Calcutta High Court
Castron Technologies Limited vs Castron Mining Limited on 12 July, 2013
Author: Nishita Mhatre
Bench: Nishita Mhatre, Anindita Roy Saraswati
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
BEFORE:
The Hon'ble Mrs. Justice Nishita Mhatre
AND
The Hon'ble Mrs. Justice Anindita Roy Saraswati
APO No. 411 of 2011
CP No. 594 of 2002
Castron Technologies Limited .....Petitioner
vs.
Castron Mining Limited ....Respondent
Mr. S.N. Mookherjee, Sr. Advocate
Mr. Ratnanko Banerjee, Adovate
Mr. Kuldeep Mullick, Advocate
Mr. Ajay Gaggar, Advocate .......... For the Appellant
Mr. Sudipto Sarkar, Sr. Advocate
Mr. Chaitanya Mehta, Advocate
Mr. Abhijeet Sinha, Advocate
Mr. Piyush Mehria, Advocate.......... For Respondent No. 1
Mr. Abhrajit Mitra, Advocate
Mr. Jishnu Choudhury, Advocate
Mr. Amit Agarwalla, Advocate ..........For Respondent No. 2
Heard on : 22.03.2013
Judgement on : 12.07.2013
Nishita Mhatre, J. :
1. The appeal is directed against the judgment and order of the Learned Single Judge dated 2nd December 2011. The Learned Single Judge has rejected the application filed by the appellant for recalling the order dated 13th May 2003 passed in C.P. No. 594 of 2002, sanctioning a Scheme of Arrangement. The appeal is also directed against the order allowing the application filed by Castron Mining Limited for implementation of the aforesaid scheme.
2. The facts giving rise to the present appeal are as follows:
Castron Technologies Limited (hereinafter referred to as C.T.L.) and Castron Mining Limited (hereinafter referred to as C.M.L.) are companies run by members of the Agarwalla family who are the shareholders of the companies. C.T.L. applied for the grant of a lease of a coal mine known as the Brahmadiha coal mine located in the state of Jharkhand on 18th April 1996. It was agreed under a family arrangement entered into on 26th May 1999 that the mining lease which C.T.L. had applied for would be assigned in favour of Parameshwar Kumar Agarwalla or his nominees. By the family arrangement it was decided that in case the lease of the coal mine was granted in favour of C.T.L. the Directors of C.T.L. would assign and transfer the right, title and interest in the lease hold property in favour of C.M.L., which is the transferee company. A joint petition was filed on 8th March 2002 by C.T.L. and C.M.L. under Sections 391 and 393 of the Companies Act, 1956 for sanctioning the Scheme of Arrangement in view of the family arrangement between the parties. A mining lease was executed in respect of the aforesaid coal mine in favour of C.T.L. on 18th June 2002 by a registered deed. The Scheme of Arrangement was not opposed by the Regional Director, Department of Company Affairs and, therefore, it was sanctioned on 13th May 2003 and came into effect from 31st October 2001 which was the appointed date. The recitals of the Scheme indicate that the mining lease had not been granted to C.T.L. till the appointed date. The parties, thereafter, took the necessary steps for transferring the mining lease of C.T.L. to C.M.L. A letter was written by the Director of C.T.L. on 2nd July 2004 to the Secretary, Department of Mines and Geology, Government of Jharkhand requesting for permission to transfer the lease held by C.T.L. to C.M.L. in view of the Scheme of Arrangement sanctioned by this Court. The Deputy Commissioner, Giridi issued a letter to the Director of Mining, Department of Mining and Geology, Government of Jharkhand recommending the transfer of the Mining lease in favour of C.M.L. On 25th May 2005, C.T.L. informed the Government of Jharkhand of their intention to withdraw their application for transfer of the Coal Mining lease in favour of C.M.L. A similar letter was addressed to the District Mining Officer Giridi. A Writ Petition was filed by C.T.L. in the High Court of Jharkhand being WPC No. 3961 of 2005 seeking a direction against the respondents therein to dispose of the application for withdrawal of the transfer of the mining lease. The writ petition was dismissed as the Court was of the opinion that unless the order passed by this Court sanctioning the scheme was modified, no relief could be granted to the petitioner by the Jharkhand High Court.
