M/S Asia Satellite ... vs M/S Dish Tv India Ltd. & Ors.
2010 Latest Caselaw 4770 Del

               IN THE HIGH COURT OF DELHI AT NEW DELHI

                             COMPANY JURISDICTION

                COMPANY APPLICATION NO. 1820/2010

                                           IN

            COMPANY APPLICATION (M) NO. 135 OF 2010

                                          Date of pronouncement : 08-10-2010

M/s Asia Satellite Telecommunications Co. Ltd.
                                              ...........Applicant/Objector
                         Through : Mr. Vibhu Bhakru with Mr. Pawan
                                   Sharma, Ms. Anuradha, Mr. Vijaya
                                   Lakshmi     Menon,    Ms.    Ekta,
                                   Ms. Mehak Khanna, Ms. Vrinda and
                                   Ms.      Madhumeet       Chauhan,
                                   Advocates

                                         Versus

M/s Dish TV India Ltd. & Ors.
                                                               ........... Respondents
                              Through :        Mr. P.V.Kapoor, Sr. Advocate with
                                               Mr. Suman Doval, Mr. Sumit
                                               Babbar, Mr. A.Anand and Ms. Ekta
                                               Kalra Sikri, Advocates
CORAM :

       HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1.     Whether Reporters of local papers may be allowed to see the
       judgment? Yes
2.     To be referred to the Reporter or not? Yes
3.     Whether the judgment should be reported in the Digest? Yes


SUDERSHAN KUMAR MISRA, J.

1. This application has been moved by M/s Asia Satellite

Telecommunications Co. Ltd., raising objections to a composite

scheme of amalgamation and arrangement propounded by the

respondents, namely, M/s Dish TV India Limited; M/s Integrated

Subscriber Management Services Limited; and M/s Agrani Satellite

Services Limited, all of whom have moved a first motion application

under Sections 391 to 394 of the Companies Act, being CA(M) No.

135/2010, in connection with the said scheme propounded by them.

2. On 4th August, 2010, when the first motion application was

taken up for preliminary hearing, counsel for the applicant/objector

appeared and stated that he wish to be heard with regard to the relief

being sought by the respondents. He further stated that he be

granted an adjournment to satisfy this Court about his locus standi

regarding the obligation of this Court to hear him on behalf of his

client, who wishes to raise certain objections to the grant of relief at

this stage itself, and that this Court was obligated to give him that

hearing. He also prayed for an adjournment since he stated that he

was not fully prepared to present his submissions on that date itself.

This application raising the said objections had been filed on 3rd

August, 2010, but were lying under objections in the Registry when

the matter was heard on 4th August, 2010.

3. By this application, the objector has alleged that the

creditors of the demerged company are likely to suffer because

substantial assets are sought to be transferred under the Scheme, as a

result of which, the creditors of the demerged company i.e. Dish TV

India Ltd., will be unable to recover their debts. It is also alleged that

a petition for winding up of the demerged company has also been filed

by the objector/applicant, which is pending hearing.

4. Before the matter could be heard, the respondent

companies moved another application being Co. Appln. No. 1542/2010

contending that the applicant/objector, who was reflected in the list of

unsecured creditors filed by the demerged company, along with the

Scheme propounded, showing an outstanding amount of ` 2,36,39,254

due to the objector herein, has since been paid and, therefore, the

demerged company does not wish to show the said company in its list

of unsecured creditors. That application was allowed on 20 th August,

2010 when the demerged company was permitted to place a fresh list

of unsecured creditors of the demerged company on record after

removing the name of the applicant/objector, M/s Asia Satellite

Telecommunications Co. Ltd., from that list. However, arguments with

regard to the objector's claim to be heard at this stage on the instant

application were nevertheless addressed by the applicant.

5. In support of his right to be heard at this stage itself,

counsel for the objector relies on the judgment of the Bombay High

Court in In re: Colaba Land and Mill Co. Ltd, CP. No. 165 of 1975,

decided on 27th January, 1976, to support the proposition that merely

because Rule 67 of the Companies (Court) Rules, 1959 makes a

provision for an ex-parte application, it cannot debar a party interested

in the action from placing its views before the Court on whether the

proposed order should or should not be made. Reliance was also

placed by the objector on In Re: Cash and Carry Wholesale

Traders Pvt. Ltd, (2010) 2 MLJ 370.

