Gujarat High Court
Ahmedabad Manufacturing & Calico ... vs Bank Of India Ltd. on 13 December, 1971
Author: D.A. Desai
Bench: D.A. Desai
JUDGMENT D.A. Desai, J.
1. Petitioner, Ahmedabad Manufacturing and Calico Printing Company Ltd. (hereinafter referred to as "Calico"), a public limited company, incorporated on November 20, 1880, under the Indian Companies Act, 1886, has filed this petition under section 391 and 394 of the Companies Act for sanctioning an arrangement for amalgamation of the respondent, Bank of India Ltd., a banking company registered under the Banking Regulation Act, with it. The main object for which Calico was established is to carry on business of manufacturing from cotton, silk, artificial silk, wool, flex, hemp and jute and other fibres, cloth, garments, hosiery, etc. The textile unit of the Calico is a reputed and leading textile unit in this country. The issued, subscribed and paid up capital of the Calico is Rs. 5,29,33,350 consisting of 4 lakhs ordinary shares of Rs. 125 each fully paid, 1,600 6.43% cumulative first preference shares of Rs. 125 each fully paid, 16,000 6% diamond jubilee cumulative second preference shares of Rs. 50 each fully paid, and 38,677 6% cumulative third preference shares of Rs. 50 each fully paid. The respondent, Bank of India Ltd. (hereinafter referred to as "the transferor company"), was carrying on banking business along with its allied business. Its paid capital was Rs. 4,05,00,000 consisting of 7 lakhs ordinary shares each of Rs. 100 on which Rs. 50 were paid, 10,000 ordinary shares of Rs. 100 each with Rs. 50 credited as paid up and one lakh "A" shares of Rs. 50 each fully paid.
2. Prior to the introduction of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 (hereinafter) referred to as "the Bank Nationalisation Act") the transferor-company was mainly carrying on the business of banking with its head office in Bombay and branches and agencies spread all over the country and in some foreign countries too. On the introduction of the Bank Nationalisation Act, the undertaking of the transferor-company stood transferred to a corresponding new bank, known as Bank of India (hereinafter referred to as "the New Bank of India"). On the undertaking of the transferor-company being transferred to the New Bank of India, with effect from July 19, 1969, the directors of the transferor-company were seriously contemplating as to what they should do with regard to the transferor-company. Since the transfer of the undertaking, the only right of the transferor-company was to receive compensation under the Bank Nationalisation Act, which was assessed at Rs. 14.70 crores. Three courses were open to the transferor-company, namely :
(i) to make an application for fresh licence to the Reserve Bank of India for carrying on banking business;
(ii) to undertake new activities consistent with its objects in the memorandum and articles of association; and
(iii) to amalgamate with some other undertakings which may prove beneficial to its members.
3. The directors of the respondent, probably, deliberated over the three alternatives open to the respondent and carried on negotiations with the petitioner for a possible scheme of amalgamation. It appears that some broad outlines of the scheme of amalgamation, now submitted to this court for its sanction, were worked out and it was disclosed in the annual general meeting of the respondent on September 29, 1970. It appears that the scheme of arrangement met with the broad approval of the members, whereupon a detailed agreement was worked out on January 29, 1971, between the petitioners and the respondent. Thereafter, the respondent, having its head office at Bombay, filed an application in the High Court of Bombay under section 391 praying for directions to convene meetings of the members of the respondent to consider and, if thought fit, to approve, with or without modification, the proposed scheme of amalgamation of the respondent with the petitioner. Under the directions of the Bombay High Court, a meeting of the members of the respondent was held on March 18, 1971, and, on a poll being demanded, it was granted and the result of the poll was declared on March 24, 1971, which showed that the scheme was approved by more the than statutory majority of the members of the respondent. In the meantime, on March 22, 1971, at an extraordinary general meeting of the members of the petitioner, the very scheme of amalgamation was offered for consideration of the members, and, by a show of hands, it was approved by a unanimous vote. The respondent then filed Company Petition No. 61 of 1971 in the Bombay High Court on April 12, 1971, under section 391(2), praying for sanctioning the scheme so as to make it binding on all the members of the respondent. To this petition, the petitioner was impleaded as a respondent and, at the hearing of the petition, the present petitioner as the respondent appeared and submitted to the orders of the court.
