D.G. Karnik, J.
1. IndusInd Enterprises and Finance Limited (for short, the 'transferor company'), the petitioner in Company Petition No. 1085 of 2002, has filed this petition for sanction of the scheme of arrangement under which the petitioner company is proposed to be merged and amalgamated with IndusInd Bank Limited (for short the 'transferee company'). The transferee company has filed the Company Petition No. 1086 of 2002 for sanction of the scheme of arrangement of the amalgamation of the transferor company into it.
2. In pursuance of the directions issued by this court on 19th September, 2002 in Company Application No. 439 of 2002, a meeting of the members of the equity shareholders of the transferor company was held on 28th October, 2002. In the said meeting, the resolution approving the proposed merger of the transferor company with the transferee company was passed by the requisite majority of members. 159 members holding 5,85,81,800 shares voted in favour of the resolution and 5 members holding 2300 shares voted against the resolution.
3. In pursuance of the directions given by this court on 19th September, 2002 in Company Application No. 440 of 2002, a meeting of the equity shareholders of the transferee company was held on 31st October, 2002. In the said meeting, the resolution approving the scheme of amalgamation was passed by the requisite majority of members. 150 equity share holders holding 8,51,72,959 shares voted in favour of the resolution and 2 share holders holding 600 equity shares voted against the resolution.
4. The meetings of the creditors of the transferor company as well as transferee company were dispensed with by two orders of this court dated 19th September, 2002 passed in Company Application numbers 439 and 440 of 2002 respectively. Having secured the necessary approval of the members, the transferor and transferee companies have filed the present petitions for sanction of the scheme by this court.
5. The notices of the petitions were issued to the Central Government through the Regional Director, Western Region, Department of Company Affairs, Bombay and to the Official Liquidator and were also published in two newspapers. In his report dated 8th January, 2003 the Official Liquidator has stated that the affairs of the transferor company have not been conducted in a manner prejudicial to the interest of its members or to public interest. The Deputy Official Liquidator who is present in person states that the Official Liquidator has no objection for sanction of the scheme of amalgamation. Mr. Chakradhara Paik, Regional Director, Western Region, Department of Company Affairs, Bombay has filed an affidavit dated 15th January, 2003 stating that the scheme is not prejudicial to the interest of the creditors and shareholders. He has filed further affidavit dated 16th April, 2003 stating that he has no objection to the scheme of amalgamation being approved subject to the sanction of the Reserve Bank of India. The learned counsel representing the Regional Director states that the Government of India has no objection for sanctioning of the scheme of amalgamation.
6. In pursuance of the notices issued in the newspaper. Shri Ramchandra Jethanand Uttamchandani who is a shareholder of the transferor as well as the transferee company appeared in person and objected to the sanctioning of the scheme of amalgamation on 3 grounds which are considered below :
7. Shri Uttamchandani firstly submitted that the transferor is a non-banking financial company while the transferee is a banking company and as such, prior permission of the Reserve Bank of India is necessary for the amalgamation. He invited my attention to Section 44A of the Banking Regulation Act, 1949.
Section 44A reads as under:--
'Procedure for amalgamation of banking companies. -- (1) Notwithstanding anything contained in any law for the time being in force, no banking company shall be amalgamated with another banking company, unless a scheme containing the terms of such amalgamation has been placed in draft before the shareholders of each of the banking companies concerned separately, and approved by a resolution passed a majority in number, representing two-thirds in value of the shareholders of each of the said companies, present either in person or by proxy at a meeting called for the purpose.
(2) Notice of every such meeting as is referred to in Sub-section (1) shall be given to every shareholder of each of the banking companies concerned in accordance with the relevant articles of association, indicating the time, place and object of the meeting and shall also be published at least once a week for three consecutive weeks in not less than two newspapers which circulate in the locality or localities where the registered offices of the banking companies concerned are situated, one of such newspapers being in a language commonly understood in the locality or localities.
(3) Any shareholder, who has voted against the scheme of amalgamation at the meeting or has given notice in writing at or prior to the meeting to the company concerned or to the presiding officer of the meeting that he dissents from the scheme of amalgamation, shall be entitled in the event of the scheme being sanctioned by the Reserve Bank, to claim from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank when sanctioning the scheme and such determination by the Reserve Bank as to the value of the shares to be paid to the dissenting shareholder shall be final for all purposes.
