2004 (3) TMI 421 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the scheme of amalgamation.
2. Treatment of share application money upon amalgamation.
3. Reduction of share premium account and the necessity of following the procedure under section 100 of the Companies Act.

Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petitions were filed by Comat Infoscribe Pvt. Ltd., Bangalore Cyberspace Pvt. Ltd. (transferor companies), and Comat Technologies Pvt. Ltd. (transferee-company) seeking sanction for the proposed scheme of amalgamation. The court considered all three petitions together. The scheme proposed the amalgamation of the two transferor companies with the transferee company, both being 100% subsidiaries of the transferee company. No new shares were proposed to be issued to the shareholders of the transferor companies. The Board of Directors of each company approved the scheme and convened meetings of shareholders and creditors as directed by the court. The scheme was unanimously approved in these meetings, and no objections were raised. The court sanctioned the scheme, noting that it was not opposed to public policy and did not contravene any provision of law. The transferor companies were ordered to be dissolved without winding up.

2. Treatment of Share Application Money Upon Amalgamation:
The Regional Director, Department of Company Affairs, raised the issue that the second transferor company had collected share application money amounting to Rs. 4,25,000, and the scheme was silent on its treatment. The petitioner's counsel clarified that the entire share application money would be transferred to the transferee company, which would then be liable for it. The court found no legal impediment to sanctioning the scheme on this ground.

3. Reduction of Share Premium Account:
The scheme included a reduction of the share premium account of the transferee company. The Regional Director pointed out that no separate application under section 100 of the Companies Act had been filed for this reduction. The court examined whether it was necessary to follow the procedure under section 100 separately. Rule 85 of the Companies (Court) Rules, 1959, provides for compromise or arrangement involving reduction of capital, which must comply with the procedure prescribed by the Act and Rules. The court noted that the procedure prescribed under section 100 and related rules had been followed, as the reduction did not involve diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital. The court referred to judgments from the Gujarat and Andhra Pradesh High Courts, which supported the view that reduction of share capital could be approved simultaneously with the scheme of amalgamation if the procedure was followed. The court concluded that there was no legal prohibition or impediment to sanctioning the scheme, including the reduction of the share premium account.

Conclusion:
The court sanctioned the scheme of amalgamation, including the reduction of the share premium account, as all legal requirements were met, and the scheme was approved by the requisite majority of shareholders and creditors. The transferor companies were ordered to be dissolved without winding up, and the scheme was binding on the shareholders and creditors of the transferor and transferee companies.