In Re: Zee Interactive Multimedia . V. Unknown on 1 February, 2002

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Introduction

Zee Inter Active Media Limited, who is the petitioner in Company Petition No. 1096 of 2001 is proposed to be amalgamated with Siti Cable Network Limited under a scheme of arrangement proposed under Sections 391 to 394 of the Companies Act, 1956.

In Company Petition No. 1096 of 2001, the transferor company seeks approval and sanction of the scheme. In Company Petition No. 1097 of 2001, the transferee-company seeks approval of the scheme of merger and amalgamation of the transferor-company into it.

Facts

The transferor-company has a paid up capital of only Rs. 700 crores and it is a wholly owned subsidiary of the transferee-company. A statement has been made in the directors report dated August 14, 2001 of the transferor-company that the company had not commenced operations during that year.

By an order dated September 19, 2001 of this court passed in Company Application No. 469 of 2001, the convening and holding of the meeting of the equity shareholders of the transferor-company was dispensed with in view of the consent given by all the equity shareholders of the transferor-company.

By the said order, holding of the meeting of the secured and unsecured creditors of the transferor-company was also dispensed with.

By an order dated September 19, 2001 of this court passed in Company Application No. 469 of 2001 holding of the meeting of the secured and unsecured creditors of the transferee-company was dispensed with; however, two separate meetings, one of equity shareholders and another of preference shareholders were convened on October 19, 2001. In the meeting of the equity shareholders the scheme was approved subject to one modification, viz.

A report of the chairman of the meeting is annexed to Company Petition No. 1097 of 2001 as exhibit G.

Arguments

The shareholders of the transferor-company also granted consent to the amendment of the scheme by addition of Clause 5.3.3 and gave a letter dated October 22, 2001, to the board of directors of the transferor-company to that effect.

Accordingly, the scheme was modified and the modified scheme has been submitted for approval of this court under Section 391 of the Companies Act.

In the said report, the official liquidator has certified that affairs of the transferor-company have not been conducted in a manner prejudicial to the interest of its members or to public interest.

At the hearing of the petition, Mr. B. A. D’Lima, advocate, appeared for two creditors of the transferor-company, viz.

Ms. S. D. Rane, advocate for Modi Entertainment Network Limited and Doshi Brothers, two creditors of the transferee-company appeared and opposed the scheme.

Without going into as to whether the creditors have a right of hearing at the time of consideration of the sanction of the proposed scheme under Section 391 of the Companies Act, the objecting creditors were heard.

The transferor-company had not even commenced the operation till the year ending March 31, 2001, and the profit and loss account was also not drawn.

Assuming without admitting that the substratum of the transferor-company is lost, the creditors of the transferor-company cannot object to the sanctioning of the scheme on the said ground because by amalgamation, they would not only be able to look to the assets of the transferor-company but also be able to look to the assets of the transferee-company.

It is not the case of the objecting creditors of the transferor-company that the substratum of the transferee-company is also lost.

Such objecting creditors would have a better security for repayment of their debts and they are not adversely affected by the proposed scheme of amalgamation.

the second objection raised by Mr. D’Lima in the balance sheet which is annexed to the petition is for the period March 31, 2001.

The words “Latest auditors report” in my opinion connote the latest auditors report which is available or which should normally be available at the time of filing of the petition.

It is not compulsory that company must get the accounts audited time and again till the petition comes up for hearing and place that auditors report, before the court at the time of hearing the petition.

There would always be some time gap between the date on which the auditor audits the accounts and prepares his report and the date on which the company petition is filed and the date on which petition is actually heard.

Of course, in a given case, the court is not powerless to ask for further details of the latest financial position as on the date of the hearing of the petition or as on the date as near to the date of the hearing of the petition, as is reasonably practicable.

Exercising the court’s power to call for further and latest possible information, during the course of hearing I directed the petitioner to file the balance-sheet and profit and loss account up to the period ending September 30, 2001.

Learned counsel for the petitioner handed in the copies thereof both in respect of transferor as well as transferee-company.

