STERLITE INDUSTRIES(INDIA) LIMITED vs THE UNION OF INDIA
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 22.11.2023
+ O.M.P. (COMM) 208/2020
IN THE MATTER OF:
STERLITE INDUSTRIES(INDIA) LIMITED ….. Petitioner.
Through: Mr. Uttam Datt, Mr. Raktim Gogol, Mr. Vaibhav Tomar, Mr. Kartikeya Singh, Ms. Saman, Ms. S. Majumdar, Mr. Ayush Kashyap, Mr. Rahul and Mr. Shivam Pal Sharma, Advocates.
versus
THE UNION OF INDIA ….. Respondent
Through: Mr. Kirtiman Singh, CGSC with Mr.Suman Jyoti Khaitan, Mr. Vikas Kumar, Ms. Vidhi Jain and Mr.Ayush Kapur, Advocates alongwith Mr.Sanjeev Verma, Director and Mr.Vinit Katewa, ASO.
CORAM:
HON’BLE MR. JUSTICE MANOJ KUMAR OHRI
JUDGMENT (ORAL)
I.A. 8540/2014
1. By way of the present application, the petitioner seeks substitution of its name to Sesa Sterlite Limited consequent to the Scheme of Amalgamation and Arrangement.
2. Petitioner claims that being part of Vedanta Group, a decision was taken that certain group companies including the petitioner would be merged into a single entity. Consequently, a Scheme of Amalgamation and Arrangement was proposed to amalgamate the petitioner into another group company i.e., Sesa Goa Limited. It was further proposed that the name of Sesa Goa Limited would be changed to Sesa Sterlite Limited.
3. Petitioner further claims that the Scheme of Amalgamation and Arrangement was approved vide order dated 25.07.2013 by the High Court of Judicature at Madras in Company Petition Nos.161-167 of 2012. Sesa Goa Limited also vide Company Petition No.12 of 2012 sought sanction of the aforementioned scheme which came to be allowed by the High Court of Bombay at Goa vide order dated 03.04.2013 and confirmed by the Division Bench vide order dated 12.08.2013 passed in Company Appeal Nos. 5 and 6 of 2013. Special Leave Petitions being SLP Nos.26086 of 2013 and 26715 of 2013 assailing order dated 12.08.2013 were dismissed on 27.08.2013.
4. Resultantly, in terms of the aforementioned Scheme, the name of Sesa Goa Limited was changed to Sesa Sterlite Limited. A fresh Certificate of Incorporation was also issued by the Registrar of Companies on 18.09.2013. All the assets and liabilities of the Sesa Goa Limited stood transferred in the name of Sesa Sterlite Limited.
5. Pertinently, the captioned petition has been filed by the petitioner under Section 34 of the Arbitration and Conciliation Act (hereinafter, the A&C Act) in the context of disputes that arose between the parties in relation to a Shareholders Agreement dated 02.03.2001. Disputes having arisen, the same were referred for adjudication to the Arbitral Tribunal, resulting in passing of the award which is under challenge.
6. In the aforesaid backdrop, the present application has been filed seeking substitution of the petitioners name with Sesa Sterlite Limited.
7. Mr. Datt, learned counsel for the petitioner/applicant has placed reliance on the orders approving the Scheme of Amalgamation and Arrangement as well as the Scheme itself.
He further submits that respondents reliance on Clause 11.7 of the Shareholder Agreement is misplaced inasmuch as the said Clause is inapplicable to the Scheme of Amalgamation and Arrangement. The said clause puts an embargo on the parties to assign its rights or obligations under the Shareholder Agreement without first seeking prior written consent of the other party.
8. The respondent, on the other hand, has raised a solitary contention that its prior written consent was mandatory and as such the amalgamation is hit by Clause 11.7 of the Shareholder Agreement. Learned counsel for the respondent, on instructions, clarifies that though the Department of Income Tax and Ministry of Corporate Affairs have preferred SLPs, challenging the order of amalgamation, however the respondent has neither separately challenged the approval of the scheme nor sought its impleadment in the said Civil Appeals/SLP. It is stated at the bar that in fact, an incorrect averment was made in its reply to I.A.3325/2021 to the effect that an application for impleadment was filed. In fact, the said application relates to some other unrelated proceedings.
9. In rejoinder, learned counsel for the petitioner/applicant has clarified that the aforesaid civil appeals have been filed by the Income Tax Department and Ministry of Corporate Affairs alleging tax evasion and have no direct bearing on the present application especially when no interim direction has been passed against the orders of the Division Bench. Even if, the Scheme of Amalgamation and Arrangement is set aside, the rights of the new entity i.e., Sesa Sterlite Limited would revert back to the old entity i.e., the petitioner. The petitioner undertakes that in the eventuality of the amalgamation being set aside, the petitioner would continue with the Section 34 petition in its own name.
