1 IN THE HIGH COURT OF BOMBAY AT GOA COMPANY APPEAL NO.4 OF 2008 WITH COMPANY APPLICATION NO.48/2008 Krishna H. Bajaj, 24/25, Bharatiya Bhavan, 7th Floor, 72, Marine Drive, Mumbai – 400 020 through her constituted Attorney Mr. Shailesh Bajaj. ....... Appellant. Versus 1. Sesa Industries Ltd., Sesa Ghor, 20 EDC Complex, Patto, Panjim, Goa 403 001. 2. The Regional Directorate (Western Region), Everest 5th Floor, 100 Netaji Subhash Road, Mumbai – 400 002. 3. Registrar of Companies, Goa Daman & Diu, Panaji, Ministry of Company Affairs, Govt. of India, Company Law Bhavan, Plot No. 21, EDC Complex, Patto, Panjim, Goa 403 001 4. The Official Liquidator High Court of Judicature at Bombay, Panaji Bench, Goa. ........ Respondents. 2 Mr. Shailesh Bajaj, Appellant in person (duly constituted attorney). Mr. J. J. Bhat, Senior Advocate with Mr. R. Chagla and Mr. R. G. Ramani, Advocate for respondent No. 1. Mr. C. A. Ferreira, Asst. Solicitor General for respondents No.2 & 3. CORAM : P.B. MAJMUDAR & C.L. PANGARKAR, JJ. Date of reserving the Judgment : 31st January, 2009. Date of pronouncing the Judgment : 21st February, 2009. J U D G M E N T : (Per P.B. MAJMUDAR, J.) The matter was heard at length at the admission stage, as the contesting parties are all appearing in the matter through their Advocates. Learned Asst. Solicitor General is appearing for respondent No.2 and so far as Registrar of Companies is concerned, in the original proceedings, he has filed an affidavit on behalf of the Regional Director and it was agreed by both sides that the matter can be decided finally at the stage of admission itself. As regards respondent No. 4, for the first time when an order was passed on 24.12.2008, the Official Liquidator had appeared and his appearance 3 is shown in that order. However, since there was some error in the name of Official Liquidator, the same was corrected as Shri Sanjay Kumar Gupta in the next order dated 31.12.2008. Accordingly, the matter was heard finally and a formal order of admission is passed. Admit. Respective Advocates waive service for the concerned respondents. The Appeal is now being disposed off by this Judgment. 2. This appeal is directed against the Judgment and Order dated 18.12.2008 delivered in Company Petition Nos. 9 and 10 of 2006. The Sesa Industries Limited (SIL) submitted a company petition for sanctioning a scheme of amalgamation between the petitioner Company i.e. Transferor Company and the Transferee Company i.e. Sesa Goa Limited (SGL) which was incorporated on 25.6.1965 as a private limited company, and subsequently became a public limited company with effect from 16.5.1994. The SIL was incorporated on 17.5.93. The scheme of amalgamation is annexed as Annexure A-6 along with the Company Petition. On behalf of the present appellant, objections were lodged before the learned Company Judge opposing the scheme of amalgamation on various grounds and as per various objections taken by the objector before the learned Single Judge, it was 4 prayed on behalf of the objector that the scheme may not be sanctioned. The learned Company Judge, by the impugned Judgment and Order came to the conclusion that there is no substance in the objections raised by the objector. The learned Company Judge found that the objector has a grudge against the companies, particularly SIL for not listing the shares of SIL as initially promised. The learned Company Judge found that there is nothing unfair in the scheme. The learned Company Judge also found that the scheme also gives an exist route to the minority shareholders of SIL to obtain the shares of SGL. The learned Company Judge found that in case the objector is unwilling to continue to be a member of SGL, she is always free to sell the shares and cease to be a member of SGL. The learned Company Judge found that there is nothing unfair in the said scheme, as the scheme is accepted by overwhelming majority of the shareholders of the Company. The learned Company Judge also found that the merger of the subsidiary company with the holding company will benefit the holding company. The learned Company Judge also found that the said sanctioning of the scheme will not, in any way affect the civil or criminal proceedings which may be initiated pursuant to the inspection reports, as well as further progress of criminal complaint filed by the 5 objector. The learned Single Judge, accordingly, allowed the Company Petition by sanctioning the scheme by Judgment and Order dated 18.12.2008. 