2009 (5) TMI 540 - HC - Companies Law

Compromise and arrangement - Amalgamation - Held that - Considering the entire facts and circumstances of the case the Court is of the view that the scheme of arrangement as proposed is in the interests of the companies and they are duly approved by the shareholders and all concerned. No one has raised any objection. It is also not contrary to the public interest. Hence prayers made in the respective company petitions are hereby granted.

Summary

Issues Involved:
1. Sanction of the scheme of arrangement and amalgamation.
2. Dispensing with the meetings of equity shareholders and creditors.
3. Compliance with statutory provisions and pending liabilities.
4. Accounting treatment under Accounting Standard 14.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement and Amalgamation:
The petitions were filed by three companies seeking the sanction of a scheme of amalgamation involving Reclamation Welding Ltd., Paramount Centrispun Castings (P.) Ltd., and AIA Engineering Ltd. The scheme aimed to combine the businesses for better utilization of resources, financial and growth prospects, cost reduction, and managerial synergy. The Court noted the advantages of the amalgamation, including enhanced market position and growth prospects, integrated operations, and optimum utilization of infrastructure.

2. Dispensing with the Meetings of Equity Shareholders and Creditors:
Paramount Centrispun Castings (P.) Ltd. and Reclamation Welding Ltd. filed applications to dispense with the meetings of their equity shareholders and creditors, as consent letters were received from all equity shareholders, and no objections were raised. The Court granted these requests, noting that no liabilities of the creditors were being reduced or extinguished. AIA Engineering Ltd. was directed to hold a meeting of its equity shareholders, which was convened and approved the scheme by the requisite majority.

3. Compliance with Statutory Provisions and Pending Liabilities:
The Regional Director raised an observation regarding the violation of section 297 of the Companies Act, 1956, by AIA Engineering Ltd. The Court clarified that granting sanction to the scheme would not absolve the company or its directors from any liabilities arising from statutory violations or pending proceedings. The transferee-company had already filed a compounding application under section 621A of the Companies Act, 1956.

4. Accounting Treatment under Accounting Standard 14:
The Regional Director also observed that the scheme's clause on recording the excess value of assets over liabilities was not in consonance with Accounting Standard 14, which requires such profits to be treated as capital profits and transferred to the capital reserve. The Court discussed the two methods of accounting for amalgamations under Accounting Standard 14: the pooling of interest method and the purchase method. The Court concluded that the scheme's proposed accounting treatment was appropriate and aligned with the accepted accounting practices.

Conclusion:
The Court found that the scheme of arrangement was in the interests of the companies, duly approved by shareholders, and not contrary to public interest. The prayers made in the respective company petitions were granted, and the petitions were disposed of accordingly. The cost to be paid to the Central Government counsel was quantified at Rs. 3,500 per petition.