3. On 28th March 2006 an application was submitted before this Court signed by Mahendra Kumar Agarwalla purportedly acting on behalf of the C.T.L. and C.M.L. for recalling the order sanctioning the Scheme of Arrangement. This application was registered as C.A. No. 209 of 2006. C.M.L. filed an application later, being C.A. No. 667 of 2006, for implementation of the same scheme.
4. While these applications were pending decision before this Court, an intimation was sent on 26th February 2009 by the Government of India to the Government of Jharkhand that there was no provision in the Act requiring prior approval of the Central Government for implementation of the orders of this Court. The Central Government did not have any objection to the implementation of the order of this Court. Consequently it was decided to substitute the name of C.M.L. in the mining lease held by C.T.L., provided certain terms and conditions were accepted. On 8th June 2009 the State of Jharkhand executed a deed of rectification, substituting the name of C.M.L. for that of C.T.L. with respect to the mining lease granted on 18th June 2002. All these documents were brought on record before the Learned Single Judge of this Court when the application for recalling the earlier order was being heard.
5. The Learned Single Judge has held that the application moved by C.T.L. under Sections 391 and 392 of the Companies Act was not maintainable as such an application for recalling the Scheme of Arrangement could not be filed. The Learned Judge held that C.M.L. had never authorized Mahendra Kumar Agarwalla to move the application although the application indicated that both C.M.L. and C.T.L. had authorized him to move the application for recalling the order. It was held that since the Scheme of Arrangement was arrived at by consensus it amounted to a consent decree which could not be recalled at the instance of one party. The Court then observed that the basic objection of C.T.L. to the Scheme of Arrangement was that it had been arrived at in breach of the provisions of the Mines and Minerals (Development and Regulation) Act, 1957 (hereinafter referred to as Act) and the Mining Concession Rules, 1960 (hereinafter referred to as the Rules). It was held that the objection had lost its significance because of the execution of the deed of rectification by which the name of C.T.L. had been substituted by the name of the C.M.L. in respect of the mining lease. Thus the Learned Single Judge rejected the application for recalling the Scheme of Arrangement and granted the application for implementation of the scheme.
6. Mr. S. N. Mookherjee, the Learned Counsel appearing for C.T.L. submitted that the Scheme of Arrangement had its genesis in an agreement between the majority shareholders of the transferor company (C.T.L.) and the majority shareholders of the transferee company (C.M.L.). Since the transfer was a voluntary Act which had the trappings of a sale the order by this Court sanctioning the Scheme was akin to a consent order or decree. He submitted that while sanctioning a scheme the Company Court has to ensure that it is not in breach of any provision of law nor is it unconscionable or contrary to public policy. According to the Learned Counsel, the Scheme which was sanctioned amounted to a transfer of a mining lease without complying with Rule 37 of the Mineral Concession Rules 1960. This, urged the Learned Counsel, renders the transfer of the mining lease void and such a transfer cannot be ratified under the provisions of the Act. The Act and the Rules have been enacted to give effect to a public policy, submitted the Learned Counsel and any transaction in breach of those provisions would have to be set aside and the order permitting such a transaction would have to be recalled. The Learned Counsel conceded that the application may not be maintainable under Sections 391, 392 of the Companies Act. He however pointed out that the application for recalling must be considered under Rules 6 & 9 of the Companies (Court) Rules 1959. He submits that by mentioning an incorrect section of the Act the jurisdiction of the Court to entertain the application does not wither away.
7. Mr. Sudipto Sarkar the Learned Counsel appearing for C.M.L. the respondent herein has raised several objections to the maintainability of the application for recalling the order sanctioning the scheme of arrangement. He submitted that the application was not maintainable as it had been filed by only one party, that is, the C.T.L. for recalling an order which had been passed on an application filed with the consent of C.M.L. He submitted that the order sanctioning the arrangement was a decree and, therefore, no application would lie for recalling the decree which has been acted upon and implemented. The order sanctioning the arrangement having been drawn up and completed this Court had no jurisdiction to recall the order. The Learned Counsel then urged that Sections 391, 392 and 394 of the Companies Act provide a complete code for sanctioning a scheme and the Company Court has no jurisdiction to pass any order, post sanction, except as provided under Section 392 of the Companies Act. Learned Counsel submitted that when the order of sanction became effective from 31st October 2001 i.e. the appointed date, only the application for the grant of the lease was pending, which was transferred under the Scheme to C.M.L. He, therefore, submitted that Rule 37 of the Rules is not attracted in the present case as it does not contemplate transfer of an application for obtaining a mining lease. The Learned Counsel then, by relying on the doctrine in pari delicto submitted that C.T.L. could not take advantage of the so called illegality as it was a party to the purportedly illegal transaction. He submitted that since the Scheme of Arrangement was a consequence of a family settlement and unless all parties to the family settlement agreed to have the Scheme of Arrangement changed or recalled, no action could be taken by the Court.
