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2017 (1) TMI 961 - DELHI HIGH COURT

2017 (1) TMI 961 - DELHI HIGH COURT - TMI - Scheme of Amalgamation - Requirement of convening meetings - nature of scheme - Held that:- In the present case, by virtue of the proposed scheme, the entire business and undertaking of the Transferor Company is being taken over and transferred to the Transferee Company. Further, upon the proposed scheme coming into effect, as consideration, there will be no issuance of new shares by the Transferee Company to the shareholders of the Transferor Company .....

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ansferee Company, on the ground that no variation in rights thereof is contemplated by way of the proposed scheme. - In so far as the creditors of the Transferee Company are concerned, no variation in their rights is being proposed by way of the proposed scheme. Thus rights of the creditors of the Transferee Company, pre and post amalgamation, as against the Transferee Company would not stand varied. - In so far as the requirement of convening a meeting of the unsecured creditors of the .....

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, inter alia, of the Transferor Company shall in any event stand transferred to the Transferee Company. Therefore, no variation in the rights of the unsecured creditors of the Transferor Company is proposed. - Hence, in effect, it could not be said that any ‘compromise or arrangement’ is being offered by way of the proposed scheme to the creditors or shareholders of the Transferee Company; or the unsecured creditors of the Transferor Company. Therefore, in view of this circumstance and the f .....

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016 - Dated:- 16-1-2017 - MR. SIDDHARTH MRIDUL J. Transferee/Applicant Company No.2 Through: Mr. D.K. Malhotra & Mr. Rajesh Kr. Malhotra, Advocates for the Applicants. J U D G M E N T SIDDHARTH MRIDUL, J. 1. The present application has been filed jointly, under Sections 391 & 394 of the Companies Act, 1956 (hereinafter referred to as the Act ) by Adobe Properties Private Limited (hereinafter referred to as Transferor Company ) and AMP Motors Private Limited (hereinafter referred to as Tr .....

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y for disposal of the present application are as follows: a. The registered offices of the Applicants are situated at New Delhi, within the jurisdiction of this Court. b. The Transferor Company was incorporated under the Act on 03.01.2014, with the Registrar of Companies, N.C.T. of Delhi & Haryana at New Delhi. c. The Transferee Company was incorporated under the Act on 22.10.2009, with the Registrar of Companies, N.C.T. of Delhi & Haryana at New Delhi. d. It has been stated by counsel f .....

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orized share capital of the Transferee Company as on 31.03.2015 is ₹ 5,00,00,000/- divided into 50,00,000 equity shares of ₹ 10/- each. The issued, subscribed and paid-up share capital of the Transferee Company as on 31.03.2015 is ₹ 4,87,18,000/- divided into 48,71,800 Equity Shares of ₹ 10/- each. g. Copies of the Memorandum of Association and Articles of Association of the Applicants have been filed alongwith the present application and the same are on record. The audit .....

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businesses. i. So far as the share exchange ratio is concerned, it is stated on behalf of the Applicants that upon the proposed scheme being effective, no consideration shall be payable by the Transferee Company to the equity shareholders of the Transferor Company, since the Transferor Company is the wholly owned subsidiary of the Transferee Company. The resulting authorized share capital of the Transferee Company on the proposed scheme getting sanctioned would be ₹ 5,10,00,000/- divided .....

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of the Board of Directors of the Applicants have been filed and the same are on record. l. The status of the equity shareholders, secured and unsecured creditors of the Applicants and the consents obtained therefrom to the proposed scheme, has been set out in the following table: - Company No. of Equity Shareholders Consents Given No. of Secured Creditors Consents Given No. of Unsecured Creditors Consents Given Transferor Company 1 (One) All None N.A. 6 (Five) 5 (Five) in number and 99.91% in va .....

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of the Company (Court) Rules, 1959 and publication of notices of the meetings of the said shareholders and creditors. 5. In support of the prayer sought, learned counsel appearing on behalf of the Applicants would urge that no prejudice will be caused to equity shareholders or creditors of the Applicants if their meeting, as contemplated under Section 391(1) of the Act, is dispensed with. Learned counsel appearing on behalf of the Applicants would further urge that the Transferor Company is the .....

