise. Present is not a case where anybody says that report of M/s.Ernst & Young is wrong report or Nirma was not the sole offerer or somebody had come forward to make better offer, or even the objectors have somebody with better off....
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....heme. Taking into consideration the legal provisions and totality of the circumstances, I am unable to hold that the proposal and consideration of the Scheme under Sections 391 to 394 would run contrary to Section 13 of the SARFAESI Act and this Court would have no jurisdiction to grant or approve such Scheme. 40. One of the objections raised by the objectors is that the objectors have filed their case before the Debt Recovery Tribunal, therefore, this Court would have no jurisdiction to consider the Scheme and by grant of the Scheme as the objectors are to be non-suited by the Debt Recovery Tribunal, present proceedings are illegal. The petitioners have placed their reliance upon the judgment of the Supreme Court in the matter of Allahabad Bank v. Canara Bank and Anr. AIR 2000 SC 1535. So far as the right of the objector to proceed with the case before the Debt Recovery Tribunal is concerned, it would certainly stand if the Scheme proceedings are not approved by the High Court. Core certainly would have a right to take out proceedings for compromise. If the proceedings ultimately fail and the Scheme is not approved by the High Court, then right to proceed with the proceedings b....
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....r is allowed to demerge, then that Scheme would be final and would have a binding effect on all concerned, and once the Scheme binds objectors, then they would not be allowed to say that despite approval of the Scheme by the High Court, they would be entitled to proceed in the Debt Recovery Tribunal. Judgment in the matter of Allahabad Bank [supra] was in altogether different context, there, the Supreme Court was not considering approval, sanction or rejection of the Scheme. It cannot be denied that in a pending litigation, a borrower can come forward for settlement and it would always be open to the lender to accept the terms of the settlement. If such authority is available to a borrower, then he can always come forward with a Scheme for compromise which is being offered to the creditors individually so also jointly. However, I would agree with the petitioner that if an individual lender can settle, then, there is no reason to hold that the lenders collectively cannot enter into the Scheme of compromise. 41. In the matter of Arvind Mills Limited [supra], the High Court has observed as under: There is no denying the fact that if the scheme is approved the objectors wou....
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....ld not be entitled to vote at all. I will take up the objections one by one. It is undisputed that five lenders of Class-A and one lender of Class-B had assigned their debt to ARCIL under the provisions of the SARFAESI Act. It is undisputed that on receipt of smaller amount by lending banks, they had assigned their right in favour of ARCIL. Neither the Companies Act nor the SARFAESI Act nor the Contract Act nor the Sale of Goods Act provide that if right to recover debt is purchased at a lower price, the right to recover would stand reduced to the price paid for acquiring the rights. In the present matter, undisputedly, ARCIL had paid lower price for acquiring greater right but if a person voluntarily without any pressure, duress or coercion taking into consideration the hard realities of life, sells his property at a lower price, then the law does not stop him from doing so. Any person who purchases valuable property for a lower price and element of fraud or dishonesty is not associated with it, then he becomes absolute owner of the right purchased by him. In case, property was to be sold by ARCIL under the provisions of the SARFAESI Act, could objectors say that there money shoul....
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....objections under any law or otherwise and other instruments or whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under Sub-section [1] and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitization company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitization company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitization company or reconstruction company, as the case may be. [4] If, on the date of acquisition of financial asset under Sub-section [1], any suit, appeal or other proceeding of whatever nature relating to the said financial asset s pending by or against the bank or financial institution, save as provided in the third proviso to Sub-section [1] of Section 15 of the Sick....
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.... 45. ARCIL, undisputedly, has paid lower price for purchasing greater rights, but, what it has purchased is the right and the right enforceable against the company. If somebody purchases a fortune for song's price, then, he would be entitled to fortune and would also be entitled to recover market price of the fortune and none can say that he is required to sell the said fortune for the song's price. The conflict as projected by the objectors appears to be artificial. If the lenders are of the same Class, then conflict must be real. The objectors cannot say that though they are lenders of money, they are secured creditors of Class 'A' or Class 'B', but, they are absolutely different class, because they do not agree with what the majority says. In a given case, if the property was to be sold by the High Court in winding up or liquidation proceedings, then purchaser of the rights, i.e. ARCIL would be entitled to recover what it had purchased and not what it had paid to purchase the rights. If in such proceedings, the objectors would be taken to be the lenders of the same Class or birds of the same block, then in these proceedings or in the meeting, they cann....
