Meidul, J.:— Petition No. 146 of 1975 by Khandelwal Udyog Ltd. (hereinafter referred to as “the transferor-company”) is for sanctioning the scheme of amalgamation and merger with Acme Manufacturing Company Ltd. (hereinafter called “the transferee-company”). Petition No. 147 of 1975 is the petition by the transferor-company for sanctioning the scheme by the aforesaid amalgamation and merger. Since a common question arises for determination in these two petitions, they have been, by consent of the parties, heard together and are being disposed of by this common judgment.
2. The transferee-company was incorporated on 29th November, 1919. The transferor-company was incorporated on 25th January, 1960. By virtue of and under their respective memoranda and the articles of association both the transferor and the transferee-companies are entitled to carry on the business of manufacturing iron, brass and other metal products. It is not disputed that their manufacturing and their business activities are analogous and can be combined economically and fruitfully.
3. It appears that over the period of years the transferee-company made large profits; by all standards it has been and is an affluent company with great profit-making potentialities. The transferor-company, however, appears to have been running marginally. It has not made large profits and appears to be financially in strained circumstances. There have been and there are common directors on the board of directors of the two companies. It was contemplated by the respective board of directors of the two companies that an amalgamation or merger of the two companies would be beneficial to both. In so far as the transferee-company is concerned, the benefits which were within contemplation were: that the transferee-company would be able to execute large volume of orders which were pending with it by augmenting its production facilities which merger with the transferee-company would bring about and through such an amalgamation the transferee-company would be able to undertake a programme of diversification and expansion as also raise funds from banks having regard to its increased capital, fixed assets and other paraphernalia. The benefits which were contemplated for the transferor-company were not difficult to see. It could by reason of such an amalgamation take the benefit of larger and better economies prevalent in the transferee-company. In view of the negotiations which ensued between the directors of the two companies for proposed amalgamation, the transferee-company got its assets re-valued by Itadal Technical Services Private Ltd. (hereinafter referred to as “the Itadals”). This revaluation, according to the transferee-company, was justified having regard to the fact that the transferee-company was established as early as 1919 and the value of its assets was not properly reflected in its books. According to the companies, no re-valuation of the transferor-company was required or necessary in view of the fact that the plant and machinery were acquired only in the year 1960 and did not require any revaluation. Upon the basis of the revaluation made by the Itadals, Shaba and Company, chartered accountants, Bombay, were required to prepare a scheme by the board of directors of the transferee-company. Consequent upon the report prepared by the said chartered accountants and submitted to the board of directors of the transferee-company, the board of directors of the transferee-company proposed a scheme of amalgamation. In substance the said scheme provided, in so far as the provisions thereof are material for the present controversy, that the shareholders of the transferor-company shall be entitled to “the allotment of the fully paid up 10% cumulative redeemable third preference shares of Rs. 100 each and fifteen fully paid up equity shares of Rs. 10 each of the transferee-company as against the fully paid up equity share of Rs. 100 each of the transferor-company”. The scheme also provided for participating and ranking of the shareholders “for dividend out of the profits of the transferee-company as from 1st day of July, 1974, in all other respects pari passu with the existing fully paid up shares of Rs. 10 each of the transferee-company”. The proposed scheme was intended to be made with effect from 1st October, 1974. Similarly, a corresponding proposal was mooted by the board of directors of the transferor-company. Appropriate resolutions were passed by the board of directors of the companies and preliminary directions were obtained from this court in Company Petitions Nos. 147 and 148 of 1974, for convening a meeting of the respective shareholders of the companies. Pursuant to the directions of this court in the said applications, meeting of the shareholders of the transferor-company was held on 10th February, 1975. At the said meeting 29 shareholders attended in person and 57 shareholders attended through their proxies. These shareholders held 12,445 shares of the aggregate nominal value of Rs. 12,44,500. At the said meeting an amendment for an increase of one per cent, was suggested in respect of the cumulative redeemable third preference shares and the said amendment was accepted. The scheme in regard to the said cumulative redeemable third preference shares was passed at the said meeting, 69 shareholders holding 12,035 shares of the nominal value of Rs. 12,03,500 voting in favour and 15 shareholders holding 140 shares of the nominal value of Rs. 14,000 voting against the scheme. In the meeting of the shareholders of the transferee-company resolution was passed by 51 shareholders holding shares of the value of Rs. 23,54,950 as against the opposition of one shareholder holding shares of the value of Rs. 250.