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Mysore Machinery Manufactures Ltd. (In Liqn.), reported as I.L.R. 1991 KAR 2672. c. M/S. GE Capital Transportation Financial Services Ltd. versus M/S. GE Capital Services India, reported as 162 (2009) DLT 31. d. Dabur Foods Ltd. & Anr., reported as 2008 (144) Comp Cas 378. e. Madhusudan Auto Ltd. & Anr., reported as 2013 V AD (Delhi) 527. f. Masterji Mettalloys (P) Ltd. & Good Luck Steel Tubes Ltd., reported as 227 (2016) DLT 313. 7. I have heard the learned counsel appearing on beha .....

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ed scheme. 9. The Transferor Company has 01 equity shareholder whose written consent/NOC has been placed on record. The said written consent/NOC has been examined and found in order. 10. The Transferor Company has no secured creditors. 11. The Transferor Company has 06 unsecured creditors, out of which, 05 (representing unsecured debt of 99.91% in value of the total unsecured debt) have given their written consents/NOCs to the proposed scheme. The said written consent/NOCs have been examined and .....

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consents/NOCs have been examined and found in order. 14. The Transferee Company has 65 unsecured creditors out of which 20 unsecured creditors (representing 97.49% in value of the total unsecured debt) have given their written consents/NOCs to the proposed scheme and the same have been placed on record. The said written consents/NOCs have been examined and found in order. 15. Before proceeding further, it would be beneficial to examine the legal position with regard to the subject issue and cons .....

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ghts of the said shareholders and creditors of the Transferee Company would remain unaffected by the Scheme. 17. A single judge of this Court in Madhusudan Auto Ltd. & Anr. (supra), dispensed with the requirement of convening meetings of the equity shareholders, creditors and unsecured debenture holders of the applicant companies, to consider and if thought fit, approve, with or without modifications, the scheme of arrangement proposed therein. The said decision was arrived at in view of the .....

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olly owned subsidiary of the Transferee Company and that the shareholding pattern of the Transferee Company prior and post amalgamation would remain the same, not requiring any reorganization or restructuring of the capital and thus not adversely affecting the shareholders thereof. Further, the meeting of the creditors of the Transferee Company was also dispensed with in view of the circumstance that the Transferor Company was a wholly owned subsidiary of the Transferee Company; the said scheme .....

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(supra). A Single Judge of this Court therein, whilst sanctioning a scheme of arrangement, proposed therein, between the wholly owned subsidiary and its holding company, observed as hereinunder: 4. I had noticed in the order dated 19th April, 1976, that a question had been urged before me whether the scheme had to be sanctioned by the transferee-company, M/s. Choudhari Metal Industries (P.) Ltd., as well as by the petitioner-company. No doubt, the proposed scheme has been passed by the requisite .....

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in certain cases it would be necessary for the transfereecompany to get the proposed compromise or scheme sanctioned by the court before it would become binding on both companies. I also noticed that the transferor-company (the petitioner) was a wholly-owned subsidiary company of the transferee-company and, therefore, it was not necessary for the transferee-company to approve the scheme. The reason I reached this conclusion was that Section 391 of the Act deals with two special cases: (a) when t .....

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f the petitioner-company will cease to have any shares in the petitioner-company. Therefore, there is a compromise between the petitioner-company and its shareholders. Considered from the point of view of the transferee-company, there is no such proposal. The assets and liabilities of the petitioner-company will be appropriated under the scheme by the transferee company, the shareholding and other rights of the members of the transferee-company will be unaffected, because no new shares are being .....

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hich the question whether the transferee-company is also required to approve the scheme, has been considered. Those two cases are In re Carron Tea Co. Ltd. [1966] 2 Com LJ 278 (Cal) decided by the Calcutta High Court and In re Union Services Private Ltd. [1973] 43 Comp Case 319 (Mad) decided by the Madras High Court; although both these cases are somewhat different on facts, the decision in both cases was that the scheme does require the approval of the transferee-company under Section 391 of th .....

