391 copanies act

8/9/2019 391 Copanies Act

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REPORTABLE

IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.5505-5508 OF 2013[Arii!" #$% #& SLP 'C( NO.12)3)-12)*0 OF 2008+

M/s. Integrated Finance Co. Ltd. ...Appellant

VERSUS

Reserve Bank of India Etc. Etc. ...Respondents

J U D , M E N T

SURINDER SIN,H NIJJARJ.

1. Leave granted.

2. I.A. filed by Mr. B. Ramanna !mar for s!bstit!tion in place of

Late Mr. ". Mani is allo#ed.

3. $%ese appeals& arising o!t of '.L.(. )Civil* "os. +,--+,-01

of ,112& are directed against t%e common order and 3!dgment

dated 1t% April ,112 passed by t%e 4ivision Benc% of t%e 5ig%

Co!rt of 6!dicat!re at Madras. 7ide t%e aforesaid order& t%e

order/3!dgment of t%e learned single 3!dge dated +8 t% A!g!st

1



,119 passed in Company (etition "o. +91 of ,11: #as set

aside.

*. $%e Company (etition "o. +91 of ,11: #as filed by t%e

appellant company %erein !nder 'ection 8+ of t%e Companies

Act& +8:9 )%ereinafter referred to as ;t%e Companies Act<*&

seeking approval for t%e sc%eme of arrangement/compromise

dated +1t% A!g!st& ,11:. $%e said agreement #as entered into

bet#een t%e appellant company %erein and its class of

creditors& namely its deposit %olders and bond %olders. $%e

learned 'ingle 6!dge& vide order dated +8t% A!g!st& ,119& #as

pleased to sanction t%e said sc%eme& albeit #it% some

conditions. $%is order #as c%allenged in t%e 5ig% Co!rt by #ay

of fo!r original side appeals& #%ic% #ere allo#ed by t%e 4ivision

Benc% vide t%e order dated 1 t% April& ,112 #%ic% %as been

c%allenged in t%is Co!rt.

S$/r #& F/%

5. $%e relevant facts giving rise to filing of t%e present appeals as

narrated by t%e parties are as !nder=

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. $%e appellant %erein #as incorporated as a "onBanking

Finance Company )%ereinafter referred to as a ;"BFC<* !nder

t%e Companies Act in +82& and #as engaged inter alia in t%e

b!siness of %irep!rc%ase and leasing. >ver t%e years t%e

appellant company %as become one of t%e leading financial

companies. It %as , branc%es #it% over several %!ndred

employees. $%e s%ares of t%e company are listed in t#o stock

e?c%anges in India. It %as ,1&111 s%are%olders. @ntil +88:

+889& t%e appellant company #as a profit making company and

declared dividends to its s%are%olders contin!o!sly.

). $%at t%e Reserve Bank of India )%ereinafter referred to ;RBI<

or/and t%e ;respondent no.+<*& d!ring +88-,11& iss!ed a

series of circ!lars for reg!lating vario!s activities of t%e "on

Banking Financial Companies. $%e RBI also imposed certain

conditions on t%ese companies. $%e companies t%at did not

comply #it% t%e aforesaid conditions #ere directed to stop

accepting deposits from t%e investors and also to repay t%e

deposits immediately.

8. In e?ercise of its po#ers !nder 'ection 0:" of t%e Reserve

3



Bank of India Act +80 )%ereinafter ;+80 Act<*& t%e RBI

inspected t%e books of acco!nts of t%e appellant company in

,11:. $%e inspection report of t%e RBI disclosed t%e follo#ing

violations of t%e provisions of t%e +80 Act=

)i* >n +st Marc% ,110& t%e "et >#ned F!nd )">F* of t%e

appellant company %erein stood at negative )*

Rs.+1999.19 lak%& #%ic% #as in e?cess of t%e reported

">F at Rs.,+80.11 lak%

)ii* $%e credit e?pos!re of t%e appellant company& as on

+st Marc% ,110& to some of t%e companies #as fo!nd

to be in e?cess of +: of its reported o#ned f!nd of

Rs.,2--.11 lak% as on 'eptember 1& ,11. $%!s& it

violated t%e provisions of (ara +, of t%e "BFC

(r!dential "orms )Reserve Bank* 4irections& +882

)%ereinafter referred to as t%e (r!dential "orms

4irections*.

)iii* $%e appellant company did not classify its assets in

accordance #it% t%e asset classification norms

stip!lated by RBI and t%ereby& violated t%e provisions

of (aragrap% - of t%e (r!dential "orms directions.

)iv* $%e ross "on(erforming Assets of t%e appellant

4



company& assessed at Rs.+:91.+9 lak%& stood at a

very %ig% level and constit!ted 98.+ of t%e total

credit e?pos!res of t%e appellant company.

)v* $%e appellant company #as fo!nd to %ave not made

adeD!ate provision in respect of its "on(erforming

Assets. Res!ltantly& t%ere #as s%ort provisioning to t%e

e?tent of Rs.+,:-:. lak%s. $%e aforesaid omission

on part of t%e appellant violated t%e provisions of

(aragrap% 2 of t%e (r!dential "orms 4irections.

)vi* $%e appellant company #as also fo!nd to be in

violation of t%e provisions of (aragrap% +1 of t%e

(r!dential "orms 4irections beca!se t%e ">F of t%e

appellant company #as negative and it did not

maintain t%e minim!m capital adeD!acy ratio.

4. '!bseD!ently on ,1t% 6an!ary& ,11:& t%e RBI& in e?ercise of its

po#ers !nder 'ection 0:MB)+* of t%e Reserve Bank of India

Act& +80 iss!ed a circ!lar to t%e appellant company&

pro%ibiting it from ;accepting deposits from any person, in any

form whether by way of fresh deposits or renewal of the

existing deposits or otherwise, until further orders.< F!rt%er& t%e

5



appellant company #as directed not to sell& transfer& create

c%arge or mortgage& or deal in any manner #it% its properties&

assets& #it%o!t prior permission of t%e RBI. $%e said notice #as

also advertised in t%e Indian E?press dated ,1 t% 6an!ary& ,11:.

10. $%ereafter& t%e appellant company started facing

problems in r!nning its operations beca!se of t%e drop in its

profitability. In order to overcome t%ese problems& t%e appellant

company proposed a 'c%eme of Compromise #it% its creditors&

vi. t%e depositors and bond %olders& #%ic% #as approved by

t%e Board of 4irectors of t%e appellant company on +8 t% May&

,11:. $%e relevant part of t%e aforesaid sc%eme is as !nder=

;0 (AME"$' $> FIGE4 4E('>I$ 5>L4ER'/B>"4 5>L4ER'

0.+ $%e Company #o!ld settle all t%e deposit %olders !p to mat!rityval!e of Rs.,1&111/ as and #%en it falls d!e.

0., $%e sc%eme #o!ld provide for t%e follo#ing.

)a* Conversion of all t%e deposit %olders and bond %olders into sec!redconvertible debent!res carrying on interest of 9 p.a. convertible intoeD!ity before t%e e?piry of + year from t%e date of allotment #it% an option

to t%e company to prepay t%e val!e of debent!res before t%e d!e date ofconversion. $%e conversion price #ill be determined taking into acco!ntt%e val!ation laid do#n by 'EBI g!idelines.

)b* $%e debent!res #ill be iss!ed #it% periodical interest paymentoption to t%e deposit/ bond %olders #%o are %olding reg!lar interestpayment option presently and for t%ose deposit/ bond %olders %oldingpayment of interest !nder c!m!lative option& interest #ill be added to t%eval!e of t%e debent!re for conversion at t%e time of mat!rity.

6



)c* By virt!e of t%is sc%eme& all t%e deposit %olders and bond %olders#o!ld become sec!red creditors in t%e books of IFCL at t%e first year. $%e$r!stees for t%e Bonds #o!ld be t%e 4ebent!re $r!stees in t%e postsc%eme scenario and a 4ebent!re $r!st 4eed c%arging t%e assets ofRs.+,: crores of receivables& accr!ed interest& investments& assets and

available stock on %ire #o!ld also be made so as to comply #it% all t%enorms for t%e p!rpose of f!lly convertible debent!res.

0.. By virt!e of t%e conversion& t%e o!tflo# of t%e company #o!ld be aD!arterly payment of interest depending !pon t%e type of deposit/ bond%eld by t%e creditors. At t%e end of t%e ten!re t%e debent!res #o!ld eit%erbe redeemed or converted as eD!ity s%ares at t%e given appropriate e?itro!te as t%e Company is a listed company and a fairly large tradablemarket capitaliation being available for t%e liD!idation of t%ese converteds%ares. $%e conversion of deposit %olders/ bond %olders into sec!redconvertible debent!res and t%ereafter into eD!ity s%ares of t%e company

#ill ens!re t%eir benefits since t%e company establis%ed ne# lines ofb!siness s!c% as financial B(> and is in t%e process of e?panding t%esame.<

? ? ?

;0.9 $%e sc%eme is not offered to t%e Banks since t%e stock on %irepledged / %ypot%ecated is abo!t Rs.21 crores as against t%eir d!es ofRs.9, crores. 'ince none of t%e banks interest is pre3!diced nor any of t%eassets c%arged to t%em& t%is sc%eme is not being offered to t%em and it is

only t%e deposit %olders and bond %olders #%ose rig%ts are being dealt#it% in t%e 'c%eme of Arrangement and compromise. $%!s t%ere is nodirect or indirect interest of t%e Banks being pre3!diced or affected.

:. 'ince t%is sc%eme does not envisage cas% o!tflo# at t%e firstinstance and does seek to convert t%e depositors and bond over a periodof time into s%are%olders t%ere is no reD!irement of fres% inf!sion of cas%.

