1 cp266-06com.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.266 OF 2006 ALONG WITH COMPANY PETITION NOS.267, 268, 269 OF 2006 AND COMPANY APPEAL NO.44 OF 2009 In the matter of the Companies Act, 1956 (1 of 1956); AND In the matter of Sections 391 to 394 of the Companies Act, 1956; AND In the matter of Composite Scheme of Arrangement between Kaycee Investment Private Limited and Smriti Trading & Investment Company Private Limited and Western India Glass Works Limited and the Mahalakshmi Glass Works Private Limited and the Kohinoor Glass Factory Private Limited and their Respective Shareholders. Kaycee Investment Private Limited.. ..Petitioner Company Mr.Simil Purohit a/w Mr.Prakash Shinde and Ms.Dhwani Mehta i/by MDP & Partners, for the Petitioner. Mr.Zal Andhyarujina a/w Mr.R.S.Bidkar and Mr.Deepak Lad i/by Advani & Company, for the Intervenor. Mr.C.J.Joy i/by Dr.T.C.Kaushik, for the Registrar of Companies. CORAM : S.C.DHARMADHIKARI, J. 22nd December 2011. P.C.: 2 cp266-06com.doc 1] These four company petitions seek sanction and approval to the scheme of amalgamation of the transferor companies Kaycee Investments Pvt.Ltd, Smruti Trading and Investment Pvt. Ltd., Western India Glass Works Ltd., and an undertaking of Kohinoor Glass Factory Pvt Ltd with Mahalaxmi Glass Works which is a transferee company. It is stated that all these transferor companies viz., Kaycee, Smruti, Western India are 100% subsidiaries of Transferee company. The shareholders of Kohinoor Glass Factory Pvt.Ltd., and transferee company are common. 2] It is stated by the petitioners that resolutions were passed by the Board of Directors of the Transferee and Transferor company approving scheme of amalgamation. An order was passed on a petition on 24th March 2006 whereunder convening of meetings of the shareholders and creditors was dispensed with. On 21st April 2006, the present petition was admitted and placed for hearing and final disposal. Notices were published and pursuant thereto, no objections are raised by any of the secured or unsecured creditors. However, an objection has been filed by one Sumati Chand claiming to be shareholder of the petitioner company and alleging that no notice has been issued to her. 3 cp266-06com.doc 3] It is submitted on behalf of the petitioners that compliance with the relevant statutory provisions has been made. The declarations on oath together with the statement of account reflecting financial position are made and copy annexed so also the salient features of the scheme are duly set out in the petition. The petitioners have thus complied with all requirements which enable them to seek sanction and approval to the scheme of amalgamation. Once they have made such compliance and the scheme is for efficient and smooth working and management of the companies so also is not contravening any provisions of law or public policy, but is found to be in the interest of the shareholders and creditors, including general public, that the approval and sanction be granted and each of these petitions be made absolute. 4] The Regional Director has filed an affidavit and has only invited my attention to the objection raised by Mrs.S.Chand. Beyond that the Regional Director states that the scheme is examined and scrutinised by the Registrar of Companies and has reported that it is in no way prejudicial to the interest of the creditors, shareholders and general public. The Regional Director has, therefore, no objection to the 4 cp266-06com.doc scheme being sanctioned and approved. 5] As far as the objection of Mrs.Chand is concerned, that is stated to be based on the fact that she is a shareholder of the Transferor Companies. She has stated in her objections that once she is a shareholder, then, she is entitled to the necessary and relevant notice and take part in the proceedings in which the scheme has been taken up for approval and sanction. The petitioners have failed to give her prior notice of the meetings and before passing necessary resolutions approving and confirming the scheme. She has in her objections, which have been placed in writing, stated that she continues to be a shareholder and has not severed her status as such with the companies in question. She has stated that the Chand Group of Companies, including all the firms, association of persons, belonging to the said group involve three sons of late Kishan Chand viz., Naresh Chand, Ramesh Chand and Mahesh Chand. They were admittedly having 1/3rd share each in all the group companies. Sumati Chand is wife of Ramesh Chand who died on 18th December 1986 leaving behind his widow and two daughters as is only heirs and legal representatives. The petitioner companies are controlled by Mahesh and Naresh Chand 5 cp266-06com.doc group. They tried to manipulate shareholdings of the companies by removing name of Ramesh Chand and she alleges that as