2005 (2) TMI 531 - HC - Companies Law

Court Sanctions Amalgamation Scheme Under Companies Act, 1956

The court sanctioned the amalgamation scheme under sections 391 to 394 of the Companies Act, 1956, finding that the automatic cancellation of shares due ... Amalgamation Issues Involved:1. Sanction of an amalgamation scheme under sections 391 to 394 of the Companies Act, 1956.2. Compliance with procedural requirements under section 101(2) of the Companies Act, 1956, for reduction of share capital.Issue-wise Detailed Analysis:1. Sanction of an Amalgamation Scheme under Sections 391 to 394 of the Companies Act, 1956:The petitions were filed by the transferor and transferee companies seeking sanction for an amalgamation scheme. The board of directors of the transferor company approved the scheme on 16-3-2004, and a court order for convening meetings of equity shareholders and creditors was passed on 6-5-2004. A special resolution approving the scheme was passed in these meetings. The procedural requirements for amalgamation under the Companies Act and Company Court Rules were complied with. The Regional Director confirmed no objections except for the procedure for reduction of capital under section 101(2).2. Compliance with Procedural Requirements under Section 101(2) of the Companies Act, 1956, for Reduction of Share Capital:The Regional Director raised an objection regarding Clause (20.2)(a) of the amalgamation scheme, which involved the automatic cancellation of shares held by the transferor company in the transferee company. This cancellation was argued to amount to a reduction in share capital, necessitating compliance with sections 100 and 101 of the Companies Act. The shares held by the transferor company would be extinguished upon amalgamation, reducing the share capital by 6,38,109 equity shares.The petitioner argued that this reduction in share capital was an automatic effect of amalgamation, as the transferor company would cease to exist, and the transferee company could not allot shares to itself. The petitioner relied on judgments from the Madras High Court (Asian Investments Ltd., In re [1992] 73 Comp. Cas. 517) and Calcutta High Court (Mcleod & Co. v. S.K. Ganguly [1975] 45 Comp. Cas. 563), asserting that the prescribed procedure of section 101(2) need not be followed in cases of automatic reduction by operation of law.The court analyzed section 101, noting that sub-section (2) applies to cases involving diminution of liability in respect of unpaid share capital, payment to shareholders of paid-up share capital, and any other cases. The court emphasized that the third category should be read in context with the preceding categories, focusing on protecting creditors' interests. The court concluded that automatic cancellation of shares due to amalgamation does not necessitate compliance with section 101(2), as it does not adversely affect creditors.The court also considered the judgment in PMP Auto Industries Ltd., In re [1994] 80 Comp. Cas. 289 (Bom.), which supported the view that section 391 is a complete code for amalgamation and does not require compliance with other provisions for reduction of capital.Conclusion:The court found no merit in the Regional Director's objection and sanctioned the amalgamation scheme, making the petitions absolute in terms of the prayer clauses. The Official Liquidator had no objections to the scheme.