In Re: Essar Shipping Ports and Logistics Ltd.

CaseNote: Company - Sanction to scheme of amalgamation - Section 345 of the Companies Act, 2001 - Petitioner-transferee company sought for sanction to scheme of amalgamation to be made between transferor companies and Petitioner - Hence, this Petition - Held, transferor company was situated at Mauritius and relevant provisions applicable to scheme of compromise or arrangement were produced with certificate which specifically stated that there was no violation of any provisions of Mauritius law in process of proposed amalgamation of transferor companies inasmuch as it complied with provisions of Section 4(2)(b) and 4(3) of Part II of 14th Schedule Section 345 of the Act - Further, Scheme neither violated provisions of the RBI Act nor the FEMA - However, it was specifically mentioned in Clause of the scheme that scheme was conditional and was subject to scheme being approved by respective requisite majorities of members and creditors of each of amalgamating companies and amalgamated company and such other provisions if any as may be required under provisions of the FEMA, 1999 - Therefore, company had undertaken to comply with provisions of the FEMA - Scheme neither prejudicial to interest of shareholders, creditors nor to public interest - Moreover, transferor company No. 2 had filed company Petition for purpose of obtaining sanction to scheme of amalgamation with transferee company before High Court of Madras and scheme had been sanctioned by Court - Thus, sanction to scheme was granted - Petition disposed of.

Ratio Decidendi

"Court shall grant sanction to scheme of amalgamation of companies where scheme fulfills all statutory provisions."

JUDGMENT

K.A. Puj, J.

1. The petitioner is the transferee company and has filed the present petition before this Court to obtain the sanction of this Court to a scheme of amalgamation to be made between India Shipping and Essar Sisco Shipping Management Co. Ltd. ("transferor

companies") and Essar Shipping and Ports Logistics Ltd. ("the petitioner") or the transferee company.

2. The petitioner-company was originally incorporated on April 5, 1975, under the provisions of the Companies Act, 1956, as Karnataka Shipping Corporation Ltd., with Registrar of Companies, Karnataka. The name of the said company was changed to Essar Shipping Ltd., on September 5, 1994. Later on March 24, 2008, the name of the said company was changed to its present name, i.e., Essar Shipping and Ports Logistics Ltd. The registered office of the company has been shifted from the State of Karnataka to the State of Gujarat vide fresh certificate of registration dated August 21, 2008. The registered office of the petitioner is situated at Administrative Building, Essar Refinery Complex, Okha Highway (SH-25), Khambalia taluka, Jamnagar in the State of Gujarat.

3. The petitioner-company started its commercial activities in 1975 and has been carrying on the same since then. The petitioner-company is a listed public limited company and has been engaged in the activities of shipping and other allied activities. It is a company with a turnover of more than Rs. 1,000 crores and profit of more than Rs. 200 crores during the last financial year. India Shipping, the foreign transferor or transferor company No. 1 was incorporated under the laws of Mauritius on May 19, 2005. The registered office of transferor company No. 1 is situated at 10, Frere Felix de Valois Street, Port Louis, Mauritius. Transferor company No. 1 is essentially an investment company and holds shares of some other group companies. Essar Sisco Shipping Management Co. Ltd., the Indian transferor or transferor company No. 2 was incorporated on October 29, 1992, in Chennai, Tamil Nadu, under the provisions of the Companies Act, 1956. The registered office of transferor company No. 2 is situated at Chennai, Tamil Nadu. Transferor company No. 2 was initially incorporated for shipping activities at present is engaged in investment activities.

4. Both the transferor companies and transferee company are all part of the same group (the Essar group) and are engaged in the business of shipping and other allied activities. In view of the common business prospects, the management of the group has considered it appropriate to merge the transferor company into the petitioner-company. It is the case of the petitioner that the consolidation will ensure creation of larger entity and derive optimal management synergy and benefits. The proposed scheme will result in business synergies besides economies in cost by combining all the function, related activities and operations resulting in higher profitability and benefits in the form of financial resources, managerial and technical expertise. The proposed scheme enables cost savings, pooling of managerial skills and optimum utilisation of valuable resources. It will also enhance the management focus thereby leading to higher profitability and enhancing shareholders

value. Such a rationalisation of the structure of the Essar group is in the interest of the shareholders, creditors and employees of each of the transferor companies and the transferee company.

