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TMI Blog2009 (1) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the same binding on all the shareholders, secured and unsecured creditors of the transferor as well as the transferee-company. Annexure A is the proposed scheme of amalgamation. 2. According to the petitioner-company, it was incorporated on 17-12-1993, under the provisions of the Companies Act, 1956, having its registered office at 10th Floor, Raheja Towers, 26/27, M.G. Road, Bangalore-1. The main objects of the transferor-company as set out in annexure B is to design, develop, manufacture and trade in computer software such as software data products and allied hardware for telecommunication and other industries. The authorised share of the transferee-company is Rs. 25,00,00,000 divided into 2,50,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the petitioner is presently Rs. 12,42,50,000 divided into 1,24,25,000 equity shares of Rs. 10 each. The transferor-company has produced the latest audited balance-sheet up to 31-3-2007, setting out the assets and liabilities of the company at annexure D to the company petition. 3. The board of directors of the transferor-company approved and adopted the scheme of amalgamation on 29-2-2008, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from 1-4-2008, being the appointed day. 6. I have heard Sri Prakash, learned counsel for V. M. P. Law Chambers for the petitioner and Sri Deepak, counsel for the Official Liquidator and Sri B. Pramod, Central Government Standing Counsel for the Registrar of Companies (RoC). 7. Learned counsel for the petitioner while taking me through the documents annexed to the company petition has submitted that the proposed scheme of amalgamation would be beneficial to both the petitioners, i.e., the transferor-company as well as the transferee-company which will enable pooling of resources of the two companies to their common advantage which would result in more productive yields of the resources and enhance the operational efficiencies which would be beneficial for all the stockholders. He, therefore, submits that considering the fact that the business activity of the transferor-company as well as the transferee-company being allied, there is no legal impediment for sanctioning the proposed amalgamation of the two companies. He further submits that there is no re-organisation of shares after amalgamation and that no shares would be allotted to the transferee after merger. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration fee for increase of its authorised capital pursuant to the scheme of amalgamation. Hence, if the transferee-company is allowed to increase its authorised capital by clubbing the authorised capital of the transferor-company without any further act or deed as contemplated in the scheme, it will be not only against the provisions of the Companies Act, 1956, but it will also involve substantial loss of the Central Government Revenue, and to the State Government. ( e )Clubbing of the authorised capital of the transferor-company to that of the transferee company cannot be a part of the scheme since section 97 of the Companies Act, 1956, is only a procedural compliance requiring filing of the prescribed return and payment of registration fee to the Registrar of Companies and payment of stamp duty to the State Government, which has to be statutorily complied with. In this connection, it is also respectfully submitted that the Original Side Appeal No. 26 of 2007 filed by the Regional Director against the decision of this Hon ble Court overruling the objections raised by the Regional Director in a similar case is pending before the Division Bench of this Court. ( f )Without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire exercise cumbersome. In support of the said stand of the company, reliance is placed on a decision of the Andhra Pradesh High Court in the case of Saboo Leasing (P.) Ltd., In re [2004] 51 SCL 681 . 15. Under section 94 of the Companies Act, the power of a limited company to alter its share capital is provided and under section 95, if a company having a share capital consolidates the share capital or converts the shares into stocks, etc., then the company has to, within thirty days after doing so, give notice thereof to the Registrar of Companies specifying the shares consolidated, divided, converted or stock reconverted, etc., and any default of the said provision would entail a punishment. Under section 97, where a company having a share capital increases its share capital beyond the authorised capital or where a company not being a company limited by shares increases its members beyond the registered number, it shall file with the Registrar, notice of the increase of capital or of members within thirty days after the passing of the resolution authorising the increase and the Registrar shall record the increase and also make any alterations which may be necessary in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Registrar under section 95 or 97 of the Act need be given. 17. I am fortified in my view by the judgment of the Andhra Pradesh High Court in the case of Saboo Leasing (P.) Ltd., In re ( supra ), which states that the scheme upon being sanctioned by the Court becomes operational by virtue of the orders passed by the Courts and, therefore, has statutory genesis and character. In that view of the matter, in such a case, no separate notice informing the Registrar under section 95 or 97 need be given. The necessary changes that are required to be made in the register by the Registrar of Companies can be effected after receiving the certified copy of the order of the Court sanctioning the scheme. 