| SooperKanoon Citation | sooperkanoon.com/384582 |
| Subject | Company |
| Court | Karnataka High Court |
| Decided On | Oct-08-2004 |
| Case Number | Company Petition No. 37 of 2003 |
| Judge | N. Kumar, J. |
| Reported in | [2005]124CompCas637(Kar); (2005)5CompLJ78(Karn); [2005]57SCL305(Kar) |
| Acts | Companies Act, 1913 - Sections 153(2); Companies Act, 1956 - Sections 235, 251, 391 to 394, 394(1) and 529A; Reserve Bank of India Act; Banking Regulations Act |
| Appellant | In Re: Maharashtra Apex Corporation Ltd. |
| Appellant Advocate | D.O. Kotresh and ;K. Parameswaran Advs. |
| Respondent Advocate | Arvind Kumar, ;V. Padmanabha Kedalaya, ;S.M. Chandrashekar, ;R.S. Ravi, ;S.G. Prakash, ;Somanath Reddy, ;Shrieen Zafrullah and ;H. Jayakar Shetty, Advs. |
Excerpt:
- industrial disputes act (14 of 1947) section 11-a :[ram mohan reddy, j] misconduct of bank cashier not remitting the money received on behalf of bank from customer held, it is a grave act and action of removal or dismissal from service is justifiable - the petitioner-company though had enjoyed sufficient capital adequacy ratio, in view of the rating norms introduced linked with the ceiling of acceptance of deposits by rbi, the petitioner-company was suddenly and irrationally downgraded during the period 1998, which seriously affected the resource mobilization, particularly, in the form of fixed deposits from the public. taking into consideration the views expressed in the said meeting as well as the aforesaid position, again the board of directors in the meeting held on 22-7-2002 proposed to modify the scheme. the aforesaid company application was also withdrawn in order to put forth a better scheme acceptable to all sections. 1108/2002 was filed before this court seeking leave of this court to convene respective class meetings of the members, preference shareholders, bond holders as well as deposit holders. in pursuance of the notice issued as well as advertisement, the registrar of companies have filed an affidavit setting out his observations of the scheme. the attendance of the meeting of the secured and unsecured creditors shows that the response to the scheme was poor. they are frustrated persons who failed to get back their amount have written letters making un- founded allegations and in law it has no value. the best option is to appoint the official liquidator and under the supervision of the high court to liquidate the assets of the company and distribute the proceeds. the company has failed to pay monthly interest from april 2002. there- fore, he has been put to financial problem and he has to undergo surgery. they contend that their parents are all poor agriculturists and the money is invested with the intention of getting prompt income periodically. once the majority in number representing 3/4th in value of the creditors present and voting either in person or by proxy agree to any compromise or arrangement, the requirement under section 391(2) of the act is fully complied with and this view has been consistently taken by the various high courts in the country as well as by the supreme court and, therefore, no case or deviation from the said interpretation is made out in this case. with reference to the comments made by the registrar of the companies is concerned, it is submitted that no doubt the provision of the act provides for repayment of the entire amount of deposit on the maturity date with accrued interest because of the inability to pay the same the company has formulated the scheme as the next best thing and, therefore, the contention if the scheme is approved it would run counter to the provisions of the act has no merit. to direct the promoters to make good a sum of rs. as the certificate of registration of the company has been cancelled by the reserve bank of india the respondents could no longer function as nbfc and thus they are effectively prevented from carrying on any such business. all the financial transactions discussed are clearly and categorically reflected in the books of accounts maintained by the company and in the absence of any prohibition in law no exception could be taken to the same. the court must be satisfied that those who attended the meeting are fairly representative of the class and that the statutory majority did not coerce the minority in order to promote interests adverse to those of the class whom they purport to represent. however, this is not the whole requirement, because in addition the court requires to be satisfied that the class is fairly represented. if, for instance, there were altogether 1000 shareholders holding 10,000 shares in all, the court would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 100 shares in all were present and voted. as we shall see later the procedure of voting on a show of hands, unless a poll is effectively demanded, may produce even greater anomalies. we say that the clause in the act is satisfied by the sanction of three- fourths in value of the persons present at the meeting, and this was decided by your lordship in re tunis railway company (may 22, 1874) affirmed on appeal (before the lords justices, july 11, 1874). carson, for dixon said he was desirous that the arrangement should be carried into effect. therefore, by 'voting',the mind, intention, preference of the voter must be clearly expressed. as per the company law committee report of 1952, it was recommended that the words 'and voting' between the words 'present' and 'either' be added. if these provision were to be interpreted to mean that the majority must represent three-fourths of the total value of the shares/credits, then, the words 'present and voting' would become redundant, which is against the well settled rules of construction. 34. it is well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. such an approach militates against the well settled rules of construction as it entails importing of the word 'total' not used in the provision and also rejection of the words 'present and voting' as meaning- less. 36. in this background, the facts stated above makes it very clear that the scheme which is proposed by the petitioner is approved by a majority of equity shareholders, preference shareholders, bond holders and deposit holders representing three-fourths in value as well as in numbers present and voting. the present meeting is the first meeting in which the proposed revised scheme was considered and approved by the shareholders as well as the creditors. provided that no order sanctioning any compromise or arrangement shall be made by the court 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 on the accounts of the company, the pendency of any investigation, proceedings, in relation to the company under sections 235 and 251, and the like. section 394 which provides for facility of reconstruction and amalgamation of companies provides the factors to be satisfied before such a sanction is accorded. 4. it should disclose the pendency or otherwise of any investigation proceedings in relation to the company under sections 235 and 251 and the like. if after considering all the objections and the law which govern the parties, only if the court is satisfied that the scheme is in the interest of members and creditors and the public at large, it does not contravene any of the provisions of the statute, court can accord sanction. under these circumstances, i am satisfied that these terms of the scheme which provides for waiver of interest and deferred payment do not have the effect of contravening the aforesaid provisions of law which compels the company to repay the entire amount received, essentially when the members and the creditors of the company have approved such a scheme by a statutory majority. secondly, that the class was fairly represented by those who attended the meeting and the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of this interest, might reasonably approve. thereafter, the court should be satisfied that the proposal was made in good faith and that it should be satisfied that proposal was just, fair and reasonable and that a there are no legal impediments for according such sanction. (4) that all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391(1). (5) that all the requisite material contemplated by the proviso to section 391(2) of the act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. for ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the scheme. (7) that the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. (9) once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. (2) if the court aforesaid is satisfied that a compromise or 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 the act. the report submitted by the chairman of the meeting clearly discloses that the scheme has been approved by the requisite majority. 63. under the circumstances, i am satisfied that the scheme which is placed before the court for sanction is fair, just and equitable and is not opposed to public policy but is in the interest of members, creditors and depositors. (4) the company is at liberty to negotiate for sale of its immovable property with any persons and after receiving the offer, it shall be placed before the court for sanction, after notice to the contesting parties before the court to enable them to bring the better offer.ordern. kumar, j.1. the petitioner - maha rashtra apex corporation limited has filed this petition under sections 391, 393 read with section 394a of the companies act, 1956 ('the act') seeking sanction of this court to the scheme of compromise and arrangement (revised) entered into between them and its creditors, shareholders, bond holders, deposit holders.2. the case of the petitioner is as hereunder :the petitioner-company was incorporated on the 26th day of april 1943 under the indian companies act, 1913 as a public limited company, under the name and style of maharashtra apex bank limited. they obtained a certificate of commencement of business on 5th may 1943. subsequently the name of the petitioner was changed to maharashtra apex corporation limited on 2nd september 1955. thereafter the name of the company was changed as maha rashtra apex corporation limited on 22nd march 1996. the registered office of the petitioner-company is situated at syndicate house, upendera nagar, manipal, in the state of karnataka.the authorized capital of the petitioner-company is rs. 40 crores divided into 2 crores equity shares of rs. 10 each and rs. 2 crores redeemable cumulative preference shares of rs. 10 each. the details of the issued, subscribed and paid up share capital of the petitioner-company as on 31st march 2002 is set out in paragraphs 5 and 6 of the petition. as is clear from the said paragraphs the petitioner-company has issued 1,41,50,100 equity shares of rs. 10 each; 17,63,500, 17.5 per cent redeemable cumulative preference shares of rs. 10 each. it is stated that subsequent to 31st march 2002 no material change or alteration has been made to the share capital of the petitioner-company. however, they have not paid redemption amount on preference shares on the due dates in respect of repayment falling due from september 2002 onwards. the petitioners equity shares are listed at national stock exchange, mangalore, pune, bangalore and mumbai stock exchanges and comprises of around 12000 public equity shareholders besides equity shares held by the promoters and their associates. in para 8 of the petition they have set out the shareholding as on 31-3-2002. the main object of the petitioner-company is set out in the memorandum of association. it discloses that the petitioner-company is mainly engaged in deposit mobilization, hire purchase, leasing, bill discounting, demand loans and money changing business etc. the petitioner-company is a non-banking financial company classified as hire purchase and equipment leasing company by the reserve bank of india. the audited accounts of the company for the year ending 31st march 2002 is produced along with the petition. it discloses that the accumulated loss as on 31st march 2002 stood at around rs. 105.85 crores.the petitioner-company submits that the fiscal reforms and the rapid changes in the monetary system necessitated structural adjustments and further even economy in the country had moved from regulated interest regime to deregulated interest rate mechanisms subject however to the directions and instructions and to the over-all policy frame-work issued by the reserve bank of india. it is contended that the petitioner-company is managing its business affairs without any major difficulty or constraints right from the inception in the year 1943 and have paid uninterrupted dividend since its inception till 1999. the petitioner had set up over 100 branches and supported by over 350 sub-offices, over the length and breadth of the country-wide network of agents. due to adverse financial situations they have closed down many of its branches and is presently functioning through 36 branches across the country. the petitioner- company could mobilize over rs. 100 crores deposits during the period april-december 1997 and deployed them in financial assets with utmost commercial prudence and probity. however, with the introduction of the new regulation in january, 1998 by the rbi, the petitioner-company all of a sudden had to face grave and unprecedented difficulties by virtual ban on acceptance of fresh deposits which seriously jeopardized the resource mobilization of the petitioner-company. the petitioner-company though had enjoyed sufficient capital adequacy ratio, in view of the rating norms introduced linked with the ceiling of acceptance of deposits by rbi, the petitioner-company was suddenly and irrationally downgraded during the period 1998, which seriously affected the resource mobilization, particularly, in the form of fixed deposits from the public. it resulted in increasing the cost of overheads and servicing of the deposit holders. the position in the industrial sector coupled with the slow down of the economy and other factors, particularly, in the transport industry, adversely affected the process of recovery of the loaned amount with interest. it seriously affected the nature of security in terms of money value held by the petitioners. in the absence of extending the benefit of approaching debt recovery tribunal which is extended only to banks & other financial institutions, the nbfcs are required to pursue civil remedies only for recovery of outstanding amount and this has also compounded the problems faced by the petitioner-company. the income from the operations was drastly reduced because of the aforesaid factors. in 18 months period prior to 31-3-2000 the income from the operation was rs. 101.60 crores whereas rs. 53.02 crores was the income from operations for the year ended 31-3-2001. however, the year ending on 31-3-2002 showed the income from operations only as rs. 26.08 crores. in spite of these difficulties experienced by them up to 31st march 2002, the petitioner has discharged all its statutory obligations. apprehending that in future they would not be able to comply with these obligations the existing terms and conditions of acceptance/renewal deposit and issue of bonds had contemplated proposing a scheme of arrangement and compromise with its creditors during april 2002. the reserve bank of india imposed a specific condition that the petitioner-company can only renew deposits up to 31st march 2002. in fact the petitioner-company was holding deposits of rs. 110 crores maturing after 31st march 2002 which obviously could not even be deployed in the nbfcs business. the accumulated loss crossing beyond the net worth of the petitioner-company has seriously affected the business activities. the petitioner contends, as on 31-3-2002 still has the value of the assets including loaned assets, hire purchase assets etc., being much more than the liabilities to be met including the repayment of all debts of the secured and unsecured creditors of the petitioner- company. due to the defaults committed by the borrowers, the petitioner- company initiated legal proceedings for recovery of the said amount and their recovery was not satisfactory. due to the mismatch of the assets recovery verses repayment commitment, difference between the projected cash flow and the projected pay out for the commitments of the petitioner-company on the existing terms resulted in the petitioner- company making certain defaults in the repayment which cause was the a major factor for them to have considered rescheduling/restructuring the debt outstanding by drawing up a scheme of arrangement and compromise with the creditors during april 2002. under the circumstances, the petitioner-company analyzed various options including the option for seeking deferment for meeting the repayments of the debts of the secured and unsecured creditors and for making out a suitable programme of restructure and re-arrangement of the outstanding debts.the board of directors in formulating the scheme of arrangement and restructuring had formed a bona fide and sincere opinion that some of the subsidiary companies wherein the petitioner-company had invested in the form of share capital, should also form a part of the arrangement and restructuring being proposed, so that the creditors of the petitioner- company are not deprived of any of their legitimate debts being repaid. accordingly, they were of the opinion that the subsidiary company maharashtra apex asset management company limited should undertake the said responsibility for recovery and distribution of the proceeds recovered to the bond holders and deposit holders of the petitioner- company. therefore, at the meeting held on 15th april 2002 the board of directors approved the scheme of arrangement/restructure between the petitioner-company, its shareholders and creditors in participation with the subsidiaries, kurlon limited and maharashtra apex asset management company limited. accordingly the petitioner-company pre- ferred an application to this court in company application no. 226/2002 seeking directions of this court for convening the class meetings of the shareholders and creditors of the petitioner company. by order dated 17-4-2002 this court passed an order directing the company to hold separate meetings of the equity shareholders, preference shareholders, secured creditors and unsecured creditors on 14th june 2002 to consider the case of arrangement/restructure. statutory notices were sent to all the creditors, members along with other legal requirements. an application c.a. no. 350/2002 was filed for appointment of additional chairman for the said meetings which was also granted by this court.in the meanwhile by order dated 13-5-2002 the reserve bank of india prohibited the petitioner-company from acceptance of deposits and directed the petitioner-company not to sell, transfer, create charge, mortgage or deal in any manner with the company's property and assets without their prior written permission. further by order dated 13-6-2002 they cancelled the registration for undertaking nbfc activities of the petitioner-company. petitioner challenged those orders by preferring statutory appeal and pending consideration on 14-6-2002 the meeting which was called to consider and approve the scheme of arrangement was held and the meeting was disrupted by anguished mob behaviour of some section of the creditors. the meeting of the equity shareholders and preference shareholders were concluded in the morning session and there was lot of disturbance and pandemonium in the creditors meeting held in the afternoon. the chairman of the meeting reported the said matter to this court which is at annexure-j to the petition. one of the reason for disturbance of the aforesaid meeting was opposition to involving subsidiary company of the petitioner namely kurlon ltd., and maharashtra apex asset management company ltd. taking into consideration the views expressed in the said meeting as well as the aforesaid position, again the board of directors in the meeting held on 22-7-2002 proposed to modify the scheme. thereafter, company application no. 720 of 2002 was filed seeking suitable direction of the court to convene a meeting of the shareholders and creditors. the petitioner also sought for direction to withdraw earlier c.a. no. 226/2002. this court permitted withdrawal of the earlier application. the aforesaid company application was also withdrawn in order to put forth a better scheme acceptable to all sections. the earlier period proposed for repayment was ten years which was reduced to five years. earlier interest had to be waived, whereas, in the modified arrangement interest up to 31st march 2001 has to be paid. with these modifications the board of directors again on 11-11-2002 proposed a revised scheme. thereafter company application no. 1108/2002 was filed before this court seeking leave of this court to convene respective class meetings of the members, preference shareholders, bond holders as well as deposit holders. this court on 2-1-2003 allowed the said application, directed the petitioner to convene meeting on 14-2-2003 and 15-2-2003 at manipal, and directed dr. k. sreenivasan, ips retd., failing him ms. nalini venkatesh, failing her mr. r.b. despande to act as chair- man/chairperson and report the result of the meeting. notice of the meeting was also advertised in deccan herald and kannada prabha both on 17-1-2003. as ordered meeting was held. in the meeting of the equity shareholders 252 equity shareholders were present, the value of the share was rs. 6,89,26,670. out of them 247 representing rs. 6,89,07,160 i.e., 99.97 per cent voted in favour of the scheme. five person representing rs. 19,490 i.e., 0.03 per cent voted against the scheme. insofar as preference share- holders are concerned, 10 were present who represented the value of the shareholders as rs. 7,90,000. all of them voted in favour of the scheme. 16191 bond holders i.e., secured creditors were present. they represented the value of rs. 56,50,64,997.50. out of them 15550 representing rs. 54,60,01,799.50 i.e., 96.63 per cent voted in favour of the scheme. 641 bond holders of the share value of rs. 1,90,63,198 representing 3.37 per cent voted against the scheme. 7233 deposit holders i.e., unsecured creditors, of the value of rs. 22,32,11,216 were present. out of them 7083 creditors representing the value of rs. 21,64,88,406 i.e., 96.99 per cent voted in favour of the scheme. 150 persons of the value of rs. 67,22,810 i.e., 3.01 per cent voted against the scheme. while approving the scheme they suggested the following modifications :-----------------------------------------------------------------------clause 2(b) be appointed date means 1st day of april 2002substituted as-----------------------------------------------------------------------clause 6.4 be all claimants under the hardship cases shall be paid substituted as disbursements of a maximum of 75 per cent of the face value of the outstanding bonds/deposits as on the appointed date, as may be determined by the hardship committee, according to a formula as may be laid down by the committee wherever the settlement is being requested to be made under hardship cases.-----------------------------------------------------------------------clause 9 be subscriptions for bonds/deposits received and pending substituted as allotment/renewal and/or accepted/renewed by the company on or after 1-4-2002 shall be refunded in full on or before 31-3-2003 pending sanction. no interest shall accrue or be payable on such subscription for bonds/deposits.-----------------------------------------------------------------------clause 15 be no instalment shall, however, be delayed more than 12amended by months. insertion ofan additionalsentence atthe end-----------------------------------------------------------------------the chairman of the meeting submitted their report to the court.3. broadly stated the scheme envisages waiver of interest after 1-4-2002, payment of debts in five instalments, instead of refund of the deposits on maturity etc. it is thereafter the present petition was filed seeking sanction of the court for the scheme.4. this petition was admitted on 28-2-2003 directing notice to the regional director, department of company affairs, southern region, chennai. the petitioner was directed to take out advertisement in one edition of kannada prabha and one edition of deccan herald on or before 10-3-2003 fixing the hearing date as 28-3-2003. advertisement has been duly taken. in pursuance of the notice issued as well as advertisement, the registrar of companies have filed an affidavit setting out his observations of the scheme. it is contended that the company has not furnished the source of finance to settle the outstanding debts which are bond/deposits. the existing financial position is also not sound. the attendance of the meeting of the secured and unsecured creditors shows that the response to the scheme was poor. though the technical requirement of quorum has been complied with, it appears that there was lack of proportional representation. they have received a complaint dated 22-4-2003 from one mr. s.g. prakash of chikmagalur, as affected creditor of the company. similarly mr. c. pandit rao and mr. j. ganapathi sastri of secunderabad, have also filed complaints opposing the scheme. the company by proposing the scheme is attempting to circumvent the provisions of section 274(1 )(g) of the companies act, 1956. therefore, he requested the court to take note of these facts before passing orders.5. the petitioner has filed reply to the statement of the register of companies. it is contended that the financial position of receivables on account of hire purchase assets, lease assets as on 31 -3-2002 together with the entire proceeds as may be realised from and out of encashment of slr, liquidation of investments, assets and properties would be sufficient to meet the commitments as envisaged in the scheme and within the time- frame proposed. they have reiterated that in the meeting held to consider the scheme requisite members as ordered by the court were present. persons who were present approved the scheme. it is not open to the registrar of companies to raise any objections. in this regard when once legal requirements have been complied with the complaint received by the registrar of companies has no substance. they are frustrated persons who failed to get back their amount have written letters making un- founded allegations and in law it has no value. the allegation regarding contravention of section 274(1)(g) of the act is baseless. if the intention on the part of the directors to avoid the liability, they could have retired long back and therefore it was contended that there is absolutely no substance in any of the allegations made in the statement of registrar of companies.6. the reserve bank of india after entering appearing, filed their objections to the scheme. they contend that the proposed scheme contemplates liquidating the statutory liquidity ratio (slr) securities which is violative of section 45-ib of the reserve bank of india act, 1934. the reserve bank of india has prohibited the petitioner-company from accepting the deposits and alienating the assets by order dated 13-5-2002. therefore the scheme may not be workable without alienating the assets of the petitioner-company. when the reserve bank of india investigated the company, the financial position as on 31-3-2000 revealed that the financial position of the company was not satisfactory and that its net owned fund was negative to the extent of rs. 68.15 crores. therefore, they were not entitled to hold public deposits and hence the entire amount of deposit held as on that date, namely, rs. 258.02 crores became excess deposits and the company was required to repay the said deposits in full. in view of the various violations of the directions issued by the bank, committed by the company, the certificate of registration issued to the company was cancelled. the company was also prohibited from accepting deposits and alienating its assets without the prior approval of the bank. consequently they are not entitled to carry on business of a nbfc or accept deposits from the public. the mode of repayment suggested in the scheme is not in the public interest or in the