TMI Blog1996 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... well as all classes of creditors, i.e., secured and unsecured creditors of the transferor as well as transferee company. The scheme has already been approved by the High Court of Himachal Pradesh at Shimla vide order dated 10-1-1996 subject to scheme finally approved by this Court. No objection for scheme of amalgamation has been received from any shareholders or any class of creditors. 2. The main objects of the petitioner/transferor company are primarily to manufacture of digital microwave Radios and also to carry on the business of designers, developers, manufacturers, sellers, buyers, importers, exporters, stockists and distributors and/or other dealers in telecommunication equipment and/or mass consumption terminal equipment etc. The authorised capital of the petitioner/transferor company as on 31-3-1995 was Rs. 50,00,00,000 divided into 5 lakh equity share of Rs. 10 each and the paid up capital as on 31-3-1995 was Rs. 24,23,07,000 divided into 2,42,50,000 equity shares of Rs. 10 each. 3. The transferee company was incorporated on 11-5-1987 as a public limited company and is primarily engaged in the business of designers, manufacturers, assemblers, sellers, buyers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, objection has been raised by the Regional Director, Northern Region, Department of Company Affairs, invoking the aid of sections 42 and 77 of the Companies Act. 8. According to Mr. Tikku, the learned counsel appearing for the Depart-ment of Company Affairs, the proposed scheme of amalgamation is hit by section 42 of the Act. Section 42 reads as under: "42. Membership of holding company. (1) Except in the cases mentioned in this section, a body corporate cannot be a member of a Company which is its holding Company and any allotment or transfer of shares in a Company to its subsidiary shall be void." 9. Another objection which has been raised by the learned counsel for the respondent is that the scheme of amalgamation is also inconsistent with the provisions of section 77 of the Act. Section 77 is as under: "77. Restrictions on purchase by company, or loans by company for purchase, of its own or its holding company's shares. - (1) No company limited by shares, and no company limited by guarantee and having a share capital, shall have power to buy its own shares, unless the consequent reduction of capital is effected and sanctioned in pursuance of sections 100 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similar objection has been raised pursuant to the effect of section 77. 11. On the other hand, the learned counsel for the petitioner, Dr. Singhvi, has contended that dealing with the argument regarding violation of section 77, no violation would result as a result of sanctioning the scheme of amalgamation. Dr. Singhvi has contended that there is no share which is being bought of its own by the transferee company and on this short ground itself the objection regarding section 77 is untenable in law. 12. Dr. Singhvi has contended that sections 391 to 394 are sufficient code to take into consideration any eventuality which crops up after the scheme of amalgamation has been presented to the Court and if the Court is satisfied that the scheme does not adversely effect the interest of share-holders or otherwise do not effect the public interest, the Court has plenary as well as residuary power of the Act to sanction the scheme. In support of his contention Dr. Singhvi has cited S.K. Gupta v. K.P. Jain AIR 1979 SC 734, Mansukhlal v. M.V. Shah, Official Liquidator, Liquidator of Hathisingh Mfg. Co. Ltd. [1976] 46 Comp. Cas. 279 (Guj.) and Mehtab Chand Golcha v. Official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ror 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 up, of any transferor company; ( v )the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and ( vi )such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised so as to provide for smooth working of the compromise and/or arrangement. To effectuate this purpose the power of widest amplitude has been conferred on the High Court and this is a basic departure from the scheme of the U.K. Act in which provision analogous to section 392 is absent. The sponsors of the scheme under section 206 of the U.K. Act have tried to get over the difficulty by taking power in the scheme of compromise or arrangement to make alterations and modifications as proposed by the Court. But the Legislature foreseeing that a complex or complicated scheme of compromise or arrangement spread over a long period may face unforeseen and unanticipated obstacles, has conferred power of widest amplitude on the Court to give directions and if necessary, to modify the scheme for the proper working of the compromise or arrangement. The only limitation on the power of the Courts, as already mentioned, is that all such directions that the Court may consider appropriate to give or make such modifications in the scheme, must be for the proper working of the compromise and/or arrangement." (p. 739) 15. Therefore, where Court is prima facie satisfied from material on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the language of a section. Where a company is in the process of incorporation, section 42 falls in that part of the Companies Act, which deals with incorporation of company and matters incidental thereto. This part deals with Memorandum of Association, names of the companies, Article of Association, change of the registration of companies and sections 41 and 42 deals with membership of the company. From the plain reading of the section it cannot be said that this section is intended to be read with section 391,392 or 394 at the time when the scheme of amalgamation is pending before the Court for approval and when the shareholders and the creditors have approved the same and the respondent has also filed on affidavit that the affairs of the company are not conducted in a manner prejudicial to the shareholders or prejudicial to public interest. 18. In view of the a foregoing discussions, I do not find any merit in the contention of the learned counsel for the respondent that section 42 would be applicable to the Scheme of Amalgamation. 19. It is also stated that no investigation or proceedings under sections 235 to 251 of the Act, are pending against the petitioner Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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