in the high court of karnataka at bangalore dated this...
TRANSCRIPT
- 1 -
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 21st DAY OF OCTOBER 2013
PRESENT
THE HON’BLE MR.JUSTICE N.KUMAR
AND
THE HON’BLE MR.JUSTICE H.BILLAPPA
O.S.A.No.7/2013
in COP.No.98/2012 c/w. COP.No.99/2012
BETWEEN:
Electronics & Controls Power Systems Pvt. Ltd.
A company incorporated under
The Companies Act, 1956
And having its registered office at
No.29/A, II Phase,
Peenya Industrial Area,
Bangalore – 560 058.
Represented by its
Managing Director
Sri.R.Rajaram. …Appellant
(By Sri.S.S.Naganand, Sr. Counsel for Sri.S.Sriranga, Adv.,)
AND:
1. WeP Peripherals Ltd.
A company incorporated under
The Companies Act, 1956
And having its registered office at
- 2 -
No.40/1 A, Bassappa Complex,
Lavelle Road,
Bangalore – 560 001.
Represented by its Managing Director
Sri.Ram Agarwal.
2. WeP Solutions Ltd.,
A company incorporated under
The Companies Act, 1956
And having its registered office at
No.40/1 A, Bassappa Complex,
Lavelle Road,
Bangalore – 560 001.
Represented by its Co. Secretary
Sri.S.Kannan. …Respondents
(By Sri.Uday Holla, Sr. Counsel for Sri.Saji.P.John, Adv., for
R1 & 2)
******
This OSA is filed under Section 391(7) of the
Companies Act, 1956, r/w. Section 4 of the Karnataka High
Court Act, 1961, praying that for the reasons stated therein
this Hon’ble Court may be pleased to set aside the common
order dated 20.11.2012 passed in Co.P.No.98/2012 and
Co.P.No.99/2012 sanctioning the Scheme of Arrangement
and consequently dismiss the said Company Petition
No.98/2012 r/w. Company Application No.518/2012.
This OSA coming on for orders this day, N.Kumar J.,
delivered the following:
- 3 -
J U D G M E N T
This appeal is preferred against the common order
passed in Company Petition Nos.98/2012 and 99/2012
sanctioning a scheme of arrangement approved by the
Board of Directors of the transferor and transferee
companies.
2. For the purpose of convenience, the parties are
referred to as they are referred to in the original
proceedings.
3. Company Petition No.98/2012 is filed by the WeP
Peripherals Limited (hereinafter called a ‘transferor
Company’). The transferor Company was incorporated on
5.7.2006 under the Companies Act, 1956 with the Registrar
of Companies, Karnataka, under the name and style of ‘ePS
Infotech Limited’. Later the name was changed to ‘Wipro
ePeripherals Limited’ with effect from 19.7.2000.
Subsequently, the name was again changed to the present
- 4 -
name, i.e., “WeP Peripherals Limited”. The main object of
the transferor Company was to design, invent, develop,
manufacture, assemble, update, market, trade etc.,
to advertise and deal in all computers, computer
peripherals, all kinds of typewriters, information technology
peripherals etc., and other activities as set out in the
Memorandum of Association. The authorised share capital
of the transferor Company was `.27 crores equity shares of
`.10/- each. Issued, subscribed and paid up capital was
`.1,95,69,940/-
4. The petitioner in Company Petition No.99/2012
is WeP Solutions Limited (hereinafter referred to as
‘transferee company’). It was incorporated on 1.3.1995
under the provisions of Companies Act, 1956 under the
name and style as ‘Datanet Corporation Limited’ in the
State of Delhi. The transferee company has shifted its
registered office from the State of Delhi to the State of
Karnataka with effect from 10.5.1999. The name of the
- 5 -
transferee company was changed to ‘Datanet Systems
Limited’ with effect from 3.3.2000. Subsequently the name
was changed into the present name ‘WeP Solutions Limited’
with effect from 23.12.2011. The transferee company was
incorporated to carry on communication, office automation
systems etc., amongst others. The share capital of the
transferee company as on 31.12.2011 is `.30 crores equity
shares of `.10 each issued and subscribed share value is
`.11,26,26,740 and the paid up capital is `.11,26,20,905.
