: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.487 OF 2009 CONNECTED WITH COMPANY APPLICATION NO.438 OF 2009 Reliance Communications Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company WITH COMPANY APPLICATION NO.757 OF 2009 IN COMPANY PETITION NO.487 OF 2009 IN COMPANY APPLICATION NO.438 OF 2009 Reliance Communications Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND 1.Webdunia.Com (India) Pvt.Ltd., A Company registered under the Companies Act, 1956 & having its registered office at Plot No.9, 1st Floor Sushila Sadan, Opp Shopper Stop, Linking Road, Bandra, West, Mumbai 400 050. ...Applicant/Intervener : 2 : WITH COMPANY APPLICATION NO.759 OF 2009 IN COMPANY PETITION NO.487 OF 2009 IN COMPANY APPLICATION NO.438 OF 2009 Reliance Communications Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND S.Anantharaman of Coimbatore, an Indian inhabitant, residing at No.74-75, 30 Feet Road, Krishnaswamy Nagar, Ramanathapuram, Coimbatore 641045, Tamil Nadu. ...Applicant/Intervener WITH COMPANY APPLICATION NO.760 OF 2009 IN COMPANY PETITION NO.487 OF 2009 IN COMPANY APPLICATION NO.438 OF 2009 Reliance Communications Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND : 3 : 1.Rajkot Saher/Jilla Grahak Suraksha Mandal, A Society registered under the Societies Registration Act, 1860 and having its registered Office at 329, Popatrbhai Sorathia Bhavan, Sadar Bazar RAJKOT 360 001, Gujarat. ...Applicant/Intervener WITH COMPANY PETITION NO.488 OF 2009 CONNECTED WITH COMPANY APPLICATION NO.439 OF 2009 Reliance Infratel Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company WITH COMPANY APPLICATION NO.758 OF 2009 IN COMPANY PETITION NO.488 OF 2009 IN COMPANY APPLICATION NO.439 OF 2009 Reliance Infratel Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND 1.Webdunia.Com (India) Pvt.Ltd., A Company registered under the Companies Act, 1956 & having its registered office at : 4 : Plot No.9, 1st Floor Suushila Sadan, Opp.Shhopper Stop, Linking Road, Bandra (West), Mumbai-400 050. ...Applicant/Intervener WITH COMPANY APPLICATION NO.761 OF 2009 IN COMPANY PETITION NO.488 OF 2009 IN COMPANY APPLICATION NO.439 OF 2009 Reliance Infratel Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND 1.Rajkot Saher/Jilla Grahak Suraksha Mandal, A Society registered under the Societies Registration Act, 1860 and having its registered Office at 329, Popatrbhai Sorathia Bhavan, Sadar Bazar RAJKOT 360 001, Gujarat. ...Applicant/Intervener WITH COMPANY APPLICATION NO.762 OF 2009 IN COMPANY PETITION NO.488 OF 2009 IN COMPANY APPLICATION NO.439 OF 2009 Reliance Infratel Limited, a company incorporated under the Companies Act, 1956 having its registered office at H Block, 1st Floor, : 5 : Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710. ...Petitioner Company AND S.Anantharaman of Coimbatore, an Indian inhabitant, residing at No.74-75, 30 Feet Road, Krishnaswamy Nagar, Ramanathapuram, Coimbatore 641045, Tamil Nadu. ...Applicant/Intervener .......... Mr.Iqbal Chagla, Sr.Counsel with Mr.Janak Dwarkadas, Sr.Counsel i/b Rajesh Shah & Co. for Petitioner. Mr.Mohammed Shafiq with Mr.Satendra Kumar in support of CA/757/2009 and CA/758/2009 for Creditors. Mr.N.Venkataraman, Sr.Counsel i/b Madekar & Co. in support of CA/759/2009, 760/2009, 761/2009 & 762/2009 for share holders and intervenors. Mr.C.J.Joy with Mr.P.Khosla i/b Mr.S.K.Mohapatra for Regional Director. .......... CORAM : A.M.KHANWILKAR, J. JULY 18, 2009. JUDGMENT : 1. These Petitions are filed by the Petitioners to obtain sanction of this Hon’ble Court to the Scheme of Arrangement between Reliance Communications Ltd. (Petitioner in Company Petition No.487/2009 – hereinafter referred to as the “Demerged Company”) and Reliance Infratel : 6 : Ltd. (Petitioner in Company Petition No.488/2009 – hereinafter referred to as “the Resulting Company”) and their respective shareholders and creditors where under the Optic Fiber Undertaking of the Demerged Company shall stand transferred to and vested in the Resulting Company with effect from the appointed date in terms of the Scheme without any further act or deed pursuant to Section 394 of the Companies Act, 1956. 2. The Demerged Company was incorporated under the provisions of the Indian Companies Act, 1956 in Mumbai on 15th July 2004 under the name “Reliance Infrastructure Developers Private Limited.”