- Whether Company Court can sanction scheme of amalgamation regardless of fact as to whether power to amalgamate with another company is contained in memorandum of concerned company or not - Held, yes - Regional Director of Company Affairs objected to scheme of amalgamation of two transferor-companies with transferee-company on ground that certain amount was shown in balance sheets of transferor-companies as application money pending allotment, but nothing had been mentioned in scheme as to how said amount would be treated in books of transferee-company pursuant to amalgamation - Whether since scheme contemplated that all duties, liabi-lities and obligations of transferor-companies would be transferred to or vested in transferee-company pursuant to provisions of section 394 so as to become assets or liabilities of transferee-company, amount in question would be treated as unsecured loan in books of account of transferee-company and, therefore, there was no merit in objection of Regional Director - Held, yes - RBR Knit Process (P.) Ltd., In re (Mad.)

- Appellant, who was shareholder of two companies filed application for recalling order of Company Judge sanctioning scheme of amalgamation of said two companies on ground that provisions of sections 100-103 were not complied with - Facts revealed that appellant was quite conscious of meeting of shareholders held for approval of scheme of amalgamation and reduction of share capital, but he neither attended said meeting, nor raised any objection to said scheme, and even after sanction of scheme, he encashed dividend warrants and never raised any objection to annual accounts giving due effect to scheme - Whether, on facts, appellant’s application, could be allowed - Held, no - Mahendra Papatlal Shah v. Alfred Herbert (India) Ltd. (Cal.)

Compromise and arrangement

- First and second defendant-companies held 15.73 per cent of paid-up capital of first plaintiff-company - On 15-6-2003, a proposal was submitted by first defendant to first plaintiff for restructuring of its cement business, objective of which was to demerge first plaintiff’s cement division to a special purpose company and to issue shares of new company to first plaintiff’s shareholders in terms of scheme of arrangement under sections 391 to 394 - Said proposal stipulated that upon approval of respective board of directors, a binding restructuring agreement would be entered into between parties along with execution of (i) a scheme of arrangement; (ii) a share sale and purchase agreement; and (iii) a deed of covenant whereby first plaintiff would sell specified percentage of shares in new company to first defendant, which would concurrently sell its entire shareholding to second plaintiff, a trust founded by first plaintiff - Since sale of 15.73 per cent shares held by first defendant would need an exemption of SEBI from application of provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, second plaintiff submitted an application to SEBI in that regard - In meantime, however, in order to proceed with transaction, a meeting of board of directors of first plaintiff took place on 24-9-2003 wherein it was decided that first defen-dant would exit from first plaintiff by selling 14.95 per cent of its stake in first plaintiff to second plaintiff, while balance shares would be sold in open market - Entire transaction was executed through composite and integrated scheme of arrangement under sections 391 to 394 - Accordingly, a restructuring agreement was arrived at between parties on basis of which scheme of arrangement was presented under sections 391 to 394 and same was sanctioned by Company Court - Subsequently, a deed of covenant was entered into between parties, in terms of which, first defendant transferred 14.95 per cent of its shareholding in first plaintiff to second plaintiff - Thereafter, second plaintiff’s application seeking exemption from making an open offer for acquiring more than 15 per cent shares of first plaintiff was allowed by SEBI - Consequently, first plaintiff asked defendants to transfer their remaining shareholding - Defendants contended that in view of SEBI Takeover Regulation, there was a change in original agreement and acquisition of defendant’s shares by second plaintiff was confined to 14.95 per cent; and that scheme of arrangement, which was presented before Company Court under sections 391 to 394, was based on restructuring agreement, which constituted entire agreement between parties - Plaintiff, however, filed suit for specific performance of contract and also sought interim injunction restraining defendants from alienating shares and exercising any rights in respect of impugned shares including voting rights, it was the plaintiff’s case that it was decided that defendant’s exit process from the first plaintiff would be independent of scheme of arrangement; that restructuring agreement did not represent a novatio but was a part of an integrated and composite agreement under which 15.73 per cent of defendant’s holding in first plaintiff was to be sold to second plaintiff; and that there was a commitment by first defendant to that effect - Whether once restructuring agreement was entered into between parties envisaging that second plaintiff would acquire 14.95 per cent of shareholding of defendants in first plaintiff and said agreement was foundation of scheme of arrangement which was sanctioned by Court, that agreement must, prima facie, be regarded as embodying final, complete and enforceable understanding and submission of plaintiffs, that independent of restructuring agreement, defendants were bound and obliged to sell balance 0.78 per cent of their equity holding to plaintiffs, could not be accepted - Held, yes - Whether in view of fact that shares of first plaintiff were traded daily on two premier stock exchanges in Mumbai, it could be said that case would not fall within any of exceptions carved out in Explanation (ii) to section 10 of Specific Relief Act, 1963 - Held, yes - Whether, therefore, no interlocutory relief could be granted to plaintiffs - Held, yes - Larsen & Toubro Ltd. v. Grasim Industries Ltd. (Bom.)