8. The first issue that we will address is whether a Scheme of Arrangement which has been sanctioned at the instance of the transferor and transferee company by this Court can be recalled by an application filed by only the transferor company. It was argued by Mr. Sarkar by placing reliance on the judgment in the case of Wedderburn vs. Wedderburn reported in 51 E.R. 993 and other judgements that unless both the parties to a consent decree seek the recall of the decree, the Court cannot act on the basis of an application made by only one party. In Wedderburn vs Wedderburn (supra) it was held that a co- plaintiff cannot take recourse to proceedings apart and different from his co-plaintiff as the consequences would be totally inconsistent. Similarly, in Venkatrao A. Pai & Sons Ltd. vs. Narayan Lal Bansilal & Ors. reported in AIR 1961 Bombay 94 (Shah, J) the judgement in Wedderburn (supra) was noticed and it was held that co-plaintiffs must be represented by the same counsel and if at any stage any of them feel that there is a conflict of interest with the other plaintiffs they must apply to the Court to be transposed as defendants. The principle laid down in Wedderburn vs. Wedderburn (supra) was reiterated by the Court of Appeal in Lewis and Another vs. Daily Telegraph Ltd. and Another reported in 1964 (1) AER 705 where it was held that two separate representations of the plaintiffs, one on liability and the other on damages was not practicable in a libel action. Thus the Courts have taken a consistent view that when in an action the parties are represented by one set of advocates or solicitors or representatives in Court for passing a consent decree one of the parties cannot make an individual application which may be inconsistent with rights of the other party or co-plaintiffs.
9. Mr. Mookherji submitted that since there is a conflict of interest between C.T.L. and C.M.L. an application submitted by C.T.L. alone is maintainable. Besides, the High Court of Jharkhand had granted permission to approach this Court in an order passed on a writ petition filed by C.T.L. These submissions of Mr. Mookherji are untenable. The High Court of Jharkhand had only observed that no relief could be granted to C.T.L. so long as the order passed by this Court sanctioning the Scheme of Arrangement subsists. That does not however mean that any kind of application for recalling the Scheme can be entertained if it is not permissible in law to do so. Therefore, the submission of Mr. Sarkar that the application for recalling the order sanctioning the Scheme of Arrangement cannot be filed by one party, that is C.T.L., must be accepted. The Judges' Summons indicates that it has been taken out by C.T.L. and without the consent of C.M.L. for filing of such an application. The affidavit in support of the Judges' Summons has been filed by one Mahendra Kumar Agarwalla who was only a Director of C.T.L., claiming that since he was a Director of both C.T.L. and C.M.L. he was competent to submit the application for recalling the Scheme of Arrangement as it was no longer possible to give effect to the same. Had both C.T.L. and C.M.L. who were parties to the Scheme of Arrangement being the transferor and transferee company, respectively, applied for recalling the order sanctioning the Scheme, the application could perhaps have been considered.
10. The next question which arises is whether the order sanctioning the Scheme is a decree which has been drawn up and acted upon and the Court has jurisdiction to recall such an order. Mr. Sarkar pointed out that the order was a decree which had been drawn up and had become operative. He submitted that parties had acted in furtherance of the order for implementation of the Scheme, inasmuch as C.T.L. had requested the Authorities to transfer the mining lease in the name of C.M.L. in view of the Scheme of Arrangement sanctioned by this Court. Several such steps were taken by the parties to implement the Scheme according to the Learned Counsel. He fortified these submissions by relying on the judgements in Bank of Mymensing, Gouripur Ltd. reported in 53 CWN 143 and M/s. Nanalal M. Verma and Co. (Gunnies) P. Ltd. vs. Gordhandas Jerambhai and Others reported in AIR 1965 Cal 547.