5. The re-organisation committee of the board of directors of the petitioner as well as the board of directors of each of transferor companies Nos. 1 and 2 have approved and adopted the scheme in the meetings held on February 13, 2008 and April 4, 2008, respectively, by virtue of which the transferor companies are proposed to be amalgamated with the petitioner-company subject to the approval of the shareholders and creditors of the concerned companies and subject to sanction of the High Court within whose jurisdiction the registered office of the petitioner-company is situated.

6. Pursuant to the resolutions passed at the meeting of the re-organisation committee of the board of directors and the petitioner-company approving and adopting the scheme of arrangement, an application being Company Application No. 268 of 2008 was moved before the High Court of Karnataka where the registered office of the petitioner was previously situated. Vide order dated April 10, 2008, directions were issued to convene a meeting. However, since the board of directors of the petitioner-company decided to shift the registered office of the petitioner-company to Gujarat, another company application being Company Application No. 310 of 2008 was moved and vide order dated July 15, 2008, the order dated April 10, 2008, was recalled and the application being Company Application No. 268 of 2008 was permitted to be withdrawn.

7. This Court vide its order dated September 2, 2008, passed in Company Application No. 490 of 2008 directed the petitioner-company to convene a meeting of the equity shareholders of the company for the purpose of considering if thought fit, approving with or without modifications in the said scheme of amalgamation and the said order directed Mr. V. Ashok, whole-time director of the petitioner-company and failing him Mr. N. Srinivasan, the director of the petitioner-company be appointed as chairman of the meeting and to report the resolutions thereafter to this court. Notice of the meeting was sent individually to all the equity shareholders of the company as required by the order together with the copy of scheme of amalgamation and the explanatory statement required under Section393 of the Companies Act and a form of proxy. The notice of the meeting was also advertised as directed by the order dated September 2, 2008, in The Indian Express English daily (all editions in the State of Gujarat) and Sandesh Gujarati daily (all editions in the State of Gujarat) on September 10, 2008. On October 4, 2008, the said meeting of the equity shareholders was duly convened in accordance with the said order and the chairman of the meeting reported the resolution of the meeting to this court. The said meeting of the equity shareholders of the company was attended by 20

members of the company entitled together to Rs. 3,24,77,53,430 being 32,47,75,343 equity shares of Rs. 10 each. Such scheme of arrangement was taken as read with the permission of the equity shareholders present at the meeting. Detailed discussions and deliberations were made on the proposed scheme. The poll was taken to ascertain the wishes of the equity shareholders and the proposed scheme of amalgamation was duly approved unanimously by the equity shareholders. The petitioner-company therefore moved the present petition before this Court seeking sanction of the scheme of arrangement by way of this petition.

8. The petition was duly admitted by this Court on October 21, 2008. The petition was ordered to be advertised in English daily The Indian Express and Gujarati daily Sandesh. Notice was also issued to the Central Government through the Regional Director, Department of Corporate Affairs and he was directed to file his report. The court has also directed the petitioner-company to place the relevant provisions of the Mauritius law as well as the outcome of the proceedings before the Madras High Court.

9. Notice of the petition has been served upon the Central Government and Mr. Harin P. Raval, the learned Assistant Solicitor General of India appeared for the Central Government. An affidavit dated December 4, 2008, has been filed by Mr. R.K. Dalmia, Deputy Registrar of Companies along with letter from the Regional Director dated December 4, 2008, whereby the observations pertaining to only two issues which are as under:

1. The transferor company is registered in Mauritius and hence scheme of amalgamation may be considered by the High Court subject to compliance of the provisions of RBI Act.

2. The petitioner-company may be directed to submit their latest financial statements before the High Court at the time of hearing.

