1972 (3) TMI 49 - HC - Companies Law

Summary

Issues:
1. Validity of the scheme of amalgamation under sections 391(2) and 394 of the Companies Act, 1956.
2. Dissentient shareholders' objections regarding payment of cash and preference shares.
3. Interpretation of provisions related to reduction of share capital and payment of preference shares in the context of amalgamation.

Analysis:
The judgment by the High Court of Madras, delivered by Veeraswami, CJ., and Raghavan, J., pertains to an appeal challenging the approval of a scheme of amalgamation under sections 391(2) and 394 of the Companies Act, 1956. The scheme involved the merger of multiple companies into a new entity, Kothari (Madras) Ltd. The dissentient shareholders of Waterfall Estates Ltd. raised objections regarding the payment of cash and preference shares under the scheme. The court analyzed these objections in detail.

Regarding the objection related to the payment of cash, the court held that the process of payment of preference shares by the new company in the context of amalgamation does not constitute a reduction in the share capital of the amalgamating companies. The court emphasized that the purpose of confirming a reduction in capital is to protect creditors' interests, which are adequately safeguarded in cases of amalgamation. The court distinguished the present case from the precedent cited and concluded that the objection lacked substance.

On the objection concerning the payment of preference shares, the court ruled that such payment is valid even outside the context of winding-up, as in the case of the proposed dissolution of the amalgamating companies without winding-up. The court agreed with the lower court's decision that the provisions related to winding-up are not applicable in the scenario of amalgamation. Therefore, the objection regarding payment of preference shares was deemed untenable.

The court dismissed the appeal challenging the scheme of amalgamation, along with other related appeals, as they did not present any different legal grounds. Consequently, the court ordered the dissolution of the stay. The judgment provides a comprehensive analysis of the legal issues surrounding schemes of amalgamation under the Companies Act, emphasizing the protection of creditors' interests and the applicability of relevant provisions in the context of such corporate restructuring.