9. IM(LEME"$A$I>" >F 'C5EME

9.+ $%e 'c%eme if approved by t%e deposit %olders and bond %olders#it% s!c% modifications& as may be assented by t%e Company& s%all bes!bmitted to t%is 5onHble Co!rt for confirmation and if confirmed& s%allbecome binding #it% all deposit %olders& bond %olders and t%e Company.9., >n completion of t%e sc%eme& t%e Company s%all %ave disc%arged allt%e liability to fi?ed deposit / bond %olders.

-. EFFEC$ >F $5E 'C5EME

-.+ In vie# of t%e above 'c%eme being offered& all t%e parties agree

7



t%at=

a* #it% t%e terms of t%e 'c%eme all liabilities of t%e 4eposit 5olders andBond %olders s%all be deemed as f!lly disc%arged.

b* "o claims s%all be raised by any deposit %olders or bond %older to#%om t%is 'c%eme is offered and

c* "o claim can be made against any gro!p companies of IFCL t%eirassociates or any ot%er person& promoters& directors& past and present& inrespect of matters relating to IFCL.

d* $%is sc%eme if approved and ordered by t%is 5onHble Co!rt s%all bebinding on t%e Company and all parties to t%e sc%eme.<

11. $%e aforesaid sc%eme of compromise #as presented

!nder 'ection 8+ of t%e Companies Act to t%e 5ig% Co!rt.

>n +st 6!ly ,11:& t%e appellant company #as permitted by t%e

Ld. 'ingle 6!dge& in Company Application "os. 2:0 and 2:: of

,11: in C.(."o.+91 of ,11:& to convene a meeting of its

deposit %olders at C%ennai on +1t% A!g!st ,11: at ,.1 p.m. for

t%e p!rpose of considering t%e said sc%eme of compromise

and& if t%o!g%t fit& approving t%e same #it% or #it%o!t

modifications. Also& Mr. B. Ravi& a (ractising Company

'ecretary& #as directed to preside over t%e meeting. In t%e

contingency of t%e fail!re of Mr. B. Ravi to preside over t%e

meeting& Mr. eorge !r!villa& Managing 4irector of t%e

appellant company #as directed to step into t%e s%oes of t%e

former. $%e learned 'ingle 6!dge also gave some ot%er

8



directions in t%e aforesaid order to ens!re t%at t%e relevant

provisions of t%e Companies Act are complied #it% #%ile

cond!cting t%e said meeting.

12. 5o#ever& before t%e meeting co!ld be %eld on +1t%

A!g!st& ,112 Company Applications "os. ++1: to +++1 of

,11: in C.(. "o.+91 of ,11: came to be preferred before t%e

5ig% Co!rt. In t%e aforesaid Company Applications& some

depositors of t%e appellant company inter alia so!g%t t%e

appointment of an ;independent c%airman&< in place of t%e

c%airman appointed vide order dated +st 6!ly ,11:. $%e said

applicants also made a prayer t%at police protection s%o!ld be

granted to t%em d!ring t%e said meeting. $%e learned 'ingle

6!dge #%ile disposing of t%e aforesaid company applications&

vide order dated :t% A!g!st& ,11:& did not make any c%ange

pertaining to t%e C%airmans%ip of t%e originally appointed Mr.

B. Ravi. 5o#ever& Mr. R. !r!s#amy& retired 4istrict 6!dge&

#as appointed as t%e observer for t%e said meeting. $%is

appears to %ave been done for ens!ring fair and free

participation of all deposit %olders/bond %olders in t%e said

meeting.

9



13. $%e sc%ed!led meeting #as cond!cted on +1 t% A!g!st&

,11:& as per t%e orders of t%e learned 'ingle 6!dge dated +st

6!ly ,11: and :t% A!g!st& ,11:. $%e report of t%e meeting #as

p!blis%ed in vario!s ne#spapers indicating t%at t%e 'c%eme

%ad been approved by ma3ority of t%e bond %olders and deposit

%olders. A report concerning t%e said meeting #as filed before

t%e learned 'ingle 6!dge along #it% t%e >bserverHs report.

$%ereafter& a petition #as preferred before t%e 5ig% Co!rt

!nder 'ection 8+),* of t%e Companies Act& seeking sanction

for t%e said sc%eme of compromise. In t%e aforesaid

proceedings& t%e Integrated Finance Company 4epositors

Association an Association representing t%e depositors of t%e

appellant company and several ot%er depositorsfiled t%eir

ob3ections and raised several contentions regarding t%e validity

of t%e said 'c%eme. $%e RBI also filed its ob3ections. At t%e

same time& certain ot%er associations& representing t%e deposit

%olders& debent!re %olders also intervened in t%e aforesaid

proceedings and s!pported t%e validity of t%e said sc%eme.

'imilarly& an association of t%e employees of t%e appellant

company also intervened in t%e s!pport of t%e 'c%eme. It is

10



also relevant to note %ere t%at t%e appellant company& d!ring

t%e pendency of t%e Company (etition "o.+91 of ,11:& filed

Company Applications "os. +018 +0+1 of ,11:& inter alia to

restrain t%e respondent "os. + to 9 in s!c% applications from

initiating any proceeding eit%er civil or criminal in nat!re against

t%e 4irectors of t%e appellant company.

1*. $%e learned 'ingle 6!dge vide order dated +8t% A!g!st&

,119 overr!led all t%e ob3ections p!t for#ard against or in

ob3ection to t%e said sc%eme and accorded approval to t%e

same. J%ile granting sanction t%e learned 'ingle 6!dge made

it clear t%at sanction of t%e said sc%eme ;will not exonerate or

protect the Directors and those in charge of the affairs of the

Company from any proceeding that may be contemplated

either under the provisions of the Companies Act or under any

other Act for any statutory violation.<

15. $%e aforesaid order& as noticed earlier& #as c%allenged

before t%e 4ivision Benc% of t%e 5ig% Co!rt by #ay of t%e

follo#ing appeals=

>.'.A. "o. 12 of ,119 #as filed by t%e Reserve Bank of India

11



>.'.A. "o. 18 of ,119 #as filed by t%e Integrated Finance Company

4epositors Association >.'.A. "o. +, of ,119 #as filed by one M/s.

(op!lar !ries Limited and >.'.A. "o.8+ of ,11- #as filed by one

Mrs. Eliabet% Antony.

J%ile allo#ing t%e aforesaid appeals& t%e 4ivision Benc% set

aside t%e 3!dgment of t%e Learned single 6!dge vide common

3!dgment/order dated 1t% April& ,112. $%is 3!dgment is !nder

c%allenge before !s.

S$ii#!

1. Je %ave %eard t%e learned co!nsel on be%alf of t%e

parties.

1). Mr. Arvind (. 4atar& learned senior co!nsel& appeared for

t%e appellant company and assailed t%e validity of t%e

imp!gned order. Mr. IDbal C%agla& learned senior co!nsel&

appeared for intervenors in I.A. "os. ,8, of ,118 in '.L.(. )C*

"os. +,--+,-01 of ,112. Mr. '%yam 4ivan& learned senior

co!nsel& appeared for t%e intervenors in I.A. "os. 9 of ,118

in t%e aforesaid proceedings. J%ereas Mr. (arag (. $ripat%i&

learned senior co!nsel& appeared for t%e Respondent/RBI and

12



Mr. 7. (arkas%& learned senior co!nsel appeared for

respondent no.+/Integrated Finance 4epositors Association in

'.L.(.)C* "o. +,-2 of ,112.

18. Mr. 4atar& learned senior co!nsel& s!bmitted t%at t%e

sc%eme of compromise of t%e appellant company %as been

approved by +-12 o!t of ,+-- )-8* deposit %olders and :9,2

o!t of -+0 bond %olders )--.-*& present and voting #%ic%

s%o#s t%at it #as approved by an enormo!s ma3ority.

According to %im& t%e appellant company %as complied #it% all

t%e stat!tory reD!irements relating to t%e said sc%eme. $%is& %e

s!bmits& is evident from t%e fact t%at neit%er t%e 'ingle 6!dge

nor t%e 4ivision Benc% of t%e 5ig% Co!rt fo!nd any proced!ral

irreg!larity in t%e arrangement of t%e said sc%eme. $%!s

according to Mr. 4atar& t%e only iss!es t%at no# reD!ire

consideration are=

)i* ;J%et%er t%e nonobstante cla!se in 'ection 0:K of

t%e RBI Act& +80 pro%ibits t%e 5ig% Co!rt from

sanctioning any sc%eme for t%e deposit %olders of an

"BFC

)ii* J%et%er t%e petitioner %ad failed to disclose t%e RBI

13



letter dated +2t% 6an!ary& ,11: before t%e learned

Company 6!dge as per t%e provisions of

'ection 8+)+* of t%e Companies Act& +8:9<

14. According to Mr. C%agla& t%e cr!cial iss!e #%ic% arises

for t%e consideration of t%is co!rt is as to #%et%er 'ection 8+

of t%e Companies Act does not apply to "BFCs in vie# of

'ection 0:KA of t%e RBI Act. 5e also s!pplemented t%e

second iss!e& as framed by Mr. 4atar& by s!bmitting t%at t%is

Co!rt %as to determine t%at #%et%er nondisclos!re of t%e

letter dated +2t% 6an!ary& ,11: violates t%e provisions of

'ection 8+),* and/or 'ection 8 of t%e Companies Act.

$%ese s!bmissions are reiterated by Mr. '%yam 4ivan& learned

senior co!nsel.