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....hts for recovering the money. 46. The question of creation of the class will have to be seen from other angle that whether formation of the Class provides some advantages or disadvantages to the persons of same Class. It should be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The word identical here would not mean in terms of money but it will have to be seen that if somebody is making a sacrifice to the tune of 50%, then everybody should make sacrifice to the tune of 50%. In the present case, classification of creditors has to be on the basis of the terms offered to them under the Scheme and not on any other basis. It would be correct to say that ARCIL had purchased the debt at much lesser price and would therefore, suffer lesser in comparison to objectors but under the law it would have no bearing upon the Scheme proceedings. 47. In the present case, if the lending banks could sell their right to recover money, then, they could also enter into agreement with Core to settle their dues for the amount which was offered to them by ARCIL. If such settlement could be entered into between Core and lending banks, then, Core would h....
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.... meeting directly reported the result of the meeting to the Department of Company Affairs. On 26th December, 2001, a direct petition was filed with the Department of Company Affairs under Section 391 of the Act for approval of the new scheme of agreement between ITDC and Hotel Yamuna View Private Limited and their respective shareholders for Hotel Agra Ashok. Public Notices were directed to be issued regarding the scheme of arrangement and hearing through advertisement. After hearing the parties, the Department of Company Affairs gave approval to the scheme of agreement on 1st February, 2002. The demerger was complete on 1st February, 2002 and only thereafter, the shares of the Government of India in Hotel Yamuna Private Limited were sold to respondent No. 5 on 7th February, 2002 by the share purchase agreement. 48.2 The Supreme Court also observed that a policy decision should be least interfered in judicial review because the policy decision or the final verdict in the meeting would reflect the general consensus. 48.3 This judgement of the Supreme Court gives an appropriate reply to the objectors' objections that demerger is not permissible under Sections 391 and 394 of....
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....of creditors or of the members or class of members or the requirement of a majority representing the requisite value of creditors or class of creditors or members or a class of members, as the case may be, would carry no meaning. Whatever may be the case, if the contention of learned Counsel for the objector is to be accepted, whether the compromise is one confined to a class of members or to a body of members as a whole would make no difference and in each case, a separate meeting will have to be called for only a class of members irrespective of the fact whether the scheme affects the class differently or not. Or in a given case no compromise or term is offered to a particular class of shares but may be confined to one or more than a class of shares. Therefore, before adverting to the question whether the appellant-objector constitutes a separate class of shareholders or not, it has to be seen whether any different terms have been offered to different classes of creditors or members and whether any classification of members is required to be made in accordance with those distinctions in terms of the compromise offered to them and whether any such separate meeting was required to ....
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....nison having now fallen apart and having their interest in conflict with each other is wholly irrelevant for the purpose of conferring the status of distinct class to any such member so long as under the scheme they are not treated differently. Any other view will lead to strange and chaotic results. Ought one to know that who stand today apart may be united tomorrow and vice versa, those in conflict may unite. If such interest simpliciter were to be the relevant consideration for treating them as a separate class, any private dispute between joint shareholders or groups of shareholders about distribution of a legacy would result in conferring the distinction of a separate class on each of the contesting claimants. That, in our opinion, has no place in the scheme of provisions. The class of creditors or members envisaged under Section 391 is directly related to interrelationship between the company and the shareholder on the basis of rights and obligations attached to the class of shares issued and such rights being affected by the proposed scheme of arrangement or compromise differently and not personal rights of the holders of shares emanating from their right of inheritance or p....
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....f a small number of persons who will all be willing to be bound by the scheme. In that case, it is not the practice to hold a meeting of that class, but to make the class a party to the scheme and to obtain the consent of all its members to be bound. It is, however, necessary for at least one class meeting to be held in order to give the Court jurisdiction under the Section. From the aforesaid, it is clear that what is the primary importance for the purpose of constituting a class requiring a separate meeting thereof, is different treatment given to a group under the proposed scheme. No separate classification is required until a group is treated differently under the scheme. The illustration clarifies the position transparently that where rights of ordinary shareholders are to be altered but those of preference shares are not touched, a meeting of ordinary shareholders alone is required but not of preference shareholders. If amongst the ordinary shareholders, some group is to be treated differently than the other group, that too, within the class of ordinary shareholders, a separate meeting may have to be held for the purpose of binding different interest which are treate....