. Subsequently, the said name has undergone change and the present name of the Demerged Company is “Reliance Communications Limited” with effect from June 7, 2006. On the other hand, Resulting Company was incorporated on 16th April 2001 in the name and style of “Reliance Communications Rajasthan Private Limited”. Subsequently, that name has been changed and the present name of the resulting Company is “Reliance Infratel Limited”. The Resulting Company is a subsidiary of the Demerged Company. Originally, the Demerged Company held 100% shares in the Resulting Company. However, at present, it has been reduced to 95%, and 5% shares in the Resulting Company are held by institutions and Banks. : 7 : 3. The authorised share capital of the Demerged Company is 300,00,00,000 equity shares of Rs.5/- each, valuing Rs.1500 Crores. The issued, subscribed and paid-up capital of the Demerged Company is 2,06,40,26,881 equity shares of Rs.5/- each fully paid-up valuing Rs. 1032.01 crores. It is stated that the capital structure of the Demerged Company post the balance sheet as on March 31, 2008 has not undergone any change. Insofar as the Resulting Company is concerned, the authorised share capital of the said Company as on March 31, 2008 is 300 crores equity shares of Rs.5/- each valuing Rs.1500 Crores. The issued, subscribed and paid up capital of the Resulting Company is 79,80,40,534 equity shares of Rs.5/- each valuing Rs.399.02 Crores. It is stated that the capital structure of the Resulting Company post the balance sheet as on March 31, 2009 has not undergone any change. The objects of the respective companies are set out in their Memorandum of Association. The Demerged Company is presently engaged in the business of providing telecommunication services, whereas, the Resulting Company is engaged in the business of providing telecom infrastructure services. The Board of Directors of the Resulting Company vide Resolution dated January 19, 2009, approved the Scheme of Arrangement between the Demerged Company and the Resulting Company and the respective shareholders and creditors. Similar approval was : 8 : accorded by the Board of Directors of the Demerged Company vide Resolution dated January 31, 2009. The rationale for the proposed scheme of arrangement is stated as under : “(a) Reduced set-up and operating costs resulting in cost efficiency coupled with a greater financial flexibility; (b) Segregation of the business of providing telecommunication services and the business of providing Infrastructure on a consolidated basis, thereby enabling each of the companies to concentrate on its core business activities; (c) Promote high valued standalone business by conversion of cost-centric assets to revenue-centric ones by sharing of the Infrastructure of the Resulting Company with other wireless service providers operating in the same field.” 4. Insofar as the material provisions of the proposed Scheme are concerned, I shall advert to the same while dealing with the objections of the intervenors. Suffice it to observe that the arrangement is of transfer and vesting of Optic Fiber Undertaking of the Demerged Company into Resulting Company for consideration subject to non-exclusive right of the Demerged Company to use the Optic Fiber. The fair value of consideration for such transfer and vesting was done by M/s.R.B.Shah and Associates and certificated by M/s.Chaturvedi and Shah, Chartered Accountants. 5. To effectuate the decision of the Board of Directors, both the : 9 : Companies filed separate Company Applications being Company Application Nos.438/2009 and 439/2009 respectively before the Company Judge for directions. On 23rd April 2009, the respective companies were directed to convene meeting of the equity shareholders at the specified place, date and time for the purpose of considering and if thought fit, approving with or without modification the arrangement embodied in the Scheme of Arrangement. The said order further nominated persons who were to act as Chairman of the meeting or any adjourned meeting and to report the result of the meeting to the Company Judge. It was further ordered that the convening and holding of the meeting of the sole secured creditor of the Demerged Company to consider and approve the proposed Scheme of Arrangement was dispensed with in view of the averment in Paragraph 18 of the affidavit that the Scheme would not affect the sole secured creditor. The Court was also pleased to dispense with convening and holding of the meeting of unsecured creditors of both Companies in view of the averment in Paragraph 19 of the affidavit-that the unsecured creditors will not be affected by the proposed Scheme of Arrangement as the value of the assets of the Applicant Company post Scheme will be same as they were before the implementation of the Scheme. The Court, however, directed both the Companies to serve individual notices of the hearing of : 10 : the Petition by registered post acknowledgment due to the unsecured creditors having an outstanding balance of Rs.20 lakhs or more and also publish the notices in one issue each of Free Press Journal in English language and Maharashtra Times in Marathi language, both having circulation in Mumbai. Accordingly, notice of the meetings were sent individually to all the equity shareholders of all the respective companies under Certificate of Posting as required by order, together with copies of the Scheme, statement required to be sent under Section 393 of the Companies Act, prescribed form of proxy and attendance slip therewith. Besides, the notice convening the meetings was also advertised as per the order of the Court in the specified newspapers. 