{1} ca389&390-11.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.389 OF 2011 IN COMPANY SCHEME PETITION NO.43 OF 2011 IN COMPANY SUMMONS FOR DIRECTION NO.8 OF 2011 In the matter of the Companies Act, 1956; And In the matter of Section 391 to 394 of the Companies Act, 1956; And In the matter of the scheme of amalgamation of Topworth Steels & Powers Pvt Ltd and Topworth Urja & Metals Ltd with Crest Steel & Power Pvt Ltd Topworth Steels and Power Pvt Ltd .. Applicant ALONGWITH COMPANY APPLICATION NO.390 OF 2011 IN COMPANY SCHEME PETITION NO.44 OF 2011 IN COMPANY SUMMONS FOR DIRECTION NO.9 OF 2011 In the matter of the Companies Act, 1956; And In the matter of Section 391 to 394 of the Companies Act, 1956; And In the matter of the scheme of {2} ca389&390-11.doc amalgamation of Topworth Steels & Powers Pvt Ltd and Topworth Urja & Metals Ltd with Crest Steel & Power Pvt Ltd Topworth Urja and Metals Ltd .. Applicant Mr.Virag Tulzapurkar, Sr.Advocate a/w Sandeep Parekh i/by Ramesh Saraogi for the applicant. Mr.S.K.Chari i/by M.V.Kini & Co for SBI. Mr.C.J.Joy for Regional Director. Mr.P.R.Choudhary a/w D.G.Dhanure i/by M.V.Kini & Co for the State Trading Corporation (Objectors). CORAM : S.C.DHARMADHIKARI, J. 13th December 2011. P.C.: . This company application has been moved by Topworth Steels and Power Pvt Ltd, a company incorporated under the Companies Act, 1956, seeking to recall an order dated 1st July 2011 passed in the Company Scheme Petition No.43 of 2011 connected with Company Summons for Direction No.8 of 2011. 2} It is stated that in the affidavit filed in support of this application by Mr.Manindra Satyendra Sharma, who is an authorised signatory of the applicant states that this Court was pleased to sanction a scheme of {3} ca389&390-11.doc amalgamation of the applicant and Topworth Urja and Metals Ltd being the transferor company with Crest Steel and Power Pvt Ltd, viz, the transferee company, by order dated 1st July 2011. It is stated that the transferor companies are carrying on mining business. The transferor companies have mining and prospecting licence for coal and iron granted by the respective Ministry of Government. It is stated that the coal and iron is the basic raw material of the transferor company without which they cannot carryout manufacturing activities. The management of the transferor as well as transferee company tried to obtain opinion of experts on the point whether mining and prospecting licence for coal and iron can stand transfered in favour of the transferee company or not. The opinion in that behalf is unclear and conflicting and, therefore, if mining licence held by the transferor cannot be transfered, then, the amalgamating companies do not want to jeoparadise the interest of their share holders and creditors. If the Government does not transfer the mining or prospecting licence in favour of the transferee or ask the transferee to pay hefty compensation for transfer, that would jeoparadise the activities and business prospects of the transferee company as well. In such circumstances, a meeting was convened of the Board of Directors of the 1st transferor-applicant and the Board {4} ca389&390-11.doc decided unanimously not to go ahead with the scheme of amalgamation and adopt appropriate proceedings to recall the order sanctioning the scheme. It is in these circumstances and when the transferee company's Board has also met and has taken a similar decision, that the instant application has been filed. 3} Mr.Tulzapurkar, learned senior counsel appearing on behalf of the applicant relies upon Rule 9 of the Companies Court Rules, 1959 and submits that the rules do not in any manner limit or otherwise affect the inherent powers of this Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent the abuse of process of Court. In the instant case, there is no question of abuse of the process of Court being prevented. The request is to exercise these inherent powers to meet the ends of justice. It is contended that once the scheme has not been given effect to and cannot be given effect to unless the relevant clauses of the scheme are complied with and implemented, then, there is no impediment in making such application and for this Court to consider it and pass appropriate orders in accordance with law. It is contended that sections 391 to 394 of the Companies Act, 1956 do not in any manner prevent exercise or {5} ca389&390-11.doc limit the inherent powers of this Court. If there is nothing contrary or conflicting, then, this Court can exercise these inherent powers. As a matter of caution, the further affidavit would indicate that even the shareholders have met and resolved that the scheme may not be given effect to. It is in these circumstances, that the order is sought to be recalled. 