The Court : Leave to correct the prayer clause has been sought by the learned Counsel for the appellant by referring to the proposed Scheme of Arrangement at Annexure ‘A’, which is at page 215 of the stay application (Part III Paras 14.5 and 17.4).
Leave, as sought for, is given to the appellant to make correction in prayer clauses (b) to (f) of the Appeal Memo. The expression “Scheme of Amalgamation” shall be read as “Scheme of Arrangement” Same correction is permitted to be made in the prayer clause of the Company Petition.
This appeal is directed against the judgment and order dated 4th December, 2009 of the Learned Company Judge in Company Petition No. 221 of 2009 with Company Application No. 726 of 2008 in so far as the Learned Company Judge did not sanction the Scheme of Arrangement between Globsyn Technologies Ltd. (demerged company) and Globsyn Infotech Ltd. (transferee company) (formerly Synergy Login Systems Ltd.) and their respective Members and Creditors. The Learned Company Judge took the view that the company was reducing the share premium amount which, in turn, would amount to reduction in the share capital without following the procedure prescribed under Section 101 of the Companies Act, 1956 (hereinafter referred to as the Act).
Mr. Sethi, learned Counsel for the appellant, submits that the Scheme has already been sanctioned by the Bombay High Court by judgment dated 10 July, 2009 in so far as the transferee company is concerned and that the scheme with the same clauses having been sanctioned by the transferee company and in absence of any opposition from the Government of India or any other party, the Learned Company Judge ought to have sanctioned the scheme in respect of the transferor company as well. It is further submitted that when the scheme itself provides for adjustment of share premium amount against capital of the company, the procedure under Section 101 of the Act was not required to be followed. In support of the said contention, reliance is placed on the decision of the Madras High Court in re: Parrys Confectionery Ltd., (2004) 122 Company Cases 900 (Mad.) and the decision of this Court in re: Bengal Tea Industries v. Union of India & Anr., 93 CWN 542 and of the Andhra Pradesh High Court in re: Hyderabad Industries Ltd. 123 Company Cases 458 as well as on the decision of Chancery Division in re: Meuxs Brewery Company Limited, (1919) Chancery Division page 28. Reliance is also placed on our judgment dated 2nd February, 2010 in re: The Zandu Pharmaceutical Works Ltd. in APOT No. 13 of 2010.
It is further submitted that when there was no unpaid capital and there was going to be no diminution of liability of any shareholder and it did not involve payment to any shareholder of any paid-up capital and therefore, the provisions of Section 101(2) of the Act would not apply in the facts and circumstances of the present case.
Learned Counsel further submits that an advertisement was issued in ‘The Financial Express’ dated May 22, 2009 (page 272 of the compilation) inviting objections, if any, to the sanction of the scheme of arrangement between Globsyn Technologies Limited and Globsyn Infotech Limited (formerly Synergy Log-in Systems Limited) and that despite categorical advertisement published in “The Financial Express” dated May 20, 2009, there was no objection from any of the creditors of the company. In fact, it is submitted that UTI is also a shareholder in the transferor company and they have also not raised any objection to the proposed scheme of arrangement.
Ms. Bhattacharya, learned Standing Counsel for the Central Government submits that in absence of any opposition in response to the public advertisement, the Central Government has also no objection to the sanction of the proposed scheme of arrangement under Section 391/394 of the Companies Act, 1956 between the abovenamed companies and their respective shareholders.