4. In these two petitions principal arguments were canvassed on behalf of Tarachand Dhanaji and Phroj Sehorab India by Shri D.R Zaiwala, the learned counsel, appearing on behalf of the said dissentient shareholders. He was supported by one K.B Parikh, a shareholder of the transferor-company and by Shri Varvaiyya, learned counsel, appearing on behalf of the Engineering Mazdoor Sabha, a union of workers employed in the transferor-company. The arguments by the workers and the other shareholders referred to above were merely reiteration of the submissions made by Shri Zaiwala.
5. The submissions made by Shri Zaiwala in resisting the petition may be summarised as follows:
(i) that the transferee-company is a profit making company and that the transferor-company is a losing company. Having regard to the provisions of law, an amalgamation and merger of a profit making company is not permissible. The provisions of section 391 of the Companies Act, 1956, do not apply to such companies as are in affluent circumstances.
(ii) the companies did not make a proper disclosure as contemplated by the provisions of section 173 of the Companies Act, 1956, or in any event by section 393 of the said Act. Non-compliance of the provisions of the said sections renders the resolutions, even though passed by the requisite majority of the shareholders at the meetings convened for the said purposes, a nullity. The non-disclosure, according to the learned counsel, relates to non-mentioning of the re-valuation report of the Itadals as also of the chartered accountants and of the fact of the two companies having common directors on their respective board of directors.
(iii) the ratio and proportion of shares fixed upon the basis of the re-valuation of the assets of the transferee-company is vitiated by reason of the fact that revaluation was not justified on the facts of the case and in any event because valuers adopted erroneous principles in that behalf.
6. The argument as to whether a profit-making company is entitled to propose a scheme for its amalgamation and merger with a loss-making company proceeds upon the interpretation sought to be put by the learned counsel for the dissentient shareholders on the term “company” occurring in section 391. According to the learned counsel the said term as defined in section 390(a) means only such companies as are in financial difficulties and are, therefore, liable to be wound up under the said Act. The learned counsel submits that section 390(a) in terms provides that a company for the purpose of sections 391 and 393 means “any company liable to be wound up under this Act”. The learned counsel says that the expression “any company liable to be wound up under this Act” has been used to imply companies whose condition is such as would justify their winding-up. The submission is that the expression does not embrace every company, whatever be its financial position to which winding-up provisions contained in the Companies Act, 1956, apply.
7. The learned counsel emphasises that the submissions made by him are concluded in his favour by a judgment of this court (Tarkunde J.) in Seksaria Cotton Mills Ltd. v. A.E Naik*, [1967] 37 Comp Cas 656 (Bom). The learned counsel calls attention to the observations made by Tarkunde J. in the said judgment at page 661. The said observations are as follows:
“Whatever may be the correct meaning of the expression ‘any company liable to be wound up under this Act’ which occurred in section 153(6) of the Indian Companies Act, 1913, and which now occurs in clause (a) of section 390 of the Companies Act, 1956, it seems to me obvious that section 391 of the present act which empowers the court to sanction a compromise or other arrangement can have no application to a company which is in a sound financial condition.”
8. It is undoubtedly true that the aforesaid observations, couched as they are in categorical language, support the submissions made by the learned counsel for the dissentient shareholders. This, however, in my opinion, does not help the dissentient shareholders inasmuch as the law expounded therein appears to be in the nature of an obiter, if not mere observation made by the learned judge. Moreover, these observations, in my respectful opinion, do not state the law accurately.
9. Judicial decorum and propriety require that the precedents must have binding effect and an authoritative exposition of law should not be departed from at the whim or the caprice of a court. The law of precedents, however, admits of a very unexceptionable principle succinctly articulated by the Earl of Halsbury L.C in Quinn v. Leathern, [1901] AC 495, 506 (HL). Earl Halsbury said “…… decision is only an authority for what it actually decides”. This principle was noticed and reiterated by the Supreme Court in State of Orissa v. Sudhansu Sekhar Misra, AIR 1968 SC 647. At page 651 of the report, Hegde J., speaking for the unanimous court, observed as follows:
“A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it.”
