LAW FOR ALL

Sec.391 of company Act - seeking approval for compromise scheme - rejected = The Company Petition No. 160 of 2005 was filed by the appellant company herein under Section 391 of the Companies Act, 1956 (hereinafter referred to as “the Companies Act”), seeking approval for the scheme of arrangement/compromise dated 10th August, 2005. The said agreement was entered into between the appellant company herein and its class of creditors, namely its deposit holders and bond holders.= i) “Whether the non-obstante clause in Section 45Q of the RBI Act, 1934 prohibits the High Court from sanctioning any scheme for the deposit holders of an NBFC? ii) Whether the petitioner had failed to disclose the RBI letter dated 18th January, 2005 before the learned Company Judge as per the provisions of Section 391(1) of the Companies Act, 1956?” whether the company should have disclosed the aspects arising out of the order dated 18th January, 2005 to enable the depositors and the bond holders to take an informed decision. The High Court has concluded that the company is guilty of such non-disclosure.= Division Bench has concluded that by virtue of non-obstante clause in Section 45Q of the RBI Act, Chapter IIIB of the RBI Act will prevail over Sections 391-393 of the Companies Act. It is held that the provision contained in Section 45QA which is intended to protect the depositors must have primacy over any other law inconsistent with such provision. It is further held that the scheme of arrangement of compromise even if presented by a NBFC would have to conform to the provisions contained in the Chapter IIIB of the RBI Act. The Division Bench also concluded that not only the scheme is contrary to the specific provisions contained in Chapter IIIB of the RBI Act; it is also against public policy. With these observations the Division Bench had declined to approve the scheme and set aside the order passed by the Company Court.- In our opinion, the High Court has correctly concluded that even if no investigation was pending under Section 235-251 of the Companies Act, it was incumbent on the company to disclose the violations pointed out by the RBI on inspection of its books under Section 47N, which led to the issuance of the notice dated 18th January, 2005. This, in our opinion, would clearly reflect on the lack of bonafide of the company in proposing scheme of arrangement. In our considered opinion, non- disclosure of the action taken and initiated by the RBI as apparent from the letter dated 18th January, 2005, amounted to non-disclosure of material facts which are required to be disclosed under Section 391(1) read with Section 393(1) of the Companies Act. The Company Court whilst examining the fairness and the bonafide of a scheme of arrangement does not act as a rubber stamp. It cannot shut its eyes to blatant non-disclosure of material information, which could have a major influence/impact on the decision as to whether the scheme has to be approved or not. In our opinion, the High Court has not committed any error of jurisdiction in rejecting the submission of the appellant that the non-disclosure of the letter dated 18th January, 2005 was not material. For the aforesaid reasons, we find no justification to interfere with the judgment and order passed by the High Court. The appeals are accordingly dismissed.