:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.414 TO 417 OF 2005 CONNECTED WITH COMPANY APPLICATION NOS.276/2005 TO 279/2005 M/s. KEC International Limited. M/s. Bespoke Finvest Limited. M/s. KEC Infrastructures Ltd. M/s. KEC Holdings Limited. ....Petitioners. Mr. Iqbal Chagla with Mr. Virag Tulzapurkar i/by Rajesh Shah and Company for the Petitioners. Mr.C.J. Joy with R.C. Master for the Regional Director. Mr. Paritosh Jaiswal with Nandini Menon for KEC Employees Union. CORAM : A.M. KHANWILKAR,J. DATED : 27/9/2O05. PC: 1. These petitions are for sanctioning arrangement embodied in the Composite Scheme of Arrangement between KEC International Ltd. ("KEC or the Petitioner Company"), Bespoke Finvest Limited ( "(Bespoke"), KEC Infrastructure Limited ("Operating company") and KEC Holdings Ltd. ("Invest Company") and their respective shareholders (hereinafter referred to as the "scheme"), where under the power transmission business and investment division as defined in the scheme shall stand transferred to KEC Infrastructures :2: Limited and KEC Holdings Limited respectively and Bespoke will get merged into KEC Holdings Limited, with effect from the close of business hours on 31.3.2005 ( hereinafter referred to as the Appointed Date") in terms of the scheme without any further act or deed pursuant to the provisions of Sections 394 of the Act. 2. The petitioner company was incorporated under the Indian Companies Act,1913 on 7th day of May 1945 under the name and style of Kamani Engineering Corporation Limited.The name was later on changed to KEC International Limited on 5th June, 1984. The petitioner company after incorporation commenced its business of setting up power transmission lines, sub-stations and power distribution networks. On the other hand, Bespoke Finvest Limited (Bespoke or the Second Transferor Company) was incorporated under the Companies Act,1956 on 24.6.1993 under the name and style of Bespoke Finvest Private Limited. The name was later on changed to Bespoke Finvest Limited on 4.10.1994. Bespoke is engaged in investment activities. The operating company KEC Infrastructures Ltd. was incorporated under the Companies Act,1956 as a Public Limited Company on 18th March,2005 under the name and style KEC Infrastructures Ltd. The Operating Company has been incorporated specifically for the purpose of Scheme and it has not :3: commenced any business as is mentioned in the petition. Whereas, Holdings Ltd. ( Invest Company) was incorporated under the Companies Act,1956 as Public Limited Company on 18th March,2005 under the name and style of KEC Holdings Ltd. The Invest Company has been incorporated specifically for the purpose of Scheme. It has not commenced any business as is mentioned in the petition. 3. The Petitioner Company is one of the largest power transmission EPG Companies in the world. It is stated that the petitioner company incurred losses in the past; however, it has successfully turned around during financial year 2003.04. In view of the continuous growth and development and future prospects of Power Transmission Business, the Board of Directors have embarked upon a financial restructuring. The purpose of such restructuring was to provide focus to Power Transmission business and other businesses. The proposed scheme envisages Sale of Power Transmission business of KEC to operating Company in consideration of the shares to be issued by the Operating Company to KEC; KEC to distribute to its shareholders such shares received from the Operating Company; Sale of the Investment of KEC to Invest Company in consideration of equity shares to be issued by the Invest Company to KEC :4: and Invest Company to become subsidiary of KEC and merger of Bespoke into Invest Company. The Board of Directors of the Petitioner company accordingly passed resolution on 22.3.2005 resolving that subject to the sanction of the High Court and permission of the Central Government and other authorities that may be necessary, a Composite Scheme of Arrangement between the petitioner company and the Bespoke and the Operating Company and Invest Company be approved. It is not necessary to advert to all the provisions of the proposed scheme which have been so approved except to refer the provisions regarding the staff, workmen and employees; As the objection to the proposed scheme has been set up at the instance of the workmen union, whose members are the employees of the KEC as also its shareholders. The scheme envisages that on the Scheme becoming operative, all staff, workmen and employees of KEC in service on the effective date shall be deemed to have become staff, workmen and employees of Operating Co. without any break in their service and on the basis of continuity of service; and the terms and condition of their employment with Operating Company shall not be less favourable than those applicable to them with reference to KEC on the effective date. It is expressly provided that, on the scheme becoming effective, Provident Fund, Gratuity Fund, Superannuation fund or any other Special :5: fund or Trust created or existing for the benefit of the staff, workmen and employees of KEC shall become the trusts/funds of Operating Company for all purposes whatsoever in relation to the administration or operation of such Fund or Funds or in relation to the obligation to make contributions to the said fund or funds in accordance with the provisions thereof as per the terms provided in the respective Trust Deeds, if any, to the end and intent that all rights, duties, powers and obligations of KEC in relation to such fund or funds shall