10. The said principle has been often repeated by the Supreme Court in several cases and it is expounded that “no judgment can be read as if it is a statute”: Addl. Distt. Magistrate, Jabalpur v. Shivakant Shukla, (1976) 2 SCC 521 : AIR 1976 SC 1207, 1341.
11. Seksaria Cotton Mill's case, [1967] 37 Comp Cas 656 (Bom) was a case where a company was directed to be wound up by this court on 28th April, 1958. In the course of the winding-up an intimation was given by the sales tax authority to the official liquidator requesting him “to register the claim of the sales tax officer for the above dealer (company) if it is found after verifying account books of the dealer”, that the sales tax was payable by the said company. However, before assessment orders could be passed, this court sanctioned a scheme on 28th April, 1961. The said scheme as sanctioned by the said court, inter alia, provided that “all preferential claims were to be paid 4-annas in a rupee in full and final settlement of their respective claims”. After this scheme was sanctioned and after the assessment orders were made on 11th July, 1963, a notice of demand was issued to the company for payment of certain amounts payable as sales tax. The company was threatened with recovery proceedings in the event of non-compliance. The said notices were challenged by the company in a writ petition under article 226 of the Constitution. In the said writ petition the argument of the company was that the sales tax authorities were entitled not to the full amount of the tax assessed but only to the 25% thereof as the scheme sanctioned by this court earlier was binding on the sales tax authorities. The claim of the sales tax authorities was that they were not the creditors of the company at the time when the scheme was sanctioned and, therefore, the said scheme did not bind them. After noticing the said argument, the question that was posed by the learned judge was as follows:
“The question to be decided, therefore, is whether the sales tax department (i.e, the Government of Maharashtra) was a ‘creditor’ of the company on 28th April, 1961, when Mr. Justice Mody sanctioned the scheme of reconstruction.”
12. The learned judge answered the question in favour of the company. The learned judge held that the sales tax officer concerned was a creditor of the company, that he was an unsecured creditor and that he was entitled to recover only 25% of his claim. The said findings were made by the learned judge upon an analysis of the facts of the case in the context of the provisions of the Bombay Sales Tax Act, 1953, and of sections 439, 474, 528 and other cognate sections of the Companies Act, 1956. On the facts of the said case, no question arose before the learned judge as to whether a company which was able to pay its debts or which was in economically viable condition or was functioning normally could or could not take the benefits of the provisions of amalgamation, reconstruction and merger of the companies. No further question could arise before the learned judge as to whether only such companies as are unable to pay their debts were liable to be wound up or as to whether provisions relating to winding-up also had within their reach companies which are economically solvent, viable, or, as characterised by the learned counsel for the dissentient shareholders, “profit-making companies”. Having regard to the factual parameters and legal perimeters of the said decision, I am respectfully of the opinion that the ratio of the said decision is inapplicable to the facts of the present case.
13. The binding effect of the observations by Tarkunde J. abstracted above, being out of way, the question to be determined is as to whether the said observations contain a correct statement of law. With great deference to the learned judge, it is my humble opinion that the law laid down therein is inconsistent with the relevant provisions of the Companies Act, 1956, and the intendment, scheme and the purposes thereof. I respectfully dissent from the view expressed in the said observations.