interest of the depositors of the company. the company has no definite plan or ability to repay the depositors even as per the revised scheme proposed by it. in the proposed scheme it docs not contain any plan for recovering or realizing its assets. the scheme does not contain any material which shows that the company will be able to meet its commitments towards repayment of depositors as per the repaying schedule furnished in the scheme. some of the depositors are accusing the management of siphoning off the funds of the company. therefore, it is necessary to investigate the said allegations before any scheme or compromise is considered. the scheme proposed to repay depositors which gives a free hand to the company to siphon off assets or to divert the funds for a period of five years. the proposed scheme appears to be an attempt calculated to secure immunity against any claim from the creditors. an observer be appointed by court to ensure that the sale proceeds of its assets are not siphoned off by the company. the company is required to maintain liquid assets as required by the bank allowing the company to encash the same would amount to allowing the company to contravene the provisions of the rbi act. the slr can be reduced proportionately with a reduction of its deposit liabilities and it cannot be encashed or liquidated straightaway when deposits are still outstanding. under the circumstances, the affairs of the company has to be investigated by independent auditors, an observer should be appointed to oversee the affairs of the company to realise its assets, trace out where the deposits collected have been siphoned off, retrieve the same and distribute the same to the depositors and other creditors. the directors and promoters of the company are directed to disclose before court by an affidavit the details of the properties owned or held by them or in the name of their spouses or dependents etc., and it is necessary to freeze the bank accounts and other accounts of the directors, promoters, their family members. the petitioner-company had filed its reply to the objections of rbi.7. about 212 depositors have joined together and have filed common objections through the learned counsel sri. s.m. chandrashekar. they contend that the quorum of the meeting which was convened to consider the scheme should be 75 per cent of the value of the creditors and 75 per cent of the value of the shareholders under section 391 of the companies act. 16275 persons said to have attended the meeting and the value of which is rs. 56,71,64,000 and 7277 persons value of which is said to be rs. 22,38,78,302 as against rs. 310 crores. having regard to the value of the creditors of the company and shareholders, unsecured creditors said to have attended the meeting, the scheme was not approved by the 75 per cent of the creditors under section 391 of the act and, therefore, the petition is not maintainable. the report submitted by the chairman to this court is illegal and it is not in accordance with law and the court should not act on the said report. these 212 objectors altogether have invested a sum of rs. 1,05,19,500 in royal bond certificate, premier bond certificate and other schemes. they have filed company petition no. 206/02 under sections 433(e) and (f) of the companies act for winding up of the company and notice to the company has been ordered in the said petition. the reserve bank of india has directed the company to close down the operation and liquidate the debts. these objectors were not aware of the said orders and they have invested money. as the company's financial position is crippled and as there are no signs of revival, as the entire infrastructure has collapsed, therefore, the scheme propounded by the company is sham. hence it has to be rejected. many of the creditors have not received notice. some of the creditors have received notice after meeting. thus the company has prevented the genuine creditors from attending the meeting and expressing their opinion. number of persons shown to have attended the meeting is exaggerated. only 500 to 600 persons were present in the meeting hall. a close scrutiny of the proxy forms of the company shows that the company might have forged the proxy forms and votes said to have been polled in favour of the scheme, ballot boxes were not sealed, unauthorized persons were allowed to cast votes in favour of the scheme, the company has conveniently and cleverly prevented the genuine creditors from attending the meeting and thus got approval of the scheme fraudulently. the scheme is not fair and opposed to the interest of the creditors. thus the creditors will be deprived of company funds in the hands of the above-said persons. if the company is unable to implement the directions issued by the reserve bank of india the company has to be wound up. the best option is to appoint the official liquidator and under the supervision of the high court to liquidate the assets of the company and distribute the proceeds. these deposits have invested their hard earned money and life savings. they are unable to meet their daily needs such as hospitalisation, marriages, social engagements etc. therefore they contend that the petition is liable to be dismissed and no sanction should be accorded to the scheme.8. one sri vasantha rao has filed his objections contending that he was moved to invest the money in the petitioner-company as he had 5 daughters and no sons and he has to live on the meagre pension. he invested the money believing the version of the petitioner-company. all the deposits for major amounts are not paid. his health is not all right. he needs medical assistance. the petitioner committed illegalities in repayment. therefore, he contends that the company should be directed to refund their money with interest as expeditiously as possible. along with the application he has produced xerox copies of the deposit receipts, medical certificates, ecg etc., to substantiate his contention. 145 creditors have given notice in the prescribed form to the petitioner-company making known their intention to appear and contest the petition. the petitioner in form no. 10 has filed the list of persons intended to appear. admittedly all of them have not appeared before court to oppose the petition. only few of them have appeared to file their objections. similarly another seven persons have also issued notice to oppose the petition which is also filed by the petitioner before court in the prescribed form.9. one smt. d.k. janaki, holder of non-convertible premier bond issued by the petitioner-company has filed an affidavit contending that she cannot wait for five years to receive back her money. there is a provision for premature closure of bond. she has been deserted by her husband. she is entitled to get full amount with interest as accrued. therefore, she contends the terms of the scheme are not acceptable. the petitioner has filed reply to the said objection contending that the same is not tenable in law and they have sought for rejection of the said objection.10. one sri. d.k. karigowda, holder of non-convertible premier bond who has invested a sum of rs. 1,00,000 in the petitioner-company has also filed objections contending that he is aged 80 years. he made the investment with the fond hope of getting regular monthly income for his livelihood. the company has failed to pay monthly interest from april 2002. there- fore, he has been put to financial problem and he has to undergo surgery. he needs money and, therefore, he requested the court to direct the petitioner to make payment immediately. petitioner has filed statement of objections and contend that there is no substance in the said contention also.11. one master d. venkatesh and 6 minors through their guardian have filed their objections opposing the scheme. they contend that their parents are all poor agriculturists and the money is invested with the intention of getting prompt income periodically. petitioner-company has misappropriated the money belonging to the objectors. the statement of account are all cooked up with the help of chartered accountants. they have not complied with the statutory obligations. they have suppressed the material facts. they have secretly siphoned all the money of the petitioner-company. the scheme is proposed with the intention of scuttling the claim of the objectors and to make wrongful gain. therefore, they have sought for modification of the scheme by which 50 per cent of the entire claim with accrued interest shall be paid immediately and the remaining amount to be paid in instalments.12. another 22 creditors lead by smt. a.v. parvathy, have also filed objections opposing the scheme. the sum and substance of the objections is that the petitioner has misappropriated the amount belonging to the depositors. all their deposits have matured. they are entitled to get back the amount at accrued rate of interest. the scheme proposed is not bona fide. however they contend that if the court is not rejecting the scheme, in the alternative the amount belonging to each one of them should be directed to be paid in first instalment of 50 per cent with interest and the remaining amount to be paid in instalments. along with the objections they have filed annexure-a. in this they have given the bond number, amount deposited and the maturity value. the company has filed reply contending that those objectors were not present in the meeting and they have no locus standi to file objections. the scheme is approved by majority. they have denied all the allegations made against them and they have stated that they would make payment in terms of the scheme and their claim of 50 per cent as first instalment is not acceptable and, therefore, they have sought for rejection of the said objections. in reply, rejoinder is filed by 21 persons again reiterating the allegations making accusation against the petitioner-company and requesting for payment in terms of the objections. another set of objectors numbering about 14 lead by sri s. ramadas prabhu have in their objection statement given the particulars of the deposits made, date of deposits, period and maturity value of each deposits and they have produced xerox copies of those certificates and contend that the petitioner-company without disclosing the doubtful debts they have accepted the deposits from the objectors fraudulently and it is not open to them to contend that they would repay the money in a period of five years. therefore, they have sought for amendment of the scheme and direction to the petitioner to pay the principal amount in one instalment and the interest part in the second instalment within the period to be fixed by the court.13. one sri c. pandit rao from secunderabad has filed his objections. he has set out in the objection about the subsidiary concerns of the petitioner- company. he seeks for rejection of the scheme. he submits that the company is bound to pay the amount of proceeds which they had invested with the petitioner company. sri. s.g. prakash of chikmagalur one of the creditors appeared in person and submitted his objections to the scheme and was also heard.14. sri. s.m. chandrashekar learned counsel appearing for the creditors contended that the scheme proposed by the petitioner-company has not been approved by the statutory majority as required under section 391(2) of the act. it is his specific contention that under section 391(2) of the act, it is stated that 3/4th in value of the creditors present and voting either in person or by proxy. a proper and reasonable interpretation of the said provision would be that only when majority of the members/creditors of the company and who also represent 3 /4th value of the total shareholding/ credit of the company, are present and voting in a meeting convened by the court, it can be said the scheme has been approved in terms of section 391(2) of the act. in that background, he submits that the scheme has not been approved by the requisite majority and as such question of this court granting sanction to the said scheme does not arise. he also submitted that the meeting to consider the scheme was convened in pursuance of application filed for the said purpose which was not maintainable and, therefore, the entire proceedings commencing from such meeting is void ab initio. he also contended that when majority of the creditors do not attend the meeting and absented themselves it means that they are not giving consent to the scheme and in that view of the matter the scheme is not approved with the requisite majority. lastly it was contended that the interest of the creditors would be saved by the court passing a winding up order appointing an official liquidator and disposing of the assets of the company and paying the money due to the creditors. therefore, he submitted that sanction sought for should not be granted.15. learned counsel appearing for the reserve bank of india sri. r.v.s. naik for m/s. king and partridge submitted that the reserve bank of india has already cancelled the certificate issued to the petitioners to carry on non-banking business. orders have been passed restraining them from alienating the property. under these circumstances, if the scheme is accorded sanction the provisions of the scheme runs counter to the said orders. secondly it was contended that the slr has to be utilized only for the purpose of paying unsecured creditors. under the scheme the petitioners want to pay all the creditors which is impermissible in law. if the assets of the company is to be sold it should be by public auction and not by negotiations as mentioned in the scheme. therefore, he contends that these factors have to be taken note of by the court before according sanction.16. learned counsel appearing for the registrar of companies submitted g that the scheme discloses that the company do not possess requisite funds to discharge its entire liabilities. the terms of the scheme are contrary to section 58(a) of the act and these factors have to be taken note of by the court before according sanction in the interest of depositors and creditors of the company.17. learned counsel appearing for the other objectors adopted the aforesaid arguments and further contended that the opposing creditors are only interested in getting back their deposits in full in one instalment with accrued interest and if that is not forthcoming the scheme should not be approved.18. per contra, learned counsel for the petitioner sri k. parameswaran, submits that there is no ambiguity in the language employed in section 391(2) of the act calling for another interpretation by this court. the section is unambiguous. once the majority in number representing 3/4th in value of the creditors present and voting either in person or by proxy agree to any compromise or arrangement, the requirement under section 391(2) of the act is fully complied with and this view has been consistently taken by the various high courts in the country as well as by the supreme court and, therefore, no case or deviation from the said interpretation is made out in this case. he submitted that the meeting to consider revised scheme was convened legally in pursuance of the order and the application filed for the said purpose is the first application filed to consider revised scheme and, therefore, he submitted that there is no substance in the contention that the entire proceedings are vitiated. when after receiving the notice, the shareholders and creditors of the company did not attend the meeting the only inference that could be drawn is that they have no objection for approval of the scheme and by their absence they have given their implied consent. with reference to the contention of the reserve bank of india, it was contended that though there is an order prohibiting the company from alienating the assets that is one of the mode for raising necessary funds to discharge the liability without which the scheme is not workable. when the court grants sanction to the said scheme the said orders of the reserve bank of india stands overruled and the court has the power to pass such orders.19. insofar as slr is concerned that is a mode which is reserved for payment of unsecured creditors. it is proportionate to the total deposits. when the company wants to pay the depositors the amounts due to them under the scheme the slr will be utilized only for the said purpose and, therefore there cannot be any objection for the same. insofar as the contention that an independent body is to be appointed for the purpose of selling of the assets of the company and that it should be done by public auction is concerned, it is submitted that if the properties are sold by public auction it would be a distress sale and maximum amount cannot be recovered and unnecessary expenditure has to be incurred by way of remuneration to those persons. on the contrary if proper provision is made while granting sanction to seek permission of the court for sale the creditors would have an opportunity to have their say before court and the sale would be transparent and no one can have any objection for the sale. with reference to the comments made by the registrar of the companies is concerned, it is submitted that no doubt the provision of the act provides for repayment of the entire amount of deposit on the maturity date with accrued interest because of the inability to pay the same the company has formulated the scheme as the next best thing and, therefore, the contention if the scheme is approved it would run counter to the provisions of the act has no merit. it is submitted that it is nobody's case that the affairs of the company has been conducted in the manner prejudicial to the interest of public and the shareholders and, therefore, in the circum of the scheme the company has demonstrated their bona fides and their intention to pay back all the creditors the principal amount plus interest, as such, it is in the interest of the depositors, creditors and shareholders the sanction sought for is to be accorded.20. after hearing the parties at length the court called upon the reserve bank of india to suggest safeguards by way of amendment to the scheme so that if court were to accord sanction to the scheme the interest of every one is protected. accordingly, the reserve bank of india has filed an application placing its recommendations. it is suggested that the company should be directed to furnish detailed schem setting out the manner and time-frame within which it recovers dues from it subsidiary and associate companies and other debtors and to submit to the court at intervals as this hon'ble court deem fit a true and correct report containing the recoveries made from the subsidiary and associate companies and other debtors as per schedule. the promoters may be directed to bring fresh funds by way of equity to bridge the gap between the outside liabilities and realisable value of assets. to direct the promoters to make good a sum of rs. 2.30 crore from escrow account towards refund of application amount and loan to shama rao vithal co-operative bank. the purchase of shares of co-promoters of m/s. kurlon limited from hsbc pvt. equity india fund limited, and 17.50 lakh equity shares of maha rashtra apex asset management company limited, a subsidiary each from m/s. shantalaxmi finance and investment limited and jyothishree finance and investment limited and wiped off demand loans/debit balances of these companies aggregating rs. 3.50 crores is in the nature of adjustment which was prejudicial to the interest of the company since the company neither received the principal nor any interest on the loan and the shares did not have any significant value. therefore, the company be directed to unwind the transactions and receive the amount paid on behalf of the other promoters in the first transaction, realise the dues in the second transaction, recover the advance paid for acquisition of shares/debentures in the third transaction and recover the interest waived in the fourth transaction. the fair value of the assets should be realized either through a public auction or through negotiated sales under the supervision of an observer appointed by the court. they wanted to company to give an undertaking to the effect that it will not carry on the business of non-banking financial company and the company would within three months amend its memorandum of association and articles of association.21. opposing the said suggestions the company has filed its counter. they contend that when the company has stopped the nbfc activities during 2002 itself the maintenance of slr with prescribed percentage will not be mandatory statutory requirement and the same could be relaxed or waived and the said amount may be permitted to be utilized for repayment of creditors. as the certificate of registration of the company has been cancelled by the reserve bank of india the respondents could no longer function as nbfc and thus they are effectively prevented from carrying on any such business. the financial transaction which the company has made does not show as to how the same in any way infringes or violatives any of the statutory provisions applicable or is not in public interest. all the financial transactions discussed are clearly and categorically reflected in the books of accounts maintained by the company and in the absence of any prohibition in law no exception could be taken to the same. the apprehensions expressed by the rbi are imaginary and without any basis. the said suggestions do not merit any consideration. however, they contend they would abide by the orders to be passed by this court in this regard.22. before considering the legal issue, it is necessary to have the undisputed facts.23. it is not in dispute that total number of equity shareholders of the petitioner-company are 12,656, preference shareholders are 144, bond holders are 1,06,610 and deposits are 62,806. in the meeting of equity shareholders held, 256 persons attended the meeting and voted. out of these votes, four votes were invalid. out of the remaining 252 valid votes, 247 voted in favour of the scheme whereas, 5 voted against the scheme. the total value of 252 shareholders present is rs. 6,89,26,670. value of the shareholders voted in favour of the scheme comes to rs. 6,89,07,160 which works out to 99.97 per cent. similarly, the total value of the shareholders who voted against is rs. 19,490 which is 0.03 per cent. having regard to the number of persons voted in favour of the scheme works out to 98.01 per cent. percentage of shareholders who voted against the scheme would be 1.99 per cent. this voting actually amounts to 1.9 per cent when compared to percentage of shareholders of the company who did not attend the meeting which works out to 98.1 per cent.24. insofar as preference shareholders are concerned, the total number is 144. out of them, 41 attended the meeting and out of them, the vote of 31 persons were held to be invalid. out of the remaining 10 votes, all of them unanimously voted approving the scheme. the value of those 10 preferential shareholders comes to rs. 7,90,000 which would work out to 7 per cent of the total value of the preference shares held in the company. 93 per cent of the preference shareholders have not attended the meeting.25. out of 1,06,610 bond holders, 16,191 bond holders attended the meeting and they represented the value to the tune of rs. 56,50,64,997.50. out of it, 15,550 voted in favour of the scheme which represents 96.04 per cent of the holders who were present and voted and the value of the bonds of those persons would be rs. 54,60,01,079.50 and the percentage works out to 96.63 per cent. 641 bond holders have voted against the scheme which leads to 3.96 per cent and the value of the votes held by them is rs. 1,90,63,198 which represents 3.37 per cent. the number of bond holders who did not attend the meeting crossed probably 85 per cent.26. out of the 50,827 depositors, 7277 attended the meeting. 44 were invalid votes and 7,083 votes in favour of the scheme, who represents 97.93 per cent. the total value of the deposits who voted for the scheme is rs. 21,64,88,406 and in terms of percentage it will be 96.99 per cent. 150 deposit holders voted against the scheme and their percentage would be 2.07 per cent and the value of amount due to them is rs. 67,22,810 which works out to 3.01 per cent. here again, the percentage of deposit holder who remained absent and who did not attend the meeting works out to probably about 88 per cent.27. from the aforesaid figures, it is clear that 3 /4th of the total value of the shareholders and creditors were not present and voted and the said scheme is not approved by 3/4th of the total value of shareholders and creditors.28. it is in this context, the question for consideration is, is it the requirement of law as contemplated under section 391(2) of the act, that majority in number representing 3/4th in value of the creditors or shareholders present and voting or it is the 3 /4th of majority in number of members and creditors of the company of the total credit.29. answer to this point revolves on interpretation to be placed on section 391(2) of the act which reads as under:'391 (2) if a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, 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 court, 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.'in the 13th edition of buckley on the companies act, it has been observed that for the purpose of corresponding provision under the english law, sanction of majority in number representing 3/4th in value of the members of the class present and voting in person or by proxy is sufficient, although it may not represent 3/4th in value, nor semble, constitute a majority in number of the total class. the provisions of section 391(2) of the act are in pari materia with the section 206(2) of the companies act, 1948 which was being interpreted in the aforesaid book. the english company law by professor robert r. pennington (5th edition), page 590 use of the words 'present and voting' has been explained as under:'...it appears that proxies may both speak and vote at meetings of creditors or members, and that the inability of proxies for members to speak at general meetings of a public company does not apply to meetings called to approve scheme of arrangement. the vote on the scheme at each meeting of members or creditors is taken by a poll, and for a resolution approving the scheme to be carried, the persons who are present in person or by proxy at the meeting and who vote in favour of the scheme must comprise a majority in number of all persons who vote in person or by proxy, and they must also hold three-quarters in value of the interests of all such persons. the number and the value of the interests of persons who do not attend and are not represented at the meeting, or who do attend the meeting but abstain from voting, are immaterial, and do not enter into the calculation at all. likewise, the interests of persons who appoint proxies are disregarded if the proxies do not attend the meeting, or do attend but do not vote...'this provision has further been explained in the twenty-fourth edition of palmer's company law (at page 1145) as under:'2. the class must have been fairly represented.the court must be satisfied that those who attended the meeting are fairly representative of the class and that the statutory majority did not coerce the minority in order to promote interests adverse to those of the class whom they purport to represent.this requirement is, in part, an off shoot of the first. as regards the majority, there are two requirements: the majority who vote in favour of the scheme must be first a majority in number of those members of the class (whether of creditors or shareholders) who are present and voting; and, secondly, it must be three-fourths in value of the holding of such persons.thus, if there are 100 members voting of whom (to take an extreme example) one member holds 901 shares and the remainder hold one each, the 99 shareholders holding one share each cannot force a scheme against the vote of the holder of the 901 shares, because they do not muster three-fourths in value. conversely, that shareholder and 49 of the others could not force a scheme against the votes of the remaining 50 