5. The transferor and transferee company entered
into a scheme of arrangement under which they agreed for
de-merger of the printer business of the transferor
Company into the transferee company and issue of fresh
equity shares to the share holders of transferor Company in
lieu of cash for demerger of printer business into transferee
company. The Board of Directors of the transferor
company also approved and adopted the scheme of
arrangement on 17.12.2011. Thereafter the transferor
- 6 -
Company filed a petition before this court in Company
Application No.518/12 in which the Company Court has
passed the order on 3.4.2012 directing the transferor
Company to convene the meeting of the secured creditors,
share holders and unsecured creditors of the transferor
Company on 17.5.2012 at 12 p.m, 12.30 p.m and 1.00 p.m
respectively at 3rd Floor, 40/1A, Basappa Complex, Lavelle
Road, Bangalore 560 001 and Sri.Ram.N.Agarwal, Chairman
of the transferor Company was appointed as Chairman of
the meetings. The meeting notice was sent to the share
holders, secured and unsecured creditors of the transferor
Company and the notice of the meetings was duly published
in ‘The Hindu’ and ‘Vijaya Karnataka’ both dated 18.4.2012.
Thereafter in the meeting on 17.5.2012 the scheme was
approved with the majority as required under law. The
secured creditors meeting was attended by 4 secured
creditors. All of them voted in support of the scheme.
- 7 -
6. Similarly the transferee company also filed a
Company Application No.519/12 wherein also a similar
order came to be passed. Similar meetings were convened
and in the said meetings the scheme of arrangement was
approved with requisite majority. Thereafter the transferor
Company and the transferee company filed the Company
Petition Nos.98 and 99 of 2012 under section 391 and 394
of the Companies Act, 1956 (hereinafter referred to as
‘Act’) requesting the court to sanction the scheme of
arrangement. In the said petition the Company Court
ordered for publication of the notice of the hearing of the
said company. It is in pursuance to the said notice duly
published, the appellant herein i.e. Electronics & Controls
Power Systems Private Limited filed an affidavit opposing
the approval of the scheme.
7. In the affidavit, the appellant contends it is one
of the creditors of the transferor Company. It has live
claims to an extent of `50 Crores. A demand for `50 Crores
- 8 -
was made under a notice dated 1.10.2009. They have also
made a request for appointment of Arbitrator vide notice
dated 24.3.2011. The transferor Company did not accede
to the request for referring the matter for arbitration.
Therefore, the appellant was constrained to file Civil Misc.
Petition No.15/2012 in the Hon’ble High Court. Emergent
notice has been issued by order dated 10.4.2012. In the
succeeding paras of the affidavit, the appellant has set out
in details its claim. Thereafter, it contends that the
transferor Company had suppressed the factual position in
its annual report as well as in the scheme of arrangement
and had conducted the meetings without any notice
whatsoever to the appellant. The balance-sheet of the
transferor Company is erroneous inasmuch as it had not
reduced the amount of `423.20 Lakhs in the loans and
advances inspite of appellant’s notice to that extent
inasmuch as the appellant had adjusted the said amount.
The transferor Company had deliberately omitted to include
- 9 -
the name of the appellant as its creditor and therefore, they
have sought for dismissal of the Company Petition.
8. The learned Company Judge, after taking note of
the pleadings of the parties and the documents on which
they relied on, by his order dated 20.11.2012 held that the
interest of the appellant against the transferor Company
has been safeguarded in pursuance of clause 8 of the
scheme. In the light of the scheme of arrangement and its
approval by the Board of Directors of the transferor and
transferee companies and the consent given by the secured
and unsecured creditors and also on the basis of the report
made by the Regional Director, the Company Judge was of
the view that a case for accepting the prayer for sanctioning
of the scheme of demerger is made out. Accordingly, both
the petitions were allowed. It is against the said order, the
present appeal is filed.
- 10 -
9. Sri.S.Naganand, learned Senior Counsel
appearing for the appellant, assailing the impugned order
passed by the learned Company Judge contended that in
terms of section 391 of the Act, no notice of the meeting of
the creditor was given to the appellant. The total value of
credit was hardly `.5 Crores whereas the claim of the
appellant was `.50 Crores and therefore, the consent of the
creditors totaling to `.5 Crores was not sufficient to the
approval of the scheme by the creditors. Unless the
statutory requirement is complied with, the Company Court
gets no jurisdiction to pass an order approving the scheme.
