CO.APPEAL (SB) 15/2006 v. Union of India & Ors.

Judgment

7. Virendra Jain Virendra Jain (Jtly) Rina Jain Laxmi Jain Sushma Jain Laxmi Jain (Jtly) Satyapal Jain Anand Jain (Jtly) Sushma Jain Ankit Jain (Jtly) Virendra Jain TOTAL 9800 1200000 250000 300000 75450

0.44%

53.57%

11.16%

13.39%

3.37% 141000

6.29% 25230

1.13% 2001480

89.35% CO.APPEAL (SB) 15/2006 Page no.8

15. It is, therefore, clear that prior to “acquisition of the business undertaking of the appellant”, SYIL though a listed company was closely held and almost the entire shareholding was held by the said seven shareholders. These shareholders of SYIL substantially gained by acquiring the business undertaking of the Appellant valued at Rs.110 crores by allotting shares of SYIL having market value of Rs.2.15/- at a premium of Rs.60/- per share of face value of Rs.10/-. I may mention here that as per the balance sheet of SYIL for the period ending 31st March, 2000, the said company had brought forward losses of Rs.28,80,000/-.

16. It may be relevant to state here that in the due diligence report given by Amar Chand & Mangaldas & A. Shroff & Co. dated 10th October, 2000 in the case of SYIL, it has been recorded as under:- “SYIL does not presently have any employees and therefore does not have any registered code number under the Provident Fund or the Employees State Insurance legislations. The same may be required pursuant the business employees of STL will be transferred to SYIL. transfer whereby SYIL did not apply for registration as an NBFC even when it was carrying out NBFC activities. It has not applied for any exemption either.” CO.APPEAL (SB) 15/2006 Page no.9

17. As per 'due diligence report' given by Amarchand Mangaldas Suresh S. Shroff and Co., Sales Tax Registration of SYIL had been cancelled. SYIL did not also have any certificate under the Shop and Establishment Act. The said company had not maintained complete and accurate corporate register in accordance with the relevant provisions pertaining to disclosure of interest of directors. Further SYIL had been carrying on activities as a non-banking financial company though it was not registered as a non-banking financial company with the Reserve Bank of India. These violations were serious.

18. It was repeatedly argued before me on behalf of the appellant that the avernments in the petition and the finding given by the Company Law Board that the appellant had suffered loss of Rs.104.77 Crores due to transfer of business to SYIL is unsubstantiated. It is not the figure but whether there was loss suffered that is material and relevant. It was argued that Company Law Board has failed to appreciate and understand that full value of the undertaking was paid by SYIL by allotment of shares to the shareholders of the appellant. It was submitted that it was not necessary for SYIL to pay sale consideration to the appellant and allotment of shares to the shareholders of the appellant was for valuable consideration. This argument over looks the facts and figures stated above. In paragraph VIII of the petition under CO.APPEAL (SB) 15/2006 Page no.10 Section 237(b) it was alleged that the appellant had incurred loss of Rs.104.77 crores due to transfer of business to SYIL. The question is not whether shares were allotted to appellant or the shareholders of the appellant, but what was the corresponding market value of the shares allotted in lieu of transfer of undertaking by the appellant to SYIL. Admittedly, as per agreement for purchase dated 15th July, 1999, the total value of the undertaking was Rs.110.25 crores and for transfer of the said undertaking shares of face value of Rs.10/- each were allotted in SYIL at a premium of Rs.60/- per share but the market value of these shares as per last quoted price was Rs.2.15.

19. The above facts are startling by themselves and justify investigation under Section 237 (b) of the Act into the affairs of the appellant. The

above facts are virtually un-rebutted and un-challenged. These facts are not new but are duly mentioned and recorded by the Ld. Company Law Board in its order while referring to the submissions of the parties and its findings. I have only collated them. I have gone into the factual aspects as the appellant has questioned the findings of the tribunal on the ground that the same are perverse and completely contrary to evidence on record. In view of the evidence and material discussed above, this portion of the question has to be answered against the appellant. CO.APPEAL (SB) 15/2006 Page no.11

20. The second aspect of the question framed above relates interpretation of section 237(b) of the Act and whether on the findings the provision has been rightly invoked.

21. Section 237(b) of the Act reads as under:- (b) may do so in its opinion or in the opinion of the Board there are circumstances suggesting- i. ii. iii. that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company.

