TMI Blog2011 (1) TMI 1218X X X X Extracts X X X X X X X X Extracts X X X X ..... Mitra, S.K. Kapur, Pratap Chatterjee, Debangshu Basak and Sakya Sen for the Respondent. ORDER Facts 1. Two companies are the petitioners before me. One is Singhal Enterprises Pvt. Ltd. (SEPL). The other is Singhal Enterprises (Jharsuguda) Pvt. Ltd. (SEJPL). Each seek sanction of a scheme of arrangement, described as a demerger, between themselves and their members. This application is marked as CP No. 384 of 2007. The scheme is appended to the petition. 2. Another application has been taken out by a Judge s Summons dated 7th May, 2008 by Parmanand Agarwal and Sulochana Agarwal, numbered as CA 328 of 2008 opposing sanction. An affidavit is filed by B.S. Sponge (P.) Ltd., also opposing such sanction. 3. The petitioner companies and B.S. Sponge (P.) Ltd. are controlled by a certain Agarwal family. SEPL was incorporated on 14-2-1997. Its registered office is at 303 Century Towers, 45 Shakespeare Sarani, Kolkata - 700 017. Its principal objects are to carry on the business of manufacturing, processing, selling and buying sponge iron. 4. SEJPL was incorporated on 2-4-2007. Its registered office is at 34A Metcafe Street, Kolkata - 700 013. 5. SEPL has four manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the shareholders to the scheme recorded in the order. 11. Before proceeding further with this judgment a few more essential facts need to be noted. The family is of three brothers. The eldest is Parmeswar Das Agarwal, the others are Radha Krishan Agarwal and Paramanand Agarwal. Three memoranda of understanding were signed by them. Each brother signed it on behalf of his family group. 12. The first one is undated and annexed at page 37 of the application made by Parmanand Agarwal and Sulochana Agarwal being C.A. No. 328 of 2008. It is signed by Parmeswar Das Agarwal and Radha Krishan Agarwal. That memorandum noted that SEPL along with its manufacturing units at Raigarh would belong to the Parmeswar Das Agarwal Group . The Jharsuguda unit would belong to Radha Krishan Agarwal Group. It envisaged demerger of Jharsuguda unit from SEPL and its merger with SEJPL with effect from 2-4-2007. Certain modalities to effect this arrangement were provided. On such arrangement Parmeswar Das Agarwal and his Group would make a payment of about Rs. 1,75,00,000 to Radha Krishan Agarwal and his Group. 13. The second and third memoranda of understanding are also undated and at pages 39 and 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner. The Central Government have filed their affidavit. However, none has appeared for them either to support or oppose the scheme. But, I will duly deal with their affidavit for the ends of Justice. 19. Apart from the members of the family group headed by Paramanand Agarwal whose application has been mentioned by me above, none has come forward to challenge sanction of the scheme. 20. Therefore, I make it absolutely plain that in this judgment I am only dealing with the objections to sanctioning of the scheme actually raised before me. When this kind of a petition for sanction of a scheme is advertised, an opportunity is granted, to persons who are so entitled by the Companies Act, 1956, to come forward and object to its sanction. In the absence of any objection other than those made by persons mentioned above, I take it that no other person has any objection to sanction of the scheme. I proceed on that footing and will decide only those issues which are raised before me. 21. The affidavit of the Central Government affirmed by one UC Nahata, the Region Director, Eastern Region Ministry of Corporate Affairs on 24-1-2008 does not disclose any significant objection to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppended to the application made to this Court for dispensing with the meetings. They prepared a scheme on such compromise or arrangement for transfer of the Jharsuguda Unit of SEPL to SEJPL. There were other arrangements contemplated in the scheme for the re-arrangement of shareholding and vesting of assets and liabilities of the two companies. All these were with a conceived view to reconstruct these two companies. 29. The question is: What are the provisions of law governing such compromise or arrangement between these two companies? 30. Section 391(1) of the said Act inter alia says that when such compromise or arrangement is proposed between a company and its members, the company or any member may make an application before the Court to order a meeting of the members or class of members. This meeting is to be conducted in such manner as directed by the Court. 31. Sub-section (2) says that if in such meeting a majority of them representing 3/4th in value of the members or class of members present and voting, in person or by proxy agree to such a compromise or arrangement, it would be binding on such class. 32. Now, this order of 27-11-2007 is attacked by the parties oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company backed by the auditor s report and a declaration regarding pendency of any investigation by the Central Government under sections 235 to 251 of the Act. The first proviso enjoins the Registrar of Companies to furnish a report before the court, prior to sanction of the scheme, that its affairs were conducted not prejudicial to its members or the public. A further safeguard is provided in the next proviso of section 394 that before dissolution of the company, the Official Liquidator has to file a similar report. 42. Now, let us see what the Companies (Court) Rules, 1959 say about this kind of an application and meetings, which were cited in detail by Mr. Anindya Kumar Mitra, learned Sr. Advocate, for Parmanand Agarwal and his group. 43. Rule 67 prescribes that an application for an order convening a meeting has to be made by Judge s Summons supported by an Affidavit, to which should be appended a copy of the proposed compromise or arrangement. Rule 69 says that upon hearing of such Summons the Judge shall give directions with regard to the class of members or creditors whose meeting is to be held, fixing the time and place for it, appointing a chairman for conducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplies to the management of a private company limited by shares and is relevant for our purpose. It runs as follows: Subject to the provisions of the Act, a resolution in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the company duly convened and held. Further, section 143 of the English Companies Act, 1948 now expressly enables written resolutions which are not passed at a general meeting to be registered. This change is reflected in India also. Under section 82 of the Indian Companies Act, 1913, special and extraordinary resolutions passed at general meetings alone were capable of being registered. But section 192 of the Companies Act, 1956 enables written resolutions not passed at general meetings to be registered. The second inroad on the requirement of a formal meeting is that the consent of the shareholders may be ascertained without calling any meeting at all. Further, the doctrine of lifting the veil of incorporation and looking at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral meeting, nevertheless this requirement is relaxed in cases in which each and every shareholder assents to the course of action proposed to be followed, in which case the formalities of a meeting need not be complied with, and it is not in fact necessary for the members to meet together : Provided such assent is clearly proved, the individual assents of the members may be given at different times. Where, therefore, it is shown that all members who have a right to attend and vote at a general meeting of the company assent to any matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. This principle applies as well to extraordinary and special resolutions as it applies to ordinary resolutions, and to resolutions of a class of members." 