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TMI Blog2003 (4) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also to take dealership and agencies therefor. The audited financial summary of the company as on 31-3-2002 has been annexed to the petition, which shows the financial viability of the company. 3. The transferee company was incorporated on 14-7-1997 and later it became a public limited company with effect from 9-3-1998. Its Registered Office is at New Delhi. The companies authorised share capital is 18,90,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up share capital is 18,90,00,000 equity shares of Rs. 10 each fully paid-up. The audited financial summary of the company as on 30-9-2002 has been annexed to the petition showing the financial viability of the company. The main object of the company for which it has been incorporated is to buy, sell, stock, display, deal in and dispose of all types of motor vehicles and also to take dealership and agencies therefor. 4. It is discernible from the record that the transferee company is the holding company whereas the transferor company is its wholly owned subsidiary company. Both these companies are under the same management and have been engaged in similar line of operation by selling vehicles being manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by both the High Courts at Hyderabad and Delhi; and that the transferee company has not filed any such application. 8. It is obvious that the transferor company is 100 per cent subsidiary of the transferee company which is the holding company. The audit reports of both the companies disclose their financial viability. They are engaged in the self-same business of selling the motor vehicles and dealing mostly the motor vehicles being manufactured by TELCO. In that view of the matter, amalgamation of both the companies would result in the reduction of the expenditure and costs apart from the proposed increase in efficiency. The affidavits of the shareholders of the transferee company and its secured creditors have been filed who have expressed no objection to the proposed scheme of the amalgamation. Having regard to the above factual matrix, there seems to be no tenable objection for according necessary sanction to the scheme of amalgamation. The only point that need be noticed and in fact raised by the Registrar of Companies in his affidavit inter alia is that the transferee company has not filed a similar application seeking sanction of the scheme before the Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten rupees for each copy in respect of which default is made. (6) The Court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of. (7) An appeal shall lie from any order made by a Court exercising original jurisdiction under this section to the Court empowered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and ( b )that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a transferor company ) is to be transferred to another company (in this section referred to as the transferee company ); the Court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters : ( i )the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company; ( ii )the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; ( iii )the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; ( iv )the dissolution, without winding-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act or not." 11. A perusal of the said provision shows that where the application is filed before the Court for its sanction of an arrangement proposed between the transferor company and the transferee company and from the arrangement if it is shown that the scheme for the amalgamation of any two or more companies and the properties or liabilities of any company concerned with the scheme are to be transferred. The Company Court in its order make a provision for the transfer of the properties or liability from the transferor company to the transferee company; for the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests; for the continuation of legal proceedings pending by or against the transferor company; for the dissolution without winding up of any transferor company; and such incidental or consequential and supplemental matters that are necessary for the reconstruction of the amalgamation of the companies. Under the two provisos incorporated under sub-section (1), conditions have been set forth for the consideration of the Court for sanctioning such a scheme, namely, that such a scheme for amalgamation of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng territorial jurisdiction over the subject-matter of the suit or where the territorial limits are uncertain. Such provision will not only facilitate the smooth administration of the matter, nay in my considered view would avoid any conflicting views. Considering the hypothetical question where having regard to the scheme which shall invariably be one and the same for the transferor company and the transferee company, one Court may be convinced that the scheme is not in any manner prejudicial to the interests of its members or to public interest, and the other Court may not be convinced that it is so; or the fact situation may not warrant such a uniform conclusion. Either way, two conflicting decisions would be rendered and the scheme cannot be pushed through. Such a contingency could be avoided if one Court is approached. The fact situation may not warrant the sanction of the scheme either in the point of view of the transferor company or in the point of view of the transferee company and, therefore, the scheme cannot be sanctioned is an altogether different question. But, certainly if one Court is approached, there cannot be any conflicting views. Anyway, as has been discussed h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same. (7) That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter compromising the same class whom they purported to represent. (8) That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. (9) Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there could be a better scheme for the company and its members or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and its members or creditors, the proposed arrangement or compromise affects the rights of those members or creditors, or any class of them. In the case of the transfer of its undertaking, property and liabilities by one company to another, the transaction may or may not affect the rights of its members or creditors. If it does affect the rights of its members or creditors, either because it involved a reorganisation of its share capital or otherwise, it would certainly fall within the term arrangement , and, in that event, proceedings by the transferee company in the appropriate court under sections 391 and 394 would be necessary. It must follow that if a scheme by way of transfer of an undertaking does not affect the rights of the members or creditors of the transferee company, as between themselves and the company, or does not involve a reorganisation of the share capital of the transferee company, no application by the transferee company under section 391 or 394 would be necessary." (p. 212) Having regard to the facts in that case where the transferee company would be required to issue a new type of equity shares not issued by them, viz., 8 per cent convertible bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... express its view that such an application need be filed before the High Court within whose territorial jurisdiction the transferee company is situate or not, is of no consequence inasmuch as the Court can examine the scheme and for the limited purpose of seeing whether the scheme in any way affects the interests of the members or creditors of the transferee company. For that limited purpose, in my considered view, the Court within whose territorial jurisdiction, the transferor company is situate can examine the scheme so as to see whether the transferee company also needs to file a similar such application. Perhaps, the considerations may be the same for the Court in whose territorial jurisdiction the transferee company is situate and having regard to the same ultimately that Court may sanction or may refuse to sanction the scheme but that is altogether a different aspect. For that limited purpose of seeing that such an application need be filed or not, the transferee company can certainly examine the scheme and come to the conclusion. 20. Having regard to the parameters enunciated by the Apex Court in Miheer H. Mafatlal s case ( supra ) the sanctioning Court has to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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