Case: Laxmi Pat Surana Vs. Pantaloon Retail (India) Limited & Others

Dr. D.Y. Chandrachud, J.1. Admit. Learned counsel for the Respondents waive service. The appeal is taken up for hearing and final disposal, by consent and on the request of the learned counsel.2. The appeal arises from a judgment and order of the learned Company Judge dated 1 March 2013 by which the Company Court sanctioned a scheme of arrangement under Sections 391 and 394 of the Companies Act, 1956. The scheme of arrangement contemplates that a division of Pantaloon Retail India Limited shall stand transferred to Peter England Fashions and Retail Limited. In consideration of the demerger, the shareholders of the demerged company are to be allotted shares on a proportionate basis in the resulting company.3. The scheme of arrangement was sanctioned by the learned Company Judge on 1 March 2013. A copy of the order of the Company Court was received on 26 March 2013. Form-21 was filed with the Registrar of Companies on 8 April 2013. The equity shares of the resulting company were listed on the Bombay Stock Exchange on 17 July 2013. These facts are placed in a statement tendered before the Court by the learned counsel for the Respondents, who states that the scheme of demerger has been implemented. The appeal was lodged on 20 June 2013. Office objections have not been removed and the appeal has been placed in the normal course by the registry for admission.4. The Appellant had entered into an agreement with Pantaloon Retail India Limited on 30 January 2007 purporting to create a sublicense in respect of certain premises in a mall at Kharagpur. The Appellant has invoked arbitration. In an application under Section 9 of the Arbitration and Conciliation Act, 1996, a learned Single Judge of the Calcutta High Court had passed an order on 21 March 2012 directing the Respondents to deposit a sum of Rs.6.50 crores, granting liberty to the Appellant to apply for withdrawal of at least a sum of Rs.2.00 crores from the amount to be deposited. In appeal, the Division Bench of the Calcutta High Court by a judgment dated 25 September 2012 modified the order so as to require the Respondents to furnish security to the extent of Rs.6.50 crores by furnishing a bank guarantee of a nationalized bank. The Court has been informed that the bank guarantee of Rs.6.50 crores as directed by the Division Bench of the Calcutta High Court, has been furnished. The claim of the Appellant in arbitration which was initially in the amount of Rs.22.00 crores, has since been enhanced to Rs.220 crores. At this stage it would suffice to note that the claim is, inter alia, on account of unpaid license fees and damages and is seriously in dispute. The claim would have to be adjudicated upon in the arbitral proceedings.5. The learned Single Judge by the impugned judgment and order dated 1 March 2013 sanctioned the scheme of arrangement holding that :(i) When such a claim is presented before the Court for sanction, the jurisdiction of the Court is supervisory and not appellate;(ii) Once it is established - as it has been - that requisite statutory compliances were made that the scheme was not against public interest and the requisite number of shareholders had accepted the scheme, the Court cannot refuse to sanction the scheme by questioning the wisdom and commercial interest of the general body of shareholders;(iii) The claim of the Appellant is pending adjudication in arbitral proceedings. Pending an arbitral award, it would not be appropriate for the Company Court to rule on the merits of the case or to record prima facie findings;(iv) Though a specific opportunity was granted to the Appellant to place an affidavit particularizing the details of the fraud alleged, the Appellant had not placed any particulars on record;(v) The claim of the Appellant has been secured by furnishing of a bank guarantee of Rs.6.50 crores in terms of the judgment of the Calcutta High Court.6. The learned counsel for the Appellant submits that :(i) The Appellant is a creditor who has a claim in the arbitration against Pantaloon Retail India Limited. No notice was issued to the Appellant though the company had undertaken before the Company Court while obtaining an order of dispensation of a meeting of the creditors that it would be by issuing individual notices to all creditors having a claim above Rs.1.00 lakh; and(ii) The accounts of the company would reveal liabilities of Rs.58.29 crores. No details of the creditors have been shown.7. Now, it is a well settled principle of law, following the decision of the Supreme Court in MiheerH. Mafatlal Vs. Mafatlal Industries Ltd. (AIR-1997-SC-506) that that the jurisdiction of the Court when a scheme of arrangement comes up for sanction is supervisory and not appellate. The court does not sit in judgment over the commercial wisdom of the shareholders. The jurisdiction of the Company Court is confined to determining whether there has been a compliance with the statutory requirements; whether the scheme has the support of a requisite majority; whether the required meetings of the creditors, or as the case may be, of the members were held; whether necessary material has been placed before the creditors, or as the case may, before the members; and whether the scheme is violative of any provision of law or contrary to public policy. The scheme must be just, fair and reasonable to prudent men of business.8. In the present case, it is not in dispute that the Company Court has dispensed with the convening of a meeting of the creditors on the undertaking of the company to furnish individual notices to all creditors of a value of Rs.1.00 lakh and above. The learned counsel for the First Respondent states that an affidavit was duly filed before the Company Court. Insofar as the Appellant is concerned, he has a claim in arbitration which is in dispute and pending adjudication. The claim of the Appellant is secured by furnishing of a bank guarantee of Rs.6.50 crores of a nationalized bank as directed in the judgment of the Calcutta High Court. The initial claim of the Appellant, as noted in the order of the learned Single Judge, was