become those of Operating Company. It is clarified that the services of the staff, workmen, and employees of KEC will be treated as having been continuous for the purpose of the said fund or funds. Provision is also made regarding legal proceedings to the effect that all legal proceedings of whatsoever nature by or against KEC pending and/or arising at the appointed date and relating to the Power Transmission Business of KEC as and from the Effective Date shall be continued and enforced by or against the Operating Company in the manner and to the same extent as would or might have been continued and enforced by or against KEC and from the effective date. Further, the Operating Company shall and may, if required, initiate any legal proceedings in relation to the Power Transmission Business in the name of KEC. :6: . Be that as it may, the scheme as proposed was to be considered by the Equity Shareholders, Preference Shareholders, Secured Creditors and Unsecured Creditors. Accordingly, company application was made before this court being Company Application No.276/2005 for necessary directions in that behalf. This court on 29.4.2005 directed to convene the meeting of all the Equity Shareholders, Preference Shareholders, Secured Creditors and Unsecured Creditors at the appointed venue on 14.6.2005 for the purpose of considering and approving with or without any modification arrangement embodied in the Composite Scheme of Arrangement. The said order directed that Mr. H.V. Goenka, Chairman of the petitioner company, and failing him, Mr. S.S. Thakur, Director of the Petitioner company and failing him, Mr. A.T. Vaswani, Director of the Petitioner company and failing him, Mr. A.T. Vaswani, Director of the petitioner company shall be the Chairman of the aforesaid meeting or any adjournment or adjournments thereof and should report the result thereof to this court. In terms of the said order, individual notices were issued to all concerned about the meeting alongwith relevant material. Besides, notice regarding meeting was also advertised in local newspaper. On the Scheduled date, time and place, the meeting of Equity :7: Shareholders, Preference Shareholders, Secured Creditors and Unsecured Creditors of the Petitioner Company was duly convened and held. In the said meeting, in terms of order dated 29.4.2005, Mr. H.V. Goenka acted as Chairman of the meeting of the Equity Shareholders, Preference Shareholders, Secured Creditors and Unsecured Creditors; and reported the result of the said meeting to this court by Chairman’s report dated 27.6.2005 along with affidavit in support thereof. The report graphically describes as to the manner in which meeting was conducted. It mentions that the Chairman announced that the petitioner company had received 44 authorisations and 371 proxies representing 40.565 of the Paid Up Capital of the petitioner company and that proxies/authorizations registers are kept for inspection at the venue. It then mentions that coram fixed for the meeting was 5 Equity Share holders. Whereas, in all 556 Equity Shareholders attended the said meeting in person or by proxies or by authorised representative holding 1,53,70,714 Equity Shares having face value of Rs.15,37,07,140. Accordingly, meeting was called to order. The report also mentions that when the Equity Shareholders were invited, few shareholders spoke on the proposed scheme. Some of them requested for certain clarifications in relation to the scheme, which were provided by the Chairman with the help of representative :8: of the petitioner company. The report then mentions that one of the Shareholder Mr. Gautam Mody holding 50 Equity Shares raised query and proposed an amendment seeking adjournment of the meeting. It is stated that he also filed two letters signed by himself and another shareholder holding 50 Equity Shares in this behalf. The report then mentions that as the request for adjournment was not supported by any other shareholder, same was declined. Thereafter, process of meeting commenced after the procedure was duly explained. The report also mentions that two independent persons were appointed as scrutineers to scrutiny the ballot papers namely Mr. H.K. Sudhakara,Advocate from Khaitan & Co. and Mr. P.N. Parikh as Equity Shareholder. The report also mentions that none of the Equity Shareholder objected to the appointment of the said Scrutineers. Thereafter, polling proceeded and the Chairman informed the Equity Shareholders that the result of the poll will be declared on 15.6.2005 at the registered office of the company. The report then mentions that after the scrutiny of the ballot papers, the scrutineers submitted their report which indicates that 491 ballots representing 1,52,84,361 Equity Shares having face value of Rs.15,28,43,610 were found to have been cast. Out of these 446 Equity Shareholders holding 1,52,82,470 Equity Shares of Rs.10/- each, representing in value the sum of :9: Rs.15,28,24,700/-constituting 93.70% in number and representing 99.9924% in value, present in person or by proxy or by authorised representative voted in favour of the Scheme. Whereas, 30 Equity Shareholders holding 1,155 Equity Shares of Rs.10 each, representing in value the sum of Rs.11,550/- constituting 6.3% in number and representing 0.0076% in value, present in person or by proxy or by authorised representative voted against the Scheme; And 5 ballot papers representing 14 Equity Shares were found to be invalid. The report then mentions that as Equity Shareholders constituting a majority in number and representing more than three fourth in the value