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TMI Blog2004 (3) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... l the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company." 3. Company Petition No. 138 of 2003 is a petition under sections 391(2) and 394 of the Act for sanctioning the scheme of amalgamation of companies : namely, Swift Formulations Private Limited and Mukur Pharmaceuticals Company Private Limited, with another company; namely, Ind-Swift Limited. 4. As per the provisions of sub-section (2) of section 391 of the Act, a majority in number representing three-fourth in value of the creditors/shareholders present and voting at the meeting, has to agree to this arrangement. In this case, the meetings of unsecured creditors/shareholders of the transferee-company were held on 22-4-2003. The meeting of unsecured creditors was attended by 17 creditors representing credit of the value of Rs. 15,48,77,556. The total value of unsecured creditors of this company is Rs. 27,19,01,000. The arrangement was unanimously approved. Similarly, in the meeting of the shareholders, 38 shareholders representing shares of the value of Rs. 1,25,17,560 were present at the meeting. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions in the meetings of the companies are taken by a simple majority of those who attend such meetings but when a company proposes to enter into a compromise or arrangement which is likely to affect the interest of all the creditors/shareholders, their interest needs to be safeguarded. It is for this purpose that a larger majority is required to approve such a compromise or arrangement as per sub-section (2) of section 391 of the Act. ( ii )A plain reading of this provision clearly shows that an arrangement requires approval of the majority in the following manner ( a )it must be approved by majority in number of the persons present and voting either in person or, where the proxies are allowed, by proxy; ( b )the above majority in number must also represent three-fourth in the value of creditors/shareholders present and voting. The above provision nowhere provides that the majority in number should represent three-fourth of the "total value" of creditors/ shareholders. If such an interpretation was to be made, the words "present and voting" would become redundant. ( iii )Under the old Indian Companies Act, 1913 the provision corresponding to sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total class." The provisions of sub-section (2) of section 391 of the Act are in pari materia with the above provision under the English law and, thus, the base for determining the three-fourth value has to be the value of shares/credits held by the members who are present and voting at the meeting and not the total value of the shares/credits of the company. ( v )The Companies Act, 1948 was superseded by the Companies Act, 1985, wherein an identical provision was made in sub-section (2) of section 425, which reads as under: "(2) If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement, if sanctioned by the Court, is binding on all creditors or the class of creditors or on the members or class of members (as the case may be), and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company." In this provision again, the three-fourth value is required to be calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because they do not muster three-fourths in value. Conversely, that shareholder and 49 of the others could not force a scheme against the votes of the remaining 50 because there would not be a majority in number. The same principle applies to creditors. It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored. However, this is not the whole requirement, because in addition the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether 1,000 shareholders holding 10,000 shares in all, the Courts would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 100 shares in all were present and voted". [Emphasis supplied] ( viii )In Gower s Principles of Modern Company Law (Sixth Edition) (at page 585) the scope and meaning of the concept of "majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting" has been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., In re 1 Ch. D 251, wherein identical provisions of the English law have been interpreted as under: "The only question is, whether the agreement has been approved by the proper number of creditors required by the Act. The 2nd section of the Act provided that the meeting of the company s creditors may approve and sanction the agreement: If a majority in number representing three-fourths in value of such creditors, or class of creditors, present either in person or by proxy at such meeting, shall agree to the arrangement or compromise, and the agreement or compromise shall, if sanctioned by an order of the Court, be binding on all such creditors or class of creditors (as the case might be), and also on the liquidators and contributories of the company. The question, therefore, is whether the majority representing three fourths in value is to be the majority of all the creditors, in which case the 120,002 does not constitute three-fourths of 170,000 or the majority representing that value of the creditors present at the meeting? In the latter case, all the creditors but one, for a very small amount, approved the agreement. We say that the clause in the Act is satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o voting in the eye of law. Thus, it was held that "the proper construction to be placed in calculating whether any resolution is approved or passed by a three-fourth majority present and voting necessarily mean the value of the valid votes and out of the same whether the resolution has been passed with three-fourths majority." The learned counsel pointed out that the value of the votes in favour of the arrangement was Rs. 1,83,39,59,275, which was not three-fourth of Rs. 2,53,36,43,491, i.e., the value represented by the 18 creditors who were present in