1991 (8) TMI 245 - HC - Companies Law

Summary

Issues Involved:
1. Compliance with statutory provisions.
2. Reasonableness of the arrangement.
3. Fair representation of classes.
4. Payment to shareholders of the transferor company.
5. Transfer of the letter of intent.
6. Necessity of impleading the Department of Industrial Development.

Detailed Analysis:

1. Compliance with Statutory Provisions:
The court examined whether the statutory provisions under sections 391 and 394 of the Companies Act, 1956, were complied with. Both the transferor and transferee companies filed separate petitions for the sanction of the scheme of amalgamation. Meetings of the equity shareholders of both companies were convened as per court directions, and the scheme was unanimously approved. Notices were served upon the Central Government as required by section 394A of the Act, and the Regional Director, Department of Company Affairs, filed a counter-affidavit.

2. Reasonableness of the Arrangement:
The court considered whether the arrangement was such as a man of business would reasonably approve. The board of directors of both companies resolved to merge, believing that amalgamation would avoid duplication, achieve efficiency, and result in better economy and utilization of resources. The scheme proposed that all assets and liabilities of the transferor company would be transferred to the transferee company, and the shareholders of the transferor company would be paid the money equivalent to the face value of their shares.

3. Fair Representation of Classes:
The court assessed whether the class or classes of shareholders were fairly represented. The meetings of the equity shareholders of both companies were held as directed by the court, and the scheme of amalgamation was unanimously approved. The court found no dispute between the parties regarding the approval of the scheme by the members of both companies.

4. Payment to Shareholders of the Transferor Company:
An objection was raised by the Central Government that the proposal to pay back the equity shareholders of the transferor company was unusual and not specifically in accordance with the provisions of the Act. The court, however, found this objection to be without substance, stating that the proposal came within the doctrine of indoor management and was a decision taken by the preference shareholders out of their own volition.

5. Transfer of the Letter of Intent:
The Central Government objected that the purpose of amalgamation was the transfer of the letter of intent issued to the transferor company, which could not be transferred without specific approval from the authorities under the Industries (Development and Regulation) Act. The court held that while the Industries Act required approval for the transfer of the letter of intent, it did not necessitate the impleading or hearing of the Industries Department in the amalgamation proceedings.

6. Necessity of Impleading the Department of Industrial Development:
The court rejected the contention that the Department of Industrial Development needed to be impleaded as a party. It was noted that section 394A of the Companies Act required notice to the Central Government, which had been duly given, and the Central Government's role was to act as an impartial observer and advise the court. The court cited the judgment of the Bombay High Court in M.G. Investment and Industrial Co. Ltd. v. New Shorrock Spinning and Manufacturing Co. Ltd., which held that there was no jurisdiction to add a party except for effective adjudication and that the Central Government's presence was procured by notice, not by being added as a party.

Conclusion:
The court concluded that the objections raised by the Central Government had no force and that the scheme of amalgamation was bona fide, reasonable, and in the mutual interests of both companies. The court sanctioned the scheme of amalgamation, directing the official liquidator to submit a report on the scrutiny of the books and papers of the company within six weeks to ensure that the affairs of the company had not been conducted prejudicially to the interests of its members or the public.