TaxTMI 
TaxTMI 
2019 (7) TMI 1190
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.... of the case of that the appellant is a public limited company listed on National Stock Exchange as well as Bombay Stock Exchange. The appellant company has raised several loans from Banks as well as Financial Institutions including Short Term Loans to build new production capacities compliant to USFDA standard. The appellant could not maintain financial discipline and cases were filed against the company in DRT by the Banks and Financial Institutions. The company arrived at one time settlement with the Banks/Financial Institutions and settled the amount. To tide over the sudden financial crisis, the appellant raised Rs. 72.5 crores from the international market through an issue of global depository receipts. The appellant faced difficulty in servicing its obligations vis a vis the public deposit holders but also in relation to the credit facilities extended by different banks and financial institutions. Many cases were filed against the company which were in the nature of civil cases, proceedings under Section 138 of Negotiable Instruments Act, winding up petitions by the creditors, the petitions filed before DRT, Delhi, Chandigarh and Mumbai and the proceeding s under the Consume....
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.... year, 35% in the third year and balance 40% in the fourth year. The interest for both pre and post maturity will be paid alongwith the last instalment. vi) The company shall issue post dated cheques for first instalment to all the depositors who have submitted/surrendered the original fixed deposit receipt, on demand by the company. vii) The above scheme will be applicable to all depositors whether over due or yet to mature and whether any application has been filed before the Company Law Board or not. viii) The scheme shall be effect from the date of this order. While passing the order dated 19.8.2003 the then Member, Company Law Board also gave certain directions to the company to comply with. 4. From the record placed before us it is seen that the company did not comply the orders fully and when the company did not comply the orders, ROC Jalandhar filed prosecution against the company and its officers on 26.3.2004 before the Court of Chief Judicial Magistrate, Solan undersection 58-A (10) and 58-A read with Rule 3(2) for accepting of deposits in excess of prescribed limit. The prosecution under Section 58-A read with Rule 10 for non-filing of re....
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....2008) (Page 695) in Company Petition No.5 of 2004 before the Hon'ble High Court of Himachal Pradesh, Shimla seeking sanction of Scheme of Arrangement and compromise between the appellant company and its Fixed Deposit Holders. Hon'ble High Court of Himachal Pradesh, Shimla vide order dated 4th August, 2009 (Page 913) sanctioned the compromise and arrangement and posted the matter for 8th September, 2009 (Page 917). The appellant company intimated about the sanction of scheme to National Stock Exchange and Bombay Stock Exchange vide letters dated 12.8.2009 (Page 918 and 919) and also intimated that the Board of Directors in its Meeting held on 12.8.2009 has made an allotment of 9,24,90,413 equity shares of Rs. 2/- each to the Fixed Deposit Holders of the company at a price of Rs. 11.32 per share which has been arrived at in accordance with the terms of the approved scheme and the pricing formula specified in SEBI(DIP) Guidelines. Compliance affidavit dated 19.8.2009 (Page 921-923) of Shri Rajiv Jain, DGM (Finance) of the appellant company was filed. 7. Being aggrieved by the impugned order dated 4th August, 2009, the Central Government, Ministry of Corporate Affairs through ROC, J....
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....re the Hon'ble High Court of Himachal Pradesh and as per para 36 of the impugned order dated 12.3.2018 (Page 73), the matter remained pending before the Hon'ble High Court of Himachal Pradesh thereafter. In the hearings held on 7.11.2016 and 12.12.2016 and on few earlier dates before the Hon'ble High Court of Himachal Pradesh, only the counsel for the petitioner company and the Union of India through Assistant Solicitor General of India had been appearing. Thereafter the petition was transferred to the National Company Law Tribunal, Chandigarh in view of Rule 3 of the Companies (Transfer of Pending Proceedings) Rules, 2016. 12. After service of notices to the parties concerned, the NCLT heard the counsel for the parties. After hearing the parties, NCLT, Chandigarh passed the impugned order dated 12.3.2018. The relevant portion of the order is as under:- "123. In view of the aforesaid discussion, CA No.49 of 2008 seeking approval of the scheme of arrangement with the FD holders is dismissed. With regard to the prayer made originally in CP No.05 of 2004, the matter having been settled with the other creditors admittedly the same stands disposed of having been rendered inf....
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....adesh and also held a Meeting of its Board of Directors on 12.8.2009 and allotted 9,24,90,413 equity shares of Rs. 2/- each to the FD holders @ 11.32 per shares as determined by SEBI formula. The appellant also vide its letter dated 12.8.2009 intimated to the National Stock Exchange and Bombay Stock Exchange about the allotment of these shares. 15. Appellant stated that the Ministry of Corporate Affairs filed Company Appeal No.2/2009 before the Hon'ble Division Bench of Hon'ble High Court of Himachal Pradesh which passed the following order on 27.8.2009:- "Company Appeal No.2/2009 Heard. Admit. Company Application No.20/2009 Heard at length. Respondent may proceed to implement the scheme, as approved by the Court, vide impugned order, but such implementation shall be subject to the final decision in the main appeal. Liberty to make mention for early haring. Xxxx August 27, 2009 Sd/- Surjit Singh, J Sd/- Surinder Singh, J Appellant stated that the said order dated 27.8.2009 was also communicated to the National Stock Exchange and Bombay Stock Exchange. Appellant stated that on 2.2.2010 (Page 1 para 1(e) of....
