1996 (2) TMI 373 - HC - Companies Law

Summary

Issues Involved:
1. Approval of the scheme of amalgamation under sections 391 and 394 of the Companies Act, 1956.
2. Objection under section 42 regarding membership of holding company.
3. Objection under section 77 regarding restrictions on purchase by company of its own shares.

Issue-wise Detailed Analysis:

1. Approval of the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956:
The petition sought the sanction of the scheme of amalgamation between Himachal Telematics Limited (Transferor Company) and Himachal Futuristic Communications Ltd. (Transferee Company). The primary objective was to combine the activities of both companies for better control over production and marketing functions, and to utilize combined resources profitably. The scheme was approved by the equity shareholders and all classes of creditors of both companies. The High Court of Himachal Pradesh had already approved the scheme, subject to final approval by the Delhi High Court. No objections were received from any shareholders or creditors.

2. Objection under Section 42 Regarding Membership of Holding Company:
The Regional Director, Northern Region, Department of Company Affairs, raised an objection under section 42, which prohibits a body corporate from being a member of its holding company. The argument was that after the amalgamation, the transferee company would hold shares of its subsidiary, violating section 42. However, the court found that section 42, which deals with the incorporation and membership of companies, does not apply to the amalgamation process under sections 391, 392, and 394. The court emphasized that the legislative intent did not include adding conditions inconsistent with other provisions of the Act in section 394.

3. Objection under Section 77 Regarding Restrictions on Purchase by Company of its Own Shares:
Another objection was raised under section 77, which restricts a company from buying its own shares or giving financial assistance for the purchase of its shares. The respondent argued that the scheme would result in the transferee company indirectly holding its own shares through its subsidiary. The petitioner's counsel contended that no shares were being bought by the transferee company, thus section 77 was not violated. The court agreed, stating that sections 391 to 394 provide a comprehensive framework for amalgamations and that the scheme did not adversely affect shareholders' interests or public interest.

Court's Conclusion:
The court concluded that the powers under sections 391 to 394 are broad and designed to facilitate reconstructions and amalgamations without obstacles. The court referenced various judgments, including S.K. Gupta v. K.P. Jain and PMP Auto Industries Ltd., to support the view that the court has wide powers to ensure the effective working of a scheme. The court found no merit in the objections under sections 42 and 77, as the scheme did not violate public interest or the interests of shareholders. The court noted that no investigation or proceedings under sections 235 to 251 were pending against the petitioner company.

Final Judgment:
The court sanctioned the scheme of amalgamation, declaring it binding on all members, shareholders, and creditors of the petitioner company with effect from the appointed date, 1-4-1995. The petition was allowed and disposed of, with the provision for any interested party to seek future directions if necessary.

Petition allowed.