(4) If the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of this section, it shall be submitted to the Reserve Bank for sanction and shall, if sanctioned by the Reserve Bank by an order in writing passed in this behalf, be binding on the banking companies concerned and also on all the shareholders thereof.
(5) (Sub-section (5) omitted by Act 55 of 1963, S.19 (w.e.f. 1-2-1964)
(6) On the sanctioning of a scheme of amalgamation by the Reserve Bank, the property of the amalgamated banking company shall by virtue of the order of sanction, be transferred to and vest in, and the liabilities of the said company by virtue of the said order be transferred to, and become the liabilities of, the banking company which under the scheme of amalgamation is to acquire the business of the amalgamated banking company, subject in all cases to (the provisions of the scheme as sanctioned).
(6-A) Where a scheme of amalgamation is sanctioned by the Reserve Bank under the provisions of this section, the Reserve Bank may, by a further order in writing, direct that on such date as may be specified therein the banking company (hereinafter in this section referred to as the amalgamated banking company) which by reason of the amalgamation will cease to function shall stand dissolved and any such direction shall take effect notwithstanding anything to the contrary contained in any other law.
(6-B) Where the Reserve Bank directs a dissolution of the amalgamated banking company, it shall transmit a copy of the order directing such dissolution to the Registrar before whom the banking company has been registered and on receipt of such order the Registrar shall strike off the name of the company.
(6-C) An order under Sub-section (4), whether made before or after the commencement of Section 19 of the Banking Laws (Miscellaneous Provisions) Act, 1963 shall be conclusive evidence that all the requirements of this section relating to amalgamation have been complied with, and a copy of the said order certified in writing by an officer of the Reserve Bank to be a true copy of such order and a copy of the scheme certified in the like manner to be a true copy thereof shall in all legal proceedings (whether in appeal or otherwise and whether instituted before or after the commencement of the said Section 19) be admitted as evidence to the same extent as the original order and the original scheme.
(7) Nothing in the foregoing provisions of this section shall affect the power of the central government to provide for the amalgamation of two or more banking companies under Section 396 of the Companies Act, 1956.
Provided that no such power shall be exercised by the Central Government except after consultation with the Reserve Bank.
On plain reading of the section, it is clear that the section applies when one banking company is to be amalgamated with another banking company. Section 44A of the Banking Regulation Act, 1949 does not apply where a non-banking finance company is proposed to be amalgamated with a banking company. No sanction of the Reserve Bank of India is necessary for amalgamation of non-banking finance company with banking company. In the matter of ICICI Limited reported in 2002 (3) M.L.J. 5 = 2002(3) CLJ 111, dealing with the similar objection, this court observed thus :
'One of the objections raised is that the approval of the RBI has not been secured as required by the provisions of the Banking Regulation Act. Bare perusal of the provisions of Section 44-A of the Banking Regulation Act, however, shows that this objection has no substance inasmuch as the provisions of that section come into play only in case the transferee and transferor, both the companies, are banking companies. In the present case, though the transferee company is a banking company, none of the transferor companies is a banking company. The objection has, thus, no force.'
Hence, the contention that prior sanction of the Reserve Bank of India is necessary for the proposed amalgamation is rejected.
8. Shri Uttamchandani secondly contended that Rule 78 of the Company (Court) Rules, 1959 has been violated and therefore, the scheme should not be sanctioned. Rule 78 requires the chairman of the meeting to submit a report of the result of the meeting in form No. 39 giving separately the number of members or class of members who were present and who voted at the meeting either in person or in proxy and their individual values. Form No. 39 shows that while giving the details, the chairman is required to give the names of the members as well as their addresses. The report which is annexed to the petitions gives all the required details except the addresses of the members present at the meeting. Mr. Tulzapurkar learned counsel for the petitioner relied upon the judgment of the Calcutta High Court in Darjeeling Commercial Company Ltd. v. Pandam Tea Company Ltd, reported in 1983 54 Comp. Cas 814. In that case also, it was alleged that Rule 17 of the Company (Court) Rules, 1959 was not strictly followed. In that connection, the learned single Judge of the Calcutta High Court observed at page 833 : 'But, in my view, such pedantic and strict adherence to the forms cannot be the principle by which the company law has to be administered. Substantial compliance is there 'Mr. Tulzapurkar submitted that there has been a substantial compliance of Rule No. 78. He also invited my attention to the subsequent affidavit dated 28th April, 2003 sworn in by Mr. Nitin Kaoshik, Company Secretary of the transferor company filed in Company Petition No. 1085/2002. The names and addresses of all the share holders who attended the meeting together with the details of number of shares held by them and the value of their votes and the manner of voting has been mentioned in the affidavit. In Company Petition No. 1086 of 2003 similar affidavit sworn in by Mr. Gopal Lohiya, Company Secretary of the transferee company on 25th April, 2003 has been filed. Thus, the defect, if any, in not giving the addresses of the share holders who attended and voted at the meeting is cured. There has been substantial compliance of the rules and the petition cannot be dismissed on this ground.
