2007 (9) TMI 402 - HC - Companies Law

Amalgamation - Held that - The transferor is a wholly owned subsidiary of the transferee. The scheme of amalgamation involves the entire undertaking of the transferor to be transferred to and vested in the transferee with a view to achieve the aforementioned objects. It cannot be said that, in the present case, the scheme of amalgamation is a device to evade the law, is unconscionable, unfair or unjust to the members/creditors of both the transferor and transferee companies or that it is against public policy or that it shocks the conscience of the Court. It cannot, therefore, be said that the scheme of amalgamation, if approved, would be prejudicial to public interest. Therefore consider it appropriate, therefore, to sanction the scheme of amalgamation. As required under section 394(3) of the Companies Act, read with rule 81 of the Company (Court) Rules, 1959, the petitioner shall file a certified copy, of the order of this Court, with the Registrar of Companies for its registration within thirty days from the date of the order.

Summary

Issues Involved:
1. Approval of the Scheme of Amalgamation.
2. Requirement of Meetings for Members and Creditors.
3. Lifting the Corporate Veil.
4. Disclosure of Latest Financial Position.
5. Reports from Official Liquidator and Central Government.
6. Clubbing of Authorized Capital.
7. Public Interest Consideration.

Detailed Analysis:

1. Approval of the Scheme of Amalgamation:
The petitioner-transferor company sought the court's sanction for a scheme of amalgamation under sections 391 and 394 of the Companies Act, 1956. The scheme, approved by the respective Boards of the transferor and transferee companies, involved the dissolution of the transferor company without winding up, effective from the appointed date or a date fixed by the court. The court's role is to ensure compliance with statutory provisions, fair representation, and that the scheme is commercially reasonable. The court's jurisdiction is peripheral and supervisory, not appellate, focusing on the commercial wisdom of the parties involved.

2. Requirement of Meetings for Members and Creditors:
The court dispensed with the requirement of a meeting of the shareholders as all had consented. However, the sole secured creditor and unsecured creditors had given their consent, but sundry creditors had not. The court debated whether a creditors' meeting was necessary, considering the impact on creditors who would look to the transferee for debt repayment. The court concluded that in cases where a wholly owned subsidiary is amalgamated with its holding company, a creditors' meeting may not be necessary if their rights are not adversely affected.

3. Lifting the Corporate Veil:
The court discussed lifting the corporate veil in cases involving a holding company and its subsidiary. The entire equity share capital of the transferor was held by the transferee, making it a wholly owned subsidiary. The court cited precedents where the corporate veil was lifted to treat the holding and subsidiary companies as a single entity, emphasizing the realities of the situation. This approach justified not holding a creditors' meeting as the creditors were effectively dealing with the transferee company de facto.

4. Disclosure of Latest Financial Position:
The petitioner disclosed the audited balance sheet of the transferor company as of 31-3-2007 and the transferee company as of 31-3-2006. The court accepted the submission that the latest audited balance sheet of the transferee company was not finalized. The court emphasized the need for the latest financial position to be disclosed, allowing for further details if there is a significant time gap between the petition filing and hearing.

5. Reports from Official Liquidator and Central Government:
The Official Liquidator reported that the transferor company's affairs were not conducted prejudicially to its members or public interest. The Central Government raised objections regarding the transferee not seeking dispensation of creditors' meetings and the impermissibility of combining authorized capital without compliance with sections 94 and 97 of the Companies Act. The court overruled these objections, emphasizing that the authorized capital of the transferor, already subjected to fees, transfers to the transferee upon amalgamation without additional fees.

6. Clubbing of Authorized Capital:
The court held that the authorized capital of the transferor company, a liability, transfers to the transferee company upon amalgamation. This transfer does not require additional fees or approval from the Registrar of Companies, as the statutory provisions under sections 394(1) and (4)(a) facilitate such transfers.

7. Public Interest Consideration:
The court scrutinized the scheme to ensure it was fair, reasonable, and not against public interest. The amalgamation aimed to synergize operations, pool resources, and enhance competitiveness. The scheme did not adversely affect the rights of the transferee company's members or creditors. The court concluded that the scheme was not a device to evade the law, was not unconscionable, and did not shock the court's conscience. It was deemed beneficial for the long-term interests of both companies and their stakeholders.

Conclusion:
The court sanctioned the scheme of amalgamation, directing the petitioner to file a certified copy of the order with the Registrar of Companies within thirty days for registration. The court ensured that all statutory requirements were met, and the scheme was in public interest.