Cairn India Limited vs Unknown

ORAL JUDGMENT :-

The Petitioner seeks an order sanctioning a scheme of arrangement between itself and four transferor companies Cairn Energy India Pvt. Ltd. ("CEIPL"), Cairn Energy India West B.V.,

("CE India West"), Cairn Energy Cambay B.V. ("CE Cambay") and Cairn Energy Gujarat B.V. ("CE Gujarat"). The first transferor company is incorporated in Australia and the others are incorporated in Netherlands. Under the scheme, the entire business relating to the Indian undertakings of the transferor companies are to stand transferred to and vested in the Petitioner with effect from the appointed date without any further act or deed pursuant to the provisions of 391 and 394 of the Companies Act, 1956.

2. The Petitioner is listed on the Bombay Stock Exchange and the National Stock Exchange of India limit. The issued, subscribed and paid up capital of the Petitioner prior to 31.3.2009 was Rs.18,966,678,160 comprising of 189,66,67,816 equity shares of Rs.10/- each. After 31.3.2009 the same increased to Rs.18,967,892,270/- on account of ESOPs.

3. The Petitioner is primarily engaged in the business of surveying, prospecting, drilling, exploring and dealing in minerals, natural oils, petroleum, gas and related products. The transferor companies are the Petitioner's subsidiaries. The transferor companies also carry on business activities in India through their project offices. Each of the transferor companies is a participant in various oil and gas blocks granted by the Government of India through production sharing contracts entered into with the Government of India and other joint venture parties.

4. A copy of the audited statement of accounts as of 31.3.2009 and unaudited statement of accounts as on 30.9.2009 of each of the transferor companies has been annexed to the petition. Further a copy of the audited statement of accounts in foreign currency of each of the transferor companies as on 31.12.2008 is also filed with the petition. The Petitioner has furnished the rational for the proposed scheme. According to the Petitioner, a multiple layered structure, comprising various foreign subsidiaries, between it and the Indian undertakings is administratively burdensome. The scheme proposes to simplify and consolidate the structure and business operations by transferring the entire oil and gas exploration, development and production business of the transferor companies in India into the transferee company. Consequently, it is contended that there would be greater efficiency in the cash management of the transferee company and unfettered access to the cash flow generated by the Indian company of the transferor companies with its own benefits. There are also the usual benefits arising from such a scheme such as administrative convenience by reducing the legal and regulatory compliances.

5. The Board igof Directors of the respective companies considered and proposed the scheme and by a resolution dated 9.12.2009 approved the same. It is a composite scheme under sections 78, 100 to 103 and 391 to 394 of the Companies Act, 1956. I will refer to some of the provisions of the scheme which have been questioned by one of the shareholders.

6. By an order dated 8.1.2010, this Court directed the Petitioner to convene and hold a meeting of the equity shareholders for the purpose of considering the said scheme. By the said order, Mr.Justice M.H. Kania (Retired Chief Justice of India) was appointed as a Chairman of the meeting. Meeting of the secured and unsecured creditors were dispensed with. Notice of the meeting of the equity shareholders was dispatched individually to the equity shareholders along with the necessary documents. A notice convening the meeting was also advertised as directed by the said order.

7. A meeting of the equity shareholders was convened and held pursuant to the said order dated 8.1.2010. The Chairman reported the result thereat by filing his report dated 19.2.2010 along with the affidavit in verification thereof. The scrutineers noted 412 ballots representing 164,96,85,353 equity shares were cast. Two ballots representing 445 equity shares were found to be invalid.

387 equity shareholders holding 164,96,84,906 equity shares constituting 94.91% in number and representing 99.88% in value present and voting in person or by proxy or by authorised representatives voted in favour of the scheme. Twenty three equity shareholders holding 19,300 equity shares representing in value a sum of Rs.1,93,000/- constituting 5.61% in number and representing 0.12% in value present and voting in person or by proxy or by authorised representatives voted against the scheme. Thus the overwhelming majority of the equity shareholders voted in favour of the scheme.

8. The Bombay Stock Exchange and the National Stock Exchange issued certificates stating that they had no objection to the scheme.

9. The Petitioner thereafter filed the present Petition on 2.3.2010.

10. The Regional Director has filed an affidavit stating that the scheme is not prejudicial to the interest of the shareholders and the public.

However, two objections were raised in a further affidavit filed on behalf of the Regional Director.

11. Mr.Avasia, the learned counsel appearing on behalf of the Regional Director submitted that under the provisions of the scheme the appointed date is uncertain as the scheme does not provide for a specific "effective date". He submitted therefore that the Petitioner ought to be directed to provide for a specific effective date in the scheme or that this Court ought to provide such date. Clauses 1.2, 1.9 and 20.2 of the scheme referred to by Mr.Avasia in this regard read as under :-

"1.2 "Appointed Date" means January 1, 2010 or any such other later date prior to or including the effective date as may be approved by the Board of Directors of the respective Transferor Companies and Transferee Company.