part of this conspiracy, the two groups completed excluded her and her daughters from benefits of the shareholding and generally the share of Ramesh Chand. She, therefore, filed a Company Petition No.49 of 1998, in which a company application being Company Application No.35 of 1998 was filed, in this Court. That petition sought winding up of the companies on just and equitable grounds. An arbitration agreement was entered into on the condition that no share would be transferred and no assets shall be sold and no partnership, association of persons, disturbed. The matter was referred to arbitration and that is how this petition and the application was withdrawn. The Arbitral Tribunal was presided over by Hon'ble Mr.Justice P.N.Bhagwati and Hon'ble Mr.Justice V.D.Tulzapurkar. The arbitration agreement provided for an order of reference to be drawn up so as to enforce what was awarded to the Ramesh Chand group, ultimately, in the business, share of profit and management. It was stated that the arbitration agreement was taken on record and also the consent terms by this Court. A reference is made to an order passed in Arbitration Petition No.16 of 1989 in Suit No.197 of 1989 dated 31st January 1989 in this behalf. 6 cp266-06com.doc 6] It is submitted that three interim awards were made and published in respect of several landed properties at Hyderabad on 2nd April 1994. This included the Serilingampally property bearing S.Nos.94, 95, 96, 97, 102, 103/1 and 103/2, approximately admeasuring 50 acres. The directions, inter alia, were given to parties to execute the documents. There was a further interim award passed on 20th February 1996 with respect to properties situate at Miyapur, Andhra Pradesh. It is stated that execution proceedings with respect to said properties have been taken up and are pending before Dist. Court. The Fifth and Final award was passed and published by learned Arbitrators on 14th September 1996. The five interim awards including final award merged into one. 7] Therefore, the aforesaid awards and minutes of the meetings subsequently held on 22nd August 1996 directed the respondent companies including the group members of Mahesh Chand and Naresh Chand to execute all such deeds, documents and applications in favour of Sumati Chand for the purpose of ascertaining, dividing and realising 1/3rd share of each group in the Hyderabad properties. Reliance is then placed upon the directions in the awards. It is then alleged that Mahesh 7 cp266-06com.doc and Naresh Chand refused to execute any documents in favour of Sumati Chand. She was, therefore, constrained to file execution proceedings with regard to properties at Miyapur and Serilingampally. Execution Proceedings were filed in the year 2000 and, thereafter, transferred to Dist. Court Hyderabad in 2004. They are still pending. 8] It is alleged by her that while gathering additional evidence to support her intervention and objection, she discovered that despite clear directions in the award Naresh Chand in collusion with Mahesh Chand devised a conspiracy and encumbered, alienated and created third party rights in the lands situate at Serilingampally by selling the same to various personal especially to one Mr.Janardan Reddy. Similar transactions proceeded thereafter. Reliance is placed by her on a sale deed dated 6th December 2006. Therefore, according to her, lands have been sold indiscriminately for substantial consideration without taking into account and rather discarding 1/3rd share of Ramesh Chand. She has also relied upon lay out of the land at Serilingampally. It is alleged by her that the fraud is not restricted to creation of third party rights but the Naresh Chand and Mahesh Chand group have objected to the execution proceedings. They have filed counter affidavits and solemnly 8 cp266-06com.doc affirmed on oath in these proceedings that the schedule of properties are subject matter of number of litigations and, therefore, cannot be proceeded. Thus on the one hand they seek to deprive Ramesh Chand Group by relying upon awards and execution proceedings but on the other they have obstructed the Ramesh Chand Group in implementing and executing the awards by putting up several obstacles. They have sold the available lands and pocketed crores of rupees. It is in such circumstances and by alleging fraud on their part that she submits that once the award is yet to be executed and severance of the status of the shares as shareholder is depending upon fulfillment of the obligation of the parties under the said award, then, she continues to be shareholder of the said companies and her objection cannot be overlooked. Having not been invited to participate in the proceedings culminating in sanction and approval to the scheme, the schemes themselves are vitiated and in any event the arrangement between the remaining groups is a result of fraud perpetrated on Ramesh Chand group and, therefore, this Court should not approve and sanction the scheme. 