of shares, present and voting, either in person or by proxy or by authorised representative, voted in favour of the Scheme. In other words, the Scheme of Arrangement has been approved with majority in number and three fourth in value of the Equity Shareholders attending the meeting. The Chairman appointed for the meeting has submitted similar reports with regard to meetings of the Preference Shareholders, Secured Creditors and Unsecured Creditors. It is not necessary for me to advert to the contents of those reports in the present petition. Suffice it to observe that, the resolution has been voted in favour with the statutory majority for all those meetings. On the basis of the above compliance, the present petitions have been :10: filed for the reliefs claimed therein essentially for sanction of the arrangement embodied in the Composite Scheme of Arrangement. 4. These petitions have been opposed only by the Employees’ union. The authorities namely Regional Director as well as Official Liquidator have made it clear that they have no objection for the approval of the proposed scheme and will submit to the orders of this court. According to the reports filed, all procedural compliances have been made by the company. The Employees’ Union alone is opposing the scheme on the assertion that its members are entitled to oppose the scheme in two capacities namely, employees of the company and; secondly, being Equity Shareholders of the Company. It is however, fairly accepted during the course of argument by the counsel for the workmen union that the scheme is not challenged on the ground that it will cause prejudice to the workmen as such. Besides, there is no challenge on the ground that the scheme is unfair, unjust and unreasonable. However, the challenge is essentially limited to the ground that the meeting was not properly conducted which can be substantiated from the record maintained by the company. I shall straight way deal with the objections taken by the counsel for the workmen union. :11: 5. Ordinarily, as all statutory compliances have been made as is accepted by the authorities through their counsel; coupled with the fact that the resolution has been approved in the meeting with overwhelming majority which is far exceeding the statutory requirement, the petitions ought to be allowed. However, as mentioned earlier, this petition is resisted by the workmen union. I shall now deal with the objections taken on behalf of the workmen union to oppose this petition in seriatim. 6. The first objection is that the present scheme and this petition is resorted to by the petitioner company during the pendency of the appeal before the court at the instance of the company in relation to the similar request for sanction of a scheme under Section 391 read with 394 of the Act for compromise/arrangement with RPG Transmissions Ltd. arising from Company Petition No.1083 of 1997 read with Company Application No.570 of 1997. That petition was dismissed on 6.8.1999. Against that decision, matter has been carried in appeal by the petitioner company which is still pending for hearing. In this backdrop, it is argued that unless the said appeal was to be disposed of, the present petition cannot proceed as the question of amalgamation or merger of KEC International Ltd. with RPG Transmission Ltd. :12: is still unresolved. It is argued that the arrangement provided in the subject scheme does not make any provision for the consequences arising out of petitioner succeeding in the said appeal. It is submitted that if the said appeal was to succeed, it would result in the company owning its own shares due to the cross holding of shares between the petitioner and RPG Transmission ltd. as per the arrangement provided in the Scheme of 1997. In my opinion, however, there is no substance in this objection. In the first place, it is to be noted that the present scheme is completely independent of the earlier Scheme of 1997. Besides, there can be no dispute that the petitioner company has already made statement and assured this court that the appeal pending before the Division Bench of this court in respect of the proposed Scheme of 1997 will be abandoned in so far as merits is concerned. In other words, the petitioner company is disposed to abandon the scheme which was proposed in the year 1997, which is the subject matter in the pending appeal. Viewed in this perspective, there is no overlapping of proceeding in relation to the subject matter of the present petition. The counsel for the workmen union however, contends that the petitioner company has only assured that they will not pursue the Scheme of 1997 but has not translated that assurance by withdrawing the appeal.There is no substance even in :13: this objection. It is open to the petitioner to pursue the pending appeal to the extent of certain observations made in the earlier decision dated 6.8.1999, while rejecting the company petition. That is possible even while company was to abandon the Scheme of 1997. In otherwords, pendency of the appeal in relation to Scheme of 1997 can be no impediment in formulating a new scheme which is an independent scheme and which will have to be considered by the court on its own merits. Therefore, the objection about the maintainability of the present scheme and the petition on this count will have to be negatived. 