It is the duty of the Tribunal or any Court that their Orders should encourage compliances and not defaults.

It is the duty of the Tribunal or any Court that their Orders should encourage compliances and not defaults.

The Appeal, filed by Mr. Ashish O. Lalpuria (the shareholder of the Respondent Company- Kumaka Industries Limited), which challenged the order of NCLT Mumbai Bench, has been allowed.In this case, the Company presented a Scheme of Arrangement underSection 391-394 of Companies Act, 1956 (Existing Sections 230-232 of Companies Act, 2013) for sanction of the Arrangement embodied in the scheme originally filed before Bombay High Court which by virtue of notification issued by Ministry of Corporate Affairs got transferred to NCLT, Mumbai.

The Appellant had pointed out certain irregularities and non-compliances and raised the objections that the Scheme of Arrangements is a mere rectification of action already taken by the Respondent company without obtaining approval of the Tribunal and other Regulatory Authorities as required under the provisions of Companies Act. NCLT, Mumbai passed the order stating that the scheme appears to be fair and reasonable and does not violate any provision of law and is not contrary to public policy or public interest.

It was alleged that by way of scheme of arrangement, the company sought to convert public deposit into share capital as the retained application money, being a public deposit attracted the provision of section 58 A of the erstwhile Companies Act, 1956.There is no proposed scheme, but it is rectification of action already taken.

The Appellate Tribunal has affirmed that it is apparent from the records that there were irregularities and non-compliances from a very long time due to which Stock Exchange took action against the Company and suspended the trading of its securities in the year 2002.

Nothing has been brought on record that the Company have taken any serious actions to make the requisite compliances so that trading of the shares of the company can be resumed. Non action of the Company have serious impact on the investors who have invested their hard money in the company. These non-compliances and irregularities or any illegal act already committed cannot be ratified under the umbrella of "scheme" as envisaged under Section 230-232 of Companies Act, 2013.

The respondent Company should have instantly rejected the application money for 10,375 shares as the Application applied were for less than the minimum lot size i.e. 100 shares. The assertion of the Respondent that it was unaware of the BSE Rejection Letter dated 6th May, 1999 until in the year 2012 is not tenable as the company was listed and must be in touch with the Exchange for various compliances. The scheme appears to be used as a course of action to rectify the irregularities previously done/committed by the Respondent.

The Scheme under section 230 of Companies Act, 2013 cannot be used as a method of rectification of the actions already taken. Before the scheme gets approved, the company must be in compliance with all the public authorities and should come out clean. There must be no actions pending against the company by the public authorities before sanctioning of a scheme under section 230 of the Companies Act, 2013.

The Appellate Tribunal has commented on NCLT's order, which has overruled the Regional Director's objections on the ground that the objections are merely on the procedural aspects, by stating that even if the objections are procedural but it is the jurisdiction of the Tribunal that such procedural aspects need to be duly complied with before sanctioning of the scheme, as it would lay down a wrong precedent which would allow companies to do whatever acts without the compliances and confirmation of the Court and other sectoral and regulatory authorities and thereafter get it ratified by the Court under the Umbrella of "scheme".

It should have been contemplated that compliance of law in itself is a part of public policy.