Approval of Amalgamation Scheme under Companies Act with Accounting Standard Compliance

The Court sanctioned the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956, between several Petitioner Companies and Milestone Tradelinks Private Limited. Meetings of Equity Shareholders, Preference Shareholders, and Unsecured Creditors were dispensed with based on consent affidavits. Compliance with Accounting Standard 14 was a key issue, with the Court allowing deviations subject to proper disclosure. The Court approved the Scheme, emphasizing shareholder and creditor interests, and directed the payment of fees to the Assistant Solicitor General of India and the Official Liquidator by the Petitioner Companies.

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Issues Involved:

1. Sanction of the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956.
2. Dispensation of meetings of Equity Shareholders, Preference Shareholders, and Unsecured Creditors.
3. Compliance with Accounting Standard 14.
4. Utilization of Amalgamation Reserve for the distribution of dividends.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956:

The petitions were filed by several Petitioner Companies seeking the sanction of the Scheme of Amalgamation with Milestone Tradelinks Private Limited. The Court admitted the petitions and directed the issuance of notices to the Regional Director and the Official Liquidator. Notices were published in the English daily newspaper "Indian Express" and the Gujarati daily newspaper "Sandesh". The Official Liquidator reported that the affairs of the Petitioner Companies were not conducted in a manner prejudicial to the interest of its members or the larger public interest. The Regional Director did not raise any objections to the Scheme, except for compliance with Accounting Standard 14.

2. Dispensation of meetings of Equity Shareholders, Preference Shareholders, and Unsecured Creditors:

The Petitioner Companies sought directions to dispense with the convening and holding of meetings of Equity Shareholders, Preference Shareholders, and Unsecured Creditors. The Court, vide orders dated 09.05.2012, dispensed with these requirements based on the consent affidavits provided by the respective stakeholders. The Court also noted that there were no Secured Creditors for the Petitioner Companies.

3. Compliance with Accounting Standard 14:

The Regional Director observed that the Scheme of Amalgamation must comply with Accounting Standard 14 as notified by the Central Government under Section 211(3A) of the Companies Act, 1956. The Regional Director highlighted that Clause 11 of the Scheme did not ensure compliance with Accounting Standard 14, particularly regarding the treatment of the Amalgamation Reserve as Free Reserve for dividend distribution. The Petitioner Company, Milestone Tradelinks Pvt. Ltd., responded that deviation from Accounting Standard 14 is permissible under Section 211(3B) of the Companies Act, 1956, provided necessary disclosures are made in the Financial Statements.

4. Utilization of Amalgamation Reserve for the distribution of dividends:

The Regional Director contended that the surplus arising from the Scheme of Amalgamation, being of a capital nature, cannot be considered a General Reserve and used for dividend distribution. The Petitioner Company cited various judgments, including Hindalco Industries Ltd. and Sutlej Industries Ltd., which allowed deviation from Accounting Standards provided necessary disclosures were made. The Court referred to these judgments and noted that deviation from Accounting Standards is permissible under Section 211(3B) of the Companies Act, 1956, subject to proper disclosure.

Conclusion:

The Court concluded that there was no legally justifiable reason to withhold sanction to the Scheme, considering the unanimous approval by shareholders and the assurance of necessary disclosures by the Petitioner Company. The Scheme was deemed to be in the interest of the Shareholders and Creditors of the respective Petitioner Companies. Accordingly, all petitions were allowed, and the Scheme was sanctioned. The fees for the learned Assistant Solicitor General of India and the Official Liquidator were quantified and directed to be paid by the Petitioner Companies.

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