10. In response to such observations, an affidavit is filed by Mr. Manoj Contractor, the company secretary and the authorised signatory of the petitioner-company on December 10, 2008. Along with the said affidavit, the petitioner-company has placed on record the latest published results of the company as on September 30, 2008. The petitioner-company has also confirmed that on the issue of shares by the transferee company to the shareholders of the transferor company incorporated in Mauritius, the same shall be done in compliance with the applicable provisions of the Reserve Bank of India Act. The petitioner-company has also submitted a copy of the relevant provisions of the Companies Act prevailing in Mauritius and has also placed on record the legal opinion expressed by a counsel of Mauritius confirming that the present scheme is in compliance with said Act and that it does not violate any provisions of the said Act.

11. Over and above these two observations made by the Deputy Registrar in his affidavit, Mr. Harin P. Raval, the learned Assistant Solicitor General of India has raised an issue that transferor company No. 1, situated at Mauritius is incorporated in Mauritius and hence it is not a company which is required to be wound up under the Companies Act, 1956. He has submitted that Chapter V of the Act deals with arbitrations, compromises, arrangements and re-constructions. Section390(a) of the Act defines the expression "company" which means any company liable to be wound up under this Act. Since the transferor company is incorporated in Mauritius, it cannot be wound up under the provisions of the Companies Act, 1956, and hence it cannot be amalgamated under the provisions of Sections 391 - 394 of the Companies Act, 1956.

12. At this stage, Mr. S.N. Soparkar, learned senior counsel raised a preliminary objection that the Regional Director in his reply to notice has not raised this objection and hence if the Central Government is seriously raising this contention, the same should be stated on an affidavit. In reply to this, Mr. Raval has submitted that a draft affidavit was prepared and it was sent to the Regional Director for confirmation. However, he received a reply from the Regional Director on January 12, 2009, stating therein that in a similar case, the Regional Director had previously taken the same stand being propounded by him in the present petition. In Company Application No. 229 of 2006 Zenta P. Ltd., In re MANU/MH/1270/2006., in the matter of scheme of amalgamation between M/s. Zenta International S.A., M/s. ICP Ltd., M/s. Alpha Venture Ltd. (all three companies being registered in Mauritius) with M/s. Zenta P. Ltd., the High Court of Bombay over-ruled similar objection raised by the Regional Director and sanctioned the scheme. In that view of the matter, the Regional Director was not in a position to swear an additional affidavit in the matter on the lines suggested by Mr. Raval. He, however, requested the court to allow him to make legal submissions. He has submitted that the issue raised by him is required to be considered by this court. Mr. Raval has further submitted that Section 394 of the Act states that where an application is made to the court under Section 391 for sanctioning for a compromise or arrangement between a company and any such persons as are mentioned in that section, the court, after considering the scheme passes an order either sanctioning the scheme or makes provisions which inter alia includes the provisions for dissolution, without winding up of any transferor company. He has further submitted that the second proviso to Section 394 states that no order for dissolution of any transferor company under Clause IV shall be made by the court unless the official liquidator has on scrutiny of the books and papers of the company, made report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to the public interest. Based on this provision, Mr. Raval has submitted that so far as transferor company No. 1 is concerned, this provision is not workable as the company is situated in Mauritius and this Court

cannot pass any order for winding up of the said company nor the official liquidator can submit any report on the affairs of the company as to whether its affairs are conducted in a manner prejudicial to the interests of its members or to the public interest. He has therefore submitted that such a scheme cannot be sanctioned by the court.

