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In Re: Marybong and Kyel Tea Estate Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 408 of 1972
Judge
Reported in[1977]47CompCas802(Cal)
ActsCompanies Act, 1956 - Sections 17, 372(4), 391 to 396, 481 and 509; ;Monopolies and Restrictive Trade Practices Act - Section 23(4); ;English Companies Act, 1948 - Section 5
AppellantIn Re: Marybong and Kyel Tea Estate Ltd.
Cases ReferredUnited Bank of India Ltd. v. United India Credit and Development Co. Ltd.
Excerpt:
- .....of prayer (a) of the petition, being dissolution of the company, be made at this stage without the official liquidator making scrutiny of the books and papers of the petitioner no. 1 and making a report to this court that the affairs of the petitioner no. 1 had been conducted in a manner prejudicial to the interest of its members or to the public.3. for the petitioner, mr. s.b. mukherjee appeared and submitted that under the provisions of section 394 of the companies act, 1956, the court can make an order for dissolution at the time of sanctioning the scheme of amalgamation under section 391(2) of the companies act, 1956. he further submitted that the second proviso to section 394(1)(b) has no application in the present case where the transferor-company is admittedly a going concern and.....
Judgment:

Salil K. Roy Chowdhury, J.

1. This is an application under Sections 391, 392, 393 and 394 of the Companies Act, 1956, for sanctioning the scheme of amalgamation between the petitioner companies and for various orders as stated in the prayers of the petition.

2. The facts of the case shortly are that the petitioner No. 1, Marybong & Kyel Tea Estate Ltd., was incorporated in the United Kingdom on the 20th of April, 1916, under the English Companies Acts, 1908 and 1913, in the name and style of Kyel Tea Estate Ltd. The registered office of thepetitioner No. 1 is situate at 37, Mincing Lane, London E.C., and its principal place of business in India is situate at No. 31, Netaji Subhas Road, Calcutta. The petitioner No. 2, Birpara Tea Co. Ltd., was incorporated in India and has been and still carrying on business of growing, manufacturing and sale of tea since its incorporation. Several companies, namely, Killcott Tea Co. Ltd., Gungaram Tea Co. Ltd., Bunglee Rungliot Tea Co. Ltd., New Cinnatolliah Tea Co. Ltd., Kotamillai Tea Co. Ltd and Ledo Tea Co. Ltd., have merged with the petitioner No. 2, It appears that with the approval of the Central Government contained in their letter dated 24th of November, 1972, for purchase of 15,000 ordinary shares in the petitioner No. 1, the petitioner No. 2 has purchased the said shares and consequent thereupon the petitioner No. I is now a wholly-owned subsidiary of the petitioner No. 2. It further appears that while granting the said approval under Section 372(4) of the Companies Act, 1956, to the petitioner No. 2 to purchase the said shares of the petitioner No. 1, the Central Government imposed, inter alia, the conditions that the petitioner No. 2 shall initiate necessary steps and make formal application to the competent authorities in order to bring about the merger of petitioner No. 1 with the petitioner No. 2 within a period of one year from the date of acquisition of the said shares in the petitioner No. 1 by the petitioner No. 2. It is stated that the said amalgamation, besides it was a condition in the said letter approving the purchase by the petitioner No. 2 of the shares of the petitioner No. 1, is also beneficial on the grounds as stated in paragraph 15 of the petition. The main provision of the scheme of amalgamation has been set out in paragraph 18 of the petition and a copy of this scheme is annexed to the petition and marked with the letter 'D'. The Government of India. Department of Company Affairs, also forwarded by its letter dated 24th November, 1972, to M/s. Duncan Brothers & Co. Ltd., secretaries of the petitioner No. 2, a certified copy of the order under Section 23(4) of the Monopolies & Restrictive Trade Practices Act passed by the Central Government approving the proposal of Birpara Tea Co. Ltd., i.e., the petitioner No. 2, for acquiring the shares in the Marybong & Kyel Tea Estate Ltd. The said letter and the copy of the order is at pages 35 and 36 of the petition. Thereafter, by an order dated 24th of September, 1973, in Company Petition No, 278 of 1973, a meeting of the ordinary shareholders of the petitioner No. 1 was directed to be held and by the said order it was also directed that separate meeting of the ordinary shareholders of the petitioner No. 2 be held under Section 391(1) of the Companies Act. A separate meeting was directed to be held of the preference shareholders of the petitioner No. 2. It appears, the meetings were duly held on the 9th November, 1973, as directed by the said order and the scheme of amalgamation was passed unanimously. Thereafter, the present application waspresented on the 27th of November, 1973, and notice was duly served on the Central Government and advertisements were published pursuant to the order made on the 4th of December, 1973, and, thereafter, the matter appeared in the list for hearing. The Company Law Board, through the Regional Director, Prasanta Kumar Mallick, has filed an affidavit affirmed on the 14th of January, 1974, and in paragraph 13 it has been stated that the petitioner No. 1 is a wholly owned subsidiary in the petitioner No. 2 and the interest of any particular shareholder is not likely to be affected by the proposed amalgamation. Furthermore, the financial position of the petitioner No. 1 appears to be sound as revealed by the balance-sheet as at 31st December, 1972. It has been stated also that the memoranda and articles of association of the petitioners Nos. 1 and 2 have no express power of amalgamation with another company in terms of the memoranda and articles of association. It is further submitted in the said affidavit that no order in terms of prayer (a) of the petition, being dissolution of the company, be made at this stage without the official liquidator making scrutiny of the books and papers of the petitioner No. 1 and making a report to this court that the affairs of the petitioner No. 1 had been conducted in a manner prejudicial to the interest of its members or to the public.

