Case: Associated Aluminium Industries (P) Limited Vs. The Registrar of Companies, Mumbai

licence agreement with prior written approval of the licensor to be granted on fulfillment of the condition, inter alia, that amalgamation or restructuring is sanctioned and approved by the High Court or Tribunal as per the law in force. The Department of Telecommunications guidelines provided that prior approval of the Department of Telecommunications shall be necessary for merger of the licence, that consequent upon the merger of licences in a service area, the postmerger licensee entity shall be entitled to the total amount of spectrum held by the merging entities, subject to the condition that after merger, the licensee shall meet, within a period of 3 months from date of approval of merger by the licensor, the prevailing spectrum allocation criterion, that any permission for merger shall be accorded only after completion of 3 years from the effective date of licences. Neither in the merger applications nor in the demerger applications were copies of licences or the Merger Guidelines 2008, or the correspondence exchanged between the appellant and the Department of Telecommunications placed on record. The High Court sanctioned the scheme of amalgamation which provided that overlapping licences would be transferred in accordance with the scheme of demerger. Upon the merger scheme being sanctioned by the Court, overlapping licences stood vested in the appellant and that the Department of Telecommunications had no other option but to grant its formal approval for transfer of licences. The Department of Telecommunications, however, refused permission and on the ground that the amalgamation of Spice with the appellant was resorted to without the knowledge or taking consent of or notice of the proceedings to it, moved an application for recall of the orders of sanction and demerger of the two companies. The Learned Single Judge held, by notifying that a communication from the Department of Telecommunications to appellant that merger and demerger as proposed was impermissible as some of the overlapping licences were less than 3 years old was suppressed from the Court when the matter was argued and judgment reserved, that sanction to the scheme had been obtained by fraud. The Court, however, instead of recalling the order granting sanction, modified it to bring the sanctioned scheme in conformity with the licence and Merger Guidelines, 2008 to the effect that the six overlapping licences of Spice would not stand transferred to or vested in the appellant till prior permission of the Department of Telecommunications was obtained but would stand vested with the Department of Telecommunications and that the spectrum allocated for such overlapping licences shall also forthwith revert to the Department of Telecommunications.15. The Division Bench upheld this conclusion of the Learned Single Judge with some minor modifications. The facts in the applications being heard are totally different. At one point, Shri Sethi tried to suggest that the application dated 9th March, 2016 of Transferee to Chief Engineer, Maharashtra State Electricity Distribution Company Limited (MSEDCL) is still pending disposal and hence the windmill business has not yet been transferred to Transferee and the Scheme is conditional upon the requisite approval being received from various authorities as mentioned in Clause 20 (a) (ii) of the scheme.16. In my view, this submission of Shri Sethi is of no assistance to applicants because if this permission was a condition precedent for carrying on windmill business by Transferee, Transferee would not have made the Scheme effective by filing Form 21 alongwith copy of the order and Scheme with the Registrar of Companies on 15th October, 2013. The fact that Transferee has already started showing revenue from windmill business in its accounts and has started filing income tax returns also belies the submissions of Shri Sethi that the pendency of the application before the Chief Engineer, MSEDCL means the windmill business has not yet been transferred to Transferee. Shri Sethis submissions further cannot be accepted because Transferee took almost three years to file this application dated 9th March, 2016 before the Chief Engineer, MSEDCL for sanction. If what Shri Sethi stated was correct, Transferee would have applied to MSEDCL before making the Scheme effective or soon thereafter.17. Shri Sethi also relied upon a judgment of High Court of Punjab and Haryana in re : Highway Cycle Industries Limited and Anr. (2003) 115 Comp Cas 260 (P & H)to submit that the Courts have allowed even shifting of the transfer date which, according to Shri Sethi, is much more a serious issue than what applicants are seeking in the present two applications. I am afraid, it is like comparing apples with oranges. Each application has to be considered in its own merits and conclusion arrived at.It should be noted that when an order sanctioning a scheme under Section 391 of the Act is passed, it operates in rem. It affects the rights of several persons including creditors, investors, etc. and also creates liabilities in favour of persons like the Income Tax Authorities. These rights