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TMI Blog1992 (3) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... s also its office at Indore. The transferee-company, Kasta Extrusions Pvt. Ltd., is engaged in the business of manufacturing rigid PVC pipes and the transferor-company, Purti Pipes and Processors Pvt. Ltd., is also engaged in the business of manufacture of rigid PVC pipes. Both the transferor-companies by resolution of the board of directors dated April 4, 1990, as well as the transferee-company by resolution of its board of directors dated April 4, 1990, unanimously resolved to amalgamate/merge the transferor-companies, Kasta Extrusions Pvt. Ltd. and Purti Pipes and Processors Pvt. Ltd., into transferee-company, Kriti Plastics Pvt. Ltd. subject to the approval of members/shareholders in general meeting, court, the Central Government and other concerned authorities as may be required. The three companies presented an application for making a request to the court for convening a meeting of the shareholders and appointing a chairman. Accordingly, the court appointed Smt. M. Chaphekar as chairman and Shri Uday Vadnerkar as alternate chairman and directed issuance of notices in accordance with rules. After the meeting, the chairman submitted her report and according to the report ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the share exchange ratio which is based on audited books of account. The creditors were given notices as per provisions of the Companies Act and the share exchange ratio was modified by all the shareholders and the creditors who were present in the respective meeting. The modification of the share exchange ratio is based on audited balance-sheets. As regards the objection regarding viability it has been stated that business success is the outcome of the entrepreneur's experience and organised effort. Therefore, it cannot be said that the project to manufacture the organic fertiliser by Kriti Plastics Pvt. Ltd. is only an experimental exercise. It had also been submitted that the business is a combination of management and resources and, therefore, it is not necessary for all the companies desiring amalgamation to provide substantial resources. Actually the three companies are privately and closely held by the family members and they propose to merge into a single company. The shares to be allotted by the Kriti Plastics Pvt. Ltd. on amalgamation will be in the same proportion to the shares held by the family members in Purti Pipes and Processors Pvt. Ltd. and Kasta Extrusions Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een conducted in a manner prejudicial to the interest of its members or public interest. On the other hand the official liquidator, Shri S. C. Gupta, maintains that the report is based on the inspection of the accounts of the three companies and, therefore, the report that the amalgamation scheme is not in the interest of the shareholders and the public interest is justified. On perusal of the report of the official liquidator and the chartered accountant, I find that the official liquidator has taken great pains in going through all the aspects of the management of the company and the scheme of amalgamation. The chartered accountant appointed by the court has also thoroughly checked the books of account of the company and I appreciate the labour put in by the official liquidator in submitting his report. The official liquidator is actually an agency of the court to satisfy itself that the affairs of the company to be dissolved have not been conducted in a manner prejudicial to the interest of its members and public interest. Therefore, the court has to ascertain that the schemes of amalgamation are sanctioned only after the court has the other side of the picture before it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to sanction the scheme. In the same judgment it has also been emphasised that the report of the official liquidator has to be obtained before passing any order on the amalgamation scheme. If the court finds that the amalgamation scheme has been made solely to facilitate the transfer of building to the transferee-company of a transferor-company without attracting the liability to pay capital gains tax the court can refuse to sanction the scheme because if such a scheme is approved the scheme of amalgamation would result in the avoidance of payment of capital gains tax. If the court arrives at a conclusion that the purpose of amalgamation is to defeat tax by creating a paper company and transferring an asset to such company which can without consequence be amalgamated with another company to whom the capital asset was to be transferred so that on amalgamation it may pass on to the amalgamating company, it would distinctly appear that the provision for such a scheme of amalgamation was utilised for the avowed object of defeating tax. The court has emphasised that a company may arrange its affairs in such a way that under the law may be exempt from tax, but that is permissible only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the transferor companies in the transferee-company, nor does the approval of the scheme give any right to the properties which in law are not assign able or transferable to the transferee-company. If the transfer has to be effected it has to be effected in accordance with the law of the Transfer of Property Act and in those cases where the property is on a lease with restriction on the transfer or sub-letting of such property, the sanction of the relevant authority is sought before its transfer. (2)If, as a result of the transfer of any assets or shares of the transferor-company to the transferee-company a liability to the capital gains tax may arise against any company or its shareholders, this order shall not absolve such company or the shareholders from payment of taxes which may be leviable under the existing taxing laws and as such the taxing authorities shall be free to proceed in the matter of tax, irrespective of the present order of amalgamation. (3)The present order of amalgamation will not absolve any of the companies or its directors from the liability for breach of any law or control order which might have been committed before the order of amalgamation. This ..... 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