1967 (9) TMI 82 - HC - Companies Law

Summary

Issues Involved:
1. Notice to Central Government under Section 391.
2. Claim by Handloom and Small Users Art Silk Association Limited.
3. Separate application under Section 391 for varying preference rights.
4. Scrutiny of Beardsell's acts post-amalgamation.
5. Compatibility of Mettur's objects with Beardsell's businesses.
6. Increase in Mettur's authorized capital.

Issue-wise Detailed Analysis:

1. Notice to Central Government under Section 391:
The Central Government contended that notice should have been given before the request for holding meetings under Section 391. The court held that such a notice is not necessary or contemplated under the scheme of the Act. Section 394A requires notice only at the stage when the application under Section 394 is made for sanctioning the scheme. The court referred to the Calcutta High Court's decision in Bangeswari Cotton Mills Ltd., agreeing that notice to the Central Government is not required at the initial stage before the court orders a meeting under Section 391.

2. Claim by Handloom and Small Users Art Silk Association Limited:
The Central Government argued that the amalgamation cannot proceed until Beardsell settles a claim of Rs. 14,250 with the association. The court found this objection baseless, stating that if every creditor had to be heard before sanctioning an amalgamation, it would defeat the purpose of Section 394. The transferee company (Mettur) is statutorily obliged to respect all liabilities of the transferor company (Beardsell), making this objection irrelevant.

3. Separate application under Section 391 for varying preference rights:
The Government argued that a separate application should have been made when preference rights were varied. The court noted that the preference shareholders had voluntarily agreed to give up their rights and rank pari passu with ordinary shareholders. This was within the doctrine of indoor management, and the procedure under Section 106 of the Companies Act had been complied with. The court had already dispensed with the meeting of preference shareholders in Company Application No. 74 of 1967, making this objection moot.

4. Scrutiny of Beardsell's acts post-amalgamation:
The Government speculated that Beardsell's acts as managing agents might not be scrutinized post-amalgamation. The court dismissed this as speculative, noting the absence of any adverse findings by auditors and the lack of evidence supporting such a claim. The court found no reason to hold up the amalgamation on these speculative grounds.

5. Compatibility of Mettur's objects with Beardsell's businesses:
The Government contended that Mettur's objects did not cover all of Beardsell's businesses. The court rejected this, stating that the essence of amalgamation is to facilitate reconstruction and that the objects of both companies need not be identical. The court emphasized that the primary objective is the mutual benefit of both companies.

6. Increase in Mettur's authorized capital:
The Government claimed that Mettur had not increased its authorized capital. The court found this objection factually incorrect, as Mettur had increased its share capital, approved at its annual meeting. The court cited a resolution passed at Mettur's annual general meeting, confirming the increase in authorized capital and the necessary amendments to the memorandum and articles of association.

Conclusion:
The court found that the objections raised by the Central Government were without merit. The amalgamation was deemed beneficial for both companies and their shareholders. The Ministry of Finance had no objection to the amalgamation, and the scheme was unanimously approved by the shareholders of both companies. The court sanctioned the amalgamation under Section 394 of the Companies Act, 1956, emphasizing that such decisions, if unanimously made by the shareholders, should not be lightly interfered with by the court.