4} The request is opposed by the sole objector, viz., State Trading Corporation of India Ltd. It is contended on their behalf by Mr.Choudhary, learned senior counsel, that this application is not maintainable. Reliance is placed on section 392 of the Companies Act, 1956, to urge that once the order passed by this Court sanctions a scheme and if the parties intend to recall the scheme or withdraw from the scheme or seek the order to that effect, then, it is necessary that the Court should on its own motion or on the application of the person interested in the affairs of the company, make an order of winding up of the company and which order shall be deemed to be made under section 433 of this Act. It is in these circumstances that he submits that sub-section (2) of section 392 of the Companies Act, 1956 comes into play and at the instance of the objector, the 1st transferor company who {6} ca389&390-11.doc is the debtor of the State Trading Corporation of India Ltd should be wound up by this Court. There is no obligation then to file any petition and to seek winding up. It is in these circumstances and when a fraud is played upon the Court, that even otherwise no relief shall be granted in favour of the applicants. It is submitted that the parties were aware of the consequences flowing from the provisions of the Mines and Minerals Act and necessary and relevant rules framed in that behalf. If the mining and prospecting licence cannot be transferred in law, then, there was no necessity of seeking any such sanction and the parties must have been aware of the same throughout. Once the application is made on the basis of the transfer of licence and take over of business after the said transfer, then, this Court should not permit any recall or withdrawal from the scheme itself. This is not withdrawal from the scheme but seeking to recall the order of this court which itself is obtained by practising fraud. For all these reasons, this application be dismissed. 5} Although, reliance is placed by Mr.Tulzapurkar upon a decision of the learned single Judge of the Karanataka High Court in the case of G.T.Swamy & Anr Vs. Goodluck Agencies & Anr reported in 1990 Vol.69 Company Cases 819, that was in the context of recall of winding up {7} ca389&390-11.doc order. There, recall was sought by resorting to Rule 6 and Rule 9 of the Company Court Rules, 1959. In the instant case, a scheme seeking sanction under sections 391 to 394 of the Companies Act, 1956 was presented to this Court. It was stated that the transferor companies are wholly owned subsidiaries of the transferee company. It was stated before this Court that all requirements as per the directions of this Court have been complied with and necessary affidavits of compliance have been filed. All statutory requirements shall be also complied with. The scheme was not prejudicial to the interest of the shareholders and the public and this was the opinion even of the Regional Director. The State Trading Corporation of India objected to the sanction and it is stated that pursuant to Memorandum of Agreement with the 1st transferor, Rs.80 crores approximately are overdue. Once it is stated to be creditor of the 1st transferor and unless the dues are repaid or secured by the transferee, the scheme should not be sanctioned, was the objection. That objection was also considered and ultimately the Court sanctioned the scheme and directed the petitioners to lodge a copy of the said order and scheme duly authenticated by the Company Registrar, with the concerned Superintendent of Stamps for the purpose of adjudication of stamp duty payable, if any. {8} ca389&390-11.doc 6} It is stated that nothing has been done in pursuance of this order and my attention is invited to clause 20 of the scheme. It is contended that the scheme envisages that such other sanctions and approvals including of any governmental authority as required by law, should be obtained in terms of clause 20 and what it stipulates is that if no approvals are obtained in terms of clause 20, then, the scheme should stand cancelled, revoked and be of no effect. So far there is no dispute. However, the companies can only pass resolutions recalling the schemes. They cannot recall orders of the Court sanctioning the scheme. Thus, once there is an order of this Court sanctioning the scheme and unless it is demonstrated that this order has been implemented and carried into effect, the request as made cannot be refused. What has been argued before me by Mr.Chaudhari for STC is that section 391 of the Companies