because there would not be a majority in number. the same principle applies to creditors.it will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored.however, this is not the whole requirement, because in addition the court requires to be satisfied that the class is fairly represented. if, for instance, there were altogether 1000 shareholders holding 10,000 shares in all, the court would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 100 shares in all were present and voted.'in gower's principles of modern company law (sixth edition) (at page 585) the scope and meaning of the concept of 'majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting' has been explained by giving an illustration as under:'an ordinary resolution is one passed by a simple majority of those voting, and is used for all matters not requiring another type of resolution under the act or the articles. an extraordinary resolution is one passed by a three-fourths majority but no special period of notice is needed. under the act an extraordinary resolution is required only for certain matters connected with winding up, or when class meetings are asked to agree to a modification of class rights. a special resolution is also one passed by a three-fourths majority, but 21 days notice must be given of the meeting at which it is to be proposed. a special resolution is required before any important constitutional changes can be undertaken; and as a result of the legislation in the 1980s the number of such cases has greatly increased. in the case of both extraordinary and special resolutions the notice of the meeting must specify the intention to propose the resolution as an extraordinary or a special resolution, as the case may be.in all these three cases the requisite majority is of the members entitled p to vote and actually voting either in person or by proxy where proxy voting is allowed. this may and, in the case of a public company normally will, be much less than a majority of the total membership, and may even be less than a majority of the members present at the meeting, for those who refrain from voting are ignored. to take an extreme case: a meeting of a company with 5,00,000 preference shares without voting rights, and 5,00,000 ordinary shares each with one vote, is attended only by five ordinary shareholders, four with one share each and one with hundred shares. if on a poll a resolution is voted for by three of the holders of one share and against by the fourth shareholder with one share, the holder of the hundred shares abstaining, the resolution will have been duly carried even if it is an extraordinary or special resolution, notwithstanding that only three out of a total of one million shares, three out of 5,00,000 total votes and three out of 104 votes exercisable at the meeting, have actually been polled in its favour. as we shall see later the procedure of voting on a show of hands, unless a poll is effectively demanded, may produce even greater anomalies.'in bessemer steel & ordinance co., in re [1875-76] 1 ch. d 251, wherein identical provisions of the english law have been interpreted as under: (page 252):'the only question is, whether the agreement has been approved by the proper number of creditors required by the act. the second section of the act provided that the meeting of the company's creditors may approve and sanction the agreement: 'if a majority in number representing three- fourths in value of such creditors, or class of creditors, present either in person or by proxy at such meeting, shall agree to the arrangement or compromise, and the agreement or compromise shall, if sanctioned by an order of the court, be binding on all such creditors or class of creditors (as the case might be) and also on the liquidators and contributories of the company'. the question, therefore, is whether 'the majority representing three-fourths in value' is to be the majority of all the creditors in which case the pounds 1,20,002,12s, 3d. does not constitute three-fourths of funds 1,70,000, or the majority representing that value of the creditors present at the meeting? in the latter case, all the creditors but one, for a very small amount, approved the agreement.we say that the clause in the act is satisfied by the sanction of three- fourths in value of the persons present at the meeting, and this was decided by your lordship in re tunis railway company (may 22, 1874) affirmed on appeal (before the lords justices, july 11, 1874).carson, for dixon said he was desirous that the arrangement should be carried into effect.mallins, v.c. :i think the agreement should be carried into effect. all the creditors of the company received notice of this meeting, and it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. at all events, i think that under the act of parliament only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those present are sufficient to sanction the contract.'before the karnataka high court in kirloskar electric co. ltd., in re[2003] 116 comp. cas. 413, 43 scl 186. the question for consideration was as to whether the proposed arrangement had been approved by the requisite majority at the meeting of the secured creditors within the meaning of section 391(2) of the act. this meeting was attended by 18 secured creditors and the total value of their debt was rs. 2,53,36,43,491. out of the 18 present, one abstained from voting and the value of his debt was rs. 30,98,21,941. thus, the total value of secured creditors present and voting was rs. 2,22,38,21,550. two votes representing value of rs. 3 8,98,62,275 were found to be invalid. the scheme was, therefore, approved by vote of 15 creditors and the value of their debt was rs. 1,83,39,59,275. there was no difficulty as far as the majority in number is concerned because 15 creditors had voted in favour of the scheme. the question, however, was as to whether they represented three-fourths value of the creditors present and voting. the high court held that the three-froths majority required under sub-section (2) of section 391 of the act was of the value represented by the members who were not only present but who had also voted. in fact, it went a step further to hold that the creditors who were present and had even voted but whose votes had been found to be invalid, could not be said to have voted because casting an invalid vote is no voting in the eyes of law.30. in the aforesaid case of kirloskar electric co. ltd. {supra) this court had an occasion to consider the meaning of the words 'present and voting' and it was held as under:'sub-section (2) of section 391 requires that a scheme of compromise or arrangement must be approved by majority of creditors/members representing three-fourths in value of the creditors or class of creditors, or members or class of members, present and voting either in person or where proxies are allowed, by proxy. there is no difficulty in understanding the word 'present' as the creditors or members should be physically present in person or through their proxy in the meeting. the problem arises in the context of the word 'voting'. voting is formal expression of will or opinion by the person entitled to exercise the right on the subject or issue in question. voting is explained as the expression of ones will, preference, or choice in regard to the decision to be made by the body as a whole upon any proposed measure or proceeding. right to vote means right to exercise the right in favour of or against the motion or regulation. a member present and voting may remain neutral, indifferent, unbiased or impartial not engaged on either side. voting has to be either in the affirmative or negative, i. e., 'yes' or 'no' on the ballot paper or voting paper. one is not supposed to write anything except putting 'yes' or 'no' either in favour of the proposition or against the proposition. in addition to the same, if any suggestion, condition, reservation or stipulation is written stating that the expression of the will or opinion either for or against the proposition is subject to those things, then, the votes have to be necessarily treated as invalid or void, as such votes are no votes leading either way. a vote cast without indicating the mind of the voter either for or against the resolution is no voting at all. similarly, voting for or against the motion subject to the conditions stipulated in the vote is no voting in the eye of law. therefore, voting understood in a proper perspective, it could be either in the affirmative or in the negative. therefore, in construing whether a resolution is passed by three-fourths majority present and voting, what is to be taken into consideration in calculating the majority is not the number of persons present and voting, but the number of valid votes polled in such meeting. the number of valid votes includes only votes which are indicating the mind of the voter for or against the resolution.therefore, by 'voting', the mind, intention, preference of the voter must be clearly expressed. there should not be any ambiguity and scope for interpretation. it should be clear, unqualified and pointing. in this context, a voter who is not present at the meeting, who is present and not voting, present and voting by casting a blank ballot, and casting a ballot with conditions and stipulations, all stand on the same footing. it is no 'voting' in the eye of law. therefore, in my opinion, the proper construction to be placed in calculating whether any resolution is approved or passed by a three-fourths majority present and voting necessarily mean the value of the valid votes and out of the same whether the resolution has been passed with three-fourths majority....' (p. 436)31. the full bench of the punjab & haryana high court in the case of swift formulations (p.) ltd., in re [2004] 121 comp. cas. 27, 53 scl 433. dealing with the identical situation, after reviewing the entire case law on the point has held that to interpret the requirement of majority under section 391(2) of the act to mean three-fourths majority of the total value of shares/credit would not only render the expression 'present and voting' as redundant but also make the provision totally unworkable and impractical. it was also held that for the purpose of section 391(2) of the act, the requirement of majority of three-fourths has to be seen in relation to the value of shares/credit represented by the persons who are present and voting in the meeting, either in person or by proxy. this provision cannot be interpreted to mean that the three-fourths majority has to be of the total value of the creditors/shareholders of the company. it was also held that section 391(2) of the act has also been enacted so as to ensure that, a compromise or arrangement should receive substantial support from the creditors/shareholders. it is for this purpose that a two fold requirement has been prescribed. firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent three-fourths value of the creditors/shareholders who are present and voting. this ensures that the persons representing nominal value of shares or credits though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit.32. from the aforesaid statement of law and the judgments, it. is clear what the intention of the legislature in enacting section 391(2) of the act. normally, decisions in the meetings are taken by the simple majority of persons who are physically present in the meeting. however, since the decision required to be taken under section 391(2) of the act, has a far reaching consequences and affects the rights of the creditors/shareholders, a second safeguard has been provided. in other words, a resolution has to be passed not only by the majority in number of persons present and voting but additionally, such majority must represent three-fourths of the value of shares/credits held by the persons present and voting. in the corresponding provisions of section 153(2) of the indian companies act, 1913 the requirement of three-fourths majority in value had to be seen in relation to the value of the shareholders/creditors who were present either in person or by proxy. it was not necessary that such person should also have participated in the voting. as per the company law committee report of 1952, it was recommended that the words 'and voting' between the words 'present' and 'either' be added. the object of this amendment was explained so as to ensure that decisions in regard to compromise and arrangements are taken by the majority and three-fourths of the members present and voting in class meetings. it was in this background that the provisions of section 391(2) were enacted. if these provision were to be interpreted to mean that the majority must represent three-fourths of the total value of the shares/credits, then, the words 'present and voting' would become redundant, which is against the well settled rules of construction. the act contains enough safeguards to protect the interest of the creditors/shareholders. as per the provisions of the act, every creditor/shareholder has to be given 21 days notice along with a copy of the arrangement. notice is also required to be given to the central government. however, if despite sufficient notice, a creditor/shareholder chooses not to attend the meeting, his inaction cannot possibly hold up the decision making process of the company. even after a decision has been arrived at by the requisite majority, but the court finds it to be against the interest of the creditors/shareholders, it can still not sanction the compromise or arrangement. in the modern corporate world, there are companies in which the number of shareholders runs into lakhs and such shareholders are located in different parts of the country. to require such companies to have the approval under section 391(2) of the act from a majority representing three-fourths of the total value of its shares is almost impossible. such an interpretation would render the provision unworkable.33. section 391(2) of the act has been enacted so as to ensure that a compromise or arrangement should receive substantial support from the creditors/shareholders. it is for this purpose that a two fold requirement has been prescribed. firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent three-fourths value of the creditors/shareholders who are present and voting. this ensures that the persons representing nominal value of shares or credits, though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit.34. it is well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. a statute is an edict of the legislature. the language employed in a statute is the determinative factor of legislative intent. words and phrases are symbols that stimulate mental references to referents. the object of interpreting a statute is to ascertain the intention of the legislature enacting it. the intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. as a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. it is contrary to all rules of construction to read words into an act unless it is absolutely necessary to do so. rules of interpretation do not permit courts to do so, unless the provision as it stands is meaningless or of a doubtful meaning. statutes should be construed not as theorems of euclid. but, words must be construed with some imagination of the purposes which lie behind them. if the statute is plain, certain and free from ambiguity, a bare reading of it suffices and its interpretation can never arise. in discovering the legislative intent, courts are not exercising legislative power but apply the rules of common sense applying certain legal principles.35. if the contention of the learned counsel for the opposing creditors is to be accepted, it is possible only if the words 'three-fourths in value' to be read as three-fourths in total value and the words 'present and voting' are ignored. such an approach militates against the well settled rules of construction as it entails importing of the word 'total' not used in the provision and also rejection of the words 'present and voting' as meaning- less. therefore, it is not possible to accept such contention.36. in this background, the facts stated above makes it very clear that the scheme which is proposed by the petitioner is approved by a majority of equity shareholders, preference shareholders, bond holders and deposit holders representing three-fourths in value as well as in numbers present and voting.37. a faint attempt was made to contend that the section requires approval by the majority of shareholders and creditors. if the majority of shareholders and creditors have remained absent by not attending the meeting, it cannot be inferred that they have given approval. on the contrary, inference that can be drawn is that they have not given approval. this contention also has no substance.38. in fact, in bessemer steel & ordinance co. 's case {supra) (volume i, chancery division, page 251) it was held that when all the creditors of the company received notice of the meeting, it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. at all events, under the act of parliament, only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those present are sufficient to sanction the contract.39. therefore, if the creditors who have been duly served with the notices of the meeting which was also accompanied by the scheme, if they do not chose to be present in the meeting and express their view one way or the other, the only inference that could be drawn is prima facie, they have no objection for the said scheme being approved. any other interpretation in this regard would make it impossible for any company to get any of the schemes approved. if a mere absence of the shareholder or a creditor of the company has to be construed as opposition to the scheme which is proposed, then it would render section 391(2) of the act redundant and certainly that was not the intention of the legislature. when the persons who had ample opportunity to oppose such a scheme, who are invited to attend the meeting and to cast their vote against the said scheme, do not chose to attend the meeting, participate in the meeting or express their views by casting vote against it, it only means that they have no objection for sanction of the scheme, and by absence and not opposing the scheme, they have given their implied consent, though not an express consent by being present in the meeting and voting for the scheme.40. sri. s.m. chandrashekar, learned counsel appearing for the opposing objector also contended that the petitioners admittedly had filed c.a. no. 226/'02 for seeking direction of this court to convene the class meeting of the shareholders and creditors of the company. the said application was allowed by order dated 17-4-2002 in pursuance of which the meeting was held. in the said meeting the scheme was not approved. the chairman appointed for the said meeting filed a report to this court informing the fact that the said scheme was not approved because of pandemonium and unruly behaviour which prevented the meeting being held. therefore, no meeting as required under law could be held. it is thereafter, the petitioners filed one more application in c.a. 720 of 2002 for similar relief and an application no. 715/02 was filed to withdraw c.a. 226 of 2002. however, before any order was passed by this court in c.a. no. 720/02, it was also withdrawn. an application was filed in c.a. no. 1108/2002 in pursuance of which the meeting held was third application in a row. therefore, he contends that the third application itself was not maintainable and the meeting held in pursuance of the orders passed in the said application is one without jurisdiction and, therefore, the scheme which is said to have been approved in the meeting held in pursuance of the said order is not valid and legal and this court cannot accord sanction to such a scheme.41. the companies act casts obligation on the company to approach this court for convening the meeting of the shareholders and creditors of the company under section 391, in the event the company proposes a compromise or arrangement between a company and its creditors or any class of them or between a company and its members or any class of them, to enable the company to place it before the shareholders and creditors for their approval. if the meeting is not in pursuance of the order passed by this court and in such a meeting the said scheme is not approved or the said meeting could not transact the business for which it is convened, there is no prohibition in the act for convening another meeting for the said purpose. the ultimate object of the provision is that the meeting is to be convened with prior permission of the court and thereafter the other statutory requirement have to be complied with. if the meeting convened for the said purpose is not fruitful and the purpose is not achieved, it is always open to the company to convene another meeting for the said purpose with the permission of the court. therefore, in the absence of any express prohibition contained in the companies act, it cannot be said that the meeting convened in pursuance of the order passed by this court on an application is one without jurisdiction and the meeting is vitiated and the entire proceedings including approval of the scheme is vitiated.42. in the instant case admittedly in the first meeting convened in pursuance of the order of this court because of disturbance in the meeting and snatching of ballot boxes, the opinion of shareholders, creditors present and voted could not be known. therefore, the purpose for which that meeting was convened was not fulfilled. it is in that context an application was filed to withdraw the said application. one more application was filed for the very same purpose and the said application was not pursued as it was withdrawn. it is only after taking note of the objections raised in the previous meeting by the shareholders and creditors, after looking at the matter afresh, the company has come forward to put forth the revised scheme which is acceptable to the shareholders and creditors. the scheme which was proposed and now approved in the meeting held is not the scheme which was proposed in the earlier meetings. the present meeting is the first meeting in which the proposed revised scheme was considered and approved by the shareholders as well as the creditors. under these circumstances, in the absence of any legal impediment or express bar contained in the act, the contention that the meeting convened, the proceedings of the said meeting and approval of the scheme in the said meeting are vitiated, has no substance.43. next it was submitted that the scheme as it is if approved contravenes the provision of various laws, which is impermissible in law. reliance is placed on section 58a(3a) of the act which provides that every deposit accepted by the company at any time before the commencement of the company in 1974 in accordance with the direction made by the reserve bank of india under chapter iiib of the reserve bank of india act, shall, unless renewed in accordance with clause (b) repaid in accordance with the terms and conditions of such deposits. section 58a of the act provides that no deposit referred to in clause (a) shall be renewed unless deposit is such that it should have been accepted in accordance with the rules made under sub-section (1). sub-section (3a) of section 58a of the act provides that every deposit accepted by a company after the commencement of the amendment act, 1988 was unless renewed in accordance with the rules made under sub-section (1) be repaid in accordance with the terms and conditions of such deposits. under sub-section (5) if the company omits or fails to make repayment of deposit as aforesaid, the company shall be punishable with fine and every officer of the company who is in default, for a term which may extend up to 5 years and shall also be liable to fine.44. section 450 of the reserve bank of india act, 1934 provides that chapter iiib of the act shall have effect notwithstanding anything contained inconsistent therewith contained in any law for the time being in force. section 45m of the rbi act empowers the reserve bank of india to prohibit the non-banking financial company from accepting any deposit if the company violates the provisions of any section or fails to comply with any direction or order given by the bank. sub-section (2) of section 45mb of the rbi act also empowers the reserve bank of india to direct the company not to sell, transfer, create or charge or mortgage or deal in any manner with the property and assets without prior permission of the bank for such period not exceeding six months from the date of the order. by virtue of the power so vested in the bank an order has been passed prohibiting the company from alienating its assets. in fact the certificate of registration given to the petitioner to carry on the banking transactions has been cancelled. the appeal filed by the petitioner against the said order is also dismissed and the said order has become final. section 45-ib of the rbi act mandates that every non-banking financial company shall invest and continue to invest not less than 5 per cent of the amount received by way of deposits. it is in this background it was contended that the proposed scheme provides for payment of the amount deposited not on the maturity date but within 5 years from the date of maturity interest payable, from the effective date for a period of 5 years, till the amounts are repaid. in order to pay the depositors and creditors the scheme provides for sale of the assets in the company which is prohibited by the reserve bank. the statutory liquidator ratio is sought to be utilised for repaying the creditors. therefore, it was contended that if the scheme containing these provisions are sanctioned by this court it would have the effect of violating the aforesaid statutory provisions. though the court has the power under sections 391 and 394 of the act to accord sanction for a scheme before granting such sanction the court has to see whether such a scheme contravenes any of the provisions of law. if it contravenes any of the provisions of law, sanction cannot be afforded. the scheme is opposed to public policy, it is opposed to a statutory provision. therefore, it would not be a proper exercise of power by the court in according sanction.45. in order to appreciate this contention it is necessary to look at sections 391 and 394. section 391(1) provides for convening of a meeting to consider the compromise. sub-section (2) of section 391 of the act in which the meeting to consider the proposed scheme is to be approved, the proviso to section 391(2) which is relevant for the purpose of finding under what circumstances the said scheme could be sanctioned reads as under:'provided that no order sanctioning any compromise or arrangement shall be made by the court 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 on the accounts of the company, the pendency of any investigation, proceedings, in relation to the company under sections 235 and 251, and the like.section 394 which provides for facility of reconstruction and amalgamation of companies provides the factors to be satisfied before such a sanction is accorded. it provides that sanction of the scheme and the conditions which can be imposed by the courts while sanctioning the scheme as set out thereunder. here again the proviso to section 394(1) is of significance which reads as under:'provided that no compromise or arrangement proposed for the purpose of, or in connection with a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the court unless the court has received a report from the company law board or registrar that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest:provided further that no order for the dissolution of transferor company under clause (4) shall be made by the court unless the official liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest.'therefore, a reading of this proviso with sections 391 and 394 makes it clear that if the compromise and arrangements proposed involves an amalgamation of a company, then the report from the registrar and the report from the official liquidator has to be taken note of by the court. only if the said report states that the affairs of the company is not conducted in a manner prejudicial to the interest of its members or to public interest, the court can proceed to accord sanction if other condition are fulfilled. in other words the objections that the official liquidator or a registrar can take to a scheme of amalgamation is that the affairs of the company is conducted in a manner prejudicial to its members or to public interest. but the same is not required when it is only a mere case of arrangement and a compromise between the company and its members and creditors under section 391(1) of the act. in a case of a scheme of compromise or arrangement between the company and its members and creditors, it is the proviso to section 391(2) which has to be complied with. before the court can accord sanction, to such a compromise or arrangement as is clear from the said proviso 4 conditions have to be fulfilled namely:1. the company should disclose to the court by an affidavit or other- wise all material facts relating to the company.2. the company should produce the latest financial condition of the company showing its financial position. 