6. As per the said notice, the meeting of equity share holders of both the Companies was convened and held at the nominated place, time and date which was presided over by Justice M.H.Kania (Retired Chief Justice of India) as Chairman of the meeting of the equity shareholders. The Chairman has submitted two separate reports with regard to the meetings of the equity shareholders of the respective Companies. Insofar as the Demerged Company is concerned, the report records that proxies and representations under Section 187 of the Act representing 144,40,36,096 : 11 : equity shares were submitted. In all, 2218 ballots representing 143,98,25,310 equity shares of the face value of Rs.5/- each were present either in-person or by proxy or by authorised representatives. The proposed Scheme of Arrangement was taken as received, read and understood with the permission of the members who attended the meeting. The members were invited to express their views on the Scheme. It is noted that the members appreciated the Scheme and no objections were raised. It also records that certain clarifications were asked for by the shareholders; answers to which were provided to their satisfaction. Paragraph 10 of the Report gives the details of the fact as to how the Resolution was approved by the shareholders with overwhelming majority as high as constituting 99.32% in number and representing 99.9999% in value, present and voting in -person or by proxy or by authorised representative voted in favour of the Scheme. Only 15 equity shareholders holding 2038 shares of Rs.5/- each fully paid-up representing in value the sum of Rs.10,190/- constituting 0.6784% in number and representing 0.0001% in value, present and voting in-person or by proxy or by authorised representative voted against the Scheme. The report mentions that the Scheme was approved by the shareholders with requisite majority. : 12 : 7. Insofar as Chairman’s report submitted by Justice M.H.Kania (Retired Chief Justice of India) of the meeting of the equity shareholders of the Resulting Company, it is stated that the meeting was held on the appointed place, time and date after issuance of notices in terms of the order of the Court. In the said meeting, the shareholders requested for more time to study the Scheme and with the unanimous approval of the shareholders present, the Chairman adjourned the meeting to Friday, June 5, 2009 at the same time and same venue. On that date, in all 20 members representing 70,93,69,361 equity shares of the face value of Rs.5/- each were present either in person, through proxy or authorised representatives. Since the quorum fixed for the said meeting was five members present in person, the adjourned meeting proceeded. In the said meeting, with the permission of the Chair, the proposed Scheme of Arrangement was taken as received, read and understood. The members present were invited to express their views on the Scheme. The members present appreciated the Scheme and no objections were raised. The Scheme was then put to vote for approval with or without modification, the arrangement embodied in the Scheme of Arrangement between the Demerged Company and the Resulting Company and their respective shareholders and creditors. The Report records that the Resolution was unanimously approved by the shareholders as no : 13 : shareholder voted against the Scheme. 8. As aforesaid, both these reports have been submitted before this Court as per the directions given on the earlier occasion. Since the shares of the Demerged Company are listed on Bombay Stock Exchange Limited and National Stock Exchange Ltd., approval of the respective Stock Exchanges has also been obtained. The said Stock Exchanges have favoured the proposed arrangement. According to the respective Companies, the sanctioning of the arrangement embodied in the Scheme will be for the benefit of the Company. It is stated that no winding up Petitions have been admitted against any of these Companies nor any investigation proceedings are pending against the Companies under Sections 235 to 251 of the Companies Act or the like. Besides, it is stated that the Scheme does not value or overwrite or circumscribe any of the provisions of Regulation or Guidelines made under the said Act. In this backdrop, present Petitions have been filed on 5th June 2009. 