2011 (7) TMI 1304 - HC - Companies Law

Court Approval for Amalgamation of Indian and Mauritian Companies

The Court sanctioned the Scheme of Amalgamation between companies from India and Mauritius, subject to compliance with statutory provisions, Accounting ... Sanction of scheme of amalgamation - transferor company as 'body corporate' under Section 394(4)(b) - transferee company incorporated in India - compliance with Reserve Bank of India Act and Foreign Exchange Management Act - increase of authorized share capital and compliance with statutory filing requirements - application of Accounting Standard-14 (AS-14) to accounting entries on amalgamation - compliance with laws of foreign jurisdiction (Mauritius) and striking off of namesTransferor company as 'body corporate' under Section 394(4)(b) - transferee company incorporated in India - Whether companies incorporated outside India (in Mauritius) can be transferor companies in a scheme under Sections 391 to 394 of the Companies Act, 1956 and the legal effect thereof. - HELD THAT: - The Court construed Sections 390, 391, 393 and Section 394(4)(b) together with the definitions in Sections 2(10) and 3 to hold that for purposes of Sections 391 to 394 a transferor need not be a 'company' within the meaning of the Act so long as it is a 'body corporate' as contemplated by Section 394(4)(b). Therefore, where the transferee is an Indian company incorporated and registered under the Act, a foreign incorporated transferor (a body corporate) may be amalgamated provided the amalgamation does not contravene the Act or other applicable statutory restrictions such as RBI/FEMA and does not violate the laws of the jurisdiction where the transferor is formed. The Court relied on analogous reasoning in earlier decisions and applied the Mauritius Supreme Court order and the petitioner's declarations to conclude that the transferor companies qualify as 'body corporate' and that the statutory scheme under Sections 391-394 is satisfied in this case. [Paras 8, 9]Foreign incorporated transferor companies (Mauritius) may be amalgamated with an Indian transferee company under Sections 391-394, subject to compliance with the Act and other applicable laws (e.g., RBI/FEMA) and laws of the transferor's jurisdiction.Increase of authorized share capital and compliance with statutory filing requirements - Whether the transferee company must increase its authorized share capital and comply with statutory procedures before allotting shares under the scheme. - HELD THAT: - The Regional Director objected that the transferee's present authorized capital was insufficient to issue shares contemplated by the scheme and that statutory formalities under Sections 16, 17, 94, 97 and related provisions must be complied with including filing of requisite forms and payment of fees. The petitioner expressly undertook (by affidavit) to comply with the specified provisions and to increase authorized share capital prior to allotment. The Court accepted this undertaking and made compliance with those provisions a condition precedent to issuance and allotment of equity shares under the scheme. [Paras 5, 12, 15]The transferee must increase its authorized share capital and comply with the provisions and filings required by the Companies Act before issuing or allotting shares under the sanctioned scheme.Application of Accounting Standard-14 (AS-14) to accounting entries on amalgamation - Whether accounting adjustments consequent to the amalgamation must be made in accordance with Accounting Standard-14. - HELD THAT: - The Regional Director objected that clause(s) in the scheme were not in conformity with AS-14 as notified under Section 211(3A). The petitioner, by affidavit, undertook to comply with AS-14 and to make adjustments in its books of account accordingly. The Court accepted this undertaking and directed compliance with AS-14 as a condition of sanctioning the scheme. [Paras 5, 12, 15]Accounting entries arising from the amalgamation must be made in accordance with Accounting Standard-14 as notified by the Central Government.Compliance with laws of foreign jurisdiction (Mauritius) and striking off of names - Whether the petitioner must ensure compliance with Mauritius laws regarding amalgamation and effect dissolution/striking off of the transferor companies. - HELD THAT: - The Regional Director required assurance that amalgamation under laws of Mauritius be complied with and that the transferor companies be dissolved or struck off in accordance with Mauritius law. The petitioner relied on the Supreme Court of Mauritius order dated 7.7.2011 and furnished undertakings that it will comply with applicable Mauritius law and will take steps, upon sanction, to get the transferor companies' names struck off under the Mauritius Companies Act 2001. The Court examined the Mauritius order (which sanctions the scheme and orders dissolution without winding up subject to conditions) and accepted the petitioner's undertaking, making strict compliance with Mauritius law and steps to strike off the transferor companies a condition of the sanction. [Paras 5, 11, 12, 15]The petitioner must ensure compliance with Mauritius law regarding amalgamation and shall, upon sanction, take steps to have the transferor companies struck off in accordance with the Companies Act, Mauritius 2001; compliance is made a condition of sanction.Compliance with Reserve Bank of India Act and Foreign Exchange Management Act - Whether the proposed amalgamation is permissible subject to RBI/FEMA requirements. - HELD