2012 (6) TMI 128 - HC - Companies Law

Sanction of Scheme of Amalgamation - Held that - Pendency of any proceedings if any by the Income Tax Department cannot be a ground not to sanction the scheme. The Court also finds that the issue and allotment of shares whether on premium or otherwise is in the sole domain of the Board of Directors of the Company. Furthermore, even the action of the Company in forfeiting the shares cannot be said to be against the provisions of Companies Act, 1956. In case of default in payment of call money, it is open for the Board of Directors of the Company to forfeit the shares of the concerned shareholder. In any case, such aspects would not affect Scheme of Amalgamation as proposed u/s 391-394 of the Companies Act, 1956. The Court finds that there is nothing in the report which adversely affects the interest of the Company and/or its shareholders, or creditors or public interest by virtue of the provisions of the Scheme of Amalgamation. Scheme of Amalgamation is hereby sanctioned.

Issues Involved:
1. Sanction of Scheme of Amalgamation
2. Dispensation of shareholders' meetings
3. Publication of notice and affidavits
4. Reports by the Official Liquidator
5. Observations by the Regional Director
6. Observations by the Income Tax Department
7. Allotment and forfeiture of shares
8. Fixation of premium on shares
9. Transfer of shares
10. Compliance with Accounting Standard AS-14

Detailed Analysis:

1. Sanction of Scheme of Amalgamation:
The petitions sought the sanction of a Scheme of Amalgamation involving multiple companies. The Court sanctioned the Scheme of Amalgamation as annexed at Annexure 'C' to the petitions, finding no objections or adverse circumstances against it. The Scheme was not against public interest, and the Court directed the transferor companies to preserve their records for 8 years from the date of sanctioning the scheme.

2. Dispensation of Shareholders' Meetings:
Each transferor company filed separate applications seeking dispensation of the shareholders' meetings on the grounds that consent from all shareholders had been obtained and that the companies had no creditors. The Court granted dispensation for these meetings.

3. Publication of Notice and Affidavits:
The Court ordered the publication of notices in Gujarati Daily 'Lok-Satta Jan-Satta' and English Daily 'Indian Express'. The petitioners complied, and the directors filed affidavits supporting the publication of advertisements.

4. Reports by the Official Liquidator:
The Official Liquidator confirmed that the affairs of the transferor companies were not conducted prejudicially to the interests of members or public interest. The Liquidator requested the Court to direct the transferor companies to preserve their records for 8 years and not dispose of them without prior permission from the Central Government.

5. Observations by the Regional Director:
The Regional Director raised several observations, including issues related to the allotment and forfeiture of shares, fixation of premium on shares, transfer of shares, and compliance with Accounting Standard AS-14. The petitioners provided detailed responses to each observation, asserting that the actions were within the Board of Directors' discretion and complied with the Companies Act, 1956.

6. Observations by the Income Tax Department:
The Income Tax Department filed affidavits raising concerns. The Court referred to a previous judgment, stating that pending proceedings under the Income Tax Act could not be a ground for not sanctioning the scheme. The Court emphasized that such proceedings could not affect the sanction of the Scheme of Amalgamation.

7. Allotment and Forfeiture of Shares:
The petitioners argued that the allotment and forfeiture of shares were within the Board of Directors' discretion and not prohibited by the Companies Act. The Court agreed, stating that these actions would not affect the Scheme of Amalgamation.

8. Fixation of Premium on Shares:
The petitioners contended that fixing the premium on shares was also within the Board of Directors' exclusive domain and not prohibited by the Companies Act. The Court found no loss to the company or its funds from charging a premium.

9. Transfer of Shares:
The petitioners provided evidence that the transferee company's consent had been obtained for the transfer of shares. The Court found no issues with the transfer process.

10. Compliance with Accounting Standard AS-14:
The petitioners asserted that the Scheme complied with AS-14 as notified by the Central Government. They provided a certificate from Chartered Accountants confirming compliance. The Court noted that even if there were any breaches, it would not affect the Scheme of Amalgamation.

Conclusion:
The Court sanctioned the Scheme of Amalgamation, finding no objections or adverse circumstances that would render the Scheme invalid. The transferor companies were directed to preserve their records for 8 years, and costs were quantified for the Assistant Solicitor General of India, Central Government Counsel, and the Official Liquidator.

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