P.D. Desai, J.
1. On September, 18, 1975, I passed the following order in these proceedings :
'For the reasons to be recorded in my judgment which will follow, I direct Mr. P. P. Mistry (secretary of the transferee-company) or Mr. G. S. Rane (senior officer of the transferee-company) to execute instruments of transfer in respect of the shares of such members of the transferor-company, who have exercised the option to receive cash in lieu of entitlement to shares and debentures under clause 9(ii) but who have failed to duly execute transfer forms sent to them by the transferee-company in compliance with clause 9(iii) of the scheme of amalgamation as sanctioned, and the transferor-company is directed to treat such instruments of transfer as and when delivered to it, as having been duly executed on behalf of the concerned shareholders. The petitioner will pay the advocate's fees of the counsel of the Central Government.'
2. In order to appreciate the circumstances under which these directions were given, it would be necessary to set out a few facts.
3. The petitioner-company, Mahindra Ugine Steel Co. Ltd. (hereinafter referred to as 'the transferee-company') and the respondent-company, the Bank of Baroda Ltd. (hereinafter referred to as 'the transferor-company'), are two public limited companies. The registered offices of the transferor-company and the transferee-company are situate in the State of Gujarat and State of Maharashtra, respectively. A scheme arrangement for amalgamation of the transferor-company with the transferee-company was sanctioned by me on April 7, 1975. On June 21, 1975, the High Court of Bombay also gave its sanction to the said scheme. Consequently, on August 2, 1975, I made appropriate order under section 394(1) of the Companies Act, 1956 (hereafter referred to as 'the Act'), and one of the directions contained in the said order was that the transferor-company shall stand dissolved as and from September 25,1975.
4. The scheme provides for various matters but I shall refer to only those provisions which are relevant. Clause 7 of the scheme provides that every member of the transferor-company would be entitled to a certain number and category of shares and debentures to be issued by the transferee-company in consideration of the transfer contemplated by clauses 1 and 2 of the scheme. Clause 9 gives an option to a member of the transferor-company to elect to be paid a sum of Rs. 143 in cash in lieu of his entitlement as provided in clause 7. Sub-clauses (ii) and (iii) of clauses 9 of the scheme are material and they may be reproduced :
'(ii) Such option shall only be exercised by a notice in writing accompanied by relevant share certificates for cancellation, sent to or served upon the transferee-company at its registered office and received by the transferee-company within 30 days from the date of the petition of the transferor-company for sanctioning this scheme of amalgamation under section 391 of the Companies Act, 1956, is filed in the court. A notice of the filing of the petition in the court will be given by the transferor-company to all its members. The exercise of such option shall be irrevocable.
(iii) The transferee-company may, in its discretion, require any member, who has exercises such option, to transfer his shares in the transferor-company to a person or persons appointed by the transferor-company in consultation with the transferee-company.'
5. Sub-clause (iv) provides for the time limit within which the cash payment in terms of sub-clause (i) is to be made to a member of the transferor-company.
6. Approximately 2,428 members of the transferor-company exercised the option to receive cash in lieu of shares and debentures under the scheme and they forwarded their share certificates to the transferee-company as required by sub-clause (ii) of clause 9. The transferee-company, being desirous of exercising the discretion vested in it under sub-clause (iii) of clause 9, suggested to the transferor-company names of various persons including financial institution such as the Life Insurance Corporation of India and Unit Trust of India, who were agreeable to take up the shares of the transferor-company, and requested the transferor-company to appoint such persons for the purpose of requiring the members of the transferor-company to transfer their shares in favour of such persons. The transferor-company having duly appointed such persons, the transferee-company forwarded to the members of the transferor-company, who had opted for cash, necessary instruments of transfer, completed to the extent necessary, for signatures and requested such members to return the instruments of transfer duly signed latest by August 25, 1975. This request was contained in a letter issued on August 5, 1975, under certificate of posting. It appears that approximately, 2,195 shareholders of the transferor-company complied with the request and returned the instruments of transfer duly signed. However, nearly 233 members failed to comply with the request.
