In Re: Bank of Mymensing Gouripur, Ltd. v. . — 1948 DIGILAW 89 (CAL)

JUDGMENT Das, J. - This application raises an interesting question as to the jurisdiction of the Court to set aside an order made under secs. 153 and 153A of the Indian Companies Act sanctioning a scheme of amalgamation and dissolving the transferor company without winding-up. The company with which this application is concerned was incorporated in 1921 under the name and style of Gouripur Loan Office, Limited. It appears that after about 12 years' existence and working this company had to take the protection of a scheme which was sanctioned by this Court on the 21st May, 1934. under sec. 153 of the Indian Companies Act. Towards the end of 1941 this company found itself in difficulties again and had to propose a second scheme of arrangement for the gradual payment of its liabilities which was approved by its creditors and eventually sanctioned by this Court on the 23rd March, 1942. The terms of this second scheme were broadly speaking as follows: the depositors would forego all interest and accept fully paid-up shares of Rs. 25 each to be allotted within three months from the date of sanction; that no dividend would be declared on the shares already issued (called "A" shares) until dividend aggregating to 40 per cent. would be declared and paid on the shares to be allotted to the depositors (called "B" shares); the capital would be increased to Rs. 10,00,000 and the company would carry on banking business; the necessary alterations of its memorandum and articles would be made within three months from the date of sanction. It was at or about this time that the name of this company was changed into Bank of Mymensingh Gouripur, Limited. According to the Petitioners the company thereafter made considerable progress. It established not less than 32 branches in and outside Bengal. The position of the company as at the end of 1945 is summarised in paragraph 10 of the petition. 2. In 1946, there were heavy withdrawals. In the beginning of 1947 the company found it necessary to arrange for its amalgamation with a bigger and stronger institution, namely, the Central Calcutta Bank, Limited. On the 29th April, 1947, this company presented a petition for sanction of a scheme of amalgamation with the Central Calcutta Bank, Limited, upon certain terms said to have been agreed upon. In the beginning of 1947 the company found it necessary to arrange for its amalgamation with a bigger and stronger institution, namely, the Central Calcutta Bank, Limited. On the 29th April, 1947, this company presented a petition for sanction of a scheme of amalgamation with the Central Calcutta Bank, Limited, upon certain terms said to have been agreed upon. The petition was admitted and leave for holding meetings of creditors and shrare-holders of this company and the usual directions as to advertisements and notices were given by the Court. The meetings were held on the 8th June, 1947, under the Chairmanship of Mr. Nalini Ranjan Sarkar. The creditors' meeting was attended by 19 creditors in person representing credit of Rs. 79,925-6-4 and by 344 creditors by proxy representing credit of Rs. 1,90,529-0-2. One Debidas Roy the Managing Director of the Central Calcutta Bank, Limited who had been co-opted as a director of the company was present at the meeting. Certain amendments were proposed and seconded and the scheme of amalgamation as amended was passed unanimously by the creditors. The share-holders' meetings were held separately for " A " shares and " B " shares and the scheme as adopted by the creditors was passed unanimously by both classes of share-holders at their respective meetings. 3. The scheme, as approved by the creditors and share-holders, may now be broadly and briefly summarised. By clause 1 it was provided that the Bank of Mymensingh Gouripur, Ltd. (hereinafter called the transferor bank) would transfer and the Central Calcutta Bank. Ltd. (called the transferee Bank) would take over all and singular the movable and immovable assets end undertaking of the transferor bank subject to existing mortgages, charges and liens and without investigation as to the title of the transferor bank. By clause 2 the transferee bank undertook to satisfy and discharge all debts and liabilities and engagements of the transferor bank and keep the latter and its contributories in demnified against the same. Clause 3 provided for the allotment by the transferee bank to the share-holders of the transferor bank ordinary shares in the capital of transferee bank of Rs. 10 each in proportion and manner therein specified Clause 4 provided for alteration of the articles of the transferee bank so as to ensure that Mr. Brajendra Kishore Roy Chowdhury would be President of the transferee bank until he voluntarily resigned, that Mr. 10 each in proportion and manner therein specified Clause 4 provided for alteration of the articles of the transferee bank so as to ensure that Mr. Brajendra Kishore Roy Chowdhury would be President of the transferee bank until he voluntarily resigned, that Mr. Birendra Kishore Roy Chowdhury would be the Vice-Chairman of the Board for a period of five years and that the share-holders of the transferor bank would form a separate bloc called "Gouripur Share-holders" who would be entitled to elect three directors to the Board. Under clause 5 a vesting order was to be obtained from the Court vesting the assets of the transferor bank in the transferee bank. Provision was made in clause 6 for the absorption of the employees of the transferor bank in the service of the transferee bank and clause 7 reserved to the High Court power to add to, vary, after or amend the scheme or impose any condition. 