1996 (11) TMI 318 - HC - Companies Law

Issues Involved:
1. Approval of amalgamation scheme.
2. Nature of amalgamation (merger vs. purchase).
3. Objections by the Registrar of Companies and the Official Liquidator.
4. Maintainability of the petitions.
5. Compliance with Accounting Standards (AS-14).
6. Tax implications and necessity of a sale deed.

Detailed Analysis:

1. Approval of Amalgamation Scheme:
The petitions were filed by SPS Pharma Ltd. (transferor company) and Targof Pure Drugs Ltd. (transferee company) seeking approval for the amalgamation. The scheme was proposed to enhance efficiency and economic operations, leading to a wider capital base. From the effective date, March 8, 1995, all debts, liabilities, duties, and obligations of the transferor company would transfer to the transferee company. The meetings of shareholders were conducted, and the scheme was approved by the shareholders of both companies. The scheme was also published in newspapers, and notices were issued to the official liquidator and the Registrar of Companies.

2. Nature of Amalgamation (Merger vs. Purchase):
The learned counsel for the petitioners argued that amalgamation could be either in the nature of a merger or a purchase. The Accounting Standards (AS-14) issued by the Institute of Chartered Accountants of India were cited, which define amalgamation in the nature of a merger and purchase. The key conditions for a merger include the transfer of all assets and liabilities, shareholders becoming equity shareholders of the transferee company, and the business of the transferor company being carried on by the transferee company. If any of these conditions are not met, the amalgamation is considered a purchase.

3. Objections by the Registrar of Companies and the Official Liquidator:
The official liquidator reported no objection to the proposed amalgamation but expressed doubts about the necessity of a sale deed. The Registrar of Companies objected, stating that the transaction was an outright purchase for cash and did not qualify as a compromise or arrangement, thus questioning the maintainability of the petitions.

4. Maintainability of the Petitions:
The court held that under section 394 of the Companies Act, 1956, the Registrar and the official liquidator could object only if the affairs of the company were conducted in a manner prejudicial to public interest. Previous cases, such as Sanghi Industries Ltd. v. Goldy Projects Ltd. and Vinay Metal Printers (P) Ltd., In re, were cited, where objections based on share exchange ratios and tax avoidance were overruled. The court concluded that the Registrar could raise a preliminary objection regarding the maintainability of the petitions, but the petitions were ultimately deemed maintainable.

5. Compliance with Accounting Standards (AS-14):
The court noted that although the accounting standards became mandatory from April 1, 1995, they could be applied as guidelines for the period prior to that date. The amalgamation by purchase was recognized as a valid mode of amalgamation, and the petitions were maintained accordingly.

6. Tax Implications and Necessity of a Sale Deed:
The court acknowledged the petitioners' argument that the Income-tax Act defines amalgamation in the nature of a merger but does not exclude amalgamation in the nature of a purchase. The court held that whether the transaction attracted capital gains tax or required a sale deed with necessary stamp duty was not necessary to determine in this proceeding and left these questions open.

Conclusion:
The court approved the scheme of amalgamation, noting that the shareholders of both companies had approved it and the auditors had certified that the assets and liabilities of the transferor company were taken at book value. The transferee company paid Rs. 55,00,000 in cash to the transferor company. The transferor company was to be dissolved with effect from March 8, 1995. Any shareholder could move the court for modification of the scheme if necessary. The petitions were allowed, and the order was to be communicated to the Registrar of Companies within six weeks. No costs were awarded.

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