Companies Act, 1956

- Section 391

- Section 394

Foreign Exchange Management Act, 1999

Foreign Exchange

Dealing in

- As a result of search of business and residential premises of respondent, Indian currency of Rs. 10,29,000 and certain documents were seized - Statements of respondent and other co-noticee and other evidences showed that respondent, among others, had received certain amount by order of a person resident outside India without permission of RBI - Adjudicating authority held respondent guilty of contravention of section 3(c) and imposed penalty upon him - However, amount of Rs. 10,29,000 was found fully supported by sale bills and cash balance on that date and, therefore, directed to be released to respondent after adjusting amount of penalty therefrom - On appeal, Appellate Tribunal upheld findings and order of adjudicating authority - Still aggrieved, Enforcement Directorate filed second appeal contending that Appellate Tribunal had not appreciated statement of co-noticee in proper perspective - Whether since whole material available on record had been taken into consideration by both adjudicating authority and Appellate Tribunal and even otherwise, there was no perversity as such which could be seen from findings recorded by both adjudicating authority and Appellate Tribunal, in light of limitations imposed on Court in relation to re-appreciation of evidence and in light of language employed in section 35, order of Appellate Tribunal could not be disturbed - Held, yes - Enforcement Directorate v. Ilyas Moosa (AP)

Foreign Exchange Management Act, 1999

- Section 3

Securities Contracts (Regulation) Act, 1956

Power to prohibit contracts in certain cases

- Plaintiff-Corporation provided equity assistance to defendant No. 1-company, which allotted certain shares to plaintiff with stipulation that it would buy back said shares on expiry of five years from date of commencement of commercial production - Subsequently, defendant No. 1 became sick and in terms of rehabilitation package sanctioned by BIFR, its unit was leased out to defendant No. 2 - Thereafter, plaintiff entered into an agreement with defendant No. 2, in terms of which defendant No. 2 agreed to purchase said shares over a period of eight years in instalments - After paying certain instalments, defendant No. 2 defaulted in payment and, therefore, plaintiff filed suit for recovery of remaining instalments - Whether when sale was not complete and it was to continue over a period of eight years, plaintiff could seek recovery of money on plea that a portion of sale consideration had remained unpaid - Held, no - Whether contract between plaintiff and defendant No. 2 for sale of shares of defendant No. 1, being apparently in contravention of notification dated 27-6-1969 issued under section 16(1), was illegal in view of provision of section 16(2) and, therefore, suit filed by plaintiff on basis of said agreement was liable to be dismissed - Held, yes - Himachal Pradesh State Industrial Development Corpn. Ltd. v. Pamwi Tissues Ltd. (HP)

Securities Contracts (Regulation) Act, 1956

- Section 16

MAGAZINE

features

company law

debanshu mukherjee and rachit jain

- Buy-back of shares : A lucrative proposition for companies

limited liability partnership

mayank mishra & bharat budholia

- Inducing limited upheaval - Exhibiting the fallacies of LLP Bill

Case Digest

table of cases

Bajoria (M.K.) v. Lalith Steel Suppliers (Mad.)

Employees’ State Insurance Corporation v. Manipal Sowbhagya Nidhi Ltd. (Kar.)

Gargya Research Instruments v. State Bank of India (Delhi)

Subject Index

Employees’ State Insurance Act, 1948

Application of Act

- Whether where respondent-company was carrying on activities of rendering service to its members in form of giving loans and accepting deposits, for a price which was interest that was levied on loans taken by members, it could be said that respondent was carrying on systematic commercial or financial activities so as to come within purview of expression ‘shop’ under Act and, consequently, provisions of Act would be squarely applicable to it - Held, yes - Employees’ State Insurance Corporation v. Manipal Sowbhagya Nidhi Ltd. (Kar.)

Employees’ State Insurance Act, 1948

- Section 1(4)

Negotiable Instruments Act, 1881

Dishonour of cheque for insufficiency, etc., of funds in account

- Complaints filed against petitioners under section 138, read with section 141, were challenged by petitioners on ground that their reply notices received by complainants were not referred to in complaints or in sworn statements and had Judicial Magistrate applied mind to such reply notices, he could have dismissed complaints - Whether since except reply notices alleged to have been received by complainant, all other documents had been produced before Judicial Magistrate and he, having perused those documents in light of sworn statements, had come to a conclusion that there was sufficient ground for proceeding against petitioners, lack of reference as to receipt of reply notices in complaint, was not at all a sufficient ground for quashing proceedings - Held, yes - M.K. Bajoria v. Lalith Steel Suppliers (Mad.)

- Whether to make a person liable for offence under section 138, there should be a specific averment in complaint that person sought to be made liable was in charge of and responsible for conduct of business of company at relevant point of time; it is not necessary that complainant should plead each and every nature of activities which were in charge of and under responsibility of directors; question as to whether a person was in charge of and was responsible to company for conduct of business at rele-vant point of time is to be adjudicated during course of trial, based on materials placed before trial court by parties - Held, yes - M.K. Bajoria v. Lalith Steel Suppliers (Mad.)

Negotiable Instruments Act, 1881

- Section 138

Recovery of Debts Due to Banks and Financial Institutions Act, 1993

Tribunal

Application to

- Respondent-bank sanctioned credit facilities to petitioner which neglected repayment and despite repeated requests and reminders from bank, failed to make good said defaults - On a petition under section 19, Debt Recovery Tribunal passed an ex parte order in favour of respondent as petitioner failed to appear - Petitioner filed petitions praying for setting aside ex parte decree, but Tribunal dismissed same holding that there was no genuine reason for non-appearance - Petitioner filed writ petition - Whether question whether there was a sufficient cause for non-appearance or not, was a question of fact and since Tribunal had recorded a finding that there was no sufficient cause, Court could not interfere with ex parte order passed by Tribunal - Held, yes - Gargya Research Instruments v. State Bank of India (Delhi)

Recovery of Debts Due to Banks and Financial Institutions Act, 1993

- Section 19

SEBI AND CORPORATE LAWS

Vol. 82, Part 2, for the week of February 25 – March 3, 2008

CONTENTS