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In Re: Jalpaiguri Tea Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 403 of 1973 in Company Application No. 230 of 1972
Judge
Reported in[1974]44CompCas335(Cal)
ActsCompanies Act, 1956 - Sections 18(3), 391, 392 and 393
AppellantIn Re: Jalpaiguri Tea Co. Ltd.
Cases ReferredBengal Bank Ltd. v. Suresh Chakravarthy
Excerpt:
- .....or implied to sell or dissolve the whole of the undertaking for amalgamation with any other company. bijoynagar tea co. ltd, also had no specific power to take over theundertaking of any company or to enter into scheme of amalgamation now sought to be proposed. it may, however, be contended that the clauses of bijoynagar tea co. ltd. contained an implied power specially in view of the clause which has been referred to hereinbefore. that, however, does not really solve the problem because what is being proposed by the scheme is taking over by the bijoynagar tea co. ltd. of all the assets and property of the jalpaiguri tea co. ltd. and consequent sale and dissolution of the jalpaiguri tea co. ltd. therefore, it is important that the jalpaiguri tea co. ltd. should have that power in.....
Judgment:

Sabyasachi Mukharji, J.

1. This is an application under Sections 391, 392 and 393 of the Companies Act for sanction of an amalgamation proposed in the scheme which has been passed at the meetings of JalpaiguriTea Co. Ltd. and Bijoynagar Tea Co. Ltd. By the said scheme the whole of the undertaking of the petitioner No. 1, Jalpaiguri Tea Co. Ltd., is proposed to be merged and/or amalgamated with the petitioner No. 2, Bijoynagar Tea Co. Ltd., and the Jalpaiguri Tea Co. Ltd. is proposed to be dissolved without winding up under Sections 391 and 394 of the Companies Act. Jalpaiguri Tea Co. Ltd. was incorporated under the provisions of the Indian Companies Act on 29th May, 1879, as a company limited by shares and is an existing company within the meaning of the Companies Act, 1956. The registered office is at No. 11, Government Place East, Calcutta, and the authorised capital of the said company is Rs. 7,00,000 divided into 28,000 shares of Rs. 25 each; the amount of paid up capital is Rs. 7,00,000. The objects of the company for which the company was incorporated were, inter alia, as follows :

' This company is established for taking settlement of land for producing tea or any other crop or for purchasing a tea garden where plantation has commenced and for doing all other necessary acts relating thereto within the district of Jalpaiguri, at the western part of Bhutan or in any other part of this district or in any other district under the Lieutenant Governor of Bengal or the Chief Commissioner of Assam.'

2. Petitioner No. 2 was incorporated on 24th June, 1925, under the provisions of the Indian Companies Act; registered office was also situate at No. 11, Government Place East; authorised capital is Rs. 20,00,000 divided into 80,000 equity shares of Rs. 25 each and the amount of paid up capital is Rs. 8,69,125. The objects of this company are various and have been set out in the memorandum annexed to the petition. I need not refer in detail to the said objects except the clause which provides, inter alia, as follows:

' To enter into partnership or into any arrangement for sharing profits or into any union of interest, joint adventure, reciprocal concession or cooperation with any person or persons or company or companies carrying on, or engaged in, or about to carry on or engage in, or being authorised to carry on or engage in any business or transaction which this company is authorised to carry on or engage in or any business or transaction capable of being conducted so as directly or indirectly to benefit this company. '

