Prior section 372 breach did not bar sanction of an amalgamation scheme under section 391, given separate penal remedy.

A prior or collateral breach of the investment restrictions under section 372 of the Companies Act, 1956 did not by itself prevent sanction of an amalgamation scheme under section 391. The Court treated the alleged section 372 default as a past and separate transaction unrelated to the proposed arrangement, and noted that the Act provided a specific penal remedy for contravention under section 374. The transferee-company's earlier shareholding changes and compliance history did not create a statutory bar to approval of the scheme, particularly where the official liquidator reported no objection. Accordingly, the amalgamation petitions were allowed.

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Issues: Whether a prior and separate violation of the investment restrictions under section 372 of the Companies Act, 1956 by the transferee-company barred sanction of the scheme of amalgamation under section 391.

Analysis: The scheme was sought under section 391, with the official liquidator's report under section 394(1) showing no objections. The objection rested on the allegation that the transferee-company had earlier breached section 372(2) by acquiring shares beyond the prescribed limit. The Court noted that section 372(14) excluded a private company unless it was a subsidiary of a public company, and the transferee-company had undergone changes in shareholding and status, including reconversion after compliance with section 43A. The alleged breach was treated as a past and separate transaction, unconnected with the proposed amalgamation. The Act also provided a specific penal remedy under section 374 for any contravention of section 372, so the alleged default did not create a statutory prohibition against the amalgamation scheme. The earlier decision approving amalgamation despite possible section 372 implications supported the view that section 372 operated in a different field and did not control the present scheme.

Conclusion: The alleged violation of section 372 did not bar sanction of the amalgamation scheme, and the petitions were allowed.

Ratio Decidendi: A prior or collateral breach of section 372 of the Companies Act, 1956 does not by itself constitute a legal impediment to sanctioning an amalgamation scheme under section 391, especially where the statute provides a separate penal remedy and the alleged breach is unrelated to the proposed arrangement.

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