4. The matter came up before Edgley, J., on the 30th June, 1947, for sanction. By an order made on that day the scheme of amalgamation was sanctioned and declared binding on the creditors and share-holders of the transferor bank and on the transferor Bank and the transferee bank and the undertaking and properties of the transferor bank and all its assets and liabilities were transferred to and vested in the transferee bank and it was further ordered that upon the taking over of all assets and undertakings by the transferee bank the transferor bank be dissolved without being wound-up. 5. An office copy of that order was duly filed with the Registrar of Joint Stock Companies and the name of the transferor bank was struck out from the register and it became defunct. On the 12th July, 1947, the transferee bank through its attorney Mr. P. N. Roy applied to the Examiner of Capital Issues, Government of India, for then consent to the issue of 70,000 ordinary shares of Rs. 10 to implement the sanctioned scheme. At or about the same time the transferee bank took up the management of the different offices of the transferor bank then defunct and began to realise its assets and pay its liabilities. By a communication No. R587-CCI/1367, dated the 13th December, 1947, the Government of India declined to give their consent to the proposed issue of shares. At or about the same time the transferee bank took up the management of the different offices of the transferor bank then defunct and began to realise its assets and pay its liabilities. By a communication No. R587-CCI/1367, dated the 13th December, 1947, the Government of India declined to give their consent to the proposed issue of shares. On the 29th December, 1947, the transferee bank's attorney wrote to Mr. S. N. Sen who was formerly the attorney for the transferor bank communicating the aforesaid refusal of the Government of India and enquiring as to what he proposed to do in the matter. As was to be expected Mr. Sen replied that his former client was not in existence having been dissolved by order of Court and that accordingly he had no instructions in the matter. 6. On the 5th February, 1948, a petition was presented before me on behalf of Sreemutty Saudamini Debi Chaudhurani and Debi Kanta Lahiri Chaudhuri, two of the holders of " B " shares of the transferor bank, praying that the order dated the 30th June, 1947 be revoked, cancelled and rescinded; that the dissolution of the transferor bank be set aside and that the transferee bank be directed to transfer the assets back to the transferor bank. It appeared to me that the petition raised questions in which the transferee bank and the other share-holders and creditors of the now defunct transferor bank were vitally interested and accordingly I fixed the 17th February, 1948, for the hearing of the petition and directed notice to be served on the transferee bank and also advertisements to be published in the newspapers. The directions have been duly complied with. The transferee bank appears and supports the application while two shareholders of the now defunct transferor bank each claiming to represent several other share-holders oppose the application. No creditor of the transferor bank has appeared before me. 7. The opposing share-holders maintain that no serious or bona fide attempt was made by the transferee bank to obtain the necessary sanction of the Government of India to issue new shares and that this application has been made really at the instance of the transferee bank which now wants to back out of the arrangement. I do not say that the charges are untenable or are not plausible. I do not say that the charges are untenable or are not plausible. What I do say is that it is impossible, on this summary application, to come to any definite finding or conclusion as to the truth or otherwise of these charges and that the Petitioners are, therefore, entitled to the benefit of doubt. In the circumstances, I propose to proceed on the footing that it is a bona fide application and to deal seriatim with the several contentions urged in support of this application. 8. In the first place it is said that the scheme was ultra vires the transferor bank because it had no power in its memorandum to amalgamate with any other concern-This contention does not appear to me to be well founded in view of cl. 3 (I8) of its memorandum. As regards the transferee bank, it had its own memorandum altered so as to enable it to amalgamate with another. This objection has not been seriously pressed. 9. The trnsferee bank in the affidavit of its managing director, Debidas Roy, allege that the scheme was sanctioned by the Court without any notice to the transferee bank and that the transferee bank was induced to agree to the scheme by misrepresentation and suppression of material facts as alleged in the affidavit. These are not grounds on which the petition is based and the opposing share-holders have had no opportunity to deal with these allegations. I do not see how the transferee bank can urge these objections as against the opposing share-holders of the transferor bank who are not alleged to have been implicated in or responsible for the same. Before the scheme was sanctioned by the Court, Debidas Roy, the managing director of the transferee bank, had been co-opted as a director of the transferor bank and as such had access to the books and records of the latter and could have ascertained the true facts on reasonable enquiry before agreeing to the amalgamation. He was present at the meeting of the creditors of the transferor bank. At any rate the transferee bank should not have taken possession of the offices and the assets of the