The Corporate Sustenance

THE CORPORATE SUSTENANCE THE CORPORATE SUSTENANCE By Syeed Hasnain Haider Attorney-at-law One may argue for hours in favour or against indicators of corporate progressions being upward or downward, but what is somehow worth noticing was a report in a daily 'Dawn' published on 9th April, 2014 that, as many as 420 new limited liability companies were registered by Securities only in the month of March 2014 by Securities and Exchange Commission 'of Pakistan (SECP) raising total number of companies to 63,236 companies (http://www.dawn.com/news/1098599) which is encouraging as it leads to obvious conclusion that, by more and more corporate entities being incorporated, business sector will flourish and more jobs will be available in diverse areas of commerce, trade, production, services and many others within which sector those concerns propose to conduct their respective businesses. Further, another positive statistical data presented by the then Acting Chairman, Securities and Exchange Commission of Pakistan to the Finance Minister as also reported in Business Observer on 16th December 2013 highlighting that, there has been an increase of 17% in the incorporation of new companies since 1st July 2013 as compared to the same period, preceding year (link:http://businessobserver.pk/registration-of-companiesincreases-by-17-2000-dormant companies-revived/). In addition to that it was also reported that, nearly 2000 companies which were dormant since many years have recently regularized themselves by filing overdue returns that, to a greater interest of corporate structure, indicates positive trend in business and economy. Now, just hold there and take a look back; 2000 dormant companies revitalized themselves, meaning thereby that 2000 companies either did not start their businesses, ceased to exist even if on record or became dormant after incorporation. I do ponder that I may be looking pessimistically at half empty glass and not the other half which is filled with economic activity. Yes, may it be so but let's think how about we fill other half also for better utilization when same can be done with comparative thinking, analysis, assessment, conclusion at and law making at practical stage. This brings to the reasons behind companies ending as dormant sooner or later after incorporations. There can be many reasons for companies willfully opting or leading themselves towards status of being dormant as also narrated by Companies House - United Kingdom Registrar of Companies under Chapter 1 paragraph No. 3 of the Guidance published for managing dormant companies (http: www.companieshouse.gov.uk/about/pdf/gba10.pdf) that, Companies may be dormant for various reasons, for example, (i) to protect a company name, (ii) in readiness for a future project, or (iii) to hold an asset or intellectual property. Now taking the first two reasons, I will bring to notice a very common practice that, corporate entities are preferred by government or private investors for any project or scheme for very valid reason that, incorporation of corporate entity involves, at least on record, strict adherence of filling tax returns, Audit Reports, Director's Repots and other documents on quarterly or annually basis as mandated by the Companies Ordinance, 1984, with SECP which gives impression of sound working condition of an entity and transparency within. Therefore, it has been observed during by limited practical experience with incorporation of companies that, many companies incorporated to attract some targeted project(s) or as earlier referred to as readiness for future project and if that aim is not achieved, those companies cease their working until they get another chance/future project and since they don't initiate or conduct business, they don't file documents with SECP and ultimately become dormant for the purpose of record, at least. However, out of those companies there are some determined companies which somehow manage to keep floating; yet they don't bother to file documents as it was only formed with a very limited vision, working and seriousness behind incorporation, so far so that they actually don't know the requirements of SECP regarding management and administration of a company. No wonder SECP has to provide detailed Code of Corporate Good Governance by which even well established companies are seeking assistance what to speak of the companies which got themselves incorporated for a single project or object. On the contrary to the practice of incorporation as referred in preceding paragraph, we have examples from Multi National companies like Microsoft or Apple to our local small scale wholesale dealers who formed company for retailing purposes, export and import or other related higher objects to boast their 'already existing business'. It was common in all those entities that, their first promoters, directors or officers, even before incorporation as corporate business entity, were already engaged in that particular business or working in that field, though on a limited or lower scale but at least were conducting business somehow and then after some time formed a company depending on various factors including progress in business at large scale, need to bring themselves to a recognized status and ultimately certainly for more profits. Therefore, much safer inference can be drawn from the above is