We have also considered the decision in the case of PMP Auto Industries Ltd., In re, S.S Miranda Ltd., In re and Morarjee Goculdas SPG. & WVG Co. Ltd., In re, reported in 1994 Vol.80 Company Cases 289 where the three companies PMP, SSM and MG formulated a scheme of amalgamation under which PMP was to merge in SSM and, thereafter, SSM was to merge in MG. In petitions filed by the companies before the Court under section 391 of the Companies Act, 1956, for sanction of the Court to the scheme, the Court held as follows :-
“Thus the position in law appears to be clear. Section 391 invests the court with powers to approve or sanction a scheme of amalgamation/arrangement which is for the benefit of the company. In doing so, if there are any other things which, for effectuation, require a special procedure to be followed-except reduction of capital-then the court has powers to sanction them while sanctioning the scheme itself. It would not be necessary for the company to resort to other provisions of the Companies Act or to follow other procedures prescribed for bringing about the changes requisite for effectively implementing the scheme which is sanctioned by the court. Not only is section 391 a complete code as held by the courts, but, in view, it is intended to be in the nature of a “single window clearance” system to ensure that the parties are not put to avoidable, unnecessary and cumbersome procedure of making repeated applications to the court for various other alterations or changes which might be needed effectively to implement the sanctioned scheme whose overall fairness and feasibility has been judged by the court under section 394 of the Act.”
In the case of In re Maneckchowk & Ahmedabad Manufacturing Co. Ltd., reported in [1970] Vol.40 Company Cases 819 where the Court observed as follows :-
“Basically, the court is given wide powers under section 391 of the Companies Act to frame a scheme for the revival of the company. section 391 of the Companies Act is a complete code under which the court can sanction a scheme containing all the alterations required in the structure of the company for the purpose of carrying out the scheme, except reduction of share capital which requires a special procedure to be followed by virtue of rule 85 of the Companies (Court) Rules. In the absence of rule 85, procedure for alterations in the memorandum and articles of association of a company prescribed under other provisions of the Companies Act is not required to be followed before sanctioning a scheme involving such alterations. The whole purpose of section 391 is to reconstitute the company without the company being required to make a number of applications under the Companies Act for various alterations which may be required in its memorandum and articles of association for functioning as a reconstituted company under the scheme.” (emphasis* supplied)”
In the said decision of Maneckchowk & Ahmedabad Manufacturing Co. Ltd. (supra) the Court also held that If the reduction of share capital proposed in a scheme does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up capital, the court can sanction the same without reference to the creditors.
In the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., reported in (1997) 1 SCC 579, the Supreme Court has evolved the broad contours of the Court's jurisdiction in respect of sanctioning a scheme in the following terms :-
“1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held.
2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 sub-section (2).
3. That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
4. That all necessary material indicated by Section 391(1)(a) is placed before the voters at the meetings concerned as contemplated by Section 391 sub-section(1).
5. That all the requisite material contemplated by the proviso of sub-section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent.
8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class 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 been 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 al scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction.”
Having heard the learned Counsel for the parties and after considering the facts and law as settled by the Courts, we find that the proposed scheme of arrangement does not involve diminution of liability of any shareholder or payment to any shareholder and that therefore the procedure contained in Section 101(2) of the Act was not required to be undertaken. We are satisfied that there is no impediment to the sanction of the Scheme of Arrangement as proposed by the appellant and for which the application filed by the transferor company before the Bombay High Court has already been allowed on 10 July, 2009. This appeal deserves to be allowed and accordingly, the impugned judgment dated 23rd December, 2009 of the Learned Company Judge is set aside and the proposed Scheme of Arrangement between Globsyn Technologies Limited and Globsyn Infotech Limited (formerly Synergy Log-in Systems Limited) is sanctioned.
There shall be an order in terms of prayers (b) to (l) of the Appeal Memo, that is, in terms of prayers (b) to (l) of the Company Petition.
This order is, however, passed subject to the condition that the appellant company shall file an undertaking that the appellant shall comply with the Accounting Standard-14 notified by the Central Government under Section 211(3 A) of the Companies Act, 1956.
The appeal and the applications, accordingly, are disposed of.
Fees of the Learned Standing Counsel for the Central Government is quantified at 500 GMs.
Urgent photostat certified copy, if applied for, be supplied to the parties within two weeks subject to compliance with the requisite formalities.
(Mohit S. Shah, CJ.)
(Pinaki Chandra Ghose, J.)
SN.
Asst. Registrar(CR)