HIGH COURT OF ORISSA: CUTTACK LPA No.1 of 2011 From a judgment dated 16.03.2011 passed by the learned Single Judge in Misc. Case No.31 of 2010 arising out of disposed of COPET Nos.15 and 17 of 2006. -------- Smt. Bharti Jyotindra Shah, Aged about 49 years, W/o. Jyotindra Shah, Residing at 190A/6, Parimal Gujarat Society, Sion (West), Mumbai-400022 and others …Appellants -Versus- Bombay Stock Exchange Ltd., “Phiroze Jweejabhoty Towers”, Dalal Street, Mumbai-400001 and others …Respondents For Appellants : Mr. G.Mishra For Respondents : Mr.Ganesh ---------- P R E S E N T: THE HONOURABLE THE CHIEF JUSTICE SHRI.V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgement: 19.07.2011 B.N. Mahapatra, J. This Letters Patent Appeal has been filed praying for the following reliefs: “(a) the judgment dated 16.03.2011 passed by the learned Single Judge in Misc. Case No.31 of 2010 arising out of COPET Nos.15 and 17 of 2006 under Annexure-14 be set aside, (b) the respondents be directed not to further process the cancellation of 3,49,466 equity shares of IMFA held under the “Erstwhile ICCL shareholders Trust”, (c) The so called cancelled 3,49,466 equity shares of IMFA held under the “Erstwhile ICCL shareholders Trust” be restored back to the Trust and let it be declared that the cancellation of shares being contrary to the composite scheme approved and sanctioned is null and void and bad under law; (d) 3,49,466 unsubscribed equity shares of IMFA held in Trust, be distributed to all those shareholders whose names appeared on the record date i.e. 27th November, 2006 and who had earlier positively exercised their option to acquire IMFA shares offered by the Trust under the scheme, in proportion to their then existing (as on record date) shareholding at the rate of Rs.50/- per shares, as per para 13.2 of the composite scheme. All dividend on purported cancelled shares numbering 3,49,466, received, till they are finally distributed, to be paid to all eligible shareholders who receive the shares as per direction of this Hon’ble Court’ (e) Accumulated dividend of Rs.17.5/- per share, be paid to all eligible shareholders who are already allotted 5,15,436 IMFA shares from the Trust, being the dividend received on such shares for 3 years; and (f) Or in the alternative, as per clause 24 of the scheme, if the scheme is not entirely implemented then in those circumstances it must be dismissed. And further pass any other order/orders as may be deemed fit and proper in the interest of justice.” 2 2. The facts and circumstances giving rise to the present appeal are that the appellants are some of the shareholders of Indian Metals and Ferro Alloys Limited (for short, “IMFA”), respondent No.5-Company. IMFA had earlier filed a Composite Scheme of Arrangement and Amalgamation of Indian Charge Chrome Ltd. (for short, “ICCL”) with IMFA and their respective Members and Creditors before this Court. By an order dated 17th February, 2006, this Court directed to hold an extraordinary general meeting on 23.03.2006. The said meeting of equity shareholders of ICCL and IMFA and their respective creditors was held on 23rd March, 2006. The respective parties had approved the said Composite Scheme of Arrangement and Amalgamation on that date. By Order dated 13th October, 2006, this Court had sanctioned the Scheme of Arrangement and Amalgamation. Pursuant to the said Scheme of Arrangement and Amalgamation, the erstwhile ICCL Shareholders Trust was formed on 30th November, 2006 to implement Clause-13 of the Scheme. Purpose of this Trust was to distribute shares of IMFA (arising due to cancelled cross holdings) within a period of 18 months but in any case not later than a period of 3 years from the effective date, i.e., 17th October, 2006 at a discount of not less than 50% of the market price prevailing at such time to small public ICCL shareholders as on record date of 27th November, 2006. In terms of the approved Scheme offer, letters were sent to 50,000 ICCL shareholders approximately whose names appeared on the record date i.e. 27.11.2006 to receive shares of IMFA. The first closure date of offer letter was 30th September, 2009 as per offer letter dated 14th August 2009 issued 3 to the small public shareholders which was extended from time to time till February, 2010. The Board of Trustees decided in its meeting held on 16th June, 2010 to cancel balance 3,49,466 unpurchased shares lying in the Trust. The said decision was communicated to the Bombay Stock Exchange on 18.06.2010. Two shareholders namely, Smt. Bharti Jyotindra Shah and Jyotindra Ramniklal Shah, appellant Nos. 1 and 2, have written a letter to the Bombay Stock Exchange that such action is contrary to the sanctioned Scheme and against the letter and spirit of the special provision carved out to protect minority shareholders. A copy of the said letter was also addressed to Registrar of Cooperative Societies, Cuttack stating that cancellation of such shares was illegal. When the matter stood thus, IMFA moved this Court by filing a Misc. Case No.31 of 2010 in the disposed Company petitions being COPET Nos.15 and 17 of 2006 for modification of the Scheme of Arrangement and Amalgamation to confirm the reduction of share capital. This Court vide order dated 16.03.2011 modified the Scheme of Amalgamation. Being aggrieved by the said order, the appellants preferred the present Letters Patent Appeal with the prayer mentioned herein above. 