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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY SCHEME PETITION NO.155 OF 2010
CONNECTED WITH
COMPANY SUMMONS FOR DIRECTION NO.6 OF 2010
Cairn India Limited, a company incorporated
under the Companies Act, 1956 having its
registered office at 101, West View, Veer
Savarkar Marg, Prabhadevi, Mumbai-400025 ....Petitioner Company
Mr.I.M. Chagla, Senior Counsel with Mr.J.D. Dwarkadas, Senior Counsel,
Mr.Virag V. Tulzapurkar, Senior Counsel, Mr.J.C. Perreira and Mr.Ankit
Lohia i/b Rajesh Shah & Co. for the Petitioner.
Mr.J.P. Avasia with Mr.R.I. Chagla for the Regional Director.
Mr.Dinesh V. Lakhani for the Objector.
Ms.Alpana Ghone with Mr.Kamlesh Khavade i/b India Law Alliance for the
Objectionist.
CORAM : S.J. VAZIFDAR, J.
DATE : 22ND JUNE, 2010.
ORAL JUDGMENT :-
The Petitioner seeks an order sanctioning a scheme of
arrangement between itself and four transferor companies Cairn Energy
India Pvt. Ltd. (“CEIPL”), Cairn Energy India West B.V., (“CE India West”),
Cairn Energy Cambay B.V. (“CE Cambay”) and Cairn Energy Gujarat B.V.
(“CE Gujarat”). The first transferor company is incorporated in Australia
and the others are incorporated in Netherlands. Under the scheme, the
entire business relating to the Indian undertakings of the transferor
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companies are to stand transferred to and vested in the Petitioner with
effect from the appointed date without any further act or deed pursuant to
the provisions of 391 and 394 of the Companies Act, 1956.
2. The Petitioner is listed on the Bombay Stock Exchange and the
National Stock Exchange of India limit. The issued, subscribed and paid up
capital of the Petitioner prior to 31.3.2009 was Rs.18,966,678,160
comprising of 189,66,67,816 equity shares of Rs.10/- each. After 31.3.2009
the same increased to Rs.18,967,892,270/- on account of ESOPs.
3. The Petitioner is primarily engaged in the business of
surveying, prospecting, drilling, exploring and dealing in minerals, natural
oils, petroleum, gas and related products. The transferor companies are
the Petitioner’s subsidiaries. The transferor companies also carry on
business activities in India through their project offices. Each of the
transferor companies is a participant in various oil and gas blocks granted
by the Government of India through production sharing contracts entered
into with the Government of India and other joint venture parties.
4. A copy of the audited statement of accounts as of 31.3.2009
and unaudited statement of accounts as on 30.9.2009 of each of the
transferor companies has been annexed to the petition. Further a copy of
the audited statement of accounts in foreign currency of each of the
transferor companies as on 31.12.2008 is also filed with the petition. The
Petitioner has furnished the rational for the proposed scheme. According to
the Petitioner, a multiple layered structure, comprising various foreign
subsidiaries, between it and the Indian undertakings is administratively
burdensome. The scheme proposes to simplify and consolidate the
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structure and business operations by transferring the entire oil and gas
exploration, development and production business of the transferor
companies in India into the transferee company. Consequently, it is
contended that there would be greater efficiency in the cash management
of the transferee company and unfettered access to the cash flow
generated by the Indian company of the transferor companies with its own
benefits. There are also the usual benefits arising from such a scheme
such as administrative convenience by reducing the legal and regulatory
compliances.
5. The Board
igof Directors of the respective companies
considered and proposed the scheme and by a resolution dated 9.12.2009
approved the same. It is a composite scheme under sections 78, 100 to
103 and 391 to 394 of the Companies Act, 1956. I will refer to some of the
provisions of the scheme which have been questioned by one of the
shareholders.
6. By an order dated 8.1.2010, this Court directed the Petitioner to
convene and hold a meeting of the equity shareholders for the purpose of
considering the said scheme. By the said order, Mr.Justice M.H. Kania
(Retired Chief Justice of India) was appointed as a Chairman of the
meeting. Meeting of the secured and unsecured creditors were dispensed
with. Notice of the meeting of the equity shareholders was dispatched
individually to the equity shareholders along with the necessary
documents. A notice convening the meeting was also advertised as
directed by the said order.
7. A meeting of the equity shareholders was convened and held
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pursuant to the said order dated 8.1.2010. The Chairman reported the
result thereat by filing his report dated 19.2.2010 along with the affidavit in
verification thereof. The scrutineers noted 412 ballots representing
164,96,85,353 equity shares were cast. Two ballots representing 445
equity shares were found to be invalid.
387 equity shareholders holding 164,96,84,906 equity shares
constituting 94.91% in number and representing 99.88% in value present
and voting in person or by proxy or by authorised representatives voted in
favour of the scheme. Twenty three equity shareholders holding 19,300
equity shares representing in value a sum of Rs.1,93,000/- constituting
5.61% in number and representing 0.12% in value present and voting in
person or by proxy or by authorised representatives voted against the
scheme. Thus the overwhelming majority of the equity shareholders voted
in favour of the scheme.
8. The Bombay Stock Exchange and the National Stock
Exchange issued certificates stating that they had no objection to the
scheme.