3. For the petitioner, Mr. S.B. Mukherjee appeared and submitted that under the provisions of Section 394 of the Companies Act, 1956, the court can make an order for dissolution at the time of sanctioning the scheme of amalgamation under Section 391(2) of the Companies Act, 1956. He further submitted that the second proviso to Section 394(1)(b) has no application in the present case where the transferor-company is admittedly a going concern and not being wound up by any order or was not in voluntary liquidation. He further submitted that under Section 3 of the English Companies Act a company may by special resolution alter the provisions of its memorandum with respect to the objects of the company which included power to amalgamate with another company or body of persons and such an alteration is not required to be confirmed by the company as under Section 17 of the Companies Act, 1956, and Mr. Mukherjee submitted that the petitioner No. 1, the transferor-company, being a foreign company incorporated under the English Companies Act, does not require sanction by the court in respect of its alteration of the memorandum of association giving power to amalgamate. Mr. Mukherjee also referred to the decision of this court in Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd. : AIR1969Cal312 , in support of his proposition that, apart from Section 17, the company has a statutory right to amalgamate with another company under Section 391 of the Companies Act. Mr. Mukherjee in support of his contention submitted that the second proviso to Section 394(1)(b) of the Companies Act, 1956, has no application in the case of a foreign company which has not been wound up by referring to Part XI of the Companies Act, 1956, starting from Section 391, making the provisions of Sections 592 to 602 applicable to foreign companies. The petitioner No. 1, the transferor-company, is admittedly a foreign company within the meaning of Section 591 of the Companies Act, 1956. He also drew my attention to Section 2(10) and Section 3 of the Companies Act, 1956. Mr. Mukherjee also referred me to Sections 390(a), 583, 584, and 589 of the Companies Act in support of his proposition that unregistered companies and foreign companies are liable to be wound up under the provisions of the Indian Companies Act. Mr. Mukherjee also referred me to Section 481 where the provision for dissolution of the company is provided for, which deals with the case of a company when its affairs have been completely wound up or any other circumstances set out in the said section. Mr. Mukherjee also referred to Section 509, Sub-section (6), of the Companies Act, which provides for dissolution of a company in voluntary liquidation and the official liquidator reports to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to the public interest, Mr. Mukherjee also referred to the decision in In re Rivers Steam Navigation Co. Ltd. [1967] 71 CWN 854, paragraphs 50 and 52 in support of his proposition, wherein it has been held :

' If a Government company is incorporated and registered outside India such a Government company comes within the definition of an 'unregistered' company under Section 582(b) and all the provisions of Part X consisting of the Sections 582 to 590 shall apply mutatis mutandis to such a Government company which do not militate against the special provisions of Government company in Sections 617 to 620 of the Companies Act. '

4. Mr. Mukherjee also referred me to the report of the Special Committee in support of Ijis proposition that the proviso to Section 394(1)(b) applies only to companies in liquidation where an official liquidator has been appointed. Thereafter, Mr. Mukherjee referred me to the English decision in Redow v. Great Britain Mutual Life Assurance Society (17 Ch D 600 at page 612) in support of the same proposition that, in the case of an unregistered company under the English Act, the provisions of the Companies Act apply in a stay of winding-up petition. Thereafter, Mr. Mukherjee referred to Sections 448, 449, 451, 452, 456 and 481 of the Companies Act in support of his proposition that the official liquidator is only appointed in the case of a company after a winding-up order is made or after the winding-up petition is presented as a provisional liquidator. He submitted, 'without winding up in Section 394(1)(b)(iv), 'any company' means, read with the proviso, only a company which is wound up and an official liquidator is appointed '.