3. the latest auditors report on the accounts of the company.4. it should disclose the pendency or otherwise of any investigation proceedings in relation to the company under sections 235 and 251 and the like.therefore, in the aforesaid provisions there is no specific provision which prohibits the court from according sanction if the terms of the scheme is contrary to any of the statutory provisions contained in the companies act or reserve bank of india act or any other law which is applicable to the company. in the absence of a specific provision if the terms of the scheme runs counter to the statutory provisions or would have the effect of violating those statutory provisions can the court accord sanction?46. in this regard it is necessary to refer few judgments relied on by the learned counsel appearing for the parties.47. the delhi high court in the case of in re himachal telematics ltd. [1996] 86 comp. cas. 325, answering the objections that as a consequence of the sanction of scheme of amalgamation, there would be violation, as transfer of shares from subsidiary company to transferee company would result and the same would be hit by section 42 of the act has held that the scheme is inconsistent with the other provisions of the act cannot become the basis for not sanctioning the scheme.48. following the aforesaid judgment in re new vision laser centres (rajkot) (p.) ltd. [2002] 111 comp. cas. 756, 36 scl 697. (guj.) it has been held that:'...if the scheme of amalgamation is inconsistent with other provisions of the companies act, 1956, then the legislation in its wisdom ought to have added in proviso to section 394 after the words 'public interest', or 'anything inconsistent with other provisions of the act'. that being not the situation, in the plain language of section 394 the court cannot permit the respondent to read a further condition which has not been intended in the section .... if there are no controlling provisions in the subsequent sections of the act, then no other meaning can be assigned to the language of a section'.... (p. 759)49. the supreme court in the case of rahuta union co-operative bank ltd. v. union of india [2004] 120 comp. cas. 184, dealing with a scheme of amalgamation under section 45(7) of the banking regulation act under which all the depositors were to get only 9.037 per cent and they were required to surrender fixed deposit receipts in return, the depositors opposed the sanction to such a scheme on the ground that it is contrary to the legislative mandate of section 45 of the banking regulation act. it was held that a full audit had been carried out, all known efforts to recover debts have been made, and even if there is no sufficiency of efforts of recovery that would have been made still it cannot be a ground for setting aside the scheme. but still, section 22 of the said act permitted the said bank to operate as a banking company, therefore, the provisions of the act applied to it and under those circumstances it was held :'though the provisions of the scheme contravened the legislature mandate it is permissible to make provisions in the scheme contrary to the said statutory provisions.'however, objectors relied on the decision of the supreme court in the case of general radio appliances co. ltd. v. m.a. khader : [1986]2scr607 , wherein it has held that a clause in the rent agreement executed by the transferor company successfully prohibited, without the express consent of the landlord, the transfer or interest including possession in respect of the leased premises under the order of the high court without obtaining the written permission or consent of the landlord could be said to have been transferred to the transferee company in contravention of the provisions of the act thereby making the transferee company liable to be evicted from the tenanted premises.50. from the aforesaid provisions and the judgments relied on, it is clear that the powers of the court under sections 391 to 394 of the companies act is unhindered by any of those provisions. the only two circumstances under which the company court is prevented from according sanction is contained in proviso to sections 391 and 394 where the official liquidator or the registrar of companies files a report stating that the affairs of the company is conducted in a manner prejudicial to the members of the company and the company. insofar as the power of the court to accord sanction, proviso to section 392 is concerned, once the conditions are fulfilled, there is no impediment for the court to accord sanction. once these statutory requirements are complied with, though the provisions of the scheme contravened the legislative mandate, it is permissible to make provisions in the scheme contrary to the other statutory provisions. the order of the company court, according sanction, will have the affect of overriding those other statutory provisions.51. the aforesaid statutory provisions only states what is the liability of the company in law when it renews deposits. all that it states is that the amount received by way of deposit should be returned to the creditors on the due date with full interest as accrued to it. if the company is in a position to honour the commitment, seeking sanction of a scheme would not arise under sections 391 to 394 of the act. it is only where the company is unable to perform its part of its contract, discharge its statutory obligation, in a case of default, because of the circumstances which are beyond its control, it proposes a scheme with its members and creditors, whereunder it is seeking concession, seeks enlargement of time for repayment of deposits, seeks waiver of interest of a portion to see that in the circum- stances to what extent the interest of the members and creditors could be salvaged. ultimately, it is for the members and the creditors of the company to compromise with the company in these matters. once a statutory majority of the members and the creditors of the company approve the scheme, then before it is implemented, sanction by the court is necessary. it is settled law, merely because the statutory requirements are fulfilled, the court cannot grant sanction automatically. at the time of according sanction the registrar of companies is heard and even the objectors are heard. if after considering all the objections and the law which govern the parties, only if the court is satisfied that the scheme is in the interest of members and creditors and the public at large, it does not contravene any of the provisions of the statute, court can accord sanction. merely because any of the provisions in the scheme runs counter to any of the statutory provisions, if the sanction sought for is not to be accorded, then the provisions contained in sections 391 to 394 become redundant. in fact a circular issued by the reserve bank of india shows that when a non- banking financial institution is directed to close down its business of which the certificate of registration is cancelled, as a consequence thereof such non-banking financial institutions are directed to continue to repay the deposits on due dates or dispose of all their financial assets within 3 years from the date of rejection or convert into non-banking non-financial companies within the same period.52. the reserve bank of india has passed an order restraining the company from alienating the property. under the scheme the company is seeking permission of the court to alienate the assets of the company to enable them to raise funds to pay the creditors and depositors. unless the permission sought for is granted the company will not be able to implement the scheme. therefore, notwithstanding the statutory provision under which the reserve bank of india has exercised its power restraining the company from alienating its assets, as under the scheme it is proposed that the assets have to be sold and the sale proceeds are to be utilized for paying the creditors and depositors, according sanction to a scheme containing any such provision would not be against the interest of the public or the interest of the company, its members and creditors. it cannot be said that such a clause is contrary to law.53. similarly the slr has to be permitted to be encashed in order to pay the creditors. when the secured creditors have given up a right and have permitted the company to sell the assets and pay the creditors and depositors the contention that slr has to be utilized only for the purpose of paying the unsecured creditors, in circumstances would be untenable. the slr if it is utilized for paying the creditors both secured and unsecured it would serve the interest of the company, its members, depositors and creditors and by according sanction to such a clause contained in the scheme it cannot be said that any provision of law has been contravened. other objections raised by the objectors are not substantiated by any acceptable evidence on record. as such, i do not find any substance in any of those contentions. under these circumstances, i am satisfied that these terms of the scheme which provides for waiver of interest and deferred payment do not have the effect of contravening the aforesaid provisions of law which compels the company to repay the entire amount received, essentially when the members and the creditors of the company have approved such a scheme by a statutory majority.54. in exercising the power of sanction, the courts have to see whether provisions of the statute have been complied with. secondly, that the class was fairly represented by those who attended the meeting and the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of this interest, might reasonably approve. thereafter, the court should be satisfied that the proposal was made in good faith and that it should be satisfied that proposal was just, fair and reasonable and that a there are no legal impediments for according such sanction. in this regard, it is necessary to refer to the judgment of the supreme court in the case of miheer h. mafatlal v. mafatlal industries ltd. : air1997sc506 wherein the following broad contours defining the jurisdiction of the company court have been laid down :(1) sanctioning court has to see to it all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)(a) have been held.(2) the sanction put up for sanction of the court is backed up by the requisite majority vote as required by section 391(2).(3) that the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. that the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.(4) that all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391(1).(5) that all the requisite material contemplated by the proviso to section 391(2) of the act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same.(6) that the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. for ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the scheme.(7) that the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.(8) that the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.(9) once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. the court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.the aforesaid parameters of the scope and ambit of jurisdiction of the company court which is called upon to sanction a scheme of compromise or arrangement are not exhaustive but only broadly illustrative of the contours of the court's jurisdiction.in this context, it is also useful to refer to section 392(2) of the act which also deals with the power of the court to enforce the scheme. the said section reads as hereunder :'392. power of high court to enforce compromises and arrangements.- (1) where a high court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it-(a) shall have the power to supervise the carrying out of the compromise or arrangements; and(b) may, at any 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 court aforesaid is satisfied that a compromise or 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 the act.'this section comes to play after the scheme is sanctioned by the court under section 391 of the act. after sanction of the scheme, the court has the power to supervise and carry out the compromise or arrangement. in the course of such supervision or at the time of making the order sanctioning the scheme or at any time thereof, the court can give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for proper working of the compromise or arrangement. in fact, sub-section (2) of section 392 of the act confers the wide powers on the court. after the scheme is sanctioned if the court is of the opinion that the scheme 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 order shall be deemed to be an order made under section 433 of the act.55. the power under the section is of widest amplitude, but is not unlimited but can be exercised only for the purpose of determination or adjudication of any right or interest claimed. the power seems absolute and of the widest amplitude. subsequent developments can also be taken a into account for considering desirability of the modification. a scheme can be modified by the court either at the time of order or after it is sanctioned. only such modifications to the scheme, which are necessary for the proper, efficient and smooth working of the scheme could be made. modification can be made at the instance of any person who is interested in the affairs of the company and the court can also introduce modification suo motu. but the paramount consideration while issuing any such direction by way of modification is that such direction must be necessary for the proper working of the compromise or arrangement.56. in the light of the aforesaid legal position, the scheme in the instant case is to be considered.57. i have gone through the terms of the scheme which is approved by the statutory majority in the meeting held in pursuance of the orders of this court. it discloses that the company is due in a sum of rs. 110.37 crores to deposit holders and interest payable to them as on 31-3-2002 would be about rs. 19.98 crores, in all amounting to rs. 130.35 crores. similarly, the company owes a sum of rs. 199.92 crores towards bond holders and they have to be paid a sum of rs. 31.58 crores as interest as on 31-3-2002, in all amounting to rs. 231.50 crores. thus, total liability of the company comes to around rs. 361.85 crores. the said amount is agreed to be repaid in a period of five years in instalments of 1596, 20%, 2596, 2096 & 2096. interest portion of the amount would be repaid along with the last instalment. a sum of rs. 20.19 crores statutory liquidity ratio is deposited in the government securities and in banks. as on today, the material on record discloses that a sum of rs. 6.13 crores is available with the company in terms of deposit in the bank, rs. 4.22 crores in the form of term deposits in escrow account, rs. 2 crores in the form of other term deposits and rs. 14 crores in the form of slr securities. thus, a sum of rs. 26.35 crores is available with the company for disbursal to the depositors and creditors in terms of the scheme. recoverable assets ie., the amounts which can be recovered under the hire purchase agreements is about rs. 72 crores, lease assets is about rs. 26 crores, demand loans is about rs. 103 crores, bill discounting is about rs. 8 crores, interest on the aforesaid recovery is about rs. 105 crores and thus, the total amount to be recovered is about rs. 314 crores. in addition to that, the company at various locations had 33 properties, the approximate value of which as on 31-3-2003 is around rs. 14.60 crores. accordingly to the petitioner, the present market value is around rs. 20 crores. in addition to that, shareholding in subsidiary companies and other investments in unquoted shares would be around rs. 40 crores. even after the margin of 10 per cent of the total amounts recovered, the company may recover about rs. 360 crores which may be sufficient to meet its commitment under the scheme.58. the material on record discloses that the company was incorporated in the year 1943. petitioner is a non-banking financial company being classified as a hire purchase and equipment leasing company by the reserve bank of india. in the course of their business, they have received deposits from the public. in some cases, they have offered securities for such deposits. they have been paying interest for the amounts received till 2002 and they have paid dividend to its investors. the company has set up about 100 branches all over the country and were supported by 360 sub- offices. in the year 1998, the rbi introduced regulatory measures regulating the business of non-banking financial companies. during that period, throughout the country, there were various scams in the capital market and investors confidence in these non-banking financial companies were seriously affected because of the defaults committed by them. there was a recession in the industrial sector coupled with the slow down of economy, particularly in transport industry in which company has in- vested huge amounts. the real estate value also suddenly fell. there was a delay in recovering the amounts due to the company. because of the panic situation, depositors started withdrawing the money and fresh depositors were not coming. it is in those circumstances, when there was a mismatch regarding the amounts recovered and the actual payments to be made on due dates, the company found it difficult to repay the deposits and has come forward with the aforesaid scheme where they pleaded their inability to pay the deposits which they have received in one instalment and sought for instalments and also pleaded their inability to pay future interest. in the first meeting held, proposals were turned down because of opposition. taking note of the suggestions in the said meeting, one more scheme was propounded incorporating the suggestions. even when that was found wanting, the present scheme has been formulated by the company.59. under the terms of the scheme, what has been agreed upon is, all the deposit holders and creditors would get back the entire principal amount paid to the company, but in five instalments. they will also get the interest on the said deposits and bonds upto 31-3-2002. however, no interest is payable subsequent to 31-3-2002 till the actual date of payment. in other words, the creditors and depositors have compromised their interest with the company to the extent of receiving the principal amount in a period of five years and waiving the interest due to them from 31-3-2002.60. the company moved this court for permission to convene meeting of shareholders, creditors and depositors of the company to consider the said proposal which was granted. accordingly, the meeting was held. the report submitted by the chairman of the meeting clearly discloses that the scheme has been approved by the requisite majority. thus, the petitioner has complied with the statutory requirements.61. registrar of companies after notice, have entered appearance and filed statement expressing certain apprehensions which have already been considered and found them without any substance. similarly, the reserve bank of india also entered appearance and has filed its objections pointing out the deficiencies in the scheme. in fact, after hearing, when the reserve bank of india was called upon to suggest the mode to make the scheme workable, it has filed an affidavit giving its suggestions. those suggestions have already been considered above. similarly, several depositors and creditors have also appeared before the court and have stated their objections. as discussed above, the sum and substance of their objections is that they should be paid the entire amount deposited in one lumpsum and they should be paid interest. if the company was able to pay the entire amount in one lumpsum with accrued interest, there was no necessity for them to propound this scheme. therefore, depositors who appeared before the court and objected to the scheme are in principle, not against the scheme as such. their opposition is only for payment of the principal amount in instalments and non-payment of the interest after the appointed date. when the company is unable to pay the entire debt with accrued interest on the maturity date, they have come forward with this scheme to which majority shareholders, creditors and depositors have given their consent. the contention that several terms of the scheme are contrary to the statutory provisions contained in the act has been considered and it was found to be without any substance. in fact, the amendments moved in the said meeting have been accepted by the company and they have incorporated those amendments in the scheme which is filed before this court for sanction by the company which shows the bona fides on the part of the company being sensitive to the views of creditors, shareholders and depositors. i do not find any of the terms of the scheme are violative of any of the provisions of law. similarly, it is not contrary to the public policy. i have found the scheme to be just, fair and reasonable. in fact, a suggestion made by the court that sufficient time has lapsed after petition is filed and therefore, period for repayment stipulated in the scheme has to be advanced. the company has filed a memo showing its bona fides for modification of the time stipulated in the scheme being advanced by six months. to a suggestion from the court that assets of the company shall be sold by the company under the supervision of the court with notice to depositors and creditors who are before court is also accepted. in fact, it was brought to the notice of the court that around 35,000 deposits have to be paid only rs. 5000 and less with accrued interest and the company has accepted the suggestion of the court to make payment to those deposit and bond holders whose debt value is rs. 5000 and less in the first instalment itself with accrued interest out of the slr.62. the winding up of a company is an extreme step because it results in the civil death of the company. on such winding up order being passed section 529a of the act provides for preferential payments. payment to the workers, debts due to the secured creditors shall be paid up in priority to all other debts. the aforesaid debts shall be paid in full unless the assets are insufficient to meet them in which case they shall abate in equal proportion. thereafter, out of the remaining amount all the revenues, taxes, cesses and rates due from the company to the central or state government or to the local authority are liable to be paid. thereafter all wages or salary of an employee has to be paid. then all accrued holiday remuneration becoming payable to any employee are to be paid. it is only thereafter if any amount is available the question of paying unsecured creditors would arise. under these circumstances, as contended by these unsecured creditors that if their amounts are not paid on the maturity date in one lumpsum with the entire accrued interest the scheme is to be rejected and the company is ordered to be wound up is detrimental of their interest. probably without knowing the consequence of winding up order lengthy objections are filed and vehement arguments were addressed. as all of them are before court, it is the duty of the court to protect the interest of each one of them to the extent possible. instead of winding up order a living workable scheme infusing life into a sick unit is generally preferred to a civil death of a company. if the claim proposed by the company is implemented in letter and spirit at least every one of the depositors and creditors would get back the entire amount invested by them with interest up to the appointed date within a period of five years. persons who have deposited an amount of rs. 5000 and less would get the entire amount with interest in one instalment within six months. having regard to the fact that nearly 35,000 depositors are going to be benefited by such payments and the others are likely to get back the money, within the period mentioned in the scheme, according sanction to the scheme would be in the interest of the depositors in particular and public at large.63. under the circumstances, i am satisfied that the scheme which is placed before the court for sanction is fair, just and equitable and is not opposed to public policy but is in the interest of members, creditors and depositors. therefore, i accord sanction to the scheme subject to the conditions/amendments mentioned hereunder :(1) time stipulated for repayment of the amounts as contained in the scheme shall be advanced by six months in all cases.(2) all the depositors and bond holders of the company whose deposit is rs. 5000 and less to be paid within six months from today in one instalment with accrued interest and on such payment, statement shall be filed in court showing the said payments.(3) in addition to the aforesaid payments, the company shall file a statement showing the payments made as per the scheme within one month from the date prescribed for making such payments.(4) the company is at liberty to negotiate for sale of its immovable property with any persons and after receiving the offer, it shall be placed before the court for sanction, after notice to the contesting parties before the court to enable them to bring the better offer. it is only after the said offer is accepted by this court and permission is granted, the petitioner shall sell the assets and the sale proceeds shall be released only for the purpose of discharging the amounts due to the depositors and creditors under the terms of the scheme.(5) the company shall obtain prior permission of this court for liquidating its investments in shares of other companies.(6) petitioner company shall not carry on the business as a non-banking financial company without prior permission of the rbi.(7) the slr encashed shall be utilised for payment of depositors only.(8) in the event of bond holders opting for splitting or by transfer of bonds to the value of rs. 5000 or less to get the benefit of this order, it is made clear that they would not be entitled to the benefit mentioned in clause (2) supra.(9) it is made clear as discussed above, the terms of the scheme provides for repayment of depositors, creditors over a period of 5 years that too in instalments and in the process, assets of the company have to be sold with the permission of the court. supervision of this court to carry out the terms of the scheme is very much necessary and if for the proper working of the scheme there is any necessity for modification of the scheme or for giving any further directions, parties are at liberty to approach this court in accordance with law.(10) the company is directed to file a statement of accounts showing the recoveries and amounts realized once in a year. hence, the following :
Judgment:ORDER
N. Kumar, J.
1. The petitioner - Maha Rashtra Apex Corporation Limited has filed this petition under sections 391, 393 read with section 394A of the Companies Act, 1956 ('the Act') seeking sanction of this court to the scheme of compromise and arrangement (revised) entered into between them and its creditors, shareholders, bond holders, deposit holders.
