Ratnagiri Gas And Power Pvt. Ltd. & Anr vs Purshottam Mareshwar Vartak & Anr

Company Appeal (AT) No.294 of 2017 [Arising out of Order dated 16th August, 2017 passed by the National Company Law Tribunal, Principal Bench, New Delhi in Company Petition No. 07 (ND)/2007] IN THE MATTER OF:

Ratnagiri Gas and Power Private Limited & Anr. ...Appellants Vs Purshottam Mareshwar Vartak & Anr. ...Respondents

Present: For Appellants:- Mr. Tushar Mehta, ASG, Mr. Virender Ganda, Senior Advocate assisted by Shri Ramanuj Kumar, Shri Manpreet Lamba and Ms. Priyal Modi, Advocates.

For Respondents: - Mr. Aman Varma & Ms. Smriti Churiwal for Respondent No.4. Mr. Anupredha Singh, Advocate. Mr. Collin Gonasalves, Senior Advocate with Ms. Swati Sood, Advocate.

With Company Appeal (AT) No.313 of 2017 [Arising out of Order dated 16th August, 2017 passed by the National Company Law Tribunal, Principal Bench, New Delhi in Company Petition No. 07 (ND)/2007] IN THE MATTER OF:

Purshottam Mareshwar Vartak & Anr. ...Appellants Vs Ratnagiri Gas and Power Private Limited & Anr. ...Respondents

Present: For Appellants: - Mr. Collin Gonasalves, Senior Advocate with Ms. Swati Sood, Advocate. Mr. Aman Varma & Ms. Smriti Churiwal, Advocates. Mr. Anupredha Singh, Advocate.

Company Appeals (AT) Nos. 294 and 313 of 2017 2

For Respondents: - Mr. Tushar Mehta, ASG, Mr. Virender Ganda, Senior Advocate assisted by Shri Ramanuj Kumar, Shri Manpreet Lamba and Ms. Priyal Modi, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In both the appeals as common question of law is involved and have

been preferred against common judgment dated 16th August, 2017

passed by the National Company Law Tribunal (hereinafter referred to as

"Tribunal") Principal Bench, New Delhi in Company Petition No. 07

(ND)/2017, they were heard together and are being disposed of by this

common judgment.

2. The brief facts of the case are as follows:

A joint petition under Sections 230 to 232 of the Companies Act,

2013 read with the Companies (Compromise, Arrangement and

Amalgamation) Rules, 2016, was filed by Appellants (1st Petitioner

Company)- 'Ratnagiri Gas and Power Private Limited' and (2nd Petitioner

Company/'Resulting Company')- 'Konkan LNG Private Limited' before the

Hon'ble Delhi High Court for sanction of 'Scheme of Arrangement'

(Demerger) as contemplated between the Petitioner Companies and their

shareholders and creditors.

Company Appeals (AT) Nos. 294 and 313 of 2017 3

3. The Hon'ble High Court of Delhi in Company Application No. (M)

142/2016, vide order dated 7th October, 2016, directed convening of the

following meetings in relation to the Petitioner Companies:

Class of Meeting Date of Chairman appointed Meeting for the Meeting Equity shareholders 03.12.2016 Mr. S.P Singh Premi, of Demerged Company Registrar General (Rtd.) Delhi High Court Secured Creditors of 03.12.2016 Mr. Manjeet Singh Demerged Company Oberoi, Advocate Unsecured Creditors 03.12.2016 Mr. Sandeep of Demerged Company Agarwal, Advocate Equity Shareholders 03.12.2016 Ms. Gunjan Sinha of Resulting Company Jain, Advocate

4. Directions were also issued for the publication of notices of

meetings in 'Indian Express' (English) and 'Jan Satta' (Hindi), both in

Delhi and Maharashtra Editions, more than 21 days before the appointed

date of the meetings. Meetings were directed to be convened at Sri Sai

Satya Auditorium, Bhishmapitamah Marg, Lodhi Road, New Delhi-

110003. Subsequent to the above order dated 7th October, 2016 passed

by the Hon'ble High Court of Delhi, the Appellants- (joint Petitioners)

moved Company Application in CO.APPL.4246/2016 before the Hon'ble

High Court seeking for the change in venue which was allowed by the

Hon'ble High Court of Delhi vide order dated 26th October, 2016.