5. Mr. Mukherjee also referred to the said decision in In re Rivers Steam Navigation Co. Ltd. [1967] 71 CWN 854 , where it has been observed by P. B. Mukharji J. as follows :

' ......to order dissolution without winding up in these circumstancesand on the application dealing with scheme or compromise or arrangement under Section 391 is therefore expressly provided in Section 394{l)(iv) of the Companies Act, 1956, which provides, inter alia, that the company may, either by an order sanctioning the compromise or arrangement or by subsequent order make provision for dissolution without winding up of any transferor-company i the court, therefore, approves the 8th clause of the proposed scheme. The 8th clause provided that upon the approval of the scheme by the court the existing company shall be closed and upon payment to all the creditors the existing company shall be dissolved without winding up pursuant to the order to be obtained from the court. '

6. Mr. Mukherjee, therefore, submits that there is no bar for the court in passing the order under Section 394(1)(iv) as prayed for in prayer (c) of the petition. Mr. Mukherjee submitted that an order should be made as prayed.

7. Mr. T. K. Bose, appearing for the Company Law Board, raised only two points. Firstly, that without altering the memorandum incorporating power to amalgamate under Section 17 of the Companies Act, the scheme of amalgamation cannot be sanctioned as it is not within the power of the petitioner-company and the second point taken is that under the second proviso to Section 394(1)(b) of the Companies Act, 1956, the court can sanction a scheme of amalgamation only after a report of the official liquidator in terms of the said order is made to the court. Mr. Bose submitted that the wording of the section is so clear that it requires no authority to support his proposition. He also referred to a decision of the Rajasthan High Court in the matter of Cotton Agents (Rajasthan) Ltd., In re , where in an order for amalgamation of two companies it appears that the official liquidator made a report under Section 394(1) of the Companies Act, 1956, that the affairs of the transferor-company have not been conducted in a manner prejudicial to the interest of its members or the public' in terms of the said second proviso thereunder. There also the transferor-company was not wound up but was a going concern. I may point out that no point was taken, as it is the case before me, that no such report is necessary to be made by the official liquidator in case of a foreign company which has not been wound up either voluntarily or compulsorily by court. Mr. Bose also referred to an order of this court made by Sabyasachi Mukharji J., where a similar order of the official liquidator to make a report under the second proviso to Section 394(1)(b) of the Companies Act, 1956, was made. The said order is also in a case where such question did not arise or was not raised by any of the parties. Mr. Bose submitted that the wording of the section is clear and mandatory so that under the proviso there must be a report by the official liquidator before sanction can be granted to the said scheme of amalgamation in this application. Therefore, no order can be made in this application at this stage in terms of prayer (e) of the petition for dissolution of the company.

8. Considering the respective contentions I am of the view that the second proviso to Section 394(1) should be read harmoniously with the main section being Section 394(1)(iv). Regarding the principles for interpretation and construction of a proviso to a section it is well-settled. Ordinarily, it is to be distinguished from the enactment to which it is generally appended either for the purpose of explaining what particular matters are not within the meaning of the enactment or for providing exceptions and qualifications to the enactment or for other similar purposes. It also may be in the nature of a condition precedent to the enforcement of the operative clause. The Supreme Court in a series of decisions has laid down the principles for interpretation of a proviso :

' Firstly, it is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso. It has to be construed harmoniously to the main section (Abdul Jabar Butt v. State of Jammu and Kashmir' : 1957CriLJ404 ).

' Secondly, the proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso, would fall within the main enactment......It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect.' [Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. : [1959]36ITR1(SC) ]

' Thirdly, the proviso is really an independent legislative provision of the Act and though it has been inserted by the draftsman in the form of a proviso, it is in substance not a real proviso to the main provision.' [State of Orissa v. Debaki Debi : [1964]5SCR253 ].

' Fourthy, it is not an inflexible rule of construction that a proviso in a statute should always be read as a limitation upon the effect of the main enactment.' (Commissioner of Income-tax v. P. Krishna Warrier : [1964]53ITR176(SC) ).

' Fifthly, where the main provision is clear its effect cannot be cut down by the proviso. But where it is not clear the proviso, which cannotbe presumed to be a surplusage, can properly be looked into to ascertain the meaning and scope of the main provision.' (Hindusthan Ideal Insurance Co. Ltd. v. Life Insurance Corporation of India : [1963]2SCR56 ).

' And lastly, there is no magic in the words of a proviso, and that the plain meaning must be given to the words of the legislature.' (Annie Besant v. Advocate-General of Madras ILR [1920] Mad. 146.

