2012 (8) TMI 502 - HC - Companies Law

Court approves amalgamation scheme under Companies Act, 1956 for three companies in similar businesses.

The court approved the scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956, involving three companies engaged in similar ... Scheme of amalgamation - sanction under sections 391 to 394 - commercial wisdom of the board - inherent powers of the court to sanction amalgamation - memorandum lacking specific amalgamation object not a bar - official liquidator's report - compliance with Foreign Exchange Management Act - authorised capital consolidation - dissolution without winding upScheme of amalgamation - sanction under sections 391 to 394 - commercial wisdom of the board - official liquidator's report - The court approved and sanctioned the proposed scheme of amalgamation between the transferor companies and the transferee company. - HELD THAT: - On the material placed before it the court found that the scheme of arrangement was fair and reasonable, complied with statutory requirements under the Companies Act, and was not contrary to public policy. The official liquidator's report, which stated that the affairs of the transferor companies were not conducted in a manner prejudicial to shareholders or the public, was accepted. The court declined to act as an appellate forum over the commercial wisdom exercised by the boards of the companies and held that, having regard to compliance and the absence of opposition following publication, the scheme merited sanction under sections 391 to 394.Company Petitions Nos. 51, 52 and 50 of 2011 allowed and the scheme of amalgamation sanctioned.Dissolution without winding up - The transferor companies were ordered to be dissolved without a specific order for winding up being passed. - HELD THAT: - Having sanctioned the scheme, the court directed that the transferor companies be dissolved pursuant to the terms of the approved scheme without separate proceedings for winding up. The petition and scheme provided for such dissolution and no further procedural objection prevented making that order.Transferor companies Nos. 1 and 2 to be dissolved without any specific order for winding up.Memorandum lacking specific amalgamation object not a bar - inherent powers of the court to sanction amalgamation - compliance with Foreign Exchange Management Act - authorised capital consolidation - Objections raised by the Regional Director/Registrar of Companies concerning absence of a specific amalgamation object, FEMA compliance, and authorised capital were either rejected or treated as satisfied on the affidavits and undertakings filed. - HELD THAT: - The court held that absence of an express object in the transferee's memorandum did not preclude sanctioning the scheme, relying on the court's inherent and statutory powers under sections 391-394 and prior precedent treating such absence as not decisive. The transferee company's undertaking to comply with applicable FEMA/FEM Regulations and to make necessary reporting was accepted as satisfying the Registrar's concern. The scheme's provision for consolidation of authorised capital was found to be adequate to enable issuance of shares under the scheme, and the transferee's affidavit undertaking to comply with Companies Act requirements addressed the Registrar's objection regarding increase of authorised capital.Registrar's queries not sustained: absence of specific object in memorandum not fatal; FEMA compliance and authorised capital concerns satisfied by filed undertakings/affidavits.Final Conclusion: The High Court sanctioned the scheme of amalgamation under sections 391-394 of the Companies Act, accepted the official liquidator's report, directed dissolution of the transferor companies without winding up, and found the Registrar's objections to be addressed by the undertakings and scheme provisions. Issues:Approval of scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 involving three companies engaged in similar businesses. Observations and queries raised by the Regional Director for Company Affairs regarding the scheme's compliance with legal provisions, including dissolution, amalgamation provisions in the memorandum of association, compliance with Foreign Exchange Management Act, and authorized capital requirements for issuing shares. Compliance with statutory provisions, public notice, and official liquidator's report.Analysis:1. Scheme of Arrangement Approval:The judgment pertains to the approval of a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 involving three companies: two transferor companies and one transferee company engaged in similar businesses. The board of directors of these companies approved the scheme and sought court approval. The court noted the absence of secured creditors and the approval of trade creditors for the proposed scheme. Public notice was issued, and no opposition was raised. The official liquidator reported that the transferor companies did not conduct business prejudicial to shareholders or the public.2. Observations by Regional Director:The Regional Director raised several observations and queries regarding the scheme's compliance with legal provisions. The first query concerned the dissolution of the transferor companies without winding up, which was addressed by stating the specific prayer for dissolution in the petition. The second query related to the amalgamation provisions in the memorandum of association of the transferee company, which was defended citing the court's wide powers under sections 391 to 394 of the Companies Act. The third query involved compliance with the Foreign Exchange Management Act, which was addressed by the managing director of the transferee company providing an undertaking for necessary reporting. The fourth query regarding the authorized capital of the transferee company was resolved by a provision in the scheme for the consolidation of authorized capital.3. Compliance and Approval:The court found that all statutory requirements were fulfilled, and compliance was in place. Affidavits of undertaking were filed by the authorized signatories of the transferor companies and the managing director of the transferee company. The court held that the scheme of amalgamation was fair, reasonable, and not adverse to public policy. Considering the commercial wisdom exercised by the board of directors and the absence of opposition, the court approved the scheme of amalgamation.4. Court Order:In conclusion, the court allowed the Company Petitions and approved/sanctioned the scheme of amalgamation. The transferor companies were ordered to be dissolved without winding up. The petitioner-companies were directed to file a certified copy of the order within 30 days. The judgment emphasized the fulfillment of statutory requirements, compliance with legal provisions, and the absence of opposition as key factors in approving the scheme of arrangement.This detailed analysis covers the issues involved in the judgment, the observations raised by the Regional Director, compliance with legal provisions, and the court's decision to approve the scheme of arrangement.