1. This appeal by the Regional Director, Company Law Board, Southern Region, Madras, is directed against an order made by a learned single judge of the court, sitting as company judge, in Company Petition No. 7 of 1973.
2. In the light of the contention urged on behalf of the appellant, it is necessary to state only a few facts. The three respondent-companies sought to amalgamate, pursuant to a scheme framed by them at a joint-meeting of all their members, moved the court by means of a petition under Sections 391 and 394 of the Companies Act (Act for short) for sanction of the same. The court after hearing all the parties concerned, including the appellant herein, accorded sanction to the said scheme of amalgamation.
3. Before the learned single judge, on behalf of the appellant, it had been contended that since none of the three companies in question was being wound up, it was necessary for the court to call for a report from the official liquidator pursuant to the requirements enjoined by the second proviso to Section 394 of the Act. This contention was rejected, following a decision of a learned single judge of this court in Company Applications Nos. 42/1969 and 27/1970 in Company Petition No. 8/1969. Hence the appeal.
4. On behalf of the appellant, the same objection was reiterated. It was contended that the decision rendered in Company Petition No. 8/1969, on which reliance had been placed by the learned company judge, was not in accord with the plain intendment of the proviso in point, and the two provisos of Section 394(1) relate to different situations and the operation of the second proviso cannot be made dependent on the application of the first proviso to a given case. On behalf of the respondent-companies, in addition to supporting the order in appeal, it was submitted that the three companies had since altered their position pursuant to the sanctioned scheme and it would cause great hardship and inconvenience if they were asked to retrace their steps in the event of success attending this appeal.
5. By way of reply, on behalf of the appellant, the learned senior standing counsel for the Central Government, made a statement that his client was interested only in getting the law declared as regards the scope and ambit of the provisos in point and would not press for the unsettling of the sanctioned scheme as such. In view of this submission, we merely proceed to interpret and declare the scope and ambit of the provisos to Section 394(1) of the Act and irrespective of the view we take in that behalf, dismiss the appeal.
6. Section 394 of the Act, in so far as it is relevant, reads :
' (1) Where an application is made to the court under Section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the court,--
(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies ; and
(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a 'transferor company ') is to be transferred to another company (in this section referred to as ' the transferee-company ');
the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters--
(iv) the dissolution, without winding-up of any transferor-company;...
Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound-up, with any other company or companies, shall be sanctioned by the court unless the court has received a report from the Company Law Board or the Registrar that the 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.'
7. A combined reading of Sections 391 and 394 of the Act would show that they relate to sanction by court of compromises and arrangements entered into between companies and their creditors and members, including those concerned with reconstruction or amalgamation of two or more companies as in the instant case. It is also to be seen that they relate to both companies which are in the process of being wound up and those whose dissolution is brought about without undergoing the process of winding up.
8. The first of the provisos to Sub-section (1) of Section 394 enjoins that no court called upon to sanction a scheme of amalgamation of a company ' which is being wound up ' with any other company or companies, shall sanction the scheme unless a report is called for by the Company Law Board or the Registrar of Companies and such report disclosed that the affairs of such company had not been conducted in a manner prejudicial to the interests of its members or to public interest.
9. The second proviso therein specifically relates to cases of dissolution of companies ' without winding up ', as a result of such amalgamation, as specifically adverted to in Clause (iv) of Sub-section (1) of Section 394. The said proviso enjoins that the court can make an order for such dissolution only if a report were received from the official liquidator to the effect that the affairs of the company proposed to be dissolved by the court as a result of a compromise or arrangement as is referred to in Section 394(1) have not been conducted in a manner prejudicial to the interests of its members or to public interest.
10. It is plain from the above analysis of the two provisos that the said provisos deal with different situations, in that while the first proviso relates to the sanction of a compromise or arrangement involving a scheme of amalgamation of a company ' which is being wound up ', the second relates only to an order for dissolution of a transferor-company without winding up. It is no doubt true that a single scheme of amalgamation or reconstruction in a given case may involve both types of companies, namely, those under winding up and those which are not. one or more of the latter category coming in for dissolution In such a situation both the provisos come into operation. On the other hand, there may be cases where, as in the instant case, no company which is under winding up may be involved. In such an event, the first proviso does not come into play at all and only the second proviso will be operative. This is not the same as saying that the second of the provisos would come into operation only when the first proviso operates, as contended for the respondent-companies.
11. The result is that this appeal deserves to succeed. But in view of the submission made on behalf of the appellant, referred to earlier, and subject to the above declaration, we dismiss this appeal. In the circumstances, we make no order as to costs.