9911796707
TMI Blog1999 (12) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sub-Divisional Officer of the concerned area, New Delhi to the petitioner directing the latter to deposit a sum of Rs. 2,04,48,000 in the account of the U.P. State Industrial Development Corporation by 14-10-1998 annexed as annexures 1, 2 and 3 respectively. 2. The minimal facts necessary to shed light on the controversy involved herein may be set out and they are that the U.P. State Industrial Corporation (in short the Corporation ) having obtained a letter of intent from the Government of India to establish a plant for manufacture of 2000 tons per annum of Polyester film, decided that the aforesaid letter of intent be used and implemented in collaboration with the petitioner-company and for this purpose the Corporation and the petitioner-Company, both entered into a joint venture agreement on 27-8-1981 to promote a Company with the name and style of Flowmore Polyester Ltd. Pursuant to the said agreement, the Flowmore Polyester Ltd. company was formed and registered under and in accordance with the provisions of the Companies Act, 1956. The authorised capital of the Company was Rs. 4 crores out of which initial 10 per cent was to be subscribed by the Corporation, 30 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Flowmore Polyester Ltd. plus interest calculated till 31-12-1997 @ 15% per annum from the date of subscription which was recoverable as arrears of land revenue as per agreement between the parties. The case of the petitioner on the other hand is that the Flowmore Polyester Ltd. ran into financial quicksand and degenerated into a sick Company sometime in 1991 and the matter was referred to the Board of Industrial Financial Reconstruction (the BIFR ) that declared the company sick and commenced the process of rehabilitation and ultimately sanctioned a scheme of rehabilitation by merger/amalgamation of the sick company with S.R.F. Ltd. in short the transferee company which is said to be one of the premier manufactures of Nylon Tyre cord in the country and, in the circumstances, the petitioner stood discharged of its obligation under the contract by doctrine of frustration. 3. We have heard Sri V.B. Upadhyay, learned Senior Advocate assisted by Sri Anurag Khanna for the petitioner and Sri R. N. Singh the learned Senior Advocate assisted by Sri S.P. Singh for the respondent-Corpora- tion, Sri S.P. Gupta, Senior Advocate too had, at the initial stage of hearing entered appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re shares in a Company jointly, they shall, for the purpose of this definition be treated as a single member." 5. A Company whether it is a public company or a Private Company , can be dissolved with or without winding up. As a matter of fact, winding up is one of the means by which dissolution of a company is brought about and its assets realised and applied in payment of its debts and after satisfaction of the debts, the balance, if any, is paid back to the members in proportion of their contribution made by them to the capital of the company. During the winding up proceedings, the company retains its existence though the administration of its affairs has passed to the liquidator but in the case of amalgamation of a company with another company under a scheme sanctioned by the BIFR the former company stands dissolved with effect from the transfer date fixed by the order of the BIFR. Just as a Company may be dissolved by an order of the Court without going through the process of winding up under a scheme of amalgamation as visualised by section 394(1)( iv ) of the Companies Act, 1955, the same result may be achieved by amalgamation under the scheme sanctioned by the BIFR un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1992] 73 Comp. Cas. 168 (Mad.) reliance on which was placed by Sri R. N. Singh, is not an authority on the point that the juristic personality of a Company cannot be lost except on the basis of an order under section 481 of the Companies Act, 1956 dissolving the company. Rather, it is an authority on the point that a company under liquidation continues to exist as a juristic personality until an order under section 481 of the Companies Act, 1956 dissolving the Company is made by the competent Court, for the Madras High Court in that case was confronted with the question as to legal status of a company under liquidation. It was not called upon to decide the question as to whether a company can be dissolved without winding up. As observed hereinabove, section 394(1)( iv ) furnishes an example of dissolution of a company without winding up. We are of the view that what is achieved by an order under section 394(1)( iv ) can be achieved also by an order of amalgamation/merger of a company in with the another company under a scheme sanctioned by the BIFR. The Full Bench decision of the Kerala High Court in Mathew Philip v. Maligaram Plantations (India) Ltd. [1994] 81 Comp. Cas. 38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that it is intended to include such acquisition, See Halsbury Laws of England, 4th Ed., Vol. VII, Para 1539. The two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is dissolved into one or blended with another; the amalgamated company loses its entity. " [Emphasis supplied] (p. 72) And further, ". . . The High Court was in error in holding that even after amalgamation of two companies, the transferor company did not become non-existent instead it continued its entity in a blended form with the appellant-company. The High Court s view that on amalgamation, there is no complete destruction of corporate personality of the transferor company. Instead there is a blending of corporate personality of one with another corporate body and it continues, as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the term of the scheme of merger but there can be any (no?) doubt that when two companies amalgamate or merge into one, the transferor company loses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a contract which becomes impossible of performance under section 56 of the Contract Act, 1872. The principles laid down therein per majority are these "(1) an arbitration clause is a collateral term of a contract as the definition from its substantive terms; but nevertheless it is an integral part of it; (2) however comprehensive the terms of arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio ; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing the rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for alongwith the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two fall many categories or disputes in connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is really a positive rule enacted in section 56 which governs such situations. [Emphasis supplied] (p. 527) In Damodar Valley Corporation v. K.K. Kar AIR 1974 SC 158, it has been held as under : ". . . As the contract is an outcome of the agreement between the parties, it is equally open to the parties thereto to agree to bring it to an end or to treat it as if it never existed. It may also be open to the parties to terminate the previous contract and substitute in its place a new contract or alter original contract in such a way that it cannot subsist. In all these cases, since the entire contract is put an end to, the arbitration clause, which is a part of it also, perishes along with it. Section 62 of the Contract Act incorporates this principle when it provides that if the parties to a contract agree to substitute a new contract or rescind or alter it, the original contract need not be performed. Where, therefore, the dispute between the parties is that the contract itself does not subsist either as a result of its being substituted by a new contract or by recession or alteration that dispute cannot be referred to the Arbitration as the arbitration clause itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd issued in its favour by the Transferee Company in lieu of shares held by the Corporation in the Transferor Company (FPL). Admittedly, the Corporation has been allotted and issued 66,665 equity shares of SRF ( sic ) Ltd., in lieu of the shares held by the Corporation in transferor company (FPL). Relations between the contesting parties are now governed by the sanctioned scheme of amalgamation which does not make it obligatory for the petitioner to purchase the entire shares of the Corporation allotted by the transferee company in lieu of the shares held by the Corporation in the transferor company (FPL) and compensate the loss, if any. In fact, it has not been argued for the Corporation that the petitioner is bound to purchase the shareholdings of the Corporation in SRF Ltd. allotted in lieu of the shares held by the Corporation in Flowmore Polyester Ltd. and pay the damages if any to be measured in terms of the difference between the price of its shares in FPL and that of the equivalent shares issued and allotted by SRF Ltd. 11. The question as to discharge by doctrine of frustration may also be considered from another angle. Share , as the term is defined in section 2( 46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the register alone is entitled to receive the dividends, notwithstanding that he has already parted with his interest in the shares." 12. The transfer of shares is the voluntary conveyance of the rights and, possibly, the duties of a member, as represented in a share in a company, from share-holder who wishes to cease to be a member to a person desirous of becoming a member . - Palmer s Company Law, 23rd Edn., by C.M. Schmithoff, p. 468. It would thus be evident that share in a company pre-supposes existence of the Company and its share capital. On the amalgamation of Flowmore Polyester Limited with S.R.F. Ltd., the former ceased to exist as a company and the entire undertaking including all the assets of the transferor company as on transfer date stood transferred to the transferee company and as visualised in clause ( vii )( iv ) of the sanctioned Scheme of Amalgamation upon the new equity share being issued and allotted by the transferee company to the transferor company, the share certificates in respect of equity shares held in the transferor company stood cancelled. 13. Under the said scheme, the members of the transferor company were required to surrender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by SRF Ltd. Subse- quent impossibility would not impinge upon the rights acquired and liabilities already incurred prior to occurrence of the event making the performance of any part of the contract impossible nor will it affect the arbitration clause of the Agreement if it is sought to be invoked in respect of any right acquired or liability incurred prior to the effective date. In Re-Question No. 4 15. According to section 3(1)( a ) of the U.P. Public Moneys (Recovery of Dues) Act, 1972, where any person is a party to any agreement providing that any money payable to the State Government or the Corporation shall be recoverable as arrears of land revenue and such person ( i ) makes any default in repayment of the loan or advance or any instalment thereof, or ( ii ) having become liable under the conditions of the grant to refund the grant or any portion thereof, makes any default in the refund of such grantor portion or any instalment thereof; or ( iii ) otherwise fails to comply with the terms of the agreement; then in the case of the State Government, such officers as may be authorised in that behalf by the State Government by notification in the Official Gazette, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substituted by clause 5 of Supplementary Agreement No. 3 visualised that notwithstanding anything contained in clause 7( e ) if the petitioner on being so required, failed to purchase the shares held by the Corporation on the price specified in clause 7( d ), the Corporation shall be entitled to transfer its shareholding in the Company to any third party as the losses occasioned and damages caused by such sale and also damages for breach of agreement, shall be recoverable from the collaborator without recourse to a Court of law. The difference between the prices fixed by the Corporation in the amount received if any by the Corporation as price from the outsiders, shall apart from any other made of recovery be also recoverable by the Corporation as arrears of land revenue under the provisions of the U.P. Public Moneys (Recovery of Dues) Act, 1972 . It would thus be evident from sub-clauses ( f ) and ( g ) of Clause 7 of the Agreement that what is recoverable is the losses occasioned and damages caused by such sale and also damages for breach of agreement . Accordingly, we are of the view that recourse can be taken to the provisions of the U.P. Public Moneys (Recovery of Dues) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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