13. Mr. Soparkar, the learned advocate for the petitioner on the other hand has submitted that the definition of the "company" contained in Section 390(a) of the Act is confined only to Sections 391 and 393 of the Act. The present petition is filed under Section 394 of the Act and hence such definition is not applicable. He has further submitted that Section 394(4)(b) defines transferee company as well as transferor company and while defining transferor company it says that transferor company includes any body corporate, whether a company within the meaning of this Act or not. He has therefore submitted that the word "body corporate" includes the company situated outside India and hence for this purpose it is not required whether the company is within the meaning of this Act or not. He has further submitted that the Legislature had taken into consideration this aspect. Under the Companies Act, 1913, Section 153(a) deals with provisions for facilitating arrangements and compromises. Sub-section 5 of Section 153(a) states that not withstanding the provisions of Sub-section (6) of Section 153, the expression "company" in this section does not include any company other than a company within the meaning of this Act. Sub-section (6) of Section 153 of Companies Act, 1913, says that, in this section, the expression "company" means any company liable to be wound up under this Act. After the Act of 1913, the company law committee has submitted its reports with regard to foreign companies. The committee has recommended that compromise or arrangement between foreign companies and companies within the meaning of the Indian Companies Act should be made possible. Based on this recommendation, necessary changes have made in the Companies Act, 1956 and while defining the transferor company for the purpose of Section 394 of the Act, it is laid down that the transferor company includes any body corporate whether the company is within the meaning of this Act or not. He has therefore submitted that for the purpose of scheme of amalgamation, between the company situated outside India and the company situated in India, if the transferor company is situated outside India, it can be amalgamated with any transferee company which is in India. He has stated that the only requirement so far as foreign company is concerned, it should not be violative of the provisions of law in existence in the foreign country. For this purpose he relied upon the certificate produced by counsel which states that the relevant provision of the Mauritius law which deals with proposed amalgamation is Section 4(2)(b) and Section 4(3) of Part II of the Fourteenth Schedule (Section 345) of the Companies Act, 2001. Section 4(2)(b) and 4(3) of Part II of the 14th Schedule of the Mauritius Companies Act, 2001, reads as under:

(b) where the surviving company or the consolidated company is to be in corporate under the laws of a jurisdiction other than that of Mauritius, it shall submit to the Registrar--

(i) an agreement that a service of process may be effected on it in Mauritius in respect of proceedings for the enforcement of any claim, debt, liability or obligation of a constituent company incorporated under this Act or in respect of proceedings for the enforcement of the rights of a dissenting member of a constituent company incorporated under this Act against the surviving company or the consolidated company;

(ii) an irrevocable appointment of the Registrar as its agent to accept service of process in proceedings referred to in sub-paragraph (1);

(iii) an agreement that it shall promptly pay to the dissenting members of a constituent company incorporated under this Act the amount, if any, to which they are entitled under this Act with respect to the rights of dissenting members; and

(iv) a certificate of merger or consolidation issued by the appropriate authority of the foreign jurisdiction where it is incorporated; or, if no certificate of merger is issued by the appropriate authority of the foreign jurisdiction, such evidence of the merger or consolidation as the Registrar considers acceptable.

3. The effect under this section of a merger or consolidation shall be the same as in the case of a merger or consolidation under Part XVI where the surviving company or the consolidated company is incorporated under this Act, but where the surviving company or the consolidated company is incorporated under the laws of a jurisdiction other than that of Mauritius, the effect of the merger or consolidation shall be the same as in the case or a merger or consolidation under Part XVI except in so far as the laws of the other jurisdiction otherwise provide.

14. Based on this provision, counsel has given his opinion that there is no violation of any provisions of Mauritius law in the process of the proposed amalgamation of India Shipping and Essar Shipping and Ports Logistics Ltd., inasmuch as it complies with the above cited sections of the Mauritius Companies Act, 2001.

15. Over and above this, Mr. Soparkar has relied upon the decision of the Andhra Pradesh High Court in the case of Moschip Semiconductor Technology Ltd., In re[2004] 120 Comp Cas 108, wherein while allowing the petition, the Andhra Pradesh High Court has held that since under Sub-section (4) of Section 394 of the Companies Act, 1956, the transferor company could be a body corporate and the transferor company was a foreign company coming within the definition of "body corporate" under Section 2(7) of the Act, and as the

transferee company was a company incorporated in accordance with provisions of the Companies Act there could be a valid scheme of arrangement for amalgamation between them. It could also be seen from the report of the Registrar of Companies that the laws prevailing at the place where the transferor company was situated, the State of California, provided for the amalgamation of the order of the court sanctioning the scheme at that place where the transferee company was situated, was filed, that automatically dissolved the transferor company. Accordingly, the scheme was sanctioned by the Andhra Pradesh High Court.