and liabilities became vested once the scheme becomes effective. The windmill business was transferred to Transferee and the Scheme was made effective by Transferee by filing Form 21 with the Registrar of Companies, Transferee having started earning revenue and having filed income tax returns, undoubtedly created rights and liabilities in favour of the Income Tax Authorities.18. It should be noted that Transferee has filed returns for 3 years before this applications were filed. Therefore, these applications are not just for a simple or minor modification of the scheme. If the Court grants the prayers as sought, the net effect would be of recalling the order sanctioning the Scheme to the extent of windmill business. Just because certain tax benefits have been lost does not mean that the Scheme is not workable. Hence no modifications are required. If the reliefs as sought are granted, would effectively amount to tampering with the essence of the scheme which is impermissible. The basic fabric of the Scheme would change and will go beyond the confines of what the Court while sanctioning the Scheme understood in the provisions of the Scheme.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. Section 392, therefore, makes it clear that after the Court sanctions a compromise or an arrangement under Section 391 of the Act, it has power to supervise the carrying out of the compromise or an arrangement. The Court may also give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement and it may make an order winding up the company if it satisfied that a compromise or an arrangement under Section 391 of the Act cannot be worked satisfactorily with or without modifications. Section 392 codifies the power of the Court to deal with the Scheme post sanction. Therefore, the Companies Act specifically prescribes the powers vested in the Court once the Scheme is sanctioned by the Court. Section 392 shows that the Act empowers the Court to give directions and allow modifications in the compromise or arrangement but has not given any powers to the Court to recall/rescind/cancel the order sanctioning the compromise or arrangement. If at all the Court is satisfied that the compromise or arrangement sanctioned under Section 391 of the Act cannot be worked satisfactorily with or without modifications, the Court can suo motu or on the application of any person interested in the affairs of the company, make an order winding up the company.Therefore, once a scheme is sanctioned and made effective, the changes allowed therein should be minor ones and not wholesale changes which would tamper with the essence of the scheme and if a company desires to modify a sanctioned scheme, though not necessary to do so for the proper working thereof, it is required to follow the procedure prescribed under Section 391 of the Act.I also find support from the judgment of this Court in Unique Delta Force (Supra). In Idea Cellular Limited (Supra), which Shri Lohia placed for Courts consideration, the facts were entirely different. There appellant, Idea, was the holder of a cellular mobile telephone service licence granted to it by the Department of Telecommunications in the service areas of Haryana, Maharashtra, Andhra Pradesh and Delhi. Spice was a telecom service provider in the service areas of Punjab and Karnataka. The licence stipulated that the licensee may transfer or assign the licence agreement with prior written approval of the licensor to be granted on fulfillment of certain conditions. The unified access service licence provided that any change in shareholding shall be subject to all applicable statutory permissions, that no single company/legal person, either directly or through its associates, shall have substantial equity holding, i.e., 10 per cent or more in more than one licensee company in the same service area for the access services. The licence also provided that the licensee shall not, without the prior written consent of the licensor, either directly or indirectly, assign or transfer the licence to a third party or enter into any agreement for sublicence or partnership, that the licensee may transfer or assign the licence agreement with prior written approval of the licensor to be granted on fulfillment of the condition, inter alia, that amalgamation or restructuring is sanctioned and approved by the High Court or Tribunal as per the law in force. The Department of Telecommunications guidelines provided that prior approval of the Department of Telecommunications shall be necessary for merger of the licence, that consequent upon the merger of licences in a service area, the postmerger licensee entity shall be entitled to the total amount of spectrum held by the merging entities, subject to the condition that after merger, the licensee shall meet, within a period of 3 months from date of approval of merger by the licensor, the prevailing spectrum allocation criterion, that any permission for merger shall be accorded only after completion of 3 years from the effective date of licences. Neither in the merger applications nor in the demerger applications were copies of licences or the Merger Guidelines 2008, or the correspondence exchanged between the appellant and