11. It was argued by Mr. Mookherjee, the Learned Counsel appearing for the appellants that the scheme has not been perfected and cannot be considered to be effective as the stamp duty has not been paid on the order sanctioning the scheme. He relied on the judgment of this Court in the case of Emami Biotech Limited and Another reported in 2012(3) CHN (HC) 102 which has been confirmed by the Division Bench in the case of ITP Limited and Another vs. Union of India reported in 2012 174 Company Cases 492 (Calcutta). It has been held that an order of the Court sanctioning a scheme of merger or demerger is exigible to stamp duty as it is both an instrument and a conveyance under the Stamp Act of the State of West Bengal. Thus it is true that stamp duty has to be paid on an order sanctioning a Scheme of Arrangement. However it cannot be said that because such stamp duty was not paid the Scheme of Arrangement sanctioned by the Company Court does not come into operation and that such arrangement can be recalled by an application made by one party either under Sections 391 & 392 or under Rules 6 & 9 of the Companies (Court) Rules.
12. In the present case the order sanctioning the Scheme of Arrangement has come into operation. There is no dispute that the State of Jharkhand has executed a deed of rectification, substituting the name of C.M.L. in the place of C.T.L. in the mining lease on the request made by C.T.L. Moreover, permission has been granted for such a transfer. The Central Government did not oppose the prayer for sanctioning the scheme of arrangement. In fact both the Central Government and the State Government acted upon the Scheme. The parties, C.T.L. and C.M.L. also acted pursuant to the Scheme to perfect it and, therefore, the Scheme of Arrangement became final. There is no dispute that after the Scheme was sanctioned the decree was drawn up.
13. In the case of Bank of Mymensing, Gouripur Ltd. reported in 53 CWN 143, a Learned Single Judge of this Court held that once a scheme was sanctioned by the Company Court and the order granting the sanction was perfected, it becomes a final order. It has further been held that the Company Court has no jurisdiction thereafter to alter or amend the Scheme except by sanctioning a fresh scheme. Similarly, in the case of M/s. Nanalal M. Verma and Co. (Gunnies) P. Ltd. vs. Gordhandas Jerambhai and Others reported in AIR 1965 Cal 547 this Court has held that when an order dismissing the suit has been drawn up and filed, the Court ceases to have jurisdiction and thereafter it has no power to reconsider the matter on an application made by the plaintiff.
14. Per contra, it was argued by Mr. Mookherjee, Learned Counsel for the appellant that the Court does not lose its inherent power to recall an order merely because an order has been drawn up and perfected. He has relied on the judgments of this Court in the case of S.C. Sons (P) Ltd. vs. Smt. Brahma Devi Sharma and Others reported in AIR 1986 Cal 437. The Ganganagar Sugar Mills Ltd. vs. Upper Ganges Sugar Mills Ltd. and another reported in AIR 1990 CAL 438 and the judgement of the Supreme Court in the case of Firdous Omer vs. Bankim Chandra Daw reported in AIR 2006 SC 2759 to support this argument. In the case of S.C. Sons (P) Ltd. vs. Smt. Brahma Devi Sharma and Others (supra) a suit was dismissed for non-prosecution. An application was filed for recalling and/or setting aside the order dismissing the suit under Order 9 Rule 9 of the C.P.C. The Division Bench of this Court held that it had an inherent right to recall an order before it is completed and filed. It observed further that ordinarily no Court can modify or recall any final order after it was drawn up completed and file. The Court held that an application made before the Trial Court for setting aside the order dismissing a suit for non-prosecution, which was not barred by limitation, cannot be disallowed, only because it was made after the order was drawn up and completed. However, when such an application for recalling the order by which the suit was dismissed for non-prosecution was barred by the law of limitation, it was not open to the Court to allow such an application in the exercise of its inherent right merely because the order had not been drawn up completed and filed.
15. This Court in the case of The Ganganagar Sugar Mills Ltd. vs. Upper Ganges Sugar Mills Ltd. and another (supra) held that the Court had the jurisdiction to entertain an application even after the period of limitation had expired when a prayer for condoning the delay was sought, irrespective of whether the decree had been drawn up completed and filed.
16. In Firdous Omer vs. Bankim Chandra Daw (supra) the Supreme Court considered the Rules of the Original Side of the Calcutta High Court and the provisions of the Limitation Act and held that on the expiry of thirty days from the date of dismissal of a suit, the Court does not become functus officio although the order was drawn up, completed and filed.
