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Krishna H. Bajaj Through Her Constituted Attorney Mr. Shailesh Bajaj Vs. Sesa Industries Ltd., - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Appeal No. 4 of 2008 and Company Application No. 48/2008
Judge
Reported in2009(111)BomLR1509; [2009]152CompCas43(Bom)
ActsCompanies Act, 1956 - Sections 5, 73, 209A, 235 to 351, 391, 391(1), 391(2), 392, 393, 393(1), 394, 394(2), 406, 433, 542 and 643; Companies (Amendment) Act, 2001
AppellantKrishna H. Bajaj Through Her Constituted Attorney Mr. Shailesh Bajaj
RespondentSesa Industries Ltd., ;The Regional Directorate (Western Region), ;registrar of Companies, Ministry
Appellant AdvocateParty-in-Person
Respondent AdvocateJ.J. Bhat, Sr. Adv., ;R. Chagla and ;R.G. Ramani, Advs. for respondent No. 1 and ;C.A. Ferreira, Asst. Solicitor General for respondent Nos. 2 and 3
DispositionAppeal allowed
Excerpt:
company - scheme of amalgamation - approval of - section 393 of the companies act, 1956 - sil submitted company petition for sanctioning a scheme of amalgamation between the petitioner company i.e. transferor company and the transferee company-sgl - appellant lodged objections before the company judge opposing the scheme of amalgamation - company judge came to the conclusion that there was no substance in the objections raised by the objector and allowed the company petition by sanctioning the scheme - hence, present appeal - whether the scheme submitted by respondent no. 1 company is required to be sanctioned or not - held, as per the provisions of section 393, the registrar as well as the liquidator, both are required to submit their separate reports - in the instant case, since the.....p.b. majmudar, j.1. the matter was heard at length at the admission stage, as the contesting parties are all appearing in the matter through their advocates. learned asst. solicitor general is appearing for respondent no. 2 and so far as registrar of companies is concerned, in the original proceedings, he has filed an affidavit on behalf of the regional director and it was agreed by both sides that the matter can be decided finally at the stage of admission itself. as regards respondent no. 4, for the first time when an order was passed on 24.12.2008, the official liquidator had appeared and his appearance is shown in that order. however, since there was some error in the name of official liquidator, the same was corrected as shri sanjay kumar gupta in the next order dated 31.12.2008......
Judgment:

P.B. Majmudar, J.

1. The matter was heard at length at the admission stage, as the contesting parties are all appearing in the matter through their Advocates. Learned Asst. Solicitor General is appearing for respondent No. 2 and so far as Registrar of Companies is concerned, in the original proceedings, he has filed an affidavit on behalf of the Regional Director and it was agreed by both sides that the matter can be decided finally at the stage of admission itself. As regards respondent No. 4, for the first time when an order was passed on 24.12.2008, the Official Liquidator had appeared and his appearance is shown in that order. However, since there was some error in the name of Official Liquidator, the same was corrected as Shri Sanjay Kumar Gupta in the next order dated 31.12.2008. Accordingly, the matter was heard finally and a formal order of admission is passed. Admit. Respective Advocates waive service for the concerned respondents. The Appeal is now being disposed off by this Judgment.

2. This appeal is directed against the Judgment and Order dated 18.12.2008 delivered in Company Petition Nos. 9 and 10 of 2006. The Sesa Industries Limited (SIL) submitted a company petition for sanctioning a scheme of amalgamation between the petitioner Company i.e. Transferor Company and the Transferee Company i.e. Sesa Goa Limited (SGL) which was incorporated on 25.6.1965 as a private limited company, and subsequently became a public limited company with effect from 16.5.1994. The SIL was incorporated on 17.5.93. The scheme of amalgamation is annexed as Annexure A-6 along with the Company Petition. On behalf of the present appellant, objections were lodged before the learned Company Judge opposing the scheme of amalgamation on various grounds and as per various objections taken by the objector before the learned Single Judge, it was prayed on behalf of the objector that the scheme may not be sanctioned. The learned Company Judge, by the impugned Judgment and Order came to the conclusion that there is no substance in the objections raised by the objector. The learned Company Judge found that the objector has a grudge against the companies, particularly SIL for not listing the shares of SIL as initially promised. The learned Company Judge found that there is nothing unfair in the scheme. The learned Company Judge also found that the scheme also gives an exist route to the minority shareholders of SIL to obtain the shares of SGL. The learned Company Judge found that in case the objector is unwilling to continue to be a member of SGL, she is always free to sell the shares and cease to be a member of SGL. The learned Company Judge found that there is nothing unfair in the said scheme, as the scheme is accepted by overwhelming majority of the shareholders of the Company. The learned Company Judge also found that the merger of the subsidiary company with the holding company will benefit the holding company. The learned Company Judge also found that the said sanctioning of the scheme will not, in any way affect the civil or criminal proceedings which may be initiated pursuant to the inspection reports, as well as further progress of criminal complaint filed by the objector. The learned Single Judge, accordingly, allowed the Company Petition by sanctioning the scheme by Judgment and Order dated 18.12.2008.