3. Jalpaiguri Tea Co. Ltd. is a subsidiary of the petitioner No. 2, Bijoynagar Tea Co. Ltd. It is the common case that originally the Jalpaiguri Tea Co. Ltd. had no power in its memorandum within its objects to amalgamate with any other company, either express or implied. The memorandum of Jalpaiguri Tea Co. Ltd. also is clear and it cannot be contended that originally it had power either express or implied to sell or dissolve the whole of the undertaking for amalgamation with any other company. Bijoynagar Tea Co. Ltd, also had no specific power to take over theundertaking of any company or to enter into scheme of amalgamation now sought to be proposed. It may, however, be contended that the clauses of Bijoynagar Tea Co. Ltd. contained an implied power specially in view of the clause which has been referred to hereinbefore. That, however, does not really solve the problem because what is being proposed by the scheme is taking over by the Bijoynagar Tea Co. Ltd. of all the assets and property of the Jalpaiguri Tea Co. Ltd. and consequent sale and dissolution of the Jalpaiguri Tea Co. Ltd. Therefore, it is important that the Jalpaiguri Tea Co. Ltd. should have that power in its objects either to sell the whole of the undertaking or to enter into this kind of scheme or arrangement. Subsequently resolutions were passed by the two companies altering the memoranda of associations and bringing within their objects the power to enter into compromises now being proposed. Two orders were passed on 18th September, 1972, by this court in Company Petition No. 333 of 1972 and Company Petition No. 334 of 1972 and the said alterations have been confirmed, but the certified copy of the said memorandum was filed with the Registrar of Companies under Section 18(3) on 3rd May, 1973. This application was made on 4th October, 1972. After this application was presented the court by an order dated 28th August, 1972, in Company Application No. 230 of 1972 directed the holding of meetings of the two companies. Such meetings have been held on 30th September, 1972. The meeting of the ordinary shareholders of the petitioner No. 1, that is to say, Jalpaiguri Tea Co. Ltd., was attended by ten ordinary shareholders in person and thirteen ordinary shareholders by proxy and/or through their authorised representatives and the total number of their shareholdings was 18,060. 12 shareholders of the company holding in the aggregate 3,780 ordinary shares had appointed one Mr. Rabindra Nath Mitra as their proxy to attend the said meeting, The chairman of the said meeting rejected the said proxies inasmuch as these were not in accordance with the prescribed forms of proxy sent to the shareholders. The chairman, however, permitted the said Mr. Rabindra Nath Mitra to participate in the voting at the said meeting. The scheme of amalgamation was read out and explained by the chairman as appears from the report of the chairman annexed and filed in this proceeding and was approved, according to the chairman, by requisite majority. The meeting of the shareholders of Bijoynagar Tea Co. Ltd. was held on 30th September, 1972, and was attended by twenty ordinary shareholders in person and eight ordinary shareholders by proxy or through their authorised representative and the total number of their shareholdings was 18,233. The scheme of amalgamation was approved at the said meeting unanimously, according to the report of the chairman. The said scheme approved by both the companies as mentioned hereinbefore is conditional upon the following :

(a) Jalpaiguri Tea Co. Ltd. and Bijoynagar Tea Co. Ltd. passing the necessary special resolution for altering the objects clause of their memoranda of association suitably and obtaining the confirmation of the High Court at Calcutta thereto. (This was done on the 18th September, 1972, as mentioned hereinbefore. The certified copy of the altered memorandum was filed with the Registrar of Companies on 3rd May, 1973, as referred to hereinbefore).

(b) This scheme being sanctioned by the High Court at Calcutta under Section 391 of the Companies Act and the appropriate order for implementation of the scheme being made by the said High Court pursuant to Section 394.

(c) Consent of the shareholders of Bijoynagar Tea Co. Ltd. being obtained pursuant to Section 81 of the Companies Act, 1956, for allotment of shares to Jalpaiguri Tea Co. Ltd. shareholders under this scheme.

(d) The consent of the Controller of Capital Issues (if necessary) being obtained to the issue of the necessary shares by Bijoynagar Tea Co. Ltd. under this scheme.

The main provisions in the scheme are, inter alia, as follows :

' At the transfer date the undertaking of Jalpaiguri shall without further act or deed be transferred to and vested or deemed to be vested in Bijoynagar subject to all charges, if any, then affecting the same or any part thereof. For the purposes of this scheme the undertaking of Jalpaiguri shall include all rights, powers, authorities and privileges and subject as provided in clause 8 hereof all property, moveable or immoveable, including leases and tenancy rights and all other interests or rights in or arising out of such property as may belong to or be in the possession of Jalpaiguri as at the transfer date including licences and import quotas held by Jalpaiguri or which Jalpaiguri would obtain after the transfer date and all debts, liabilities and duties of Jalpaiguri and all other obligations of whatsoever kind.

