|
Other Laws
Company Law Update
-
Objecting creditor has
no locus standi to oppose sanction of scheme when he is not affected by the
scheme
Shyam Telecom Ltd., In re [(2007) 135 Comp Cas 387 (Raj)]
A scheme of arrangement formulated by the Petitioner Companies was approved
by the shareholders, secured and unsecured creditors in their respective
meetings. On a petition seeking sanction of the scheme, the objector company
(M/s. In Touch Technology India Pvt. Ltd.), a creditor, filed an objection
contending that an amount of Rs. 72,95,200/- along with interest was due and
payable by Petitioner No. 3 (Shyam Tele Link Ltd.) to it and that neither
any notice for the creditors meeting had been served upon it nor had
Petitioner No. 3 supplied copy of the petition to it, and sought a direction
to Petitioner No. 3 to convene/reconvene the meeting of creditors and to
refuse the approval of the scheme of arrangement.
The objector company filed a petition for winding up Petitioner No. 3 that
was dismissed. Thereafter the objector company preferred special appeal u/s.
483 of the Companies Act, 1956 against the said order. The appeal was
admitted but no interim order was passed. The special appeal is pending for
final hearing. In the meanwhile, the objector company invoked arbitration
proceedings by referring the matter to the Indian Council of Arbitration.
The Court held that the petition for sanction of a scheme u/s. 391 of the
Companies Act, 1956, is not a took in the hands of the creditor to recover
the debt to coerce the company to pay especially when the debt is not
admitted. The objecting creditor must show to the court that the scheme is
mala fide or fraudulent and was likely to affect him adversely or the
creditors or the class of creditors to whom he belongs. The provisions of
sections 391 to 394 of the Act cannot be utilised or permitted to recover
disputed money, such creditors have other remedy to pursue and recover their
amount dues. The single judge by his order dated 22-8-2005 while dispensing
with holding of the meeting of the creditors of Petitioners No. 3 observed
that Petitioner No. 3 was only a confirming and endorsing party and the
creditors of the company were not affected by the scheme of arrangement.
Where the alleged debts had been bona fide disputed and arbitration
proceedings in regard to the said dues had been involved the objector
company had no locus standi to oppose sanction of the scheme of arrangement.
The scheme was fair reasonable, according to law and in the interest of the
shareholders and was to be sanctioned.
-
Regional Director
objecting that arrangement/amalgamation reserve could not be utilised for
distribution to shareholders. Not objected to by shareholders and scheme
approved unanimously, Scheme to be sanctioned
Sutlej Industries Ltd. In re [(2007) 135 Comp Cas 394 (Raj)].
A scheme of amalgamation was formulated by the transferor and transferee
companies which was approved by the equity shareholders, secured and
unsecured creditors of both companies. On a petition u/ss. 391(2) and 394 of
the Companies Act, 1956, seeking approval of the scheme of arrangement so as
to be binding upon all the shareholders, secured and unsecured creditors,
the Regional Director raised objections that the scheme was not in
conformity with the provisions of the Companies Act and normally accepted
accounting principles, since the surplus arising out of the scheme of
arrangement/amalgamation reserve was of capital nature and could not be
considered as general reserve as it was free to be distributed to the
shareholders of a company in the form of dividend or bonus shares, whereas
“arrangement/amalgamation reserve” could not be utilised for distribution to
the shareholders.
The Court, allowed the petition, and held that the contention of the
Regional Director that arrangement/amalgamation reserve could not be
utilised for distribution to the shareholders, was not objected to by the
shareholders and the meeting of shareholders unanimously approved the scheme
of arrangement. Therefore, there was no good reason to exclude that clause
stating that in case any capital reserve arose, it was to be treated as free
reserves of the transferee company. Broadly the scheme appeared to be fair
and reasonable, according to law and in the interest of shareholders. It was
to be sanctioned.
-
Winding up cannot be
ordered where debt bona fide disputed by company.
Smt. Mridula Gupta vs. Shree Datta Stone Crushers P. Ltd. & Ors [(2007)
135 Comp Cas 507 (Raj)]
Upon failure to repay the loan, provided by the Petitioner to the Respondent
Company, and interest the Petitioner issued statutory notices u/ss. 433 and
434 of the Companies Act, 1956 demanding the loan amount with interest but
the company failed to make payment within the statutory period.