9. The Petitioner thereafter filed the present Petition on 2.3.2010.
10. The Regional Director has filed an affidavit stating that the
scheme is not prejudicial to the interest of the shareholders and the public.
However, two objections were raised in a further affidavit filed on behalf of
the Regional Director.
11. Mr.Avasia, the learned counsel appearing on behalf of the
Regional Director submitted that under the provisions of the scheme the
appointed date is uncertain as the scheme does not provide for a specific
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“effective date”. He submitted therefore that the Petitioner ought to be
directed to provide for a specific effective date in the scheme or that this
Court ought to provide such date. Clauses 1.2, 1.9 and 20.2 of the scheme
referred to by Mr.Avasia in this regard read as under :-
“1.2 “Appointed Date” means January 1, 2010 or any
such other later date prior to or including the effectivedate as may be approved by the Board of Directors of
the respective Transferor Companies and Transferee
Company.
1.9 “Effective Date” means the date of the resolution
by the Board of Directors of the Transferee Company
and the respective Transferor Companies, resolving thata particular Part of the Scheme has become effective in
terms of Clause 20 of the Scheme, but not before filing :
. with respect to Part B with the Registrar of
Companies, Maharashtra, at Mumbai and Registrar of
Companies, Tamil Nadu, at Chennai ; and
. with respect to Part C with the Registrar of
Companies, Maharashtra at MumbaiReferences in this scheme to the date of ‘coming into
effect of this scheme” or “effectiveness of this scheme”
shall mean the Effective Date.”
20.2 Each Part of the Scheme is independent.
Each Part of the Scheme would be effective as and
when the aforesaid requisite approvals with respect to
the said Part are received. Therefore, the non
implementability of any of the said Part for non receipt of
necessary approvals of that Part shall not affect theimplementationbility or otherwise of the other Part of the
Scheme, wherein requisite approvals are obtained. The
Board of Directors of CIL and the respective Transferor
Companies shall mutually resolve as to whether and
when each Part of the Scheme becomes effective.”
12. Mr.Avasia’s submission is well founded. The above clauses do
leave the appointed date uncertain as it is left to be determined by the
Board of Directors of the said companies. Indeed, theoretically there may
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even be different dates fixed by each company although in practical terms
this eventuality may not arise. The defect however, can be cured by
deleting in clause 1.9 the words “………… of the resolution by the Board of
Directors of the Transferee Company and the respective Transferor
Companies, resolving that ………….” and the last sentence in clause 20.2.
It is so ordered.
13. Mr.Avasia further submitted that clause 19.1 cannot be
permitted as it stands, for it authorizes the Board of Directors of the
companies to modify the scheme without the sanction of the Court. He
submitted that the power to modify the same after its sanction lies only
with the High Court that sanctions such scheme.
14. Although this may not have been the intention of the said
companies, the clause certainly requires modification to eliminate the
defect rightly pointed out by Mr.Avasia.
15. In the circumstances, clause 19.1 is modified by deleting the
words “or any other authority” appearing between the words “High
Court(s)” and “may deem fit” and also by deleting the words “or which
may otherwise be considered necessary, desirable or appropriate by them
(i.e. the Board of Directors or a Committee thereof and resolve all issues
that may arise for carrying out the Scheme”, appearing between the words
” or impose” and the words “and do all acts …………….” It is so ordered.
16. The objections raised on behalf of the Regional Director are
thus taken care of.
17. One of the shareholders Mr.D.V. Lakhani objected to the
scheme on several grounds. He holds 8000 equity shares which
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represents 0.000422% of the issued, subscribed and paid up equity
capital of the company.
18. Mr.Lakhani submitted that the names of all the joint holders of
the shares are required to be mentioned in Form-39. He further submitted
that the name of the joint holders present and voting at the meeting is also
required to be mentioned in separate columns. This, he submitted was to
weed out multiple voting. He submitted that the Petitioner had mentioned
only the first shareholders name in the scrutineers’ report and was
therefore not as per the provisions of Rule 78 of the Company Court Rules.
19.
Rule 78 reads as follows :-
78. Report of the result of the meeting . – The
Chairman of the meeting, (or where there are separate
meetings, the Chairman of each meeting) shall, within the
time fixed by the Judge, or where no time has been fixed,
within seven days after conclusion of the meeting, report
the result thereof to the Court. The report shall state
accurately the number of creditors or class of creditors or
the number of members or class of members, as the case
may be, who were present and who voted at the meeting
either in person or by proxy, their individual values and
the way they voted. The report shall be in Form No.39.”
A plain reading of Rule 78 does not support Mr.Lakhani’s
submission. It merely requires the Chairman’s Report to state accurately
the number inter-alia of persons who were present and who voted at the
meeting either in person or by proxy, their individual values and the way
they voted. It does not require the names of all the joint holders of the
shares to be mentioned.
Form-39 also does not support the submission. It merely
requires the report to mention inter-alia the names of the members who
attended the meeting, their addresses, the number of shares held by them
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and the way they voted.
Mr.Lakhani’s submission, if accepted, would require the rule to
be re-written and the form to be amended.