10. The issue that arises for consideration is whether the Scheme of Amalgamation and Arrangement as approved is hit by Clause 11.7 of the Shareholder Agreement and, which reads as under:-
11.7 Assignment
Except as may be expressly provided in this Agreement, none of the Parties to this Agreement may assign its rights or obligations under this Agreement without the prior written consent of all of the other Parties.
11. It is no longer res integra that an amalgamation results in absorption of one company into another or merger of both to form a third company and is not a bilateral act of two companies but is brought about by virtue of a statutory instrument having statutory genesis and character. On amalgamation, the rights, property and liabilities of the transferor-company become the rights, property and liabilities of the transferee-company under the order of vesting made by the Court in consequence of amalgamation. The same is neither an assignment of right nor an assignment of property by the company. The effect of amalgamation is that the transferor-company merges into transferee-company. In other words, the transferor company is dissolved not because it has died or ceased to exist, but because for all practical purposes, it has merged into another forming part of one corporate shell. On amalgamation and consequential dissolution, all these attributes continue to live as part of a larger entity and only that part which is the shell and the name, dies.1 The Court in Telesound, while referring to the judgement in Sailendra Kumar Ray & Anr. v. Bank of Calcutta Limited2, also observed that:-
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13. actual transfer on amalgamation was brought about by the order of the court operating with the force conferred on it by the corresponding, provision of the Act of 1913 and was, therefore, transfer otherwise than by an assignment. It was further held that this was tantamount to transfer by operation of law. On such a vesting in the transferee company, a question of assignment could only arise in the eventuality in which the transferee-company seeks to make an assignment of the property…
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12. A Division Bench of this Court in Yapi Kredi Bank (Deutschland) AG v. Ashok K. Chauhan & Ors.3 was seized with the issue as whether the amalgamation of a company (which has instituted a suit, that is pending) with another, results in its corporate death and consequent abetment of a suit. Examining the issue in light of Order XXII Rule 3 CPC, it was held as under:-
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15. The question of substitution of a transferee company in the background of amalgamation of a company that was party to a legal proceeding directly arose before the Supreme Court in Bhagwan Dass Chopra (supra), where it was contended, like in the present case, that amalgamation of two companies resulted in the death of the transferor company. This theory was repelled by the Supreme Court, which held that:
In the circumstances it is reasonable to hold that in every case of transfer, devolution, merger, takeover or a scheme of amalgamation under which the rights and liabilities of one company or corporation stand transferred to or devolve upon another company or corporation either under a private treaty, or a judicial order or under a law the transferee company or corporation as a successor-in-interest becomes subject to all the liabilities of the transferor company or corporation and becomes entitled to all the rights of the transferor company or corporation subject to the terms and conditions of the contract of transfer or merger, the scheme of amalgamation and the legal provisions as the case may be under which such transfer, devolution, merger, take over or amalgamation as the case may be may have taken place. It follows that subject to such terms it becomes liable to be impleaded or becomes entitled to be impleaded in the place of or in addition to the transferor company or corporation in any action, suit or proceeding, filed against the transferor company or corporation by a third party or filed by the transferor company or corporation against a third party and that whatever steps have already taken place in those proceedings will continue to operate against and the binding on the transferee company or corporation in the same way in which they operate against a person on whom any interest has devolved in any of the ways mentioned in Rule-10 of Order-22 of Code of Civil Procedure, 1908 subject of course to any terms in the contract of transfer or merger, scheme of amalgamation or other relevant legal provisions governing the transaction under which the transferee company or corporation has become the successor-in-interest of the transferor company or corporation.
