Case: Shyamapada Chakrabertty And Others  Vs. The Controller Of Insurance, Government Of India Simla And Others

the Controller. Mr. Sinhas point is that under S. 36 the Controller could only sanction the scheme of which notice had been given under S. 35. He, therefore, contends that the sanction granted by the Controller in this case was not in terms of the section and hence a nullity. The learned Solicitor-General appearing to oppose the appeal contends that on a proper construction of the sections the Controller had power to sanction a scheme modified after notice under S. 35(3) had been issued. It is however unnecessary in this case to decide the question so raised. 17. We will assume for the present purpose that under S. 36(1) only the scheme of transfer in respect of which notice under S. 35(3) had been given could be sanctioned and not a modified version of it. The scheme and the resolution of the share-holders of the transferor company approving it, however both provided for its modification later at the suggestion of the Controller and gave power to the directors to accept the modifications on behalf of the company. The modifications were pursuant to the terms of the scheme as approved by the shareholders of the transferor Company. Therefore, in substance, it was the scheme of which notice had been given under S. 35(3) which was sanctioned. 18. A similar, view was taken in England in regard to Ss. 153 and 154 of the English Companies Act. 1929. Those sections dealt with compromises with creditors and for reconstruction and amalgamation of companies. These could be effected by an order of court after the relative scheme had been approved by the companies or creditors concerned. It was generally felt that the court could either sanction the scheme approved by the shareholders or reject it but had no power to modify it. The contention of Mr. Sinha in the present case, it will be remembered, is substantially the same. To remove the doubt as to the power to modify the scheme after it had been approved by the shareholders of the companies concerned, the author of Palmers Company Precedents appears to have recommended the device of inserting in the scheme a clause giving power to the court to modify the scheme and the directors to accept the modification. In the 16th Edition of this well-known book the following passage appears at p. 844."It is more than doubtful whether, if a particular scheme is agreed to at a general meeting of creditors, the court can sanction that scheme with modifications, unless there is some provision in the scheme providing for possible modifications. In cases where there has been no such provision, and some modification has been thought expedient, the court has required the calling of a second meeting to consider the scheme as modified; but to avoid this inconvenience it has for some time past been usual to insert in schemes a clause (originated by the author) expressly empowering the liquidator to assent to any modifications or conditions approved or imposed by the court, and this provision was approved by Chitty J. In Re, Dominion of Canada Freehold Estate and Timber Co., Ltd. (1886) 55 L.T. 347 and has frequently been acted on." 19. This practice seems to have obtained approval in our country too : see Mihirendrakishore Datta v. Brahmanbaria Loan Co., Ltd., ILR 61 Cal 913 : (AIR 1934 Cal 816 ) turning on S. 153 of the Companies Act, 1913, which corresponded to the sections of the English Act earlier mentioned. 20. Mr. Sinha contends that the authorities on the Companies Act earlier referred to had no application to the present case. He says that the sections of the Companies Acts on which these authorities turned were not pari materia with Ss. 35 and 36 of the Insurance Act. His contention is that the object of these sections of the Insurance Act was to protect the shareholders and policy-holders of the Company and that they would be deprived of that protection if a scheme modified subsequently to the issue of the notice under S. (3) could be sanctioned. We do not think that this contention is well founded. So far as the policy-holders are concerned, they have nothing to do with the approval of the scheme. The scheme of transfer was agreed to between the shareholders of the companies concerned in the deal. Assume, as Mr. Sinha says, that under the Insurance Act, as it is under the Companies Act, it is the shareholders who must agree to the scheme. In the cases falling under the Companies Act, it is for protecting the shareholders that it has been held that the court cannot modify the scheme unless the scheme itself gives the court the power to do so. On the assumption made we think it perfectly clear that the position under the Insurance Act is the same. If Mr. Sinha is wrong and under the Insurance Act it is not for the shareholders to sanction the scheme, then there would be less reason for saying that what could be done under the Companies Act, cannot be done under the Insurance Act. 21. The intention of Ss.35 and 36 of the insurance Act would on the basis of Mr. Sinhas contention, be to protect the shareholders from having to accept a scheme to which they have not agreed. Such protection however may be given up by shareholders by inserting in the scheme approved by them a clause empowering the directors to modify it. So far as the policy-holders are concerned, their protection is left in the hands of the Controller. That is the policy of the Insurance Act and, hence, the Controller hears them. In the present case he actually heard the policy-holders. Therefore it does not seem to us that it can be contended with substance that Ss. 35 and 36 of the Insurance Act are not pari materia with the sections of the Companies Acts to which we have earlier referred. The last point of Mr. Sinha must also fail. 22.