20. Mr.Lakhani relied upon an order dated 13.1.2006 I passed in
Company Petition No.639 of 2005 in Re. :- Chemidye Manufacturing Co.
Pvt. Ltd. The same were however on the basis of counsels statement and
does not constitute a judgment on this point.
21. Mr.Lakhani’s reliance upon the judgment of a learned single
Judge in Re. : German Remedies Ltd. (2004) 1 LJ SOFT 104 = (2005) 125
CC 615 is not only not well founded but against this submission. Paragraph
7 relied upon by him reads as under :-
“Rule 78 of the Company (Court) Rules, 1959 requires
Chairman of the meeting to submit his report of the result
of the meeting in Form No.39 giving all the details
including the names and address of the members whoattended the meeting. The objectors submitted that the
Chairman’s report gives the number of share holders,their authorised representatives and proxies who attended
the meeting but, does not give the individual names and
address of the members and therefore, the report is not
consonance with Rule 78 and Form No.39. In IndusInd
Enterprises & Finance Limited, Company Petition No.1085/2002 decided on 5th June, 2003, reported in 2003
(8) LJSOFT 47 = 2003 (4) Bom.C.R. 482 = 2003 (4) ALL
MR 606, following the decision of the Calcutta High Court
in Darjeeling Commercial Company Ltd. v. Pandam Tea
Company Ltd., reported in 1983 (54) Company Cases
814, this Court held that Court should not take pedantricand strict view while considering the rules and the forms
but, Court should be liberal and substantial compliance of
the procedural rules would be enough. The petitioner has
filed on record the names and address of the members
their authorised representatives and proxies who attended
the meeting also giving the manner in which they voted
along with the affidavit dated 25th April, 2003 sworn in by
Ms. Romy Kaizhi Bilkodivala, Chairman of the meeting.
Thus, there has been a substantial compliance of Rule
No.78. Initial deficiency, if any, in not giving the names::: Downloaded on – 09/06/2013 16:02:45 :::
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submitted to the Court is cured. Thus, the scheme cannotbe rejected on account of this technicality.”
The judgment holds that Rule 78 and/read with Form 39
requires the Chairman to furnish details of the “members who attended the
meeting”.
22. The apprehension regarding more than one joint holder voting
repeatedly is unfounded. Scrutineers are appointed at such meeting. They
are bound to ensure that the voting is in accordance with law. It is always
open to them to check any impropriety or dishonesty in this regard. If the
circumstances warrant the Court can also investigate complaints in this
regard. However, the submission based on an interpretation of the said
provisions is not well founded.
23. I did not permit Mr.Lakhani to rely upon the course of action
adopted by “some very high executives of reputed companies” in this
regard. Their conduct would at the highest be in the nature of their opinions
or perception of the provisions of the Companies Act. It is improper for the
Court to consider the opinions given to the parties even by former Judges.
24. In the circumstances, the objection in this regard is also
rejected.
25. Mr.Lakhani submitted that clause 11 of the scheme was unfair
and unjust. Clause 11 reads a under :-
“11. UTILISATION OF SECURITIES PREMIUM
ACCOUNT OF CIL11.1. The Goodwill arising pursuant to this Scheme
shall be adjusted by CIL against the balance in the
Securities Premium Account.
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11.2 The utilisation of Securities Premium
Account, as above, shall be effected as an integral part ofthe Scheme itself in accordance with the provisions of
Section 78 and Sections 100 to 103 of the Act without
following the process(es) under sections 100 to 103 of theAct separately as the same does not involve either
diminution of liability in respect of unpaid share capital or
payment to any shareholder of any paid-up share capital
and the order of the High Court(s) sanctioning the
Scheme shall be deemed to be an order under Section102 of the Act confirming the reduction. The provisions of
Section 101 of the Act shall not apply.”
26. Mr.Lakhani submitted that the proposal to write off by adjusting
the value of the goodwill against the securities premium account is unfair
and unjust. He submitted that there was no compulsion on the Petitioner to
write off the entire amount of goodwill by adjusting the same from the
securities premium account at one stroke. He submitted that this ought to
be done in installments. He referred to paragraph 8 of his additional
affidavit in which it is stated that International Financial Reporting
Standards which come into effect from 1.4.2011 also allows the companies
to decide the period of write off and does not make it mandatory to write off
at one stroke.
27. Absent any impropriety, mala-fides, fraud or absurdity these
are decisions which are best left to the members. It is difficult for the Court
to sit in appeal over their judgment in such matters namely whether to write
off the amounts in installments or in one stroke.
28. Mr.Lakhani then submitted that the goodwill of the transferor
companies which vested in the Petitioner was of the value of Rs.25,319
crores as appearing in the consolidated accounts of the Petitioner for the
fifteen months period ending 31st March, 2009. He submitted that the
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officers of the Petitioner informed the shareholders that the adjustments
not exceeding Rs.15,000/- crores towards the goodwill from the securities
premium account was only an enabling resolution and that the actual
adjustment of that goodwill would be only about Rs.4000/- to Rs.5000/-
crores. He submitted that if there is an adjustment of any amount from the
share premium account, it would adversely affect his rights as a
shareholder to receive bonus shares in future, as bonus shares are to be
issued by adjusting the share premium account.
