2003 (8) TMI 409 - HC - Companies Law

Amalgamation of Companies: Cross-Border Merger Sanctioned

The court granted sanction for the scheme of amalgamation under sections 394 and 391(2) of the Companies Act, allowing the transfer of assets, ... Amalgamation Issues Involved:1. Sanction of the scheme of arrangement for amalgamation under section 394 read with section 391(2) of the Companies Act.2. Compliance with legal requirements for amalgamation involving a foreign company.3. Approval from shareholders and creditors.4. Regulatory compliance and objections from the Central Government.5. Legal interpretation of relevant sections of the Companies Act and California Corporations Code.Detailed Analysis:1. Sanction of the Scheme of Arrangement for Amalgamation:The petitioner, a transferee company, sought sanction for a scheme of arrangement for amalgamation under section 394 read with section 391(2) of the Companies Act. The transferee company was incorporated on 27-7-1999 and subsequently converted into a public limited company. The transferor company, Veracity Technologies Inc., is incorporated in the USA. The scheme envisages the transfer of all assets, liabilities, and employees from the transferor to the transferee company. The transferee company will issue equity shares to the members of the transferor company as part of the arrangement.2. Compliance with Legal Requirements for Amalgamation Involving a Foreign Company:The court examined the compliance with section 394(4) and section 2(7) of the Companies Act. Section 394(4) allows the transferor company to be a body corporate, including a foreign company, while the transferee company must be a company within the meaning of the Act. The court found no legal bar for the amalgamation between an Indian company and a foreign company, provided it complies with the laws of both countries. The California Corporations Code section 1108 supports such mergers, allowing the merger to be effective upon filing the court order in California.3. Approval from Shareholders and Creditors:The scheme received unanimous approval from the shareholders of the petitioner company, with 91 out of 93 shareholders voting in favor. The transferor company's shareholders provided written consent. The transferee company has only trade creditors, and the transferor company has no creditors. The scheme does not involve any compromise with creditors, and the assets of the transferee company are sufficient to meet all liabilities.4. Regulatory Compliance and Objections from the Central Government:Notices were issued to the Central Government, and publications were made in newspapers. The Registrar of Companies filed a report indicating no objections from the Central Government. The report also mentioned that the filing of the court order in California would automatically dissolve the transferor company, negating the need for a separate dissolution order.5. Legal Interpretation of Relevant Sections:The court interpreted sections 394 and 2(7) of the Companies Act, confirming that a body corporate includes a foreign company and that the transferee company must be an Indian company. The court also referenced section 1108 of the California Corporations Code, which allows for mergers between domestic and foreign corporations, making the merger effective upon filing the court order in California. The court emphasized the need for a liberal view in the context of globalization, suggesting a modification of the law to facilitate such cross-border amalgamations.Conclusion:The court granted the necessary sanction for the scheme of amalgamation, finding no legal or regulatory barriers. The order was to be drafted in Form No. 42 with modifications specific to the case and filed with the Registrar of Companies within thirty days.