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....d and the claims under them and had crystallised in July, 1889, in the first instance, the winding up order was made, and thereafter an arrangement under the Joint Stock Companies Arrangement Act, 1870, was entered into between the plaintiff-company and another company under which it was agreed that the plaintiff-company shall be transferred to another company in lieu thereof, all the holders of the policies shall accept certain reduced payments from the transferee company which was approved by a majority of shareholders. Mr. Dodd did not assent to the arrangement. After the scheme was sanctioned, the plaintiff-company had filed a suit against Mr. Dodd for recovery of the two loans raised against the two policies taken out by him. In defence, Mr. Dodd claimed full amount payable under the policy as set off which but for winding up would have been payable to him upon the policies. The plaintiff-company put forward the said arrangement to negative the claim of set off. It is under these circumstances when the matter reached the Court of Appeal, Bowen J., in his judgement concurring with Lord Esher M.R., stated thus (at page 583): If we are to construe the section as it sugge....
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....reditors into two classes, namely, holders of the policies that have been matured and holders of policies that are current are held to have an adverse effect directly as a result of the scheme on their respective interests because of the state of the things existing on the date of calling of the meeting in relation to rights and liabilities vis-a-vis the company. 50.1 From this judgement, it would clearly appear that there is a marked distinction between the phrases, rights and interest of persons, who have identical rights. From this judgement, it would also be clear that persons having identical rights should be treated in identical manner and must be placed in the same class. All the shareholders whether they have purchased the share at base price or market price and continue to be the shareholders would, therefore, constitute one class. The secured creditors/Class 'A' lenders who have charge over the immovable properties, irrespective of the terms of the loan agreement would be taken to be secured creditors and would constitute a different class. People who have advanced loan on hypothecation of the goods, would be treated as a Class with another lenders. 51. In t....
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.... their interest may be affected differently from other secured creditors because of their interrelationship particularly ICICI or their interest other than as secured creditors simpliciter but the same cannot entitle the objectors to sustain their claim of separate class distinct from other secured creditors. The inter se differences/disputes amongst some secured creditors cannot be the criterion for constituting a separate class of secured creditors in foreign currency. Personal conflict of interest of the objectors with ICICI would be totally foreign to the scope of class meeting convened by the company to consider the scheme. 52. The said judgement of the High Court was approved by the Supreme Court in the matter of Miheer H. Mafatlal v. Mafatlal Industries Limited, reported in 87 Comp. Cases 792. The Supreme Court has observed as under: So far as the articles of association of respondent-company are concerned they also contemplate two classes of shareholders No separate class of equity shareholders is contemplated either by the Act or by the articles of association of respondent-company. The appellant is admittedly an equity shareholder. Therefore, he would fall wit....
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....ty shareholders for their consideration and when the commercial interest of the appellant so far as the scheme is concerned is in common with other equity shareholders he would have a common cause with them either to accept or to reject the scheme from commercial point of view. Consequently, there was no occasion for convening a separate class meeting of the minority equity shareholders represented by the appellant and his group as tried to be suggested. 52.1 In this connection, the Supreme Court referred to what the learned author Palmer in his treatise on Company Law, 24th Edition, has to say on, What constitutes a class: The court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. 52.2 The Supreme Court then proceeds to observe that: It is, therefore, obvious that unless a separate and different type of scheme of compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. 53. In the case of D.A. Swamy and Ors. v. I....
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....s group of secured creditors have been treated differently from other secured creditors by the company. The grievance is otherwise. Identical/same terms of compromise have been offered to all the secured creditors. There cannot be any preferential treatment to some unsecured creditors and the scheme cannot give any special treatment to some creditors. Simply because some of the secured creditors have some dispute between them or have been fighting litigation inter se can be no ground for treating litigating secured creditors differently from the body of secured creditors. There cannot be a class within the class and the class has to be of one type of creditors, namely, secured creditors, unsecured creditors and working capital lenders as all the secured creditors have similar rights in the company. As far as commonality or conflict of interest is concerned all the secured creditors have a common interest of securing their dues in proportion to the amount lent and the terms or conditions thereof. It is not the say of the objectors that their rights are dissimilar to the rights of supporting secured creditors. As far as the body of secured creditors is concerned, there can be an effe....