3. Being aggrieved by the said order, the appellant-objector has filed this appeal. The appellant who is appearing as party in person, has challenged the said order of the learned Company Judge on various grounds. It is submitted on behalf of the appellant that the direction given by a Division Bench of this Court in Appeal No. 268/07 vide order dated 25.4.2007 has not been complied with, as the Division Bench has observed in the said order that the Company Judge should take into consideration the reports before passing any final orders in the matter of approving the scheme of amalgamation of two companies for considering the purpose of its relevancy. It is submitted by the party in person that in view of the reports of the Central Government, Ministry of Company Affairs, the Scheme should not have been sanctioned by the learned Single Judge, as it is clear that it is a case of siphoning of funds and because of the same, minority shareholders are affected. It is submitted that as per the reports, both the Companies have committed a fraud and since the scheme is against the public interest, the same is not required to be sanctioned. It is submitted that the proposed scheme is nothing but an operation on the minority shareholders. It is submitted that after amalgamation, the transferor company shall stand dissolved and therefore, no action against the company will be maintainable. It is further submitted that the transferor Company has not disclosed the fact in petition about pending investigation under Section 209A of the Companies Act. It is also submitted that as per the proviso to Section 391 of the Companies Act no order sanctioning any compromise or arrangement shall be made, unless the Court is satisfied that the company or any other person by whom an application has been made under Sub-section (1) has disclosed to the Court by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report requiring the accounts of the company, pendency of any investigation proceedings in relation to the company under Sections 235 - 351. It is submitted that the scheme could not have been sanctioned in view of the fact that the company has not disclosed in the petition pendency of investigation, as the said fact is also required to be disclosed as per the said proviso to Section 391. It is also submitted that since the company has suppressed the fact about the investigation being carried out and there is adverse report against the company, the scheme should not have been sanctioned by the learned Single Judge. It is submitted that the report of the Registrar of Companies, having not been accepted by the learned Company Judge, the learned Company Judge should not have sanctioned the scheme of amalgamation. It is further submitted that the proposed scheme of amalgamation was based on an invalid scheme in view of the fact that the same is in violation of Section 73 of the Companies Act. It is submitted that the shares of SIL though were required to be listed on the Stock Exchanges as per the provisions of the law, as also in terms of the promises given by the petitioning company to its shareholders at the time of initial public offering, have not been listed till the date. It is submitted that the shares of respondent No. 1 Company are not listed on any of the Sock Exchanges in India, nor any application has been made by the said company for getting its shares listed and, in view of the same, there is violation of Section 73 of the Companies Act inasmuch as it was statutorily bound to refund the monies so collected by it from its shareholders along with interest due. It is also submitted that since there is violation of Section 73 of the Companies Act, entire allotment of shares of respondent No. 1 Company is invalid. It is submitted that the proposed scheme was an unconscionable scheme inasmuch as the minority shareholders of the transferor company have been subjected to complete operation by a majority, i.e. by transferee Company. It is also submitted that the entire scheme has been floated with a view to stifle further investigation which is pending against the transferor Company. It is submitted that there is also violation of Section 394(2) of the Companies Act, as appropriate material was not placed in the meeting before the shareholders. It is also submitted that the Regional Director himself has not filed any affidavit, but, on his behalf the Registrar of Companies has filed an affidavit and the Registrar was also acting as an Official Liquidator. It is submitted that the Official Liquidator has also filed an affidavit. The same person could not have filed an affidavit in his capacity as Registrar and in that respect, an affidavit should have been filed by the Regional Director himself, as the Official Liquidator and the Registrar, both are functioning in a different capacity and when their interest is overlapping, the same person could not have filed two affidavits, one in the capacity as the Official Liquidator while the other in the capacity as the Registrar. It is submitted that the financial reports of the Chartered Accounts also do not reflect the correct picture, as the Chartered Account has gone only as per the entries in the Company's Books of Account and as per the Balance Sheet. On the aforesaid grounds, the party in person submitted that the scheme, in question, is not required to be sanctioned and, therefore, order of the learned Company Judge is required to be set aside and this Court may reject the scheme submitted by the Company by not sanctioning the same. The party in person has relied upon the following decisions to substantiate his say.

1) Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported in Comp Cas 87 792.

