M.M. Sehgal Limited vs Sanmati Trading Investments Ltd.
1996 Latest Caselaw 967 Del

JUDGMENT

Vijender Jain, J.

(1) This is a petition filed under Section 391(1) read with Section 393 of the Companies Act, 1956 for sanction of the scheme of amalgamation of M.M.Sehgal Limited (hereinafter referred to as the 'Transferor Company') with Sanmati Trading Investments Limited (hereinafter referred to as the 'Transferee Company').

(2) The Transferee Company was incorporated under the provisions of Companies Act,1956 and is having its registered office at 302, Ansal Chambers-11, 6, Bhikaji Cama Place, New Delhi. The authorised capital of the Transferee Company is Rs. 24,75,000.00 divided into 2,47,500 shares of Rs. 10.00 each. The main objects of the Transferee Company are set out in detail in the Memorandum of Association, which is 'Annexure 'D' to this petition.

(3) The Transferor Company is having, its registered office at 302, Ansal Chambers-11,6, Bhikaji Cama Place, New Delhi and its authorised share capital is 2,50,000 equity shares of Rs. 10.00 each. The issued, subscribed and paid up capital is Rs. 20,00,000.00 divided into 2,00,000 shares of Rs. 10.00 each fully paid up. The main objects of the Transferor Company are set out in detail in Memorandum of Association, which is 'Annexure 'E' to the petition.

(4) Copy of Scheme of Amalgamation has been filed as Annexure 'A' to the petition. Transferee Company filed an application bearing C.A.No. 239/92 under Section 391 of the Companies Act, 1956 seeking a direction from this Court to convene and hold meetings of the shareholders and creditors for the purpose of considering and if thought fit approving with or without modifications proposed Scheme of Amalgamation and to put it into effect.

(5) This Court appointed Mr. Amit Singh Chadha, Advocate, and Mr. K.K. Nangia, Senior Stenographer of this Court, to act as the Chairperson and Alternate Chairperson for conducting the meeting of the shareholders and Mr. Anil Sapra, Advocate, and Mr. S.K. Bedi, Court Master of this Court, were appointed as Chairperson and Alternate Chairperson for conducting the meeting of the creditors of the Transferee Company. Separate meetings of the shareholders and creditors of the Transferee Company were duly held in accordance with the order of this Court.

(6) Transferor Company also filed an application bearing C.A. No. 180/92 under Section 391 of the Companies Act, 1956 seeking a direction from this Court to convene and hold meetings of the shareholders and creditors for the purpose of considering and if thought fit approving with or without modifications proposed Scheme of Amalgamation and to put it into effect. This Court appointed Mr. Mahinder Singh, Advocate, and Mr. Sunil Magon, Advocate, to act as the Chairperson and Alternate Chairperson for conducting the meeting of the shareholders Transferor Company and Ms. Tasneem Ahmadi, Advocate, and Mr. Ashim Vachher, Advocate, were appointed as Chairperson and Alternate Chairperson for conducting the meeting of the creditors of the Transferor Company. Separate meetings of the shareholders and creditors of the transferee company were duly held in accordance with the order of this Court.

(7) The Chairpersons appointed by this Court submitted their reports. It is stated that the Scheme of Amalgamation was unanimously approved by the shareholders and the creditors of the transferee as well as Transferor Companies in the meetings held separately for this purpose.. .

(8) On a notice sent to the Regional Director, Department of Company Affairs in terms of Section 394A, Mr. R.C. Nigam, Regional Director, Northern Region, Department of Company Affairs, Kanpur, has filed an affidavit to the effect that- the affairs of the Companies do not appear to have been conducted in a manner prejudicial to the interest of its members or public interest and this Court may decide the case on its merits.

(9) In response to the notice sent to Official Liquidator, attached to this Court, he has submitted a report inter alia staling therein that the affairs of the Transferor Company have not been conducted in a manner prejudicial to the interests of its members or to public interest.

(10) It is also stated that no investigation or proceedings under Sections 235 to 251 of the Companies Act, 1956 are pending against the petitioner Company.

(11) In the meanwhile, an application ( C.A.No. 865/93) was filed by M.M. Sehgal and Anjali Sehgal alleging therein that the applicants were shareholders of Company holding shares as Trustees of the M.M. Sehgal Family Trust, created for the benefit of beneficiaries under the aforesaid Trust. The basic challenge to the approval of the scheme of amalgamation was' that no proper notice was issued to them and they have not been served with a clear 21 days' notice regarding the holding and convening of the meeting as per order dated 8.4.1992 passed by the Court and, therefore, as the notices were not served as per law on the applicants, the scheme of amalgamation was not binding on the Transferor Company. The aforesaid Ca No. 865/1993 was filed, Mr. K. Sawhney, Advocate, appeared in the year 1993 on behalf of M.M. Sehgal and Anjali Sehgal.