18. The other objection raised is that the Companies Act, does not exempt a transferee-company on account of the scheme of amalgamation from payment of registration fee for increase of its authorised capital pursuant to the scheme of amalgamation. If the transferee-company is allowed to increase the authorised capital by clubbing the authorised capital of the transferor-company, it will involve substantial revenue loss to the Central Government and the State Government. In support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of India for registration fees on turnover basis. RCML claimed the benefit of initial registration of RSL as a stockbroker stating that by the merger approved by the Calcutta High Court, all assets and liabilities of RSL stood transferred by operation of law to RCML and, therefore, it was not liable to once again pay a fresh registration fee. The said claim was rejected by the Securities Appellate Tribunal. On appeal, the Hon ble Supreme Court held that when the two companies merged, a new entity emerged, viz., RCML which was given a right to operate in the derivative segment and it has to pay fresh registration fees on the turnover basis and the new entity RCML was not given the benefit of continuity of fees deposited earlier by RSL which got merged with RCML. In the said case, the Securities and Exchange Board of India (SEBI) had issued a Circular dated 30-9-2002, stating that in the case of merger carried out as a result of compulsion of law, fees would not have to be paid afresh by a transferee entity provided that the majority shareholders of the transferor entity continued to hold the majority shareholding in the transferee entity. 21. Interpreting the said Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferee-company under the instant scheme of amalgamation, the share capital of the transferor-company is combined with the share capital of the transferee-company to an extent of 99.99 per cent and the transferee-company is also holding a beneficial interest in the remaining 10 equity shares of the transferor-company and no new shares are being issued under the scheme and the scheme would have no effect or impact on the members and the creditors of the transferee-company. Further, the scheme provides that the fee paid by the transferor-company to the concerned Registrar of Companies for its authorised share capital would have to be deemed to have been paid by the transferee-company. Therefore, in reality, there is no increase in the share capital of the transferee- company so as to attract payment of any additional fee or stamp duty. I am fortified in my view by the decision of this Court in the case of Mphasis Ltd., In re ( supra ), wherein, it has been held that there is no obligation or reason for the two amalgamated companies to pay duty again on the same authorised capital on which they have already paid the duty particularly, when there is no increase in the share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferee company, its members and creditors. The board of directors of the transferee-company in the meeting held approved and adopted the scheme of amalgamation. The Reserve Bank of India permitted the transferee-company to enter into a contract to take over its subsidiary. The scheme of transfer does not affect the rights of the members or the creditors of the transferee-company as between themselves and the company. No new shares are issued and there being no reorganisation of the share capital of the transferor-company. In these circumstances, there would be no need for the transferee-company to file an application and a petition under sections 391 to 394 of the Act. ( b )Similarly, in the case of Nebula Motors Ltd., In re [2003] 45 SCL 143 , the Andhra Pradesh High Court has held that in a scheme of amalgamation of the subsidiary company withholding the company for convenience of business and efficient administration would not involve any reorganisation or restructuring of shares of members of the transferee-company and, therefore, there would be no transferee-company to approach the Court for sanction. In the said case, the transferor-company was the 100 per cent subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... algamation stated that no new shares were sought to be issued by the shareholder of the transferee-company. The scheme did not affect the transferee-company and the creditors of the transferee-company were not likely to be affected by the scheme and, therefore, filing of a separate petition by the transferee-company was not necessary. 28. In view of the above rulings, what emerges is that, if in the proposed scheme reorganisation of share capital is absent and when the 100 per cent subsidiary company is seeking to amalgamate with its holding company and where the scheme is not detrimental in any manner to the interests of the members or creditors of the transferee-company, there is no need to examine the scheme by the Court within its territorial jurisdiction the transferee-company is situate. In such a case, the sanctioning court which has been approached by the transferor-company can examine the scheme and see whether it does affect the rights of the members or creditors of the transferee-company either because it involves reorganisation of its share capital or otherwise and if the rights of the members of the transferor-company has not been touched upon, then there is no nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are culled out as under : ( a )The amalgamation will enable pooling of resources of the transferor and the transferee companies to their common advantage, resulting in more productive utilisation of said resources, cost and operational efficiencies which would be beneficial for all stakeholders. ( b )The amalgamation will result in greater economies of scale, reduction in overheads and other expenses. ( c )The amalgamation will achieve business synergies and the business can be carried on more economically. ( d )The banks, creditors and institutions, if any, are not affected by the proposed amalgamation as their security, if any, is maintained. ( e )There will be an improvement in the financial structure and cash-flow management of the transferee-company. ( f )The amalgamation shall result in the combination of manpower resources of both the companies and a single management structure for the companies. ( g )The combined managerial and technical expertise would enable the transferee-company to develop a business and would be competitive and cogent. 33. The broad terms of the compromise or arrangement are as follows : "( a )It has been agreed under the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 comprising 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 creditors for whom t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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