TaxTMI 
TaxTMI 
2020 (3) TMI 100
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....and creditors at the time of meeting so as to take informed decision and for approving scheme of arrangement. 3. Facts in brief, as could be culled out from the memo of the appeal and the order impugned deserves to be set out as under: 3.1 The appellant company originally started its business in the form of a partnership firm in the year 1986 under the name and style of Shree Rama Packaging. Later on the partnership firm was converted into public limited company on 17.12.1993. The appellant company was engaged in the business of packaging material. The appellant company had made substantial investments in mid 1990 in capacity expansion and modernization which could not yield commensurate expected returns. As per the averment made in the petition, in the year 2008, the Company owed the principal dues of Rs. 377.9 crores and further all outstanding towards interest, penalty and other dues thereon to various lenders as on 01.04.2008. The contingent and disputed liabilities would be in excess of Rs. 130 crores. It is further averred that the company is able to function only due to generation of internal accruals without having any fund based banking facilities. The petitioner-com....
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....nt class of persons were held and as per the averment made in the petition, in all the different meetings, the scheme was approved by the statutory majority. 3.5. Thus, since the proposed composite scheme of compromise and arrangement has been duly approved by statutory requisite majority by equity shareholders, preference shareholders, class `A' lenders, class `B' lenders at the respective meetings, the petitioner-company has moved this petition for seeking sanction of the said composite scheme. 3.6 This Court on 23.9.2008 admitted the Company Petition and notice of admission was issued in the concerned newspapers. One of the shareholders of the petitioner-company who is holding 5,000 shares of the petitioner-company has filed the objections against the proposed scheme of arrangement. 3.7 In the said objections, he has mainly stated that the scheme of arrangement proposed by the petitioner-company is not bonafide and is proposed only with a view to give undue benefits to Nirma Industries and its group and/or sister concern. The proposed scheme is not at all workable, against the interest of the company, its shareholders, creditors and members. The said scheme is oppressiv....
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....ated the provisions of Section 391(2) of the Companies Act. Against the order passed by SAT, Nirma has preferred SLP before the Hon'ble the Supreme Court and if the said SLP is dismissed, then the Nirma i.e. investors of the present scheme will have to pay Rs. 18.60 per share to all the shareholders of the petitioner-company as well as the nature of its investment in the scheme will drastically and radically change. It is, therefore, stated in the said objections that the scheme in the present form is not at all viable and, therefore, the same be rejected. 3.8 The learned single Judge vide CAV judgment dated 15.07.2015 dismissed the Company Petition by recording that it is clear from the record that all the material facts were not disclosed before the voters in the respective meetings nor the same was placed before this Court along with the petition and, therefore, the Court is not satisfied with the scheme proposed by the petitioner company and, therefore also the present petition is required to be dismissed on this ground also. Being aggrieved by the same, the present appeal is preferred. 4. Learned counsel for the appellant submitted that impugned judgment and order passed....
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.... opinion that the scheme of arrangement or compromise is not workable in its present form. The learned single Judge ought to have modified the scheme to the extent required in case where it was of the opinion that the dates provided in the scheme needs some modification. 8. Learned counsel for the petitioner further submitted that learned single Judge has erred in holding that material facts with respect to the proceedings before the securities appellate tribunal were not disclosed before the creditors and shareholder at the time of meeting and before this Court. It is submitted that SEBI has passed an order against Nirma Industries Limited. There was no order passed against the appellant company. Therefore, the appellant company is not obliged to disclose this fact under the law inasmuch as proceedings related to third part will not come within the purview of material facts relating to the company, such as the latest financial position of the company latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 351 and the like. 9. Learned counsel for the appellant relied upon the following judgmen....
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....2010 (5) GLR 4322 and laid emphasis upon paragraph nos.11, 12, 13, 15, 25, 29, 32 and 34. 10. Learned counsel for the respondent submitted that the proposed scheme is framed in the year 2008 and, therefore, at present it is a stale scheme and hence it will not work in the year 2015. During this period, number of things have been changed. 11. Learned counsel for the respondent further submitted that against the order dated 5.6.2008 passed by SAT in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited, the said company has preferred SLP before the Hon'ble the Supreme Court and the Hon'ble Supreme Court has dismissed the said SLP whereby it confirmed the order passed by SEBI and SAT. The said decision is reported in AIR 2013 SC 2360. 12. Learned counsel for the respondent further submitted that the petitioner has not placed on record the order dated 06.06.2008 passed by SEBI passed in the matter of the petitioner under Section 11 and 11(B) of the SEBI Act and Regulation 11 of the SEBI Regulations 2003 as well as the order dated 05.6.2008 passed by SAT in case of Nirma Industries Limited before this Court. 13. Learned counsel for the respo....
