2015 (6) TMI 11 - HC - Companies Law

Proposed Scheme of Amalgamation - Dispensation with the requirement of convening the meeting of equity shareholders, secured and unsecured creditors under Section 391 to 394 of the Companies Act, 1956 read with Rules 6 and 9 of the Companies (Court) Rules, 1959 - Dispensation of requirement of the transferee company to approach the High Court of Andhra Pradesh for sanction of Scheme of Amalgamation under Sections 391-394 of the Companies Act, 1956 - Held that - The applicant/transferor company has 02 equity shareholders and 44 unsecured creditors. Both the equity shareholders and all the unsecured creditors have given their consents/no objections in writing to the proposed Scheme of Amalgamation. Their consents/no objections have been placed on record. They have been examined and found in order. In view thereof, the requirement of convening the meetings of the equity shareholders and unsecured creditors of the applicant/transferor company to consider and, if thought fit, approve, with or without modification, the proposed Scheme of Amalgamation is dispensed with. There is no secured creditor of the applicant/transferor company, as on 30th January, 2015. The applicant also seeks dispensation of requirement of the transferee company to approach the High Court of Andhra Pradesh for sanction of Scheme of Amalgamation under Sections 391-394 of the Companies Act, 1956 on the ground that the Scheme does not entail or involve any arrangement between the transferee company and its shareholders since applicant/transferor company is a wholly owned subsidiary of the transferee company; no new shares will be issued by the transferee company in lieu of the shares of the transferor company; and there will be no change in the control and management of the transferee company, therefore, the rights of the shareholders of the transferee company will not be affected in any manner whatsoever by the Scheme. It is further submitted that both the companies are profit making companies and have sufficient reserves and surplus and high positive net worth and the aggregate of assets of both the companies are more than sufficient to meet their respective and combined aggregate liabilities towards their respective creditors. Therefore, the rights of the creditors of the transferee company will not be adversely affected. The applicant has also placed on record the certificate from GVR & Co., Chartered Accountants, showing the positive net worth of the transferor and transferee companies. I have carefully considered the case laws cited i.e. Andhra Bank Housing Finance Ltd. 2003 (3) TMI 550 - HIGH COURT OF ANDHRA PRADESH , Sharat Hardware Industries Pvt. Ltd. 1976 (5) TMI 78 - HIGH COURT OF DELHI , Mahaamba Investments Ltd. 2001 (1) TMI 904 - HIGH COURT OF BOMBAY at the Bar, wherein the transferee company, being the holding company, has been granted exemption from taking out separate proceedings under Section 391(2) of the Companies Act, 1956. In view of this settled legal position and considering the Scheme of Amalgamation, the requirement of the transferee company having to approach the High Court of Andhra Pradesh under Section 391(2) of the Companies Act, 1956 for sanction of the Scheme of Amalgamation is dispensed with. - Decided in favour of appellant.

Summary

Issues:
Application under Sections 391 to 394 of the Companies Act, 1956 seeking directions to dispense with the requirement of convening meetings of equity shareholders, secured and unsecured creditors for Scheme of Amalgamation.

Analysis:
The application was filed under Sections 391 to 394 of the Companies Act, 1956 seeking directions to dispense with the requirement of convening meetings of equity shareholders, secured, and unsecured creditors for the proposed Scheme of Amalgamation between two companies. The applicant, a transferor company, requested the court to approve the amalgamation with the transferee company without the need for shareholder and creditor meetings. The applicant highlighted that the transferee company was a wholly owned subsidiary and provided details of the share capital structure and financial positions of both companies.

The Scheme of Amalgamation aimed at operational rationalization, organizational efficiency, and synergy, leading to a reduction in legal and regulatory compliances and overheads. The share exchange ratio indicated that no consideration would be paid or shares issued to shareholders of the transferor company. Both companies' Board of Directors had approved the Scheme, and consents from equity shareholders and unsecured creditors were obtained and deemed sufficient. Notably, there were no secured creditors as of a specified date.

The applicant sought dispensation from the requirement for the transferee company to approach the High Court of Andhra Pradesh for sanction of the Scheme. The applicant argued that since the transferor company was a wholly owned subsidiary, no new shares would be issued, and no change in control or management would occur in the transferee company. The positive net worth of both companies was highlighted, ensuring creditors' rights would not be affected. The applicant provided a certificate from Chartered Accountants to support the companies' financial positions.

In considering the legal precedents cited by the applicant's counsel, the court acknowledged the exemption granted to holding companies in similar situations. Relying on settled legal principles and the specifics of the Scheme of Amalgamation, the court dispensed with the requirement for the transferee company to seek sanction from the High Court of Andhra Pradesh. Consequently, the application was allowed in the terms presented, bringing the matter to a conclusion.