THAT: - The Court held that while Section 394(4)(b) permits inclusion of a foreign 'body corporate' as transferor, such amalgamation must not violate statutory restrictions including the Reserve Bank of India Act and the Foreign Exchange Management Act. The petitioner gave an undertaking that it did not and will not violate RBI/FEMA provisions and would comply with applicable requirements. The Court therefore sanctioned the scheme subject to strict compliance with RBI/FEMA as applicable. [Paras 8, 10, 14]The amalgamation is permissible only if it does not contravene the Reserve Bank of India Act or the Foreign Exchange Management Act; compliance with those statutes is a condition of sanction.Sanction of scheme of amalgamation - Whether the Court should sanction the scheme of amalgamation proposed by the petitioner. - HELD THAT: - Having considered the petition, notices, the Regional Director's objections and the petitioner's counter-affidavits and undertakings, and noting the Mauritius Supreme Court's order and absence of local objections, the Court found that requirements of Sections 391-394 were satisfied and that the scheme appeared bona fide and not prejudicial to shareholders. The Court however imposed specific conditions reflecting the Regional Director's objections and the petitioner's undertakings (compliance with Companies Act formalities, AS-14, Mauritius law, RBI/FEMA as applicable, and steps to strike off transferor companies). On these conditions the company petition was allowed and the scheme sanctioned. [Paras 8, 13, 14, 15, 16]The company petition is allowed and the scheme of amalgamation is sanctioned, subject to the specified conditions and undertakings.Final Conclusion: The Gujarat High Court allowed the company petition and sanctioned the scheme of amalgamation between the specified transferor companies (Mauritius) and the Indian transferee company, subject to conditions: statutory compliance for increase of authorized capital and filings under the Companies Act before allotment, adherence to Accounting Standard-14, compliance with Mauritius law including steps to strike off the transferor companies, and conformity with RBI/FEMA and other applicable statutory requirements. Issues Involved:1. Sanction of the Scheme of Amalgamation.2. Compliance with statutory provisions for increasing authorized share capital.3. Adherence to Accounting Standards.4. Compliance with laws of Mauritius.5. Objections raised by the Regional Director.Summary:1. Sanction of the Scheme of Amalgamation:The petitioner, Groovy Trading Private Limited, sought the sanction of the Scheme of Amalgamation between Well worth Investments Limited, Eternity Investments Limited, and Groovy Trading Private Limited. The Court noted that the transferor companies are incorporated in Mauritius and the transferee company is incorporated in India. The Court held that a 'body corporate' not incorporated in India can be amalgamated with an Indian company, provided it does not violate any statutory restrictions and complies with applicable laws, including the Reserve Bank of India Act and the Foreign Exchange Management Act.2. Compliance with statutory provisions for increasing authorized share capital:The Regional Director raised objections regarding the increase in authorized share capital (Clause 4.1.1 and 4.2.1 of Part IV of the scheme). The petitioner company undertook to comply with Sections 16, 17, 94, 97, and 192 of the Companies Act, 1956, for increasing its authorized share capital before issuing equity shares to the transferor companies.3. Adherence to Accounting Standards:The Regional Director objected to the accounting entries (Clause 4.3 of Part IV of the scheme), stating they must comply with Accounting Standard-14 notified by the Central Government u/s 211(3A) of the Companies Act, 1956. The petitioner company undertook to comply with Accounting Standard-14 and make necessary adjustments in their Books of Account.4. Compliance with laws of Mauritius:The Regional Director raised objections regarding compliance with the laws of Mauritius (Clause 3.3 of Part III and Clause 3.2.8 of Part III of the scheme). The petitioner company undertook to ensure compliance with all provisions relating to amalgamation under the laws of Mauritius and to take necessary steps for striking off the names of the transferor companies in accordance with the Companies Act, Mauritius, 2001.5. Objections raised by the Regional Director:The Regional Director raised five objections:(a) Non-compliance with filing requisite forms and fees for increasing authorized share capital.(b) Insufficient authorized share capital to allot shares to members of transferor companies.(c) Non-compliance with Accounting Standard-14.(d) Compliance with the laws of Mauritius for amalgamation.(e) Dissolution of amalgamating companies without winding up.The petitioner company responded to each objection, undertaking to comply with all statutory requirements and the laws of Mauritius. The Court noted that the Supreme Court of Mauritius had sanctioned the scheme, and there were no objections from the Registrar of Companies, Gujarat.Conclusion:The Court allowed the petition and sanctioned the scheme of amalgamation, subject to the petitioner company's compliance with the statutory provisions, Accounting Standard-14, and the laws of Mauritius. The petitioner company was directed to pay the fees of the learned Assistant Solicitor General of India, Mr. P.S. Champaneri, quantified at Rs. 7,500/-. The petition stands disposed of.