Salil Kumar Roy Chowdhury J.
1. This is an application for sanction of a scheme of arrangement under Sections 391, 392, 393 and 394 of the Companies Act, 1956.
2. The petitioner No. 1, A. W. Figgis & Co. Pvt. Ltd., hereinafter referred to as the transferor-company, was incorporated on the 12th of May, 1947, having its registered office at No. D-3/5, Gillander House, 8 Netaji Subhas Road, Calcutta. The transferor-company has an authorised share capital of Rs. 15,60,000 divided into 1,56,000 ordinary shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferor-company is Rs. 8,00,000 divided into 16,000 'A' ordinary shares of Rs. 10 each fully paid up and 64,000 'B' ordinary shares of Rs. 10 fully paid up. The objects of the company, inter alia, are to transact of carry on all kinds of booking agency or commission business and in particular the booking of tea, jute, gunny and any other commodity which may seem desirable in relation to the investment of money, the sale of property and the collection of receipt of money. To purchase, take on lease or tenancy or in exchange, hire, take option over or otherwise acquire for any estate or interest whatsoever and to hold, develop, work, cultivate, deal with or turn to account concession, grant, decree, licence, privilege, claim option, leases property real or personal or rights or power of any kind which may appear to be necessary or convenient for any business of the company, etc. The company since its incorporation is carrying on mainly two businesses, one, that of tea broking and auctioneering and the other, property business. The petitioner No. 2 Queens Park Property Co. Pvt. Ltd., hereinafter referred to as the 'transferee-company', was incorporated on the 31st of January, 1978, having its registered office at No. D-3/5 Gillander House, 8 Netaji Subhas Road, Calcutta. The authorised share capital of the transferee-company is Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferee-company is Rs. 20 divided into 2 equity shares of Rs. 10. The transferee-company is a wholly owned subsidiary of the transferor-company and the objects of the transferee-company are, inter alia, to carry on the business as dealers, owners and investors of land, building, factories, for which purpose to acquire and purchase, take on lease or in exchange, hire or by other means obtain ownerships, etc., and also to manage land, building and other property, whether belonging to the company or not or to collect rents and income and to supply to tenants occupiers and others refreshment, attendants, messengers, light, waiting rooms, reading rooms, meeting rooms, etc. It is stated in para. 11 and various sub-paragraphs thereof as the reasons which have necessitated the scheme of arrangement of transfer of the property as beingthat it was felt by the transferor-company that the business of tea broking and auctioneering is growing substantially and, therefore, for administrative convenience, efficiency and better attention, the property business of the transferor-company to be conducted by a separate wholly owned subsidiary and for this purpose a new property-company being the transferee-company, Queens Park Property Company Pvt. Ltd., has been incorporated to take over the property business of the transferor-company including the property situated at No. 10 Queens Park, Calcutta. The proposed scheme, therefore, aims at relieving the transferor-company from looking after its property business so that it may concentrate on tea broking and auctioneering business without any administrative impediments by reason of its property business which is completely different from the tea business and similarly the property-company being the transferee-company will be able to better look after and develop the property business in an independent way. The bifurcation of the business and properties would be for the benefit of the transferor-company and its shareholders and all concerned. It appears, from the last audited balance-sheet of the company that there is excess of assets over liabilities to the extent of Rs. 9,52,919.03. Thereafter, by an order dated the 9th of March, 1978, in an application both the companies were directed to convene the separate meetings of their ordinary and equity shareholders for the purpose of considering and if thought fit, approving with or without modification the scheme of arrangement. The said meeting was duly held on the 21st of April, 1978, in accordance with the said order at the respective registered office of the said two companies and the same was unanimously passed by the members present and voting as would appear from the reports of the respective chairman of the meetings. Thereafter the application was presented on the 26th of April, 1976, and after due compliance with the requirements, the Company Law Board appeared and filed an affidavit-in-opposition through one Jyoti Prakash Mukherjee, the