The transferee company has suppressed the claims and the
litigations pending between the parties in the claim petition.
On the contrary, they have specifically stated that there are
no litigations or claims pending against the Company.
Therefore, the transferor Company has not come to the
Court with clean hands. On these grounds, the petition
ought to have been dismissed. The learned Company
- 11 -
Judge has not adverted to any of these aspects of the
matter and has rejected the objection on the ground that
the interest of the appellant is taken care of by virtue of
clause 8 of the scheme of arrangement. Therefore, he
submitted that the impugned order is patently illegal and
requires to be set-aside.
10. Per contra, Sri.Udaya Holla, learned Senior
Counsel appearing for the respondents contended that the
transferor Company is not due in any amount to the
appellant. On the contrary, as it is clear from the balance-
sheet of the appellant itself that a sum of `.4,23,20,000/- is
due from the appellant to the transferor Company. The
transferor Company has already instituted a company
petition for winding up of the appellant Company. The
application filed by the appellant for appointment of
Arbitrator is dismissed. The application filed by the
appellant for interim arrangement under section 9 of the
Arbitration and Conciliation Act 1996 is also dismissed.
- 12 -
Therefore, he submits that a mere claim for unliquidated
damages would not give him the status of a creditor under
section 391 of the Act and consequently, there was no
obligation cast on the transferor to take out notice to him
nor to mention about imaginary claim in the petition. Even
otherwise, clause 8 of the scheme of arrangement protects
the interest of the appellant as rightly held by the learned
Company Judge and therefore, he submitted that seen from
any angle, the impugned order do not suffer from any legal
infirmity which calls for interference.
11. From the material on record, it is clear, the
transferor Company entered into an agreement with the
appellant on 29.9.2006 which is styled as Business
Participation Agreement. Under the agreement, the
transferor has to pay `.5 Crores to the appellant, in turn the
appellant has to extend its know how to the transferor
Company. Under the terms of the agreement, first
installment of `.2 Crores was paid by the transferor to the
- 13 -
appellant and the balance amount of `.3 Crores was liable
to be paid within 60 days from the date of the agreement.
However, the said agreement could not be worked out.
Therefore, both the parties entered into a Memorandum of
Understanding dated 28.12.2007 where under they have
agreed that as the agreement dated 29.9.2006 was not
operationalized, they are entering into a new agreement.
They have set out terms and conditions and then in the end
at clause 22 of the MOU it is stated, upon execution of this
MOU, all preceding Agreements/MOU’s including the one
signed in September 2006 stands cancelled. The effect is,
the agreement dated 29.9.2006 stood cancelled.
Thereafter, on 1.10.2009, the appellant issued a notice to
the transferor claiming a sum of `.50 Crores as damages in
breach of the terms of the agreement dated 29.9.2006. It
is stated, the said notice was sent by “Under Certificate of
Posting”, the receipt of which the transferor denies.
Thereafter, the appellant filed an application under section
- 14 -
9 of the Arbitration and Conciliation Act, 1996 before the VI
Addl. City Civil Judge, Bangalore City, in A.A.No.239/2010
seeking for interim order. The said application was
contested by the transferor. The learned Judge, after
considering the rival contentions at length, was of the view
that the application filed under section 9 of the Arbitration
and Conciliation Act is not maintainable in law and
accordingly, dismissed the same by order dated 30.3.2010.
The exparte order of temporary injunction dated 19.2.2010
granted earlier was vacated. The appellant has preferred
an appeal against the said order in MFA.No.6165/2012,
roughly two years after the said order and according to the
learned counsel for the respondents, they are yet to be
served notice in the said proceedings. The appellant also
filed a petition under section 11(5) and 11(6) of the
Arbitration and Conciliation Act, 1996 before this Court in
CMP.No.15/2012 for appointment of Justice
R.G.Vaidyanatha (Retd.) or any other appropriate Arbitral
- 15 -
Tribunal comprising of sole arbitrator to adjudicate upon the
disputes that have arisen between the appellant and the
transferor under the agreement dated 29.9.2006. The said
application was also contested. The learned Judge of this
Court was of the view that the agreement dated 29.9.2006
stands cancelled in view of clause 22 of the MOU.