9] In answer to these objections, which have been raised by Sumati Chand, Mr.Purohit, learned Counsel appearing for petitioners submits 9 cp266-06com.doc that the intervention application is without any merit. The intervention and objection is based upon the fact that the intervenor is a shareholder. However, her claim that she is a shareholder has been rejected by this Court in the past and which order has been confirmed right upto the Supreme Court. She has also tried to urge that the execution proceedings being pending that the scheme cannot be approved and sanctioned but that is based on her claim of being a shareholder. That claim is founded on the fact that neither Ramesh Chand nor his heirs have severed their status as shareholders. Mr.Purohit's submission is that it is true that a group of companies, partnership firm and some association of persons, chief amongst which is the transferee company, Mahalaxmi Glass Works Pvt Ltd was owned and managed by three brothers. Youngest brother Ramesh Chand died on 18th December 1986 in car accident leaving behind his wife and daughters. However, salient features of the arbitration agreement would reveal that all the family members of the three brothers and all entities in the group agreed that the value of Ramesh Chand group's 1/3rd share / interest should be taken and that the valuation date was taken as 18th December 1986. The arbitrators were to decide the value of Ramesh Chand group's share and the mode, manner and time for payment thereof and which of 10 cp266-06com.doc the parties were to pay and whither interest was to be awarded. The arbitration in respect of Kohinoor Enterprises was subsumed into the arbitration agreement of 3rd February 1989. Ramesh Chand Group agreed to go out and/or severe their connection with aforesaid business with Hyderabad properties and companies on being paid the value of their 1/3rd share. That was stated to be 28%. The Arbitrators made the interim awards and published their final award which is a undisputed fact. Relying upon several recitals of the Arbitration Agreement and the awards, what has been urged by Mr.Purohit is that the final award came to be challenged in this Court by the very intervenor – objector by instituting Arbitration Petition No.110 of 1997. That was rejected by this Court on 23rd January 1998. The Award was made Rule of the Court. Thus, it became a decree of this Court duly enforceable and executable in accordance with law. Being aggrieved by the order dated 23rd January 1998 – intervenor preferred an appeal before the Division Bench of this Court which also was dismissed by an order dated 2nd April 1998. Then, reliance is placed upon an order passed in Arbitration Petition No.201 of 1997 on 27th April 1998. It was submitted that being aggrieved and dis-satisfied by the order of the Division Bench a Special Leave Petition was preferred which came to be disposed of by an order 11 cp266-06com.doc dated 18th August 1998 confirming final award but directing payment of additional amount of Rs.1,60,000/- as interest to Ramesh Chand group, which was paid by the petitioners. Another Special Leave Petition was filed and that came to be withdrawn on 15th March 1999. 10] In or about October 2000, the respondent company moved an application in the Bombay High Court seeking approval for the scheme of arrangement of Kohinoor Glass Factory Ltd with the Mahalaxmi Glass Works Ltd (Glass and Ceramic Decorators). The intervenor sought to intervene in those proceedings (Company Application No.493 of 2000) by purporting to be shareholders of the petitioner companies. That application was rejected by an order dated 8th November 2000 by learned Single Judge of this Court. The learned Single Judge, thereafter, proceeded to sanction the scheme of arrangement by an order dated 17th January 2001. The appeal that was filed by the intervenors against the rejection of this intervention was also dismissed on 23rd April 2001. A Review Petition filed against the order dated 23rd April 2001 came to be dismissed by a Division Bench consisting of one of the member of earlier division bench, on 7th October 2003. The Special Leave Petition challenging both orders was also dismissed by 12 cp266-06com.doc the Supreme Court on 22nd March 2004. Copies of these orders are relied upon and it is contended that when the very same claim which is earlier agitated before this Court and raised in the present proceedings has been duly gone into, considered and rejected, then, the instant objection is barred by principles of res judicata and the same contentions cannot be raised all over again. It is stated that the petitioners have made payment of substantial sums and my attention is invited to the affidavit filed by Sudershan