2. The case of the petitioner is as hereunder :
The petitioner-company was incorporated on the 26th day of April 1943 under the Indian Companies Act, 1913 as a public limited company, under the name and style of Maharashtra Apex Bank Limited. They obtained a certificate of commencement of business on 5th May 1943. Subsequently the name of the petitioner was changed to Maharashtra Apex Corporation Limited on 2nd September 1955. Thereafter the name of the company was changed as Maha Rashtra Apex Corporation Limited on 22nd March 1996. The registered office of the petitioner-company is situated at Syndicate House, Upendera Nagar, Manipal, in the State of Karnataka.
The authorized capital of the petitioner-company is Rs. 40 crores divided into 2 crores equity shares of Rs. 10 each and Rs. 2 crores redeemable cumulative preference shares of Rs. 10 each. The details of the issued, subscribed and paid up share capital of the petitioner-company as on 31st March 2002 is set out in paragraphs 5 and 6 of the petition. As is clear from the said paragraphs the petitioner-company has issued 1,41,50,100 equity shares of Rs. 10 each; 17,63,500, 17.5 per cent redeemable cumulative preference shares of Rs. 10 each. It is stated that subsequent to 31st March 2002 no material change or alteration has been made to the share capital of the petitioner-company. However, they have not paid redemption amount on preference shares on the due dates in respect of repayment falling due from September 2002 onwards. The petitioners equity shares are listed at National Stock Exchange, Mangalore, Pune, Bangalore and Mumbai Stock Exchanges and comprises of around 12000 public equity shareholders besides equity shares held by the promoters and their associates. In para 8 of the petition they have set out the shareholding as on 31-3-2002. The main object of the petitioner-company is set out in the memorandum of association. It discloses that the petitioner-company is mainly engaged in deposit mobilization, hire purchase, leasing, bill discounting, demand loans and money changing business etc. The petitioner-company is a non-banking financial company classified as hire purchase and equipment leasing company by the Reserve Bank of India. The audited accounts of the company for the year ending 31st March 2002 is produced along with the petition. It discloses that the accumulated loss as on 31st March 2002 stood at around Rs. 105.85 crores.
The petitioner-company submits that the fiscal reforms and the rapid changes in the monetary system necessitated structural adjustments and further even economy in the country had moved from regulated interest regime to deregulated interest rate mechanisms subject however to the directions and instructions and to the over-all policy frame-work issued by the Reserve Bank of India. It is contended that the petitioner-company is managing its business affairs without any major difficulty or constraints right from the inception in the year 1943 and have paid uninterrupted dividend since its inception till 1999. The petitioner had set up over 100 branches and supported by over 350 sub-offices, over the length and breadth of the country-wide network of agents. Due to adverse financial situations they have closed down many of its branches and is presently functioning through 36 branches across the country. The petitioner- company could mobilize over Rs. 100 crores deposits during the period April-December 1997 and deployed them in financial assets with utmost commercial prudence and probity. However, with the introduction of the new regulation in January, 1998 by the RBI, the petitioner-company all of a sudden had to face grave and unprecedented difficulties by virtual ban on acceptance of fresh deposits which seriously jeopardized the resource mobilization of the petitioner-company. The petitioner-company though had enjoyed sufficient capital adequacy ratio, in view of the rating norms introduced linked with the ceiling of acceptance of deposits by RBI, the petitioner-company was suddenly and irrationally downgraded during the period 1998, which seriously affected the resource mobilization, particularly, in the form of fixed deposits from the public. It resulted in increasing the cost of overheads and servicing of the deposit holders. The position in the industrial sector coupled with the slow down of the economy and other factors, particularly, in the transport industry, adversely affected the process of recovery of the loaned amount with interest. It seriously affected the nature of security in terms of money value held by the petitioners. In the absence of extending the benefit of approaching Debt Recovery Tribunal which is extended only to Banks & other financial institutions, the NBFCs are required to pursue civil remedies only for recovery of outstanding amount and this has also compounded the problems faced by the petitioner-company. The income from the operations was drastly reduced because of the aforesaid factors. In 18 months period prior to 31-3-2000 the income from the operation was Rs. 101.60 crores whereas Rs. 53.02 crores was the income from operations for the year ended 31-3-2001. However, the year ending on 31-3-2002 showed the income from operations only as Rs. 26.08 crores. In spite of these difficulties experienced by them up to 31st March 2002, the petitioner has discharged all its statutory obligations. Apprehending that in future they would not be able to comply with these obligations the existing terms and conditions of acceptance/renewal deposit and issue of bonds had contemplated proposing a scheme of arrangement and compromise with its creditors during April 2002. The Reserve Bank of India imposed a specific condition that the petitioner-company can only renew deposits up to 31st March 2002. In fact the petitioner-company was holding deposits of Rs. 110 crores maturing after 31st March 2002 which obviously could not even be deployed in the NBFCs business. The accumulated loss crossing beyond the net worth of the petitioner-company has seriously affected the business activities. The petitioner contends, as on 31-3-2002 still has the value of the assets including loaned assets, hire purchase assets etc., being much more than the liabilities to be met including the repayment of all debts of the secured and unsecured creditors of the petitioner- company. Due to the defaults committed by the borrowers, the petitioner- company initiated legal proceedings for recovery of the said amount and their recovery was not satisfactory. Due to the mismatch of the assets recovery verses repayment commitment, difference between the projected cash flow and the projected pay out for the commitments of the petitioner-company on the existing terms resulted in the petitioner- company making certain defaults in the repayment which cause was the A major factor for them to have considered rescheduling/restructuring the debt outstanding by drawing up a scheme of arrangement and compromise with the creditors during April 2002. Under the circumstances, the petitioner-company analyzed various options including the option for seeking deferment for meeting the repayments of the debts of the secured and unsecured creditors and for making out a suitable programme of restructure and re-arrangement of the outstanding debts.
The Board of Directors in formulating the scheme of arrangement and restructuring had formed a bona fide and sincere opinion that some of the subsidiary companies wherein the petitioner-company had invested in the form of share capital, should also form a part of the arrangement and restructuring being proposed, so that the creditors of the petitioner- company are not deprived of any of their legitimate debts being repaid. Accordingly, they were of the opinion that the subsidiary company Maharashtra Apex Asset Management Company Limited should undertake the said responsibility for recovery and distribution of the proceeds recovered to the bond holders and deposit holders of the petitioner- company. Therefore, at the meeting held on 15th April 2002 the Board of Directors approved the Scheme of Arrangement/restructure between the petitioner-company, its shareholders and creditors in participation with the subsidiaries, Kurlon Limited and Maharashtra Apex Asset Management Company Limited. Accordingly the petitioner-company pre- ferred an application to this court in Company Application No. 226/2002 seeking directions of this Court for convening the class meetings of the shareholders and creditors of the petitioner company. By order dated 17-4-2002 this court passed an order directing the company to hold separate meetings of the equity shareholders, preference shareholders, secured creditors and unsecured creditors on 14th June 2002 to consider the case of arrangement/restructure. Statutory notices were sent to all the creditors, members along with other legal requirements. An application C.A. No. 350/2002 was filed for appointment of additional Chairman for the said meetings which was also granted by this Court.
In the meanwhile by order dated 13-5-2002 the Reserve Bank of India prohibited the petitioner-company from acceptance of deposits and directed the petitioner-company not to sell, transfer, create charge, mortgage or deal in any manner with the company's property and assets without their prior written permission. Further by order dated 13-6-2002 they cancelled the registration for undertaking NBFC activities of the petitioner-company. Petitioner challenged those orders by preferring statutory appeal and pending consideration on 14-6-2002 the meeting which was called to consider and approve the scheme of arrangement was held and the meeting was disrupted by anguished mob behaviour of some section of the creditors. The meeting of the equity shareholders and preference shareholders were concluded in the morning session and there was lot of disturbance and pandemonium in the creditors meeting held in the afternoon. The Chairman of the meeting reported the said matter to this Court which is at Annexure-J to the petition. One of the reason for disturbance of the aforesaid meeting was opposition to involving subsidiary company of the petitioner namely Kurlon Ltd., and Maharashtra Apex Asset Management Company Ltd. Taking into consideration the views expressed in the said meeting as well as the aforesaid position, again the Board of Directors in the meeting held on 22-7-2002 proposed to modify the scheme. Thereafter, Company Application No. 720 of 2002 was filed seeking suitable direction of the court to convene a meeting of the shareholders and creditors. The petitioner also sought for direction to withdraw earlier C.A. No. 226/2002. This court permitted withdrawal of the earlier application. The aforesaid company application was also withdrawn in order to put forth a better scheme acceptable to all sections. The earlier period proposed for repayment was ten years which was reduced to five years. Earlier interest had to be waived, whereas, in the modified arrangement interest up to 31st March 2001 has to be paid. With these modifications the Board of Directors again on 11-11-2002 proposed a revised scheme. Thereafter Company Application No. 1108/2002 was filed before this court seeking leave of this Court to convene respective class meetings of the members, preference shareholders, bond holders as well as deposit holders. This court on 2-1-2003 allowed the said application, directed the petitioner to convene meeting on 14-2-2003 and 15-2-2003 at Manipal, and directed Dr. K. Sreenivasan, IPS Retd., failing him Ms. Nalini Venkatesh, failing her Mr. R.B. Despande to act as Chair- man/Chairperson and report the result of the meeting. Notice of the meeting was also advertised in Deccan Herald and Kannada Prabha both on 17-1-2003. As ordered meeting was held. In the meeting of the equity shareholders 252 equity shareholders were present, the value of the share was Rs. 6,89,26,670. Out of them 247 representing Rs. 6,89,07,160 i.e., 99.97 per cent voted in favour of the scheme. Five person representing Rs. 19,490 i.e., 0.03 per cent voted against the scheme. Insofar as preference share- holders are concerned, 10 were present who represented the value of the shareholders as Rs. 7,90,000. All of them voted in favour of the Scheme. 16191 bond holders i.e., secured creditors were present. They represented the value of Rs. 56,50,64,997.50. Out of them 15550 representing Rs. 54,60,01,799.50 i.e., 96.63 per cent voted in favour of the Scheme. 641 bond holders of the share value of Rs. 1,90,63,198 representing 3.37 per cent voted against the scheme. 7233 deposit holders i.e., unsecured creditors, of the value of Rs. 22,32,11,216 were present. Out of them 7083 creditors representing the value of Rs. 21,64,88,406 i.e., 96.99 per cent voted in favour of the scheme. 150 persons of the value of Rs. 67,22,810 i.e., 3.01 per cent voted against the scheme. While approving the scheme they suggested the following modifications :
-----------------------------------------------------------------------Clause 2(b) be Appointed date means 1st day of April 2002substituted as-----------------------------------------------------------------------Clause 6.4 be All Claimants under the Hardship cases shall be paid substituted as disbursements of a maximum of 75 per cent of the face value of the outstanding bonds/deposits as on the appointed date, as may be determined by the Hardship Committee, according to a formula as may be laid down by the Committee wherever the settlement is being requested to be made under Hardship cases.-----------------------------------------------------------------------Clause 9 be Subscriptions for bonds/deposits received and pending substituted as allotment/renewal and/or accepted/renewed by the company on or after 1-4-2002 shall be refunded in full on or before 31-3-2003 pending sanction. No interest shall accrue or be payable on such subscription for bonds/deposits.-----------------------------------------------------------------------Clause 15 be No instalment shall, however, be delayed more than 12amended by months. insertion ofan additionalsentence atthe end-----------------------------------------------------------------------
The Chairman of the meeting submitted their report to the Court.
3. Broadly stated the scheme envisages waiver of interest after 1-4-2002, payment of debts in five instalments, instead of refund of the deposits on maturity etc. It is thereafter the present petition was filed seeking sanction of the court for the scheme.
4. This petition was admitted on 28-2-2003 directing notice to the Regional Director, Department of Company Affairs, Southern Region, Chennai. The petitioner was directed to take out advertisement in one edition of Kannada Prabha and one edition of Deccan Herald on or before 10-3-2003 fixing the hearing date as 28-3-2003. Advertisement has been duly taken. In pursuance of the notice issued as well as advertisement, the Registrar of Companies have filed an affidavit setting out his observations of the scheme. It is contended that the company has not furnished the source of finance to settle the outstanding debts which are bond/deposits. The existing financial position is also not sound. The attendance of the meeting of the secured and unsecured creditors shows that the response to the scheme was poor. Though the technical requirement of quorum has been complied with, it appears that there was lack of proportional representation. They have received a complaint dated 22-4-2003 from one Mr. S.G. Prakash of Chikmagalur, as affected creditor of the company. Similarly Mr. C. Pandit Rao and Mr. J. Ganapathi Sastri of Secunderabad, have also filed complaints opposing the scheme. The company by proposing the scheme is attempting to circumvent the provisions of section 274(1 )(g) of the Companies Act, 1956. Therefore, he requested the court to take note of these facts before passing orders.
5. The petitioner has filed reply to the statement of the Register of Companies. It is contended that the financial position of receivables on account of hire purchase assets, lease assets as on 31 -3-2002 together with the entire proceeds as may be realised from and out of encashment of SLR, liquidation of investments, assets and properties would be sufficient to meet the commitments as envisaged in the scheme and within the time- frame proposed. They have reiterated that in the meeting held to consider the scheme requisite members as ordered by the court were present. Persons who were present approved the scheme. It is not open to the Registrar of Companies to raise any objections. In this regard when once legal requirements have been complied with the complaint received by the Registrar of Companies has no substance. They are frustrated persons who failed to get back their amount have written letters making un- founded allegations and in law it has no value. The allegation regarding contravention of section 274(1)(g) of the Act is baseless. If the intention on the part of the directors to avoid the liability, they could have retired long back and therefore it was contended that there is absolutely no substance in any of the allegations made in the statement of Registrar of Companies.
6. The Reserve Bank of India after entering appearing, filed their objections to the scheme. They contend that the proposed scheme contemplates liquidating the Statutory Liquidity Ratio (SLR) securities which is violative of section 45-IB of the Reserve Bank of India Act, 1934. The Reserve Bank of India has prohibited the petitioner-company from accepting the deposits and alienating the assets by Order dated 13-5-2002. Therefore the scheme may not be workable without alienating the assets of the petitioner-company. When the Reserve bank of India investigated the company, the financial position as on 31-3-2000 revealed that the financial position of the company was not satisfactory and that its net owned fund was negative to the extent of Rs. 68.15 crores. Therefore, they were not entitled to hold public deposits and hence the entire amount of deposit held as on that date, namely, Rs. 258.02 crores became excess deposits and the company was required to repay the said deposits in full. In view of the various violations of the directions issued by the Bank, committed by the company, the certificate of registration issued to the company was cancelled. The company was also prohibited from accepting deposits and alienating its assets without the prior approval of the Bank. Consequently they are not entitled to carry on business of a NBFC or accept deposits from the public. The mode of repayment suggested in the scheme is not in the public interest or in the interest of the depositors of the company. The company has no definite plan or ability to repay the depositors even as per the revised scheme proposed by it. In the proposed scheme it docs not contain any plan for recovering or realizing its assets. The scheme does not contain any material which shows that the company will be able to meet its commitments towards repayment of depositors as per the repaying schedule furnished in the scheme. Some of the depositors are accusing the management of siphoning off the funds of the company. Therefore, it is necessary to investigate the said allegations before any scheme or compromise is considered. The scheme proposed to repay depositors which gives a free hand to the company to siphon off assets or to divert the funds for a period of five years. The proposed scheme appears to be an attempt calculated to secure immunity against any claim from the creditors. An observer be appointed by court to ensure that the sale proceeds of its assets are not siphoned off by the company. The company is required to maintain liquid assets as required by the bank allowing the company to encash the same would amount to allowing the company to contravene the provisions of the RBI Act. The SLR can be reduced proportionately with a reduction of its deposit liabilities and it cannot be encashed or liquidated straightaway when deposits are still outstanding. Under the circumstances, the affairs of the company has to be investigated by independent auditors, an observer should be appointed to oversee the affairs of the company to realise its assets, trace out where the deposits collected have been siphoned off, retrieve the same and distribute the same to the depositors and other creditors. The directors and promoters of the company are directed to disclose before court by an affidavit the details of the properties owned or held by them or in the name of their spouses or dependents etc., and it is necessary to freeze the bank accounts and other accounts of the directors, promoters, their family members. The petitioner-company had filed its reply to the objections of RBI.