20. Mr. 4atar %as f!rt%er s!bmitted t%at a sc%eme !nder

'ections 8+ to 80 is an e?ception to t%e r!le t%at a contract

can be novated only #it% t%e consent of t%e individ!al parties.

$%e resol!tion passed by t%e reD!isite ma3ority sanctioning t%e

sc%eme in D!estion& #%ic% gets sanction from t%e Co!rt #ill be

binding eD!ally on t%e dissenting minority. In t%is conte?t& t%e

14



learned co!nsel relied !pon J.6. 'B#/( Pri7/% L%9. 7s.

N: 6/ir-i-;i!9 S<i!!i!" /!9 =/7i!" C#. L%9. > Or.

E%. 1 and A9i!i%r/%#r #& %; S<i&i9 U!9r%/?i!" #& %;

U!i% Tr$% #& I!9i/ > A!r. 7s. ,/r:/r P#@%r L%9.2 Mr.

'%yam 4ivan& #%ile e?plaining t%e scope of 'ections 8+80

of t%e Companies Act& %as dra#n o!r attention to t%e principle

of novation& #%ic% allo#s t%e parties to a contract to re#ork or

reagree t%e terms of t%e contract. 5e s!bmits t%at t%is

principle is recognised in 'ection 9, of t%e Contract Act& +2-,.

F!rt%er& Code of Civil (roced!re& +812 allo#s compromise

d!ring t%e pendency of t%e proceedings& )'ee >rder ,& C(C*

and also by ad3!stment of a decree )>rder ,+ R!le ,& C(C*.

Relying on t%e provisions contained in 'ection ,, of t%e 'ick

Ind!strial Companies Act& +82, and 'ection 01, of t%e

Companies Act& Mr. 4ivan %as s!bmitted t%at C%apter 7 of t%e

Companies Act provides anot%er stat!tory met%od of varying

contracts. $%e C%apter 7 allo#s even solemn contract!al

obligations to be varied by a partic!lar class of similarly placed

members/creditors& provided t%ere is reD!isite ma3ority. $%e

learned senior co!nsel arg!ed t%at a 'c%eme !nder 'ections

8+80 of t%e Companies Act is not merely a commercial1 (1969) 2 SCR 866, AIR 1970 SC 10412 (2005) 10 SCC 682

15



agreement& b!t it is stat!torily binding on all members and

creditors of a company.

21. Mr. 4atar& Mr. C%agla and Mr. 4ivan %ave !nanimo!sly

s!bmitted t%at 'ection 0:KA of t%e RBI Act is not a bar to

'c%eme !nder 'ections 8+80 of Companies Act. $%e

learned senior co!nsel advanced t%e follo#ing reasons for

s!bstantiating t%e said s!bmission=

First & t%e RBI Act and t%e Companies Act m!st be read in t%eir o#n

sp%eres since bot% operate in different fields& altoget%er. Second &

'ection 0:KA of RBI Act and 'ections 8+80 of t%e Companies Act

can be read %armonio!sly and t%ere is no inconsistency bet#een t%e

said provisions. Third, t%e legislat!re did not intend to e?cl!de t%e

application of 'ections 8+80 of t%e Companies Act in relation to

t%e "BFCs.

22. Elaborating t%ese propositions, it #as s!bmitted t%at t%e

RBI Act and t%e Companies Act operate in distinct and different

fields& altoget%er. Mr. C%agla arg!ed t%at t%e RBI Act is

reg!latory in nat!re and is enacted to reg!late t%e operation of

t%e Banking Companies and "BFCs. $%e RBI Act is merely

16



s!pplementary to t%e Companies Act and does not s!pplant it.

$o s!pport t%e said s!bmission& Mr. 4atar relied !pon Bennion&

nterpretation of Statues, s. ,22 on ;$e?t!al Conflicts.< Reliance

is also placed on H/ri9/ E<#r% 7s. A@@ I!9i/ F@#/% ,@/

M/!$&/%$rr A!. > Or.3 Mr. 4atar f!rt%er pointed o!t

t%at t%e special provisions relating to a sc%eme !nder t%e

Companies Act #ill prevail over a special stat!e& if t%e special

stat!te %as no provisions to deal #it% t%e said matter. 5e relied

!pon t%e principle of la# laid do#n in ICICI B/!? L%9. 7s.

SIDCO L/%;r L%9. > Or.* In t%is conte?t& Mr. C%agla relied

!pon t%e 3!dgments of t%is co!rt reported in A:i!i 6$/r

,;# > A!r. 7s. Ar/i!9/ ,;# > A!r.5 and M/9;/7 R/#

Ji7/i R/# Si!9i/ 7s. U!i#! #& I!9i/ > A!r. F!rt%er& t%e

RBI Act& according to Mr. C%agla& is not a complete code by

itself.

23. Mr. 4atar also pointed o!t t%at t%e RBI Act #ill apply for

t%e reg!lation of collection of deposits& for minim!m net o#ned

f!nds& terms of deposits& etc. b!t #ill not apply to cases of

sc%eme !nder t%e Companies Act #%ic% are not barred by t%e

3 (2002) 6 SCC 6004 (2006) 10 SCC 4525 AIR 1952 SC 3696 (1971) 1 SCC 85

17



former. $%e latter #ill contin!e to apply in t%e circ!mstances

#%ere matters relating to r!nning of a company are concerned&

like t%e provisions relating to sc%emes and arrangements of t%e

company. $%!s& it #as s!bmitted t%at RBI Act %as no

application in matters covered by t%e 'ections 8+80 of t%e

Companies Act and t%erefore& 'ection 0:KA of t%e RBI Act is

not a bar to sc%eme !nder 'ections 8+80 of Companies Act.

24. Secondly, it #as s!bmitted t%at since t%ere is no inconsistency

bet#een 'ection 0:KA of t%e RBI Act and 'ections 8+80 of

t%e Companies Act& it #ill not be applicable in t%e present case

beca!se of t%e nonobstante cla!se contained in (art IIIB of t%e

RBI Act. Mr. 4ivan %as s!bmitted t%at t%e ambit of 'ections

8+80 of Companies Act is very #ide. In fact& arrangements

#it% debent!re %olders involving )i* e?tension of time of

payment )ii* accepting cas% payment of lesser face val!e and

)iii* e?c%anging debent!res for s%ares %ave been accepted

since t%e late +211s )S Charlesworth’s Company Law,

18 th Edition, Pg. 772 !. >n t%e ot%er %and& C%apter IIIB of t%e

RBI Act contains #%ole set of detailed provisions pertaining to

reg!lation of "BFCs. Mr. C%agla added t%at t%e ob3ect of t%e

18



+88- amendment to t%e RBI Act #%ic% added section 0:K

indicates t%at a remedy #as to be granted to deposit %olders for

approac%ing t%e Company La# Board for repayment of

deposits %eld by a "BFC #%en t%e same are not repaid in

accordance #it% t%e terms and conditions of t%e deposit.

5o#ever& t%e 3!risdiction of t%e Company La# Board is not

e?cl!sive and t%e 3!risdiction of a civil co!rt or& for t%at matter&

of a company co!rt is not o!sted. Reliance #as placed !pon

t%e la# laid do#n in D;$@/;/i E%. 7s. S%/% #& M/9;/

Pr/9; > A!r. )

25. F!rt%er& learned senior co!nsel relied %eavily on t%e

principles laid do#n by t%is co!rt in relation to t%e interpretation

of a nonobstante cla!se to arg!e t%at t%e 'ection 0:KA is

neit%er applicable in t%e facts and circ!mstances of t%e case

nor is it a bar to a 'c%eme !nder 'ections 8+80 of t%e

Companies Act. Mr. 4atar relied !pon t%e case of JI6

I!9$%ri Lii%9 > Or. 7s. A/r@/@ V. J$/!i > A!r8

#%erein it #as %eld t%at ;under the scheme of the modern

legislation, non"obstante clause has a contextual and limited

application.< Reliance #as also placed !pon t%e case of R.S.7 AIR 1969 SC 788 (2012) 3 SCC 255

19



R/";$!/%; 7s. S%/% #& 6/r!/%/?/ > A!r.4 #%erein it #as

%eld t%at ;t%ere s%o!ld be a clear inconsistency bet#een t%e

t#o enactments before giving an overriding effect to t%e non

obstante cla!se. B!t t%e nonobstante cla!se need not

necessarily and al#ays be coe?tensive #it% t%e operative part

so as to %ave t%e effect of c!tting do#n t%e clear terms of an

enactment and if t%e #ords of t%e enactment are clear and are

capable of a clear interpretation on a plain and grammatical

constr!ction of t%e #ords t%e nonobstante cla!se cannot c!t

do#n t%e constr!ction and restrict t%e scope of its operation.<

It #as also s!bmitted t%at t%e Co!rt m!st try to find o!t t%e e?tent to

#%ic% t%e legislat!re %ad intended to give one provision overriding

effect over anot%er. '!c% intention of t%e legislat!re is to be gat%ered

from t%e enacting part of t%e section. $%e co!nsel relied !pon A.,.

V/r9/r/$@$ > A!r. 7s. S%/% #& T.N. > Or. 10

2. It #as f!rt%er arg!ed by Mr. C%agla t%at (art IIIB #as

introd!ced in t%e RBI Act by Amendment Act of +89. $%e

'tatement of >b3ects and Reasons of t%e said Amendment Act

indicates t%at it #as not intended to override t%e provisions of9 (1992) 1 SCC 33510 (1998) 4 SCC 231

20



t%e Companies Act. 'ince t%e legislative intention be%ind s!c%

insertion #as to reg!late t%e f!nctioning of "BFCs in general

and to pro%ibit m!ltiple partners%ip firms from taking deposits

from t%e general p!blic& in partic!lar it cannot be interpreted in

t%e manner so as to e?cl!de t%e application of

'ections 8+80 of t%e Companies Act. According to

Mr. C%agla& 'ection 0:KA simply states in general terms t%at

every loan s%all be repaid in accordance #it% t%e terms and

conditions of s!c% loan. $%is provision does not pro%ibit a

depositor from agreeing to accept t%e f!ll amo!nt of principal

#it%o!t interest or an amo!nt less t%an t%e f!ll amo!nt of

principal or to accept in kind rat%er t%an in cas%. In ot%er #ords&

novation of t%e contract entered into bet#een t%e company and

t%e depositor is not pro%ibited.

