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TMI Blog2000 (12) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... otice was required to be issued to the Central Government at the time the Judges Summons are taken out under sub-section (1) of section 391 for holding meetings of the creditors and the shareholders. The view expressed by Sabharwal, J. in Jindal (India) Ltd. s case ( supra ) was not placed before P.K. Bahri, J. 3. The applicant company filed application under sections 391(1) and 393 of the Act praying for issuing necessary direction regarding holding of meeting of equity shareholders and creditors of the applicant companies. A question arose whether at this stage notice of the application should or should not be given to the Central Government in view of section 394A. Sections 391 and 393 read : "391. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed ( a )between a company and its creditors or any class of them; or ( b )between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under this section to the Court empowered to hear appeals from the decisions of that Court, or if more than one Court is so empowered, to the Court of inferior jurisdiction. The provisions of sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application. 393. Information as to compromises or arrangements with creditors and members. (1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391, ( a )with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing director, or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and in so far as, it is different from the effect on the like interests of other persons; and ( b )in every notice calling the meeting which is given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections." 5. After section 394A became a part of the Statute, similar question for the first time arose before the Calcutta High Court. The learned Single Judge of that Court in the matter of Bangeshwari Cotton Mills Ltd., In re [1967] 37 Comp. Cas. 195 held that notice to the Central Government is not required to be given of the first application for convening meeting under sub-section (1) of section 391. Notice as envisaged under section 394A is meant to be issued only when any final order is passed under sub-section (2) of section 391 for sanctioning the compromise or arrangement. This view was followed by learned Single Judge of Madras High Court in W.A. Beardsell Co. (P.) Ltd., In re [1968] 38 Comp. Cas. 197 . It was held that notice to the Central Government need not be given at the initial stage before the Court makes the order on an application under sub-section (1) of section 391 calling for a meeting of the creditors or of the members of the company. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment to comply with the provisions of section 394A, the petitioner s right to move the Court ex parte would be completely taken away. The purpose of notice under section 394A was only to enable the Central Government to study the proposal for a compromise or arrangement and raise such objection thereto as it thinks fit to the proposal for compromise or arrangement. Such a proposal for compromise or arrangement does not take final shape till it has been passed by the meeting or meetings of creditors and members. Only when final proposal is brought before the Court for its sanction, the Court has to give notice to the Central Government and to hear its representations, if any. Thus the words any order used in section 394A must be construed to mean any final order and not every order and consequently, the words every application means application under sub-section (2) of section 391 or section 394. It will not include applications under sub-section (1) of section 391 or sub-section (6) of section 391. 9. In W.A. Beardsell Co. (P.) Ltd. s case ( supra ) question of issuance of notice at the initial stage arose because of the objection taken on behalf of the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application before the Court and terminates in an order under sub-section (1) of section 391 before another stage or proceeding under sub-section (2) of section 391 is commenced and is terminated. Central Government may be interested in drawing the attention of the Court to certain matters, which may make the holding of the proposed meeting or meetings necessary or unnecessary. Central Government may point out that there is no need for holding of meeting of the shareholders or creditors for deciding whether amalgamation should take place or not or whether it is essential in public interest that an amalgamation should take place. 11. Y.K. Sabharwal, J. in Jindal (India) Ltd. s case ( supra ) followed the literal interpretation as adopted in Hind Auto Industries Ltd. s case ( supra ) holding that the provisions of section 394A are unambiguous and clear. Its plain reading requires a notice of every application, which would include an application under sub-section (1) of section 391 also. 12. We have given our considered thought to the various decisions and we are inclined to agree with the view expressed in Bangeshwari Cotton Mills Ltd. s case ( supra ), and in W.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ton Mills Ltd. s case ( supra ) after quoting note on clause 50 only for the limited purpose of ascertaining the conditions prevailing at the time, which actuated the sponsor of the Bill to introduce the same and the extent of the evil, which was sought to remedied also made reference to para 46 of the Report of the Commission on Inquiry on the Administration of Dalmia-Jain Companies, relevant portion of which reads : " Section 400 of the Companies Act should be suitably amended to provide for issue of notice to, and consideration of the representations, if any, submitted by the Central Government, by the court before it passes the final orders on an application made to it under sections 391 to 394. " (p. 200) 16. After quoting the aforementioned portion of paragraph 47 of the Report on Commission of Inquiry, it was observed that section 400 of the Companies provides for notice to the Central Government of applications under sections 397 and 398. Instead of amending this section to include applications under section 391 or 394, Parliament, it appears, has enacted new section 394A. It was further observed that as this provision was based on para 46 of the Commission s Report ..... X X X X Extracts X X X X X X X X Extracts X X X X
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