6. Rule 67 and 68 of the Companies (Court) Rules, 1959 are

as under:

67. Summons for directions to convene a meeting.- An application under Section 391(1) for an order convening a meeting of creditors and/ or members or any class of them shall be by a Judge's summons supported by an affidavit. A copy of the proposed compromise or arrangement shall be annexed to the affidavit as an exhibit thereto. Save as provided in Rule 68 hereunder, the summons shall be moved ex parte. The summons shall be in Form No. 33, and the affidavit in support thereof in Form No. 34.

68. Service on company- Where the company is not the applicant, a copy of the summons and of the affidavit shall be served on the company, or, where the company is being wound- up, on its liquidator, not less than 14 days before the date fixed for the hearing of the summons.

7. Counsel for the demerged, transferor and resulting

companies, i.e. the respondents herein, relied on Chembra Orchard

Produce Ltd. v Regional Director of Company Affairs, AIR 2009

SC 1278, and paragraphs 5 to 8 thereof in particular, to support the

contention that the essence of Rule 67 is that there is no requirement,

at the first motion stage, for the issuance of any notice to any party by

the Court for the purpose of issuing directions to convene the

meetings.

8. Counsel for the objector does not dispute the proposition

that the first motion application is to be moved ex parte and that there

is no requirement to issue notice as per the Companies (Court) Rules,

1959. He however states that, nevertheless, the judgment of the

Supreme Court in Chembra Orchard's case (supra) does not hold

that even if someone were to approach the Company Court of his own

accord, he has no right to be heard at the stage of the first motion

application itself, and therefore, his client should be given a hearing

and his objections to the Scheme propounded be heard and decided at

this stage itself.

9. It is appropriate to reproduce the Apex Court's

observations in the aforementioned case of Chembra Orchard's case

(supra), at page 1282, as under;

"If hearing is required to be given to contributors, creditors and share-holders, then the entire scheme of Section 391 (which is a Code by itself) would become unworkable. Further, when Rule 67 categorically states that Summons for Directions shall be moved ex- parte, the question of prejudice or rule of natural justice does not come into play. However, there is a rationale for stating that the Summons shall be moved ex-parte and that rationale is that it is an Application for an Order for Meeting as a preliminary step at the threshold stage and at that stage it is not necessary for the Company to give notice of hearing to the creditors, members and share-holders (see: Palmer's Company Law). Further, if one examines Rule 67 in the context of Rule 73, one finds that after Summons for Direction are issued as and when the meeting is ordered to be convened, the notice of the meeting is required to be given to the creditors and/or members or such other classes enumerated in Rule 73. Similarly, under Rule 74 advertisement of the notice of meeting is also required to be published in such newspapers and in such manner as the Judge may direct. This is to be supported by affidavit of service under Rule 76."

10. An objector who wants to be heard stands before a Court

as a result of one of two possible circumstances. One circumstance is

that he comes to the Court pursuant to a notice issued by the Court.

The second is that he comes and stands before the Court on his own.

In effect, the issue before this Court is whether a hearing should be

granted to a party at the stage when the first motion application is

being considered, regardless of how that party comes to stand before

the Court. Counsel for the applicant seeks to create a distinction

between the granting of a hearing consequent upon a notice being

issued by a Court for that purpose, and the granting of a hearing by a

Court because that party happens to appear on its own before that

Court at the first motion stage, without notice having been issued to it.

To my mind, this distinction cannot be drawn between the two

aforementioned situations since the outcome, or relevant factor, with

which we are concerned is, in effect, the same, i.e. the granting of a

hearing to that party.

11. In Chembra Orchard's case (supra), the Supreme Court

has made certain observations about the consequence of granting a

hearing at the stage of the first motion application. It has held that if

Courts began to grant hearing at the first motion stage, S.391, which

is a Code in itself, would become unworkable. It has given reasons and

the rationale why the right to a preliminary hearing is not made

available to any other party. This is because the scheme of S.391 and

the Rules reasonably protect the interest of any party who may be

interested in the proceedings, and any such party would have

sufficient opportunity to enlighten the Court as to the true state of

affairs before it proceeds to sanction the Scheme at the stage of the

second motion.

