The Honourable Mr.A.P.SHAH, CHIEF JUSTICEandThe Honourable Mr v. Cavin Plastics and Chemicals (P) Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 28.11.2007Coram:The Honourable Mr.A.P.SHAH, CHIEF JUSTICEandThe Honourable Mr.Justice V.RAMASUBRAMANIANO.S.A.No. 354 of 2007andM.P.No.5 of 2007---------1. The Regional Director, Ministry of Company Affairs, Shastri Bhavan, 5th Floor, Haddows Road, Chennai – 600 006.2. The Registrar of Companies, Tamil Nadu, Chennai, Shastri Bhavan, 2nd Floor, No.26. Haddows Road, Chennai – 600 006.…. Appellants(Cause Tittle accepted vide ordersof Court dt.29.10.2007 made in M.P.No.1 of 2007)Vs.Cavin Plastics and Chemicals (P) Ltd.,No.12, Cenotaph Road,Chennai – 18.…. RespondentAppeal filed under Order XXXVI Rule 1 of the O.S.Rules readwith Clause 15 of the Letters Patent against the order dated18.06.2005 passed in Company Petition No.90 of 2005.For Appellants::: Mr.S.UdayakumarFor Respondents::: Mr.K.RamasamyJ U D G M E N T(The Judgment of the Court was delivered by Hon’ble The Chief Justice)Admit. Learned counsel appearing for the respondent waivesservice. By consent, the appeal is taken up for hearing. https://hcservices.ecourts.gov.in/hcservices/

2. The Regional Director, Ministry of Company Affairs and theRegistrar of Companies, Tamil Nadu have preferred this appeal againstthe order of the learned Company Judge sanctioning a Scheme ofAmalgamation between the respondent/Transferor Company/M/s. CavinPlastics and Chemicals (P) Limited and the Transferee Company namely,M/s.Cavinkare Private Limited.3. Before the learned Company Judge the appellants raised anobjection to Clause 13.2 of the Scheme, which provides that thefiling fee already paid by the Transferor Company on its AuthorisedShare Capital shall be deemed to have been so paid by the TransfereeCompany on the combined Authorised Share Capital. The contention ofthe appellants is that the Authorised Share Capital of the Companycould be increased only after following the procedure prescribedunder the relevant provisions of the Companies Act, 1956, and onpayment of requisite fees to the Registrar of Companies. The learnedsingle Judge overruled the objection and sanctioned the Scheme ofAmalgamation. 4. Mr. S.Udayakumar, learned senior Central Government StandingCounsel appearing for the appellants, contended that Section 97 ofthe Companies Act (in short ‘the Act’) mandates that any companyhaving a share capital increases its Share Capital beyond theAuthorized Share Capital, it shall file with the Registrar a noticeof increase of capital within thirty days of passing the resolutionand pay the registration fees. He contended that there is nothing inSections 391 to 394 of the Act, which carves out an exception to thecompliance of Section 97 of the said Act. In support of thiscontention, he placed reliance on the decision rendered by a learnedsingle Judge of the Bombay High Court in Anmol Trading Co.Ltd., v.Shaily Engineering Plastics Limited (2003) 113 Comp.Cases 107 (Bom.),as well as a decision of the learned single Judge of the CalcuttaHigh Court in Areva T and D India Ltd., In re. (2007) 138 Comp.Cases834 (Cal). 5. In reply, Mr.K.Ramasamy, learned counsel appearing for therespondent, submitted that with regard to increase of AuthorizedShare Capital by merger of the authorized capitals of the twocompanies, an order can be passed under Section 391 of the Act, andthis very proposition has been laid down by the Bombay High Court inVasant Investment Corporation Limited v. Official Liquidator, ColabaLand Mill Co.Ltd. 1995(51) Comp.Cases 20. Learned counsel furthersubmitted that the decision in Vasant Investment Corporation Limitedv. Official Liquidator, Colaba Land Mill Co.Ltd.,(supra) has beenconsistently followed in the judgments of the Andhra Pradesh, Delhi,Allahabad and Punjab Harayana High Courts. In this connection, healso referred to the decisions of this Court in Cavin Plastics andChemicals Ltd., v. Cavinkare (P) Ltd., 2006(6) CLJ (Mad.)154, AswinPoultry Farms (India) Ltd. In re. (2007) 138 Comp.Cases 505 (Mad.), https://hcservices.ecourts.gov.in/hcservices/ and Bysani Consumer Electronics Ltd., In re. (2006) 134 Comp.Cases 99(Mad.) 165. 