the meeting. This clearly shows that the base value for computation was only in respect of the creditors who were not only present but who had cast a valid vote. ( xi )Before the Bombay High Court in Vasant Investment Corpn. Ltd. v. Official Liquidator, Colaba Land Mill Co. Ltd. [1981] 51 Comp. Cas. 20 the scheme was unanimously approved at a meeting of shareholders where 95 shareholders holding a total number of 30,675 shares out of a total of 49,000 shares, were present. Thus, these 95 shareholders represented approximately 62 per cent of the shares of the company. The contention of the Official Liquidator that since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an agreement between the parties but has statutory force and is binding not only on the company but even dissenting creditors or members as the case may be. The effect of the sanctioned scheme is to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity [ See J.K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. [1969] 2 SCR 866, 891 : [1970] 40 Comp. Cas. 689 (SC)]." ( xii )From the facts of this case, it is evident that three-fourth majority envisaged under section 391(2) of the Act has to be of the value of the creditors present and voting and not of the total value of the creditors. The Madras High Court in Nods Worldwide Ltd., In re [2002] 109 Comp. Cas. 891 where also, the arrangement was approved in a meeting which was attended by 66 out of total of 300 shareholders, who represented 46.21 per cent of the paid up capital of the transferee-company, it was held that the requirement of section 391 of the Act stood complied with. At page 896, it has been observed as under: "...Those who attended the meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to Article 169 of the Constitution wherein, for the purposes of abolition or creation of Legislative Councils in the States, similar majority has been prescribed. The scope and meaning of the expression "present and voting" in this context had come up for consideration before the Madras High Court in D. Jayaraman v. Government of Tamil Nadu AIR 1987 Mad. 215. On 13-5-1986, a Government Resolution was moved in the Legislative Assembly for abolition of the Legislative Council which came up for discussion on the very next day i.e. 14-5-1986. The members present in the House on that date were 222. However, before the voting took place, 60 members belonging to Congress (I) and one G.K.N.C. member withdrew from the House. The Resolution was passed with 136 votes in favour and 25 votes against it. The question for consideration was as to whether 136 votes constituted "two-thirds of the members of the Assembly present and voting." The Madras High Court held that "by a plain reading of the article, the words present and voting occurring in Article 169(1) would mean only those who were physically present and voting. It will not include those who withdrew from the House at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meeting. However, since the decision required to be taken under sub-section (2) of section 391 of the Act is of far reaching cones- quences and affects the rights of all the creditors/shareholders, a second safeguard has been provided. In other words, the resolution has to be passed not only by a majority in number of the persons present and voting but additionally such majority must represent three-fourth of the value of shares/credits held by the persons present and voting. He pointed out that in the corresponding provision of sub-section (2) of section 153 of the Indian Companies Act, 1913 (which has already been reproduced in the earlier part of this judgment), the requirement of three-fourth majority in value had to be seen in relation to the value of the shareholders/creditors who were present either in person or by proxy. It was not necessary that such person should also have participated in the voting. He submitted that as per the Company Law Committee Report, 1952, it was recommended that the words "and voting" between the words "present" and "either" be added. The object of this amendment was explained so as "to ensure that decisions in regard to compromises and arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total value of the creditors/shareholders of the company. It has been correctly pointed out that taking the later view would render the words "present and voting" redundant, which would be contrary to the well settled rules of construction. If the intention was to have three-fourth majority of the total value, the provisions would have been worded accordingly. In our view, the language of section 391(2) of the Act is totally unambiguous and a plain reading of this provision clearly shows that the majority in number by which a compromise or arrangement is approved should represent three-fourth in value of the creditors/shareholders who are present and voting and not of the total value of the shareholders or creditors of the company. 14. We may usefully refer to the following observations of the Supreme Court in Sajjan Singh v. State of Rajasthan AIR 1965 SC 845, in context of Article 169(1) of the Constitution : "169. Abolition or creation of Legislative Councils in States. (1) Notwithstanding anything in Article 168, Parliament may by law provide for the abolition of the Legislative Council of a State having such a Council or for the creation of such a Council in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the rules of construction, the Apex Court has observed as under : "19. It is a well-settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. ( See Institute of Chartered Accountants of India v. Price Waterhouse AIR 1998 SC 74). The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner 1846 (6) Moore PC 1 courts cannot aid the legislatures defective phrasing of an Act, we cannot add or mend, and by construction make up deficiencies which are left there. ( See State of Gujarat v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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