9911796707
TMI Blog1957 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... is Rs. 11,24,630 consisting of 1,12,463 ordinary shares of Rs. 10 each. The company met with reverses from the very start. The report of the directors to the shareholders of the company for the period ended 31st March, 1946, showed that the manufacture of starch was stopped pursuant to the freezing of the stock of maize in consequence of the decision of the Government. The factory has remained idle ever since and no starch seems to have ever been manufactured by it. In the year 1947, the company decided to instal an oil crushing mill as a subsidiary industry, as it was then believed that the oil industry offered a good scope. The oil mill was put up in 1947 and it appears that on the one hand the starch plant remained idle and so far as the oil crushing activity was concerned the company suffered heavy losses, as is amply clear from the annual balance sheet. According to the report of the directors to the shareholders of the company dated 25th July, 1953, the company had incurred a total loss amounting to Rs. 4,07,403 as appeared from its balance sheet. It was stated: "Taking into consideration the present heavy indebtedness and daily growing losses, the directors of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 in the capital of the transferee company for every ten shares of Rs. 10 fully paid up held by them in the transferor company. Shareholders, holding less than ten shares will be issued coupons of the face value of Rs. 1 for one share held in the transferor company. The transferee company shall issue one fully paid share in exchange of such ten coupons or shall pay Rs. 1 in cash for every coupon at the option of the member. The whole of the undertaking, property and liabilities of the transferor company shall be transferred to the transferee company from the date the scheme is finally sanctioned. By order dated the 4th July, 1956, on the company's application under section 391 of the Companies Act, GURNAM SINGH J. gave directions that a meeting of the members of the company be called on the 25th August, 1956, at the registered office of the company, to consider and if thought fit to pass the proposed scheme of arrangement with or without modifications. Shri Dara Singh, advocate, was to preside at the meeting. On the 31st of August, 1956, Shri Dara Singh submitted his report of the meeting. It appears from his report, that the meeting was held at 9 a.m. and there were present twent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses will be very high. It is contended that if the scheme is sanctioned, the creditors will be paid in full immediately by the transferee company and the shareholders will receive a part of their capital either in the form of shares in a bigger and prosperous company, or in cash. It is denied that the management has been guilty of any act of misfeasance, no facts have been suppressed and the shareholders have been kept in touch with the state of the company's affairs from time to time. The management contends that in order to resuscitate the company, a very large outlay is required, and the plant of the starch factory needs modernisation. Lengthy arguments have been addressed to me by the learned counsel, appearing on behalf of the company, the dissenting shareholders, and by the Deputy Advocate-General, who supported the Registrar's application for winding up of the company. The arguments of Mr. Tuli, appearing on behalf of the company, in brief are that the shareholders at no stage asked for the winding up of the company and Registrar alone has made such an application. The wishes of the majority should be respected and liquidation ought not to be ordered when it is opposed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and submitting true reports. The valuation in the balance sheet was arrived at by the directors of the company, and if they reduced their own figure by fifty per cent. they cannot escape the conclusion that the price which is now being offered to the shareholders under the scheme is grossly unfair. This is especially so because no attempt has been made to get the assets of the company valued, preferably by an expert, who may bring his disinterested and independent judgment to bear on the point. Mr. Tuli desires me to give effect to the wishes of the statutory majority of the members present, representing three-fourths in value and voting at the meeting in person or by proxy. It is true that the court ought not to substitute its discretion for that of the shareholders, who should normally be permitted to manage their own affairs themselves, but it is also to be remembered, that in sanctioning a scheme, the court does not simply register the wishes of the shareholders or the creditors, as the case may be, as expressed in their resolution passing the scheme. It is the duty of the court to examine the scheme and to see whether there has been compliance with the provisions of law. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in point is furnished by this case when the members of the company who have vehemently opposed the sanctioning of the scheme in this court did not even care to attend the meeting either personally, or through proxy, despite the fact, that some of them held very large stakes. The scheme has to be examined by the court with a view to see, whether, it is such as an independent and honest member of the company, while wisely acting in respect of his own interest, can reasonably approve. In Alabama, New Orleans, Texas and Pacific Junction Railway Company In re [1891] 1 Ch. 213 , Lord Justice Fry posed the question which always arises in such cases and answered it thus at page 247: "Under what circumstances is the court to sanction a resolution which has been passed approving of a compromise or arrangement? I shall not attempt to define what elements may enter into the consideration of the court beyond this, that I do not doubt for a moment that the court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s endorsed the above view in John Kennedy Carruth v. Imperial Chemical Industries, Limited [1937] AC 707. The courts in India have followed the principle enunciated in the above cited English authorities, and have subjected the schemes of arrangement to careful scrutiny in accordance with the standards indicated justifying judicial interference. The courts will not shirk their responsibility in the matter, should not relax their vigil and must not content themselves by just registering the resolution passed by the requisite majority. (See Peoples Bank case [1932] 2 Comp. a. 283. In the matter of the Calcutta Industrial Bank, Limited [1948] 18 Comp. Cas. 144 , In re Light of Asia Insurance Co. Ltd AIR 1942 Cal. 578 , Tata Iron and Steel Co. Ltd. In re AIR 1928 Bom. 80 , Serajganj Loan Office Ltd. v. Nil Kantha Lahiri [1935] 5 Comp. Cas. 364 , Lawrence Dawson and Another v. J . Hormasji and Others [1933] 3 Comp. Cas. 57. After giving my anxious consideration to the arguments addressed on behalf of the respective contestants, I will prefer a just, equitable and reasonable scheme of arrangement, whereby the company may be able to exist, and in time, to flourish, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as indicated in the balance sheet of 1956, have been valued by an expert. In view of what I have stated above I pass the following order. A meeting of the members of the Patiala Starch and Chemical Works Ltd.,Rajpura, shall be called for consideration of the scheme of arrangement (annexure 'D') to be held at the registered office of the company at 9 a.m. on the 13th July, 1957, to consider and if thought fit to pass the proposed scheme of arrangement with or without modifications that may be proposed at the meeting. Shri D.N. Awasthy, advocate, shall preside at the meeting and in case he is not willing to act or is not available, then Shri Gomti Parshad, advocate, shall preside at the meeting. Notices of the meeting will be sent to the members, by the chairman, under postal certificates at their registered addresses to be supplied by the company. The notices shall be despatched at least 21 days before the date of the meeting. Notices of the meeting shall also be advertised in "The Tribune", Ambala, and in the official Gazette by one insertion at least 21 days before the date of the meeting. The members who are not able to attend the meeting in person may send in their p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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