IN RE: W.J. BUSH PRODUCTS LTD. AND ANOTHER Vs. STATE
LAWS(MAD)-1970-8-19
HIGH COURT OF MADRAS
Decided on August 12,1970

In Re: W.J. Bush Products Ltd. And Another Appellant
VERSUS
STATE Respondents

JUDGEMENT

P. Sathasivam, J. - (1.) This petition is filed under Ss.391 (2) and 394 of the Companies Act 1956 (hereinafter referred to as the Act), to accord sanction for the scheme of amalgamation of the petitioner companies, W.J. Bush Products, Ltd. and A Boaks, Roberts and Co. (India) Ltd. and for dissolution of Bush Products, Ltd. without winding up. Both the companies were carrying on the business of manufacture of flavours, essences and perfumery compounds from the time of their respective incorporation. Both the companies are solvent and except ordinary trade debts, they do not owe any other debt. A scheme of amalgamation was proposed and the orders of this court were sought under S. 391(1) of the Act. In the meetings which were held as per the orders of this court, the scheme of amalgamation was unanimously approved. It is to accord sanction for the scheme and for other reliefs that this petition has been filed. The Central Government, to whom notice was issued, as required under S. 394 -A, represented through their standing counsel that there was no objection to accord sanction. Mr. Utama Reddi appearing for the petitioners, submitted that no notice to the Official Liquidator was required, as none of the amalgamating companies is being wound up. His submission was that inasmuch as none of the two companies is being wound up, the Official Liquidator has no locus standi, and no notice to him was necessary. This matter required consideration. Therefore, I directed notice to be issued to the Official Liquidator and reserved consideration of the question of issue of notice and accord sanction to the scheme The Official Liquid for is being wound up. The material portion of S. 394 reads that: 394(1) Where an application is made to the court under S. 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that Section, and it is shown to the court: - (a) that the compromise or arrangement has been proposed for the purpose of, or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies; and (b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this Sec. referred to as a 'transferor company') is to be transferred to another company (in this Sec. referred to as 'the transferee company'), the court may, either by the other sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters: - (i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company; (ii) the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person; (iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company. (iv) the dissolution, without winding up, of any transferor company; (v) the provision to be made for any persons, who, Within such time and in such manner as the court directs, dissent from the compromise or arrangement; and (vi) such incidental consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out: Provided that no compromise or arrangement proposed for the purpose of, or in connection, a scheme for the amalgamation of a company, which is being wound up. With any other company or companies, shall be sanctioned by the court unless the court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest; Provided further that no order of the dissolution of any transferor company under Cl. (iv) shall be made by the court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to a public interest. (2)......(3)......(4)...... (Omitted as they are not relevant for the purpose of this case).
(2.) It would be seen that sub -Sec (1) of S. 194, broadly speaking, deals with two aspects (1) compromise or arrangement in connection with a scheme for the reconstruction of company; and (2) compromise or arrangement in connection with a scheme for the amalgamation of any two or more companies. So far as the scheme for reconstruction of any company is concerned, none of the two provisions is attracted. The first proviso, dealing with the scheme of amalgamation of a company which is being wound up, requires a report to be called for from the Company law Board or Registrar for the purpose indicated therein, namely, that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. On a plain reading of this proviso, it would follow that it would apply only to a case where any one of the amalgamating companies is being wound up. The company that is in the process of being wound up may be either the transferor company or the transferee company. That is obvious from the expression 'a scheme for the amalgamation of a company', without making any distinction between the transfer or and transferee company. But the second proviso expressly refers only to the transferor company. According to this proviso, no order for the dissolution of any transferor company shall be made unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. This requirement of calling for a report is enjoined in case of ordering dissolution of the transferor company without winding up, as required under sub -S. (1) (b) (iv).
(3.) Mr. Uttama Reddi contended that inasmuch as the first proviso speaks of a company being wound up and inasmuch as the second proviso starts with the expression 'provided further', it is implicit that the requirement of a report being called for from the Official Liquidator would arise only when the transferor company is also in the process of being wound up He sought to derive support for this argument by referring to S. 448 of the Act, which deals with appointment of Official Liquidator. This Sec. reads thus: For the purposes of this Act, so far as it relates to the winding up of companies by the court - (a) there shall be attached to each High Court, an Official Liquidator appointed by the Central Government, who shall be a whole -time officer, unless the Central Government considers that there will not be sufficient work for a whole time officer in which case a part time officer may be appointed; and (b) the Official Receiver attached to a District Court for insolvency purposes, or if there is no such Official Receiver then, such person as the Central Government may, by notification in the Official Gazette appoint for the purpose, shall be The Official Liquidator attached to the District Court; (1 -A) The Central Government may appoint one or more Deputy or Assistant Official Liquidators to assist the Official Liquidator in the discharge of his functions. (2) All references to the 'Official Liquidator' in this Act shall be construed as references to the Official Liquidator referred to in Cl. (a) or Cl. (b) as the case, may be, of sub -Sec. (1), and as including references to Deputy or Assistant Official Liquidators appointed under sub -S. (1A) - It is contended by Mr. Uttama Reddi that unless a company is in the process of being wound up by the court, the Official Liquidator has no locus standi and cannot be in a position to say anything about the affairs of the transferor company which is not being wound up. Therefore, he argues that no notice to the Official Liquidator is called for under the second proviso to S. 394 (1) in a case where none of the amalgamating companies is in the process of being wound up.;


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