7. About 212 depositors have joined together and have filed common objections through the learned counsel Sri. S.M. Chandrashekar. They contend that the quorum of the meeting which was convened to consider the scheme should be 75 per cent of the value of the creditors and 75 per cent of the value of the shareholders under section 391 of the Companies Act. 16275 persons said to have attended the meeting and the value of which is Rs. 56,71,64,000 and 7277 persons value of which is said to be Rs. 22,38,78,302 as against Rs. 310 crores. Having regard to the value of the creditors of the company and shareholders, unsecured creditors said to have attended the meeting, the Scheme was not approved by the 75 per cent of the creditors under section 391 of the Act and, therefore, the petition is not maintainable. The report submitted by the Chairman to this court is illegal and it is not in accordance with law and the court should not act on the said report. These 212 objectors altogether have invested a sum of Rs. 1,05,19,500 in Royal bond certificate, Premier bond certificate and other schemes. They have filed Company Petition No. 206/02 under sections 433(e) and (f) of the Companies Act for winding up of the company and notice to the company has been ordered in the said petition. The Reserve Bank of India has directed the company to close down the operation and liquidate the debts. These objectors were not aware of the said orders and they have invested money. As the company's financial position is crippled and as there are no signs of revival, as the entire infrastructure has collapsed, therefore, the scheme propounded by the company is sham. Hence it has to be rejected. Many of the creditors have not received notice. Some of the creditors have received notice after meeting. Thus the company has prevented the genuine creditors from attending the meeting and expressing their opinion. Number of persons shown to have attended the meeting is exaggerated. Only 500 to 600 persons were present in the meeting hall. A close scrutiny of the proxy forms of the company shows that the company might have forged the proxy forms and votes said to have been polled in favour of the scheme, ballot boxes were not sealed, unauthorized persons were allowed to cast votes in favour of the scheme, the company has conveniently and cleverly prevented the genuine creditors from attending the meeting and thus got approval of the scheme fraudulently. The scheme is not fair and opposed to the interest of the creditors. Thus the creditors will be deprived of company funds in the hands of the above-said persons. If the company is unable to implement the directions issued by the Reserve Bank of India the company has to be wound up. The best option is to appoint the Official Liquidator and under the supervision of the High Court to liquidate the assets of the company and distribute the proceeds. These deposits have invested their hard earned money and life savings. They are unable to meet their daily needs such as hospitalisation, marriages, social engagements etc. Therefore they contend that the petition is liable to be dismissed and no sanction should be accorded to the scheme.
8. One Sri Vasantha Rao has filed his objections contending that he was moved to invest the money in the petitioner-company as he had 5 daughters and no sons and he has to live on the meagre pension. He invested the money believing the version of the petitioner-company. All the deposits for major amounts are not paid. His health is not all right. He needs medical assistance. The petitioner committed illegalities in repayment. Therefore, he contends that the company should be directed to refund their money with interest as expeditiously as possible. Along with the application he has produced xerox copies of the deposit receipts, medical certificates, ECG etc., to substantiate his contention. 145 creditors have given notice in the prescribed form to the petitioner-company making known their intention to appear and contest the petition. The petitioner in Form No. 10 has filed the list of persons intended to appear. Admittedly all of them have not appeared before court to oppose the petition. Only few of them have appeared to file their objections. Similarly another seven persons have also issued notice to oppose the petition which is also filed by the petitioner before court in the prescribed form.
9. One Smt. D.K. Janaki, holder of non-convertible Premier Bond issued by the petitioner-company has filed an affidavit contending that she cannot wait for five years to receive back her money. There is a provision for premature closure of bond. She has been deserted by her husband. She is entitled to get full amount with interest as accrued. Therefore, she contends the terms of the scheme are not acceptable. The petitioner has filed reply to the said objection contending that the same is not tenable in law and they have sought for rejection of the said objection.
10. One Sri. D.K. Karigowda, holder of non-convertible premier bond who has invested a sum of Rs. 1,00,000 in the petitioner-company has also filed objections contending that he is aged 80 years. He made the investment with the fond hope of getting regular monthly income for his livelihood. The company has failed to pay monthly interest from April 2002. There- fore, he has been put to financial problem and he has to undergo surgery. He needs money and, therefore, he requested the court to direct the petitioner to make payment immediately. Petitioner has filed statement of objections and contend that there is no substance in the said contention also.
11. One Master D. Venkatesh and 6 minors through their guardian have filed their objections opposing the scheme. They contend that their parents are all poor agriculturists and the money is invested with the intention of getting prompt income periodically. Petitioner-company has misappropriated the money belonging to the objectors. The statement of account are all cooked up with the help of Chartered Accountants. They have not complied with the statutory obligations. They have suppressed the material facts. They have secretly siphoned all the money of the petitioner-company. The scheme is proposed with the intention of scuttling the claim of the objectors and to make wrongful gain. Therefore, they have sought for modification of the scheme by which 50 per cent of the entire claim with accrued interest shall be paid immediately and the remaining amount to be paid in instalments.
12. Another 22 creditors lead by Smt. A.V. Parvathy, have also filed objections opposing the scheme. The sum and substance of the objections is that the petitioner has misappropriated the amount belonging to the depositors. All their deposits have matured. They are entitled to get back the amount at accrued rate of interest. The scheme proposed is not bona fide. However they contend that if the court is not rejecting the scheme, in the alternative the amount belonging to each one of them should be directed to be paid in first instalment of 50 per cent with interest and the remaining amount to be paid in instalments. Along with the objections they have filed Annexure-A. In this they have given the bond number, amount deposited and the maturity value. The company has filed reply contending that those objectors were not present in the meeting and they have no locus standi to file objections. The scheme is approved by majority. They have denied all the allegations made against them and they have stated that they would make payment in terms of the scheme and their claim of 50 per cent as first instalment is not acceptable and, therefore, they have sought for rejection of the said objections. In reply, rejoinder is filed by 21 persons again reiterating the allegations making accusation against the petitioner-company and requesting for payment in terms of the objections. Another set of objectors numbering about 14 lead by Sri S. Ramadas Prabhu have in their objection statement given the particulars of the deposits made, date of deposits, period and maturity value of each deposits and they have produced xerox copies of those certificates and contend that the petitioner-company without disclosing the doubtful debts they have accepted the deposits from the objectors fraudulently and it is not open to them to contend that they would repay the money in a period of five years. Therefore, they have sought for amendment of the scheme and direction to the petitioner to pay the principal amount in one instalment and the interest part in the second instalment within the period to be fixed by the court.
13. One Sri C. Pandit Rao from Secunderabad has filed his objections. He has set out in the objection about the subsidiary concerns of the petitioner- company. He seeks for rejection of the scheme. He submits that the company is bound to pay the amount of proceeds which they had invested with the petitioner company. Sri. S.G. Prakash of Chikmagalur one of the creditors appeared in person and submitted his objections to the scheme and was also heard.
14. Sri. S.M. Chandrashekar learned counsel appearing for the creditors contended that the scheme proposed by the petitioner-company has not been approved by the statutory majority as required under section 391(2) of the Act. It is his specific contention that under section 391(2) of the Act, it is stated that 3/4th in value of the creditors present and voting either in person or by proxy. A proper and reasonable interpretation of the said provision would be that only when majority of the members/creditors of the company and who also represent 3 /4th value of the total shareholding/ credit of the company, are present and voting in a meeting convened by the Court, it can be said the scheme has been approved in terms of section 391(2) of the Act. In that background, he submits that the scheme has not been approved by the requisite majority and as such question of this Court granting sanction to the said scheme does not arise. He also submitted that the meeting to consider the scheme was convened in pursuance of application filed for the said purpose which was not maintainable and, therefore, the entire proceedings commencing from such meeting is void ab initio. He also contended that when majority of the creditors do not attend the meeting and absented themselves it means that they are not giving consent to the scheme and in that view of the matter the scheme is not approved with the requisite majority. Lastly it was contended that the interest of the creditors would be saved by the court passing a winding up order appointing an Official Liquidator and disposing of the assets of the company and paying the money due to the creditors. Therefore, he submitted that sanction sought for should not be granted.
15. Learned Counsel appearing for the Reserve Bank of India Sri. R.V.S. Naik for M/s. King and Partridge submitted that the Reserve Bank of India has already cancelled the certificate issued to the petitioners to carry on non-banking business. Orders have been passed restraining them from alienating the property. Under these circumstances, if the Scheme is accorded sanction the provisions of the scheme runs counter to the said orders. Secondly it was contended that the SLR has to be utilized only for the purpose of paying unsecured creditors. Under the scheme the petitioners want to pay all the creditors which is impermissible in law. If the assets of the company is to be sold it should be by public auction and not by negotiations as mentioned in the scheme. Therefore, he contends that these factors have to be taken note of by the court before according sanction.
16. Learned Counsel appearing for the Registrar of Companies submitted g that the scheme discloses that the company do not possess requisite funds to discharge its entire liabilities. The terms of the scheme are contrary to section 58(A) of the Act and these factors have to be taken note of by the court before according sanction in the interest of depositors and creditors of the company.
17. Learned counsel appearing for the other objectors adopted the aforesaid arguments and further contended that the opposing creditors are only interested in getting back their deposits in full in one instalment with accrued interest and if that is not forthcoming the scheme should not be approved.
18. Per contra, learned counsel for the petitioner Sri K. Parameswaran, submits that there is no ambiguity in the language employed in section 391(2) of the Act calling for another interpretation by this Court. The section is unambiguous. Once the majority in number representing 3/4th in value of the creditors present and voting either in person or by proxy agree to any compromise or arrangement, the requirement under section 391(2) of the Act is fully complied with and this view has been consistently taken by the various High Courts in the Country as well as by the Supreme Court and, therefore, no case or deviation from the said interpretation is made out in this case. He submitted that the meeting to consider revised scheme was convened legally in pursuance of the order and the application filed for the said purpose is the first application filed to consider revised scheme and, therefore, he submitted that there is no substance in the contention that the entire proceedings are vitiated. When after receiving the notice, the shareholders and creditors of the company did not attend the meeting the only inference that could be drawn is that they have no objection for approval of the scheme and by their absence they have given their implied consent. With reference to the contention of the Reserve Bank of India, it was contended that though there is an order prohibiting the company from alienating the assets that is one of the mode for raising necessary funds to discharge the liability without which the scheme is not workable. When the court grants sanction to the said scheme the said orders of the Reserve Bank of India stands overruled and the court has the power to pass such orders.
19. Insofar as SLR is concerned that is a mode which is reserved for payment of unsecured creditors. It is proportionate to the total deposits. When the company wants to pay the depositors the amounts due to them under the scheme the SLR will be utilized only for the said purpose and, therefore there cannot be any objection for the same. Insofar as the contention that an independent body is to be appointed for the purpose of selling of the assets of the company and that it should be done by public auction is concerned, it is submitted that if the properties are sold by public auction it would be a distress sale and maximum amount cannot be recovered and unnecessary expenditure has to be incurred by way of remuneration to those persons. On the contrary if proper provision is made while granting sanction to seek permission of the court for sale the creditors would have an opportunity to have their say before court and the sale would be transparent and no one can have any objection for the sale. With reference to the comments made by the Registrar of the Companies is concerned, it is submitted that no doubt the provision of the Act provides for repayment of the entire amount of deposit on the maturity date with accrued interest because of the inability to pay the same the company has formulated the scheme as the next best thing and, therefore, the contention if the scheme is approved it would run counter to the provisions of the Act has no merit. It is submitted that it is nobody's case that the affairs of the company has been conducted in the manner prejudicial to the interest of public and the shareholders and, therefore, in the circum of the scheme the company has demonstrated their bona fides and their intention to pay back all the creditors the principal amount plus interest, as such, it is in the interest of the depositors, creditors and shareholders the sanction sought for is to be accorded.
20. After hearing the parties at length the court called upon the Reserve Bank of India to suggest safeguards by way of amendment to the Scheme so that if court were to accord sanction to the scheme the interest of every one is protected. Accordingly, the Reserve Bank of India has filed an application placing its recommendations. It is suggested that the company should be directed to furnish detailed schem setting out the manner and time-frame within which it recovers dues from it subsidiary and associate companies and other debtors and to submit to the court at intervals as this Hon'ble Court deem fit a true and correct report containing the recoveries made from the subsidiary and associate companies and other debtors as per schedule. The promoters may be directed to bring fresh funds by way of equity to bridge the gap between the outside liabilities and realisable value of assets. To direct the promoters to make good a sum of Rs. 2.30 crore from Escrow Account towards refund of application amount and loan to Shama Rao Vithal Co-operative Bank. The purchase of shares of co-promoters of M/s. Kurlon Limited from HSBC Pvt. Equity India Fund Limited, and 17.50 lakh equity shares of Maha Rashtra Apex Asset Management Company Limited, a subsidiary each from M/s. Shantalaxmi Finance and Investment Limited and Jyothishree Finance and Investment Limited and wiped off demand loans/debit balances of these companies aggregating Rs. 3.50 crores is in the nature of adjustment which was prejudicial to the interest of the company since the company neither received the principal nor any interest on the loan and the shares did not have any significant value. Therefore, the company be directed to unwind the transactions and receive the amount paid on behalf of the other promoters in the first transaction, realise the dues in the second transaction, recover the advance paid for acquisition of shares/debentures in the third transaction and recover the interest waived in the fourth transaction. The fair value of the assets should be realized either through a public auction or through negotiated sales under the supervision of an Observer appointed by the Court. They wanted to company to give an undertaking to the effect that it will not carry on the business of Non-Banking Financial Company and the company would within three months amend its Memorandum of Association and Articles of Association.
21. Opposing the said suggestions the company has filed its counter. They contend that when the company has stopped the NBFC activities during 2002 itself the maintenance of SLR with prescribed percentage will not be mandatory statutory requirement and the same could be relaxed or waived and the said amount may be permitted to be utilized for repayment of creditors. As the Certificate of Registration of the Company has been cancelled by the Reserve Bank of India the respondents could no longer function as NBFC and thus they are effectively prevented from carrying on any such business. The financial transaction which the company has made does not show as to how the same in any way infringes or violatives any of the statutory provisions applicable or is not in public interest. All the financial transactions discussed are clearly and categorically reflected in the books of accounts maintained by the company and in the absence of any prohibition in law no exception could be taken to the same. The apprehensions expressed by the RBI are imaginary and without any basis. The said suggestions do not merit any consideration. However, they contend they would abide by the orders to be passed by this court in this regard.
22. Before considering the legal issue, it is necessary to have the undisputed facts.
23. It is not in dispute that total number of Equity shareholders of the petitioner-company are 12,656, Preference shareholders are 144, Bond holders are 1,06,610 and deposits are 62,806. In the meeting of equity shareholders held, 256 persons attended the meeting and voted. Out of these votes, four votes were invalid. Out of the remaining 252 valid votes, 247 voted in favour of the scheme whereas, 5 voted against the scheme. The total value of 252 shareholders present is Rs. 6,89,26,670. Value of the shareholders voted in favour of the scheme comes to Rs. 6,89,07,160 which works out to 99.97 per cent. Similarly, the total value of the shareholders who voted against is Rs. 19,490 which is 0.03 per cent. Having regard to the number of persons voted in favour of the scheme works out to 98.01 per cent. Percentage of shareholders who voted against the scheme would be 1.99 per cent. This voting actually amounts to 1.9 per cent when compared to percentage of shareholders of the company who did not attend the meeting which works out to 98.1 per cent.
24. Insofar as preference shareholders are concerned, the total number is 144. Out of them, 41 attended the meeting and out of them, the vote of 31 persons were held to be invalid. Out of the remaining 10 votes, all of them unanimously voted approving the scheme. The value of those 10 preferential shareholders comes to Rs. 7,90,000 which would work out to 7 per cent of the total value of the preference shares held in the company. 93 per cent of the preference shareholders have not attended the meeting.
25. Out of 1,06,610 Bond holders, 16,191 bond holders attended the meeting and they represented the value to the tune of Rs. 56,50,64,997.50. Out of it, 15,550 voted in favour of the scheme which represents 96.04 per cent of the holders who were present and voted and the value of the bonds of those persons would be Rs. 54,60,01,079.50 and the percentage works out to 96.63 per cent. 641 Bond holders have voted against the scheme which leads to 3.96 per cent and the value of the votes held by them is Rs. 1,90,63,198 which represents 3.37 per cent. The number of bond holders who did not attend the meeting crossed probably 85 per cent.
26. Out of the 50,827 depositors, 7277 attended the meeting. 44 were invalid votes and 7,083 votes in favour of the scheme, who represents 97.93 per cent. The total value of the deposits who voted for the scheme is Rs. 21,64,88,406 and in terms of percentage it will be 96.99 per cent. 150 deposit holders voted against the scheme and their percentage would be 2.07 per cent and the value of amount due to them is Rs. 67,22,810 which works out to 3.01 per cent. Here again, the percentage of deposit holder who remained absent and who did not attend the meeting works out to probably about 88 per cent.
27. From the aforesaid figures, it is clear that 3 /4th of the total value of the shareholders and creditors were not present and voted and the said scheme is not approved by 3/4th of the total value of shareholders and creditors.
28. It is in this context, the question for consideration is, is it the requirement of law as contemplated under section 391(2) of the Act, that majority in number representing 3/4th in value of the creditors or shareholders present and voting or it is the 3 /4th of majority in number of members and creditors of the company of the total credit.
29. Answer to this point revolves on interpretation to be placed on section 391(2) of the Act which reads as under:
'391 (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, 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 Court, 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.'
In the 13th Edition of Buckley on the Companies Act, it has been observed that for the purpose of corresponding provision under the English law, sanction of majority in number representing 3/4th in value of the members of the class present and voting in person or by proxy is sufficient, although it may not represent 3/4th in value, nor semble, constitute a majority in number of the total class. The provisions of section 391(2) of the Act are in pari materia with the section 206(2) of the Companies Act, 1948 which was being interpreted in the aforesaid book. The English Company Law by Professor Robert R. Pennington (5th Edition), Page 590 use of the words 'present and voting' has been explained as under:
'...It appears that proxies may both speak and vote at meetings of creditors or members, and that the inability of proxies for members to speak at general meetings of a public company does not apply to meetings called to approve scheme of arrangement. The vote on the scheme at each meeting of members or creditors is taken by a poll, and for a resolution approving the scheme to be carried, the persons who are present in person or by proxy at the meeting and who vote in favour of the scheme must comprise a majority in number of all persons who vote in person or by proxy, and they must also hold three-quarters in value of the interests of all such persons. The number and the value of the interests of persons who do not attend and are not represented at the meeting, or who do attend the meeting but abstain from voting, are immaterial, and do not enter into the calculation at all. Likewise, the interests of persons who appoint proxies are disregarded if the proxies do not attend the meeting, or do attend but do not vote...'
This provision has further been explained in the twenty-fourth edition of Palmer's Company Law (at page 1145) as under:
'2. The class must have been fairly represented.
The Court must be satisfied that those who attended the meeting are fairly representative of the class and that the statutory majority did not coerce the minority in order to promote interests adverse to those of the class whom they purport to represent.
This requirement is, in part, an off shoot of the first. As regards the majority, there are two requirements: the majority who vote in favour of the scheme must be first a majority in number of those members of the class (whether of creditors or shareholders) who are present and voting; and, secondly, it must be three-fourths in value of the holding of such persons.
Thus, if there are 100 members voting of whom (to take an extreme example) one member holds 901 shares and the remainder hold one each, the 99 shareholders holding one share each cannot force a scheme against the vote of the holder of the 901 shares, because they do not muster three-fourths in value. Conversely, that shareholder and 49 of the others could not force a scheme against the votes of the remaining 50 because there would not be a majority in number. The same principle applies to creditors.
It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored.
However, this is not the whole requirement, because in addition the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether 1000 shareholders holding 10,000 shares in all, the Court would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 100 shares in all were present and voted.'
In Gower's Principles of Modern Company Law (sixth edition) (at page 585) the scope and meaning of the concept of 'majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting' has been explained by giving an illustration as under:
'An ordinary resolution is one passed by a simple majority of those voting, and is used for all matters not requiring another type of resolution under the Act or the articles. An extraordinary resolution is one passed by a three-fourths majority but no special period of notice is needed. Under the Act an extraordinary resolution is required only for certain matters connected with winding up, or when class meetings are asked to agree to a modification of class rights. A special resolution is also one passed by a three-fourths majority, but 21 days notice must be given of the meeting at which it is to be proposed. A special resolution is required before any important constitutional changes can be undertaken; and as a result of the legislation in the 1980s the number of such cases has greatly increased. In the case of both extraordinary and special resolutions the notice of the meeting must specify the intention to propose the resolution as an extraordinary or a special resolution, as the case may be.
