1994 (10) TMI 250 - HC - Companies Law

Issues:
1. Scheme of amalgamation under sections 391, 392, and 394 of the Companies Act, 1956.
2. Valuation of shares and exchange ratio determination.
3. Objection regarding the authorized share capital of the transferee-company.
4. Dissolution of transferor-companies and transfer of rights and liabilities to the transferee-company.

Analysis:

Issue 1: Scheme of Amalgamation
The judgment involves three petitions seeking sanction for the scheme of amalgamation under sections 391, 392, and 394 of the Companies Act, 1956. The petitioners, consisting of transferor-companies and a transferee-company, aim to merge the transferor-companies, engaged in similar business activities, with the transferee-company. The Official Liquidator has submitted a report stating no objection to the scheme, indicating that the companies' affairs were not conducted prejudicially.

Issue 2: Valuation of Shares and Exchange Ratio Determination
The Central Government raised an objection regarding the valuation of shares and the exchange ratio proposed by the companies. The objection suggested a fair exchange ratio of 2:3 based on the intrinsic worth of the companies' shares. The Court considered precedents emphasizing the need for fairness in the exchange ratio, ensuring compliance with legal provisions and reasonable approval by shareholders. Despite the Central Government's objection, the Court found the exchange ratio of 1:1 adopted by the companies reasonable, given the family-owned nature of the businesses and their intermingled operations.

Issue 3: Objection on Authorized Share Capital
Another objection raised pertained to the authorized share capital of the transferee-company not being sufficient to implement the scheme. The Central Government argued that the scheme could not be effected without an increase in authorized capital. However, the petitioner contended that the authorized capital increase typically occurs post-sanction to avoid creating an anomalous situation. The Court agreed with the petitioner, emphasizing that the capacity of the transferee-company to issue shares upon amalgamation is crucial, and the increase in authorized capital should align with the scheme's approval.

Issue 4: Dissolution of Transferor-Companies
The judgment ordered the amalgamation of the transferor-companies with the transferee-company, effective from April 1, 1993, as per the proposed scheme. Consequently, all rights, liabilities, and duties of the transferor-companies would transfer to the transferee-company without further formalities. The transferor-companies would stand dissolved without winding up, following the sanctioned scheme of amalgamation. The petitioners were directed to file the order with the Registrar of Companies for dissolution formalities within thirty days, with provision for interested parties to seek necessary directions.

This comprehensive analysis covers the key issues addressed in the judgment, detailing the legal considerations and decisions made by the Court regarding the scheme of amalgamation, valuation of shares, authorized share capital, and the dissolution process of the involved companies.

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