9. Shri. Uttamchandani lastly contended that there is no need of a merger of the transferor company into the transferee company. The transferor company has an equity base of 100 crores, and is debt free company. According to Mr. Uttamchandani, the transferor company has financial capacity to start any new project of its own and there is no necessity for its merger with the transferee company. Mr. Uttamchandani invited my attention to para 8 of his affidavit dated 8th April, 2003 in which he has made a reference to the valuation report made by S.B.I. Capital Market. In the said report, the valuer has reported that the several benefits that would be derived by the transferee company by amalgamation. On the other hand, Mr. Uttamchandani states, the transferor company and its share holders would not have any corresponding benefit. Therefore, according to him, the scheme is unfair and unjust to the shareholders of the transferor company and would benefit only the shareholders of the transferee company. He is also alleged that the motive behind the scheme of amalgamation is oblique and the scheme is meant only to benefit the promoters of the transferee company who also are majority shareholders in the transferor company. They want to strengthen their hold and strengthen their equity base in the transferee company by this process of amalgamation. The shareholders of both the transferor company and transferee company have in their commercial wisdom approved the scheme by an overwhelming majority. In Mihir H. Mafatlal v. Mafatlal Industries Ltd. reported in : AIR1997SC506 the Supreme Court observed :
'In view of the aforesaid settled legal position, therefore the scope and ambit of the jurisdiction of the company court has clearly got earmarked. The following broad contours of such jurisdiction have emerged :
(1) The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(l)(a) have been held.
(2) That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by Section 391(2).
(3) That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
(4) That all necessary material indicated by Section 393(l)(a) is placed before the voters at the concerned meetings as contemplated by Section 391(1).
(5) That all the requisite material contemplated by the proviso to subsection (2) of Section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same.
(6) That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same.
(7) That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent.
(8) That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
(9) Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there could be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the same rather than its supervisory jurisdiction. The aforesaid parameters of the cope and ambit of the jurisdiction of the company court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the court's jurisdiction.'
The company court does not have the jurisdiction to sit in appeal over the commercial wisdom of the majority of the persons who with their open eyes have given their approval to the scheme. Even if in the court's view some better scheme for the company and its members or creditors could have been framed, the court cannot refuse to sanction the scheme approved by the members on that ground as it would otherwise amount to exercising appellate jurisdiction over the scheme rather than supervisory jurisdiction. In view of the settled position of law, the court cannot look into whether the transferor company could have independently carried its business than getting merged with the transferee company. It was for the shareholders of the transferor and transferee companies to consider this aspect. The shareholders in their wisdom have considered and approved the scheme by an overwhelming majority.
10. Shri Uttamchandani stated that he does not contest the swap ratio in the scheme of amalgamation. No other point was canvassed.
11. The scheme of arrangement as approved by the shareholders of the transferor and transferee company by their respective resolutions is sanctioned. Company Petition No. 1085 of 2002 is allowed in terms of prayer clauses (a) to (h). Company Petition No. 1086 of 2002 is allowed in terms of prayer clauses (a) to (g). Both the petitioners shall pay costs of Rs. 2500/- each to the Regional Director. The petitioner in Company Petition No. 1085 of 2002 shall also pay costs of Rs. 2500/- to the Official Liquidator.
12. At the request of Mr. Uttamchandani operation of this order is stayed for a period of two weeks.
All concerned to act on a copy of this order duly authenticated by the Company Registrar.