2). F!rt%er& it #as s!bmitted t%at t%e provision of 'ection

0:KA is pari materia if not identical #it% 'ection :2A of t%e

Companies Act. 'c%emes !nder 'ection 8+ of t%e Companies

Act are presented and approved by t%e Company Co!rt in

respect of deposits !nder 'ection :2A of t%e Companies Act.

(remising on t%e aforesaid s!bmission& Mr. 4atar arg!ed t%at if

21



a sc%eme of arrangement is not pro%ibited !nder t%e latter

section it cannot be pro%ibited !nder t%e former& i.e.& section

0:KA of t%e RBI Act. $%is s!bmission %as also been reiterated

and elaborated by Mr. C%agla.

28. It #as f!rt%er s!bmitted t%at #%erever t%e applicability of

'ection 8+ of t%e Companies Act #as e?cl!ded by t%e

legislat!re& it #as done so e?pressly. $o ill!strate& Learned

'enior co!nsel relied !pon 'ection 2 of t%e Banking

Reg!lation Act& +808 #%ic% provides t%at 'ection 8+ of t%e

companies Act #ill not be applicable in #inding !p of a banking

company by 5ig% Co!rt. It #as f!rt%er s!bmitted t%at t%e

legislative intent cannot be interpreted in t%e manner #%ic% #ill

discriminate against t%e depositors of "BFCs as against t%e

depositors of p!blic limited companies and depositors of

banking companies. 'ection 8+ of t%e Companies Act can be

availed of in case a "BFC is going into liD!idation b!t if t%e

interpretation given in t%e imp!gned order is accepted& t%e

same provision #o!ld not be available for revival of t%e same

company. $%is& it #as arg!ed& #o!ld lead to an anomalo!s

sit!ation. In t%e lig%t of t%e aforesaid& it #as collectively arg!ed

22



by t%e learned senior co!nsel t%at t%e nonobstante cla!se in

'ection 0:K of t%e RBI Act& +80 does not pro%ibit t%e 5ig%

Co!rt from sanctioning any sc%eme for t%e deposit %olders of

an "BFC. $%erefore& t%e 4ivision Benc% of t%e 5ig% Co!rt

committed a serio!s 3!risdictional error in setting aside t%e

order of t%e learned 'ingle 6!dge.

29. $%e second iss!e framed by t%e learned senior co!nsel for t%e

appellant company and intervenors is t%at #%et%er non

disclos!re of t%e letter/notice dated +2t% 6an!ary& ,11: iss!ed

by t%e RBI to t%e appellant is violative of t%e provisions of

'ection 8+),* and/or 'ection 8 of t%e Companies Act

Mr. 4atar %as s!bmitted t%at t%e said letter dated +2 t% 6an!ary&

,11: #as #idely advertised by t%e RBI in vario!s ne#spapers&

incl!ding t%e ndian #xpress dated ,1t% 6an!ary ,11:. And&

t%erefore& t%e contents of t%is letter #ere in t%e p!blic domain. It

#as also arg!ed t%at facts t%at are inconseD!ential for t%e

approval of t%e sc%eme need not be disclosed. $%e co!nsel

relied !pon B;/r%i M#i!% Lii%9 B;/r%i T@!% Lii%9

/!9 B;/r%i C@@$@/r Lii%9 7s. DSS E!%r<ri P7%. L%9.11

11 111(2004) DLT 554

23



30. $%e learned co!nsel f!rt%er s!bmitted t%at even ot%er#ise t%e

disclos!re !nder t%e proviso to 'ection 8+),* of t%e

Companies Act is to be made only before t%e Co!rt t%at

sanctions t%e sc%eme and not to t%e creditors or t%e

s%are%olders #it% #%om t%e sc%eme is entered into. $%e

co!nsel relied !pon Hi!9$%/! L7r E<@# U!i#! 7s.

Hi!9$%/! L7r L%9. > Or.12 and I! r HCL I!&#%

Lii%9 HCL I!&i!% Lii%9 /!9 HCL T;!#@#"i

Lii%9. 13

31. Mr. C%agla #as at pains to emp%asise t%at 'ection 8+),*

of t%e Companies Act reD!ires a company to disclose to t%e

Co!rt all material facts relating to t%e company ;s!c% as t%e

latest financial position of t%e company& t%e latest A!ditors

Report on t%e acco!nts of t%e company& t%e pendency of any

investigation proceedings in relation to t%e company !nder t%e

'ections ,: to ,:+& and t%e like< )emp%asis s!pplied by t%e

learned senior co!nsel*. 5e arg!ed t%at t%e order of t%e RBI

dated +2t% 6an!ary& ,11: is not akin to t%e provisions of

'ections ,: to ,:+ of t%e Companies Act. $%!s& it #as arg!ed

t%at t%e 4ivision Benc% erroneo!sly %eld t%at t%e appellant12 1995 Supp (1) SCC 49913 (2004)121CompCas861(Delh)

24



company s%o!ld %ave disclosed t%e letter/order iss!ed by t%e

RBI before t%e creditors.

R<#!9!% S$ii#!

32. Mr. $irpat%i& learned senior co!nsel& appearing for t%e

RBI s!bmits t%at t%e 4ivision Benc% of t%e 5ig% Co!rt %as

correctly interpreted t%e provisions of C%apter IIIB of t%e RBI

Act. 5e emp%asised t%at an amendment #as reD!ired to

strengt%en t%e reg!latory mec%anism in relation to t%e "BFCs.

$%e said C%apter IIIB %as evolved an elaborate sc%eme of

reg!lations& enabling t%e RBI even to seek #inding !p of a

"BFC in appropriate circ!mstances. 'ection 0:K of t%e RBI

Act provides t%at C%apter IIIB t%ereof s%all override any ot%er

la# inconsistent t%ere#it%. 'ection 0:KA gives a stat!tory rig%t

#%ic% cannot be #aived by anyone. @nder t%is provision& every

deposit accepted by "BFC %as to be rene#ed and repaid in

accordance #it% t%e terms and conditions of s!c% deposit.

"o s!bseD!ent agreement can permit t%e conditions to be

#aived of or varied. 'ection 0:KA),* enables "BFCs to seek

e?tension in time for repayment before t%e Company La#

Board. $%ere is no ot%er provision in C%apter IIIB #%ic% can

dil!te t%e effect of 'ection 0:KA. $%e 5ig% Co!rt& according to

25



Mr. $irpat%i& %as rig%tly %eld t%at t%e sc%eme in D!estion of t%e

appellant company is not in compliance #it% C%apter IIIB and&

t%erefore& cannot be approved.

33. Co!ntering t%e s!bmissions of t%e appellants #it% regard

to t%e interpretation of nonobstante cla!se contained in

'ection 0:KA& Mr. $irpat%i s!bmitted t%at t%e provisions

contained in C%apter IIIB %ave to prevail over t%e provisions of

t%e Companies Act. 5e relies on t%e 3!dgment of t%is Co!rt in

T/%/ M#%#r Lii%9 7s. P;/r/$%i/@ Pr#9$% #& I!9i/

Lii%9 > A!r. 1*

3*. Mr. 7. (rakas%& learned senior co!nsel& appearing on

be%alf of t%e respondent "o.+ / Integrated Finance 4epositors

Association in '.L.(. )C* "o. +,-2 of ,112& s!bmitted t%at t%e

provisions contained in 'ection 0:KA)+* of t%e RBI Act are

mandatory and cannot be dil!ted. Elaborating on t%e fact!al

circ!mstances& learned senior co!nsel s!bmitted t%at t%e

appellant company lead a very aggressive advertising

campaign #%ic% #as aimed to make t%e general pop!lace

believe t%at it #as s!pported by leading companies s!c% as

14 (2008) 7 SCC 619

26



MRF Ltd.& Malayala Manorama& etc for soliciting deposits from

p!blic in erala. And t%en s!ddenly to t%e s%ock of t%e p!blic&

t%e order dated +2t% 6an!ary& ,11: #as p!blis%ed in t%e

ne#spapers& #%ic% pro%ibited t%e appellant from accepting or

rene#ing any f!rt%er deposits b!t t%e appellant contin!ed to

accept deposits even after said notice. $%e learned senior

co!nsel f!rt%er s!bmitted t%at t%e sc%eme of arrangement

presented before t%e Company La# Board #as not bonafide it

failed to disclose vario!s directions iss!ed by t%e RBI restricting

t%e f!nctioning of t%e appellant as a "BFC. $%e 5ig% Co!rt

%as correctly %eld t%at t%e sc%eme proposed by t%e appellant is

not bonafide and is in fact contrary to p!blic policy.