14. Section 390 of the Companies Act, 1956, corresponds to sub-section (6) of section 153 of the Indian Companies Act, 1913. The said provision is modelled on the provisions of sub-section (6) of section 206 of the English Companies Act, 1948, or its preceding enactment. The expression “any company liable to be wound up under this Act” occurring in the English Act, as foot note 7 of Buckley on the Companies Acts, 13th edition, page 404 shows, is referable to the provisions of sections 399, 400 and 455 of the English Companies Act, 1948. Section 455 of the English Companies Act, is an interpretation section. Sections 399 and 400 of the said Act deal with winding-up of unregistered companies. The reference to the said three sections, particularly sections 399 and 400, by Buckley gives a clue to the connotation and meaning of the expression “any company liable to be wound up under the Act”. This expression means all companies to which the provisions relating to winding up apply. Thus, the expression in section 390(a) takes within its sweep all companies registered under the provisions of the Companies Act, 1956, as also all unregistered or other companies in respect of which winding-up orders can be made by a court under the provisions of the Companies Act, 1956. In other words, the expression embraces not only companies which are registered companies under the provisions of the Companies Act, 1956, but also companies which come within the purview of the provisions of the Companies Act, 1956, and can be wound up by a court under the provisions thereof. These latter are the companies which fall within the province of the provisions of Part X of the Companies Act, 1956. The said part deals with winding up of the unregistered companies. Section 582 contained in the said part defines an unregistered company and, inter alia, provides that the said concept includes “any partnership, association or company consisting of more than 7 members”. Section 584 contained in the said part confers powers upon the courts in India jurisdiction to direct winding up of foreign companies also as if they were unregistered companies provided such foreign companies, although incorporated outside India, had been carrying on business in India. These provisions of the companies act clearly show that the expression contained in clause (a) of section 390 was advisedly used so as to enable the unregistered companies or the foreign companies to be in a position to invoke the provisions of sections 391 and 393 of the Companies Act.
15. In Seksaria Cotton Mills' case, [1967] 37 Comp Cas 656 (Bom) this court, as noticed above, was only concerned with the question whether the scheme sanctioned by this court was binding on the sales tax authorities by virtue of and under the provisions of sub-section (2) of section 391 of the Act. It was, therefore, necessary for this court to notice the provisions of sub-section (2) of section 391. In that case this court was not concerned with the provisions of sub-section (1) of section 391 which deals with the topic of proposals for compromise or arrangement. The said sub-section contemplates an application by a company or its creditor or member when such a company is not being wound up for directions from the court after proposal is made. In regard to the intendment of section 391, Tarkunde J. rightly observed at page 660 as follows:
“It will be noticed that section 391 applies to a company which is being wound up as well as to a company which is not being wound up.”
16. This observation has been made notwithstanding that clause (a) of section 390 which provides that the expression “company” means “any company liable to be wound up under this Act”. In other words, the learned judge himself held that both the companies which are being wound up and those which can be wound up are covered by section 391. The observations of the learned judge, to my mind, clearly implies that, in order to fall within the definition of clause (a) of section 390, the company must be a company to which winding-up provisions of the Companies Act, 1956, apply, irrespective of the fact whether there is an occasion for the application of the said provisions to the facts pertaining to a particular company. This is because the critical factor is not whether a company is being wound up or a company is not being wound up but it is that the company belongs to the categories of companies which come within the vortex of the winding-up provisions of the companies act.
17. Tarkunde J. noticed the decisions in In re Tmvancore National and Quilon Bank Ltd., [1939] 9 Comp Cas 14 (Mad) and in the matter of the Indian Companies Act VII of 1913 and of the Traders Bank Ltd., Lahore, AIR 1949 Lah 48, before making the observations relied upon by Shri Zaiwala. The said two decisions dealt with cases of unregistered companies and determined the question as to whether a foreign company could take benefit of the provisions of section 153 of 1913 Act. The view taken by the Madras High Court in Travancore National and Quilon Bank Ltd., In re, [1939] 9 Comp cas 14 (Mad) was that since a foreign company was liable to be wound up as an unregistered company within the meaning of section 371 of the Indian Companies Act, 1913, it was also a “company” for the purposes of section 153 of the said Act. The judgment rested on the principle that section 153 was intended to apply to the cases of a going company as also to a company in liquidation and a company which is being wound-up in the sense that a winding-up petition in respect thereof was pending before a court. This view was based on a wider interpretation of the provisions of section 276 of the 1913 Act to the effect that “an unregistered company shall not, except in the event of its being wound up, be deemed to be a company under this Act” (underlining* supplied). The wider view taken by the Madras High Court aforesaid was dissented by the learned single judge of the Lahore High Court in the Traders Bank Ltd.'s case, AIR 1949 Lah 48. The learned judge gave a restricted interpretation to the expression “in the event of its being wound up” and held that it could only mean such companies as were exposed to winding up. The cleavage of judicial opinion disclosed in the two decisions need not be gone into as no such question arises in the present case. Reference to the said decisions has been made because the learned judge in Seksaria Cotton Mills' case, [1967] 37 Comp Cas 656 (Bom) referred to the said decisions before making the observation adverted to above. These decisions, however, also highlight the fact that in both the decisions liability of a foreign company to be wound up was assumed or accepted. Reference to them also shows that the question of coverage of section 391 or of interpretation of section 390(a) was not in the focus of the court's attention in Seksaria Cotton Mills' case, [1967] 37 Comp Cas 656 (Bom).
