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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
V.M. Pancholi, J.
In Re: Shree Rama Multi Tech Limited - Appellants
Company Petition No. 247 of 2008 in Company Application No. 401 of 2008
Decided On: 15.07.2015
COMPANIES ACT, 1956 - SECTION 391 - SANCTION OF SCHEME OF COMPROMISE AND ARRANGEMENT - JURISDICTION OF COMPANY COURT - SCOPE AND AMBIT - MATERIAL FACTS TO BE DISCLOSED - FAILURE TO DISCLOSE MATERIAL FACTS - SCHEME NOT JUST AND FAIR - PETITION DISMISSED.
Fact of the Case:
The petitioner company, which was registered as a sick company by BIFR, filed a petition under Section 391 of the Companies Act, 1956, seeking sanction of a composite scheme of compromise and arrangement with its creditors and shareholders. The scheme was approved by the requisite majority at the respective meetings of the shareholders and lenders. However, one of the shareholders filed objections to the scheme, alleging that it was not bonafide, was proposed only to give undue benefits to Nirma Industries and its group, was not workable, and was against the interest of the company, its shareholders, creditors, and members. The objector also alleged that the scheme was oppressive to the minority shareholders and was a fraud against the company and its shareholders. The objector further alleged that the proposed scheme was designed to evade the liability of Nirma Industries to pay under the takeover code and to avoid the effect of the prohibitory orders passed by SEBI under Section 11 and 11(B) of the Securities and Exchange Board of India Act, 1992.
Finding of the Court:
The Court held that the petition was not maintainable as the reference filed by the petitioner company was pending before BIFR when the petition was filed. The Court also held that the scheme was not just and fair as the petitioner company had not disclosed all material facts relating to the company, such as the order passed by SEBI and the order passed by SAT in the case of Nirma Industries Limited. The Court further held that the petitioner company had not complied with the mandatory requirement of Section 391(2) of the Companies Act, which requires the company to disclose all material facts relating to the company to the Court before the Court can sanction the scheme.
Issues: 1. Whether the petition was maintainable when the reference filed by the petitioner company was pending before BIFR? 2. Whether the scheme was just and fair? 3. Whether the petitioner company had complied with the mandatory requirement of Section 391(2) of the Companies Act?
Ratio Decidendi: 1. A petition under Section 391 of the Companies Act, 1956, is not maintainable if the reference filed by the petitioner company is pending before BIFR. 2. A scheme of compromise and arrangement is not just and fair if the petitioner company has not disclosed all material facts relating to the company to the Court. 3. The petitioner company is required to comply with the mandatory requirement of Section 391(2) of the Companies Act, which requires the company to disclose all material facts relating to the company to the Court before the Court can sanction the scheme.
Final Decision: The petition was dismissed.
V.M. Pancholi, J.
1. This petition is filed by the petitioner-company for the following reliefs:
"26(a) The Composite Scheme of Compromise and Arrangement referred to in para-9 of this petition and being Annexure-"C" (being a corrected copy) hereto, is sanctioned by this Hon'ble Court so as to be binding on all the Equity Shareholders, Preference Shareholders, Class 'A' Lenders and Class 'B' Lenders of the Petitioner Company and on the Petitioner Company.
(b) 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."
2. Factual matrix of the case are as under:
2.1. That the petitioner company was incorporated on 17.12.1993 as public limited company in the office of Registrar of Companies under the provisions of the Companies Act. The petitioner company was incorporated for the objects which are set out in the Memorandum and Articles of Association of the company. In paragraph 5 of the petition, the main objects of the company are stated. As per the audited balance sheet as on 31.3.2008, the authorized, issued, subscribed and paid up share capital of the petitioner-company consists of the following:
| SHARE CAPITAL AS ON 31/03/208 | |
| Avthorised : | (Rupees In Lacs) |
| 20,00,00,000 Equity Shares of Rs. 5/- each | 10000.00 |
| 50,00,000 Preference Shares of Rs.100/- each | 5000.00 |
|
| 15000.00 |
| Issued and Subscribed |
|
| 6,35,55,555 Equity Shares of Rs. 5/- each | 3177.78 |
| Paid UP |
|
| 6,34,68,005 Shares of Rs.5/- each fully paid up | 3173.40 |
| Add forfeited Shares | 2.63 |
| Total | 3176.03 |
| 6,66,666 15% Cumulative Redeemable Preference shares of Rs.100/- each fully paid up | 666.67 |
| Total | 3882.70 |
The petitioner-company started its commercial operations somewhere in the year 1993. 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 1.4.2008. 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-company was facing financial difficulties on account of various market conditions. The company had, therefore, approached the Board for Industrial and Financial Reconstruction ('BIFR' for short) for seeking a reference for declaration as sick company in September, 2005 and again in August, 2006. It was registered as Case No. 69 of 2006. However, the same was rejected by order dated 28.12.2006 against which the petitioner preferred Appeal No. 61 of 2007. The appellate authority decided the said appeal, remanded the matter back to the BIFR. However, till filing of the petition, the said reference of the company was not registered.
2.2. The petitioner-company has given the reason for the need for restructuring in paragraph 7.3 of the petition and material provisions of the proposed scheme of arrangement and compromise are provided in paragraph 9 of the petition.
2.3. It has also averred in the petition that earlier also, the scheme of compromise with the creditors was proposed by the petitioner-company by filing Company Petition No. 111 of 2005. However, the scenario had changed and the terms offered vide the said scheme in collaboration with the investors were different. The said scheme was withdrawn. Yet, another scheme was filed before this Court by filing Company Petition No. 403 of 2007. The same was also withdrawn by the petitioner on 11.4.2008 and by way of this petition, the new scheme is produced for approval of this Court.
2.4. The petitioner-company has also pointed out in the petition that this Court passed an order on 16.7.2008 directing t
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