2002 (11) TMI 675 - HC - Companies Law

Issues Involved:
1. Sanction of the Scheme of Amalgamation under sections 391 and 394 of the Companies Act, 1956.
2. Compliance with Section 97 of the Companies Act, 1956 regarding the increase in authorized share capital.

Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petitioner company, a transferee-company, sought the sanction of a Scheme of Amalgamation with the transferor companies under sections 391 and 394 of the Companies Act, 1956. The amalgamation aimed to rationalize the manufacture of products and business, optimize the use of assets and properties, and increase the productivity and profitability of the combined unit for the benefit of shareholders and creditors.

The petitioner company took out a summons for direction, and the meetings of shareholders, members, and creditors were dispensed with by an order dated 19th April 2002. The transferor companies also took out summons for direction in the High Court at Gujarat, and orders were passed accordingly.

The petitioner company filed affidavits proving service of notice of hearing upon the Regional Director, publication of notice, and service of notice on shareholders. These affidavits were taken on record. An objection was raised by one individual, which was later withdrawn after clarification.

The Regional Director filed an affidavit stating that the scheme was not prejudicial to the interests of creditors and shareholders. The affidavit also mentioned the need for the transferee-company to apply for a change of name and shift the registered office from Maharashtra to Gujarat. The main contention was the requirement for the transferee-company to file Form No. 5 with the Registrar of Companies for the increase in authorized share capital under section 97 of the Companies Act, 1956.

2. Compliance with Section 97 of the Companies Act, 1956:
The petitioner company objected to the requirement of complying with section 97, arguing that sections 391 to 394 are self-contained codes for schemes of arrangement and compromise. The learned Counsel for the petitioner contended that the scheme of amalgamation inherently provided for the increase in share capital, making separate compliance with section 97 unnecessary. The Counsel relied on section 349(1)(b) and an unreported judgment of the Andhra Pradesh High Court.

The Regional Director maintained that section 97 is an independent condition that must be satisfied separately. The Board of Directors of the transferee-company must pass a resolution authorizing the increase in share capital and notify the Registrar of Companies within 30 days.

The Court examined sections 97 and 394 of the Act. Section 97 mandates that any increase in share capital or the number of members must be authorized by a resolution and notified to the Registrar. Section 394 facilitates the reconstruction and amalgamation of companies but does not exempt compliance with section 97. The Court concluded that section 97 applies regardless of how the increase in share capital occurs, including through a scheme of amalgamation.

The Court found no conflict between sections 97 and 394, stating that section 97 is procedural and ensures that the Registrar's records are updated. The Court rejected the petitioner's contention that section 97 need not be complied with in the case of amalgamation.

Conclusion:
The Court sanctioned the scheme of amalgamation subject to the petitioner company complying with section 97 of the Act. The petition was made absolute in terms of the prayer clauses, and the petitioner was directed to pay costs to the Regional Director and Official Liquidator.

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