2016 (3) TMI 788 - HC - Companies Law

Scheme of amalgamation - Held that - From the affidavit submitted by the Regional Director and the report of the Official Liquidator, on notice being sent to them of the second motion under Sections 391 and 394 of the Act of 1956, it is quite apparent that no ground for denying the scheme of amalgamation is made out in the present case. The issue of Income Tax clearance, is a matter which does not directly flow from the language of section 391 of the Act of 1956. Income Tax liability is a matter distinct from manner of carrying out of business. Income Tax liability would hold as per law both for the period prior to the sanction of the scheme and thereafter. Further, the petitioner companies, as per their undertaking in rejoinder to reply Affidavit of the Regional Director, would be under an obligation to make compliance with the Income Tax Act, 1961 in the matter. They have also undertaken to seek compounding of procedural irregularities/ defaults under the Companies Act, 1956, if required, in accordance with law. Having examined the Scheme of Amalgamation, this Court finds nothing prejudicial to the interest of creditors, members of both the Transferor and Transferee Company or to public interest, in the event the scheme is sanctioned. The required procedures for initiating a merger and seeking sanction thereof from the Company court have been followed.

Summary

Issues:
1. Scheme of amalgamation under Sections 391-394 of the Companies Act, 1956 seeking sanction.
2. Compliance with procedural requirements and objections raised by the Regional Director.
3. Examination of the scheme's fairness, transparency, and compliance with statutory rules.
4. Consideration of Income Tax clearance and liabilities.
5. Approval of the scheme of amalgamation and its binding effect on creditors and shareholders.

Analysis:

1. The petition was filed for the approval of a scheme of amalgamation under Sections 391-394 of the Companies Act, 1956, involving two companies, the transferor and transferee companies. The purpose was to facilitate effective management and reduce costs.

2. The Regional Director raised procedural violations but did not present substantial objections against the scheme. The Official Liquidator also found no prejudice to the companies' interests. The court noted that the objections did not indicate harm to members or public interest.

3. The court's role in sanctioning a scheme of amalgamation is supervisory, ensuring transparency, fairness, and compliance with rules. The court found no grounds to deny the scheme based on the submissions and reports received.

4. The issue of Income Tax clearance was discussed, emphasizing that it is separate from the business operation. The companies undertook to comply with Income Tax laws and rectify any procedural irregularities under the Companies Act, 1956.

5. After examining the scheme, the court concluded that it was not prejudicial to creditors, members, or public interest. The court approved the scheme of amalgamation, making it binding on the creditors and equity shareholders of both companies. The parties were allowed to seek further directions if necessary.

In conclusion, the court allowed the company petition, sanctioned the amalgamation scheme, and declared it binding on the involved parties. The Registrar was directed to issue the order, and the companies were instructed to file a copy of the order. The Official Liquidator was entitled to expenses from both companies.