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....In case of Seksaria Cotton Mills Ltd. Vs. A.E. Naik And Ors, reported in AIR 1967 Bom 341; (vii) In case of Bank of Baroda Ltd. Vs. Mahindra Ugine Steel Company Limited, rendered by this Court in Company Petition No.4 of 1975 dated 07.04.1975; (viii) In case of Miheer H.Mafatlal Vs. Mafatlal Industries, reported in 1997 (1) SCC 579; (ix) In case of Divya Prints Pvt. Ltd. Vs. Sesa Seat Information Systems, rendered by this Court, reported in 2000 JX (Guj.) 284; (x) In case of Meghal Homes Pvt. Ltd. Vs. Shree Niwas Girni K.K.Samiti, reported in 2007 (7) SCC 753; (xi) In case of Horst Kurves Gmbh Vs. Essar Oil Limited, reported in 2002 (2) GLR 1314; (xii) In case of Madura Coats Limited Vs. Modi Rubber Limited, reported in 2016(7) SCC 603; (xiii) In case of Uti Bank Ltd. Vs. Rama Multitech Limited, reported in 2005 (126) CC 15; (xiv) In case of In Re Vs. State of Gujarat, reported in 1977 (109) ITR 177; (xv) In case of Ngef Limited Vs. Chandra Developers Private Limited, reported in 2005 (8) SCC 219; (xvi) In case of Miheer H. Mafatlal Vs. Mafatlal Industries, reported in 1997 (1) SCC 579; 18.....
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....ents were not bonafide. It was alleged to have been designed to benefit the single larger investor to circumvent the orders of SEBI, and it was after suppression of material facts before the stake holders as well as Court. (vi) The Court after hearing the parties accepted the objection and dismissed the petition vide order dated 15.07.2015 where from the present O.J. Appeal is arisen being O.J. Appeal No.42 of 2015. 19. Against the factual backdrop of the matter, this Court is called upon to decide the rival contentions in respect of the challenge to the order passed by learned single Judge on 14.07.2015 by way of the present O.J. Appeal. 20. The learned counsel for the appellant contended that the objections were not so grave or material as to nonsuit the appellant, as the fundamental principle in respect of the scheme of arrangements and compromise with the creditors is dependent upon the consent and consideration with the stake holders and in case of the stake holders are consenting by and large, then the few voice of dissent in form of objection cannot be heard and be permitted to create hurdle in the way of the compromise. The judgments have been cited to suppor....
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....f the Supreme Court in case of Tata Motors Ltd. (supra), held that the petition deserved to be dismissed on the ground that when the petition was filed the same was not maintainable. This Court is of the considered view that the ratio of the decision decidendi of Tata Motors Ltd. (supra) is not in dispute, so far as the proposition of BIFR right and jurisdiction to bring about any scheme or arrangement for keeping the Company afloat, but the development subsequent during the pendency of the petition and BIFR being not in seisin of the matter after the proposal was derigestered on 16.07.2014, would have lent some prop to the petitioner to make submission that after 16.07.2014 there was no moratorium and/or restrictions and/or even attempt, as the BIFR was not in any manner in seisin of the matter so as to prevent this Court from examining and appreciating the scheme of arrangements under the provision of Section 391 of the Company Act, 1956. The observations of the learned single Judge appears to have been proceeded only on the premise that the initiation of the petition itself was marred on account of the pendency of the reference proceedings before BIFR. The said reasoning rest th....
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....ing in securities directly or indirectly for a period of five years. It appears from the record that this aspect is also not stated by the petitioner-company in this petition nor it was pointed out before the respective shareholders and lenders that such proceedings are pending before the SEBI. Learned advocate Mr.Maulin Raval appearing for the objector submitted that if such facts were disclosed by the petitioner- company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour of the scheme. 16. From the record, it is further clear that SAT passed an order on 5.6.2008 in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited whereby the appeal filed by Nirma Industries was dismissed. The said order is produced at page 276 of the compilation. In the said order, Nirma Industries challenged the communication dated 30.4.2007 sent by SEBI to LKP shares and Securities Limited, Mumbai, Merchant bankers of Nirma informing it that request for withdrawal of the open offer made on behalf of it is not accepted. In paragraph 2 of the said order, SAT observed that Shree Rama Polysynth Pvt.Ltd., East-Wes....
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....cribed by the takeover code, the appellants were required to make a public offer to acquire further shares of that company for which a public announcement was made. The normal rule being that the public offer once made could not be withdrawn, it was only in the exceptional circumstances referred to in the earlier part of our order that such an offer could be withdrawn." The aforesaid order passed by SAT was also challenged before the Hon'ble Supreme Court by Nirma Industries Limited and another. The Hon'ble Supreme Court has also dismissed the SLP filed by Nirma Industries Limited and others. The said decision is reported in AIR 2013 SC 2360. 17. Thus, from reading of the aforesaid orders passed by SAT as well as the Hon'ble Supreme Court, it is clear that though the petitioner-company was not a party to the said proceedings, however, the proceedings were initiated in pursuance to the transactions with the petitioner-company. Therefore, the petitioner-company and its group companies were described as target companies. Thus, from the record it is clear that the petitioner-company has not placed aforesaid important details with regard to pendency of proceedings befo....
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....oning any compromise or arrangement shall be made by the [Tribunal] unless the [Tribunal] is satisfied that the company or any other person by whom an application has been made under subsection (1) has disclosed to the [Tribunal], by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.]" Proviso of Section 391(2) specifically provides that order of sanctioning any compromise or arrangement shall not be passed by the Court unless it is specified that the company or any other person by whom an application has been made has disclosed to the Court by affidavit or otherwise, all material facts relating to the company. Here the word "material facts relating to the company" is very important. In the proviso itself, it is further stated that all material facts such as the latest financial position of the company, latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sectio....