Amalgamation of a sick company upheld where revival conditions were met and company-law and MRTP objections failed.

A scheme of amalgamation involving a sick and financially unviable transferor-company was treated as consistent with section 72A of the Income-tax Act because the arrangement was linked to rehabilitation and revival, and the scheme itself was conditional on the Central Government's declaration. The share acquisition objection under section 372(4) of the Companies Act, 1956 was not sustained, since the transferor became a wholly owned subsidiary and investments by a holding company in its subsidiary were excluded by section 372(14)(d). The MRTP objection also failed because no operative contravention under section 26 was shown, and the amalgamation was not barred under section 23.

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Issues: (i) whether a scheme of amalgamation involving a sick and financially unviable transferor-company could be sanctioned in the light of section 72A of the Income-tax Act, 1961; (ii) whether the acquisition of shares by the transferee-company violated section 372(4) of the Companies Act, 1956, or was saved by section 372(14)(d) thereof; and (iii) whether liability to registration under section 26 of the Monopolies and Restrictive Trade Practices Act, 1969, barred sanction of the amalgamation under section 23 of that Act.

Issue (i): whether a scheme of amalgamation involving a sick and financially unviable transferor-company could be sanctioned in the light of section 72A of the Income-tax Act, 1961.

Analysis: Section 72A contemplates amalgamation where the amalgamating company is not financially viable and where the amalgamation is intended to facilitate rehabilitation or revival. The scheme itself was made conditional upon the Central Government's declaration under that provision. On that statutory footing, the objection that the transferor-company was sick and therefore the amalgamation should not be permitted was rejected.

Conclusion: The objection failed, and the amalgamation was held consistent with section 72A of the Income-tax Act, 1961.

Issue (ii): whether the acquisition of shares by the transferee-company violated section 372(4) of the Companies Act, 1956, or was saved by section 372(14)(d) thereof.

Analysis: The share purchases were traced through subsidiaries and thereafter by the holding company, resulting in the transferor-company becoming a wholly owned subsidiary. In that situation, even assuming section 372 applied, no breach of sub-section (4) was found. In addition, section 372 was held inapplicable because investments by a holding company in its subsidiary are expressly excluded by section 372(14)(d).

Conclusion: No contravention of section 372(4) of the Companies Act, 1956 was established, and section 372 was held not to apply.

Issue (iii): whether liability to registration under section 26 of the Monopolies and Restrictive Trade Practices Act, 1969, barred sanction of the amalgamation under section 23 of that Act.

Analysis: The correspondence showed that the authorities had sought particulars but had taken no further action for a substantial period. On that material, the Central Government was presumed to have been satisfied that the transferee-company did not attract the operation of the MRTP Act. The objection based on section 23 therefore lacked merit.

Conclusion: The MRTP objection was rejected and did not preclude sanction of the amalgamation.

Final Conclusion: The scheme of amalgamation was approved and sanctioned, all substantive objections to the proposed merger being overruled.

Ratio Decidendi: A scheme of amalgamation may be sanctioned where the statutory conditions indicate revival of a financially unviable company, and objections under company-law or MRTP provisions fail when no legal contravention is established and the subsidiary exclusion applies.

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