2) In re Travancore National and Ouilon Bank Ltd. reported in AIR 1939 Mad 318.

3) In the matter of Calcutta Industrial Bank Ltd. reported in Comp Cas 18 144.

4) J.S. Davar and Anr. v. Dr. Shankar Vishnu Marathe and Ors. reported in : AIR1967Bom456 .

5) T. Mathew v. Smt. Saroj G. Poddar and Ors. reported in (1996) 22 CLA 200 (Bom.)

6) Bedrock Ltd. reported in : (1998)2BOMLR5

7) Modus Analysis and Information P. Ltd. and Ors. In re reported in .

8) Larsen and Toubro Limited In re. reported in 2004 page 523

9) Jyotsna Nalinikant Kilachand and Ors. v. Nandlal Kilachand Investment Pvt. Ltd. and Ors. reported in 1996 page 361.

10) Raymond Synthetics Ltd. and Ors. v. Union of India and Ors. reported in : [1992]1SCR481 .

11) Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and Ors. reported in Comp Cas 83 30.

12) 1. Securities and Exchange Board of India (Appeal Lodging No. 520 of 2002 in Company Petition No. 203 of 2002 in Company Application No. 18 of 2002) 2. Union of India (Appeal Lodging No. 526 of 2002 in Company Petition No. 203 of 2002 in Company Application No. 18 of 2002) v. Sterlite Industries (India) Ltd.

13) Wood Polymer Limited, In re. and Bengal Hotels Pvt. Ltd. In re reported in 1977 page 597.

14) IPCO Paper Mills Ltd. In re. Reported in 1984 page 281.

15) Mahendra Kumar Sanghi v. Ratan Kumar Sanghi reported in Spl. A. Nos. 24 and 30 of 1994 - Equivalent Citation .

16) Sesa Goa Limited and Ors. v. State of Maharashtra and Anr. Writ Petition No. 2739 of 2006.

17) Shree Niwas Girni Kamgar Kriti Samiti v. Rangnath Basudoo Somant and Ors. reported in Appeal No. 821 of 1994 in Company Application No. 339 of 1994 in Company Petition No. 642 of 1983.

4. Learned Senior Counsel Shri Bhat appearing for respondent No. 1, on the other hand, submitted that there is no substance in any of the objections raised by the objector. Mr. Bhat submitted that the party in person mainly relied upon the contents of the reports submitted by the Deputy Director on behalf of the Ministry of company Affairs, New Delhi. It is submitted that the matter is only at the inspection stage and there is nothing to suggest that subsequently it has resulted into any further investigation against the affairs of the Company. Mr. Bhat submitted that the inspection carried out under Section 209A of the Act cannot be construed as an investigation against the company. It is submitted by Mr. Bhat that if the contention of the party in person is accepted that the share allotment is void or that it is in violation of Section 73 of the Companies Act, then the objector cannot be said to be a shareholder on the basis of void allotment. He has, however, submitted that there is no breach of Section 73 as the allotment was not made in favour of the public at all. It is submitted that the only right available to the petitioner is to claim money and even that claim is also time-barred. It is submitted that the objector can still pursue his remedy against the transferee company and his right is not extinguished by sanctioning the scheme of amalgamation. It is submitted by Mr. Bhat that assuming that the Directors have committed any wrong act or even if they have committed any offence, the remedy of taking out prosecution against the erring Director or Directors is available and that cannot be a ground for rejecting the scheme. Mr. Bhat further submitted that the Registrar of Companies who is a delegate of the Regional Director of Company Affairs has already delegated the powers to the Registrar of Companies for filing affidavit and the Registrar of Companies has already made its stand clear in the affidavit. It is submitted that the respondent company had also filed a writ petition before the High Court of Bombay for quashing the proceedings and the learned Company Judge was pleased to hold that there is no violation of Section 73. Mr. Bhat further submitted that ultimately the inspection reports were already placed before the learned Company Judge and the said aspect was also placed before the shareholders during the meeting and, therefore, when the majority of shareholders have approved the scheme, it cannot be said that respondent company has defrauded the shareholders in any manner and no fact is suppressed from the shareholders. It is submitted that the investigation as well as the inspection, both are different things and they are separate chapters for the same. It is submitted that the scheme is not against the public interest in any manner and since majority of the shareholders have approved the scheme in their wisdom, this Court cannot sit in appeal over such decision at the time of considering whether the scheme should be sanctioned or not. Mr. Bhat has relied upon the following decisions to substantiate his say that the objections raised by the objector is devoid of any merit and the scheme is required to be sanctioned.

