2006 (1) TMI 259 - HC - Companies Law

Issues Involved
1. Approval of the Scheme of Amalgamation under Section 391/394 of the Companies Act, 1956.
2. Compliance with statutory requirements and procedural formalities.
3. Treatment of reserves in the amalgamation process.
4. Objections and representations from the Official Liquidator and the Regional Director.

Detailed Analysis

1. Approval of the Scheme of Amalgamation under Section 391/394 of the Companies Act, 1956
The petitioner sought approval for the scheme of amalgamation of five transferor companies with Shaw Wallace Distillers Ltd. The court noted that all transferor companies are wholly owned subsidiaries of the transferee company, and all companies involved had resolved to amalgamate in their board meetings. The application was treated as a confirmation petition for the proposed amalgamation scheme, specifically addressing Highland Distilleries Ltd. as the transferor company to be amalgamated with Shaw Wallace Distillers Ltd.

2. Compliance with Statutory Requirements and Procedural Formalities
The court's order dated 8-11-2005 mandated the advertisement of the petition in specified newspapers and the issuance of notices to the Official Liquidator and the Regional Director. The court verified that these requirements were fulfilled, as evidenced by the affidavit filed by Shri N.K. Gupta, confirming the publication and service of notices. The Official Liquidator and the Regional Director submitted their reports, indicating that statutory requirements were duly complied with, and no objections were raised by any party.

3. Treatment of Reserves in the Amalgamation Process
The Regional Director raised concerns regarding the treatment of reserves, specifically the clause in the scheme that allowed for the excess value of net assets to be credited to the general reserves account. The court referred to Accounting Standards (AS-14) issued by the Institute of Chartered Accountants of India, which outlines the treatment of reserves in amalgamations. The court directed that the resultant reserves should be treated in accordance with these standards, ensuring that reserves available for distribution as dividends before the amalgamation would remain available after the amalgamation.

4. Objections and Representations from the Official Liquidator and the Regional Director
The Official Liquidator's report confirmed that Highland Distilleries Ltd. had not commenced any business activities since its incorporation and had no secured loans, with only unsecured loans amounting to Rs. 42,96,081. The Regional Director's representation highlighted a specific clause in the scheme that seemed inconsistent with the Companies Act and accepted accounting principles. The court addressed these concerns by ensuring compliance with the relevant accounting standards.

Conclusion
The court concluded that all statutory requirements were met, and no objections were raised against the scheme of amalgamation. It was satisfied that the transferor company disclosed all material facts and that no investigation proceedings were pending. The scheme of amalgamation was sanctioned, effective from the appointed day specified in the scheme. The transferor company was ordered to be dissolved without winding up, and a formal order was to be issued and filed with the Registrar of Companies within the statutory period.

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