9. That being the principles on which a proviso is to be construed and interpreted and applying the principles to the provisions under consideration, it is to be seen whether the main provision to which the proviso is added is clear and unambiguous and even then whether the main provision and proviso can be harmoniously construed so as to give effect to the object and purpose of the Act. Now, in my view, Section 394(1)(iv) gives specific power to the court to pass an order of dissolution at the time of sanctioning the scheme of amalgamation of the transferor-company without winding up. The words 'without winding up' are general terms which include different types of companies, namely, (1) a company which is a going concern in respect of which no winding up application is pending, (2) a company in respect of which a winding-up application is pending but no order of winding up has been made, (3) a company in respect of which a provisional liquidator has been appointed pending the winding up application, (4) a company which has been wound up by an order of the court and an official liquidator has been appointed and (5) a company which has been voluntarily wound up but subsequently it has been wound up under the supervision of the court. Therefore, the said words 'without winding up' of any transferor-company includes all types of companies which I have enumerated before, meaning thereby that dissolution of a company can be ordered under Section 394(1)(iv) of the Companies Act, 1956, even in cases where the company is a going concern along with the other types of company which are in different stages of winding up after the winding up petition, has been presented. The meaning of winding up and dissolution of a company are quite distinct and different as, pending the winding up, a company retains its corporate existence whereas after dissolution it loses the same.

10. As there are different kinds of winding up : (1) by court, (2) voluntary : (a) purely voluntary--(i) members' voluntary winding up--(ii) creditors' voluntary winding up; (b) under the supervision of the court. (See Palmer's Company Law, 21st edition, page 735). In Section 425(1) of the Companies Act, 1956, the said modes of winding up have been provided. Now, winding up is a process by which the assets of the company are realised and its liabilities are paid. If there is any surplus after paying the liabilities the same is distributed among the members of the company. A company may be voluntarily wound up under two circumstances provided in Section 484(1)(a) and (b) of the Companies Act, 1956. Under Section 441 of the Companies Act, 1956, the winding up by court commences from the date of presentation of the petition for winding up and under Section 486, the voluntary winding up deemed to have commenced when the resolution for voluntary winding-up is passed. Now, under the Companies Act, 1956, a dissolution of the company can be by an order of the court under Sections 394(1)(iv), 481 and 509. Dissolution means ' an end to the corporate existence of the company for all purposes'. The Companies Act, 1956, prescribes, the duties of the official liquidator and defines his appointment. In Section 448(2) it is provided :

'All references to the 'official liquidator' in this Act shall be construed as references to the official liquidator referred to in Clause (a) or Clause (b), as the case may be, of Sub-section (1) and as including reference to deputy or assistant official liquidators appointed under Sub-section (1A) '.

11. Under Section 449 it is provided that, on a winding-up order being made in respect of a company, the official liquidator shall, by virtue of his office, become the liquidator of the company.

12. Section 450 provides that at any time after the presentation of the winding-up petition, the court may appoint the official liquidator as a provisional liquidator.

13. There are other provisions which I need not refer providing for the powers and duties of the official liquidator, but I have not been able to find any section providing for appointment or discharge of any function by the official liquidator or pursuant to an order of the court in cases of going concerns where there is no commencement of winding up either by presentation of a winding-up petition or by passing of a resolution for voluntary winding-up of a company.