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

Explanation:
0[ds].The obvious answer to this contention is that the transfer does not affect any alteration in the memorandum of the transferor company. Clause 3( 27) of the memorandum of the transferor company gives it the power to sell its undertaking. The transfer in this case is an exercise of this power and hence within the objects of the company. An exercise by a company of a power given by its memorandum cannot amount to an alteration of the memorandum at allIn the present case the thing has been done under express statutory power. No question here arises of a corporate power in the sense it arose in Bisgoods case, (1908) 1 Ch. 743In the present case, what had happened was that an agreement between the two companies for the purpose of the transfer had been made by the directors and it was subsequently approved by the shareholders of the transferor company at a general meeting by about 82 per cent, majority. It was after such approval that the transfer had been sanctioned under S. 136 of the Insurance Act and may be, though we do not have this on the record, the transfer was effected by proper documents executed between the companies. An agreement only to transfer the undertaking by the directors clearly does not violate S. 86H for it is merely tentative subject to final approval by the Company in meeting .This we think is by itself sufficient answer to Mr. Sinhas present contentionIt is somewhat difficult to appreciate this point. There was no defect in the directors in making the agreement to transfer; such agreement did not effect the transfer. Even Assuming that the agreement was beyond the power of the directors, it cannot be said that the approval of it by the shareholers had been without any knowledge of the defect. The defect was of the want of the directors power to transfer in view of the provisions of S. 86H of which the shareholders cannot be heard to deny knowledge. The case of Premila Devi v. People Bank of Nortern India Ltd., AIR 1938 PC 284   on which Mr. Sinha relied for the present purpose is of no assistance of him. There certain shares had been illegally forfeited but it was contended that the shareholders had ratified the forfeiture. It was held that the retification, if any, was of no use because it had not been shown that the attention of the shareholders and creditors had been drawn to the illegality which depended on facts of which no knowledge by the shareholders could be presumed. In the present case, the defect, if any, arose from a statutory provision itself of which the shareholders, must be deemed to have had knowledgeThis contention is, in our view, wholly misconceived. Reduction of share capital under these sections is not brought about by loss of assets. A bare perusal of the sections, we think, is enough to establish that. The disappearance of the assets of the Company, for whatever reason, does not cause a reduction of the share capitalWe will assume for the present purpose that the petitioner who is an agent, had acquired such a right against the transferor company under S.44. We do not however see that such rights are in any way affected by the transfer. The right of the petitioner agent against the Company remains. It may be that he cannot realise the amount due, by enforcing that right because the transferor company has no assets left after the transfer out of which in pay the commission. But S. 44 does not say that an insurance company shall not be entitled lawfully to deal with its assets where the effect of such dealing might be that nothing is left out of which the agents can be paid their commission. Furthermore, it has to be remembered that what has been done in this case has been done under the same Act. Section 36 of the Insurance Act does not say that a transfer shall not be sanctioned if the effect of it is to leave no assets with the transferor company. Reading the two sections together, as we trust do, it is not possible to take the view that a transfer cannot be sanctioned under S. 36 if the result of that is to denude the transferor company of all its assets out of which an agent can be paid his commission. It does not seem to us however that any question of discrimination arises in the present case. The transfer was sanctioned with the assent of the share-holders of the two companies concerned. The sanction was given after the policy-holders of the transferor company were heard. Again, S. 36 of the Insurance Act applies to all insurance companies where the companies in general meeting agree to a transfer. No action under S. 36 can be taken except on the initiative of the companies concerned. It is done in the best interests of the policy-holdersThe modifications were pursuant to the terms of the scheme as approved by the shareholders of the transferor Company. Therefore, in substance, it was the scheme of which notice had been given under S. 35(3) which was sanctionedWe do not think that this contention is well founded. So far as the policy-holders are concerned, they have nothing to do with the approval of the scheme. The scheme of transfer was agreed to between the shareholders of the companies concerned in the deal. Assume, as Mr. Sinha says, that under the Insurance Act, as it is under the Companies Act, it is the shareholders who must agree to the scheme. In the cases falling under the Companies Act, it is for protecting the shareholders that it has been held that the court cannot modify the scheme unless the scheme itself gives the court the power to do so. On the assumption made we think it perfectly clear that the position under the Insurance Act is the same. If Mr. Sinha is wrong and under the Insurance Act it is not for the shareholders to sanction the scheme, then there would be less reason for saying that what could be done under the Companies Act, cannot be done under the Insurance Act.The intention of Ss.35 and 36 of the insurance Act would on the basis of Mr. Sinhas contention, be to protect the shareholders from having to accept a scheme to which they have not agreed. Such protection however may be given up by shareholders by inserting in the scheme approved by them a clause empowering the directors to modify it. So far as the policy-holders are concerned, their protection is left in the hands of the Controller. That is the policy of the Insurance Act and, hence, the Controller hears them. In the present case he actually heard the policy-holders. Therefore it does not seem to us that it can be contended with substance that Ss. 35 and 36 of the Insurance Act are not pari materia with the sections of the Companies Acts to which we have earlier referred. The last point of Mr. Sinha must also fail.