: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.1 OF 2009 CONNECTED WITH COMPANY APPLICATION NO.1561 OF 2008 Karnataka Malladi Biotics Ltd. ....Petitioner WITH COMPANY PETITION NO.2 OF 2009 CONNECTED WITH COMPANY APPLICATION NO.1562 OF 2008 Emmellen Biotech Pharmaceuticals Ltd. ....Petitioner Mr.D.J. Khambata, Senior Counsel with Mr.Rajesh Shah i/b M/s.Rajesh Shah & Co. for the Petitioners. Mr.C.J. Joy with Mr.N.D. Sharma i/b Mr.S.K.Mohapatra for Regional Director. Mr.S. Ramakantha, Deputy Official Liquidator present. CORAM : S.J. VAZIFDAR, J. DATED : 24TH MARCH, 2009. P.C. : 1. The Petitioners seek the sanction of the Court to a scheme of amalgamation of the Petitioner in Company Petition No.1 of 2009 viz. Karnataka Malladi Biotics Ltd., the transferor company with the Petitioner in Company Petition No.2 of 2009 viz. Emmellen Biotech Pharmaceuticals Ltd., the transferee company. : 2 : 2. The Petitioners are part of the same group. According to the Petitioners, the transferor company has been incurring losses for many years and has been dependent on the transferee company for meeting its financial resources. The reconstruction, it is contended, would benefit the companies and its stakeholders for various reasons including integration of operations, administrative, operative and financial costs and a large asset base and increased capacities with sufficient scope for future expansion of the merged entity. Upon amalgamation the transferee company is to allot the members of the transferor company one fully paid up redeemed preferential share of the face value of Re.1/- in the transferee company for every fully paid up equity share of the face value of Rs.10/- held in the transferor company. 3. Company Application Nos.1561 of 2008 and 1562 of 2008 were taken out by the transferor company and transferee company respectively. 4(A). By an order dated 21.11.2008, the transferor company was directed to convene a meeting of the equity shareholders. A meeting of the preferential shareholders and of the unsecured creditors was dispensed with. However, notices of the final hearing : 3 : of the Petition were directed to be served on the unsecured creditors by R.P.A.D. (B). At the meeting the equity shareholders approved the scheme unanimously. (C). The present Petition was thereafter filed and directions for publication of notice regarding the hearing of the Petition were issued. The advertisements were duly published. 5. By an order dated 21.11.2008 in Company Application No.1562 of 2008 taken out by the transferee company, the meetings of the equity shareholders secured creditors and unsecured creditors were dispensed with. The transferee company was however directed to give individual notices of the hearing of the Petitions to the secured and unsecured creditors by R.P.A.D. The equity shareholders of the transferee company had already given their consent to the scheme being sanctioned. The notice setting out the date of the hearing of the Petition has been published as directed. 6. The entire procedure has been complied with. There is no opposition to the scheme being sanctioned by the members and creditors of the companies or from : 4 : any other person. 7. The Official Liquidator has filed a common affidavit in both the Company Petitions stating that the affairs of the transferor company have been conducted in a proper manner and that the transferor company may therefore be ordered to be dissolved by this Court. 8. The Regional Director has filed an affidavit stating that save and except what is stated in paragraph 6 thereof, the scheme is not prejudicial to the interest of the shareholders and the public. Paragraph 6 reads as under :- "6. That the Deponent further submits that, that from the financial statements for the financial year 2007-2008, it appears that there is a prima-facie violation of section 295 and 297 of the Companies Act, 1956 by the Transferor and Transferee Companies. The Registrar of Companies has been directed to initiate the necessary penal action for the said violations. The Directors of the Transferor and Transferee Companies vide their affidavits dated 21.1.2009 undertake to make an application for compounding the contravention of Section 295/297, if any of the Companies Act, 1956. The above facts being material with respect to affairs of the Company are brought to the notice of this Hon’ble Court. . Save and except as stated in para 6, it appears that the Scheme is not prejudicial to the interest of shareholders and public. In the light of aforesaid facts the Hon’ble Court may : 5 : pass such order as deem fit and proper." 