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TMI Blog2011 (2) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. JUDGMENT D.K. Jain, J. - Leave granted. 2. These appeals, by special leave, are directed against the judgment dated 21-2-2009 delivered by a Division Bench of the High Court of Bombay at Goa whereby the Division Bench has set aside the judgment of the learned Single Judge dated 18-12-2008, sanctioning a scheme of amalgamation between the appellant company and Sesa Goa Limited ('SGL'), the Transferee Company. 3. Shorn of unnecessary details, the facts material for the adjudication of these appeals may be stated thus : SGL was incorporated on 25-6-1965 as a private limited company, and thereafter, on 16-4-1991 became a public company. The appellant company viz., Sesa Industries Ltd. ('SIL') was incorporated on 17-5-1993 as a subsidiary of SGL with the latter holding 88.85 per cent of the shares in the former. 4. On 26-7-2005, a resolution was passed by the Board of Directors of SIL to amalgamate SIL with SGL, effective from 1-4-2005. In pursuance thereof, on 12-1-2006, SIL and SGL filed respective company applications in the Bombay High Court seeking the Court's permission to convene a general body meeting. 5. Respondent No. 1 herein, holder of 0.29 per cent of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 309, contravention of section 289 read with Article Nos. 111 and 140 of the Articles, contravention of sections 260 and 313, contravention of section 268 read with section 256 and contravention of section 628 of the Act. The Investigating Officer has suggested invoking the provisions of sections 397 and 398 read with sections 388B, 401, 402 and 406 of the Act including that of section 542 of the Act. The Inspection report has also pointed out financial irregularities and also examined the complaints of Mrs. Kalpana Bhandari and Mrs. Krishna H. Bajaj which have been reported in Part 'A' of the Inspection Report. Contravention of section 297 of the Act has been reported in Part 'B' of the Inspection Report. It has also been suggested Part 'D' of the Inspection Report for references to be made to the Ministry of Finance and SEBI. Accordingly, the Central Government has requested the addresses to examine the report and take appropriate action." 7. Thereafter, on 8-5-2006, the shareholders of SIL and SGL, by 99 per cent majority, approved the scheme of amalgamation, and respondent No. 1 was the sole shareholder who objected to the said scheme. SIL and SGL both filed petitions in the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed yet another Company Application No. 24 of 2007, praying that the reports dated 17-2-2006 and 20-3-2006 sent to the Regional Director by the Ministry of Company Affairs be furnished to her. Vide order dated 13-7-2007, the Single Judge allowed the application. Being aggrieved, SIL preferred an appeal before the Division Bench. Admitting the appeal, vide order dated 23-8-2007, the Division Bench granted interim stay of the order dated 13-7-2007. The order reads : "Perusal of the impugned order, however, nowhere discloses consideration of the said aspect of the relevancy of the document for the purpose of deciding the issue relating to amalgamation of the company. We, however, make it clear that the process regarding amalgamation shall proceed further in accordance with the provisions of law and in terms of direction in order dated 25-4-2007 regarding relevancy of the said report." 12. Finally, vide judgment dated 18-12-2008, the learned Company Judge sanctioned the scheme of amalgamation between SGL and SIL, inter alia, observing that : (i) since inspection proceedings under section 209A of the Act are different from an investigation carried out in terms of section 235 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminal proceedings which may be initiated pursuant to the inspection reports as well as further progress of criminal complaints filed by the objector. 13. Aggrieved, respondent No. 1 preferred an intra-court appeal before a Division Bench of the Court. The Division Bench has, vide the impugned judgment, set aside the order of the learned Single Judge and revoked the sanction to the amalgamation scheme. The division bench has, inter alia, observed that: (i) when serious irregularities have been found in the inspection report and when the proceedings on the basis of the said inspection report are still pending and no further decision has been taken in this behalf and the Registrar as a delegate of the Regional Director who was in possession of such inspection report, should not have filed affidavits both, as the Official Liquidator as well as the Registrar as the delegate of the Regional Director; (ii) once it is found that the report/affidavit on behalf of the Registrar/Regional Director is not in conformity with the statutory provisions, this Court mechanically cannot sanction the scheme simply because the majority of the shareholders have approved the scheme and the majority shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 209A or under section 235 of the Act should not stall a scheme of amalgamation. 17. Learned counsel submitted that the Division Bench erred in rejecting the scheme of amalgamation on the sole ground that the requirement of the first proviso to section 394(1) of the Act has not been complied with, as it is settled that the said proviso only applies to the amalgamation of a company which is being wound up. Learned counsel stressed that in the instant case, the prayer in the amalgamation petition was for "dissolution without winding up" and hence only the second proviso to section 394(1) was applicable. Relying on the decisions of this Court in Regional Director, Company Law Board, Government of India v. Mysore Galvanising Co. (P.) Ltd. [1976] 46 Comp. Cas. 639 (Kar.), Sugarcane Growers & Sakthi Shareholders' Association v. Sakthi Sugars Ltd. [1998] 93 Comp. Cas. 646 3 (Mad.), Marybong & Kyel Tea Estate Ltd., In re [1977] 47 Comp. Cas. 802 (Cal.) and Mathew Philip v. Malayalam Plantations (India) Ltd. [1994] 81 Comp. Cas. 38 (Ker.), learned counsel contended that the use of the word "further" in the second proviso to section 394(1) of the Act does not indicate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shareholders of both the appellants, viz., SIL and SGL having approved the scheme, allowing a scheme of amalgamation to be stalled due to the pendency of an investigation or inspection would lead to a situation whereby any scheme for amalgamation can be held to ransom by a minority shareholder, like in the instant case, where the first respondent/complainant had voluntarily offloaded 5,31,950 shares pursuant to a voluntary offer made by SGL out of total 5,89,400 shares held by him in SIL. 21. Assailing the observation of the appellate Bench that the same person viz., the Registrar of Companies ought not to have filed both Affidavits himself as delegate of Regional Director as well as the Official Liquidator, learned counsel urged that as section 448(1)(a) of the Act contemplates the possibility of part time Official Liquidators, there was nothing improper in the approach of the Registrar in as much as the Registrar had filed both the affidavits on 10-8-2006, and the same had to be read together, which disclosed all relevant materials. Additionally, it was urged that the Single Judge had rightly concluded that a scheme of amalgamation, which is just and fair, cannot be reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... governance culture, and the Courts should adopt an interpretation that advances this object. 