4. The scheme provided that it would come into operation on April 1, 1971, that being set out as the appointed day. The directors, however, being aware of the fact that some time would be spent in going through the legal formalities before the scheme is finally sanctioned, a provision is made that the effective date would be the date by which the scheme stands finally sanctioned and no more legal proceedings survive in that behalf. However, notice must be taken of the appointed day from which the scheme became effective and, in the event of the scheme being finally sanctioned, certain rights and obligations arise under the scheme with effect from the appointed day, that is, April 1, 1971. Now, the respondent was entitled to a fixed compensation of Rs. 14.70 crores under the Bank Nationalisation Act. The respondent received compensation in 5 1/2% Banks (Acquisition & Transfer) Compensation Bonds, 1999, in the form of, (a) a stock certificate of the face value of Rs. 14,68,50,000; (b) a Government promissory note of the face value of Rs. 1,29,200 which was subsequently sub-divided into Government promissory notes in the following manner, namely, 1 of Rs. 1,00,000, 2 of Rs. 10,000 each, 9 of Rs. 1,000 each, and 2 of Rs. 100 each; and (c) Rs. 3.19 in cash. The bonds and the promissory notes were held by the respondent from April 30, 1970. From April 1, 1971, on the assumption that the scheme would be sanctioned, the petitioner would be entitled to deal with the bonds. In order to safeguard its own interest, the chairman of the petitioner wrote to the chairman of the respondent to sell the bonds and, therefore, at a meeting of the board of directors of the respondent, held on May 11, 1971, a resolution was adopted to sell the bonds. I am informed that all compensation bonds have been sold by the respondent and various amounts have been deposited either with the banks or the petitioner or some other companies at varying rates of interest.
5. Vimadalal J., sitting as the company judge in the Bombay High Court by his order, dated September 1, 1971, sanctioned the scheme of amalgamation, after overruling all the objections raised by the Government of India, submitted in response to a notice served upon the Central Government, as required by section 394A of the Companies Act. While sanctioning the scheme, certain directions were given, especially sub-clause (d) of clause 15 was substituted by the following clause :
"the sanction by the appropriate High Court under section 391 of the Companies Act, 1956, and the necessary orders under section 394 of the said Act being obtained, both by the transferor company as well as by the transferee company."
6. These directions were issued in the company petition filed for sanctioning the scheme of amalgamation. These directions obligated the transferee company, namely, the petitioner, to obtain orders sanctioning the scheme of the appropriate High Court. The registered office of the transferee company is situate within the jurisdiction of this High Court. Accordingly, the petitioner filed Company Application No. 101 of 1971, under section 391(1) of the Companies Act, praying for directions to convene a meeting of the members of the petitioner-company to approve, if thought fit, with or without modification, the scheme of amalgamation. By the order, dated September 8, 1971, the court gave a direction for convening a meeting of the members of the company on October 28, 1971, and appointed Shri M. H. Rana, Deputy Registrar (II), to preside over the meeting and submit his report to this court. The chairman appointed by the High Court submitted his report on November 1, 1971. Thereafter, the petitioner filed the present petition under section 391(2) for sanctioning the scheme of amalgamation, as approved by the members of the petitioner-company and as sanctioned by the Bombay High Court.
7. The report of the chairman would show that the scheme of amalgamation has been approved by more than the statutory majority of members of the petitioner-company. The issued, subscribed and paid-up capital of the petitioner, amongst others, interests of 4 lakhs ordinary shares and they are held by 36,570 shareholders (sic). In all 662 votes representing 752 shareholders either in person or by proxy were cast, out of which 93 votes representing 93 shareholders were found to be invalid. Of the remaining 569 valid votes representing 659 shareholders, 63 votes representing 108 shareholders were cast by proxy holders in favour of the scheme of amalgamation. The total number of shares held by the aforementioned shareholders comes to 44,583. The money value of the aforementioned shares would be Rs. 55,72,875, at the rate of Rs. 125 each. Out of the remaining 506 votes representing 551 shareholders, 495 votes representing 540 shareholders were cast in person in favour of the scheme of amalgamation and the total number of shares held by these shareholders comes to 40,170, its money value being Rs. 50,21,250. Thus the total affirmative votes cast in favour of the scheme comes to 648 shareholders holding 84,753 shares. 11 shareholders representing 11 votes cast their votes in person against the scheme of amalgamation. The number of shares held by these 11 shareholders is 48, its money value being Rs. 6,000 Section 391(2) requires that if a majority in number representing three fourths in value of the members present and voting either in person or by proxy, if so allowed, at the meeting, approve the scheme of amalgamation, its sanction by the court would make it binding on all members. Before the court can accord its sanction, it must be shown that a majority of members representing three-fourths in value of the members present in person or by proxy and voting in favour of the scheme must approve the scheme. That condition has been fulfilled.
8. By now it is well settled that, when a scheme of compromise or arrangement is presented to the court for its sanction under section 391, the court examines it, apart from any specified objection, from three broad angles. They are :
(i) whether the statutory provisions have been complied with;
(ii) whether the class was well represented; and
(iii) whether the arrangement is such as a man of business would reasonably approve.