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ement. In essence, a scheme is a contract between two or more parties. It requires the necessary approval in accordance with Section 391 of the Act, if it is a scheme covered by that provision, otherwise any other contract entered into by a company does not require such approval. The essential features of the present scheme under consideration are that two companies are merging with each other. Therefore, it is a contract between companies. Such a contract does not require the approval of the co .....

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s the sanction of the court. Seen from the point of view of the transferee-company, the agreement is essentially a contract which does not affect the creditors or members of the transferee-company in any manner. Therefore, the scheme does not require to be sanctioned from the point of view of the transferee-company under Section 391 of the Act. However, if the scheme had some flaws whereby the rights of the transferee-company were affected, it would require the approval of those persons at a mee .....

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973] 43 Comp Case 319 (Mad) referred to earlier and decided by the Madras High Court. Obviously, if the transferee-company refuses to give effect to the scheme, the purpose and object of the scheme would be demolished. Now, is there any material before me to suggest that M/s. Choudhari Metal Industries (P.) Ltd. has approved the scheme or has agreed to be bound by the scheme? For this purpose, there are two pieces of evidence before me. Firstly, the holding company qua the petitioner-company is .....

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oner-company. Secondly, the scheme could not have been put forward as a proposal unless there was an arrangement between the petitioner-company and M/s. Choudhari Metal Industries (P.) Ltd. Thirdly, I now have the resolution passed by the members of M/s. Choudhari Metal Industries (P.) Ltd. before me. This resolution was passed as a result of a general meeting of that company held under the orders or directions of this court. The resolution and the affidavit accompanying it show that almost all .....

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ainly wants to enforce the scheme. For these reasons, I think that in the present case, there can be no doubt that the scheme is not going to be thrown overboard . and there is no such intention. The contract is, therefore, binding on the transferee-company. All it requires now is the approval of the court. As soon as the scheme is sanctioned, it becomes effective. (Emphasis supplied.) 20. In M/S. GE Capital Transportation Financial Services Ltd. (supra), the Court dispensed with the requirement .....

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Transferee Company thereby leading to no variation of rights of the said creditors. Further, the majority shareholder of the Transferor Company with a holding of 92.74% of the paid up equity share capital was exempted from participating in the shareholders meeting on account of his NOC/written consent being given beforehand. 21. In S.M. Holding Finance (P) Ltd. (supra), a Single Judge of the Karnataka High Court, whilst dealing with a scheme of arrangement and/or compromise proposed by the compa .....

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rrangement relating to the subsidiary and its members complies with the requirements of section 391. Ordinarily a company acts by its Board of Directors and the shareholders act in a general meeting of the shareholders. The meeting contemplated in section 391 is analogous to an extraordinary general meeting of the members of the company inasmuch as a three-fourths majority is required to pass the required resolution. The normal rule is that the consent of the shareholders whether it is unanimous .....

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to it by paragraph 5 of Part II of Table A of the English Companies Act, 1948 which applies to the management of a private company limited by shares and is relevant for our purpose. It runs as follows: - Subject to the provisions of the Act, a resolution, in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same ha .....

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not passed at general meetings to be registered. The second inroad on the requirement of a formal meeting is that the consent of the shareholders may be ascertained without calling any meeting at all. Further, the doctrine of lifting the veil of incorporation and looking at the reality of the action of the members of the company enables us to hold that the consent of the overwhelming majority of the shareholders outside a meeting is sufficient to show that the resolution was supported virtually .....

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meeting will suffice. In other words, can the veil be lifted so as to equate a decision of the members with a decision of the company itself ? (The Principles of Modern Company Law, 3rd Edn., pages 206- 209). Decisions on this subject may be classified into (a) those requiring a formal compliance, and (b) those requiring only a substantial compliance. Formal compliance: - In Re George Newman Ltd., (1895) 1 Ch. 674, C.A., (11) it was held by Lindley L. J., that individual assents given separately .....

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- In Parker & Cooper Ltd. v. Reading, (1926) Ch. 975 (14), the decisions in Re George Newmaa Ltd. (11) and in Re Express Engineering Works (12) were fully considered but were distinguished on the ground that the transactions requiring ratification in those cases were illegal. It was held that when transaction was not illegal it was not necessary that the shareholders should meet in a meeting summoned for that purpose if the transaction is an honest bona fide one entered into for the benefit .....

