Dismissed

M/s Avanti feeds limited v. -

Telangana HC20 Jun 2012COMPA/698/2012

Case brief

AI extract

What is this about?

The Court dismissed the applicant's application to delete a bank guarantee condition from the amalgamation scheme. It held that Section 392(1)(b) and Rules 86 and 87 empower the Court to modify a scheme for its proper working but do not confer jurisdiction to delete conditions stipulated for the scheme's sanction before it comes into force.

What did the court decide?

The Company Application No.698 of 2012 to amend the order deleting the bank guarantee requirement was dismissed.

M/s Avanti feeds limited Vs - — Specific Performance | Telangana HC (2012)

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THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

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COMPANY APPLICATION No.698 OF 2012 IN COMPANY PETITION Nos.23 and 24 of 2012

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ORDER:

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This Company Application is filed by the applicanttransferee company requesting this Court to take the consent letter of the Deputy Commissioner (Commercial Taxes) Eluru Division, Eluru, dated 19.04.2012 on record, and to amend the order of this Court, in C.P.Nos.23 and 24 of 2012 dated 18.04.2012, in the interest of justice and equity.

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During the course of hearing of C.P.Nos.23 and 24 of 2012, an affidavit dated 18.04.2012 was filed by the Joint Managing Director of the transferee company informing that they were approaching the Government of Andhra Pradesh seeking their consent to the proposed scheme of amalgamation; the transferee company undertook to furnish a bank guarantee from SBI/ICICI Bank or any other Nationalized Bank in favour of the Government of Andhra Pradesh for Rs.5,89,62,295/- for a period of one year; if they received no objection for the proposed scheme of amalgamation, from the Government of Andhra Pradesh, within the stipulated period of one year, necessary application would be filed before this Court for return of the bank guarantee; and, in case the transferee company was unable to obtain sanction within the period of one year, they undertook to extend the bank guarantee till the sales tax deferment loan would be totally repaid. Taking the affidavit dated 18.04.2012 on record, in its order in C.P.Nos.23 and 24 of 2012, dated 18.04.2012, observed that, in view of the unconditional undertaking and, as furnishing the bank guarantee for the entire sales tax deferment loan would protect the interests

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of the Government of Andhra Pradesh which is the creditor, the requirement of furnishing the bank guarantee, and if need be its renewal, would suffice for according sanction to the scheme of amalgamation; it would not be appropriate to refuse to sanction the scheme of amalgamation as the interest of the Government of Andhra Pradesh, for the sales tax deferment loan, was secured by way of bank guarantee. Consequently the scheme of amalgamation was sanctioned subject to the condition that the transferee company furnished an unconditional bank guarantee in favour of the Government of Andhra Pradesh for Rs.5,89,62,295/(being the sales tax deferment loan amount) valid for a period of one year; and, in case the consent of the Government of Andhra Pradesh to the scheme of amalgamation was not obtained within the aforesaid period, the said unconditional bank guarantee should be extended till the sales tax deferment loan was discharged in its entirety. This Court further held that a copy of the said bank guarantee, along with a letter from the concerned officer of the Government of Andhra Pradesh acknowledging receipt of the bank guarantee, should be enclosed along with the certified copy of the sanction order to be filed with the Registrar of Companies.

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It is not in dispute that the scheme sanctioned by this Court would come into effect only when a copy of the order sanctioning the scheme is filed with the Registrar of Companies. Even before filing a copy of the order, sanctioning the scheme, with the Registrar of Companies, the transferee company has filed this application (Company Application No.698 of 2012) to modify the order, in C.P.Nos.23 and 24 of 2012 dated 18.04.2012, deleting the requirement of furnishing an unconditional bank guarantee for a period of one year for Rs.5,89,62,295/- towards the sales tax deferment loan. Reliance is placed on the certificate issued by the

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Deputy Commissioner (Commercial Taxes) Eluru Division, Eluru, dated 19.04.2012 informing the transferee company that there was no objection for the proposed amalgamation with their subsidiary company as long as there would be no change of the activities of the company, and management of the company concerned.