22. Section 237(b) of the Act can be invoked and is without prejudice to the powers of the Central Government under Section 235 of the Act. The said Section has three different CO.APPEAL (SB) 15/2006 Page no.12 clauses. Conditions mentioned in any of the three clauses should be satisfied for directing investigation under section 237(b) of the Act. The first clause requires satisfaction of the Company Law Board that the business of the company is being conducted with the intent to defraud its creditors, shareholders or any other person. It also comes into operation when business of the company is being conducted for fraudulent or unlawful purpose or when a company is formed for the said purpose or when business is being conducted in a manner oppressive to its members. Secondly, the provision can be invoked when a person concerned with the formation or management of the affairs of the company is guilty of fraud, misfeasance or other misconduct towards the company or its members. The words “other misconduct” widens the scope of the said provision. Thus conduct, which is not strictly fraud and misfeasance but conduct which is dis-honourable, unprincipled and shameful is also covered by the said sub- clause. The third clause applies when all information in respect of the affairs of the company is not given to it's members. CO.APPEAL (SB) 15/2006 Page no.13

23. For Section 237 (b) of the Act to be invoked there should be “circumstances suggesting” that the conditions mentioned in the three sub-clauses are satisfied. A final, definitive opinion, therefore, is not required at the stage of passing of an order under Section 237(b). The reason is apparent because investigation is still to be conducted. The provision is essentially of an exploratory character. What is to be decided at this stage is whether exploration/investigation is required and should be ordered. The words “circumstances suggesting” cannot be interpreted to mean conclusive proof. Otherwise, the provision will be rendered nugatory and completely toothless. Investigation is not required if facts are already established. At the same time, the legislature has been careful to use the words “defraud”, “fraudulent”, “unlawful purposes”, “misfeasance”,” other misconduct” “lack of information”, etc. “Circumstances suggesting” must necessarily indicate fraud, misfeasance or like conduct or activities on the part of the company. The provision cannot be lightly invoked on mere suspicion. Supreme Court in the case of Rohtas Industries versus S.T. Aggarwal and others reported in (1969) 1 SCC 325 has held that the words CO.APPEAL (SB) 15/2006 Page no.14 “circumstances suggesting” require inference enumerated kind which should be demonstrable. It is not sufficient to merely assert that circumstances exist without specifying the material and evidence. The words “circumstances suggesting” do not support the construction that even existence of circumstances is a matter of subjective opinion. Referring to Shelat, J.'s opinion in the case of Barium Chemicals Ltd. and another versus Company Law Board reported in AIR 1967 SC 295, distinction was drawn between subjective process and formation of opinion and existence of circumstances on which the opinion is founded. The said judgment also explains the scope of judicial review in cases where discretionary administrative orders are under challenge. (Section 237(b) of the Act, after amendment, however requires a quasi judicial order to be passed by the Company Law Board and investigation can be ordered by the said Board, if the conditions specified in the three sub-clauses are satisfied.) In the said case, the Supreme Court came to the conclusion that the opinion formed was wholly irrational as there was no evidence with regard to the market price of CO.APPEAL (SB) 15/2006 Page no.15 the shares of Albion Plywoods Ltd. on or about 6th May, 1960 though allegation had been made and accepted by the Central Government the shares were sold inadequate consideration on 6th May, 1960.This was the foundation of the administrative order passed by the Central Government. It was held that without material and evidence, Central Government had presumed fraud in the sale of the shares. Suspicion by itself, in these circumstances, it was held was not justification to precipitate action. However, the Supreme Court also noticed that in Barium Chemicals (supra), there was difference of opinion between A.K. Sarkar, C.J. and Madholkar, J. on the one side and Hidayatullah, J. and Shelat J. on the other side. In Barium Chemicals (supra), the Supreme Court, while dealing with the question whether the said provision falls foul of the fundamental right to carry on business under Article 19(1) (g) of the Constitution of India, held that investigation when ordered was bound to cause inconvenience and affect credit worthiness of a company but the provision was reasonable. It was held that the aforesaid provision cannot be regarded as an unreasonable restriction on right of a CO.APPEAL (SB) 15/2006 Page no.16 party to carry on business. Reference in this regard was made to the judgement of the Supreme Court in the case of Raja Narayanlal Bansilal versus Maneck Phitoz Mistry (1961) 1 SCR 417 wherein it has been held as under:- “30. ...A company is a creature of the statute. There can be no doubt that one of the objects of the Companies Act is to throw open to all citizens the privilege of carrying on business with limited liability. Inevitably the business of the company has to be carried on through human agency, and that sometimes gives rise to irregularities and malpractices in the management of the affairs of the company. If persons in charge of the management of companies abuse their position and make personal profit at the cost of the creditors, contributories and others interested in the company, that raises a problem which is very much different from the problem of ordinary misappropriation or breach of trust. The interest of the company is the interest of several persons who constitute company, and thus persons in management of the affairs of such companies can be classed by themselves as distinct from other individual citizens. A citizen can and may protect his own interest, but where the financial interest of a large number of citizens is left in charge of persons who manage the affairs of the companies treat such companies and their managers as a class by themselves and to provide for necessary safeguards and checks against a possible abuse of power vesting in the managers. If the relevant provisions of the Act dealing with enquiries and investigations of the affairs of the companies are considered from this point of view there would be no difficulty in holding that Article 14 is not violated either by Section 239 or Section 240 of the new Act.” it would be legitimate CO.APPEAL (SB) 15/2006 Page no.17

