1997 (10) TMI 352 - SC - Companies Law

Scheme of arrangement - respondent submitted to send the matter back to the learned company judge for being heard afresh - Held that - We are disinclined to do so for the amalgamation has taken effect long back and third party rights have been created. The respondent should have pressed the case it made out in the affidavit before the learned company judge that was the appropriate time to do so. Thus the order of the learned company judge sanctioning the scheme is restored.

Summary

Issues:
1. Sanction of a scheme of arrangement under sections 391 and 393 of the Companies Act, 1956.
2. Allegations of fraudulent scheme to evade taxes.
3. Appeal against the order sanctioning the scheme.
4. Dissolution of the transferor-company without winding up.
5. Impugned order by the Division Bench setting aside the sanction.
6. Lack of consideration of tax avoidance contention during the original proceedings.
7. Remand of the matter for fresh consideration.
8. Disinclination to remand due to third party rights created post-amalgamation.

Analysis:
The judgment involves a company application under sections 391 and 393 of the Companies Act, 1956, seeking approval for a scheme of arrangement. The High Court initially approved the scheme, which was later sanctioned by the learned company judge. However, an appeal was filed against the order sanctioning the scheme, alleging that it was fraudulently devised to evade taxes. The Division Bench set aside the sanction, noting that the purpose of the scheme was to avoid taxes, and criticized the summary disposal of the matter without considering the contentions raised. The Division Bench emphasized that tax avoidance should have been a crucial factor in sanctioning the scheme, leading to the order being overturned.

Furthermore, the Division Bench's decision was based on the respondent's affidavit opposing the scheme, which highlighted the tax avoidance aspect. The Court expressed concern over the lack of consideration of this crucial contention during the original proceedings. The judgment highlighted the absence of factual material or arguments regarding tax avoidance before the learned company judge, indicating a procedural lapse in addressing significant issues during the initial sanctioning process.

The Supreme Court, while acknowledging the Division Bench's concerns, decided to restore the order sanctioning the scheme instead of remanding the matter for fresh consideration. The Court noted that the amalgamation had already taken effect, and third-party rights had been established post-amalgamation. The respondent was advised to have raised their concerns during the initial proceedings, emphasizing the importance of presenting arguments and evidence at the appropriate stage to avoid procedural complications and preserve third-party rights.

In conclusion, the Supreme Court allowed the appeal, setting aside the impugned order and restoring the sanction granted by the learned company judge. No costs were awarded in this matter, highlighting the Court's decision to maintain the original sanction while emphasizing the importance of addressing significant issues during the initial proceedings to avoid procedural challenges and protect third-party interests.