25. Learned counsel urged that in the instant case the provisions of section 393(1)(a) of the Act had not been complied with in as much as all material facts were not placed before the shareholders, in particular the preliminary letters of findings addressed to the Managing Director of SIL by the Inspector pursuant to the inspection under section 209A of the Act on 28-9-2005. According to the learned counsel, a mere enclosure of an extract of covering letter dated 17-2-2006 cannot be construed as sufficient compliance with the mandate of section 393(1)(a), as the said letter did not disclose the details of the findings to the effect that the affairs of the company had been conducted in a manner which was prejudicial to the interests of its members. Relying on the decision of this Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 1 SCC 579, learned counsel contended that sufficient information had not been disclosed to the shareholders so as to enable them to take an informed decision. 26. Learned counsel contended that in light of the dictum laid down in Miheer H. Mafatlal's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In re [2008] 142 Comp. Cas. 410 (Cal.), Miheer H. Mafatlal's case (supra); Larsen & Toubro Ltd., In re [2004] 121 Comp. Cas. 523 (Bom.), Wood Polymer's case (supra) and T. Mathew's case (supra), learned counsel argued that the Division Bench had rightly concluded that the mandate of section 394 had not been complied with thereby raising a statutory embargo on the approval of the scheme of amalgamation. Further, the disclosure of all material information to the shareholders, which included the pendency of criminal proceedings; inspection proceedings under section 209A of the Act, and proceedings under section 235 of the Act in the report of the Official Liquidator under section 394(1) of the Act constitute jurisdictional requirements, and unless all of them were satisfied, the Company Court had no jurisdiction to sanction the scheme. In support, reliance was placed on the decision of this Court in Carona Ltd. v. Parvathy Swaminathan & Sons [2007] 8 SCC 559. 28. Learned counsel then contended that the fact of huge siphoning off the funds from the transferor company (SIL) to the transferee company (SGL) being within the knowledge of the Company Court, it should not have sanctioned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the votes of the transferor company were those of the transferee company itself, the significance of the majority decision was of no relevance and, therefore, under these circumstances the Company Court was required to ensure that the rights of the minority were not trammeled upon, as observed in Miheer H. Mafatlal's case (supra); Bedrock Ltd.'s case (supra); T. Mathew's case (supra), J.S. Davar's case (supra) and Calcutta Industrial Bank Ltd.'s case (supra). 32. Before addressing the issues raised, it will be useful to survey the relevant provisions contained in Chapter V of Part VI of the Act, which deal with "Arbitrations, compromises, arrangements and reconstructions". Section 391 of the Act, clothes the Court with the power to sanction a compromise or arrangements made by a company with its creditors and members. It reads as follows :-- "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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferee company'); the Court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters :-- (i )the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company; (ii )the allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; (iii)the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (iv)the dissolution, without winding up, of any transferor company; (v )the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise on arrangement; and (vi)such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out : Provided that no compromise or arrangement proposed for the purposes of, or in connection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est. 34. Therefore, while it is trite to say that the court called upon to sanction a scheme of amalgamation would not act as a court of appeal and sit in judgment over the informed view of the concerned parties to the scheme, as the same is best left to the corporate and commercial wisdom of the parties concerned, yet it is clearly discernible from a conjoint reading of the aforesaid provisions that the Court before whom the scheme is placed, is not expected to put its seal of approval on the scheme merely because the majority of the shareholders have voted in favour of the scheme. Since the scheme which gets sanctioned by the court would be binding on the dissenting minority shareholders or creditors, the court is obliged to examine the scheme in its proper perspective together with its various manifestations and ramifications with a view to finding out whether the scheme is fair, just and reasonable to the concerned members and is not contrary to any law or public policy. (See : Hindustan Lever Employees Union v. Hindustan Lever Ltd. [1995] Supp (1) SCC 4991). The expression "public policy" is not defined in the Act. The expression is incapable of precise definition. It connote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss represented by them for whom the scheme is meant. 9.Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." 36. It is manifest that before according its sanction to a scheme of amalgamation, the Court has to see that the provisions of the Act have been duly complied with; the statutory majority has been acting bona fide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purport to represent and the scheme as a whole is just, fair and reasonable from the point of view of a prudent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second proviso to section 394(1) of the Act. 39. An Official Liquidator acts as a watchdog of the Company Court, reposed with the duty of satisfying the Court that the affairs of the company, being dissolved, have not been carried out in a manner prejudicial to the interests of its members and the interest of the public at large. In essence, the Official Liquidator assists the Court in appreciating the other side of the picture before it, and it is only upon consideration of the amalgamation scheme, together with the report of the Official Liquidator, that the Court can arrive at a final conclusion that the scheme is in keeping with the mandate of the Act and that of public interest in general. It, therefore, follows that for examining the questions as to why the transferor-company came into existence; for what purpose it was set up; who were its promoters; who were controlling it; what object was sought to be achieved by dissolving it and merging with another company, by way of a scheme of amalgamation, the report of an official liquidator is of seminal importance and in fact facilitates the Company Judge to record its satisfaction as to whether or not the affairs of the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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