that, a check be made on the companies applying for registration to show expertise, working experience, timeline or constant engagement in the relevant field in which they aim to conduct their business as per their aims and objects laid down under their respective Memorandum of Association, through detailed documentations of experience and expertise, qualifications, at least a rough plan for future endeavors, timeline for first five years; thereby, enhancing sustainability of the entity and of corporate structure of the economy as a whole. Another somehow technical but factual yet veiled reason for companies to end up as dormant, liquidated or extinguished at the cost of economic growth, unemployment and fiscal loss to the exchequer and related to third reason as mentioned above, is again related to the incorporation of the company. As referred earlier, as many as 420 new companies were registered in the month of March; but the figure that is more interesting to observe is that, out of these 420 companies 92 per cent companies were registered as private limited companies. Since these are private companies which are usually and dominantly formed by either family members or with family and friends' collaboration with limited liability and since as public is not involved so real aim comes to personal profits and control over company's management and decisions. Further, in our economic and social structure where default sometimes become inevitable in view of ever changing political circumstances and economic policies of different eras; there is need of better and progressive approach towards management. However, if by any untoward happening, there is' a dissent within private shareholders on account of private gains or management; there is strong likelihood that, either the whole entity would fall into litigation by way of liquidation initiated by any shareholder which will consume all the asserts of the company ultimately by one way or the other or conflicting interests would end up in a deadlock, consequently even the well established running business entity shall be doomed and all business activities will come to halt there and then. In those deplorable circumstances it would be economically and structurally sound that, company had right to buy back its shares from the dissenting shareholders which recourse is otherwise only available to listed company under provisions of the Companies (Buy Back of Shares) Rules, 1999 which only applies to listed companies (http://www.secp.gov.pk/corporatelaws/pdf/dec_14_99_1.pdf).. Whereas, any jolted corporate entity with which economic growth and employment is inseparably annexed can benefit from buy back scheme in order to:-- (i) adopt expedient and cost-efficient means of returning cash to shareholders, (ii) readjust its corporate structure, (iii) adjust debt-equity ratio to improve returns on capitals, (iv) reallocate the proportion in which shareholders hold shares, (v) make remaining shares more marketable later on, (vi) to help opening an employee incentive scheme and for better control and not to forget the instances where company has to demand members to raise funds to purchase shares of an outgoing member, if not dissenting one. Therefore, as a whole to save corporate existence for economic growth of the corporate entity at one level, that may either be a dysfunctional one or already established concern; and for national economic growth at national level. It is also thought provoking that thousands of dormant and inactive companies were excluded from Federal Board of Revenue tax record which is alarming as in case those companies were active, there would have been influx of national income. (http:/www.brecorder.com/taxation/single/666/181/1210249/?date=2011-07-11). Further, it is worthwhile to mention here that, this buying back procedure has safeguarded various companies from being extinguished in strong and bigger economies like Singapore and India where laws were enacted accordingly duly supported by courts of law with aim to keep the entities strong for economic activities and safeguard any loss to the exchequer. Singapore Companies Act (Chapter 50, Original enactment: Act 42 of 1967, Revised Edition 2006) under the provisions of sections 76-B and 215 duly allow companies to buy back its shares with certain conditions and procedures to be followed to safeguard the interest of shareholders or class of shareholders who's share are to be buy back. Relevant provision of section 76-B is reproduced as follows:-‑ Company may acquire its own shares 76B. (1) Notwithstanding section 76, a company may, in accordance with this section and sections 76C to 76G, purchase or otherwise acquire shares issued by it if it is expressly permitted to do so by its articles. [38/98; 36/2000] (2) This section and sections 76C to 76G shall apply to ordinary shares, stocks and preference shares. [36/ 2000] (3) The total number of ordinary shares and stocks in any class that may be purchased or acquired by a company during the relevant period shall not exceed 10% (or such other percentage as the Minister may by notification prescribe) of the total number of ordinary shares and stocks of the company in that class ascertained (a) as at the date of the last annual general meeting of the company held before any resolution passed pursuant to sections 76C, 76D, 76DA or 76E; or (b) as at the date