35. Je %ave considered t%e s!bmissions made by t%e

learned co!nsel for t%e parties. Je may %ere briefly notice t%e

concl!sions t%at %ave been arrived by t%e 5ig% Co!rt=

Fi!9i!" #& %; Hi"; C#$r%

3. J%ilst e?amining t%e scope of 'ections 8+ to 8 of t%e

Companies Act& t%e 5ig% Co!rt relied on t%e analysis of t%e

27



aforesaid sections as rendered by t%is Co!rt in t%e case of

Mi;r H. M/&/%@/@ 7s. M/&/%@/@ I!9$%ri L%9. 15 $%e analysis

given in t%e aforesaid 3!dgment are as !nder=

;,2A. +. $%e sanctioning co!rt %as to see to it t%at all t%e reD!isitestat!tory proced!re for s!pporting s!c% a sc%eme %as been complied #it%and t%at t%e reD!isite meetings as contemplated by 'ection 8+)+*)a* %avebeen %eld.

,. $%at t%e sc%eme p!t !p for sanction of t%e Co!rt is backed !p by t%ereD!isite ma3ority vote as reD!ired by 'ection 8+),*.

. $%at t%e concerned meetings of t%e creditors or members or any

class of t%em %ad t%e relevant material to enable t%e voters to arrive at aninformed decision for approving t%e sc%eme in D!estion. $%at t%e ma3oritydecision of t%e concerned class of voters is 3!st and fair to t%e class as a#%ole so as to legitimately bind even t%e dissenting members of t%at class.

0. $%at all necessary material indicated by 'ection 8)+*)a* is placedbefore t%e voters at t%e meetings concerned as contemplated by 'ection8+ s!bsection )+*.

:. $%at all t%e reD!isite material contemplated by t%e proviso of s!b

section ),* of 'ection 8+ of t%e Act is placed before t%e Co!rt by t%eapplicant concerned seeking sanction for s!c% a sc%eme and t%e Co!rtgets satisfied abo!t t%e same.

9. $%at t%e proposed sc%eme of compromise and arrangement is notfo!nd to be violative of any provision of la# and is not contrary to p!blicpolicy. For ascertaining t%e real p!rpose !nderlying t%e sc%eme #it% avie# to be satisfied on t%is aspect& t%e Co!rt& if necessary& can pierce t%eveil of apparent corporate p!rpose !nderlying t%e sc%eme and can

3!dicio!sly Gray t%e same.

-. $%at t%e Company Co!rt %as also to satisfy itself t%at members orclass of members or creditors or class of creditors& as t%e case may be&#ere acting bona fide and in good fait% and #ere not coercing t%e minorityin order to promote any interest adverse to t%at of t%e latter comprising t%esame class #%om t%ey p!rported to represent.

2. $%at t%e sc%eme as a #%ole is also fo!nd to be 3!st& fair andreasonable from t%e point of vie# of pr!dent men of b!siness taking a

15 (1997) 1 SCC 579

28



commercial decision beneficial to t%e class represented by t%em for #%omt%e sc%eme is meant.

8. >nce t%e aforesaid broad parameters abo!t t%e reD!irements of asc%eme for getting sanction of t%e Co!rt are fo!nd to %ave been met& t%e

Co!rt #ill %ave no f!rt%er 3!risdiction to sit in appeal over t%e commercial#isdom of t%e ma3ority of t%e class of persons #%o #it% t%eir open eyes%ave given t%eir approval to t%e sc%eme even if in t%e vie# of t%e Co!rtt%ere #o!ld be a better sc%eme for t%e company and its members orcreditors for #%om t%e sc%eme is framed. $%e Co!rt cannot ref!se tosanction s!c% a sc%eme on t%at gro!nd as it #o!ld ot%er#ise amo!nt tot%e Co!rt e?ercising appellate 3!risdiction over t%e sc%eme rat%er t%an itss!pervisory 3!risdiction.<

3). $%e 5ig% Co!rt notices t%e #ell settled legal positions t%at

#%ilst e?amining t%e sc%eme !nder 'ections 8+8 of t%e

Companies Act neit%er t%e Company Co!rt nor t%e Appellate

Co!rt o!g%t not to go into t%e nittygritty of t%e vario!s

s!ggestions in t%e sc%eme. $%e 5ig% Co!rt recognised t%at it

is diffic!lt for t%e Company Co!rt or t%e Appellate Co!rt to

consider t%e financial #isdom of a partic!lar proposal. $%is is

so as t%e Co!rts do not %ave t%e necessary e?pertise to

e?amine t%e commercial #isdom of t%e sc%eme of

arrangements& especially #%en it is approved by an

over#%elming ma3ority of t%e bond %olders and depositors. $%e

Co!rt is not e?pected to s!bstit!te its o#n #isdom for t%at of

t%e stake%olders& #%o give consent to a partic!lar sc%eme.

$%e 5ig% Co!rt also %olds t%at& by or ot%er#ise& a sc%eme is

29



ordinarily beyond t%e 3!risdiction of t%e Company Co!rt and t%e

Appellate Co!rt e?cept in t%ose rare cases #%ere one can see

t%at t%e sc%eme itself is on t%e face of it so !nreasonable t%at

no man of ordinary pr!dence can accept it. $%e 5ig% Co!rt

concl!des t%at ;in the facts of the present case, we do not thin$

that we can characterise the Scheme as so outrageously

improper as to invite the wrath of the Court.% $%e 5ig% Co!rt

re3ected t%e s!bmission of some of t%e deposit %olders t%at

meetings for approving t%e sc%eme s%o!ld %ave been %eld

#it%in t%e 'tate of erala.

38. @pon e?amination of t%e D!estion as to #%et%er t%e

company s%o!ld %ave disclosed t%e aspects arising o!t of t%e

order dated +2t% 6an!ary& ,11: to enable t%e depositors and t%e

bond %olders to take an informed decision. $%e 5ig% Co!rt %as

concl!ded t%at t%e company is g!ilty of s!c% nondisclos!re.

34. >n t%e interpretation of t%e provisions of 'ection 0: of t%e

RBI Act& t%e 4ivision Benc% %as concl!ded t%at by virt!e of

nonobstante cla!se in 'ection 0:K of t%e RBI Act& C%apter IIIB

of t%e RBI Act #ill prevail over 'ections 8+8 of t%e

Companies Act. It is %eld t%at t%e provision contained in

30



'ection 0:KA #%ic% is intended to protect t%e depositors m!st

%ave primacy over any ot%er la# inconsistent #it% s!c%

provision. It is f!rt%er %eld t%at t%e sc%eme of arrangement of

compromise even if presented by a "BFC #o!ld %ave to

conform to t%e provisions contained in t%e C%apter IIIB of t%e

RBI Act. $%e 4ivision Benc% also concl!ded t%at not only t%e

sc%eme is contrary to t%e specific provisions contained in

C%apter IIIB of t%e RBI Act it is also against p!blic policy. Jit%

t%ese observations t%e 4ivision Benc% %ad declined to approve

t%e sc%eme and set aside t%e order passed by t%e Company

Co!rt.

*0. In o!r opinion& t%e aforesaid concl!sions of t%e 5ig%

Co!rt do not reD!ire any interference. Even according to t%e

appellant since its incorporation in +82& t%e appellant %ad

gro#n into a gigantic "BFC it %ad ,1&111 s%are%olders. Its

s%ares #ere listed in t#o 'tock E?c%anges in India. $ill +88:

+889& it #as a profit making company and declared dividends to

its s%are%olders contin!o!sly.

*1. $%e RBI iss!ed a series of circ!lars d!ring +88-,11

31



reg!lating t%e activities of "BFCs& strict restrictions #ere placed

on t%e "BFCs for accepting deposits. $%e Companies #%ic%

did not comply #it% t%e aforesaid directions #ere directed to

stop accepting deposits and to repay t%e same immediately. It

is also an accepted case of t%e company t%at t%e RBI& in

e?ercise of its po#er !nder 'ection 0:"& inspected t%e Books

of Acco!nts of t%e appellant company in ,11:. $%e inspection

report disclosed t%e violations of t%e RBI Act& +80& committed

by t%e company #%ic% #e %ave noticed in t%e earlier part of t%e

3!dgment. It is also accepted t%at on +2 t% 6an!ary& ,11:& RBI in

e?ercise of its po#ers !nder 'ection 0:MB)+* of t%e RBI Act&

iss!ed a circ!lar to t%e appellant company pro%ibiting it from

;accepting deposits from any person& in any form #%et%er by

#ay of fres% deposits or rene#al of t%e e?isting deposits or

ot%er#ise !ntil f!rt%er orders.< $%e appellant company #as

also directed not to sell& transfer& create c%arge of mortgage or

deal in any manner #it% its properties& assets& #it%o!t prior

permission of t%e RBI. It is also accepted t%at t%e aforesaid

notice #as advertised in t%e Indian E?press on ,1 t% 6an!ary&

,11:. $%e "otice %ig%lig%ts t%e p!rpose of t%e notice as

I!%"r/%9 Fi!/! C#</! Lii%9 C;!!/i <r#;ii%i#!

32



&#r /<%i!" #& 9<#i% /!9 /@i!/%i#! #& /%. $%e

appellant claimed t%at "BFC started facing problems in r!nning

its operations as a direct conseD!ence of t%e restrictions and

t%e p!blicity generated by t%e notice dated +2t%/,1t% 6an!ary&

,11:. 'ince t%e company #as facing severe problems in

r!nning its operations beca!se of t%e drop in its profitability& it

proposed a sc%eme of compromise #it% its creditors& vi. t%e

depositors and bond %olders. $%is sc%eme #as approved by

t%e Board of 4irectors of t%e appellant company on +8 t% May&

,11:. Je %ave reprod!ced earlier t%e salient feat!res of t%e

sc%eme& #%ic% #as presented to t%e Company Co!rt !nder

'ection 8+ of t%e Companies Act in t%e 5ig% Co!rt of Madras.

O$r C#!@$i#!

*2. $%e primary iss!e t%at arises before !s is as to #%et%er

s!c% a sc%eme of arrangements co!ld %ave been presented in

vie# of t%e provisions contained in C%apter IIIB of t%e RBI Act.

