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TMI Blog2009 (1) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... and allied hardware for telecommunication and other industries. The authorised share of the transferee-company is Rs. 25,00,00,000 divided into 2,50,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the petitioner is presently Rs. 12,42,50,000 divided into 1,24,25,000 equity shares of Rs. 10 each. The transferor-company has produced the latest audited balance-sheet up to 31-3-2007, setting out the assets and liabilities of the company at annexure D to the company petition. 3. The board of directors of the transferor-company approved and adopted the scheme of amalgamation on 29-2-2008, by virtue of which the transferor-company is proposed to be merged with the transferee-company, which has its registered office at Gurgaon, Haryana, subject to the confirmation of this Court. The board resolution to that effect dated 29-2-2008, is produced at annexure F to the petition. According to the transferor-company, it is a wholly under subsidiary of the transferee-company. According to the petitioner the transferor-company has only two shareholders, namely, M/s. Nokia Siemens Networks (P.) Ltd. (transferee-company) holding 1,24,24,990 equity shares of Rs. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f resources of the two companies to their common advantage which would result in more productive yields of the resources and enhance the operational efficiencies which would be beneficial for all the stockholders. He, therefore, submits that considering the fact that the business activity of the transferor-company as well as the transferee-company being allied, there is no legal impediment for sanctioning the proposed amalgamation of the two companies. He further submits that there is no re-organisation of shares after amalgamation and that no shares would be allotted to the transferee after merger. 8. Learned counsel for the Official Liquidator has submitted O. L. R. No. 520 of 2008 under the provisions of section 394(1) of the Companies Act, 1956, which states that M/s. Umesha K. Associates, Chartered Accountants, were appointed to examine the books of account and other records of the transferor-company and on scrutiny of the books of account and other related records of the company, they have opined that the affairs of the transferor-company have not been conducted in a manner prejudicial to the public interest as per the second proviso to sub-section (1) of section 394 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section 97 of the Companies Act, 1956, is only a procedural compliance requiring filing of the prescribed return and payment of registration fee to the Registrar of Companies and payment of stamp duty to the State Government, which has to be statutorily complied with. In this connection, it is also respectfully submitted that the Original Side Appeal No. 26 of 2007 filed by the Regional Director against the decision of this Hon'ble Court overruling the objections raised by the Regional Director in a similar case is pending before the Division Bench of this Court. (f)Without prejudice to the above submissions, it is also further submitted that the transferor-company being a wholly-owned subsidiary of the transferee-company, the transferee-company is not going to allot any shares to the shareholders of the transferor-company, and, hence, there is no meaning in merging the authorised share capital of the transferor company with the authorised share capital of the transferee-company." 10. The second objection is that the transferee-company has not filed a separate petition before the High Court at Delhi for the purpose of obtaining sanction and, hence, the sanction to be accorded b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onverted, etc., and any default of the said provision would entail a punishment. Under section 97, where a company having a share capital increases its share capital beyond the authorised capital or where a company not being a company limited by shares increases its members beyond the registered number, it shall file with the Registrar, notice of the increase of capital or of members within thirty days after the passing of the resolution authorising the increase and the Registrar shall record the increase and also make any alterations which may be necessary in the company's memorandum or articles or both and a default in complying with the said section entails a punishment with fine. Therefore, under sections 95 and 97 of the Companies Act, notice has to be issued by a company to the Registrar of Companies within thirty days of consolidation of any share capital or conversion of shares into stock and a default would result in penal consequences. The object of sections 95 and 97 of the Act is to keep the Registrar informed about the changes and to incorporate them in the memorandum and articles of association of the company. But, where a scheme of arrangement or amalgamation of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certified copy of the order of the Court sanctioning the scheme. 18. The other objection raised is that the Companies Act, does not exempt a transferee-company on account of the scheme of amalgamation from payment of registration fee for increase of its authorised capital pursuant to the scheme of amalgamation. If the transferee-company is allowed to increase the authorised capital by clubbing the authorised capital of the transferor-company, it will involve substantial revenue loss to the Central Government and the State Government. In support of the said submission, learned counsel for the respondent has relied upon a decision of the Hon'ble Supreme Court reported in the case of Ratnabali Capital Markets Ltd. v. SEBI [2007] 140 Comp. Cas. 6771 . 19. Per contra, it is submitted by learned counsel for the petitioner that the requisite fee has already been paid by the petitioner-transferor company on the authorised share capital and, therefore, it would not be necessary to pay the necessary fee again by the transferee-company upon merger. It is further submitted that the fee paid by the transferor-company on the authorised share capital must be deemed to have been paid by the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity-RCML was not given the benefit of continuity of fees deposited earlier by RSL which got merged with RCML. In the said case, the Securities and Exchange Board of India (SEBI) had issued a Circular dated 30-9-2002, stating that in the case of merger carried out as a result of compulsion of law, fees would not have to be paid afresh by a transferee entity provided that the majority shareholders of the transferor entity continued to hold the majority shareholding in the transferee entity. 