18. There cannot be any dispute that the provisions of sections relating to compromises, arrangements or the schemes as they are popularly called are an alternative mode to the winding up of the companies. But from this it does not follow that section 391 applies only to “a normally functioning company”. Reported judgments show that a “normally functioning company”, that is to say, a company which is commercially solvent or is otherwise viable or functioning normally can also be wound up by and under the directions of a court. These reported judgments need not be analysed for the simple reason that section 433 of the Companies Act, 1956, enumerates the circumstances in which a company can be wound up by a court. The circumstances enumerated in the said section show—
that an affluent or normally functioning company can also be wound up if it resolves that it may be wound up by a court: clause (a);
or if it commits defaults in delivering the statutory report to the Registrar or in holding statutory meetings: clause (b);
or if the number of members of such company, if it is a public company goes below 7 or if it is a private company, goes below 2: clause (d);
or if it is a company wherein, having regard to the deadlock in the management or lack of probity in management or on analogous grounds, the court comes to the conclusion that it is just and equitable that the company should be wound-up: clause (f).
19. These provisions clearly establish that “a normally functioning company or a profit making company” also come within the purview of winding up by the court or the provisions of Part VII of the Companies Act, 1956. These provisions support the view that the expression “liable to be wound up” occurring in clause (a) of section 390 connotes companies to which the winding-up provisions of the Companies Act, 1956, apply.
20. The opinion expressed above with regard to the connotation of the expression “liable to be wound up” also follows from the plain meaning of the word “liable”. Etymologically the word means “exposed to a possibility or risk”. The word “liable” as held in Saunders v. Newbold, [1905] 1 Ch 260 (CA) does not necessarily connote an existing liability. (C.F Stroud's Judicial Dictionary, 4th edition, volume 3, page 1513). The term is not restricted to mean liable in point of fact. In the legal context, it means responsibility at law (see Littlewood v. George Wimpey & Co. Ltd., [1953] 2 QB 501 (CA)). The word “liable”, therefore, predicates a further possibility or probability which may or may not actually occur. It is this sense which is normally conveyed when it is said that a person who commits breach of contract is liable to pay damages or that a person who commits an offence is liable to penal consequences provided in respect thereof. I am of opinion that the word “liable” when used in statutes merely shows coverage of the statute. In other words, it postulates facts being given particular statutory provision will apply. Seen in this context, the conclusion is irresistible that the expression “liable to be wound up” would only mean that on factual ingredients being satisfied a particular company would come within the coverage of winding-up provisions and would be liable to be wound up. In other words, if a company is within the reach of the provisions of the Companies Act, 1956, pertaining to winding up, such a company must be held to be a company “liable to be wound up under this Act”. Such a company would, therefore, be entitled to invoke the provisions of section 391 of the Companies Act. I reject the submission of the learned counsel for the dissentient shareholders that the petitioners are not entitled to have their scheme sanctioned by reason of the fact that the transferee company is not in embarrassed circumstances.
21. The contention that the company did not make proper disclosure in accordance with the provisions of section 173 or in any event section 393(1)(a) of the Companies Act, 1956, is without any substance. The grievance of the dissentient shareholders is that in the statements accompanying the notices calling the meetings of the members of the companies for the consideration of the scheme, there was a deliberate omission of fact that some of the directors were common to both the companies or of the factum of the report of the chartered accountants or the revaluation report or of particulars relating thereof. This deliberate omission, according to the dissentient shareholders, is in breach of the mandatory provisions of Sub-section (2) of section 173 or in any event clause (a) of sub-section (1) of section 393 of the Companies Act, 1956.