Regional Director, Company Law Board, Eastern Region. It was, inter alia, contended that the proposed scheme of arrangement is not a bona fide scheme and/or compromise and the same is not a scheme of amalgamation within the meaning of the Companies Act, 1956. It is further contended that the very object of the arrangement is merely to transfer the valuable property, i.e., from the transferor-company to the transferee-company a newly formed property-company. It is further alleged that the grounds which have necessitated the said scheme of arrangement are baseless and without any reasons. It is further alleged that the scheme is wholly unnecessary. It is further alleged that the price of the said property which is going to be transferred to the transferee-company is fixed at about Rs. 8,00,000 by the allotment of 10,000 equity shares of Rs. 10 each, credited as fully paid up, to the transferor-company, and also a sum of Rs. 7,00,000 by way of loan carrying interest at the rate of 7% per annum to be advanced to the transferee-company by the transferor-company. It is suggested in the said affidavit-in-opposition that the scheme is to transfer the said property of the transferor-company to the transferee-company for a nominal value of Rs. 8,00,000, whereas the said properties are much more valuable. It is further suggested that the said scheme has been propounded for the purpose of evading the capital gains tax from the income-tax authorities and also to evade payment to the revenue authorities concerned. It is further suggested that if the said scheme is sanctioned, various authorities would suffer loss, that is, the State Govt. of West Bengal will lose its revenue by way of court-fees, stamp duty, etc., which is payable under the law at fair market value over the sum of Rs. 8,00,000 in the event of sale under the Transfer of Property Act. It is also submitted that in the case of a normal transfer sanction from the urban land ceiling authority is required and to avoid the same, the scheme has been propounded. Therefore, it is submitted that the present scheme of arrangement or compromise is an attempt on the part of the said two companies to defeat the legitimate claim of the State Govt. of West Bengal and other revenue authorities. It is further submitted that the financial position of the petitioner No. 1, the transferor-company, is not good in view of the auditor's adverse remark in the balance-sheet for the year ending 31st of March, 1977, and it is submitted that the scheme should not be sanctioned.
3. Mr. S.B. Mukherjee, appearing with S.P. Chowdhury for the petitioner, submitted that the said scheme is bona fide and has been propounded solely for the purpose of administrative convenience and efficient management by separating tea broking and auctioneering business of the transferor-company and the property business proposed to be transferred under the scheme to the new property-company incorporated as a wholly-owned subsidiary of the transferor-company. Mr. Mukherjee rightly submitted that if anybody can arrange its matter lawfully, that is without violating any provisions of law, there cannot be any question of evasion. He submitted that the scheme is not only beneficial but will promote both the said two businesses of tea broking and auctioneering and the property business for the benefit of the two companies and its shareholders and all concerned. Mr. Mukherjee submitted after drawing my attention to the provisions of Sections 391(1) and 394 of the Companies Act, 1956, that this is a reconstruction or arrangement which squarely comes within the provisions of the said sections. Mr. Mukherjee referred to a decision of the court in Albian Jute Mills Company Ltd. v. River Steam Navigation Co.  100 CLJ 70, where the word 'property' under Section 153A of the Indian Companies Act, 1913, was interpreted and, thereafter, he also cited a Division Bench decision of the court in New Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd. : AIR1959Cal352 , where the decision in Albian Jute Mills Co. Ltd. v. River Steam Navigation Co.  100 Cri LJ 70 was impliedly overruled. It has been held by the said Division Bench decision as observed by Bachawat J. in para 6 at page 353 of AIR 1959 Cal353 as follows (See  29 Comp Cas 357) :
'The argument that the transfer infringes the provisions of Section 6(e) of the Transfer of Property Act overlooks the plain words of Section 153A of the Indian Companies Act, 1913. The transfer takes place by virtue of the vesting order without any further act or deed. The antecedent scheme of amalgamation does not affect the transfer. It is not necessary to obtain a formal conveyance from the transferor-company. The transfer being by an order of a court of competent jurisdiction, Section 6(e) of the Transfer of Property Act has no application having regard to Section 2(d) of the Transfer of Property Act.'