6. The scope of Sections 391 to 394 of the Act was construed inthe judgment of the Gujarat High Court in Maneckchowk and AhmedabadManufacturing Company Limited In re. (1970) 40 Comp.Cases 819 (Guj.)in respect of a proposed scheme for re-organization of the sharecapital including a reduction of capital. An objection was receivedto the effect that the Companies Act, 1956 envisaged a distinctprocedure for effecting a reduction of capital or the case may be forincrease of share capital, which was required to be independentlyfollowed. Hence, it was argued that it was not open to the Court tosanction a scheme involving a reduction or increase of share capitalin the exercise of powers under Section 394 of the Act. The Courtheld that Section 391 was a complete code, which provided for thesanctioning of a scheme of compromise and arrangement. Rule 85 of theCompanies (Court) Rules, 1959 specifically prescribes the procedurerequired to be followed where a proposed compromise involved areduction of capital. Save and except for a situation envisaged inRule 85, Section 391 was constituted as a separate and completed codein itself. The Court observed: -“ ….If Section 391 was subject to otherprovisions of the Act, every time the scheme ofcompromise and arrangement is put forth for thesanction of the Court, if it includes things forwhich specific provisions are made and that willhave to be gone through before the scheme issanctioned, it would result in unnecessaryduplication of procedure and would be cumbersome.On the contrary, it appears that if the creditorsand members of the company arrive at a certaincompromise which the court considers fair, it canbe sanctioned under Section 391 despite the factthat for some of those things included in thecompromise another procedure is prescribed in theCompanies Act and which has not been carried out.It, therefore, appears that Section 391 is acomplete code which provides for sanctioning ofthe scheme of compromise and arrangement….”7. In Vasant Investment Corporation Limited v. OfficialLiquidator, Colaba Land Mill Co.Ltd.,(supra), the Bombay High Courtheld that except for a reduction of share capital which requires aspecial procedure to be followed under Rule 85, the procedure forcarrying out alterations in the Memorandum and Articles ofAssociation of a company prescribed by other provisions of theCompanies Act, 1956 is not required to be followed before a scheme issanctioned. The Court, further, held thus: - https://hcservices.ecourts.gov.in/hcservices/ “ The whole purpose of Section 391 is toreconstitute the company without the companybeing required to make a number of applicationsunder the Companies Act for various alterationswhich may be required in its memorandum andarticles of association for functioning as areconstituted company under the scheme” 8. The above judgments were cited with approval in a subsequentjudgment of Bombay High Court in PMP Auto Industries Limited In re.(1994) 80 Comp.Cases 289 (Bom.), wherein the learned single Judgesummarized the position as follows: -“ Section 391 invests the Court with powers toapprove or sanction a scheme ofamalgamation/arrangement which is for the benefitof the company. In doing so, if there are anyother things which, for effectuation, require aspecial procedure to be followed – exceptreduction of capital – then the court has powersto sanction them while sanctioning the schemeitself. It would not be necessary for the companyto resort to other provisions of the CompaniesAct or to follow other procedures prescribed forbrining about the changes requisite foreffectively implementing the scheme, which issanctioned by the Court. Not only is Section 391a complete code as held by the Courts, but, in myview, it is intended to be in the nature of a“single window clearance” system to ensure thatthe parties are not put to avoidable, unnecessaryand cumbersome procedure of making repeatedapplications to the Court for various otheralterations or changes which might be neededeffectively to implement the sanctioned schemewhose overall fairness and feasibility has beenjudged by the Court under Section 394 of theAct.” 9. The same view has been taken by the Allahabad High Court inJaypee Granites Limited, In re. 2007 (74) SCL 118 (All.) holding thatwhere a combined authorized capital of the amalgamated company doesnot exceed the authorized capital of the transferor and thetransferee, no separate procedure for such merger of Authorized ShareCapital is required to be followed nor is any further fee liable tobe paid. The judgment of the Punjab and Harayana High Court in thecase of Motorola India (P) Ltd. In re 2006 (73) CLA 1 also takes thesame view. In the case of Saboo Leasing (P) Ltd., In re 2006 (4)Comp.Cases 553 (AP), a learned single Judge of the Andhra Pradesh https://hcservices.ecourts.gov.in/hcservices/ High Court has held that the requirement of the notice to befurnished to the Registrar under Sections 95 to 97 of the CompaniesAct, 1956 was duly fulfilled when a certified copy of an ordersanctioning a scheme under Sections 391 to 394 of the Act was filedby the Registrar. The learned single Judge concluded thus: -“ Well, when the