Therefore, the arbitration clause contained in the rescinded
contracts cannot be pressed into service by the appellant.
The parties are governed by the substituted contract i.e.,
MOU dated 28.12.2007 and the same does not contain the
arbitration agreement and therefore, the application filed
for appointment of arbitrator was liable to be dismissed.
Accordingly, by order dated 20.11.2012, the learned Single
Judge dismissed the said petition. It is submitted against
the said order of the learned Single Judge the appellant has
approached the Supreme Court in SLP.No.36968/2012 and
the matter is part-heard and pending consideration before
the Hon’ble Apex Court. These facts are not in dispute.
- 16 -
12. Explaining the legal position and the power of
the Company court under section 391 of the Act, the
Hon’ble Apex Court in the case of Miheer H.Mafatlal v.
Mafatlal Industries Ltd., reported in AIR 1997 SC page 506
has held as under;
“28. …………..On a conjoint reading of the
relevant provisions of Sections 391 and 393 it
becomes at once clear that the Company Court
which is called upon to sanction such a scheme
has not merely to go by the ipse dixit of the
majority of the shareholders or creditors or their
respective classes who might have voted in
favour of the scheme by requisite majority but
the Court has to consider the pros and cons of
the scheme with a view to finding out whether
the scheme is fair, just and reasonable and is
not contrary to any provisions of law and it does
not violate any public policy. This is implicit in
the very concept of compromise or arrangement
which is required to receive the imprimatur of a
Court of law. No Court of law would ever
countenance any scheme of compromise or
- 17 -
arrangement arrived at between the parties and
which might be supported by the requisite
majority if the Court finds that it is an
unconscionable or an illegal scheme or is
otherwise unfair or unjust to the class of
shareholders or creditors for whom it is meant.
Consequently it cannot be said that a Company
Court before whom an application is moved for
sanctioning such a scheme which might have got
the requisite majority support of the creditors or
members or any class of them for whom the
scheme is mooted by the concerned company,
has to act merely by the concerned company,
has to act merely as a rubber stamp and must
almost automatically put its seal of approval on
such a scheme. It is trite to say that once the
scheme gets sanctioned by the Court it would
bind even the dissenting minority shareholders
or creditors. Therefore, the fairness of the
scheme qua them also has to be kept in view by
the Company Court while putting its seal of
approval on the concerned scheme placed for its
sanction. It is, of course, true that so far as the
Company Court is concerned as per the statutory
- 18 -
provisions of Sections 391 and 393 of the Act the
question of voidability of the scheme will have to
be judged subject to the rider that a scheme
sanctioned by majority will remain binding to a
dissenting minority of creditors or members, as
the case may be, even though they have not
consented to such a scheme and to that extent
absence of their consent will have no effect on
the scheme. It can be postulated that even in
case of such a Scheme of Compromise and
Arrangement put up for sanction of a Company
Court it will have to be seen whether the
proposed scheme is lawful and just and fair to
the whole class of creditors or members
including the dissenting minority to whom it is
offered for approval and which has been
approved by such class of persons with requisite
majority vote.
28-A………… In view of the aforesaid settled
legal position, therefore, the scope and ambit of
the jurisdiction of the Company Court has clearly
got earmarked. The following broad contours of
such jurisdiction have emerged:
- 19 -
1. The sanctioning Court has to see it that
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. That the scheme put up for sanction of the
Court is backed up by the requisite majority vote
as required by Section 391, sub-section (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, sub-section (1).
- 20 -
5. That all the requisite material contemplated
by the proviso to sub-section (2) of Section 391
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 same.
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
in good faith and were not coercing the minority
in order to promote any coercing the minority in
order to promote any interest adverse to that of
- 21 -
the latter compromising 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 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 eye
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.
- 22 -
The aforesaid parameters of the scope and
ambit of the jurisdiction of the Company Court
which is called upon to sanction a Scheme of
Compromise and Arrangement are not
exhaustive but only broadly illustrative of the
contours of the Court’s jurisdiction.”
