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TMI Blog2009 (6) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... Alpana Ghone, Chirag Mody, Janak Dwarkadas, M. Chandanamuthu, M.S. Bhardwaj and S.K. Mohapatra for the Appearing Parties. JUDGMENT 1. These Petitions are filed by the Transferor and Transferee company to obtain sanction of this Hon ble Court to the scheme of amalgamation whereby the entire undertaking of the Transferor company Sequent Scientific Ltd. shall stand transferred and vested in or deemed to be transferred and vested in Transferee company (P.I. Drugs) and form part of the business of the Transferee company and to obtain order under section 394 of the Companies Act inter alia for vesting the said undertaking of the Transferor company in the Transferee company without any further act or deed and for dissolution of the Transferor company without winding up. 2. The Transferor company was originally incorporated on 16-8-2002 in the name and style of Strides Research and Specialty Chemicals Limited ("SRSCL"). However, after compliance of all necessary formalities under section 21 of the Act, the name of the company was changed to Sequent Scientific Ltd. ("SSL") with effect from 18-9-2006. The Transferor Company carries on business in the human healthcare segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting held on 8-8-2008. Similarly, the scheme has been approved by the Board of Directors of the Transferee company at its meeting held on 8-8-2008. Thereafter, the Transferee company by letter dated 10-9-2008 submitted the proposed scheme for approval of the Bombay Stock Exchange Ltd. The Bombay Stock Exchange vide letter dated 1-10-2008 has given their no objection to the proposed scheme. The Petition also reproduces the circumstances to justify the proposed scheme. The Petitioners assert that the scheme shall be effective from the appointed date as contemplated in the scheme or such other date as this Hon ble Court may direct. It is further stated that the Transferee company has also obtained valuation report in respect of the Share Exchange Ratio from Deloitee Touche, Tohmatsu India Pvt. Ltd. dated 6-8-2008. Further, as required by Clause 24 of the Listing Agreement of the Transferee company, both the Petitioner/Transferor company and the Transferee company appointed Chartered Capital and Investment Ltd. as merchant bankers for giving fairness opinion or the valuation report. It is stated that upon the scheme being sanctioned the Transferor company will be dissolved without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son. Insofar as the meeting of secured creditors, it is stated that the same was attended by the 3 secured creditors and all the 3 unanimously voted in favour of the scheme in the value of Rs. 8,26,28,592; whereas in the meeting of unsecured creditors, 22 unsecured creditors attended the meeting. Out of them, 15 voted for the scheme in the value of Rs. 1,48,17,402. None of the unsecured creditors voted against the scheme. However, votes of 7 unsecured creditors was declared invalid in the value of Rs. 26,21,29,306. It is stated that the scheme has been approved by the requisite majority in number representing more than 3/4th share in value of the unsecured creditors of the Transferee company. 8. In this background, the Petitioners have approached this Court for the sanction of the arrangement embodied in the scheme by the members of the Transferor and Transferee company so as to be binding on all the members and shareholders of the respective companies. The Petitioner asserts that no one will be prejudiced if the scheme is sanctioned and the sanction of the scheme will be in the interest of Transferee company, Transferor company, the general public and all concerned for which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent to the Transferor company to assign or transfer in whole or in part of its rights and its obligations under the said Supply Agreement to any third party including the Transferee company. It is then stated that the object of the present Petition filed by the Transferor company is to obtain sanction of this Court to the scheme of arrangement whereby the entire undertaking of the Transferor company on the appointed date by simultaneous transfer would vest in the Transferee company. This scheme would come into operation subject to the approval accorded by the Board of Directors of the two companies and more particularly on account of the Courts sanction order to be passed on these Petitions. It is stated that it is well established position in law that such transfer is not an involuntary transfer effected by an order of the Court. For that reason, having regard to clauses 4( c ) and 23 of the said Supply Agreement the technology whether provided by Intervenor CIBA (India) Ltd. or developed by Transferor company shall exclusively belong to Intervenor company CIBA (India) Ltd. and is non-transferable, in view of the prohibition on Transferor company from assigning in whole or in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or has locus to appear in the present proceedings and in any case to object to the proposed scheme. There is force in the stand taken by the Petitioner companies that section 391 plainly recognizes that it is only the creditors and shareholders who are expected to participate in consideration of proposed scheme of amalgamation. The Intervenor is neither a shareholder nor the creditor of the Transferor company. Thus understood, the Intervenor cannot be heard to raise any objection with regard to the proposed scheme. 12. Assuming that the Intervenor has locus, having regard to the fact that it has executed Supply Agreement with the Transferor company under which the Transferor company is obliged to discharge its obligation specified therein. Even so, the question is whether the objection of the Intervenor can be addressed at this stage of the proceedings. The objection essentially is in the nature of grievance about breach of or likelihood of breach of conditions of Supply Agreement operating between the Intervenor and the Transferor company. The Counsel appearing for the Transferor company has rightly pressed into service decision of the Delhi High Court as well as of the Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o conditions are satisfied. The first condition is, to quote only the material part, that : it is shown - that the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for... the amalgamation of any two or more companies . It is to be observed that uptill then, the compromise or arrangement has only been proposed. The second condition is that it is shown that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as the transferor-company) is to be transferred to another company (in this section referred to as the transferee company ). It is again to be observed that uptill then the property is only to be transferred. There is yet no completed transfer. The section goes on to say that if the conditions mentioned above are satisfied, the Court may, by its order sanctioning the scheme or a further order, provide inter alia for : ( a )the transfer to the transferee-company of the whole or any part of the undertaking and of the property or liabilities of any transferor-company. 