3. Being aggrieved by the said order, the appellant-objector has filed this appeal. The appellant who is appearing as party in person, has challenged the said order of the learned Company Judge on various grounds. It is submitted on behalf of the appellant that the direction given by a Division Bench of this Court in Appeal No.268/07 vide order dated 25.4.2007 has not been complied with, as the Division Bench has observed in the said order that the Company Judge should take into consideration the reports before passing any final orders in the matter of approving the scheme of amalgamation of two companies for considering the purpose of its relevancy. It is submitted by the party in person that in view of the reports of the Central Government, Ministry of Company Affairs, the Scheme should not have been sanctioned by the learned Single Judge, as it is clear that it is a case of siphoning of funds and because of the same, minority shareholders are affected. It is submitted that as per the reports, both the Companies have committed a fraud and since the scheme is against 6 the public interest, the same is not required to be sanctioned. It is submitted that the proposed scheme is nothing but an operation on the minority shareholders. It is submitted that after amalgamation, the transferor company shall stand dissolved and therefore, no action against the company will be maintainable. It is further submitted that the transferor Company has not disclosed the fact in petition about pending investigation under Section 209A of the Companies Act. It is also submitted that as per the proviso to Section 391 of the Companies Act no order sanctioning any compromise or arrangement shall be made, unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report requiring the accounts of the company, pendency of any investigation proceedings in relation to the company under Sections 235 to 351. It is submitted that the scheme could not have been sanctioned in view of the fact that the company has not disclosed in the petition pendency of investigation, as the said fact is also required to be disclosed as per the said proviso to Section 391. It is also submitted that since the company has suppressed the fact 7 about the investigation being carried out and there is adverse report against the company, the scheme should not have been sanctioned by the learned Single Judge. It is submitted that the report of the Registrar of Companies, having not been accepted by the learned Company Judge, the learned Company Judge should not have sanctioned the scheme of amalgamation. It is further submitted that the proposed scheme of amalgamation was based on an invalid scheme in view of the fact that the same is in violation of Section 73 of the Companies Act. It is submitted that the shares of SIL though were required to be listed on the Stock Exchanges as per the provisions of the law, as also in terms of the promises given by the petitioning company to its shareholders at the time of initial public offering, have not been listed till the date. It is submitted that the shares of respondent No.1 Company are not listed on any of the Sock Exchanges in India, nor any application has been made by the said company for getting its shares listed and, in view of the same, there is violation of Section 73 of the Companies Act inasmuch as it was statutorily bound to refund the monies so collected by it from its shareholders along with interest due. It is also submitted that since there is violation of Section 73 of the Companies Act, entire allotment of shares of respondent No.1 Company is invalid. It is 8 submitted that the proposed scheme was an unconscionable scheme inasmuch as the minority shareholders of the transferor company have been subjected to complete operation by a majority, i.e. by transferee Company. It is also submitted that the entire scheme has been floated with a view to stifle further investigation which is pending against the transferor Company. It is submitted that there is also violation of Section 394(2) of the Companies Act, as appropriate material was not placed in the meeting before the shareholders. It is also submitted that the Regional Director himself has not filed any affidavit, but, on his behalf the Registrar of Companies has filed an affidavit and the Registrar was also acting as an Official Liquidator. It is submitted that the Official Liquidator has also filed an affidavit. The same person could not have filed an affidavit in his capacity as Registrar and in that respect, an affidavit should have been filed by the Regional Director himself, as the Official Liquidator and the Registrar, both are functioning in a different capacity and when their interest is overlapping, the same person could not have filed two affidavits, one in the capacity as the Official Liquidator while the other in the capacity as the Registrar. It is submitted that the financial reports of the Chartered Accounts also do not reflect the correct picture, as the 9 Chartered Account has gone only as per the entries in the Company's Books of Account and as per the Balance Sheet. On the aforesaid grounds, the party in person submitted that the scheme, in question, is not required to be sanctioned and, therefore, order of the learned Company Judge is required to be set aside and this Court may reject the scheme submitted by the Company by not sanctioning the same. The party in person has relied upon the following decisions to substantiate his say. 1) Miheer H. Mafatlal v. Mafatlal Industries Ltd., reported in Company Cases Vol. 87 page 792. 