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of <h1>Second proviso to Companies Act Section 394(1) not always mandatory in amalgamation cases. Dissolution not mandatory.</h1> <h3>Mathew Philip Versus Malayalam Plantations (India) Ltd.</h3> The Full Bench concluded that the second proviso to Section 394(1) of the Companies Act is not always applicable in cases of amalgamation, and dissolution ... Amalgamation Issues Involved:1. Necessity of a report from the official liquidator under the second proviso to Section 394 of the Companies Act for sanctioning amalgamation.2. Applicability of the second proviso to Section 394(1) in cases of amalgamation.3. Whether dissolution without winding up is necessary in all cases of amalgamation.Detailed Analysis:1. Necessity of a Report from the Official Liquidator under the Second Proviso to Section 394 of the Companies Act for Sanctioning Amalgamation:The appellants contended that the High Court cannot sanction any arrangement for amalgamation without obtaining a report from the official liquidator to the effect that the affairs of the transferor company have not been conducted prejudicially to the interest of its members or to the public. This contention is based on the second proviso to Section 394 of the Companies Act, which mandates such a report as indispensable for granting the sanction. The learned single judge repelled this contention, relying on the decision of the Division Bench in Official Liquidator v. Madura Co. P. Ltd. [1975] KLT 562. The Division Bench, while hearing the appeal, felt that the decision in Madura Co. P. Ltd. requires reconsideration and hence referred the matter to the Full Bench.2. Applicability of the Second Proviso to Section 394(1) in Cases of Amalgamation:The Full Bench examined whether the second proviso to Section 394(1) applies to all cases of amalgamation or only to those involving companies under winding up. The court noted that the second proviso is intended to apply to cases where 'dissolution without winding up' takes place. The Division Bench in Madura Co. P. Ltd. had held that the second proviso would apply only in cases where the first proviso applies, emphasizing the word 'further' to denote an additional safeguard. However, the Full Bench disagreed, stating that the word 'further' is often used in legislative drafting to indicate the beginning of a new clause and does not necessarily mean that it is an additional provision in conformity with the preceding proviso.The court referred to various judgments, including those from the Madras High Court, Karnataka High Court, and Calcutta High Court, which supported the view that the second proviso may operate in different situations and is not necessarily dependent on the first proviso. The court concluded that the second proviso to Section 394(1) can apply independently and is not restricted to situations covered by the first proviso.3. Whether Dissolution Without Winding Up is Necessary in All Cases of Amalgamation:The court examined whether 'dissolution without winding up' is a necessary consequence of amalgamation. It noted that 'amalgamation' involves the blending or uniting of two or more undertakings into one, but it does not necessarily result in the dissolution of the transferor company. The court referred to the definition of 'dissolution' under Section 481 of the Companies Act, which involves the complete winding up of a company's affairs or the court's opinion that the liquidator cannot proceed with the winding up due to lack of funds or other reasons.The court emphasized that the legal process of dissolution can take place after the commencement of winding up steps, and 'dissolution without winding up' means dissolution without completely winding up the company. Therefore, dissolution is not an inevitable consequence of amalgamation, and the second proviso to Section 394(1) need not apply in all cases of amalgamation.In this case, the petitioners did not make out a case for the dissolution of the transferor company, despite including a prayer for dissolution among other reliefs. The court found no scope for ordering dissolution based on the facts and concluded that the amalgamation could be sanctioned without granting the relief for dissolution.Conclusion:The Full Bench concluded that the second proviso to Section 394(1) of the Companies Act is not necessarily applicable in all cases of amalgamation and that dissolution without winding up is not a mandatory consequence of amalgamation. The court confirmed the learned single judge's order sanctioning the amalgamation without granting the relief for dissolution and sent the case back to the Division Bench for disposal of the appeal, addressing other factual issues if raised.
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