1997 (5) TMI 346 - HC - Companies Law

Summary

Issues Involved:
1. Directions for convening meetings of equity shareholders and creditors.
2. Approval of the scheme of amalgamation/merger.
3. Objections raised by the Income-tax Department regarding tax liability.

Detailed Analysis:

1. Directions for Convening Meetings of Equity Shareholders and Creditors:
Company Petition No. 4 of 1988 filed by Indo Continental Hotels & Resorts Ltd. (transferee-company) and Company Petition No. 5 of 1988 filed by Hotel Pink City (P.) Ltd. (transferor-company) both sought directions from the Court for convening, holding, and conducting meetings of equity shareholders and creditors. The Court was requested to appoint Chairmen for these meetings and issue notices and publications as required. The main relief, however, was sought in Company Petition No. 14 of 1988, a joint petition by both companies, which requested the Court to sanction the scheme of amalgamation/merger/compromise/arrangement.

2. Approval of the Scheme of Amalgamation/Merger:
The scheme of amalgamation was prepared on 19-7-1990 and annexed as Schedule-1 to the judgment. The Court examined the circumstances necessitating the merger, which included:
- Availing infrastructural facilities and reducing costs.
- Ensuring more assured business and increased profits by bringing three hotels under a common banner.
- Utilizing the efficient team of managers and staff of the transferee-company.
- Addressing the financial problems of the transferor-company by leveraging the sound financial position of the transferee-company.
- Achieving economies of scale and rationalizing operations.
- Generating employment and serving the public and national interest.
- Providing a healthier financial base for better financial assistance.
- Enhancing services to tourists and earning goodwill.

The Court noted that the amalgamation was in the best interest of all concerned, including creditors. Orders for separate meetings of creditors and members were passed, and the Chairmen submitted their reports. Modifications were made to Clause 4 of the scheme regarding the share exchange ratio, which was approved by the members present at the meetings.

3. Objections Raised by the Income-tax Department:
The Income-tax Department filed an application expressing concerns that the amalgamation might affect its interests, particularly regarding capital gain tax liability. The Court heard the department's counsel but found no merit in the argument that the merger was a colorable exercise to avoid tax liability. The Court emphasized that any tax liability could be recovered by the department in accordance with the law. The merger was not intended to escape tax liability.

The learned Single Judge modified Clause 4 of the scheme to protect the interests of creditors and shareholders, which did not prejudice the Income-tax Department's interests. The Court concluded that the scheme was fair, in public interest, and sanctioned the amalgamation.

Conclusion:
The Court dismissed the appeal, finding no merit in the objections raised by the Income-tax Department. The scheme of amalgamation was sanctioned, binding all members and creditors of the two companies. The judgment emphasized the public interest and the benefits of the merger, ensuring it was conducted in compliance with legal provisions and protecting the interests of all stakeholders involved.