Salil Kumar Roy Chowdhury J. - (1.) This is an application for sanction of a scheme of arrangement under Sections 391, 392, 393 and 394 of the Companies Act, 1956.
(2.) The petitioner No. 1, A. W. Figgis & Co. Pvt. Ltd., hereinafter referred to as the transferor-company, was incorporated on the 12th of May, 1947, having its registered office at No. D-3/5, Gillander House, 8 Netaji Subhas Road, Calcutta. The transferor-company has an authorised share capital of Rs. 15,60,000 divided into 1,56,000 ordinary shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferor-company is Rs. 8,00,000 divided into 16,000 'A' ordinary shares of Rs. 10 each fully paid up and 64,000 'B' ordinary shares of Rs. 10 fully paid up. The objects of the company, inter alia, are to transact of carry on all kinds of booking agency or commission business and in particular the booking of tea, jute, gunny and any other commodity which may seem desirable in relation to the investment of money, the sale of property and the collection of receipt of money. To purchase, take on lease or tenancy or in exchange, hire, take option over or otherwise acquire for any estate or interest whatsoever and to hold, develop, work, cultivate, deal with or turn to account concession, grant, decree, licence, privilege, claim option, leases property real or personal or rights or power of any kind which may appear to be necessary or convenient for any business of the company, etc. The company since its incorporation is carrying on mainly two businesses, one, that of tea broking and auctioneering and the other, property business. The petitioner No. 2 Queens Park Property Co. Pvt. Ltd., hereinafter referred to as the "transferee-company", was incorporated on the 31st of January, 1978, having its registered office at No. D-3/5 Gillander House, 8 Netaji Subhas Road, Calcutta. The authorised share capital of the transferee-company is Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferee-company is Rs. 20 divided into 2 equity shares of Rs. 10. The transferee-company is a wholly owned subsidiary of the transferor-company and the objects of the transferee-company are, inter alia, to carry on the business as dealers, owners and investors of land, building, factories, for which purpose to acquire and purchase, take on lease or in exchange, hire or by other means obtain ownerships, etc., and also to manage land, building and other property, whether belonging to the company or not or to collect rents and income and to supply to tenants occupiers and others refreshment, attendants, messengers, light, waiting rooms, reading rooms, meeting rooms, etc. It is stated in para. 11 and various sub-paragraphs thereof as the reasons which have necessitated the scheme of arrangement of transfer of the property as being that it was felt by the transferor-company that the business of tea broking and auctioneering is growing substantially and, therefore, for administrative convenience, efficiency and better attention, the property business of the transferor-company to be conducted by a separate wholly owned subsidiary and for this purpose a new property-company being the transferee-company, Queens Park Property Company Pvt. Ltd., has been incorporated to take over the property business of the transferor-company including the property situated at No. 10 Queens Park, Calcutta. The proposed scheme, therefore, aims at relieving the transferor-company from looking after its property business so that it may concentrate on tea broking and auctioneering business without any administrative impediments by reason of its property business which is completely different from the tea business and similarly the property-company being the transferee-company will be able to better look after and develop the property business in an independent way. The bifurcation of the business and properties would be for the benefit of the transferor-company and its shareholders and all concerned. It appears, from the last audited balance-sheet of the company that there is excess of assets over liabilities to the extent of Rs. 9,52,919.03. Thereafter, by an order dated the 9th of March, 1978, in an application both the companies were directed to convene the separate meetings of their ordinary and equity shareholders for the purpose of considering and if thought fit, approving with or without modification the scheme of arrangement. The said meeting was duly held on the 21st of April, 1978, in accordance with the said order at the respective registered office of the said two companies and the same was unanimously passed by the members present and voting as would appear from the reports of the respective chairman of the meetings. Thereafter the application was presented on the 26th of April, 1976, and after due compliance with the requirements, the Company Law Board appeared and filed an affidavit-in-opposition through one Jyoti Prakash Mukherjee, the