TMI Blog2005 (7) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Rs. 10 each while the issued, sub scribed and paid up share capital is Rs. 1 crore divided into 10 lakhs equity shares of Rs. 10 each. The balance-sheet made up to March 31, 2004, exhibit A of the transferor company duly audited by its auditors discloses its assets and liabilities. The board of directors of the transferor company, in its meeting approved and adopted the scheme of amalgamation exhibit E whereunder the transferor company proposed to be merged with M/s. Vijaya Bank, for short the "transferee company" a company constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (for short "Banking Companies Acquisition Act") having its registered office at 41/2, M.G. Road, Bangalore, subject to the sanction of the scheme of amalgamation by this court. The transferor company is the wholly owned subsidiary of the transferee company which hold all the shares issued by the transferor company either in its own name or by its nominees. The transferor company made an application in C. A. No. 764 of 2004 seeking permission to convene and hold the meetings of the members and creditors for considering the scheme of amalgamation exhibit E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 394(4)( b )of the "Act". In addition it is stated that no separate petition is filed by the transferee company. The material on record discloses that the entire shares of the transferor company are held by the transferee company and its nominees as reflected in the balance-sheets exhibits A and C. The board of directors of both the companies has opined that the merger of the companies would be beneficial and profitable to operate as a single unit instead of two different units. The transferee company is said to be a consistent profit making company. In order to have synergy of operations and also to avoid administrative overheads, they have decided to amalgamate into one unit so that they can avail of the advantage of large scale operation. It is also said that the financial base of the amalgamated company would be considerably enhanced. Since the transferor company is the subsidiary of the transferee company, its holding company, it is contended that the scheme does not affect the rights of members or creditors of the transferee company as between themselves and the transferor company or does not involve reorganisation of the share capital of the transferee company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions not less favourable than those subsisting with the transferor company. No employee of the transferor company has appeared before the court to oppose the scheme of amalgamation, exhibit E. Thus, the interest of the employees is taken care of. On a perusal of the reply of the Regional Director for Company Affairs, the following two questions arise for decision making in this petition : (I)Whether auction of a scheme of amalgamation of the transferor company, a subsidiary of the transferee company, a body corporate, under the Banking Companies Acquisition Act, is permissible under sections 391 to 394 of the Companies Act, 1956 ? (II)Whether the transferee company, a body corporate is required to file separate petitions under sections 391 to 394 of the Act for sanction of the scheme of amalgamation ? Regarding point No. ( I ) : M/s. Vijaya Bank is a banking company as defined in the Banking Regulation Act, 1949 and a body corporate under the Banking Companies Acquisition Act. The term "body corporate" is defined under section 2(7) of the Act which reads thus : "body corporate" or "corporation" includes a company incorporated outside India but does not include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controls the composition of the board of directors ; or (2)company B holds more than half of the company A's equity share capital in nominal value ; or (3)company A is a subsidiary of any subsidiary of company B. As a necessary concomitant, a company is defined as a holding company of another company when other company fulfils the above conditions so as to make it a subsidiary of the first. Sub-sections (1) and (3) determine, for the purpose of the Act, a company to be a subsidiary of another. Suffice it to state that under sub-section 1( b )( ii ) if a company holds more than half of the total of the equity shares, that is the holding company of the company issuing and allotting the shares. Applying the same to the instant case the entire equity shares issued by the transferor company being held by the transferee company, it could be safely concluded that the transferor company is the subsidiary of the transferee company which is its holding company. In view of sub-section (4), the transferor being the subsidiary of the other company, the transferee company is deemed to be a holding company for the purpose of the Act Sub section (5) provides that the expression "compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner pre judicial 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Hence, it is not difficult to hold that Vijaya Bank, though a body corporate is a company for the purpose of the Act. If that be so, then Vijaya Bank is the transferee company for the purpose of section 394 of the Act. (emphasis supplied) Learned senior counsel Sri Udaya Holla would make reference to the decision of the High Court of Andhra Pradesh in the case of Andhra Bank Housing Finance Ltd., [2003] 47 SCL 513 ; [2004] 118 Comp. Cas. 295 which, too, was a case of a scheduled bank, a body corporate and a company under the Banking Companies Acquisition Act a transferee company seeking to take over its subsidiary M/s. Andhra Bank Housing Finance Limited, the transferor company which was the petitioner in the company petition. In identical circumstances, the Andhra Pradesh High Court held [that, under section 4(5) of the Act, the expression "company" includes a body corporate and therefore, the bank which is a body corporate and a holding company fell within the expression "company" for the purpose of the Act. Hence, point No. (I) is answered in the affirmative. Regarding Point No. ( II ) : Sri Udaya Holla, learned senior counsel contends that M/s. Vijaya Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit E does not involve reorganisation of the share capital of the transferee company. Keeping in mind the established facts, I proceed to examine the decision of this court in Kirloskar Electric Co. Ltd.'s case [2003] 113 Comp. Cas. 670. Certain essential facts must be first noticed. M/s. Kirloskar Electric Company filed a petition under sections 391 to 394 of the Act seeking sanction of the scheme of arrangement whereunder some of the divisions/under takings of the petitioner-company were sought to be hived off and transferred in favour of K. T. Switch Gear Private Limited and M/s. Best Trading Agencies Limited, which transferee companies did not file petitions before the court. However, on the objections taken by the Regional Director of Company Affairs, the said two transferee companies sought to come on record by filing applications under rule 9 of the Companies (Court) Rules, 1959. In addition, secured creditors as well as the employees association objected to the sanction of the scheme of arrangement. This court, having taken note of the material terms of the scheme, held that prima facie the real purpose was to transfer primary and valuable assets of the company which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the meeting of the shareholders and creditors of the companies. To sum up, this petition is only by the transferor company and the prayer made in the petition is to sanction the scheme of arrangement so as to be binding on all the members, secured creditors, unsecured creditors of the petitioner-company, as well as on the petitioner-company and mat by true construction of sections 391 to 394 of the Companies Act, the transferee company should also join in this petition and there should be meeting of the shareholders of the transferee company after obtaining directions from this court for convening the meeting as well as approving the scheme of arrangement. Since the assets and liabilities of the petitioner-company will be transferred to the transferee companies under the scheme of arrangement, the shareholding and other rights of the transferee companies would be affected and it is going to change the capital structure of the transferee companies." The question as to whether a joint petition or a separate petition as envisaged under section 394 of the Act is required to be filed by both the transferor and transferee companies fell for consideration in the case of Electro C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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