TMI Blog1990 (4) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ed office of the transferee-company is situated at Sansar Chandra Marg, Jaipur. The authorised share capital of the transferee-company is Rs. 1,00,00,000 (rupees one crore only) divided into 10,00,000 (ten lakhs) equity shares of Rs. 10 each. The issued subscribed and paid-up capital of the transferee-company is Rs. 65,00,000 (rupees sixty-five lakhs) divided into 6,50,000 (six lakhs and fifty thousand) equity shares of Rs. 10 each. The objects of the transferee-company are set out in the memorandum of association annexed with Company Petition No. 4 of 1988. Besides those objects, the object is also to construct, reconstruct, alter, improve, decorate and furnish hotels, restaurants, cinema houses, theatres, shops, factories, warehouses, wharves, buildings, etc. The object is also to carry on the business of hotel, restaurant, cafeteria, bar-house, lodging house, keepers, licensed victuallers, wine, beer and spirit merchants, malters, dealers of aerated minerals and artificial waters and-other drinks purveyors, caterers for public amusement, etc. The object is also to carry on business as industrialists, concessionaries, guarantors, financiers, merchants, underwriters, promoters and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional presentations, fashion shows, spectacles, festivals, Indian and Western, including ball room dances, etc. The transferor company commenced the business of running a three-star hotel, namely, "Mumtaj" at Agra and has been carrying on the same since December 1, 1976. According to the averments made in the company petitions, the circumstances that have necessitated the arrangement or compromise or merger and/or amalgamation of the transferor-company with the transferee-company and the benefits sought to be achieved by the said scheme of merger or amalgamation are- (a) By amalgamation, the transferor-company shall be able to avail of the infrastructural facilities developed by the transferee-company, which will result in reduction in cost of both the companies and their-hotels. The cost benefits would be the maximum in the areas of management, marketing, purchase, contracting out the various jobs, recruitment, advertisement publicity, secretarial and personnel. (b) About 75% to 90% of foreign tourists visiting India visit Agra and/or Rajasthan. By amalgamation, all the three hotels, Mumtaj at Agra, Mansingh at Jaipur and Mansingh Palace at Ajmer, will come under common banner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for its working capital requirements and expansion projects. (h) Increase in business and thereby profits at the hotels would lead to better services to the tourists and other guests at the hotels. Apart from earning goodwill for the company, the amalgamation would, therefore, also be in the interest of the tourist industry as a whole. (i) It is seen from the above that, by amalgamation, all the aforesaid three hotels would generate more profits and, therefore, the amalgamation is in the interest of both the companies, their shareholders and creditors. Because of the aforesaid advantages, the board of directors of both the companies were of the opinion that it is expedient and in the best interest of all concerned that the transferor-company be amalgamated and merged with the transferee-company and they have accordingly formulated and approved the said scheme of merger or amalgamation, subject to the approval of the said scheme of merger or amalgamation by the requisite majority of shareholders and creditors, if required, of both the transferor and the transferee-companies and also subject to sanction by this court. The terms of the scheme of merger as aforesaid and appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allotted and issued 4 (four) equity shares instead of 5 (five) equity shares of Rs. 10 each in lieu of their 1 (one) equity share of Rs. 100 each (sic). All the members present in person or by proxy were of the opinion that the scheme of amalgamation/merger/compromise/arrangement should be approved with the modification and agreed to the same. A resolution to that effect was passed in the meeting by the members either present or by proxy. Shri Gopal Garg, another chairman appointed by this court to preside over the meeting of the creditors, also submitted his report. The meeting of the creditors was attended either personally or by proxy by seven creditors of the said company entitled together to Rs. 1,02,71,799.98. The meeting resolved that clause 4 of the aforesaid scheme of amalgamation regarding the share exchange ratio shall be modified and substituted and for every 1 (one) equity share of Rs. 100 each of the transferor company, 4 (four) equity shares of Rs. 10 each of the transferee-company as fully paid-up, that is, to say the transferee-company shall allot for each of 25,000 (twenty-five thousand) equity shares of Rs. 100 (rupees one hundred only) each of the transferor- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir investment is concerned. The chartered accountant has concluded that the proposed scheme does not appear to be prejudicial to the interest of the members, shareholders and creditors and employees of the transferor company and the public at large. The Regional Director (Northern Region), Company Law Board, Kanpur, who too was given a notice, has filed an affidavit that he has examined the relevant records in his office and stated that there is no material on record on the basis of which the petition may be supported or opposed. He, therefore, decided that no representation need be made in the present case and this court may, therefore, decide the petition on its merits. An application was filed on behalf of the Income-tax Department, Jaipur, that any order of amalgamation is likely to affect the Income-tax Department and, therefore, it should be made a party to the proceedings. The aforesaid application dated April 26, 1989, was considered and Mr. V. K. Singhal was allowed to address his arguments. The principles which govern the cases of amalgamation/compromise/ merger/arrangement of the transferee and transferor-companies are settled. The amalgamation should not only be ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on an investigation upon the commercial merits or demerits of the scheme which is the function of those who are interested in the arrangement. (4) There should not be any lack of good faith on the part of the majority." While giving the facts of this case in the earlier part of this order, the result of the meetings of members as well as creditors of both transferee and transferor-companies under the chairmanship of the advocates appointed by this court has already been stated and even at the cost of repetition, it may be stated that the meetings of the creditors and members of both the transferee and transferor-companies by a majority of the persons being either present personally or by proxy, have approved the scheme of amalgamation. The scheme of amalgamation proposed that, for every one equity share of Rs. 100 each of the transferor-company, five equity shares of Rs. 10 each of the transferee-company fully paid-up shall be allotted. In the meetings as aforesaid of both the transferee and transferor-companies so far as the members and creditors are concerned, the scheme was accepted with the modification that, in place of five fully paid-up equity shares of Rs. 10 each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged with a duty, before it finally permits dissolution of the transferor-company by dissolving it without winding up, to ascertain whether its affairs have been carried on, not only in a manner not prejudicial to its members but even in public interest. The expression "public interest" must take its colour and content from the context in which it is used. The context in which the expression "public interest" is used enables the court to find out, why the transferor-company came into existence, for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor company and why it was being dissolved by merging it with another company. The court also said that if the only purpose appears to be to acquire a certain capital asset through the intermediary of the transferor company created for that very purpose to meet the requirement of law, and in the process to defeat tax liability which would otherwise arise, it could not be said that the affairs of the transferor-company sought to be amalgamated, created for the sole purpose of facilitating transfer of a capital asset through its medium, have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other at Ajmer. The transferee-company is financially sound. It has no hotel at Agra which is also a place where tourists are attracted because of one of the seven wonders of the world, i.e., Taj Mahal. It is well-known that hotel business having a chain of hotels at different places which the tourists visit may provide better facilities and it cannot be said that the amalgamation scheme in this case is for the purpose of avoiding capital gains tax liability or, for that matter, any other tax liability. In the earlier part of this order, while dealing with the amalgamation scheme, it has already been said that it is not unfair or unreasonable, but also it is in the interest of the creditors and members of both the transferor and transferee-companies as well as in public interest if the only purpose of the amalgamation scheme would have been avoiding capital gains tax liability, the matter would have been different, but, in the instant case, such a conclusion cannot be arrived at. The Act vests power in the court to sanction amalgamation schemes in case the conditions mentioned in section 391 of the Act are satisfied and the court is further satisfied that it is in public inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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