2) In re Travancore National and Ouilon Bank Ltd., reported in AIR 1939 Madras 318. 3) In the matter of Calcutta Industrial Bank Ltd., reported in Company Cases Vol. XVIII page 144. 4) J.S. Davar and another v. Dr. Shankar Vishnu Marathe and others, reported in AIR 1967 Bombay 456 (V 54 C 98). 5) T. Mathew v. Smt. Saroj G. Poddar and others, reported in (1996) 22 CLA 200 (Bom.) 6) Bedrock Ltd., reported in 1998(4) Bom. C.R. 710. 7) Modus Analysis and Information P. Ltd. and others, In re.,reported in [2008] 142 Comp Cas 410 (Cal). 8) Larsen and Toubro Limited, In re., reported in 2004 10 page 523 9) Jyotsna Nalinikant Kilachand and others v. Nandlal Kilachand Investment Pvt. Ltd. and others, reported in 1996 page 361. 10)Raymond Synthetics Ltd., and others v. Union of India and others, reported in AIR 1992 Supreme Court 847. 11)Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and others, reported in Company Cases Vol. 83 page 30. 12) 1. Securities and Exchange Board of India (Appeal Lodging No. 520 of 2002 in Company Petition No. 203 of 2002 in Company Application No. 18 of 2002) 2. Union of India (Appeal Lodging No. 526 of 2002 in Company Petition No. 203 of 2002 in Company Application No. 18 of 2002) v. Sterlite Industries (India) Ltd. 13)Wood Polymer Limited, In re. and Bengal Hotels Pvt. Ltd., In. re., reported in 1977 page 597. 14)IPCO Paper Mills Ltd., In re. Reported in 1984 page 281. 15)Mahendra Kumar Sanghi v. Ratan Kumar Sanghi, reported in Spl. A. Nos. 24 and 30 of 1994 – Equivalent Citation : RLW 2003(3) Raj 1529, [2003]44SCL592(Raj), 2003(1) WLC 445. 16)Sesa Goa Limited & Ors. v. State of Maharashtra 11 & Anr. Writ Petition No. 2739 of 2006. 17)Shree Niwas Girni Kamgar Kriti Samiti v. Rangnath Basudoo Somant and others reported in Appeal no. 821 of 1994 in Company Application no. 339 of 1994 in Company Petition No. 642 of 1983. 4. Learned Senior Counsel Shri Bhat appearing for respondent No.1, on the other hand, submitted that there is no substance in any of the objections raised by the objector. Mr. Bhat submitted that the party in person mainly relied upon the contents of the reports submitted by the Deputy Director on behalf of the Ministry of company Affairs, New Delhi. It is submitted that the matter is only at the inspection stage and there is nothing to suggest that subsequently it has resulted into any further investigation against the affairs of the Company. Mr. Bhat submitted that the inspection carried out under Section 209A of the Act cannot be construed as an investigation against the company. It is submitted by Mr. Bhat that if the contention of the party in person is accepted that the share allotment is void or that it is in violation of Section 73 of the Companies Act, then the objector cannot be said to be a shareholder on the basis of void allotment. He has, however, submitted that there is no breach of Section 73 as the 12 allotment was not made in favour of the public at all. It is submitted that the only right available to the petitioner is to claim money and even that claim is also time-barred. It is submitted that the objector can still pursue his remedy against the transferee company and his right is not extinguished by sanctioning the scheme of amalgamation. It is submitted by Mr. Bhat that assuming that the Directors have committed any wrong act or even if they have committed any offence, the remedy of taking out prosecution against the erring Director or Directors is available and that cannot be a ground for rejecting the scheme. Mr. Bhat further submitted that the Registrar of Companies who is a delegate of the Regional Director of Company Affairs has already delegated the powers to the Registrar of Companies for filing affidavit and the Registrar of Companies has already made its stand clear in the affidavit. It is submitted that the respondent company had also filed a writ petition before the High Court of Bombay for quashing the proceedings and the learned Company Judge was pleased to hold that there is no violation of Section 73. Mr. Bhat further submitted that ultimately the inspection reports were already placed before the learned Company Judge and the said aspect was also placed before the shareholders during the meeting and, therefore, when the majority of 13 shareholders have approved the scheme, it cannot be said that respondent company has defrauded the shareholders in any manner and no fact is suppressed from the shareholders. It is submitted that the investigation as well as the inspection, both are different things and they are separate chapters for the same. It is submitted that the scheme is not against the public interest in any manner and since majority of the shareholders have approved the scheme in their wisdom, this Court cannot sit in appeal over such decision at the time of considering whether the scheme should be sanctioned or not. Mr. Bhat has relied upon the following decisions to substantiate his say that the objections raised by the objector is devoid of any merit and the scheme is required to be sanctioned. 