13. Subsequently, the Hon’ble Apex Court in the
case of Sesa Industries Ltd. v. Krishna.H.Bajaj and others
reported in (2011) 3 SCC page 218, following the aforesaid
judgment held as under:
“34. It is plain from the aforeextracted
provisions that when a scheme of
amalgamation/merger of a company is placed
before the Court for its sanction, in the first
instance the court has to direct holding of
meetings in the manner stipulated in Section 391
of the Act. Thereafter, before sanctioning such
a scheme, even though approved by a majority
of the members or creditors concerned, the court
has to be satisfied that the company or any
other person moving such an application for
- 23 -
sanction under sub-section (2) of Section 391
has disclosed all the relevant matters mentioned
in the proviso to the said sub-section.
38. It is manifest that before according its
sanction to a scheme of amalgamation, the
Court has to see that the provisions of the Act
have been duly complied with; the statutory
majority has been acting bone fide and in good
faith and are not coercing the minority in order
to promote any interest adverse to that of the
latter compromising the same class whom they
purport to represent and the scheme as a whole
is just, fair and reasonable from the point of
view of a prudent and reasonable businessman
taking a commercial decision.”
14. The Company Court on a petition presented to it
for approval of the compromise arrangement with the
creditors and members ordered a meeting of the creditors
or class of creditors or of the members or class of members
as the case may be, to be called, held and conducted in
such a manner as the Court directs. If the majority in
- 24 -
number representing 3/4th 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, by proxies at the meeting, agree to
any compromise or arrangement, the compromise or
arrangement may be sanctioned. Once sanctioned, it shall
be binding on all the creditors or class of creditors or
members or class of members as the case may be and also
on the company or in case, a company which is being
wound up, on the liquidators and contributories of the
Company. Therefore, before an order sanctioning the
arrangement is passed by the Court, notice has to be issued
to the creditors and 3/4th in value of the creditors should
agree to such an arrangement, then only the Company
Court gets the jurisdiction to order sanctioning of such
scheme. Section 390 of the Act aids in interpreting sections
391 and 393 and 390(c) which provides that unsecured
creditors who may have filed suits or obtained decrees shall
- 25 -
be deemed to be of the same class as other unsecured
creditors. In other words, it defines who are the persons
who could be classified as unsecured creditors. Even
persons who have filed suits or obtained decrees ought to
be treated as unsecured creditors. By virtue of the deemed
provision, though they cannot be construed as unsecured
creditors, they are deemed as unsecured creditors. Relying
on this provision, the learned Senior Counsel contended
that in the instant case, the appellant satisfies the said
criteria prescribed for a creditor. In support of his
contention, he relied on several judgments.
15. In the case of Seksaria Cotton Mills Ltd. v. A.E.Naik
and Others reported in (1967)37 Company Cases 656(Bom)
on which reliance was placed, the Bombay High Court
interpreting section 391 of the Act, has held as under:
“The word ‘creditor’ in section 391 of the
Companies Act, 1956, is used in the widest
sense so as to include all persons having
- 26 -
pecuniary claims against a company. It is not
necessary that a person in order that he may be
a ‘creditor’ should have an ascertained amount
payable by the company. He will be a ‘creditor’
even if he has against the company a claim,
present or future, certain or contingent,
ascertained or sounding only in damages.
16. Reliance is also placed on yet another judgment
of the Bombay High Court in the case of STATE OF TAMIL
NADU v. UMA INVESTMENTS PVT. LTD., reported in 1977
(47) Company Cases page 242 (Bom). Again interpreting
section 391, it was held that,
“A creditor would be a person having a
pecuniary claim against the Company, whether
actual or contingent. It is in respect of these
classes of creditors that a proposal is put forward
by the company for a compromise or
arrangement. The compromises or arrangements
are, therefore, concerned with civil liabilities
where a creditor will accept a lesser payment or
receive less on distribution or grant time or
waive interest and work out other kindered
- 27 -
things. It is not possible to take the view that
section 391 is meant for freezing criminal
proceedings which may be instituted either by a
creditor or a member of a company or by the
State either against the company or its officers.”