2. If any suit, appeal or other proceedings of whatever nature (hereinafter called ' the proceedings ') by or against Jalpaiguri be pending, the same shall not abate, be discontinued or be in any way prejudicially affected by reason of the transfer of the undertaking of Jalpaiguri or of anything contained in this scheme, but the proceedings may be continued, prosecuted and enforced by or against Bijoynagar in the same manner and to the same extent as it would or might have been continued, prosecuted and enforced by or against Jalpaiguri as if this scheme had not been made.'

4. The scheme further provided for the continuance of the proceedings against Jalpaiguri Tea Co. Ltd. in the same manner as against Bijoynagar Tea Co. Ltd. and for survival of all contracts and commitments of Jalpaiguri Tea Co. Ltd. against Bijoynagar Tea Co. Ltd. The scheme further stipulated that upon the transfer of the undertaking of the Jalpaiguri Tea Co. Ltd. the said Bijoynagar Tea Co. Ltd. should allot at par to those shareholders of the former one holding 13,860 ordinary shares of Rs. 25 each in the share capital of Jalpaiguri Tea Co. Ltd. excluding 14,140 ordinary shares held by Bijoynagar Tea Co. Ltd. on the order of the High Court sanctioning the scheme, in the ratio of one equity share of Rs. 25 each of Bijoynagar Tea Co. Ltd. credited as fully paid up (sic) shares of Rs, 20 each of Jalpaiguri Tea Co. Ltd. held by such shareholders. Bijoynagar Tea Co. Ltd. should without further application allot its equity shares to such of Jalpaiguri Tea Co. Ltd. as were entitled to such allotment as aforesaid. It was further mentioned that if the allotment of the equity shares as mentioned hereinbefore involved fractions, such fractions should be consolidated and the equity shares so consolidated should be allotted by Bijoynagar Tea Co. Ltd. who would sell such shares in the market and the net sale proceeds would be distributed proportionately to such of Jalpaiguri shareholders as were entitled to the abovementioned fraction and allotments. The new equity shares which would be issued and allotted by Bijoynagar Tea Co. Ltd. under the scheme would rank part passu in all respects with the equity shares of Bijoynagar Tea Co. Ltd. existing on the date of such issue and allotment of such new equity shares would rank for proportionate dividend from the date of their allotment.

