Crl M C 305/2005 Page 1 of 9 IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 30th January, 2008 CRL.M.C. 305 of 2005 VINAY BHARAT RAM & ORS. ..... Petitioners Through Mr. R. N. Mittal, Sr. Advocate with Mr. Dharmender Arya, Advocate. versus REGISTRAR OF COMPANIES NCT OF DELHI …………Respondent ^ Through Mr. Rakesh Gosain and Mr. Anil Sharma, Advocates. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR O R D E R 1. Whether Reporters of local papers may be allowed to see the order? Yes 2. To be referred to the reporter or not? Yes 3. Whether the order should be reported in the Digest? Yes Dr. S. Muralidhar, J. (open court) 1. Shri Vinay Bharat Ram and nine other individuals have filed this petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) seeking the quashing of an order dated 18th December, 2004 passed by the learned Additional Sessions Judge, Delhi („ASJ‟) and seeking discharge in Complaint Case No. 349 of 2003 titled (Registrar of Companies v. Vinay Bharat Ram and Ors.). Crl M C 305/2005 Page 2 of 9 2. The aforementioned Complaint Case No. 349 of 2003 was filed by the Registrar of Companies („ROC‟) under Section 58A (10) of the Companies Act, 1956 („Act‟) for alleged contravention of Section 58A (9) of the Act. The complaint states that the Petitioners and two others were the “Directors/Officers of the Company i.e. DCM Limited and were under a statutory obligation to comply with the provisions of Section 58A of the Act. It is stated that upon a technical scrutiny of the balance sheet of the company as on 31st March, 2000 it was found that the company had not complied with an order dated 10th September, 1998 passed by the Company Law Board („CLB‟) directing the company to repay the outstanding matured fixed deposits in accordance with a scheme devised by it. It was stated that by not following the directions of the CLB for making repayment of the matured public fixed deposits, a contravention of Section 58A of the Act has taken place and which was, therefore, punishable in terms of Section 629A of the Act. 3. The contention of Mr. R.N. Mittal, learned Senior counsel for the Petitioners is that the Company had applied to this Court under Section 391/394 of the Act for confirmation of a scheme of restructuring and arrangement under which the assets and liabilities of the Company were to be restructured. In the said Company Petition No. 247 of 2000 in this Court, the Regional Director, Northern Region, Department of Company Affair filed an affidavit dated 23rd October, 2000 in which in para 9 it was stated as under: “That the Company Law Board, Northern Region Bench, Crl M C 305/2005 Page 3 of 9 New Delhi, initiated an enquiry under Section 58-A(9) of the Companies Act, 1956, against the petitioner Transferor company, for which petitioner Transferor company filed a detailed re-schedulement plan before the Hon‟ble Company Law Board for rearranging the debts of Creditors and the said scheme had been sanctioned by Hon‟ble Company Law Board vide Order dated 10.9.1998. The said sanctioned Scheme has also been proposed to be implemented by the Petitioner Transferor company as a part of the present Scheme of Re- structuring and Arrangement.” 4. The submission of Mr. Mittal that since the Regional Director had himself on affidavit informed the High Court even as late as 23rd October, 2000, that the scheme sanctioned by the CLB was proposed to be implemented by the Company as part of the scheme of restructuring and arrangement, there could not have been any occasion for the ROC to file a complaint against the Company for non compliance with that scheme and that too in 2003. The learned ACMM also proceeded to issue the summoning order on 25th April, 2003 without being informed that a petition filed by the Company under Sections 391/394 of the Act was pending in this Court for approval of the scheme of restructuring and arrangement and in which the scheme ordered by the CLB on 10th September, 1998 for repayment of deposits was being accounted for. 5. Mr. Mittal points out that this Court passed a detailed order on 29th October, 2003 approving the scheme of rearrangement under Section 394 of the Act. The relevant portion of that order notes as under: “(l) Neither the Regional Director, Department of Company Affairs nor the Official Liquidator attached to this Court have indicated any objections to the scheme. Crl M C 305/2005 Page 4 of 9 (m) All the classes of creditors and members were fairly represented in the meetings. 12. In the above circumstances, I am, therefore, of the view that none of the objections to the scheme now survive and accordingly the sanction under Section 394 of the Companies Act is granted to the proposed Scheme of restructuring and arrangement.” 6. Mr. Mittal further points out that acting on the aforementioned approved scheme of rearrangement, the company in fact proceeded to repay the deposits. Out of all the deposits of a total value of Rs.30.42 crores which were outstanding as on the date of the scheme of restructuring, deposits worth Rs. 26 crores have already been repaid till date. Compliance statements were being filed before the CLB from time to time. This itself made it clear that the Company was in fact adhering to the scheme of rearrangement as approved by this Court and in which the scheme approved by the CLB had merged. This position was also accepted and acted upon by the Department of Company Affairs of which the ROC was a part. 7. Reliance was placed on the judgment of the Supreme Court in M/s. J.K.(Bombay) Private Ltd. v. New Kaiser-I-Hind Spinning and Weaving Company AIR 1970 SCC 1041 to contend that once there is a scheme approved by the High Court in exercise of its powers under Section 394 of the Act, all earlier schemes approved by any other authority concerned the rights and liabilities of the Company or its creditors stand merged in the said Scheme approved by the High Court unless a different intention appears. In other words, there could not be a separate implementation of Crl M C 305/2005 Page 5 of 9 the scheme as directed by the CLB in its order dated 10th September, 1998 after it has merged with the scheme of arrangement approved by this Court by its order dated 29th October, 2003. 8. Mr. Mittal points out that as regards Petitioners 2 to 10, the complaint does not set out the exact role played by them in the commission of the alleged offence and this is yet another ground on which the complaint should be quashed. 9. Appearing for the Respondents Mr. Rakesh Gosain attempted first to show that apart from the fixed deposits there were certain other liabilities of the company which required to be accounted for. However, after being asked to show anywhere in the approved scheme of the arrangement of a mention being made of liabilities of the Company other than the fixed deposits referred to in the complaint, Mr. Gosain was unable to do so. His only submission was that the mere fact that this Court had approved the scheme of arrangement could not absolve the Petitioners of their liability in terms of Section 58A (9) of the Act. 10. In the first place it requires to be noticed that the order dated 18th December, 2004 of the learned ASJ dismissing the revision petition filed by the Petitioner on the ground of maintainability following the judgment of the Supreme Court in Adalat Prasad v. Rooplal Jindal 113 (2004) DLT 356 (SC) cannot be faulted with. To be fair, learned counsel for the Crl M C 305/2005 Page 6 of 9 Petitioners also did not assail the said order on that ground. Nevertheless, what is also challenged by the Petitioners is the order dated 25th April, 2003 passed by the learned ACMM summoning the Petitioners for the offence under Section 58A(9) of the Act. That can certainly be challenged by them in terms of the judgment in Adalat Prasad. 11. The facts are not in dispute. The scheme as directed by the CLB in its order dated 10th September, 1998 was with the participation of Petitioner No.1. Certain deposits which had already matured were required to be paid in accordance with the scheme approved by the CLB. However, it appears that the ROC did not choose to immediately proceed against the Company or the Petitioners here at that stage. The present Complaint was filed shortly before 25th April, 2003. 12. The question that first requires to be examined is whether the complaint makes out even a prima facie case of an offence under Section 58A (9) of the Act against Petitioners 1 to 10? To answer this, one has to recollect the sequence of events preceding the filing of the complaint. 13. The Regional Director gave sanction on 1st November, 2002 for filing the complaint. Two years earlier, on 23rd October 2000, the same Regional Director filed an affidavit in the pending Company Petition No. 247 of 2000 filed by the Company in this Court under Sections 391/394 of the Act. In that affidavit, as already noticed, the Regional Director Crl M C 305/2005 Page 7 of 9 informed this Court that the scheme as directed by the CLB by its order dated 10th September, 1998 was proposed to be implemented. Therefore, as on the date of grant of sanction, i.e. 1st November, 2002, it is inconceivable that the Regional Director had formed an opinion that the Company or its directors intended not to comply with the scheme as approved by the CLB in its order dated 10th September, 1998. Therefore, the very basis on which the complaint was filed was non-existent. What is in fact strange is that the ROC did not mention in the complaint before the learned MM anything about the pendency of the petition filed by the Company in this Court seeking approval of the Scheme of arrangement under Section 394 of the Act or of the affidavit of the Regional Director agreeing to it. There was also no change in this position as on the date on which the learned MM issued the summoning order. Having expressed to this Court its consent to the proposed scheme of arrangement which included the implementation of the scheme approved by the CLB, the Department of Company Affairs through the ROC could not have possible gone ahead with the complaint before the learned MM without awaiting the order of this Court approving the scheme of arrangement. 14. It indeed the scheme as directed by the CLB has merged with the scheme approved by this Court, the very basis of the complaint gets knocked out. The law as explained by the Supreme Court in J.K. (Bombay) P. Ltd. is unambiguous. The Supreme Court said (AIR, page 1057): “The principle is that a scheme sanctioned by the court does not operate as a mere agreement between the parties; it becomes Crl M C 305/2005 Page 8 of 9 binding on the company, the creditors and the shareholders and has statutory force, and therefore, the joint-debtor could not invoke the principle of accord and satisfaction. By virtue of the provisions of Section 391 of the Act, a scheme is a statutorily binding even on creditors and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration. (cf. 1938-4 AII ER 337) (supra). The effect of the scheme is “to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity”. (Palmer‟s Company Law, 20th Ed. 664). Sub-section (2) of Section 391 of the Act allows the decision of the majority prescribed therein to bind the minority of creditors and shareholders and it is for that reason that a scheme is said to have statutory operation and cannot be varied by the shareholders or the creditors unless such variation is sanctioned by the court. The effect, therefore, of a scheme between a company and its creditors is that so long as it is carried out by the company by regular payment in terms of the scheme a creditor who is bound by it cannot maintain a winding up petition. But if the company commits a default, there is a debt presently due by the company and a petition for winding up can be sustained at the instance of a creditor. The scheme, however, does not have the effect of creating a new debt; it simply makes the original debt payable in the manner and to the extent provided in the scheme. The proposition that a winding up order can only be passed after compelling the company to complete the rights which are still incomplete is not borne out by the decisions relied on by Mr. Sen.” 15. In that view of the matter this Court holds that the scheme as directed Crl M C 305/2005 Page 9 of 9 by the CLB stood merged in the scheme of rearrangement as approved by this Court on 29th October, 2003. Thereafter it has been acted upon by the parties. Consequently, the Petitioners here could not be held even to have prima facie contravened Section 58A (9) of the Act for not complying with the order of the CLB. The Petitioners are entitled to succeed on this ground itself. It is, therefore, not necessary to examine if the Petitioners are otherwise entitled to be discharged on the ground that the complaint does not contain specific allegations in regard to the role played by each of them. 16. For the aforesaid reasons, the petition is allowed. The summoning order dated 25th April, 2003 passed by the learned MM is hereby set aside. The Petitioners 1 to 10 hereby stand discharged and vis-a-vis them the Complaint Company Case No. 349 of 2003 titled Registrar of Companies v. Vinay Bharat Ram and Ors. stands hereby quashed. 17. The Petition is allowed with no order as to costs. S. MURALIDHAR, J. JANUARY 30, 2008 dn