2007 (1) TMI 263 - HC - Companies Law

Amalgamation without share capital increase upheld, Delhi High Court precedent cited

The Court held that amalgamation does not require an increase in share capital, following previous decisions and aligning with the Delhi High Court ... Compromise and arrangement Issues involved: The judgment involves the interpretation of provisions of the Companies Act, 1956, specifically u/s 391, 394, 94, 94A, 95, and 97, regarding the sanction of a scheme of arrangement for amalgamation of companies and the requirement of increasing authorized share capital post-amalgamation.Judgment Details:Issue 1: Scheme of Amalgamation ApprovalThe appeals were filed against the order approving the scheme of amalgamation of a transferor Company with a transferee Company. The Court admitted the Company Petition and directed publication as per Companies (Court) Rules, 1959. The Official Liquidator supported the merger for efficient resource utilization. However, objections were raised by the Regional Director of the Department of Company Affairs, particularly regarding Clause 10 of the Scheme, which proposed clubbing the authorized share capital of both companies. The Court accepted the Scheme with the condition that Clause 10 would not be part of the approved scheme.Issue 2: Interpretation of Sections 94 to 97The question arose whether amalgamation necessitates the transferee Company to increase its authorized share capital u/s 94 to 97 of the Act. The appellants argued that section 394 of the Act is independent and not controlled by section 97. They contended that no notice under section 97 is required post-amalgamation as assets are transferred, and merger is certified by the Court. Previous judgments supported this view, emphasizing that amalgamation results in a new entity and not a mere bilateral arrangement.Judgment OutcomeThe Court, aligning with previous decisions and the Delhi High Court judgment, held that amalgamation leads to the formation of a new entity and does not mandate an increase in share capital. Therefore, the order disallowing Clause 10 of the Scheme was set aside in one appeal, while the other appeals were dismissed. The Company Petitions were referred back to the Single Judge in light of the judgment outcomes.