Copies are taken on record and marked exhibit A in their respective petitions.

Counsel for the petitioner undertakes to file an affidavit proving those copies within a period of two weeks.

In view of this position, the second objection of the objecting creditors of the transferor-company that the latest financial position has not been disclosed, does not survive.

Ms. Rane, learned counsel appearing on behalf of the objecting creditors of the transferee-company submitted that the scheme should not be granted because large amounts of about Rs. 19 lakhs are due to the Modi Entertainment Network.

She further submits that unless the dues of the objecting creditors are paid to them, the scheme should not be sanctioned.

Of course, in a given case the court may direct payment, or direct that creditors or any class of them should be paid their dues or be sufficiently secured, before the court sanctions the scheme

It must be remembered that a scheme under Section 391 of the Companies Act is not a tool in the hands of a creditor to recover money or to coerce the company to pay.

The objecting creditor must show to the court that the scheme is mala fide or fraudulent is likely to adversely affect him or the interest of creditors or any class of them is likely to be adversely affected if the scheme is sanctioned without securing him or any or all the creditors.

No argument was advanced as to how the scheme is mala fide or fraudulent or would adversely affect creditors of the transferee-company.

In the circumstances, objections raised by the creditors are rejected.

Shri H. K. Sudhakar appears for one of the creditors, viz.

Unless the scheme is shown to be contrary to any law or shocks the conscience of the court or is patently unfair to the members or creditors or any class of them, or is against public interest or against the public policy, the court should not come in the way of business by rejecting a bona fide scheme under Section 391.

Summary and analysis

The Plaintiffs filed a joint charge of copyright infringement and theft of proprietary information against the Defendants in relation to some scripts and design notes of a specific Hindi television programme, which they had handed over to them. Originally, Zee was expected to broadcast the series, with the Plaintiffs handling the production. The latter had shared the idea notes with this interpretation in mind. However, talks fell apart, and Zee decided not to air the programme, instead creating a new show based on the design notes shared (as said by BDE). BDE filed a lawsuit to prevent Zee from broadcasting this program.

Zee had allegedly betrayed BDE’s confidence by using their scripts and production notes in the making of their broadcast, as well as infringing on their copyright in these areas. The components of a breach of confidence argument, according to the ruling, are the discovery of classified information, the handing over of this information under conditions of confidence, and the use or possibility of use of this information. Although elements 2 and 3 are mostly factual, element 1 also necessitated an examination of the information’s novelty. The court decided in favor of BDE, finding that there was a lack of trust prima facie and that there could be an argument to be taken out on the merits that there was even a copyright violation.

The court points out that these two schemes exist in separate realms, with the first being a wider right and the latter being a proprietary right. However, the court further points out that it is a well-established principle that the publishing of a work may be halted for loss of trust. In a way, the court is establishing that remedies can be given to prevent the final publishing of a work on the basis of solely confidential grounds, even, as the court points out, where the impugned work is a duplicate of the original work’s concept. Since the essence of the cause of action in a copyright suit is significantly different from in a claim based on secrecy, the rule of confidentiality requires that such a position be taken. This viewpoint is expressed in the text of S.16 of the Copyright Act, which states:

No person shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise than under and in accordance with the provisions of this Act or any other law for the time being in force, but nothing in this section shall be constructed as abrogating any right or jurisdiction to restrain a breach of trust or confidence.”

There could have been a minor controversy if this clause had been reworded to leave out the emphasised part, where the court would be granting a copyright-like redress (restriction of the publishing of a work) on grounds that are beyond the scope of the Copyright Act, effectively allowing a copyright to remain where none could have existed. In the event of a claim of breach of trust, the decision further clarifies the procedure for determining novelty. In its first tier of study, this process is much more generalized and devoid of detail than an argument of substantial similarity, but it reverts to the substantial similarity test (in substance) later.

This decision, in my view, adequately clarifies the interface between copyright and breach of trust claims; nevertheless, the study of novelty as a component of confidence might have used a little more detail.

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