9911796707
TMI Blog2011 (1) TMI 1218X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 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 units. Three are situated in the State of Chhattisgarh. One is in the State of Orissa. The one in Orissa is situated in district Jharsuguda. The unit at Jharsuguda is a relatively new one having commenced commercial production in April 2005. 6. By this proposed scheme of demerger this unit in Jharsuguda is to be demerged from SEPL and vest in SEJPL. This is broadly the effect of the scheme. 7. These two companies SEPL and SEJPL made an application before this court. It was numbered as CA 785 of 2007. In that application written consent of all the shareholders of these two companies, saying that they approved the scheme, was appended. It was urged before the court that a formal meeting of the shareholders be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup'. 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 of the same affidavit. All three brothers signed these memoranda. Parmanand and his group would get B.S. Sponge Private Limited. Parmeswar Das Agarwal and his group would transfer their shares in this company to Parmanand Agarwal and his group. This memorandum also provided for transfer of shares of Parmanand Agarwal and his group in SEPL to Parmeswar Das Agarwal and his group. Parmanand Agarwal group would resign from the directorship of SEPL. 14. Coal, iron ore etc. of SEPL would be given to SEJPL and B.S. Sponge (P.) Ltd. 15. Paramanand Agarwal and Sulochana Agarwal filed a suit in this Court which is numbered as CS No. 47 of 2008 for cancellation of the family settlement and for adjudging invalid all acts done and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the scheme. There are only two usual observations. The first, is that the authorized share capital of the transferee-company is not sufficient to enable it to allot shares to members of the transferor-company. The second, is with regard to accounting standards. I dispose of both these objections by directing the petitioners to increase the authorized share capital of the transferee-company expeditiously, so as to allot shares to members of the transferor-company in accordance with the scheme. I direct the petitioners to comply with the applicable accounting standard 14. 22. Before discussing the submissions made by the learned Counsel for the petitioners. I would briefly recount the principal objection of the said members of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 opposing this application. It is said that the proper procedure under section 391 was not followed; the Court could not have dispensed with the holding of meetings. Therefore, the order is not only bad but it is a nullity. 33. At the outset Mr. S.B. Mookerjee, Learned Senior Counsel for the petitioners has brought on record numerous orders passed by this Court at least from 2003 dispensing with meetings. I have seen those orders. I do not think that any of these orders was ever challenged on the ground that the Court did not have the power to dispense with meetings. In all probability each of these orders has attained finality. 34. Now, the question which has to be answered by the Court is whether ordering a meeting of shareholders is mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 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 such meeting, fixing a quorum and procedure for it and so on. Under rule 74 the Judge may direct advertisement of such proposed meeting in such as he may think fit. The notice should not be less than 21 days. Rule 75 entitles every creditor or member to attend such meeting. A member or creditor is to be supplied with a copy of the proposed compromise or arrangement together with the statement required to be furnished under section 393, upon such requisition being made by him. Rule 77 is very important. It says that the decision in the meeting or meetings held in pursuance of such order shall be ascertained only by taking a poll. 44. Now, let us see what the authorities say as to the power of the court to dispense with such meetings. 45. For many year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolutions 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 reality of the action of the members of the company enables us to hold that the consent of the overwhelming majority of the shareholders outside a meeting is sufficient to show that the resolution was supported virtually by all the members of the company. Professor L.C.B. Gower calls this as informal ratification by the members of the acts done on behalf of the company. He draws the distinction between the formal and the informal acts as follows:- 'The law normally insists that only a resolution duly passed at a meeting of the company can be regarded as an act of the company itself. In a number of cases, however, the question has arisen whether something less formal than a resolution passed at a duly convened meeting will suffice. In other words, can the veil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This case was also cited by the learned counsel for the petitioner. Applying the above principle, the Chancery Division of the High Court of England and Wales held that it was a basic principle of company law that all the corporators of the company acting together could do anything intra vires the company. It went on to say that even though the 1967 agreement was not drafted as a resolution and though not signed by the signatories in each other's presence, yet it was a meeting of all the shareholders' minds. Since a meeting of the shareholders' minds was the essence of a general meeting and the passing of a resolution, the 1967 agreement was effective. 51. A very important case in this field is Shaw Wallace & Co. Ltd.'s case (supra) along with other allied cases (supra) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respondent-company was guilty of hiding the special interest of its director Shri Arvind Mafatlal from the shareholders while circulating the explanatory statement supporting the Scheme and whether thereby the voting by the equity shareholders got vitiated. 2.Whether the Scheme is unfair and unreasonable to the minority shareholders represented by the appellant. 3.Whether the proposed Scheme of Amalgamation was unfair and amounted to suppression of minority shareholders represented by the appellant and hence liable to be rejected. 4.Whether separate meeting of minority shareholders represented by the appellant was required to be convened on the basis that the appellant's group represented a special class of equity shareholders. 5.Whether the exchange ratio of two equity shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering) 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 nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane's speech in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (4) [1915] A.C. 705 at pp. 713, 714. So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 provide for sending notices, a statement of the compromise or arrangement, disclosure of any material interest of the directors and other officers of the company, convening and holding of meetings and taking of resolutions and so on, I am of the opinion that section 192 of the Act or the provisions of the English Act for acting on agreements entered into by all the shareholders cannot be applied to those provisions of the Act. The language and intent of the Act is that a meeting of shareholders or creditors has to be held and cannot be dispensed with. Particularly so, when sub-section 5 of section 391 and sub-section 4 of section 393 provide for penalty for any failure. Therefore, in my considered opinion, the Court has no power of dispensing with meetings altogether. The authority for this view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date 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 of justice to and avoid unnecessary costs, delay and hardship." 65. I would like to elucidate on that decision. The Court has no power to dispense with holding of meetings in view of Mafatlal Industries Ltd.'s case (supra). But section 391, itself vests a power in the court to call, hold and conduct meetings in such manner as it thinks fit. Therefore, the section itself arms the court with the power to dispense with some requirements when the case requires, but not to dispense with holding of meetings altogether. 66. Therefore, the Act empowers the court to relax the procedure for convening and holding meetings provided in the Company (Court) Rules, 1959 without dispensing with them, altogether. 67. Rule 6 of the Company Court Rules, 1959 says that the rules in the Code of Civil Procedure or of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 where the number of shareholders was small or shareholding confined to a family. When the Hon'ble Judge followed this practice of dispensing with meetings, it cannot be said that the order is erroneous. 72. Therefore, when the Hon'ble Judge has followed precedent to dispense with meetings such an order cannot be called a nullity. Such an order is not even erroneous, considering the unsettled state of the law then, on this particular issue. 73. Ramnik Vallabhdas Madhvani v. Taraben Pravinlal Madhvani 2004(1) SCC 497 and the other Official Trustee, West Bengal v. Sachindra Nath Chatterjee AIR 1969 SC 823, cited by learned counsel for the respondent on the point of nullity can thus have no application. 74. Therefore, the point that the order of Sanjib Banerjee, J. should be set aside by me fails. 75. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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