17. On considering the aforesaid judgments what emerges is that where a suit is dismissed and the decree is drawn up, completed and filed it can be restored if an application has been filed within the period of limitation in view of the inherent power of the Court.
18. However, the inherent power of the Court to recall an order can be exercised only in certain cases. In Budhia Swain and others vs. Gopinath Deb and others reported in (1999) 4 SCC 396 held that a Tribunal or Court may recall an order passed by it earlier if (i) the proceedings culminating into an order suffer from the inherent lack of jurisdiction and such lack of jurisdiction is patent; (ii) there exists fraud or collusion in obtaining the judgment; (iii) there has been a mistake committed by the Court prejudicing a party; or (iv) a judgment was rendered in ignorance of the fact that a necessary party had not been served at all or had died and the estate was not represented. It was further held that the right to invoke the inherent power to recall a judgment might be lost by waiver or estoppel or acquiescence. The Court observed that when the ground for re-opening the proceedings was available to be pleaded in the original action or a proper remedy in some other proceedings was available but not availed of, the power to recall a judgment could be exercised. In the present case the application for recalling the order sanctioning the Scheme has been made on the ground that Rule 37 of the aforesaid Rules has been violated. The argument is not that there was an inherent lack of jurisdiction in the Company Court to sanction the Scheme. There is no allegation that there was any fraud or collusion indulged in to obtain the judgment nor is there any allegation that the Court had made a mistake by sanctioning the scheme thus prejudicing C.T.L. The affidavit filed by Mahendra Kumar Agarwalla discloses that the application has been filed because it was no longer possible to give effect to the Scheme of Arrangement and the scheme was not beneficial or in the interest of the shareholders or the applicants. This reason in our opinion is not good enough for the Court to exercise its inherent jurisdiction to recall the order sanctioning the scheme.
19. In any event the Scheme of Arrangement or compromise is sanctioned by the Company Court under Section 391 of the Companies Act. Such a scheme can be enforced by the Court under Section 392 of the Companies Act. The Court has the power to supervise the working of the compromise or arrangement, to make such modifications in the compromise or arrangement as necessary for the proper working of the compromise or arrangement under this Section. When a Scheme of Arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications, the Court may, either on its own motion or on the application of a person interested in the affairs of the company, make an order for winding up for the company. In Meghal Homes (P) Ltd. vs. Shree Niwas Girni K.K. Samiti and Others reported in (2007) 7 SCC 753, the Court has held that a modification in the Scheme of Arrangement can be made in accordance with Section 392 for the proper working of the arrangement. The Court cannot make substantial modifications in the scheme which has been approved by the shareholders in terms of Section 391 of the Companies Act. The Court further held as follows:
"54. It was argued on behalf of the respondents that under Section 392 of the Act, the court has the power to make modifications in the compromise or arrangement as it may consider necessary and this power would include the power to approve what has been put forward by LBPL who has come forward to discharge the liabilities of the Company on the rights in the properties of the Company other than in the office building and in the godown, being given to it for development and sale. As we read Section 392 of the Act, it only gives power to the court to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This is only a power that enables the court to provide for proper working of compromise or arrangement, it cannot be understood as a power to make substantial modifications in the scheme approved by the members in a meeting called in terms of Section 391 of the Act.
"55. A modification in the arrangement that may be considered necessary for the proper working of the compromise or arrangement cannot be taken as the same as a modification in the compromise or arrangement itself and any such modification in the scheme or arrangement or an essential term thereof must go back to the General Meeting in terms of Section 391 of the Act and a fresh approval obtained therefor. The fact that no member or creditor opposed it in court cannot be considered as a substitute for following the requirements of Section 391 of the Companies Act for approval of the Compromise or arrangement as now modified or proposed to be modified."
Thus the only way to modify a Scheme of Arrangement which has been sanctioned by the Company Court is to first have the modifications approved by a general meeting of the shareholders of the company and then to submit the modified scheme under Section 391 of the Companies Act to the Court for sanctioning the same. Similarly in the case of Unique Delta Force Security P. Ltd. reported in (2012) 175 Company Case 318 (Bom) it has been held that Section 392 is a complete code so far as the power of the Court to deal with a scheme after it has been sanctioned is concerned. The Court has further held that though the Company Court is empowered to give directions and allow modifications of a compromise or arrangement, no powers have been conferred on the Court to recall/ rescind/cancel an order sanctioning the compromise or arrangement.