16. Mr. Soparkar has further relied on the decision of the Bombay High Court in Company Petition No. 229 of 2006 in the case of Zenta P. Ltd., In re, decided on April 28, 2006 [2009] 149 Comp Cas 413, wherein similar issues arose and the court took the view that 'the term "body corporate" appearing in Section 394(4)(b)and the term "company" appearing in Section 390(a) of the Act presents no situation of conflict. It is not as if the company which can be wound up under the Companies Act, 1956, alone that is contemplated in the chapter pertaining to amalgamation and re-construction. In any event, so far as Sections 391 and 393. Both the provisions are invoked in the present case. The term "body corporate" appearing under Section 2(7) includes the company incorporated outside India. As far as the term "company" in Section 3 is concerned, even with definition, it does not mean that the scheme of amalgamation presented by the transferee company which is registered in India cannot be entertained or sanctioned merely because the transferor companies are not situated within the jurisdiction of this Court or incorporated under the Companies Act. If the intention of Parliament is to permit and facilitate sanction of compromises or arrangement proposed with a company expressly referred in Section 394(1), then one cannot ignore Sub-section (4) thereof. Thus, Section 391(1) and (4) read together with other sub-sections would mean that this Court has jurisdiction to entertain petition seeking sanction of scheme provided the transferee company is a company within the meaning of the Companies Act. It is not necessary that the transferor company should be so, provided of course it must answer the definition of the term "body corporate".' The Bombay High Court has therefore overruled the objection raised and sanctioned the scheme presented before it.

17. Having heard appearing for the parties and having considered the scheme as well as the objections raised by the Regional Director and Mr. Raval at the time of hearing of this petition and having considered the decision of the Andhra Pradesh High Court in the case of Moschip Semiconductor Technology Ltd., In re (supra) as well as the Bombay High Court in the case of Zenta P. Ltd., In re (supra), this Court is of the view that the objections raised by the Regional Director as well as Mr. Raval are not sustainable. In view of the definition "transferor company" contained in Section 394(4)(b), which, inter alia, includes

"body corporate" the transferor company which is situated outside India can be amalgamated with the transferee company situated in India. The only condition is that such amalgamation should not be in violation of the provisions contained in the Companies Act prevailing in such a foreign country. Here in the present case, the transferor company is situated at Mauritius and the relevant provisions applicable to the scheme of compromise or arrangement are produced before the court along with counsel's certificate which specifically states that there is no violation of any provisions of Mauritius law in the process of proposed amalgamation of India Shipping and Essar Shipping and Ports Logistics Ltd., inasmuch as it complies with the provisions of Section 4(2)(b) and 4(3) of Part II of 14th Schedule (Section 345) of the Companies Act, 2001. The scheme neither violates the provisions of the RBI Act nor the FEMA. It is specifically mentioned in Clause 6.5 of the scheme that the scheme is conditional and is subject to (a) the scheme being approved by the respective requisite majorities of the members (either by way of meeting or a letter of consent from the shareholders) and the creditors of each of the amalgamating companies and the amalgamated company under Section 391 of the Act, and (b) such other provisions, if any, as may be required under the provisions of the Foreign Exchange Management Act, 1999. Thus, the company has undertaken to comply with the provisions of the FEMA. The court therefore is of the view that the scheme is in the interest of the shareholders as well as creditors and it is neither prejudicial to their interest nor to the public interest. The court therefore grants its sanction to the scheme and prayers made in paragraph 34 of the petition are hereby granted.

18. It is worthwhile to mention here that as per the statement made by Mr. Soparkar, transferor company No. 2 has filed a company petition for the purpose of obtaining sanction to the scheme of amalgamation with the transferee company, before the High Court of Madras and the scheme has been sanctioned by the court vide its order dated December 18, 2008. This is one more reason for the court to grant its sanction to the scheme.

19. The fees for the Central Government counsel are quantified at Rs. 3,500 (Rupees three thousand five hundred only) and the same shall be paid by the petitioner to Mr. Harin P. Raval, the learned Assistant Solicitor General of India directly by way of account payee cheque in his favour.

20. Subject to the aforesaid directions and observations, this petition is accordingly disposed of.