1983 (2) TMI 212 - HC - Companies Law

Company Change of name, Amalgamation, Shares of shareholders dissenting from scheme or contract approved by majority Power and duty to acquire

Issues Involved:
1. Sanction under Section 391(2) read with Section 394 of the Companies Act, 1956.
2. Peculiar nature of the amalgamation (reverse bid).
3. Examination of the transferor and transferee companies' particulars.
4. Justification for the amalgamation scheme.
5. Compliance with statutory provisions and public policy considerations.
6. Fairness and reasonableness of the scheme.
7. Objection regarding the change of name under Section 21 of the Companies Act.

Issue-Wise Detailed Analysis:

1. Sanction under Section 391(2) read with Section 394 of the Companies Act, 1956:
The court was moved to accord its sanction to the scheme of amalgamation between Maneklal Harilal Spg. & Mfg. Co. Ltd. (transferor company) and Bihari Mills Ltd. (transferee company). The court examined whether the formalities under Section 391(2) and Section 394 were complied with, including the approval by the requisite statutory majority and fair representation of different interests.

2. Peculiar nature of the amalgamation (reverse bid):
This amalgamation was unique as it involved a prosperous unit (transferor company) merging into a sick unit (transferee company), described as a "takeover by reverse bid." The court noted that this type of amalgamation is unusual and required a thorough examination of its implications.

3. Examination of the transferor and transferee companies' particulars:
The transferor company was incorporated in 1888 with a strong financial base and resources, while the transferee company, incorporated in 1931, was a sick unit with significant losses and liabilities. The transferee company was a subsidiary of the transferor company, holding a majority of its equity shares.

4. Justification for the amalgamation scheme:
The court identified several reasons justifying the amalgamation:
- The transferee company would regain viability and health.
- The transferor company would benefit from future expansion and development opportunities.
- Economies of scale, reduction in production costs, and tax benefits.
- The transferor company's significant financial stake in the transferee company.

5. Compliance with statutory provisions and public policy considerations:
The court considered whether the scheme violated any statutory provisions or public policy. It was noted that the scheme did not offend Section 72A of the Income Tax Act, 1961, as the primary objective was to facilitate the merger of sick units with sound ones. The court concluded that the scheme did not violate any statutory provisions.

6. Fairness and reasonableness of the scheme:
The court examined the exchange ratio prescribed in the scheme, which provided for one equity share of Rs. 200 in the transferee company for each equity share of Rs. 200 in the transferor company. The valuation of shares was justified using the break-up value method and the yield method. The court found the exchange ratio to be fair and reasonable, considering the financial position and prospects of both companies.

7. Objection regarding the change of name under Section 21 of the Companies Act:
An objection was raised by the Regional Director regarding the change of name of the transferee company. The court clarified that the approval for the change of name under Section 21 could be obtained ex post facto. The transferee company was directed to make an application for approval by April 30, 1983. The court emphasized that the scheme's effectiveness would depend on obtaining the necessary approval.

Conclusion:
The court sanctioned the scheme of amalgamation, finding it just, fair, and reasonable. The transferee company was directed to apply for approval of the name change under Section 21 of the Companies Act. The costs of the learned advocate for the Regional Director were to be borne by the transferee company. The note for speaking to minutes clarified that the scheme would become effective upon obtaining the necessary approval for the name change.

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