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rule that all the shareholders of a company must cast their votes in a formally called meeting is made by the doctrine of acquiescence. If all the shareholders acquiesce in a certain arrangement, the question of a meeting having been called does not arise at all, Professor R. R. Pennington in the third edition of his Company Law at pages 557-558 has expressed this doctrine of acquiescence in the following words: - The court has said in some cases that a company may be treated as bound by a reso .....

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ers conferred on them by the articles (Re Norwich Yarn Co. Ex parte Bignold (1856) 22 Beav. 143) (17), nor treat an irregular surrender of partly paid shares as void (Phosphate of Lime Co. v. Green (1871) L.R. 7 C.P. 43) (18), when all the members had an opportunity of discovering the irregularity, and no one had taken steps to challenge it for several years. Similarly, where members of a company which had gone into voluntary liquidation took an active part in the liquidation proceedings, fully .....

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have adopted the informal document as the company's articles (Ho Tung v. Man On Insurance Co. (1902) A.C. 232) (20). It is submitted that the first three of these cases can be explained by the fact that the company was asserting a right against the other party to the litigation which could be lost by acquiescence, and that when acquiescence by a company is alleged, it is not necessary to show that every member of it expressly or tacitly assented to what was done. The fourth case (Re Bailey, .....

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se the court merely treated him as estopped from pleading the invalidity as a defence, and it certainly did not rule that the winding up resolution must be deemed valid against all persons and for all purposes. The fifth case (Re Bailey, Hay & Co. Ltd.) (19), it is submitted, was merely an application of the principle that the law will presume that acts have been done regularly and properly when they appear to have been, and it is noteworthy that the court said that it was entitled to infer .....

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ecision as well as on proper interpretation of section 391(2) which is not mandatory, but directory and there has been substantial compliance that three-fourths value of the unsecured creditors have agreed to and approved the scheme, the contention of the objector that there was no proper compliance with the Act and that the court has no jurisdiction to sanction the scheme will have to be rejected. As already noticed, once the scheme is held to be reasonable and proper, merely because there is o .....

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quently obtained, and where the necessary majority of one class was absent when the petition was presented, the court allowed a fresh petition to be presented subsequently when the necessary majority was later obtained, without requiring the other class meetings to be held again." Thus not only the Karnataka High Court in the above judgment, but also this Court in Mazola's (sic) Theatres (P) Ltd. 's case (supra) have approved the consents given outside a meeting held under Section 3 .....

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to the scheme. Whatever be the merit of the SHF's plea in view of the position of law laid down in SM Holding Finance Pvt. Ltd's case (supra), such consents even given after the meeting are valid as per the said judgment and consequently such consents Constituting 93.11% in value and 5 out of 6 in numbers comply with the statutory requirement. Accordingly this plea of SHF is not sustainable. (Emphasis supplied.) 24. A Single Judge of the Andhra Pradesh High Court, in Magnaquest Solutions .....

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al letters of consent to the scheme of amalgamation, the sundry creditors, as reflected in the Balance sheet under the head "current liabilities", have not. 11. A creditor, who has a debt due from the transferorcompany, would, on the scheme of amalgamation being sanctioned, be required to look not to the transferor for repayment of his dues but to the transferee with whom he neither had any dealings in the past nor privity of contract prior to its substitution in the place of transfero .....

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L.J. 102 (Bom), Union of India v. Asia Udyog Pvt. Ltd. (1974) Vol.44 Com. Cases 359 (Delhi)). 12. On the question whether a meeting of the creditors isstatutorily required to be called for, even in a scheme of arrangement between the company and its members, one view is that the creditors are not entitled, as of right, to participate in the process of consideration of sanction of the scheme, as the Companies Act does not contain a specific provision for notice being given to the creditors at an .....

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e unless their consent has been obtained. (Ansal Properties and Industries Ltd., In re (1978) 48 Comp Cas 184 (Delhi)). 13. Another facet of this view is that, under Section 391 ofthe Act, a compromise or arrangement is either between a company and its creditors or between a company and its members. An arrangement, in the nature of amalgamation, is the result of an agreement between the amalgamating company and its members, as well as a corresponding agreement between the transferee company and .....

