Case: Chembra Orchard Produce Ltd Vs. Regional Director Of Co.Affairs

and once such compromise is sanctioned by the Court, it would be binding to all creditors or class of creditors or members or class of members, as the case may be, which would also necessarily mean that even to dissenting creditors or class of creditors or dissenting members or class of members such sanctioned scheme would remain binding. Before sanctioning such a scheme even though approved by a majority of the concerned creditors or members the Court has to be satisfied that the company or any other person moving such an application for sanction under sub-section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to sub-section (2) of that section. So far as the meetings of the creditors or members, or their respective classes for whom the Scheme is proposed are concerned, it is enjoined by Section 391(1)(a) that the requisite information as contemplated by the said provision is also required to be placed for consideration of the voters concerned so that the parties concerned before whom the scheme is placed for voting can take an informed and objective decision whether to vote for the scheme or against it. On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse 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. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the company concerned, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the scheme concerned placed for its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a scheme of compromise and arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote." 11. In the case of Sakamari Steel & Alloys Ltd. reported in 51 Company Cases page 266, the learned Single Judge of the Bombay High Court held that Section 391(1) is not a sign-post but a check-post whereat it is a duty of the Court to examine the genuineness and the bonafides of the Scheme for itself. A reading of the above judgment would, therefore, show that at the stage of issuance of Summons for Directions to convene a meeting, though the Company Judge has to apply its mind, prima facie, on the genuineness of the Scheme, basically the entire exercise is to verify whether the numerous conditions prescribed in Rule 69 are satisfied read with Form 33 and Form 34. 12. In the impugned judgment, reliance is placed on the earlier judgment of the Allahabad High Court in the case of Hind Auto Indo Ltd. v. M/s Premier Motors (P) Ltd. reported in AIR 1970 Allahabad 165. From a bare reading of that judgment we find that the said case related to interpretation of Section 394A of the Companies Act with which we are not concerned in this case. Be that as it may, there are observations in the said judgment, with respect, with which we do not agree, both on the interpretation of Rule 67 and 69 on one hand as also on the basis of the practical effect of the interpretation given by the High Court in the present case. If at the threshold stage of directions to convene a meeting hearing is required to be given to the members as held in the impugned judgment the scheme of the Companies (Court) Rules 1959 will become unworkable. For the above reasons, with respect, we disagree with the view expressed by the Allahabad High Court in the case of Hind Auto Indo Ltd. (supra) and we agree with the judgment of the Bombay High Court in the case of Sakamari Steel & Alloys Ltd. (supra).13.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The aforesaid provisions of the Act show that compromise or arrangement can be proposed between a company and its creditors or any class of them or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another. When such a scheme is put forward by a company for the sanction of the Court in the first instance the Court has to direct holding of meetings of creditors or class of creditors or members or class of members who are concerned with such a scheme and once the majority in number representing three-fourths in value of creditors or class of creditors or members or class of members, as the case may be, present or voting either in person or by proxy at such a meeting accord their approval to any compromise or arrangement thus put to vote, and once such compromise is sanctioned by the Court, it would be binding to all creditors or class of creditors or members or class of members, as the case may be, which would also necessarily mean that even to dissenting creditors or class of creditors or dissenting members or class of members such sanctioned scheme would remain binding. Before sanctioning such a scheme even though approved by a majority of the concerned creditors or members the Court has to be satisfied that the company or any other person moving such an application for sanction under sub-section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to sub-section (2) of that section. So far as the meetings of the creditors or members, or their respective classes for whom the Scheme is proposed are concerned, it is enjoined by Section 391(1)(a) that the requisite information as contemplated by the said provision is also required to be placed for consideration of the voters concerned so that the parties concerned before whom the scheme is placed for voting can take an informed and objective decision whether to vote for the scheme or against it. On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse 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. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the company concerned, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the scheme concerned placed for its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a scheme of compromise and arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majoritythe case of Sakamari Steel & Alloys Ltd. reported in 51 Company Cases page 266, the learned Single Judge of the Bombay High Court held that Section 391(1) is not a sign-post but a check-post whereat it is a duty of the Court to examine the genuineness and the bonafides of the Scheme forreading of the above judgment would, therefore, show that at the stage of issuance of Summons for Directions to convene a meeting, though the Company Judge has to apply its mind, prima facie, on the genuineness of the Scheme, basically the entire exercise is to verify whether the numerous conditions prescribed in Rule 69 are satisfied read with Form 33 and Formthe impugned judgment, reliance is placed on the earlier judgment of the Allahabad High Court in the case of Hind Auto Indo Ltd. v. M/s Premier Motors (P) Ltd. reported in AIR 1970 Allahabad 165. From a bare reading of that judgment we find that the said case related to interpretation of Section 394A of the Companies Act with which we are not concerned in this case. Be that as it may, there are observations in the said judgment, with respect, with which we do not agree, both on the interpretation of Rule 67 and 69 on one hand as also on the basis of the practical effect of the interpretation given by the High Court in the present case. If at the threshold stage of directions to convene a meeting hearing is required to be given to the members as held in the impugned judgment the scheme of the Companies (Court) Rules 1959 will become unworkable. For the above reasons, with respect, we disagree with the view expressed by the Allahabad High Court in the case of Hind Auto Indo Ltd. (supra) and we agree with the judgment of the Bombay High Court in the case of Sakamari Steel & Alloys Ltd. (supra).