(12) It seems that on 20.4.1995 Km. Malvika Sehgal and Km. Malini Sehgal, two daughters of the aforesaid applicants, M.M. Sehgal and Anjali Sehgal, filed another application objecting to the scheme of a malgation. in March, 1994, aforesaid two objectors/applicants, Km. Malvika Sehgal and Km. Malini Sehgal, filed a suit (Suit No. 636/1994) against the Company impleading the said Company and their parents with other defendants. That suit and the present petition as well as application were heard together. Vide my detailed order of even date, I have disposed of IAs. 2784/94,2786/94 and 1873/96 and Suit No. 636/1994.

(13) For detailed orders, see Suit No. 636/1994.

(14) On 26.8.1996, Mr. K. Sawhney, Advocate for the applicants, M.M. Sehgal and Anjali Sehgal, made a statement before this Court that he does not wish to press application (CA No. 865/1993) as the applicants were no more the shareholders of the company and the said application was dismissed as withdrawn on that date.

(15) Mr. Rajiv Sawhney, learned Counsel appearing for the objectors/applicants, Km. Malvika Sehgal and Km. Malini Sehgal, has raised many contentions similar to what has been raised in Suit No. 636 /1994, which I have dealt with in my order aforesaid. Mr. Sawhney has further contended that in terms of Section187(C) of the Companies Act declaration declaring beneficial interest in favour of the objectors/applicants were filed with the Registrar of Companies and, therefore, at the relevant time the applicants were shareholders of the companies and once declaration was filed in terms of Section 187(C) of the Companies Act, the objectors / applicants were entitled to all the benefits accrued to the company. The assets of the Company being a valuable property at 3 Friends Colony (West), New Delhi and applicants having interest in the said property, the applicants were entitled to beneficial enjoyment of the property. He has further contended that the scheme of amalgamation ought not to be approved by this Court as it would be against public interest. Mr. Rajiv Sawhney has further contended that the scheme of amalgamation is to avoid Government dues and other statutory dues and, therefore, the same should not be sanctioned. In his support, he has cited the case of Mohan Exports India Ltd. v. Tarun Overseas (P) Ltd., (1994) 3 Comp.L.J-1993 (Del), and contended that when a scheme of a malgation is a device to transfer valuable property, the scheme should not be sanctioned by the Court.

(16) Mr. M.G. Ramachandan, learned Counsel appearing for the petitioner Companies, has contended that what has been visualised under Section 187(C) of the Companies Act is only a declaration declaring the beneficial interest by shareholder but the beneficiary cannot exercise a voting right and only a member can exercise a voting right, thereby contending that even if a person is a beneficiary ipso facto, he does not become a member of the Company until and unless such beneficiary has lodged the transfer deed, his share stands transferred in his name and his name is brought on the Register of Mambers. Mr. Ramachandran has further contended that who is a member, is defined under Section 41 of the Companies Act. Mr. Ramachandran, rebutting the contentions of the learned Counsel for the objectors/ applicants, has contended that Sub-section 3 of Section 81 of the Companies Act makes it clear that what is stated in Section 81 of the Act for further issue of capital, is not applicable to the case of a private company and, therefore, arguments advanced by the learned Counsel for the objectors/applicants were without any basis. Mr. Ramachandran has also contended that in any event of the matter, the objectors/applicants have no locus standi as they were unconcerned with the Company, neither being members nor past members and, therefore, they cannot maintain their objections to the scheme of amalgamation.