of such resolution, whichever is the higher, unless (i) the company has, at any time during the relevant period, reduced its share capital by a special resolution under section 78B or 78C; or (ii) the Court has, at any time during the relevant period, made an order under section 781 confirming the reduction of share capital of the company. [21/2005] (3A) Where a company has reduced its share capital by a special resolution under section 78B or 78C, or the Court has made an order under section 781, the total number of ordinary shares and stocks of the company in any class shall, notwithstanding subsection (3)(a) and (b), be taken to be the total number of ordinary shares and stocks of the company in that class as altered by the special resolution of the company or the order of the Court, as the case may be. [21/2005] (3B) The total number of preference shares in any class which are not redeemable under section 70 that may be purchased or acquired by a company during the relevant period shall not exceed 10% (or such other percentage as the Minister may by notification prescribe) of the total number of non-redeemable preference shares of the company in that class ascertained (a) as at the date of the last annual general meeting of the company held before any resolution passed pursuant to section 76C, 76D, 76DA or 76E; or (b) as at the date of such resolution, whichever is the higher, unless - (i) the company has, -at any time during the relevant period, reduced its share capital by a special resolution under section 78B or 78C; or (ii) the Court has, at any time during the relevant period, made an order under section 781 confirming the reduction of share capital of the company. [21/ 2005] (3C) Where a company has reduced its share capital by a special resolution under section 78B or 78C, or the Court has made an order under section 781, the total number of non-redeemable preference shares of the company in any class shall, notwithstanding subsection (3B)(a) and (b), be taken to be the total number of non-redeemable preference shares of the company in that class as altered by the special resolution of the company or the order of the Court, as the case may be. [21/2005J (3D)There shall be no limit on the number of redeemable preference shares that may be purchased or acquired by a company during the relevant period. [36/20001 (3E) For the purposes of this section, any of the company's ordinary shares held as treasury shares shall be disregarded [21/20051 (4) In subsection (3), "relevant period" means the period commencing from the date the last annual general meeting of the company was held or if no such meeting was held the date it was required by law to be held before the resolution in question is passed, and expiring on the date the next annual general meeting is or is required by law to be held, whichever is the earlier, after the date the resolution in question is passed. [38/981 (5) Ordinary shares that are purchased or acquired by a company pursuant to section 76C, 76D, 76DA or 76E shall, unless held in treasury in accordance with section 76H, be deemed to be cancelled immediately on purchase or acquisition. [21/20051 (5A) Preference shares that are purchased or acquired by a company pursuant to section 76C, 76D, 76DA or 76E shall be deemed to be cancelled immediately on purchase or acquisition. [21/ 20051 (6) On the cancellation of a share under subsection (5) or (5A), the rights and privileges attached to that share expire. [38/98; 21/ 20051 (7) For the purposes of this section, shares are deemed to be purchased or acquired on the date on which the company would, apart from subsection (5), become entitled to exercise the rights attached to the shares. [38/98J (8) Within 30 days of the passing of a resolution referred to in section 76C, 76D, 76DA or 76E, the directors of the company shall lodge with the Registrar a copy of the resolution. [38/98; 8/20031 (9) Within 30 days of the purchase or acquisition of the shares, the directors of the company shall lodge with the Registrar the notice of the purchase or acquisition in the prescribed form with the following particulars: (a) the date of the purchase or acquisition; (b) the number of shares purchased or acquired; (c) the number of shares cancelled; (d) the number of shares held as treasury shares; (e) the company's issued share capital before the purchase or acquisition; (1) the company's issued share capital after the purchase or acquisition; (g) the amount of consideration paid by the company for the purchase or acquisition of the shares; (h) whether the shares were purchased or acquired out of the profits or the capital of the company; and (a) such other particulars as may be required in the prescribed form. [38/98; 8/2003; 21/ 20051 (10) Nothing in this section or in sections 76C to 76G shall be construed so as to limit or affect an order of the Court made under any section that requires a company to purchase or acquire its own shares. Whereas, section 215 provides substantive and procedural aspect for inter and intra company scheme as under:-- Power to acquire shares of shareholders dissenting from scheme or contract approved by 90 % majority 215. (1) Where a scheme or contract involving the transfer of all of the shares or all of the shares in any particular class in a company (referred to in this section as the transferor company) to another company