Even if it co!ld be presented& co!ld it be sanctioned #it%o!t

complying #it% t%e provisions contained in 'ection 0:KA of t%e

RBI Act $%e learned co!nsel for t%e appellant s!bmitted t%at

t%e 5ig% Co!rt %as in terms concl!ded t%at t%e sc%eme cannot

be c%aracterised ;as so o!trageo!sly improper as to invite t%e

33



#rat% of t%e Co!rt.< $%e 5ig% Co!rt also rig%tly concl!ded t%at

t%e Company Co!rt is not e?pected to s!bstit!te its o#n

#isdom for t%at of t%e stake%olders. $%e 5ig% Co!rt %as also

fo!nd t%at all t%e proced!ral reD!irements for sanctioning a

sc%eme !nder 'ections 8+80 %ave been complied #it%. $%e

5ig% Co!rt also accepts t%at an over#%elming ma3ority of t%e

deposit %olders %ave approved t%is sc%eme& yet t%e relief #as

not been granted to t%e appellant on t%e gro!nds t%at t%e

sc%eme does not comply #it% t%e provisions contained in

C%apter IIIB of t%e RBI Act.

*3. Je are !nable to accept t%e s!bmission of t%e learned

co!nsel t%at 'ection 0:KA of t%e RBI Act is not a bar to a

sc%eme !nder 'ections 8+80 of t%e Companies Act. @nder

'ection 8+ of t%e Companies Act& #%ilst approving t%e

sc%eme& t%e Company Co!rt does not act as a r!bber stamp.

$%e Companies Act %as to be satisfied t%at t%e concerned

meetings of t%e creditors %ave been d!ly %eld. It %as to be

satisfied t%at in t%e concerned meetings& t%e creditors or

members of any class %ave been provided #it% relevant

material to enable t%em to take an informed decision as to

#%et%er t%e sc%eme is 3!st and fair. $%e Co!rt is also reD!ired

34



to concl!de t%at t%e proposed sc%eme of compromise or

arrangement is not violative of any provision of la# and is not

contrary to p!blic policy. F!rt%ermore& t%e Co!rt %as to be

satisfied t%at members or class of members or creditors #%o

may be in ma3ority are acting bonafide and %ave not coerced

t%e minority into agreement. Above all& t%e Co!rt %as to be

satisfied t%at t%e sc%eme is fair and reasonable from t%e point

of vie# of a pr!dent man of b!siness taking commercial

decisions& #%ic% are beneficial to t%e class represented by

t%em. NS Mi;r H. M/&/%@/@ '$<r/(O It is tr!e t%at #%ilst

sanctioning t%e sc%eme& t%e Company Co!rt is not reD!ired to

act as a Super"Auditor . "o do!bt #%ilst considering t%e

proposal for approval& t%e Company 6!dge is not reD!ired to

e?amine t%e sc%eme in t%e #ay of a carping critic, a hair"

splitting expert, a meticulous accountant or a fastidious

Counsel . 5o#ever at t%e same time& t%e Co!rt is not bo!nd to

s!perficially add its seal of approval to t%e sc%eme merely

beca!se it received t%e approval of t%e reD!isite ma3ority at t%e

meeting %eld for t%at p!rpose. $%e Co!rt is reD!ired to see t%at

all legal reD!irements %ave been complied #it%. At t%e same

time& t%e Co!rt %as to ens!re t%at t%e sc%eme of arrangement

35



is not a camo!flage for a p!rpose ot%er t%an t%e ostensible

reasons. NS A9i!i%r/%#r #& %; S<i&i9 U!9r%/?i!" #&

%; U!i% Tr$% #& I!9i/ '$<r/( P/r/ 32O. If any of t%e

aforesaid reD!irements appear to be fo!nd #anting in t%e

sc%eme& t%e Co!rt can pierce t%e veil of apparent corporate

p!rpose !nderlying t%e sc%eme and can 3!dicio!sly Gray t%e

same. )S Mi;r H. M/&/%@/@ '$<r/(O

**. In vie# of t%e aforesaid& it needs to be considered as to

#%et%er a sc%eme #%ic% does not comply #it% t%e provisions of

'ection 0:KA of t%e RBI Act can be sanctioned. $%e 5ig%

Co!rt on a caref!l consideration of t%e entire matter %as

concl!ded t%at t%e sc%eme m!st fail as it does not comply #it%

t%e provisions contained in 'ection 0:KA)+* of t%e RBI Act. $o

get over t%is diffic!lty& t%e learned co!nsel for t%e appellant %as

s!bmitted t%at C%apter IIIB of t%e RBI Act is not a complete

code. $%is apart& t%e RBI Act and t%e Companies Act m!st be

read in t%eir o#n sp%ere since bot% operate in different fields&

altoget%er. Je are !nable to agree #it% t%e aforesaid

s!bmission of t%e learned senior co!nsel for t%e parties.

36



*5. C%apter IIIB of t%e RBI %as been incorporated t%ro!g%

RBI )Amendment* >rdinance +88-& s!bseD!ently replaced by

t%e RBI )Amendment* Act& +88-. $%e 'tatement of >b3ects and

Reasons make it ab!ndantly clear t%at before t%e amendment&

t%e !nincorporated bodies circ!mvented t%e stat!tory

restrictions by floating different partners%ip firms as and #%en a

firm reac%ed t%e level of ,:1 depositors. It #as also reiterated

t%at several !nincorporated bodies #ere advertising

aggressively t%ro!g% vario!s media& soliciting deposits from

p!blic by offering %ig% rates of interest and ot%er incentives.

$%e Amendment Act provides several safeg!ards for "BFCs so

as to ens!re t%eir viability. $%is incl!des comp!lsory

registration of "BFCs #it% RBI& stip!lation of minim!m need in

t%e f!nds reD!irements& creation of reserved f!nds and transfer

of certain percentage of profits every year to t%e f!nd and

prescription of liD!idity reD!irements. $%e RBI %as also been

vested #it% po#ers to iss!e g!idelines intended to ens!re

so!nd and %ealt%y operations and t%e D!ality of assets of t%ese

companies. $%e RBI #as also empo#ered to iss!e directions

to A!ditors of "BFCs to order special A!dits in "BFCs&

pro%ibited acceptance of deposits by "BFCs and make

37



applications for #inding !p of "BFCs. It is specifically noticed

t%at earlier t%e only reco!rse available to t%e depositors #as to

approac% t%e Co!rt of La# for redressal of grievances.

5o#ever by t%e Amendment& po#ers %ave been vested #it%

t%e Company La# Board for directing t%e defa!lter "BFCs to

make repayment for t%e deposit interest #it% a vie# to protect

t%e interest of depositors. $%e "BFCs %ave been totally

pro%ibited from accepting deposits for t%e p!rpose ot%er t%an

for personal !se& if !nincorporated. $%ey %ave been permitted

to contin!e to take deposit after incorporating t%emselves #it%in

t%e reg!latory frame#ork. $%e !nincorporated bodies %ave

also been specifically pro%ibited for iss!ing any advertisements

in any form. $%e real intent is set o!t in (aragrap% 9& #%ic% is

as !nder=

9. $%ere are reports of several finance companies and incorporatedbodies %aving failed to repay t%e deposits collected from !ns!spectingdepositors #%o %ave been tempted by t%e attractive ret!rns and incentivesoffered. Concern %as been e?pressed in several D!arters on t%e need totake !rgent steps to reg!late t%e activities of s!c% companies and!nincorporated bodies.<

*.eeping in vie# t%e aforesaid ob3ects and reasons& it becomes

evident t%at C%apter IIIB of t%e RBI Act is a self contained code.

It is not possible for !s to accept t%e s!bmissions of t%e learned

38



co!nsel for t%e appellants t%at t%e RBI Act and t%e Companies

Act operate in distinct and different fields. Je are !nable to

accept t%e s!bmission of t%e learned co!nsel for t%e appellants

t%at t%e provision contained in t%e RBI Act being reg!latory in

nat!re #ill not apply to cases of sc%emes s!bmitted for

approval !nder t%e Companies Act. Je may also notice %ere

t%at t%e learned senior co!nsel for t%e appellant relied on

H/ri9/ E<#r% '$<r/( in t%is conte?t. In t%e aforesaid case&

t%is Co!rt !pon a compre%ensive analysis of t%e Monopolies

and Restrictive $rade (ractices Act& +898 and C!stoms $ariff

Act& +8-: concl!ded t%at t%e said t#o Acts s!bstantially

operate in different fields and& t%erefore& t%e provisions of

'ection 8A of C!stoms $ariff Act cannot be implied to repeal

t%e provisions of 'ection )+*) &! of t%e MR$( Act& +898. 'ince

t%e main iss!e involved in t%e matter before !s is different from

t%e case of H/ri9/ E<#r% '$<r/( t%e said case is of no

assistance to t%e appellant company.