3. Mr. G. Mishra, learned counsel for the appellants submitted that the impugned judgment is contrary to Section 100 of the Companies Act, 1956 as amended in the year 2001. Since the question of reduction of share capital is involved, procedure prescribed under Sections 100 to 103 ought to have been followed, but the same has not been done in the present case. Modification of the Scheme at the instance of the Company without giving 4 opportunity of hearing to the appellants has gravely prejudiced the minority shareholders. The action of the Company/Trust in canceling the shares is clearly an unjust enrichment on the part of the promoters at the cost of about 50,000 minority small public shareholders. The Board of Trustees has no jurisdiction to cancel the shares as the Trust was never vested with such power of cancellation of shares as per the trust deed. The entire process was vitiated as the trust deed was neither properly registered nor stamped and available for inspection along with a Scheme of Amalgamation. The Misc. Case filed by the Company for amendment of the Scheme of Amalgamation after the main case was disposed of is not maintainable. The principle decided by the apex Court in the case of S.K. Gupta and another vs. K.P. Jain & Another, [1979] 49 Company Cases 342 does not support the action of IMFA as the fundamental for modification of the scheme requires approval of the shareholders who are the affected parties. In case, some of the small shareholders refused to purchase shares of IMFA, the same ought to have been offered to other small shareholders in terms of clause 13.2 of the Scheme of Amalgamation. 4. Per contra, Mr. Ganesh, learned Senior Counsel appearing for respondent No.5 submitted that the whole appeal is based on an incorrect premise that the 3,49,366 shares which have been cancelled belonged to small shareholders. In fact, the shares originally were the entitlement of IMFA and never belong to small shareholders. Under Clause 13 of the Scheme these shares were to be offered to individual small shareholders and not to small shareholders as a whole. Therefore, unpurchased shares do not belong to 5 small shareholders but belong to IMFA and since IMFA cannot own its own shares, the same are only liable to be cancelled. The allegation that the cancellation of 3,49,466 shares would result in unjust enrichment of promoters is not at all correct. As the unpurchased shares were not given to the promoters, the said cancellation does not result in any increase or decrease in shareholding of any shareholders in terms of number of shares except the shareholding of the Trust which holds these shares for the benefit of IMFA. The appellants are not correct to say that the provisions in the trust deed for cancellation of unpurchased share are contrary to the Scheme. Clause 13.1 expressly provides that the trustees shall hold the shares “exclusively for the benefit of IMFA and its successors subject to powers, provisions, discretion and agreement contained in the instrument establishing the aforesaid trust.” The Scheme approved by the shareholders including the appellants empowers IMFA to frame the provisions of the Trust Deed relating to the powers, provisions, discretions, functions and termination of the Trust. Accordingly, in exercise of the said power, IMFA executed the Trust Deed to carry out the object of the Scheme, inter alia, containing the provision for cancellation of unpurchased shares. The power to provide for the terms and details for dealing with these shares in the trust deed was expressly given to IMFA under the Scheme. In any event, the provisions for cancellation of unpurchased shares are in conformity with the object of the Scheme and in line of the Scheme as these shares originally belonged to IMFA and not to small shareholders. 