29. Firstly, the goodwill created pursuant to the scheme is being
adjusted against the securities premium account. The net worth of the
Petitioner remains intact and the adjustment does not affect the same. The
apprehension expressed in respect of the entitlement to bonus shares in
future being adversely affected as a result of this adjustment is not well
founded. While considering whether to sanction the scheme or not, it would
be incorrect to consider an application for sanction of a scheme on
hypothetical on purely theoretical considerations. It must be remembered
that the total reserves of the Petitioner are about Rs.30,100/- crores. The
amounts lying in the share premium account is not used only for the
purpose of issuing bonus shares. It can also be used towards such other
expenses as are permissible even without the sanction of the Court. In
other words, the balance in the share premium account is not deducted
only towards the issuance of bonus shares. Thus the mere fact that the
amounts are adjusted from the share premium account would not justify
the conclusion that the ability of a company to issue bonus shares is
thereby reduced. The very act of the share premium account being so
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adjusted therefore, would not justify the Court rejecting the scheme on this
ground.
30. Nor is there anything on record which indicates that the
adjustment is proposed with a mala-fide motive of depriving the non-
promoter shareholders from being issued bonus shares in future.
Mr.Lakhani did not establish that the adjustment is proposed to avoid
issuing bonus shares to any of the shareholders.
31. The Petitioners undertaking to obtain the valuation report from
an independent valuer to determine the fair value of CHIL is accepted. All
the undertakings in the affidavit in rejoinder filed on behalf of the Petitioner
dated 21.4.2010 and in particular those in paragraph 6 thereof including as
to obtaining the valuation report from an independent valuer, using the
same as the basis for determining the goodwill at the time of the scheme
coming into effect, that the special resolution dated 2.3.2010 will not be
relied on or utilized for any purpose except for adjustment of the goodwill
arising pursuant to the scheme and to apply to this Court for confirmation
of the minute of reduction of the securities premium account after the value
of the goodwill to be adjusted is determined, are accepted. If the
undertakings are violated the shareholders have a remedy. The
undertakings/statements if followed adequately safeguard the interests of
the members.
32. Mr.Lakhani “wondered” what would happen if the scheme is
approved by this Court but the Government of India does not permit the
transfer of the operating assets as contemplated under the scheme. The
obvious answer is that if the permission from the Government of India, is
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required, and is rejected, the scheme will fail.
33. Mr.Lakhani submitted that the company had not complied with
the provisions of Section 391(2) of the Companies Act as it had failed to
produce the latest financial position as on the date of the hearing of the
petition. He submitted that the company had filed only the details of its
financial position as on the date of the filing of the petition, but not
thereafter.
34. The petition was filed on 2.3.2010 and admitted on 5.3.2010.
The unaudited accounts of the Petitioner as on 30.9.2009 were annexed to
the petition. Mr.Lakhani submitted that as the petition was heard after nine
months on 9.6.2010, the company was bound to file the latest financial
position as on 9.6.2010. Having failed to do so, according to him, the
scheme cannot be sanctioned.
35. Mr.Lakhani raised this contention in his affidavits dated
13.4.2010 and 26.4.2010. He did not indicate any reason for apprehension
on account of any change in the circumstances during the period
30.9.2009 to 13.4.2010 or even 9.6.2010. He merely stated that as a
question of law, the petition ought to be rejected on the ground that the
latest financial position i.e. the financial position as of 9.6.2010 was not
made available by the Petitioner. He based this submission upon a
judgment of a learned single Judge of this Court in the case of KEC
International Ltd. v. Kamani Employees Union 109 COM CAS 659. There
are however other judgments also on this point, to which my attention has
been invited by Mr.Chagla and Mr.Avasia. It would be convenient to refer to
these judgments chronologically.
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36. In KEC International Ltd. v. Kamani Employees Union, a
learned single Judge of this Court held as under :-
“67. The next issue is with regard to non-
disclosure of latest financial position. The proviso to
Section 391(2) of the Companies Act makes it abundantly
clear that no order of sanctioning any compromise or
arrangement shall be made by the Court unless the Court
is satisfied with regard to the latest financial position.
Admittedly in this case the Petitioner has filed an audited
financial report as on 31st March, 1997 and not
subsequent thereto. The learned Counsel for the
Petitioner sought to argue that what is contemplated as
latest financial position is as at the time of the meetingand also at the time of filing of the present petition. It
would be rather strange in the sense that if the petitionwere to be heard almost after two years and in that event
to say that the Petitioner need not disclose the latest
financial position would render the whole objective
absurd. If one were to look at the provisions regardingamalgamation scheme the time appears to be the
essence in approval of such Schemes. In fact, within the
time prescribed, the meeting has to be held, and within 15
days the Chairman has to file his report in this Court and
within a week thereof the Petition has to be presented inthis Court so as to enable the Court to consider
Amalgamation Scheme at the earliest. In a given case thePetition may come up for hearing after three or four years
and to say that the Petitioner need not disclose the latest
financial position of the Company would render the entire
objective meaningless. It is pertinent to note that the
words used “Court must be satisfied with regard to thelatest financial position of the Company”. In this context
as mentioned earlier, the judgment of the Delhi High
Court in Bhagwan Singh’s case (supra) the meaning of
words “latest financial position” has categorically been
held as the financial position should be when the matter
is due for sanction. Obviously, it means at the time of finalhearing of the Petition and this requirement is statutory
since the Supreme Court in Miheer H. Mafatlal’s case
(supra) has categorically held that all the statutory
requirements have to be strictly complied with before
sanctioning Amalgamation Scheme. Therefore what is
required is the latest financial position at the time of final
hearing of the application, i.e. at the time of sanctioning.