14. Therefore, considering the entire scheme, object and purpose of the Companies Act, I have no doubt in my mind that Section 394(1)(iv) of the Companies Act, 1956, provides for dissolution by an order of the court either at the time of sanctioning a scheme of amalgamation or subsequently to dissolve any company including foreign company, Government company or unregistered company irrespective of courts' powers under Sections 481 and 509 before the affairs of the company have been completely wound up. It seems to include also companies which are going concerns in respect of which there is no commencement of winding up either by presentation of a winding-up petition or any resolution for voluntary winding up. Section 394(1)(iv) includes all types of companies and a general provision empowering the court to dissolve any company without winding up and the second proviso to Section 394(1)(iv) seems to me intended to apply only in cases where there is commencement of winding up either by presentation of a winding-up petition or any resolution of voluntary winding up of a company has been passed. That is the case only where an official liquidator has been appointed or could be appointed by the court, otherwise there would be inconsistency and absurdity of the court appointing an official liquidator in case of a going concern where no winding up petition has been presented or resolution for voluntary winding up has been passed. Further, the first proviso to Section 394(1) contemplates a case of a company which is being wound up and before sanctioning the scheme, the report of the Company Law Board or the Registrar is a condition precedent. This proviso relates to a stage prior to the sanctioning of the scheme by the court whereas the second proviso to Section 394(1) contemplates the stage after sanctioning but before passing an order of dissolution under Section 394(1)(iv) of the Companies Act, 1956, and in my view, the said provision only applies to the company in respect of which an official liquidator has been appointed or could be appointed under the provisions of the Companies Act by the court. It has no application to cases, as in the present application, where the transferor-company is a going concern in respect of which no winding-up petition has been presented or there is no voluntary winding up pending. In my view, that construction seems to me a reasonable and harmonious construction without any violence to the language or the scheme, object and purpose of the Companies Act under the provisions of Section 394(1)(iv). I cannot accept the contention of Mr. Bose that in all cases of dissolution to be ordered by Court under Section 394(1)(iv) the second proviso applies and the report of the official liquidator is a condition precedent to such an order. That construction would mean and lead to a position of appointment of official liquidator by the court even in cases where no winding-up petition is pending or the company is not in voluntary liquidation, without any specific powers being given to court for such appointment. In my view, the words 'without winding up' in Section 394(1)(iv) include all types of companies which I have enumerated before and is a general provision giving the court wide discretion to make an order of dissolution even in cases where the company is a going concern and the second proviso has no application to such companies as no official liquidator can be appointed by the court for the company. If the section and proviso are construed in this manner, there will be no inconsistency and that will lead to harmonious construction of the main provision thereto, that is, Section 394(1)(iv) and the second proviso thereto. The decisions cited by Mr. Bose, that is, Cotton Agents (Rajasthan) Ltd., In re and an unreported decision of this court of Sabyasachi Mukharji J. gave no reasons for making an order for a report of the official liquidator under the second proviso to Section 394(1) of the Companies Act, 1956. Nor in the said cases the questions were raised and as such I am unable to accept the said decisions as authorities on the question which has been specifically raised before me in this case.

15. Regarding the contention of Mr. Bose that without specific powers in the memorandum or the articles of both the companies and without an application tinder Section 17 of the Companies Act, 1956, for alteration of the objects clause of the memorandum of the companies by incorporating powers to amalgamate, the scheme for amalgamation in this case cannot be sanctioned. I am unable to accept the same. Firstly, after going through the objects clauses it appears that the company has powers to amalgamate; secondly, the transferor-company is an English company and no confirmation by court as required under Section 17 of the Companies Act, 1956, is necessary under Section 5 of the English Companies Act, 1948 ; and, thirdly, there is a statutory power of amalgamating a company with another company without any specific power in the memorandum under Sections 391 to 396 of the Companies Act, 1956. I may refer to the observations of A. N. Ray J., as he then was, in Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd. : AIR1969Cal312 , which are as follows:

' The power to amalgamate may flow from the memorandum or it may be acquired by resorting to the statute. Section 17 of the Companies Act indicates that a company which desires to amalgamate with another company will take necessary steps to come before a court for alteration of its memorandum in aid of such amalgamation. The statute confers a right on a company to alter its memorandum in aid of amalgamation with another company. The provisions contained in Sections 391 to 396 and 494 illustrate some instances of statutory power of amalgamating a company with another company without any specific power in the memorandum.'

16. The said principle seems to me also to be applicable in the present case if the objects clause in the memorandum of association of any of the companies is construed as not to specifically empower any of the companies to amalgamate with any other company as there is a statutory power of amalgamation under the said section. I may also refer to an unreported judgment of mine in United Bank of India Ltd., Since reported as United Bank of India Ltd. v. United India Credit and Development Co. Ltd. ., which is under appeal, where I have held the same view as I am doing here as to the statutory power to amalgamate without any specific power for amalgamation in the memorandum of association of a company.

17. Therefore, I am unable to accept any of the contentions of Mr. Bose raised on behalf of the Company Law Board and I accept the contention of S.B. Mukherjee for the petitioners. I find no impediment in sanctioning the scheme and also making an order fof dissolution as asked for inprayer (e) of the petition. I have also not appreciated the attitude of the Company Law Board unless it is said that, on a pure question of law, the objection has been raised in this application having regard to the fact that the Central Government has already approved the transfer of shares of the petitioner No. 1 to the petitioner No. 2 on the condition of getting the scheme of amalgamation sanctioned by a competent court. After such approval on such condition it is very strange to raise objection at the time of getting the sanction of the scheme of amalgamation from the court by the petitioners.

18. However, having considered the questions very carefully, I am making the following order.

19. There will be an order in terms of prayers (a), (b), (c), (d), (e) and (f).

20. The petitioner to pay costs to the Company Law Board assessed at 15 G.Ms.


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