Disclosure in Scheme Petition

From RNRL v. RIL, Supreme Court, [2010]156CompCas455(SC), JT2010(5)SC413, 2010(5)SCALE223, 2010(4)UJ2400(SC)   

145. The Companies (Amendment) Act, 1965, based on the recommendations of Daphtary-Sastri Committee specifically provided that the applicants for a scheme shall "disclose by affidavit all material facts". (See: Section 391(2) of the Companies Act, 1956). In as much as the terms and conditions of gas supply, as specified in the MoU, were not specifically informed to all the shareholders and stakeholders, including in this case the GoI (as a party to the PSC), we simply fail to see how the MoU can be read into the Scheme itself. It doesn't matter whether one calls MoU the guiding light or a tool for interpretation or a foundation - the sheer fact that the terms of gas supply contained in the MoU were withheld from the shareholders implies that it cannot now be imported into the Scheme. The argument that contracts are entered into all the time, and are treated as day to day affairs for the management and the Board, fails at the point of division of a company. Where, in regular times a shareholder or a stakeholder can demand and obtain information and have time to try and monitor such contracts and the actions of the management, the act of hiving off an undertaking is a much more crucial point, when the shareholders have to be even more careful about the transfer of value. The whole purpose of Section 293 which prohibits the Board from hiving off an undertaking without shareholders approvals, is to prevent such transfers being effectuated on a permanent basis without the knowledge of the shareholders. The very essence of the requirement that all material facts be disclosed would have been decimated. Consequently, we hold that the Scheme as propounded by the Board, placed before and approved by shareholders and stakeholders and sanctioned by the court is completely different from the MoU. The MoU may have been the starting point. The end point is significantly, substantially and materially different from it and it cannot now be brought back in the guise of interpretation.