68. Our High Court in Bharat Synthetics Ltd. V.
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Bank of India and Anr. reported in 1995 (82) Company
Cases 437 has categorically held that the Petitionershave not placed before the Court, its authenticated latest
financial position and deprecated the manner in which the
Company had not cared to do the same. In the presentcase the Petitioners have failed to place before the Court,
the latest financial position of the Company which is a
mandatory statutory requirement. Therefore, I hold that
the Petitioner Company has failed to place before the
Court the “latest financial position” which is a mandatoryrequirement under Section 392 of the Companies Act.
69. The issue with regard to the prior approval
from the financial institutions, at the belated stage thePetitioners have filed an affidavit of Mr. T.N.
Balsubramaniam dated 22nd July, 1999 enclosing
therewith xerox copies of the letters from the financialinstitutions viz. L.I.C., G.I.C. and U.T.I. approving the
Amalgamation Scheme. In view thereof the said objection
cannot be sustained that is to say the financial institutionshave not given their approval/consent for the
Amalgamation Scheme.”
The learned Judge has indeed held that the financial position
to be disclosed, should be “when the mater is due for sanction”, which
means “at the time of final hearing of the petition”. I do not however read
the judgment to hold that the latest financial position should be as on the
very day of the hearing of the petition or even the day prior thereto. Indeed
a company can never do so. The argument, if accepted, would mean that
even if the company petition is adjourned by a week, the company must
irrespective of anything, furnish the latest financial position once again.
This process could go on every time the company petition is adjourned.
The expression “at the time of final hearing of the Petition”
must be read reasonably. It seems obvious to me that so read, what it
means is that a Court at the hearing of the petition must be satisfied that
the financial position is disclosed as of a date which the Court considers
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sufficiently and reasonably proximate to the date of the final hearing of the
petition. This would depend upon the facts of each case. If the financial
position as of a date reasonable proximate to the date of hearing of the
petition is furnished, nothing more is required unless the Court has reason
to believe that even during this period, the financial position has or may
have undergone such a change as to necessitate the Petitioner bringing
the same to the notice of the Court.
37. In Blue Star Infotech Ltd., 2000(2) Bom. C.R. 525, another
learned single Judge while dealing with the same question of law, held that
the relevant time of the latest financial position would be at the time of filing
the petition and that it is only when there is a long gap between filing of the
latest balance-sheet etc. and when the Court considers the scheme for
sanction that the Court may require the latest financial position. Mr.Chagla
relied upon the following observations in paragraph 11 of the judgment :-
“11. Mr. Grover, learned Counsel appearing for the
objectors has raised a large number of objections. Mr.
Grover is right in his submission that the objectors cannot
be told that they have no locus standi to object to the
scheme as they have come before the Court in variouscapacities as creditors, employees, shareholders, proxy-
holders of shareholders of B.S.L. and as members of the
Federation and Blue Star Workers Union which are
recognised Unions. The objections have been raised by
them in a representative capacity for and on behalf of
other employees creditors. He has relied on a largenumber of authorities to show that the objectors have
locus standi. It is, however, not necessary to consider
them as I have already held that the objectors have the
locus standi to object. Mr. Grover has submitted that the
scheme is liable to be rejected as there has breach of
fiduciary duties on the part of the Directors of the
Company. The scheme has been fraudulently propagated.
The Company is acting ultra vires the Memorandum and
Articles of Association. The objections raised by Mr.
Grover pertain to procedure as well as law. It is stated
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that B.S.L. has not filed its latest audited account for the
financial year 1998-99 as mandatorily required by proviso
to section 391(2) of the Act. In support Mr. Grover has
referred to a number of judgments. In the case of Navjivan
Mills Co. Ltd. Kalol in Re. Kohinoor Mills Co. Ltd.,
1972(42) Com.Cas. 265 the Gujarat High Court was
considering an objection to the effect that the petitioner
had not satisfied the requirements contained in the
proviso to section 391(2) by not making necessary
disclosures and it being a condition precedent to the
Court exercising jurisdiction under section 391(2), the
petition must fail. It was held that the scheme cannot be
sanctioned if the Court comes to the conclusion that
material particulars have not been disclosed to the Court
by affidavit or otherwise. However, it was held that it will
be a question of fact in each case whether the disclosures
as required by the proviso have been made or not. In that
case the objection was in fact rejected. Interpreting the
word “latest”, the Court held that “latest” means latest in
point of time in relation to the date on which the petition is
filed. Mr. Grover has thereafter relied on 60 Comp.Cas. 94
Bhagwan Singh and Sons P. Ltd. v. Kalawati and others.