9. Pursuant to the notice issued by this Court, the Registrar of Companies and the Regional Director have appeared before this Court. The Regional Director has filed affidavit dated 15th July 2009 in which has : 14 : plainly opined that the Scheme is not prejudicial to the interest of shareholders and the public, save and except two points raised in Paragraph 7 of the Affidavit. The Regional Director in his affidavit, has adverted to the fact that complaints were received to oppose the proposed Scheme and on scrutiny of each of these complaints referred to in the affidavit, it was found that the Scheme was not prejudicial to the interest of the shareholders and the public. Insofar as the points raised by the Regional Director for consideration of the Scheme, the same read thus: “7. The Deponent further submits that: (a) As per the explanatory statement under section 393 of the Companies Act, 1956 circulated to the members of R Com and RITL, the net consideration payable by RITL to R Com is Rs.6718.87 crores after adjustment of the liabilities attributable to Optic Fiber Undertaking. In this connection the deponent further submits that clause 2.2 of the scheme dealing with the consideration does not quantify the net consideration payable by RITL on transfer of Optic Fiber Undertaking from R Com. Hence the petitioners may be directed to file an undertaking before this Hon’ble High Court on the net consideration involved in the scheme. (b) Clause 2.4.3 of the scheme is not in conformity with mandatory Accounting Standard – 11 prescribed by the Institute of Chartered Accountants of India. Hence Resulting Company may be directed to comply with Accounting Standard -11 as applicable to it in respect of losses on account of changes in exchange rates relating to foreign currency loans.” 10. Significantly, consequent to the directions issued by this Court, the Petitioner Companies not only issued notices to concerned creditors but also published advertisement in the Free Press Journal (English) and in : 15 : Maharashtra Times (Marathi) clearly indicating that the hearing of the present Petition would proceed on 17th July 2009 before the Company Judge at 11 O’Clock in the forenoon or so soon thereafter. As a result of the said publication, six Company Applications have been filed before this Court. Two Company Applications being Company Application Nos. 759/2009 and 762/2009 are filed by one Shri S.Anantharaman on 14th July 2009 supported by affidavit sworn at Coimbatore on 11th July 2009 in respective Company Petitions, praying for the following reliefs: “(a) That this Hon’ble High Court may be pleased to dismiss and set-aside order passed in Company Applications in Company Petition No.487 filed by Reliance Communications Ltd. i.e. The Petitioner Company and Company Petition No.488 filed by Reliance Infratel Ltd. i.e. The Resulting Company namely Reliance Infratel Limited under Section 391 and 394 of the Companies Act 1956 as not maintainable; or (b) In the alternative the Hon’ble High Court may be pleased to order and direct (i) the Petitioner Company to amend the scheme to disclose all material facts that are relevant for the proper appreciation of the scheme by the shareholders; (ii) the Petitioner Company to table the Valuation Report )iii) the office of the Regional Director to ascertain whether the scheme is in the interest of the shareholders and (iv) the National Advisory Committee on Accounting Standards (NACAS) to confirm whether the accounting treatment appearing in clauses 2.3 and 2.4 of the scheme are not contrary to Companies (Accounting Standards) Rules, 2006 and are not extraneous to the scheme. (b-I) That this Hon’ble Court be pleased to allow to intervene application. (c) pass such other order or orders as deemed fit and proper and thus render justice. (e) That the cost of this Application be provided for. (f) For such further and other relief’s as this Hon’ble Court may deem fit and proper in the nature and circumstances of the case.” : 16 : 11. Significantly, this Applicant though claims to be a shareholder of the Demerged Company, did not personally attend the meeting of the equity shareholders convened pursuant to the direction issued by this Court, but had opposed the Scheme of Arrangement by voting (through proxy) against the Scheme. He has, however, stated that he had sent his objection to Registrar of Companies and Regional Director dated 9th July 2009, which reads thus: “9th July 2009 The Registrar of Companies, Everest Building, 100, Marine Drive Mumbai-400 002. The Regional Director, Ministry of Corporate Affairs Everest Building, 100, Marine Drive, Mumbai-400 002. Sir, Sub: Scheme of arrangement between Reliance Communications Limited (“Company”) and Reliance Infratel Limited (RITL). I am a shareholder of the Company and holding 55 shares under the DP Id-Client Ids IN30017510197978 and 250 shares under the DP Id – Client Ids 1302340000196414. The Company has filed a petition before the Hon’ble Court of Judicature at Bombay for