22. Section 173 occurs in Chapter I, Part IV, of the Companies Act, 1956. It is amongst a congery of sections dealing with “meetings and proceedings”. Section 165 in the said group deals with statutory meeting and statutory report of a company. Section 166 deals with annual general meeting of a company. Section 167 confers powers upon the Central Government to call an annual general meeting of a company. Section 169 provides for convening of an extraordinary general meeting of a company on requisition. Sections 171 and 172 deal with procedure in regard to the notices or contents thereof or the manner of service thereof in regard to the meetings of a company. By mandate of section 170, provisions of sections 171 to 186 displace all provisions contained in the articles of association of a company or other instruments as are contrary to or inconsistent with the provisions of the said sections 171 to 186. It must, therefore, be seen that the focus of the said catena of sections is on the convening of or the calling of the meetings of a company. Clause (a) of sub-section (1) of section 173 deals with an annual general meeting of a company. It enumerates as to what business shall be deemed to be transacted at the annual general meeting and ordains that all other business shall be deemed to be special. The provisions of this clause are not relevant for present purposes. Clause (b) of sub-section (1) of section 173 provides for meetings other than the annual general meeting. Clause (b) takes its colour from clause (a) and must be deemed as referring to the “other meetings” of a company. Sub-section (2) of section 173 ordains that there shall be a statement annexed to the notice convening a meeting “setting out all material facts concerning each such item of business, including in particular the nature of the concern or interest, if any, therein of every director, the managing agent, if any.”
23. The provisions of section 173, as indeed all other provisions referred to above, are general provisions pertaining to the meetings of a company, whether an annual general meeting or an extraordinary general meeting. As against the said provisions, clause (a) of sub-section (1) of section 393 deals with “a meeting of creditors or any class of creditors or members or any class of members called under section 391”. The provisions of section 393 take their colour from section 391 which contemplates convening of the meeting under the directions of a court, “of creditors or class of creditors or of members or class of members, as the case may be”. Sections 391 and 393 are a code complete in themselves in respect of provisions or procedure relating to sponsoring of the scheme, the approval thereof by the creditors or the members, as the case may be, and the sanction thereof by the court. A combined reading of sections 391 and 393 and its comparison with the provisions of section 173 shows that the former section deals with a specific situation to the exclusion of the general provisions made by section 173. Furthermore, section 173 postulates a meeting of a company whereas sections 391 and 393 contemplate convening of a meeting of members or a class of members. It is true that any meeting of a company is factually also a meeting of the members of that company but the thrust of the two sets of sections clearly establishes a different legal identity of such meetings. This distinction is also borne out when the language of section 391 is contrasted with the language of section 186 of the Companies Act, 1956. Both the sections confer power on the court (section 156 prior to its amendment by the act 41 of 1974) to convene meetings. Sub-section (1) of section 186 in terms refers to a “meeting of a company”. Section 391 refers to a “meeting of creditors or class of creditors or members or class of members”. There is deliberate omission of the words “of a company” in section 391. This omission postulates that different fields and situations are contemplated. The legislative intent appears to provide by sections 391 and 393 for meetings of the creditors or the members or classes thereof as contradistinguished from the meetings of the company. This understanding is further buttressed by the fact that the chairman of the company does not preside over the meetings of the members convened under the provisions of section 391. In my opinion, having regard to the principle that specific excludes the general, it must be held that when a specific mode is provided by sections 391 and 393 the said mode displaces the general mode relating to the meetings provided by the catena of sections falling within the group “meetings and proceedings” in Chapter I of Part VI of the Companies Act, 1956.