1) Reliance Petroleum Ltd., In Re. reported in [2003] 46 Scl 38

2) Zee Telefilms Limited, In Re. reported in Appeal No. 164 of 2003 in C.P. No. 1116 of 2002

3) Kalpana Bhandari and Ors. v. Securities & Exchange Board of India and Ors. reported in Writ Petition No. 1604 of 2003.

4) Sesa Industries Ltd. v. Krishna H. Bajaj reported in Misc. Civil Appln. No. 24 of 2007 in Company Petition No. 9 of 2006 connected with company Appln. No. 1 of 2006.

5) Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported in Comp Cas 87 792.

It is submitted that in view of the Judgment of the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd., (supra), only two aspects are required to be considered by the Court at the time of sanctioning the scheme. It is submitted that there is no violation of any statutory rules. It is also submitted by Mr. Bhat that the valuation of the shares is properly done or not is in the realm of the expert body and once the Chartered Accountants have accepted the said valuation, this Court cannot sit in appeal over the said decision of the expert body. It is also submitted by Mr. Bhat that it is true that the same person was acting as a Registrar as well as Official Liquidator Since their interest is not conflicting even if same person has filed an affidavit in two different categories, that cannot be said to be any violation of statutory provision.

5. We have heard both sides at great length and we have gone through voluminous record and proceedings. We have also considered the scheme submitted by the respondent Company. We have gone through the Judgment of the learned Company Judge and we have also gone through various judgments cited by both sides. At this stage, it is necessary to make a reference to various provisions of the Companies Act, more particularly Sections 391, 392, 393 and 394 of the Act. The said sections read thus:

391 - Power to compromise or make arrangements with creditors and members - (1) Where a compromise or arrangement is proposed:

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class 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 a company 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 member, 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 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 the company or any other person by whom an application has been made under Sub-section (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 - 351, and the like.]

(3) An order made by the [Tribunal] under Sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made in complying with Sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [one hundred rupees] for each copy in respect of which default is made.

(6) The [Tribunal] may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the [Tribunal] thinks fit, until the application is finally disposed of.

392. Power of Tribunal to enforce compromise and arrangement - (1) where the tribunal 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 an 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 Tribunal aforesaid is satisfied that a compromise or an 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 the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement.]

393. Information as to compromises or arrangements with creditors and members - (1) Where a meeting of creditors or any class of creditors, or of member 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 1[***] 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 be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.

(2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors.

(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to (fifty thousand rupees); and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company.:

Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director 1[***] manager or trustee for debenture holders, to supply the necessary particulars as to his material interests.(5) Every director, managing director, 1[***] or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to [five thousand rupees]. Section 394. Provision for facilitating reconstruction and amalgamation of companies.:

(1) Where an application is made to the [Tribunal] under Section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the [Tribunal]:

(a) that the compromise or arrangement has been proposed for the purpose 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 or 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 against any transferor company;

(iv) the dissolution, without winding up, or any transferor company;

(v) the provision to be made for any persons who, within such time and in such manner as the Court directs dissent from the compromise or arrangement; and

(vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out; [Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the [Tribunal] unless the Court has received a report from [***] the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest.

Provided further that no order for the dissolution of any transferor company under Clause (iv) shall be made by the [Tribunal] unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the [Tribunal] that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.]

(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order; that property shall be transferred to and vest in and those liabilities shall be transferred to and become the liabilities of the transferee company and in the case of any property, if the order so directs, freed from any charge, which is, by virtue of the compromise or arrangement, to cease to have effect.

(3) Within (thirty) days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

If default is made in complying with this subsection, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [five hundred rupees].

(4) In this section:

(a) 'property' includes property rights and powers of every description; and 'liabilities' includes duties of every description; and

(b) 'transferee company' does not include any company other than a company within the meaning of this Act; but 'transferor company' includes any body corporate, whether a company within the meaning of this Act or not.

6. Both sides have relied upon the decision of the Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., (supra). The Supreme Court in the Miheer H. Mafatlal's case has held that a compromise or arrangement can be proposed between a company and its creditors or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another. The Supreme Court in the aforesaid Judgment has pointed out the scope and ambit of the jurisdiction of the Court. It has been held at page 818 as under:

In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the company court has clearly got earmarked. The following broad contours of such jurisdiction have emerged:

(1) The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held.

(2) That he scheme put up for sanction of the court is backed up by the requisite majority vote as required by Section 391(2).

(3) That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.

(4) That all necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391(1).

(5) That all the requisite material contemplated by the proviso to Sub-section (2) of Section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same.

(6) That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same.

(7) That the company court has also to satisfy itself that 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 scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.

The aforesaid parameters of the scope and ambit of the jurisdiction of the company court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the court's jurisdiction.

