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TMI Blog1996 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... of the court sanctioning the scheme of amalgamation as presented to it. The order of the court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment of shares, etc., may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. - C.A. 1661 OF 1992 - - - Dated:- 27-11-1996 - B. P. JEEVAN REDDY. and SUHAS C. SEN. JUDGMENT The judgment of the court was delivered by B. P. JEEVAN REDDY J .---These appeals are preferred by Marshall Sons and Company (India) Limited (hereinafter referred to as the " holding company ") as successors to Marshall Sons and Company (Manufacturing) Limited (hereinafter referred to as the " subsidiary company ") against the judgment and order of the Madras High Court dismissing the writ petitions filed by them. The matter arises under the Income-tax Act. The holding company had its registered office at 33-A, Chowringhee Road, Calcutta, while the subsidiary company had its registered office at Madras. For the purposes of assessment under the Income-tax Act, while the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the scheme of amalgamation by its order dated January 11, 1984. In both the orders, it was directed that certified copies of the said orders shall be delivered to the Registrars of Companies at Madras and Calcutta within thirty days therefrom. Accordingly, certified copies of the orders were filed before the Registrars of Companies on January 20, 1984, at Madras and on February 24, 1984, at Calcutta. The name of the subsidiary company was struck off the Register of Companies, maintained by the Registrar of Companies at Madras, on January 21, 1986. On November 25, 1984, a notice under section 139(2) of the Income-tax Act was issued to the subsidiary company calling upon it to file a return of its income for the assessment year 1984-85 (for the year ending June 30, 1983) and for 1985-86 (year ending June 30, 1984). The subsidiary company replied stating that inasmuch as the subsidiary company has been amalgamated with the holding company under a scheme of amalgamation sanctioned by the company courts of Madras and Calcutta and because the said amalgamation was with effect from January 1, 1982, there was no question of the subsidiary company filing a return for the said two assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the holding company against the profits of the subsidiary company. He also raised objection with respect to the maintainability of the writ petition on the ground, inter alia, that the Income-tax Act provides adequate remedies to agitate all the contentions urged in the said writ petition. The High Court dismissed the writ petition with the following findings : (1) The date of amalgamation (January 1, 1982) specified in the scheme of amalgamation is " totally artificial and arbitrary ". Till the beginning of December, 1982, the amalgamation was not even in the contemplation of either company. Only in December, 1982, was the resolution of the directors passed proposing amalgamation. The shareholders meeting took place some time in February, 1983. The scheme itself contemplates that it is subject to and conditional upon the scheme being sanctioned by the court under section 391 of the Act and appropriate orders being made for implementation of the said scheme under section 394. The scheme also provides that its implementation is conditional upon the shareholders holding not less than 9/10ths in value of the shares in the subsidiary company becoming shareholders of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s country, all schemes of amalgamation specify a particular date of amalgamation and unless the court specifies otherwise, the date provided in the scheme of amalgamation is taken as the actual date of amalgamation. Counsel submitted that subsequent to January 1, 1982, the subsidiary company may have carried on business awaiting the orders of the court, but it could not do otherwise and that the business so carried on by it was as an agent of and for and on behalf of the holding company and not on its own account. Learned counsel also submitted that no balance-sheet was drawn up for any period subsequent to January 1, 1982, for the subsidiary company. No annual general body meeting of shareholders was held of the subsidiary company after the said date and that, to all intents and purposes, the subsidiary company ceased to exist as an independent entity on and from January 1, 1982. Counsel relied upon the language of sections 391 and 394 and on certain decisions in support of his contention. Sri Poddar raised an alternate contention too, viz., if for any reason, it is held that the amalgamation is not effective with effect from January 1, 1982, it must be held to be effective from F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting 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, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound-up, on the liquidator and contributories of the company : Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not been conducted in a manner prejudicial to the interests of its members or to public interest : Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the court unless the official liquidator has, on scrutiny of the books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub-section, the company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the notice of the meeting was advertised and the notice is also required to be served on the Central Government as provided by section 394A; (f) If the court is satisfied that the statutory formalities have been duly complied with and the scheme is fair and a reasonable one and beneficial to the interests of the companies and its members, the court may sanction the scheme. While sanctioning the scheme, the court may also provide for all or any of the matters specified in clauses (i) to (vi) of sub-section (1) of section 394. The two provisos appended to the said sub-section provide for certain pre-conditions which too have to be observed by the court. Sub-section (2) provides that where the order sanctioning the amalgamation provides for any of the matters in clauses (i) to (vi) aforesaid, they shall take effect as provided in the order; (g) Within 30 days of the order sanctioning the amalgamation arrangement, the company concerned shall file a certified copy of the order before the Registrar for registration. This is made mandatory by the second limb of sub-section (3) of section 394; (h) The order sanctioning the scheme is required to be drawn up in accordance with F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferee company, and accordingly the profits and losses of the transferor company for the period commencing from the transfer date shall be deemed to be the profits or losses of the transferee company and shall be available to the transferee company for disposal in any manner including the declaration of any dividend by the transferee company after the operative date, subject to the provisions of the Act. 7. The implementation of this scheme is conditional upon this scheme being sanctioned under section 391 of the Act and the appropriate orders for implementation of this scheme being made under section 394 of the Act by the High Courts of Tamil Nadu and Calcutta. 8. The implementation of this scheme is conditional also upon the shareholders holding not less than nine-tenths in value of the shares in the transferor company (other than shares already held therein immediately before the amalgamation by the transferee company) becoming shareholders of the transferee company by virtue of the amalgamation. " A reading of the above clauses of the scheme shows that according to the scheme, the entire undertaking of the subsidiary company shall be transferred to the holding company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dismissed the writ petition. The question is whether the view taken by the High Court is correct. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide, viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it---as has happened in this case---it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as " the transfer date ". It cannot be otherwise. It must be remembered that before applying to the court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne assessment on the transferee company taking into account the income of both the transferor or transferee companies and also to make separate protective assessments on both the transferor and transferee companies separately. There may be a certain practical difficulty in adopting this course inasmuch as separate balance-sheets may not be available for the transferor and transferee companies. But that may not be an insuperable problem, inasmuch as assessment can always be made, on the available material, even without a balance-sheet. In certain cases, best judgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these cases directly. In the light of the view taken by us on the principal question, it is not necessary to consider the alternate submission urged by Shri Poddar. For the above reasons, the appeals are accordingly allowed. The writ petitions filed by the appellant in the High Court shall be deemed to have been allowed. We, however, make it clear that we have not expressed any opinion on the plea of learned counsel for the Revenue that the amalgamation itself is a device desi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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