1.9 "Effective Date" means the date of the resolution by the Board of Directors of the Transferee Company and the respective Transferor Companies, resolving that a particular Part of the Scheme has become effective in terms of Clause 20 of the Scheme, but not before filing : .

with respect to Part B with the Registrar of Companies, Maharashtra, at Mumbai and Registrar of Companies, Tamil Nadu, at Chennai ; and . with respect to Part C with the Registrar of Companies, Maharashtra at Mumbai References in this scheme to the date of 'coming into effect of this scheme" or "effectiveness of this scheme" shall mean the Effective Date."

20.2 Each Part of the Scheme is independent. Each Part of the Scheme would be effective as and when the aforesaid requisite approvals with respect to the said Part are received. Therefore, the non implementability of any of the said Part for non receipt of necessary approvals of that Part shall not affect the implementationbility or otherwise of the other Part of the Scheme, wherein requisite approvals are obtained. The Board of Directors of CIL and the respective Transferor Companies shall mutually resolve as to whether and when each Part of the Scheme becomes effective."

12. Mr.Avasia's submission is well founded. The above clauses do leave the appointed date uncertain as it is left to be determined by the Board of Directors of the said companies. Indeed, theoretically there may even be different dates fixed by each company although in practical terms this eventuality may not arise. The defect however, can be cured by deleting in clause 1.9 the words "............ of the resolution by the Board of Directors of the Transferee Company and the respective Transferor Companies, resolving that ............." and the last sentence in clause 20.2.

It is so ordered.

13. Mr.Avasia further submitted that clause 19.1 cannot be permitted as it stands, for it authorizes the Board of Directors of the companies to modify the scheme without the sanction of the Court. He submitted that the power to modify the same after its sanction lies only with the High Court that sanctions such scheme.

14. Although this may not have been the intention of the said companies, the clause certainly requires modification to eliminate the defect rightly pointed out by Mr.Avasia.

15. In the circumstances, clause 19.1 is modified by deleting the words "or any other authority" appearing between the words "High Court(s)" and "may deem fit" and also by deleting the words "or which may otherwise be considered necessary, desirable or appropriate by them (i.e. the Board of Directors or a Committee thereof and resolve all issues that may arise for carrying out the Scheme", appearing between the words " or impose" and the words "and do all acts ................" It is so ordered.

16. The objections raised on behalf of the Regional Director are thus taken care of.

17. One of the shareholders Mr.D.V. Lakhani objected to the scheme on several grounds. He holds 8000 equity shares which represents 0.000422% of the issued, subscribed and paid up equity capital of the company.

18. Mr.Lakhani submitted that the names of all the joint holders of the shares are required to be mentioned in Form-39. He further submitted that the name of the joint holders present and voting at the meeting is also required to be mentioned in separate columns. This, he submitted was to weed out multiple voting. He submitted that the Petitioner had mentioned only the first shareholders name in the scrutineers' report and was therefore not as per the provisions of Rule 78 of the Company Court Rules.

19. Rule 78 reads as follows :-

78. Report of the result of the meeting . - The Chairman of the meeting, (or where there are separate meetings, the Chairman of each meeting) shall, within the time fixed by the Judge, or where no time has been fixed, within seven days after conclusion of the meeting, report the result thereof to the Court. The report shall state accurately the number of creditors or class of creditors or the number of members or class of members, as the case may be, who were present and who voted at the meeting either in person or by proxy, their individual values and the way they voted. The report shall be in Form No.39."

A plain reading of Rule 78 does not support Mr.Lakhani's submission. It merely requires the Chairman's Report to state accurately the number inter-alia of persons who were present and who voted at the meeting either in person or by proxy, their individual values and the way they voted. It does not require the names of all the joint holders of the shares to be mentioned.

Form-39 also does not support the submission. It merely requires the report to mention inter-alia the names of the members who attended the meeting, their addresses, the number of shares held by them and the way they voted.

Mr.Lakhani's submission, if accepted, would require the rule to be re-written and the form to be amended.

20. Mr.Lakhani relied upon an order dated 13.1.2006 I passed in Company Petition No.639 of 2005 in Re. :- Chemidye Manufacturing Co.

Pvt. Ltd. The same were however on the basis of counsels statement and does not constitute a judgment on this point.

