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TMI Blog2007 (7) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... company; and further for dispensing with the requirement of filing of separate company application and petition under sections 391 and 394 of the Act with this court to obtain its sanction to the scheme in relation to the amalgamation of the aforesaid two companies with the petitioner-company, as both the transferor companies are wholly owned subsidiary companies of the petitioner-company, therefore, with the aforesaid amalgamation/merger, neither the rights of the members or the creditors of the transferee company are going to be affected nor the scheme does involve any reorganisation of the capital structure of the transferee company and no new shares are sought to be issued to the members of the transferor companies. It is the case of the petitioner that both the transferor companies and the transferee company have certain common shareholders and all the three companies belong to one group. Both the transferor companies are the wholly owned subsidiary companies of the transferee company. A scheme of amalgamation has been prepared and proposed for merger of both the transferor companies with the transferee company. Copy of the scheme has been annexed with the petition as annexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferor companies are wholly owned subsidiary companies of the transferee company, i.e., the petitioner-company and all the shares of the transferor companies are presently held by the transferee company, either in its name or through its nominee. In view of these facts, it has been averred that under the proposed scheme of amalgamation, no share of the transferee company is required to be issued or allotted to the members of the transferor companies, as the entire share capital of the transferor companies will stand cancelled upon sanctioning of the scheme. It is averred that the proposed scheme is not going to affect the rights of the members or creditors of the transferee company and also does not involve a re-organisation of the share capital of the transferee company. It is further averred that assets and liabilities of the transferor companies will be appropriated as per the terms contained in the scheme and the shareholding and other rights of the members of the transferee company will remain unaffected because no new shares are being issued and there will not be any change in the capital structure. No additional equity shareholders are going to be inducted, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2006] 134 Comp. Cas. 99 (Mad.); ( viii ) Santhanalakshmi Investments P. Ltd., In re [2006] 129 Comp. Cas. 789 (Mad.); and ( ix ) Vibank Housing Finance Ltd., In re [2006] 130 Comp. Cas. 705 (Kar.). I have heard the arguments of learned counsel for the petitioner and Shri Anil K. Aggarwal, advocate, who was requested to assist the court as amicus curiae. A perusal of section 391 of the Act shows that on an application filed by the company whereunder a compromise or arrangement has been proposed between a company and its creditors or any class of them or between a company and its members or any class of them ; where the proposal involves winding up of the company, the court may order meeting of the creditors or class of creditors; or of the members or class of members; as the case may be, and if a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members, as the case may be, present and voting either in person or through proxy at the meeting agree to such compromise or arrangement, then if such a scheme is sanctioned by the court, it would be binding upon the members and the creditors. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is not going to affect the rights of the members or the creditors of the transferee company and the scheme does not involve any reorganisation or restructure of the shares of the members of the transferee company, the sanctioning court, within whose territorial jurisdiction the transferee company is situated, may dispense with the requirement of convening the meeting of the shareholders and the secured and unsecured creditors of the transferee company and also sanctioning of the scheme at its behest. This contention of learned counsel finds support from the various judgments of the different High Courts, the ratio of which clearly lays down that so long as the proposed scheme of amalgamation between a wholly owned subsidiary, company and its holding company does not affect the right of the members of the transferee company or its creditors and it does not involve re-structure of the share capital of the transferee company, there is no need to file an application by the transferee company under section 391 or 394 of the Act. In Mahaamba Investments Ltd. v. IDI ltd. [2001] 105 Comp. Cas. 16 , the Bombay High Court has held that in case, the transferor company is wholly own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... touched upon. It is nothing but the amalgamation of the subsidiary company with the holding company for the convenience of the business and for efficient administration. Therefore, for the reasons discussed herein-above, there is no need for the transferee company to approach the court for necessary sanction of the scheme." In Andhra Bank Housing Finance Ltd., In re [2004] 118 Comp. Cas. 295 , it was held by the Andhra Pradesh High Court that since the transferor company was 100 per cent, subsidiary of the transferee company, and so long as the scheme of amalgamation does not affect the rights of the members of the transferee company or its creditors and it does not involve a reorganisation of the share capital of the transferee company, the transferee company need not file an application under section 391 or 394 of the Act. Similarly, in Bysani Consumer Electronics Ltd., In re [2006] 134 Comp. Cas. 99, the Madras High Court has held that where the transferor company is a subsidiary of the holding company, a separate application for grant of scheme of amalgamation need not be filed by the transferee company. In another case in Santhanalakshmi Investments P. Ltd., In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferor companies will stand cancelled. Therefore, the proposed scheme is not going to affect the rights of the members or creditors of the transferee company and also does not involve reorganisation of the share capital of the transferee company. The rights of the members of the transferee company are not going to be affected because no new shares are being issued and there will not be any change in the capital structure. Since no additional equity shareholders are going to be inducted, therefore, there will be no change in the voting rights of the shareholders of the transferee company. The creditors of the transferee company are also not likely to be affected by the scheme, as the transferee company is a consistent profit making company having an excess of assets over liabilities to the extent of Rs. 7409.74 lakhs, after adjusting the excess liabilities of the transferor companies as shown in the detail of assets and liabilities of the three companies. All the three companies are under the same management and there is no advantage in the transferor companies carrying on business as separate legal entities from that of the transferee company, rather the proposed amalgamation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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