Consequent to the above directions given by the Hon'ble High Court of

Delhi dated 7th October, 2016 and 26th October, 2016, meetings were

convened by the respective companies as is evident from the reports of

the respective Chairmen filed before the Hon'ble High Court of Delhi.

Company Appeals (AT) Nos. 294 and 313 of 2017 4

From the reports of the respective Chairmen, the following picture

emerges:

Class of Meeting No. of shareholders/ Percentage Value creditors of Vote (present and voting) Equity 8 100% 38,20,27,24,150 Shareholders of Demerged Company Secured creditors 14* 88.43% 91,86,02,97,366 of Demerged Company Unsecured Creditors 6** 100% 8,32,50,645 of Demerged Company Equity Shareholders 2 100% 1,00,000 of Resulting Company

*Dissented by power Finance Corporation Limited.

**6 Unsecured Creditors, as above, as per the Report of the Chairman, attended the meeting either personally or through their proxy and 21 unsecured Creditors have given their consent by way of signed letters.

5. Subsequent to the Report of the respective Chairmen, the case was

transferred from Hon'ble High Court of Delhi to the Tribunal.

6. Thereafter, the Companies preferred the Second Motion Petition on

23rd December, 2016 before the Tribunal, wherein the Tribunal, by

impugned judgment dated 16th August, 2017, observed as follows:

"19. Since the Scheme is yet to be sanctioned, the

petitioner companies have ample scope to seek the

approval of the shareholders and creditors with a view to

comply with the provisions of Section 66 of the Companies

Act, 2013 or at least for the modifications as sought for in

the application in CA- 180 (PB) 2017 claimed to be an

Company Appeals (AT) Nos. 294 and 313 of 2017 5

integral part of the Scheme as this Tribunal cannot

supplant its wisdom as to that of its shareholders and

creditors in the exercise of supervisory jurisdiction and

with the above said observations we are constrained to

close the petitioner sine die with liberty being granted to

the Petitioner Companies to revive the Petition as and

when compliances are effected. Further before parting it is

also to be seen that under Clause 31 of the Scheme which

reads as follows: -

31. In the event of this Scheme does not come into effect by March 31, 2017 or by such later date as may be agreed by the respective Board of Directors of the Resulting Company and the Demerged Company, this Scheme shall stand revoked, cancelled and be of no effect and become null and void and in that event no rights and liabilities whatsoever shall accrue to or be incurred inter se by the parties or their shareholders or creditors or employees or any other person. In such case each party shall bear its own costs, charges and expenses or shall bear costs, charges and expenses as may be otherwise mutually agreed.

Thus the Scheme contains a Long Stop Date being that of

31st March, 2017 and no record has been produced to

establish that the same has been extended beyond the

Company Appeals (AT) Nos. 294 and 313 of 2017 6

said period by the respective Boards and ex post facto

approval by the Board of the respective petitioner

companies cannot revive the Scheme which has lapsed

due to efflux of time and the liberty granted to revive the

petition is hence hedged based on the respective Boards

extending the time period through a date of resolution

passed prior to 31.03.2017."

7. Learned Additional Solicitor General, appearing on behalf of the

Appellant Companies submitted that after the orders were passed by the

Hon'ble High Court of Delhi, the Scheme was approved by all the: -

i. Equity shareholders of both the Companies in Special

General Meetings;

ii. Secured creditors of both the Companies and;

iii. Unsecured creditors of both the Companies.

8. It was submitted that the order refusing to sanction the Scheme by

the Tribunal is not only legally but also factually unsustainable on

different grounds, as discussed below.

9. The Tribunal held that modified Scheme cannot be sanctioned

without complying with the Section 66 of the Companies Act, 2013, or at

least without obtaining fresh consents from the shareholders and

creditors of the Appellant Companies.

Company Appeals (AT) Nos. 294 and 313 of 2017 7

10. Learned Senior Counsel for the Appellant has rightly pointed out

that the Tribunal failed to consider that Section 230 of the Companies

Act, 2013 is a complete code in itself and the explanation to Section 230

of the Companies Act, 2013 expressly and categorically states that the

provision of Section 66 shall not apply to the reduction of share capital

effected in pursuance of the order of the Tribunal under Section 230 of

the Companies Act, 2013, which reads as follows: -

"230. Power to compromise or make

arrangements with creditors and members.─

(1) Where a compromise or arrangement is

proposed--

(a) between a company and its creditors or any

class of them; or

(b) between a company and its members or any

class of them, the Tribunal may, on the

application of the company or of any creditor or

member of the company, or in the case of a

company which is being wound up, of the

liquidator, order 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 manner as the Tribunal

directs.

