TMI Blog2003 (2) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... flour and other products from wheat and various other commodities. It is also engaged in the activities of merchant exports and it has a major presence in the international market for its products. The company has a turnover of Rs. 524.43 crores and profits of Rs. 4.40 crores and the reserve of more than Rs. 166 crores during the financial year ended on March 31, 2002. Substantial contribution in the turnover is due to the exports which are around 50 per cent of the total turnover of the company. Due to the presence of the company in highly volatile agro commodities and agro processing business the company has been able to give the dividend at the rate of only 5 per cent per annum in the last two years. 3. The applicant-company has more than 2,80,000 shareholders where the average holding per share of these shareholders is around 67 shares. The cost of services of these shareholders is around Rs. 30 per folio and goes on increasing every year. The applicant-company s equity shares are tradable under the compulsory dematerialised form and therefore, the shareholders who hold on an average negligible shares are put to lot of difficulties and inconvenience as well as cost in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and subject to such consents and permissions of the Central Government and other authorities as may be necessary, the scheme of arrangement be made between the applicant-company and the equity shareholders of the company on the broad basis referred to in the scheme of arrangement. 6. Earlier the petitioner had moved an application seeking direction for convening the meetings of its shareholders and creditors for considering and if thought fit, approving the scheme of compromise. The learned single judge of this court, however, rejected the said application. Against the said order the petitioner preferred an appeal being O.J. Appeal No. 26 of 2002 and the Division Bench of this court, vide its order dated September 21, 2002, permitted the petitioner to convene the different meetings of its shareholders and creditors for the purpose of considering, and if thought fit approving the said scheme of compromise. 7. Pursuant to the court s order dated September 21, 2002, for convening meeting, the notices of the meetings were also advertised as directed by the said order in "The Times of India, English daily (Ahmedabad, Mumbai, Delhi, Bangalore, Calcutta, Lucknow, Hyderabad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following result. 51 (fifty-one) equity shareholders present in person or though proxy in the meeting representing the value of Rs. 12,00,92,140 voted in favour of the proposed resolution. Whereas the ballot used by 2 (two) equity shareholders present in person or through proxy in the meeting representing the value of Rs. 460 were found to be invalid. 10. Thus, the resolution approving the scheme of arrangement was carried unanimously by the members present and voting and it was resolved as follows: "Resolved that the compromise or arrangement in the nature of the scheme of arrangement between Gujarat Ambuja Exports Ltd., and its equity shareholders sent along with the notice dated October 10, 2002, for convening this meeting, be and is hereby approved." 11. The said meeting of the secured creditors of the company was attended by 02 (two) secured creditors in person and through proxies and the total value of their debts is Rs. 92,11,38,109.97. The said scheme of arrangement was taken as read with the permission of all the creditors present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. The poll was taken to ascertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to earlier is also attached as exhibit D. 15. Pursuant to the court s order, the petitioner convened different meetings on November 21, 2002, as is pointed out above. The said scheme has been approved by more than 99 per cent of the eligible shareholders. So far as the meetings of other shareholders, unsecured creditors and secured creditors are concerned, they have approved the said scheme unanimously in their respective meetings. In view of this, the scheme has been approved by the requisite statutory majority in different meetings. After the present petition was filed on December 10, 2002, the same was admitted and notice of hearing was ordered to be published in newspapers. The same has been done and an affidavit to that effect has already been filed before this court. Notice of the petition has also been served upon the Central Government and Ms. P.J. Davawale, the Additional Central Government standing counsel has appeared on its behalf. 16. The petition was taken up for hearing and final disposal before this court. At that time, Mr. S.N. Soparkar, senior advocate appearing on behalf of the petitioner submitted that considering the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 requirement 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 given 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 a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." (p. 819) He also pointed out that pursuant to the published advertisement only two shareholders have lodged their objections which are not of any significant value. He also referred to the observations made by the Central Government in the letter dated January 13, 2003, addressed by the Regional Director, Department of Company Affairs to the Registrar of Companies, Gujarat, Ahmedabad, and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in respect of scheme of arrangement of the above company has been examined. It is seen that the scheme involves buy-back of shares for which the company should have adopted the procedure laid down under section 77A of the Companies Act, 1956. The option in Form A given to shareholders who are eligible shareholders is that they have to sign and send the form if they wish to continue as shareholders. Those who do not exercise the option to continue as shareholders would in effect be treated as having opted to receive payment against the cancellation of shares. This involves negative option and against the interest of small shareholders and as such the above matter may be brought to the notice of the hon ble court at the time of hearing." 20. At the outset, it may be noted that according to the communication contained in the letter these are not the objections of the Central Government at all. As a matter of fact, according to this letter the Central Government does not object to the scheme but has only required this court to notice the facts stated above. 