HIGH COURT OF CALCUTTA
Bhagyraaj Vyapaar (P.) Ltd.
Regional Director, Ministry of Corporate Affairs
A.P.O. No. 424 of 2012
C.P. NO. 630 OF 2011
JANUARY 11, 2013
Ashim Kumar Banerjee. J.
Four companies limited by shares and incorporated under the provisions of the Companies Act, 1956 applied for sanction of scheme of amalgamation. When they initially applied for sanction they prayed for dispensation of the meeting of the shareholders. According to them, the shareholders were common and/or inter-related. Hence, no fruitful purpose would be served by holding separate meetings for four companies. The learned single Judge considered their prayer. His Lordship acceded to their request and dispensed with holding of the formal meetings, however appointed a Special Officer to ascertain the wishes of the shareholders in a joint meeting to be held at the office of the advocate moving the said application or any other place of his choice. The Special Officer submitted a report wherefrom it would appear, the shareholders agreed to the said scheme being propounded. Accordingly, His Lordship disposed of the said application vide order dated September 29, 2011. His Lordship directed the company to file appropriate application for confirmation of the scheme of amalgamation. Accordingly, the appellants being the four companies, filed an application for sanction of the scheme when the learned Judge directed notice to be published in two newspapers and a copy of the petition to be served upon the Regional Director, Department of Corporate Affairs, Eastern Region, Calcutta. Pursuant to the notice, the Central Government appeared. Despite advertisement being published none came forward to object to the said scheme being propounded. In course of time there was change of determination and another learned Judge took up the said application for hearing on January 4, 2012 when His Lordship gave direction for filing affidavits. Central Government filed affidavit. They stated, the valuation report deciding the share exchange ratio was window dressed. The shares issued at a premium were unusual. The objection raised by the Central Government is quoted below:
“It is to submit that this office vide letter No.RD/T/16596/391/L/11/3139 & 3140 dated 05.12.2011 has sought information about share holding pattern, Valuation Report of shares for exchange ratio, shares issued at premium and other matters as required for filing affidavit before the Hon’ble Court in this matter. As per the Balance Sheet as at 31-03.2011 of the transferor company I and II enclosed with the petition it is found that the Share Premium Amount has been shown as Rs. 1276.76 lacs and Rs. 1567.80 lacs respectively. However, the transferor company I and II have not submitted any information in respect of shares issued at premium (as sought in Point No. 2 of this office letter) along with their reply. Also no share Valuation Report of these two petitioner companies has been furnished along with their reply. Hence, this office vide letter dated 27-02-2012 has sought details of these information which is yet to be replied by the petitioner company. It is prayed before the Hon’ble Court to give further time of two weeks to file report in the form of supplementary affidavit before the Hon’ble Court in this matter.”
2. The learned Judge asked the Central Government to file Supplementary Affidavit. Accordingly, the Central Government filed second affidavit. The relevant extract is quoted below :
“That in continuation with earlier affidavit affirmed by the deponent in the month of February, 2012 it is submitted that this office vide letter No.RD/T/16596/391/L/11/3139 & 3140 dated 05-12-2011 has sought information about share holding pattern, Valuation Report of shares for exchange ratio, shares issued at premium and other matters as required for filing affidavit before the Hon’ble Court in this matter. As per the Balance Sheet as at 31-03-2011 of the transferor company I & II as enclosed with the petition it is found that the Share Premium Amount has been shown as Rs.1276.76 lacs & Rs.1567.80 lacs respectively. However, the transferor company I and II have not submitted any information in respect of shares issued at premium (as sought in Point No.2 of this office letter) along with their reply. Also the share Valuation Report of these two petitioner companies has not been furnished along with their reply. Hence, this office vide letter dated 27-02-2012 followed by subsequent reminder dated 20-04-2012 has sought details of these information which is yet to be replied by the petitioner companies. The reminder sent has been returned undelivered with certain invisible postal remark. It is, therefore, prayed before the Hon’ble Court to direct the petitioner companies to submit the above information to the office of the deponent so as to enable the Central Government to file report in the form of supplementary affidavit before the Hon’ble Court in this matter. (Copy of letters issued on 27-02-2012 and 20-04-2012 are enclosed herewith – Annexure ‘A’ &’B’).