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....s as under: The applicant applied for an order under Section 425 of the Companies Act, 1985 sanctioning a scheme of arrangement. The company carried on two types of insurance business, London Market business and Personal Lines business. From September 1992 the company ceased to write London Market business. On 3rd September, 1993, the company transferred its Personal Lines business to another company. From that date the company had thus been in run-off. The Personal Lines policies were all claims made policies. It appeared very unlikely that there could be any new valid claims on the Personal Lines policies. The London Market policies did not involve any long tail risks. Any claims in respect of such policies were likely to have been already made. The quantum of the company's anticipated liabilities was very small compared to the quantum of its assets. It was anticipated that the run-off would take several years to complete. All policyholders present in person or by proxy at the statutory meeting convened to consider the scheme voted in favour of the scheme. Although the number of those who voted was small compared to the number of those entitled to vote the value of t....
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....ue, all those present and voting in person or by proxy and thereafter, such approval is to be reported to the Court, but, it would not necessarily follow in every case that the treatment under the scheme of vested and contingent rights, or the rights under matured and current policies will be so dissimilar that the holders of those rights must be regarded as persons in different classes in the context of the question with whom is the compromise or arrangement made. According to the Court, in each case, the answer to that question will depend upon analysis (i) of the rights which are to be released or varied under the scheme and (2) of the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be released or varied. It is in the light of that analysis that the test formulated by the Lord Justice Bowen in order to determine which creditors fall into a separate class that is to say, that a class must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 55.1 From this judgement, it would also appear that the meaning of the word....
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....;A' lenders, ARCIL certainly was entitled to participate in the meeting of Class 'A' lenders and as an assignee, ARCIL was also entitled to participate in the meeting of Class 'B' lenders. 58. The judgement in the matter of Manek Chowk Mills Limited, 40 Company Cases 1819, and the judgement in the matter of Arvind Mills Limited (supra), in fact, do not support the case and cause of the objectors. In the matter of Arvind Mills (supra), the High Court held that there was no conflict of commercial interest with the objectors and other secured creditors and if in this case, it is held that there is no conflict of commercial interest amongst the lenders, then, the judgement in the matter of Arvind Mills Limited (supra) would, in fact, help and support the case and cause of the petitioners. 59. According to the objectors, the Scheme must fail because there were inadequacies in the explanatory statement and in particular, in relation to the following explanatory statements: (i) ARCIL had proposed the scheme; (ii) ARCIL had a special role including the recovery of its dues; (iii) Possession of Sachana Unit has been handed over to Nirma; ....
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....s easily and at lower costs. The amalgamation of MFL with MIL will pave the way for better, more efficient and economic control in the running operations and would lead to economy in the administrative and management cost, resulting in improving profitability. The amalgamated company will have a strong and large resource funds. The combined technological, managerial and financial resources would enhance the capability of the amalgamated company to invest in larger and sophisticated projects to ensure rapid growth. The amalgamated company's Textiles Division with five operative units at its disposal will have flexibility in its operations. So far as the aforesaid explanatory statement is concerned it gives sufficient indication regarding the pliability and usefulness of the proposed Scheme of Amalgamation of transferor-company MFL with the transferee-company MIL. However, the special grievance of the appellant voiced by his learned Counsel is to the effect that the real interest underlying the scheme of merger was that of the Director - Shri Arvind Mafatlal and his group who were at the helm of affairs of the transferee-company. The learned Senior Counsel, Shri Shanti B....