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S r i V.S.Raju, Learned Counsel for the applicant, would contend that, since the Deputy Commissioner (C.T.), Eluru who sanctioned the sales tax deferment loan had, by his certificate dated 19.04.2012, conveyed his no objection for the proposed amalgamation, the requirement of furnishing the bank guarantee for Rs.5,89,62,295/- was no longer necessary; and, as such, this Court should delete this requirement, stipulated earlier in its order dated 18.04.2012, as the certified copy of the order of this Court has not, as yet, been filed with the Registrar of Companies. Learned Counsel would draw attention of this Court to Section 392(1)(b) of the Companies Act, 1956 (the Act), and to Rules 86 and 87 of the Companies (Court) Rules, 1959 (the Rules) in support of his submission that this Court has ample powers, either suo motu or on an application being filed, to make such a modification in the scheme of arrangement. Learned Counsel would rely on Dr.Ved Mitra vs Globe Motors Limite d^[1] ; Mehtab Chand Golcha vs Official Liquidator, Golcha Propertie s^[2] ; and Ram Lal Anand v. Bank of Barod a^[3] in this regard.

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The question which arises for consideration is whether this Court has the power, under Section 392(1)(b) of the Act and Rules 86 and 87 of the Rules, to delete a condition stipulated for sanction of a scheme even before the scheme has come into force which, admittedly, would be only after a copy thereof has been filed with the Registrar of Companies.

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Section 392 (1)(b) of the Act confers power on the Company Court where it has made an order under Section 391 sanctioning a compromise or an arrangement in respect of a company; and, it may at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

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Rules 86 and 87 of the Companies (Court) Rules, 1959,

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read as under:

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"86. Report on working of compromise or arrangement.—

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At any time after the passing of the order sanctioning the compromise or arrangement, the Court may, either of its own motion or on the application of any person interested, make an order directing the company, or, where the company is being wound up, the liquidator, to submit to the court within such time as the Court may fix, a report on the working of the said compromise or arrangement. On a consideration of the report, the Court may pass such orders or give such directions as it may think fit.

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87. Liberty to apply.--(1) The company, or any creditor or member thereof, or, in case of a company which is being wound up, the liquidator, may, at any time after the passing of the order sanctioning the compromise or arrangement, apply to the court for the determination of any question relating to the working of the compromise or arrangement.

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(2) The application shall in the first instance be posted before the Court for directions as to the notices and the advertisement, if any, to issue, as the Court may direct. (3) The Court may, on such application, pass such orders and give such directions as it may think fit in regard to the matter, and may make such modifications in the compromise or arrangement as it may consider necessary for the proper working thereof, or pass such other order as it may think fit in the circumstances of the case."

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The power conferred on the Court, under Section 392 (1)(b) of the Act, is to make such modifications in the compromise or arrangement. Exercise of such a power to make modifications in the compromise or arrangement is confined only to such situations where this Court considers it necessary to do so for the proper working of the compromise or arrangement. The compromise or arrangement, in the present case, is the scheme of compromise or arrangement for which sanction was sought from this Court, and it is only if there is anything in the said compromise or arrangement which hinders its proper working, does Section 391(2)(b) of the

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Act empower the Court to make such modifications in the said compromise or arrangement. In the case on hand, no amendment or modification is sought to the scheme per se. What is sought is deletion of a condition stipulated by this Court for sanction of such a scheme. Rule 86 of the Rules, which requires the Court to call for a report on the working of the compromise or arrangement; and, on a consideration thereof, to pass such orders or give such directions as it may think fit; has no application to the facts of the present case. Neither is the working of the arrangement in issue in the case on hand nor has a report on its working been called for by this Court. Rule 87 is applicable only when a question relating to the working of the compromise or arrangement arises for determination. No such question arises for determination in the present application.

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Now to the judgments cited by the Learned Counsel. In Ram Lal Anan d³ an appeal was filed, under Section 483 of the Act, against an order passed under Section 392 of the Act directing the Official Liquidator to sell the property in dispute by public auction. While examining the scope of Section 392, the Division Bench of

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the Delhi High Court held as under:-

