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TMI Blog1973 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant under section 153A(1)(f) of the Companies Act, 1913, hereinafter called the Act of 1913, read with section 647 of the Cornpanies Act, 1956, hereinafter called the Act of 1956, seeking an order providing for payment of certain tax outstandings of respondent No. 2 by respondent No. 1 and/or respondent No. 3 was dismissed on the grounds that the petition was not only not maintainable but was also barred by time and the question that this appeal raises are as to the true construction of the provisions of section 153A(1)(f) of the Act of 1913 and its corresponding provision in the Act of 1956 as also of the provisions of article 137 of the Limitation Act, 1963. The facts are not in dispute and may be briefly stated to the extent they are necessary. Respondent No. 1 is a joint stock company belonging to what was commonly known as the Dalmia Jain group. Respondent No. 2 was also a joint stock company in the same group and while respondent No. 2 was in voluntary liquidation with respondent No. 3 as the voluntary liquidator, the liquidator proposed a scheme of arrangement under section 153 of the Act of 1913 for the amalgamation of respondent No. 2 with respondent No. 1 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the appellant and it was held that the dismissal of the two earlier petitions did not debar the institution of the third. Aggrieved by the aforesaid order, the Union has come up in appeal. At the outset learned counsel for the respondents conceded that he was not challenging the finding of the learned district judge on issue No. 3 regarding the effect of the dismissal of the earlier petitions on the petition out of which this appeal has arisen. The third issue, therefore, does not survive. The questions that, therefore, require consideration are whether having regard to the provisions of section 153A(1)(f) of the Act of 1913, or of the corresponding provisions of the Act of 1956, it could be said that the petition was not maintainable and the court had no jurisdiction to entertain it and as to whether, assuming that it was maintainable, it was within time. On the first question, it was contended on behalf of the appellant that on a true construction of the provisions of section 153A(1)(f) of the Act of 1913, and its corresponding provision, i.e., section 394(1)(vi) of the Act of 1956, it must be held that the terms "to secure that the reconstruction or amalgamation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of the Company or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. (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 either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on all 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. (3) An order made under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar, and a copy of every such order shall be annexed to every copy of the memorandum of the company issued after the order has been made; or in the case of a company not having a memorandum, of every copy so issued of the instrument constituting or defining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person; (c) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (d) the dissolution, without winding up, of any transferor company, (e) the provision to be made for any persons who, within such time and in such manner as the court directs, dissent from the compromise or arrangement; (f) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out. (2) Where an order under this section provides for the transfer of property or liabilities, that property shall, by virtue of the order, be transferred to and vest in, and those liabilities shall, by virtue of the order, be transferred to and become the liabilities of, the transferee company, and in the case of any property, if the order so directs, freed from any charge which is by virtue of the compromise or arrangement to cease to have effect. (3) Where an order is made under this section, every company in relation to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has been made under sub-section (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten rupees for each copy in respect of which the default is made. (6) The court may, at any time after an application has been made to it under this section, stay the commencement or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the court unless the court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest: Provided further that no order for the dissolution of any transferor-company under clause (iv) shall be made by the court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning a compromise or an arrangement." Section 153 of the Act of 1913 and its corresponding provisions in the Act of 1956 provide that a compromise or arrangement may be entered into between a company and its creditors or any class of them or between the company and its members or any class of them, and lays down the procedure by which the creditors or the members of the company, as the case may be, would consider and accord their approval to such a compromise or arrangement and make provisions for matters incidental thereto. Section 153A of the Act of 1913 and its corresponding provisions in the Act of 1956, inter alia, provide that, in case the compromise or arrangement has been proposed for the purpose of or in connection with a scheme of reconstruction of a company or the amalgamation of two or more companies and such scheme provides for the transfer of the undertaking or the property of the company concerned in the scheme, the court may either by the order sanctioning the compromise or arrangement make provisions for various matters which are referred to in clauses (a) to (e) of section 153A(1) of the Act of 1913 and clauses (i) to (vi) of section 394(1) of the Act of 1956. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and to that extent, therefore, the liability of the transferee company to pay the petitioner in discharge of the initial liability of the transferor company would be a matter incidental, consequential and supplemental to amalgamation but could it be said that the second requirement of clause (f) or (vi) would also be satisfied. The answer to my mind has to be in the negative because it could not be said on any reckoning that the enforcement of the liability of the transferor-company as against the transferee-company or the corresponding enforcement of the right of the petitioner to have recourse for the said liability to the transferee-company would be "necessary to secure that the reconstruction or amalgamation would be fully and effectively carried out". The payment by the transferee-company to the petitioner or the discharge by the transferee-company of the liability of the transferor-company to the petitioner could not be said to be a step in aid of the completion of the process of amalgamation. To put it differently, the process of amalgamation of the company by the absorption of the transferor-company into the transferee-company and the consequential transfer of the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of the compromise or arrangement" as envisaged by clause (b) of that sub-section. This appears to be so because the scheme of amalgamation makes no provision regarding the manner in which the transferee-company would have to discharge the liability of the transferor-company and the only provision it contains is that of merger of the two companies and the consequential direction by which the liability of the transferor-company would become the responsibility of the transferee-company. Even if the scheme of compromise or arrangement, whether between the company and its members or between the company and its creditors or any class of the members or creditors and whether for amalgamation, reconstruction of the company or for the payment of its creditors, made provision