or corporation (referred to in this section as the transferee company) has, within 4 months after the making of the offer in that behalf by the transferee company, been approved as to the shares or as to each class of shares whose transfer is involved by the holders of not less than 90% of the total number of those shares (excluding treasury shares) or of the shares of that class (other than shares already held at the date of the offer by the transferee company, and excluding any shares in the company held as treasury shares), the transferee company may at any time within 2 months, after the offer has been so approved, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares; and when such a notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on which the notice was given or within 14 days of a statement being supplied to a dissenting shareholder pursuant to subsection (2) (whichever is the later) the Court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms which, under the scheme or contract the shares of the approving shareholders are to be transferred to the transferee company or if the offer contained 2 or more alternative sets of terms upon the terms which were specified in the offer as being applicable to dissenting shareholders. [15/84; 8/2003; 21/2005) (2) Where a transferee company has given notice to any dissenting shareholder that it desires to acquire his shares, the dissenting shareholder shall be entitled to require the company by a demand in writing served on that company, within one month from the date on which the notice was given, to supply him with a statement in writing of the names and addresses of all other dissenting shareholders as shown in the register of members, and the transferee company shall not be entitled or bound to acquire the shares of the dissenting shareholders until 14 days after the posting of the statement of such names and addresses to the dissenting shareholder. (3) Where, in pursuance of any such scheme or contract, shares in a company are transferred to another company or its nominee and those shares together with any other shares in the first-mentioned company held by the transferee company at the date of the transfer comprise or include 90% of the total number of the shares (excluding treasury shares) in the first-mentioned company or of any class of those shares, then (a) the transferee company shall within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement) give notice of that fact in the prescribed manner to the holders of the remaining shares or of the remaining shares of that class who have not assented to the scheme or contract; and (b) any such holder may within 3 months from the giving of the notice to him require the transferee company to acquire the shares in question, and where a shareholder gives notice under paragraph (b) with respect to any shares, the transferee company shall be entitled and bound to acquire those shares on the terms on which under the scheme or contract the shares of the approving shareholders were transferred to it, or on such other terms as are agreed or as the Court on the application of either the transferee company or the shareholder thinks f!- to order. [8/2003; 21/20051 (4) Where a notice has been given by the transferee company under subsection (1) and the Court has not, on an application made by the dissenting shareholder, ordered to the contrary, the transferee company shall, after the expiration of one month after the date on which the notice has been given or, after 14 days after a statement has been supplied to a dissenting shareholder pursuant to subsection (2) or if an application to the Court by the dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice to the transferor company together with an instrument of transfer executed, on behalf of the shareholder by any person appointed by the transferee company, and on its own behalf by the transferee company, and pay, allot or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which by virtue of this section that company is entitled to acquire, and the transferor company shall thereupon register the transferee company as the holder of those shares. (5) Any sums received by the transferor company under this section shall be paid into a separate bank account, and any such sums and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which they were respectively received. (6) Where any consideration other than cash is held in trust by a company for any person under this section, it may, after the expiration of 2 years and shall before the expiration of 10 years from the date on which such consideration was allotted or transferred to it, transfer such consideration to the Official Receiver. (7) The Official Receiver shall sell or dispose of any consideration so received in such manner as he thinks fit and shall deal with the proceeds of such sale or disposal as if it were moneys paid to him in pursuance of section 322. (8) In this section, dissenting shareholder includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract. (9) For the purposes of this section, shares held or acquired-- (a) by a nominee on behalf of the transferee company; or (b) by a related corporation of the transferee company or by a nominee of that related corporation, shall be treated as held or acquired by the transferee company. [8/2003] (10) The reference in subsection (1) to shares