On a petition for winding up under sections 433 and 434 of the Act, the
Court dismissing the petition held that the Petitioner failed to place on
record the terms and conditions of the alleged debt and valid documents
regarding the alleged payment of interest till September, 1997. In the facts
and circumstances of the case it could not be held that the company
neglected to pay the debt within the meaning of section 433(1)(a) of the
Act. The winding up petition was not a legitimate means of seeking to
enforce payment of debt that was bona fide disputed by the company.
Note: Same ratio has been laid down in the case of Shakti Agencies vs.
Manshuk Bhai Industries Ltd. [(2007) 135 Comp Cas 554 (Raj)] B.A. Govindraj
vs. Umang Boards P. Ltd. [(2007) 135 Comp Cas 559 (Guj)]
-
Specific allegation
against individual directors necessary to establish charge of misfeasance
Official Liquidator of Shub Laxmi Savings & Finance Pvt. Ltd. vs. Brij Mohan
Gogana & Anr (No. 2) [(2007) 135 Comp Cas 547 (Raj)].
The company, M/s. Subh Laxmi Savings and Finance Private Ltd., was directed
to be wound up. The Official Liquidator was required to take all proceedings
for winding up as per provisions of the Companies Act to take charge of all
the properties and assets of the said company. The Official Liquidator filed
one application u/s. 543 of the Act, alleging that the Respondent
ex-directors of the company in liquidation retained all the assets and
immovable properties of the company, they were guilty of misfeasance and
breach of trust and were criminally liable for the offences committed by
them under various sections of the Companies Act, 1956, including sections
538 and 539 of the Act.
The Court observed that in order to establish the charge of misfeasance
against ex-directors it is required that specific acts of commission or
omission and/or negligence on the part of each director are pointed out; the
loss arising to the company as a result of such specific act of commission
or omission or negligence shall also have to be quantified as the order of
recovery from such a director would be based on the said quantification. The
onus is on the person who alleges such acts of misfeasance. The onus has to
be discharged by cogent, reliable and specific evidence, which should prove
that the alleged misconduct was wilful and amounted to misfeasance with
culpable negligence. Further, the act of commission or omission or
negligence should be with the intent and knowledge to cause loss to the
company and at the same time resulting in personal gain. It is only when
such loss to the company results in wrongful gain to the director that it
should fall within the scope of section 543 of the Act.
The Court held that since from the evidence adduced by the official
liquidator there did not appear any single act which could be said to have
been committed by a particular director within the meaning of the provisions
of section 543(1) of the Act. Thus, no relief could be granted to the
applicant in the absence of any cogent material on record. On the basis of
vague and bald allegations it was not possible to hold that the provisions
of section 543(1) were applicable.
-
Appeal from
decision of Company Law Board lies to Single Judge of High Court and not the
Division Bench
Mineria National Limitata And Anr. vs. Sociedade De Fomento Industrial P.
Ltd. & Ors. [(2007) 136 Comp Cas 290 (Bom)].
The appellants had preferred an appeal against the order dated 26-9-2005 of
the Company Law Board before the Single Judge of the Bombay High Court
dealing with the company matters. By order dated 7-7-2006, the learned
Single Judge, following the judgment of the Division Bench of the Court in
Dr. Bais Surgical and Medical Institute Pvt. Ltd. vs. Dhananjay Pande
[(2005) 128 Comp Cas 273 (Bom)] was pleased to place the appeal before the
Division Bench.
When the matter came up for hearing before the Division Bench both the
parties were in complete agreement that the jurisdiction to entertain such
an appeal was that of the single judge. Both the parties contended that the
learned Division Bench had failed to notice the context in which the
observations in paragraph 13 of the judgment in Stridewell Leathers Pvt.
Ltd. vs. Bhankerpur Simbhaoli Beverges P. Ltd. [(1994) 79 Comp Cas 139 (SC)]
came to be made in arriving at the conclusion that such an appeal was to be
decided by the Division Bench. It was further contended that the learned
Division Bench had overlooked the provisions of Chapter I, rule 2(1)(a)(v)
of the Bombay High Court (Appellate Side) Rules, 1960 which provide that the
hearing of appeals from an order of a judicial or quasi-judicial forum under
local or special Act lie within the jurisdiction of the learned Single
Judge. Thus, the said matter came to be referred to a full Bench.