50. In Cane v. Jones [1981] 1 All ER 533 the shareholders of the concerned company made an agreement in 1967, with the requisite majority, but without holding a meeting. The case concerned a family company. By the agreement the chairman lost the casting vote and the parties to the agreement were to appoint a chairman. The effect was deadlock in the company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to the elaborate procedure of a meeting being supervised by the chairman. The court may itself hold the meeting and ascertain the views of those creditors or members. Then it holds further on the basis of Mazda Theatres (P.) Ltd. s case (supra) that when the number of creditors or members is small, a written resolution adopted by the members or creditors, under section 192 of the Companies Act, 1956 or consent of all the members, was sufficient and a meeting may not be necessary. But the court was cautious to say that such dispensing with formalities was only concerned with companies the membership of which was small or which had few creditors. 53. A landmark judgment in this area of the law is Miheer H. Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506 cited by Mr. A.K. Mitra, Sr. Advocate. Before discussing that case, I would like to point out that the question of dispensing with members or creditors meetings was not in issue before the court. The issues which were before the court are tabulated in paragraph 26 of the judgment as follows : "26. In view of the aforesaid rival contentions the following points arise for our determination : 1.Whether the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his court said that a scheme of arrangement for transfer of a portion of a company s properties to any other company was valid. In Vitari Distilleries Ltd. v. McDowell Spirits Ltd. [2003] 5 Comp. LJ 299 (MP), cited by the learned Sr. Counsel for the petitioner the Madhya Pradesh High Court after examining the consent letters of the equity shareholders dispensed with the meetings of the members. Such was also the view of the Karnataka High Court in Kirloskar Electric Co. Ltd., In re [2003] 43 SCL 186 also cited by him. The Karnataka High Court said that the court was able to dispense with such meeting if the number of shareholders was small and had signified their consent. The learned counsel for the petitioner cited a judgment of Denning, LJ for the Court of Appeal in H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham Sons Ltd. [1956] 3 All E.R. 624. This is what His Lordship had to say : "A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Denim Ltd. v. Rama Petrochemicals Ltd. [2003] 116 Comp. Cas. 640 (SC) was cited by the learned counsel for the objecting members as I am at a loss as to how to apply this decision to the facts of this case. 58. A so far unreported judgment passed by me in Callidora Merchantiles (P.) Ltd., In re, [C.A. No. 459 of 2010, dated 1-7-2010] was cited by the said learned counsel. In that case there were only two shareholders who had given their consent which was appended to the petition. On a consideration of the Companies Act, 1956 I had said that a meeting could not be dispensed with. Under the said Act and Companies (Court) Rules, 1959 read with our Original Side Rules certain formalities could be dispensed with to avoid causing hardship to the parties or for the ends of justice. Conclusions 59. It is quite true that when an application for convening a meeting of shareholders or creditors is presented before the court the court has the option to reject it summararily. If it does not, the court has to pass orders in that application [See Shaw Wallace Co. Ltd. (supra)]. 60. Can it pass orders dispensing with the meeting altogether? 61. When sections 391 and 393 of the Act pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys that the practice followed by the Court, which is not provided by or contrary to the Rules be continued. Our court on its Original Side does follow the practice of dispensing with the formalities in appropriate cases, when the facts of the case so demand or when justice so requires. We often dispense with the formalities in getting an appeal ready for hearing. In winding up applications we ask the parties to serve a copy of the petition upon the Company, thus dispensing with service by Court; we dispense with drawing up and service of Writ Rules, and so on. Therefore, on a reading of section 391 with the aforesaid provisions the Court has the power in appropriate cases to dispense with some formalities prescribed in the Rules. However, the Court does not have the power to dispense with the mandate of the statute. The meeting cannot be dispensed with as it is a statutory requirement. A meeting has to be held, even if informal under section 391 for the purpose of adopting the scheme. I am inclined to dispense with all formalities regarding convening e.g. notice and advertisements, in this case, as there are only two shareholders. Such dispensation is necessary in the interests o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for sanction has to be made by a separate application. The application for convening a meeting has to be made separately (See Rule 67). In that application the said order was passed by Sanjib Banerjee, J. That application is disposed of. No appeal has been preferred from that order. It has become final and binding. Therefore, in the second stage of the proceedings which is this application for sanction I cannot touch the order, on the ground that it is erroneous. 70. Now, the next question is: Is the order passed by Sanjib Banerjee, J. dated 27-11-2007 a nullity? In my opinion, it is not. The justification to pass such an order is there in the case of Mazda Theatres (P.) Ltd. (supra), the case of Kirloskar Electric Co. Ltd. ( supra) and in the case of Vitari Distilleries Ltd. (supra) and our Division Bench judgment in Shaw Wallace Co. Ltd. s case (supra) and Kirloskar Electric Co. Ltd.'s case (supra) and Shaw Wallace Co. Ltd. s case (supra): 71. As I have said earlier, at least from 2003, this Court passed several orders dispensing with meetings altogether by accepting the consent of shareholders signified in the petition. These orders were passed in appropriate cases whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
