Amalgamation scheme sanction requires independent fairness review, and a ceased banking business is not a banking company under section 44B.

A court sanctioning an amalgamation scheme must independently test statutory compliance and the scheme's fairness, reasonableness and workability, even where a statutory majority has approved it. The mere fact that the transferee-company must seek separate approvals in related proceedings does not bar sanction, and consequential directions may be reserved until those proceedings conclude. The court also held that a company which has ceased in substance to carry on banking business, having lost its undertaking, assets, staff, premises and licence and no longer accepting deposits, is not a banking company for the purpose of section 44B of the Banking Regulation Act, 1949. On that basis, the RBI certificate requirement did not apply and the scheme was sanctioned.

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Issues: (i) Whether sanction to the scheme of amalgamation could be refused on the ground that the transferee-company would also have to obtain sanction and directions in separate proceedings; (ii) whether the transferor-company was a banking company so as to attract the requirement of a certificate from the Reserve Bank of India under section 44B of the Banking Regulation Act, 1949; and (iii) whether the scheme, including the exchange ratio and cash option, was fair, reasonable and one which a man of business would reasonably approve.

Issue (i): Whether sanction to the scheme of amalgamation could be refused on the ground that the transferee-company would also have to obtain sanction and directions in separate proceedings.

Analysis: The scheme contemplated that it would become operative only after the requisite approvals and sanctions were obtained in the proceedings to be initiated by the transferee-company. The objection that the present petition should fail merely because the transferee-company must also approach the appropriate court was treated as unsustainable. The conditional or anticipatory nature of the order did not by itself deprive the court of jurisdiction to sanction the scheme, and the difficulty was met by reserving consequential directions under section 394 until the other proceedings were completed.

Conclusion: The objection was rejected and did not bar sanction to the scheme.

Issue (ii): Whether the transferor-company was a banking company so as to attract the requirement of a certificate from the Reserve Bank of India under section 44B of the Banking Regulation Act, 1949.

Analysis: A banking company must be shown to be transacting the business of banking in the statutory sense, namely, the systematic acceptance of deposits from the public for lending or investment and their withdrawal by cheque, draft, order or otherwise. On the facts, the transferor-company had lost its undertaking, business, assets, staff, premises and banking licence upon acquisition and transfer of undertakings, had ceased to accept deposits, and was not carrying on any business at all. The court held that the statutory protective purpose of section 44B would not be served by insisting on a Reserve Bank certificate where the company was no longer in substance a banking company.

Conclusion: The transferor-company was not a banking company and section 44B was not attracted.

Issue (iii): Whether the scheme, including the exchange ratio and cash option, was fair, reasonable and one which a man of business would reasonably approve.

Analysis: The court reaffirmed that approval by the statutory majority does not make the court a mere rubber stamp. It must independently scrutinise whether the scheme is fair, workable and reasonable. Applying that test, the court found that the scheme had been approved by a substantial majority, had no substantial opposition, was commercially sensible in light of the transferor-company's position, and offered the members a rational choice between cash and participation in the transferee-company. The exchange ratio and cash option were found, on the material placed before the court, to be fair and not unfairly prejudicial.

Conclusion: The scheme was held to be fair, reasonable and fit for sanction.

Final Conclusion: Sanction to the amalgamation scheme was granted, while consequential directions under section 394 were deferred until completion of the proceedings to be taken by the transferee-company in the appropriate court.

Ratio Decidendi: In sanctioning a scheme of amalgamation, the court must independently examine compliance with statutory requirements and the fairness, reasonableness and workability of the scheme, and a company that has ceased in substance to carry on banking business is not a banking company for the purpose of section 44B of the Banking Regulation Act, 1949.

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