Regional Director, Company Law Board, Eastern Region. It was, inter alia, contended that the proposed scheme of arrangement is not a bona fide scheme and/or compromise and the same is not a scheme of amalgamation within the meaning of the Companies Act, 1956. It is further contended that the very object of the arrangement is merely to transfer the valuable property, i.e., from the transferor-company to the transferee-company a newly formed property-company. It is further alleged that the grounds which have necessitated the said scheme of arrangement are baseless and without any reasons. It is further alleged that the scheme is wholly unnecessary. It is further alleged that the price of the said property which is going to be transferred to the transferee-company is fixed at about Rs. 8,00,000 by the allotment of 10,000 equity shares of Rs. 10 each, credited as fully paid up, to the transferor-company, and also a sum of Rs. 7,00,000 by way of loan carrying interest at the rate of 7% per annum to be advanced to the transferee-company by the transferor-company. It is suggested in the said affidavit-in-opposition that the scheme is to transfer the said property of the transferor-company to the transferee-company for a nominal value of Rs. 8,00,000, whereas the said properties are much more valuable. It is further suggested that the said scheme has been propounded for the purpose of evading the capital gains tax from the income-tax authorities and also to evade payment to the revenue authorities concerned. It is further suggested that if the said scheme is sanctioned, various authorities would suffer loss, that is, the State Govt. of West Bengal will lose its revenue by way of court-fees, stamp duty, etc., which is payable under the law at fair market value over the sum of Rs. 8,00,000 in the event of sale under the Transfer of Property Act. It is also submitted that in the case of a normal transfer sanction from the urban land ceiling authority is required and to avoid the same, the scheme has been propounded. Therefore, it is submitted that the present scheme of arrangement or compromise is an attempt on the part of the said two companies to defeat the legitimate claim of the State Govt. of West Bengal and other revenue authorities. It is further submitted that the financial position of the petitioner No. 1, the transferor-company, is not good in view of the auditor's adverse remark in the balance-sheet for the year ending 31st of March, 1977, and it is submitted that the scheme should not be sanctioned.
(3.) Mr. S.B. Mukherjee, appearing with S.P. Chowdhury for the petitioner, submitted that the said scheme is bona fide and has been propounded solely for the purpose of administrative convenience and efficient management by separating tea broking and auctioneering business of the transferor-company and the property business proposed to be transferred under the scheme to the new property-company incorporated as a wholly-owned subsidiary of the transferor-company. Mr. Mukherjee rightly submitted that if anybody can arrange its matter lawfully, that is without violating any provisions of law, there cannot be any question of evasion. He submitted that the scheme is not only beneficial but will promote both the said two businesses of tea broking and auctioneering and the property business for the benefit of the two companies and its shareholders and all concerned. Mr. Mukherjee submitted after drawing my attention to the provisions of Sections 391(1) and 394 of the Companies Act, 1956, that this is a reconstruction or arrangement which squarely comes within the provisions of the said sections. Mr. Mukherjee referred to a decision of the court in Albian Jute Mills Company Ltd. v. River Steam Navigation Co. [1957] 100 CLJ 70 (Cal), where the word "property" under Section 153A of the Indian Companies Act, 1913, was interpreted and, thereafter, he also cited a Division Bench decision of the court in New Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd. where the decision in Albian Jute Mills Co. Ltd. v. River Steam Navigation Co. [1957] 100 CLJ 70 (Cal) was impliedly overruled. It has been held by the said Division Bench decision as observed by Bachawat J. in para 6 at page 353 of AIR 1959 Cal as follows (See [1959] 29 Comp Cas 357, 360) : "The argument that the transfer infringes the provisions of Section 6(e) of the Transfer of Property Act overlooks the plain words of Section 153A of the Indian Companies Act, 1913. The transfer takes place by virtue of the vesting order without any further act or deed. The antecedent scheme of amalgamation does not affect the transfer. It is not necessary to obtain a formal conveyance from the transferor-company. The transfer being by an order of a court of competent jurisdiction, Section 6(e) of the Transfer of Property Act has no application having regard to Section 2(d) of the Transfer of Property Act.";