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“……..Under Section 392, the High Court has the power to supervise the carrying out of the compromise or arrangement which has been sanctioned by it under Section 391. Further it has the power to give directions either at the time of sanctioning the compromise at any time thereafter in regard to any matter for the proper working of the compromise or arrangement. The Court has the power even to modify the compromise in order to make it work satisfactorily. The order under Section 392 can be passed by the Court suo motu and it is not necessary for it to wait for an application for the purpose. While ensuring the proper working of one part of the compromise which requires the appellant to give up his rights, the Court is not prevented from giving directions in regard to the other part of the compromise dealing with the obligations of the company. It is true that no hard and fast rules can be laid for the manner in which the Court will exercise its powers under Section 392; and there may be cases where the Court will insist on the performance of one part of the compromise leaving the other part for consideration at some future occasion, especially when the two parts are not dependent on each other. It may not be fair to exercise powers under Section 392, to enforce merely a part of the compromise, by ignoring altogether the other part. The two parts shall have to be performed by the parties concerned, though not simultaneously. We, therefore, feel that the learned Company Judge was wrong in ignoring the compromise which binds the company as much as the appellant. It is, therefore, necessary to investigate into all these matters

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and weigh the pros and cons thereof, before ordering the sale of the property..……”

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The Division Bench of the Delhi High Court thereafter remanded the case to the Learned Company Judge for final disposal, in accordance with law, after taking into consideration the observations made in its order. As has been held by the Division Bench of the Delhi High Court, the power, under Section 392 of the Act, is to give directions, either at the time of sanctioning the compromise or arrangement at any time thereafter, in regard to any matter for the proper working of the compromise or arrangement.

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In Mehtab Chand Golch a² , an application was filed, under Section 392 of the Act, seeking modification in the scheme which was approved by the Court earlier. The Rajasthan High Court, after noting Section 392 of the Act and Rules 86 and 87 of the Rules, placed reliance on Mansukhlal v. M.V. Shah, Official Liquidator, Hathising Mfg. Co. Ltd.⁴ wherein the Gujarat High Court held as under:

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"No hard and fast rule can be laid down on the point whether every change in sponsorship should be referred back to the members or creditors. The company law in India has conferred statutory powers on the High Court to make such modifications in the compromise or arrangement as the Court may consider necessary for the proper working of the compromise and arrangement. The power of the widest amplitude has been conferred on the court under Section 392(1)(b) of the Companies Act. Reading Section 392(1)(a) and (b), it appears that Parliament did not want the Court to be functus officio as soon as the scheme of compromise and arrangement is sanctioned by it. The Court has a continuing supervision over the implementation of the compromise and arrangement. Parliament has thought it fit to trust the wisdom of the court rather than go back to the interested parties for seeking their approval for every modification. Parliament has conferred power on the Court, not only to make modifications even at the time of sanctioning the scheme but at any time thereafter during the period the scheme is being implemented. The power seems to be absolute and of the widest amplitude………….

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..…The position of law thus crystallised is that under Section 392 of the Companies Act this Court has ample powers of supervising the carrying out of the scheme or arrangement and has also powers to make such modifications as may be necessary………”

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There is no quarrel with the proposition that the Company Court has a continuing supervision over the implementation of the

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compromise or arrangement and, under Section 392, has ample powers to supervise the carrying out of the scheme or arrangement, as also powers to make such modifications as may be necessary. It is only where the Court is satisfied, that the scheme sanctioned by it can only work if the said scheme is modified, would this Court have power and jurisdiction under Section 392 of the Act to modify the scheme. The power to modify a scheme would not extend to deletion of a condition stipulated by the Court for sanction of such a scheme.

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In Dr.Ved Mitr a¹ , a modification was sought to the scheme of arrangement sanctioned by the Court earlier. The Delhi High Court noted the relevant provisions of the scheme, and observed that the scheme required the depositors to be paid the amount due to them, on account of the principal sum of the depositors, in six instalments spread over a period of four years which was not done. It is in this factual matrix that the Delhi High Court observed:-

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“……….Since this result was found extremely inconvenient in practice, the Legislature brought in a new provision, namely, Section 392, giving the Court power to sanction modification of the scheme, already approved by it, without directing a fresh meeting of the creditors and members. Since there was nothing more in the old Act than the said provision (section 153) corresponding to present Section 391, and there was no further provision corresponding to present section 392, the legislature thus clearly intended to clothe the Court with such special powers in the larger interest of overseeing whether the scheme was being worked satisfactorily or could be worked with some modifications; the Court could, even without giving an opportunity to the shareholders and creditors to consider those modifications, order the existing arrangement to continue instead of winding up the Company. It is a permissible manner of gathering legislative intent by seeking to find out the mischief to be avoided and the remedy to be promoted. On the language of Section 392 and in the above context, it appears that an alternative has now been given to the Court to order winding up in the event of a scheme already approved by the Court not being possible to work, “with or without modifications". It may be noticed that the power under Section 392 to do so has been conferred on the Court in a manner that will permit the exercise of the said power not only on any application made to it but even suo motu. The Supreme Court also, in order to carry out the legislative intent, has drawn up the aforesaid Rules 86 and 87. The said Section 392 as well as the above said Rules clearly indicate the Court's power to modify the scheme, to which sanction had already been given, without directing a fresh meeting, if the same was necessary and without resorting to winding up.