3. Before filing of the affidavit, the Central Government asked for several particulars from the appellant companies. One of them answered, the others did not. The Central Government was not satisfied with the answer given. The learned Judge passed orders asking the appellants to respond to the query made by the Central Government. The matter appeared before His Lordship ultimately on July 2, 2012 when the learned counsel appearing for the appellants insisted that the share premium so objected by the Central Government was nothing but an exercise conducted in usual course of business and in accordance with the provisions of the Companies Act, 1956. His Lordship was not satisfied. His Lordship directed investigation to be conducted by Directorate of Revenue Intelligence. The appellants preferred an appeal before us questioning the authority and propriety and competence of the learned Judge giving such direction. The appellant argued before us, it was for the Court either to sanction or reject the proposed scheme of amalgamation. The Company Judge was not competent enough to direct Central Government to carry on investigation and that too, by a named agency. We heard the parties and disposed of the appeal vide judgment and order dated August 14, 2012 appearing at pages 587-600 of the paper book. Our view as expressed in the said decision would be as follows :
“In our view, the Central Government must file their affidavit dealing with the scheme on merit and is not entitled to avoid the same on one plea or the other. That would have an onerous duty to assist the Court by pointing out the illegalities and/or irregularities, if any, found on scrutiny of the same.
Lot was said by Mr. Mookherjee on the phraseology “MONEY LAUNDERING” used by His Lordship. Mr. Mookherjee would say, neither Section 3 nor Section 4 of the said Act of 2002 would apply in the instant case. He may be correct to say so. We, however, feel, such phraseology might have been used by His Lordship as a passing reference to express His Lordship’s agony in absence of the Central Government’s views on merits and the applicants’ insistence on the scheme being passed without replying to the queries made by the Central Government as referred to above. His Lordship probably did not use such phraseology in the context of the said Act of 2002.”
4. The matter went back to the learned Single Judge. The matter started appearing before the learned Single Judge. Ultimately, when it was taken up for hearing on September 3, 2012 the appellants expressed their desire not to press the application for sanction of the scheme of amalgamation. His Lordship accordingly dismissed it as not pressed with cost of rupees seventeen thousand to be paid to the Central Government. His Lordship restrained the appellants from making any such application for five years. His Lordship also directed the Central Government to continue with the investigation. While doing so, His Lordship observed, “this direction should be seen to be a direction under Section 237 of the Companies Act”. Hence, this appeal by the appellants. When the appellants moved the appeal before us we stayed operation of the judgment and order to the extent that directed payment of cost to the extent of rupees seven thousand.
5. With regard to the other direction prohibiting them from filing any application for five years we observed as follows :
“The order of restraint in filing a further scheme application is also stayed subject to the assurance given by Mr. Mookherjee’s client that they would not suppress the orders of this Court in case any subsequent scheme is brought.”
6. We did not stay the order directing the Central Government for carrying on investigation, however observed, in case they would investigate such investigation should not be influenced by the observation made by His Lordship in the judgment and order impugned.
7. We finally heard the appeal on January 3, 2013 when upon conclusion of hearing we reserved the judgment.
8. Mr. S.B. Mookherjee, learned senior counsel appearing for the appellants filed a written Note of Argument (although not asked for). It seems, Mr. Mookherjee felt aggrieved, as according to him, his arguments made before this Bench in the earlier appeal were not properly dealt with and answered.
9. Since we heard Mr. Mookherjee in detail and meticulously took down notes we need not deliberate on the written note so filed by him, in fact, as a matter of practice, we discourage filing of written Notes of Argument. Mr. Mookherjee contended as follows :
(i) As per Section 391, the learned Company Judge was competent to consider the scheme of amalgamation and the objections, if any, filed on behalf of the Central Government and/or any shareholder, creditor, contributory or any person interested in the affairs of the company. Upon such consideration, the learned Judge would be free to sanction the said scheme of amalgamation with or without modification or reject the same. His Lordship was not empowered to direct any investigation to be carried out that too, by a named agency of His Lordship’s choice.
(ii) Direction for investigation by the Court could only be given under Section 235 to 240-A of the Companies Act. Under Section 237 the Court, on an application made therefor, can direct investigation to be carried out by the Central Government. However, the Court must form an opinion that there was sufficient evidence to do so. The Court, on being satisfied prima facie that an investigation was required to be made, would issue a declaration to the said effect and upon such declaration being made the Central Government would be free to investigate through any agency of their choice. The Court could not specify any agency as was erroneously done by His Lordship.
10. Elaborating his argument, Mr. Mookherjee placed Sections 235 to 240-A and Section 391 to demonstrate the power of the Court to the extent specified by the legislature under the said provisions. According to him, naming an agency would be stepping out of the power conferred upon the learned Judge by law. He referred to Rule 11-(a)(9) of the Company (Court) Rules 1959 to show that an order under Section 237 could be passed in a petition made in the appropriate form being Form no. 34-35. He also referred to Rule 67 in this regard. He placed all the orders passed in the matter so discussed above, including the report of the Special Officer wherein the Special Officer appointed by Court specifically recorded, the shareholders unanimously approved the scheme.
