2003 (6) TMI 331 - HC - Companies Law

Summary

Issues Involved:
1. Necessity of Reserve Bank of India (RBI) approval for amalgamation.
2. Alleged violation of Rule 78 of the Company (Court) Rules, 1959.
3. Necessity and fairness of the merger.

Detailed Analysis:

1. Necessity of Reserve Bank of India (RBI) approval for amalgamation:
The first issue raised was whether the prior permission of the Reserve Bank of India (RBI) was necessary for the amalgamation of a non-banking financial company (transferor) with a banking company (transferee). The objector cited Section 44A of the Banking Regulation Act, 1949. However, the court clarified that Section 44A applies only when both the transferor and transferee are banking companies. The court referenced a similar case involving ICICI Ltd., where it was held that the RBI's approval is not required if the transferor is not a banking company. Hence, the contention that prior sanction of the RBI is necessary for the proposed amalgamation was rejected.

2. Alleged violation of Rule 78 of the Company (Court) Rules, 1959:
The second issue concerned the alleged violation of Rule 78, which requires the chairman of the meeting to submit a report detailing the number of members present and their voting, including their addresses. The objector argued that the report annexed to the petitions did not include the addresses of the members. The court noted that substantial compliance with Rule 78 had been achieved, as all necessary details except addresses were provided. Additionally, affidavits were filed subsequently, including the names and addresses of all shareholders who attended the meetings. The court cited a judgment from the Calcutta High Court, emphasizing that strict adherence to forms is not necessary if substantial compliance is met. Therefore, the petition could not be dismissed on this ground.

3. Necessity and fairness of the merger:
The third issue raised was the necessity and fairness of the merger. The objector argued that the transferor company, being financially strong and debt-free, did not need to merge with the transferee company. He contended that the scheme was unfair and unjust to the shareholders of the transferor company, benefiting only the shareholders of the transferee company. The court, referencing the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd., outlined the jurisdiction of the company court in sanctioning schemes. The court emphasized that it cannot sit in appeal over the commercial wisdom of the majority of shareholders who approved the scheme. The court noted that the shareholders of both companies had approved the scheme by an overwhelming majority, indicating their commercial wisdom. Hence, the court cannot refuse to sanction the scheme based on its view of a potentially better scheme.

Conclusion:
The court found no merit in the objections raised. The scheme of arrangement, as approved by the shareholders of the transferor and transferee companies, was sanctioned. The court allowed Company Petition No. 1085 of 2002 in terms of prayer clauses (a) to (h) and Company Petition No. 1086 of 2002 in terms of prayer clauses (a) to (g). Both petitioners were ordered to pay costs to the Regional Director and the Official Liquidator. The operation of the order was stayed for two weeks at the request of the objector.