In this case the Delhi High Court dismissed the petition as
having been delayed. It was also dismissed on the ground
that the Company had failed to give the upto date
financial position which had to be done upto the stage
when the petition became due for sanction. This decision
is not contrary to the judgement of the Gujarat High Court.
It lays down that the latest financial position has to be
given as on the date of the sanction by the Court. But the
observation has to be seen in the light of the facts of each
case. In that case the meetings of the creditors and
shareholders were held on April 25, 1978, approving the
scheme of arrangement, and the report of the Chairman
submitted on May 23, 1978. Instead of filing the petition
within seven days of the filing of the report by the
Chairman as required under Rule 79 of the Companies
(Court) Rules, 1959, the petition was moved on
November 15, 1978. The learned Judge rejected the
reason given for the delay and dismissed the petition.
While dealing with section 391(2) of the Companies Act it
was observed that the Company has chosen to file
balance-sheet upto March, 1980 and has not cared to
submit the latest balance-sheet. The Company had been
specifically directed in that case to submit the latest
balance sheet, profit and loss account, list of
shareholders and shares held by them and the Auditor’s
report, during the course of argument a month earlier
before the judgment was given. It was, therefore, held that
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the Company has with- held the full material facts and its
latest financial position. Therefore, I am of the opinion that
the observations made by the Delhi High Court are not
contrary to the law laid down by the Gujarat High Court. It
was held that the scheme is mala fide and that the sole
purpose of the scheme appears to be to defeat the claim
of these creditors by 50 per cent, get released the
attachment of goods that they have got effected and pay
the rest in driblets covering a period of five years. Mr.
Grover thereafter relied on the case of Maneckchowk and
Ahmedabad Manufacturing Co. Ltd., 1970 Vol. 40
Com.Cas. page 819. In head note 3 and 4 of this case it is
held as follows.
“(iii) Before the Court accords its sanction to any scheme
of compromise and arrangement, it would normally expect
to be satisfied about three important matters, namely (a)
whether the statutory provisions have been complied with
or not; (b) whether the class or classes have been fairly
represented; and (c) whether the arrangement is such as
a man of business would reasonably approve.”
“….. It is obligatory upon the applicant under section
391(1) to set out in an affidavit the particulars required in
Form No. 34. The details required to be mentioned in the
affidavit have been so prescribed as to enable the Court
to give proper directions and no disclosures are required
to be made as required by the proviso at that stage. It is
not possible to accept the view that disclosures as
required by the proviso should be made at the initial stage
when the application is made under section 391(1). These
disclosures are required to be made only when a petition
is filed under section 391(1) for sanctioning the scheme
and must be available when the Court proceeds to
examine the scheme to find out whether sanction should
be accorded to it or not.”
A perusal of the aforesaid shows that the Court has come
to the conclusion that it is not possible to accept the view
that the disclosure should be made at the initial stage
when the application is made under section 391 of the
Act. The disclosures are required at the time when the
petition is filed and must be available when the Court
proceeds to examine the scheme to find out whether
sanction should be accorded to the scheme, comes up
before the Court for sanctioning the scheme. This
judgment and the earlier judgment of the Gujarat High
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Court in Navjivan Mills Com. Ltd. are both given by the
same learned Judge viz, D.A. Desai, J. Reading all the
judgments together, one can say that the relevant point of
time for disclosing the latest financial position would be at
the time of filing of the petition. It is only as in the case of
Bhagwan Singh (supra) when there is a long gap between
the filing of the latest balance sheet etc. and the time
when Court considers the scheme for sanction that the
Court may require the latest financial position, otherwise it
has been clearly laid down that the latest financial
position should be disclosed at the time of moving/filing of
the petition. Mr. Grover thereafter relied upon the
judgment of the Allahabad High Court in the case of
Premier Motors (P) Ltd. v. Ashok Tandon and others
1971(41) Comp.Cas. 656. This judgment merely
reiterates that all material particulars should be placed
before the Court to enable the Court to come to a
conclusion with regard to the question of propriety of
sanctioning the scheme. It does not decide the issue as to
when the latest petition should be placed before the
Court. Mr. Grover thereafter relied upon 1995(82)
Comp.Cas. 437 (Bharat Synthetics Ltd. v. Bank of India
and another]. In this case a Single Judge of this Court has
held that the Company had not placed before the Court
the authenticated latest financial position as required
under sub-section (2) of section 391 of the Act and,
therefore, it is not in compliance with the provisions of
section 391(2) of the Act. From the conspectus of the
judgments noticed above it becomes apparent that it is
incumbent on the petitioner to place before the Court the
latest audited financial position of the Company. It also
becomes apparent that the Court has to be satisfied that
section 391(2) has been complied with by taking into
consideration the facts and circumstances of each case.
In the present case the audited accounts for the year
1998 have been placed on the record.
Therefore, in my view, the petition cannot be rejected on
the ground that section 391 of the Act has not been
complied with.”
38. In Re. : Zee Interactive Multimedia Ltd. 2002(2) 7 LJSOFT, 83
= 2002(4) Bom.C.R., 137, yet another learned single Judge considered this
issue. After referring to both the judgments, referred to above, the learned
Judge held as under :
“12. The second objection raised by Mr. Dilemma
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is the balance sheet which is annexed to the petition is for
the period of 31-3-2001. He submits that the company
petition was filed on 8-11-2001 and therefore, it was
obligatory on the company to file the latest balance sheet.