11. Commenting on the objection raised by the Central Government in two affidavits quoted (Supra), Mr. Mookherjee contended, share issued at a premium was not prohibited in law. It was the wish of the Board of Directors and/or the persons having management and control of the companies and ultimately the wish of the shareholders, the proposed share exchange ratio was duly approved by the shareholders at large that too, unanimously. There being no law prohibiting such issue, the Central Government was not entitled to object to the same. Such objection was not tenable in law. He also demonstrated from the paper book that out of four companies one did not issue any share at a premium value. In any event, the shareholders by their letters appearing at page 201 onwards duly consented to such proposed scheme being sanctioned. He referred to the list of shareholders appearing at page 257 to 260 and contended, each one of them, by separate letter of consent, approved the scheme. He also referred to paragraph 13 of the petition where the appellants categorically contended, no proceeding was pending under Sections 235 to 251 of the Companies Act, 1956 against any of the appellants. He also referred to the queries made by the Assistant Director and the reply given by the appellants clarifying each and every issue that was raised by the Central Government. He referred to the Income Tax Assessment Order to show, appellants were regularly paying income tax and no adverse order was passed against any one of them by Income Tax Authority.
12. Commenting on the order of restraint, Mr. Mookherjee drew our attention to Section 41(b) of the Specific Relief Act, 1963 and contended, no litigant could be restrained from initiating any proceeding in accordance with law. Hence, the order of the learned Judge debarring the appellants to apply for sanction for scheme of amalgamation for five years, was contrary to the provisions of law.
13. While summing up, Mr. Mookherjee raised an embarrassing issue. According to him, on the very day i.e. July 2, 2012 when the learned Judge passed the impugned judgment and order two other similar applications were heard where identical objections raised by the Central Government were disposed of when the learned Judge took a complete different stand. Pertinent to note, in the former appeal he also raised similar issue by referring to several orders passed by the learned Judge in other applications for scheme of amalgamation.Online GST Certification Course by TaxGuru & MSME- Click here to Join
14. In support of his contention he relied on the following decisions :
(i) Sreemanchunder Dey v. Gopaulchunder Chuckerbutty  11 M.I.A. 28 (PC)
(ii) Seth Maniklal Mansukhbai v. Raja Bijoy Singh Dudhoria AIR 1921 PC 69
(iii) Vinay Metal Printers (P.) Ltd., In re  87 Comp. Cas. 266/ 14 SCL 26 (AP)
(iv) Punjab Agro Industries Corpn. Ltd. v. Superior Genetics (India) Ltd.  108 Comp. Cas. 349/35 SCL 438 (CLB – Delhi)
(v) Ushacomm India (P.) Ltd., In re 2006 (2) CHN 473
(vi) Hill Crest Realty Sdn. Bhd. v. Ram Parshotam Mittal  156 Comp. Cas. 597/103 SCL 80 (Delhi)
(vii) Alembic Glass Industries Ltd., In re  42 Comp. Cas. 63 (Guj.)
(viii) Delhi Flour Mills Co. Ltd., In re  45 Comp. Cas. 33 (Delhi)
(ix) V.V. Purie v. E.M.C. Steel Ltd.  50 Comp. Cas. 127 (Delhi)
(x) Ashoka Marketing Ltd. v. Union of India  51 Comp. Cas. 634 (Delhi)
(xi) Kumaranunni v. Mathrubhumi Printing & Publishing Co. Ltd.  54 Comp. Cas. 370 (Ker.)
(xii) Patrakola Tea Company Ltd., In re AIR 1967 Cal. 406
(xiii) Safia Usman v. Union of India  22 SCL 372 (Ker.)
(xiv) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298
(xv) Rohinten Mazda v. Hypoids (India) (P.) Ltd.  121 Comp. Cas. 729/52 SCL 425 (CLB – New Delhi)
(xvi) Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan  54 SCL 601 (SC)
(xvii) CIT v. Steller Investment Ltd.  251 ITR 263
15. Per contra, Mr. Bhashkar Prasad Banerjee, learned counsel appearing for the Central Government drew our attention to the affidavits filed by the Central Government and contended, Central Government found the share exchange ratio unusual and made queries that were not properly answered. According to him, the companies without issuing shares with premium could have increased their authorized capital. In case of each of the appellants the share capital was nominal whereas shares were issued with high premium that were totally disproportionate with the authorized capital. According to him, in case of increase of share capital the Central Government would be entitled to appropriate duty that was evaded through issuance of shares with premium value. He also referred to the query made by the Central Government and contended, only one company replied to the query, the others did not. The replies, the Central Government got, were also insufficient. He justified the order of investigation so directed by the learned single Judge. He was, however, unable to assist this Court as to what had transpired in the investigation that was directed by His Lordship at the initial stage and permitted to be continued in terms of the order of this Court passed in the former appeal as well as in the present appeal at the time of admission.