7. It was then contended on behalf of the workmen union that this court in its order dated 6.8.1999 ( which is reported in 2000 CLC Page 642 Bom.) directed issuance of show cause notice to Mr.H.P.Goenka and other Senior Officers of the company as to why criminal prosecution should not be launched against them for offences of fabricating false evidence and giving false evidence. As mentioned earlier, abandonment of the said scheme is an option which can be exercised by the company; and at the same time, it will be open to the company to pursue the appeal subject to the order of the appeal court, in so far as remarks or the finding on the basis of which the said adverse remarks have been made by the Single :14: Judge of this Court, which aspect will have to be considered in the said appeal. Besides, issuance of show cause notice against Mr. Goenka or other officers of the company will have no bearing on the merits of the present scheme. Indeed, Mr.Goenka acted as the Chairman in the meeting convened to consider the present scheme for approval However, it cannot be overlooked that Mr.Goenka chaired the said meeting under the orders of this court, which were passed after the issuance of abovesaid show cause notice. Moreover, those orders have not been challenged by any one but allowed to become final. Viewed in this perspective, the objection is devoid of merits. 8. The next objection on behalf of the workers Union is that there is non compliance of Section 393 of the Act in the present case. It is stated that there is no full and proper disclosure of the interest of Shri. H.V. Goenka either as member, creditor of the company or otherwise and the effect on those interests; on the present scheme, in so far as it is different from the effect on the like interests of other persons. It is submitted that the scheme as presented does not fully and properly disclose the interests of the holdings of the RPG group of companies in the petitioner company and the effect on their share holding, if the present scheme :15: is allowed. It is submitted that Shri. H.V. Goenka is statutorily required to disclose the extent of his family and group share holdings, pre and post the present scheme. To support the above submission, reliance was placed on the details provided in the explanatory statement under Section 393 of the Companies Act furnished alongwith the notice especially on Paragraphs-36 and 37 thereof. In Para 37, the extent of share holding of the directors of the company either singularly or jointly are mentioned. Except against the name of Mr.Mirchandani and R.D. Chandak, holdings of all other directors has been shown as Nil, which is obviously misleading information. The argument canvassed on behalf of the workmen union seems to be attractive at the first blush. However, what is relevant for our purpose is to ascertain whether there has been non compliance within the meaning of Section 393 (1)(a) of the Act.That section has been construed by the Division Bench of our High Court in the case of All India Blue Star Employees’ Foundation Vs. Blue Star Ltd. reported in (2001) 40 CLA 46 (Bom.) In Paragraph 13 of the said decision, it is observed that- What Section 393(1)(a) requires is that, if any director has any material interest in the terms of compromise arrangement and the interest of the director is of a different nature than the interest of the Shareholders :16: and the compromise has different effect on the interest of the shareholders as compared to the interest of the director, then such material interest has to be disclosed. In the present case, the workmen union has failed to produce any material whatsoever to even remotely suggest that any of the director of the company including Mr. H.V. Goenka has any such material interest in the terms of the scheme or that the terms in the compromise were likely to have any effect on such interest in a manner different from the effect on the interests of other shareholders. If it is so, there is no substance in the argument that the scheme ought to fail for non compliance of Section 393 as contended. Therefore, the decision pressed into service on behalf of the workmen union, in my view would be of no avail to the Respondent Union. 10. In my opinion, the counsel for the petitioner has rightly pressed into service decision of the Apex Court in the case of Miheer H. Mofatlal Vs. Mofatlal Industries Ltd. reported in A.I.R.1997 S.C.506. In Para 28 of the said decision Apex Court has considered the scope of adjudication of the issues in the proceeding under Section 391 of the Act. It has been observed that the role of the court is like an umpire in a game of cricket who has to see that both the teams :17: play their game according to the rules and do not overstep the limits. It is observed that Company Court’s jurisdiction to the extent is peripheral and supervisory and not appellate. It is also observed that on reading the relevant provisions of Section 391 and 393, it is amply clear that that Company Court which is called upon to sanction such a scheme has not merely to go by the ispe dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. The Apex Court has then articulated the broad contours of such jurisdiction of the Company Court in sanctioning the scheme arrangement under Section 391 of the Act, which are reproduced thus : "1. The sanctioning court has to see to it that all the requisite 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 meeting of the :18: 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 and contemplated by Section 391, sub-section (1). 5. That all the requisite material contemplated by the proviso to sub section (23) 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 of creditors or class of creditors, as the came may be, were acting bonafide 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