16. The conclusion of the learned Single Judge that the amalgamation of one company with another, results in the death of the former (i.e. the transferee company) cannot be faulted. Yet, that factor alone cannot, in the opinion of this Court, be dispositive of the question thrown up in these proceedings. While extinguishment of the corporate personality, or corporate death as it were, in the event of a final winding up of a company
or amalgamation of one company with another, may be a reality, that alone cannot afford an answer to what happens to a litigation to which the amalgamating company is a party. It is here that the analogy with either a company finally wound up, in dissolution proceedings, or the death of an individual, ends. In the case of winding up of a company, the final order directing dissolution, after all steps to settle its affairs are taken, and the Court is satisfied that such order as necessitated, is in fact made. The process of winding up the affairs includes settlement of claims against the company, in satisfaction of the creditors rights; it also includes the right of the Official Liquidator to be impleaded in a pending suit, or other litigation, to which the company is party as a defendant, or which is instituted by it, and press the claim, or defend them. Thus, the death unlike in the case of an individual is not sudden; it is preceded by a series of steps some of which include issuance of orders adjudicating rights of the company, and third parties- mandated by law, under the overall supervision of a judicial forum, i.e. the Company Court. In the case of amalgamation, however, such a detailed inquiry is not mandated by law; the company has to be satisfied
that the terms of amalgamation or merger, as it were, provide adequately for the protection of interests of shareholders, creditors and other such parties. The terms in the most part are a result of negotiation, and the merger is itself in the nature of an arrangement whereby the two corporate entities for reasons best determined by each of them, decide to amalgamate into one. In the case of amalgamation, the question of rights and liabilities and the right to succession in pending proceedings instituted or pending against the merging company need not necessarily be a matter engaging attention of the company court. It might well depend on the terms of the amalgamation scheme, or operation of law, as the case may be. In India, Sections 390 to 396A of the Companies Act govern the subject matter.
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21. It would be relevant to notice, at this stage, the observations of the Supreme Court, in Mithailal Dalsangar Singh v. Annabai Devram Kini, (2003) 10 SCC 691, where the Court held that in as much as abatement results in denial of hearing on the merits of the case, the provisions for abatement are to be construed strictly; likewise, a request for setting aside abatement and the dismissal consequent upon abatement has to be considered liberally. What cannot be lost sight of in the discussion is that while upon the death of an individual plaintiff or claimant, the court is empowered to substitute the legal heir or representative, failing which an abatement of action occurs even that can be overcome if the heir or representative (who might not be aware of his rights, or might be in the dark about the litigation itself) applies for setting aside the abatement; if the time provided for doing so lapses, the residuary Article in the Limitation Act, 1963 applies, enabling such a course of action. The underlying thought is that a cause of action is not extinguished; the court has to trace, or at least make an effort to trace the rightful successor to prosecute the claim, or defend the proceeding. The argument based on Section 3(42) of the General Clauses Act, 1897 is also of no assistance, because even if a company is a person, and winding up results in its death, as explained earlier, there is a radical difference between an amalgamation and a final winding up order, after all affairs of the company have been taken care of by the Court. It is therefore held that the conclusions of the learned single judge that the suit had abated by virtue of Order 22 Rule 3, on the death of the original plaintiff, cannot be sustained.
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23. In the opinion of this Court, the law declared by the Supreme Court regarding the legal effect of a merger, or scheme of amalgamation, upon pending proceedings, in Bhagwan Das Chopra (supra) that subject to such terms it becomes liable to be impleaded or becomes entitled to be impleaded in the place of or in addition to the transferor company or corporation in any action, suit or proceeding, filed against the transferor company or corporation by a third party or filed by the transferor company or corporation against a third party and that whatever steps have already taken place in those proceedings will continue to operate against and the binding on the transferee company or corporation in the same way in which they operate against a person on whom any interest has devolved in any of the ways mentioned in Rule-10 of Order-22 of Code of Civil Procedure, 1908 affords the clearest guidance in such circumstances. Neither Saraswati Investment Syndicate, nor Singer nor any of the decisions is a direct authority on the question of succession to legal proceedings before a civil court. Even though Bhagwan Dass was rendered in the context of industrial adjudication, the Court expressly relied on Order 22 Rule 10, and spelt out its application in these circumstances. For these reasons, the conclusion of the learned Single Judge that as the suit had abated under Order 22 Rule 3, CPC, resulting in the consequent inapplicability of Order 22 Rule 10, appears to be based on a textual reading of that provision. Order 22 Rule 10, CPC applies in cases like the present; the Court would have then, to necessarily embark on an inquiry albeit a prima facie or rudimentary one, to decide if indeed the applicant concerned is the successor entitled to the carriage of the legal proceeding, i.e the suit. In fact, though in General Electric Canada Inc (supra) the learned Single Judge seems to rely on the proposition of corporate death, the decision itself indicates that the terms of amalgamation were considered, and the claim to succession (of the applicant) was turned down.