17. He also relied upon the judgment of Chancery
Division in the case of In re T & N Ltd and others reported
in (2005) EWHC page 2870 (CH), where after reviewing the
entire English case law on the subject, at para 46, it has
been held as under:
“The present state of the authorities
therefore shows that (i) the holder of a
contingent claim is a creditor for the purposes of
the provisions governing both schemes of
arrangement and CVAs and (ii) the claim need
not be a provable debt. The nature of
contingent claims is such that a creditor for
these purposes need not have an accrued cause
of action. To take the simple example of an
uncalled guarantee, the person with the benefit
of the guarantee will be a ‘creditor’ of the
guarantor, even though there has not been, and
- 28 -
may never be, any default on the principal debt
or any call on the guarantee.”
18. He also relied upon the judgment of the
Singapore High Court in the case of Pacrim Investments Pte
Ltd v. Tan Mui Keow Claire and another reported in (2010)
SGHC page 368 where in the absence of a definition of term
“creditor”, the High Court held as under:
“4. The term ‘creditor’ is not defined.
The issue is whether Pacrim, whose status at the
time the Scheme came into force was that of a
party that had a claim in damages against MSL
that was dismissed by the High Court but whose
appeal was pending, falls within that term.
There is no binding authority on this point. The
AR had, in his GD, traversed the relevant
authorities and concluded that the term ‘creditor’
in s 210 of the Act should be given a wide
meaning. It is not necessary for me to similarly
traverse those authorities because counsel for
Pacrim, Ms Lisa Chong (‘Ms Chong’), conceded
that judicial attitudes in jurisdictions from which
the Act was derived had moved towards a broad
- 29 -
approach. Indeed, paras 4.11-4.13 of
Ms.Chong’s written submission on the issue
helpfully set out the positions taken in relevant
decisions in various Australian jurisdictions.
4.11 The above extract shows (the)
development of the legal definition of ‘creditor’ in
the Australian Courts in the following
chronological order:-
a. In Re Midland Coal, Coke and Iron
Company (1895) 1 Ch 267(‘Re Midland Coal’),
the Court adopted the broad approach that
‘creditors’ is used in the widest sense and
‘includes all persons having any pecuniary claims
against the company’;
b. In Trocko v Renlita Products Property Ltd
(1973) 5 S.A.S.R. 207 (‘Re Trocko’), the Court
held that ‘creditors’ do not include persons with
unliquidated claims sounding only in damages
because of the absence of any machinery to
ascertain the amount of such claim;
- 30 -
c. In Re Glendale Land Development Ltd
(No.2) (1982) 1 ACLC 562 (‘Re Glendale’),
McLelland J held that ‘creditors’ should be
understood as embracing all persons with claims
which would be entitled to be admitted to proof
if the company were wound up;
d. In Re R.L.Child & Co Property Ltd (1986) 4
ACLC 312 (‘Re Child’), McLelland J reiterated his
view that ‘creditors’ should be understood as
embracing all persons with claims which would
be entitled to be admitted to proof if the
company were wound up save…..persons having
unliquidated claims in tort which (are) excluded
as a creditor in winding up of a company which
is insolvent…
5. At the time the Scheme was
established, Pacrim had its claim dismissed by
the High Court but its appeal was pending. This
meant that in the vent its appeal was allowed, it
would be a creditor; indeed this was an
eventuality that did materialize. There was no
basis on principle to exclude persons in Pacrim’s
position from the scope of ‘creditors’, In
- 31 -
practice, doing so would unfairly benefit such
companies who would be able to recoup its
entire debt from a company resuscitated from
the sacrifices of all the other creditors.”