21. Interpreting the said Circular, the Hon'ble Supreme Court held that under section 391 of the Companies Act, 1956, a compromise arrangement is proposed generally as an alternative to liquidation. Where a scheme appears to be feasible and workable, it should be preferred to a winding up order. It would depend upon the facts of each case where a scheme under section 391 could be construed as an alternative to liquidation. Under Circular dated 30-9-2002, what the SEBI intended to say was, the fresh turnover/registration fees would not be payable by the company which went in for amalgamation/merger as an alternative to liquidation. In other words, if the company's net worth was negative and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferee-company. Therefore, in reality, there is no increase in the share capital of the transferee- company so as to attract payment of any additional fee or stamp duty. I am fortified in my view by the decision of this Court in the case of Mphasis Ltd., In re (supra), wherein, it has been held that there is no obligation or reason for the two amalgamated companies to pay duty again on the same authorised capital on which they have already paid the duty particularly, when there is no increase in the share capital of the transferee-company so as to attract payment of any additional fee or stamp duty. 24. It is brought to my notice that the aforesaid judgment has been appealed against and O.S.A. No. 26 of 2007 has been filed by the Regional Director, but there is no stay of the operation of the judgment in the aforesaid case. However, in the event of the Division Bench holding in favour of the Regional Director in the said appeal or the issuance of a notice by the Regional Director, the petitioner-company would be liable to pay the requisite stamp duty and registration fee on the increased authorised share capital of the transferee company as per clause 7. 25. In the event of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Nebula Motors Ltd., In re [2003] 45 SCL 143 , the Andhra Pradesh High Court has held that in a scheme of amalgamation of the subsidiary company withholding the company for convenience of business and efficient administration would not involve any reorganisation or restructuring of shares of members of the transferee-company and, therefore, there would be no transferee-company to approach the Court for sanction. In the said case, the transferor-company was the 100 per cent subsidiary of the transferee-company which was the holding company and the question was, as to whether the transferor-company was to seek sanction of amalgamation from the appropriate Court. The Court held that the scheme in the said case did not involve any reorganisation or restructuring of the shares of the members of the transferee-company and, therefore, the right of the members of the transferee-company was not touched upon. It was nothing but the amalgamation of the subsidiary company (Nebula Motors Ltd.) transferor-company with holding company (Concord Motors Ltd.) transferee-company for the convenience of the business and efficient administration. Therefore, it was not necessary for the transferee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt within its territorial jurisdiction the transferee-company is situate. In such a case, the sanctioning court which has been approached by the transferor-company can examine the scheme and see whether it does affect the rights of the members or creditors of the transferee-company either because it involves reorganisation of its share capital or otherwise and if the rights of the members of the transferor-company has not been touched upon, then there is no need for the transferee-company to approach the Court separately for necessary sanction of the scheme. 29. In the instant case, clause 7.1 with regard to cancellation of share of the transferor-company reads as follows : "7.1 Upon the scheme becoming effective, as the transferor-company is a wholly owned subsidiary of the transferee company, all the equity shares issued by the transferor-company and held by the transferee-company shall stand cancelled and in lieu thereof no allotment of any shares in the transferee-company shall be made to any person whatsoever. The shares held by the transferee-company in the transferor-company shall be cancelled and the difference, if any arising on cancellation of shares shall be adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f)The amalgamation shall result in the combination of manpower resources of both the companies and a single management structure for the companies. (g)The combined managerial and technical expertise would enable the transferee-company to develop a business and would be competitive and cogent. 33. The broad terms of the compromise or arrangement are as follows : "(a)It has been agreed under the scheme that all the property, rights and powers of every description of the petitioner/transferor-company should be transferred to and vested in the transferee-company. (b)The scheme provides that all liabilities and duties of the petitioner/transferor-company with effect from the appointed date should also be transferred to the transferee-company, so as to become the liabilities and duties of the transferee-company. (c)It has agreed that all the creditors of the petitioner/transferor-company shall become creditors of the transferee-company, as it exists presently. The scheme of amalgamation also provides that the services of all employees of the petitioner/transferor-company should stand transferred to the transferee-company on the same terms and conditions on which they have been emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court, there could be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." (p. 819) 35. Having regard to the parameters enunciated by the Apex Court in Miheer H. Mafatlal's case (supra), the sanctioning Court has to consider whether the scheme put forth for sanction is backed up by the requisite majority vote as required under section 391(2) of the Act and that the scheme is not violative of any provision of law and is not contrary to public policy; that the members or the creditors of the company are acted in a bona fide manner and in good faith and not coercing the minority in order to promote any interest against the interest of the minority and also where the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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