24. Shri Zaiwala submits that the contention as to the applicability of Sub-section (2) of section 173 to the meetings of the members convened under the provisions of section 391 is fortified by a judgment of the Calcutta High Court in the matter of Carron Tea Co. Ltd., [1966] 2 Comp LJ 278 (Cal). I am afraid this is a wrong reading of the said judgment. The contention on behalf of the dissentient shareholders in that case was raised by their counsel, Shri Sen. The contra-argument was made by Shri Ghosh, the learned counsel appearing for the company in that matter. The argument of the learned counsel for the company was noticed by the learned judge at page 297. The argument was to the effect:
“In the case of a meeting held under section 391, there need not be any explanatory statement under section 173 but it is sufficient if there is a statement in terms of section 393.”
25. The learned judge dealt with the said argument and upon the analysis of the provisions of Chapter V came to the following conclusions at page 298:
“Hence, section 173 and section 391 lie in different fields. Consequently, the application of section 173 is excluded to meetings under section 391.
Section 173 regulates meeting of the companies. Section 391 does not. Hence, section 173 is applicable (sic: inapplicable).
Section 173 is a general rule for all meetings subject to certain exceptions. Section 391 is a special provision for one class of meeting. Hence, section 173 is inapplicable”.
26. The learned judge in that case in terms made a finding at page 299 to the following effect:
“Hence, in my opinion, the submission made by Mr. Ghosh is sound and is acceptable to me.”
27. In my opinion, the judgment of the Calcutta High Court buttresses the view taken above rather than supports the submissions made on behalf of the dissentient shareholders before me.
28. There is no warrant for the contention that the statement annexed to the notice convening the meetings of the members did not comply with the requirements of clause (a) of sub-section (1) of section 393. The said clause requires that the statement contemplated thereby should, (i) set out the terms of the compromise or arrangement, (ii) explain the effect of the terms of such compromise or arrangement, (iii) in particular state the material interests of the directors, managing director or manager of the company, and (iv) effects on those interests of the compromise or arrangement, if any, and in so far as it is different from the effect on the like interests of other persons. These ingredients are culled out by me from the express language of the said clause (a) of sub-section (1) of section 393. Unlike Sub-section (2) of section 173, clause (a) of sub-section (1) of section 393 does not require disclosure of all material facts. The clause required disclosure of the facts enumerated therein. It is not disputed before me that the statement accompanying the notice convening meetings of the members in the present case did disclose the terms of the compromise or the effects of the said terms. The argument, however, is that in so far as it was not disclosed that there were common directors on the boards of the two companies, there was a non-disclosure within the meaning of 4th limb of clause (a) of sub-section (1) of section 393 mentioned above. This, in my opinion, is a misconception. The disclosure contemplated by the said limb relates only to the effect on the interests of the directors, etc., of the scheme in so far as such effect is different from the effect on the like interest of the other persons. I am unable to appreciate as to what effect can there be of the scheme on the common directors of the two companies or much more how would such effect be different from the effect on the like interest of other persons, assuming without deciding that interests of directors are to be disclosed. Even so, there would be no breach of the provisions. Interest of directors is an expression which has well-defined connotation. The term “interest” relates to the interest which is peculiar to each of the directors and does not refer to the factum of knowledge of a director in regard to the status of every other director or his being concerned as a director of any other company. Nothing has been shown to me in support of such a contention. I do not find any authority or justification for taking such a view.
29. The grievance that the revaluation report of Itadals or of the chartered accountant not being disclosed in breach of the provisions of clause (a) of sub-section (1) of section 393 is equally untenable. All that the said clause requires is the disclosure as to the terms of the compromise or the explanation as to the effects thereof on the interest of the directors, etc. Unlike Sub-section (2) of section 173 the said clause does not ordain disclosure of all material facts. Clause (a) not only enumerates the categories of particulars but it deliberately makes a departure by omitting any reference to material facts. The legislature having used a different phraseology in the said two provisions it must be held that the legislative intent under section 393 was not to provide for disclosure of all material facts. That being the position, without expressing any opinion as to whether the disclosure of facts as to or the contents of the report of Itadals was or was not necessary or was in point of fact made or not made. I am of opinion that even if no such disclosure was made, such a non-disclosure will not come within the mischief of clause (a) of sub-section (1) of section 393. I, therefore, reject the contention of the learned counsel for the dissentient shareholders that there was a breach of the provisions of clause (a) of sub-section (1) of section 393 vitiating the resolution approved by the majority of members at their meeting.