15. It is to be ordered that the section does not merely say, as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection is that on according sanction to the proposed scheme it would inevitably result in transfer of the rights and obligations contained in the Supply Agreement by the Transferor company in favour of the Transferee company without the consent of the Intervenor. That transfer is not an involuntary transfer, but by choice. In that, the Board of Directors in the first place propounded the scheme of amalgamation which was then approved by the shareholders as well as the secured and unsecured creditors. It is only thereafter the company instituted the present petition which was also a voluntary act. Merely because the Court has accorded sanction does not result in an involuntary transfer. 16. To buttress this submission, reliance was placed on decisions of the Apex Court in the case of General Radio Appliances Co. Ltd. v. M.A. Khader [1986] 2 SCC 656, Singer India Ltd. v. Chander Mohan Chadha [2004] 7 SCC 1. These decisions deal with the question as to whether the transfer of tenancy emanating from the sanction of a scheme of amalgamation is in the nature of voluntary transfer or involuntary transfer. In these decisions the Apex Court, no doubt, has expounded that on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as was required in terms of provisions of Chapter XX-C of the Income-tax Act. In that, on account of scheme of amalgamation, it would result in transfer of property within the meaning of section 269UA, clause ( f ) of the Income-tax Act, which would require prior permission of the appropriate authority. In absence of such permission, the transfer effected by scheme of amalgamation would be invalid. The Division Bench of our High Court on analyzing the relevant decisions on the point in issue proceeded to observe thus : "95. It is next contended that the provisions of Chapter XX-C would apply only to cases of transfer as defined by clause ( f ) of section 269UA. A scrutiny of the definitions of apparent consideration given in clause ( b ) and transfer given in clause ( f ) would unmistakably indicate that the transfers to which the provisions of Chapter XX-C are intended to apply, are only transfers under agreements or contractual transfers and not statutory transfers or transfers effected by orders of the court or by operation of law. In a situation of amalgamation, the transfer is not by way of sale, exchange, lease or rent so as to fall within section 269UA. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and Weaving Co. Ltd. [1970] 40 Comp. Cas. 689 , and the Supreme Court reiterated that once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of section 391 of the Companies Act. Such a scheme sanctioned by the Company Court is statutorily binding even on the creditors and shareholders who might have dissented from it or who might have opposed its being sanctioned. It, therefore, has the statutory sanction in that sense. The Supreme Court also approved the observations in Re Garner Motors Ltd. [1937] 1 All ER 671 (Ch D), while coming to this conclusion. The observations of the Calcutta High Court in House of Laourers Ltd. v. Comilia Banking Corporation Ltd., MANU/WB/0049/1937, are to similar effect. There is overwhelming authority of precedents suggesting that when an amalgamation takes place, the transfer of assets takes place by the force of the Company Court s order and/or by operation of law; it ceases to be a contractual or a consensual transfer. The contention, therefore, is that Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Khader [1986] 60 Comp. Cas. 1013. It is, therefore, contended that, by conjuring up consequences that may arise after amalgamation, it is not open to the Company Court, which is the forum constituted under a Special Act, namely, the Companies Act, to reject or refuse to sanction a scheme of amalgamation by reckoning factors which are non-germane and irrelevant for consideration under the provisions of sections 391 to 394 of the Companies Act. Hence, it is contended that a no objection certificate by the appropriate authority under Chapter XX-C is not a prescribed condition, precedent under section 391 of the Companies Act and, therefore, is a factor wholly irrelevant, immaterial and non-germane for consideration at the time of sanctioning of the amalgamation scheme. In these circumstances, we are of the view that the contention of the petitioner, that the Company Court was obliged to suo motu issue a notice to the appropriate authority and seek its no objection certificate under Chapter XX-C as a condition precedent to sanctioning the amalgamation scheme, has no statutory basis and cannot be accepted." 19. In the light of the exposition in this decision of the Division Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SCC 536 wherein the Court considered the argument about the effect of scheme of amalgamation and the status of the Transferee company as a result of such amalgamation. In Paragraph 5, the Apex Court observed thus : "It is, however, necessary to evolve a reasonable procedure to deal with cases where a devolution of interest takes place during the pendency of a proceeding arising under the Industrial Disputes Act, 1947. In the circumstances it is reasonable to hold that in every case of transfer, devolution, merger, takeover or a scheme of amalgamation under which the rights and liabilities of one company or corporation stand transferred to or devolve upon another company or corporation either under a private treaty, or a judicial order or under a law the transferee-company or corporation as a successor-in-interest becomes subject to all the liabilities of the transferor company, or corporation and becomes entitled to all the rights of the transferor company or corporation subject to the terms and conditions of the contract of transfer or merger, the scheme of amalgamation and the legal provisions as the case may be under which such transfer, devolution, merger, takeover or am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferee-company. . . . ." (p. 210) 21. Similarly, the Apex Court in the case of J.K. (Bombay) (P.) Ltd. v. New Kaiser-I- Hind Spg. Wvg. Co. Ltd. AIR 1970 SC 1041 in Paragraph 29 has observed that a scheme sanctioned by the Court does not operate as a mere agreement between the parties; it becomes binding on the company, the creditors and the shareholders and has statutory force. It went on to observe that by virtue of section 391 of the Act, a scheme is statutorily binding even on creditors and shareholders who dissented from or are opposed to its being sanctioned. It has statutory force and cannot be affected except with the sanction of the Court. 22. A priori, the Transferee company would step in the shoes of successor in interest of the Transferor company and would be bound by the terms and conditions of the Supply Agreement and is obliged to comply with the same in its letter and spirit in all respects. Suffice it to observe, that the Supply Agreement does not expressly exclude the succession of the concerned party whether in case of Intervenor company or the Transferor company. Once again it is clarified that this is only an incidental enquiry and not a fina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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