2002 (6) TMI 559 - HC - Companies Law

Issues Involved:
1. Validity of the exchange ratio and premium in the scheme of amalgamation.
2. Compliance with statutory requirements for changing the name of the transferee-company.
3. Enabling clause in the memorandum of association of the transferee-company for carrying on the business of the transferor-company.
4. Conversion of the transferee-company from a Non-Banking Financial Company (NBFC) to an industrial company.

Issue-wise Detailed Analysis:

1. Validity of the Exchange Ratio and Premium in the Scheme of Amalgamation:
The appellants challenged the learned single judge's rejection of the scheme of amalgamation on the grounds that the exchange ratio and premium were not justified. The scheme proposed that for every fully paid-up equity share of the transferor-company, three equity shares of the transferee-company would be allotted at a premium of Rs. 5 per share. The learned single judge found this premium to be unjustified, especially since the chartered accountant's valuation did not recommend a premium. The appellants argued that the premium was an accounting necessity due to the difference between the face value (Rs. 10) and the issue price (Rs. 15) of the transferee-company's shares. They contended that the premium was to be retained in the securities premium account as per Section 78 of the Companies Act, 1956, and could be utilized only for specific purposes listed in Section 78(2). The court agreed with the appellants, noting that the valuation by experts and the unanimous approval by shareholders justified the exchange ratio and premium.

2. Compliance with Statutory Requirements for Changing the Name of the Transferee-Company:
The scheme provided for changing the name of the transferee-company to Shiva Texyarn Ltd. upon the dissolution of the transferor-company. The Regional Director, Department of Company Affairs, raised an objection that the transferee-company must comply with Sections 20, 21, and 23 of the Companies Act, 1956, for such a name change. The court acknowledged this requirement but did not find it a reason to reject the scheme. Instead, it directed compliance with the statutory provisions.

3. Enabling Clause in the Memorandum of Association of the Transferee-Company for Carrying on the Business of the Transferor-Company:
The Regional Director also objected that the transferee-company's memorandum of association did not have an enabling clause to carry on the business of the transferor-company. The appellants had undertaken to shift the relevant objects to the main objects of the transferee-company upon sanctioning the scheme. The court found this undertaking sufficient and did not see it as a barrier to approving the scheme.

4. Conversion of the Transferee-Company from an NBFC to an Industrial Company:
The scheme proposed converting the transferee-company from an NBFC to an industrial company engaged in manufacturing. The court noted that this conversion was a significant aspect of the merger, as it would provide the transferee-company with a better source of revenue and business opportunities. The court found that the merger was prudent and beneficial, especially since the transferee-company was listed on multiple stock exchanges, providing continued listing advantages to shareholders.

Conclusion:
The court concluded that the learned single judge's reasoning was not in accordance with the law and set aside the order rejecting the scheme of amalgamation. The court allowed the appeals, approving the scheme and directing the appellant-companies to file a certified copy of the order with the Registrar of Companies within 30 days. The court also granted time extensions for holding annual general meetings and publishing audited annual accounts. Additionally, the transferee-company was directed to pay Rs. 2,500 to the Additional Central Government standing counsel.

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