1998 (9) TMI 482 - HC - Companies Law

Summary

Issues Involved:
1. Availability of Report of Internal Auditor.
2. Excess Tax Deferment.
3. Non-availability of Books of Account.
4. Maintenance of Huge Cash Balance.
5. Unsecured Loans/Deposits.
6. Interest Rate Discrepancies.
7. Non-charging/Under-charging of Interest.
8. Calculation Mistake in Interest Payment.
9. Maintenance of Fixed Assets Register.
10. Public Issue Pricing and Prospectus Accuracy.
11. Consent Letter of Secured Creditors.
12. Fixation of Exchange Ratio.
13. Under-utilization of Capacity.
14. Profit on Inter-Departmental Transfers.
15. Pending Litigation and Bonus Shares.

Detailed Analysis:

Issue 1: Availability of Report of Internal Auditor
- Reply: No adverse comment made by the Chartered Accountant or the Official Liquidator.
- Court's Observation: The objection does not survive.

Issue 2: Excess Tax Deferment
- Reply: Payment made vide challan No. 33 dated 17-5-1995; no excess availment.
- Court's Observation: Prima facie objection does not survive; Sales Tax Department can investigate further.

Issue 3: Non-availability of Books of Account
- Reply: Books for the year 1990-91 have been made available.
- Court's Observation: The objection does not survive.

Issue 4: Maintenance of Huge Cash Balance
- Reply: Cash balance between Rs. 3 lakhs and Rs. 5.34 lakhs is reasonable given turnover and profit.
- Court's Observation: Not fatal to the amalgamation; revenue authorities can investigate further.

Issue 5: Unsecured Loans/Deposits
- Reply: Taken in the ordinary course of business without formal documents.
- Court's Observation: Not substantial enough to reject the scheme; transferee-company liable for any statutory breaches.

Issue 6: Interest Rate Discrepancies
- Reply: Interest rates depend on market forces; 21% is not unreasonable.
- Court's Observation: Objection does not override the amalgamation scheme.

Issue 7: Non-charging/Under-charging of Interest
- Reply: Business considerations led to non-charging/under-charging.
- Court's Observation: Not significant enough to warrant rejection of the amalgamation.

Issue 8: Calculation Mistake in Interest Payment
- Reply: Interest calculated from the date of cheque release, not fund credit.
- Court's Observation: The objection does not survive.

Issue 9: Maintenance of Fixed Assets Register
- Reply: Fixed assets register maintained and produced.
- Court's Observation: The objection does not survive.

Issue 10: Public Issue Pricing and Prospectus Accuracy
- Reply: Open to charge any premium; no law prohibiting it.
- Court's Observation: Not prejudicial to members or public interest; SEBI can investigate further.

Issue 11: Consent Letter of Secured Creditors
- Reply: Consent letter submitted.
- Court's Observation: The objection does not survive.

Issue 12: Fixation of Exchange Ratio
- Reply: Worked out by C.C. Choksi & Co., reputable Chartered Accountants.
- Court's Observation: Court's role is limited; objection not upheld.

Issue 13: Under-utilization of Capacity
- Reply: Initial under-utilization due to commercial reasons; no unaccounted production.
- Court's Observation: Not significant enough to reject the amalgamation.

Issue 14: Profit on Inter-Departmental Transfers
- Reply: Correct accounting method; services rendered in normal course of business.
- Court's Observation: Revenue authorities can investigate further; not fatal to amalgamation.

Issue 15: Pending Litigation and Bonus Shares
- Reply: Exchange ratio certificate considers bonus shares; no breach of Section 81.
- Court's Observation: Objection not sustained; scheme approved by all shareholders and creditors.

General Discussion and Clarifications:
- Exchange Ratio: Justified by C.C. Choksi & Co.; Supreme Court guidelines followed.
- Public Issue Pricing: Not prejudicial; market prices post-issue considered.
- Employee Absorption: All employees of transferor companies to be absorbed by transferee company.
- Pending Inquiries: Statutory authorities can continue inquiries post-amalgamation.

Conclusion:
The scheme of amalgamation is sanctioned, binding on all equity shareholders and creditors of all three companies. The entire undertakings, properties, rights, and liabilities of the transferor companies are transferred to the transferee company effective 1-4-1995. Pending proceedings will continue against the transferee company. The order does not absolve any pre-amalgamation liabilities or statutory breaches. Certified copies of the order to be delivered to the Registrar of Companies within 30 days. Liberty to apply for directions if necessary. Fees for the Central Government's counsel to be paid by the transferee company.