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TMI Blog1989 (11) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... . 33 of 1989 is by the transferee company, namely, Zenith Technologies Ltd. Meetings of shareholders and creditors of both the companies have been dispensed with in view of the consent letters annexed to the petitions. The official liquidator's report under section 394(1) has already been filed. There are no objections in that report. Mr. Rele, learned counsel for the Central Government, has objected to the scheme of amalgamation on the ground that the transferee company has violated section 372 of the Companies Act. (The amendment to this section has not come into operation so far). Under section 372(2), "the board of directors of the investing company shall be entitled to invest in any shares of any other body corporate up to 10% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany substantially increased and the holding of Zenith Computers Ltd. in the transferee company was reduced to 10% of the total paid-up share capital of the transferee company. The transferee company has subsequently obtained a certificate from the Central Government dated August 25, 1989, to the effect that, "the transferee company, having complied with the requirements under section 43A(4) of the Companies Act, 1956, the name of the said company upon reconversion is on that day changed to Zenith Technologies P. Ltd". In these circumstances, it is submitted by learned counsel for the petitioners that the violation of section 372(2) by the transferee company is only technical. Looking to the above circumstances, there is force in this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, the restraint placed by section 372 on the acquiring of shares in another company cannot apply to a scheme for amalgamation of the two companies. In the case before the Gujarat High Court, as a result of the amalgamation scheme, the provisions of section 372 were being violated. The Gujarat High Court held that section 372 is operative in a different area. The section puts a restriction, inter alia on the power of a company to utilise its surplus funds to buy over another company. It is meant to prevent a merger or amalgamation of two companies by the method of buying over shares without going through the procedure contemplated by section 371 onwards. The Gujarat High Court sanctioned the scheme of amalgamation even though it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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