19. Per contra, learned counsel appearing for the
transferor Company relied on a judgment of this Court in
the case of Vikrant Tyres vs. Nil* reported in ILR 2003 KAR
page 3885, at para 20, wherein it is held as under:
“It is also possible that a particular debt is
not admitted by petitioner company or the
creditors name is not found in the books of
accounts or the creditor’s claim is disputed and it
is subject matter of pending proceedings. In
such circumstances, the basic question is
whether the person complaining of want of
notice, is he a creditor in the strict sense though
no hard and fast rules can be laid sown in this
regard. These questions have to be answered
having regard to the facts and circumstances of
the case and the intention and object behind the
statutory provisions and conduct of parties. If a
- 32 -
debt is disputed and it is the subject matter of
litigation and if total value of such debt makes
no significant difference to the total amount of
debt due by the company and if a substantial or
over whelming majority of creditors approve a
scheme non-issue of notice to such a creditor
would not effect the meeting held or resolutions
approved in such meeting. In this background,
it is necessary to know what is the right of the
creditor even if such a notice has been issued
and if he had appeared in such a meeting. In
the case of MAHALAXMI COTTON MILLS LTD.
which arise under the Companies Act of 1913 it
has been held that for the purposes of an
application for sanctioning a scheme of
arrangement under Section 153, the creditors
whose names appear in the books of the
company should be considered as creditors and
their votes should be taken into account.
Creditors whose names do not appear in the
books have to show to the satisfaction of the
Court that they are creditors.”
- 33 -
20. Further reliance is also placed on the judgment
of the Calcutta High Court in the case of In re Mahaluxmi
Cotton Mills, Ltd. v. Nil. reported in AIR (37) 1950 Calcutta
page 399, wherein at para 11 it is held as under:
“11. I am of opinion that for the purpose
of this application, the creditors whose names
appear in the books of the company should be
considered as creditors and their votes would be
taken into account. The creditors whose names
do not appear in the books of the company
should not be considered as creditors unless
they can show prima facie on this application to
the satisfaction of the Court that they are
creditors.”
21. He also relied on section 439 of the Act that
where there is a specific reference to a contingent or
prospective creditor or creditors who are also entitled to
maintain a petition, for winding up of a Company and
contended that such provision is conspicuously missing in
section 391.
- 34 -
22. From the aforesaid provisions, it is clear that the
word “creditor” is not defined under the Act. For the
purpose of section 391, an attempt is made to widen the
meaning of the word “creditor”. Having regard to the
express words used in section 391 that a meeting of the
creditors or class of creditors, it is clear the word “creditor”
includes secured creditors and unsecured creditors.
Unsecured creditors form a class by themselves. Clause (c)
of section 390 provides that unsecured creditors includes
the persons who have filed suits or obtained decrees. In
other words, in the first case, it is a mere claim in a suit. In
the second set of cases, the claim has matured into a
decree which may be subjected to further appeals and the
judgment-debtor may not admit the claim, but for the
purpose of section 391, all of them are treated as creditors
and notice of the petition under section 391 has to be sent
to such creditors and only when the creditors or unsecured
creditors representing 3/4th in value agree for the
- 35 -
compromise or arrangement, the Company Court gets the
jurisdiction to sanction the scheme. However, as held in
the aforesaid judgment of the Calcutta High Court, for the
purpose of application under section 391, the creditors
whose names appear in the books of the Company should
be considered as creditors and their votes would be taken
into account. When the transferor Company do not accept
the claim against them and it is not reflected in their
balance sheet or in their account books, they cannot be
found fault with for not including their names in the
accounts nor for taking out notice to them in a petition
under section 391. In such cases, if the creditor whose
name does not appear in the books of the Company
appears before the Court and contends that he is a creditor,
before he could be considered as a creditor prima facie he
should satisfy the Court that he has a genuine claim and he
falls within the definition of the word “creditor”. As held by
this Court in the case of Vikrant Tyres Limited, no hard and
- 36 -
fast rules can be laid down in this regard. If on such a
claim being put forth, if the Court is satisfied that though
the claimant’s name does not appear in the books of
account, but prima facie he makes out a claim, the Court
has power to dismiss the petition filed for sanction on the
ground that if a creditor representing substantial value has
not been given an opportunity to have a say in the scheme,
it is liable to be rejected. Even if that claim is taken into
account, if 3/4th of the value of the total creditors have
agreed for the compromise or scheme, it would not vitiate
approval given by such creditors. Therefore, in a given
case, the Company Court has to look into the facts of the
case and pass appropriate orders.
23. It is in this background when we examine the
facts of the case, it is clear that the appellant entered into
an agreement with the transferor Company on 29.9.2006
under which the transferor Company was expected to pay
`.5 Crores as against which only `.2 Crores was paid.