9. In this case, the Government of India appeared and contested the scheme and yet, it was nowhere suggested that the statutory provisions have not been complied with or that the class was not fairly represented or that the scheme is not such as a man of business could reasonably approve. I would, therefore, not dilate on this topic save saying that the petitioner has strictly complied with all the statutory requirements. The figures set out hereinabove would show that the class of ordinary shareholders of the petitioner was fairly represented at the meeting and, looking to the infinitesimally small minority opposing the scheme, it can be said with reasonable certainty that the majority was not able to coerce the minority to fall in line with them. It may also be pointed out that those minority shareholders, who opposed the scheme at the meeting, did not think fit to appear at the hearing of this petition to put forward their views as to why the scheme would not be beneficial and why the court should withhold its sanction to such a scheme. If the opposition was legitimate and founded on some rational ground, the court would have examined the scheme critically. After examining the scheme from the point of view of the petitioner, that is the transferee company, it must be said, without the least fear of being contradicted, that the scheme of amalgamation by which a huge sum of Rs. 14.70 crores with its accumulated interest would be available to the petitioner, both for its expansion as well as for its liquid finances, would undoubtedly be a scheme which is such as a man of business applying its commercial judgment, from his own narrow personal angle, would approve. This court is not concerned with examining the scheme from the point of view of the members of the transferor company. That aspect must have been examined by the Bombay High Court, while sanctioning the scheme, at the request of the transferor company. I would, therefore, conclude by saying that, from the point of view of the transferee company, the scheme is such as a man of business would readily approve.
10. A notice of the present petition was served upon the Regional Director, Company Law Board, Western Region, on behalf of the Central Government, as provided in section 394A of the Companies Act. In response to this notice, one Shri S. Rajagopalan, Regional Director, Company Law Board, Western Region, has filed his affidavit opposing the scheme. The main objection taken by the Central Government is that the transferee company is possessed of assets exceeding Rs. 30 crores and is, therefore, an undertaking to which Part A of Chapter III of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the Monopolies Act"), would apply and that the respondent-transferor company is also an undertaking within the meaning of that Act and, therefore, any scheme of amalgamation between the petitioner-company nor the respondent-company has approached the Central Government for its approval, this court should not sanction the scheme of amalgamation.
11. Before this contention is examined on merits, it is necessary to refer to the broad features of the scheme of amalgamation. The scheme has undergone certain verbal modifications and a specified modification in sub-clause (a) in order to meet with an objection raised by the New Bank of India. The scheme is submitted to this court for sanction with the modification so made by the Bombay High Court while sanctioning the scheme. It may also be mentioned that the members of the transferee company approved the scheme of amalgamation, as modified by the Bombay High Court and after making certain verbal changes. This scheme in its broad outline provides for the amalgamation of the transferor company with the transferee company. The shares of the respondent-company will stand cancelled on certain shares of the petitioner-company, in the proportion set out in the scheme, being allotted to the members of the respondent-company, along with certain convertible and redeemable bonds. Without setting out all the details for working out the transfer of shares, it may be stated that, in return for 4 shares of the transferor company, the transferee company will allot to the holders of 4 shares as under :
(a) One "A" ordinary share of Rs. 25 credited as fully paid and an out settlement to two fractions of 1/10 each of such "A" ordinary share aforesaid;
(b) One eight per cent. convertible bond of Rs. 100 credited as fully paid;
(c) Four eight per cent. redeemable bonds of Rs. 116 each credited as fully paid.
12. On the scheme being effective, all the properties wherever they are situate of the transferor company shall stand transferred and get vested in the transferee company and the transferor company shall stand dissolved without winding up. The consequences of amalgamation are provided for, namely, that all the proceedings against the transferor company shall be proceeded with and carried on by the transferee company, etc. It is thus a scheme of amalgamation and in course of time the transferor company would disappear and its existence would come to an end. It may here be mentioned that, since the Bank Nationalisation Act, the transferor company has received compensation bonds in the amount of Rs. 14.70 crores. It has a name and compensation bonds and that is what it consists of to-day.
