2005 (8) TMI 393 - HC - Companies Law

Court approves amalgamation scheme, dismisses objection, orders dissolution without winding up.

The court sanctioned the scheme of amalgamation between the transferor and transferee companies, approving the merger under specified terms and ... Sanction of scheme of amalgamation under section 391 of the Companies Act, 1956 - Court's power to effect alterations in memorandum and articles while sanctioning a scheme (single window clearance) - Amendment of memorandum by special resolution not required prior to sanction under section 391 - Compliance with statutory notice and publication requirements for sanction - Transfer of employees pursuant to a sanctioned scheme - Official liquidator's report on affairs not being prejudicial to members or public interestSanction of scheme of amalgamation under section 391 of the Companies Act, 1956 - Compliance with statutory notice and publication requirements for sanction - Sanction of the proposed scheme of amalgamation between the transferor company and the transferee company - HELD THAT: - The court found that all requisite statutory procedures envisaged by section 391 (including meetings, notices and publication) had been complied with and that the scheme, as set out in annexure P1, defined the liabilities of both companies, was not violative of law or public policy and had been approved by the concerned shareholders, creditors and other parties whose consents were necessary. No adverse objections were received on publication and the court was satisfied that creditors and classes of creditors had acted in good faith. Having regard to these factors, the court concluded that there was no reason to withhold sanction and therefore sanctioned the scheme, ordering dissolution of the transferor company without winding up and amalgamation with the transferee company. [Paras 13, 14]Scheme of amalgamation annexure P1 is sanctioned; transferor company dissolved without winding up and amalgamated with transferee company.Court's power to effect alterations in memorandum and articles while sanctioning a scheme (single window clearance) - Amendment of memorandum by special resolution not required prior to sanction under section 391 - Objection of the Regional Director that the transferee company's memorandum required prior amendment by special resolution was rejected - HELD THAT: - The court accepted the view, supported by High Court authorities, that section 391 constitutes a complete code empowering the court to sanction a scheme which may include necessary alterations to a company's memorandum and articles for effectuation of the scheme. Except in limited cases (e.g. reduction of share capital where specific rules apply), the procedural requirements under other provisions of the Companies Act need not be followed before sanction; the scheme itself, when sanctioned, can effect such changes as part of a 'single window clearance' to avoid repeated applications. Applying these precedents and reasoning to the present facts, the court held that the Regional Director's objection lacked substance and rejected it. [Paras 10, 11, 12]Regional Director's objection regarding the need for prior amendment of the memorandum is rejected; the court may sanction alterations necessary for effectuation of the scheme under section 391.Official liquidator's report on affairs not being prejudicial to members or public interest - The official liquidator's report that the affairs of the transferor company did not appear to have been conducted in a manner prejudicial to members or public interest was accepted - HELD THAT: - The official liquidator filed a report supported by an accountant's examination and qualified report; on the basis of that material the official liquidator recorded that, notwithstanding auditor observations, the affairs of the transferor company did not appear to be conducted prejudicially to members or public interest. The court noted and relied upon this report in its overall satisfaction that the scheme could be sanctioned. [Paras 9]Official liquidator's report accepted as indicating no conduct prejudicial to members or public interest.Final Conclusion: The High Court sanctioned the amalgamation scheme under section 391 of the Companies Act, 1956, rejected the Regional Director's objection that prior amendment of the transferee company's memorandum was necessary, accepted the official liquidator's report, ordered dissolution of the transferor company without winding up and directed publication and incidental compliance as specified. Issues Involved:1. Sanctioning of the scheme of amalgamation.2. Objection by the Regional Director regarding the amendment of the memorandum of association.3. Compliance with statutory procedures and public notice.4. Approval and consent from creditors and shareholders.5. Dissolution of the transferor company without winding up.Issue-wise Detailed Analysis:1. Sanctioning of the Scheme of Amalgamation:The petition was filed under sections 391 to 394 of the Companies Act, 1956, seeking the court's sanction for the scheme of amalgamation between the transferor and transferee companies. The scheme, approved by the members and creditors of both companies, aimed to merge and amalgamate the transferor company with the transferee company under specified terms and conditions. The court noted that the scheme was designed to facilitate effective management and unified control of operations.2. Objection by the Regional Director:The Regional Director, Northern Region, Ministry of Company Affairs, Kanpur, raised an objection regarding the amendment of the memorandum of association of the transferee company. According to the Regional Director, the amendment could only be made following the procedures prescribed under the Companies Act, 1956, which included passing a special resolution in a general meeting and filing the relevant form with the Registrar of Companies. The court, however, rejected this objection, citing precedents from various High Courts, which held that section 391 of the Companies Act is a complete code that allows the court to sanction a scheme involving necessary alterations without requiring multiple applications under different provisions of the Act.3. Compliance with Statutory Procedures and Public Notice:The court observed that all requisite statutory procedures had been complied with. Notices were issued to the Regional Director and the official liquidator, and public notices were published in specified newspapers and the Haryana Government Gazette. The court verified the completion of publication through affidavits and authenticated copies of the publications.4. Approval and Consent from Creditors and Shareholders:The scheme of amalgamation received approval from all concerned parties. The unsecured creditors of the transferee company held a meeting as directed by the court, and the chairman filed a report confirming the approval. The transferor company had no secured creditors, while the transferee company had one secured creditor, Sundaram Finance Ltd., which also consented to the scheme. Both companies had two equity shareholders each, all of whom approved the scheme and gave their consent.5. Dissolution of the Transferor Company Without Winding Up:The court sanctioned the scheme of amalgamation and ordered that the transferor company be dissolved without the process of winding up. The court directed that the order be notified by public notice in specified newspapers and the Haryana Government Official Gazette within 30 days. The official liquidator was entitled to Rs. 1,000 as expenses from the transferee company.Conclusion:The court found that the scheme of amalgamation was not violative of any law or public policy and that the creditors and shareholders acted in good faith. The amalgamation was expected to improve the financial structure and cash flow management of the transferee company. The court sanctioned the scheme, ordered the dissolution of the transferor company without winding up, and allowed any interested person to approach the court for necessary directions. A formal order was to be drawn up, and copies provided to the petitioners' counsel and the official liquidator.