the Department of Telecommunications placed on record. The High Court sanctioned the scheme of amalgamation which provided that overlapping licences would be transferred in accordance with the scheme of demerger. Upon the merger scheme being sanctioned by the Court, overlapping licences stood vested in the appellant and that the Department of Telecommunications had no other option but to grant its formal approval for transfer of licences. The Department of Telecommunications, however, refused permission and on the ground that the amalgamation of Spice with the appellant was resorted to without the knowledge or taking consent of or notice of the proceedings to it, moved an application for recall of the orders of sanction and demerger of the two companies. The Learned Single Judge held, by notifying that a communication from the Department of Telecommunications to appellant that merger and demerger as proposed was impermissible as some of the overlapping licences were less than 3 years old was suppressed from the Court when the matter was argued and judgment reserved, that sanction to the scheme had been obtained by fraud. The Court, however, instead of recalling the order granting sanction, modified it to bring the sanctioned scheme in conformity with the licence and Merger Guidelines, 2008 to the effect that the six overlapping licences of Spice would not stand transferred to or vested in the appellant till prior permission of the Department of Telecommunications was obtained but would stand vested with the Department of Telecommunications and that the spectrum allocated for such overlapping licences shall also forthwith revert to the Department of Telecommunications.15. The Division Bench upheld this conclusion of the Learned Single Judge with some minor modifications. The facts in the applications being heard are totally different. At one point, Shri Sethi tried to suggest that the application dated 9th March, 2016 of Transferee to Chief Engineer, Maharashtra State Electricity Distribution Company Limited (MSEDCL) is still pending disposal and hence the windmill business has not yet been transferred to Transferee and the Scheme is conditional upon the requisite approval being received from various authorities as mentioned in Clause 20 (a) (ii) of the scheme.16. In my view, this submission of Shri Sethi is of no assistance to applicants because if this permission was a condition precedent for carrying on windmill business by Transferee, Transferee would not have made the Scheme effective by filing Form 21 alongwith copy of the order and Scheme with the Registrar of Companies on 15th October, 2013. The fact that Transferee has already started showing revenue from windmill business in its accounts and has started filing income tax returns also belies the submissions of Shri Sethi that the pendency of the application before the Chief Engineer, MSEDCL means the windmill business has not yet been transferred to Transferee. Shri Sethis submissions further cannot be accepted because Transferee took almost three years to file this application dated 9th March, 2016 before the Chief Engineer, MSEDCL for sanction. If what Shri Sethi stated was correct, Transferee would have applied to MSEDCL before making the Scheme effective or soon thereafter.17. Shri Sethi also relied upon a judgment of High Court of Punjab and Haryana in re : Highway Cycle Industries Limited and Anr. (2003) 115 Comp Cas 260 (PH)to submit that the Courts have allowed even shifting of the transfer date which, according to Shri Sethi, is much more a serious issue than what applicants are seeking in the present two applications. I am afraid, it is like comparing apples with oranges. Each application has to be considered in its own merits and conclusion arrived at.It should be noted that when an order sanctioning a scheme under Section 391 of the Act is passed, it operates in rem. It affects the rights of several persons including creditors, investors, etc. and also creates liabilities in favour of persons like the Income Tax Authorities. These rights and liabilities became vested once the scheme becomes effective. The windmill business was transferred to Transferee and the Scheme was made effective by Transferee by filing Form 21 with the Registrar of Companies, Transferee having started earning revenue and having filed income tax returns, undoubtedly created rights and liabilities in favour of the Income Tax Authorities.18. It should be noted that Transferee has filed returns for 3 years before this applications were filed. Therefore, these applications are not just for a simple or minor modification of the scheme. If the Court grants the prayers as sought, the net effect would be of recalling the order sanctioning the Scheme to the extent of windmill business. Just because certain tax benefits have been lost does not mean that the Scheme is not workable. Hence no modifications are required. If the reliefs as sought are granted, would effectively amount to tampering with the essence of the scheme which is impermissible. The basic fabric of the Scheme would change and will go beyond the confines of what the Court while sanctioning the Scheme understood in the provisions of the Scheme.