In all these three cases the requisite majority is of the members entitled P to vote and actually voting either in person or by proxy where proxy voting is allowed. This may and, in the case of a public company normally will, be much less than a majority of the total membership, and may even be less than a majority of the members present at the meeting, for those who refrain from voting are ignored. To take an extreme case: A meeting of a company with 5,00,000 preference shares without voting rights, and 5,00,000 ordinary shares each with one vote, is attended only by five ordinary shareholders, four with one share each and one with hundred shares. If on a poll a resolution is voted for by three of the holders of one share and against by the fourth shareholder with one share, the holder of the hundred shares abstaining, the resolution will have been duly carried even if it is an extraordinary or special resolution, notwithstanding that only three out of a total of one million shares, three out of 5,00,000 total votes and three out of 104 votes exercisable at the meeting, have actually been polled in its favour. As we shall see later the procedure of voting on a show of hands, unless a poll is effectively demanded, may produce even greater anomalies.'
In Bessemer Steel & Ordinance Co., In re [1875-76] 1 Ch. D 251, wherein identical provisions of the English Law have been interpreted as under: (page 252):
'The only question is, whether the agreement has been approved by the proper number of creditors required by the Act. The second section of the Act provided that the meeting of the company's creditors may approve and sanction the agreement: 'If a majority in number representing three- fourths in value of such creditors, or class of creditors, present either in person or by proxy at such meeting, shall agree to the arrangement or compromise, and the agreement or compromise shall, if sanctioned by an order of the Court, be binding on all such creditors or class of creditors (as the case might be) and also on the liquidators and contributories of the company'. The question, therefore, is whether 'the majority representing three-fourths in value' is to be the majority of all the creditors in which case the Pounds 1,20,002,12s, 3d. does not constitute three-fourths of funds 1,70,000, or the majority representing that value of the creditors present at the meeting? In the latter case, all the creditors but one, for a very small amount, approved the agreement.
We say that the clause in the Act is satisfied by the sanction of three- fourths in value of the persons present at the meeting, and this was decided by your Lordship in re Tunis Railway Company (May 22, 1874) affirmed on appeal (before the Lords Justices, July 11, 1874).
Carson, for Dixon said he was desirous that the arrangement should be carried into effect.
MALLINS, V.C. :
I think the agreement should be carried into effect. All the creditors of the company received notice of this meeting, and it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. At all events, I think that under the Act of Parliament only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those present are sufficient to sanction the contract.'
Before the Karnataka High Court in Kirloskar Electric Co. Ltd., In re[2003] 116 Comp. Cas. 413, 43 SCL 186. the question for consideration was as to whether the proposed arrangement had been approved by the requisite majority at the meeting of the secured creditors within the meaning of section 391(2) of the Act. This meeting was attended by 18 secured creditors and the total value of their debt was Rs. 2,53,36,43,491. Out of the 18 present, one abstained from voting and the value of his debt was Rs. 30,98,21,941. Thus, the total value of secured creditors present and voting was Rs. 2,22,38,21,550. Two votes representing value of Rs. 3 8,98,62,275 were found to be invalid. The scheme was, therefore, approved by vote of 15 creditors and the value of their debt was Rs. 1,83,39,59,275. There was no difficulty as far as the majority in number is concerned because 15 creditors had voted in favour of the scheme. The question, however, was as to whether they represented three-fourths value of the creditors present and voting. The High Court held that the three-froths majority required under Sub-section (2) of section 391 of the Act was of the value represented by the members who were not only present but who had also voted. In fact, it went a step further to hold that the creditors who were present and had even voted but whose votes had been found to be invalid, could not be said to have voted because casting an invalid vote is no voting in the eyes of law.
30. In the aforesaid case of Kirloskar Electric Co. Ltd. {supra) this Court had an occasion to consider the meaning of the words 'present and voting' and it was held as under:
'Sub-section (2) of section 391 requires that a scheme of compromise or arrangement must be approved by majority of creditors/members representing three-fourths in value of the creditors or class of creditors, or members or class of members, present and voting either in person or where proxies are allowed, by proxy. There is no difficulty in understanding the word 'present' as the creditors or members should be physically present in person or through their proxy in the meeting. The problem arises in the context of the word 'voting'. Voting is formal expression of will or opinion by the person entitled to exercise the right on the subject or issue in question. Voting is explained as the expression of ones will, preference, or choice in regard to the decision to be made by the body as a whole upon any proposed measure or proceeding. Right to vote means right to exercise the right in favour of or against the motion or regulation. A member present and voting may remain neutral, indifferent, unbiased or impartial not engaged on either side. Voting has to be either in the affirmative or negative, i. e., 'yes' or 'no' on the ballot paper or voting paper. One is not supposed to write anything except putting 'yes' or 'no' either in favour of the proposition or against the proposition. In addition to the same, if any suggestion, condition, reservation or stipulation is written stating that the expression of the will or opinion either for or against the proposition is subject to those things, then, the votes have to be necessarily treated as invalid or void, as such votes are no votes leading either way. A vote cast without indicating the mind of the voter either for or against the resolution is no voting at all. Similarly, voting for or against the motion subject to the conditions stipulated in the vote is no voting in the eye of law. Therefore, voting understood in a proper perspective, it could be either in the affirmative or in the negative. Therefore, in construing whether a resolution is passed by three-fourths majority present and voting, what is to be taken into consideration in calculating the majority is not the number of persons present and voting, but the number of valid votes polled in such meeting. The number of valid votes includes only votes which are indicating the mind of the voter for or against the resolution.
Therefore, by 'voting', the mind, intention, preference of the voter must be clearly expressed. There should not be any ambiguity and scope for interpretation. It should be clear, unqualified and pointing. In this context, a voter who is not present at the meeting, who is present and not voting, present and voting by casting a blank ballot, and casting a ballot with conditions and stipulations, all stand on the same footing. It is no 'voting' in the eye of law. Therefore, in my opinion, the proper construction to be placed in calculating whether any resolution is approved or passed by a three-fourths majority present and voting necessarily mean the value of the valid votes and out of the same whether the resolution has been passed with three-fourths majority....' (p. 436)
31. The Full Bench of the Punjab & Haryana High Court in the case of Swift Formulations (P.) Ltd., In re [2004] 121 Comp. Cas. 27, 53 SCL 433. dealing with the identical situation, after reviewing the entire case law on the point has held that to interpret the requirement of majority under section 391(2) of the Act to mean three-fourths majority of the total value of shares/credit would not only render the expression 'present and voting' as redundant but also make the provision totally unworkable and impractical. It was also held that for the purpose of section 391(2) of the Act, the requirement of majority of three-fourths has to be seen in relation to the value of shares/credit represented by the persons who are present and voting in the meeting, either in person or by proxy. This provision cannot be interpreted to mean that the three-fourths majority has to be of the total value of the creditors/shareholders of the company. It was also held that section 391(2) of the Act has also been enacted so as to ensure that, a compromise or arrangement should receive substantial support from the creditors/shareholders. It is for this purpose that a two fold requirement has been prescribed. Firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent three-fourths value of the creditors/shareholders who are present and voting. This ensures that the persons representing nominal value of shares or credits though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. Conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit.
32. From the aforesaid statement of law and the judgments, it. is clear what the intention of the Legislature in enacting section 391(2) of the Act. Normally, decisions in the meetings are taken by the simple majority of persons who are physically present in the meeting. However, since the decision required to be taken under section 391(2) of the Act, has a far reaching consequences and affects the rights of the creditors/shareholders, a second safeguard has been provided. In other words, a resolution has to be passed not only by the majority in number of persons present and voting but additionally, such majority must represent three-fourths of the value of shares/credits held by the persons present and voting. In the corresponding provisions of section 153(2) of the Indian Companies Act, 1913 the requirement of three-fourths majority in value had to be seen in relation to the value of the shareholders/creditors who were present either in person or by proxy. It was not necessary that such person should also have participated in the voting. As per the Company Law Committee Report of 1952, it was recommended that the words 'and voting' between the words 'present' and 'either' be added. The object of this amendment was explained so as to ensure that decisions in regard to compromise and arrangements are taken by the majority and three-fourths of the members present and voting in class meetings. It was in this background that the provisions of section 391(2) were enacted. If these provision were to be interpreted to mean that the majority must represent three-fourths of the total value of the shares/credits, then, the words 'present and voting' would become redundant, which is against the well settled rules of construction. The Act contains enough safeguards to protect the interest of the creditors/shareholders. As per the provisions of the Act, every creditor/shareholder has to be given 21 days notice along with a copy of the arrangement. Notice is also required to be given to the Central Government. However, if despite sufficient notice, a creditor/shareholder chooses not to attend the meeting, his inaction cannot possibly hold up the decision making process of the company. Even after a decision has been arrived at by the requisite majority, but the Court finds it to be against the interest of the creditors/shareholders, it can still not sanction the compromise or arrangement. In the modern corporate world, there are companies in which the number of shareholders runs into lakhs and such shareholders are located in different parts of the country. To require such companies to have the approval under section 391(2) of the Act from a majority representing three-fourths of the total value of its shares is almost impossible. Such an interpretation would render the provision unworkable.
33. Section 391(2) of the Act has been enacted so as to ensure that a compromise or arrangement should receive substantial support from the creditors/shareholders. It is for this purpose that a two fold requirement has been prescribed. Firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent three-fourths value of the creditors/shareholders who are present and voting. This ensures that the persons representing nominal value of shares or credits, though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. Conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit.
34. It is well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the Legislature enacting it. The intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. Rules of interpretation do not permit Courts to do so, unless the provision as it stands is meaningless or of a doubtful meaning. Statutes should be construed not as theorems of Euclid. But, words must be construed with some imagination of the purposes which lie behind them. If the statute is plain, certain and free from ambiguity, a bare reading of it suffices and its interpretation can never arise. In discovering the legislative intent, Courts are not exercising legislative power but apply the rules of common sense applying certain legal principles.
35. If the contention of the learned counsel for the opposing creditors is to be accepted, it is possible only if the words 'three-fourths in value' to be read as three-fourths in total value and the words 'present and voting' are ignored. Such an approach militates against the well settled rules of construction as it entails importing of the word 'total' not used in the provision and also rejection of the words 'present and voting' as meaning- less. Therefore, it is not possible to accept such contention.
36. In this background, the facts stated above makes it very clear that the scheme which is proposed by the petitioner is approved by a majority of equity shareholders, preference shareholders, Bond holders and deposit holders representing three-fourths in value as well as in numbers present and voting.
37. A faint attempt was made to contend that the section requires approval by the majority of shareholders and creditors. If the majority of shareholders and creditors have remained absent by not attending the meeting, it cannot be inferred that they have given approval. On the contrary, inference that can be drawn is that they have not given approval. This contention also has no substance.
38. In fact, in Bessemer Steel & Ordinance Co. 's case {supra) (Volume I, Chancery Division, Page 251) it was held that when all the creditors of the company received notice of the meeting, it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. At all events, under the Act of Parliament, only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those present are sufficient to sanction the contract.
39. Therefore, if the creditors who have been duly served with the notices of the meeting which was also accompanied by the scheme, if they do not chose to be present in the meeting and express their view one way or the other, the only inference that could be drawn is prima facie, they have no objection for the said scheme being approved. Any other interpretation in this regard would make it impossible for any company to get any of the schemes approved. If a mere absence of the shareholder or a creditor of the company has to be construed as opposition to the scheme which is proposed, then it would render section 391(2) of the Act redundant and certainly that was not the intention of the Legislature. When the persons who had ample opportunity to oppose such a scheme, who are invited to attend the meeting and to cast their vote against the said scheme, do not chose to attend the meeting, participate in the meeting or express their views by casting vote against it, it only means that they have no objection for sanction of the scheme, and by absence and not opposing the scheme, they have given their implied consent, though not an express consent by being present in the meeting and voting for the scheme.
40. Sri. S.M. Chandrashekar, learned Counsel appearing for the opposing objector also contended that the petitioners admittedly had filed C.A. No. 226/'02 for seeking direction of this Court to convene the class meeting of the shareholders and creditors of the Company. The said application was allowed by order dated 17-4-2002 in pursuance of which the meeting was held. In the said meeting the scheme was not approved. The Chairman appointed for the said meeting filed a report to this Court informing the fact that the said scheme was not approved because of pandemonium and unruly behaviour which prevented the meeting being held. Therefore, no meeting as required under law could be held. It is thereafter, the petitioners filed one more application in C.A. 720 of 2002 for similar relief and an application No. 715/02 was filed to withdraw C.A. 226 of 2002. However, before any order was passed by this Court in C.A. No. 720/02, it was also withdrawn. An application was filed in C.A. No. 1108/2002 in pursuance of which the meeting held was third application in a row. Therefore, he contends that the third application itself was not maintainable and the meeting held in pursuance of the orders passed in the said application is one without jurisdiction and, therefore, the scheme which is said to have been approved in the meeting held in pursuance of the said order is not valid and legal and this Court cannot accord sanction to such a scheme.
41. The Companies Act casts obligation on the Company to approach this Court for convening the meeting of the shareholders and creditors of the Company under section 391, in the event the Company proposes a compromise or arrangement between a Company and its creditors or any class of them or between a company and its members or any class of them, to enable the Company to place it before the shareholders and creditors for their approval. If the meeting is not in pursuance of the order passed by this Court and in such a meeting the said scheme is not approved or the said meeting could not transact the business for which it is convened, there is no prohibition in the Act for convening another meeting for the said purpose. The ultimate object of the provision is that the meeting is to be convened with prior permission of the Court and thereafter the other Statutory requirement have to be complied with. If the meeting convened for the said purpose is not fruitful and the purpose is not achieved, it is always open to the company to convene another meeting for the said purpose with the permission of the Court. Therefore, in the absence of any express prohibition contained in the Companies Act, it cannot be said that the meeting convened in pursuance of the order passed by this Court on an application is one without jurisdiction and the meeting is vitiated and the entire proceedings including approval of the scheme is vitiated.
42. In the instant case admittedly in the first meeting convened in pursuance of the order of this Court because of disturbance in the meeting and snatching of ballot boxes, the opinion of shareholders, creditors present and voted could not be known. Therefore, the purpose for which that meeting was convened was not fulfilled. It is in that context an application was filed to withdraw the said application. One more application was filed for the very same purpose and the said application was not pursued as it was withdrawn. It is only after taking note of the objections raised in the previous meeting by the shareholders and creditors, after looking at the matter afresh, the Company has come forward to put forth the revised scheme which is acceptable to the shareholders and creditors. The scheme which was proposed and now approved in the meeting held is not the scheme which was proposed in the earlier meetings. The present meeting is the first meeting in which the proposed revised scheme was considered and approved by the shareholders as well as the creditors. Under these circumstances, in the absence of any legal impediment or express bar contained in the Act, the contention that the meeting convened, the proceedings of the said meeting and approval of the scheme in the said meeting are vitiated, has no substance.
43. Next it was submitted that the scheme as it is if approved contravenes the provision of various laws, which is impermissible in law. Reliance is placed on section 58A(3a) of the Act which provides that every deposit accepted by the company at any time before the commencement of the company in 1974 in accordance with the direction made by the Reserve Bank of India under Chapter IIIB of the Reserve Bank of India Act, shall, unless renewed in accordance with clause (b) repaid in accordance with the terms and conditions of such deposits. Section 58A of the Act provides that no deposit referred to in clause (a) shall be renewed unless deposit is such that it should have been accepted in accordance with the rules made under Sub-section (1). Sub-section (3A) of section 58A of the Act provides that every deposit accepted by a company after the commencement of the Amendment Act, 1988 was unless renewed in accordance with the rules made under Sub-section (1) be repaid in accordance with the terms and conditions of such deposits. Under Sub-section (5) if the company omits or fails to make repayment of deposit as aforesaid, the company shall be punishable with fine and every officer of the company who is in default, for a term which may extend up to 5 years and shall also be liable to fine.
44. Section 450 of the Reserve Bank of India Act, 1934 provides that Chapter IIIB of the Act shall have effect notwithstanding anything contained inconsistent therewith contained in any law for the time being in force. Section 45M of the RBI Act empowers the Reserve Bank of India to prohibit the non-banking financial company from accepting any deposit if the company violates the provisions of any section or fails to comply with any direction or order given by the Bank. Sub-section (2) of section 45MB of the RBI Act also empowers the Reserve Bank of India to direct the company not to sell, transfer, create or charge or mortgage or deal in any manner with the property and assets without prior permission of the bank for such period not exceeding six months from the date of the order. By virtue of the power so vested in the bank an order has been passed prohibiting the company from alienating its assets. In fact the certificate of registration given to the petitioner to carry on the banking transactions has been cancelled. The appeal filed by the petitioner against the said order is also dismissed and the said order has become final. Section 45-IB of the RBI Act mandates that every Non-Banking Financial Company shall invest and continue to invest not less than 5 per cent of the amount received by way of deposits. It is in this background it was contended that the proposed scheme provides for payment of the amount deposited not on the maturity date but within 5 years from the date of maturity interest payable, from the effective date for a period of 5 years, till the amounts are repaid. In order to pay the depositors and creditors the scheme provides for sale of the assets in the company which is prohibited by the Reserve Bank. The statutory liquidator ratio is sought to be utilised for repaying the creditors. Therefore, it was contended that if the scheme containing these provisions are sanctioned by this court it would have the effect of violating the aforesaid statutory provisions. Though the court has the power under sections 391 and 394 of the Act to accord sanction for a scheme before granting such sanction the court has to see whether such a scheme contravenes any of the provisions of law. If it contravenes any of the provisions of law, sanction cannot be afforded. The scheme is opposed to public policy, it is opposed to a statutory provision. Therefore, it would not be a proper exercise of power by the court in according sanction.
45. In order to appreciate this contention it is necessary to look at sections 391 and 394. Section 391(1) provides for convening of a meeting to consider the compromise. Sub-section (2) of section 391 of the Act in which the meeting to consider the proposed scheme is to be approved, the proviso to section 391(2) which is relevant for the purpose of finding under what circumstances the said scheme could be sanctioned reads as under:
'Provided that no order sanctioning any compromise or arrangement shall be made by the court 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 on the accounts of the company, the pendency of any investigation, proceedings, in relation to the company under sections 235 and 251, and the like.
Section 394 which provides for facility of reconstruction and amalgamation of companies provides the factors to be satisfied before such a sanction is accorded. It provides that sanction of the scheme and the conditions which can be imposed by the courts while sanctioning the scheme as set out thereunder. Here again the proviso to section 394(1) is of significance which reads as under:
'Provided that no compromise or arrangement proposed for the purpose of, or in connection with a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the court unless the court has received a report from the Company Law Board or Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest:
Provided further that no order for the dissolution of transferor company under clause (4) shall be made by the court unless the official liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest.'
Therefore, a reading of this proviso with sections 391 and 394 makes it clear that if the compromise and arrangements proposed involves an amalgamation of a company, then the report from the Registrar and the report from the official liquidator has to be taken note of by the court. Only if the said report states that the affairs of the company is not conducted in a manner prejudicial to the interest of its members or to public interest, the court can proceed to accord sanction if other condition are fulfilled. In other words the objections that the official liquidator or a Registrar can take to a scheme of amalgamation is that the affairs of the company is conducted in a manner prejudicial to its members or to public interest. But the same is not required when it is only a mere case of arrangement and a compromise between the company and its members and creditors under section 391(1) of the Act. In a case of a scheme of compromise or arrangement between the company and its members and creditors, it is the proviso to section 391(2) which has to be complied with. Before the court can accord sanction, to such a compromise or arrangement as is clear from the said proviso 4 conditions have to be fulfilled namely:
1. The company should disclose to the court by an affidavit or other- wise all material facts relating to the company.
2. The company should produce the latest financial condition of the company showing its financial position.
3. The latest auditors report on the accounts of the company.
4. It should disclose the pendency or otherwise of any investigation proceedings in relation to the company under sections 235 and 251 and the like.