24.The above observations made almost half a century ago are perhaps more relevant today. With opening up of the economy and deregulation, we have had cases where by employing ingenuous methods and tactics some dishonest persons have managed to intrude and evade safeguards in force. Common man is today making huge investments in the stock market and shares. His interest is paramount. Reasonable invasion, once grounds for investigation exit, into right to carry on business, to protect interest of common man is justified. There is no incongruous friction between the two. Success of liberalisation depends upon the regulatory and supervisory machinists weeding out the unscrupulous and the corrupt and not to protect them. What is required is not a fragile but a robust supervisory framework, which is just and fair.

25.The main pillar of free market economic system, is integrity and full, correct, true and open information. Without integrity and reliable information, free market economic system can lead to frauds, mismanagement and ultimately collapse. Integrity and information can be achieved through CO.APPEAL (SB) 15/2006 Page no.18 internal self controls and independent verifiable financial information. However, system of external checks recognized and accepted as imperative necessity. Progressive economic liberalization with increasing emphasis on trade facilitation has also led to some increase in misuse of facilities/concessions. Scams and manipulations of share prices, and insider trading, on at- least two occasions has caused losses with general public institutions taking the brunt. The complexion of economic fraud has changed dramatically. It has become complex and much more difficult to unravel and uncover. Investigation to un-cover frauds once grounds exits are required. In this climate, courts have to tread carefully and strike a fine balance between free market system and enforcement- a natural corollary to liberalization.

26.Other contentions raised by the appellant with reference to section 237(b) of the Act and the impugned order directing investigation may now be noticed. It was submitted by the appellant that separate proceedings were initiated under different enactments, the object and purpose being to CO.APPEAL (SB) 15/2006 Page no.19 investigate into the affairs of the appellant. Reference was made to the report given by SEBI, investigation done by CBI and proceedings under Section 209A of the Act and it was submitted that investigation under 237(b) should not be permitted as there was duplicacy of proceedings and therefore harassment. This argument has to be rejected. Each authority has been conferred specific power under respective statutes. They examine and investigate with reference to the purpose and object of the enactment. The angle and facet of investigation under each enactment is separate. It cannot be said that the power of investigation under Section 237(b) of the Act is similar to the powers conferred on SEBI or CBI. In fact the argument raised is to some extent self-defeating. It accepts that material and evidence exists. Reference in this regard may be made to the decision of the Court of Appeal in the case of London United Investments Plc reported in 1991 All ER 849 wherein it has been held as under:- “The power of Secretary of State to appoint inspectors to investigate the affairs of a company and to report is an important regulatory mechanism for ensuring probity in the management of company's affairs. That of CO.APPEAL (SB) 15/2006 Page no.20 course is in the public interest. Since the Secretary of State's powers under section 432 (2) are exercisable where there are circumstances suggesting fraud, it is inspectors are likely appointed an investigation by the police or the Serious Fraud Office could also be appropriate. But the code under the 1985 Act is a separate code even though it may overlap the field of criminal investigation.” in many cases where

27.Merely filing of a complaint by SEBI for violation of the provisions of Securities Exchange Board of India does not in any manner curtail or bar investigation under Section 237(b) of the Act. Once the provisions of the said Section are satisfied, the fact that the SEBI has filed prosecution, is not a bar. The scope and ambit of SEBI's findings and filing of prosecution under the Securities Exchange Board of India Act are relevant but distinct in several aspects. Consequences that follow are different. A different offence, under a separate enactment cannot be condoned because proceedings have been initiated for violation of another enactment.