He contends that under proviso to section 391(2), the
company is required to disclose all material facts relating
to the company including latest financial position of the
company and the latest auditor’s report on the accounts of
the company. Relying upon the judgment of this Court
rendered in KEC International Limited v. Kamani
Employees Union and others, reported in 2000 (1)
All.M.R. 388, it was contended that the latest financial
position of the company referred to in proviso to section
391(2) is the position as at the time of the final hearing of
the application i.e. at the time of sanctioning of the
scheme of arrangement. It was contended that as the
petition is being heard on 1st February 2002, the company
must disclose the latest financial position at the date of
the hearing of the petition and not as on 31-3-2001. In
response, Shri Tulzapurkar referred to and relied upon an
earlier unreported judgment of this Court dated 7-12-1999
(Coram S.S. Nijjar, J.) in the matter of Blue Star Limited,
Company Petition No. 1007/98. Shri Tulzapurkar further
submitted that this judgment has subsequently been
affirmed by the Division Bench, of this Court.
13. After referring to the judgment of the Gujarat
High Court in Navjeevan Mill Co. Ltd., Kollol In re
Kohinoor Mill Co. Ltd., reported in 1972 (Vol. 42) Co.
Cases 265, and judgment of Delhi High Court in Bhagwan
Singh & Sons Pvt. Ltd. v. Kalavati & others, reported in
1986 (Vol. 60) Company Cases 94 and of another
judgment the Gujarat High Court in In re Maneckchowk v.
Ahmedabad Manufacturing Company Limited, reported in
1970 (Vol. 40) Company Cases 819, Nijjar, J., observed:
“Reading all the judgments together, one can say that the
relevant point of time for disclosing the latest financial
position would be at the time of filing of the petition. It is
only as in the case of Bhagwan Singh (supra) when there
is a long gap between the filing of the latest balance sheet
etc. and the time when Court considers the scheme for
sanction that the Court may require the latest financial
position, otherwise it has been clearly laid down that the
latest financial position should be disclosed at the time of
moving/filing of the petition.
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14. In my opinion, there can be no doubt with the
proposition that the petitioner company must disclose all
material facts including latest financial position of the
company and the latest auditors report on the accounts of
the company. The words “latest auditors report” in my
opinion connote the latest auditors report which is
available or which should normally be available at the time
of filing of the petition. It is not compulsory that company
must get the accounts audited time and again till the
petition comes up for hearing and place that auditors
report, before the Court at the time of hearing the petition.
There would always be some time gap between the date
on which the auditor audits the accounts and prepares his
report and the date on which the company petition is filed
and the date on which petition is actually heard.
Therefore, the statutory requirement of the submission of
latest auditor’s report contained in the proviso of sub-
section (2) of section 391, in my opinion, would mean the
latest auditor’s report for the period for which the accounts
are audited or ought to have been got audited by the
Company. In the case of listed companies (whose shares
are listed on a stock exchange) a limited audit for every
period of half year may be compulsory and in future it may
become necessary even quarterly. In such cases,
auditor’s report for latest half year ending/quarter ending
would be necessary. Of course, in a given case, the Court
is not powerless to ask the further details of the latest
financial position as on the date of the hearing of the
petition or as on the date as near to the date of the
hearing of the petition, as is reasonably practicable. This
is especially necessary when there is a long gap between
the date of filing of petition and the date of it’s hearing. In
the present case, the audit was completed for the financial
year ending 31-3-2001. Transferor company is an unlisted
company and hence, I am told half yearly limited audit is
not compulsory. Therefore, the last auditor’s report
available was only for the period 31-3-2001. That auditor’s
report along with the balance sheet and Annual report
were annexed to the petition. This was legally correct.
However, exercising Court’s power to call for further and
latest possible information, during the course of hearing I
directed the petitioner to file the balance sheet and profit
and loss account upto period ending 30-9-2001 (for which
provisional balance sheet was prepared) The learned
Counsel for the petitioner handed in the copies thereof
both in respect of transferor as well as transferee
company. Copies are taken on record and marked Exhibit-
A in their respective petitions. The Counsel for the
petitioner undertakes to file an affidavit proving those
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copies within a period of two weeks. Undertaking is
accepted. Copy of this order shall not be issued until the
affidavit is filed.”
The learned Judge noted that the judgment in Blue Star
Infotech Ltd. was earlier than the judgment in KEC International Ltd. In fact
the judgment in KEC International Ltd. is dated 5/6.8.2009, whereas the
judgment in Blue Star Infotech Ltd. is dated 7.12.1999.
The learned Judge has noted counsel’s submission that the
judgment in Blue Star’s case was affirmed by the Division Bench. The
judgment of the Division Bench was decided on 1.3.2000 and reported in
2000(12) LJ SOFT 14 = 2000(4) Bom. C.R. 589. The Division Bench
however did not deal with this point. The observations regarding the latest
auditors report apply to the latest financial position. This is clear from the
context. For instance the learned Judge observed that the Court is not
powerless to ask for the details of the latest financial position. This would
not have been necessary if the observations was that the latest financial
position is to be as on the date of the hearing of the .
