2002 (1) TMI 1221 - HC - Companies Law

Summary

Issues:
Approval of scheme of amalgamation involving violation of sections 77 and 42 of the Companies Act, 1956.

Analysis:
1. The petitions sought approval for the scheme of amalgamation of two companies, which had already received consent from shareholders and secured creditors. Meetings of shareholders and creditors were dispensed with based on previous orders.
2. The petitions were advertised in newspapers, and no opposition to the scheme was raised. Central Government did not object to the proposed scheme of amalgamation.
3. The Official Liquidator confirmed that the affairs of the transferor-company were not conducted in a prejudicial manner. However, an objection was raised regarding the violation of sections 77 and 42 of the Companies Act.
4. The Official Liquidator argued that the proposed merger would breach sections 77 and 42, as the transferor-company would hold shares in the transferee-company, which is not allowed under the Act.
5. Counsel for the companies contended that the objection was misconceived, citing provisions of sections 391 to 394 as a complete code for amalgamation. They referenced a Delhi High Court decision to support their argument.
6. After considering arguments from both sides, the Court found merit in the companies' submissions. The Court noted that the Delhi High Court decision supported the view that sections 391 to 394 were not controlled by sections 42 and 77.
7. The Court also acknowledged that the practical effect of the proposed amalgamation could have been achieved through a different share issuance structure. Hence, it saw no reason to accept the Official Liquidator's objection.
8. Ultimately, the Court approved the scheme of amalgamation, stating that it would be in the interest of the companies and their members. The prayers in the petitions were granted, and the petitions were allowed and disposed of accordingly.