*). Je are also not able to accept t%e s!bmission of t%e

learned senior co!nsel for t%e appellant and t%e intervenors in

s!pport of t%e appellant t%at t%e nonobstante cla!se in

39



'ection 0:KA #ill not %ave an overriding effect over t%e

provisions contained in t%e Companies Act in t%e 'ections

8+80. Je are also not able to accept t%e additional

s!bmission of Mr. C%agla t%at if overriding effect is given to

'ection 0:KA& t%e provisions contained in 'ection 8+ #o!ld

be rendered n!gatory so far as "BFCs are concerned. Je are

not pers!aded to accept t%e s!bmissions of t%e learned senior

co!nsel for t%e appellant t%at t%e nonobstante cla!se

contained in 'ection 0:A o!g%t to be given a limited

application. Even applying t%e ratio of t%e 3!dgments cited by

t%e learned senior co!nsel& t%ere is no 3!stification for lessening

t%e scope of t%e applicability of t%e nonobstante cla!se in

'ection 0:K of t%e RBI Act. It states in categoric terms t%at

provisions of C%apter IIIB shall %ave effect notwithstanding

anyt%ing inconsistent t%ere#it% contained in any other law . The

overriding effect extends not only to any other law for the time

being in force but also to any instrument having effect by virtue

of having such law. $%e reasons for giving s!c% categoric

overriding effect are evident from t%e ob3ects and reasons given

in t%e Amendment Act. The magnitude of the exploitation of the

poor sections of the society, leading to utter destruction of

40



innumerable families was the underlying impetus to bring the

'(FCs under strict control. $%erefore& #e %ave no %esitation in

concl!ding t%at C%apter IIIB of t%e RBI Act is a complete code

in itself. $%e Companies Act is a prior enactment as t%e same

#as enacted in t%e year +8:9& #%ereas& C%apter IIIB #as

inserted in t%e RBI Act ):: of +89* #.e.f. +890. 'ection 0:KA

#as inserted by t%e Act "o. , of +88- #.e.f. 8 t% 6an!ary& +88-.

$%!s& provisions of t%e RBI Act #o!ld prevail over t%e

Companies Act& it being a later enactment. It is a settled

proposition of la# t%at a later enactment #ill override t%e earlier

enactment. Je may !sef!lly make a reference %ere to t%e

relevant paragrap%s of T/%/ M#%#r Lii%9 '$<r/(&#%ic% are

as !nder=

21. It #as conceded by Mr '!ndaram 'ICA being a special la# visPvist%e +8:9 Act& it s%all prevail over t%e latter. $%e learned co!nsel& %o#ever&D!alifies %is s!bmission by contending t%at 'ICA only e?cl!des t%eprovisions of t%e Companies Act #%en t%ey are inconsistent #it% eac%ot%er.

22. $%e provisions of a special Act #ill override t%e provisions of a general Act. $%e latter of it )sic Act* #ill override an earlier Act. $%e +8:9 Act is a

general Act. It consolidates and restates t%e la# relating to companies andcertain ot%er associations. It is prior in point of time to 'ICA.

23. J%erever any inconstancy )sic inconsistency* is seen in t%e provisionsof t%e t#o Acts& 'ICA #o!ld prevail. 'ICA f!rt%ermore is a complete code.It contains a non obstante cla!se in 'ection ,.

2*. 'ICA is a special stat!te. It is a selfcontained code. $%e 3!risdiction oft%e Company 6!dge in a case #%ere reference %ad been made to BIFR#o!ld be s!b3ect to t%e provisions of 'ICA.<

41



*8. In o!r opinion& C%apter IIIB %as been given an overriding

effect over all ot%er la#s incl!ding Companies Act by

incorporating 'ection 0:K #it% a clear intention to ens!re t%at

in a case of "BFC& a sc%eme !nder 'ection 8+ of t%e

Companies Act cannot be entertained !nless it is in conformity

#it% t%e provisions of 'ection 0:KA of t%e RBI Act.

*4. Je may briefly notice %ere t%e 3!dgments relied by t%e

learned co!nsel for t%e appellant in s!pport of t%e s!bmission

t%at t%e nonobstante cla!se in 'ection 0:K of t%e RBI Act #ill

not %ave an overriding effect over t%e 'ections 8+80 of t%e

Companies Act. Reliance #as placed on A:i!i 6$/r ,;#

'$<r/(G M/9;/7 R/# Ji7/i R/# Si!9i/ '$<r/(G A.,.

V/r9/r/$@$ '$<r/(G ICICI B/!? L%9. '$<r/(G R.S.

R/";$!/%; and JI6 I!9$%ri Lii%9 '$<r/(. $%e said

cases !ndo!btedly reiterate t%e settled la# on t%e manner in

#%ic% a partic!lar nonobstante cla!se o!g%t to be interpreted.

In A:i!i 6$/r ,;# '$<r/(& t%is co!rt %eld t%at ;a non

obstante cla!se m!st be constr!ed strictly and t%e Co!rt m!st

try to find t%e e?tent to #%ic% t%e legislat!re %ad intended to

give one provision overriding effect over anot%er provision.<

42



'imilar observations #ere reiterated by t%is Co!rt in t%e ot%er

cases relied by t%e appellant. 'ince it %as been already noticed

by !s t%at t%e (arliament clearly intended to give an overriding

effect to C%apter IIIB of t%e RBI Act over 'ections 8+80 of

t%e Companies Act& t%e aforesaid observations #ill not be of

any %elp to t%e appellants in s!pport of t%eir s!bmission t%at

'ection 0:K and/or 'ection 0:KA of t%e RBI Act #ill not

override 'ections 8+80 of t%e Companies Act.

50. Je& t%erefore& endorse t%e opinion e?pressed by t%e 5ig%

Co!rt t%at t%e sc%eme %as been introd!ced only with a view to

avoid repayment to the small depositors as it contemplates t%at

instead of repaying of amo!nt in accordance #it% t%e terms and

conditions of t%e deposit& s!c% amo!nt s%all be considered as

convertible debent!res #it% interest Q 9& #%ic% #o!ld be

converted into eD!ity s%ares #it%in a period of one year. '!c%

a provision is clearly contrary to t%e mandatory reD!irements

!nder 'ection 0:KA)+* #%ic% reD!ires t%at ;every deposit

accepted by a "BFC& !nless rene#ed& s%all be repaid in

accordance #it% t%e terms and conditions of s!c% deposit<.

$%is ingenio!s effort by t%e appellants in fact 3!stifies t%e

43



insertion of t%e amendment& #%ic% %as been obvio!sly

incorporated #it% a vie# to protect t%e depositors and to avoid

exploitation of these hapless and poor depositors from

exploitation by 'on (an$ing Financial nstitutions, s!c% as t%e

appellant. It is for t%is reason t%at C%apter IIIB clearly provides

t%at t%e provisions contained t%erein s%all override all ot%er

la#s& #%ic% are inconsistent #it% t%e same. $%is #ill also be

applicable to 'ections 8+80 of t%e Companies Act.

51. $%e Companies Act as #ell as t%e RBI Act are Central

Acts. C%apter IIIB& #%ic% #as inserted by Act "o. :: of +89

#.e.f. +st 4ecember& +890 being a later enactment clearly %as to

prevail. Je are !nable to agree #it% t%e s!bmissions of t%e

learned co!nsel for t%e appellant t%at if s!c% an interpretation is

given to 'ection 0:KA& it #o!ld render 'ections 8+80

n!gatory.

52. Faced #it% t%is sit!ation& Mr. '%yam 4ivan learned

co!nsel for t%e appellant %ad s!bmitted t%at in fact t%ere is no

inconsistency bet#een 'ection 0:KA of t%e RBI Act and

'ections 8+80 of t%e Companies Act. It is s!bmitted t%at

44



sc%eme of arrangements !nder 'ections 8+ to 80 is a form of

novation of a contract. @nder t%e Contract Act& eac% individ!al

party is entitled to vary t%e terms and conditions of t%e

Contract. $%erefore& debent!re %olders accepting cas%

payment of lesser face val!e or e?c%anging debent!res for

s%ares #o!ld only be contin!ance of a practice #%ic% %as been

vog!e since late +211s. 5e makes t%is s!bmission relying on

Charlesworth)s Company *aw + th #d. --+"- & #%ic% are as

follo#s=

;$%e #ord ;arrangement< %as a very #ide meaning& and is #ider t%an t%e#ord ;compromise<. An arrangement may involve debent!re %olders givingan e?tension of time for payment accepting a cas% payment less t%an t%eface val!e of t%eir debent!res& giving !p t%eir sec!rity in #%ole or in part&e?c%anging t%eir debent!res for s%ares in t%e company& or in a ne#company& or %aving t%e rig%ts attac%ed to t%eir debent!res varied in someot%er respect. Creditors may take cas% in part payment of t%eir claims andt%e balance in s%ares or debent!res in t%e company. (references%are%olders may give !p t%eir rig%ts to arrears of dividends& agree toaccept a red!ced rate of dividend in t%e f!t!re& or %ave t%eir class rig%tsot%er#ise varied.<

In o!r opinion& t%ese observations #o!ld be of no avail to t%e

appellants in vie# of o!r concl!sions recorded earlier t%at t%e present

arrangement is not bona fide.

