TMI Blog2016 (2) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... ther components while deciding whether or not to approve the scheme. Company Appeal No. 52 of 2015 filed by the Demerged Companies and the Resulting Company respectively is allowed and the scheme is sanctioned as proposed. - Petitioners-appellants are directed to file a copy of this order along with a copy of the Scheme with the concerned Registrar of Companies, electronically, along with E-Form INC 28 in addition to physical copy as per the relevant provisions of the Companies Act, 1956. - CO. Appeal No. 52 oF 2015 (O & M) - - - Dated:- 10-12-2015 - S.J. VAZIFDAR AND TEJINDER SINGH DHINDSA, JJ. For The Appellant : Ms. Munish Gandhi, Senior Advocate and Ms. Salina Chalana, Advocate For The Liquidator : Deepak Aggarwal, Advocate JUDGMENT This is an appeal against the order and judgment of the learned Single Judge dismissing the appellants' petition seeking approval of a scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956 (hereinafter referred to as 'the Act'). 2. The appellants are (i) Q.H.Talbros Ltd. (ii) Talwar Steering Suspension Limited. (iii) Talbros International Ltd. (iv) AAB Enterprises Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation of AAB, TIL and Blaustern into Demerged QHT will reduce the administration hassle of running multiple investment vehicles and eliminate the cross holdings. (b) Amalgamation will enable consolidation of business and lead to synergies in operation and create a stronger financial base. (c) It would be advantageous to combine the activities and operations of Transferor Companies into a single Company for synergies, integration and the benefit of combined financial resources. This will be reflected in the profitability of the Transferee Company. (d) Amalgamation of the Transferor Companies with the Transferee Company will also provide an opportunity to leverage combined assets and build a stronger sustainable business. Specifically, the merger will enable optimal utilization of existing resources and provide an opportunity to fully leverage strong assets, capabilities, experience, expertise and infrastructure of both transferee and transferor companies; and (e) Amalgamation will enable the Transferee Company to raise additional funds due to its increased net worth, post-merger. 5. It is not necessary to refer to the various steps taken leading to the filing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demerger are independent and have no connection whatsoever with each other. The balance sheets, figures and the finances of the companies would be different. The shareholders may approve or disapprove anything but it is ultimately for the Company Court to see whether such a process can be approved or not. The exact figures, numbers and financials of the companies sought to be merged/demerged will not be available before the Court as well as for presentation before the members and the creditors of the companies in the meetings. It will not be possible for the members or the creditors to know the status of the company after implementing the first part i.e. demerger of the 'Auto Component Division' of appellant No.1 and that this first part is independent of the second part, namely, the merger of appellant Nos.3,4 and 5 with appellant No.1. If a composite scheme involving different companies with different objects is presented, it would not be possible for the Court to examine whether the object sought to be achieved by the first part in the scheme has, in fact, been achieved or not. After implementation of the first part of the scheme, the shareholding pattern, the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of any investigation proceedings in relation to the company under sections 235 to 251, and the like.] SECTION 392. Power of High Court to enforce compromises and arrangements. (1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it- (a) shall have power to supervise the carrying out of the compromise or arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest: Provided further that no order for the dissolution of any transferor company under clause (iv). shall be made by the Court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same may also benefit the company on account of operational efficiencies. On the other hand in some cases, the share holders and the creditors may well be of the opinion that it would be in the interest of the company to have a multiple line of activities to safeguard itself against any adverse consequences in respect of one of them. These, however, are business decisions which must be left to the stakeholders of each of the companies. It is not for the Court to sit in judgment over their commercial decision. 12. Let us take a simple example of a case where company 'A' manufactures watches and textiles and company 'B' is engaged only in the business of manufacturing watches. The shareholders of company 'B' may agree to the merger of company 'B' with company 'A' only in the event of the company 'A' hiving off/demerging its textile manufacturing business. This would be a business decision taking into consideration the economies of scale and the viability or otherwise of continuing with two commercial/industrial activities. If they are of the opinion that the business prospects of company 'A' are better by restricting its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum of Association and the Articles of Association of the company. These very components can constitute one composite scheme/arrangement under section 391 of the Act. The legislature, therefore, advisedly did not restrict the scope of the term arrangement by defining it. A view to the contrary would place an unwarranted fetter upon the activities of a company and restrict the choice of its members, creditors, debenture holders and other stakeholders. 