21. Two aspects are highlighted by the Central Government which are dealt with hereinafter. 22. According to the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 104, section 391 is misconceived. The non obstante clause in section 77A namely notwithstanding anything contained in this Act. . . only mean that notwithstanding the provisions of section 77 and sections 100 to 104, the company can buy back its shares subject to compliance with the conditions mentioned in that section without approaching the court under sections 100 to 104 or section 391. There is nothing in the provision of section 77A to indicate that the jurisdiction of the court under section 391 or 394 has been taken away or substituted. It is well settled that the exclusion of the jurisdiction of the court should not readily be inferred, such exclusion should be explicitly or clearly implied. There is nothing in the language of section 77 that gives rise to such an inference. We are, therefore, inclined to hold that section 77A is merely an enabling provision and the court s powers under sections 100 to 104 and section 391 are not in any way affected. The conditions provided in section 77A are applicable only to buy back of shares under section 77A. The conditions applicable to sections 100 to 104 and section 391 cannot be imported into or made applicable to a buy back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave objected to the scheme if it would have provided that those shareholders who want to continue with the company were not required to despatch their option and that silence under the scheme, would have been regarded as the decision to continue as shareholders rather than permit the company to buy back the shares. According to her, under the Contract Act, silence cannot be regarded as consent and that unless there is assent with expressed consent from the shareholders, one cannot assume that the shareholder is agreeable to the scheme of buy back. In this connection, she drew my attention to the following two judgments. 1. The decision of the Allahabad High Court in the case of Gaddar Mal v. Tata Industrial Bank Ltd. AIR 1927 All. 407, where the Allahabad High Court has held that silence of the offeree cannot be regarded as his consent and that assent must be express words or positive conduct and that no duty is cast by the law upon the person to whom an offer is made to reply to that offer. 2. The decision of the Rangoon High Court in the case of S.M. Bholat v. Yokohama Specie Bank Ltd. AIR 1941 Rangoon 270 where also the court has held that silence on receipt of a let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stage which is subsequent to the passing of the resolution and it was submitted that in the meeting of the shareholders, they have decided as to how willingness of every shareholder to continue or not to continue with the company would be obtained by it. As shareholders have decided the modality of sending the option to the company, it may be held that the scheme is not based on the negative consent. 32. In this connection, he relied upon the judgment of the Allahabad High Court in the case of Gaddarmal Hiralal v. Chandrabhan Agarwal Co. AIR 1968 All. 292, where it was held as follows: "To put it differently, if there exists a prior agreement among the parties laying down how the transactions shall be undertaken, that agreement shall determine whether in the subsequent transactions governed by or flowing out of such agreement there was acceptance of proposal, i.e., the proposal became a promise and hence a fresh agreement enforceable independently of the earlier transactions. Further, if the agreement makes a provision for acceptance of the proposal by mere omission or silence, failure to return the goods or papers, as the case may be, shall signify acceptance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter reads, this was not an objection by the Central Government and it is merely an observation. The scheme is approved almost unanimously in the meetings of the shareholders of a company. Such approved scheme itself provides that those shareholders who do not send letters stating their willingness to continue with their holding, are to have deemed to be agreeable for purchase of their shares. This is an arrangement between the company and the shareholders and as pointed out by the Supreme Court of India in the case of Miheer H. Mafatalal ( supra ), this court cannot examine the propriety of every clause of the scheme or look into the commercial wisdom of the shareholders as regards one or other commercial terms of the scheme. It is not open to this court to reject the scheme merely because according to the court some other better scheme would be possible. I also find that the scheme containing similar clause has been approved by the Bombay High Court in the case of Jay Corp. Ltd. ( supra ). 37. As pointed out above, for the oral argument of learned counsel for the Central Government as regards alleged non-receipt of notice by some shareholders, there is no basis. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none of these cases deals with the negative consent followed by the prior agreement on deciding the manner of transacting. 42. Under the circumstances, in my view, this objection of the Central Government has no substance. 43. The issue can be examined from a different angle as under : It is not disputed that the petitioner could have formulated a scheme for reduction of capital under sections 100 to 104 of the Act. If the company would have followed such a procedure and if at the meeting of the shareholders convened for reduction of share capital, resolution would have been passed whereby shares of every shareholder would have been reduced in value and if such resolution is confirmed by this court the shares of every shareholder would be compulsorily reduced on payment of consideration. In such a situation, all the shareholders would have lost a part of their shares without any exception. 44. In the present case the company has, on the contrary, given an option to those who do not want their shares to be bought-back, to inform the petitioner-company and those who would not inform are assumed to be agreeable to the buy back of the shares. Therefore, continuing with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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