Therefore, in the aforesaid provisions there is no specific provision which prohibits the court from according sanction if the terms of the scheme is contrary to any of the statutory provisions contained in the Companies Act or Reserve Bank of India Act or any other law which is applicable to the company. In the absence of a specific provision if the terms of the scheme runs counter to the statutory provisions or would have the effect of violating those statutory provisions can the court accord sanction?
46. In this regard it is necessary to refer few judgments relied on by the learned counsel appearing for the parties.
47. The Delhi High Court in the case of In re Himachal Telematics Ltd. [1996] 86 Comp. Cas. 325, answering the objections that as a consequence of the sanction of scheme of amalgamation, there would be violation, as transfer of shares from subsidiary company to transferee company would result and the same would be hit by section 42 of the Act has held that the scheme is inconsistent with the other provisions of the Act cannot become the basis for not sanctioning the scheme.
48. Following the aforesaid Judgment In re New Vision Laser Centres (Rajkot) (P.) Ltd. [2002] 111 Comp. Cas. 756, 36 SCL 697. (Guj.) it has been held that:
'...If the scheme of amalgamation is inconsistent with other provisions of the Companies Act, 1956, then the legislation in its wisdom ought to have added in proviso to section 394 after the words 'public interest', or 'anything inconsistent with other provisions of the Act'. That being not the situation, in the plain language of section 394 the court cannot permit the respondent to read a further condition which has not been intended in the section .... If there are no controlling provisions in the subsequent sections of the Act, then no other meaning can be assigned to the language of a section'.... (p. 759)
49. The Supreme court in the case of Rahuta Union Co-operative Bank Ltd. v. Union of India [2004] 120 Comp. Cas. 184, dealing with a scheme of amalgamation under section 45(7) of the Banking Regulation Act under which all the depositors were to get only 9.037 per cent and they were required to surrender Fixed Deposit Receipts in return, the depositors opposed the sanction to such a scheme on the ground that it is contrary to the legislative mandate of section 45 of the Banking Regulation Act. It was held that a full audit had been carried out, all known efforts to recover debts have been made, and even if there is no sufficiency of efforts of recovery that would have been made still it cannot be a ground for setting aside the scheme. But still, section 22 of the said Act permitted the said Bank to operate as a banking company, therefore, the provisions of the Act applied to it and under those circumstances it was held :
'Though the provisions of the scheme contravened the Legislature mandate it is permissible to make provisions in the scheme contrary to the said statutory provisions.'
However, objectors relied on the decision of the Supreme Court in the case of General Radio Appliances Co. Ltd. v. M.A. Khader : [1986]2SCR607 , wherein it has held that a clause in the rent agreement executed by the transferor company successfully prohibited, without the express consent of the landlord, the transfer or interest including possession in respect of the leased premises under the order of the High Court without obtaining the written permission or consent of the landlord could be said to have been transferred to the transferee company in contravention of the provisions of the Act thereby making the transferee company liable to be evicted from the tenanted premises.
50. From the aforesaid provisions and the Judgments relied on, it is clear that the powers of the court under sections 391 to 394 of the Companies Act is unhindered by any of those provisions. The only two circumstances under which the company court is prevented from according sanction is contained in proviso to sections 391 and 394 where the official liquidator or the Registrar of Companies files a report stating that the affairs of the company is conducted in a manner prejudicial to the members of the company and the company. Insofar as the power of the court to accord sanction, proviso to section 392 is concerned, once the conditions are fulfilled, there is no impediment for the court to accord sanction. Once these statutory requirements are complied with, though the provisions of the scheme contravened the legislative mandate, it is permissible to make provisions in the scheme contrary to the other statutory provisions. The order of the company court, according sanction, will have the affect of overriding those other statutory provisions.
51. The aforesaid statutory provisions only states what is the liability of the company in law when it renews deposits. All that it states is that the amount received by way of deposit should be returned to the creditors on the due date with full interest as accrued to it. If the company is in a position to honour the commitment, seeking sanction of a scheme would not arise under sections 391 to 394 of the Act. It is only where the company is unable to perform its part of its contract, discharge its statutory obligation, in a case of default, because of the circumstances which are beyond its control, it proposes a scheme with its members and creditors, whereunder it is seeking concession, seeks enlargement of time for repayment of deposits, seeks waiver of interest of a portion to see that in the circum- stances to what extent the interest of the members and creditors could be salvaged. Ultimately, it is for the members and the creditors of the company to compromise with the company in these matters. Once a statutory majority of the members and the creditors of the company approve the scheme, then before it is implemented, sanction by the court is necessary. It is settled law, merely because the statutory requirements are fulfilled, the court cannot grant sanction automatically. At the time of according sanction the Registrar of Companies is heard and even the objectors are heard. If after considering all the objections and the law which govern the parties, only if the court is satisfied that the scheme is in the interest of members and creditors and the public at large, it does not contravene any of the provisions of the statute, court can accord sanction. Merely because any of the provisions in the scheme runs counter to any of the statutory provisions, if the sanction sought for is not to be accorded, then the provisions contained in sections 391 to 394 become redundant. In fact a circular issued by the Reserve Bank of India shows that when a non- banking financial institution is directed to close down its business of which the certificate of registration is cancelled, as a consequence thereof such non-banking financial institutions are directed to continue to repay the deposits on due dates or dispose of all their financial assets within 3 years from the date of rejection or convert into non-banking non-financial companies within the same period.
52. The Reserve Bank of India has passed an order restraining the company from alienating the property. Under the Scheme the company is seeking permission of the court to alienate the assets of the company to enable them to raise funds to pay the creditors and depositors. Unless the permission sought for is granted the company will not be able to implement the scheme. Therefore, notwithstanding the statutory provision under which the Reserve Bank of India has exercised its power restraining the company from alienating its assets, as under the scheme it is proposed that the assets have to be sold and the sale proceeds are to be utilized for paying the creditors and depositors, according sanction to a scheme containing any such provision would not be against the interest of the public or the interest of the company, its members and creditors. It cannot be said that such a clause is contrary to law.
53. Similarly the SLR has to be permitted to be encashed in order to pay the creditors. When the secured creditors have given up a right and have permitted the company to sell the assets and pay the creditors and depositors the contention that SLR has to be utilized only for the purpose of paying the unsecured creditors, in circumstances would be untenable. The SLR if it is utilized for paying the creditors both secured and unsecured it would serve the interest of the company, its members, depositors and creditors and by according sanction to such a clause contained in the scheme it cannot be said that any provision of law has been contravened. Other objections raised by the objectors are not substantiated by any acceptable evidence on record. As such, I do not find any substance in any of those contentions. Under these circumstances, I am satisfied that these terms of the scheme which provides for waiver of interest and deferred payment do not have the effect of contravening the aforesaid provisions of law which compels the company to repay the entire amount received, essentially when the members and the creditors of the company have approved such a scheme by a statutory majority.
54. In exercising the power of sanction, the Courts have to see whether provisions of the statute have been complied with. Secondly, that the class was fairly represented by those who attended the meeting and the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of this interest, might reasonably approve. Thereafter, the Court should be satisfied that the proposal was made in good faith and that it should be satisfied that proposal was just, fair and reasonable and that A there are no legal impediments for according such sanction. In this regard, it is necessary to refer to the Judgment of the Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. : AIR1997SC506 wherein the following broad contours defining the jurisdiction of the Company Court have been laid down :
(1) Sanctioning Court has to see to it all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)(a) have been held.
(2) The sanction put up for sanction of the Court is backed up by the requisite majority vote as required by section 391(2).
(3) That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
(4) That all necessary material indicated by section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by section 391(1).
(5) That all the requisite material contemplated by the proviso to section 391(2) of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
(6) That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the scheme.
(7) That the company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
(8) That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
(9) Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of jurisdiction of the Company Court which is called upon to sanction a scheme of compromise or arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction.
In this context, it is also useful to refer to section 392(2) of the Act which also deals with the power of the Court to enforce the scheme. The said section reads as hereunder :
'392. Power of High Court to enforce compromises and arrangements.- (1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it-
(a) shall have the power to supervise the carrying out of the compromise or arrangements; and
(b) may, at any 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 Court aforesaid is satisfied that a compromise or 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 the Act.'
This section comes to play after the scheme is sanctioned by the Court under section 391 of the Act. After sanction of the scheme, the Court has the power to supervise and carry out the compromise or arrangement. In the course of such supervision or at the time of making the order sanctioning the scheme or at any time thereof, the court can give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for proper working of the compromise or arrangement. In fact, Sub-section (2) of section 392 of the Act confers the wide powers on the Court. After the scheme is sanctioned if the Court is of the opinion that the scheme 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 order shall be deemed to be an order made under section 433 of the Act.
55. The power under the section is of widest amplitude, but is not unlimited but can be exercised only for the purpose of determination or adjudication of any right or interest claimed. The power seems absolute and of the widest amplitude. Subsequent developments can also be taken A into account for considering desirability of the modification. A scheme can be modified by the Court either at the time of order or after it is sanctioned. Only such modifications to the scheme, which are necessary for the proper, efficient and smooth working of the scheme could be made. Modification can be made at the instance of any person who is interested in the affairs of the company and the Court can also introduce modification suo motu. But the paramount consideration while issuing any such direction by way of modification is that such direction must be necessary for the proper working of the compromise or arrangement.
56. In the light of the aforesaid legal position, the scheme in the instant case is to be considered.
57. I have gone through the terms of the scheme which is approved by the statutory majority in the meeting held in pursuance of the orders of this Court. It discloses that the company is due in a sum of Rs. 110.37 crores to deposit holders and interest payable to them as on 31-3-2002 would be about Rs. 19.98 crores, in all amounting to Rs. 130.35 crores. Similarly, the company owes a sum of Rs. 199.92 crores towards bond holders and they have to be paid a sum of Rs. 31.58 crores as interest as on 31-3-2002, in all amounting to Rs. 231.50 crores. Thus, total liability of the company comes to around Rs. 361.85 crores. The said amount is agreed to be repaid in a period of five years in instalments of 1596, 20%, 2596, 2096 & 2096. Interest portion of the amount would be repaid along with the last instalment. A sum of Rs. 20.19 crores Statutory Liquidity Ratio is deposited in the Government securities and in banks. As on today, the material on record discloses that a sum of Rs. 6.13 crores is available with the company in terms of deposit in the bank, Rs. 4.22 crores in the form of term deposits in escrow account, Rs. 2 crores in the form of other term deposits and Rs. 14 crores in the form of SLR securities. Thus, a sum of Rs. 26.35 crores is available with the company for disbursal to the depositors and creditors in terms of the scheme. Recoverable assets ie., the amounts which can be recovered under the Hire Purchase agreements is about Rs. 72 crores, lease assets is about Rs. 26 crores, demand loans is about Rs. 103 crores, bill discounting is about Rs. 8 crores, interest on the aforesaid recovery is about Rs. 105 crores and thus, the total amount to be recovered is about Rs. 314 crores. In addition to that, the company at various locations had 33 properties, the approximate value of which as on 31-3-2003 is around Rs. 14.60 crores. Accordingly to the petitioner, the present market value is around Rs. 20 crores. In addition to that, shareholding in subsidiary companies and other investments in unquoted shares would be around Rs. 40 crores. Even after the margin of 10 per cent of the total amounts recovered, the company may recover about Rs. 360 crores which may be sufficient to meet its commitment under the scheme.
58. The material on record discloses that the company was incorporated in the year 1943. Petitioner is a Non-Banking Financial Company being classified as a hire purchase and equipment leasing company by the Reserve Bank of India. In the course of their business, they have received deposits from the public. In some cases, they have offered securities for such deposits. They have been paying interest for the amounts received till 2002 and they have paid dividend to its investors. The company has set up about 100 branches all over the country and were supported by 360 sub- offices. In the year 1998, the RBI introduced regulatory measures regulating the business of Non-Banking Financial Companies. During that period, throughout the country, there were various scams in the capital market and investors confidence in these Non-Banking Financial Companies were seriously affected because of the defaults committed by them. There was a recession in the industrial sector coupled with the slow down of economy, particularly in transport industry in which company has in- vested huge amounts. The real estate value also suddenly fell. There was a delay in recovering the amounts due to the company. Because of the panic situation, depositors started withdrawing the money and fresh depositors were not coming. It is in those circumstances, when there was a mismatch regarding the amounts recovered and the actual payments to be made on due dates, the company found it difficult to repay the deposits and has come forward with the aforesaid scheme where they pleaded their inability to pay the deposits which they have received in one instalment and sought for instalments and also pleaded their inability to pay future interest. In the first meeting held, proposals were turned down because of opposition. Taking note of the suggestions in the said meeting, one more scheme was propounded incorporating the suggestions. Even when that was found wanting, the present scheme has been formulated by the company.
59. Under the terms of the scheme, what has been agreed upon is, all the deposit holders and creditors would get back the entire principal amount paid to the company, but in five instalments. They will also get the interest on the said deposits and bonds upto 31-3-2002. However, no interest is payable subsequent to 31-3-2002 till the actual date of payment. In other words, the creditors and depositors have compromised their interest with the company to the extent of receiving the principal amount in a period of five years and waiving the interest due to them from 31-3-2002.
60. The company moved this Court for permission to convene meeting of shareholders, creditors and depositors of the company to consider the said proposal which was granted. Accordingly, the meeting was held. The report submitted by the Chairman of the meeting clearly discloses that the scheme has been approved by the requisite majority. Thus, the petitioner has complied with the statutory requirements.
61. Registrar of Companies after notice, have entered appearance and filed statement expressing certain apprehensions which have already been considered and found them without any substance. Similarly, the Reserve Bank of India also entered appearance and has filed its objections pointing out the deficiencies in the scheme. In fact, after hearing, when the Reserve Bank of India was called upon to suggest the mode to make the scheme workable, it has filed an affidavit giving its suggestions. Those suggestions have already been considered above. Similarly, several depositors and creditors have also appeared before the Court and have stated their objections. As discussed above, the sum and substance of their objections is that they should be paid the entire amount deposited in one lumpsum and they should be paid interest. If the company was able to pay the entire amount in one lumpsum with accrued interest, there was no necessity for them to propound this scheme. Therefore, depositors who appeared before the Court and objected to the scheme are in principle, not against the scheme as such. Their opposition is only for payment of the principal amount in instalments and non-payment of the interest after the appointed date. When the Company is unable to pay the entire debt with accrued interest on the maturity date, they have come forward with this scheme to which majority shareholders, creditors and depositors have given their consent. The contention that several terms of the scheme are contrary to the statutory provisions contained in the Act has been considered and it was found to be without any substance. In fact, the amendments moved in the said meeting have been accepted by the company and they have incorporated those amendments in the scheme which is filed before this Court for sanction by the company which shows the bona fides on the part of the company being sensitive to the views of creditors, shareholders and depositors. I do not find any of the terms of the scheme are violative of any of the provisions of law. Similarly, it is not contrary to the public policy. I have found the scheme to be just, fair and reasonable. In fact, a suggestion made by the Court that sufficient time has lapsed after petition is filed and therefore, period for repayment stipulated in the scheme has to be advanced. The company has filed a memo showing its bona fides for modification of the time stipulated in the scheme being advanced by six months. To a suggestion from the Court that assets of the company shall be sold by the company under the supervision of the Court with notice to depositors and creditors who are before Court is also accepted. In fact, it was brought to the notice of the Court that around 35,000 deposits have to be paid only Rs. 5000 and less with accrued interest and the company has accepted the suggestion of the Court to make payment to those deposit and bond holders whose debt value is Rs. 5000 and less in the first instalment itself with accrued interest out of the SLR.
62. The winding up of a company is an extreme step because it results in the civil death of the company. On such winding up order being passed section 529A of the Act provides for preferential payments. Payment to the workers, debts due to the secured creditors shall be paid up in priority to all other debts. The aforesaid debts shall be paid in full unless the assets are insufficient to meet them in which case they shall abate in equal proportion. Thereafter, out of the remaining amount all the revenues, taxes, cesses and rates due from the company to the Central or State Government or to the local authority are liable to be paid. Thereafter all wages or salary of an employee has to be paid. Then all accrued holiday remuneration becoming payable to any employee are to be paid. It is only thereafter if any amount is available the question of paying unsecured creditors would arise. Under these circumstances, as contended by these unsecured creditors that if their amounts are not paid on the maturity date in one lumpsum with the entire accrued interest the scheme is to be rejected and the company is ordered to be wound up is detrimental of their interest. Probably without knowing the consequence of winding up order lengthy objections are filed and vehement arguments were addressed. As all of them are before court, it is the duty of the court to protect the interest of each one of them to the extent possible. Instead of winding up order a living workable scheme infusing life into a sick unit is generally preferred to a civil death of a company. If the claim proposed by the company is implemented in letter and spirit at least every one of the depositors and creditors would get back the entire amount invested by them with interest up to the appointed date within a period of five years. Persons who have deposited an amount of Rs. 5000 and less would get the entire amount with interest in one instalment within six months. Having regard to the fact that nearly 35,000 depositors are going to be benefited by such payments and the others are likely to get back the money, within the period mentioned in the scheme, according sanction to the scheme would be in the interest of the depositors in particular and public at large.
63. Under the circumstances, I am satisfied that the scheme which is placed before the Court for sanction is fair, just and equitable and is not opposed to public policy but is in the interest of members, creditors and depositors. Therefore, I accord sanction to the scheme subject to the conditions/amendments mentioned hereunder :
(1) Time stipulated for repayment of the amounts as contained in the scheme shall be advanced by six months in all cases.
(2) All the depositors and bond holders of the company whose deposit is Rs. 5000 and less to be paid within six months from today in one instalment with accrued interest and on such payment, statement shall be filed in Court showing the said payments.
(3) In addition to the aforesaid payments, the company shall file a statement showing the payments made as per the scheme within one month from the date prescribed for making such payments.
(4) The company is at liberty to negotiate for sale of its immovable property with any persons and after receiving the offer, it shall be placed before the Court for sanction, after notice to the contesting parties before the Court to enable them to bring the better offer. It is only after the said offer is accepted by this Court and permission is granted, the petitioner shall sell the assets and the sale proceeds shall be released only for the purpose of discharging the amounts due to the depositors and creditors under the terms of the scheme.
(5) The company shall obtain prior permission of this Court for liquidating its investments in shares of other companies.
(6) Petitioner company shall not carry on the business as a non-banking financial company without prior permission of the RBI.
(7) The SLR encashed shall be utilised for payment of depositors only.
(8) In the event of bond holders opting for splitting or by transfer of bonds to the value of Rs. 5000 or less to get the benefit of this order, it is made clear that they would not be entitled to the benefit mentioned in clause (2) supra.
(9) It is made clear as discussed above, the terms of the scheme provides for repayment of depositors, creditors over a period of 5 years that too in instalments and in the process, assets of the company have to be sold with the permission of the Court. Supervision of this Court to carry out the terms of the scheme is very much necessary and if for the proper working of the scheme there is any necessity for modification of the scheme or for giving any further directions, parties are at liberty to approach this Court in accordance with law.
(10) The Company is directed to file a Statement of Accounts showing the recoveries and amounts realized once in a year. Hence, the following :