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13. Coming back to the Scheme of Amalgamation and Arrangement, it is pertinent to note that Clauses 2.1.2(v) & (vi) provides that all contracts that were entered into with petitioner would be deemed to be contracts executed with Sesa Goa Limited. The said Clause 2.1.2(v) reads as under:-
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(v) All contracts, deeds, bonds, agreements, schemes, arrangements and other instruments, permits, rights, entitlements, licenses (including the licenses granted by any Governmental, statutory regulatory bodies) for the purpose of carrying on the business of SIIL, and in relation thereto, and ‘those relating to tenancies, privileges, powers, facilities of every kind and description of whatsoever nature in relation to SIIL, or to the benefit of which, SIIL may be eligible. and which are subsisting or having effect immediately before this Chapter 2 coming into effect (including the SIIL SEZ rights/approvals), shall by endorsement, delivery or recordal or by operation of law pursuant to the vesting orders of the Courts sanctioning the Scheme, and on this Chapter 2 of the Scheme becoming effective be deemed to· be contracts, deeds, bonds, agreements, schemes,
arrangements and other instruments, permits, rights, entitlements, licenses (including the licenses granted by any Governmental, statutory or regulatory bodies) of SGL. Such properties and rights described hereinabove shall stand vested in SGL and shall be deemed to be the property and become the property by operation, of law as an integral part of SOL. Such contracts and properties described above shall continue to be in full force and continue as effective as hithertofore in favour of or against SGL and shall be the legal and enforceat1te rights and interests of SGL. which can be enforced and acted upon as fully effectively as if, it were SIIL, as SGL is its affiliate and successor in interest. Upon this Chapter 2 becoming effective, the rights, duties, obligations, interests f1owing from such contracts and properties, shall be deemed to have been entered into and novated to SGL by operation of law and SGL shall be deemed to be SIILs substituted party or beneficiary or obligor thereto. In relation to the same any procedural requirements required to be fulfilled solely by SIIL (and not by any of its successors), shall be fulfilled by SGL as if it were the duly constituted attorney of SIIL.
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14. Clause 2.3 (ii) of the Scheme of Amalgamation and Arrangement further stipulates as under:-
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(ii) For the purpose of giving effect to the amalgamation order passed under Sections 391 to 394 and other applicable provisions of the Act in respect of this Scheme by the Courts, SGL shall, at any time pursuant to the order approving this Scheme, be entitled to get the recordal of the change in the legal right(s) upon the amalgamation of SIIL, in accordance with the provisions of Section 391 to 394 of the Act. SGL is and shall always be deemed to have been authorized to execute any pleadings, applications, forms, etc, as may be required to remove any difficulties and carry out any formalities or compliances as are necessary for the implementation of this Scheme.
(Emphasis supplied)
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15. Under the Shareholder Agreement, the shareholding of petitioner in BALCO was sought to be vested in Sterlite Industries (India) Limited. At this stage, the Court deems it profitable to refer to the observations of the Supreme Court in Bhagwan Dass Chopra v. United Bank of India & Ors.4 held as under:-
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7. In view of the terms of the agreement of merger and in particular Clause 22 thereof the United Bank of India was rightly
impleaded as a party to the proceedings before the Tribunal in the place of the Narang Bank of India Ltd. By reason of impleading of the United Bank of India as a party there was no change in the character of the proceedings pending before the Tribunal. 1be United Bank of India only stepped into the shoes of the Narang Bank of India Ltd. and all proceedings that had gone on till the date on which the United Bank of India was so impleaded were binding on the United Bank of India. The proceedings before the Tribunal could thereafter be continued against the United Bank of India. The United Bank of India could thereafter take part in the further proceedings before the Tribunal in the same capacity in which the Narang Bank of India Ltd. was appearing in the case. It was bound by all proceedings which had taken place till then. It could not go back on the proceedings
(Emphasis supplied)
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16. Accordingly, this Court has no hesitation to hold that Clause 11.7 is not applicable to the Scheme of Amalgamation and Arrangement. The application is allowed and Sesa Sterlite Limited is substituted in place of petitioner.
I.A.3325/2021
1. By way of present application, the petitioner seeks to substitute the name of Sesa Sterlite Limited with Vedanta Limited. Petitioner claims that during the pendency of I.A.8540/2014, there has been a further change in the name of the petitioner from Sesa Sterlite Limited to Vedanta Limited. The name change has been allowed by the Registrar of Companies under Rule 29 of the Companies (Incorporation) Rules, 2014 with effect from 21.04.2015. A certificate of incorporation has also been placed on record.
2. The respondent has contested the application on similar contentions as were raised while opposing I.A. 8540/2019. The contentions have been rejected hereinabove.
3. Consequently, the application stands allowed. The amended memo of parties is taken on record.
O.M.P. (COMM) 208/2020
List on 22.03.2024.
MANOJ KUMAR OHRI
(JUDGE)
NOVEMBER 22, 2023/rd
1 Telesound India Ltd., In re, 1980 SCC OnLine Del 327
2 (1948) 18 Comp Cas 1
3 2013 SCC OnLine Del 261
4 1987 (Supp.) SCC 536
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