1998 (3) TMI 544 - HC - Companies Law

Court approves ICICI and ITC Classic Finance Ltd. amalgamation with conditions

Industrial Credit & Investment Corpn. of India Ltd. Versus Financial & Management Services Ltd.

Industrial Credit & Investment Corpn. of India Ltd. Versus Financial & Management Services Ltd. - [1998] 17 SCL 429 (BOM.) Issues Involved:1. Sanctioning of the scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956.2. Validity of the creditors' right to be heard in the proceedings.3. Jurisdictional aspects of the High Courts of Bombay and Calcutta.4. Financial stability and obligations of the transferee company.5. Procedural safeguards for creditors of the transferor company.Issue-wise Detailed Analysis:1. Sanctioning of the scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956:The petition was filed by ICICI to sanction the arrangement as per the scheme of amalgamation with ITC Classic Finance Ltd. The scheme was approved by the board of directors on 1-12-1997, and necessary meetings were held on 12-1-1998, where the majority of equity shareholders, convertible debenture holders, and preference shareholders voted in favor of the scheme. The Court noted that the scheme had not been opposed by any shareholders or debenture holders of the petitioner company, and the financial stability of the transferee company was not in doubt.2. Validity of the creditors' right to be heard in the proceedings:Three intervenors, including Standard Chartered Bank, Financial & Management Services Limited, and Bombay Electric Supply and Transport Undertaking (BEST), appeared in the proceedings to safeguard their dues from the transferor company. The Court examined whether the creditors of the transferor company had the right to be heard in the petition filed by the transferee company. The Court concluded that creditors of the transferor company have no locus to be heard in the present proceedings initiated by the transferee company, as their claims cannot be adjudicated in this jurisdiction.3. Jurisdictional aspects of the High Courts of Bombay and Calcutta:The petition by the transferee company, ICICI, was filed in the High Court of Bombay, while a similar petition by the transferor company, ITC Classic Finance Ltd., was pending in the High Court of Calcutta. The Court referred to section 10 of the Companies Act, which delineates the jurisdiction of the Court based on the location of the registered office of the company. It was noted that both Courts must sanction the scheme for it to become operative, ensuring that the proceedings are governed by section 10.4. Financial stability and obligations of the transferee company:The Court examined the financial stability of ICICI and the scheme's provisions for taking over all debts, liabilities, duties, and obligations of the transferor company. Clause 3(a) and Clause 8 of the scheme were highlighted, which commit the transferee company to assume all liabilities and safeguard unknown transactions. The Court found no reason to doubt the financial ability of ICICI to meet these obligations.5. Procedural safeguards for creditors of the transferor company:The Court acknowledged the concerns of the intervenors regarding the safeguarding of their dues. It was emphasized that the scheme includes provisions for the continuance and initiation of suits for the dues of the transferor company against the transferee company. The Court referred to the judgments of the Gujarat High Court and Delhi High Court, which held that creditors of the transferor company are not entitled to participate in the proceedings initiated by the transferee company. However, the Court expressed hope for legislative amendments to allow such participation to safeguard creditors' interests.Conclusion:The Court sanctioned the scheme of amalgamation with the condition that it shall bind the creditors of the transferor company only upon appropriate orders being passed by the High Court at Calcutta. The scheme will become operative only after the same is granted by the High Court at Calcutta. The Company Petition was allowed with this modification, and the Company Application was disposed of as infructuous.