7. In view of the fact that the transferor-company was directed to be dissolved as and from September 25, 1975, the said company gave intimation as required by the Stock Exchange of Bombay that its transfer books would remain closed from September 19, 1975. In the meantime, the transferee-company filed the present application in this court on September 6, 1975, praying for an order that the shares of the members of the transferor-company who had exercised the cash option but had failed to execute instruments of transfer as required by the transferor-company be transferred to the names of the persons appointed by the transferor-company in consultation with the transferee-company in such manner as the court might deem fit. K. Ramachandran, executive director of the transferee-company, has filed an affidavit dated September 4, 1975, in support of the judge's summons. He has stated that such of the members of the transferor-company who opted for cash but failed to execute the instruments of transfer failed to appreciate their obligation under clause 9 of the scheme and that it was absolutely just and necessary for the proper working of the scheme that an appropriate order providing for the transfer of the shares of such members to the persons appointed by the transferor-company in consultation with the transferee-company should be passed. In this connection, it has been pointed out in the said affidavit that since the books of the transferor-company were to be closed from September 19, 1975, unless appropriate directions were given on or before such date, it would not be possible for the board of directors of the transferor-company to accept the transfer forms after such date and the implementation of clause 9(iii) of the scheme would be wholly frustrated. B. K. Daphtary, one of the directors of the transferor-company, has also filed an affidavit dated September 10, 1975, in support of the judge's summons and stated that unless orders as solicited herein are passed, grave prejudice might be caused to the members of the transferor-company.
8. The application came on for hearing on September 11, 1975, and I orally directed that a public notice be inserted in the Times of India and the Indian Express in their various editions published from different countries and in one vernacular daily published from Ahmedabad and Bombay each informing the shareholders of the transferor-company who had opted for cash but failed to execute the instruments of transfer to return the transfer forms set to them so as to reach the transferee-company latest by September 17, 1975, and further giving them notice about the institution of the present application and its date of next hearing which was fixed on September 18, 1975. P. P. Mistry, secretary of the transferee-company, has made an affidavit dated September 17, 1975, stating that the notice has been duly published in the Indian Express and Sandesh published from Ahmedabad on September 12, 1975, and in the Indian Express and Loksatta published from Bombay on September 12, and 13, 1975, respectively. He has further stated in the said affidavit that having regard to the short time it was not possible to arrange for publication of the notice in the Time of India of in the Indian Express in its editions published from other centers or in any other newspapers in such centers. However, on September 13, 1975, individual letters were addressed to all members of the transferor-company who opted for cash and failed to return the instruments of transfer duly signed giving them intimation about the institution of the present application and requesting them to return the instrument of transfer duly signed so as to reach the transferee-company latest on September 17, 1975. The deponent has further stated in the said affidavit that only 25 out of the defaulting members of the transferor-company were resident of States other than Maharashtra and Gujarat and the failure to publish notices in newspapers published from centers other than Ahmedabad and Bombay was not likely to result in any prejudice especially in view of the fact that individual notices were served upon all such members. In the said affidavit it has also been mentioned that nearly 87 more members of the transferor-company had returned the instruments of transfer duly executed and that as on the date of the said affidavit only 146 members had failed to carry out their obligation under sub-clause (iii) of clause 9 of the scheme.
9. The application reached for hearing on September 18, 1975. Counsel for the transferee-company and transferor-company both submitted that this was a fit and proper case for the exercise of the court's power under section 392(1) of the Act read with rules 9 and 87 since the members of the transferor-company, who had opted for cash but failed to execute instruments of transfer as required by the transferee-company, omitted to comply with the legal obligation arising out of the provisions of sub-clauses (ii) and (iii) of clause 9 and that for the proper working of the scheme it was necessary to appoint two officers of the transferee-company (P. P. Mistry and G. S. Rane) to execute instruments of transfer on behalf of such shareholders and to direct the transferor-company to treat the instruments of transfer so executed as having been duly executed on behalf of the concerned shareholders.
10. In this connection it was submitted, in the first place, that such of the members of the transferor-company who have failed to carry out their obligation would be disentitles to receive cash payment although they have irrevocably exercised their option in that behalf and that such a situation would operate to the grave prejudice of such members and, secondly, that in any case unless this course was adopted, one of the objects underlying the scheme, namely, that the resources of the transferee-company should be augmented to facilitate its expansion programme with the capital contributed by the members of the transferor-company, would be frustrated since the shares of the defaulting members will have to be cancelled and payments made to them in lieu of such shares. It was also submitted that acting under the bona fide belief that the members of the transferor-company who had opted for cash payment would execute instruments of transfer in favour of designated persons as and when required, the transferee-company had entered into arrangement with such persons and made certain commitments and that unless some formula was devised to enforce the obligation incurred by the concerned members, the transferor-company which acted in good faith on the basis that the scheme would be fully implemented by all concerned, would be exposed to unnecessary costs and risk. Counsel for the Central Government raised no objection against an appropriated order being made in this behalf.