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....nd germane to the requirement of Section 393(1)(a), the Division Bench in appeal had taken a contrary view and held that such a special interest was required to be communicated to the equity shareholders in their meeting as per the said provision. In this connection our attention was invited by Shri Shanti Bhushan to the observation of the Division Bench of the High Court at page 325 of the paper book wherein the Division Bench observed as under: Miheer H. Mafatlal was to get exclusive control to MIL to the exclusion of Arvind N. Mafatlal and his two brothers. Under the proposed family arrangement M. Fine was to be hived off from MIL and the control and management of M. Fine was to be held by Arvind N.Mafatlal and that of MIL was to be handed over to the objector, Miheer H. Mafatlal. This family arrangement has suffered rough weather. Suit No. 1010 of 1987 was filed by Arvind N. Mafatlal against Miheer H.Mafatlal and others before the Bombay High Court alleging that another agreement subsequent to the said family arrangement has come into existence under which Miheer H. Mafatlal and other brothers of Arvind had agreed to transfer all their holdings in MIL to A. N. Mafatlal....
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.... concerned. If the special interest which the director has is in any way likely to be affected by the Scheme and if non-disclosure of such an interest is likely to affect the voting pattern of the class of creditors or shareholders who are called upon to vote on the scheme, then only such special interest of the director is required to be communicated to the voters as per Section 393(1)(a). We fail to appreciate how the personal family dispute between the appellant on the one hand and Arvind Mafatlal, Director of the transferee-company MIL on the other regarding the right to hold shares in the company can have any linkage or nexus with the Scheme of Amalgamation of these two companies which was put to vote before the equity shareholders. It is easy to visualize that if the suit filed by Arvind Mafatlal against the appellant succeeds and the appellant's counter-claim fails then all that would happen is that the appellant will have to sell his shareholding which is only 5% in the transferee-company to the plaintiff, Arvind Mafatlal. That has nothing to do with the equity shareholders as a class, which was called upon to decide whether the scheme of merging the transferor-company ....
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....way or the other had no impact on the pattern of voting of the equity shareholders of the respondent-company as a class of prudent businessmen and investors so far as the Scheme was concerned. The Scheme of Compromise and Arrangement which was put to vote was of such a nature that it had no impact or effect on the personal interest of the Director, Arvind Mafatlal, in connection with his present shareholding in the transferee-company. Consequently, it must be held that mention about such an interest was outside the statutory requirements of Section 393(1)(a) as rightly held by the learned single Judge whose view was erroneously upset by the Division Bench. However, in any case we are in entire agreement with the subsequent reasoning of the Division Bench for approving the decision of the learned single Judge on this aspect, namely, that such non-disclosure of interest had no impact on the voting pattern adopted at the meeting by the equity shareholders who are called upon to approve the scheme. It may also be noted in this connection that the resolution of the equity shareholders approving the Scheme of Amalgamation was passed with overwhelming majority by members including through....
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....in this connection that the appellant who being a party to the civil litigation before the Bombay High Court and who was very much keen to get more share holding in transferee-company and who had already filed his counter-claim for enforcing the family arrangement of 1979, had not thought it fit to remain present in the meeting of the equity shareholders and on the contrary he got himself represented through proxy who had no right to speak. Thus, in substance the appellant himself never thought that information about the pendency of the litigation between Arvind Mafatlal, Director of the respondent-company and himself was so important that it was required to be brought to the voters' notice even though he had opportunity to do so by remaining personally present in the meeting for that purpose. It, therefore, clearly appears to be an afterthought when he put forward such an objection for the sake of it at the time of opposing the Scheme which was put for sanction of the Court. 34. It may also be kept in view that the explanatory statement in no way emphasised that it is the management of the transferee-company by Shri Arvind Mafatlal which is going to be better monitore....
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....nage the property and would also be entitled to deal with the property so that best use of the property is taken. In the present case, the objectors do not say that handing over of possession of the property to Nirma had caused any prejudice to them or was to create special favours in favour of Nirma. The injunction, non-reporting of which is made an issue, was obtained by HDFC against Core. Once exercising the statutory powers, ARCIL had taken the possession, then, no complaint can be made to the Debts Recovery Tribunal or Civil Court that Core have violated the terms of injunction. The injunction was, not to hand over the possession or transfer the property. Undisputedly, Core did not transfer the property nor did it hand over the possession of the property to a third party. In fact, the possession was taken from them by ARCIL under its statutory rights. Mention or non-mention of the injunction in any case would not have benefited the case and cause of the objectors. From the records, it would also be clear that the order passed by this Court on 28th October, 2005, directing convening of the meeting, does refer to this order and the said order of the Court was placed in the meeti....