30. The last contention of the dissentient shareholders is also without substance. The contention has two limbs: (i) that on the facts of the case there was no justification for revaluation of the assets of the transferee-company; and (ii) that the approach of the valuers Itadals was erroneous, in point of law and invalidated the sanctioning of the scheme which took into account the said revaluation for the purposes of fixing the ratio between the members of the two companies. As to the first, I find sufficient justification in the contention on behalf of the companies that the revaluation of the plant and machinery and the other assets of the transferee-company which was founded in the year 1919 was required to be done so as to reflect correctly the true worth of the assets and consequently the true value of the shares of the transferee-company. I am also satisfied with the explanation of the companies to the effect that no revaluation of the assets of the plant and machinery of the transferee-company was necessary in view of the fact that the transferor-company was incorporated in the year 1960 and that a valuation report of the various assets thereof was in point of fact made in the year 1962.
31. The learned counsel for the dissentient shareholders attacked the basis of the valuation or the approach adopted by the valuers on the ground that the valuers fell in error in evaluating the lands which were given on lease by the transferee-company to third parties. The grievance of the learned counsel is that the properties which are already leased out cannot be valued with reference to the market price prevailing in regard to such properties.
32. I am unable to understand the logic of such a contention. The Itadals have merely valued the undeveloped land. The valuation of the undeveloped land by them is based on the current value of the open land. No grievance was made in regard to the rate mentioned in the said report. In my opinion, it is permissible in law to evaluate the lands even though they may be subject to the leasehold rights. Such evaluations are always done where compensation is to be determined for properties which are acquired compulsorily under statutory provisions. Law of compensation for acquisition of land provides for valuation of such lands as also apportionment of compensation in that behalf between the lessors and lessees. I do not see any reason why such a principle could not be invoked by Itadals in the matter of valuation of the lands belonging to the transferee-company.
33. The other grievance that the principle of valuation adopted for plant and machinery or the tools, jigs and fixtures (sic) is also untenable. The Itadals divided the machineries in different categories depending upon the years of their respective installation. After grouping the plant and machinery in the said manner they adopted the basis of replacement value thereof. I do not find any error in such an approach. Equally untenable, in my opinion, is the grievance that the tools, jigs and fixtures have not been evaluated on correct principles. I find that in valuing the said equipment the Itadals excluded working tools or consumable items. They valued tools, jigs and fixtures which were costly and of a durable tenure. The items of equipment which have been valued are not merely tools or jigs but are, strictly speaking, machinery such as mixer assembly, capacitors and other heavy equipments. In my opinion, these equipments required to be valued. I have been shown nothing to take a different view. I, therefore, Teject the last contention raised on behalf of the dissentient shareholders.
34. Shri Parikh, a shareholder in person argued on the same lines as were adopted by the learned counsel, Shri Zaiwala. I reject the said contention for the reasons for which I reject the contentions advanced by Shri Zaiwala.
35. As to the arguments of Shri Varvaiyya, I did not permit him to argue the matter on the narrow ground that the workers employed by the companies, not being either the creditors of the companies or members, had no locus standi in the proceedings under section 391.
36. No other grounds have been urged in opposing the sanction of the scheme. I do not find the schemes unfair. Nor do I find any legal or equitable bar in sanctioning the schemes. The schemes have been passed by statutory majorities of the companies. The schemes appear to me to be good and reasonably fair. In the facts and circumstances of the case, I have no hesitation in according my sanction to the said scheme.
37. In the result, I make both the petitions, viz., Petitions Nos. 146 and 147 of 1975, absolute in terms of prayer (a) and (b) thereof. I direct that the orders passed in the said petitions be communicated by the petitioners to the Registrar of Companies within a period of 30 days from the date of the sealing of the order. As to the costs of the petitions, I make no order as to the costs save and except that the petitioners in both the petitions do pay to the Regional Director, Company Law Board, the costs of the said petitions fixed at Rs. 450 for each of the petitions.