Kashyap, General Manager of the petitioners in these petitions. It is stated that the petitioners do not have to execute any deeds, papers or documents. They were required to pay to the Ramesh Chand Group including intervenors Rs. 4,51,50,000/- and they have done that by depositing the amount in this Court. Thereafter an additional sum has also been paid as pointed in this affidavit. In such circumstances, this Court should not countenance any of these submissions as they are based on the same objections which have been raised and rejected. Therefore, Mr.Purohit submits that the company petitions be made absolute. He has also pointed out that once this Court has expressed a clear opinion and has rendered a finding that the award is executable and can be executed against the transferee company – respondent before this Court then all the more 13 cp266-06com.doc this Court entertaining this objection and going into them once again would mean that binding observations of a Division Bench are to be ignored and brushed aside. That is impermissible in law and, therefore, the objections be over-ruled and the petitions be allowed accordingly. 11] Mr.Andhyarujina appearing for the objector on the other hand has contended that the severance of status of the objector is not automatic on the award being made. In fact the objections are precise viz., that no severance of the intervenors' 1/3rd share in the business has in fact taken place. There is no transfer of the shareholdings belonging to Ramesh Chand group in favour of Naresh Chand and Mahesh Chand group and/or their group has taken place in accordance with law and/or was possible. In that behalf, he places strong reliance on the agreement dated 3rd January 1989 between Intervenor, Saloni Shivani and Mahesh Chand and his family members and Naresh Chand and his family members. It is stated that consent for transferring any shares has to be taken from the intervenors and that is provided in the consent terms. Once the consent for transferring any shares had to be taken from the intervenors, then, unless that consent has been brought on record, established and proved, there is no question of any severance 14 cp266-06com.doc of status. My attention is invited to several clauses of the award which is stated to be a final award dated 14th September 1996 under which handing over of transfer deeds duly signed in blank by the registered shareholders shall be against full payment of compensation awarded to the intervenor and her daughters. Thus, Mr.Andhyarujina submits that if the Arbitration agreement, the consent terms and the award are read together, then, unless the intervenors are paid in in full their 1/3rd share in the business of the companies, shares of Ramesh Chand group could not have been transferred. He also places reliance upon clause 48 in this behalf. It is asserted by Mr.Andhyarujina that the intervenor has till date not received full value of 1/3rd share in the business, although she has received compensation amount. She has also not reeived other amounts awarded to her or from the sale proceeds of Hyderabad properties. He has relied upon additional affidavit dated 4th January 2011 in that behalf. Mr.Andhyarujina then submits that the other two brothers have raised several obstacles and objections and have prevented the intervenor from executing and enforcing the award. Once their stand has been demonstrated to be malafide, then, this Court should not proceed on the basis of any severance of status. It has been pointed out by Mr.Andhyarujina that the shares which came to be 15 cp266-06com.doc deposited with the Registry of this Court, without prejudice to the rights and contentions of the intervenor and her daughters, together with transfer forms, should not be seen as an isolated act but on a direction by the Prothonotary which be also taken into account. The direction is that no transaction in respect of these shares be made until further orders of the Court (The order dated 1st December 1999). A search conducted in the office ROC revealed that neither she nor her daughters estate of late Ramesh Chand were shown as shareholders of the companies. This search report and findings which led the intervenor filed various company applications. She has also approached the Company Law Board. Once, there is no proper suitable explanation as to how these shares were transferred from intervenor, then, the Court should not rely upon merely the version of the respondent or the order passed by this Court. In any event, the orders passed in the earlier round where Kohinoor was involved, cannot be of any assistance to the respondents. If those orders were not based on complete facts and the Court was not shown several aspects, which are now brought on record and the court proceeded in that matter on the footing that no record or documentary evidence establishing any title of shareholders was produced, then, that order cannot be held to be binding upon this 16 cp266-06com.doc Court. There is now ample evidence to establish that the intervenors are shareholders and in any event the order passed by Company Law Board is not the material which can be relied upon by the respondent. How that order is vitiated and how the appeal challenging the same, invoking section 10F of the Companies Act, 1956 raises several quesstions of law, has been enumerated therein. For all these reasons, it is submitted that the scheme should not be approved. 