Company Appeals (AT) Nos. 294 and 313 of 2017 8

Explanation.--For the purposes of this sub-section,

arrangement includes a reorganisation of the

company's share capital by the consolidation of

shares of different classes or by the division of shares

into shares of different classes, or by both of those

methods.

xxx xxx xxx

(12) An aggrieved party may make an application to

the Tribunal in the event of any grievances with

respect to the takeover offer of companies other than

listed companies in such manner as may be

prescribed and the Tribunal may, on application,

pass such order as it may deem fit.

Explanation. --For the removal of doubts, it is hereby

declared that the provisions of section 66 shall not

apply to the reduction of share capital effected in

pursuance of the order of the Tribunal under this

section."

11. In any event, in view of the express powers conferred under Section

231 (1) (b) of the Companies Act, 2013, taking into consideration the

stand taken by the Appellant Companies that the secured lenders had

also supported the modified Scheme and such modification would not

Company Appeals (AT) Nos. 294 and 313 of 2017 9

prejudice their interests, it was open to the Tribunal to sanction the

Scheme if necessary by exercising its power to modify the Scheme.

12. The other ground of rejection is that one of the secured creditors

namely-- M/s. Power Finance Corporation Limited had dissented to the

Scheme.

13. However, we find that such finding is contrary to the records. The

IDBI Bank Limited, which is the lead Creditor, filed an application before

the Tribunal, wherein it is specifically and categorically stated that

initially M/s. Power Finance Corporation Limited had objected to the

Scheme; however, the said objection was withdrawn subsequently.

Relevant paragraph no.11 of the application of IDBI Bank Limited

reads as follows:

"11. It is submitted that the lenders have, at the

statutory meeting held on December 03, 2016

pursuant to the directions of the Hon'ble High Court of

Delhi, approved the Scheme with the requisite majority.

Further, Power Finance Corporation Ltd. (one of the

Secured Lenders) who had initially declined to vote in

favour of the Scheme has also granted its consent by

way of a letter dated March 21, 2017 in order for the

Scheme to be sanctioned. The Secured Lenders are

therefore wholeheartedly supporting the Scheme and

Company Appeals (AT) Nos. 294 and 313 of 2017 10

desire, subject to this Hon'ble Tribunal's approval, that

the Scheme be implemented at the earliest in the

interest of all stakeholders. A copy of the letter issued

by Power Finance Corporation Ltd. is annexed

herewith and marked as Annexure A 3. In the

aforementioned circumstances, the Secured Lenders

through the Applicant humbly submit that they may be

allowed to intervene and assist this Hon'ble Tribunal

towards sanctioning of the Scheme."

14. Another ground for rejection of Scheme has been recorded in

Paragraph No. 19, as quoted above to the effect that the life of the Scheme

(Long stop date) was 31st March, 2017 and there is no record to suggest

that the same has been extended.

15. Learned Senior counsel for the Appellant submitted that the

aforesaid finding is contrary to the record. From the record placed before

the Tribunal we find that the Long Stop Date of 31st March, 2017 was

extended to 31st March 2018.

Extract of 101st Meeting of the Board of Directors of 'Ratnagiri Gas

and Power (P) Ltd.' held on 23rd March, 2017 and extract of Minutes of

9th Meeting of the Board of Directors of 'Konkan LNG Private Limited' held

on 30th March, 2017 as submitted by the Company Secretary show that

Company Appeals (AT) Nos. 294 and 313 of 2017 11

the Demerger Scheme was extended to 31st March, 2018, as extracted

below:

Company Appeals (AT) Nos. 294 and 313 of 2017 12

16. So far as the standard of accounting is concerned, the Statutory

Auditor of 1st Appellant Company, only had suggested a different method

of accounting and it is not in dispute that the said method do not affect

the financial position or the net worth of the Appellant Companies. The

accounting method was also not objected to by any of the Appellant

Company Appeals (AT) Nos. 294 and 313 of 2017 13

Company. The Appellant Companies, through their respective Board of

Directors had approved the suggestions made by the Statutory Auditor

and modified the Scheme accordingly only to the extent pointed out by

the Statutory Auditor.