13. Mr. M. R. Barot for the Central Government urged that both the transferor company and the transferee company are undertakings within the meaning of the Monopolies Act and, as the scheme of merger or amalgamation is in respect of two undertakings, as defined in the Monopolies Act, the court cannot accord its sanction until the scheme is approved by the Central Government. In order to dispose of this contention, it is necessary to refer to some of the provisions of the Monopolies Act. The preamble of the Act sets out the object for which the Act is enacted. The preamble says that it is an Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto. In its broad outline, it is a measure to arrest the development of huge monopolies having an adverse effect on market and to prevent concentration of economic power in the hands of a few to the detriment of many. This Act appears to have been enacted to give effect to the directive principles of State policy, as enunciated in article 39(c) of the Constitution of India which provides that the State shall, in particular, direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The object sought to be achieved by the Act is rather very laudable and, therefore, an attempt must be made to give full effect to the provisions of the Monopolies Act and such interpretation of its provision must be availed as would not defeat the very object for which the Act is enacted. The evils of monopolies are too glaring to be recapitulated. They are usually for the good of a few and to the evil and detriment of many. The grounds of monopolies must not only be arrested but, wherever they do exist, attempts must be made to so control them as not to permit them to work to the disadvantage of a large section of the community. Monopolies have a tendency to restrict competition with the result that the monopolistic concerns have a bold on the prices of commodities in the market and it ultimately results in the exploitation of many at the hands of a few. Such a thing must be presumed to be detrimental to the interest of a large section of the community and, therefore, opposed to the common interest and must be kept under strict control. The Act, undoubtedly, seeks to achieve this object. In effect, it seeks to give effect to the directive principles of State policy, as enunciated in article 39(c) of the Constitution. Therefore, when an attempt is made to bypass such an Act, the court must put its foot down upon it. In effect, if there are two interpretations possible of a provision of a statute like the Monopolies Act, one permitting an escape from the provisions of the Act, and the other bringing it within the operations of the Act, the court would ordinarily prefer the latter to the rejection of the former.
14. In order to see whether section 23(1)(a) is attracted, it is necessary to refer to some of the provisions of the Act; section 2(v) defines undertaking as under :
"2. (v) 'undertaking' means an undertaking which is engaged in the production, supply, distribution or control of goods of any description or the provision of service of any kind;".
15. Section 2(r) defines service as under :
"2. (r) 'service' means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, insurance, transport, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service."
16. Chapter III is headed "Concentration of economic power" and it is divided into three parts. Sections 20 to 26 are in Part "A", section 27 is included in Part "B" and sections 28 to 30 are in Part "C". Section 20 sets out undertakings to which Part "A" will apply. Its relevant portion reads as under :
"20. This Par shall apply to -
(a) an undertaking if the total value of -
(i) its own assets, or
(ii) its own assets together with the assets of its inter-connected undertakings, is not less than twenty crores of rupees;
(b) a dominant undertaking -
(i) where it is a single undertaking, the value of its assets, or
(ii) where it consists of more than one undertaking, the sum-total of the value of the assets of all the inter-connected undertakings, constituting the dominant undertaking, is not less than one crore of rupees.
Explanation. - The value referred to in this section shall be, -
(i) in the case of an undertaking referred to in clause (a) or clause (b), as the case may be, the value of its assets on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does or does not apply to such undertaking; and
(ii) in the case of an inter-connected undertaking, the value of its assets on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does or does not apply to the undertaking referred to in clause (a) or clause (b)."
17. Then comes section 23. The relevant portion of section 23 reads as under :
"23. (1) Notwithstanding anything contained in any other law for the time being in force, -
(a) no scheme of merger or amalgamation of an undertaking to which this Part applies with any other undertaking,
(b) no scheme of merger or amalgamation of two or more undertakings which would have the effect of bringing into existence an undertaking to which clause (a) or clause (b) of section 20 would apply.
shall be sanctioned by any court or be recognised for any purpose or be given effect to unless the scheme for such merger or amalgamation has been approved by the Central Government under this Act.
(2) If any undertaking to which this Part applies frames a scheme of merger or amalgamation with any other undertaking, or a scheme of merger or amalgamation is proposed between two or more undertakings, and, if as a result of such merger or amalgamation, an undertaking would come into existence to which clause (a) or clause (b) of section 20 would apply, it shall, before taking any action to give effect to the proposed scheme, make an application to the Central Government in the prescribed form with a copy of the scheme annexed thereto, for the approval of the scheme ....."
18. Mr. M. R. Barot, learned advocate, appearing for the Central Government, urged that, as the scheme of amalgamation of the transferor company and the transferee company is in respect of an undertaking, within the meaning of the Monopolies Act, such a scheme of amalgamation cannot be sanctioned by the High Court or recognised for any purpose or be given effect to unless the same has been approved by the Central Government under the Monopolies Act. In order to attract section 23(1(a), there must be a scheme of merger or amalgamation. It must be a scheme of merger or amalgamation in respect of an undertaking to which Part A applies and it must be a scheme of merger or amalgamation of such an undertaking with any other undertaking. The learned Advocate-General, who appeared for the petitioner, countered this argument by urging that the scheme in question is a scheme of amalgamation of the respondent, Bank of India Ltd., which is not an undertaking and to which Part A does not apply. In fact, at one stage two-fold objections were taken by the learned Advocate-General. It was urged that in a scheme of amalgamation, there must be a transferor company and a transferee company and the language of section 23(1)(a) shows that the scheme of merger or amalgamation can be said to be a scheme of amalgamation in respect of the transferor company only and the transferee company may be any other undertaking. Approaching from this angle, at one stage, it was urged that, unless the transferor company is an undertaking to which Part A applies, section 23(1)(a) would not be attracted. However, the learned Advocate-General made it clear that he does not wish to press before the court the second limb of the argument, namely, that it is the transferor company alone which must be an undertaking to which Part A applies and it is immaterial whether the transferee company is an undertaking to which Part A would be applicable. That contention was specifically given up and, therefore, I would not examine it.