7. Keeping in mind the said principles enumerated by the Supreme Court in the aforesaid Judgment, the question that requires to be considered is whether the scheme submitted by respondent No. 1 Company is required to be sanctioned or not So far as the objection of the objector regarding allotment of shares and violation of Section 73 is concerned, it is required to be noted that it has been found by the learned Company Judge in this behalf that if there is any violation the Directors can be prosecuted in accordance with law. It is the say of the respondent company that the shares were not offered to the public and if the objector has monetary claim, he can take out appropriate proceedings for recovery of the same. Mr. Bhat has placed on record a copy of the Judgment of the learned Company Judge in Writ Petition No. 2739 of 2006 dated 11/12/2008. The learned Company Judge has found that there is no violation of Section 73. However, we are not expressing any opinion on the point whether the concerned Directors have violated the provisions of law and if at all there is any violation, legal proceedings against such Directors can be initiated as per law. In our opinion, if at all there is any violation of Section 73, appropriate proceedings can be initiated against the erring Director/Directors, though, or course, the contention of the Company is that the shares were not offered to the public and, therefore, there was no question of listing the same. We, however, make it clear that we are dealing with the point only in connection with sanctioning of the scheme and if any investigation is going on, on the basis of inspection report, the observations made by us in this behalf shall not be taken into account and such proceedings may go on as per the evidence that may be available in that behalf. The Court is required to consider as to whether can it be said that the affairs of the company are not conducted in a manner prejudicial to the interests of its members or to public interest and for that purpose, the Court is required to consider the report of the Official Liquidator and the Registrar as per the statutory provision. Suffice it to say that even if it is found that there is violation of Section 73, the appropriate remedy is to launch prosecution against the erring directors and that itself is not a ground for not sanctioning the scheme of amalgamation. Ultimately, this Court is required to see whether the statutory requirement is complied with or not and see that the report of the Official Liquidator and the Registrar of Companies about the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest are made available or not and when majority of the shareholders have approved the scheme, this Court will have thereafter a limited role to play. Moreover, so far as the duties of the Official Liquidator and the Registrar of Companies are concerned, they are two independent authorities under the Statute and they are required to submit their two independent reports and the Court is normally guided by such independent authorities.

8. So far as the contention of the party in person as regards valuation and exchange ratio is concerned, since the firm of Chartered Accountants which is expert in the field has approved such a scheme, this Court cannot substitute its own views in this behalf as powers of this Court on this aspect are limited.

9. So far as the argument of party in person that there is no reference in the company petition about the reports submitted by the Deputy Director, Ministry of Company Affairs, New Delhi is concerned, it is required to be noted that it is no doubt true that the fact that inspection has been carried out is not mentioned in the petition, but, subsequently, by an order of this Court, the necessary material was already placed before the shareholders at the time of meeting and ultimately by majority decision of the shareholders the scheme was approved. It is true that as per the inspection reports, serious irregularities have been found by the Officer who inspected the subjectmatter on behalf of the Company Affairs. It is also true that it has not reached finality. It is also not disputed by the respondent company that final decision based on the inspection report is not yet taken and the said issue seems to be pending before the concerned authorities. It is not in dispute that the inspection of books of accounts was carried out with a view to find out as to whether the affairs of the company are being carried out properly or not and while carrying out the said exercise of inspection of books of accounts, other material is also taken into consideration. So far as Section 235 is concerned, the same deals with the investigation of affairs of a company. The inspection carried out under Section 209A is the first step towards carrying out the investigation of the affairs of the respondent No. 1 Company. It is true that the company has not said anything in the scheme regarding the inspection being carrying out under Section 209A of the Act. In our view, normally the company should point out all relevant aspects in the scheme and the fact that the inspection is carried out should also have to be mentioned in the scheme. Proviso to Sub-section (2) of Section 391 clearly provides that no order sanctioning 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 Sub-section (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 or any investigation proceedings in relation to the company under Sections 235 - 351, and the like. In our view, interpretation of the said proviso cannot be restricted only to a limited aspect that it takes care of the investigation pending in relation to the company under Sections 235 - 351 as the words 'and the like' are to be interpreted to mean that the company is required to disclose all material facts relating to the affairs of the company. In our view, the inspection is being carried out with a view to find out whether any investigation is required to be carried out or not. It is not a matter of playing hide and seek game and all aspects are required to be disclosed in the scheme. In our view, the proviso to Section 391 is widely worded and the words 'and the like' may even in its sweep take care of pending inspection also. It is, however, required to be noted that subsequently, reports on the basis of such investigation, have also been placed before the shareholders and ultimately, the scheme has been approved by the shareholders after considering the said reports. In view of the same, in our view, it may not be just and proper to reject the scheme as, ultimately, the reports were made available with the shareholders for discussion at the time of shareholders meeting.