17. Clause 27.1 of the Scheme itself envisages that modification, if

necessary for the smooth functioning/ implementation of the Scheme,

can be made by the Board of Directors, and for such modification matters

the Appellant Companies are not required to approach the shareholders

or creditors for fresh consents.

18. A separate application was filed by the Appellant Companies

wherein it was specifically and categorically mentioned that the change

in the accounting method suggested by the Statutory Auditor of 1st

Appellant Company would not change or alter the financial position of

Appellant Companies since there was no change in the shareholders'

funds or the net-worth of the Appellant Companies. Therefore, no

prejudice would be caused either to any shareholder or to any creditor of

the Appellant Companies. The aforesaid fact has not been disputed by

the parties, nor by the Tribunal in its impugned order. In such

circumstance, the aforesaid technical objection cannot come in the way

of Appellant Companies for sanction of their Scheme.

19. Purushottam Mareshwar Vartak & Anr, the Appellants in the

connected appeal is the 1st Objector, who represent the employees of

Company Appeals (AT) Nos. 294 and 313 of 2017 14

'Ratnagiri Gas and Power Private Limited'. According to the 1st Objector,

the lands of 158 employees were taken over for construction of the

factory. In a Writ Petition- WP 2735 of 1994, a Division Bench of the

Bombay High Court, by its order dated 27th July, 1994 had ordered, and

the Company agreed that one member from each family would be given

employment. In another Writ Petition- WP 4625 of 1998, similar order

was passed on 7th September, 1998, which have reached finality.

Therefore, according to 1st Objector, until retirement as per Rules all the

158 workmen have a right to continue. In case any of the Company

terminates employment of any such workmen, in such case their

respective lands must be given back to them.

20. 1st Objector has claimed that all the 158 Workmen are permanent

employees of Ratnagiri Gas and Power Private Limited. However, in

absence of any such record, we are not making any observation in this

appeal. It appears that the Maharashtra Industrial Court by an order

dated 7th January, 2017 in Complaint (ULP) 321 of 2002 held that the

services of the workmen were never terminated; the establishment was

never closed; the workmen are the successor-in-interest of the 'Dabhol

Power Company' and that the workmen are the permanent employees of

the Ratnagiri Gas and Power Private Limited. If that be so, they may

continue with their status, if taken over in one or the other company.

21. Even if aforesaid submission is accepted, it is always open to the

employers to pass appropriate order of termination of one or other

Company Appeals (AT) Nos. 294 and 313 of 2017 15

workmen, following the procedure of law. For example, in a disciplinary

proceeding, if misconduct is proved against one or other workmen or

employees, it is always open to the employer to terminate the service and

in such case question of return of land does not arise.

22. In view of aforesaid discussion during the course of hearing,

learned counsel appearing on behalf of the workmen (Objectors),

suggested to modify the part of the Scheme protecting the rights of

employees and workmen, who have been granted reliefs by Court's order.

On the suggestion of the parties, a draft note of part amendment of the

Scheme was handed over to the parties, and on the basis of such draft

amendment, learned Senior Counsel appearing on behalf of the 1st

Objector (Appellants)- Purshottam Mareshwar Vartak & Anr. presented

two alternative drafts to protect the interest of the workmen, as quoted

below:

"Without Prejudice Courts Note

1. The employees represented by Objector No.1 will be

accommodated either in Konkan LNG Pvt. Ltd. or Ratnagiri

Gas & Power Pvt. Ltd. In case of closure, declaration of sick

or initiation of Insolvency Resolution Professional of any of

the aforesaid two companies, the employees will be

accommodated in the other existing company, if so

necessary be retrenching those employees who are engaged

on contract through other contractors. That means the

Company Appeals (AT) Nos. 294 and 313 of 2017 16

employees will have priority of adjustment in the other

company which continues to function.

2. For example, if after transfer of some of the workmen,

represented by the Objector No.1, if taken to Ratnagiri Gas

& Power Pvt. Ltd. pursuant to the demerger scheme and

there is a closure, or lay off, initiation of insolvency

corporate process and inability to provide work except

where workman to be removed after disciplinary

proceedings or on attaining age of superannuation such

employees should be accommodated in Konkan LNG Pvt.