already held by the transferee company includes a reference to shares which the transferee company has contracted to acquire but that shall not be construed as including shares which are the subject of a contract binding the holder thereof to accept the offer when it is made, being a contract entered into by the holder for no consideration and under seal or for no consideration other than a promise by the transferee company to make the offer. [8/2003] (11) Where, during the period within which an offer for the transfer of shares to the transferee company can be approved, the transferee company acquires or contracts to acquire any of the shares whose transfer is involved but otherwise than by virtue of the approval of the offer, then, if (a) the consideration for which the shares are acquired or contracted to be acquired (referred to in this subsection as the acquisition consideration) does not at that time exceed the consideration specified in the terms of the offer; or (b) those terms are subsequently revised so that when the revision is announced the acquisition consideration, at the time referred to in paragraph (a), no longer exceeds the consideration specified in those terms, the transferee company shall be treated for the purposes of this section as having acquired or contracted to acquire those shares by virtue of the approval of the offer. (http://statutes.agc.gov.sg/aol/search/display/view.w3p;ident=71634d6a-5fc9-4d7e-b167 ce4a5b967e09;page=0;query=DocId%3A%22c3063e4b-61ed-4faf 8014-fabd5b998ed7%22%/020Status%3Ainforce%20Depth%3A0;rec=0#pr76B-he-.) . Further, precedents are also established in Indian corporate structure where even the higher Courts of law has given their sanction to such an arrangement in landmark judgment cited as "Securities and Exchange Board of India v. Sterlite Industries Ltd (2003 113 CompCas 273 Born)- http://indiankanoon.org/doc/214058/". The relevant paragraphs are reproduced as under: "19. It is well settled that under section 391 of the Companies Act, the court is invested with very wide powers to approve or sanction any scheme of amalgamation, arrangement, compromise or reconstruction. The court has power to sanction all matters which for their effectuation require a special procedure to be followed under the Companies Act. The only exception to this is the special procedure to be followed under section 101 for reduction of capital since rule 85 of the Companies (Court) Rules: 1959 specifically enjoins the following of a special procedure prescribed for reduction of share capital In Re: Maneckchowk and Ahmedabad Manufacturing Company Ltd. (1970) 40 Company Cases 819 D.A. Desai J., as he then was, has held that section 391 of the Companies Act is a complete Code However, in view of rule 85 of the Companies (Court) Rules, 1959, whenever a scheme of arrangement proposed under section 391 involves a reduction in the share capital of the company, the procedure prescribed under sections 100-102 of the Companies Act and the Rules relating to the reduction of the capital shall have to be complied with. He went on to hold that reduction of capital can be sanctioned as part of a scheme of compromise and arrangement by a common order under section 391 subject to requirements of sections 100-102 being complied with. The decision in Maneckchowk and Ahmedabad Manufacturing Co. Ltd.'s case was followed by this court in Vasant Investment Corporation Ltd. v. Official Liquidator Colaba Land and Mill Co. Ltd. (1981) 51 Company Cases 20 and Re: PMP Auto Industrial Ltd. (1994) 80 Company Cases 289. (20) The impact of Section 77A which was introduced by the Companies (Amendment) Act, 1999 will have to be considered in the light of afore stated provisions as interpreted by the Courts. Section 77A was introduced pursuant to the Report of the Working Group which was set up to suggest reforms to the Companies Act. It would be useful to refer to paras 3.9 and 3.10 of the report which read as under - "3.9 There is an erroneous belief that the sole reason for buyback is to block hostile takeovers. In this connection it is pertinent to list the five reasons why the Bank of England favoured the making of law to allow companies to repurchase their shares, of which blocking takeovers was only one. (a) to return surplus cash to shareholders (b) to increase the underlying share value (c) to support share price during periods of temporary weakness (d) to achieve or maintain a target capital structure. (e) To prevent on inhibit unwelcome takeover bids. 3.10 Almost all OECD countries allow companies to buy back shares subject to certain regulations. Unfortunately, section 77 (read with section 100) of the Act prevents buyback. In today's context, the Group strongly believes that this section is antiquated, and goes against the long term interests of corporate sector growth and shareholders value. Hence, the Group recommends that: The new Act should provide for buy back of shares subject to certain provisions (21) Section 77A along with section 77AA and section 77B have been introduced pursuant to the Working Committee's Report to provide for buy-back of its own shares by the company subject to safeguards specified therein. Section 77A in so far as it is material for our purpose reads as follows: "77A(1) Notwithstanding anything contained in this Act, but subject to the provisions of subsection (2) of this