19. The only question that was argued by the learned Advocate-General was that the transferor company was not an undertaking within the meaning of the Monopolies Act and, therefore, section 23(1)(a) would not apply. Mr. M. R. Barot, learned advocate for the Central Government, did not dispute the fact that before section 23(1)(a) could be attracted, the transferor company must be an undertaking within the meaning of the Act. Mr. Barot wanted to urge that as the transferee is already an undertaking registered under section 26 of the Act and it is an undertaking to which Part A applies, the scheme of amalgamation of the transferor company with such transferee company would attract section 23(1)(a). But, as the learned Advocate-General has not pressed the second limb of his argument, I need not examine the second part of his submission.
20. The question, therefore, posed is whether the respondent, transferor company, is an undertaking within the meaning of the Monopolies Act. In order to be an undertaking within the meaning of the Act, it must be an undertaking "which is engaged in" the production, supply, distribution or control of goods of any description or the provision of service of any kind. Mr. Barot did not suggest that the respondent, transferor company, is engaged in the production, supply, distribution or control of goods of any description. It was urged that the respondent is engaged in the provision of service. It was urged that the banking activity is a kind of is whether the Bank of India Ltd., the transferor company, since the retrospective operation of the Bank Nationalisation Act, with effect from July 19, 1969, is engaged in the provision of service of any kind. The word "service" has also been defined in section 2(r) set out above. It was urged that the activity presently carried on, since July 19, 1969, by the respondent falls within the first part of the definition which defines service and not in the inclusive part of the definition. The first part of the definition "service" means service of any description which is made available to potential users. Mr. Barot urged that the respondent is rendering service as a financing or investing company. I must point out that I pressed Mr.Barot to specifically tell me as to what service the respondent is rendering since July 19, 1969. The answer is vague. At one stage, Mr. Barot said that, prior to July 19, 1969, the respondent was rendering banking service to its customers. There is no dispute about it. There is no dispute about the fact that the banking activity is a kind of service rendered to its customers. The real question is what service is being rendered or what provision for rendering service is made by the respondent since July 19, 1969. The relevant date on which the position of the respondent-company must be examined is the date on which the petition was presented by the respondent to the Bombay High Court for sanctioning the scheme of amalgamation. That is somewhere in February, 1971. It must be pointed out here that the Bank Nationalisation Act came into operation, with retrospective effect, from July 19, 1969. By April 30, 1970, the respondent received compensation bonds. The relevant date is 1st February, 1971, when the respondent approached the Bombay High Court for a direction for convening a meeting of its members to consider and, if thought fit, to approve the proposed scheme of amalgamation. It is with respect to that date that the court will have to examine whether the respondent is an undertaking. Even if the date, 12th April, 1971, is taken as the relevant date, when the respondent approached the Bombay High Court, by filing Company Petition No. 61 of 1971, for sanctioning the scheme of amalgamation, it would be necessary to find out whether the respondent was an undertaking within the meaning of the Monopolies Act on that date. Now, it must be conceded that the petitioner is an undertaking within the meaning of Monopolies Act to which Part A applies as its net assets exceed 30 crores. Similarly, the respondent, transferor company, even if it is an undertaking, would not be an undertaking to which Part A applies, because its net assets do not exceed 20 crores of rupees. Its only assets are compensation bonds of the aggregate value of Rs. 14.70 crores, which from April 1, 1971, would have to be handed over to the petitioner-company, if the scheme is finally sanctioned, as the counter obligation of paying dividends and interest is undertaken, under the scheme, by the petitioner from April 1, 1971.