20. Mr. Mookherjee has relied on the judgement of this Court in Morium Bibi & ors. Vs Musst. Showkatara Begum & ors reported in 1998 CWN 1074 that a consent decree can be set aside by the Court which passed it if it is unlawful. There can be no quarrel with this proposition. However the procedure required for setting aside a Scheme of Arrangement sanctioned by the company Court, which no doubt is in the nature of a consent decree, has to be followed.
21. It is apparent therefore that an application under Sections 391 and 392 of the Companies Act is not maintainable for recalling an order by which a Scheme of Arrangement has been sanctioned. Thus the application filed by C.T.L. is not maintainable.
22. Mr. Mookherjee then sought to submit that merely because the sections mentioned in the application were incorrect the court does not lose its jurisdiction to entertain the application. He has relied on the judgment of this Court in re Sulekha Works Ltd. reported in AIR 1965 Cal 98 where it has been held that the company was not disentitled to relief because wrong sections were mentioned as it had relied on certain grounds for invoking the inherent power of the Court. The learned Counsel then submitted that the Court ought to have exercised its inherent power as the appellants had invoked the provisions of Rules 6 and 9 of the Companies (Court) Rules. This judgement is of no avail to the appellants as they are seeking the revocation of a Scheme of Arrangement sanctioned by the Company Court which as we have seen is permissible only in consonance with the provisions of S.392 of the Companies Act. The Companies (Court) Rules cannot override the provisions of the Act.
23. The main plank of Mr. Mookherjee's argument has been that the Court while sanctioning a Scheme of Arrangement has to ensure that it does not violate any provision of law. It has also to ascertain whether the Scheme is unconscionable or contrary to public policy. A Scheme will not be sanctioned by the Court if there is a breach of the aforesaid conditions. He submitted that the Rule 37 of the Mineral Concessions Rules requires a prior sanction from Government for the transfer of a mining lease. Since there was none when the Scheme envisaging the transfer of the mining lease was sanctioned, it cannot be said to be in consonance with law or public policy, urged the learned Counsel. He has relied on the judgments in the case of Miheer H. Mafatlal vs. Mafatlal Industries Ltd. reported in AIR 1997 SCC 506; Hindustan Liver and Another vs. State of Maharashtra and Another reported in (2004) 9 SCC 438; Sesa Industries Ltd. Vs. Krishna H. Bajaj & Ors. reported in AIR 2011 SC 1070 to fortify this submission.
24. In the case of Miheer H. Mafatlal (supra) the Court has held that the Company Court would certainly not sit in appeal over the informed view of the parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court has specified the broad contours of the jurisdiction of the Company Court while sanctioning a Scheme of Arrangement which are as follows:
"1. The sanctioning court has to see to it that all the requisite statutory procedurefor supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)
(a) have been held.
2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 sub-section (2).
3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just fair to the class as whole so as to legitimately blind even the dissenting members of that class.
4. That all the necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391 sub-Section (1).
5. That all the requisite material contemplated by the provision of sub-Section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view of to satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors as the case may be were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction."
25. In the case of Hindustan Lever and Anr (supra) after considering the ambit of the jurisdiction of the Company Court while sanctioning a scheme as laid down in Miheer H. Mafatlal's case, (supra) the Supreme Court observed that the two broad principles which emerge while sanctioning a scheme for amalgamation are as follows:
"1. that the order passed by the court amalgamating the company is based on a compromise or arrangement arrived at between the parties; and
2. that the jurisdiction of the Company Court while sanctioning the scheme is supervisory only i.e. to observe that the procedure set out in the Act is met and complied with and that the proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. The court is not to exercise the appellate jurisdiction and examine the commercial wisdom of the compromise or arrangement arrived at between the parties. The role of the court is that of an umpire in a game, to see that the teams play their role as per rules and do not overstep the limits. Subject to that how best the game is to be played is left to the players and not to the umpire. Both these principles indicate that there is no adjudication by the court on the merits as such."
26. This view has been reiterated in Sesa Industries Ltd. vs. Krishna H. Bajaj & Ors. (supra). The submission of the Learned Counsel Mr. Mookherjee, was that by applying the ratio of the aforesaid judgments to the present case, it is apparent that the Scheme of Arrangement had been sanctioned by the competent Court although it was in breach of the Mineral Concessions Rules which requires the prior sanction of the Government to transfer a mining lease. According to him the Scheme of Arrangement envisaged the transfer of the mining lease which was issued on the application made by C.T.L. in favour of C.M.L. He submitted, therefore as the Government had not issued any such order sanctioning the transfer of the mining lease the Scheme itself was not valid.