1) Reliance Petroleum Ltd., In Re., reported in [2003] 46 Scl 38 (Guj) 2) Zee Telefilms Limited, In re., reported in Appeal No. 164 of 2003 in C.P. no. 1116 of 2002 3) Kalpana Bhandari & ors. v. Securities & Exchange Board of India & ors., reported in Writ Petition No.,1604 of 2003. 4) Sesa Industries Ltd. v. Krishna H. Bajaj, reported in Misc. Civil Appln. no. 24 of 2007 in Company Petition no. 9 of 2006 connected with company Appln. no. 1 of 2006. 5) Miheer H. Mafatlal v. Mafatlal Industries Ltd., reported in Company Cases Vol. 87 page 792. 14 It is submitted that in view of the Judgment of the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd., (supra), only two aspects are required to be considered by the Court at the time of sanctioning the scheme. It is submitted that there is no violation of any statutory rules. It is also submitted by Mr. Bhat that the valuation of the shares is properly done or not is in the realm of the expert body and once the Chartered Accountants have accepted the said valuation, this Court cannot sit in appeal over the said decision of the expert body. It is also submitted by Mr. Bhat that it is true that the same person was acting as a Registrar as well as Official Liquidator Since their interest is not conflicting even if same person has filed an affidavit in two different categories, that cannot be said to be any violation of statutory provision. 5. We have heard both sides at great length and we have gone through voluminous record and proceedings. We have also considered the scheme submitted by the respondent Company. We have gone through the Judgment of the learned Company Judge and we have also gone through various judgments cited by both sides. At this stage, it is necessary to make a reference to various provisions of the 15 Companies Act, more particularly Sections 391, 392, 393 and 394 of the Act. The said sections read thus : “391 – Power to compromise or make arrangements with creditors and members – (1) Where a compromise or arrangement is proposed - (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the (Tribunal) may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the (Tribunal) directs. (2) If a majority in number representing three- fourths in value of the creditors, or class of creditors, or member, or class of members as the case may be, present and voting either in person or, where proxies are allowed (under the rules made under section 643) by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the (Tribunal) 16 be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: [Provided that no order sanctioning any compromise or arrangement shall be made by the [Tribunal] unless the [Tribunal] is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the [Tribunal], by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.] (3) An order made by the [Tribunal] under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the 17 company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5)If default is made in complying with sub- section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [one hundred rupees] for each copy in respect of which default is made. (6)The [Tribunal] may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the [Tribunal] thinks fit, until the application is finally disposed of. 392. Power of Tribunal to enforce compromise and arrangement – (1) where the tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it - (a) shall have power to supervise the carrying 18 out of the compromise or an arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under Section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement.] 19 393. Information as to compromises or arrangements with creditors and members – (1) Where a meeting of creditors or any class of creditors, or of member or any class of members, is called under section 391 - (a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any material interests of the directors' managing director 1[***] or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests of the compromise or arrangement if, and in so far as, it is different from the effect on the like interests of other persons; and (b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid. 20 (2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors. (3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement. (4) Where default is made