Their Lordships held that the learned Division Bench in Dr. Bais Surgical
and Medical Institute Pvt. Ltd. (supra) had referred to Stridewell Leathers
(P) Ltd. (supra) and observed that the main question that had arisen in that
case was not about the strength of the Bench but was about the territorial
jurisdiction. The observation made by the Apex Court in para 13 of
Stridewell Leathers (supra) were made in an entirely different context. They
were in the context of appeals being filed from the decision of the Single
Judge to the Division Bench and not from the CLB to the Division Bench. A
case is an authority for what it actually decides and not for what logically
follows from it. The provisions of Chapter I, rule 2(1)(a)(v) of the Bombay
High Court (Appellate side) Rules 1960, provide that it is a single judge
who is required to entertain and dispose of appeals from orders under local
or Special Acts not having the force of a decree. Therefore, an appeal from
a decision or order of the CLB filed u/s. 10F of the Companies Act, 1956, is
required to be entertained and disposed of by a single judge and not by the
Division Bench.
-
Income Tax Department
cannot claim priority over secured creditors for its dues
Asst. CIT vs. Official Liquidator of Minal Oil and
Industries Ltd. & Ors [(2007) 136 Comp Cas 399 (Guj)].
The question raised in the said petition was whether the tax liabilities
like income tax has preference over the rights of the secured creditors and
workers in so far as the sale proceeds of the company in liquidation or not?
His Lordship observed that the Department is not entitled to claim that on
notification by the Assessing Officer u/s. 178(2) of the Income-tax Act,
1961, of the claim to arrears of income tax dues of a company in
liquidation, the official liquidator is required to set apart the said
amount and only thereafter the balance amount can be disbursed amongst other
secured creditors. Even considering the proviso to section 178(3) of the
Act, the Official liquidator is not debarred from making any payment to
secured creditors whose debts are entitled under the law to priority of
payment over debts due to Government on the date of liquidation. Thus, the
said provision itself provides that payment can be made to secured creditor
having priority in law over the government.
If section 529A of the Companies Act, 1956, is considered, it is clear that
it has an overriding effect. Section 529A of the Companies Act, 1956, which
was inserted in the Companies Act by the amending Act of 1985 and which
makes it clear that notwithstanding anything contained in any other
provision of this Act or any other law for the time being in force dues of
workers and the debts due to secured creditors to the extent such debts rank
under clause (c) of the proviso to section 529(1) pari passu with such dues
shall be paid in priority to all other debts, has an overriding effect. The
dues of the company towards the tax liabilities would come within section
530(1)(a) of the Companies Act, under which the dues would be paid in
priority to all other debts subject to the provisions of section 529A of the
Companies Act.
Thus, the court, dismissing the application of the applicant held that
considering the proviso to section 178(3) of the Income-tax Act r.w.s. 529A
& 530 of the Companies Act, the applicant was not entitled to any relief as
the dues of the Income-tax Department would not have any preference or
priority over the claims of the workmen and secured creditors as consigned
u/s. 529A of the Companies Act.
-
Where matters in issue
before Company Law Board and High Court not identical and for entirely
different purposes, Board to continue with proceedings
Saravana Stores P. Ltd. And Ors. vs. S.
Yogara-thanami & Anr. [(2007) 136 Comp Cas (CLB)]
In a petition filed u/ss.235, 397, 398,
402, 403 of the Companies Act, 1956 alleging oppression and mismanagement in
the affairs of the first Respondent Company, the Respondents filed an
application under regulation 44 of the Company Law Board Regulation, 1991
for stay of all further proceedings before the Company Law Board (CLB) until
disposal of the Civil Suits on the file of the High Court.
The CLB, dismissing the application, held that the allotment of shares to
the father of the second respondent who incorporated the first Respondent
Company and others, appointment of Respondents Nos. 2 and 3 as additional
directors and exclusion of the Petitioners from the office of director of
the company were being alleged before the Company Law Board in the Company
Petition whereas in the Civil Suits the issue whether the company would go
to the exclusive control of the father of the Second Respondent was being
adjudicated. There was no identity of the subject matter before the Board
and the High Court and none of the contentious issues raised in the Company
petition had been agitated before the High Court, which were essential
requisites before grant of stay. The decision of the High Court would not in
any way affect the decision in the company petition except that the entire
control and ownership of the company would be decided by the High Court in
the Civil suits. The present proceedings not being parallel proceedings to
the civil suits would in no way result in multiplicity of proceedings. The
reliefs claimed by the Petitioners before the CLB were maintainable before
the Board. The High Court would not exercise its jurisdiction by granting
any of the remedies claimed by the petitioners before the CLB while
adjudicating the issue before it.
|
|
|
|