16. Mr. Mookherjee, while replying, referred to page four of his Notes of Argument and contended, each query was answered satisfactorily. In any event, the only objection raised by the Central Government with regard to share premium was within the authority of law. The Central Government miserably failed to point out any illegality committed by any of the appellants. In absence of such definite assertion by the Central Government, the learned Judge could not have directed investigation as there was no evidence, far to speak of prima facie, that helped the learned Judge to form an opinion under Section 237. With regard to loss of revenue, Mr. Mookherjee contended, it was an afterthought and never raised in any affidavit.
17. The authority of Court to direct investigation was elaborately considered by us in our earlier decision when we ultimately permitted the Central Government to carry on investigation. The decisions in the case of Sreeman Chunder Dey (supra), Vinay Metal Printers (P.) Ltd. (supra) and Ushacomm India (P.) Ltd. (supra) were considered by us in the earlier decision rendered in the former appeal referred to above. Mr. Mookherjee now cited host of decisions on the power of Court to direct investigation under Section 237. He particularly referred to those decisions in view of the additional observation of His Lordship that such direction should be seen to have been made under Section 237. While making comment, Mr. Mookherjee in his usual fairness admitted inherent power of the Court to direct investigation, even not prayed for formally by any of the parties. However, the pre-requisite of Section 237, according to him, must be complied with meaning thereby, the learned Judge would have to form an opinion that there was prima facie evidence of irregularity, before the learned Judge would make a declaration that affairs should be investigated upon by the Central Government. We fully agree with Mr. Mookherjee on that score. The Section itself is absolutely clear on the issue. We need not take recourse to any precedent. Question would still be germane as to whether the learned Judge did have any such material before His Lordship and if so, whether His Lordship was justified to direct a particular agency to investigate. To take up the second issue first, in our view, the learned Judge was not perhaps correct to name any agency that would be in excess of the power conferred under Section 237. Directorate of Revenue Intelligence is a limb of the Central Government. When the Court would form an opinion that an investigation ought to have been carried out, the Central Government would be free to choose the enquiry agency to be entrusted for the said job. To that extent, the earlier direction faulted and we corrected it by our earlier decision rendered in the former appeal.
18. If we dissect the judgment and order impugned we would find four issues that would be offending the appellants :-
(i) For the petition, although dismissed as not pressed, rupees seventeen thousand cost was imposed.
(ii) The appellants were restrained from making any such application for five years.
(iii) Despite dismissal of the petition investigation was continued.
(iv) The order was directed to be treated as an order under Section 237.
Answers to the issue
19. Learned Judge directed payment of cost of rupees seventeen thousand. From the orders discussed above, we would find that the matter appeared from time to time before the learned single Judge on various occasions when Central Government did appear and object to the said petition being allowed. Appeal being a continuation of the original proceeding, was also unsuccessful and the Central Government was dragged to the Court of appeal. Taking a sum total of the situation, His Lordship directed payment of cost of rupees seventeen thousand. Mr. Mookherjee referred to other order passed on the same day where lesser amount of cost was awarded. We do not know at what stage the said petition was dismissed as not pressed. His Lordship, in His Lordship’s discretion awarded rupees five thousand one hundred in the other matter. We do not wish to interfere on that score. We would only observe that such cost should be paid to the Central Government to the extent of fifty per cent and the balance fifty per cent should be deposited with the State Legal Service Authority.
20. At the admission stage we stayed the order of restraint subject to the assurance of the appellants that they would not suppress the orders of this Court passed in these proceedings in case any subsequent scheme was brought. We feel, interest of justice would subserve, if we make the said order absolute.
21. The learned Judge directed investigation to be carried on. At the initial stage, the Division Bench upheld the said order with modification as referred to above. The appellants did not challenge the same before the Apex Court. Hence, the said direction attained finality. When the investigation was in process the appellants withdrew their application. Hence, in our view any such continuing process could not be made futile and/or nugatory by withdrawal of the petition. Court felt, an investigation should be made. The Division Bench upheld such direction. Withdrawal and/or dismissal of the application, in our view, should not stand in the way of bringing the said process into logical conclusion.