21. Mr.Lakhani's reliance upon the judgment of a learned single Judge in Re. : German Remedies Ltd. (2004) 1 LJ SOFT 104 = (2005) 125 CC 615 is not only not well founded but against this submission. Paragraph 7 relied upon by him reads as under :-

"Rule 78 of the Company (Court) Rules, 1959 requires Chairman of the meeting to submit his report of the result of the meeting in Form No.39 giving all the details including the names and address of the members who attended the meeting. The objectors submitted that the Chairman's report gives the number of share holders, their authorised representatives and proxies who attended the meeting but, does not give the individual names and address of the members and therefore, the report is not consonance with Rule 78 and Form No.39. In IndusInd Enterprises & Finance Limited, Company Petition No. 1085/2002 decided on 5th June, 2003, reported in 2003 (8) LJSOFT 47 = 2003 (4) Bom.C.R. 482 = 2003 (4) ALL MR 606, following the decision of the Calcutta High Court in Darjeeling Commercial Company Ltd. v. Pandam Tea Company Ltd., reported in 1983 (54) Company Cases 814, this Court held that Court should not take pedantric and strict view while considering the rules and the forms but, Court should be liberal and substantial compliance of the procedural rules would be enough. The petitioner has filed on record the names and address of the members their authorised representatives and proxies who attended the meeting also giving the manner in which they voted along with the affidavit dated 25th April, 2003 sworn in by Ms. Romy Kaizhi Bilkodivala, Chairman of the meeting. Thus, there has been a substantial compliance of Rule No.78. Initial deficiency, if any, in not giving the names and addresses of the members in the Chairman's Report submitted to the Court is cured. Thus, the scheme cannot be rejected on account of this technicality."

The judgment holds that Rule 78 and/read with Form 39 requires the Chairman to furnish details of the "members who attended the meeting".

22. The apprehension regarding more than one joint holder voting repeatedly is unfounded. Scrutineers are appointed at such meeting. They are bound to ensure that the voting is in accordance with law. It is always open to them to check any impropriety or dishonesty in this regard. If the circumstances warrant the Court can also investigate complaints in this regard. However, the submission based on an interpretation of the said provisions is not well founded.

23. I did not permit Mr.Lakhani to rely upon the course of action adopted by "some very high executives of reputed companies" in this regard. Their conduct would at the highest be in the nature of their opinions or perception of the provisions of the Companies Act. It is improper for the Court to consider the opinions given to the parties even by former Judges.

24. In the circumstances, the objection in this regard is also rejected.

25. Mr.Lakhani submitted that clause 11 of the scheme was unfair and unjust. Clause 11 reads a under :-

"11. UTILISATION OF SECURITIES PREMIUM ACCOUNT OF CIL 11.1. The Goodwill arising pursuant to this Scheme shall be adjusted by CIL against the balance in the Securities Premium Account.

11.2 The utilisation of Securities Premium Account, as above, shall be effected as an integral part of the Scheme itself in accordance with the provisions of Section 78 and Sections 100 to 103 of the Act without following the process(es) under sections 100 to 103 of the Act separately as the same does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and the order of the High Court(s) sanctioning the Scheme shall be deemed to be an order under Section 102 of the Act confirming the reduction. The provisions of Section 101 of the Act shall not apply."

26. Mr.Lakhani submitted that the proposal to write off by adjusting the value of the goodwill against the securities premium account is unfair and unjust. He submitted that there was no compulsion on the Petitioner to write off the entire amount of goodwill by adjusting the same from the securities premium account at one stroke. He submitted that this ought to be done in installments. He referred to paragraph 8 of his additional affidavit in which it is stated that International Financial Reporting Standards which come into effect from 1.4.2011 also allows the companies to decide the period of write off and does not make it mandatory to write off at one stroke.

27. Absent any impropriety, mala-fides, fraud or absurdity these are decisions which are best left to the members. It is difficult for the Court to sit in appeal over their judgment in such matters namely whether to write off the amounts in installments or in one stroke.

28. Mr.Lakhani then submitted that the goodwill of the transferor companies which vested in the Petitioner was of the value of Rs.25,319 crores as appearing in the consolidated accounts of the Petitioner for the fifteen months period ending 31st March, 2009. He submitted that the officers of the Petitioner informed the shareholders that the adjustments not exceeding Rs.15,000/- crores towards the goodwill from the securities premium account was only an enabling resolution and that the actual adjustment of that goodwill would be only about Rs.4000/- to Rs.5000/-

crores. He submitted that if there is an adjustment of any amount from the share premium account, it would adversely affect his rights as a shareholder to receive bonus shares in future, as bonus shares are to be issued by adjusting the share premium account.

29. Firstly, the goodwill created pursuant to the scheme is being adjusted against the securities premium account. The net worth of the Petitioner remains intact and the adjustment does not affect the same. The apprehension expressed in respect of the entitlement to bonus shares in future being adversely affected as a result of this adjustment is not well founded. While considering whether to sanction the scheme or not, it would be incorrect to consider an application for sanction of a scheme on hypothetical on purely theoretical considerations. It must be remembered that the total reserves of the Petitioner are about Rs.30,100/- crores. The amounts lying in the share premium account is not used only for the purpose of issuing bonus shares. It can also be used towards such other expenses as are permissible even without the sanction of the Court. In other words, the balance in the share premium account is not deducted only towards the issuance of bonus shares. Thus the mere fact that the amounts are adjusted from the share premium account would not justify the conclusion that the ability of a company to issue bonus shares is thereby reduced. The very act of the share premium account being so adjusted therefore, would not justify the Court rejecting the scheme on this ground.