6 5. It was further argued that the appellants have no locus standi to challenge the impugned order of the learned Single Judge permitting cancellation of the said 3,49,466 shares as the appellants cannot be said to be “persons aggrieved” by the said judgment and order of the learned Single Judge dated 16.03.2011. The appellants cannot claim any right or entitlement whatsoever in respect of the said 3,49,466 shares which have been cancelled. Since legally these shares cannot be held by IMFA or by trust for its benefit, the unpurchased shares are only liable to be cancelled. The appellants chose not to appear before the learned Single Judge despite widest possible public notice being given in the application for modification of the Scheme of Amalgamation and hearing of the same before the learned Single Judge on 08.03.2011. The appellants are bound by the terms and conditions set out in the letter of offer issued to them under clause 13.2 of the Scheme of Amalgamation. The said letter of offer specifically and categorically provided that the small shareholders would have neither any right of renunciation nor any right to apply for additional shares. The appellants did not challenge the said terms and conditions of the letter of offer. On the contrary, the appellants acted on the basis of the said terms and conditions and have derived a huge benefit therefrom. Therefore, the appellants cannot be permitted to raise any contention or make any claim which would run counter to the express terms and conditions contained in the letter of offer. The doctrine of the approbate and reprobate directly applies to the present case. In any event, there is no renunciation made by 7 any of the shareholders, who were entitled to purchase 3,49,466 shares but chose not to do so. 6. The provisions of clause 13 of the sanctioned scheme of amalgamation have become final. The claim of the appellants are contrary to clause 13 of the sanctioned Scheme of Amalgamation which has become final. Placing reliance on the decision of the apex Court in the case of Mihir Mafatlal vs. Mafatlal Industries Ltd., AIR 1977 SC 506, Mr. Ganesh contended that clause 13 is a single in-severable package. Since section 392 of the Companies Act has granted widest power to modify the scheme at the time of sanction of the scheme or at any time thereafter and since the cancellation of shares does not change the basic structure of the Scheme which was for amalgamation and arrangement with the creditors, the learned Company Judge has rightly modified the Scheme. In support of his contention, he relied upon a decision of the apex Court in S.K. Gupta’s case (supra). 7. On a plain reading of Sections 101(2) and 101(3) of the Companies Act, it is amply clear that the provisions of Sections 101 to 105 of the Companies Act do not apply to such reduction of share capital. Section 101(2) contemplates that there are certain types of reduction of capital to which the provisions of sections 101 to 105 do not apply, i.e., a reduction of share capital which does not involve diminution of liability in respect of share capital or the payment to any shareholder of any paid up share capital. As the cancellation of the said 3,49,466 shares in the present case does not involve either of these two situations, the provisions of Section 101 to 105 have no application. 8 8. The allegation of fraud relating to delay in uploading the notice of hearing is false. Respondent No.5 had notified the notice of hearing to the Bombay Stock Exchange (BSE) and the National Stock Exchange on 21st February, 2011, while NSE uploaded the notice on its web-site on 25th February, 2011 but the BSE delayed its uploading on its website over which the respondent No.5-IMFA has no control. Any order interfering with the impugned judgment and order of learned Single Judge or interfering with cancellation of the said 3,49,466 shares held by IMFA in its own share capital would straightaway lead to extreme anomalous legal consequences which would run counter to the letter and spirit of the Indian Companies Act. 9. On the rival contentions of the parties, the following questions fall for consideration by this Court: (i) Whether the small shareholders including the appellants are entitled to 3,49,466 shares in terms of Clause 13.2 of the Scheme of amalgamation and by cancellation of the said shares, the interests of the small shareholders are affected? (ii) Whether the appellants have any locus standi to challenge the impugned order dated 16.03.2011 of the learned Single Judge permitting cancellation of 3,49,466 shares ? (iii) Whether the appellants are bound by the terms and conditions set out in the letter of offer issued to them which provides that the small shareholders would have no right of renunciation and no right to apply for additional shares? 9 (iv) Whether reasonable opportunity of hearing was afforded to the appellants before the impugned order was passed by the learned Single Judge? (v) Whether the learned Single Judge is justified in modifying the scheme of amalgamation without hearing the affected shareholders? (vi) Whether the provisions prescribed under Sections 100 to 103 of Companies Act, 1956 have application in the present case? (vii) Whether the trust deed empowers the Trustees to cancel the shares? (viii) Whether entertaining Misc. Case No.31 of 2010 in question after the main case has been disposed of is bad in law? And (ix) What order? 