section and Section 77B, a company may purchase its own shares or other specified securities (hereinafter referred to as 'buy-back) out of-- (i) its free reserve ; or (ii) the securities premium account; or (iii) the proceeds of any shares or other specified securities; Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. (2) No company shall purchase its own shares or other specified securities under subsection (1), unless - (a) the buyback is authorised by its articles ; (b) a special resolution has been passed in general meeting of the company authorising the buy-back Provided that nothing contained in this clause shall apply in any case where - (a) the buyback is or less than the percent of the total paid up equity capital and free reserves of the company ; and (b) such buy back has been authorised by the Board by means of a resolution passed at its meeting ; Provided further that no offer of buy back shall be made within a period of three hundred and sixty five days reckoned from the date of the preceding offer of buyback, if any ; Explanation For the purposes of this clause, the expression offer of buy back means the offer of such buy back made in pursuance of the resolution of the Board referred in the first proviso ; (c) the buyback for less than twenty five per cent of the total paid up capital and free reserves of the company; Provided that the buyback of equity shares in any financial year shall not exceed twenty five per cent of its total paid up equity capital in that financial year. (d) The ratio of the debt owned by the company is not more than twice the capital and its free reserves after such buyback; Provided that the Central Government may prescribe a higher ratio of the debt than that specified under this clause for a class or classes of companies Explanation:- For the purposes of this clause, the expression "debt" includes all amounts of unsecured and secured debts; (e) all the shares or other specified securities for buy back are fully paid up ; (f) the buy back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the regulations made by the Securities and Exchange Board of India in this behalf. (g) the buy back in respect of shares of other specified securities other than those specified in Clause (f) is in accordance with the guidelines as may be prescribed (3) The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by explanatory statement stating - (a) a full and complete disclosure of all material facts ; (b) the necessity for the buy back ; (c) the class of security intended to be purchased under the buy-back (d) the amount to be invested under the buy-back; and (f) the time limit for completion of buy-back (4) Every buyback shall be completed within twelve months from the date of passing the special resolution (or a resolution passed by the Board) under Clause (b) of subsections (2), (5) (22) The opening words of section 77A viz. "Notwithstanding anything contained in this Act, but subject to the provisions of subsection (2) of this section and section 77B, a company may purchase its own shares or other specified securities...." Shows that section 77A is a facilitating provision which enables the companies to buy back their shares without having' to approach the court under section 391 and sections 100-104 subject to compliance with the provisions of subsections (2), (3) and (4). Prior to the introduction of section 77A, the only manner in which a company could buy back its share, was by following the procedure set out under sections 100-104 and Section 391 which required the causing of separate meetings of each class of shareholders and creditors as well as (if required by the Court) the drawing up of a list of credits of the company and obtaining of their consent to the scheme for reduction. The legislative intention behind introduction of section 77A is to provide an alternative method by which a company may buy back upto 25% of its total paid up equity capital in any financial year subject to compliance with subsections (2), (c) and (4). It does not supplant or take away arty part of the pre-existing jurisdictions of the Company Court to sanction a scheme for such reduction under sections 100-104 and section 391. (23) The submission of the appellants that the non-obstante clause in section 77A gives precedence to that section over the provisions of sections 100-104. Section 391 is misconceived. The non-obstante clause in section 77A namely "notwithstanding anything contained in this Act..." only mean that notwithstanding the provisions of section 77 and sections 100-104, the company can buy back its shares subject to compliance with the conditions mentioned in that section without approaching the court under sections 100-104 or section 391. There is nothing in the provision of section 77A to indicate that the jurisdiction of the court under section 391 or 394 has been taken away or substituted. It is well settled that the exclusion of the jurisdiction of the Court should not readily be inferred; such exclusion should be explicitly or clearly implied. There is nothing in the language of section 77 that gives rise to such an inference. We are, therefore, inclined to hold that section 77A is merely art enabling provision and Court's powers under sections 100-104 and Section 391 are not in any way affected. The conditions provided in section 77A are applicable only to buy-back of