TMI Blog1996 (11) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferee company. Accordingly, meetings of the shareholders of the two companies were directed to be conducted. The chairpersons have filed reports stating that the scheme has been approved by the shareholders of the two companies. The proposed scheme was published in the newspapers both before convening of the meeting and after approval of the shareholders. Notices have been issued to the official liquidator and the Registrar of Companies. The official liquidator has filed a report stating that there is no objection for the proposed amalgamation and that the contention of the companies that the sale deed is not necessary, is not free from doubt. The Registrar of Companies filed a counter stating that as it is outright purchase of the transferor company for cash, it does not come under compromise or arrangement and hence the petitions are not maintainable. Learned counsel for the petitioners, Sri Y. Sreenivasa Murthy, contended that amalgamation is of two kinds, i.e. , amalgamation in the nature of merger and amalgamation in the nature of purchase and relied on the following paragraphs of the Accounting Standards (AS-14) issued by the Institute of Chartered Accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. ( h ) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction. ( i ) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies. Explanation Types of amalgamation 4. Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders' interests and of the businesses of these companies. Such amalgamations are amalgamations which are in the nature of 'merger' and the accounting treatment of such amalgamations should ensure that the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, when any one or more of the conditions specified in paragraph 29 is not satisfied. 31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33-35. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraph 36-39." He further submits that though the Income-tax Act defines amalgamation in section 2(1B) of the Income-tax Act, 1961, as amalgamation in the nature of merger but does not include amalgamation in the nature of purchase, it does not mean that amalgamation in the nature of purchase is not recognised by the Companies Act. Section 2(1B) of the Income-tax Act defines "amalgamation" as follows: "'amalgamation', in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to, form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty are not necessary to determine in this case. Mr. Y. Srinivasa Murthy contended that under section 394 of the Companies Act, 1956, the Registrar and the official liquidator can object only if the affairs of the company are conducted in a manner prejudicial to public interest and cannot raise any other objection. He relied on Sanghi Industries Ltd. v. Goldy Projects Ltd. [1993] 3 ALT 719 and Vinay Metal Printers ( P ) Ltd., In re [1995] 3 ALT 222; [1996] 87 Comp. Cas. 266 (AP). In the former case, the Registrar objected to the proposed scheme on the ground that the share exchange ratio was not fair to the shareholders of the transferor company. That was overruled by the court on the ground that the share exchange ratio was approved by an overwhelming majority of the shareholders and no shareholder or creditor objected to the scheme in the court. In Vinay Metal Printers ( P ) Ltd., In re [1995] 3 ALT 222; [1996] 87 Comp. Cas. 266 (AP), the Registrar has taken objection that the proposed scheme results in avoidance of income-tax and hence notice may be issued to the Income-tax Department. The objection was rejected, and the court held that it has to consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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