27. Mr. Sarkar, on the other submitted that the decision to transfer the mining operations to C.M.L. was a part of the family arrangement of the Agarwalla family arrived at in 1999. This later fructified into a Scheme of Arrangement between the two companies and became effective from 31st October 2001, on which date only the application for the grant of the mining lease was pending. He drew our attention to the recitals of the Scheme indicating that there was no mining lease in favour of either party at that point of time. According to him the Scheme contemplates the transfer of the application for issuance of a mining lease and such an application does not fall within the mischief of Rule 37 of the Mineral Concessions Rules. He, therefore, submits that Rule 37 of the Mineral Concessions Rules is not applicable at all in the facts and circumstances of the present case. The appointed date according to the Learned Counsel is the date on which the scheme became effective, that is, when the assets of the Company of C.T.L. were transferred to C.M.L. under the Scheme of Arrangement. According to him though the Scheme may have been sanctioned on a particular date the assets would stand transferred on the appointed date i.e. 31st October 2001. Therefore, according to Mr. Sarkar the assets including the application for transferring the mining lease stood transferred from the appointed date although the Scheme was sanctioned on 13th May 2003.
28. In the case of Marshall Sons and Co. (India) Ltd. vs. Income-Tax Officer reported in 88 Company Cases 528 the Court held that when the Company Court sanctioned the scheme of amalgamation as presented to it, it had not specified any other date as the date of transfer /amalgamation. Therefore, the date of amalgamation / transfer was the date specified in the scheme as the transfer date. The Court held that it would not be reasonable, therefore, to say that the Scheme of Amalgamation came into effect on and from the date of the order sanctioning scheme. The Court, therefore, recognized that the date on which a scheme is sanctioned need not necessarily be the date of transfer / amalgamation.
29. In the present case the Scheme of Arrangement was jointly submitted before the Company Court for necessary orders in March 2002. Under the Scheme the parties agreed that the C.M.L. would be entitled to pursue and derive the benefit of applications submitted by C.T.L. for the grant of a mining lease upon the Scheme being made effective. The mining lease was granted in favour of C.T.L. on 18th June 2002 and was registered in favour of C.T.L. on 1st July 2002. Notices were addressed to the Ministry of Coal, Government of India as also to the Government of Jharkhand in January 2003, indicating that an application had been filed in this Court for confirming the scheme of Arrangement between the parties herein whereby the mining division of C.T.L. was being transferred to C.M.L. On 28th April 2003 the Central Government informed the Court that it had no objection to the Scheme. The Scheme was sanctioned by this Court only thereafter, on 13th May 2003. A deed of rectification has also been executed in June 2009 changing the name of the lessee on the mining lease to C.M.L.
30. We are of the view that the application for the mining lease was transferred and not the mining lease itself. Such a transfer did not require the sanction of the Government. It is only if a mining lease is to be transferred that a prior sanction is required. Admittedly, the Scheme was sanctioned with effect from 31st October 2001 when there was no mining lease in favour of C.T.L. Therefore the inevitable inference is that the application for the mining lease was transferred under the Scheme.
31. Mr. Sarkar has submitted before us that a party who enters into a Scheme of Arrangement which has become effective cannot contend later that the settlement was signed in breach of the provisions of law. The party cannot recover damages or get any relief on account of such wrong doing, if any. He invokes the principle of in pari delicto potior est conditio possidentis and fortified his submission by relying on the judgement of this Court in Ferojuddin Mullick & Ors. vs. Hiren Roy Chowdhury reported in 1979(2) CLJ 301; Sajan Singh vs. Sardara Ali reported in 1960(1) AER 269; B.O.I. Finance Ltd. vs. Custodian & Ors. reported in 1997(10) SCC 488. In Ferojuddin Mullick & Ors. (supra) this Court considered whether an agreement to surrender a stall in which the plaintiff, a licensee, was running his business in favour of the defendant, despite the restrictive clause in the licence, was valid. The Court observed that by reason of the doctrine of in pari delicto the property which was transferred by one to another remains vested in the transferee, notwithstanding its illegal origin. The Court then considered the conspectus of decisions cited before it and held that the true meaning of the maxim in pari delicto was that where the circumstances are such that the Court will refuse to assist either party the consequence must, in fact, follow that the party in possession will not be disturbed.
