1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO. 99 of 2009 IN COMPANY APPLICATION NO. 1552 OF 2008 Sequent Scientific Limited a company incorporated under the Companies Act, 1956 having its registered office at 201, Devavrata Sector 17, Vashi, Navi Mumbai 400 703. ....Petitioner/ Transferor Company WITH COMPANY PETITION NO. 100 OF 2009 IN COMPANY APPLICATION NO. 1553 of 2008 . P.I.Drugs & Pharmaceuticals Ltd. a company incorporated under the Companies Act, 1956 having its registered office at 116, Vardhaman Industrial Complex, L.B.S.marg, Thane (West)- 400 601. ....Petitioner/ Transferee Company Mr. Virag Tulzapurkar along with Ms. Alpana Ghone and Mr. Chirag Mody i/b DSK Legal for the Petitioners. 2 Mr. Janak Dwarkadas, Sr. Counsel i/b. Malvi Ranchoddas & co. for the Intervenors Mr. M. Chandanamuthu, Dy. Official Liquidator in C.P. No.99 of 2009 and 100 of 2009. M.S.Bhardwaj i/b. S. K. Mohapatra for Regional Director in both the Company Petitions. CORAM:- A.M.KHANWILKAR, J DATED:- June 16, 2009. JUDGMENT These Petitions are filed by the Transferor and Transferee company to obtain sanction of this Hon’ble Court to the scheme of amalgamation whereby the entire undertaking of the Transferor company Sequent Scientific Ltd. shall stand transferred and vested in or deemed to be transferred and vested in Transferee company (P.I. Drugs) and form part of the business of the Transferee company and to obtain order under Section 394 of the Companies Act inter alia for vesting the said undertaking of the Transferor company in the Transferee company without any further act or deed and for dissolution of the Transferor company without winding up. 2. The Transferor company was originally incorporated on 16/8/2002 in the name and style of Strides Research and Specialty Chemicals Limited (“SRSCL”). However, after compliance of all necessary formalities under Section 21 of the Act, the name of the company was changed to Sequent Scientific Ltd. (“SSL”) w.e.f. September 18, 2006. The Transferor Company 3 carries on business in the human health care segment and has invested significantly into strong Research and Development Team and facilities. It is engaged in the business of Specialty and Fine chemicals, contract manufacturing, contract research and development, outsourced drug discovery services and custom synthesis and API’s. As on 31/3/2008 the authorised share capital of the Transferor company was Rs. 50,00,000 equity shares of Rs. 10/ each in the value of Rs. 5,00,00,000/-. The issued, subscribed and paid up capital of the Transferor company is 38,50,000 equity shares of Rs. 10/ each valued at Rs. 3,85,00,000/-. However, as on the date of filing of the Petition, the share capital of the Transferor company is stated to be authorised share capital of 50,00,000 equity shares of Rs. 10/- valued at Rs. 5,00,00,000/- and issued, subscribed and paid up capital of 43,50,000 equity shares of Rs. 10/- valued at Rs. 4,35,00,000/-. It is stated that the shareholders of the Transferor company as on the date of the filing of the Petition were Fraxis Life Sciences Pvt. Ltd. including its nominees holding 38,50,000 shares and Primera Partners Pvt. Ltd. holding 5,00,000 shares. 3. It is stated that the Transferee company was originally incorporated on June 28, 1985 under the provisions of the Companies Act in the name and style of Visistha Traders and Finance Ltd. Pursuant to order dated September 23, 2003 passed by this Court, an erstwhile unlisted company, PIDPL (Transferor company) was amalgamated with the said Visistha Traders and Finance Ltd.. After following necessary procedure the name of the company was changed to P.I. Drugs and Pharmaceuticals Ltd. It is stated that the Transferee company is a manufacturer and exporter of specialized quality formulations and bulk drugs in the human and animal healthcare segment. As on 31st March, 2008 the share capital of the Transferee company is mentioned as authorised capital 4 1,50,00,000 equity shares of Rs. 10/- each valued at Rs. 15,00,00,000/- and issued, subscribed and paid up capital of 1,10,85,191 equity shares of Rs. 10/ - each valued at Rs. 11,08,51,910/- It is stated that as on the date of filing of the present Petition no change in the share capital of the Transferee company has been effected. 