39. After I reserved judgment, Mr.Avasia and Mr.Chagla fairly
invited my attention to a judgment of a Division Bench of this Court of S.
Radhakrishnan and D.G. Karnik, JJ. in Darshana P.Kenia & Ors. v. Alstom
Power India Ltd. & Ors., 2003 Company Cases, Vol.116. S.
Radhakrishnan, J. had delivered the judgment in KEC International Ltd.
while D.G. Karnik, J. has delivered the judgment in Zee Interactive
Multimedia Ltd. The Division Bench considered the three judgments I have
referred to above and held as under :-
“Re Point Nos. 5:
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27. Proviso to sub-section (2) of section 391 of the
Act requires that the company or any other person who
makes an application for sanction of a scheme to disclose
to the Court all the material facts relating to the company,
the latest auditor’s report on accounts of the company, the
pendency of any investigation proceedings in relation to
the company under sections 235 to 251 and the like. In
order to ascertain whether the scheme is fair and just to all
concerned or not, the Court would necessarily have to look
to the latest financial position of the company. The
Balance Sheet, Profit and Loss Account and the Auditor’s
Report are important tools for the purpose of ascertaining
the latest financial position of the company. It is for this
reason that the Court insists that the applicant must not
only produce the latest Balance Sheet. Profit and Loss
Account and the Auditor’s Report as on the date when the
application for sanction under section 391 is made but,
should also produce the latest Balance Sheet, Profit and
Loss Account and the Auditors’ Report as on the date
when the matter is actually heard by the Court, especially
when there is long gap between the date of the application
and when the Court considers the scheme for sanction.
See. In the matter of the Scheme of Arrangement of Blue
Star Ltd. with Blue Star Infotech Limited, reported in 2000
(2) Com.L.J. 245 at page 255.
28. In the present case, petitioner companies had
initially produced the audited accounts together with the
Auditor’s Report for the year ending 31st March, 2001 both
in the case of APBL as well as APIL. Despite the fact that
the petitions came up for hearing before the learned Single
Judge sometime in the year October, 2002 when the latest
audited accounts as well as the auditor’s report for the
year ending 31st March, 2002 were available, they were
not produced by the company. We must however, mention
that Mrs. Darshana Kenia (appellant in Appeal Stamp No.
981 of 2002) had produced the latest Balance Sheet and
financial position of APIL after conclusion of the hearing
before the learned Single Judge but, before pronouncing of
the judgment. The learned Single Judge however, declined
to look into the same for the reasons mentioned in
paragraph 39 of its judgment. In the case of In the matter
of Scheme of Amalgamation of Zee Interactive Multimedia
Limited, Company Petition No. 1096 of 2001 decided on
1st February, 2001 one of us (Karnik, J.) reported in 2002
(7) LJSOFT 83 = 2002 (4) Bom.C.R. (O.O.C.J.) 137, has
clarified that the latest Balance Sheet, Profit and Loss
Account and the Auditor’s Report must be produced up to
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the date of hearing of the company but, if they are not
produced the Court can call for them to obtain the latest
possible information even at and during the course of the
hearing. We are of the opinion that the learned Single
Judge was entitled to call for and look into the said
Balance Sheet which were produced before him. The fact
that they were not produced by the company but, were
produced by Mrs. Kenia was immaterial. They were
produced before the Court so that it could look into them
and to ascertain the latest financial position. We have
perused the latest financial position contained in the
Balance Sheet produced before the learned Single Judge.
We have also perused further financial results published
by the company in newspapers in pursuance of a
statutory/ SEBI requirement of publishing the quarterly
results (and filed before us by the appellants in the
compilation). We do not find anything adverse in them. On
the contrary, we notice improvement in the financial
position in the post amalgamation results published by the
transferee company pending approval of the scheme of
amalgamation by this Court.
29. We are of the opinion that the requirement of
placing before the Court all material facts relating to the
company including latest financial position is satisfied.”
I have emphasised the portion above to indicate that there
appears to be a typographical error. It is obvious however that the word
“company” is a typographical error and the reference was to the hearing of
the . I am conscious of the fact that in fact in Zee Interactive Multimedia
Ltd., the learned Judge held that the latest audited report connotes the
latest auditor’s report, which is available or should normally be available at
the time of filing of the . I am however bound by the interpretation of the
Division Bench. This would be contrary to Mr.Chagla’s submission that
under Section 391 of the said Act, it is necessary for the company to file
the latest financial position as on the date of the .
40. The same however makes no difference in the present case.
There is nothing to indicate that there has been an adverse change in the
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financial position of the company which would warrant the scheme being
rejected. Further the audited standalone financial results for the year ended
31.3.2010 were in fact tendered in Court and to Mr.Lakhani also. The same
are marked “X”. They were also published in the newspapers. This course
was considered sufficient by the Division Bench in Alstom’s case.
Mr.Lakhani has not pointed out anything adverse in this regard either.
41. In the circumstances, the company petition is made absolute in
terms of prayers (a) and (b). The Petitioner is granted liberty to present the
minutes of reduction of the securities premium account. The company
shall pay the costs of the Regional Director fixed at Rs.10,000/- to be paid
within six weeks from today.
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