A similar view has been expressed in Sajan Singh vs. Sardara Ali (supra) and the Supreme Court has applied the same principles in B.O.I. Finance Ltd. vs. Custodian & Ors. (supra).
32. Mr. Sarkar, therefore, submitted that the C.M.L. is in possession of the mining lease which has been allotted to them after a deed of rectification which was issued at the instance of C.T.L. Therefore, he submitted that the mining lease which has been granted to C.M.L. must remain with C.M.L. till such time as a new Scheme of Arrangement involving the mining lease is arrived at. Indubitably proceedings have been initiated by C.T.L. before the Jharkhand High Court to challenge the Government's decision to carry out the rectification in the name of the lessee of the mining lease. Those proceedings are still pending. However, the Scheme has been implemented and approvals have been granted by the Central Government as well as the State Government in favour of C.M.L. The ground on which the application filed by C.T.L. for recalling the order is based is that the Scheme is not workable. This is unacceptable as the lease has been rectified. In our opinion, this cannot be a ground for recalling the order sanctioning the Scheme. As stated earlier if at all the Scheme has to be modified or replaced it must be done by adhering to the provisions of Section 392 of the Companies Act.
33. Mr. Mookherjee on the other hand has argued before us that the maxim in pari delicto has no application when public policy or public interest is involved. He relied on the judgment of the Supreme Court in the case of Waman Shriniwas Kini vs. Ratilal Bhagwandas and Co. reported in AIR 1959 SC 689 and Sudhansu Kanta vs. Manindra Nath reported in AIR 1965 Patna 144.
34. In the case of Waman Shriniwas Kini (supra) the Supreme Court observed that where a transaction is vitiated by illegality the person left in possession of goods after its completion is always and of necessity entitled to keep them. But where a statutory provision based on public policy has been breached the maxim in pari delicto would not be applicable. Where a transaction is vitiated by illegality the person left in possession of goods cannot be allowed to retain them.
35. Great emphasis has been placed by Mr. Mookherjee on the judgment of the Patna High Court in the case of Sudhansu Kanta vs. Manindra Nath (supra) on the ground that any violation of Rule 37 of the Mineral Concession Rules which is mandatory results in a void contract for transfer of the mining lease and therefore the maxim in pari delicto is not applicable.
36. The Patna High Court in the aforesaid judgment has held that the purpose of Rule 37 of the Mining Concession Rules is to prevent a person who has not been approved by the Government from working a mine or carrying on mining operations in a particular mine area. If a lessee hands over the working of a mine to another person by merely transferring his right, title or interest in the lease it would be a devise to avoid the requirement of the statute and therefore cannot be upheld, according to the Patna High Court. The Court has further held that the contract being void there is no scope for post facto ratification by the Government. The Court held that the doctrine of pari delicto could not be invoked as the contract was in violation of a statute and opposed to public policy.
37. The judgment of the Patna High Court in our opinion does not have any applicability to the present case. We have already held that what was transferred by the Scheme of Arrangement was an application for a mining lease. The mining lease had not been granted to C.T.L. on the date the Scheme was made effective by the Court. Therefore, the aforesaid judgment of the Patna High Court does not have any bearing on the present case.
38. It has been argued by Mr. Mookherjee that the submission regarding the maxim in pari delicto potior est conditio possidentis cannot be countenanced in the present case as it was not raised before the Company Court at any point of time. He further submits that several issues raised on behalf of the respondents in the appeal have not been argued before the Company Court. In Delhi Financial Corpn. v. Rajiv Anand, (2004) 11 SCC the Supreme Court has held that a party who succeeds before a Court can support that Court's judgment on all available grounds. Therefore in our opinion this submission of Mr. Mookherjee is without substance.
39. In our opinion, the impugned order of the Leaned Single Judge cannot be set to be erroneous, requiring our interference in the present appeal.
40. The appeal is, therefore dismissed.
41. No order as to cost.
42. Urgent certified photocopies of this order, if applied for, be given to the learned advocates for the parties upon compliance of all formalities.
(Nishita Mhatre, J.) Anindita Roy Saraswati, J.
I agree.
(Anindita Roy Saraswati, J.)