10. Mr. Bhat also submitted that at the time of placing the scheme, inspection reports were not available with the company. However, in our view, the fact about inspection being carried out should have been disclosed by the company, as ultimately, the affairs of the company, in all respects should be transparent. However, the learned Company Judge has come to the conclusion that since majority of the shareholders have approved this scheme, even though reports were also available with the shareholders, it cannot be said that the learned Company Judge overlooked the reports or that the order passed is contrary to the directions given by the Division Bench. It is required to be noted that the mandate of law provides that the Court cannot sanction the scheme, unless the Court has received reports from the Registrar of Company Affairs as well as the Official Liquidator. Similarly, the Official Liquidator is required to submit his report after considering the Books of accounts of the company that the Affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. Accordingly, in view of the provisions of Section 394, the Court cannot sanction the scheme unless the aforesaid requirement is fulfilled. The Court is not required to blindly approve the scheme simply because majority of shareholders have approved the scheme. But the Court is required to consider whether the scheme is contrary to public interest and can examine whether the affairs of the company have not been carried out in a manner prejudicial to the interests of its members or to public interest. It is true, as pointed out earlier, that the Court cannot substitute the view taken by majority of shareholders in accepting the scheme on various aspects such as violation regarding exchange ratio, etc., but there is also additional duty cast upon the Judge before sanctioning the scheme, even if the scheme is approved by majority of shareholders to see whether the affairs of the company have not been carried out in a manner prejudicial to the interests of its members or to public interest and, in order to facilitate the Court, in the matter of sanction of the scheme specific reports are also required to be submitted by the Registrar of Companies as well as the Official Liquidator in this behalf. In the light of the aforesaid statutory provisions, it is required to be found out as to whether the said requirement which is mandatory in nature can be said to have been complied with in the present case.

11. The Registrar of Companies has filed an affidavit dated 10.8.2006 stating that he was holding temporary charge of Registrar of Companies, Goa, Daman and Diu, Panaji, Ministry of company Affairs, Government of India. In his affidavit, he has stated that he has been authorized and competent to affirm the affidavit in reply on behalf of the Regional Director (Western Region), Ministry of Company Affairs, Mumbai. He has stated in paras (3), (4) and (5) as under:

3) I say that I am conversant with the facts of the case and I am competent to depose in my official capacity as the Registrar of Companies, Goa, Daman & Diu, Ministry of Company Affairs, Panaji, Goa and I am duly authorized by the Regional Director, Ministry of Company Affairs, Western Region, Mumbai.

4) I say that the Scheme of Amalgamation proposed by the Petitioner Company has been examined by the Regional Director, Western Region, Mumbai and he has the following observations for granting the Scheme.

a) That the Transferor and Transferee Company were inspected under Section 209A of the Companies Act, 1956 by the inspecting officers of the Ministry of Company Affairs during the year 2005 and any violation which may be noticed during the course of inspection, there will be no dilution for initiating legal action under the act and that will not in any way affect the amalgamation.

b) The office of Registrar of Companies, Goa has received two complaints for non listing of the Shares of the Transferor Company which is a subsidiary of the Transferee Company. The copies of the complaints of Mrs. Krishna H. Bajaj dated 24/05/2003 and Mrs. Kalpana Bhandari dated 17/06/2003 are annexed hereto and marked as Exhibit 'A' and Exhibit 'B' respectively.

c) The Office of Registrar of Companies, Goa as well as office of Official Liquidator, Goa and the Regional Director, Mumbai have received objection from Mrs. Krishna H. Bajaj against the instant scheme. The copy of the objection letter dated 10/07/2006 is annexed hereto and marked as Exhibit 'C'.

d) The Petitioner Company may be directed to furnish the latest financial position before this Hon'ble Court at the time of final hearing.

5) I say that save as except above, I have no objection for approval of the Scheme of Amalgamation by this Hon'ble High Court with such order as it may deem fit and proper.

The inspection report submitted by the Deputy Director (Inspection) dated 20.3.2006 which report has been submitted in view of the directions issued by the Ministry of Company Affairs regarding the inspection of the books of account of SIL (transferor company) and its holding company SGL (transferee company). In the said report, the Deputy Director has concluded as under:

Conclusion:

It will be apparent from the various findings of the Inspection report that the entire control of the day today working of the company is being managed by Mitsui & Co. Ltd., Japan whereby huge turnover and profits are being siphoned away through systematic under invoicing of international financial transactions and over invoicing of import of coal. As regards inter-se transactions between SGL & SIL, systematic efforts have been made by SGL to put SIL into weak financial position by siphoning of the funds from SIL to SGL by over invoicing the price of iron ore and coke. In the process, the minority shareholders of SIL have been deprived of their reasonable return in the forms of dividend or gains out of fair price of its shares. The minority shareholders of SIL have been cheated through the systematically siphoning the funds by SGL to the ultimate holding company i.e. M/s. Mitsui & Co. Ltd., Japan. The I.O. has suggested for redressal of grievances of SIL by SGL in reascending the contract of purchase of shares made by offer documents dated 05.06.03 at under value price of Rs. 30/- per share.