53. Je are f!rt%er of t%e opinion t%at t%ere can be no

D!estion of novation in t%e face of t%e categoric provisions

contained in 'ection 0:K& #%ic% %as an overriding effect over

45



all ot%er la#s& #%ic% #o!ld necessarily negate t%e principle of

novation contained in t%e Contract Act also. 'ince #e %ave

already negated t%e s!bmission of t%e learned co!nsel for t%e

appellant t%at it #as open to eac% individ!al depositor to vary

t%e contract& i.e.& novate t%e contract& it #o!ld not be possible to

accept t%e s!bseD!ent s!bmission of t%e learned co!nsel t%at

since t%e sc%eme %as been approved by t%e reD!isite ma3ority

and sanctioned by t%e Co!rt& it is binding on t%e minority as

#ell. In s!pport of t%is s!bmission& learned co!nsel %as relied

on t%e observations made by t%is Co!rt in J.6. 'B#/(

Pri7/% L%9. '$<r/( and A9i!i%r/%#r #& %; S<i&i9

U!9r%/?i!" #& %; U!i% Tr$% #& I!9i/ '$<r/(. >n t%e basis

of t%e aforesaid& it is s!bmitted t%at if t%e parties co!ld %ave

novated t%e terms and conditions individ!ally& t%ere is no bar on

s!c% novation t%ro!g% a sc%eme. $%e observations relied !pon

are as follo#s=

28. .$%e principle is t%at a sc%eme sanctioned by t%eco!rt does not operate as a mere agreement bet#een t%e parties= itbecomes binding on t%e Company& t%e creditors and t%e s%are%olders andt%e stat!tory force& and t%erefore& t%e 3ointdebtor co!ld not invoke t%eprinciple of accord and satisfaction. By virt!e of t%e provisions of 'ection8+ of t%e Act& a sc%eme is stat!torily binding even on creditors ands%are%olders #%o dismanted from or opposed to its being sanctioned. It%as stat!tory force in t%at sense and t%erefore cannot be altered e?cept#it% t%e sanction of t%e Co!rt even if t%e s%are%olders and t%e creditorsacD!iesce in s!c% alteration& )cf. /remila Devi v. /eoples (an$ *. $%e effectof t%e sc%eme is ;to s!pply by reco!rse to t%e proced!re t%ereby

46



prescribed t%e absence of t%at individ!al agreement by every member oft%e class to be bo!nd by t%e sc%eme #%ic% #o!ld ot%er#ise be necessaryto give it validity<. )/almer0s Company *aw & ,1t% Edn. 990* '!b'ection ),*of 'ection 8+ of t%e Act allo#s t%e decision of t%e ma3ority prescribedt%erein to bind t%e minority of creditors and s%are%olders and it is for t%at

reason t%at a sc%eme is said to %ave stat!tory operation cannot be variedby t%e s%are%olders or t%e creditors !nless s!c% variation is sanctioned byt%e co!rt.<

5*. Je are !nable to accept t%e aforesaid s!bmission. $%e

aforesaid observations reiterate t%e settled position of la# t%at

a sc%eme d!ly sanctioned after f!lfilling all t%e legal formalities

#o!ld be binding on all t%e s%are%olders. In t%e present case&

t%e sc%eme is in t%e teet% of 'ection 0:K and it %as rig%tly not

been approved by t%e 5ig% Co!rt. $%is apart& t%e sc%eme %as

been rig%tly %eld to be lacking bona fide& as #ell being contrary

to public policy . It %as been proposed #it% t%e obliD!e p!rpose

of avoiding t%e mandate of 'ection 0:KA)+* of RBI Act.

55. Je are also not inclined to accept t%e s!bmission of t%e

appellant t%at 'ection 0:KA of RBI Act is pari materia if not

identical #it% 'ection :2A of t%e Companies Act. It #as f!rt%er

arg!ed t%at if a sc%eme of arrangement is not pro%ibited !nder

t%e latter section it cannot be pro%ibited !nder t%e former& i.e.&

'ection 0:KA of t%e RBI Act. $%e iss!e concerning

'ection 0:KA being para materia #it% 'ection :2A of t%e

47



Companies Act does not arise since& in o!r considered opinion&

t%e provisions of t%e RBI Act #ill override t%e provisions of t%e

Companies Act. $%!s& t%is s!bmission is also re3ected.

5. In vie# of t%e aforesaid& #e re3ect t%e s!bmission of t%e

learned co!nsel for t%e appellant t%at t%e sc%eme of

arrangement co!ld be approved even t%o!g% t%ere is a non

compliance #it% t%e provisions of C%apter IIIB of t%e RBI Act in

partic!lar 'ection 0:KA)+*. Je may notice %ere t%at t%e

appellants %ad an opport!nity to approac% t%e Company Co!rt

!nder 'ection 0:KA)+* to seek f!rt%er time for making

payment. It appears t%at no s!c% application #as made and&

t%erefore& t%ere is a complete infringement of 'ection 0:KA)+*.

$%is #o!ld lead to an inevitable concl!sion t%at t%e sc%eme of

arrangements co!ld not be approved.

T; E&&% #& N#!-9i@#$r #& %; N#%i9/%9 18%; J/!$/r 2005

5). $%e aforesaid notice %as been sent to t%e Company

!nder 'ection 0:MB)+*. '!c% notice is only sent if any "BFC

violates t%e provisions of any section or fails to comply #it% any

direction or order given by t%e RBI !nder any of t%e provisions

48



of C%apter IIIB. @nder t%ese provisions& t%e RBI %as t%e po#er

to pro%ibit t%e "BFC from accepting any deposit. @nder

'ection 0:MB),*& in order to protect t%e interest of t%e

depositors& RBI is also empo#ered to direct t%e "onBanking

Financial Company not to sell& transfer& create c%arge or

mortgage or deal in any manner #it% its property and assets

#it%o!t prior permission of t%e bank. It is an accepted fact t%at

t%e orders directing t%e company not to accept deposits %ave

been d!ly p!blis%ed in t%e Indian E?press on ,1 t% 6an!ary&

,11:. Learned co!nsel for t%e appellant %as s!bmitted t%at it is

an accepted fact t%at on inspection of t%e books of acco!nts of

t%e appellant company !nder 'ection 0:" of t%e RBI Act& +80&

n!mero!s violations #ere disclosed. $%e details of t%e

violations %ave been e?tracted in t%e earlier part of t%is

3!dgment. J%ilst t%e investigation #as being cond!cted into all

t%e irreg!larities t%at %ave been committed by t%e company& t%e

sc%eme of arrangement #as presented to t%e Company Co!rt

on or abo!t +8t% May& ,11:. It is an accepted fact t%at t%e

notice dated +2t% 6an!ary& ,11: #as not disclosed to t%e

s%are%olders& #%o #ere present in t%e meetings #%ic% %ad

been convened on t%e directions of t%e Company Co!rt.

49



According to t%e learned co!nsel for t%e appellants& s!c% a

nondisclos!re #as not reD!ired !nder t%e provisions of t%e

proviso to 'ection 8+),* of t%e Companies Act. In any event&

according to t%e learned co!nsel& t%e notice dated +2 t% 6an!ary&

,11: %ad been #idely advertised by t%e RBI in vario!s

ne#spapers. $%erefore& t%e #%ole information #as in p!blic

domain. ConseD!ently& t%e reD!irements of proviso to

'ection 8+),* #o!ld be deemed to be complied #it%.

F!rt%ermore& according to Mr. 4atar& proviso to 'ection 8+),*

only reD!ires disclos!re to t%e Co!rt sanctioning to t%e sc%eme

and not to t%e creditors or t%e s%are%olders #it% #%om t%e

sc%eme is made. $%e disclos!re reD!irement to t%e

s%are%olders or t%e creditors is specified !nder 'ection 8)+*

and is m!c% narro#er. Learned senior co!nsel %as placed

reliance on t%e 3!dgement of t%is Co!rt in Hi!9$%/! L7r

E<@# U!i#! 7s. Hi!9$%/! L7r L%9. > Or. '$<r/(

in s!pport of t%is s!bmission. $%is case is& %o#ever&

disting!is%able from t%e present case and circ!mstances. It

#as %eld t%erein t%at=

;In t%e facts of t%is case& considering t%e over#%elming manner in #%ic%t%e s%are%olders& t%e creditors& t%e debent!re %olders& t%e financialinstit!tions& #%o %ad 0+ s%ares in $>MC>& %ave s!pported t%e 'c%emeand %ave not complained abo!t any lack of notice or lack of !nderstandingof #%at t%e 'c%eme #as abo!t& #e are of t%e vie#& it #ill not be rig%t to

50



%old t%at t%e e?planatory statement #as not proper or #as lacking inmaterial partic!lars.<

$%e preceding e?cerpt makes it clear t%at t%e sc%eme t%erein

#as not ob3ected to by any of t%e interested persons. $%!s& t%e

reliance on t%e said case is misconceived.

58. In o!r opinion& t%e 5ig% Co!rt %as correctly concl!ded

t%at even if no investigation #as pending !nder 'ection ,:

,:+ of t%e Companies Act& it #as inc!mbent on t%e company to

disclose t%e violations pointed o!t by t%e RBI on inspection of

its books !nder 'ection 0-"& #%ic% led to t%e iss!ance of t%e

notice dated +2t% 6an!ary& ,11:. $%is& in o!r opinion& #o!ld

clearly reflect on t%e lack of bonafide of t%e company in

proposing sc%eme of arrangement. In o!r considered opinion&

nondisclos!re of t%e action taken and initiated by t%e RBI as

apparent from t%e letter dated +2 t% 6an!ary& ,11:& amo!nted to

nondisclos!re of material facts #%ic% are reD!ired to be

disclosed !nder 'ection 8+)+* read #it% 'ection 8)+* of t%e

Companies Act. $%e Company Co!rt #%ilst e?amining t%e

fairness and t%e bonafide of a sc%eme of arrangement does not

act as a r!bber stamp. It cannot s%!t its eyes to blatant non

disclos!re of material information& #%ic% co!ld %ave a ma3or

infl!ence/impact on t%e decision as to #%et%er t%e sc%eme %as

51



to be approved or not. In o!r opinion& t%e 5ig% Co!rt %as not

committed any error of 3!risdiction in re3ecting t%e s!bmission of

t%e appellant t%at t%e nondisclos!re of t%e letter dated +2 t%

6an!ary& ,11: #as not material.

54. For t%e aforesaid reasons& #e find no 3!stification to

interfere #it% t%e 3!dgment and order passed by t%e 5ig% Co!rt.

$%e appeals are accordingly dismissed.

...6. [S$ri!9r Si!"; Ni/r+

...6. [Pi!/?i C;/!9r/ ,;#+N: D@;iGJ$@ 1 2013.

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391 copanies act

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