21. The question whether the respondent is an undertaking within the meaning of the Monopolies Act will have to be decided by the factual aspect placed before the court. To be an undertaking, it must be engaged in the provision of service of any kind and that service must be such which is made available to its potential users. The question whether the respondent is engaged in the provision of service is a question of fact. Similarly whether the service is available to the potential users is equally a question of fact. To substantiate its contention, the facts alleged by the Central Government in the affidavit of the Regional Director, Company Law Board, Western Region, may be set out. It is as under :-
"I submit that merely because the respondent, transferor company, may not for the time being be engaged in carrying on banking business, it does not mean that it is not an undertaking within the meaning of section 2(v) of the Monopolies Act having regard to the scheme and provisions of the Monopolies Act. I submit that the respondent, transferor company, is capable of carrying on non-banking business and is not prevented from carrying on even banking business provided it applies for and obtains a licence under the Banking Regulation Act, 1949. I further submit that the respondent, transferor company, is an undertaking which in any event is capable of being engaged in production, supply or services. I say that it is significant that the respondent, transferor company, has in fact up to 4th June, 1971, sold compensation bonds (Government of India 5 1/2 Banks (Acquisition and Transfer) Compensation Bonds, 1999) of the face of Rs. 3,15,63,200 and realised a sum of Rs. 3,13,34,048.78 including the net interest thereon (interest less tax deducted at source). It is also significant that the transferor company deposited by 14th June, 1971, Rs. 1,17,50,000 out of the said amount thus realised with various companies for periods of 12 to 13 months at interest varying between 9 1/4 and 10 % and the transferor company also advanced loans by 5th June, 1971, amounting to Rs. 1,74,88,050 to various companies including the petitioner, transferee company. The loans have been advanced for periods of 12 to 13 months and at interest varying between 9% and 9 1/4 %. I say that the transferor company has also made investments in shares of various companies including the petitioner, transferee company. I crave leave to refer to and rely upon the books of accounts of the respondent, transferor company, for the purpose of showing the details of the amount realised by sales of compensation bonds, amounts deposited by the transferor company, loans granted by the transferor company and investments in shares of companies made by the transferor company.
I submit that from what is stated hereinabove, it is clear that the respondent-company has been carrying on the business of an investment and finance company by purchasing shares by making fixed deposits with banks and companies and advancing loans to companies."
22. It would appear from the passage quoted above that three factual averments are lumped together in this paragraph. Each of them may be separately examined.
23. The first contention is that the respondent, transferor company, is capable of carrying on non-banking business and is not prevented from carrying on even banking business provided it applies for and obtains a licence. The very language in which the contention is couched shows that there is unqualified admission that the respondent is not presently engaged in the provision of service but it has a legal capacity to carry on some business. The actual carrying on of some business and a legal capacity to carry on business are entirely two distinct things. There is capacity in every adult human being to carry on business subject to the conditions to which it cab be carried on. Any one having necessary finances, such as an individual, a joint Hindu family, a firm or a company, has legal capacity to carry on business. But a legal capacity to carry on business is not something akin to actual carrying on of business. The expression "is engaged in" in the definition of undertaking would indicate at least actual carrying on of some business or actual rendering of some service or availability of service to those who are inclined to take it on payment. To illustrate, if a banking institution is opened, there need not be any invitation to the public to take advantage of the service offered but a customer can approach the bank for its service on agreeing to pay the charge. But, till some service is being rendered or is available, it cannot be said that the undertaking is engaged in the provision of service. The first contention suggests that the respondent is clothed with a personality embracing within itself the legal capacity of a registered company to carry on some business or to make provision for some service. There is no presumption that an existing company necessarily carries on a business or is engaged in the provision of service. Therefore, the mere capacity of the respondent to carry on banking business by obtaining a licence, if it is applied for and granted, or a non-banking business, permissible within the objects clause of its memorandum of association, is not tantamount to saying that it is either carrying on business or is engaged in the provision of service. Therefore, the first contention would not help in reaching the conclusion that the respondent, transferor company, is an undertaking within the meaning of the Monopolies Act.
24. The second contention is that the respondent-company up to 4th June, 1971, has sold compensation bonds of the face value of Rs. 3,15,63,200 and realised a sum of Rs. 3,13,34,048 78 including the net interest thereon. I must confess that I have not been fully able to understand this allegation. If the respondent-company, under a statutory provision, received compensation bonds in consideration of statutory transfer of its undertaking, under the Bank Nationalisation Act, it is like any other individual on abolition of jagirs or inams or watan receiving compensation bonds. In these days of nationalisation and socialisation, acquisition and payment of compensation is well known. It is equally well known that the compensation is not paid in cash but by bonds. If the recipient of the bonds sells them it cannot be said that the very sale would be indicative of carrying on of business. It can be said to be carrying on business if day-in and day-out bonds are sold and purchased. But, ordinarily, when compensation is paid in bonds and in a given case the recipient of the bonds, if he sells the same, and in this case they are sold at a discount, it would not indicate that thereby some business was being carried out.
