1973 (6) TMI 46 - HC - Companies Law

Company Service of documents on members by, Meetings and Proceedings Quorum for meeting, Compromise and arrangement, Amalgamation

Issues Involved:
1. Notice to Pakistani Shareholders
2. Worthiness of Petitioner No. 2
3. Entitlement to Compensation Money
4. Ratio of Exchange
5. Explanatory Statements Under Section 393
6. Power to Amalgamate
7. Bona Fides of the Application

Detailed Analysis:

1. Notice to Pakistani Shareholders:
The opposing shareholders contended that no notice of the meeting was served on Pakistani shareholders. The court held that notices were duly served on the shareholders of the petitioner-bank at their respective addresses when the meeting was originally convened. Correspondence exchanged with the Custodian of Enemy Property indicated that notices were sent to the Custodian for shares held by Pakistani nationals now in Bangladesh. Under section 53 of the Companies Act, 1956, if a member has no registered address in India, notice may be served at an address supplied within India, or by advertisement in a newspaper. The court found that the service of notice was in compliance with the statutory provisions.

2. Worthiness of Petitioner No. 2:
The opposing shareholders argued that Petitioner No. 2 was a worthless company. The court noted that the directors of the petitioner-company are not permanent and a new board will be elected after the amalgamation. The court emphasized that the procedure adopted in this case, by floating a new company and amalgamating the old company with the new one, was justified. The court referred to the case of *In re Mackinnon Mackenzie & Co. Pvt. Ltd.* and concluded that the future working of the amalgamated company should not be speculated upon at this stage.

3. Entitlement to Compensation Money:
Opposing shareholders claimed entitlement to the compensation money payable under the Banking Company Acquisition Act, 1970. The court held that the corporate existence of the petitioner-bank is maintained, and it is entitled to receive compensation. The court cited the decision in *Central Bank of India and Tata Locomotive Co.* and concluded that shareholders are not directly entitled to the compensation money; it is only on winding-up that shareholders can claim compensation pro rata.

4. Ratio of Exchange:
The opposing shareholders argued that the ratio of exchange was unfair. The court held that the shareholders of the petitioner-bank would be allotted one ordinary share of Rs. 5 and one debenture of Rs. 5, which will carry interest. The court found that the exchange ratio was reasonable and fair, considering the future working of the petitioner-company. The court also noted that the terms of the debentures were clearly specified.

5. Explanatory Statements Under Section 393:
The opposing shareholders contended that the explanatory statements were tricky and untrue. The court held that the explanatory statement under section 393 was settled by the Assistant Registrar of Companies and contained all material facts necessary for considering the scheme. The court found no evidence that any shareholders were misled or prejudiced.

6. Power to Amalgamate:
The opposing shareholders argued that the petitioner-bank had no power to amalgamate under its memorandum of association. The court held that the combined effect of clauses (j), (k), (m), and (n) of the memorandum of association of the United Bank of India Ltd. provided sufficient power to amalgamate. The court also cited the decision in *Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd.* and concluded that even if there is no express power in the memorandum, the court can sanction a scheme of amalgamation under section 391 of the Companies Act, 1956.

7. Bona Fides of the Application:
The opposing shareholders questioned the bona fides of the application. The court found that the scheme was approved by the requisite majority of shareholders and that the statutory requirements were duly complied with. The court noted that the objections raised by the opposing shareholders were speculative and not bona fide.

Conclusion:
The court sanctioned the scheme of amalgamation, finding it fair, reasonable, and beneficial to the shareholders. The court directed that all dissenting shareholders of the petitioner No. 1 should be paid for their shares by the petitioner No. 2 at the prevailing rate if they tender their shares with the relative share scrips and transfer deeds duly executed within the specified period. The court also provided directions for the dissolution of the transferor-company and the consolidation of documents with the Registrar of Companies. The parties were ordered to bear their own costs.

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