HIGH COURT OF MADRAS
RBR Knit Process (P.) Ltd., In re
MRS. CHITRA VENKATARNMAN, J.
C.P. NOS. 171 OF 2006
December 1, 2006
Section 394 of the Companies Act, 1956 - Amalgamation - Whether
Company Court can sanction scheme of amalgamation regardless of fact as to
whether power to amalgamate with another company is contained in memorandum of
concerned company or not - Held, yes - Regional Director of Company Affairs
objected scheme of amalgamation of two transferor-companies with
transferee-company on ground that certain amount was shown in balance sheets of
transferor-companies as application money pending allotment, but nothing had
been mentioned in scheme as to how said amount would be treated in books of
transferee-company pursuant to amalgamation - Whether since scheme contemplated
that all duties, liabilities and obligations of transferor companies would be
transferred to or vested in transferee-company pursuant to provisions of
section 394 so as to become assets or liabilities of transferee-company, amount
in question would be treated as unsecured loan in books of account of
transferee-company and, therefore, there was no merit in objection of Regional Director - Held, Yes
The company petitions were filed for sanctioning the proposed scheme of
amalgamation of two transferor-companies with the transferee-company. The transferor-companies were wholly owned
subsidiaries of the transferor-company.
The scheme had been unanimously approved by the shareholders and
creditors of both the transferor-companies and the transferee-company. On notice, the Regional Director, Ministry
of Company Affairs had raised three objections to the scheme namely, (i)
after that amalgamation if transferee company would increase its authorised
capital, it had to comply with provisions of sections 94 and 97; (ii)
that there was certain sum shown as application money pending allotment in the
balance sheets of transferor companies, but nothing had been mentioned in the
scheme as to how the said application money would be treated in the books of
the transferee-company; and (iii) that there was no enabling provision
for amalgamation in the memorandum of association of the second
transferor-company.
As regards the first objection on the clubbing of two notional limits, the petitioners placed reliance on the decision of the court reported in Cavin Plastics & Chemicals P. Ltd., In re [2006] 129 Comp Cas 915 (Mad.). Under the circumstances, there were no merits in the objection raised to stand in the way of grant of approval to the scheme. [Para 24]
In so far as the second objection was concerned, the petitioners pointed out that clause 2 of the scheme contemplated that all duties, liabilities and obligations of the transferor-companies to be transferred or deemed to have been transferred to or vested in the transferee-company pursuant to the provisions of section 394 so as to become the assets or the liabilities of the transferee-company. Considering the fact that the said amount had been shown in the balance sheets of the transferor-companies, there was fair disclosure that the same would be treated as a part of its liability. Hence, it would be treated as a unsecured loan in the books of account of the transferee-company. In the above circumstances, there could not be any objection to that. [Para 25]
As regards the third objection that there was no enabling provisions for amalgamation in the memorandum of association of the transferor-company 2, the Delhi High Court in Highland Electro Appliances (P.) Ltd., In re [2003] 42 SCL 516, held that by invoking sections 391 and 393, there are no fetters on the exercise of such powers regardless of whether the power to amalgamate with another company is contained in the memorandum of the concerned company, the company can still go for an amalgamation. [Paras 26 and 27]
In the wake of such enunciation of the law, there was no ground for sustaining the objection taken by the Regional Director. [Para 28]
A perusal of the scheme showed that it protected the interest of the employees of the transferor-companies and, thus, the interest of the employees were taken care of. The scheme provided for dissolution of the transferor-companies without winding up. There was no objectionable feature in the scheme of amalgamation which was detrimental either to the employees of the transferor-companies or of the transferee-company. The said scheme was not violative of any statutory provisions. The scheme was fair, just, sound and was not against any public policy or public interest. No proceedings were pending under sections 231 to 237. All the statutory provisions had been complied with. [Para 29]
Consequently, there would be an order approving to the scheme of amalgamation of the transferor-companies with the transferee-company. The petitions were to be allowed.
Cavin Plastics & Chemicals (P.) Ltd., In re [2006] 129 Comp Cas 915 (Mad.) -followed