approving the scheme of arrangement to de-merge the Optic Fiber Undertaking of the Company to RITL. : 17 : I had opposed the scheme of arrangement as it was not possible to ascertain another the scheme of arrangement was in the interest of the shareholders and hence I had voted (by proxy) against the resolution in the meeting of the shareholders held on 26th May 2009 at Mumbai for the following reasons : 1. The Company has carried out in the recent past restructuring exercise through “schemes of arrangement” and “purchase of assets” relating to the passive infrastructure consisting of optic fibers and associated assets as explained below: i. In the year 2005-06, Reliance Communications Infrastructure Limited (RCIL) de-merged lit optic fiber to the Company through a scheme of arrangement. ii. In the year 2006-07, the Company, with the intention to consolidate and hold passive infrastructure assets in Reliance Communications Infrastructure Limited (RCIL) and its subsidiary RITL, de-merged towers and lit optic fiber owned by the Company to RITL through another scheme of arrangement. iii. In the year 2007-08, the Company purchased unlit passive optic fiber assets from RCIL worth Rs.1,930 crores for a token consideration of Rs.80 crores. iv. Now, in the year 2008-09, through the subject scheme of arrangement the passive optic fiber assets are being de-merged from the Company to RITL. From the above, it is not clear which parts of the optic fiber is lying with the Company and with RCIL and RITL. 2. The disclosures made in the scheme with respect to the value of the Optic Fiber Undertaking are vague and are not transparent. The Company has not disclosed the book value of the assets which are transferred to RITL through the subject scheme of arrangement. 3. The basis and methodology of valuation for the Optic Fiber Undertaking which is proposed to be de-merged from the Company to RITL through the subject scheme of arrangement is also not known. I had already written to the Company for a copy of the Detailed Valuation Report on 7th July 2009. 4. It has also not been disclosed whether the Company proposes to pay any user charges (lase rentals) for use of the passive optic fiber to RITL. Unless this is known, a shareholder cannot evaluate the merits or demerits of the Scheme. : 18 : 5. Also, it is not known when the Company will receive the consideration of Rs.7,206 crore from RITL upon de-merger of the Optic Fiber Undertaking under the subject scheme of arrangement. If the consideration is not received upon de-merger, whether RITL will pay interest to the Company since the appreciation in value of the assets de- merged will only accrue to RITL. 6. Accounting treatment proposed to be followed by the Company as mentioned in para 2.3.3 of the Scheme of Arrangement for accounting the difference between the consideration and the net book value is not in line with the Accounting Standards prescribed by the Companies (Accounting Standards) Rules, 2006. 7. Similarly, the Company’s proposal as mentioned in para 2.3.4 of the Scheme of Arrangement to utilize the above surplus amount for meeting the future foreign exchange losses is not relevant to the de- merger. Since all the critical information required to form an opinion about the benefits that will accrue to the Company and the shareholders are not available in the subject scheme of arrangement, I oppose the subject scheme of arrangement and will be filing necessary petitions before the Hon’ble High Court of Judicature at Bombay. I request you to seek all the above information from the Company before affirming to the Hon’ble Court that the subject scheme is not prejudicial to the interest of the shareholders. Thanking you, Yours faithfully, Sd/-”. 12. According to this Applicant, he has not received any response to the abovesaid representation. He has further stated that on 11th July 2009, one Mr.Ramjibhai Mavani, founder President of Rajkot Saher/Jilla Grahak Suraksha Mandal contacted him, having found from the Company Petition : 19 : and its Annexures that the said Applicant had voted against the Scheme of Arrangement. This Applicant has further stated in Para 4 of his affidavit-in- support of the Application that the said Mr.Mavani informed him that the Scheme of Arrangement was engineered with a clear objective of defrauding creditors, affecting the interest of shareholders besides clear evasion of taxes due to the Income-tax Department. The said Mr.Mavani further informed that he was in the process of moving an Intervention Application as the Scheme of Arrangement is contrary to public interest and does not meet the statutory requirements of Sections 391 to 394 of the Companies Act, 1956. It is the case of this Applicant that after detailed discussion, he was convinced that in the capacity as a shareholder, he should take up the matter