- 37 -
Correspondingly, the appellant has to perform certain
obligations under the contract, as is clear from the MOU
entered on 28.12.2007, the agreement of 29.9.2006 was
not operational. Therefore, under the terms and conditions
mentioned therein, they cancelled the agreement dated
29.9.2006. It is on record. Taking into account that
`.2 Crores is paid on 29.9.2006 and additional amounts
were paid, in all, a sum of `.4,23,20,000/- was paid by the
transferor to the appellant. The appellant’s grievance is
that the transferor has committed breach of the terms of
the agreement and therefore, on account of such breach,
they have sustained loss and therefore, the transferor is
liable to pay damages in a sum of `.50 Crores. Demand
was made to this effect on 1.5.2009. It is in the nature of
unliquidated damages. The appellant has not filed any suit
for recovery of the said amount in a competent Civil Court.
He called upon the transferor to agree for the appointment
of an Arbitrator which the transferor declined. Therefore,
- 38 -
the appellant initiated proceedings under section 9 of the
Arbitration and Conciliation Act, 1996 for an interim order
pending adjudication of the claim in A.A.No.239/2010 which
came to be dismissed as not maintainable by order dated
30.3.2010. The said order is challenged in appeal before
this Court in MFA.No.6165/2012. The said proceedings
cannot be construed as legal proceedings initiated for
recovery of the aforesaid amount. When the transferor did
not agree for appointment of Arbitrator, the appellant
initiated proceedings under section 11 of the Arbitration and
Conciliation Act, 1996 for appointment of Arbitrator before
this Court in CMP.No.15/2012. The said petition is also
dismissed holding that the agreement on which reliance is
placed where the arbitration clause is contained stands
cancelled by order dated 20.11.2012. Now the matter is
pending before the Hon’ble Apex Court in
SCC.No.36968/2012. Initiation of proceedings under
section 11 of the Act also cannot be construed as a
- 39 -
proceeding for recovery of the aforesaid amount. What
remains is, there is claim for `.50 Crores made in the letter
dated 1.10.2009. Now the material on record shows that
the said claim is based on agreement dated 29.9.2006.
MOU dated 28.12.2007 expressly states that the said
agreement is cancelled. The audited balance sheet of the
appellant clearly show, the transferor has paid a sum of
`.4,23,20,000/- to the appellant, which is not in dispute. A
claim for `.50 Crores is put forth on the basis of an
agreement which is not given effect to, and cancelled. In
the facts of this case, it is difficult to accept the contention
of the appellant, that the claim of `.50 Crores made in the
letter dated 1.10.2009 is sufficient to give them the status
of a creditor within the definition of word “creditor”.
Secondly when litigations were pending between them,
especially when the transferor has initiated proceedings for
winding up of the company of the appellant in Company
Petition No.168/2010 and also a suit for recovery of money
- 40 -
in O.S.No.8994/2011, such a debtor should have been
heard by giving notice before sanctioning of the scheme. It
would be a travesty of justice to hold that a person who is a
debtor would par takes the character of creditor by mere
issue of a demand notice. As rightly held by the learned
Company Judge and also canvassed before us by the
learned counsel for the transferor Company, by virtue of
clause 8 of the scheme of arrangement, in the event the
appellant were to establish any claim, as made out in the
letter dated 1.10.2009 even against the transferor, the
transferee would be liable to answer the said claim. That is
where the learned Company Judge says that the appellant’s
interest is properly taken care of. Though the learned
Company Judge has not considered all the contentions
urged by the appellant herein, and recorded any findings
thereon, but he has come to the right conclusion. In the
circumstances, we are of the view that the order passed by
the learned Company Judge calls for no interference.
- 41 -
(a) Accordingly, the appeal is dismissed.
(b) All the pending applications are dismissed.
(c) It is made clear, between the parties several
litigations are pending before different forums.
All these forums while deciding the respective
litigations shall do so without in any way being
influenced by any of the observations made by
this Court in this Order.
(d) No costs.
Sd/-
JUDGE.
Sd/-
JUDGE.
Dvr.Bss.