9. It must be mentioned at the out-set that it was not contended that the violations of Sections 295 and 297 of the Companies Act affect or prejudice the scheme as such. Nor was it contended that the scheme has been proposed mala-fide or for the benefit of any particular person or persons, firm or company. 10. I have delivered a judgment today in Company Petition Nos.382 of 2008 and 383 of 2008 holding that a mere violation of the provisions of Sections 295 and 297 of the Companies Act would not warrant a rejection of a scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956. 11. Besides the fact that paragraph 6 of the affidavit of the Regional Director does not give any particulars, in order to be satisfied that the scheme is bona-fide, I requested Mr.Joy, the learned counsel appearing on behalf of the Regional Director to indicate the violations. He submitted that certain loans aggregating about to Rs.1.2 crores had been granted by the transferee company to certain entities in which some of the directors were interested. The directors have undertaken to make an application for compounding the contraventions. : 6 : 12. In a given case, depending on the nature or extent of the violation and the purpose of the scheme, sanction thereto may well be denied, if it is found that the scheme itself was to protect such violation of the provisions of Sections 295 or 297 or was in furtherance of a larger scheme in respect thereto. There is however nothing of that nature in the present case. Even assuming that there is a violation, I do not find the scheme to be tainted. Nor do I find the scheme to be fraudulent. 13. It was contended that three of the directors of the transferee company had on account of violation of the provisions of Sections 295, vacated their office as directors in view of the provisions of Section 283(1)(h) of the Companies Act. 14. Firstly, this contention has not been raised in the affidavit. In any event, even assuming that three of the directors are deemed to have vacated their offices, it would make no difference in the facts of the present case. There is no violation on the part of the transferor company. 15. In this regard what was contended was that the Board of Directors of the transferee company had : 7 : at a meeting held on 13.10.2008 resolved that the scheme of amalgamation be made. The contention is that the resolution itself is bad as three of the directors had incurred disqualification under Sections 283(1)(h) of the Companies Act. The said meeting of the Board of Directors was attended by five directors only two of whom had incurred disqualification. Thus in any event, three directors who were validly appointed and continued in office were present. The presence of these three directors constituted the requisite quorum under Article 41 of the Articles of Association of the transferee company. Article 41(d) reads as under :- "41(d). The quorum for a meeting of the Board shall be two Directors or one-third of its total strength (any fraction of that one-third rounded as one) whichever is greater, as provided for in Section 287 of the Act." . There were a total six directors of the transferee company at the relevant time. Thus the necessary quorum was only two directors and three directors validly appointed had attended the meeting. 16. Even assuming that the necessary quorum was not there at the said meeting on account of the alleged disqualification of any of the directors, the resolution would be saved by virtue of Section 290 of : 8 : the Companies Act. In this case too, there is nothing to indicate that the concerned directors were conscious of their disqualification on the date of the resolution dated 13.10.2008. 17. It is however, clarified that the mere sanction to the scheme would not absolve the directors or any other person of any liability or prosecution for the said violations of Sections 295 and 297. 18. In the circumstances, Company Petition No.1 of 2009 is made absolute in terms of prayers (a) to (e). Company Petition No.2 of 2009 is also made absolute in terms of prayers (a) to (d). 19. The Transferee Company to lodge a copy of this order and the scheme with concerned Superintendent of Stamps for the purpose of adjudication of stamp duty payable, if any, on the same within thirty days of obtaining the authenticated and/or certified copy of the order. 20. The transferee company to pay costs of Rs.7500/- each to the Regional Director and to the Official Liquidator, High Court, Bombay. The transferor company to pay costs of Rs.7500/- to the Regional Director. Costs to be paid within four weeks : 9 : from today. 21. Filing and issuance of the drawn up order is dispensed with. . All concerned authorities to act on a copy of this order duly authenticated by Company Registrar, High Court, Bombay.