Act, 1956 permits this Court to sanction the compromise or agreement as proposed within the meaning of the said provision. Sub-section (2) of section 391 envisages sanction and thereafter sub-section (3) states that the order made under sub- section (2) shall have no effect until the certified copy of the same has been filed with the Registrar. The further compliance have also to be {9} ca389&390-11.doc made in terms of sub-section 4 of section 391. Section 392 envisages that once an order has been made under section 391, the Court shall have power to supervise the carrying out a compromise or arrangement and may at the time of making such order or at any time thereafter give such directions in regard to the matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This power enables the Court to supervise the working of the compromise and its implementation by the parties. During the course of exercising such power, that sub-section (1) of section 392 of the Companies Act, 1956 envisages that the Court can give such directions in regard to any matter or may make modifications in the compromise or arrangement as it may think necessary for the proper working of the compromise or arrangement. It is only when the Court considers the request made in terms of sub-section (1) and that it is satisfied that the compromise or arrangement cannot be worked satisfactorily with or without modification, that in terms of sub-section (2) it can suo motu or on the application of the person interested, make an order of winding up the company. This is when the scheme is not only sanctioned or the arrangement certified or approved that to put into effect, the power of {10} ca389&390-11.doc modification or supervision can be exercised. In the instant case, the scheme has not been put into effect. It is not the case of the State Trading Corporation of India that any time after the order dated 1st July 2011, the applicants have taken the requisite steps so as to give effect to and implement the scheme. In such circumstances, to my mind, the objection of Mr.Choudhary in the peculiar facts of this case and his reliance upon section 392(2) cannot be accepted. 7} Once there is nothing in the scheme or in the sections empowering the Court to grant or approve it not to recall an order, then, by exercise of inherent powers of this Court and in the facts peculiar to this case, the recall can be permitted. Without laying down any general rule or deciding any wider controversy but in facts peculiar to this case that the applicants have approached this Court and pointed out that it is not possible to seek sanction or approval for the transfer of mining and prospecting licence and that the shareholders of both companies having decided not to give effect to or implement the scheme, but to continue the existence of both transferor companies, that the request as made can be granted. At the same time, it must be clarified that neither the sanction or approval in terms of the earlier order nor the recall by this {11} ca389&390-11.doc order shall in any manner adversely affect or prejudice the claim of the State Trading Corporation of India nor shall if affect its right to seek winding up of the 1st transferor company or to take such proceedings against it as are permissible in law. All the contentions of the State Trading Corporation of India in that behalf are kept open and it is clarified that the order passed approving the scheme or any observations therein shall not affect the rights and pleas and prejudice the contentions of the State Trading Corporation of India by giving such clarifications and holding that there is no material to conclude that any fraud has been practised or perpetrated on this Court, that the relief as prayed is granted. The order sanctioning the scheme is recalled and set aside. Needless, therefore, to state that the existence of both, the transferors and transferee shall not be effected. The transferor companies would have their independent existence in law unaffected by any of the schemes or the arrangements proposed and sanctioned earlier. There will be no order as to costs. 8} At this stage, Mr.Choudhary, learned senior counsel for the State Trading Corporation of India seeks stay of this order. I do not know as to how the earlier order approving and sanctioning of the scheme or {12} ca389&390-11.doc recalling it, now can be stayed, as it is matter between the applicant and the Court. After the clarifications that are given with regard to the claim of the State Trading Corporation of India, I see no substance in the prayer to stay this order. Therefore, the prayer to that effect is refused. (S.C.DHARMADHIKARI, J)