TaxTMI 
TaxTMI 
2008 (7) TMI 576
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....l is Rs. 24,00,000 consisting of 2,40,000 equity shares of Rs. 10 each. The objects for which TTPL was incorporated is to manufacture, prepare, process, represent, buy and sell, resell, export and market, deal in all kinds of plastics and plastic goods, plastic process and ancillary machinery, tools, moulds, dies, to carry out job works of all types, etc. 3. MTL was originally incorporated on 4-7-1995 under the name and style of Mold-Tek Plastics Private Limited. The said company was converted into a public limited company under the name and style of Mold-Tek Plastics Limited with effect from 24-12-1992. Strongpet Polymers-Private Limited was amalgamated with the said company with effect from 1-11-1995 by order of this Court dated 6-2-1997 and its name was changed to Mold-Tek Technologies Limited with effect from 17-2-2000. The regis- tered office of MTL is also situated at Hyderabad. Its authorized capital is Rs. 13,00,00,000 divided into 1,30,00,000 equity shares of Rs. 10 each. Its issued, subscribed and paid-up capital is Rs. 10,52,24,457. The objects for which MTL was incorporated is to manufacture, process, export, import and deal in all kinds of plastic goods including inje....
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....e, to be called, held and conducted in such manner as the Court directs. Sub-section (2) provides that, 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 said compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors and all the members of the Company, as the case may be. The proviso to section 391(2) requires the Court to be satisfied that the Company, which has made an application 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 auditors report on the accounts of the Company or pendency of any investigation proceedings in relation to the Company under sections 235 to 251 and the like before sanctioning any compromise or arrangement. Under sub-section (3), an order made by the Court shall have no effect until a certified copy of the Order has been filed with the Registrar. 7. On an application being file....
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....cess of consideration of sanction of the Scheme, as the Companies Act, 1956 does not contain a specific provision for a notice being given to the creditors at any stage either prior to the making of the order or subsequent thereto, except insofar as the creditors may have notice of it by public advertisement, [Union of India v. Asia Udyog (P.) Ltd. [1974] 44 Comp. Cas. 359 (Delhi)] that, under section 391 of the Act, a compromise or arrangement is either between a company and its creditors or between a company and its members, that an arrangement, in the nature of amalgamation, is the result of an agreement between the amalgamating company and its members, as well as a corresponding agreement between the transferee company and its members, that there is no provision for the participation of persons other than the members of the two companies to vote on an arrangement of amalgamation proposed between a company and its members, Nav Chrome Ltd. In re [1997] 89 Comp. Cas. 2851 (AP); Mafatlal Industries Ltd. In re [1995] 84 Comp. Cas. 2312 (Guj.); Coimbatore Cotton Mills Ltd. & Lakshmi Mills Co. Ltd. In re [1980] 50 Comp. Cas. 623 (Mad.) and Telesound India Ltd. In re [1983] 53 Comp. Ca....
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....company and its members, then, in the absence of ascertaining whether a substantial number of creditors approve the scheme or not, would the Court be justified in statutorily imposing such a Scheme of arrangement on the creditors, even though their consent has not been obtained or their decision ascertained? If, on the other hand, the view, that a meeting of the creditors/members must necessarily be held in all cases irrespective of whether the Scheme of arrangement is between the company and its members or the creditors, is accepted would that not render the words "as the case may be" in section 391(1) mere surplusage? 13. Sri L.V.V. Iyer, Learned counsel for the petitioners, would submit that the words 'as the case may be', as found both in sub-section (1) and sub-section (2) of section 391, should be given the same meaning and, when so read, would mean that where the Scheme of arrangement is only between the company and its members, and not between the company and its creditors, no meeting of the creditors of any of three companies is statutorily mandated either under sub-section (1) or sub-section (2) of section 391. Learned counsel would further submit that the Scheme of arra....
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....SC 592; N.T. Veluswami Thevar v. G. Raja Nainar AIR 1959 SC 422; Raghu Bans Narain Singh v. Uttar Pradesh Government AIR 1967 SC 465; Lal Chand v. Radha Kishan AIR 1977 SC 789, i.e., unless there is clear indication in the statute itself to show that the Legislature has used the words and phrases with different meanings, or where uniform construction of the words and phrases will lead to absurd conclusions and results. 17. Ordinarily, a word or expression used at several places in one enactment should be assigned the same meaning so as to avoid a 'head-on-clash' between two meanings assigned to the same word or expression occurring at two places in the same enactment. A more correct statement of the rule is, as held by the House of Lords in Farrell v. Alexander [1976] 2 ALL ER 721, "where the draftsman uses the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning". (Central Bank of India v. Ravindra [2002] 1 SCC 3671; Bhogilal Chunnilal Pandya v. State of Bombay AIR 1959 SC 356. 18. Since there is nothing in section 391(1) and (2) to the contrary, it must be held that the words "as the case may be" used in sub-section (2....
