1989 (11) TMI 228 - HC - Companies Law

Summary

Issues:
1. Amalgamation of two companies under section 391 of the Companies Act.
2. Objection to the scheme of amalgamation based on violation of section 372 of the Companies Act.
3. Interpretation of section 372(2) regarding investment limits in other companies.
4. Application of section 372 to a private limited company becoming a deemed public limited company.
5. Remedies under section 374 for violation of section 372.
6. Precedents regarding violation of section 372 in relation to schemes of amalgamation.

Analysis:
The judgment pertains to petitions for the amalgamation of two companies, Zenith Electro Systems P. Ltd. and Zenith Technologies Ltd., under section 391 of the Companies Act. The petitions seek to merge the companies, with consent letters from shareholders and creditors, and a favorable official liquidator's report. However, an objection is raised by the Central Government regarding the transferee company's violation of section 372 of the Companies Act, which limits investments in other companies. The objection is based on the transferee company's investment in shares of Zenith Computers Ltd., exceeding the prescribed limits.

The petitioners argue that section 372(2) does not apply to a private limited company unless it becomes a subsidiary of a public limited company. In this case, the transferee company transitioned to a deemed public limited company due to share allotments, leading to compliance with section 43A(1) of the Companies Act. Subsequently, the transferee company obtained a certificate for reconversion to a private limited company. The petitioners contend that the violation of section 372(2) was technical and no longer applicable to the present status of the transferee company.

Furthermore, the judgment highlights that remedies under section 374, including fines for violations of section 372, are available to address non-compliance. The court references precedents such as Sulekha Works Ltd. and Navjivan Mills Co. Ltd., emphasizing that past violations of section 372 do not necessarily impede amalgamation schemes. The court distinguishes the present case from situations where section 372 violations were directly linked to amalgamation schemes, asserting that the alleged violation by the transferee company is unrelated to the current merger proposal.

Ultimately, the court rules in favor of both petitions for amalgamation, dismissing the objection based on the past violation of section 372 by the transferee company. Costs are awarded to the official liquidator and the Regional Director in each petition. The judgment underscores that the alleged violation does not hinder the proposed amalgamation, as the relevant provisions no longer apply to the transferee company's current status.