4. Relying on the said Division Bench decision, Mr. Mukherjee submitted that it is quite proper, legal and permissible to frame a scheme under Section 391 and if the same is sanctioned by the vesting order under Section 394, the company becomes vested in the transferee-company. Mr. Mukherjee also referred to another Division Bench decision of the court in Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation Ltd. : AIR1960Cal637 , where in relation to a scheme of arrangement by the organisation and the sub-division of the existing shares with reduced capital it has been observed by Bachawat J. in para. 27 at page 643 of AIR 1960 Cal as follows (See  30 Comp Cas 367, 381);
'The word 'arrangement' in Section 391 is of wide import. By Section 390, 'arrangement' includes reorganisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or those methods. The court has the power to sanction a scheme of arrangement though the scheme modifies the special rights attached to a class of shares.'
5. Therefore, Mr. Mukherjee submitted that the scheme of arrangement would also include reorganisation of share capital and also reconstruction of a company. Mr. Mukherjee lastly cited an English House of Lords decision in Ex parte, Westburn Sugar Refineries Ltd.  1 All ER 881, wherein on an application for approval and confirmation of a reduction of capital which was passed unanimously, a question was raised that the same was against public policy to aid a company threatened with nationalisation to part with valuable assets. Lord Radcliffe observed on page 886 of  1 All ER as follows :
'There is no doubt that the applicant company is competent to proceed in this way. Its articles authorise the reduction of capital, subject to the approval of the court. The Companies Act, 1948, Section 66(1) gives to the court the statutory power of confirmation.'
6. Then again it was observed at pages 887-888 of  1 All ER as follows :
'Therefore, the shareholders need no protection. That leaves outstanding the interests of the public, and it is the fear that their interests may be prejudiced by this proceeding that has led the majority of the court of Session, as I read their opinions, to refuse their approval of the company's petition.
Two reasons are advanced by Lord Carmont for his view. One is that on general grounds of public policy the court ought not to aid a company threatened with nationalisation to 'eviscerate' itself by parting with valuable assets. My Lords, I do not think that the contingency of nationalisation has any relevance to the public policy which courts of justice should support. If the reduction is objectionable on other grounds, it will not become the more acceptable because it may have been proposed in view of a pending measure of nationalisation. Conversely, the threat of nationalisation cannot render improper what is otherwise unobjectionable.'
7. Relying on the said principle Mr. Mukherjee submitted that the scheme if it has not violated any provisions of law, the mere suspicion or alleged avoidance of tax and duties cannot be a ground for not sanctioning the scheme which is otherwise lawful and valid. Mr. Mukherjee also drew my attention to a passage in Weinberg on Takeovers and Mergers, 3rd edn., Article 706, at page 79, as follows :
'By agreement between the directors of H. Co. and S. Co., the undertaking of the two companies (or certain of their assets) are transferred to N.Co. in consideration for the issue by N. Co. of shares to H. Co. and S. Co. This procedure is unlikely to be used where the whole of the undertakings of H.Co. and S.Co. are to be transferred for the result would be to leave H.Co. and S. Co. each with its original shareholders and having as its sole asset a block of shares in N.Co. The procedure is however particularly apt for the merger of one type of business carried on by two companies which also carry on other types of business. If the assets transferred to N.Co. by H.Co. and S.Co. were rougly of equal value their shareholdings in N.Co. may be equal so that it would be a subsidiary of neither of them, this 'fifty-fifty associated company' although it not infrequently leads in due course to a deadlock situation between the two shareholders, has become increasingly popular.'
8. Therefore, Mr. Mukherjee submitted that all the statutory requirements have been duly complied with, that is, the statutory meetings have been held and the scheme of arrangement has been duly passed by the statutory majority and it is the wisdom of the shareholders who are astute businessmen and investors to have approved the scheme, and the court should not interfere or sit on appeal on their decision unless there is any fraud or illegality on the face of the said scheme. Mr. Mukherjee also submitted that there is nothing which makes the said scheme illegal or unlawful as the petitioner and its shareholders have taken steps which are permissible under the law and as such there cannot be any question of evasion of any fiscal provisions as suggested by the affidavit-in-opposition filed on behalf of the Company Law Board. Mr. Mukherjee submitted that the court cannot proceed on mere suspicion or surmise without any facts or basis.
