2008 (4) TMI 497 - HC - Companies Law

Amalgamation - Compromise and arrangement - Held that - The issuance of shares directly to the company will not amount to outright sale and at the most will attract the provisions of the Income-tax Act. Therefore the first objection is not sustainable. The second objection can also not been sustained as details of Estates A, B and C, the properties, book value and market value have been specified in the scheme. Particulars of the said will also appear from the valuation report which was open for inspection and no shareholder has complained against the valuation report or the details furnished. The third objection cannot be sustained as the valuation report has been prepared by a chartered accountant whose credentials have not been challenged. The valuation report has also not been challenged by any of the shareholder and there is no allegation against the chartered accountant and/or the valuation made. The court is to ensure that there is no malice or unreasonableness and the same does not appear in the instant case. The audited balance-sheet for March 31, 2006, was the only audited balance-sheet available and the same was also open for inspection, therefore, it cannot be said that the details of assets and liabilities were not known to the shareholders. Upon sanctioning of the scheme the applicants are directed to file appropriate application under clause 40A of the listing agreement in case of increase beyond the permissible limit. The applicants are ready and willing to increase the authorised share capital of the transferee company. Scheme allowed.

Summary

Issues Involved:
Application for sanctioning the scheme of amalgamation and arrangement between multiple petitioners, objections raised by the Central Government, compliance with statutory provisions under the Companies Act, 1956, challenges to valuation reports, method of valuation, share capital increase, stamp duty implications, and accounting standards adherence.

Analysis:

Scheme of Amalgamation and Arrangement:
The petitioners sought approval for the scheme of amalgamation and arrangement, which involved multiple petitioners. Meetings were conducted, and the schemes were unanimously approved by the shareholders. However, objections were raised by the Central Government regarding various aspects of the scheme.

Central Government's Objections:
The Central Government raised objections concerning the vesting of estates without share allotment, lack of property details in the scheme, high premium on share valuation, stamp duty avoidance, appointed date discrepancies, share capital insufficiency, and non-compliance with accounting standards.

Compliance with Statutory Provisions:
The petitioners asserted compliance with Sections 391, 392, and 394 of the Companies Act, 1956. They argued that all necessary procedures were followed, meetings were conducted as required, and majority shareholders approved the schemes.

Challenges to Objections:
The petitioners addressed each objection raised by the Central Government. They argued that the share issuance did not amount to outright sale, property details were provided, valuation reports were legitimate, stamp duty was not applicable, and share capital adjustments were permissible without fees.

Valuation Report Challenges:
The petitioners defended the valuation report's credibility, highlighting that shareholders did not challenge it. They cited precedents to support their position and emphasized that objections lacked merit.

Conclusion and Court Order:
The court rejected the objections raised by the Central Government, noting compliance with legal provisions and addressing concerns regarding share capital, valuation, and accounting standards. The petitioners were directed to increase authorized share capital and maintain accounting standards. The court ordered in favor of the petitioners, and costs were imposed on the Central Government.

Final Directions:
The judgment concluded with directions for the petitioners to provide a computerized printout of the scheme to the Department and pay assessed costs. The case was disposed of, emphasizing compliance with formalities for providing certified copies of the judgment to the parties upon request.