25. The third allegation is that the respondent had deposited by 14th June, 1971, Rs. 1,17,50,000 out of the realisation of sale of bonds with various companies for periods of 12 to 13 months at interest varying between 9 1/4% and 10% and has also advanced loans, by 5th June, 1971, amounting to Rs. 1,74,88,050 to various companies including the petitioner-company for periods of 12 to 13 months and it interest varying between 9% and 9 1/4%. It is admitted fact that, by 4th June, 1971, the respondent, transferor-company, has sold, at a discount, part of compensation bonds. The directors had in their hands a huge cash of rupees three and odd crores. It is not expected that the directors should keep this money in their pockets. They must deposit the said amount somewhere. The directors of the respondent, in the interest of their own members as well as for the petitioner-company, must so deposit the amount as to realise good interest thereon. They accordingly, deposited part of the realisation with companies and part of it was advanced as loans. Thus, an interim arrangement was made by the directors of the transferor-company at the request of the transferee-company. Even here, if deposits were frequently changed from company to company, if public were invited to apply for loans at competitive rates of interest, one could have visualised the argument that the responded transferor company, was carrying on business as a finance company. There are no trappings of business in the act of the directors of the respondent-company in depositing a part of the sale proceeds of the bonds and giving loans till the scheme was finally sanctioned. In my opinion, this is purely an interim arrangement made by the directors of the respondent-company at the invitation and suggestion of the petitioner-company, till the respondent-company goes out of the picture. It can never be said that such an activity would amount to carrying on of business or making provision of service as a finance company.
26. The next allegation was that the respondent-company has made investment in shares. The allegation is broad-based and lacks detail. When facts were pointed out, Mr. Barot did not muster courage to even press this allegation. It was pointed out by the learned Advocate-General that the respondent-company has purchased 3 shares : (1) one preference share of the petitioner-company of the face value of Rs. 50 at the price of Rs. 30.25, (2) one equity share of the Bombay Dyeing & Manufacturing Co. Ltd. of the face value of Rs. 25 at the price of Rs. 39.25, and (3) one equity shares of the Ahmedabad Advance Mills Ltd., of the face value of Rs. 100 at the price of Rs. 221.75. These three shares were purchased in order to enable the respondent-company either to make deposits or advance loans to the companies. Non Banking Non-Financial Companies (Reserve Bank) Directions, issued by the Reserved Bank of India provide that such a company can either take deposit or a loan from a member only. In order to enable the respondent-company to deposit a part of its sale proceeds of bonds with the aforesaid companies, the respondent was forced to purchase the aforementioned three shares so that it can deposit its amount as a member in respect of whom there existed no restriction except of the upper limit. Such a transaction, only for a limited purpose of acquiring status for doing something incidental to preservation of the assets, till the period the scheme is finally sanctioned, cannot be said to be carrying on of business. The contention stands negatived by the aforementioned facts being placed on record by the affidavit of Mr. Bastikar secretary of the petitioner-company.
27. In the affidavit of the Regional Director, Company Law Board, Western Region, a general statement is made that the business of financiers is analogous to the provision of facilities in connection with the banking and that on such construction, the petitioner transferor-company, is rendering service and/or in any way is engaged in the provision of service of financing. This is a vague statement. In support of this statement, reliance was placed only on the aforesaid three allegation, each of which has been separately dealt with by me. As against this vague statement, Shri Krishnaraj M. D. Thankersey, chairman of the board of directors of the respondent-company, has filed an affidavit in which he has stated that, since the receipt of the compensation bonds, they were considering the scheme of amalgamation. This would show that, if the respondent was carrying on business, it would not think of amalgamation. The very fact that the scheme of amalgamation was seriously considered by the board of directors, would further strengthen the conclusion that the respondent-company was not carrying on any business. It is also proper to refer to the balance-sheet of the respondent-company for the year ending 31st December, 1970. This report shows that, for the whole of the year 1970, absolutely no activity was carried on by the respondent company. During that period, bonds were not sold. All these circumstances would lead to the inescapable conclusion that the respondent-company since the transfer of its undertaking under the Bank Nationalisation Act, was neither engaged in any business nor in the provision of service. It was neither rendering service as a finance company or an investment company. If sale of one's own assets and deposit of the sale proceeds can be said to be carrying on business or rendering service, no human being can escape that description, because everyone will sell the assets and invest the sale proceeds. Therefore, on the facts and in the circumstances, a conclusion must be reached that, since July, 1969, till the filing of the company petition in the Bombay High Court, and even till to-day, the respondent-company is not engaged in carrying on any business or is not engaged in the provision of service.