30. Nor is there anything on record which indicates that the adjustment is proposed with a mala-fide motive of depriving the non-

promoter shareholders from being issued bonus shares in future.

Mr.Lakhani did not establish that the adjustment is proposed to avoid issuing bonus shares to any of the shareholders.

31. The Petitioners undertaking to obtain the valuation report from an independent valuer to determine the fair value of CHIL is accepted. All the undertakings in the affidavit in rejoinder filed on behalf of the Petitioner dated 21.4.2010 and in particular those in paragraph 6 thereof including as to obtaining the valuation report from an independent valuer, using the same as the basis for determining the goodwill at the time of the scheme coming into effect, that the special resolution dated 2.3.2010 will not be relied on or utilized for any purpose except for adjustment of the goodwill arising pursuant to the scheme and to apply to this Court for confirmation of the minute of reduction of the securities premium account after the value of the goodwill to be adjusted is determined, are accepted. If the undertakings are violated the shareholders have a remedy. The undertakings/statements if followed adequately safeguard the interests of the members.

32. Mr.Lakhani "wondered" what would happen if the scheme is approved by this Court but the Government of India does not permit the transfer of the operating assets as contemplated under the scheme. The obvious answer is that if the permission from the Government of India, is required, and is rejected, the scheme will fail.

33. Mr.Lakhani submitted that the company had not complied with the provisions of Section 391(2) of the Companies Act as it had failed to produce the latest financial position as on the date of the hearing of the petition. He submitted that the company had filed only the details of its financial position as on the date of the filing of the petition, but not thereafter.

34. The petition was filed on 2.3.2010 and admitted on 5.3.2010.

The unaudited accounts of the Petitioner as on 30.9.2009 were annexed to the petition. Mr.Lakhani submitted that as the petition was heard after nine months on 9.6.2010, the company was bound to file the latest financial position as on 9.6.2010. Having failed to do so, according to him, the scheme cannot be sanctioned.

35. Mr.Lakhani raised this contention in his affidavits dated 13.4.2010 and 26.4.2010. He did not indicate any reason for apprehension on account of any change in the circumstances during the period 30.9.2009 to 13.4.2010 or even 9.6.2010. He merely stated that as a question of law, the petition ought to be rejected on the ground that the latest financial position i.e. the financial position as of 9.6.2010 was not made available by the Petitioner. He based this submission upon a judgment of a learned single Judge of this Court in the case of KEC International Ltd. v. Kamani Employees Union 109 COM CAS 659. There are however other judgments also on this point, to which my attention has been invited by Mr.Chagla and Mr.Avasia. It would be convenient to refer to these judgments chronologically.

36. In KEC International Ltd. v. Kamani Employees Union, a learned single Judge of this Court held as under :-

"67. The next issue is with regard to non-

disclosure of latest financial position. The proviso to Section 391(2) of the Companies Act makes it abundantly clear that no order of sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied with regard to the latest financial position.

Admittedly in this case the Petitioner has filed an audited financial report as on 31st March, 1997 and not subsequent thereto. The learned Counsel for the Petitioner sought to argue that what is contemplated as latest financial position is as at the time of the meeting and also at the time of filing of the present petition. It would be rather strange in the sense that if the petition were to be heard almost after two years and in that event to say that the Petitioner need not disclose the latest financial position would render the whole objective absurd. If one were to look at the provisions regarding amalgamation scheme the time appears to be the essence in approval of such Schemes. In fact, within the time prescribed, the meeting has to be held, and within 15 days the Chairman has to file his report in this Court and within a week thereof the Petition has to be presented in this Court so as to enable the Court to consider Amalgamation Scheme at the earliest. In a given case the Petition may come up for hearing after three or four years and to say that the Petitioner need not disclose the latest financial position of the Company would render the entire objective meaningless. It is pertinent to note that the words used "Court must be satisfied with regard to the latest financial position of the Company". In this context as mentioned earlier, the judgment of the Delhi High Court in Bhagwan Singh's case (supra) the meaning of words "latest financial position" has categorically been held as the financial position should be when the matter is due for sanction. Obviously, it means at the time of final hearing of the Petition and this requirement is statutory since the Supreme Court in Miheer H. Mafatlal's case (supra) has categorically held that all the statutory requirements have to be strictly complied with before sanctioning Amalgamation Scheme. Therefore what is required is the latest financial position at the time of final hearing of the application, i.e. at the time of sanctioning.