for the manner in which the creditors of a company have to be paid, as a compromise or arrangement between the company and its creditors normally would, it is doubtful if the court would have any power either under section 392 or section 394 of the Act of 1956 or under the corresponding provisions of the Act of 1913 to make the direction of the kind sought by the petitioner and become a forum capable of making a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se they had confidence in its management and would by the process of amalgamation be compelled to deal with and become the creditors of another company whether an existing company or a new company that may come into existence even though the creditors or some of them may have had no dealing with such new entity and may have, therefore, no confidence in its management. I am confident that the appropriate authorities would consider the desirability of remedying the situation, inter alia, by incorporating a provision which may entitle the creditors of the company concerned to be suitably associated with the proceedings so as to better secure the interests of the creditors. On the second question, learned counsel for the appellant assailed the conclusion of the learned district judge on issue No. 2 with regard to limitation and contended that on a true construction of the provisions of article 137 of the Limitation Act, 1963, and of section 30 of that Act, the court ought to have held that the present petition was beyond the scope of the provision of article 137 and there was, therefore, no period of limitation prescribed for it either under the Limitation Act of 1963 or that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without further argument, that the mere amendment of articles 158 and 178 can ipso facto alter the meaning which, as a result of a long series of judicial decisions of the different High Courts in India, came to be attached to the language used in article 181. This long catena of decisions may well be said to have, as it were, added the words 'under the code' in the first column of that article. If those words had actually been used in that column then a subsequent amendment of articles 158 and 178 certainly would not have affected the meaning of that article. If, however, as a result of judicial construction, those words have come to be read into the first column as if those words actually occurred therein, we are not of opinion, as at present advised, that the subsequent amendment of articles 158 and 178 must necessarily and automatically have the effect of altering the long acquired meaning of article 181 on the sole and simple ground that after the amendment the reason on which the old construction was founded is no longer available." This decision of the Supreme Court was referred to and followed in a number of subsequent decisions of that court and reference may only be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1908, the various High Courts and later the Supreme Court had read into the article words of limitation so as to limit its scope to applications made under the Code of Civil Procedure on the ground that by long user it had acquired that meaning so much so that the subsequent substitution of articles 158 and 178 of that Act was not considered as in any manner justifying the deviation from the aforesaid construction of article 181. In view of the wider scope of article 137 as compared to that of article 181, the definition of the term "application" in section 2(b), the history of the present legislation and the circumstances in which the change had been brought about in the context of the indication in the statement of objects and reasons, it is possible to hold that article 137 would contain within its sweep not only applications under the Code of Civil Procedure for which no provision is made in Part I of the division dealing with applications but also applications under various special statutes such as the one with which I am concerned in the present case and I am not surprised that High Courts of Bombay, Calcutta and Kerala have taken that view. In Employees' State Insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an that it will apply to all applications which are not otherwise expressly provided for in the other articles of the Limitation Act. Therefore, according to me, taking the scope of the change made in the new enactment, article 181 will have to be read in a more comprehensive manner to include all applications without the limitation of applications 'under the Civil Procedure Code'. More or less the same view has been taken by the Calcutta High Court in R. K. Kajaria v. Chandra Engineering (India) Ltd." If the matter had ended at that, I would have no difficulty in holding that article 137 was wider in its scope than article 181 of the Act of 1908 and would include within its sweep even applications which are made under any special statute. Such a conclusion would, however, be contrary to the decision of the Supreme Court in the case of Town Municipal Council, Athani v. Presiding Officer, Labour Court, Hubli, which does not appear to have been placed before the Calcutta and Kerala High Courts. The decision of the Bombay High Court was earlier than that of the Supreme Court. In the case of Town Municipal Council, Athani, the Supreme Court was called upon to consider if an applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule to the new Limitation Act containing references to applications under the Code of Criminal Procedure cannot be held to have materially altered the scope of the residuary article 137 which deals with other applications. It is not possible to hold that the intention of the legislature was to drastically alter the scope of this article so as to include within it all applications, irrespective of the fact whether they had any reference to the Code of Civil Procedure." It may, however, be pointed out that in the case of Nityanand M. Joshi v. Life Insurance Corporation of India, a slightly larger Bench of the Supreme Court answered the question, whether an application under section 33-C(2) of the Industrial Disputes Act would be governed by article 137 of the Limitation Act, in the negative on the ground that in their Lordships' view article 137 only contemplated "applications to courts" and that the industrial tribunal or labour court were not courts and the article would have no application to proceedings before these authorities. In this case, Sikri J., as he then was, who spoke for the court, considered the earlier decision of the Supreme Court in Town Municipal Council, At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r otherwise to invoke the inherent jurisdiction of the court or the power of the court even though no right is conferred by any statute on the litigant to make such an application and as to whether section 30 of the new Act would apply to cases where the old Act did not prescribe any period of limitation but the new Act did, do not survive. These are, however, questions of some importance and would require serious consideration and even a cursory examination of the latter question brings out a serious lacuna in the Act. Section 30 provides for cases where the period of limitation provided under the old Act was longer than the one provided by the corresponding provision in the new Act. But what happens where the old Act did not prescribe any period of limitation for a particular proceeding but the new Act did. Could it be said in such cases that the period prescribed by the new Act was "shorter" than the one prescribed by the old Act within the meaning of the provisions of section 30 ? The plain language of section 30 would not justify such a conclusion. If that be so how would the new provision providing for limitation for the first time in the Act be administered. An instance in p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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