TMI Blog1976 (8) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... icles 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. 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 abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 : "W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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. Tarkunde J. noticed the decisions in In re Travancore 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 unregistere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ). These provisions clearly establish that "a norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure 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. 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. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptable to me". 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, 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. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, reject the last contention raised on behalf of the dissentient shareholders. 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. 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. No other grounds have been urged in opposing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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