2007 (12) TMI 280 - HC - Companies Law

Amalgamation - Held that - Scheme of amalgamation has to be approved, but subject to the following conditions That the approval of this amalgamation scheme does not in any way dispense with the formality of execution of instrument or conveyance or other documents for effectively vesting of the property and rights of the transferor companies in the transferee company, nor the approval as a result of the scheme gives any right to the properties which in law are not assignable or transferable to the transferee company. If the transfer has to be effected it has to be effected in accordance with the law of the Transfer of Property Act, 1882, and in those cases where the property is on lease with restriction on the transfer or sub-letting of such a property, the sanction of the relevant authority is sought before its transfer. If, as a result of the transfer of any assets or shares of the transferor company to the transferee company a liability of the capital gains tax may arise against any company or its shareholders, this order shall not absolve such company or the shareholders from payment of taxes which may be leviable under the existing taxing laws and as such the taxing authorities shall be free to proceed in the matter of tax irrespective of the present order of amalgamation. The present order of amalgamation will not absolve any of the companies or its directors from the liability for breach of any law or control order which might have been committed before the order of amalgamation.

Summary

Issues Involved:
Petition for sanctioning the scheme of amalgamation under section 394 read with rule 79 of the Companies (Court) Rules, 1959.

Detailed Analysis:

1. Approval of Shareholders and Creditors:
The petition was filed for sanctioning the scheme of amalgamation involving five companies. Meetings of shareholders and creditors were convened as per court direction, where all shareholders unanimously approved the resolution for amalgamation. Creditors also did not raise any objections to the scheme. The Regional Director, Ministry of Corporate Affairs, submitted a report without objections to the scheme.

2. Role of Official Liquidator:
The Official Liquidator requested copies of account books to file objections, which was opposed by the companies' counsel. The counsel argued that the Official Liquidator has no locus standi to oppose the amalgamation under section 394(1)(a) of the Companies Act, 1956. Reference was made to a Calcutta High Court judgment emphasizing that the Official Liquidator's role is limited when no winding up petition is presented. The judgment highlighted that the Official Liquidator cannot challenge the amalgamation if an application under section 394(1)(iv) is filed.

3. Judicial Precedents:
The counsel for the Official Liquidator cited a Supreme Court judgment, but the court differentiated the case, stating it did not address the dissolution aspect in the present case. Referring to a Madhya Pradesh High Court judgment, it was established that once shareholders unanimously approve the amalgamation scheme, objections by the Official Liquidator based on account book inspection cannot hinder the process. The court noted that the Company Law Board and creditors had also approved the scheme.

4. Conditions for Approval:
The court approved the amalgamation scheme with specific conditions. It clarified that the approval does not negate the requirement for proper documentation for transferring assets and rights. Additionally, it stated that the approval does not exempt companies or shareholders from capital gains tax liabilities or breach of laws committed before the amalgamation order.

In conclusion, the court approved the scheme of amalgamation with the specified conditions, emphasizing the importance of proper legal procedures and compliance with tax obligations and legal liabilities post-amalgamation.