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....ed as contingent liability, the same cannot mean that liability which has actually arisen can be ignored. They also submitted that the right to get back the Bank Guarantee amount from Core, Customs Department, is based on a speculation because it is not known to anybody that whether the export obligations would be fulfilled or not. They also submitted that as all the debts are required to be settled under the Scheme of Compromise and Arrangement and certain benefits flow in favour of Nirma, then, future reliefs would not have a bearing on the settlement, which is to be arrived at today. It is also the submission that Nirma agrees to take Sachana Unit with all its assets and liabilities and as on today, one cannot ascertain worth of the assets and/or quantum of liabilities. According to them, the compromise is a package deal for demerger of the assets and liabilities as exist today and to what extent the assets would crsystallise or liabilities would prop up at a future date would be in the realm of speculation and this cannot, therefore, invalidate the Scheme proceedings. According to them, under the Scheme of Demerger, Sachana undertaking with all liabilities and its assets would ....
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....o Section 189 of the Act which defines special resolution wherein an approval of 3/4th of the members in the voting at the meeting is required. The petitioners submit that while allowing Core to convene the meeting, this Court specifically ordered that the requirements of provisions of Section 101(2) of the Act, read with Rules 48 to 65 of the Companies (Court) Rules, 1954 be dispensed with. According to them, the order was passed after hearing HDFC Bank and under the circumstances, the Bank cannot be allowed to raise this objection. The petitioners submit that the Scheme proceedings are single window clearance and while passing the order in the Scheme proceedings, this Court can sanction reduction of the share capital, which can be part of the very Scheme and it would not be necessary to convene a separate meeting for considering such reduction. 72. In the matter of Manek Chowk and Ahmedabad Manufacturing Company Limited, 40 Comp.Cases 819, this Court has held as under: That takes me to the last attack under the head reorganisation of share capital", namely, that the scheme envisages reduction of share capital and that cannot be done without following the procedure as ....
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....nted by available assets. In such a case, creditors, even in a reduction simpliciter, are not entitled to object and it makes no difference if reduction is brought about by following the procedure prescribed in Section 100 onwards or by way of a scheme of compromise and arrangement. Thus, if it can be done in a given set of circumstances as part of a scheme of compromise and arrangement, it has been properly done in this case and while sanctioning the scheme ipso facto the reduction of share capital ought to be confirmed. I am however prepared to proceed on the assumption that even if the proposed scheme of compromise and arrangement envisages reduction of share capital which is lost or is unrepresented by available assets the same cannot be done except by following the procedure specifically prescribed in Section 100 onwards of the Companies Act. It is, therefore, necessary to find out whether the procedure therein prescribed has been carried out by the company or not. There is nothing objectionable in the company proposing a scheme of compromise and arrangement simultaneously proposing reduction of share capital and both can be considered and approved simultaneously. Thi....
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....sections following it, a scheme involving a reduction of capital, such as the one now before me does, cannot be sanctioned unless the procedure for reduction of capital has also been followed. Form No. 774 in Palmer's Company Precedents, 15th edition, Part I, page 1264, shows that the reduction of capital and scheme may be considered by the shareholders at one and the same meeting and separate meetings are not necessary and that the court may, by one and the same order, sanction a scheme in conjunction with reduction of capital, that is to say, under Section 55 confirm the special resolution for reduction of capital, and, under Section 153, sanction the scheme. If, however, the requirements of Section 55 and other sections have not been complied with, the court may direct the application for sanction to stand over in order to enable the company to advertise the petition and otherwise comply with the requirements of the Act for reduction of capital, as was alone In re Cooper. It does appear well settled that where the scheme of compromise and arrangement comprises within its ambit reduction of share capital, the procedure for reduction must be gone through but if it is ....