28.Another contention raised was that investigation has already been done and completed and therefore an order permitting investigation under section 237(b) of the Act CO.APPEAL (SB) 15/2006 Page no.21 serves no purpose. This argument also has to be rejected. Some more facts and allegations made in the application may be looked into. The appellant had spent Rs.6.37 crores in the years 1999 and Rs.6.44 crores in the year 2000 towards consultation fee. Similarly, as per the balance sheet for the period ending 31st December, 1999 more than Rs.7.26 crores was allegedly spent on research and development activities. In the reply filed by the appellant before the Company Law Board, expenditure of more than Rs.7.26 crores, it was stated was normal and ordinary general business expenditure. It was further stated that the appellant company was dealing with software technology and developing software and, therefore, consultancy fee was required to be paid. The reply is devoid of material particulars and relevant details with regard to nature and type of software developed, price of software, the parties to whom software was sold etc. It is interesting in this regard to refer to some of the vouchers and bills, which have been enclosed by the appellant in support of the contention that it was genuinely developing and or selling software. Two invoices were raised allegedly by the appellant against Jai CO.APPEAL (SB) 15/2006 Page no.22 Prakash Industries Limited dated 17th November, 1999 and 4th December, 1999 for Rs.5,15,50,000/- Rs.5,35,00,000/-. The bills do not specifically state the type of software purchased and thereafter sold to Jai Prakash Industries Limited. It refers to some agreement dated 16th June, 1999 but the said agreement was/is not placed on record.

29.Similarly, there were alleged transactions between the appellant and Padmini Technologies Limited, a company managed and controlled by Mr. Vivek Nagpal who was also a director in the appellant company. It was alleged in the application that the appellant had advanced Rs.9.35 crores to Padmini Technologies Limited. This was disputed and denied by the appellant in the reply. It was stated that the company had entered transaction with Padmini Technologies Limited for sale and purchase of computer software. Annexure A filed to the reply shows that as on 1st April, 2000 Rs.5,85,24,000/- was due and payable by Padmini Technologies Limited to the appellant. Between the period 20th May, 2000 to 22nd June, 2000, further sales of CO.APPEAL (SB) 15/2006 Page no.23 Rs.3,50,05,000/- have been shown as per the details given below:- Date Particulars Vch Typ. Debit

20.5.2005 Software-Sales-CST Sale 3,65,000.00 Being management. of Construction

22.5.2000 Software-Sales-CST Sale 13,00,000.00 Being Hospital Management System Software 4 nos. @325000/unit

23.5.2000 Software-Sales-CST Sale 37,00,000.00 Being sale of SBS Ver 6. 2K Credit Business Control System

24.5.2000 Software-Sales-CST Sale 36,00,000.00 Being sale of Intelligent Invoicing for Commerce 1 No. Software-Sales-CST Sale Inventory Being Maintenance System Software 1 No. Sale 26,50,000.00

25.5.2000 Software-Sales-CST Sale 37,00,000.00 Being sale of SBS V er. 6. ST Pending 1 No.

26.5.2000 Software-Sales-CST Sale 25,00,000.00 Being sale of SBS Ver 6. 2K Automatic Loan

27.5.2000 Software-Sales-CST Sale 53,00,000.00 Being Inventory Maintenance System Software 2 nos @ 2650000/unit CO.APPEAL (SB) 15/2006 Page no.24 Date Particulars Carried Over Vch Typ. Debit 2,31,15,000.00 Date

3.6.2000 Particulars Brought Forward Software-Sales-CST Vch Typ. Sale Debit 2,31,15,000.00 44,00,000.00

7.6.2000

14.6.2000

22.6.2000 Intelligent Being Sale of Invoicing for Commerce Software-Sales-CST Inventory Being sale of Maintenance System. Software-Sales-CST Inventory System Being sale of Maintenance Software Software-Sales-CST Being sale of Construction Management System Software Closing Balance Sale 26,50,000.00 Sale 26,50,000.00 Sale 21,90,000.00 3,50,05,000.00

30.The nature and type of software, quantity supplied etc. are missing. It may be relevant to state here that there are allegations against Padmini Technologies Ltd. also, that it was manipulating and involved in the share market scam along with Ketan Parekh Group. It may be relevant to state that Padmini Technologies Limited was also a CO.APPEAL (SB) 15/2006 Page no.25 shareholder to the extent of 77,0 6,000 shares (or 17.72 % in value terms) in the appellant company.