12] Alternatively and without prejudice to the above contentions, it is contended that the scheme can still not be approved because of the principles that have been laid down in the decision of the Supreme Court in the case of Mihir Mafatlal Vs. Mafatlal Industries Ltd., reported in 1997 (1) SCC 579. Mr.Andhyarujina drawing support from the principles laid down in this decision, submitted that the shareholders in the company involved in the scheme viz., Mahalaxmi Glass Works are set out in the list of shareholders. The intervenor and her daughter along with Ramesh Chand continue to hold 360 equity shares of Kohinoor Glass Factory Pvt.Ltd. Despite being shareholders the intervenor and her daughters have not been given any notice and/ or permitted to participate in the proceedings in any manner. In any event 17 cp266-06com.doc and without prejudice the scheme cannot be sanctioned because various material and relevant facts have been suppressed from this court. 13] The Scheme fails to disclose that the industrial establishment of Mahalaxmi Glass Works stands closed pursuant to an Order of the Commissioner for Labour, Maharashtra State dated 29th July 2006 under section 25-O(i) of the Industrial Disputes Act, 1947 read with Section 25- O(ii) of the said Act. (b) The Petition suppresses the fact that the said order proceeds on the basis that if the Unit is not allowed to close down the same will continue to incur operational losses affecting the whole company and it would not be in the public interest including the workmen of the Unit. (c) The Advocate appearing for MGW in fact argued that if the Unit continued the Company would incur operational losses which would in turn erode the asset base of the company and a stage will come when the company will not be in a position to even make payments of legal dues of the workmen. (d) The Scheme proceeds on the basis that Kaycee Investments Pvt.Ltd. and Smriti Trading and Investments Co.Pvt.Ltd. are wholly 18 cp266-06com.doc owned subsidiaries of Mahalaxmi Galss Works. This fact is to the best of Petitioner’s knowledge false. In fact the shareholding pattern of Kaycee Investments Pvt.Ltd. and Smriti Trading and Investments Co.Pvt. Ltd. is given at page 42 and page 44 in Company Application No.960 of 2006 in Company Petition No.269 of 2006 which reveals that its shareholders do not include Mahalaxmi Glass Works. It is further relevant to note that counsel appearing for the Petitioners did not address this point in Rejoinder although this point was specifically argued by the Intervener. 14] The Intervener submits that the Scheme is yet another attempt to defeat the provisions of the Award which proceeds on the basis that until such time as the Intervener has received the full value of her 1/3rd share in the said businesses there will be no severance and consequentially she and her daughters continue to be shareholders in the said Companies. As such it is submitted that the Scheme is unconscionable and contrary to public policy. 15] The Intervener submits that neither Petitioner nor the Scheme casts any light whatsoever on the true corporate purpose of the 19 cp266-06com.doc Scheme. It is submitted that upon this Hon’ble Court judicially x-raying the “apparent corporate purpose” it would become evident that there is no bonafide genuine corporate purpose behind the Scheme. 16] It is submitted that the Scheme generally is unjust, unfair and it is unreasonable from the point of prudent businessmen taking a commercial decision and the class of shareholders to which the Intervener and her daughters belongs. As such the Intervener says and submits that the same does not satisfy any of the broad parameters necessary for the Scheme to be allowed under the law. 17] The Intervener submits that it is well settled that the Court while considering a Scheme will, inter alia, take into consideration the public or commercial morality in permitting such a Scheme. (J.S. Davar & another v/s Shankar Vishnu Marathe & others, reported in AIR 1967 Bom. 456). 18] Without prejudice to the above and in the alternative, on demurrer, the Intervener submits that in the event that this Hon’ble Court is inclined to allow the Scheme, it may do so by duly modifying the 20 cp266-06com.doc Scheme to ensure that the Intervener and her