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TMI Blog1971 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd., acquired was the right to receive Rs. 1470 crores as compensation. The Bank of India Ltd. received that compensation in the form of 5 % Banks (Acquisition and Transfer) Compensation Bonds, 1999, of the face value of Rs. 14,68,50,000 and a Government promissory note of the face value of Rs. 1,29,200 which, together with certain cash adjustment, made up the said sum of Rs. 1470 crores. The board of directors of the said bank thereafter considered the various courses open to it for utilisation of the company's funds, and, after negotiations with the respondent-company, arrived at a mutually agreed scheme, the broad outlines of which were announced at the annual general meeting of the Bank of India Ltd. on the 29th of September, 1970. On the 29th of January, 1971, an agreement was entered into between the Bank of India Ltd. (hereinafter referred to as "the transferor company") and the Ahmedabad Manufacturing Calico Printing Company Ltd. (hereinafter referred to as "the transferee company") whereby, subject to the sanction of the court under sections 391 and 394 of the Companies Act and the other requisite formalities being complied with, the transferee company agreed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vijendra Devidas. Of these three parties who opposed the petition, Vijendra Devidas withdrew his opposition to the petition, on Mr. Sorabjee agreeing not to press for costs against him and his opposition, therefore, need not be dealt with by me. As far as the new Bank of India was concerned, its opposition was only founded on the provisions of section 5 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which provided that the said Act was not to be effective to vest foreign assets in the new bank and nothing in the said Act was to be construed as applying to those assets if, under the law in force in a foreign country, it was not permissible for a banking company owned or controlled by the Government to carry on the business of banking in that country. In the course of the hearing before me, however, the transferor company agreed to certain amendments in the scheme and also agreed to a modification in the order sought from this court and, as a result of these amendments and that modification, which were agreed to be incorporated, the new Bank of India also withdrew its opposition to the scheme. That leaves for my consideration only the opposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n investment business or rendering any form of service to its members. In my opinion, therefore, the judgment of the Division Bench in Appeals Nos. 33 and 34 of 1971 1 cannot be distinguished on facts, and the view taken therein is binding upon me. As far as this court is concerned, therefore, the point raised by Mr. Advani under the Monopolies and Restrictive Trade Practices Act, 1969, must be rejected. That leaves for my consideration only one question and that is whether, in a case in which under a scheme the whole or any part of the undertaking, property and liabilities of a company are transferred to another company, an application by the transferee company under sections 391 and 394 of the Companies Act to the appropriate court is also necessary. The policy of the law, both in England {Pennington's Company Law, 2nd edition, page 439) as well as in this country has been to allow companies the greatest freedom in devising schemes to meet their requirements, subject of course to certain statutory safeguards. I must, therefore, proceed to consider the relevant statutory provisions in our country with which I am concerned in the present case. Those provisions are to be found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its meaning as a matter of plain language and to the context in which it is used in Chapter V of the Companies Act. The word "arrange" has, as one of its meanings, in the Shorter Oxford Dictionary, 3rd edition, "to come to an agreement or understanding", and the word "arrangement" has, as its primary meaning, "the action of arranging ". As a matter of plain language it would, therefore, follow that the term "arrangement" means any agreement or understanding between the parties concerned. Section 391(1), however, in my opinion, somewhat restricts this otherwise unlimited import of the term "arrangement" in so far as the said section applies only to an agreement or understanding between the company and its creditors or any class of them, or between the company and its members or any class of them, which would necessarily mean that it must be an agreement or understanding which affects their rights. Viewed in this context, it is not surprising that section 390( b ) includes, ex majore cautela, a reorganisation of share capital within the definition of the term "arrangement", because that must necessarily affect the rights of the members. Having considered in the preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny are three-fold : (1)In the case of the transferee company there would be no question of any arrangement between the company and its members, since what is done is merely to buy over certain assets; (2)English practice does not warrant any application by the transferee company; and (3)The definition of the term 'company' in section 390( a ) as interpreted by this court in Seksaria Cotton Mills Ltd. v. A.E. Naik [1967] 37 Comp. Cas. 656; 68 Bom. LR 505, 508, 509 (Bom.) , shows that section 391 cannot apply to a company which is in a sound financial condition, and cannot therefore apply to a transferee company. I will now proceed to deal with each of these three arguments of Mr. Sorabjee. Dealing with his first argument, in my opinion, in the case of the transfer of its undertaking, property and liabilities by one company to another, the transaction may or may not affect the rights of its members or creditors. If, however, it does affect the rights of its members or creditors, either because it involved a reorganisation of its share capital or otherwise, it would certainly fall within the term "arrangement" and, in that event, proceedings by the transferee company in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme in the present case is one which would affect the rights as between the transferee company and its members, or as between the transferee company and its creditors, or any class of them. It has not been disputed that, in order to carry out the scheme in the present case, the transferee company would be required to issue a new type of equity shares not hitherto issued. Though section 2(12) of the Companies Act defines the term "debenture" as including "bonds", and the convertible bonds as well as the redeemable bonds which the shareholders of the transferee company are to receive, would, therefore, be debentures, it is also not disputed that these would be new issues, in so far as the transferee company has not issued till now 8% convertible bonds of Rs. 100, or 8% redeemable bonds of Rs. 116. I have, therefore, no hesitation in coming to the conclusion that, having regard to the facts of the present case, the scheme of transfer of the undertaking, properties and liabilities of the transferor company would necessarily affect the rights as between the transferee company and its members, and also as between the transferee company and its creditors who, as Mr. Advani has pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme to receive only 25% of the amount of sales tax found to be due to it. The respondents contended that the sales-tax department did not become a creditor till the orders of assessment were passed subsequent to the sanctioning of that scheme of reconstruction, and that the mere fact that notices had been served prior thereto did not make them creditors so as to be bound by the scheme. It was in that context that Tarkunde J. proceeded to consider the scope and applicability of section 391 of the Companies Act, and, in doing so, observed that the said section could not apply to a company which was in a sound financial condition. With respect to the learned judge, it was sufficient for him to take the view that, in the case of a company which was not in a sound financial condition, a scheme is an alternative mode of winding-up and the word "creditor" in section 391 should, therefore, have the same wide meaning as in liquidation proceedings. It was not at all necessary for him to go further and state that section 391 cannot apply to a company which is in a sound financial condition. His observation to that effect is, in my opinion, therefore, nothing more than an obiter dictum a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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