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TMI Blog1979 (7) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 100 each. The paid up capital of the company was Rs. 49,00,000 divided into 49,000 equity shares of Rs. 100 each, fully paid up. The principal commercial activity of the company consisted of dealings in a large number of immovable properties belonging to the company. Originally, the company also had a textile mill which was sold some time before the commencement of the winding-up proceedings against the company. By an order made by this court on 7th October, 1969, the company was ordered to be wound up under the provisions of the Companies Act, 1956, and the official liquidator was appointed the liquidator of the company. In the course of winding up, the official liquidator has disposed of several immovable properties belonging to the company and has realised large amounts. Out of the amounts so realised, all the creditors of the company have been paid in full. All the shareholders of the company have also received full repayment of their share capital of Rs. 100 per share in respect of the shares held by them in the company. They have, in addition, received a sum of Rs. 40 per share as a dividend out of the surplus lying in the hands of the official liquidator. There are about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion to the number of old shares held by each of them. Various other provisions of the original scheme are as set out in the application. When the application for placing the scheme for the consideration of the shareholders came up for hearing, it was opposed by the official liquidator. Ultimately, by an order dated 16th October, 1971, directions were given for convening a meeting of the shareholders of the company for considering, with or without modifications, the proposed scheme or arrangement. An appeal from this order was filed by the official liquidator. However, subsequently, it was withdrawn by him. In pursuance of the order, a meeting of the shareholders of the company was duly convened on 20th January, 1979, after notice to the shareholders. As the petitioners were proposing certain amendments to the scheme for the consideration of the shareholders, the petitioners had given a notice under certificate of posting to every individual shareholder of the proposed amendments prior to the convening of the meeting of the shareholders. At the meeting, 95 shareholders holding a total number of 30,675 shares out of a total of 49,000 shares were present; that is to say, sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in other cases must be complied with". In the present case, Mr. Divan argues, as the procedure required for a reduction of share capital is not followed by the company, the scheme cannot be sanctioned. Before this aspect can be examined, it is necessary to consider, in the first place, whether the scheme involves any reduction of share capital. Under the existing memorandum and articles of association of the company, the authorised capital is rupees one crore divided into one lakh shares of Rs. 100 each, out of which 49,000 shares of Rs. 100 each are issued, subscribed and fully paid-up. Under the scheme, the issued and subscribed capital of the company is Rs. 4,90,000 divided into 49,000 equity shares of the face value of Rs. 10 each. Hence, prima facie, it does appear that the scheme results in a reduction of share capital. However, in the present case, in the course of winding-up, the official liquidator has repaid to each of the shareholders the full face value of his shares. In addition, he has paid Rs. 40 per share as a dividend. He has also discharged all the liabilities of the company. What remains in his hands today is surplus assets. Out of this surplus fund, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he creditors were not affected, where 21 days' notice had been given of the proposed scheme to the members of the company and where the scheme was approved at a meeting held for the purpose by more than three-fourths of the members present and voting, the provisions of the Companies Act pertaining to reduction of share capital were substantially complied with. In respect of section 100 which requires a special resolution to be passed for the reduction of share capital, he further held that the notice calling the general meeting need not specify the resolution as a special resolution. He held that the provision under the Companies Act for such notice is merely a directory provision and not a mandatory provision. The court should, therefore, ascertain in such cases whether sections 100 to 102 of the Companies Act are substantially complied with. In the above case, the rights of the creditors were not affected by the scheme. Hence, the provisions laid down in sections 100 to 102 for the protection of the creditors did not require any consideration. In the present case also, there are no creditors of the company. The procedure under the Companies Act pertaining to reduction of share ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f for each of them it is established either that he has been paid in full, or that satisfactory provision for him to be paid in full has been or will be made, or else that he consents to the stay or is otherwise bound not to object to it......Third, there are the members of the company. No question of satisfying them by immediate payment of