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.... the shares once issued to the fixed deposit holders could not be reversed. 23. At last the Appellant prayed that the impugned order dated 12.3.2018 may be set aside and the scheme may be approved. 24. Reply on behalf ROC Chandigarh has been filed. Respondent has stated that the NCLT Chandigarh has rightly decided the company petition. The questions of law are very well decided by the Tribunal vide its order dated 12.3.2018 raised by the appellant have already been covered by the Tribunal. ROC stated that the only question of law which may arise for consideration is whether a company can have a compromise with Fixed Deposit holders under Section 391/394 of the Companies Act, 1956 under which shares can be allotted in lieu of Fixed Deposits particularly when part of the principal amount and entire interest is waived off. Respondent stated that this question of law is already settled by Hon'ble Bombay High Court in the matter of Ipco Papers Ltd, MANU/MH/0012/1982 (1984) 55 Comp Case 281 (Bombay), holding that the depositors, who are governed by the provisions of Section 58-A and the rules made there under stood outside a proposal for a scheme of compromise. Respondents further ....
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....8A of the Companies Act, 1956. 29. ROC stated that the NCLT, after hearing the parties decided the company petition pending before it under the provisions of Companies Act, 1956. There is no question of deciding a petition under the Companies Act, 2013 as no such petition was filed by the company. No such prayer was made by the appellant company to withdraw the petition filed under Companies Act, 1956 and to file fresh petition under Companies Act, 2013. 30. ROC stated the Learned NCLT has cancelled only those shares on which third party interest has not been created, as those shares have not been sold by the fixed deposit holders. The shares are cancelled and fixed deposit holders are to be repaid. ROC stated that this is a very simple action and there is no question of any difficulty in implementation of the order. ROC further stated that the SEBI has nothing to do with a scheme under 391/394 of the Companies Act, 1956. 31. ROC stated that there is no question of reduction of the share capital when the increase in capital by issue of shares to fixed deposit holders is not approved. Now the share capital of the company will be increased for the capital issued to the fixed....
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....by the Hon'ble Company Court, vide order dated 27.8.2009 was subject to the outcome of the appeal of the Central Government before the Division Bench. The Division Bench of Hon'ble High Court vide order dated 14.9.2010 was pleased to set aside the order dated 4.8.2009 of the Ld. Single Judge of the Hon'ble High Court of Himachal Pradesh. 37. ROC stated that when order is subject to final decision of the main appeal, the final order has to impact everything which was subject to the final outcome. ROC stated that now the final outcome is rejection of the scheme and everything has gone which was subject to final outcome. ROC further stated that SEBI was not given any authority under Section 391/394 of the Companies Act, 1956. 37. ROC stated that the NCLT has not cancelled the shares which have been sold by the fixed deposit holders. ROC further stated that the illegal action which is contrary to law in a valid meting has no meaning. The meeting may have been valid but the decision taken in the meeting was not as approval of a scheme of compromise with the fixed deposit holders was against the public policy and contrary to law. 38. At last the ROC prayed that the appeal filed ....
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....sons beyond the control of the Respondent/Ministry of Corporate Affairs, and also the affidavit containing the stand of the Respondent could not be filed before the Hon'ble High Court and the order dated 4.8.2009 was passed. Learned counsel for the Respondent further argued that that meeting may have been valid but the decision taken in the meeting was not valid as approval of a scheme of compromise with the fixed deposit holders was against the public policy and contrary to law. Learned counsel for Respondent/ROC further argued that the Respondents filed appeal before the Division Bench of Hon'ble Court who at the admission stage ordered that the appellant may proceed to "implement the scheme" but such "implementation shall be subject to the final decision in the main appeal". Learned counsel further argued that the appeal filed by them was finally heard and the Division Bench allowed the appeal, set aside the order dated 4.8.2009 and remanded the matter to the Ld. Single Judge to hear the same afresh. Learned counsel further argued that the appellant filed Civil Appeal before the Hon'ble Supreme Court against the order of the Division Bench and the Hon'ble Supreme Court vide its ....
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....of earlier Single Judge, heard the matter afresh and passed the order dated 12.3.2018. Therefore, on going through the events that happened in this matter, it cannot be said that the Scheme was approved and it was reversed after a span of 9 years. 45. Learned counsel appearing on behalf of the appellant argued that the Shimla High Court has approved the scheme and as such NCLT did not have the right to dismiss the scheme as the same have gone out of its jurisdiction. Learned counsel for the appellant further argued that the dismissal of second motion by NCLT not legally tenable as High Court had already allowed first motion and as such NCLT could not have gone on the issue of jurisdiction. Learned counsel for the appellant further argued that the order of NCLT amounts to reviewing the order of High Court which in any event NCLT did not have jurisdiction to do so. We find no force in this argument. In Second Motion it is open for NCLT to take a comprehensive view of the procedure followed and legality or otherwise of a scheme proposed. 46. Learned counsel for the Respondents argued that the scheme approved by Learned Single Judge was set aside/dismissed by the Division Bench o....