68. Our High Court in Bharat Synthetics Ltd. V.

Bank of India and Anr. reported in 1995 (82) Company Cases 437 has categorically held that the Petitioners have not placed before the Court, its authenticated latest financial position and deprecated the manner in which the Company had not cared to do the same. In the present case the Petitioners have failed to place before the Court, the latest financial position of the Company which is a mandatory statutory requirement. Therefore, I hold that the Petitioner Company has failed to place before the Court the "latest financial position" which is a mandatory requirement under Section 392 of the Companies Act.

69. The issue with regard to the prior approval from the financial institutions, at the belated stage the Petitioners have filed an affidavit of Mr. T.N. Balsubramaniam dated 22nd July, 1999 enclosing therewith xerox copies of the letters from the financial institutions viz. L.I.C., G.I.C. and U.T.I. approving the Amalgamation Scheme. In view thereof the said objection cannot be sustained that is to say the financial institutions have not given their approval/consent for the Amalgamation Scheme."

The learned Judge has indeed held that the financial position to be disclosed, should be "when the mater is due for sanction", which means "at the time of final hearing of the petition". I do not however read the judgment to hold that the latest financial position should be as on the very day of the hearing of the petition or even the day prior thereto. Indeed a company can never do so. The argument, if accepted, would mean that even if the company petition is adjourned by a week, the company must irrespective of anything, furnish the latest financial position once again.

This process could go on every time the company petition is adjourned.

The expression "at the time of final hearing of the Petition"

must be read reasonably. It seems obvious to me that so read, what it means is that a Court at the hearing of the petition must be satisfied that the financial position is disclosed as of a date which the Court considers sufficiently and reasonably proximate to the date of the final hearing of the petition. This would depend upon the facts of each case. If the financial position as of a date reasonable proximate to the date of hearing of the petition is furnished, nothing more is required unless the Court has reason to believe that even during this period, the financial position has or may have undergone such a change as to necessitate the Petitioner bringing the same to the notice of the Court.

37. In Blue Star Infotech Ltd., 2000(2) Bom. C.R. 525, another learned single Judge while dealing with the same question of law, held that the relevant time of the latest financial position would be at the time of filing the petition and that it is only when there is a long gap between filing of the latest balance-sheet etc. and when the Court considers the scheme for sanction that the Court may require the latest financial position. Mr.Chagla relied upon the following observations in paragraph 11 of the judgment :-

"11. Mr. Grover, learned Counsel appearing for the objectors has raised a large number of objections. Mr. Grover is right in his submission that the objectors cannot be told that they have no locus standi to object to the scheme as they have come before the Court in various capacities as creditors, employees, shareholders, proxy- holders of shareholders of B.S.L. and as members of the Federation and Blue Star Workers Union which are recognised Unions. The objections have been raised by them in a representative capacity for and on behalf of other employees creditors. He has relied on a large number of authorities to show that the objectors have locus standi. It is, however, not necessary to consider them as I have already held that the objectors have the locus standi to object. Mr. Grover has submitted that the scheme is liable to be rejected as there has breach of fiduciary duties on the part of the Directors of the Company. The scheme has been fraudulently propagated.

The Company is acting ultra vires the Memorandum and Articles of Association. The objections raised by Mr. Grover pertain to procedure as well as law. It is stated that B.S.L. has not filed its latest audited account for the financial year 1998-99 as mandatorily required by proviso to section 391(2) of the Act. In support Mr. Grover has referred to a number of judgments. In the case of Navjivan Mills Co. Ltd. Kalol in Re. Kohinoor Mills Co. Ltd., 1972(42) Com.Cas. 265 the Gujarat High Court was considering an objection to the effect that the petitioner had not satisfied the requirements contained in the proviso to section 391(2) by not making necessary disclosures and it being a condition precedent to the Court exercising jurisdiction under section 391(2), the petition must fail. It was held that the scheme cannot be sanctioned if the Court comes to the conclusion that material particulars have not been disclosed to the Court by affidavit or otherwise. However, it was held that it will be a question of fact in each case whether the disclosures as required by the proviso have been made or not. In that case the objection was in fact rejected. Interpreting the word "latest", the Court held that "latest" means latest in point of time in relation to the date on which the petition is filed. Mr. Grover has thereafter relied on 60 Comp.Cas. 94 Bhagwan Singh and Sons P. Ltd. v. Kalawati and others. In this case the Delhi High Court dismissed the petition as having been delayed. It was also dismissed on the ground that the Company had failed to give the upto date financial position which had to be done upto the stage when the petition became due for sanction. This decision is not contrary to the judgement of the Gujarat High Court.