11. Now, on a perusal of the relevant sub-clauses of clause 9 of the scheme, it is clear that it gives to a members of the transferor-company an option to receive cans payment in lieu of his entitlement to shares and debentures as provided in clause 7. Such option has to be exercised within the prescribed time limit in the manner prescribed in sub-clause (ii), that is, by a notice in writing accompanied by relevant share certificates for cancellation sent to or served upon the transferee-company at its registered office. The exercise of such option has been made irrevocable. In other words, once a member of the transferor-company elects to receive cash payment in lieu of shares and debentures in the manner and within the time prescribed, the only right he would have is to receive such payment on surrender of shares by him. However, under sub-clause (iii) a discretions vested in the transferee-company to require such member to transfer his shares to a person or persons appointed by the transferor-company. Sub-clause (iv) provides for the time within which the cash payment has to be made. It would appear on a conjoint reading of the various sub-clauses of clause 9 that it enacts an integrated scheme which, in the first place, provides for an option being exercised by a member of the transferor-company in favour of cash payment in lieu of entitlement to shares and debentures and imposes a corresponding obligation on the transferee-company to make such payment. It the next place, it invests the transferee-company with a right, exercisable at its discretion, requiring such a member to transfer his shares to a duly appointed person and, on being so required, it imposes an implied duty on such a member to comply with such requisition. The provisions of sub-clause (iii) have obviously been made with a view to ensuring that in case buyers are found for the shares held by a member opting for cash payment, it might not become necessary to reduce the share capital of the transferor-company by cancellation of the shares held by such a member and he might not have to be paid out of the funds of the company the cash amount to which he as a member would be entitled upon exercise of the option. The entire working of clause 9 of the scheme thus depends upon the parties mentioned therein acting in concert and cohesion to fulfil reciprocal obligations cast upon each of them thereunder. Any failure on the part of any of the parties to act accordingly would not lead to the full and complete implementation of the scheme in the manner in which it was envisaged and sanctioned.
12. In the present case, as stated earlier, nearly 146 members of the transferor-company have failed to carry out their duty or obligation under clause 9(iii). Whether or not such members would be disentitles from receiving cash payment on account of their conduct is a question which is not free from doubt and I wish not to express any opinion on the same. It cannot be gainsaid, however, that failure on the part of such members to act in accordance with clause (iii) would frustrate to some extent the object underlying the scheme and it would not lead to the full and complete implementation of the scheme of as sanctioned.
13. The question then is : whether the court can step in at this stage and ensure proper working and implementation of the scheme by adoption of a suitable course. The question posed above resolved itself into two separate questions. First, whether the court has any power to step in at this stage and, secondly, what would be the proper course to be adopted to remedy the situation. Counsel for the transferee-company and transferor-company both submitted that there was no precedent and that in order to answer the questions I will be required to traverse a virgin field.
14. Section 392, sub-section (1) of the Act expressly confers very wide powers on the court. It authorises the court to supervise the carrying out of the compromise or arrangement and, inter alia, to give such directions in regard to any matter as it may consider necessary for the proper working of the compromise or arrangement. The power so conferred is exercisable not only at the time of making of an order under section 391 sanctioning a compromise or an arrangement in respect of the company but also at any time thereafter. Such power is not conferred on the English courts by statute not was it conferred on the Indian courts under section 153 of the Indian Companies Act, 1913. The courts in our country have, therefore, wider statutory powers and responsibility and they have to play a more vital role now and it is indeed their duty to consider at an appropriate stages whether or not it is necessary for the proper working of the compromise or arrangement to interpose themselves and issue suitable directions. The instant case is an illustration in point, for, it presents a situation which requires the interposition of the court for the proper working of the scheme. Unless the court intervenes and ensures that the duty or obligation of the member of the transferor-company arising out of the relevant sub-clause of clause 9 of the scheme is fulfilled, one of the parties to the scheme, namely, the transferee-company, would be put to a distince disadvantage and the very basis of the scheme might be to an extent undermined. In my opinion, therefore, the first question posed above must be answered in the affirmative. The court has undoubted power under section 382(1) to give at this stage such directions with regard to the fulfilment of the obligation of such members of the transferor-company who have opted for cash payment under the scheme as it considers necessary in the circumstances of the case.
15. The next question is an to what directions should be issued in exercise of the powers so conferred. Ordinarily, in a situation like this, the court would have, in the first instance, issued directions to the concerned members of the transferor-company to execute the instruments of transfer as required by the transferee-company in favour of the appointed persons. The time is too short, however, to resort to such course. The books of the transferor-company, as earlier stated, would be closed tomorrow and they would remain closed until September 25, 1975, on which date the transferor-company has been directed to stand dissolved. Within such a short time it would be difficult to communicate the direction of the court to the concerned shareholders and for such shareholders to comply with the same. No useful purpose would, therefore, be served by resorting to such a course and in the facts and circumstances of the case the court will have to devise some other suitable mode. The only other course which could possibly be adopted in the circumstances is the one which is suggested by the transferee-company and the transferor-company, namely, to appoint some persons to execute instruments of transfer on behalf of the concerned shareholders. It becomes necessary, therefore, to examine whether the court which sanctioned the scheme can appoint a person, in exercise of the powers conferred by section 392(1), to do all acts necessary to fulfil the obligation of member of the transferor-company arising out of the option irrevocably exercised by him and the on sequential right exercised by the transferee-company to require such member to transfer his shares to designated persons.