shares under section 77A. The conditions applicable to sections 100-104 and section 391 cannot be imported into or made applicable to a buy-back under section 77A similarly, the conditions for a buy-back under section 77A cannot be applied to a scheme under sections 100-104 and section 391. The two operate in independent fields. (24) It is not disputed before us that reduction in the capital can be effected under sections 77 read with sections 100-104 and 391 even in the case of buy-back of shares. However, it is contended that the optional sale by the Shareholders would not amount to arrangement or reorganization of the capital and would not therefore cover section 391 read with section 100 of the Companies Act. We are unable to accede to this contention as even in cases where capital is reduced by optional sale reduction results after the option is exercised to the extent of the shares cancelled. This is as equally a reduction of capital as in the case of compulsory cancellation of shares. We do not see any distinction between the two on the aspect of the reduction. The word arrangement is of wide import and is not restricted to a compulsory purchase or acquisition of shares. There is no reason as to why a cancellation of shares and, the consequent reduction of capital cannot be covered by section 391 read with section 100 merely because a shareholder is given an option to cancel or to retain his shares. In view of the foregoing discussions, the objection of the appellants based on section 77A must be rejected. (25) The principal attack against the scheme sanctioned by the Company Judge is that the scheme treats the silence of shareholders as an offer. It is contended that this is contrary to the well established principles of transfer of shares. It is also contended that this violates various provisions of various laws such as Companies Act, Depositories Act, and SEBI and NSQL Regulations. On behalf of the company, it was vehemently contended that the Central Government should not be allowed to raise this contention for the first time in appeal, when the scheme has been substantially implemented and no objection was raised to the scheme before the learned Company Judge. It is submitted that when the shareholders have of the terms of offer and of the acceptance by passing the required resolution, it does not fall within the province of the company court to sit in judgment over that commercial wisdom and to interfere with that decision. An order of a court requiring transfer or cancellation has never been subject to the procedural requirement of even the Companies Act, let alone Bye-laws made by the NSDL. In fact, the NSDL Bye-laws themselves provide a transaction or to take any other action in order to give effect to the order or judgment of a court. A number of decisions have been cited by both sides in support of their respective contentions. We feel that it would be highly unjust to allow the Central Government to raise an objection of this nature at the appellate stage. The draft order of the learned company Judge records that the Central Government has submitted to the order of the court. The learned Judge specifically recorded in the minutes of order that the Central Government has no objection to the scheme. As indicated earlier a vast majority of shareholders have exercised their option in accordance with the scheme. The volute of the cheques deposited and realised by the shareholders in response to the option is more than Rs. 158 crores. In these circumstances, in our opinion it would be wholly inequitable to entertain this objection at such belated stage. Although we are not inclined to accept the submission that a deemed or negative consent should not be permitted, we wish to make it clear that our order should not be understood to mean that we have approved such a provision. We have been told that several such schemes containing provisions of deemed or negative consent have been filed before the Company Judge. It will be open for the Central Government to raise objection to such schemes and if such objection is raised we are sure that the learned Company Judge will deal with the same in accordance with /aw" The above precedent which in itself is self explanatory arid comprehensive not only authenticate the buyback schemes for the better prospects but also highlight its importance precisely leading to trends of open market. However, the basic principle has always been just, fair and equitable compensation to the shareholders or class of share holders, along with buy back price. This arrangement is fully attracted: (i) where shares were either of no commercial value to the dissenting shareholders or (ii) will never bring them any profit whereas, on the other hand higher amount is being paid to them in the form of fair, just and equitable compensation. Therefore, after placing all the facts, reasons, precedents and principles above, it is now to be resolved if a failing corporate structure with record number of companies incorporated is better or the growing economy with some hard arrangements made. I believe the answer is much obvious. Keeping the corporate structure working is much positive then registration of companies, many of whom would not even last within a year and then we would only be left with Easy Exit Schemes at the cost of economic growth, unemployment and loss to national exchequer. ***