Ltd. and if so necessary by retrenching the other workmen

engaged through contractors.

[OR]

3. In other words, if for any reason one or other workmen of

Ratnagiri Gas & Power Pvt. Ltd. if thrown out of the service

or retrenched on any ground, except disciplinary

proceedings or superannuation, such employee will be

accommodated in Konkan LNG Pvt. Ltd. by retrenching the

workmen of same status, working through contractors"

23. Learned counsel appearing on behalf of the Appellant Companies

have objection with regard to the example as cited above. According to

Appellant Companies, no example can be a part of a Scheme. The Scheme

cannot show 'for example' in the Scheme as mentioned in Para nos. 2 &

3 of the draft, handed over by learned Senior Counsel for the

workmen/employees and quoted above. The Appellant Companies,

Company Appeals (AT) Nos. 294 and 313 of 2017 17

without prejudice has submitted a draft amendment of Scheme in regard

to the workmen, which reads as follows:

"Changes proposed by Ratnagiri Gas and Power Private Limited on the draft suggested by Hon'ble NCLAT on 23.11.2017

Subject to the outcome of proceedings arising out of Writ

Petition No. 3892/2017, the 158 employees represented

by Objector No.1, in whose favour an award or order has

been passed by the Industrial Tribunal, Kolhapur shall be

accommodated in the Konkan LNG Private Limited or

Ratnagiri Gas and Power Private Limited, as may be

decided by the Board of Directors of Ratnagiri Gas and

Power Private Limited. In case of lay-off due to closure,

declaration of sickness, or initiation of insolvency

resolution process against, either of the companies,

aforesaid employees shall be accommodated in either of

the existing company, if so necessary by retrenching those

employees who are engaged on contract basis through a

contractor and not having any order in their favour from

any Tribunal or court of law. That means, the 158

employees represented by Objector no.1 will have priority

of adjustment in the other company which continues to

function normally, over the contract employees in whose

favour there is no order or award passed by any Tribunal

or court of law.

Company Appeals (AT) Nos. 294 and 313 of 2017 18

The aforesaid arrangement shall be subject to the order,

as may be, passed by the Hon'ble high Court or Hon'ble

Supreme Court, in the cases pending before such court of

law. The 158 persons will be governed by the requirements

and conditions of service as stipulated in the Rules,

Regulation, Instructions, Guidelines or Statute of the

company in which they will be accommodated.

This means, the 158 employees represented by Objector

No.1 in whose favour an award has been passed by the

said Industrial Tribunal will have priority of adjustment

over those who do not have such order in their favour from

any court of law or tribunal, in the demerged company or

the resultant company, subject to the condition as referred

to above. Nothing contained in the aforesaid paragraphs

shall affect or prejudice the rights and contentions of the

parties in any pending judicial proceedings."

24. As the suggestions made by the Appellant Companies, with regard

to the 158 workmen/employees represented by the 1st Objector-

Purshottam Mareshwar Vartak take care of all such employees

represented by 1st Objector, in whose favour an award or order has been

passed by the Court(s) of competent jurisdiction, we approve the draft

suggested by the Appellant Companies as quoted at Paragraph 23 above,

for incorporating it as part of the Scheme at an appropriate place, in place

of the proposed Scheme with a view to safeguard the interest and rights

of 158 workmen/employees of Ratnagiri Gas and Power Private Limited.

Company Appeals (AT) Nos. 294 and 313 of 2017 19

25. For the reasons aforesaid, while we set aside the impugned order

dated 16th August, 2017 passed by the Tribunal, Principal Bench, New

Delhi in Company Petition No. 07 (ND)/2017, approve the Scheme with

modification as noticed and quoted above and the Long Stop Date stands

extended up to 31st March, 2018. It will come into effect from the date as

mentioned in the Scheme and shall be given effect from the date of its

notification as required to be issued under the law. The Scheme of

Demerger stands approved with modification as quoted above. Both the

appeals are allowed with aforesaid observations. However, in the facts

and circumstances of the case, there shall be no order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 28th February, 2018

AR

Company Appeals (AT) Nos. 294 and 313 of 2017