31.Allegation was also made in the petition that Padmini Technologies Limited had incurred a huge loss on the sale of the shares of the appellant company. The appellant had denied this and relied upon Annexure F to the reply filed before the Company Law Board. Perusal of Annexure F shows that 27,06,000 shares held by Padmini Technologies Limited in the appellant were transferred to M/s Ankur Cultivators (P) Limited for consideration of Re.1/- only. These shares had been purchased by Padmini Technologies Limited for Rs.38,17,80,000/-. The shares allotted to Padmini Technologies Limited in SYIL, in the reply filed by the appellant before the Company Law Board, were described as bonus shares. The reply affidavit on behalf of the appellant has been filed by none other than Mr. Vivek Nagpal, who was also a controlling Director in Padmini Technologies Limited. It was further claimed that on sale of shares of SYIL, Padmini Technologies Limited had made net profit of Rs.25,88,728/- . The alleged profit is CO.APPEAL (SB) 15/2006 Page no.26 calculated by taking sale price of SYIL between Rs.142.50 per share to Rs.19.79 per share. However, no details of the dates on which the alleged sales were made, to whom sales were made and whether the sale amount has been released, was mentioned and stated.

32.It was also alleged in the petition that the appellant had advanced Rs.7 crores to Adani Export Limited which in turn had advanced money to Ketan Parekh Group. The amount mentioned in the petition was not denied by the appellant but it was stated that the transaction was for supply and development of software but what was the nature and type of software, whether there was any agreement etc., were not furnished.

33.As on 31st March, 2000 the shareholding pattern of the appellant company was as under: Srl. No. Particulars No. of shares Percentage Holding

4. B.R.Badrinath 90,010

0.73 M.S. Udayakumar S. Vinayak Sanjay Urs. 50,010 50,000 Ankur Cultivators (P) Ltd. 5,910,000

0.40

0.40

49.12 CO.APPEAL (SB) 15/2006 Page no.27 Srl. No. Particulars No. of shares Percentage Holding 2,400,000

19.14

14. Advance Composites India Ltd. Hovercraft Unit Trust of India UTI-A/c. India Growth Fund Panther Fincap and Management Services Ltd. Classic Credit Ltd. Panther Investrade Ltd. Ashok Mittal Bhavin V. Parikh 1,126,023 384,000 700,000 500,000 425,000 200,000 100,000 Sunidhi Consultancy Services Ltd. 100,000 Niyoshi Trading And Investments (P) Limited 50,000

9.21

3.14

5.81

4.15

3.53

1.66

0.83

0.83

0.41 (ii) Others were holding less than 50,000 shares.

34.The authorized share capital of the appellant is Rs.20 crores. The issued share capital as on 15.7.2000 was Rs.15.27 crores. As per the application filed under Section 237 (b), the appellant company was controlled by companies and the person belonging to Ketan Parekh Group. The details of these companies and individuals are in the application filed by the UOI before the Company Law Board including Annexure-I.

35.Classic Credit Limited, Panther Fincap and Management Services Limited and Panther Investrade Limited as per the allegations made by CO.APPEAL (SB) 15/2006 Page no.28 Union of India, belong to Ketan Parekh Group of companies. These companies were also selling clients of Broker -Credit Suisse First Boston India Securities Private Limited. The said broker along with some other brokers as per the SEBI report had created artificial market in certain scripts and assisted, abetted and indulged in market manipulations in entities connected with Ketan Parekh Group.

36.Learned counsel for the respondent during the course of arguments had relied upon the closure report submitted by Central Bureau of Investigation in case No. RC 7(E)/2003 in the case of the appellant and some other individuals. This FIR was registered on the basis of complaint made by Unit Trust of India Growth Fund. As per the closure report, allegation made by Unit Trust of India Growth Fund was that it was cheated. It was alleged that UTI Growth Fund had applied for allotment of shares in the appellant company through private placement by paying premium of Rs.120/- per share. It was alleged that the Equity Research Cell a Department of Unit Trust of India had not recommended subscription by private placement and as per the estimate, the moderate rate of each shares of the appellant was Rs.30/- to Rs.36/- per share. It was further alleged that till September, 1999, the appellant company had not launched any products of it's own but CO.APPEAL (SB) 15/2006 Page no.29 substantial amount of more than Rs.16 Crores had been disbursed and paid. Central Bureau of Investigation, however, recommended closure as it was found that Unit Trust of India had been able to sell shares of SYIL for consideration of Rs.24.30 crores and, therefore, had not suffered loss. Thus, Central Bureau of Investigation felt that case for cheating under Section 420 IPC and 409 IPC read with Section 120B IPC was not made out. The report of the Central Bureau of Investigation dealt with a very limited aspect and was not at all concerned with the market manipulation, money laundering, conduct of the business and affairs of the appellant etc. The report by the Central Bureau of Investigation focussed itself only on the question whether the Unit Trust of India Growth Fund was able to recover the investment made. Once it was found that the investment had been recovered, Central Bureau of Investigation recommended closure of the case. The said report does not, support the case of the respondent and is not relevant for the issues and questions involved in the present case.