(iv) Applicability of section 237
22. Mr. Mookherjee in his usual fairness admitted the Court’s power to direct such investigation. Hence, the learned Judge did not commit any illegality in observing that the order should be treated as an order under Section 237.
23. The question would still remain, whether the learned Judge had sufficient evidence to continue such investigation. Mr. Mookherjee put emphasis on the decision of our Court in the case of Patrakola Tea Co. Ltd. (supra). He relied on paragraph 8 to 10 wherein the learned single Judge discussed the scope and ambit of Section 237. We would however, refer to paragraph 35 of the said decision wherein the learned single Judge, upon considering the materials available on record, came to a definite conclusion that the evidence available was not strong enough to direct an investigation. His Lordship observed that in case there was any stronger evidence His Lordship might have been inclined to direct an enquiry. Similarly, in the Apex Court decision in the case of Needle Industries (India) Ltd. (supra), the Apex Court in paragraph 49 considered the discretion of the Court being exercised on appropriate material. The Apex Court observed that an illegal act may not be sufficient for interference unless a bundle of facts would indicate a mala fide intention that would lead justifiably to the conclusion that illegality was being carried on amounting to oppression. He also referred to another Apex Court decision in the case of Dale & Carrington Investment (P.) Ltd. (supra) wherein the Apex Court in paragraph 36 observed, “it is settled law that if a finding of fact is perverse and is based on no evidence it can be set aside in appeal.” He also put emphasis on the decision of the Kerala High Court in the case of Safia Usman (supra) wherein the learned Company Judge interpreted Section 237 and observed that the said provision was not to direct the Central Government to conduct investigation but to declare that the affairs of the company ought to be investigated upon. The other decisions cited by him on the issue, would be consistent on the proposition of law that was discussed above. He referred to the decision in the case of Steller Investment Ltd. (supra) where in an Income Tax reference the Apex Court agreed with the answer given by the High Court that the increase in subscribed capital of a company could not be a device of converting black money into white with the formation of an investment company. Citing the said decision Mr. Mookherjee contended that issuance of shares at a premium value could not be said to be an illegal act alleging conversion of undisclosed income in its authorized form.
24. From the paragraphs quoted (supra) we find, the Central Government’s objection was consistent. The Central Government made queries. They did have the expertise to verify answer to such query. They were within their right to insist upon clarification being made on the issues raised by them. It is true, the Court should either allow a scheme of amalgamation or reject the same, if not satisfied. Such question however, may not be germane herein as the appellants did not proceed further. They withdrew the scheme. The learned Judge directed investigation at a stage as when the appellants were proceeding with their scheme. To what extent the learned Judge was within His Lordship’s authority, was a question that attained finality in the judgment and order of the Division Bench in the former appeal. Today we are only required to decide whether continuation was permissible or not. In our view, once the investigation was directed that must come to a logical conclusion. The Central Government is free to choose the agency. We already observed to that extent. It is for the Central Government to decide the course of action. In any event, if any action is proposed that must be in accordance with law. We should not presume as to what would be the consequence of such investigation. We fully agree with Mr. Mookherjee. The Company Court should only declare that an investigation should be carried out by the Central Government. The learned Judge did so in the other way by observing, the order should be treated as an order under Section 237 meaning thereby, the Central Government would have to act within the scope and ambit of the said provision that would permit them to carry on investigation through any agency of their choice. We abundantly make it clear, the judgment and order impugned would not preclude the Central Government from appointing any agency of their choice to continue with the investigation. On the issue of material, we feel, such issue is no more available to the appellants in view of our decision in the former appeal.
25. The appeal succeeds in part. The judgment and order impugned is affirmed with the following modifications:-
(i) The cost of rupees seventeen thousand would be paid within two weeks from date. Rupees eight thousand five hundred should be paid to the Central Government whereas the balance sum of rupees eight thousand five hundred be paid to the State Legal Service Authority, West Bengal.
(ii) The order of restraint passed by His Lordship restraining the appellants from moving an identical application for five years, is set aside. The appellants would however be obliged to state in detail, the sequence of events resulting in disposal of this appeal and would annex all orders in the present proceeding passed by the learned single Judge as well as by the Division Bench from time to time.
(iii) The direction for continuation of the proceeding for investigation is upheld to the extent, Central Government would be free to choose the agency through whom they would carry on such investigation and would be free to take any step as it may be found appropriate in this regard.
(iv) The direction for continuation of such investigation must be treated as a declaration under Section 237(a)(ii) of the Companies Act 1956 and not a mandate upon the Central Government to carry on such investigation.
26. Appeal is disposed of accordingly without any order as to further cost.
Shukla Kabir (Sinha), J.: I agree.