It lays down that the latest financial position has to be given as on the date of the sanction by the Court. But the observation has to be seen in the light of the facts of each case. In that case the meetings of the creditors and shareholders were held on April 25, 1978, approving the scheme of arrangement, and the report of the Chairman submitted on May 23, 1978. Instead of filing the petition within seven days of the filing of the report by the Chairman as required under Rule 79 of the Companies (Court) Rules, 1959, the petition was moved on November 15, 1978. The learned Judge rejected the reason given for the delay and dismissed the petition. While dealing with section 391(2) of the Companies Act it was observed that the Company has chosen to file balance-sheet upto March, 1980 and has not cared to submit the latest balance-sheet. The Company had been specifically directed in that case to submit the latest balance sheet, profit and loss account, list of shareholders and shares held by them and the Auditor's report, during the course of argument a month earlier before the judgment was given. It was, therefore, held that the Company has with- held the full material facts and its latest financial position. Therefore, I am of the opinion that the observations made by the Delhi High Court are not contrary to the law laid down by the Gujarat High Court. It was held that the scheme is mala fide and that the sole purpose of the scheme appears to be to defeat the claim of these creditors by 50 per cent, get released the attachment of goods that they have got effected and pay the rest in driblets covering a period of five years. Mr. Grover thereafter relied on the case of Maneckchowk and Ahmedabad Manufacturing Co. Ltd., 1970 Vol. 40 Com.Cas. page 819. In head note 3 and 4 of this case it is held as follows.

"(iii) Before the Court accords its sanction to any scheme of compromise and arrangement, it would normally expect to be satisfied about three important matters, namely (a) whether the statutory provisions have been complied with or not; (b) whether the class or classes have been fairly represented; and (c) whether the arrangement is such as a man of business would reasonably approve."

"..... It is obligatory upon the applicant under section 391(1) to set out in an affidavit the particulars required in Form No. 34. The details required to be mentioned in the affidavit have been so prescribed as to enable the Court to give proper directions and no disclosures are required to be made as required by the proviso at that stage. It is not possible to accept the view that disclosures as required by the proviso should be made at the initial stage when the application is made under section 391(1). These disclosures are required to be made only when a petition is filed under section 391(1) for sanctioning the scheme and must be available when the Court proceeds to examine the scheme to find out whether sanction should be accorded to it or not."

A perusal of the aforesaid shows that the Court has come to the conclusion that it is not possible to accept the view that the disclosure should be made at the initial stage when the application is made under section 391 of the Act. The disclosures are required at the time when the petition is filed and must be available when the Court proceeds to examine the scheme to find out whether sanction should be accorded to the scheme, comes up before the Court for sanctioning the scheme. This judgment and the earlier judgment of the Gujarat High Court in Navjivan Mills Com. Ltd. are both given by the same learned Judge viz, D.A. Desai, J. Reading all the judgments together, one can say that the relevant point of time for disclosing the latest financial position would be at the time of filing of the petition. It is only as in the case of Bhagwan Singh (supra) when there is a long gap between the filing of the latest balance sheet etc. and the time when Court considers the scheme for sanction that the Court may require the latest financial position, otherwise it has been clearly laid down that the latest financial position should be disclosed at the time of moving/filing of the petition. Mr. Grover thereafter relied upon the judgment of the Allahabad High Court in the case of Premier Motors (P) Ltd. v. Ashok Tandon and others 1971(41) Comp.Cas. 656. This judgment merely reiterates that all material particulars should be placed before the Court to enable the Court to come to a conclusion with regard to the question of propriety of sanctioning the scheme. It does not decide the issue as to when the latest petition should be placed before the Court. Mr. Grover thereafter relied upon 1995(82) Comp.Cas. 437 (Bharat Synthetics Ltd. v. Bank of India and another]. In this case a Single Judge of this Court has held that the Company had not placed before the Court the authenticated latest financial position as required under sub-section (2) of section 391 of the Act and, therefore, it is not in compliance with the provisions of section 391(2) of the Act. From the conspectus of the judgments noticed above it becomes apparent that it is incumbent on the petitioner to place before the Court the latest audited financial position of the Company. It also becomes apparent that the Court has to be satisfied that section 391(2) has been complied with by taking into consideration the facts and circumstances of each case. In the present case the audited accounts for the year 1998 have been placed on the record.

Therefore, in my view, the petition cannot be rejected on the ground that section 391 of the Act has not been complied with."

