Patherya, J. - (1.) THIS is an application for sanctioning the scheme of arrangement between the transferor and transferee companies. Advertisements were issued in the respective dailies fixing the date of the meeting and meetings of the shareholders of both the transferor and the transferee companies were held under the chairmanship of chairpersons appointed by this hon'ble court. The schemes of arrangement were put to vote and were passed unanimously without any modification. This will appear from the report of the chairpersons filed in respect of the transferor and transferee companies. Thereafter, once again advertisements were issued in the dailies with notice to the Central Government. It is after this second round of advertisements that an affidavit has been filed by the Central Government wherein certain objections have been raised regarding the clauses of the scheme.
(2.) THE Central Government has raised two objections relating to paragraph 5 of Part III, which specifies passing of consideration by the transferor to the transferee companies. According to counsel for the Central Government no time limit has been fixed for the said payment. The said consideration is nothing but an outright sale and therefore will attract capital gain. To avoid payment of capital gain the instant application has been filed. The next objection raised was with regard to paragraph 3.8 in Part II of the scheme of arrangement. It has been contended that the agreed terms of the rights, privileges and benefits to be licensed by the transferor company to the transferee company have not been spelt out and therefore it is unfair to the shareholders. Therefore, the said scheme of arrangement ought not to be sanctioned.
(3.) COUNSEL for the petitioner submits that all requirements of Section 391(1) and (2) have been complied with. Advertisements have also been published regarding the holding of meetings and sanctioning of the scheme. Meetings have been held under the chairpersons appointed by the court and at the meetings held the scheme of arrangement has been approved by the majority shareholders as will appear from the chairperson's report. No shareholder has challenged the said scheme of arrangement. There is no allegation of violation of any statutory provision. There has been compliance of Sections 391, 392 and 394. The objection raised regarding avoidance of capital gains is not material as these are commercial matters and are best left to the wisdom of the shareholders who are astute businessmen. For the said proposition reliance has been placed on A.W. Figgis and Co. P. Ltd., In re and Miheer H. Mafatlal v. : AIR1997SC506 . Reliance has also been placed on Highway Cycle Industries and Sunbeam Auto Ltd., In re for the proposition that cash consideration per se would not frustrate or invalidate the proposed scheme. Therefore, avoidance of capital gains can be no reason for not sanctioning the scheme of arrangement as avoidance of capital gains is a matter of revenue and will attract the provisions of the Income Tax Act.;