16. Two cases where such power is exercised in a somewhat analogous situation by civil courts by virtue statutory provisions immediately come to mind. The first is the case where a seller fails to complete the sale of shares and the purchaser sues for an order of specific performance to compel the other party to carry out the contract. It is true that, if similar shares can readily be bought on an available market, a seller in default under the contract of sale cannot be compelled to transfer the shares he holds; the buyers will have to resort to the market and will recover the difference between the contract price and the higher price he has to pay on the market as damages. However, in cases where there is no ready market for such shares, as for example, in the case of shares of a private limited company or those of a public limited company the equity of which is held by closely-knit group which seldom parts with its holding, specific performance of a contract for sale might have to be ordered. The second is the case where in execution of a money decree, shares of the judgment-debtor are attached and sold by public auction. In both these cases, the judgment-debtor will have to deliver the shares and execute the instruments of transfer in favour of the purchaser or the judgment-creditor, as the case may be, and if he failed to do so, the court steps in to effectuate the transfer in favour of the other party. Order XXI, rules 79 and 80, make suitable provision in this behalf, and under the latter provision a judge or an officer duly appointed by him in that behalf is authorised to execute a document or make an endorsement on a share which requires to be transferred and such execution or endorsement is declared as having the same effect as an execution or endorsement by the party concerned. It is true that with regard to the case of purchaser of a share at a court auction there is some difference of opinion amongst various High Courts on the question whether the automatically becomes a member of the company or not. However, without expressing any opinion on that question myself, I have taken that case only as an illustration. Both the cases mentioned above indubitably show that, in order to ensure the execution of a decree passed by a civil court which has become binding on the parties, such court has the power to interpose and that such power includes the authority to appoint some person to do the act which the judgment-debtor is bound by the decree to carry out and any action of the person so appointed will have the same effect as if it is done by the judgment-debtor himself.
17. There are certain provisions in the very statute under consideration to which reference may be made next. Section 395 deals with the power and duty to acquire the shares of shareholder dissenting from the scheme or contract approved by the majority. Under sub-section (3) of the said section, on the satisfaction of the conditions therein mentioned, the transferee-company has to transmit a copy of the notice to the transferor-company together with an instrument of transfer executed on behalf of the shareholders by any person appointed by the transferee-company and on its own behalf by the transferee-company and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee-company for the shares which, by virtue of the section, the said company is entitled to the acquire and the transferor-company is thereupon bound to register the transferee-company as the holder of these shares. Similarly, Table A in Schedule I, which contains the regulations for management of a company limited by shares, prescribes the mode of sale of any share on which the company has a lien. Regulation 11(1), which is material, provides that to give effect to any such sale, the board of directors may authorise some persons to transfer the shares sold to the purchaser thereof. These two provisions contained in the Act indicate that a share held by a member might in certain circumstances be required to be transferred by some other person duly appointed in that behalf to act for and on behalf of such member.
18. From the foregoing discussion it would appear that the concept of the court interposing itself to enforce orders made by it, which are binding on the parties to the proceeding, and authorising the doing of an act which one of such parties was bound to do under the orders in question, is not unknown to law. Besides, under the statute under consideration itself, situations have been envisaged where an act might have to be done on behalf of some other person with the same effect if it is done by that very person.
19. A scheme once sanctioned becomes binding on all the parties including the shareholders. Section 392(1)(b) has been couched in very wide language and, as earlier stated, it authorises the court to give at any stage such directions with regard to the fulfilment of the obligation of the members of one of the two companies amalgamating with each other as it considers necessary in the circumstances of the case. I see no reason, therefore, why an order cannot be made appointing one or more persons to execute the instruments of transfer on behalf of those members of the transferor-company who have opted for cash payment under the scheme but have failed to carry out their further obligation in the circumstances of the case.
20. It is relevant to bear in mind this connection that a public notice as well as individual notices have been issued to the concerned shareholders giving them intimation about this proceeding in which such an order is sought by the transferee-company and that none of the concerned share-holders has appeared to oppose the making of an order in terms prayed. If, in spite of such notice given to the concerned shareholders, they have not chosen to appear, it would be legitimate to proceed on the footing that none of the concerned shareholders has any objection to an order of such nature being passed.
21. These are the reasons which have weighted with me in making the order which is set out at the commencement of this judgment.