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.... In a given case, where legal proceedings have been instituted by the creditors against the transferor, the Court, while according its sanction, may require the Scheme to make a provision for such proceedings to be continued against the transferee. Similarly where a Scheme is dissented to by a minority of the class for whom the Scheme is meant, the Court may make adequate provision for such persons who have dissented from the compromise or arrangement. Under section 392(1), even after the Scheme is approved, the Court would still remain vested with the power to supervise the carrying out of the compromise or arrangement and it may, at the time of making of such an order, or at any time thereafter, give such direction in regard to any matter or make such modification in the proposed Scheme of compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. 21. Rule 80 of the Companies (Court) Rules, 1959 requires the Court to fix a date for hearing of the petition and for notice of hearing to be advertised in the newspapers not less than 10 days before the date fixed for the hearing. The very purpose of publication of the notice in new....
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....ration is as to how the Court, in a Scheme of arrangement between the company and its members, would ascertain whether, or not, the interests of the creditors are adversely affected and whether it should direct that a meeting of the creditors be held to ascertain how they perceive the Scheme. 24. According to Sri L.V.V. Iyer, Learned Counsel for the petitioners, this Court has wide and extensive powers under sections 391 and 394 and, on examination of the Scheme presented for its sanction, it may take an appropriate decision whether or not a meeting of the creditors of the respective companies should be held. According to the Learned Counsel, in an appropriate case, and for just and valid reasons, this Court could well direct that a meeting of the creditors be held before it puts its seal of approval on the Scheme of arrangement. Learned counsel would rely on Vijaya Durga Cotton Trading Ltd.'s case (supra), to submit that if, on an overall consideration of the entire picture, the court's conscience is satisfied that an amalgamation would benefit not only the amalgamating company but the company with which amalgamation is made, and it is in the mutual interests of both the companie....
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....the scheme by the prescribed majority, (Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 1 SCC 5793 ), on what basis would the Court decide that, in the facts and circumstances of a given case, a meeting of the creditors or a class of them should or should not be held to ascertain whether they are adversely affected by the scheme or not? 29. The Court should, ordinarily, exercise its discretion, in favour of convening a meeting of the creditors, even in a Scheme of arrangement between the company and its members for the safest way of ascertaining, whether or not the creditors are adversely affected by the Scheme, would be in a meeting of the creditors themselves, which the Court, undoubtedly is entitled to convene under sub-section (1) of section 391. Dispensing with the holding of a meeting of the creditors should be an exception and not the norm. Among the exceptional circumstances would fall cases where the creditors of a class, either in their entirety or by a substantial majority, have given their letters of consent to the Scheme of arrangement obviating the need of holding a meeting of that class, as holding a meeting, in such an eventuality, would merely be an empty ri....
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....s of the demerged undertaking and the specific loans or borrowings raised, incurred and utilized solely for the activities or operations of the demerged undertaking as on the appointed date, and being a part of the demerged undertaking, shall, without any further act or deed, stand transferred to and be deemed to be transferred to the resulting company to the extent that they are outstanding as on the effective date and shall become the loans, debts, liabilities, duties and obligations of the resulting company which shall meet, discharge and satisfy them on the same terms and conditions as are applicable to the demerged company. 32. The Scheme provides for the transfer of the debts and liabilities of the transferor to the transferee and of the demerged undertaking to the resulting company. It must also be borne in mind that, pursuant to the notice published in the newspapers, under rule 80 of the Companies (Court) Court Rules, 1959, no creditor of anyone of the three companies, (either secured or unsecured), has approached this Court raising any objection to the Scheme presented for its sanction. No application has also been filed by any of the creditors requesting this Court to p....
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....would comply with the conditions stipulated by Canara Bank in its letter dated 16-6-2008 and compliance of these conditions may also be made a condition for grant of approval to the Scheme of amalgamation. 36. With regards unsecured loans from promoters of Rs. 9,58,049, Sri L.V.V. Iyer, Learned Counsel for the petitioner, would contend that this amount represents the margin money for facilities granted by APSFC and that this amount, shown as unsecured loans from promoters, would continue till repayment of the dues of APSFC. Learned counsel would state that this could also be made a condition for sanctioning the Scheme of arrangement. 37. As both the secured creditors i.e., APSFC and Canara Bank have given their consent to the Scheme of arrangement subject to certain conditions, and as the Scheme is being approved subject to the fulfilment of these conditions, holding a meeting of the secured creditors, to ascertain whether or not they have any objection to the Scheme, is unnecessary. The unsecured loans for Rs. 11,37,721.41 represents the amount due to the transferee company MTL. With regards the unsecured loans from promoters of Rs. 9,58,049 since its continuance till the dues o....