certified copy of the ordersanctioning the scheme by this Court is requiredto be filed before the Registrar for the purposeof its registration, there is no reason as to whyit shall not be treated as notice to theRegistrar as envisaged under Sections 95 to 97 ofthe Companies Act. Inasmuch as, as discussedhereinabove, the object being the same, thenecessary changes that are required to be made inthe concerned register by the Registrar ofCompanies can be effected after receiving thecertified copy of the order of this Courtsanctioning the scheme. The sanction of thescheme by this Court has its own effect. It isnot a mere act of the parties individually andvolitionally. The scheme upon being sanctioned bythis court, it becomes operational by virtue ofthe orders passé by this Court. In other words,by operation of law, such changes would come intoeffect. Therefore, it has statutory genesis andstatutory character, but not mere individual actsof the companies. In that view of the matter, noseparate notice informing the Registrar underSections 95 to 97 of the Companies Act need begiven, inasmuch as the scheme is required to besanctioned by this court and such sanction isrequired to be registered with the Registrar ofCompanies by filing the certified copy of theorder of this court.”The above view of the learned single Judge was confirmed by theDivision Bench of the Andhra Pradesh High Court in KemiraLaboratories Ltd., In re. (2007) 77 SCL 174 (AP). 10. In the case of Hotline Hol Celdings Pvt. Ltd., In re. (2005)127 Comp.Cases 165 (Del.), the Delhi High Court followed the decisionof the Andhra Pradesh High Court in Saboo Leasing (P) Ltd., In re.(supra) while considering an objection of the Regional Director tothe effect that the authorized share capital of the merged companywas being increased as a result of the scheme of amalgamation andthis could only be carried out after following the procedureprescribed by the relevant provisions of the Companies Act and heldthat in the case of such merger no such payment of fee to theRegistrar of Companies or stamp duty to the State Government shall bepayable. https://hcservices.ecourts.gov.in/hcservices/

11. The decision of the learned single Judge of the Bombay HighCourt in Anmol Trading Co.Ltd., v. Shaily Engineering PlasticsLimited (supra) relied upon by the appellants was found to beinconsistent with the various decisions rendered by Bombay High Courtand subsequently followed in other decisions. In fact, the decisionsin Vasant Investment Corporation Limited (supra) and PMP AutoIndustries (supra) were not brought to the notice of the learnedsingle Judge. The view expressed by the learned single Judge in AnmolTrading Co. Ltd case was expressly disapproved in a later judgment ofthe Bombay High Court in YOU Telecon India (P.) Ltd., In re, (2007)77 SCL 161 (Bom.). The judgments of this Court in Cavin Plastics andChemicals Ltd., v. Cavinkare (P) Ltd., (supra), Aswin Poultry Farms(India) Ltd. In re. (supra), and Bysani Consumer Electronics Ltd., Inre. (supra) also reiterate the view taken in Vasant InvestmentCorporation Limited v. Official Liquidator, Colaba Land Mill Co.Ltd.,(supra).12. We have also gone through the decision of the Calcutta HighCourt in Areva T and D India Ltd., In re (supra) relied upon by theappellant. In the said judgment, the Calcutta High Court has heldthat the right to increase its paid up capital to its authorizedlimit, is a right unique to each company and incapable of beingtransferred, just as the fee paid for registration of the company isalso incapable of being transferred and consequently, a separate feewould be payable under Section 95 read with 97 of the Act. We areunable to agree with the reasoning of the learned single Judge. Theissue is not whether the fee, which is already paid by the Transferorcompany would automatically be transferred to the Transferee company.But, what is intended by Section 391 of the Act is to reconstitutethe company without the company being required to make a number ofapplications under the Companies Act for various alterations whichmay be required in its memorandum and articles of association forfunctioning as a reconstituted company under the scheme. Not only isSection 391 of the Act is a complete code in itself, but it isintended to be in the nature of a “single window clearance”. 13. In the circumstances, the appeal is dismissed. No costs.Consequently, miscellaneous petition is closed.Sd/Asst.Registrar/true copy/Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ pv/To1.The Sub Asst. Registrar,Original Side, Company Section,High Court, Madras.+1cc to Mr.S.Udayakumar, Advocate Sr 70581AKR (CO)km/21.1.O.S.A.No. 354 of 2007