4. The Transferor company proposed to enter into a scheme of amalgamation with the Transferee company. It is stated that scheme has been approved by the Board of Directors of the Transferor company at its meeting held on August 8, 2008. Similarly, the scheme has been approved by the Board of Directors of the Transferee company at its meeting held on August 8, 2008. Thereafter, the Transferee company by letter dated September 10, 2008 submitted the proposed scheme for approval of the Bombay Stock Exchange Ltd. The Bombay Stock Exchange vide letter dated October 1, 2008 has given their no objection to the proposed scheme. The Petition also reproduces the circumstances to justify the proposed scheme. The Petitioners assert that the scheme shall be effective from the appointed date as contemplated in the scheme or such other date as this Hon’ble Court may direct. It is further stated that the Transferee company has also obtained valuation report in respect of the Share Exchange Ratio from Deloitee Touche, Tohmatsu India Pvt. Ltd. dated August 6, 2008. Further, as required by Clause 24 of the Listing Agreement of the Transferee company, both the Petitioner/Transferor company and the Transferee company appointed Chartered Capital and Investment Ltd. as merchant bankers for giving fairness opinion or the valuation report. It is stated that upon the scheme being sanctioned the Transferor company will be dissolved without winding up in accordance with provisions of Section 394 of the Act as stated in Clause 12 and 13 of the Scheme. 5 5. The Petitioners took out summons for directions being Company Application No. 1552/2008 and 1553/2008 respectively. By order dated November 21, 2008, this Hon’ble Court dispensed with the meeting of the equity shareholders of the Transferor company since all the shareholders had given their consent. However, directed the Transferor company to hold meeting of secured creditors and unsecured creditors for the purposes of considering and if thought fit approving with or without modification the arrangement enrolled in the scheme of January 3, 2009 at the appointed time and place. In so far as the Transferee company is concerned, this Hon’ble court directed the Transferee company to hold meetings of its equity shareholders, secured creditors and unsecured creditors for the same purposes on January 3, 2009 at the appointed time and place. 6. Pursuant to the directions of the High Court the Transferor company gave individual notices to the secured and unsecured creditors to attend the scheduled meeting. It is stated that in the meeting of secured creditors, 3 secured creditors remained present and voted for the scheme. The secured creditors in value who voted for the scheme is stated to Rs. 33,07,81,650/- who unanimously approved the scheme. In so far as the meeting of unsecured creditors, in all 47 unsecured creditors attended the meeting. Out of them 36 unsecured creditors voted for the scheme in the value of Rs. 2,49,26,083/-. Two unsecured creditors voted against the scheme in the value of Rs. 54,22,000/-. Votes given by 9 unsecured creditors was declared invalid in value of Rs. 5,57,35,167/-. It is stated that the unsecured creditors in their meeting approved the scheme by requisite majority in number representing more than 3/4th in value of unsecured creditors of the Transferor company. 6 7. In so far as Transferee company is concerned, it is stated that meeting of equity shareholders was attended by 20 shareholders in person or proxy or by way of authorised representative. Out of them 18 voted for the scheme in value of 7,35,64,030/-. None of the shareholders voted against the scheme. Votes given by the two shareholders was declared invalid in the value of 12,270/-. It is stated that out of 20 shareholders, 13 equity shareholders had attended the meeting in person. In so far as the meeting of secured creditors, it is stated that the same was attended by the 3 secured creditors and all the 3 unanimously voted in favour of the scheme in the value of Rs. 8,26,28,592/-; whereas in the meeting of unsecured creditors, 22 unsecured creditors attended the meeting. Out of them, 15 voted for the scheme in the value of Rs. 1,48,17,402/-. None of the unsecured creditors voted against the scheme. However, votes of 7 unsecured creditors was declared invalid in the value of Rs. 26,21,29,306/-. It is stated that the scheme has been approved by the requisite majority in number representing more than 3/4th share in value of the unsecured creditors of the Transferee company. 8. In this background, the Petitioners have approached this Court for the sanction of the arrangement embodied in the scheme by the members of the Transferor and Transferee company so as to be binding on all the members and shareholders of the respective companies. The Petitioner asserts that no one will be prejudiced if the scheme is sanctioned and the sanction of the scheme will be in the interest of Transferee company, Transferor company, the general public and all concerned for which reason it is just and equitable that the scheme is sanctioned as the same is bound to benefit both the companies. 