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hrome Ltd., In re Vol. 89 1997 CC 285 (AP)) 14. A slightly different view was taken by D.G. Karnik. Jof the Bombay High Court, in Re: ICICI Bank Limited (2002) 104 Bom LR 399. To quote: ...I have my own doubt about the view taken by the Delhi High Court in expressing that the creditors have no right to participate in the process of consideration of the Scheme of Arrangement between the Company and its members. Section 391(1) gives a discretion to the Court to convene a meeting of the creditors o .....

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nterests of all the creditors. What importance should be given to the fact that the creditors are likely to be affected would vary from case to case but the Judge would certainly treat whether the creditors are adversely affected or not as the relevant circumstance. How then Court is to ascertain as to whether the creditors are adversely affected? If the creditors have no right of hearing at the time of hearing of the petition under Section 391 as held by Delhi High Court and this Court, (I have .....

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hat the interests of the creditors are not likely to be adversely affected by the Scheme. I am of the opinion that if an anomaly, as pointed out in Telesound India Limited, by the Delhi High Court exists in Section 391, the Courts would not fold their hands and wait for the Legislature to provide a cure, but would exercise their discretion under Subsection (1) of Section 391, almost in every case in which creditors are likely to be affected, and convene a meeting of the creditors and ascertain t .....

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placed before it, to ascertain whether or not their interests are safeguarded? Would that not amount to usurping the rights of the creditors to decide for themselves whether or not to approve the scheme? In the light of the settled legal position that the Court has no power to usurp the rights of the class of members or creditors to decide whether or not to approve the scheme, if the class whose interests are affected by the scheme, neither assent to nor approve of it in a meeting held in accord .....

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rpose? 16. If the jurisdiction of the Company Court, in examininga scheme of arrangement, is peripheral, supervisory and not appellate, since it does not have the expertise to delve deep into the commercial wisdom of the members who have ratified the scheme by the prescribed majority, (Miheer H. Mafatla), on what basis would the Court decide that, in the facts and circumstances of a given case, a meeting of the creditors or a class of them should or should not be held to ascertain whether they a .....

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the creditors/members "as the case may be" and also on the company. The expression "as the case may be" finds place both in Sub-sections (1) and (2) of Section 391. If the words "as the case may be" in Section 391(1) are construed as requiring the Court to order the meeting of only the members, in a Scheme of arrangement between the Company and its members, and only a meeting of the creditors in a Scheme of arrangement between the Company and its creditors, should t .....

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rangement unless, of course, the Court, on examining the scheme, finds that the objection of the minority is justified. If no meeting of the creditors is required to be held, in a scheme of arrangement between the Company and its members, then, in the absence of ascertaining whether 3/4th in value of the creditors approve the scheme or not, would the Court be justified in statutorily imposing such a scheme of arrangement on the creditors, even though their consent has not been obtained or their .....

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members or the creditors, is accepted would that not render the words "as the case may be" in Section 391(1) mere surplusage? These are several questions which need answers. LIFTING THE CORPORATE VEIL: PERMISSIBLE IN CASES WHERE A HOLDING COMPANY AND ITS SUBSIDIARY ARE INVOLVED: 18. It is, however, not necessary for us to seek answers tothe aforesaid questions in the present case, as a wholly owned subsidiary is sought to be amalgamated with its holding company. Under Section 4(1)(a) .....

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ts own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them. Similarly, the creditors or the members have no right to the assets of the Corporation. However the doctrine, that the Corporation or a Company has a legal and separate entity of its own, has been subjected to .....

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y continued to carry on business six month after the number of its members was reduced below the legal minimum; in certain matters pertaining to the law of taxes and stamps, particularly where the question of "controlling interest" is in issue; in the law relating to exchange control; and in the law relating to trading with the enemy where the test of control is adopted. (Tata Engineering and Locomotive Co. Ltd. v. The State of Bihar ; Palmer's Company Law) 20. In DHN Food Distribu .....

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and, alternatively, as "one in three....". Goff, L.J. said : "This is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil." The observations of Shaw, L.J. were: Why then should this relationship be ignored in a situation in which to do so does not prevent abuse but would on the contrary result in what appears to be a denial of justice? 21. Similarly in Harold Holdsworth & Co. (Wakefield) Ltd. v. Caddies (1995) 1 All .....

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, "This is an argument in re mercatoria, and it must be construed in the light of the facts and realities of the situation." 22. The aforesaid judgments, in which the corporate veilwas lifted, were quoted with approval by the Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P) Ltd. and New Horizons Limited v. Union of India . In State of U.P. v. Renusagar Power Co. the Supreme Court lifted the veil to hold that Hindalco, the holding company, and Renusagar Power .....

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f lifting of corporate veil is expanding.... 23. Lifting the corporate veil, in cases where a whollyowned subsidiary is amalgamated with its holding company, would establish that the creditor is, and has always been, dealing with the transferee company de-facto though he is the creditor of the transferor company de-jure. In such limited cases of amalgamation, as the creditors' rights cannot be said to be affected, holding of a meeting to ascertain their views, and obtain their consent to the .....

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company in the event a wholly owned subsidiary is being amalgamated into its holding company and no variation of rights is being caused to such members and/or creditors of the holding company. iii. The Court may dispense with the requirement of convening meetings of creditors or a class thereof, of the wholly owned subsidiary, in the event a wholly owned subsidiary is being amalgamated into its holding company and the rights of creditors of wholly owned subsidiary remain unaffected therein. iv. .....

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391 of the Act, which read as hereunder: - Section 391. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed(a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company, which is being wound up, of the liquidator, order a meeting of the creditors .....

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arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has .....

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r to safeguard the rights of parties, members and creditors, or any class thereof, of companies; and to ensure that they are not put to any avoidable, unnecessary and cumbersome procedures in order to effectively implement such a scheme of compromise or arrangement proposed by the companies. It vests wide amplitude of powers in the Court to approve a scheme which is for the benefit of the companies and the members and creditors thereof. 28. A bare reading of the provision of sub-section (1) of s .....

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judicating an application pertaining to a compromise or arrangement proposed, between a company and its members; or between a company and its creditors, the Court has been vested with the power under the provision of sub-section (1) of section 391 of the Act, to direct that meetings of members, creditors, or a class thereof, as the case may be, be called, held and conducted. Such meetings can be called, held and conducted in any manner as directed by the Court, in order to enable the members, cr .....

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r creditor or a class thereof; unconscionable. 31. Therefore, it would not be incorrect to conclude that this judicial discretion conferred on the Court under the provision of sub-section (1) of section 391 of the Act may also be exercised in a manner so as to dispense with the requirement of convening meetings of members and/or creditors or a class thereof, in certain circumstances. 32. Thus, the discretion so conferred upon the Court under the provision of section 391(1) can be summarized as f .....

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ught fit, approve, with or without modification, such s scheme; OR iii. Dispense with the requirement of convening meetings of members and creditors or any class thereof, of the company proposing a scheme of compromise or arrangement. 33. However, it would be trite to state that when a statute confers discretionary power on the Court, such power has to be exercised judicially, as and when an occasion arises, to further the ultimate aim and objective of the statute which confers such discretion; .....

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e which is the subject matter of the present application is one of amalgamation between a wholly owned subsidiary and its holding company. The expressions wholly owned subsidiary and holding company have been defined under the provisions of section 4 of the Act. Section 4 is extracted hereinbelow for the sake of convenience: 4. Meaning of "holding company" and "subsidiary". (1) For the purposes of this Act, a company shall, subject to the provisions of sub- section (3), be de .....

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ther company, holds more than half in nominal value of its equity share capital; or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration: Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A, by virtue of clause (c) above. It Company D is a subsidiary of Company C, Company D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) .....

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to a directorship with respect to which any of the following conditions is satisfied, that is to say- (a) that a person cannot be appointed thereto without theexercise in his favour by that other company of such a power as aforesaid; (b) that a person's appointment thereto follows necessarilyfrom his appointment as director, managing agent, secretaries and treasurers, or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by an indiv .....

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ominee for, a subsidiary of that othercompany, not, being a subsidiary which is concerned only in a fiduciary capacity; shall be treated as held or exercisable by that other company; (c) any shares held or power exercisable by any person byvirtue of the provisions of any debentures of the firstmentioned company or of a trust deed for securing any issue of such debentures shall be disregarded-, (d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary[ not bei .....

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only if, that other is its subsidiary. (5) In this section, the expression "company" includes any body corporate, and the expression "equity share capital" has the same meaning as in sub- section (2) of section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning .....

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er bodies corporate incorporated outside India. 35. Thus, in view of the foregoing and on a perusal of the record in the present case, the Transferor Company is the wholly owned subsidiary of the Transferee Company. 36. Discussing the nature of a scheme of amalgamation, in Magnaquest (supra), the Andhra Pradesh High Court further observed as hereunder: 33. In Telesound India Ltd., In Re, [1983] 53 Comp Cas 926, the Delhi High Court observed (page 942): ...Amalgamation of a company with another o .....

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t by virtue of a statutory instrument and to that extent has statutory genesis and character, and to that extent it is distinguishable from a mere bilateral arrangement to merge or join in a common endeavour, an undertaking or enterprise. (J.K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. (1970) 40 Comp Cas 689 (SC). Once the court sanctions the amalgamation, the amalgamation is made effective and binding by virtue of statutory power, inter alia, by the transferor to the transf .....

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section, so as to include "rights and powers of every description" and "duties of every description" respectively. The expression "property" would, therefore, be wide enough to include rights under a contract, including a contract of tenancy. These are co-extensive with the property and right which the transferor-company has in relation to its assets, but would not be wider than what the transferorcompany was entitled to enjoy. The rights, property, as indeed the l .....

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is independent and distinct from the company. Such a notion ignores the peculiar position of amalgamation in company law and its true legal incident. It is for historical reasons that the device of amalgamation was built into the company law for facilitating the merger of companies, inter alia, with a view to help restoration of sick units to health, better, more effective and economical management of the corporate sector to ensure continued production, increased employment avenues and generatio .....

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nto another. Winding-up is unnecessary. It is dissolved not because it has died, or ceased to exist, but because for all practical purposes, it has merged into another forming part of one corporate shell. The dissolution is the death of its independent corporate shell, because a company cannot have two shells. It is, therefore, dissolved because the independent shell or corporate name is superfluous. 37. A reading of the above extract makes it clear that ordinarily, by virtue of a scheme of amal .....

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hts of the creditors of the wholly owned subsidiary would be affected by the proposed scheme, it becomes necessary to pierce the corporate veil of the wholly owned subsidiary and determine whether the creditors of the wholly owned subsidiary are, and have always been, dealing with the holding company de-facto though they are the creditors of the wholly owned subsidiary de-jure. [Ref: Magnaquest (supra)] 39. Ordinarily, seen from the lens of the holding company, a scheme of amalgamation is essent .....

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s thereof, of the holding company stand varied, it would require the approval of such members and/or creditors, at a meeting or meetings held in accordance with Section 391 of the Act and would also require the sanction of the Court. 41. In the present case, by virtue of the proposed scheme, the entire business and undertaking of the Transferor Company is being taken over and transferred to the Transferee Company. Further, upon the proposed scheme coming into effect, as consideration, there will .....

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y shareholders of the Transferee Company, in the case of a wholly owned subsidiary being amalgamated into the Transferee Company, on the ground that no variation in rights thereof is contemplated by way of the proposed scheme. 43. In so far as the creditors of the Transferee Company are concerned, no variation in their rights is being proposed by way of the proposed scheme. Thus rights of the creditors of the Transferee Company, pre and post amalgamation, as against the Transferee Company would .....

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that, upon the proposed scheme coming into effect, all the existing liability, debts, duties, obligations, inter alia, of the Transferor Company shall in any event stand transferred to the Transferee Company. Therefore, no variation in the rights of the unsecured creditors of the Transferor Company is proposed. 46. Hence, in effect, it could not be said that any compromise or arrangement is being offered by way of the proposed scheme to the creditors or shareholders of the Transferee Company; o .....

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