2007 (10) TMI 404 - HC - Companies Law

Court approves amalgamation scheme, waives meetings. Companies Act compliance directed. Accounting Standard 14 emphasized post-amalgamation.

Elchico Espresso Snacks Bar (P.) Ltd., In re

The court approved the scheme of amalgamation between closely held companies, waiving the need for shareholder and creditor meetings. It directed actions ... Amalgamation - Held that:- The objections to the confirmation of the scheme of amalgamation except to raise paid-up capital of the transferor company to ₹ 1 lakh are not found to be valid. The company application is allowed. The scheme of amalgamation is confirmed and will come into effect from the appointed date given in the scheme subject to conditions that the company will increase its paid-up capital of the transferor company within one month. Thereafter, the transferor-company shall stand dissolved without any order of winding up by the Court. The office will issue formal order in the prescribed form within four weeks from the date of affidavit of compliance along with proof of increase of paid-up capital of the transferor company. Issues:1. Approval of the scheme of amalgamation2. Compliance with Companies Act, 19563. Accounting Standard 14 complianceIssue 1: Approval of the scheme of amalgamationThe court considered a company petition seeking approval for the 'scheme of amalgamation' between closely held transferor and transferee companies with common business interests. The court dispensed with the requirement of holding meetings for shareholders and creditors after reviewing board resolutions, affidavits of shareholders, and consent letters from secured and unsecured creditors. The objective of the amalgamation was to avoid duplication in administrative setup, expenses, and legal compliances due to common business interests within the same family. The court directed the notice for the hearing to be advertised in newspapers and allowed the company application to be treated as a confirmation petition.Issue 2: Compliance with Companies Act, 1956The Official Liquidator raised concerns regarding the transferor company's compliance with the Companies Act, 1956, specifically related to the minimum paid-up capital requirement for private companies and borrowing limits. The court noted discrepancies in the paid-up capital, loans taken, and advances made by the transferor company. The Regional Director highlighted objections related to Accounting Standard 14 compliance. The court acknowledged the rebuttable presumption of the certificate of incorporation under Section 35 and directed the transferor company to increase its paid-up capital to meet the statutory requirements within a specified period.Issue 3: Accounting Standard 14 complianceThe Regional Director objected to the compliance with Accounting Standard 14, 'accounting for amalgamation,' issued by the Institute of Chartered Accountants of India. The court clarified that the standard would be applicable post-amalgamation and not at the current stage. The petitioner assured that Accounting Standard 14 would be followed after the completion of the amalgamation process. The court found no pending investigations under relevant sections of the Companies Act, 1956, and confirmed the scheme of amalgamation, subject to the transferor company increasing its paid-up capital within the specified timeline.This judgment addresses the approval of a scheme of amalgamation between closely held companies, emphasizing compliance with the Companies Act, 1956, and future adherence to Accounting Standard 14 post-amalgamation. The court dispensed with the requirement for shareholder and creditor meetings, directed necessary actions for statutory compliance, and confirmed the scheme subject to specified conditions, including the increase in paid-up capital of the transferor company.