10. Question Nos.(i) and (ii) being interlinked with each other, they are dealt with together. For proper adjudication of the above questions, it is necessary to know what is contemplated in Clause 13 of the Scheme of Arrangement and Amalgamation (Annexure-1) which is quoted hereunder: Clause 13. Allotment of Shares to Trust: 13.1 Shares of IMFA to be issued in accordance with this Scheme, in relation to the shares of ICCL held by IMFA shall, without any further application, act, instrument or deed be issued or allotted directly to the Trustees (including the survivors or survivor of any of the trustees), who shall hold such shares in trust together with all additions or accretions thereto upon trust exclusively for the benefit of IMFA and its successor subject to powers, provisions, discretions, 10 rights and agreement contained in the instrument establishing the aforesaid trust. The constitution of the Trust, and the functions and powers of the Trustee shall be set forth in the Trust Deed. The obligations of the Trustee shall stand discharged and the Trust shall stand terminated in accordance with the provisions of the Trust Deed. The first Trustees of the Trust would be Shri G.L. Tandon, Padma Bhushan, Mr. Shailesh V. Harjbhakti, Chartered Accountant and Shri D.P. Bagchi, IAS (Former Chief Secretary Government of Orissa). 13.2. The aforesaid shares which would constitute approximately 4% of the capital IMFA, after giving effect to the Scheme, shall be made available by the trustees to the small shareholders of IMFA to one or more lots preferably within a period of Eighteen months but in any case not later than a period of three years, at a discount of not less than 50% to the market price prevailing at such time. For this purpose, small shareholders would mean shareholders other than promoters (including persons acting in concert), financial institutions, banks, foreign institutional investors, shareholders who are shareholders of IMFA before giving effect to the Scheme.” 11. Thus, as per Clause 13.2 of the Scheme of Arrangement and Amalgamation, small shareholders which means shareholders other than promoters (including persons acting in concert), financial institutions, banks, foreign institutional investors, shareholders who are shareholders of IMFA before giving effect to the Scheme are entitled to be allotted with shares of IMFA as per the exchange of ratio for the amalgamation. Such a provision has been made in the Scheme of amalgamation as IMFA cannot hold shares of its own. Therefore, in view of the same, in respect of 8,64,902 shares of IMFA, under Clause 13.2 of the Scheme of Amalgamation, right accrues in favour small shareholders. Accordingly, 11 8,64,902 shares of IMFA were offered to small shareholders. 3,49,466 shares, which some of the small shareholders refused to purchase, always belong to other small shareholders. Therefore, in all fairness, the said 3,49,466 shares should have been offered to other small shareholders, who earlier exercised their option positively to acquire share of IMFA offered by the Trust to them before any step was taken for cancellation of those shares. The stand taken by respondent No.5-IMFA to make a distinction between “individual small shareholders” and “small shareholders as a whole” has no base and therefore, not sustainable in law. In the scheme of amalgamation, there is no provision to cancel the unsubscribed shares without offering the same to the other small shareholders in favour of whom right accrues under Clause 13.2 of the Scheme of Amalgamation. The stand taken by respondent No.5 that the unpurchased shares do not belong to small shareholders but belong to IMFA and since IMFA cannot own its own share, the same were cancelled is wholly unsustainable in law. 12. The further stand of IMFA that since the unpurchased shares are not given to promoters, such cancellation would not result in unjust enrichment of the promoters is also not correct for the following reasons: (a) By cancellation of 3,49,466 shares, the number of shares in IMFA reduces without any corresponding reduction in value of the assets of IMFA as on the date of cancellation of 3,49,466 shares. Accordingly, the value of each share 12 increases, including shares held by the promoters of IMFA. This is at the cost of interest of the small shareholders. (b) By cancellation of 3,49,466 shares which would have been gone to the small shareholders, the voting right of the small shareholders to the extent of 3,49,466 shares is curtailed. 