all that they are entitled to can very well arise; for, unlike the creditors, with their ascertained or ascertainable debts, the rights of the members cannot be quantified until the liquidation is complete. Accordingly, in normal circumstances I think that no stay should be granted unless each member either consents to it, or is otherwise bound not to object to it, or else there is secured to him the right to receive all that he would have received had the winding up proceeded to its conclusion. Each member has a right of a proprietary nature to share in the surplus assets, and each should be protected against the destruction of that right without good cause". The official liquidator strongly relies on these observations which lay down that no stay of winding up should be granted unless each member either consents to it, or is otherwise bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the requisite majority, then it becomes binding on all the members of the company, irrespective of the question whether they have expressly consented to it or not. Hence, under section 391 of the Companies Act, it is not necessary for the court to ascertain whether all the members of a company have expressly consented to the scheme. Under the section, once the scheme is passed by the requisite majority, all the members become bound by it. In this connection, a reference may be made to In re Trix Ltd. reported in [1,970] 3 All ER 397 (Ch. D), which makes a clear distinction between a stay of winding up under section 245 of the English Companies Act (equivalent to section 466 of the Companies Act, 1956) and a stay under a scheme of arrangement framed under section 206 of the English Act (equivalent to section 391 of the Indian Act). While the former requires express consent of all shareholders, the latter provides for a meeting of the shareholders and creditors which is required to approve of the scheme by a prescribed majority. On such approval the scheme becomes binding on all the shareholders or creditors, as the case may be. In the case of S . K. Gupta v. K. P. Jain r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the meeting of the shareholders. In clause 12 of the explanatory statement, the petitioners have stated that they have already obtained a project profile for the manufacture of sodium bichromate and basic chrome sulphate. They have gone on to mention that in carrying out the above project or any other business, the company will be embarking upon a profitable venture and if the members approve of the proposed business, the necessary amendments of the objects clause in the memorandum of association will have to be obtained. Under the existing memorandum of association, the company does not have any power to carry on business of manufacturing chemicals. The official liquidator has, therefore, pointed out that the scheme is based on the company embarking upon business which is ultra vires the memorandum and articles of association of the company, and hence also the scheme should not be sanctioned. By sanctioning such a scheme, he has pointed out, the court will give its sanction to the company doing something which is ultra vires . Now, broadly speaking, it would be correct to say that a scheme which propounds doing something which is ultra vires the powers of the company cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change: Under the amended clause 7A of the scheme of compromise, it is provided as follows: "7A. The company will carry on the business of dealing in immovable properties in accordance with the objects set out in the memorandum of association. Before carrying out any other nature of business (whether indicated in the explanatory statement or otherwise) the company will act in accordance with the provisions of the Companies Act and if necessary will take steps for amendment of the memorandum of association of the company in accordance with law". The clause, therefore, contemplates that the company will continue to carry on the business which it was doing prior to the winding up, namely, dealing in immovable properties, and that, in the event of the company desiring to carry on any other business, it would act in accordance with the provisions of the Companies Act and, if necessary, would take steps to amend the memorandum of association in accordance with law This clause, therefore, cannot be said to contemplate something which is ultra vires either the memorandum of association of the company or the provisions of the Companies Act. Once the company is reconstituted, it will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r today are admittedly to the tune of at least Rs. 29 lakhs. As against this, there are 49,000 issued shares of the company. Hence, the value per share would come to about Rs. 58. Even after deducting the expenses of realisation, taxes, etc ., the value of the share would come to substantially more than Rs. 40. Mr. Parekh, who appears for the petitioners, has fairly conceded this point and has agreed to the alteration of clauses 3A to 3C of the scheme as per the draft handed in by him, under which shares of the dissident shareholders are to be purchased by Mr. Sudarshan Loyalka, who is a director of the Vasant Investment Corporation, the petitioners herein, holding a substantial number of shares in the company. Under the altered clauses the price to be paid to the shareholders is raised to Rs. 50 per share, and