15. Ms. Gandhi's reliance on a judgment of a learned Single Judge of Bombay High Court in Larsen Toubro Ltd., In re [2004] 54 SCL 461 (Bom.) is well founded. The learned Judge held that the word 'arrangement' in Section 390(b) of the Act is an inclusive definition and contemplates all arrangements and not only reorganization of the share capital. This it was held is clear from the word 'includes'. The learned Judge followed the judgment of the Calcutta High Court in Hindusthan Commercial Bank Ltd. v. Hindusthan General Electrical Corpon. [1960] 30 Comp. Cases 367 where it was held that the word 'arrangement' in section 391 is of wide import. We are in respectful agreement with this view. 16. P.M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act was a complete code which provided for a scheme of reconstruction and amalgamation of companies which could conceivably include a reorganisation of the share capital of the company by consolidation of shares of different classes or by division of shares or by both these methods. The Gujarat High Court referred to rule 85 of the Companies (Court) Rules, 1959, which specifically provides that where a proposed compromise arose involving the share capital of the company, the procedure prescribed by the Act and the Rules relating to the reduction of capital and the requirements of the Act and the Rules and Regulations thereto shall have to be complied with before the compromise or arrangement, so far as it relates to the reduction of capital, is sanctioned. From this rule, the Gujarat High Court deduced (at page 854) : If section 391 were not to be treated as a complete code and if it is intended that various things that can be done by way of a scheme of compromise and arrangement, if they were to fall under different provisions of the Companies Act which prescribe certain procedure for doing the same and that procedure has to be gone through, it was not necessary to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator objected to the same on the ground that sanctioning the scheme would be meaning that the company would be permitted to do something ultra vires the objects clause of the memorandum of association. This contention was negatived by this court (per Mrs. Manohar J.) by pointing out that the scheme itself contemplated that the memorandum of association would be altered, if found necessary, by taking steps for amendment thereof. After referring with approval to the judgment of the Gujarat High Court in Maneckchowk's case, [1970] 40 Comp Cas 819 the learned judge went on to observe (at page 34 of 51 Comp Cas) : Basically, the court is given wide powers under section 391 of the Companies Act to frame a scheme for the revival of the company. Section 391 of the Companies Act is a complete code under which the court can sanction a scheme containing all the alterations required in the structure of the company for the purpose of carrying out the scheme, except reduction of share capital which requires a special procedure to be followed by virtue of rule 85 of the Companies (Court) Rules. In the absence of rule 85, procedure for alterations in the memorandum and articles of asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also connected with each other. None of them subsists without the other. On the other hand in 'PMP Auto Industries Ltd.' it was legally possible to follow two courses namely a scheme under sections 391 and 394 of the Act for amalgamation and a separate proceeding for the amendment of the Memorandum of Association by following the procedure under Sections 17 to 19 of the Act. 19. We are unable to agree with the observations of the learned Judge that the Act does not permit sanctioning a scheme where different companies are involved in different arrangements and that section 394 of the Act does not permit a part of the business of the one company to be merged with another company and the merger of the other companies with that company. As we explained earlier the mergers and the demerger in the case before us are not independent schemes. They are part of a composite scheme of arrangement which falls within the ambit of Sections 391 and 394 of the Act. 20. As observed by the learned Judge, the balance sheets, figures and finances of the companies would indeed be different. That, however, is entirely irrelevant to the point under consideration. The stakeholders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of each of the components. The consequence of each of the components is viewed by the stakeholders not independently but together with the other components while deciding whether or not to approve the scheme. 24. For the same reason we are also unable to agree with the observation that if a composite scheme involving different companies with different objects is presented, it would not be possible for the Court to examine whether the object sought to be achieved by the first part has infact been achieved or not. In the case of a composite scheme, it is the working of the scheme as a whole that is relevant and not the working of each of its components independently and one after the other. 25. Nor can there be any objection in principle to a company proposing more than one independent scheme of arrangement under Sections 391 and 394 of the Companies Act simultaneously. Separate proceedings would no doubt have to be adopted seeking sanction of each of them. That, however makes no difference to the maintainability of each of the proceedings. The stakeholders may object on the ground that they did not have notice of the scheme that they were not connected with and that noti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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