CHAPTER-VII

JUDICAL RESPONSE TO MERGERS IN

INDIA
The doctrine of merger of companies is neither a doctrine of constitutional law nor a doctrine
statutorily recognized. It is a common law doctrine founded on the principal of property in the
hierarchy of justice delivery system. It is to be noted that law is not what is being legislated within the
four walls of the parliament but also what the judiciary decides.

Presently our judicial system is actively participating in the interpretation and

implication of law, thereby giving way to the intention of legislature which is known
as '''"judicial activism". Active participation of the court is a must when the statute is
not clear on same point and the law is made which lacks practicality. Secondly, when
the order or decree passed by the inferior court, tribunal or authority is subjected to
remedy available under the law before a superior forum. However, the doctrine is not
of universal or unlimited publication.

7.1 Meaning of Company

In Rossell Industries Limited, Inre, Calcutta high court held that the expression
"company" applies to all companies which can be wound up under the Companies
Act, 1956. It is not confined to companies which are liable to be wound up upon the
date of making of application under Section 391 to 394. On the date of making of the
application for merger or amalgamation the company may be prosperous and a profit
making company. The words "liable to be wound up" means, it is subjected to the
laws of winding up under the Act.

7.2 Company Liable to be wound up

In Bombay Gas Co. Pvt. Ltd. v. Central Government, ^ Bombay High Court held that
an unregistered company or a foreign company can invoke the provisions of Section
391 and 394 of the Companies Act, 1956.

' Bias, 'Jurisprudence", 1994, pp 447-468.

^ litre, Rossell Industries Limited, (1998) 91 Comp Cas 333 (Cal).
3
Bombay Gas Co. Pvt. Ltd. v. Central Government, (1997) 89 Comp Cas 195 (BOM). Also see,
Marshall Sons & Co. India Ltd v. ITO, (1992) 74 Comp Cas 236 (Mad).

354
7.3 Meaning of Amalgamation
Various courts have defined amalgamation in different ways. In Sarasvati Industrial
Syndicate Ltd v. CIT Haryana, Himachal Pradesh and Delhi Ilf, Supreme Court
held that 'amalgamation' is a blending of two or more existing undertakings. The
shareholders of each blending company become substantially the shareholders in the
company which is to carry on the blended undertakings. There may be amalgamation
either by transfer of two or more undertakings to a new company or by transfer of one
or more undertakings to an existing company where two companies are merged and
are so joined as two amalgamating companies lose their identity.
In Central India Industries Limited v. C.I.T ^ it was held that amalgamation is an
arrangement whereby the assets of two companies become vested in or under the
control of one of the original two companies, which has its shareholders all or
substantially all the shareholders of the two companies.
In General Radio v. MA.Khader, ^ Supreme Court held that after amalgamation,
transferee company does not become tenant of the premises, even if the tenancy rights
are transferred to the transferee company.
In United Breweries v. Commissioner of Excise^, it was held that there exists transfer
even if the shareholders are the same, as transferor company ceases to exist after
amalgamation.
In SPS Pharma Limited, Inre, ^ Andhra Pradesh High Court held that amalgamation
by purchase in which one company's assets and liabilities are taken over by another
and a lump sum is paid by the latter to the former as consideration is within the
provision of the Act.

7.4 Right to Amalgamate

In Bank of India Limited v. Ahemdabad Manufacturing and Calico Printing Co.
Ltd, ^ Bombay High Court held that no company involved in amalgamation need to be
financially unsound or under winding up though as per Section 390 (a), for the

Sarasvati Industrial Syndicate Ltd. v. CIT, Haryana, Himachal Pradesh and Delhi III, (1991)
70 Comp Cas 184 (SC). Also see, CIT v. Hukamchand Mohanlal, (1971) 82 ITR 624(SC);
General Radio and Appliance Co. Ltd v. M.A Khader, (1986) 2 SCC 656.
Central India Industries Ltd v. C./. 7; (1975) 99 ITR 211.
General Radio v. M.A. Khader, A.I.R. 1986 SC 1218.
United Breweries v. Commissioner of Excise, (2002) 36 SCL 641.
SPS Pharma Ltd, Inre, (1997) 25 CLA 110 (AP).
Bank of India Ltd. v. Ahemdabad Manufacturing and Calico Printing Co. Ltd, (1972) 42 Comp
Cas 211 (Bom). Also see, Rossell Industries Ltd, Inre, (1995) 5 SCL 79 (Cal).

355
purpose of Section 391 "company" means any company liable to be wound up. But it
does not debar amalgamation of financially sound companies.
In Bombay Gas Co. Pvt. Ltd. v. Regional Director, "^ Bombay High Court held that
Section 390(a), is applicable to a company incorporated outside India. If the court has
jurisdiction to wind up such a company on any of the grounds specified in the Act,
court has jurisdiction to sanction the scheme of amalgamation if company
incorporated outside India is a transferor company.
In Apco Industries Limited, Inre, " Gujarat High Court held that there is no bar to a
company amalgamating with a fifteen day old company having no assets and
business.
In Alabama, New Orleans, Texas and Pacific Junction Railway Co, Inre, '^ it was
held that if the compromise or arrangement is fair and reasonable as well as made in
good faith than National Company Law Tribunal will sanction it.

7.5 Vesting of Properties in Transferee Company

In Albion Jute Mills Co. Ltd v. Rivers Steam Navigation Co, ^^ Calcutta High Court
held that a sanctioned scheme of compromise or arrangement does not automatically
vest the title of properties under the scheme to the transferee company.

7.6 Partial Invalidity of the Scheme

In Skinner, Inre, it was held that if any part of the compromise or arrangement is
such that the parties cannot bid themselves to do the same, then that part of the
compromise or arrangement has to be treated as nullity.

Bombay Gas Co. P. Ltd. v. Regional Director, (1996) 21 CLA 269 (Bom). Also see, Marshall
Sons and Co. (India) Ltd. v. LT.O, (1992) 74 Cotnp Cas 236 (Mad); Purushotamdas v. Registrar
of Companies, (1986) 60 Comp Cas 154 (Bom); Russian and English Bank v. Baring Brothers
& Co. Ltd, (1936) All ER 505 (HC).
11
Apco Industries Limited, Inre, (1996) 86 Comp Cas 457 (Guj).
12
Inre, Alabama, New Orleans, Texas and Pacific Junction Railway Co, (1891) 1 Ch 213 (LA).
Also see, In re, English, Scottish and Australian Charter Bank, (1893) 2 Ch 385; Inre^Angte-
Continental Supply Co Ltd, (1922) 2 Ch 723.
13
Albion Jute Mills Co. Ltd v. Rivers Steam Navigation Co, (1957) 100 Cal LJ 70 (Cal).
14
Skinner, Inre, (1958) 3 All ER2 73. Also see, Nokes v. Doucaster Amalgamated Collieries Ltd,
(1940) AC 1014; L. Hotel Co Ltd, and Caugham Hotel Co. Ltd, Inre, (1946) All ER 319.

356
7.7 Neutral Creditors Would not be Counted in Ascertaining the
Majority in Number and Value
In Hindustan General Electric Corporation, Inre, '^ Calcutta High Court held that
creditors and members who are present at the meeting but remain neutral or abstain
from voting would not be counted in ascertaining the majority in number and value.

7.8 Burden Lies on the Party Opposing the Scheme

In Sussex Brick Co. Ltd, Inre, '^ it was held that once the statutory formalities have
been complied with, the onus lies on those opposing the scheme to satisfy the
National Company Law Tribunal that the scheme is unfair or unreasonable or
fraudulent.

7.9 Report of Official Liquidator

In Webb's Farm Mechanization Private Ltd v. Official Liquidator^^, it was held that
no order for the dissolution of a transferor company can be made by the court, unless
the official liquidator has, on scrutiny of the books and paper 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 interest of its members or the public interest.

7.10 Scheme Application for Amalgamation

In Carson Teq Co. Ltd, Inre, '^ Calcutta High Court held that in a scheme application
for amalgamation each of the companies must comply with the provisions of Section
391(1) of the Companies Act, 1956 and the NCLT will have the right to look into the
terms of amalgamation and the sufficiency of the explanatory statement and the
valuation of shares and the assets.

7.11 Inherent Power to Amalgamate with other Companies

In Nagainsuree Tea Co. Ltd v. Ram Chandra Karnani, '^ Calcutta High Court held
that a company has inherent power to amalgamate with other companies. There is no

" Hindustan General Electric Coop, Inre, (1959) 29 Comp Cas 45 (Cal)
'* Sussex Brick Co Ltd, Inre, (1960) 30 Comp Cas 536.
'^ Webbs Farm Mechanisation Private Limited v. Official Liquidator, (1966) 7 SCL 81 (Kar FB).
'* Carron Teq Co Ltd, Inre, (1966) 2 Comp LJ 278 (Cal).
" Nagainsuree Tea Co. Ltd. v. Ram Chandra Karnani, (1966) 2 Comp LJ 208 (Cal).

357
limitation on the power of the central government to make an order allowing insertion
of a clause empowering the company to amalgamate.

7.12 Scheme to Cover Misdeeds of Delinquent Directors

In Pioneer Dyeing House Limited v. Dr Shankar Vishnu Marathe, ^^ Bombay
High Court held that if a compromise or arrangement is not bonafide but intended to
cover misdeeds of delinquent directors, then the NCLT shall not sanction the scheme.

7.13 Government Company or Foreign Company

In River Steam Navigation Co. Limited, it was held that the NCLT has jurisdiction
to entertain an application for and make an order sanctioning a scheme or
arrangement or compromise between a company and its creditors or its members
under Section 391 of Companies Act, 1956 either in respect of foreign company or in
respect of a government company.

7.14 Contingent Creditors-Tax Liability

In Seksaria Cotton Mills Limited v. A.E. Naik, Bombay High Court held that the
word "creditors" includes a contingent creditor such as a sales tax, income tax or
other tax liability which has already arisen but assessment has not yet been made.

7.15 Notice of Scheme to the Central Government when Necessary

In Bangeshwari Cotton Mills Ltd., ^^ Calcutta High Court held that notice of a
scheme of amalgamation need not be given to the central government when moving
the first application for convening a meeting of the creditors and members but notice
of the second application for sanctioning of compromise or arrangement has to be
given to the central government.

20
Pioneer Dyeing House Limited v. Dr Shanker Vishnu Marathe, (1967) 37 Comp Cas 546 (Bom).
River Steam Navigatin Co. Ltd. (1967) 2 Comp L J 106 (Cal). Also see, Inland Steam
Navigation Worker Union v. Rivers Steam Navigation Co. Ltd. (1968) 38 Comp Cas 99 (Cal);
Prestige Garden Estates Private Ltd. v. State ofKarnataka, (2007) 139 Comp Cas 372 (Kam).
Seksaria Cotton Mills Ltd. v. A.E. Naik, (1967) 37 Com Cas 656 (Bom). Also see, Mehtab
ChandGolcha v. Official Liquidator, (1981) 51 Comp Cas 103 (Raj).
Bangeshwari Cotton Mills Limited, Inre, (1967) 37 Com Cas 195 (Cal).

358
7.16 Resolution to be Passed by Statutory Majority
In Cotton Agents Rajasthan Ltd, ^'^ Rajasthan High Court held that NCLT must be
satisfied that the resolution has been passed by the statutory majority and should give
due weight to the approval given by majority.

7.17 NCLT Power to Supervise and Modify Scheme

In J.K. Bombay Pvt. Ltd, v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd, ^^
Supreme Court held that NCLT shall have power to supervise the carrying out of the
sanctioned compromise or arrangement and for this purpose may make order or give
directions from time to time. NCLT can modify the scheme and if after modification
still finds that the scheme cannot be worked out satisfactorily, it may suo motu (on its
own) or on the application of any of the person interested make an order for the
winding up of company.

7.18 Amalgamation of Banks and Banking Companies

In Chawla Bank Limited v. Reserve bank of India, Allahabad High Court held that
a bank is covered under Section 45A and 45B of the Banking Regulation Act, 1949
and NCLT under Section 391 of the Companies Act, 1956 is not necessary power in
this regard has been conferred on the high court to decide all claims in respect of
banking companies including application made under Section 391 of Act, 1956 and
under Section 45 B of Banking Regulation Act, 1949.

7.19 Companies Application Defective

Maneckchowk and Ahemdabad Mfg. Co. Ltd, ^' Gujarat High Court held that where
the company's application was defective in the sense that, it did not show the different
class of creditors separately and consequently the direction of the court was not
obtained for holding separate meetings of each class of creditors, it was held that the

24
Cotton Agents Rajasthan Ltd, Inre, (1969) 39 Comp Cas 663 (Raj). Also see, Premier Motors
(P) Ltd V. Ashok Tondon, (1971) 41 Comp Cas 656 (All).
25
J.K. Bombay Pvt. Ltd v. New Kaiser-I-Hind Spinning & Weaving Co. Ltd, (1970) 40 Comp Cs
689 (SC). Also see, National Small Industries Corporation Limited v. Industrial Metal Works
(P) Ltd, (1984) 55 Comp Cas 14 (Cal).
Chawla Bank Ltd v. Reserve Bank of India, (1970) 40 Comp Case 15 (All). Also see, Himalaya
Bank Lid v. L. Roshan Lai Mehra, (1961) 31 Comp Cas 333 (Puj); Bank of Madura
Shareholders Welfare Association v. Governor, RBI, (2001) 105 Comp Cas 666 (Mad).
Maneckchowk and Ahmadabad Mfg. Co. Ltd, (1970) 40 Comp Cas 819 (Guj).

359
court could analyze the voting to find out which was the distinct-class, where separate
meetings could have been called and votes taken of each class. If the voting discloses
the approval of the scheme by the statutory majority of each class, tribunal would
sanction the scheme.

7.20 Statutory Power to Amalgamate-Alteration of Memorandum

In Hari Krishana Lohia v. Hoolungooree Tea Co. Ltd, Calcutta High Court held
that when power to amalgamate does not flow from the memorandum, the company
may by special resolution after the memorandum, to have such power. Further, there
is a statutory power of amalgamating a company with another company without any
specific power in the memorandum under Section 391 to 396 of Companies Act,
1956.

7.21 Reduction in Capital can be Allowed Under Section 391

In T. Durairajan v. Waterfall Estates Limited, ^^ Madras High Court held that NCLT
can sanction reduction in the capital as a part of scheme of amalgamation under
Section 391 is a complete code in itself.

7.22 Provisions of Section 393 of the Companies Act, 1956 are

Mandatory:
In Navjivan Mill Co. Ltd, ^° Gujarat High Court held that the provisions of Section
393 of Companies Act, 1956 are mandatory in nature. Before NCLT can proceed to
apply its mind to the scheme, it must be satisfied that there is a statement drawn up in
conformity with the requirement of Section 393 (1) (a).

28
Hari Krishna Lohia v. Hoolungooree Tea Co. ltd, (1970) 40 Camp Cas 458 (Cal) PB). Also see,
Marybong and Kyel Tea Estate Ltd, Inre, (1977) 47 Comp Cas 802 (Cal); Amico Pesticides
Limited, (2001) 103 Comp Cas 463, Im-e; Jalpaigui Tea Co Ltd, (1974) 44 Comp Cas 335 (Cal);
Highland Electro Appliances Ltd, Inre, (2003) 2 Comp LJ 16 (Delhi).
T. Durairajan v. Waterfall Estates Limited
Navjivan Mill Co. Ltd, Inre, (1972) 42 Comp Cas 305 (Guj).

360
7.23 Inter-corporate Loans and Investments
In Navjivan Mills Co. Ltd, In re, ^' Gujarat High Court held that Section 372A of the
Companies Act, 1956 would not come in the way of a scheme of amalgamation,
compromise or arrangement under Section 391 and 394 of companies Act, 1956.

7.24 Petition for Amalgamation by each Company

In Bank of India Ltd v. Ahemdabad Manufacturing and Calico Printing
Corporation Limited,^^ Bombay High Court held that each of the companies involved
in the scheme of amalgamation must hold the necessary meetings and a petition by
each company may be made by NCLT for directions as to the holding of meetings and
for sanction of scheme of amalgamation.

7.25 Guarantee company without Share Capital

In N.F.UDevelopment Trust Limited, Inre, it was held that in case of a company
by guarantee without share capital but each member having the same stake, each
member will be treated as holder of one share and support of 3/4' of the members
present and voting will be required.

7.26 Registered Office in Different states- Jurisdictions of Court

In Krit Standard Products Private Ltd, Inre, ^'^ Gujarat High Court held that before
the scheme of amalgamation can take place, the transferee must also approach NCLT
under Section 391 (1) of the Companies Act, 1956, and seek proper direction for
convening meetings of those affected by the scheme and get approval of concerned
persons in the prescribed manner and also obtain such direction and sanction of
NCLT under Section 391(2) and 394 of Companies act, 1956.

31
Navjivan Mills Co. Ltd, Inre, (1972) 42 Comp Cas 265 (Guj). Also see. Reliance Jute and
Industries Ltd, Inre, (1983) 53 Comp Cas 591(Cal); Zenith Elector-System Pvt. Ltd, (1990) 69
Comp Cas 138 (Bom).
Bank of India Ltd. v. Ahemdabad Manufacturing and Calico Printing Corporation Ltd, (1972)
42 Comp Cas 211 (Bom). Also see, WA Beardshell and Co. Pvt Ltd and Meltur Industries Ltd,
(1968) 30 Comp Cas 197 (Mad); Cotton Agents Rajasthan Ltd, Inre, (1969) 39 Comp Cas 663
(Raj); Union Services Private Limited, Inre, (1975) 45 Comp Cas 146 (Mad).
N.F.U Development Trust Ltd, Inre, (1973) lAII ER 135.
34
Kril Slandered Products Pvt Ltd, Inre, (1976) 46 Comp Cas 203 (Guj). Also see. Bank of India
Limited v. Ahemdabad Manufacturing and Calico Printing Co Limited, (1972) 42 Comp Cas
211 (Bom).

361
In Mohan Exports Limited v. Tarun Overseas Private Limited, ^^ Delhi high Court
held that if both the companies are under the jurisdiction of the same high Court, joint
application may be made.
In Bank o/Baroda Ltd, v. Mahindra Ugine Steel Co. Ltd, ^^ Gujarat High Court held
that anomaly may arise where the registered office of amalgamating companies are
situated indifferent states and the respective high courts are moved for appropriate
orders under Section 391 and 394 of Companies Act, 1956 for sanction and approval
of scheme of amalgamation with or without modifications.

7.27 Proceedings of Meetings

In Helenic and General Trust Limited, Inre, it was held that it is the responsibility
of the petitioner to see that the class meetings are properly constituted and if fail the
NCLT has no jurisdiction to sanction the scheme.
In Tata Oil Mills Co. Ltd, Inre, ^^ Bombay High Court held that the class meetings
are to be held as per the courts directions under the chairmanship of a person
nominated by the court. There is no bar to the Chairman of the company being the
chairman of the meeting convened by NCLT.

7.28 Submission at Exparte stage-Scheme Application

In Colaba Land mills Co. Ltd, Inre, ^^ Bombay High Court held that in any event if a
party desires to make any submission at the exparte stage in the interest of the justice
NCLT should hear him.

7.29 Disclosure of Material Facts, Financial Position, Auditors

Report, Investigation etc.. Section 391(2), Proviso
In Auto Sterling India Pvt. Ltd, ^'^ Delhi high Court held that NCLT will not sanction
a scheme unless all material facts relating to the company, such as the latest financial

35 Mohan Exports Ltd v. Tarun Overseas Private Ltd, (1994) 14 CLA 279 (Del). Also see, Electro
Carbonium Pvt. Ltd, Inre, (1979) 49 Comp Cas 825 (Kar).
36
Bank ofBaroda Ltd\. Mahindra Ugine Steel Co. Ltd, (1976) 46 Comp Cas 227 (Guj).
J7
Helenic and General Trust Ltd, Inre, (1976) IWLR 123.
38
Tata Oil Mills, Co. Ltd, Inre, (1994) 14 CLA 13 (Bom).
39
Colaba Land and Mills Co.Ltd, Inre, (1977) 47 Comp Cas 662 (Bom).
Auto Sterling India Pvt. Ltd, Inre (1977) 47 Comp Case 257 (Delhi). Also see, Blue Star
Limited, Inre, (2001) 104 Comp Cas 371 (Bom); All India Blue Star Employees Federation v.

362
position of the company, the pendency of any investigation proceedings in relation to
the company under Section 235 to 251 and the other requirements under Section
391(2) proviso have been disclosed by the affidavit or otherwise

7.30 Determination of cutoff Date

In Marshal Son and Co (India) Limited v. ITO, "*' the Court observed that it is true
that while sanctioning the scheme, it is open to the court to modify the said date and
prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and
circumstances of the case. If the court so specifies the date, there is little doubt that
such date would be the date of amalgamation or date of transfer. But where the court
has not prescribed any specific date, but merely sanctions the scheme presented to it
as has happened in this case, it should follow that the date of amalgamation/date of
transfer is the date specified in the scheme as 'the transfer date'. It cannot be
otherwise.
7.31 Authorization in the Memorandum for the Amalgamation-
Objects, Capital, Name etc.
In Marybong & Kyel Tea Estate Limited, Inre, '^^ Calcutta High Court held that court
has power to grant sanction to the scheme of amalgamation, despite the fact that there
is no express power in the memorandum to amalgamate.

7.32 Modification of the Scheme suo motu

Dr. Ved Mitra v Globe Motors Limited, ^^ Delhi High Court held that NCLT has
power to modify the scheme of compromise or arrangement at the time of sanctioning
it or after the scheme has been sanctioned. It may modify the scheme without
directing a fresh meeting if the same is necessary and without resorting to winding up.
The NCLT may exercise its power at the instance of the person interested in the affair
of the company and even suo motu.

Blue Star Limited (2000) 27 SCL 265 (Bom) (DB); Zee Interactive Multimedia Ltd (2002) III
Comp Cas 733 (Bom).
Marshal Sons and Co (India) Limited \. I.T.O, (1977) 1 Comp LJ. P.I.
42
Marybong and Kyel Tea Estate Limited, Inre, (1977) 47 Comp Cas 802 (Cal).
43
Dr. Ved Mitra v. Globe Motors Ltd, (1978) 48 Comp Cas 64 (Delhi). Also see, Mehtab Chand
Golcha V. Official Liquidator, (1981) 51 Comp Cas 103 (Raj); Smt Saroj G. Poddar, (1996) 22
Corp LA 200 (Bom); Dalta v. Duphar Interfran Ltd, (2004) 121 Comp Cas 631 (Bom) (DB); Brij
Mohan Cover v. Official Liquidator, (2007) 139 Comp Cas 682 (Bom).

363
7.33 Scheme of Amalgamation-Common Petition-Notice
In Electro Carbonium Private Ltd, In re, '*' Kamataka High Court held that section
394 A of the Companies Act, 1956 requires that on any application made under
section 391 or 394, the notice shall be given to the central government which means
that both the transferor and transferee companies must give notice to the central
government. For a scheme of compromise, arrangement or amalgamation etc
common application or petition by only one of the amalgamating companies is not
maintainable. Separate petitions must be filled by the transferor and transferee
companies though for the same purpose.

7.34 Scheme of Amalgamation Passed by Statutory Majority

In A.W. Figgis and Co. Pvt. Ltd, Inre, ^^ Calcutta High Court held that where a
scheme of amalgamation was duly passed by the statutory majority and there was no
illegality or fraud, the NCLT should sanction the scheme in spite of the fact that such
sanction would involve transfer of property on a nominal value without payment of
capital gain tax, court fees or stamp duty and aviating the need to obtain sanction of
the urban Land Ceiling Authority.

7.35 Power to call Meeting for Proper Submission of Scheme

In Indian Hardware Industries Limited v. S.K. Gupta, *^ Delhi High Court held that
there is nothing under Section 186 of the Companies Act, 1956 which lays dovra that
the NCLT which is supervising a scheme under Section 392 cannot call a meeting of
the company if it feels that it is necessary to do so far the purpose of proper
supervision a scheme under Section 392 cannot call a meeting of the company, if it
feels that it is necessary to do so for the purpose of proper supervision and
implementation of scheme.

Electro Carbonium Pvt Ltd, Inre, (1979) 49 Comp Cas 825 (Kar). Also see, Kirloshar Electro
Co Limited, Inre, (2003) 113 Comp Cas 670 (Kar); Jaipur Polyspin Ltd v. Rajasthan Spinning
and Weaving Mills Limited, (2006) 130 Comp Cas 694 (Raj).
A.W. Figgis and Co. Pvt. Ltd, Inre (1980) 50 Comp Cas 95 (Cal). Also see, Wood polymer
Limited, Inre (1977) 47 Comp Cas 597 (Guj); Shankaranarayana Hotels Private Ltd. v. Official
Liquidator, (1992) 74 Comp Cas 290 (Kar).
Indian hardware Industries Limited v. S.K. Gupta, (1981) 51 Comp Cas 51 (Delhi) (DB). Also
see, S.K. Gupta v. K.P. Jain, (1979) 49 Comp Cas 342 (SC); K. Minakshi Amma v. Shri Ram
Vilas Press and Publication (P) Limited, (1992) 43 Comp Cas 285 (Ker).

364
7.36 Section 17 of Companies Act, 1956 need not be Complied With
In Vasant Investment Corporation Ltd v. Official Liquidator, ^^ Bombay High Court
held that the scheme of amalgamation should provide that on amalgamation the main
objects of the transferor company shall be deemed to be (additional) main objects of
the transferee company. No need of compliance under Section 17 of the Companies
Act, 1956.

7.37 NCLT Discretion in Sanctioning of the Scheme

In Sakamari Steel and Alloys Limited, Inre, ''^ Bombay High Court held that the
NCLT under Section 394A shall give notice to the central government of every
application made to it under Sections 391 and 394 and shall take into consideration
the representations, if any, made to it by the government before passing any order
under any of these sections. However, the court is not bound to go by the opinion of
the central government as to the matter of public interest rather it can form its
independent opinion over the matter.

7.38 Adequacy of Notice

Shre Ram Farm Chemicals Pvt. Ltd, Inre, '*^ Andhra Pradesh High Court held that
when in the notice convening the meeting of the creditors, the interest of the directors
was not disclosed and at the meeting of unsecured creditors some of the secured
creditors participated on the ground that a portion of their claim was unsecured, it was
held that the irregularities did not vitate the scheme and the court could approve the
same if required with the modifications.

7.39 Amalgamation Jurisdiction

In Tele Sound India Limited, Inre, ^° Delhi High Court held that under Section 10 the
High court within whose jurisdiction the registered office of the company is situated
will have exclusive jurisdiction in respect of mater covered by interalia. Section 391,
394 and 395 (now jurisdiction of High court has been conferred to the NCLT under

47
Vasant Investment Corporation Ltd. v. Official Liquidator, (1981) Comp Cas 20 (Bom).
48
Sakumari Steel and Alloys Limited, Inre, (1981) 51 Comp Cas 266 (Bom).
49
ShreRam Farm Chemicals Private Limited, Inre, (1983) 53 Comp Cas 729 (AP).
Telesound India Limited, Inre, (1983) 53 Comp Cas 926 (Delhi). Also see, Mafatlal Industries
Ltd, (1997) 90 Comp Cas 247 (Guj); Nav Chrome Limited, (1997) 89 comp Cas 285 (AP).

365
Section lOFB). Where in an amalgamation two or more companies are involved
having registered office in different states, each company must obtain sanction of the
NCLT within whose jurisdiction its registered office is situated. If registered office
all the companies are in the same state, a joint application may be made by all the
companies concerned.

7.40 Relief Undertaking under State Acts

In Nathmal Lai Chand v Bharat Jute Mills Limited, ^' it was held that if a company
is notified as a relief under taking under the West Bengal Relief Undertakings (Special
Provisions) Act, 1972, all claims and proceedings including winding up proceeding's,
scheme of compromise and arrangement etc shall be suspended and stayed.

7.41 No Injuction Against EGM to Suggest Modification

In Pranin Kantila Vahil v. Mrs Rohini Ramesh Save, ^^ Bombay High Court held
that where a scheme application is pending for sanction and the scheme already
approved by the shareholders in the appropriate cases, an order of injunction may be
issued, retaining the holding of a requestioned EGM whose object is indirectly to
frustrate the consideration by NCLT of the approved scheme.

7.42 Section 18 FA of Industrial Dispute Regulation Act, 1951

Overrides Section 391
In Gujarat State Textile Corporation Ltd. v. New Jehangir Vakil Mills Corp Ltd, ^^
it was held that where the undertaking of a company has been taken over under
Section 18 FA of the IDRA, 1951 the NCLT cannot entertain a scheme under Section
391 of the Act, 1956.

Nathmal Lai Chand v. Bharat Jute Mills Ltd, Inre, (1983) 53 Comp Cas 392 (Cal). Also see,
Ganesh Cotton Co v. Kottayam Textiles Limited (1982) 52 Comp Cas 582 (Ker) (DB).
52
Pranin Kantilal Vahil v. Mrs. Rohini Ramesh Save, (1985) 57 Comp Cas 31 (Bom).
Gujrat State Textile Corp Ltd. v. New Jehangir Vakil Mills Co. Ltd, (1985) 58 Comp Cas 768
(Guj). Also see, Maneckchowk & Ahemdabad Manufacturing Co. Ltd, Inre, (1985) 58 Comp
Cas 729 (Gujrat); U.O.L v. Vijay Manufacturing Co. Pvt. Ltd, (1997) 47 comp Cas 348 (Bom).

366
7.43 Explanatory Statement
In Jitendra R. Sukhadia v. Alembic Chemcial Works Co Limited, ^^ it was held that
explanatory statement with notice of meetings under Section 391(l)(a)should state
and explain only the effect of scheme of compromise, arrangement or amalgamation
and not the details and particular of consequences.

7.44 Amalgamation of M.R.T.P. Companies

In E.L.C. Workshop Limited, Inre, ^^ Bombay High Court held that where both the
companies are carrying on the same business for amalgamation of the companies,
there was no need to file the application under Section 23 of Monopolies and
Restrictive Trade Practices Act, 1969, although both the companies were registered
under the Act in as much as all the requirements as mentioned under Section 23(3)
were fulfilled.

7.45 Power to Stay Criminal and Civil Proceedings

In Harish.C. Raskapoor v. Jaferbhai Mohemedbhai Chhatpar, ^^ Gujarat High Court
held that the term proceedings include both civil and criminal proceedings. Where the
directors are sought to be criminally proceeded against by creditors for their acts as
directors pending consideration of a scheme of arrangement between the creditors of
the company, the criminal proceedings can be stayed by the NCLT in suitable cases
so that the directors may not be pressurized by the creditors and the proposed scheme
may be effectively considered.

7.46 Scheme to be Approved by Special Majority

en

In Komal Plastic Industries v. Roxy Enterprises Private Limited, Delhi High Court
held that court would not consider sanctioning of a scheme unless the requirement
under Section 391 (2) is complied with. There is no scope for implied approval, it has
to be at a meeting.

Jitendra R. Sukhadia v. Alembic CItemical WorliS Co. Limited, (1988) 64 Comp Cas 206.
E.L.C. Workshop Limited, Inre, (1988) 63 Comp Cas 381 (Bom).
Harish C. Raskapoor v. Jaferbhai Mohemedbhai Chhatpur, (1989) 65 Comp Cas 163 (Guj).
Also see, Gwalior Strips Ltd, (1994) 79 Comp Cas 178 (MP); Telesoft Private Limited v. Jawad
Aijaz, (2003) 117 Comp Cas 738 (Kar).
Komal Plastic Industries v. Roxy Enterprises Pvt. Limited, (1991) 72 Comp Cas 61 (Del).

367
 CO

In S.M. Holdings Finance Pvt. Ltd v. Mysore Machinery Mfrs Ltd, Kamataka
High Court held that where a scheme is not approved by members at a meeting, by the
requisite majority, but it is subsequently approved by the individual affidavits, the
court may sanction the scheme as Section 391(2) is not mandatory but is merely
directory and there should be substantial compliance thereof.
In Bharat Synthetics Limited v. Bank of India, ^^ Bombay High Court held that
where neither a meeting has been held nor individual consent has been obtained, the
court would not sanction the scheme.

7.47 Central Government Plays Role of Impartial Observer

In JJcal Fuel System Limited, Inre, ^^ Madras High Court held that role of central
government is that of impartial observer who acts in public interest and aduices the
NCLT on whether or not to amalgamate.
In Sir Mathura Das Vissanji Foundation, Inre, ^' Bombay High Court held that
amalgamation of a company licensed under Section 25 of the Compjinies Act, 1956
with a commercial, trading or manufacturing company could be sanctioned under
Sections 391 and 394.
In Asia Investment Limited, Inre, Madras High Court held that where
amalgamation involves reorganization of capital by reduction thereof, the provisions
of Sections 100 to 102 of the companies Act, 1956 need not be complied with vide
rule 85 of the Companies (Court) Rules, 1959. However, if reduction of capital is a
part of scheme of amalgamation, these provisions are substantially complied with
when the scheme is approved by the shareholders and the court. Therefore no
separate compliance is required.

SM holdings Finance Pvt Ltd v. Mysore Machinery Mfrs Ltd, (1993) 78 Comp Cas 432 (Kar).
Bharat Synthetics Ltd v. Bank of India, (1995) 82 Comp Cas 437 (Bom).
Ucal Fuel System Limited, Inre, (1992) 73 Comp Cas 63 (Mad).
Sir Mathura Das Vissanji Foundation, Inre, (1992) 8 CLA (Bom). Also see, M.G. Investment
and Industries Co. Ltd v. New Shorrock SPG & MFC Co. Ltd, (1972) 42 Comp Cas 145 (Bom);
W.A. Breadshell & Co. Pvt Ltd. Im-e, (1968) 38 Comp Cas 192 (Mad).
Asia Investment Limited, Inre, (1992) 73 Comp Cas 517 (Mad). Also see, Bengal Bank Limited
V. Suresh Chakravarthy, (1951) 21 Comp Cas 315 (Cal); T. Durairajan v. Waterfall Estates Ltd,
(1972) 42 Comp Cas 563 (Mad).

368
7.48 Resolution Passed by Statutory Majority
In Cetex Petrochemicals Limited, Inre, ^^ Madras High Court held that NCLT may
sanction a scheme which has been approved by an overwhelming majority of
shareholders even though some proceedings by the central government are pending.

7.49 Official Liquidator Objecting to Amalgamation

In Shankarnarayan Hotels Pvt. Ltd. v. Official Liquidator, ^ Kamataka High Court
held that when the scheme was approved by requisite majority but the official
liquidator objected to the amalgamation on the ground that it would reduce the tax
liability of the transferee company. The court held that it was a matter beyond the
power of the liquidator and National Company Law Tribunal would not go into the
matter.

7.50 NCLT may Substitute Sponsors

In Rajiv Cotton Traders v. Official liquidator, ^^ Gujarat High Court held that NCLT
may substitute sponsors if the scheme is reconsidered and modified.

7.51 Approval by 3/4"* Majority Affidavits

In S.M. Holdings Finance Private Limited v. Mysore Machinery Manufacturer
Limited, ^^ it was held that the scheme should be approved by the SM'*" majority of the
secured and unsecured creditors at a meeting is only directory and not mandatory.

7.52 Approval of the High Court

In Mohan Exports limited v. Tarun Overseas Pvt. Limited, ^^ Delhi High Court held
that if both companies (amalgamating as well as amalgamated) are under jurisdiction
of one High court, joint application may be made under Sections 391 and 394 of the
High Court.

Cetex Petrochemicals Limited, Inre, (1992) 73 Comp Cas 298 (Mad). Also see, Gwalior Strips
Ltd, Inre, (1994) 79 Comp Cas 178 (HP).
Shanlcarnarayana Hotels Pvt Ltd v. Official Liquidator, (1992) 74 Comp Cas 290 (Kar).
Rajiv Cotton Traders v. Official Liquidator, (1992) 73 Comp Cas 51 (Guj). Also see,
Mansukhlal \.M.V. Shah, Official Liquidator, (1976) 46 Comp Cas 279 (Gujarat).
S.M Holding Private Limited v. Mysore Machinery Manufacturer Limited, (1993) 78 Comp Cas
432 (Kar). Also see, Vishnu Chemicals Pvt. Limited, Inre, (2002) 110 Comp Cas 677 (AP).
67
Mohan Exports Limited v. Tarun Overseas Pvt. Limited (\994) 14 CLA 279 (Del).

369
In PMP Audio industries Limited, ^^ Bombay High Court held that there need not be
unison or identity between objects of transferor and transferee company. Companies
carrying entirely dissimilar business can amalgamate.

7.53 Role of the Central Government

In Ucal Fuel Systems Limited, ^^ Madras High Court held that the role of central
government is that of an impartial observer, who acts in public interest, but court
would sanction the scheme if it is otherwise in mutual interest of the companies. No
other authority need be given a notice of petition. Ministry of Industry need not be
impleaded or beared, on the ground that its approval for the transfer of letter of intent
to the transferee company is required.
7.54 Classification of Creditors
In DA. Swamy v. India Motors limited,'"' it was held that NCLT has to just classify
the creditors or the members before sanctioning a scheme Classifying together all
unsecured creditors, fixed deposit holders, creditors for goods and creditors for the
expenses will not be proper for constituting class 'A'. It was further held that a
nonbanking financial company is not a separate class of unsecured creditors and
cannot be distinguished from any other company for the purpose of Section 391 of the
Companies Act, 1956. The interests of secured and unsecured creditors are different
and require separate meetings. Where scheme included the members and sub-class
members, a separate meeting of the sub-class may be dispensed with.

7.55 Effective Date for the Transfer of the Assets and Liabilities
In HCL Limited, Inre, ^' Delhi High Court held that effecfive date for transfer of the
assets and liabilities of the existing company cannot be prior to the date of transferee
company's date of incorporation and commencement of business.

68
PMP Audio Industries Ltd, (1994) 80 Comp Cas 291 (Bom). Also see, Mcleod Russet (India)
Limited, Inre, (1997) 13 SCL 126 (Cal).
69
Ucal Fuel Systems Limited, (1994) 3 Comp LJ 259 (Mad).
70
D.A Swamy v. India Motors Limited, (1994) 79 Comp Cas 27 (Mad) (DB).
71
HCL Ltd, Inre, (1994) 80 Comp Cas 228 (Delhi). Also see, Prerna Premises Private Limited,
Inre, (1992) 9 Corp LA 171 (Bom).

370
7.56 Supervisory role of Central Government
In Gulmohar Finance Limited, Inre, Delhi High Court held that valuation and
exchange ratio can be accepted if the shareholders, creditors and liquidators etc have
approved the scheme, even when the central government has raised objection to the
exchange ratio.
In Miheer H. Mafatlal v. Mafatlal Industries Ltd., Supreme Court held that NCLT
has no appellate jurisdiction over the commercial wisdom of the majority of members
of that class.
In Hindustan Lever Employees Union v. Hindustan Lever Limited, ^'* Supreme Court
held that when the statutory formalities have been carried out under the scheme is fair
and reasonable as well as there is no fraud involved, the NCLT must purpose to give
effect to the business of the shareholders of company.

7.57 Change of Name of Company

In Govind Rubber Limited, Inre, Bombay High Court held that in view of its wide
powers, court may approve change in the name of the transferee company as a part of
scheme of amalgamation. However the change of name cannot be effected merely on
amalgamation becoming effective, transferee company should independently comply
with Section 21.

7.58 Conversion of Private into Public Company after

Amalgamation
In Winjield Agro Services Pvt. Ltd, Inre, ''^ Andhra Pradesh High Court held that
after the scheme of amalgamation has been sanctioned the private transferee company
may be converted into a public company. The formalities of conversion of the
transferee private company into a public company by virtue of amalgamation is not a
necessary pre-condition. The conversion can be carried out after such amalgamation.

Gulmohar Finance Limited, Inre, (1995) 5 SCL 207 (Del).

Miheer H Mafatlal \. Mafatlal Industries Ltd, (1996) 87 Comp Cas 792 (SC).
Hindustan Lever Employees Union v. Hindustan Lever Limited, (1995) 88 Comp Cas 30 (SC).
Also see, German Remedies Ltd, Inre, (2005) 125 Comp Cas 615 (Bom); All India Blue Star
Employees Federation v. Blue Star Limited {2000) 27 SCL 265 (Bom) (DB).
Govind Rubber Limited, Inre, (1995) 83 Comp Cas 556 (Bom).
WinfieldAgro Services Pvt Limited, Inre, (1996) 3 Comp LJ 347 (AP).

371
In Hipolin Products Limited, Inre, Gujarat High Court held that change of the name
of the transferee company, independent of amalgamation after approval of the scheme
is not valid, hence no change in the appointed date needed.

7.59 Official Liquidators Report is a Must

In Webb's Farm Mechanization Private Limited v. Official Liquidator, ''^ Kamataka
High Court held that amalgamation provides for mergers of transferor company with
transferee company. The transferor company gets dissolved on amalgamation. Hence
though no winding up is involved, report of official liquidator is required in case of
amalgamation. The object of calling for report under Section 394(1) (2) is to satisfy
the NCLT that shareholders interest and public interest are not prejudicially affected
by amalgamation.
70

In Nav Chrome Limited, Lnre, it was held that the official liquidator cannot
challenge the share exchange ratio when the shareholders have approved the scheme.

7.60 Section 42 not Hit by Scheme of Amalgamation

In Himachal Telematics Limited, Delhi High Court held that a subsidiary company
can buy share in the holding company where it is a part of a scheme of amalgamation
sanctioned by NCLT. Section 42 covers up incorporation of company and matters
incidental there to like memorandum of association, names of the companies, article
of association, change of registration of companies and Section 41 and 42 deals with
membership of company. From a plain reading of Section 42 it cannot be said that this
section is intended to be read with Section 391 and 394 of the time when scheme of
amalgamation is pending before NCLT for approval and when shareholders and
creditors have approved the same.

77
Hipolin Products Ltd, lnre, (1996) 2 Comp LJ 61 (Guj).
78
Webb's Farm Mechanization Private Limited v. Official Liquidator, (1996) 95 Comp Cas 146
(Kar).
Nav Chrome Limited, Inre, (1994) 2 TCR Case No. 610 CAP.
80
Himachal Telematics Limited, Inre, (1996) 86 Comp Cas 325 (Delhi).

372
7.61 Scheme Involving Delisting of Shares
In Sumitra Pharmaceuticals and Chemicals Limited, Inre, Andhra Pradesh High
Court held that NCLT sanctioning the scheme is justified and as regards the delisting,
the stock exchange has its own procedure and the company will have to comply
therewith.

7.62 Scheme of Amalgamation is Independent of Authorized Capital

In Mahavir Weavers Private Limited, Inre, Gujarat High Court held that sanction
to scheme of amalgamation cannot be refused on the ground that the transferee
company does not have sufficient authorized capital on the appointed date. If the
scheme is sanctioned, the transferee company can thereafter increase its capital to
give effect to the scheme.

7.63 Scope and Ambit of Jurisdiction of N C L T

In Miheer H. Mafatlal Industries Limited, Supreme Court summed up the scope
and ambit of the jurisdiction of Company Court (NCLT) which is as follows:
• NCLT has to see that all statutory provisions for supporting such a scheme
have been complied with and requisite meetings as contemplated by Section
391 (1) (a) have been held.
• Scheme is backed up by requisite majority vote as required by Section 391 (2).
• The majority decision of concerned class of creditors or voters is just and fair
to the class as a whole.
• That all necessary material as required under Section 391(1) (is placed before
voters at the concerned meeting under Section 391(1).
• Applicant seeking sanction for the scheme has placed all necessary material
contemplated by the provision to Sub-Section 391 (2).
• That the proposed scheme is not contrary to the public interest policy and is
just, fair and reasonable.

Sumitra Pharmaceuticals and CItemicals Limited, Inre, (1997) 88 Comp Cap 619 (AP).
82
Mahavir Weavers Private Limited, Inre, (1997) 24 CLA 11 (Guj).
'^ Miheer H. Mafatlal v. Maftalal Industries Ltd, AIR 1997 SC 506. Also see, Hoare and Co, Inre,
(1933) ALL ER 105; Kamla Sugar Mills Ltd, Inre, (1984) 55 Comp Cas 308 (Mad); Makhan
Investments Ltd, Inre, (1996) 87 Comp Cas 689 (Cal); Albama, Neworleans, Texas and Pacific
Junction Railway Coop, Inre, (1891), Ch 213; CWT\. Mahadev Jalan, (1972) 86 ITR 621 (SC).

373
7.64 Date of Amalgamation/Date of Transfer of Shares
In Marshall Sons and Co-operation (India) Limited v. I.T.O, Supreme Court held
that every scheme has to provide a date with effect from which amalgamation shall
take place. While sanctioning the scheme, it is open to the NCLT to modify the said
date and prescribe such date of amalgamation as it thinks fit in the facts and
circumstances of the case.
In Rossell Industries Limited and Another, In re, Calcutta High Court held that
scheme of amalgamation provides that shareholders of transferor company would
directly receive the consideration as they were real owner of the company and
allotment of shares can be a mode of payment of consideration.

7.65 Scheme to be Sanctioned even if Attestation done in the

Memorandum of Association of the Transferee Company
In Gujarat Organic Limited, Inre, ^^ Gujarat High Court held that it would be
permissible for the court to accord sanction to the scheme of amalgamation under
Section 394 of the Companies Act, 1956, even if the scheme contemplates a
consequential alteration in the object clause of memorandum of association of the
transferor company.

7.66 Amalgamation beneficial- Revenue Cannot Object

In Indo Continental Hotels and Resorts Limited, Inre, ^^ it was held that when an
unprofitable hotel company was amalgamated with a solvent hotel company and it ws
found that such amalgamation was for the benefit of the shareholders, the creditors,
the public and the revenue could not contend that amalgamation was for the purpose
of according payment of capital gains, tax on the transfer of capital assets of the
transferor company to the transferee company. The court was satisfied that the
provisions of Section 391 were satisfied and sanctioned the scheme.

^ Marshall Sons and Co-operation (India) Limitedw. I.T.O, (1997) 88 Comp Cas 528 (SC).
*' Rossell Industries Limited & Another, Inre, (1997) 91 Comp Cas 33 (Cal).
** Gujarat Organic Limited, Inre, (1997) 86 Comp Cas 754 (Gujarat). Also see, Asian Investment
Limited and Others, Inre, (1992) 73 Comp Cas 517 (Mad).
" Indo Continental Hotels «ft Resorts Limited, Inre, (1998) 93 Comp Cas 194 (Raj) (DB).

374
7.67 Material Facts Disclosed
In Aradhana Beverages and Foods Co. Limited, Delhi High Court held that where
all the material facts and requisite particulars were disclosed in the scheme application
for the sanction of compromise, arrangement, amalgamation, merger etc and relevant
provisions of act have been substantially complied with, the scheme would be
sanctioned.

7.68 Dispute as to Ownership or Title to Shares or Membership

QQ

In Hifco Consumer Credit Limited v. Midland Industries Limited, Andhra Pradesh

High Court held that NCLT sanctioning, approving or enforcing the scheme cannot
decide the ownership of shares or title to shares in the merged company. A person
claiming to be the owner of shares of the old company is entitled to get the shares in
the new company. Thus NCLT cannot decide the claim. The matter is within the
jurisdiction of the civil court.

7.69 Scheme of Revival of Company

In Shriram Agro Tech Industries Limited v. Siel Financial Services Limited, ^^
Madhya Pradesh High Court held that a scheme of revival of a company would be
sanctioned only if thereby no loss is caused to the shareholders or the creditors.

7.70 Joint Petition can be Filed to get Sanction of the Scheme

In Tarun Overseas Private Limited, Inre, ^' Delhi High Court held that neither
Companies Act, 1956 nor Company's Court Rules, 1959 prohibits the filing of joint
petition under Section 391 to 394 of the Companies Act, 1956 for the sanction of the
scheme when the subject matter is the same and common question of law and fact
would arise for decision.

88
Aradhana Beverages and Foods Co. Limited, (1998) 93 Comp Cas 899 (Delhi). Also see,
Alembic Ltd. v. Dipak Kumar J. Shah, (2002) 112 Comp Cas 64 (Gujarat).
89
Hifco Consumer Credit Limited v. Midland Industries Ltd, (1998) 93 Comp Cas 502 (AP).
Shriram Agro Tech Industries Ltd. v. Siel Financial Services Limited, (1998) 92 Comp Cas 135
(MP). Also see, Wearwell Cycle Co. (I) Ltd, (1998) 94 Comp Cas 723 (Delhi); Champaran
Sugar Co. Ltd, Inre, (1998) 91 Comp Cas 182 (All); Punjab Maize Products Ltd, Inre, (1998) 94
Comp Cas 757 (P&H).
Tarun Overseas Pvt. Ltd, Inre, (1999) 95 Comp Cas 53 (Del).

375
7.71 Scheme once Sanctioned cannot be set Aside on Entirely new
Ground
In Konark Investment Limited v. Union of India, Supreme Court held that after the
scheme was acted upon and the third party were already created, the scheme cannot
be upset particularly when there exist no material to show that the scheme is solely
with a view to evade taxes.

7.72 All facts Should be Disclosed

In Central bank of India v. Ambalal Sarahbhai Enterprises Limited, Gujarat High
Court held that disclosing all the facts like the financial report by the auditors is
mandatory. Further it was held that sanctioned scheme can be set aside when fi-aud is
played on NCLT by misleading the NCLT.

7.73 Income tax Concessions under the Scheme of Amalgamation

In Hindustan Transmission v. AASIFR, '^'* it was held that it is not necessary in all
cases that operating agency appointed by BIFR must formulated scheme whether
viable or not. It is open for operating agency to bring to BIFR's notice that it is not
possible to frame a scheme in which case BIFR can pass necessary order.
In Castrol India Limited v. State of Tamil Nadu, ^^ Madras High Court held that the
'Stock' transfer between transferor company and transferee company from transfer
date cannot be considered and thus cannot be subjected to sale tax.

7.74 Scheme of Merger of Financial Companies

In Anagram Finance Limited v. ICICI Limited, ^^ Gujarat High Court held that the
scheme of merger of finance companies approved by the requisite majority of
shareholders and creditors and where the central government did not object were
sanctioned by the court.

92
Konark Investment Limited v. Union of India, (1999) 21 SCL 213 (SC).
93
Central Bank of India v. Ambalal Sarahbhai Enterprises Limited, (1999) 35 CLA 406.
94
Hindustan Transmission v. AASIFR, (1999) 114 STC 468 (Mad).
95
Castrol India Limited v. State of Tamil Nadu, (2001) 105 Comp Cas.
96
Anagram Finance Limited v. ICICI Limited, (1999) 2 Comp LJ 493 (Guj). Also see, VMA
Shridhar Hire Finance P. Limited, Inre, (1991) 2 Comp LJ 256 (AP).

376
7.75 Scheme Against Public Interest
In Mohan Export India Limited, Inre, ^^ Delhi High Court held that NCLT will not
sanction a scheme to bring about a transfer of the company's valuable assets to a
company, if it will not be in the public interest and it will also enable the company to
evade stamp duty and registration charges.
7.76 Notice of Meetings
In RAC Motoring Service Limited, Inre, it was held that notice of the meeting of
member or creditor should be adequate and the adequacy of the notice and the circular
has to be considered from the point of view of the persons receiving it, as to whether
he had any doubt as to what was proposed to be done.

7.77 Companies with Similar Objects and under Similar

Arrangement
In Tecumshah Products (I) Private Limited, ^ Delhi High Court held that in case a
company with similar objects and under same management made an application for
the scheme of merger and if the scheme is approved by requisite majority, workers
interest was safeguarded and it was conclusive to efficient management as well as was
not against the public interest it will be approved.

7.78 Locus Standii to Object the Scheme

In Sant Chemicals Private Limited v. Aviat Chemical Private Limited, '^^ Bombay
High Court held that a person who has purchased shares but his name has not been
registered as a member of the company has no locus standii to object to any scheme.

7.79 Companies Carrying Dissimilar Business

In E.LT.A India Limited v. Narayan Prasad Lohia,'°' Calcutta High Court held that
a scheme of amalgamation can be between two companies carrying on dissimilar
business.

^^ Mohan Export India Limited, Inre (1999) 95 Comp Cas 58 (Delhi). Also see, W.A Beardshell
and Co. P Limited and Mettur Industries Limited, (1968) 38 Comp Cas 197 (Mad).
'* RAC Motoring Service Limited, Inre, (2000) IB CLC 307 (Ch).
" Tecumshah Products Limited, Inre, (2000) 1 Comp LJ 20 (Delhi). Also see, Satyam Enterprises
and Solutions Ltd, Inre, (2000) 3 Comp LJ 235 (AP).
"^ Sant Chemicals Private Limited v. Aviat CItemical Private Ltd, (2000) 27 CLA 34 (Bom).

377
7.80 Meetings of Creditors and Shareholders
In State Bank of India v. Engg Mazdoor Sangh, "^^ Gujarat High Court held that if
the scheme is to operate differently on different classes of creditors (secured or
unsecured) separate meetings of such class must be held.

7.81 Employees have the Locus Standii to be Heard

In KEC International Limited v. Kamani Employees, '^^ the Bombay High Court
held that if the amalgamating scheme were to effect the rights of the employees, the
trade union representing them will also have the locus standii to object to the scheme.

7.82 Security Exchange Board of India (SEBI) Regulations not

Applicable in Case of Amalgamation
In Eaton Corporation v. Chairman SEBI, '^'^ it was held that SEBI takeover
regulations are not applicable in case of merger or amalgamation under any law or
regulation Indian or foreign. Hence the exemption is available even when the foreign
holding company merges with another foreign company due to which there exist
change in ownership of Indian subsidiary company.

7.83 Section 391 to 394 Complete Code on Amalgamation

In SadanandS. Varde v. State of Maharashtra, '°^ Bombay High Court held that the
court cannot sit in judgment of correctness of an order made under Section 391 by
NCLT which has become conclusive, binding and final.

7.84 NCLT Decisions should not be Against the Decision of

Majority of Creditors
In Blue Star Limited, Inre, '°^ Bombay High Court held that the transfer of shares by
one company to another company is primarily to be determined by the shareholders

'"' E.I.T.A India Limited v. Narayan Prasad Lohia, (2000) 99 Comp Cas 276 (Cal).
'"^ State Bank of India v. Engg. Mazdoor Sangh, (2000) 27 SCL 103 (Guj).
'"^ KEC International Limited v. Kamani Employees, (2000) 36 SCL 124 (Bom).
"*^ Eaton Corporation v. Chairman SEBI, (2001) 43 CLA 249 (SAT).
"" SadanandS. Varde v. State of Maharashtra, (2001) 30 SCL 268 (Bom).

378
and if overwhelming majority considers it fair aiid reasonable then the court should
not interfere with it.

7.85 NCLT Empowered to reject Experts Opinion if he Acts

Negligently
In Mahir Chakraborty v. Multi Technology Computers, "^^ it was held that valuer is
an expert, he cannot claim if he acts negligently in making valuations. He can be sued
for negligence.
In Sugar Cane Growers v. Shakti Sugar Limited, '^^ Madras High Court held that if
valuation is found to be erroneous NCLT is not bound to accept experts opinion.

7.86 Absence of Company's Power to Amalgamate in the

Memorandum of Association
In Amco Pesticides Limited, Inre, ^^ Bombay High Court held that there exist
statutory power of amalgamation under the Companies Act, 1956 even if the object of
the company are construed as not specifically empowering companies to amalgamate.
In Feedback Reach Consultancy Services (Pvt.) Ltd, Inre, "° Delhi High Court held
that if power of amalgamation is contained in memorandum of company, it need not
seek the approval and permission of Court.

7.87 Vote not by Postal Ballot

In Wipro Ltd, Inre, ' ' ' Kamataka High Court held that the voting per resolution for
power to compromise or make arrangements with creditors and members as specified
under Section 391(2) of the Companies Act, 1956 by the listed companies was not
necessary to be through the postal ballot.

106
Blue Star Limited, Inre, (2001) 104 Comp Cas 371 (Bom). Also see, Larson and Turbo Ltd,
Inre, (2004) 121 Comp Cas 528; Gujarat Ambuja Cotspin Limited, Inre, (2001) 104 Comp Cas
397 (Guj); Minita Chemicals Ltd., Inre, (1999) 96 Comp Cas 66 (MP).
107
Mihir Chakraborty v. Multi Technology Computers, (2001) 43 CLA 259.
Sugar Cane Growers v. Shakti Sugar Ltd, (1998) 93 Comp Cas 646 (Mad); Also see, Indo
Continental Hotels, Inre, (1990) 3 Comp LJ 150.
109
Amco Pesticides Limited, Inre, (2001) 103 Comp Cas 416 (Bom).
Feedback Reach Consultancy Services (Pvt) Ltd, (2002) 115 Comp Cas 897 (Del)
Wipro Ltd, Inre, (2001) 106 Comp Cas 541 (Kar).

379
7.88 Application for Payment by the Creditors/Depositors
In Smt. Promila v. DCM Financial Services Ltd, "^ Delhi High Court held that the
creditors and depositors can raise objection to the scheme before NCLT while
considering scheme of compromise or arrangement has power to entertain and pass
order on application by an individual creditor or depositor seeking payment.

7.89 Payment to the Central Government under Section 394-A

11-1

In Y.K.M. Holding Pvt. Ltd, Inre, Delhi High Court held that the notice is required
to be given to the central government under Section 394-A if an application is made
under Section 391(2) and 394 but not required to be given at the initial stage of an
application under Section 391 (1).
In Eta Organic Limited v. Narayan Prasad, "'^ Calcutta High Court held that while
considering the application for sanction under Section 391(2) of the Companies Act,
1956 following have to be considered.
• Whether statutory requirement under Section 391-394 have been complied
with
• Whether the meeting is duly convened and the scheme is approved by
requisite majority so that Section 391(2) can be applied.
• That the fact that transferor and transferee company carry on dissimilar
business is no ground why the Court should not sanction the scheme of
amalgamation.
• In the absence of objection from shareholders of the company the central
government has no right to raise the point.
In Vikram Organics Private Limited v. Anirox Pugments Limited, "^ Calcutta High
Court held that one notice is sufficient to be given to the central government under
Section 394-A of the Companies Act, 1956 and Company (Court) Rules, 1959 at the
stage of an application for the grant of sanction to a proposed scheme of

112
Smt Prmila v. DCM Financial Services Limited, (2001) 107 Comp Cas 358 (Delhi).
113
YKM Holdings Pvt. Ltd, Inre, (2001) 105 Comp Cas 249 (Del). Also see, Bangeshwari Cotton
Mills Ltd, (1967) 37 Comp Cas 195 (Cal); W.A. Bearshell and Co, (1968) 38 Comp Cas 197
(Mad).
Eita Organic Limited v. Narayan Prasad, (2000) 99 Comp Cas 276 (Cal). Also see, Ashbury
Railway Carriage and Iron Company v. Riche, (1875) LR 7 HL 653.
Viram Organics Private Limited v. Anirox Pugments Limited, (1997) 88 Comp Cas 804 (Cal).

380
amalgamation and also a prayer for the dissolution of a transferor company to be
dissolved without winding up.

7.90 Relief Undertaking under State Acts

In Commerzbank AG v. Arvind Mills Limited, "^ Gujarat High Court held that a
company declared or notified as a relief undertaking, example under the Bombay
Relief undertaking (Special Provisions) Act, 1958 and enjoying benefit of notification
may formulate a scheme of amalgamation, compromise or arrangement with its
creditors. It will not be a case of double protection.

7.91 Transferee Company should also follow the Statutory

Provisions
In Kirloskar Electric Co. Limited, Inre,^^^ Kamataka High Court held that if the
scheme involves transfer of a unit to another company, the transferee company should
also comply with statutory requirements of Section 391-394, if the scheme would
bind transferee company also.

7.92 Power of Reserve Bank of India in Case of Amalgamation of

Banks
In Bank of Madura Shareholders Association v. Reserve Bank of India, Madras
High Court held that Section 44 A of the Banking Regulation Act empowers the
Reserve Bank of India to grant approval for the scheme of merger of the banking
companies and determining market value of shares, hence NCLT would not express
its opinion on the valuation of shares adopted for the swap ratio.

7.93 No other Person Except Creditor or Members of Company is

Entitled to move Application under Section 391
In Kashinath Dikshit v. Surgical and Pharmaceuticals in liquidation, "^ Kamataka
High Court held that any other person except any creditor or any company member or

"* Commerzbank A.G. v. Arvind Mills Limited, (2002) 110 Comp Cas 539 (Guj). Also see, Arvind
Mills Limited, Inre, (2002) 111 Comp Cas 118 (Guj).
' '^ Kirloskar Electric Co. Limited, Inre, (2002) 40 SCL 795 (Kar).
' '* Bank of Madura Shareholders Association v. Reserve Bank of India, (2002) 40 SCL 1 (Mad).
' " Kashinath Dikshit v. Surgical and Pharmaceuticals in Liquidation, (2002) 40 SCL 921 (Kar).
Also see, S.K. Gupta v. K.P. Jain (1979) Comp Cas 342 (SC).

381
if company is wound up by liquidator of the company under Section 391(1) would not
be entitled to move an application for the scheme of amalgamation.

7.94 NCLT Exercises Supervisory Role under Section 394

In Covelong Beach hotels (India) Limited, Inre, Madras High Court held that
NCLT exercises supervisory role under Section 394 and carmot embark upon an
evaluation of correctness of the share exchange ratio arrived at, in the interest of
general body of shareholders and creditors. Similar decision was given in LTW
19I
Signode India Limited, Inre,

7.95 Latest Auditor's Report under Section 391(2) of Act, 1956

refers to Auditor's Report Normally Available at the Time of
Filling of the Petition
In 5777 Cables Network Limited, Inre, '^^ Bombay High Court held that 'latest
auditor's report' under Section 391(2) refers to auditor's report available at the time
of filing of this petition. It is not compulsory that company must get the accounts
audited again and again till the petition comes up for hearing. In case of listed
companies a limited audit for every period of half year is compulsory. In such cases
auditor's report for the latest half years ending would be necessary. Where there exist
long gap between the date of filling of petition and date of its hearing, it must be for
the Court to ask for fiirther details of latest financial position as on the date of hearing
the petition.

7.96 Meeting of Creditors can be Waived in Exceptional Cases

In ICCI Limited, Inre, ^^^ Bombay High Court held that while considering the scheme
of amalgamation NCLT is bound to consider the interest of all the creditors.
In Kirti H. Patel v. Arvind Intext Limited, ^^^ Gujarat High Court held that while
considering scheme of amalgamation, if the institutional creditors have approved the

'^° Covelong Beach Hotels (India) Limited, Inre, (2002) 112 Comp Cas 17 (Mad).
'^' LTW Signode India Limited, Inre, (2004) 121 Comp Cas 66 (Mad).
122
5/77 Cables Network Limited, Inre, (2002) 111 Comp Cas 733 (Bom).
123
ICCI Limited, Inre, (2002) 36 SCL 682 (BOM).
Kirti H. Patel v. Arvind Intext Limited, (2000) 28 SCL 130 (Guj).

382
scheme and when no creditor is required to forego any claim and make any
compromise, meeting of creditors is not necessary.

7.97 Scheme of Arrangement -Direction to Convene Meetings

In Rainbow Denim Limited v. Rama Petrochemicals Limited, '^^ the apex court held
that NCLT should always direct convening of the meetings. The NCLT should
consider the scheme only at the final stage of granting sanction to the scheme, after
the scheme is approved by shareholders and creditors. The question of sanction of the
scheme could arise by the court when the NCLT directs calling of the meeting of the
shareholders and creditors for considering and approving the scheme. Only after the
scheme is approved, fiirther application can be made to the NCLT for the sanction of
the scheme.

7.98 Stamp Duty-scheme of Amalgamation

1 Oft

In HLL v. State of Maharashtra, the apex Court held that the order of
amalgamation of the NCLT to be constituted under Section lOFB of the Act, 1956
sanctioning the scheme of amalgamation is liable to stamp duty as 'conveyance" and
is within the competence of state legislature.

7.99 Power to Sanction Scheme of Amalgamation

1 "77

In Hindhivar Private Limited, Kamataka High Court held that even though in the
object clause in the memorandum of association of the company, there is no power for
the amalgamation of the company with another company, the company may apply
NCLT for sanctioning a scheme of amalgamation. NCLT under Section 391 to 394 of
the Companies Act, 1956 has power to sanction amalgamation of company.

'^^ Rainbow Denim Limited v. Rama Petrochemicals Limited, (2003) 116 Comp Cas 640 (SC). Also
see, Morepen Laboratories Limited, (2006) 130 Comp Cas 368 (HP).
'^* HLL V. State of Maharaslttra, (2003) 117 Comp Cas 758 (SC). Also see, Glofame Costpin
Industries Ltd, (2006) 130 Comp Cas 334 (Guj).
' " Hindhivac Private Limited, (2005) 128 Comp Cas 266 (Kar). Also see, Highland Electro
Appliance Pvt. Ltd, Inre (2003) 2 Comp LJ 16 (Delhi).

383
7.100 Creditors, Shareholders have no Locus Standi! to Interrupt in
the Scheme of Amalgamation once there Claim is Cleared up
In CG Electronics System India Limited, Inre, '^^ Delhi High Court held that a
creditor of a company having been paid his claim has no right to appear and object to
the proposed scheme of amalgamation of that company. The object of holding
meeting of creditors is to ascertain that, whether the payment of sum due to them by
transferee company or transferor company may be jeopardized in any maimer by the
court giving its sanction to the proposed scheme of amalgamation.

7.101 These Exist Valid Scheme of Amalgamation between a

Transferor (foreign company) and a Transferee (Indian)
Company
In Mosehip Semiconductors Technologies Limited, Inre, '^^ Andhra Pradesh High
Court held that under Section 394(4) the transferor company is a body corporate and
the transferee company is a company incorporated in accordance with the provisions
of the Companies Act, 1956. There exist valid scheme between both companies,
which is also supported by the fact that law prevalent at the place where the transferor
company is situated, provided for amalgamation of said company with any foreign
company.
1 ^0

In Vikrant Tyres Limited, Inre, Supreme Court held that NCLT should consider
the following before granting the scheme of amalgamation.
• Proposal of scheme is made in good faith.
• Scheme was fair and reasonable.
• Scheme will yield smooth and satisfactory working.
• Scheme does not offend public or commercial morality.
• Scheme is not detrimental to creditors and public interest.
• Scheme does not violate acceptance of deposits, rules or nullifies the
protection afforded under the rule.
'^* CG Electronics System India Limited, Inre, (2003) 116 Comp Cas 48 (Del).
'^' Mosehip Semiconductor Technologies Limited, Inre, (2003) 120 Comp Cas 108 (AP). Also see,
Bombay Gas Co. Ltd. v. Central Government and Ors, (1997) 91 Comp Cas (Bombay); HCL
Hewlett Packard Ltd, Inre, (1994) 80 Comp Cas 228 (Delhi); Marshall and Sons and Co. (India)
Ltd. V. I.T.O, (1992) Comp Cas 236 (Mad).
'^^ Vikrant Tyres Limited, Inre, (2003) 126 Comp Cas 503 (SC). Also see, Skamari Steel and Alloys
Ltd, Inre, (1985) 51 Comp Cas 256.

384
7.102 Merger under the Income Tax Act, 1961
In S. Shanmuguel Nadar v. State of Tamil Nadu, following principals emerged
with regard to the merger of an order of an inferior authority on that of a superior
authority.
• Application of doctrine of merger cannot be rendered inapplicable by
drawing a distinction between an application for revision and for an appeal.
• Doctrine of merger does not apply where the appeal is dismissed.
o For default
o Having abated by reason of the omission of the appellant to implead the
legal representative of a deceased respondent.
o As based by limitation.
• Application of doctrine of merger depends on the nature of the appellate or
revisional order in each case and on the scope of statutory provisions
conferring the appellate or revisonal jurisdiction.

7.103 T w o or more Companies can Apply for the Approval of the

Scheme of Amalgamation Jointly

In Chembra Orchard Produce Limited, '^^ Kamataka High Court held that two or
more companies may request the NCLT to permit them to convene meeting of
shareholders and creditors of each of the companies to approve their scheme. They
may also apply for the approval of the scheme jointly. Every application made to the
NCLT under Section 391 & 394 should be notified to the central goveniment. Such
joint petitions have to be numbered separately serviced to each company and each
company has to pay separate court fees on its application.

7.104 One Meeting for all the Creditors is not Proper

In K. Sudhakar Gupta v. Electro Thermics Pvt. Ltd,'" Andhra Pradesh High Court
held that one meeting for all the creditors possessing different interests is not proper.

"' S. Shanmuguel Nadar v. State of Tamil Nadu, (2003) 263 ITR 658. Also see, V.M. Salgaocar
and Bros Pvt. Ltd, v. C.I.T. (2000) 243 ITR 383; CIT\. Hindustan Aeronautics Ltd, (1986) 157
ITR 315.
"^ Chembra Orchard Produce Limited, Inre, (2004) 120 Comp Cas 1 (Kar). Also see, Mohan
Exports India Ltd, Inre, (1999) 95 Comp Cas 53 (Delhi).
' " K. Sudhakar Gupta v. Electro Thermics (Pvt) Ltd, (2004) 122 Comp Cas 625 (AP).

385
7.105 Statutory Meeting
In Nicholas Primal India Limited, '^"^ Bombay High Court held that NCLT will see
that the provisions of the Companies Act, 1956 have been complied with, the person
attended the meeting fairly represented the class affected, there was statutory majority
who acted bonaJflde and there was no coercion of the minority promoting the interests
of a particular class and the scheme of compromise, arrangement as amalgamation is
such that a man of business would reasonably approve it.

7.106 Amalgamation and Merger of Holding and Subsidiary

Company
In Goldlass Nerolan Paints Limited}^^ Bombay High Court held that when in
amalgamation of transferor company being 100 percent subsidiary of the transferee
company, no new shares are to be issued under the proposed scheme to the transferor
company. The proposed scheme will not affect the members and creditors of the
transferee company. It is not always necessary for the transferee company to make
application for such amalgamation. The transferee company though not required can
file a petition and seek approval of the scheme by way of abimdant caution, or
because of any doubt as to whether any members or creditors are in any way affected
by the scheme of amalgamation or merger.

7.107 Different Methods of Share Valuation Adopted

In Ratan Housing Development Limited, Inre, '^^ Allahabad High Court held that
different method of valuation can be adopted for valuing the shares of the respective
companies in a scheme of amalgamation. As the shareholders of two companies
approved the scheme and the exchange ratio unanimously there was no reason to
interfere with that decision. The shareholders of the transferor company who were

"'' Nicholas Primal India Ltd, (2004) 121 Comp Cas 623 (Bom). Also see, Mihir H. Mafatlal v.
Mafatlal Industries Ltd, (1996) 87 Comp Cas 792 (SC); Shankranarayana Hotels PvL Ltd v.
Official Liquidator, (1992) 74 Comp Cas 290 (Kar); Torrent Power AEC Limited, Inre, (2007)
138 Comp Cas 139 (Guj).
' ' ' Goldlass Nerolack Paints Limited, (2004) 118 Comp Cas 337 (Bom). Also see, Mahaamba
Investments Limited v. IDI Limited, (2001) 105 Comp Cas 16 (Bom); Bank of India Limited v.
Ahemdabad Manufacturing and Calico Printing Co Ltd, (1972) 42 Comp Cas 211 (Bom);
Sharat Hardware Industries P. Ltd, (Inre), (1978) 48 Comp Cas 23 (Delhi); Santhanalakshmi
Investment Private Limited, Inre, (2006) 129 Comp Cas 789 (Mad); Bysani Consumer
Electronics Limited, (2006) 134 Comp Cas 99 (Mad).
''* Ratan Holding Development Ltd, Inre, (2004) 122 Comp Cas 24 (All).

386
primarily and exclusively interested approved the same as fair ratio of exchange and it
was not a fit case to interfere.

7.108 Amalgamation -Applicability of the Rent Control Act

In Singer India Limited v. Chander Mohan Chadha, '^^ the Apex Court held that
when NCLT sanctioned a scheme, where under the leases, rights of tenancy or
occupancy of the transferor company vested in and have become the property of the
transferee company. In spite of the sanction of the said amalgamation the provisions
of the Rent Control Act shall apply and the transferee company was liable for eviction
under the provisions of the Rent Control Act.

7.109 Section 391 and 394 Requires Holding of Members and

Creditors Meeting
In Awsys Software Private Limited, Inre, '^^ Kamataka High Court held that Section
391 and 394 requires holding of meeting of the members and creditors for the purpose
of discussing and approving a proposed scheme. It has a definite purpose and object
and could not be done away with and which is in conflict with the very provisions of
law.
In Ne Phis Technologies Private Limited, Inre, '^^ Madras High Court held that the
object of holding a companies meeting of shareholders is to ascertain their collective
view either in favour or against the scheme and any individual decision prior to filing
of petition for the sanction is not a ground to contend that the shareholders have
already given their consent to the scheme.

7.110 Majority of Creditors Refers to 3/4*'' in value of

Shareholders/Creditors who are Present and Voting
In Swift Formulations Private Limited, Inre, ''*" Punjab and Haryana High Court held
that the requirement of majority under Section 391(2) refers to majority in number

'" Singer India Limited v. Chander Moltan CItadha, (2004) 122 Comp Cas 46Z (SC).
''* Awsys Software Private Limited, Inre, (2004) 122 Comp Cas 526 (Kar).
' " Ne Plus Tec/inoiogies Private Limited, Inre, (2002) 112 Comp Cas 376 (Mad). Also see, Alston
Power Boiler Limited v. SEBI and Others, (2002) 117 Comp Cas (338).
'*" Swift Formulations Private Limited, Inre, (2004) 121 Comp Cas 27 (Punjab and Haryana).

387
representing 3/4''' in value of creditors/shareholders who are present and voting and
not to the total value of the shareholders or the creditors of the company.

7.111 Experts opinion is Sufficient Regarding share valuation and

Fixation of Share Exchange Ratio
In Rattan holdings Development limited, Inre, '^' Supreme Court held that in absence
of challenge from the transferor company's shareholders who were primarily and
exclusively to question the ratio of exchange of shares, the Court has to consider the
ratio of exchange as fair and reasonable.
In Challa Rajendera Prasad v. Asian Coffee Limited, '^^ Andhra Pradesh High Court
held that it is sufficient if experts opinion is obtained regarding valuation and fixation
of exchange ratio and mathematical calculations should be left to consideration of
expert in the file of accountary.
In Nilnita Chemicals Limited, Inre, '"^^ it was held that the opinion of chartered
accountant who are experts cannot be ignored.

7.112 N C L T not Required to Decide Issue Regarding Interim order

of Injuction while Granting the Scheme of Injuction

In National Organic Chemicals Industries Limited v. Miheer H. Mafatlal and
Another, '*'* Supreme Court held that the interim order of injuction granted by the
civil court was matter to be decided by the civil court in the pending proceedings and
there was no need for the NCLT to have decided the issue while dealing with the
petition for approval of scheme under Section 391.

7.113 Court cannot Substitute its Judgement for Collective Wisdom

of the Shareholders of the Two Companies
In Swift Formulations Private Limited, Inre, Punjab and Haryana High Court held
that where the shareholders of two companies in the collective wisdom had accepted

"" Rattan Holdings Development Limited, Inre, (2004) 122 Comp Cas 24 (SC).
'"^ Challa Rajendra Prasad v. Asian Coffee Ltd, (2001) 103 Comp Cas 17 (AP). Also see, Gujrat
Ambuja Cement Exports Limited, Inre, (2001) 104 Comp Cas 397 (Guj).
"" Nilnita Chemicals Ltd, Inre, (1999) 96 Comp Cas 66 (MP).
''*'' National Organic Chemicals Industries v. Miheer H. Mafatlal and Another, (2004) 121 Comp
Cas 519 (SC).
''" Swift Formulations Private Limited, Inre, (2004) 121 Comp Cas 27 (Punjab and Haryana).

388
the share exchange ratio worked out by experts and if no mistake was pointed out then
it was not for the court to interfere with the decision of the shareholders.

7.114 Voting Majority is Determined on the Basis of Shareholders

Shareholding and not on Head Count of One Person One
Vote'^^
In Dinesh Vrajlal Lakhani v. Parke Davis (India) Limited, ''*' it was held that
• Under the Companies Amendment Act, 1956, a proxy could be given even to
a non-member. Thus the two others joint members/holders could give proxy
in favour of one of them and become that member voted twice, it could not be
said that it was against law.
• If 99.94 percent of shareholders had voted in favour of resolution and when
the majority of the shareholders found the exchange ratio just fair, it could not
be interfered with.
• That under Article 105 of the article of association when there were joint
registered holders of shares, any one of them could vote at the meeting or
appoint another person whether member or not as his proxy.
• That if more than one joint holder was present at the meeting, then the person
whose name stood higher on the register was alone entitled to speak and vote
at the meeting.

7.115 Interveners have no Locus Standii in the Proceedings under

Section 391 and 393
In Shri Niwas Giri Kamgar Kruti Samiti and Others v. Rangnath Basudev Somani
148

and Others, Bombay High Court held that once the court is satisfied that all the
statutory proceedings has been followed and the majority decision was just and fair, it
is not permissible for the court to permit third party to intervene.

'''* Voting in the first instance is by show of hands, where every shareholder has single vote. If
demanded or decided by the chairman then voting by poll can take place. In voting by poll voting
power of every shareholder is in proportion to his shareholding.
"*'' Dinesh Vrajlal Lakhani v. Parke Davis Ltd, (2005) 124 Comp Cas 728 (Bom).
'"** Shri Niwas Giri Kamgar Kruti Samiti and Others v. Rangnath Basudev Somani and Others,
(2005) 127 Comp Cas 752 (Bom). Also see, Hindustan Lever v. State of Maharashtra, (2003)
117 Comp Cas 758; J.K. Bombay Private Limited v. New Kaiser, AIR 1970 SC 1041.

389
7.116 Court Authorized to Reject the Scheme when it is Unfair,
Unjust to Majority and Minority Interest
In Lanco Kalashasthi Castings Limited, Inre, '''^ and German Remedies Limited,
Inre, '^*' it was held that the court has limited jurisdiction that lies in checking whether
the exchange ratio was so wrong so as to effect minority interest.

7.117 No Stamp duty where Share Capital of Transferor Company

become Authorized Capital of Transferee Company
In Hotline Holdings Pvt. Limited, Inre, '^' Delhi High Court held that in case of
merger where it was provided that the share capital of transferee company become
authorized capital of transferee company, no fee of registrar of company or stamp
duty to the state government was payable.

7.118 Proceedings under Section 391 (6) does not Include in its Ambit
Criminal Proceedings
In Sharp Industries Ltd, Inre, '^^ Bombay High Court held that 'proceedings' under
Section 391(6) does not include in its ambit criminal proceeding. Thus the scheme of
amalgamation under Section 391 did not release person who were not parties to it like
the guarantors and the directors.

7.119 Mere Pendency of Prosecution Proceedings Against Company

under Various provisions of Companies Act, 1956 Cannot be
the Ground to stall Mergers
In Zee Telefilms Limited, Inre, '^^ it was held that mere pendency of proceedings
against company under various sections and provisions of Companies Act, 1956
cannot be a ground to stall mergers. The said prosecution could be continued in
accordance with law.
149
Lanco Kalashasthi Cartings Limited, Inre, (2005) 124 Comp Cas 523.
150
German Remedies limited, Inre, (2003) 125 Comp Cas 147 (Bom).
151
Hotline Holdings Private Ltd, Inre, (2005) 127 Comp Cas 165 (Del). Also see, Saboo Leasing
Private Limited, Inre, (2004) 52 SCL (681) (AP); Telesound India Limited, Inre, (1986) 53
Comp Cas 926 (Del).
152
Sharp Industries Limited, Inre, (2005) 123 Comp Cas 60 (Bom). Also see, State of Tamil Nadu
V. Uma Investment Private Limited, (1977) 47 Comp Cas 242 (Bom); Bombay Leasing Co. Pvt.
Limited v. Gresoil (India) Limited, (2001) 103 Comp Cas 666 (bom); National Organic
Chemical industries limited \. NOCIL Employees Union, (2005) 126 Comp Cas 922 (Bom).
153
Zee Telefilms Limited, Inre, (2005) 125 Comp Cas 297.

390
In Unit Trust of India v. Garware Polyester Limited, '^'' it was held that once the
respondent showed that the scheme was fare and reasonable and also the required
majority of debenture holders recorded their decision in its favour, the court in the
absence of any unjustness or unreasonableness ought not to reject the same.

7.120 Mere non-receipt of Objection Letter from one of the over

Changes cannot be a Ground for not Approving the Scheme
In Compact power Source Private Limited, Inre, '^^ it was held that clause 24(f) of
Securities and Exchange board of India did not state that the consent of stock
exchange was compulsory requirement to be obtained from the stock exchange before
seeking sanction of the scheme of arrangement before court or the tribunal.

7.121 Scheme must be fair just and Reasonable

In Administrator of the Specified Undertaking of the UIT v. Garware Polyster
Limited, '^^ it was held that NCLT will not grant sanction to a scheme under Section
391 read with 393 of the Act of 1956 only because the same reflects the will of
majority of the creditors or a class of them but it must consider all aspects of the
matter so as to arrive at a finding that a scheme is fare, reasonable and does not
contravene public policy or any statutory provision Such care and caution is required
to be exercised by all courts including the Civil Courts in terms of order XXIII, Rule
1 of Civil Procedure Code, 1908.

7.122 Section 17 of the Act is only to Aid the Companies Seeking

Amalgamation
1 S7

In Hindhivac Private Limited, Inre, Kamataka High Court held that Section 17 of
the Act is only to aid the companies seeking amalgamation, the court in exercise of
the statutory power under Section 391 to 394 of the Act while ordering dissolution of

''" Unit Trust of India v. Garware Polyester Limited, (2005) 125 Comp Cas 389.
' " Compact Power Source Private Limited, Inre, (2005) 125 Comp Cas 289 (A.P.).
"* Administrator of tite Specified Undertaldng of tite U.I.T.v. Garware Polyester Limited, (2005)
125 Comp Cas 389 (SC). Also see, Milteer H. Mafatlal v. Mafatlal Industries Limited, (1996) 87
Comp Cas 792 (SC); J.K (Bombay) Private Limited v. New Kaiser-I- Hind Spinning <&. Weaving
Co. Limited, (1970) 40 Comp Cas 689 (SC); Andhra Bank v. Official Liquidator, (2005) 124
Comp Cas 453 (SC).
' " Hindhivac Private Limited, Inre, (2005) 128 Comp Cas 266 (Kam). Also see, Saraswati
Industrial Syndicate Ltd. v. CIT, (1990) 186 ITR 278.

391
company (transferor) without winding up could also order amalgamation without any
specific power of amalgamation in the memorandum of association of company.

7.123 Scheme a Reduction of Capital

In Covat Infoscsiber Private Limited, Inre, '^^ Kamataka High Court held that where
the proceedings prescribed under Section 100, 101 and 102 for the reduction of share
capital was substantially complied with by the company, 21 days of notice had been
given to the shareholders for convening a meeting for the purpose of passing the
scheme at the meeting which was held and more than 3/4"^ shareholders present and
voted in favour of the scheme which involved reduction of share capital if any. The
scheme was sanctioned.

7.124 Introductionary Order Pending Amalgamation

In Deepika Ceasing and Finance Limited, Inre, '^^ Andhra Pradesh High Court held
that the true purpose of the provisions of Section 391 to 394 is the revival of or
rehabilitation of the amalgamating companies. The NCLT has the fiill powers
pending sanctions of the amalgamation to make interlocutory order for enquiry into
the state of affairs, the preservation of the company's assets and to prevent the affairs
of the company from being mismanaged pending consideration of the proposed
amalgamation or arrangement.

7.125 Sick Company Petition for Sanction of Scheme

In Gountermann Peipers (India) Ltd, v. U.O.I, '^'^ it was held that Section 22 of Sick
Industrial Companies (special provisions) Act, 1985 has no application and the
proceedings on a petition for the sanction of the scheme cannot be suspended or kept
in abeyance on the ground of a reference having been made to the Board of Industrial

158
Covat Infoscriber Private Limited, Inre, (2005) 128 Comp Cas 152 (Kar). Also see, Essar Steel
Limited, Inre, (2006) 130 Comp Cas 123 (Guj); Inre, Core Health Case Limited, (2007) 138
Comp Cas 204 (Guj).
Deepika Leasing and Finance Limited, Inre, (2005) 3 Comp LJ 51 (AP).
Gounteramann Peipers (India) Limited v. Union of India, (2005) 126 Comp Cas 489 (HP) (DB).
Also see, National Organic Chemical Industries Limited v. NOCIL Employees Union (2005)
126 Comp Cas 922 (Bom); Sharp Industries Limited, (2006) 131 Comp Cas 535 (Bom);
Pharmaceutical Products of India Limited, Inre, (2006) 131 Comp Cas 747 (Bom); Vasantha
Mills Ltd V. BIFR (2006) 133 Comp Cas 292 (Mad); Pasupati Spinning & Weaving Mills Ltd. v.
IFCI, (2006) 134 Comp Cas 600 (P&H).

392
and Financial Reconstruction (BIFR) (now replaced with NCLT) under the Sick
Industrial Companies (specialprovisions) Act, 1985.

7.126 Closely held Companies under the same Management

In Arcovy Overseas Private Limited, litre, '^' Gujarat High Court held that
amalgamation of closely held private companies doing similar business was
sanctioned. It was held that the share exchange ratio adopted by the company was
reasonable. Objection of the central government was overruled. The wishes of the
majority of the shareholders was not to be disturbed.

7.127 Scheme is Fair and Reasonable under Section 391 to 394

In Cavin Care Private Limited, Inre, Madras High Court held that there existed no
legal impediments for sanctioning of amalgamation. The scheme was approved
unanimously by board of directors of the transferor as well as transferee company as
favourable and beneficial. No objection by the creditors of the transferee company.
The scheme did not appears to be contrary to the public policy and was not violative
of any provisions of law. The procedure under Sections 391 to 394 have been
complied with. The scheme stands approved.

7.128 Amalgamation of Subsidiary and Holding Company

In Santhanala Kshmi Investments private Limited, Inre, '^^ Madras High Court held
that since the transferor company was a wholly owned subsidiary of transferee
company, a single application at the assistance of transferor company would be
sufficient.

Arcoy Overseas Private Limited, Inre, (2006) 129 Comp Cas 332 (Guj). Also see, Mahavir
Weavers Private Limited, Inre, (1995) 83 Comp Cas 180 (Guj).
Cavin Care Private Limited, Inre, (2006) 129 Comp Cas 915 (Mad). Also see, Saboo Leasing P.
Ltd, Inre, (2003) 117 Comp Cas 728 (AP); Telesound India Ltd, Inre, (1983) 53 Comp Cas 926
(Delhi); Hotline Holding Pvt. Ltd, Inre, (2005) Comp Cas 165 (Delhi).
Santhanalakshmi Investments Private Limited, Inre, (2006) 129 Comp Cas 789 (Mad.) Also see,
Mahmba Investments Limited v. IDI Limited, (2001) 105 Comp Cas 16 (Bom.); Andlira Bank
Housing Limited, Inre, (2003) 47 SCL 513 (AP).

393
7.129 Separate Application when the Registered Offices of the
Transferor and Transferee Company are Located within the
same State but Different Jurisdiction.
In Jaipur Polyspin Limited v. Rajasthan Spinning and Weaving Mills Limited, ' ^
Rajasthan High Court held that when the transferor and transferee company had their
registered offices located at places within the same state falling respectively within
jurisdiction of the principal seat of the court and of the High court bench, separate
applications had to be filed under Section 391.

7.130 Section 2(14) of the Indian Stamp Act, 1899 is not Applicable
In Madhu Indra Limited & and Others v. Registrar of Companies and Others, '^^
Calcutta High Court held that in the scheme of amalgamation transfer of shares assets
and liabilities of transferor company to the transferee company does not amount to
"conveyance" or "instrument" under Section 2(14) of the Indian Stamp Act, 1899.

7.131 Scheme Approved by the Members and Creditors then there is

no bar on Re-transfer of Assets
In Glofame Cotspin Industries Limited, Inre, '^^ Gujarat High Court held that there
was no breach of statutory provisions where under an earlier order, assets had been
transferred to the transferee company in re-structuring the assets and liabilities
through the present scheme of amalgamation, since the scheme had been approved by
the members and the creditors.

Jaipur Polyspin Limited v. Rajasthan Spinning and Weaving Mills Ltd, (2006) 130 Comp Cas
694 (Raj).
Madhu Indra Ltd and Others v. Registrar of Companies & Others, (2006) 130 Comp Cas 510
(Cal). Also see. New Central Jute Mill Co Ltd v. River Steam Navigation Co. Ltd, (1959) 29
Comp Cas 357; Albian Jute Mill Co. Ltd. v. River Steam Navigation Co, (1957) 100 Cal LJ 70;
General Radio & Appliances Co. Ltd v. Khader (M.A.), (1986) 60 Comp Cas 1013. C Mullick
and Co. v. Binani Properties (P) Ltd, (1983) 53 Comp Cas 693 (Cal); MNL Delhi v. P.K. Gupta,
(1991)1 s e c 633.
Glofame Cotspin Industries Limited, Inre, (2006) 130 Comp Cas 334 (Guj). Also see, Hindustan
Lever Ltd. v. State of Maharashtra, (2003) 117 Comp Cas 758.

394
7.132 Scheme of Amalgamation is Independent of Alteration in
Memorandum
In Liquibox India Private and Another, Inre, '^^ Punjab and Haryana High Court
held that the procedure for aheration of the memorandum of association need not be
followed in a scheme of amalgamation.

7.133 Financial Institutions and State Governments Agencies are

Free to Exercise their Discretion with Regard to Investment
and Disinvestment
In Torrent Power Aec Limited, Inre, Gujarat High Court held that the financial
institutions and state government agencies are free to exercise their discretion in
accordance with law with regard to investment and disinvestment of share capital held
by them of a company for which scheme of amalgamation was framed.

7.134 Scheme of Amalgamation under Section 391 and 393 is

Independent of Memorandum of Association
In RBR Garments Private Limited, Inre, '^^ Madras High Court held that the scheme
of amalgamation is permissible under Section 391 and 393 if it is just and fair and not
against any public policy or violation of any statutory provisions and it is immaterial
whether or not the scheme is mentioned in the memorandum of association.

167
Liquibox India Private Limited and Another, Inre, (2006) 131 Comp Cas 645 (P&H). Also see,
Maneckchowk and Ahemdabad Manufacturing Co. Ltd, Inre, (1970) Comp Cas 819 (Guj);
Jindal Photo Ltd, Inre, (2005) 65 Comp LJ 246 (Uttaranchal); W.E. Beardshell and Co. Ltd,
Inre, (1968) 38 Comp Cas 1970 (Mad).
Torrent Power Aec Limited, Inre, (2007) 138 Comp Cas 139 (Guj). Also see, Bharti Central
Bank Limited, Inre, (1949) 1 ILR Cal 127; Mihir H. Mafatial v. Mafatlal Industries Ltd, (1996)
87 Comp Cas 792 (SC); Hindustan Lever Employees Union v. Hindustan Lever Ltd, (1995) 83
Comp Cas 30 (SC); Compact Power Source P. Ltd, Inre, (2005) 125 Comp Cas 289 (AP).;
Chemidye Manufacturing Co. P. Ltd, Inre, (2006) 134 Comp Cas 58 (Bom).
169
RBR Garments Private Ltd, Inre, (2007) 138 Comp Cas 176 (Mad). Also see, Amco Pesticides
Ltd, Inre, (2001) 103 Comp Cas 463 (Bom); Highland Appliance Pvt. Ltd, Inre, (2003) 2 Comp
LJ 16.

395
7.135 Scheme of Amalgamation is not Effected by the Increase in the
Authorized Capital of the Transferee Company
In Ashwin Polutary Farms (India) Private Limited, litre, '^'^ Madras High Court held
that provision in the scheme of amalgamation for the increase of authorized capital of
transferee company do not effect the scheme of amalgamation under Section 391 &
394 of the Companies Act, 1956 and Companies (Court) Rules, 1959, rule 11, rule 10
and rule 79, if the scheme is not detrimental to the employees of the transferor or the
transferee company nor was the scheme violative of any statutory provision or against
the public policy.

7.136 Now Payment of Stamp duty on share Certificate may not

Amount to Conducting the Companies Affairs in a Manner
Prejudicial to Public Affair
In Zydus BSV Research & Development Private Limited, Inre, '^' Gujarat High
Court held that non-payment of stamp duty on allotment of shares paid by company
cannot be considered as amalgamation not bonafide if the scheme satisfies the
requirements of Act under Section 391, 392, 393 and 394.

7.137 Meetings of Secured and Unsecured Creditors can be

Dispensed with
In Darbour Foods Limited and Another, Inre, Delhi High Court held that if a
scheme of amalgamation was of a wholly owned subsidiary company with the parent
company involving no reorganization or restructuring of capital as the creditors of the
companies were not adversely affected, meetings of the secured and unsecured
creditors of the transferee company for the scheme of amalgamation can be dispensed
with.

'™ Ashwin Polutary Farms (India) Private Limited, Inre, (2007) 138 Comp Cas 505 (Mad). Also
see, Cavin Plastics and Chemical Private Ltd, Inre, (2006) 129 Comp Cas 915 (Mad).
'^' Zydus BSV Research <fe Development Private Limited, Inre, (2008) 114 Comp Cas 450 (Guj).
"^ Dabour Foods Limited and Another, Inre, (2008) 114 Comp Cas 378 (Delhi). Also see, Shorat
Hardwar Industries P. Limited, Inre, (1978) 48 Comp Cas 23.

396
7.138 Court has Discretion in Sanctioning the Scheme Despite of the
fact that the Transferor Company's Reference was Pending
before the Board of Industrial and Financial Restructuring
(BIFR)
In Phlox Pharmaceuticals Limited and Another, Inre, Gujarat High Court held
that in the scheme of amalgamation neither stamp duty nor registration charges were
required to be paid on the increased authorized capital of the transferee company.
Moreover rights of the creditors of the transferee company were not affected in any
maimer thus, their consent was not necessary. Court has ample power and jurisdiction
to grant sanction of the scheme under Section 391 and 394 of the Companies Act,
1956, despite the fact that the transferor's company's reference was pending before
the BIFR.

7.139 No Fees or Stamp Duty on Increased Share Capital

In Shivalik Motors Limited and Another, Inre, '^"^ Orissa High Court held that both
the transferor and transferee company have paid the prescribed fee of their respective
authorized share capitals and the increase was due to the shares being combined and
hence no fiirther fee or stamp duty was payable.

7.140 Section 17 (2) is not Applicable

In Ramboo Prolen (India) P. Limited, Inre, '^^ Gujarat High Court held that as
consequence of amalgamation there is increase in the authorized capital. The
concerned company is required to file necessary forms, declarations with the registrar
of companies for change if effected, for compliance with Section 17, 94, 97, and 21 of

' " Phlox Pharmaceuticals Limited, litre, (2008) 114 Comp Cas 378 (Delhi). Also see,
Administrator of the Specified Undertaldng of UTI v. Garware Polyester Ltd, (2005) 125 Comp
Cas 389 (SC); Gountermann Peipers (India) Limited, Inre, (2005) 57 SCL 225 (HP); Kirloskar
Electric Co. Ltd, Inre (2003) 116 Comp Cas 413 (Kar); National Organic Chemicals Industries
Limited v. NOCIL Employees Union, (2005) 126 Comp Cas 922 (Bom).
''" Shivalik Motors Limited and Another, Inre, (2008) 143 Comp Cas 462 (Orissa). Also see, Bharat
Singh Chundsama Film Private Ltd, Inre, (2003) 143 Comp Cas 215 (Gujarat); Telesound India
Limited, Inre, (1983) 53 Comp Cas 926 (Del); Hotline Holdings Pvt. Ltd, Inre, (2005) 127 Comp
Cas (Del); JuggilalKamlpat Holdings Limited, Inre, (2006) 132 Comp Cas 237 (All).
'^^ Ramboo Prolen (India) Pvt.Ltd, Inre, (2008) 143 Comp Cas 301 (Gujarat). Also see, Narfolk
Infotech Pvt. Limited, Inre, (2008) 142 Comp Cas 752 (Guj); Bazley Finvest Ltd, Inre, (2005) 64
SCL 480 (Guj); Maneckchowk and Ahemdabad Manufacturing Co. Ltd, Inre, (1989) 58 Comp
Cas 515 (Guj); Rangkala Investment Limited, Inre, (1997) 89 Comp Cas 754 (Guj).

397
the companies Act, 1956 and to pay requisite fees already paid by the transferor
companies for their authorized capital and the amalgamation proceedings gave a
"Single Window Clearance" and hence there was no need to comply with the
provisions of Section 17(2) of Companies Act, 1956.

7.141 Scheme cannot be Rejected as Consequence of Lack of due

Diligence on the Part of Central Government
In Modus Analysis and Information Private Limited, Jnre, '^^ Calcutta High Court
held that lack of due-diligence on the part of central government to look into the
mechanics of the scheme and to apprise the court upon scrutiny as to the legality,
propriety and reasonableness of clauses thereof and lead to rejection of scheme.

7.142 Shares of the Transferred Company were not Required to be

Issued or Allotted to the Members of the Transferor Company
In Punjab Chemicals and Crop Protection Limited, Inre, '^^ Punjab and Haryana
High Court held that when all the shares of the transferor company are held by the
transferee company either in its names or through its nominees, the shares of the
transferee company were not required to be issued or allotted to the members of the
transferor company, as the entire share capital of the transferor company would stand
cancelled on the sanction of the scheme. Thus the rights of the members of the
transferee company would not be affected, since no new share were being issued and
there would not be any change in the capital structure of the transferee company as
well as no change in the voting rights of the shareholders of the transferee company.

Modus Analysis and Information Pvt. Limited, Inre, (2008) 142 Cotnp Cas 410 (Cal). Also see,
Areva T&D India Limited, Inre, (2007) 138 Comp Cas 834 (Cal).
177
Punjab Chemicals and Crop Protection Limited, Inre, (2008) 142 Comp Cas 259 (P&H). Also
see, Andhra Bank Housing Finance Limited, Inre, (2004) 118 Comp Cas 295 (AP); Bysani
Consumer Electronic Limited, Inre, (2006) 134 Comp Cas 99 (Mad); Goodlass Nerolack Paints
Limited, Inre, (2004) 118 Comp Cas 337 (Bom). Ion Exchange India Ltd, Inre, (2001) 105
Comp Cas 115 (Bom); Mahaamba Investment Ltd v. IDI Ltd, (2001) 105 Comp Cas 16 (Bom);
Miheer H. Mafatlal India Ltd, (1996) 87 Comp Cas 793 (SC).

398
7.143 Scheme under Sections 391 and 394 of Companies Act, 1956 is
not Violative of Section 295 of the Companies Act, 1956
In Surabhi Chemicals and Industries Limited, Inre, '^^ Gujarat High Court held that
objection raised by the regional director was not sustainable. Even assuming that the
objection has some substance and on that basis a criminal complaint was initiated
against the transferor company or its directors for the violation of the provisions of
Section 295 of the Companies Act, 1956. Such proceedings would not be affected by
the order sanctioning the scheme of amalgamation of the transferor company with the
transferee company. The fact of amalgamation would not give immunity for the past
deeds.

7.144 Third Party has no Locus Standii in the Scheme of

Amalgamation
In Indian Metals and Ferro Alloys Limited, Inre, '^^ Orissa High Court held that the
third party has no locus slandii to object to the scheme of amalgamation, they were
not the shareholders of the transferee company as contemplated under Section 391 of
the Companies Act, 1956.

7.145 Court has Power to Sanction Amalgamation between a Foreign

Company (Transferor Company) Registered outside India and
a Transferee Company under Companies Act, 1956
1 HO

In Zenta private Limited, