IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA Company Petition No.7 of 2008 alongwith Company Petition Nos.8, 9, 12, 13 & 14 of 2008. Judgment reserved on: 02.9.2009. Date of Decision: 10-09-2009. In the matter of: M/s.Nu-Line India Private Limited ..Transferor Company-1 M/s.Swati Storwel Private Limited ..Transferor Company-2 M/s.Sturdy Industries Limited ..Transferee Company …..Petitioners. Coram: The Hon’ble Mr. Justice Deepak Gupta, Judge. Whether approved for Reporting? Yes For the Petitioners: M/s.P.Nagesh, Hemant Sharma and Rahul Mahajan, Advocates. For the Respondent(s): Ms.Jyotsna Rewal Dua, counsel for Objectors. Mr.Sanjeev Kuthiala, counsel for the official Liquidator. Mr.Sandeep Sharma, Assistant Solicitor General of India for Government of India. Deepak Gupta, J. Briefly stated the facts of the case are that petitioners M/s.Nu-Line Industries Private Ltd. (Hereinafter referred to as the Transferor Company No.1), M/s.Swati Storwel Private Limited (hereinafter referred to as the Transferor Company No.2) and M/s.Sturdy Industries Limited (hereinafter referred to as the Transferee Company) are all Companies duly incorporated under the Companies Act, 1956 (hereinafter referred to as the Act). The 2 three Companies have their Headquarters in the State of Himachal Pradesh. The three Companies filed petitions under Sections 391 and 394 of the Act for sanction of a scheme of amalgamation which provided for amalgamation of the two transferor Companies with the Transferee Company. Directions were sought for by the petitioners in Company Petition Nos.7,8 and 9 of 2008 for exempting certain meetings and holding of certain meetings of the shareholders and creditors of the Companies. Detailed orders were passed in all these petitions on 4.6.2008 wherein after going through the entire Company Petitions this Court, on the basis of the documents placed on record came to the prima facie conclusion that the merger of the Companies would result in better synergy since all the Companies are engaged in the same business. Therefore, separate directions were issued in all the petitions. In the case of M/s.Nu-Line Industries Transferor No.1 the meeting of the unsecured creditors was dispensed with since all the unsecured creditors had consented to the scheme. Therefore, it was directed that meeting to ascertain the views of the equity share holders and the secured creditors be held. In respect of Transferor Company No.2 the meeting of the unsecured creditors was dispensed with since there was only one secured creditor whose claim was also not very significant. It was directed that meeting of the equity shareholders and the secured creditors be held. 3 As far as the transferee Company was concerned the meeting of the preference share holders was dispensed with but meetings of the equity share holders, secured creditors and unsecured creditors were directed to be held. Directions were given appointing the Chairmen and alternative Chairmen for these meetings which were fixed on 19th and 20th July, 2008. After the aforesaid directions were issued, Sh.S.S. Gupta and his wife Smt.Sharda Gupta filed Company Applications for being impleaded as parties in the Company Petitions and prayed that the meetings fixed be stayed or be postponed. These applications came up before me on 18th July, 2009 on which date the following order was passed on the application(s) filed by them: “By means of this application, the applicant has prayed that the meeting of the share holders, secured and unsecured creditors of the Company called for be stayed or postponed. This Court had passed detailed orders as far back on 4th June, 2008 and the meeting is fixed for 19th and 20th July, 2008. Therefore, at this stage, it would not be appropriate to either stay the meetings or postpone the same. Notices have already been issued to all the share holders/secured and unsecured creditors and other persons who may be interested to attend the meetings. The citations have already been published and heavy expenses incurred in this behalf. Therefore, without commenting on the merits of the application, at this stage the prayer for postponement/cancellation and adjournment of the meeting is rejected. However, in view of the serious allegations made in the application, it is made clear that the proposed scheme shall not be approved/sanctioned under Section 394 of the Indian Companies Act, 1956 till this application is disposed of.” 4 Consequently, the meetings were conducted by the Chairman/Alternate Chairman appointed by this Court. As per the reports of the Chairman of the said meetings the shareholders and the creditors of all the three Companies in the meetings so hold approved the scheme of amalgamation with such modification as this Court may deem fit and proper. Thereafter, the Companies have filed Company Petition Nos.12, 13 and 14 of 2008 for confirmation of the Scheme of amalgamation and passing an order sanctioning the scheme of amalgamation. These petitions have been opposed by Sh.S.S. Gupta and Ms.Sharda Gupta by filing objections to the Company Petitions on various grounds. Sh.S.S. Gupta one of the objectors is the brother of Sh.M.L. Gupta and Sh.Ramesh Gupta. According to the Objectors these three brothers along with their families had promoted the three petitioner Companies and six other Companies which are all family Companies. It is alleged that in Nu-Line Industries Ltd. transferor Company No.1 Sh.S.S. Gupta and Sh.M.L. Gupta were the two directors. According to the Objectors on 10th February, 2007 Sh.Amit Gupta son of Sh.M.L. Gupta was shown to have been inducted as Additional Director without any Board meeting having been conducted. It was stated that Sh.S.S. Gupta was not present in any such meetings. It was alleged that Sh.S.S. Gupta had been removed from the Directorship of the Company without holding any proper meeting and without issuing 5 notice to him in accordance with law. Another ground raised is that the shareholding pattern of the Companies was changed only with a view to show majority in favour of Sh.M.L. Gupta etc. In respect of M/s.Swati Storewel Private Limited transferor Company No.2 it was stated that Smt.Sharda Gupta was one of the Directors and she had been illegally removed by the Company. It was also alleged that the shareholding of the Company had been changed with a view to garner a majority by the other group. According to the objectors against the illegal removal of the applicants from the Board of Directorship of the two Companies and further illegal action of the petitioners, the objectors preferred Company Petition Nos.164 to 172 of 2007 before the Company Law Board, New Delhi (hereinafter referred to as the CLB). These petitions were still pending for hearing. In respect of both the petitions, according to the objectors, the petitioners have withheld material information from this Court and from the shareholders and the creditors inasmuch as they have not made any reference to the disputes inter se the parties and the proceedings before the CLB. Reply was filed by the petitioners denying these allegations and it was averred that nothing material was withheld from the Court and the Court was apprised of all the necessary facts. According to the original petitioners the proceedings under Sections 397 and 398 of the Companies Act are totally different proceedings which have no relevant to the amalgamation scheme. 6 It was contended that Sh.Amit Gupta was rightly appointed as Director of M/s.Nu-Line Industries and similarly it is submitted that the objectors were removed from the Directorship of the two Companies after following the due procedure. Rejoinder was filed in which the pleas made in the objections were reiterated. The authority of Mr.Amit Gupta to file Company Petition on behalf of M/s.Nu-Line Industries was specifically disputed. The removal of Sh.S.S. Gupta from M/s.Nu-Line Industries and Ms.Sharda Gupta from M/s.Swati Storewel is alleged to be illegal. It is further alleged that some of the affidavits filed in support of the original petitions are in fact blank but have been shown to have been attested by the Notary Public and therefore it is contended that the meetings have not been conducted in accordance with law. The matter was heard in detail on 25th June, 2009 and judgment was reserved but while dictating judgment it transpired that after the judgment was reserved the original petitioners had filed certain documents on Ist July, 2009. Therefore, the arguments were re-heard. I have heard Ms.Jyotsna Rewal Dua, learned counsel for the Objectors and Mr.P. Nagesh, learned counsel for the petitioners at length. I have also perused the entire record of the case. The first and foremost question which arises for consideration is whether Sh.Amit Gupta was properly appointed as 7 Director of M/s.Nu-Line Industries or not. Sh.Amit Gupta is alleged to have been appointed as Additional Director of Transferor Company No.1 in a meeting of the Board of Directors held on 10th February, 2007. It is not disputed that at that time there were only two Directors of the Company, namely, Sh.M.L. Gupta and objector No.1 Sh.S.S. Gupta. According to Sh.S.S. Gupta, he was not present when the meeting was allegedly held and therefore Sh.Amit Gupta was not validly appointed as Additional Director. Sh.S.S. Gupta in fact filed an FIR with the Police on 28.6.2007 alleging that he had wrongly been shown to be present on the said date. It is further alleged that even if the appointment of Sh.Amit Gupta as Additional Director was valid this came to an end on the date when the next Annual General Meeting (AGM) was held i.e. on 29.9.2007. In terms of Section 260 of the Companies Act the term the term of an Additional Director is only valid till the next AGM. The petitioners however rely upon Form No.32 sent to the Registrar of Companies regarding the appointment of Sh.Amit Gupta as Director in the Company. This Form purports to bear the digital signatures of Sh.S.S. Gupta. The Objector avers that his digital signatures have been mis-used by Sh.Amit Gupta or Sh.M.L. Gupta. All these issues are pending before the CLB. I am clearly of the view that this Court while deciding a Petition for amalgamation cannot sit as a Court of Appeal to decide whether the amalgamation is proper or not. However, it definitely can go into 8 the question whether the petition has been validly presented before it. One of the conditions of the valid presentation is that the person who has filed the petition is legally authorized by the Company to present the petition. Therefore, the challenge to the appointment of Sh.Amit Gupta has to be looked into. Though this issue cannot be decided finally at this stage still I must be prima facie satisfied that Sh.Amit Gupta was a director of the Company. Admittedly Amit Gupta was Director of the transferor No.1 Company till 2005. Thereafter, Sh.M.L. Gupta and Sh.S.S. Gupta, Objector No.1 were the only two Directors of M/s.Nu-Line Industries. The petitioners aver that on 10th February, 2007 in a meeting of the Company held at its Registered office, Sh.Amit Gupta was appointed as Additional Director. The Objector S.S. Gupta denied this fact. Even when arguments were heard on the previous date it was pointed out that there is nothing on record to show that Sh.S.S. Gupta was present on the meeting held on 10th February, 2007. The petitioners had annexed a copy of the minutes of the meeting of the Board of Directors held on 10th February, 2007 showing that Amit Gupta was appointed as an Additional Director. The opening part of the minutes reads as follows: “MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 10TH DAY OF FEBRUARY 2007 AT 1100 HOURS AT THE REGISTERED OFFICE OF THE COMPANY PRESENT 9 1.MR. M.L. GUPTA -DIRECTOR 2.MR. S.S.GUPTA -DIRECTOR” After the arguments were heard the petitioners placed on record another document purporting to be a copy of the proceeding book of the Company the opening part of which reads as follows: “MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 10TH DAY OF FEBRUARY 2007 AT 1215 HOURS AT THE REGISTERED OFFICE OF THE COMPANY PRESENT AS PER ATTENDANCE REGISTER” The moot question is whether Sh.S.S. Gupta was present or not. Despite having filed documents even after arguments were heard, the petitioners for reasons best known to them have not filed a copy of the attendance register which would have borne the signatures of Sh.S.S. Gupta if he was present. Since they have not filed any document to show the presence of Sh.S.S. Gupta on the said date, adverse inference can be drawn against them. According to the petitioners, in the Annual General Meeting held on 29.9.2007, Sh.Amit Gupta was appointed as Director of the Company. Minutes of the Annual General Meeting have been filed after the arguments were heard on the previous date. The opening portion of that meeting reads as follows: “MINUTES OF THE ANNUAL GENERAL MEETING OF THE COMPANY HELD ON 29TH OF SEPTEMBER 2007 AT 14:15 HOURS AT THE REGISTERED OFFICE OF THE COMPANY: PRESENT 1.MR. MOHAN LAL GUPTA -SHAREHOLDER 10 2.MR. RAMESH GUPTA -SHAREHOLDER 3.MRS. USHA GUPTA -SHAREHOLDER 4.MR. AMIT GUPTA -SHAREHOLDER 5.MR.RAJPAL -SHAREHOLDER” The election of Sh.Amit Gupta was carried out vide Resolution No.8 which reads as follows: “SPECIAL BUSINESS – ORDINARY RESOLUTION: Proposed by: Mr.Ramesh Gupta Seconded by: Mr.Rajpal. The following Resolution having been proposed and seconded by the aforementioned two shareholders was taken up for consideration. “RESOLVED THAT pursuant to provision of Section 260 of the Companies Act, 1956 and other applicable provision if any, and pursuant of the Articles of Association of the Company, Mr.Amit Gupta, who is appointed as additional director of the company and liable to retire on this annual general meeting, is hereby appointed as director of the company.” The above Ordinary Resolution was thereafter put to vote and on a show of hands was declared carried unanimously.” A perusal of this Resolution shows that in contradiction to the earlier resolution dated 10.2.2007 wherein the presence is not shown, in the present case the presence of all shareholders is specifically shown in the minutes. In this case, Sh.Rajpal is shown to be present as one of the shareholders. It would also be pertinent to mention that the Resolution whereby Sh.Amit Gupta was purported to be appointed as Director has been allegedly seconded by Sh.Rajpal. This is contrary to the other material on record. The Objectors have made reference to a large number of documents to show that the share-holding pattern of the Company 11 was changed by the majority to garner majority of votes in the meetings. It is pointed out that even as per the reply filed by M/s.Nu-Line Industries on 5.11.2007 before the CLB there were only 13 shareholders up to 31.3.2005 out of whom C.D. Jain, Nathi Kanwani, Deepak Jain and C.M. Gupta have expired. Thereafter, up to 31.3.2006, 55000 shares are shown to have been purchased by Sh.M.L. Gupta, Sh,.Ramesh Gupta and Arravali Industries. According to the Objectors, C.D. Jain, Nathi Kanwani, Deepak Jain and C.M. Gupta had died. S/Sh.B.L. Surana, S.L. Nuberia, B.C. Jain and S.S. Gupta would have opposed the merger and therefore the majority would not have been in favour of the merger. In Company Petition No.8 of 2008 filed before this Court the number of shareholders were inflated to 24. The objectors also rely upon another affidavit filed by the Chartered Accountant of the Company before the CLB on 4.11.2008 which reflects the shareholding as before. It is alleged that there is nothing on record to show that these shares were ever transferred. On the other hand the petitioners submit that a Resolution was passed on 18th February, 2008 approving the transfer of shares. Sh.Ramesh Gupta is purported to have transferred portion of his shares to as many as 15 other persons including Mr.Rajpal. By the same Resolution transfer of the shares by S/Sh.B.L. Surana, S.L. Nuberia, B.C. Jain and Nathi Kanwani in favour of Sh.C.D. Jain have also been approved. It has been pointed out that Nathi 12 Kanwani and C.D. Jain had died much earlier and therefore it is obvious that this approval is a forged document. Admittedly, as per the stand of the petitioners, Mr.Rajpal only has 10 shares in the Company which were transferred to him by Ramesh Gupta and approval for such transfer was given on 18th February, 2008. It was argued by Mr.P. Nagesh on behalf of the petitioners that these transfers were made prior to 18.2.2008 and were only approved on the said date and it cannot be said that the transfers of the shares were invalid. However, if reference is made to the reply filed by the Original Petitioners on the affidavit of Sh.Ramesh Gupta to Company Application No.25 of 2008 in Company Petition No.7 of 2008 it has been specifically stated as follows: “Mr.Ramesh Gupta has transferred his share holding to the others on 18.12.2007. Accordingly the number of the shareholders of M/s.Nu- Line Industries Pvt. Ltd. has increased from 13 to 24.” Sh.Ramesh Gupta has made a specific averment on affidavit that the shareholding was transferred on 18.12.2007. Therefore, prior to 18.12.2007 Sh.Rajpal had no shares in the Company since admittedly he only has 10 shares which he purchased from Ramesh Gupta. If he was not a shareholder prior to 18.12.2007 how could he be present in the meeting, wherein Sh.Amit Gupta was appointed as Director, which was held much earlier on 29.9.2007. If he became a shareholder only on 18.12.2007 he had no right to 13 attend the meeting on 29.9.2007. This casts grave doubt on the veracity of the resolution dated 29.9.2007. It has also been alleged that the removal of Sh.S.S.Gupta and Smt.Sharda Gupta as Directors from the two transferor Companies was illegal and the procedure prescribed by law was not followed and no valid notices were issued to them before their removal. It has also been alleged that shareholding patterns of both the Companies were changed only with a view to get the majority in their favour. Ms.Jyotsna Rewal Dua has also alleged that even the affidavits produced before this Court in support of the Company Petitions are false and some of them are blank. Ms.Jyotsna Rewal Dua filed written submissions pointing out with precision the persons whose signatures in the affidavits filed in the Court did not tally with the signatures on the ballot papers. An opportunity was given to the petitioners to file counter reply. They have replied to the same and have admitted that in certain cases the signatures on the ballot papers is different from the signatures given in the affidavits. In some of the cases the explanation given is that whereas in the affidavit the person has signed in one language he has signed the ballot paper in some other language. The other explanation given is that in some of the cases the shareholders did not put their signatures on the ballot paper but have only initialed the same. This explanation cannot be accepted in all the cases. In 14 some case even according to the petitioners the signatures do not tally at all. It is also pointed out that whereas the affidavits are purported to have been signed at one place the stamp papers have been signed at some other place. This fact has not been specifically denied but it has been stated that this was done due to convenience. A large number of cases have been brought to the notice of this Court where the stamp papers are purchased in Himachal but the deponents are residents of some other place but all the affidavits have been shown to have been attested by the Notary Public at Hyderabad. Even the manner of attestation of the affidavits leaves much to be desired. In some of the cases the dates of verification of the affidavits are totally blank. In some of the cases the date of verification does not tally with the date of attestation of the affidavits. The explanation given is that the stamp papers were purchased in Himachal. The affidavits were got prepared and sent for signatures of the deponents who got them notarized and returned the same to the Company. However, this cannot be accepted because in certain cases the stamp papers are purchased in Andhra Pradesh and the affidavits are reported to be attested at Chandigarh, Pune or some other place. This belies the stand of the Company that the affidavits were got prepared in Himachal and sent to the deponents. It is also surprising that most of the affidavits of more than 75% of the shareholders have been attested 15 by one Notary that is Naresh K. Menan at Chandigarh. It is difficult to believe that all these persons who are residents of different places were all present at Chandigarh on one date. It may be true that these affidavits were not accepted by this Court and meeting of the creditors and shareholders of M/s.Swati Storewel was called but this shows that the petitioners did not treat the proceedings with solemnity which is expected from litigants who approach the Court. The petitioners have treated this Court in a very casual fashion. The affidavits filed in support of the petitions for dispensation of the meetings were filed very casually. Most of them do not bear any date or verification. They seem to have been got attested in a mechanical fashion. When a Company approaches the Court for approval of the scheme of amalgamation it must come to the Court with clean hands. It must apprise the Court of all facts which are in any way connected even if remotely with the amalgamation. In the present case the petitioners made no reference to the proceedings pending before the CLB as the disputes with the objectors. Sh.P. Nagesh appearing for the petitioners has placed reliance on the judgment of the Apex Court in Miheer H. Mafatlal vs. Mafatlal Industries Ltd., (1997) 1 SCC 579, wherein the apex Court held as follows: “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: 16 1. The sanctioning Court has to see to it that all the requite 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 the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section(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,sub- section (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 of 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