TMI Blog1991 (12) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments Limited and Ruby Investments Limited, are the promoter companies of South Asian Financial Exchange Limited. The directors of the three transferor-companies were of the view that the amalgamation would enable the transferee-company to carry on the combined business very economically and efficiently and that the amalgamation would result in enlarging the activities of the transferee-company which would be conducive to avoidance of duplication and reduction in administrative and other overhead expenses and also would result in optimum utilization of the management and other resources. According to them, the amalgamation would, therefore, be in the best interest of all shareholders and creditors and also be in the best interest and welfare of the employees. The salient features of the scheme of amalgamation of the three transferor-companies and the transferee-company have been fully set out in paragraph 10 of the respective petitions. The scheme is to be effective from April 1, 1990, and all undertakings, properties, rights and powers, investments, inventories, and all assets of whatsoever nature including all properties movable and immovable and assets of whatsoever n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the publication, convening and the conduct of the meetings of its equity shareholders to consider the scheme of amalgamation. This court, by order dated March 1, 1991, directed the transferor-companies to convene a meeting of the equity shareholders on April 8, 1991, at 9.00 a.m., 10 a.m., 11 a.m. and 12 noon for the transferee-company at No. 34, Victoria Crescent, Egmore, Madras-105. Notices of the above meetings were sent individually to the equity shareholders of the companies with a copy of the scheme of amalgamation. The meetings were convened on that date in accordance with the directions of this court. Mr. K.S. Narayanan, Mr. V. Guruswamy, Mr. M.A. Alagappan and Mr. S. Ramanujachari who were appointed as chairmen for the meetings presided over the meetings and submitted the results of the meetings in their report dated April 8, 1991. Copies of the said reports were filed in these proceedings. The meetings were attended by the following persons : Asian Investments (C.P. No. 50 of 1991) : 21 equity shareholders entitled together to 4,99,998 equity shares of Rs. 10 each aggregating to Rs. 49,99,980. Crescent Investments (C.P. No. 51 of 1991) : 20 equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents Limited (transferor-company). Clause 8 of the scheme while providing for the exchange ratio also provides that the shares held in the transferee-company by Asian Investments Limited shall stand extinguished. After the shares held by the transferor-company (Asian Investments Limited) are extinguished, the share capital of the transferee-company will be reduced to Rs. 6,00,000 divided into 60,000 equity shares of Rs. 10 each. In short, the capital of the company will be reduced without following the procedure laid down in the matter of reduction of capital in sections 100 to 105 of the Companies Act, 1956. Judicial decisions have held that whenever a scheme involved reduction of share capital, the special provisions relating to the said reduction have to be strictly followed before the scheme, is approved. As the present scheme involves reduction of the share capital of the transferee-company, it has to comply with the procedure as to reduction of capital and obtain the approval of the High Court under section 100 of the Act for the said reduction". Thus, according to Mr. A.S. Venkatachalamoorthy, section 100 of the Act has to be strictly complied with. In other words, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 100 of the said Act has to be complied with as the present scheme involves reduction of share capital of the transferee-company as contended by Mr. A.S. Venkatachalamoorthy or such a procedure need not be followed as urged by Mr. T. Raghavan. In this connection, clause 8 of the scheme is to be noticed. The same is reproduced under : "8. Every member of AIL, CIL and RIL, shall in respect of every equity share of Rs. 10 each credited as fully paid held by him or her in AIL, CIL, RIL on the completion of procedures date (as hereinafter defined) be entitled as of right to be issued, allotted and to receive from the transferee-company within 30 days of the date of completion of the procedures, one equity share in the capital of the transferee-company of Rs. 10 each credited as fully paid. The shares in the transferee-company held by Asian Investments Limited, one of the transferor-companies, shall stand extinguished". It is seen from the above clause that the shares in Crimson (transferee-company) held by Asian Investments (transferor-company) shall stand extinguished. This clause has become necessary in view of the statutory prohibitions contained in section 42 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this connection, support can be derived from a Division Bench judgment of our High Court in T. Durairajan v. Waterfall Estates Ltd. [1972] 42 Comp Cas 563 (Mad), where the learned Chief Justice Veeraswami and Justice Raghavan have summarised the position of law very clearly in the following terms : "The object of asking for confirmation by court of reduction of capital is to safeguard the interests of the creditors of the company, and other obligations or rights coming into existence in the light, or on the strength of existing capital structure either fully paid up, or realisable at call. The scheme, in the instant case, involves transfer of the entire assets, rights and liabilities of the amalgamating companies to the new company which becomes, when the scheme takes effect, liable to the creditors of the amalgamating companies to the fullest extent. To such a case the procedure for reduction of share capital, as provided for by sections 100, 101 and 102 is hardly applicable. Rule 85, in our opinion, does not contemplate a compromise or arrangement in the nature of a scheme of amalgamation, such as we have here".(p. 567) The learned judges observed as follows : "The c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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