5. The first condition in approving a scheme of this nature under Section 394 is to find out whether the statutory requirements have been fulfilled. For the purpose of determining this controversy it was contended that the company which had no power to amalgamate or to sell its entire undertaking and then dissolve, could not propose to pass or sanction or approve a scheme whereby its entire undertaking and assets would be sold and the company would be dissolved without winding up. It was submitted on behalf of the Central Government as well as on behalf of some of the shareholders of Jalpaiguri Tea Co. Ltd, that inasmuch as Jalpaiguri Tea Co. Ltd. did not have any specific power to pass or approve the scheme of amalgamation or to dissolve or to sell its undertaking, such scheme was ultra vires and as such the court could not sanction such ultra vires act on the part of the company. It was contended on behalf of the respondents opposing this application that the corporation being a juristic person would not have power to do anything which its objects did not permit. If the objects did not permit dissolution without winding up or sale of its entire undertaking, a scheme proposed and sanctioned by the shareholders to that effect would be an ultra vires act on the part of the shareholders and, therefore, it was submitted that the court should not sanction such a scheme. It was pointed out that though there was alteration of the memorandumbringing within its objects clause the power to amalgamate, such alteration did not become effective until the certified copy was filed under Section 18(3) of the Companies Act, 1956, and until that was done, such alteration was not effective. As in this case the certified copy was filed on the 3rd May, 1973, which is long after the date when the scheme for alterations had been approved by the shareholders, the act of the shareholders was ultra vires and could not be sanctioned. The question, therefore, is, whether in sanctioning a scheme under Sections 391 and 394 of the Act, the court is circumscribed by the objects of the company. On the one hand, it was contended that it was not necessary to have the power when the court was sanctioning a scheme by the powers given to the court under the statute. On the other hand, it was contended on behalf of the respondents that the court could only give sanction to a compromise proposed and approved by the shareholders and a scheme which had not been approved or proposed by the shareholders could not be approved by the court and as the company was a juristic entity deriving its right only from its objects the court was not competent to sanction a scheme which the company could not approve. In this respect numerous authorities were cited in support of the rival contentions. These cases, in my opinion, however, decided the questions on the facts of each particular case. Strong reliance was placed on behalf of the respondents on the decision of this court in the case of Carron Tea Co. Ltd., [1966] 2Comp. L.J. 278 (Cal.) and reliance was placed on the observations of the learned judge, at page 296, where the learned judge, referring to a particular company, held that it was not competent to carry through the amalgamation without an express power to do so. A close reading of the said decision, however, in my opinion, reveals that the contention before the learned judge was that the company had power to amalgamate and the learned judge was considering the question whether the company had the power to amalgamate or not. No argument, it seems to me, was made before the learned judge as to whether a company which had no power at all of amalgamation could amalgamate or approve of amalgamation and receive the sanction of the court for such amalgamation. It was not urged before the learned judge at least, as is evident from the judgment, as to whether under the statute this power was the power of the court unfettered by the objects clause of the company while in the case of Nagaisuree Tea Co. Ltd. v. Ramchandra Karnani, [1966] 2 Comp. L.J. 208 (Cal.) A. N. Ray J., as the Chief Justice then was, held that the statute recognised the power of the company of amalgamation with another company. Learned judge referred to the case of Parashuram Detaram Shamdasani v. Tata Industrial Bank, [1928] L.R. 55 I.A. 274; A.I.R. 1928 P.C. 180 where the Judicial Committee had observed that every company had under the statute a right of amalgamation with another company as authorised by Section 213 of the Indian Companies Act, 1913, which is in pari materia with Section 391 of the Companies Act, 1956. The learned judge was also of the opinion that there was no limitation on the power of the court to make an order in respect of a company seeking amalgamation. It is to be observed, however, as was pointed out by counsel for the respondents, that the learned judge also was not actually dealing with the question of sanctioning an amalgamation where an amalgamation had been proposed and approved by the shareholders without any express power; the decision was concerned with an application under Section 17 and according to counsel for the respondents, the observations made by the learned judge were obiter in the context of the facts of that case. Learned judge had relied on the decision of the Privy Council, as mentioned hereinbefore. Counsel for the respondents not without justification, in my opinion, pointed out that the decision of the Privy Council dealt with the power of the voluntary liquidator and the observations of the Privy Council must be confined to the facts of that case. Counsel for the respondents also pointed out, in my opinion rightly that the Privy Council decision was given in 1928 while the section relating to power to amalgamate was incorporated in the Act in 1936. Therefore, the said observation should not be construed as holding that the court had power to amalgamate under Section 391 of the present Act. The question was again considered by K. L. Roy J. in the case of Associated Hotels of India Ltd., [1968] 2 Comp. L.J. 292 (Cal.). There the learned judge referred to the observations of A, N. Ray J. interpreting the Privy Council decision that this was an authority for the proposition that the scheme of amalgamation was a right given by the statute and was not dependent for its validity upon the constitution of the company as contained in its memorandum and the learned judge agreed with the said view. The question was also considered in the decision of the Division Bench of this court in the case of Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd., : AIR1969Cal312 and there the Division Bench observed that if a company by virtue of its power in the memorandum desired to amalgamate with another company without coming to a court of law such amalgamation would be valid and it further observed that the power to amalgamate might flow from the memorandum or it might be acquired by resorting to statute. Section 17 of the Companies Act indicated that a company which desired to amalgamate with another company would take necessary steps to come before a court for alteration of its memorandum in aid of such amalgamation. The statute conferred a right on a company to alter its memorandum in aid of amalgamation with another company. The decision did not however, according to counsel for the respondents, go to the extent of holding that no express power was necessary for approvalof the scheme of amalgamation. Counsel for the respondents drew my attention to several English authorities where it had been held that such express power of amalgamation was necessary. Before I refer to such English decisions I must refer to a judgment recently delivered by Salil K. Roy Chowdhury J. in the case of United Bank of India Ltd. v. United India Credit & Development Company Ltd. in C. P. No. 261 of 1972 and C. A. No. 256 of 1970. In that case the learned judge first came to the conclusion that there was implied power in the memorandum to amalgamate because of the combined effect of the various provisions of the memorandum of association placed before the learned judge. After reviewing the various decisions the learned judge observed that the net result of the decisions in Parashuram Detaram Shamdasani v. Tata Industrial Bank Ltd., A IR 1928 P.C. 180 Nagaisuree Tea Company Ltd. v. Ramchandra Karnani, [1966] 2 Comp. L.J. 208 Cal. and Hari Krishna Lohia v. Hoolungooree Tea Co. Ltd., : AIR1969Cal312 clearly laid down, according to the learned judge, that even if there was no express power in the memorandum of the company to amalgamate with another company by virtue of the statutory power under Section 391 of the Companies Act, the court could sanction a scheme of amalgamation if the statutory requirements had been complied with in view of the specific provision of the statute. The learned judge was unable to accept the English law as being valid in India on this aspect in view of the aforesaid decisions. My attention was also drawn to the passages in Buckley's Company Law, 13th edition, page 404, Palmer's Company Law, 25th edition, page .698, Halsbttry's Laws of England, 3rd edition, volume VI, page 614, Pennington's Company Law, 2nd edition, page 438, and the decision in the case of In re Crown Bank, [1890] 44 Ch. D. 634 (Ch. D.) . My attention was drawn to the decision of Simonds J. in the case of In re Oceanic Steam Navigation Company Ltd., [1939] 1 Ch. 41; [1939] 9 Comp. Cas, 229 (Ch. D.) There the learned judge referred at page 44 of the report to the fact that the counsel for the company pressed on the learned judge a course of practice justifying the sanction of the scheme though the constitution of the company did not permit such sanction of the scheme. The learned judge went on to observe:

