2013 (2) TMI 10 - HC - Companies Law

Scheme of amalgamation - whether a Company Judge was not competent enough to direct Central Government to carry on investigation and that too, by a named agency? - Learned Judge directed payment of cost of rupees seventeen thousand - Held that - From the orders discussed it is found that the matter appeared from time to time before the single Judge on various occasions when Central Government did appear and object to the said petition being allowed. Appeal being a continuation of the original proceeding, was also unsuccessful and the Central Government was dragged to the Court of appeal. Taking a sum total of the situation, His Lordship directed payment of cost of rupees seventeen thousand.Thus the cost of rupees seventeen thousand would be paid within two weeks from date. Rupees eight thousand five hundred should be paid to the Central Government whereas the balance sum of rupees eight thousand five hundred be paid to the State Legal Service Authority, West Bengal. As at the admission stage the order of restraint stayed subject to the assurance of the appellants that they would not suppress the orders of this Court passed in these proceedings in case any subsequent scheme was brought. The order of restraint passed by His Lordship restraining the appellants from moving an identical application for five years, is set aside. The appellants would however be obliged to state in detail, the sequence of events resulting in disposal of this appeal and would annex all orders in the present proceeding passed by the learned single Judge as well as by the Division Bench from time to time. The Central Government s objection was consistent. The Central Government made queries. They did have the expertise to verify answer to such query. They were within their right to insist upon clarification being made on the issues raised by them. It is true, the Court should either allow a scheme of amalgamation or reject the same, if not satisfied. Such question however, may not be germane herein as the appellants did not proceed further. They withdrew the scheme. The learned Judge directed investigation at a stage as when the appellants were proceeding with their scheme. Thus once the investigation was directed that must come to a logical conclusion. The direction for continuation of the proceeding for investigation is upheld to the extent, Central Government would be free to choose the agency through whom they would carry on such investigation and would be free to take any step as it may be found appropriate in this regard. The direction for continuation of such investigation must be treated as a declaration under Section 237(a)(ii) of the Companies Act 1956 and not a mandate upon the Central Government to carry on such investigation.

Summary

Issues Involved:
1. Sanction of the scheme of amalgamation.
2. Objections raised by the Central Government regarding share valuation and premium.
3. Competence of the Company Judge to direct an investigation.
4. Restraint on the appellants from applying for a scheme of amalgamation for five years.
5. Payment of cost imposed by the learned Judge.
6. Continuation of investigation directed by the learned Judge.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The appellants, four companies, applied for the sanction of a scheme of amalgamation and sought dispensation of the shareholders' meeting due to common or interrelated shareholders. The learned single Judge acceded to their request and appointed a Special Officer to ascertain the shareholders' wishes, who reported unanimous agreement to the scheme. Despite no objections from the public, the Central Government raised concerns about share valuation and premium.

2. Objections Raised by the Central Government:
The Central Government objected to the share valuation report, claiming it was "window dressed" and unusual. They noted the transferor companies did not submit information on shares issued at a premium, as required. The learned Judge asked the Central Government to file supplementary affidavits, which reiterated the lack of information and requested further details from the petitioner companies.

3. Competence of the Company Judge to Direct an Investigation:
The learned Judge directed an investigation by the Directorate of Revenue Intelligence, which the appellants contested, arguing that the Company Judge was not competent to direct such an investigation under Section 391. The appellants contended that direction for investigation could only be given under Sections 235 to 240-A of the Companies Act, and the Court should not specify any agency.

4. Restraint on the Appellants from Applying for a Scheme of Amalgamation for Five Years:
The learned Judge dismissed the application for sanction of the scheme as not pressed, with a cost of rupees seventeen thousand, and restrained the appellants from making any such application for five years. The appellants argued that this restraint was contrary to Section 41(b) of the Specific Relief Act, 1963, which states no litigant can be restrained from initiating any proceeding in accordance with law.

5. Payment of Cost Imposed by the Learned Judge:
The learned Judge directed the appellants to pay a cost of rupees seventeen thousand to the Central Government. The appellants argued that the cost was disproportionate compared to other similar cases. The Court decided to split the cost, with fifty percent to be paid to the Central Government and the balance to the State Legal Service Authority.

6. Continuation of Investigation Directed by the Learned Judge:
The learned Judge's direction for investigation was upheld by the Division Bench with modifications, allowing the Central Government to choose the investigating agency. The appellants withdrew their application, but the Court maintained that the investigation must continue to its logical conclusion. The learned Judge's observation that the direction should be seen as under Section 237 of the Companies Act was upheld, allowing the Central Government to act within the scope of the provision.

Conclusion:
The appeal succeeded in part, with the following modifications:
1. The cost of rupees seventeen thousand to be split between the Central Government and the State Legal Service Authority.
2. The restraint on applying for a scheme of amalgamation for five years was set aside, with the appellants required to disclose all relevant orders in any subsequent application.
3. The investigation was to continue, with the Central Government free to choose the agency.
4. The direction for investigation was treated as a declaration under Section 237(a)(ii) of the Companies Act 1956.

The appeal was disposed of without any further cost, and urgent certified copies of the judgment were to be provided upon request.