2011 (3) TMI 1483 - HC - Companies Law

Court approves amalgamation scheme despite objections, directs compliance with Accounting Standard 14

The court sanctioned the scheme of amalgamation between the transferor and transferee companies under sections 391(1), 393, and 394 of the Companies Act, ... Statutory power of amalgamation under sections 391-394 of the Companies Act, 1956 - court sanctioned amalgamation independent of memorandum objects clause - compliance with Accounting Standard 14 for amalgamation accounting - fairness and reasonableness standard for sanctioning a scheme of amalgamationCourt sanctioned amalgamation independent of memorandum objects clause - statutory power of amalgamation under sections 391-394 of the Companies Act, 1956 - Whether absence of an express power to amalgamate in the memorandum of association prevents the court from sanctioning a scheme of amalgamation under the statutory procedure - HELD THAT: - The court held that where amalgamation is sought by invoking the statutory mechanism under sections 391-394, the power to amalgamate is derived from the statute and is not negated by the absence of an express clause in the memorandum. Reliance was placed on prior High Court decisions recognising that a company may amalgamate pursuant to statutory sanction without first amending its memorandum under section 17, and the Central Government conceded that court sanctioned amalgamation is permissible despite the memorandum not containing an express power. Having found that statutory formalities were complied with and relevant authorities support the petitioner's position, the court concluded that amendment of the memorandum was not a pre requisite to sanctioning the scheme. [Paras 8, 10, 12]Amendment of the memorandum was not required and the court could sanction the amalgamation under the statutory scheme.Compliance with Accounting Standard 14 for amalgamation accounting - Whether the accounting entries and adjustments pursuant to the scheme must conform to Accounting Standard 14 - HELD THAT: - The Regional Director objected that accounting adjustments arising from the scheme must be made as per Accounting Standard 14 notified under section 211(3A). The petitioner accepted that Accounting Standard 14 must be followed notwithstanding any contrary provision in the scheme. The court recorded this concession and directed that the transferor company shall follow Accounting Standard 14 in formalising the amalgamation. [Paras 7, 13]Accounting Standard 14 shall be followed in making the accounting entries/adjustments arising from the amalgamation.Fairness and reasonableness standard for sanctioning a scheme of amalgamation - Whether the proposed scheme is fit to be sanctioned by the court - HELD THAT: - The court examined compliance with statutory formalities: court appointed shareholder meeting, advertisement and notice to the Central Government, consideration of the Regional Director's views, and prior sanction by the Calcutta High Court in respect of the transferee company where applicable. The shareholders of the transferor company unanimously approved the resolution. No objections were raised and no fraud or unfairness was found. Applying the settled principle that a scheme complying with statutory formalities and which is fair and reasonable ought to be sanctioned, the court held the scheme fit for approval. [Paras 11, 13, 14]The scheme is fair and reasonable and is sanctioned by the court.Final Conclusion: The court sanctioned the scheme of amalgamation of Bhuyankhat Tea Co. P. Ltd. with Luxmi Tea Co. Ltd., directing compliance with Accounting Standard 14 and holding that statutory sanction under sections 391-394 permits amalgamation despite absence of an express power in the memorandum; the company petition is allowed. Issues:Application under sections 391(1), 393, and 394 of the Companies Act, 1956 for sanctioning the scheme of amalgamation. Central Government's objections regarding accounting entries/adjustments and lack of clause in the memorandum of association for amalgamation.Analysis:1. The application sought the court's sanction for the scheme of amalgamation between the transferor and transferee companies under sections 391(1), 393, and 394 of the Companies Act, 1956.2. The Central Government raised objections related to accounting entries/adjustments and the absence of a clause in the petitioner-company's memorandum of association enabling amalgamation with another company.3. Regarding objection (a) on accounting entries/adjustments, the petitioner agreed to follow Accounting Standard 14 as notified by the Central Government under section 211(3A) of the Companies Act, 1956.4. Concerning objection (b) about the lack of a clause in the memorandum of association, the petitioner argued that for statutory amalgamation with court sanction, specific power of amalgamation in the memorandum is not mandatory, citing legal precedents from various High Courts.5. The Assistant Solicitor General of India acknowledged the legality of the amalgamation without a specific provision in the memorandum due to court sanction, aligning with the precedents set by different High Courts.6. The court, considering the statutory power of amalgamation invoked under the Companies Act and the compliance with all formalities, including shareholder approval and Regional Director's views, sanctioned the amalgamation without requiring an amendment to the petitioner's memorandum.7. The court approved the scheme of amalgamation and granted the requested prayers, directing the transferor company to adhere to Accounting Standard 14 for formalizing the amalgamation.This detailed analysis covers the issues raised in the legal judgment, the objections by the Central Government, arguments presented by both parties, relevant legal precedents cited, and the court's final decision sanctioning the scheme of amalgamation under the Companies Act, 1956.