9. The Regional Director, Western Region, Ministry of Corporate Affairs 7 has stated on affidavit that the scheme is not prejudicial to the interest of shareholders and public and the Court may pass such orders as it deems fit and proper. Having noticed that all necessary compliances have been made by the respective companies with assurance to comply all consequential formalities, even the Official Liquidator has submitted report regarding consent for sanction of the proposed scheme of amalgamation. No other shareholder or creditor has come forward to oppose these Petitions. The only objection registered is by M/s. CIBA (India) Ltd. by filing affidavit of Jimeasow-the Constituted Attorney of the Intervenor. In the reply affidavit the Intervenor has stoutly disputed the correctness of the stand taken by the Petitioners in Paragraph 37 of the Petition- that no one will be prejudiced if the scheme is sanctioned. According to the Intervenor, the said statement is false and/or irresponsible statement. In that, the Scheme proposes to transfer the undertaking of the Transferor company in favour of Transferee company and the word undertaking inter alia includes benefits of agreements, contracts and arrangements as defined in clause 1.9 of the said scheme. It is then stated that CIBA (India) Ltd. then known as CIBA Specialty Chemicals (I) Ltd. had entered into Supply Agreement dated 18/5/2006 with the Transferor company, then known as Strides Research and Specialty Chemicals Ltd. The affidavit then refers to some of the clauses of the said Supply Agreement amongst others clauses 1(a), 1(f), 1(j), 2-4(a) to (c), 8-11(a) to (c), 12(a) to (f), 17(a) to (d), 19 and 23. Relying on these provisions it is stated that the Supply Agreement is subsisting and will expire automatically on 31/12/2010. It is stated that the said agreement has not been terminated by either party. Further, clause-23 of the agreement provides that the Transferor company is bound not to assign whole or in part, its rights and obligations under the said agreement without the prior written consent of the Intervenor CIBA (India) Ltd. It s stated that the Transferor company has not approached the 8 Intervenor seeking such consent nor has the Intervenor has given its consent to the Transferor company to assign or transfer in whole or in part of its rights and its obligations under the said Supply Agreement to any third party including the Transferee company. It is then stated that the object of the present Petition filed by the Transferor company is to obtain sanction of this Court to the scheme of arrangement whereby the entire undertaking of the Transferor company on the appointed date by simultaneous transfer would vest in the Transferee company. This scheme would come into operation subject to the approval accorded by the Board of Directors of the two companies and more particularly on account of the Courts sanction order to be passed on these Petitions. It is stated that it is well established position in law that such transfer is not an involuntary transfer effected by an order of the Court. For that reason, having regard to clause 4(c) and 23 of the said Supply Agreement the technology whether provided by Intervenor CIBA (India) Ltd. or developed by Transferor company shall exclusively belong to Intervenor company CIBA (India) Ltd. and is non- transferable, in view of the prohibition on Transferor company from assigning in whole or in part its rights and obligations under the Supply Agreement without the prior written consent of the Intervenor company. It is then stated that it has now come to the notice of the Intervenor company that recently the Transferor company has already approached the only two upstream customers of CIBA in India and has offered to sell the said product PEPQ either directly or through a company called Qualichm Specialists Pvt. Ltd. As a result the Transferor company has or is likely to commit a breach of the Supply Agreement. It is stated that the Intervenor company has been advised to take recourse to appropriate proceedings in that behalf and is opposing the scheme proposed by the Transferor company without prejudice to its rights to take recourse to separate action against the Transferor company for committing breach of the 9 said Supply Agreement. It is further stated that as per the Supply Agreement the Intervenor company has provided the technology for manufacture of PEPQ and to sell the same exclusively to the Intervenor CIBA. That the Supply Agreement clearly defines as to what technology means in clause 1(j) thereof and that the Transferor company has confirmed in the Supply Agreement having received from Intervenor the technology necessary for manufacture of PEPQ and it is further agreed and recorded in the Supply Agreement that all right, title and interest and additions and improvement thereof whether provided by Intervenor CIBA to the Transferor company or developed by the Transferor company during this term of the said agreement shall belong solely to the Intervenor company CIBA and technology provided by Intervenor CIBA to the Transferor company is non-transferable by them. It is lastly asserted that if the proposed scheme is sanctioned, it would indirectly transfer the said technology belonging to Intervenor CIBA to the Transferee company which is prohibited under the said Supply Agreement. On these basis the prayer for sanction of scheme have been opposed. 