TMI Blog1973 (8) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... erting, repairing, etc., injection moulding machines, apparatus and the accessories, spare parts, etc., relating thereto. The company also for some time carried on business of preparing and selling artificial leather cloth, waterproof cloth, etc. The principal activity of the transferor-company, however, was of manufacturing blow moulding and injection moulding machines. The transferor-company is a private limited company and by December, 1971, all its equity shares were purchased and held by the transferee-company and its nominees with the result that the transferor-company has become a wholly-owned subsidiary company of the transferee-company. The transferee-company was incorporated on 4th September, 1948, and at present it is engaged in the manufacture of tracing cloth, processing of book binding cloth, acting as purchasing agents of Cable Corporation of India Ltd. and is also doing money-lending business for which it has got the necessary licence under the Bombay Money-lenders Act. The transferee-company appears to have recently reduced its manufacture of tracing cloth and processing of book binding cloth. It has surplus funds in the amount of about Rs. 13 lakhs. The transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections by his order dated 24th January, 1972, for convening meetings of the secured and unsecured creditors of the transferor-company and appointed Mr. M. M. Shastri, Deputy Registrar of this High Court, to preside over the meetings. The Chairman appointed by the court submitted the report broadly stating in it that the scheme of arrangement for amalgamation was approved by more than statutory majority in the meeting of the secured and uusecured creditors. After the report was received, the transferor-company filed the present petition under section 391(2) of the Companies Act for the aforementioned reliefs. While admitting the petition, Divan J. (as he then was), gave directions for advertising the petition in various newspapers and for serving notice on the Regional Director, Company Law Board, Western Region, Bombay, as required by section 394A of the Companies Act. Mr. I. M. Nana-vati, learned advocate who appeared for the petitioner, has filed his affidavit stating therein that he has not received any notice either to oppose or support the petition from any creditor of the company or anyone interested in the company. Mr. K.G. Vakharia, learned counsel for Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led Company Application No. 7 of 1972 for obtaining requisite directions and has complied with the directions given by the court. But, urged Mr. Vakharia, that the transferee-company has neither approached this court, nor the Maharashtra High Court, as the registered office of the transferee-company is situate in Maharashtra State, with an application under section 391(1). Therefore, it was contended that the court cannot accord sanction to the scheme of amalgamation at the instance of the transferor-company, without satisfying itself that those interested in the transferee-company have had a chance and opportunity to examine the scheme of amalgamation, and if the court accords its sanction at this stage, the court would be denying such opportunity to those interested in the transferee-company to examine the scheme of amalgamation as the scheme would be imposed upon the transferee-company without the members of the transferee-company having chance to express their opinion on it Initially, Mr. Nanavati was inclined to seriously contend that there is nothing in section 391(1) which impels the transferee-company in a scheme of amalgamation to approach the court under section 391(1) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Long title of the Act shows that it is an Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto. The Act came into force on 1st June, 1970. Section 2( d ) defines "dominant undertaking" to mean as under : "an undertaking which either by itself or along with inter-connected undertakings, ( i )produces, supplies, distributes or otherwise controls not less than one-third of the total goods of any description that are produced, supplied or distributed in India or any substantial part thereof, or ( ii )provides or otherwise controls not less than one-third of any services that are rendered in India or any substantial part thereof". Section 2( g ) defines " inter-connected undertakings " to mean as under: "Two or more undertakings which are inter-connected with each other in any of the following manner, namely: ( i )if one owns or controls the other,........... ( iii )where the undertakings are owned by bodies corporate, ( a )if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme for such merger or amalgamation has been approved by the Central Government under this Act. (2) If any undertaking to which this Part applies frames a scheme of merger or amalgamation with any other undertaking, or a scheme of merger or amalgimation is proposed between two or more undertakings, and, if as a result of such merger or amalgamation, an undertaking would come into existence to which clause ( a ) or clause ( b ) of section 20 would apply, it shall, before raking any action to give effect to the proposed schema, make an application to the Central Government in the prescribed form with a copy of the scheme annexed thereto, for the approval of the scheme. (3) Nothing in sub-section (1) or sub-section (2) shall apply to the scheme of merger or amalgamation of such inter-connected undertakings as are not dominant undertakings and as produce the same goods..................". The contention is that the transferor-company and the transferee-company are inter-connected undertakings, and the total value of their assets together with the assets of their other inter-connected undertakings is not less than twenty crores of rupees ; and, therefore, Part A applies to them. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that neither the transferor-company, nor the transferee-company, has approached the Central Government for according approval to the scheme of amalgamation. In other words, Mr Nanavati contended that sub-section (3) of section 23 carves out an exception to sub-sections (1) and (2) and if conditions for attracting application of sub-section (3) are satisfied, the bar or fetter placed on the power of the court under section 23(1) and (2) would be lifted. Therefore, the first important question to which the court must address itself is : Whether Part A of Chapter III, and especially the provision contained in section 20 applies either to the transferor-company or to the transferee-company ? At this stage, it is necessary to state some undisputed facts. Mr. S. Rajagopalan has annexed a statement to his affidavit-in-reply in which he has set out at Sr. Nos. 1 to 26, different undertakings and against the name of each undertaking its total assets; and on the basis of this statement, it was contended that the undertaking set out at Sr. Nos. 1 to 26 in the statement are inter-connected undertakings and the value of their total assets is not less than twenty crores of rupees, and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs shown at Sr. Nos. 1 to 26, the total value of the assets of the undertakings shown at Sr. Nos. 1 to 20, which are admittedly inter-connected undertakings would come to Rs. 9.82 crores. And on that reckoning of the factual position, section 20( a ) will not apply because the total value of the assets of the transferor-company or of the transferee-company of the total value of the resultant amalgamated company, or the total value of the assets of the transferor and transferee-companies along with the total value of the assets of its inter-connected undertakings, would not exceed twenty crores of rupees. This factual position was not disputed by Mr. Vakharia. Mr. Vakharia, however, contended that according to the Central Government, the undertakings shown at Sr. Nos. 21 to 26 in the statement annexed to Mr. S. Rajagopalan's affidavit-in-reply are inter-connected undertakings with the dominant undertaking shown at Sr. No. 1 and its inter-connected undertakings shown at Sr. Nos. 2 to 20; and if that statement is accepted, the total value of the assets of the inter-connected undertakings, including the transferor and transferee-companies would exceed twenty crores of rupees and sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the former managing agency firms. Out of 10 directors of the said undertaking, Thackerseys and Voras constitute majority of 7, i.e. , 4 directors belonging to Thackerseys and 3 to Voras. As a matter of fact, this undertaking has been all along managed by Thackerseys in association with Voras and the inference is clear that Voras have been close associates of the Thackerseys in managing this undertaking. It would, therefore, be obvious that this undertaking is for all the purposes under the control of the same group as the undertaking at Sr. No. 1 to 20 of the enclosed statement which are managed as well as controlled by the Thackerseys. The Bhor Industries Private Ltd. in its balance-sheet as at March 31, 1970, has also shown this company as a company under the same management". Two or more undertakings would be inter-connected undertakings within the meaning of the Act if, amongst other things, where undertakings are owned by a body corporate if they are under the same management within the meaning of section 370 of the Companies Act, 1956. Section 370( 1B ) of the Companies Act provides that two bodies corporate shall be deemed to be under the same management if any one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in both the companies and the relations must be only those relations set out in Schedule IA shown in section 6 of the Companies Act, any further extension of the provision by including some other relations as is understood in popular vocabulary cannot attract the application of the section. Therefore, the contention will have to be rejected on two specific grounds : ( i ) that holding of the shares of the two concerned companies is not set out ; and ( ii )it is not shown that the majority holders of shares in both the concerns are relations within the degree of relationship as set out in Schedule IA referred to in section 6 of the Companies Act. However, when the case of Hindustan Spinning Weaving Mills Ltd. is examined from the stand-point of majority directors being common both to that company and Bhor Industries Pvt. Ltd., the fallacy of the argument becomes evident. An attempt was made to urge that Thackerseys are in control and management of Bhor Industries Pvt. Ltd. This is not disputed. It was stated that Hindustan Spinning Weaving Mills Ltd. is controlled and managed by Thackerseys. This was seriously disputed. Now, Hindustan Spinning Weaving Mills Company Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thackerseys is not warranted by law in any manner, particularly because the whole question in this matter is to what extent Thackerseys are controlling the board of directors of the Hindustan Spinning Weaving Mills Ltd. and on that basis out of the 10 directors, Thackerseys are having only 4 directors and they do not constitute majority of the directors and have no control over the Hindustan Spinning Weaving Mills Ltd. and, therefore, it cannot be urged that it is an inter-connected undertaking for the purpose of the Act with the other undertakings listed in the statement annexed to the affidavit of Mr. S. Rajagopalan. Therefore, the contention of Mr. Vakharia must be negatived on the facts disclosed in this affidavit. Mr. Vakharia had also drawn the attention of the court to a statement made in the balance-sheet and statement of account of the Bhor Industries Pvt. Ltd. for the year 1970. Under the heading " Sundry debtors ", there is the following entry : "A. Due from the following companies under the same management and/or Pvt. Cos. wherein some of the directors and/or members : Indian Mfg. Co. Ltd". From this entry in the balance-sheet and the statement of accounts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re inter-connected undertakings with Bhor Industries Pvt. Ltd. They are left out of consideration because even if the total value of their assets is added to the total value of the assets of undertakings shown at Sr. Nos. 1 to 20, they do not exceed twenty crores of rupees. Therefore, the conclusion is inescapable that section 20( a ) of Part A in Chapter III of the Act does not apply either to the transferor-company or to the transferee-company. Next point to be considered is: whether section 20( b ) applies either to the transferor-company or to the transferee-company. Bhor Industries Pvt. Ltd. by itself is a dominant undertaking. The transferor-company and the transferee-company along with other undertakings are interconnected undertakings with the dominant undertaking. But neither the transferor-company, nor the transferee-company, by itself is a