12. In para 26.12 of the report, it has been found that as per provisions of Section 542 of the Act read with Section 406 thereof, the business of the company has been carried on with intent to defraud creditors of the company and its shareholders and in this regard, all the directors who are occupying the positions as its Managing Director/whole time Directors and other directors even though are occupying the position as Simplicitor Directors are in fact Directors who are looking after the day today policy matters of the company on behalf of the principal i.e. Mitsui & Co. Ltd. Japan being the ultimate holding company who is exerting common control over all its subsidiaries and fellow subsidiaries as admitted in the notes to accounts annexed to the balance sheet of 3 years i.e. 2002-03, 2003-04, 2004-05 are officers in default under Section 5 of the Act. The report has dealt with various aspects and it has been found that it is a case of siphoning of the funds. In para 26.11 of the Inspection Report, it has been found that Mitsui & Co. Japan is exercising common control over SGL and SIL and erstwhile SKCL (which later merged with SGL) and making SGL and SIL into lowering of profits through siphoning off funds from its own subsidiary company SIL and putting Mitsui & Co. Ltd., and its associate companies in undue gains. The Official Liquidator in his report has stated in para 3 that his report is mainly based on the report of the Auditors and the Official Liquidator has no other material either to supplement or to comment on the same. It seems from the record of the case, that it is clear that the Registrar of Companies who has filed an affidavit as a delegate of the Regional Director as well as Official Liquidator is the same person, acting both as Official Liquidator as well as Registrar of Companies. It is required to be noted that the Registrar at the time of filing the affidavit was in possession of the inspection report and in his capacity as Official Liquidator, he has stated that his report would mainly be based on the report of the Auditors and he has no other material either to supplement or to comment on the same. It is also required to be noted that the learned Single Judge has observed in para 17 of his Judgment as under:

It may be noted that it is the Registrar of Companies who with authority from the Regional Director who has filed an affidavit and it is not the case of the Registrar of Companies that he was not aware of the inspection reports prepared by the Inspection Officer of the Ministry of Company Affairs and inspite of that he has opined that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to the public. In doing so, the Registrar has certainly failed in his duties by not placing the correct facts before the Court. However, only because the Registrar of Companies has not placed the correct position as regards the affairs of SIL with reference to the said two inspection reports, in my view, it would not be a fit case to reject the scheme which has otherwise been approved by the majority of shareholders of both the companies and regarding which the Regional Director on behalf of the Central Government, as repository of public interest, has given his consent at the same time stating that any violation which might have been noticed at the time of inspection, legal action would be initiated regarding the same and that will not affect the amalgamation.

13. In our view, when serious irregularities have been found in the inspection report and when the proceedings on the basis of the said inspection report are still pending and no further decision has been taken in this behalf and the Registrar as a delegate of the Regional Director who was in possession of such inspection report, should not have filed affidavits both, as the Official Liquidator as well as the Registrar as the delegate of the Regional Director. An affidavit is required to be filed by a person who is supposed to have knowledge of the facts. In considering the said aspect, no appropriate care has been taken in the matter of submitting the report on the part of the Regional Director and the Registrar of Companies. Once it is found that the report/affidavit on behalf of the Registrar/Regional Director is not in conformity with the statutory provisions, this Court mechanically cannot sanction the scheme simply because the majority of the shareholders have approved the scheme and the majority shareholders in their wisdom have accepted the valuation regarding exchange ratio.