(17) In para-3 of their application (CA No. 865/1993) applicants, M.M. Sehgal and Anjali Sehgal, have averred that "the Applicants remained the shareholders as Trustees of the said Trust and even till date the Applicants are shareholders of the said Company". Alongwith this application, they also annexed 'Form No. 32' as 'Annexure-B'. That being the situation, there cannot be two members in relation to one share, that was contended before me by Mr. Ramachandran. In the application filed by the objectors/applicants, Km. Malvika Sehgal and Km. Malini Sehgal, particularly in para-18(ii) of the said application, the objectors/applicants have stated that they have been handed over the share certificate of registration and transfer of share in the names of the applicants in 1994 conveying that they have yet to become shareholders, on this ground Mr. Ramachandran has contended that objectors/applicants have no locus standi as they are not the members of the Company, according to their own admission. Most of the arguments advanced to are identical as addressed in Suit No. 636/1994 by the parties. I have disposed of the same vide my order as stated in para-13 above. Let me now deal with Mohan Exports India Ltd. v. Tarun Overseas (P) Ltd. (supra). Mohan Exports India Ltd. v. Tarun Overseas (P) Ltd. (supra) cited by the learned Counsel for the objectors/ applicants will not be applicable to the present case as the law is well settled that the Court should see as to whether a particular scheme is bona fide and is not in violation of any public interest and the real and main purport of the scheme of amalgamation/arrangement is not in public interest but a device to transfer the immovable assets without payment of Government dues, then the scheme should not be approved by the Court. In Mohan Exports India Ltd. 's case (supra) on a notice being issued under Section 394A of the Companies Act to the Central Government, an opposition was filed by the Central Government through the Regional Director, Department of Company Affairs on the ground that scheme was not in public interest, it was so framed as to avoid payment of Government revenue in the shape of stamp duty and registration charges. In these circumstances, the Court held that the scheme should not be approved. In the present case in reply to the earlier objection filed by the applicants, M.M. Sehgal and Anjali Sehgal, who were shareholders in relation to one share each of Rs. 10.00, a notice was issued to the Central Government and a reply-affidavit was filed by Mr. R.C. Nigam, Regional Director, Department of Company Affairs, vide its affidavit dated 12th May, 1993, in para-3 of the said affidavit, it is stated that affairs of the companies do not appear to have been conducted in a manner prejudicial to the interest of its members or public interest. Therefore, in Mohan Exports India Ltd. 's case (supra), the objection was taken by Regional Director, Department of Company Affairs to the scheme of amalgamation, whereas in the before me, no such objection has been taken by the shareholders, even though having two shares. The objection taken by M.M. Sehgal and Anjali Sehgal, applicants, was with regard to non-receipt of notice of meeting to approve amalgamation. That objection has also been withdrawn by the said applicants. The objectors/applicants have no locus standi to file the present objections, more so, when applications as well as suit (IAs. 2784/94, 2786/94 & 1873/96 and Suit No. 636/1994) having been dismissed. In Miheer H. Mafatlal v. Mafatlal Industries Ltd.,, the Supreme Court while interpreting Sections 391 to 393 of the Companies Act held : "HOWEVER,further question remains whether the Court has jurisdiction like an Appellate Authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members of their respective classes have approved the scheme as required by Section 391 Sub-section (2). On this aspect the nature of compromise or arrangement between the Company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the Company who have ratified the Scheme by the requisite majority. Consequently, the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an Umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the Umpire."

(18) In the present case, the applicants are neither the shareholders, i.e. two shareholders having one share each of Rs. 10.00, having withdrawn their objections (CA No. 865/1993) to the scheme of amalgamation having been passed by over wheiring majority of shareholders of 49,980 shares, the objections of the objectors/applicants, Km. Malvika Sehgal and K. Malini Sehgal, are frivolous and main fide. There is yet another aspect. M.M. Sehgal and Anjali Sehgal filed their objections (CA No. 865/1993) to the scheme alleging therein that they were shareholders as Trustees of the said Trust. That objections were filed in the year 1993. Malvika Sehgal and Malini Sehgal, daughters of M.M. Sehgal and Anjali Sehgal, filed a suit for declaration in 1994. Malvika Sehgal and Malini Sehgal also filed objections to the scheme of amalgamation in 1995. M.M. Sehgal and Anjali Sehgal, according to their own version, were shareholders and have challenged the scheme only on account of notice to approve the scheme of amalgamation being not given to them as shareholders. They delayed the approval of the scheme by this Court for almost three years, finally they withdrew their objections in the year 1996. Their all endeavour was to see that approval of the scheme is delayed, in the meanwhile a suit was filed in the year 1994 by their daughters to question the increase of share capital in 1982, in 1995 another set of objections was filed by their daughters, Malvika Sehgal and Malini Sehgal. The conduct of these applicants was to delay the passing of the scheme, which amounts to dilatory tactics on their part. Malvika Sehgal and Malini Sehgal not being the shareholders, according to their own admission, have no locus standi to maintain the objections (CA No. 769 /1995). Their application is not bona fide and, therefore, same is dismissed.

(19) Considering all the relevant facts and circumstances, the reasons set out by the petitioner in support of the amalgamation, the unanimous approval given by the shareholders and the creditors of both Transferee and Transferor Companies and in absence of any objections from the Central Government or the Official Liquidator, I hereby accord sanction to the said scheme of amalgamation, Annexure 'A' (to the petition) providing for amalgamation of the Transferor Company with the Transferee Company and declare that the said scheme shall be binding on all the members and creditors of the petitioner Company w.e.f. transfer date, i.e. 1st April, 1991. It is open to any person interested to move this Court for appropriate directions as may be considered necessary in future.

(20) The petition is accordingly allowed and disposed of.