' But such inquiries as I have made, in the short time at my disposal, have not produced any case in which the court has sanctioned a scheme involving the company in the exercise of a corporate power, whether by the sale of its undertaking or otherwise, which apart from the scheme would not be intra vires. On the other hand, I have found at least one case, where a proposed scheme involving a sale of the undertaking, and the company's memorandum not involving a power to do so, the petition to the court to sanction the scheme contained a prayer to confirm analteration of the memorandum so as to include the power, such prayer being supported by proof of a special resolution to that effect previously passed. No doubt in the great majority of cases where a company wishes, while still a going concern, to dispose of its undertaking as part of a scheme under Section 153, no question arises, for the memorandum of association nowadays commonly contains such a power. But if it is not there and a sale of the undertaking is, therefore, ultra vires the company, I must decline to sanction a scheme of which such a sale forms an integral part. In taking this course I am, I think, acting in accordance with the judgment of Younger J. and within the plain meaning of the statute. '

6. It seems to me that the facts of the instant case before me are a little peculiar. It is true that at the time when the scheme was sanctioned by the shareholders the objects clause or the constitutions of the companies did not permit sanctioning of such schemes. Subsequently, such powers have been acquired by the companies. But such subsequent alteration is not effective until the certified copies were filed with the Registrar, which, as I said, was done on the 3rd May, 1973. Therefore, in this context it is necessary, however, to note that the scheme that was sanctioned was conditional upon approval being obtained to the alteration of the memorandum by the court. Therefore, when the scheme was being sanctioned what was sanctioned was a conditional scheme which would be validated only when the sanction is registered, that is, on the 3rd May, 1973. What the companies sanctioned and approved was a scheme upon anticipation and which was dependent upon the companies acquiring the power before dissolution and amalgamation. I am not faced with the case where the company did not at all have any power to sanction or to sell its entire undertaking to another company or to dissolve. I am faced with the situation where the company did not have the power when it passed the resolution but when the scheme, which was conditional upon the companies acquiring this power which acquisition had been made by the subsequent events, whether the court would sanction such an alteration. I am of the opinion, therefore, that I need not consider the extreme case where the company did not have such a power at all. I am concerned with the case where at the time of sanctioning the scheme the company had acquired such power for alteration and I find that the company had such power when the scheme is proposed to be implemented. Sanction of the shareholders of the respective companies had been upon the condition of the companies' having their powers. Sanctioning of such scheme would not be sanctioning ultra vires acts on the part of the companies concerned. For these reasons, I am unable to accept the contentions urged in opposition to the scheme that as the companies concerned did not have any poweroriginally to sanction the scheme, the scheme should not be sanctioned and the scheme could not be passed by the shareholders.

