2012 (11) TMI 917 - HC - Companies Law

Court approves amalgamation scheme under Companies Act, emphasizes compliance & shareholder protection

The Court sanctioned the scheme of amalgamation under Section 391 of the Companies Act, 1956, despite objections from the Central Government regarding ... Amalgamation - Share Premium - Money laundering - held that:- Share premia accounts could be mere book entries without actual money passing from the transferor companies to the transferee company. In other cases, the position could be the other way round. Of late, schemes, particularly of amalgamation, are being filed for the purpose of providing book entries to enable persons to convert black money into white. It is a settled principle of law that the proposed scheme should only be sanctioned if it is found to be not violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme, the court can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the scheme. Where the court finds that the scheme is fraudulent and is intended for a purpose other than what it professes to be, it may be rejected even at the outset without calling a meeting of the creditors. The court does not function as a rubber stamp or post office, and it is incumbent upon the court to be satisfied that the scheme is genuine, bona fide and in the interest of creditors of the company. If the Registrar of Companies would require further investigation through any agency they might conduct such independent examination that would be within their power to do so in accordance with law. Court's blessings was not required. - appeal disposed of. Issues:1. Scheme of amalgamation under Section 391 of the Companies Act, 1956.2. Central Government's objection to share premium and direction for investigation.3. Appellant's contention against the investigation.4. Legal provisions related to money laundering and their applicability.5. Central Government's power to make queries and requirement for satisfactory replies.6. Court's role in sanctioning schemes of amalgamation.7. Requirement for Central Government to file affidavit on the scheme's merit.Analysis:1. The judgment dealt with a scheme of amalgamation under Section 391 of the Companies Act, 1956, involving four companies merging into one. The shareholders consented to the scheme, and the Company Judge dispensed with the requirement for shareholder meetings. However, the Central Government raised objections regarding share premium and directed an investigation by the Directorate of Revenue Intelligence.2. The appellant contended that the investigation was unwarranted and could tarnish their reputation. They argued that the Central Government's objections should not hinder the scheme's approval if legal compliance was maintained. The Court referred to various legal precedents supporting the principle that mere suspicion does not justify directing an investigation.3. The judgment discussed the concept of money laundering in the context of the Prevention of Money Laundering Act, 2002, and its relevance to the scheme of amalgamation. The appellant's counsel argued that the provisions of the Act did not apply to the case, emphasizing the need for a valid basis for directing an investigation.4. The Central Government defended its right to raise queries and emphasized the necessity for satisfactory responses from the petitioners. They cited legal decisions supporting their position and highlighted the importance of addressing concerns raised by regulatory authorities before sanctioning the amalgamation scheme.5. The Court emphasized the importance of protecting the interests of shareholders and creditors while considering schemes of amalgamation. It noted that the Court should ensure compliance with legal provisions and public policy, rejecting schemes that are fraudulent or against the interests of stakeholders.6. The judgment concluded by stating that the Central Government must file an affidavit addressing the scheme's merit and pointing out any irregularities. It clarified that the phrase 'money laundering' used in the judgment was not necessarily linked to the Prevention of Money Laundering Act, 2002, but rather expressed the Court's concern regarding the lack of cooperation and responses from the petitioners.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Court's reasoning in addressing each aspect of the case.