37.I may refer here to the agreement dated 11th August, 1999, which was entered into between Unit Trust of India (Fund manager for the India Growth Fund Unit Scheme) and the appellant. Unit Trust of India had agreed to invest Rs.14.95 crores in the appellant by applying for CO.APPEAL (SB) 15/2006 Page no.30 allotment of 11,50,000 equity shares of face value of Rs.10/- on private placement basis for a premium of Rs.120/-. Unit Trust of India had also agreed to provide financial assistance for part financing for setting up of two divisions i.e. Software Development Division and Convergence Technology Division at total cost of Rs.57.32 crores. The said agreement specifically provides that unless Unit Trust of India agreed, the appellant would not undertake or permit any merger, consolidation, re-organistion, scheme of arrangement or compromise with its creditors, shareholders or effect any scheme of amalgamation or reconstruction. It was stipulated that the appellant shall not issue any equity or preference shares and change its capital structure, create any charge on assets or give guarantees without it's approval. Shares of the appellant were also required to be pledged by the promoters of the appellant.

38.A company is a separate and distinct entity in law. It is an artificial person. Shareholders are entitled to dividend but are not owners of the property owned by and belonging to the company. The shareholders cannot also claim right in consideration received by the company on sale of it's property. This has to be understood in light of the agreement between Unit Trust of India Growth Fund and the appellant company. SYIL was not a party to the said agreement. Therefore, transaction CO.APPEAL (SB) 15/2006 Page no.31 between the appellant and SYIL to allot shares to the shareholders of the appellant and not allot any shares to the appellant on transfer of the business undertaking, appears to be unusual. As a result of the transfer of the undertaking minus all the liabilities, the appellant was merely reduced to a shell company with the understanding that application will be filed to get it's name struck from the office of Registrar of Companies. By allotting shares to the shareholders of the appellant in SYIL, the appellant got over the terms agreed upon with Unit Trust of India not to issue any equity or preference shares, change the capital structure etc., without its approval. At the same time, SYIL had the advantage of claiming that a Government of India institution viz. Unit Trust of India had made investment in SYIL.

39.Learned counsel the respondent in order justify transactions for transfer of undertaking also relied upon documentary due diligence report of Amar Chand & Mangaldas & A. Shroff & Co. in the case of the appellant and SYIL. Interestingly, both the reports are dated 10th October, 2000 whereas the agreement to purchase the business undertaking had been entered on 15th July, 2000. The report specifically states is merely a report on requisite compliances with reference to questionnaire submitted by the said CO.APPEAL (SB) 15/2006 Page no.32 companies. It is full of privileges and conditions. One of them being that it should not be disclosed to any third party or used by any third party without prior consent. These reports in no way support the contentions of the appellant. It also appears that the said solicitors were not informed that the transaction for transfer of business undertaking had already been completed as it is mentioned in the report relating to the appellant, that the said report is required for the purpose of transfer of the entire business undertaking as a going concern. If there is any earlier report it has not been brought on record.

40.There is a difference between transfer of an undertaking on payment of sale consideration and scheme of amalgamation/merger, which are sanctioned by a Court under Sections 391-394 of the Act. Before a scheme is sanctioned under Sections 391-394 of the Act, Regional Director/Central Government is required to examine and scrutinise the scheme. The Courts also have power to reject the scheme. This is not so when there is a private transaction or sale between two companies. No scrutiny or approval of the Court is required.

41. Accordingly, the question of law as formulated above is answered in favour of the respondent and against the appellant. The present Appeal is dismissed. The appellant will also pay costs which are assessed at CO.APPEAL (SB) 15/2006 Page no.33 Rs.10,000/-. The costs will be deposited with the Official Liquidator within three weeks and will form part of the common pool fund. (SANJIV KHANNA) JUDGE December 20, 2006 RN/VKR/P