7. In the affidavit, it was contended further that the other part of the statutory requirements had not been fulfilled, viz., the requisite majority had not approved the scheme at properly convened meetings. Bijoynagar Tea Co. Ltd. passed a resolution by requisite majority and no shareholders of Bijoynagar Tea Co. Ltd. is opposing. An affidavit-in-opposition has been filed on behalf of the 24 shareholders of Jalpaiguri Tea Co. Ltd. by one Parimal Chandra Ghosh. According to him various proxies had beenrejected improperly. The proxies which had been given in Bengali language were not found in order. Reliance was placed on Rules 227, 228 and 70 of the Companies Court Rules and it was contended that there was no valid voting. It was further contended that a notice should have been given to the creditors. Reliance was placed on Bengal Bank Ltd. v. Suresh Chakravarthy, : AIR1952Cal133 . This contention, however, I am unable to accept. Moreover, about the rejection of proxy, in view of the report of the chairman and in view of the relevant rules, I am also unable to accept such contentions.

8. The next objection is about the valuation, that is, about the exchange ratio proposed. The exchange ratio proposed in this scheme is 14 : 1, that is to say, for amalgamation the entire assets of the undertaking of Jalpaiguri Tea Co. Ltd. be transferred to and would be acquired by the petitioner No. 2 and Bijoynagar Tea Co. Ltd. would allot one ordinary share of Rs. 25 each fully paid up for every 14 ordinary shares of Rs. 25 each held by the shareholders of petitioner No. 1. This valuation is being supported by the propounders of the scheme. The said ratio is based on the report of Messrs. Lovelock & Lewes, Chartered Accountants. The respondent-shareholders opposing this scheme have pointed out several irregularities about the valuation. But they have not indicated as to what would be the correct valuation. On the other hand, however, I find that the Regional Director, Eastern Region, Company Law Board, has filed an affidavit and in paragraphs 5, 8 and 11 has given a basis and according to that basis and according to the balance-sheet of the two companies of 1970 the fair exchange ratio appears to be 15 shares of Jalpaiguri Tea Co. Ltd. in exchange of two shares of the Bijoynagar Tea Co. Ltd. In my opinion, this is a fair valuation.

9. The next contention was regarding the feasibility of the scheme and the onus of the parties in seeking sanction of a scheme. In this connection reliance was placed on Palmer's Company Law, 21st edition, page 702, which provides that, in order to confirm a scheme, first, it is necessary to see whether the statutory requirements have been complied with. These, in my opinion, have been complied with. Secondly, all the classes must have.been properly represented. This again, in my opinion, seems to have been done. Thirdly, though the fact that the scheme is approved by a statutory majority is an indication that it is a fair one, this indication is reversed if a substantial proportion of the members--the members of the class by reason of the interest in some capacity--are opposing the scheme. This is not the case here. Fourthly, the arrangement must be such that a prudent man would reasonably approve. This, however, does not mean that actual workability of the scheme should be demonstrated. The opposition, as I mentioned hereinbefore, flows from the affidavit of Parimal Chandra Ghosh. According to Parimal Chandra Ghosh this was a device to avoid an investigation into the affairs of the company which had been mismanaged by the management. No investigation has taken place as yet or has been directed by the Company Law Board or by the Government in respect of the conduct and management of the company. The petitioner No. 2 owns 51 per cent. in petitioner No. 1. In view of the fact that the majority of the shareholders are in favour of the scheme of amalgamation and in view of the tea industry, where expansion is called for, prima facie I do not find anything not feasible nor unworkable in the scheme. It is true that the actual workability of the scheme has not been demonstrated. But the prospects are there, of better and economic management and expansion and development of the industry and the majority of the shareholders have approved the scheme.

10. Therefore, on the facts and circumstances of the case, I will make an order in terms of prayers (a), (b), (c), (d) and (e) except that I direct that the rate of exchange should be 15 shares of Jalpaiguri Tea Co. Ltd. in exchange of two shares of Bijoynagar Tea Co. Ltd. Subject to the modification above, the scheme of amalgamation is sanctioned.

11. Petitioner's counsel undertakes not to take any steps whatsoever for a period of three weeks from date except giving requisition to have this order drawn up.

12. Parties will pay and bear their own costs.


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