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2012 (12) TMI 269 - HC - Companies LawAmalgamation - held that - Scheme involving Amalgamation of a wholly owned subsidiary Company with its Holding Company, Holding Transferee Company is not obliged to seek sanction under the provisions of Sections 391 to 394 of the Act. Upon the Scheme being sanctioned, the entire shareholding of the Petitioner Subsidiary Company would stand cancelled. Further, the Scheme of Amalgamation does not involve any compromise or arrangement with the Shareholders or Creditors of the Transferee Company. In the present case, the material on record demonstrates that upon Amalgamation of the Petitioner Subsidiary Company, with the Holding, Transferee Company, no reorganisation of the share capital of the Transferee Company is involved. The Scheme, if sanctioned, would not be detrimental to the interests of the members or creditors of the Transferee Company or to the public interest at large - net worth of the Petitioner Subsidiary Company is positive and it has an excess of assets over liabilities. Similarly, the net worth of the Transferee Company is positive and it has an excess of assets over liabilities. There is, therefore, no question of the Scheme being detrimental to the public interest - stand taken by the Regional Director cannot be accepted - proposed Scheme of Amalgamation would be in the interest of the Transferor and Transferee Companies, their members and Creditors.
Issues Involved:
1. Whether the Holding Transferee Company is required to initiate separate proceedings under Sections 391 to 394 of the Companies Act, 1956 for a Scheme of Merger with its wholly owned Transferor Subsidiary Company. 2. Whether the High Court considering the application by the Transferor Company can observe that the Transferee Company is not required to file a separate application for approval of the Scheme. Issue-Wise Detailed Analysis: Issue 1: Requirement for Separate Proceedings by the Transferee Company The court examined whether the Holding Transferee Company needs to initiate separate proceedings under Sections 391 to 394 of the Companies Act, 1956, in a Scheme of Merger with its wholly owned Transferor Subsidiary Company. The court referred to several judicial pronouncements to address this issue: - Bank of India Ltd. v. Ahmedabad Manufacturing & Calico Printing Co. Ltd. [1972] 42 Com. Cas. 211 (Bombay High Court): It was held that if a scheme does not affect the rights of the members or creditors of the transferee company or involve a reorganization of the share capital of the transferee company, no application by the transferee company under Sections 391 or 394 is necessary. - Sharat Hardware Industries (P.) Ltd., In re [1978] 48 Comp. Cas. 23 (Delhi High Court): The court held that for a wholly owned subsidiary company merging with its holding company, it was not necessary for the transferee company to approve the scheme. - Mahaamba Investments Ltd. v. IDI Ltd. [2001] 105 Com. Cas. 16/33 SCL 383 (Bombay High Court): Reaffirmed that no application by the transferee company is necessary if the scheme does not affect the rights of its members or creditors or involve a reorganization of its share capital. - Nebula Motors Ltd., In re: [2003] 45 SCL 143 (Andhra Pradesh High Court): The court held that the High Court dealing with the transferor company can examine the scheme and decide whether a separate application by the transferee company is necessary. - Santhanalakshmi Investments (P.) Ltd., In re: [2006] 129 Comp. Cas. 789/65 SCL 406 (Madras High Court): Held that a single application by the transferor company suffices if it is a wholly owned subsidiary of the transferee company. - ESL India Ltd., In re: [2009] 95 SCL 133 (Raj.) (Rajasthan High Court): Supported the view that a petition by the transferor company can dispense with the need for a separate petition by the transferee company. The court concluded that in the present case, the scheme does not affect the rights of members or creditors of the transferee company, does not involve a reorganization of its share capital, and the net worth of both companies is positive. Therefore, there is no requirement for the holding transferee company to initiate separate proceedings under Sections 391 to 394 of the Act. Issue 2: High Court's Authority to Observe Non-requirement of Separate Application by Transferee Company The court addressed whether it can observe that the transferee company is not required to file a separate application for the scheme's approval while considering the transferor company's application. The court referred to: - Nebula Motors Ltd., In re [2003] 45 SCL 143 (Andhra Pradesh High Court): The court held that the High Court dealing with the transferor company can examine the scheme and decide whether a separate application by the transferee company is necessary. - The court noted that the scheme does not involve any reorganization of the share capital of the transferee company and is not detrimental to the interests of its members or creditors. The court emphasized that its previous order dated 03.04.2012, which observed that the transferee company is not required to file a separate application, has not been challenged. The court held that it was exercising jurisdiction over the transferor company and not the transferee company while making the observation. The objection by the Regional Director was deemed untenable. Conclusion: The court rejected the objections raised by the Regional Director and allowed the prayers made in the petition, granting the scheme of amalgamation. The court ordered that the transferee company is not required to initiate separate proceedings under Sections 391 to 394 of the Companies Act, 1956. The petition was allowed, and costs were quantified and directed to be paid to the Assistant Solicitor General of India and the Official Liquidator.
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