38. In Re. : Zee Interactive Multimedia Ltd. 2002(2) 7 LJSOFT, 83 = 2002(4) Bom.C.R., 137, yet another learned single Judge considered this issue. After referring to both the judgments, referred to above, the learned Judge held as under :

"12. The second objection raised by Mr. Dilemma is the balance sheet which is annexed to the petition is for the period of 31-3-2001. He submits that the company petition was filed on 8-11-2001 and therefore, it was obligatory on the company to file the latest balance sheet. He contends that under proviso to section 391(2), the company is required to disclose all material facts relating to the company including latest financial position of the company and the latest auditor's report on the accounts of the company. Relying upon the judgment of this Court rendered in KEC International Limited v. Kamani Employees Union and others, reported in 2000 (1) All.M.R. 388, it was contended that the latest financial position of the company referred to in proviso to section 391(2) is the position as at the time of the final hearing of the application i.e. at the time of sanctioning of the scheme of arrangement. It was contended that as the petition is being heard on 1st February 2002, the company must disclose the latest financial position at the date of the hearing of the petition and not as on 31-3-2001. In response, Shri Tulzapurkar referred to and relied upon an earlier unreported judgment of this Court dated 7-12-1999 (Coram S.S. Nijjar, J.) in the matter of Blue Star Limited, Company Petition No. 1007/98. Shri Tulzapurkar further submitted that this judgment has subsequently been affirmed by the Division Bench, of this Court.

13. After referring to the judgment of the Gujarat High Court in Navjeevan Mill Co. Ltd., Kollol In re Kohinoor Mill Co. Ltd., reported in 1972 (Vol. 42) Co. Cases 265, and judgment of Delhi High Court in Bhagwan Singh & Sons Pvt. Ltd. v. Kalavati & others, reported in 1986 (Vol. 60) Company Cases 94 and of another judgment the Gujarat High Court in In re Maneckchowk v. Ahmedabad Manufacturing Company Limited, reported in 1970 (Vol. 40) Company Cases 819, Nijjar, J., observed:

"Reading all the judgments together, one can say that the relevant point of time for disclosing the latest financial position would be at the time of filing of the petition. It is only as in the case of Bhagwan Singh (supra) when there is a long gap between the filing of the latest balance sheet etc. and the time when Court considers the scheme for sanction that the Court may require the latest financial position, otherwise it has been clearly laid down that the latest financial position should be disclosed at the time of moving/filing of the petition.

14. In my opinion, there can be no doubt with the proposition that the petitioner company must disclose all material facts including latest financial position of the company and the latest auditors report on the accounts of the company. The words "latest auditors report" in my opinion connote the latest auditors report which is available or which should normally be available at the time of filing of the petition. It is not compulsory that company must get the accounts audited time and again till the petition comes up for hearing and place that auditors report, before the Court at the time of hearing the petition. There would always be some time gap between the date on which the auditor audits the accounts and prepares his report and the date on which the company petition is filed and the date on which petition is actually heard.

Therefore, the statutory requirement of the submission of latest auditor's report contained in the proviso of sub-

section (2) of section 391, in my opinion, would mean the latest auditor's report for the period for which the accounts are audited or ought to have been got audited by the Company. In the case of listed companies (whose shares are listed on a stock exchange) a limited audit for every period of half year may be compulsory and in future it may become necessary even quarterly. In such cases, auditor's report for latest half year ending/quarter ending would be necessary. Of course, in a given case, the Court is not powerless to ask the further details of the latest financial position as on the date of the hearing of the petition or as on the date as near to the date of the hearing of the petition, as is reasonably practicable. This is especially necessary when there is a long gap between the date of filing of petition and the date of it's hearing. In the present case, the audit was completed for the financial year ending 31-3-2001. Transferor company is an unlisted company and hence, I am told half yearly limited audit is not compulsory. Therefore, the last auditor's report available was only for the period 31-3-2001. That auditor's report along with the balance sheet and Annual report were annexed to the petition. This was legally correct.

However, exercising Court's power to call for further and latest possible information, during the course of hearing I directed the petitioner to file the balance sheet and profit and loss account upto period ending 30-9-2001 (for which provisional balance sheet was prepared) The learned Counsel for the petitioner handed in the copies thereof both in respect of transferor as well as transferee company. Copies are taken on record and marked Exhibit- A in their respective petitions. The Counsel for the petitioner undertakes to file an affidavit proving those copies within a period of two weeks. Undertaking is accepted. Copy of this order shall not be issued until the affidavit is filed."

The learned Judge noted that the judgment in Blue Star Infotech Ltd. was earlier than the judgment in KEC International Ltd. In fact the judgment in KEC International Ltd. is dated 5/6.8.2009, whereas the judgment in Blue Star Infotech Ltd. is dated 7.12.1999.

The learned Judge has noted counsel's submission that the judgment in Blue Star's case was affirmed by the Division Bench. The judgment of the Division Bench was decided on 1.3.2000 and reported in 2000(12) LJ SOFT 14 = 2000(4) Bom. C.R. 589. The Division Bench however did not deal with this point. The observations regarding the latest auditors report apply to the latest financial position. This is clear from the context. For instance the learned Judge observed that the Court is not powerless to ask for the details of the latest financial position. This would not have been necessary if the observations was that the latest financial position is to be as on the date of the hearing of the .