13. In view of the above, we are of the considered view that the small shareholders including the appellants are entitled to be allotted with 3,49,466 shares not purchased by some of the small shareholders. By cancellation of 3,49,466 shares, the interest of the small shareholders are affected and therefore, the appellants, who are small shareholders have locus standi to challenge the impugned order dated 16.03.2011 of the learned Single Judge permitting to cancel 3,49,466 shares. 14. Question No.(iii) is whether the appellants are bound by the terms and conditions set out in the letter of offer issued to them which provide that the small shareholders would have neither any right of renunciation nor any right to apply for additional shares. According to respondent No.5-IMFA, the appellants are bound by the terms and conditions set out in the letter of offer issued to them under Clause 13.2 of the Scheme of Amalgamation. The said letter of offer specifically and categorically provides that the small shareholders would have no right of renunciation and no right to apply for additional shares. Since the appellants did not challenge the terms and conditions of the letter of offer and on the contrary, the appellants acted on the basis of the said terms and conditions, they cannot be permitted to raise any contention or make any claim which 13 would run contrary to the terms and conditions contained in the letter of offer by operation of doctrine of approbate and reprobate. A plain reading of Clause 13.2 of the Scheme of Amalgamation makes it amply clear that the small shareholders are entitled to be issued with 8,64,902 equity shares of IMFA and the said clause nowhere authorizes respondent No.5 or the Trustees to provide in the letter of offer that the small shareholders would have no right either for renunciation or to apply for additional shares. Putting of such condition in the letter of offer is against the interest of the small shareholders and the same runs contrary to the very purpose of Clause 13.2 of the Scheme of Amalgamation. Since, under the Scheme of Amalgamation, IMFA is not permitted to put such conditions in the letter of offer, it has no authority in law to introduce such condition. Therefore, IMFA cannot take advantage of its own wrong. Benjamin N. Cardozo, in its book “In the nature of Judicial Process” states as follows: “But over against these was another principle, of greater generality, its roots deeply fastened in universal sentiments of justice, the principle that no man should profit from his own inequity or take advantage of his own wrong. The logic of this principle prevailed over the logic of the others. I say its logic prevailed.” Thus, the appellant-shareholders are not bound by the terms and conditions set out in the letter of offer issued to them, as these were not in accordance with approved Scheme. 15. Since question Nos.(iv) and (v) are interlinked with each other, they are also dealt with together. The question is as to whether the appellants were afforded reasonable opportunity of hearing before passing 14 of the impugned order by the learned Single Judge and as to whether the learned Single Judge is justified in modifying the Scheme of Amalgamation without hearing the affected shareholders. We have already held that by cancellation of 3,49,466 shares of IMFA, the interest of other small shareholders including appellants is affected. Therefore, before passing of the impugned order by the learned Single Judge, they ought to have been given reasonable opportunity of hearing. According to respondent No.5, reasonable opportunity of hearing was given to the shareholders before passing of the impugned order modifying the Scheme of Amalgamation. 16. The case of the appellants is that they were not provided with reasonable opportunity of hearing before the learned Single Judge. They were not noticed individually to appear before the learned Single Judge in connection with hearing of Misc. Case No.31 of 2010 filed by respondent No.5-IMFA for cancellation of 3,49,466 shares. It is further contended that even the newspaper publication made by respondent No.5 was not adequate. According to respondent No.5-IMFA, the appellants chose not to appear before the learned Single Judge despite the widest possible public notice being given with regard to hearing of application for modification of the Scheme which was fixed to 08.03.2011. As the appellants had chosen not to raise any objection to the said modification in the Scheme for cancellation of 3,49,466 shares, they cannot in law raise any such objection subsequently. In support of its contention, respondent No.5-IMFA places reliance on the decision of the Apex Court in the case of Mihir Mafatlal (supra). The case of respondent No.5 with regard to notification on the website 15 is that it had duly notified the notice of hearing by courier on 21.02.2011, which is well before the date of hearing, to both the Stock Exchanges where the shares of respondent No.5 are listed, i.e., Bombay Stock Exchange (BSE) and