dominant undertaking. Therefore, section 20( b )( i ) will not be attracted. It will, however, have to be found out whether the total value of the assets of the transferor-company and transferee-company exceed one crore of rupees to eliminate the applicability of section 20( b )( ii ). The total value of the assets of the transfero ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter III applies, with any other undertaking, or on the scheme of amalgamation of two or more undertakings being sanctioned the new composite undertaking is one to which clause ( a ) or clause ( b ) of section 20 would apply, the court cannot proceed to accord sanction to such a scheme of amalgamation, unless the scheme for amalgamation has been first approved by the Central Government under the Act. I would for the present leave out of consideration sub-section (2) of section 23. Section 23(3) opens with a non-obstante clause and carves out an exception not only to sub-section (1) but to subsection (2) also. In other words, the effect of the provision contained in sub-section (3) is that if a scheme of amalgamation is such as would otherwise require the prior approval of the Central Government as envisaged by section 23(1) or section 23(2), the same can none the less be examined by the court without the prior approval of the Central Government and sanctioned if the conditions set out in sub-section (3) are satisfied. On analysis of sub-section (3) the conditions requisite for attracting its application appear to be : ( i ) that the scheme of merger or amalgamation is in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed by the words used. And in order to understand these words, it is material to inquire what is the subject-matter with respect to which they are used and the object in view. A certain amount of commonsense must be applied in construing statutes. The object of the Act has to be considered (vide Barnes v. Jarvis [1953] 1 WLR 649) . If the words of the statute are themselves precise and unambiguous, then no more can be necessary than to expound those words in their ordinary and natural sense, for in that case the words of the statute speak the intention of the legislature. In order to give effect to the directive principles of State policy as enunciated in sub-clause ( c ) of article 39 of the Constitution, this particular wholesome piece of legislation has been enacted by Parliament. Article 39( c ) provides that the State shall, in particular, direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. In order to give effect to this directive principle, this Act having far-reaching consequences has been enacted by Parliament. Political independence was but a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertakings. It frowns upon the expansion of giant undertakings so as not to permit them to acquire power to put a strangle-hold both on the market as well as on the consumer and further industrial expansion of the country. The object behind enacting section 23(3) manifests the legislative intent that there are certain schemes of amalgamation which the court may proceed to examine albeit without the prior approval of the Central Government. In fact, amalgamation of undertakings itself is not prohibited. In the case of certain types of amalgamation or merger of undertakings the Central Government wants to look into it before the court undertakes to examine it, the idea being that the Central Government is in a better position to know how this concentration of economic power would work to the common detriment. But at the same time, it cannot be disputed that the Act does envisage a scheme of amalgamation of undertakings for examination by the court without the prior approval of the scheme by the Central Government. Sub-section (3) of section 23 clearly brings out the legislative intent. If one can envisage such a scheme of amalgamation of undertakings which the court can examine wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nant undertaking and a composite undertaking would not become dominant undertaking. The last condition can only be satisfied if the undertakings sought to be amalgamated are not producing the same goods. If they are producing the same goods, the composite undertaking may as well become a dominant undertaking and by the very exception what is sought to be prohibited by the substantive section would be achieved. Therefore, both from the point of view of plain grammatical meaning of the language employed in sub-section (3) as well as the object sought to be achieved by the provision contained in Part A of Chapter II, the meaning that can be assigned to the expression "as are not dominant undertakings and as produce the same goods" would be that none of the undertakings sought to be amalgamated is dominant undertaking, and they are not producing the same goods. In order, therefore, to attract sub-section (3), three conditions which must be satisfied are that: ( i ) the scheme of amalgamation is in respect of inter-connected undertakings ; ( ii ) that none of them is a dominant undertaking; and ( iii ) the undertakings sought to be amalgamated are not producing the same goods. If these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the director, Mr. K. M. D. Thackersey, to which he would annex the latest balance-sheet of the transferor-company and the affidavit would contain express statement that no investigation is pending against the transferor-company either under section 235 or any other section of the Companies Act. It would thus appear that the statutory provisions have been properly complied with. The report of the Chairman shows that at the meeting of the secured creditors three secured creditors were present and all of them unanimously voted in favour of the scheme of amalgamation. It further shows that at the meeting of unsecured creditors 9 unsecured creditors were present having total claim of Rs. 97,545 and all the nine voted in favour of the scheme of amalgamation. As the transferor-company is a wholly-owned subsidiary company of the transferee-company, meaning thereby all the equity shares of the transferor-company are held by the transferee-company or its nominees, no question arises of convening a meeting of the members of the transferor-company. Their consent is implied in their conduct in moving for sanction of the scheme of amalgamation of the transferor-company with the transferee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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