39. After I reserved judgment, Mr.Avasia and Mr.Chagla fairly invited my attention to a judgment of a Division Bench of this Court of S.

Radhakrishnan and D.G. Karnik, JJ. in Darshana P.Kenia & Ors. v. Alstom Power India Ltd. & Ors., 2003 Company Cases, Vol.116. S.

Radhakrishnan, J. had delivered the judgment in KEC International Ltd.

while D.G. Karnik, J. has delivered the judgment in Zee Interactive Multimedia Ltd. The Division Bench considered the three judgments I have referred to above and held as under :-

"Re Point Nos. 5:

27.Proviso to sub-section (2) of section 391 of the Act requires that the company or any other person who makes an application for sanction of a scheme to disclose to the Court all the material facts relating to the company, the latest auditor's report on accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251 and the like. In order to ascertain whether the scheme is fair and just to all concerned or not, the Court would necessarily have to look to the latest financial position of the company. The Balance Sheet, Profit and Loss Account and the Auditor's Report are important tools for the purpose of ascertaining the latest financial position of the company. It is for this reason that the Court insists that the applicant must not only produce the latest Balance Sheet. Profit and Loss Account and the Auditor's Report as on the date when the application for sanction under section 391 is made but, should also produce the latest Balance Sheet, Profit and Loss Account and the Auditors' Report as on the date when the matter is actually heard by the Court, especially when there is long gap between the date of the application and when the Court considers the scheme for sanction. See. In the matter of the Scheme of Arrangement of Blue Star Ltd. with Blue Star Infotech Limited, reported in 2000 (2) Com.L.J. 245 at page 255.

28. In the present case, petitioner companies had initially produced the audited accounts together with the Auditor's Report for the year ending 31st March, 2001 both in the case of APBL as well as APIL. Despite the fact that the petitions came up for hearing before the learned Single Judge sometime in the year October, 2002 when the latest audited accounts as well as the auditor's report for the year ending 31st March, 2002 were available, they were not produced by the company. We must however, mention that Mrs. Darshana Kenia (appellant in Appeal Stamp No. 981 of 2002) had produced the latest Balance Sheet and financial position of APIL after conclusion of the hearing before the learned Single Judge but, before pronouncing of the judgment. The learned Single Judge however, declined to look into the same for the reasons mentioned in paragraph 39 of its judgment. In the case of In the matter of Scheme of Amalgamation of Zee Interactive Multimedia Limited, Company Petition No. 1096 of 2001 decided on 1st February, 2001 one of us (Karnik, J.) reported in 2002 (7) LJSOFT 83 = 2002 (4) Bom.C.R. (O.O.C.J.) 137, has clarified that the latest Balance Sheet, Profit and Loss Account and the Auditor's Report must be produced up to the date of hearing of the company but, if they are not produced the Court can call for them to obtain the latest possible information even at and during the course of the hearing. We are of the opinion that the learned Single Judge was entitled to call for and look into the said Balance Sheet which were produced before him. The fact that they were not produced by the company but, were produced by Mrs. Kenia was immaterial. They were produced before the Court so that it could look into them and to ascertain the latest financial position. We have perused the latest financial position contained in the Balance Sheet produced before the learned Single Judge. We have also perused further financial results published by the company in newspapers in pursuance of a statutory/ SEBI requirement of publishing the quarterly results (and filed before us by the appellants in the compilation). We do not find anything adverse in them. On the contrary, we notice improvement in the financial position in the post amalgamation results published by the transferee company pending approval of the scheme of amalgamation by this Court.

29. We are of the opinion that the requirement of placing before the Court all material facts relating to the company including latest financial position is satisfied."

I have emphasised the portion above to indicate that there appears to be a typographical error. It is obvious however that the word "company" is a typographical error and the reference was to the hearing of the . I am conscious of the fact that in fact in Zee Interactive Multimedia Ltd., the learned Judge held that the latest audited report connotes the latest auditor's report, which is available or should normally be available at the time of filing of the . I am however bound by the interpretation of the Division Bench. This would be contrary to Mr.Chagla's submission that under Section 391 of the said Act, it is necessary for the company to file the latest financial position as on the date of the .

40. The same however makes no difference in the present case.

There is nothing to indicate that there has been an adverse change in the financial position of the company which would warrant the scheme being rejected. Further the audited standalone financial results for the year ended 31.3.2010 were in fact tendered in Court and to Mr.Lakhani also. The same are marked "X". They were also published in the newspapers. This course was considered sufficient by the Division Bench in Alstom's case.

Mr.Lakhani has not pointed out anything adverse in this regard either.

41. In the circumstances, the company petition is made absolute in terms of prayers (a) and (b). The Petitioner is granted liberty to present the minutes of reduction of the securities premium account. The company shall pay the costs of the Regional Director fixed at Rs.10,000/- to be paid within six weeks from today.