12. Generally speaking, after the first motion application is

allowed, certain interested parties such as shareholders and creditors

are given an opportunity to vote for or against the Scheme at

meetings which are convened on the Court's directions. The

Chairpersons of these meetings are required to prepare reports of

those meetings and place those reports before the Company Court.

However, it is still open to any party, including any creditor, who may

or may not have been present at the meeting or may or may not have

been given an opportunity to be heard at the meeting, to voice his

objection against the proposed Scheme after citations calling for

objections are published in newspapers. If an objecting party

persuades the Court, the proposed Scheme will not survive the second

motion stage. With this framework firmly in place, it cannot be said

that a party or a creditor is prejudiced by any steps that were taken at

the first motion stage. In this case, the objector is, in effect, seeking

a hearing as if these proceedings were at the second motion stage and

as if all antecedent steps necessary, after the passing of orders on the

first motion application, and before the second motion can be

considered by the Court, were successfully completed.

13. The issue before this Court is whether it is obliged to hear

any objector at this stage. However, the statute and the Rules framed

thereunder do not envisage such a hearing at this stage. That is what

the Supreme Court has also said in Chembra Orchard's case

(supra). The reason being that any person who wishes it, will be given

a hearing at the stage of the second motion. Therefore, if the

Company Court is not obliged to hear a party at the first motion stage,

then regardless of how that party stands before the Court, the

question of granting that party a hearing does not arise at all. No

authority was produced by counsel for the applicant/objector which

would enable him to intervene in these proceedings. He was unable to

show that, although, admittedly, as held by the Supreme Court in

Chembra Orchard's case (supra), if the Court were to issue notice

and grant a hearing at the first motion stage, it would render section

391 unworkable, nevertheless, if a hearing is granted to a party who

comes to the court on its own at that stage, section 391 would not be

rendered unworkable.

14. In Chembra Orchard's case (supra), it has been held

that S.391(1) is unique and that there is no obligation for the

Company Court to hear anybody at the first motion stage because no

prejudice will be caused by not hearing them, for the reason that

before any effect is given to any outcome which is likely to affect such

parties, they will get a chance to be heard. The legal basis for the

universal rule that no matter be heard without previous notice to the

other party is that the latter may be adversely affected by the

outcome without being afforded an opportunity of being heard before

that outcome is arrived at. It is undisputed that every motion with

regard to a proposed Scheme under Section 391 can only be

sanctioned by the Company Court after the second motion petition is

heard, with adequate opportunity to all parties likely to be affected

thereby to be heard. Consequently, the requirements of the aforesaid

universal rule stand satisfied.

15. Reliance by the objector on In re: Cash and Carry

Wholesale Traders Pvt. Ltd. (supra) is unfounded, since that

decision relates to Rule 68 of the Companies (Court) Rules, 1959, and

not Rule 67, which is the relevant provision and was also directly

considered by the Supreme Court in Chembra Orchard's case

(supra). I also find myself in respectful disagreement with the ratio in

Colaba Land and Mill Co. Ltd, CP. No. 165 of 1975, decided on 27th

January, 1976, by the Bombay High Court, for the reason that while

the said judgment proceeds on the undisputed universal obligation of

courts to hear the side likely to be affected by the outcome of the

proceedings; it fails to notice that even if such an opportunity is denied

at the first motion stage, no prejudice can ensue since the unique

scheme of the Companies Act provides the necessary safeguards while

prescribing a complete code for Amalgamations etc. under Section 391

thereof, and any effort to import procedural considerations applied

generally elsewhere would prove deleterious to the Scheme of the Act

and render it unworkable. Also, in my view, the matter has been set

at rest by the Supreme Court in Chembra Orchard's case (supra).

16. To my mind, although the Supreme Court's observations in

Chembra Orchard's case (supra), reproduced above, have been

made while examining the question as to whether or not there is an

obligation on the part of the Company Court to itself issue notices to

creditors and shareholders at the first motion stage, for the reasons

stated above, in my view, they apply with equal force to the present

situation also. For all the above reasons, the applicant's plea for

being heard is rejected and the application on behalf of M/s Asia

Satellite Telecommunications Co. Ltd. is dismissed as not maintainable

at this stage, without going into the merits of the objections raised

therein.

SUDERSHAN KUMAR MISRA, J.

October 08, 2010 sl