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Issues Involved:
1. Notice to Central Government 2. Joint Petition by Transferor and Transferee Companies 3. Public Interest and Bona Fide Nature of the Scheme Issue-wise Detailed Analysis: 1. Notice to Central Government: The first issue involved whether a notice was required to be served on the Central Government during the initial proceedings for holding meetings of creditors and shareholders of the two companies. The legal objection raised by the Central Government was dismissed because the statute and the Companies (Court) Rules do not necessitate issuing a notice to the Central Government at the stage of taking out judges summons. Section 391(1) does not require such notice before getting a scheme of arrangement or amalgamation approved in a meeting of shareholders and creditors. The court supported its decision by referencing the Madras High Court's ruling in W.A. Beardsell and Co. P. Ltd., In re and Mettur Industries Ltd., In re [1968] 38 Comp Cas 197, which confirmed that notice to the Central Government need not be given at the initial stage. 2. Joint Petition by Transferor and Transferee Companies: The second issue was whether a joint petition by the transferor and transferee companies was competent. The Central Government argued that separate petitions should have been filed, citing the Karnataka High Court's decision in Electro Carbonium P. Ltd., In re and Electric Materials Co. P. Ltd., In re [1979] 49 Comp Cas 825 (Kar). However, the court found no reasons in that judgment to support the necessity of separate petitions. The court held that neither the Companies Act nor the Companies (Court) Rules prohibit a joint petition when the subject matter is the same and common questions of fact and law arise for decision. The court referenced Order I, rule 1 of the Code of Civil Procedure, which allows all persons to be joined in one suit as plaintiffs where any right to relief arises out of the same act or transaction. Thus, the court ruled that a joint petition is maintainable. 3. Public Interest and Bona Fide Nature of the Scheme: The most significant issue was whether the scheme of arrangement was in public interest and bona fide. The Central Government argued that the scheme was framed to avoid payment of Government revenue in the form of stamp duty and registration charges by transferring valuable immovable assets of the transferor company to the transferee company. The petitioner's counsel contended that the scheme was unanimously approved by shareholders and creditors and aimed at better management of the transferor company's businesses. The court examined the details of the companies and the proposed scheme. The transferor company had a substantial business with a high turnover and valuable immovable assets, while the transferee company was recently incorporated with minimal capital and was essentially a paper company. The court noted that the scheme did not explicitly mention the transfer of the export business but focused on transferring valuable immovable assets. The court emphasized that the real market value of these assets was much higher than the book value shown in the scheme. The court referenced several judgments, including Veal Fuel Systems Ltd., In re [1992] 73 Comp Cas 63 (Mad), New Central Jute Mills Co. Ltd. v. Rivers Steam Navigation Co. Ltd. [1959] 29 Comp Cas 357 (Cal), and Wood Polymer Ltd., In re and Bengal Hotels Pvt. Ltd., In re [1977] 47 Comp Cas 597 (Guj), to underline the importance of public interest and the bona fide nature of schemes. The court highlighted that while lawful tax avoidance is permissible, schemes designed primarily to evade taxes and transfer assets without paying Government dues are against public interest. The court concluded that the scheme's main purpose was to transfer valuable immovable assets to the transferee company, which was not in public interest. The court upheld the Central Government's objection and declined to sanction the scheme, dismissing the petition. Conclusion: The petition was dismissed on the grounds that the scheme was not in public interest, primarily aimed at transferring valuable immovable assets without paying Government dues, and thus, was not bona fide. The court emphasized the importance of transparency and genuine intent in schemes of arrangement and amalgamation.
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