1991 (12) TMI 205 - HC - Companies Law

Shares capital Reduction of, Reduction of share capital Application to Tribunal for confirming order, objections by creditors, and settlement of list of objecting creditors

Issues Involved:
1. Whether the scheme of amalgamation requires compliance with the procedure laid down in sections 100 to 105 of the Companies Act, 1956, regarding the reduction of share capital.
2. Validity and approval of the scheme of amalgamation by the shareholders and the court.
3. Impact of the amalgamation on the creditors and the interests of the members.

Issue-wise Detailed Analysis:

1. Compliance with Sections 100 to 105 of the Companies Act, 1956:
The primary issue was whether the scheme of amalgamation, which involved the extinguishment of shares held by Asian Investments Limited (one of the transferor-companies) in Crimson Investments Limited (the transferee-company), required compliance with the procedure for reduction of share capital as outlined in sections 100 to 105 of the Companies Act, 1956. The Regional Director of Company Affairs argued that since the scheme involved a reduction in share capital, the procedure under section 100 had to be strictly followed, citing the Calcutta High Court's decision in Hindusthan Commercial Bank Ltd. v. Hindusthan General Electric Corporation.

In contrast, the petitioners contended that for amalgamations under sections 391 and 394 of the Companies Act, the procedure for reduction of capital under sections 100 to 105 need not be followed. They relied on a previous judgment by the same court in C.P. Nos. 55 to 60 of 1991, which supported their view.

The court concluded that section 100 would not apply where the scheme of amalgamation contemplates the transfer of the entirety of assets and liabilities of the transferor-company to the transferee-company. It emphasized that the object of section 42 and section 77 of the Act is to maintain the separate operational identity of a holding company and its subsidiaries and to restrict a company from purchasing its own shares. Since the amalgamation involved the transfer of all assets and liabilities without any release of assets, the procedure for reduction of capital under sections 100 to 105 was deemed unnecessary.

2. Validity and Approval of the Scheme of Amalgamation:
The scheme of amalgamation was unanimously approved by the shareholders of the respective companies in meetings convened as per the court's directions. Notices were sent individually to the equity shareholders, and the scheme was explained and put to vote. The shareholders of all four companies approved the scheme without any opposition.

The court found that the scheme was in the best interest of all shareholders, creditors, and employees, as it would enable the transferee-company to carry on the combined business economically and efficiently, avoid duplication, reduce administrative expenses, and optimize the utilization of management and other resources.

3. Impact on Creditors and Interests of Members:
The court noted that the object of seeking confirmation for the reduction of capital is to safeguard the interests of the creditors. In this case, the resolution approving the scheme was unanimous, with no objections from any quarter. The scheme involved the transfer of the entire assets, rights, and liabilities of the transferor-companies to the transferee-company, ensuring that the creditors' interests were fully protected.

The court referenced the Division Bench judgment in T. Durairajan v. Waterfall Estates Ltd., which clarified that the procedure for reduction of share capital under sections 100, 101, and 102 does not apply to cases of amalgamation where there is a transfer of all assets and liabilities without any release of assets.

Conclusion:
The court sanctioned the scheme of amalgamation as prayed for in the petitions. The official liquidator was directed to submit a report confirming that the affairs of the companies had not been conducted prejudicially to the interests of the members or the public. The prayer for the dissolution of the transferor-companies without winding up would be decided after receiving the official liquidator's report.

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