transferor hank and otherwise act upon the scheme and the order sanctioning it without proper and reasonable enquiry. He was present at the meeting of the creditors of the transferor bank. At any rate the transferee bank should not have taken possession of the offices and the assets of the transferor hank and otherwise act upon the scheme and the order sanctioning it without proper and reasonable enquiry. It is now too late for the transferee bank to complain of misrepresentation or want of notice of the application for sanction of the Court. In any case the transferee bank has not made any substantive application or taken any substantive step to ventilate its grievances and I am not prepared to convert this application into one founded on fraud on the basis of allegations made in a supporting affidavit to which the opposing share-holders have had no opportunity to reply. 10. The substantial ground urged in support of this application is to be found in paragraphs 17, 20 and 21 of the petition. It is said that the scheme was proposed and accepted by the share-holders and creditors of the transferor bank and the sanction of the Court was given on the condition that consent would be obtained from the Government of India to the issue of new shares and the two banks entered into the scheme of amalgamation on that footing and that the share-holders of the transferor bank would not have agreed to the scheme except on that footing. It will be noticed that these three material paragraphs in the petition have been verified only as submissions to the Court and not as allegations of fact on which the Court can act. In the affidavit of Debidas Roy reference has been made to the earlier negotiations between the two banks as to the procedure to be adopted for effecting the amalgamation. A draft agreement containing a clause to the effect that it was conditional on the sanction of the Court and on the consent of the Government of India being obtained is said to have been sent by the attorney of the transferee bank to the attorney for the transferor bank for his approval. It is said that the draft agreement was not approved and no formal agreement was at any time executed. It is said that the draft agreement was not approved and no formal agreement was at any time executed. After stating all this it is alleged in paragraph 11 of that affidavit that at all material times it was distinctly understood that the amalgamation which involved the issue of new shares by the transferee bank was conditional on the sanction of the Central Government to issue the necessary shares. What is the implication of this plea ? Does it mean that the obtaining of the Government sanction was a condition precedent to the scheme in the sense that until such sanction was obtained the scheme was not to come into being at all, or does it mean that it was an implied term of the scheme itself that such sanction was to be obtained and that on the failure to obtain it the other terms of the scheme would not be enforceable? The distinction is important, for, in the first case, there is to be no scheme at all until the condition is fulfilled and, in the second case, there is a scheme which provides, by its implied terms, that on the non-fulfillment of the condition the other terms will not be enforceable. It is not quite clear which of these cases is really sought to be made out either in the petition or in the supporting affidavit. If it is intended to convey the idea that the obtaining of Government sanction was an implied term of the scheme itself and that the enforceability of the other terms of the scheme depended on the fulfillment of this term, then there was an effective scheme and the failure to obtain the Government sanction only raises the question of the adjustment of the respective rights under the scheme and there can be no question of setting aside the scheme. If, however, the relevant paragraphs are to be read as meaning and raising the contention that the Government sanction was a condition precedent to any scheme coming into being I am unable to uphold that contention. The reasons are as follows:-- (a) Paragraphs 17, 20 and 21 of the petition are verified not as allegations of fact but as only submissions and the Court cannot act on mere submissions. (b) The scheme is not in terms expressed to be conditional on Government sanction. The reasons are as follows:-- (a) Paragraphs 17, 20 and 21 of the petition are verified not as allegations of fact but as only submissions and the Court cannot act on mere submissions. (b) The scheme is not in terms expressed to be conditional on Government sanction. (c) If the scheme was really conditional in the sense that there was to be no scheme at all until the condition was fulfilled there could be no object in asking for the sanction of the Court to a scheme which was not in being at all. (d) The fact that the managing director of the transferee bank had been co-opted as a director of the transferor bank, had attended the meeting where the scheme was approved and that the transferee bank took possession of the offices and assets of the transferor bank and otherwise acted on the order which ex facie is unconditional indicates that there was no condition precedent to the scheme. (e) There was and is no absolute prohibition against issuing new shares. It can be done with the previous sanction of the Government. Therefore, the undertaking to issue new shares cannot be regarded as a promise to perform an impossibility. The transferee bank may well have thought, for reasons best known to itself, that there would be no difficulty at all in obtaining Government sanction and, therefore, gave an unconditional undertaking to issue new shares. Indeed the opposing share-holders in their affidavits in opposition maintain that they were always given to understand by the directors of the transferee bank that there would be no difficulty in issuing new shares. It may have been rash or imprudent for the transferee bank to agree to issue new shares before making sure of getting the Government sanction but people are at times over confident. 