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....or the appellant further argued that the Companies Act, 2013 envisages considering the representation of the Securities and Exchange Board of India before passing an order of reduction of share capital. 49. Learned counsel for the Respondent argued that SEBI has nothing to do with a Scheme under 391/394 of the Companies Act, 1956. Learned counsel further argued that the Ministry of Corporate Affairs through Regional Director having jurisdiction in the matter was having the right to make representation under Section 394A of the Act, 1956. Learned Counsel for Respondent further argued that the SEBI has never said that the shares issued to fixed deposit holders cannot be cancelled. Learned counsel for the Respondent also argued that there is no question of reduction of share capital when the increase in share capital by issue of shares to fixed deposit holders is not approved. 50. We have heard the parties on this issue. We have also gone through the record also. We noted that after passing of the order dated 4.8.2009, the appellant allotted 9,24,90,413 equity shares of Rs. 2/- each to the FD holders @ Rs. 11.32 per share as per SEBI formula. The appellant company vide its lette....
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....ompromise and Arrangement" but in the letter it is not mentioned that listing permission may be given. However, in the said letter dated 2.2.2010 it is clearly mentioned that "Nevertheless the company is duty bound to implement the scheme under the directions of the Hon'ble Court and would abide by such further orders as may be passed for final disposal of the case." Now the appeal has been allowed and the order dated 4.8.2009 has been set aside. In our view the appellant, seeing the rider imposed in the order dated 27.8.2009 have got listed the shares knowing fully well that scheme if not approved it may have to take remedial measures to abide by the order as stated by them in letter dated 2.2.2010 addressed to Bombay Stock Exchange. In fact, in our view if such shares were being pushed into listing, in the face of Order of Division Bench dated 27.08.2009, there was duty to ensure such shares carried information/caution that they were being listed and are subject to final order of Hon'ble High Court. On a reference made by Ministry of Corporate Affairs to the SEBI for delisting of shares, the SEBI informed that "it may be noted that since the shares are already listed and traded o....
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....es made thereunder, stood outside a proposal for a scheme of compromise. Learned counsel for the Respondent further argued that the rights and remedies enacted in respect of deposits invited or received from the public by a company would be nullified if a company is allowed to launch a proposal for compromise in respect of such public deposits. Learned counsel for the Respondent further argued that the deposit accepted from the public will remain a deposit and it makes no difference if the same is accepted by a Non-Banking Finance Company or by some other company. Learned counsel for the Respondent further argued that the compromise with FD holders is outside the purview of Section 391/394 of the Companies Act, 1956, as per law laid down by the Hon'ble Supreme Court in the case of M/s Integrated Finance Co Ltd Vs Reserve Bank of India etc. Learned counsel for the Respondent further argued and stressed that the legal right available to the FD holders for filing prosecution for non-repayment of Fixed Deposit cannot be withdrawn under any Scheme. 54. We have heard the parties on the issue. We have noted that the Company intended to restructure the creditors providing different....
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....h the FD Holders is outside the general purview of Section 391/394 of the Companies Act, 1956 55. Learned counsel for the appellant argued that the matter was transferred from High Court of Himachal Pradesh at Shimla to NCLT Chandigarh. In the meantime, the Companies Act, 1956 was repealed and the Companies Act, 2013 came into force, NCLT ought to have decided the Company Petition under the Companies Act, 2013, it has been stated. Learned counsel for the Appellant further argued that the new corresponding provision to Section 58A of the Companies Act, 1956 has undergone major changes and therefore the NCLT ought to have considered Section 74 of the Companies Act, 2013 before passing the impugned Order. Counsel for the Appellant further argued that the NCLT could not have passed the order without hearing SEBI especially when the same is mandate of Section 230(5) of the Companies Act, 2013. The NCLT passed the impugned order in spite of the fact that the Regulator had taken a stand that the shares once issued to the fixed deposit holders could not be reversed. 56. Learned counsel for the Respondent argued that the appellant had violated the order of Hon'ble Company Law Board by....
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....C Online Del 996. 59. Learned counsel for the Respondent argued that the law has been decided by the Hon'ble Bombay High Court in the matter of IPCO Papers Ltd, MANU/MH/0012/1982 holding that the depositors who are governed by the provisions of Section 58A and the rules made there under stood outside a proposal for a scheme of compromise. The rights and remedies enacted in respect of deposits invited or received from the public by a company would be nullified if a company is allowed to launch a proposal for compromise in respect of of such public deposits. Learned counsel for the Respondent further argued that the Hon'ble Supreme Court of India in the matter of Integrated Finance Co Ltd Vs Reserve Bank of India etc has settled the law by rejecting such a scheme. 60. We have heard the learned counsel for the parties. Deposits under Companies Act, 1956 are regulated in terms of Section 58A. It is to be particularly noted in this Section 58A, Central Government is entitled to prescribe the limits upto which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from public or from its members in consultation with Reserve ....