1999 (12) TMI 768 - HC - Companies Law

Summary

Issues Involved:
1. Whether the transferor company lost its identity and corporate character after its amalgamation with the transferee company under the scheme sanctioned by the BIFR.
2. Whether the petitioner stood discharged of its obligation under the agreement to buy back the shareholding of the Corporation upon the transferor company being amalgamated with the transferee company.
3. Whether the arbitration clause 32 of the agreement continued to be operative even after the amalgamation of the transferor company with the transferee company.
4. Whether recourse to section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 was permissible in respect of the price of the entire shareholdings of the Corporation in Flowmore Polyester Ltd.

Issue-wise Detailed Analysis:

1. Identity and Corporate Character Post-Amalgamation:
The petitioner argued that the transferor company lost its identity after its amalgamation with the transferee company was sanctioned by the BIFR. The respondent contended that a company could only lose its corporate character through an order of winding up or dissolution under the Companies Act, 1956. The court noted that a company could be dissolved without winding up, as seen in amalgamations under section 394(1)(iv) of the Companies Act, 1956, and section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. The court concluded that the transferor company lost its juristic personality and was dissolved upon amalgamation, as stipulated in the sanctioned scheme.

2. Discharge of Obligation to Buy Back Shares:
The petitioner claimed discharge from the obligation to buy back shares due to the doctrine of frustration, as the transferor company was amalgamated with the transferee company. The court agreed, stating that the petitioner's obligation to purchase shares was discharged from the transfer date of the amalgamation. The court emphasized that the sanctioned scheme of amalgamation governed the rights and liabilities of the parties post-amalgamation, and the petitioner was not obligated to buy back the shares allotted to the Corporation by the transferee company.

3. Operability of Arbitration Clause Post-Amalgamation:
The court examined whether the arbitration clause in the agreement remained operative after the amalgamation. It referenced several Supreme Court decisions, concluding that an arbitration clause is a collateral term of a contract and perishes with the contract if the contract itself becomes impossible to perform. The court held that the arbitration clause could not be invoked for obligations arising after the transfer date but could be invoked for any rights or liabilities incurred before the effective date of the amalgamation.

4. Recourse to U.P. Public Moneys (Recovery of Dues) Act, 1972:
The court analyzed whether the recovery of dues under the agreement could be pursued under the U.P. Public Moneys (Recovery of Dues) Act, 1972. It noted that clause 7(f) of the agreement allowed for the recovery of losses and damages as arrears of land revenue. The court concluded that the Act could be invoked for recovering losses and damages incurred due to a breach of contract before the petitioner's discharge by the doctrine of frustration.

Judgment:
The court allowed the petition, quashing the impugned recovery certificate and consequential recovery proceedings, subject to the observations made in the judgment. The court clarified that this decision was without prejudice to the Corporation's rights acquired due to any breach of contract occurring before the transfer date. Each party was ordered to bear its own costs.