28. This conclusion gets support from two decisions of the Bombay High Court. The first decision I will refer to is respect of the respondent-company itself The transferor company Petition No. 61 of 1971 in the Bombay High Court for sanctioning the scheme of amalgamation and, on behalf of the Union of India, a contention was raised that the scheme required the sanction of the Central Government under the Monopolies Act, and opposing the contention it was urged that the respondent was an undertaking within the meaning of the Monopolies Act. The very allegations, which are now made, were placed before the Bombay High Court and Vimadalal J. after examining those contention, held that the respondent, which was the petitioner before him, was not an undertaking within the meaning of the Monopolies Act. In reaching this conclusion, Vimadalal J. referred to the earlier decision of the Division Bench of the Bombay High Court, in Appeals Nos. 33 and 34 of 1971 arising form Company petitions Nos. 159 and 161 of 1970. The Division Bench was examining the scheme of amalgamation between Tata Engineering and Locomotive Co. Ltd. and the Central Bank of India Ltd. It was also contended before the Division Bench that the Central Bank of India was an undertaking within the meaning of the monopolies Act. To substantiate this contention, these very identical facts were alleged, namely, that it had sold compensation bonds and deposited the sale proceeds or advanced loans. It was also contended that it had a capacity to start any business. The contention was negatived observing that legal capacity to carry on business must be clearly distinguished from the company being at any particular time actually engaged in carrying on the business authorised by its memorandum and further holding that on the facts it could not be said that the Central Bank of India Ltd. was engaged in making provision of service, it was observed as under :
"Now the act of exercising, its option and obtaining the five and a half per cent. annum promissory notes cannot be treated as a part of investment business. Act No. V of 1970 took away the old Central Bank's entire undertaking including banking and gave it only compensation. Exercising an option for obtaining such compensation cannot from part of carrying on business. The act of selling the promissory notes and making deposits out of the sale proceeds thereof is also not carrying on business."
29. It would thus appear that, on identical facts, the Division Bench of the Bombay High Court declined to come to the conclusion that the Central Bank of India Ltd. was engaged in carrying on business or in the provision of service.
30. It would thus appear that the respondent, transferor-company, since July 19, 1969, is not engaged in any business or in the provision of service, and, therefore, it is not an undertaking within the meaning of the Monopolies act. If it is not an undertaking within the meaning of the Monopolies Act, cannot be said that the court is called upon to sanction a scheme of amalgamation of an undertaking to which Part A applies with any other undertaking. As the word "undertaking" is defined, it will have to be given the same meaning unless the context otherwise required. The word "undertaking" is used in two places in section 23(1)(a). It appears to have been used in the same sense in which it is defined in section 2(v). Therefore, section 23(1)(a) would only be attracted if there is a scheme of amalgamation of an undertaking within the meaning of the Act with another undertaking within the meaning of the Act. As the respondent company is not an undertaking. within the meaning of the Act, this court is not examining the scheme of amalgamation of an undertaking with any other undertaking. Therefore, section 23(1)(a) would not be attracted. If section 23(1)(a) is not attracted, it was not obligatory upon the transferor-company to approach the Central Government for its approval, before moving this court for sanctioning the scheme of amalgamation. In this view of the matter, the contention of Mr. Barot must be negatived.
31. I have examined the scheme on its merits. It deserves to be sanctioned. Therefore, I would hereby accord sanction to the scheme of amalgamation, as sanctioned by the Bombay High Court with the amendment made in clause (1) at the request of New Bank of India and retaining the directions given at the instance of the New Bank of India. I would give the following further directions, in terms of the prayer contained in paragraph 38 of the petition :
(a) The arrangement of amalgamation between the transferor, Bank of India Ltd., and the transferee-company, Ahmedabad manufacturing and Calico Printing Company Ltd., as set out at page 32, exhibit "D", is hereby sanctioned.
(b) All property, rights and powers of the transferor company and all the estate and interest of all transferor-company therein to the extent transferred by or vested under the scheme of amalgamation shall, by this order, stand transferred and vested in the transferee-company without any further act or deed with effect from the 1st day of April, 1971.
(c) All proceedings now pending by or against the transferor-company to be continued by or against the transferee-company in relation to its assets and liabilities in India.
(d) The transferee-company do without further application allot to the shareholders of the transferor-company the equity shares and the 8% convertible bonds and 8% redeemable bonds which they are entitled to receive under the scheme of amalgamation with this further direction that it should be so done after carrying out the prescribed procedure, if any, under the Companies Act.
(e) The transferee company do within thirty days after the date of the order cause a certified copy of the order to be delivered to the Registrar of Companies, Gujarat, for registration.
(f) Direction with regard to the dissolution of the transferor-company must be obtained from the Bombay High Court.
(g) Liberty is reserved to the parties to the scheme of arrangement embodied in the scheme of amalgamation to apply to this court for any direction that may be necessary in regard to the carrying out of the scheme of arrangement and amalgamation sanctioned to-day.
32. The petitioner to bear its own costs and pay one set of hearing fee to the Government of India, as they were entitled to the statutory notice, Other parties to bear their respective costs. Order accordingly.