11. It is not enough for the Petitioners to prove that the scheme was conditional in the sense I have mentioned, for they have to get rid of the order of the Court as well. It is said that the order was also conditional on the obtaining of Government sanction. I am unable to accept this contention for the following reasons:-- (a) Paragraphs 17, 20 and 21 of the petition are not allegations of fact. (b) The order of the Court was not expressed to be conditional at all. It is said that the order was also conditional on the obtaining of Government sanction. I am unable to accept this contention for the following reasons:-- (a) Paragraphs 17, 20 and 21 of the petition are not allegations of fact. (b) The order of the Court was not expressed to be conditional at all. (c) The alleged understanding of the parties that the scheme was conditional was not communicated to the Court and no such understanding can be imputed to the Court; (d) under sec. 153A the Court is empowered to provide for the several things therein specified by the order sanctioning the scheme car by my subsequent order and, therefore, if the Court intended to give conditional sanction the Court would not have then and there made any ancillary order as it did; (e) the fact that the Court then and there made an order declaring the scheme binding on the creditors and share-holders of the transferor bank and on the transferor bank and the transferee bank and vesting the assets of the transferor bank in the transferee bank and dissolving the transferor bank clearly indicates that the Court intended to make a final and absolute order not dependent on any condition whatever; (f) there being no absolute prohibition against issuing shares and seeing that the transferee bank had taken upon itself the unconditional obligation to issue new shares there was no occasion for the Court to make any conditional order. 12. The next question is as to the power of the Court to set aside the order. The order has been completed and filed of record. It is well settled ever since Sir George Jessel made an observation in the course of argument in St. Nazaire & Co.'s case L. R. 12 Ch. D. 88 (1879) that the Court can re-hear a matter before its order is drawn up and filed but it cannot, after an order has been perfected, re-hear the matter or alter it. [See Sarupchand Hukumchand v. Madharam Raghumall 28 C. W. N. 755 (1924)]. This is of course subject to the power reserved to the Court by the CPC to correct accidental mistakes or omission. The Code also authorises the Court to review its order in certain circumstances and under certain conditions. The present case does not fall within those provisions. [See Sarupchand Hukumchand v. Madharam Raghumall 28 C. W. N. 755 (1924)]. This is of course subject to the power reserved to the Court by the CPC to correct accidental mistakes or omission. The Code also authorises the Court to review its order in certain circumstances and under certain conditions. The present case does not fall within those provisions. Sometimes a statute expressly authorises the Court to re-hear and modify its own order as in the Presidency Towns Insolvency Act, sec. 8. There is nothing in sec. 153 or sec. 153A or in any other section of the Companies Act which authorises the Court to re-hear a matter. There is no express reservation of liberty to apply in the order itself. It is said that such liberty is implied in the order. If an order is in the nature of a preliminary order liberty to apply may be implied for the purpose of bringing the matter to its final termination. Even in the case of final orders where liberty to apply is expressly reserved it can be availed of to carry out or work out that order But I know of no principle under which a liberty to apply can be implied in an order which, ex facie, is a final order, for the purpose, not of carrying out that order but, of destroying that order by setting it aside. Finally learned Counsel insisted that the Court has an inherent power to prevent miscarriage of justice and do justice between the parties. In Hukumchand Boid v. Kamalanand Singh I. L. R. 33 Cal. 927 (1905) the appeal Court exercised its inherent power, not for setting aside the order of the lower Court, but for ensuring the due performance of the decree that the appeal Court might make in the pending appeal. The case of Staniar v. Evans L. R. 34 Ch. D. 470 (1886) was an action for the administration of a trust. The administration not being complete the Court still had seisin of the matter and the order was made in due course of administration in adjustment of the rights of the parties in the altered circumstances. An administration action stands on an entirely different footing. I do not see how these two cases can have any application to the case before me. An administration action stands on an entirely different footing. I do not see how these two cases can have any application to the case before me. When a scheme is sanctioned by the Court it is final so far as the Court sanctioning it is concerned. As long as the order is not perfected the Court may in exercise of its inherent power re-hear the application for sanction. After the order is completed and filed the Court can do nothing except correcting accidental omissions or mistakes in the order, and in a proper case reviewing the order under the Code. In such circumstances the other remedy of the party aggrieved is to appeal from the order under sec. 153. In a proper case the Court may, for sufficient cause extend the time for preferring the appeal. It is not necessary for me now to say whether a regular suit will lie to set aside a scheme and. if so, on what ground such a suit will lie. In Nicholl v. The Eberhardt Company 61 L. T. 489 (1889) it was held that as long as the order sanctioning the arrangement was not set aside no suit would lie to set aside the scheme. The observations of Cotton, L. J., in that ease indicates that the only way to set aside the order is to appeal therefrom. It appears clear to me, however, that once a scheme is sanctioned and the order granting the sanction has been perfected the Court sanctioning the scheme-has no jurisdiction under the Companies Act to alter or amend the scheme except by way of a fresh scheme. It is significant that there is no provision in the Companies Act similar to sec. 31 of the Presidency Towns Insolvency Act. Further, the fact that the transferor bank has been dissolved and struck off the register creates procedural difficulties as to making a defunct company a patty to any proceeding and as to service of any notice or process on it. The doctrine of the Court's inherent power, like that of public policy, should be sparingly used, for otherwise there is a great risk of all rules of procedure evolved out of the experience and practical wisdom of the past being set at naught by the varying idiosyncracies and notions of justice of individual Judges. 13. The doctrine of the Court's inherent power, like that of public policy, should be sparingly used, for otherwise there is a great risk of all rules of procedure evolved out of the experience and practical wisdom of the past being set at naught by the varying idiosyncracies and notions of justice of individual Judges. 13. The last question is, assuming that there is any inherent power in the Court to set aside a scheme in a proper case, is it a case where this power should be exercised? The only tangible thing in favour of such exercise is that the Government of India have declined to give their consent to the issue of new shares and therefore, the scheme cannot be specifically performed and implemented. As I have said there was and is no absolute prohibition against issuing of new shares. All that is necessary is that the sanction of the Government of India must he secured before new shares are issued. Therefore, it cannot be said that the transferee bank agreed to do an impossible act. It may have been imprudent for it to have entered into an unconditional bargain to issue new shares but that was its own look-out It apparently over-estimated its own influence and capacity and now finds itself unable to carry out its obligations specifically. That appears to me to be no reason for releasing it from the consequences, whatever they may be. of the non-performance of its part of the arrangement. Hardship arising out of one's own want of prudence and foresight can hardly he put forward as a ground for relief from one's undertaking. Further, as against this hardship the Court has to take note of that of the other side. The order has been completed and filed and an office copy of that order has been filed with the Registrar of Joint Stock Companies. The transferor bank has been dissolved and its name has been removed from the register. How can it be resuscitated and brought back to life? The only provision in the Companies Act is sec. 243. That is one of the supplemental provision grouped under the main heading "winding-up" in Part V of the Act and ordinarily applies to a company dissolved in winding-up proceedings under sec. 194. Sec. 153A which is in Part IV provides for dissolution without winding-up and I have grave doubts whether sec. 243. That is one of the supplemental provision grouped under the main heading "winding-up" in Part V of the Act and ordinarily applies to a company dissolved in winding-up proceedings under sec. 194. Sec. 153A which is in Part IV provides for dissolution without winding-up and I have grave doubts whether sec. 243 can have any application to revive a company dissolved without winding-up under sec, 153A. The observations of Viscount Simon in Notes v. Doncaster Amalgamated Collieries, Ltd. L. R. (1940) A. C. 1014 at 1021 certainly strengthen and deepen my doubts. But even assuming that the legal death may be remedied and the transferor bank may be brought back to legal life, can it be revived into active and useful practical life after a period of nine months' suspended animation ? Some parts of its assets have been realised and some of them may have become time-barred for all I know. Ex-penditures have certainly been incurred which perhaps the transferor bank would not have incurred had it managed its own affairs in its own way. Its goodwill is gone. Further, the creditors of the transferor bank may not have taken steps and may have been lulled into inactivity by the knowledge that they could look to a more resourceful company to pay their dues. Therefore, all parties interested in the matter other than the transferee bank may have changed their position and may not now be put back to their original position. On a consideration of all the circumstances I am clearly of opinion that the hardship of others far outweighs the hardship of the transferee bank which has been brought upon it by its own lack of foresight and prudence. For all the reasons stated above this application must be dismissed. The applicants must pay one set of costs to the opposing share-holders. Certified for Counsel.