there is also a guarantee given by the petitioners herein, viz ., Vasant Investment Corporation, for payment of the purchase price by Mr. Sudarshan Loyalka. In addition, a sum of Rs. 1 lakh is being deposited by Vasant Investment Corporation as security for the performance of its obligations under the clauses. The amount will also be paid to the shareholder forthwith. In m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or or the official receiver to apply within three months to remove the stay. In re Baxters Ltd., [1898] W. N. 60 June 17. Wright J". Mr. Parekh appearing on behalf of the petitioners has, however, drawn my attention to the order passed in Hathising Manufacturing Co. Ltd., In re , reported in [1976] 46 Comp. Cas. 59 at p. 86 (Guj.), in which D. A. Desai J. (as he then was) of the Gujarat High Court has held that in a case where under a scheme of arrangement a company is reconstituted, an order can be passed cancelling the winding up from the date of the order sanctioning the scheme. In the present case, the company was originally wound up on the ground that it was just and equitable that it should be wound up. The persons who were in charge of the management of the company at that time were also under a cloud, though misfeasance proceedings taken against them have not been successful. The company today is being handed over to the original shareholders of the company, as it must be. In such a case, it would be preferable to stay the winding up proceedings permanently instead of cancelling the order of winding up. This appears to be a well-established practice. In substance, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in accordance with the provisions of the Companies Act, 1956, so as to correctly reflect the capital structure of the company. But there is no discussion on this aspect of the matter in the above case. In my view, it is open to the court while sanctioning the scheme under section 391, to make an order whereby the memorandum and articles of association of the company stand amended to reflect the new capital structure of the company, provided no reduction of share capital is involved. The petitioners wish to make certain other minor alterations in the scheme as per the draft handed in. They do not affect the substance of the scheme in any way. It should also be noted that the company has no creditors, and hence the question of taking their interest into account in sanctioning the scheme does not arise. Accordingly, the scheme at Ex. I, as altered by the draft modifications, is sanctioned, save and except that, under clause 6, the order of winding up is not rescinded but all further proceedings in winding up are permanently stayed and the company is taken out of liquidation. The scheme should be annexed to this judgment. The official liquidator to file with the Registrar of Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital of the company; ( ii ) each such new share of Rs. 10 each shall be deemed to have been issued and allotted to each of the members of the company in the proportion of the number of old shares held by each of such members; and ( iii ) the balance of the assets of the company after capitalisation of the sum of Rs. 4,90,000 as aforesaid will be held by the company as its assets subject to the provisions contained in para. 3A. 3A. ( a )In the event of any shareholder of the company giving a notice within the time mentioned hereinafter that such shareholder does not want to retain the shares of the company under paragraph 3 above, in that event such shareholder shall be entitled to sell to Sudarshan Loyalka and Sudarshan Loyalka shall be bound to buy from such shareholder the shares of such shareholder at or for the price of Rs. 50 per share payable against delivery by the shareholder giving notice of the share certificates or the letter of authority together with the transfer forms duly signed by the transferor. Vasant Investment Corporation Ltd. guarantees payment of the purchase price by the said Sudharshan Loyalka to the shareholders giving notice for sale of their shares. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company shall be entitled to all its properties and claims as existing on that date and shall also be liable for all its obligations and liabilities as existing on that date. 9.The official liquidator shall, after deducting his costs, charges and expenses, hand over to: ( i )Mr. Rusi Sethna (solicitor) and ( ii )Mr. Sunderlal Saraf (chartered accountant) for and on behalf of the company (and/or its new management) the entire undertaking of the company including all its properties, immovable, movable and cash and all books of account, documents, papers and vouchers. Upon the official liquidator doing so he shall stand discharged as liquidator of the company. 10.Within a period of 3 months from the date the said Shri Rusi Sethna and Sunderlal Saraf receive the charge of the property and records of the company from the official liquidator, the company will issue a notice convening an extraordinary general meeting of the shareholders of the company for the purpose of electing the directors of the company and containing such other business as the said Rusi Sethna and Sunderlal Saraf may deem proper. Thereafter the said Rusi Sethna and the said Sunderlal Saraf will hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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