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A similar view appears to have been taken by Rajindar Sachar, J. in New Bank of India Ltd. v. Anand Finance (P) Ltd (C.A.No. 596 of 1973 and C.A.No. 128 of 1968 and C.P.No.95 of 1973, decided on 07.02.1974). The contention before

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Sachar, J. was that the scheme of arrangement in that case, sanctioned on 29.07.1968, lapsed automatically on 21.01.1971 when 2-1/2 years, mentioned in the scheme, ran out. The contention was put forward before Sachar, J. that unless the Court was clearly satisfied that the scheme could not be worked on the expiry of the period fixed the scheme would automatically lapse; this contention was repelled. It was pointed out by Sachar, J. that the decision of the Supreme Court in M/s. J. K. 7 (Bombay Pvt. Ltd. v. M/s. New Kaiser-i-Hind Spinning and Weaving Co. Ltd. did not lay down anything to suggest that a scheme lapsed on the expiry of the period mentioned in it. After the above (and on many other points arising in that case) decision by Sachar, J. there was an appeal against his decision in Company Appeal No. 11 of 1974. My Lord, the Chief Justice and V. S. Deshpande, J., while dismissing the appeal, summarised (speaking through Deshpande, J.) Sachar, J.'s finding on the above said point as follows:-

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"The arrangement sanctioned on July 29, 1968 had not come to an end even though the time specified therein for the payment of the debts by the holding company had expired.”

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My attention has been drawn by Mr. Sanghi to an unreported judgment of the Calcutta High Court in C.A.No.32 of 1970 (Re Bangodaya Cotton Mills Ltd.), decided by A. N. Sen, J. on 22.05.1973 in which the aspects and the cases referred to by me have been discussed. The learned Judge also held that the contention, which was put forward to the effect, namely, that the Court had no power to accord any sanction to modification of the scheme which already has been sanctioned without directing a fresh meeting, was not sound and that the Court enjoyed such a power under the Companies Act of 1956 and the rules framed thereunder, as noticed above. It may also be noticed that A. N. Sen, J. was inclined to place reliance upon the fact that though there was opposition by some to the modification, which in that case was by way of extending the time for payment in terms of the scheme, the majority of the creditors had not appeared from which fact A. N. Sen, J. inferred: "Therefore I can reasonably infer that the majority of the creditors do not have any objection to this particular modification." In granting the extension, which was the modification asked for by the company, A. N. Sen, J. took into consideration the industrial climate of the State when the order was passed.

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I am now fortified in the view I am taking now not only by the observations made by Sachar, J. (which do not appear to have been dissented from in any manner by the Division Bench) and by the decision of A. N. Sen, J., but also by the fact that, even on grounds of propriety, nearly 67 per cent of the creditors (in terms of amounts due to them) have informed V. K. Mundhra that they wish the existing scheme to be continued for a further period as proposed by V. K. Mundhra, to which I shall refer presently…………..”

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T h e Delhi High Court rejected the contention that the meeting of the creditors and shareholders should be called for, and extended working of the scheme subject to the conditions mentioned in the said order.

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As noted hereinabove what is sought by way of the present application is not for modification of the scheme to enable its proper working, but for deletion of a condition prescribed by this Court for sanctioning of the scheme itself. In the present case, the working of the scheme of arrangement is not in issue. In the present case, no such question relating to the working of the

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compromise or arrangement arises for consideration. Viewed from any angle, neither Section 392(1)(b) of the Act nor Rules 86 and 87 of the Rules confer power on this Court to delete a condition stipulated by this Court for sanction of the scheme of compromise or arrangement. In the absence of any statutory provision conferring power on the Court to do so, the application necessitates rejection.

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The Company Application is, accordingly, dismissed.

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RAMESH RANGANATHAN,J

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Dt.20.06.2012 usd

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[1] 1975 (48) cc 64

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