Rs.22.00 crores, which has been enhanced subsequently to Rs.220 crores. Be that as it may, we find no merit in the contention of the Appellant that the scheme must be held to be invalid for want of notice to the Appellant. In this regard, we are in respectful agreement with the judgment of a learned Single Judge of this Court in SarthakIndustries Limited Vs. British Motor Car Co. (1934) Ltd. (Company Scheme Petition No.377 of 2011 decided on 16 September 2011), where the learned Single Judge has held as follows :9. the objector or intervener cannot, on the basis of the claim which has been made against the transferee company, succeed and oppose the scheme when such a claim is pending adjudication. Once it has been pointed out that the sum is a disputed liability and it is being adjudicated, then, to my mind, it will not possible to withhold sanction and approval to the scheme only on account of such a claim. In the affidavits that have been filed by the parties, they have placed their own version in support of their claims and counter claims. This Court is not a forum which could adjudicate and decide the same. Admittedly, the parties are before the Arbitral Tribunal which has taken cognizance of these versions and they are being adjudicated. Nothing prevents the intervener/objector, on the basis of the contents of the balance sheet in making an application for securing the alleged admitted sum. Once such a course is available under the Arbitration and Conciliation Act, 1996 and even thereafter when the intervener/objector secures and obtains an award crystalising the claims, then, all the more there is no reason to withhold the approval and sanction to the scheme. Nothing has been pointed out in the statutory provisions relied upon, which would indicate that this court, can on the strength of a disputed claim, withhold the sanction and approval to the scheme.9. We do not find merit in the contention that there was no disclosure of necessary particulars. Though this submission has been vehementally urged, we must also take note of the observation of the learned Single Judge that sufficient opportunity was granted to the Appellant to file an affidavit setting out particulars of fraud. No such affidavit was filed.10. Having considered the submissions in support of the appeal, we are of the view that no interference of the Court is warranted. The claim of the Appellant is subject to an arbitration proceeding and is in dispute. The claim has been secured by furnishing of a bank guarantee as directed by the Calcutta High Court. In the meantime, during the pendency of the appeal, the scheme has been duly implemented. Hence, no case for interference in appeal is made out.

Decision:
0[ds]8. In the present case, it is not in dispute that the Company Court has dispensed with the convening of a meeting of the creditors on the undertaking of the company to furnish individual notices to all creditors of a value of Rs.1.00 lakh and above. The learned counsel for the First Respondent states that an affidavit was duly filed before the Company Court. Insofar as the Appellant is concerned, he has a claim in arbitration which is in dispute and pending adjudication. The claim of the Appellant is secured by furnishing of a bank guarantee of Rs.6.50 crores of a nationalized bank as directed in the judgment of the Calcutta High Court. The initial claim of the Appellant, as noted in the order of the learned Single Judge, was Rs.22.00 crores, which has been enhanced subsequently to Rs.220 crores. Be that as it may, we find no merit in the contention of the Appellant that the scheme must be held to be invalid for want of notice to the Appellant. In this regard, we are in respectful agreement with the judgment of a learned Single Judge of this Court in SarthakIndustries Limited Vs. British Motor Car Co. (1934) Ltd. (Company Scheme Petition No.377 of 2011 decided on 16 September 2011), where the learned Single Judge has held as follows :9.he objector or intervener cannot, on the basis of the claim which has been made against the transferee company, succeed and oppose the scheme when such a claim is pending adjudication. Once it has been pointed out that the sum is a disputed liability and it is being adjudicated, then, to my mind, it will not possible to withhold sanction and approval to the scheme only on account of such a claim. In the affidavits that have been filed by the parties, they have placed their own version in support of their claims and counter claims. This Court is not a forum which could adjudicate and decide the same. Admittedly, the parties are before the Arbitral Tribunal which has taken cognizance of these versions and they are being adjudicated. Nothing prevents the intervener/objector, on the basis of the contents of the balance sheet in making an application for securing the alleged admitted sum. Once such a course is available under the Arbitration and Conciliation Act, 1996 and even thereafter when the intervener/objector secures and obtains an award crystalising the claims, then, all the more there is no reason to withhold the approval and sanction to the scheme. Nothing has been pointed out in the statutory provisions relied upon, which would indicate that this court, can on the strength of a disputed claim, withhold the sanction and approval to the scheme.9. We do not find merit in the contention that there was no disclosure of necessary particulars. Though this submission has been vehementally urged, we must also take note of the observation of the learned Single Judge that sufficient opportunity was granted to the Appellant to file an affidavit setting out particulars of fraud. No such affidavit was filed.10. Having considered the submissions in support of the appeal, we are of the view that no interference of the Court is warranted. The claim of the Appellant is subject to an arbitration proceeding and is in dispute. The claim has been secured by furnishing of a bank guarantee as directed by the Calcutta High Court. In the meantime, during the pendency of the appeal, the scheme has been duly implemented. Hence, no case for interference in appeal is made out.