14. Keeping in mind the aforesaid factual aspects, in our view, the Registrar should have specifically stated in his affidavit as to whether the affairs of the Company have been conducted in a manner prejudicial to the interest of its members or to public interest. It is required to be noted that as per the provisions of Section 393, the Registrar as well as the Liquidator, both are required to submit their separate reports and both are, therefore, functioning in a different capacity. It is surprising as to how the Official Liquidator who was the incharge of the Registrar could have filed the affidavits one in the capacity as a delegate of the Regional Director and the other in the capacity as the Official Liquidator. Even if the Registrar was asked to file affidavit by the Regional Director, considering the facts of the case that the said Registrar was already acting as an Official Liquidator, he should have informed the said aspect to the Regional Director. The affidavit submitted by the Registrar is as vague as it can be. By the said affidavit he has given no objection for sanctioning the scheme. In the instant case, since the Registrar is required to file an affidavit independently and the Official Liquidator and the Registrar are acting in a different capacity, the same persons could not have filed affidavits, both in the capacity as Registrar as well as in the capacity as the Official Liquidator. The statutory requirement of Section 394, therefore, cannot be said to be complied with in the present case. It is to be noted that as per Section 394, the Registrar as well as the Official Liquidator are required to file their separate affidavits. If one is incharge, the same person could not have filed affidavits of the Registrar as well as the Official Liquidator. The Affidavit of the Registrar is absolutely noncommittal. In the affidavit of the Official Liquidator, he has mentioned that the affairs of the company are not being conducted in a manner prejudicial to the interests of its members or to public interest. But when the same person filed affidavit as Registrar, this aspect is clearly omitted in his reply. In his affidavit, the Registrar has tried to become noncommittal. Before us, even no attempt was made on behalf of the Central Government or the Registrar to file any further affidavit. It is also pointed out to us that no final decision on the basis of the inspection reports has been arrived at one way or the other. Mr. Bhat during the course of his argument has submitted that the Registrar has acted as a mere delegate of the Regional Director. If that be so, then the Registrar could have informed the Regional Director that he has also filed an affidavit as Official Liquidator and that he would not be in a position to file an affidavit as delegate of the Regional Director.

15. In our view, the learned Company Judge himself has found that from the stand taken by the Registrar, he has failed in his duty and it cannot be said that the requirement of Section 394 has been complied with. In fact, two contradictory affidavits have been filed by the same gentleman, one in his capacity as the delegate of the Regional Director and the other in his capacity as the Official Liquidator. When the law requires that there should be two independent reports, it is clear that the statutory provision has not been complied with.

16. Considering the aforesaid aspect of the matter, though this Court has got only supervisory jurisdiction in the matter of sanctioning the scheme of amalgamation, surely this Court is not required to sanction the scheme in a mechanical manner and as per the mandate of Section 394 the Court shall not sanction the scheme unless the reports are made available as per the Proviso to Section 394. The Court, therefore, cannot sanction the scheme, unless the said statutory requirement is complied with and in this case, since it is not in dispute the very same person has filed affidavits, both as Official Liquidator and as the delegate of the Regional Director and that too his report is also not in conformity with the provisions of Section 394. Simply because the Central Government might have not opposed the scheme, that itself is not a ground for sanctioning the scheme. As per the mandate of law, even if the majority shareholders have approved the scheme, the Court is not required to straight away sanction the scheme. Proviso to Section 394 speaks otherwise and in that view of the matter, in our view, it is not correct to say that simply because the scheme is not opposed by the Central Government, the Court is required to put its seal on the scheme placed before it. In view of what is stated above, as per the proviso to Section 394 that no Court shall sanction the scheme unless statutory requirement is complied with, and since the said statutory requirement cannot be said to have been complied with, this appeal is required to be allowed and the order of the learned Single Judge, sanctioning the scheme is required to be set aside. We may also make it clear that in a given case by some omission even if averment is not made by the Registrar that the affairs of the company are not being conducted in a manner prejudicial to the interest of its members or to public interest, that may not be treated as fatal in every case in connection with the sanctioning of the scheme. However, so far as facts of the present case are concerned, when the Registrar was mindful of the inspection reports, it was his duty to state clearly that the affairs of the company are not being conducted in a manner prejudicial to the interests of its members or to public interest. The Registrar cannot sit at fence and remain noncommittal in this behalf. Even, otherwise, from the facts it is clear that the same person has filed both the affidavits, one in the capacity as Official Liquidator and the other in the capacity as the Registrar, although both of them are required to give separate reports in different capacity.

17. Before parting with this order, we make it clear that our observations are only meant for the purpose of considering whether the scheme can be sanctioned by this Court or not and whatever, observations made herein above will have no relevance and the same are not to be taken into account in any other proceedings which might be pending or may be initiated in future of any kind.

18. For the reasons stated above, we are of the opinion that the scheme, in question, cannot be sanctioned by this Court as it is in violation of mandatory provision of Section 394 of the Companies Act. As pointed out earlier, the learned Company Judge has not accepted the report submitted by the Registrar and if that report is taken into consideration, it is clear that the requirement of provisions of Section 394 cannot be said to have been fulfilled in the present case.

19. The appeal is allowed. The Order of the learned Company Judge is, accordingly, set aside. The scheme submitted by respondent No. 1 Company is, accordingly, not sanctioned and accordingly not approved. Company Petition No. 9 submitted before the learned Company Judge, accordingly, stands rejected. No costs.


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