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....the procedure prescribed in Sub-section (2) of Section 101 unless the court so directs. The procedure prescribed under Sub-section (2) of Section 101 requires service of the notice of the petition filed for confirming the reduction of capital on every creditor of the company affected by reduction and who is entitled to object to the reduction. The procedure goes so far as to make provision by order of the Court for payment to the dissenting creditors. That procedure is mandatory, where the proposed reduction involves diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up share capital. That is not the case here. It is common ground that reduction is by way of cancellation of the paid up share capital which is lost or is unrepresented by available assets. Unless, therefore, the court otherwise directs, the procedure prescribed under Sub-section (2) of Section 101 is not mandatory in this case. Therefore, in order to effect reduction of share capital by way of cancellation of paid up share capital which is lost or is unrepresented by the available assets, the company will have to adopt a special resolution to be styled as resolution fo....
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....tor that the Scheme is invalid because it amounts to fraud on the revenue because the Scheme provides for benefit of set off with carry forward losses and depreciation of Sachana Undertaking of Core in the hands of Nirma is concerned, it is to be seen that Section 72A(4) of the Income Tax Act, 1961 itself provides that such carried forward losses or unabsorbed depreciation of demerged undertaking would be carried forward and set off in the hands of the Resulting Company. If the statutory benefit is available to Nirma and they are entitled to take advantage of such set off, then, the objectors cannot be allowed to say that the Scheme would be a fraud on revenue. It would be correct to say that what is permissible under the law can never be regarded as contrary to the public policy or fraud on revenue. 74. In relation to the objection regarding the share exchange ratio, the petitioners have submitted that none of the objectors-Banks are shareholders of Core or Nirma and therefore, they are not entitled to raise such objection. From the submissions made by the petitioners, it would clearly appear that the exchange ratio is fixed on the basis of the report of M/s. RSM & Company, Cha....
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....e when the amalgamated companies would operate and when there would be, according to the shareholders, better prospects of earning greater dividends. They willingly agreed to give in exchange two shares of the transferee-Company for five shares of the transferor-Company and made them available to the shareholders of the transferor-Company. The appellant was representing only 5% dissenting shareholders and his objection was almost a voice in the wilderness, which did not appeal to the majority of his brother shareholders. Shri Shanti Bhushan, learned Senior Counsel for the appellant, in this connection invited our attention to the observation of the Division Bench in its judgement at page 375 wherein it has been observed that if one were to examine the exactitude of exchange ratio that may be offered fairly on the arithmetic scale by taking into consideration various details, there is some force in what were suggested by Mr. B.R. Shah on behalf of the appellant. However, keeping in view the scope of enquiry which the Court is required to undertake and with whose findings we are concerned, it will not be permissible for us in law to undertake this exercise in the facts and circumstan....
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....to say that the shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest. These observations in our view represent the correct legal position on this aspect.... 75.1 From this settled proposition, it would clearly appear that once the exchange ratio of the shares of the transferee-Company to be allotted to the shareholders of the transferor-Company has been worked out by a recognised firm of Chartered Accountants, who are experts in the field of valuation and no mistake can be pointed out in the said valuation, it is not for the Court to substitute its exchange ratio. It would also be clear from this judgement that if the overwhelming majority of the shareholders of the two companies accept the share exchange ratio, then, it is not for the Court to substitute its own wisdom because the shareholders otherwise were entitled not to accept the share exchange ratio. 76. The petitioners have submitted that there is no variation in the value of votes cast by ARCIL, Niya Finstock Pvt. Ltd. and Astramed Technologies Ltd. According to them, there is no variation between the vote of ARCI....
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....aid seller or unsecured creditor, in the preset set of circumstances, would not be entitled to recover any money and even in case of winding up of the company if would not come in the first queue to receive the money, then, they cannot be allowed to say that they are entitled to return of the plant. 79. IDBI Bank has filed Company Application No. 602 of 2006 for return of the power plant, which was purchased by Core from M/s.Alstom Projects (India) Ltd. and sold to IDBI Bank. Their submission is that the said plant is not a part of the Scheme and though ARCIL has permitted them to take away their plant, Nirma is not permitting them to take away their plant. 80. The petitioners have submitted that this issue does not arise out of the Scheme proceedings. They do nowhere say that the power plant belongs to Core or is a part of the Scheme or has been transferred to Nirma. If the power plant does not belong to Core or is not being transferred in favour of Nirma, then, Nirma would not be entitled to retain its possession. True it is, that the Apex Court, in the matter of Nocil v. Mafatlal Industries Limited , has observed that such would be an issue beyond the scope of consideratio....