9. Mr. Mukherjee, therefore, submitted that the order should be made by sanctioning the scheme as prayed for. Mr. A.C. Law appearing for the Company Law Board submitted that the scheme is not bona fide and has been propounded solely for the purpose of evading the capital gains tax and also stamp duty and court-fees by not executing a regular deed of conveyance for such a transfer. Mr. Law, being asked by me whether there is any provision in any law barring any scheme of arrangement of transfer of a portion of the company's properties to another company formed for that purpose as a wholly owned subsidiary, in his usual fairness, admitted that there is no such specific provision in any law. He submitted that having regard to the conduct of the transferor-company, which mainly carried on tea broking and auctioneering business, the incorporation of a property-company for the purpose of transferring its valuable property is solely for the purpose of evading the provisions of fiscal law and the sanction of the urban ceiling land authority for such transfer. With due respect to the contention raised on behalf of the Company Law Board by Mr. Law, I am unable to accept the same but certainly that has evoked some amount of suspicion in the mind of the court thereby casting a duty on the court to scrutinise with great care the said scheme whether it really violates or infringes any specific provision of law or the same is fraudulent or ultra vires the company in any way whatsoever. Mr. Law failed to point out any specific provisions to show that the said scheme is illegal or ultra vires or against the public policy in any way whatsoever.
10. Considering the matter very carefully and giving my anxious thought over the matter and after carefully scrutinising the said scheme, I cannot but hold that the scheme having been passed by the statutory majority, thereby complying with all the statutory requirements, and there being no illegality or fraud on the face of the same, the court cannot but sanction the scheme. It is true that the court is not merely a rubber stamp but at the same time it is equally well settled that the court will not ordinarily interfere with the judgment and decision of the shareholders of a company who are generally businessmen and investors unless there is a very strong reason for doing so. It is also well settled that if anybody can arrange his matter in such a way which is absolutely legal as to avoid any provisions of law, it cannot be said to be an evasion but quite legal and lawful. The said principle mainly arose in several income-tax matters before the Supreme Court. These are in CIT v. A. Raman & Company : 67ITR11(SC) , wherein Shah J., as he then was, observed as follows :
'By adopting a device if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment a case for commencing a proceeding for reassessment under Section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.'
11. Then again in another decision of the Supreme Court in CIT v. Calcutta Discount Co. Ltd. : 91ITR8(SC) , where under very similar circumstances as the present one, the ITO charged the transferor-company with the profit alleged to have been made by the transfer of its shares to the subsidiary company which was floated for the purpose of taking over a part of the property of the transferee-assessee-company. In this connection, Hegde J, observed in para. 13 at page 264 of  3 SCC 264 as follows (See : 91ITR8(SC) ) :
'It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at the same time enabling its subsidiary to earn some profits such a course is not impermissible under law.'
12. Therefore, it is quite clear from the well-settled principle laid down by the Supreme Court that by lawfully arranging matters, nobody can be held guilty of any evasion of provisions of law even if it may avoid certain incidence of tax or duties. In this case, that it is the only, suggestion, thereby raising suspicion in the minds of the court, was admitted by the Company Law Board for whom Mr. A.C. Law appeared. The decision cited by Mr. Mukherjee and also provisions of Sections 391-394 make it quite clear that there is no illegality or infirmity in the said scheme which has been propounded and unanimously approved by the shareholders of both the companies. Therefore, it cannot be said that the said scheme is unfair, unreasonable or not honest which an ordinary prudent shareholder would not approve. Therefore, I hold that the said scheme is fair, reasonable and honest and should be sanctioned as prayed for.
13. In the result, I am making the following order :
There will be an order in terms of prayers (a), (b), (c), (d), (e), (f) and (g). The petitioner to pay the costs of the Company Law Board assessed at 60 G.Ms.