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....ding a meeting of such a class of the creditors. 40. A perusal of the Balance Sheet of the resulting company MPL, as at 31-3-2007, would show that its secured loans as on that date was for Rs. 3,50,000. Its unsecured loans was for Rs. 5,04,373 and its creditors, under Schedule VII, were for Rs. 13,34,769. The secured loan of Rs. 3,50,000 is the cash credit and accrued interest due to State Bank of Bikaner and Jaipur. Sri L.V.V. Iyer, Learned Counsel for the petitioner, would refer to the certificate issued by State Bank of Bikaner and Jaipur dated 18-8-2007 that there were no dues to the bank from the company as on 18-8-2007. The letter from Adarsh Bank, filed along with the affidavit dated 24-6-2008 of Sri P. Appa Rao, Director of MPL, shows that the petitioner had repaid the term loan availed from the Bank, that the account was closed and that there were no dues. This letter of Adarsh Co-operative Urban Bank Ltd. dated 23-6-2008 also discloses that the petitioner had repaid unsecured loans, in Schedule IV to the Balance Sheet, for Rs. 1,54,373. Along with the very same affidavit, the letter addressed by Sri P.V. Rao is enclosed wherein it is stated that Rs. 3,50,000 is on accoun....
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....nducted in a manner prejudicial to the interests of its members or to public interest. Section 394A requires the Court to give notice of every application made to it, under section 391 or 394, to the Central Government and to take into consideration the representations, if any, made to it by the Government before passing any order. 43. Pursuant to the notice issued, both the Official Liquidator and the Central Government have filed their report/affidavit. A common affidavit is filed by the Registrar of Companies, on behalf of the Central Government, in respect of all the three companies to the effect that the Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai, being the competent authority on behalf of the Central Government, had conveyed to the Registrar of Companies that he had examined the scheme carefully with respect to the material made available to him and, upon such examination, it was decided not to make any objections to the proposed Scheme. 44. The report of the Official Liquidator is confined only to the transferor company TTPL which, under clause (iv) of section 394(1), would stand dissolved without winding up upon an order being passed by thi....
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....dated 23-4-2008, that he had also perused the Statutory Registers containing the particulars of directors, the particulars of contracts in which directors were interested and the Register of Charges maintained by the company. He also submits that he had obtained the Company's ledger account pertaining to loans from promoters, loans from MTL, sub-ledger copies of sundry creditors for goods etc., and had retained them in his office records for future reference. 48. Since the objections raised by the Official Liquidator have either been complied with, or their compliance has now been made conditional for approval of the Scheme of arrangement, the requirements of the proviso to section 394(1) must also be held to have been satisfied. 49. The Balance Sheet of TTPL as at 31-3-2007 shows that its Reserves and Surplus are for Rs. 68,31,523 and that its profits before tax was Rs. 34,09,755 as compared to Rs. 10,12,803 for the previous year ending 31-3-2006. With regards MTL, its Balance Sheet as at 31-3-2007 would show that its Reserves and Surplus was Rs. 16,23,17,000 and that its Profits before tax was Rs. 8,62,99,000 as compared to the profits made by it in the previous year ending 31-....
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....se or arrangement, the Court, by its act, is imposing the Scheme on the dissenting members of that class. Before taking such action, it is essential that the Court examines the Scheme. Even if all the statutory formalities are duly carried out, the Court has still the discretion either to sanction or refuse to sanction the Scheme. (Bank of Baroda Ltd. (supra) and Bengal Hotels (P.) Ltd. In re [1977] 47 Comp. Cas. 597 (Guj.). 52. The arrangement must fulfil some felt need, some purpose, some object and that must have some co-relation with public interest. The Court is charged with a duty to ascertain whether the affairs of the transferor, the transferee and the resulting companies have been carried on not only in a manner not prejudicial to its members but also that it is not against public interest. The expression "public interest" must take its colour and content from the context in which it is used. (Union of India v. Ambalal Sarabhai Enterprises Ltd. [1984] 55 Comp. Cas. 623 (Guj.). The Indian law, a departure from the English law, enjoins a duty on the Court to examine objectively whether the merger/demerger is, or is not, violative of public interest. What would be in public ....
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....ented by them for whom the scheme is meant. (Miher H. Mafatlal's case (supra). Unless the scheme is shown to be contrary to any law or is such as to shock the conscience of the court or is patently unfair to the members or creditors or any class of them, or is against public interest or against public policy, the court should not come in the way of business by rejecting a bona fide Scheme under section 391. [Zee Interactive Multimedia Ltd.'s case (supra)]. 55. The Scheme as filed in Court would show that it would benefit the transferor, the transferee, and the resulting companies and their respective shareholders and that the Scheme was drawn up to consolidate the plastics/packaging business and information technology KPO into two distinct entities i.e., the resulting company and the demerged company respectively, that the same would be distinctly advantageous to the shareholders of the company, that the Scheme, upon implementation, would result in creation of independent and financially strong entities having the necessary focus to pursue their individual growth strategies thereby resulting in enhancement of shareholder's value, that it would allow greater flexibility to the inve....