10. The Transferor company has filed rejoinder affidavit contesting the stand taken by the Intervenor company. The Counsel appearing for the respective parties have advanced legal arguments more or less on the basis of the plea taken in the affidavits filed before this Court. 11. Having considered the rival submissions, the first question that needs to be addressed is: whether the Intervenor has locus to appear in the present proceedings and in any case to object to the proposed scheme. There is force in the stand taken by the Petitioner companies that Section 391 plainly recognizes that it is only the creditors and shareholders who are expected to participate in 10 consideration of proposed scheme of amalgamation. The Intervenor is neither a shareholder nor the creditor of the Transferor company. Thus understood, the Intervenor cannot be heard to raise any objection with regard to the proposed scheme. 12. Assuming that the Intervenor has locus, having regard to the fact that it has executed Supply Agreement with the Transferor company under which the Transferor company is obliged to discharge its obligation specified therein. Even so, the question is whether the objection of the Intervenor can be addressed at this stage of the proceedings. The objection essentially is in the nature of grievance about breach of or likelihood of breach of conditions of Supply Agreement operating between the Intervenor and the Transferor company. The Counsel appearing for the Transferor company has rightly pressed into service decision of the Delhi High Court as well as of the Calcutta High Court to contend that the Intervenor company as of now has no cause of action to resist the proposed scheme. The fact that on account of the scheme coming into force, there is likelihood of breach of some contractual terms between the Intervenor company and the Transferor company cannot be the basis to consider the efficacy and the justification for introducing proposed scheme of amalgamation. In the case of Telesound India Ltd. reported in (1983) 53 Company cases 926 Delhi. In Paragraph 16 of the said decision, while considering similar grievance the Court observed thus: “This court is, however, not concerned at this stage if the transfer by or consequent on amalgamation by the order of the court would nevertheless be tantamount to the assignment of a tenancy and if without the consent of the landlord would render the company or the transferee-company liable to eviction under s. 14(1)(b) of the Rent Control Act or otherwise be 11 actionable in a regular civil action against them. Such a matter has to be examined and decided in accordance with the special jurisdiction created by that Act or on a regular civil action, if maintainable. No cause of action accrues to the landlord before the amalgamation and consequential vesting. The cause of action, if any, follows the amalgamation and the vesting. Neither the amalgamation nor the vesting would deprive the landlord of any please based on alleged assignment which may be open in law to the landlord. If there is any assignment in law, which may attract the provisions of the Delhi Rent Control Act, the landlord would be free to take recourse to the proceedings under that Act or in a regular civil action and such proceedings would be dealt with and decided by the appropriate authority in accordance with law.” 13. On similar lines, the Calcutta High Court in the case of Sailendra Kumar Roy & ors. v/s. Bank of Calcutta Ltd. reported in AIR 1948 Calcutta page 131 in Paragraph 14 & 15 observed thus: “14. In order to find an answer to that question, it is not necessary to go beyond Section 153A, Companies Act. That section pre-supposes that an application has been made to the Court under Section 153 for the sanctioning of a compromise or arrangement and enacts that the Court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for certain matters, provided two conditions are satisfied. The first condition is, to quote only the material part, that it is shown – that the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for .... the amalgamation of any two or more companies. It is to be observed that up till then, the compromise or arrangement has only been proposed. The second condition is that it is shown that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as the transferor-company) is to be transferred to another company (in this section referred to as ‘the transferee company’). It is again to be observed that up till then the property is only to be transferred. There is yet no completed transfer. The section goes on to say that if the 12 conditions mentioned above are satisfied, the Court may, by its order sanctioning the scheme or a further order, provide inter alia for : (a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company. 15. It is to be ordered that the section does not merely say, as does Order 23, Rule 3 in the case of compromises of suits, that the Court “shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith” but directs the making of a further order by the Court on its own account for the transfer of assets in addition to sanctioning the scheme. Even then, it is not left to the order itself to effectuate the transfer by its own force as an order of the Court. It is provided further by Sub-section (2) of the section that : Where an order under this section, provides for the transfer of property..... that property shall, by virtue of the order, be ‘transferred to and vest in .... the transferee company. There, at last, the transfer is accomplished: and the clear statutory provision is that it takes place by virtue of the order passed by the Court. It does not take place by an assignment by the transferor company, for that company makes no assignment at all, either in substance or in form. It only makes a proposal and submits it to the Court. Nor does the transfer take place by the scheme as sanctioned by the Court, so that it may be said that what happens is only that to the scheme, the sanction of the Court is superadded as in the case of ordinary compromise decrees. The actual transfer is brought by the further order, operating with the force conferred on it by Sub-section (2) of Section 153A, Companies Act. In other words, it is a transfer otherwise than by assignment.” 14. It necessarily follows that the issue raised by the Intervenor that if the scheme is sanctioned, it may indirectly facilitate transfer of the technology belonging to the Intervenor company to the Transferee Company inspite of 13 prohibition in the Supply Agreement, cannot be countenanced. If the sanction results in that situation, it is for the Intervenor company to consider the course of action either permitted by the written contract or such other remedy in common law, as may be advised. Those proceedings will have to be considered on its own merits. I refrain to express any opinion with regard to the correctness of the stand taken by the Intervenor one way or the other. All questions in respect of the said plea are left open and will have to be addressed at the appropriate stage. 15. From the affidavit as filed and the argument canvassed by the Intervenor, the thrust of the objection is that on according sanction to the proposed scheme it would inevitably result in transfer of the rights and obligations contained in the Supply Agreement by the Transferor company in favour of the Transferee company without the consent of the Intervenor. That transfer is not an involuntary transfer, but by choice. In that, the Board of Directors in the first place propounded the scheme of amalgamation which was then approved by the shareholders as well as the secured and unsecured creditors. It is only thereafter the company instituted the present petition which was also a voluntary act. Merely because the Court has accorded sanction does not result in an involuntary transfer. 16. To buttress this submission, reliance was placed on decisions of the Apex Court in the case of General Radio and Appliances Co. Ltd. & ors. v/s. M.A. Khader (Dead) by LRs. reported in (1986) 2 SCC page-656, Singer India Ltd. v/s. Chander Mohan Chadha & ors. reported in (2004) 7 SCC page 1. These decisions deal with the question as to whether the transfer of tenancy emanating from the sanction of a scheme of amalgamation is in the nature of voluntary transfer or involuntary transfer. In these decisions the Apex Court no 14 doubt has expounded that on account of the scheme of amalgamation the tenancy rights in respect of premises in question stood transferred in favour of the Transferee company; it then proceeded to observe that by no standard, such transfer can be said to be involuntary transfer. However, what is significant to note is that the Court was called upon to examine the core question as to whether such transfer is prohibited “within the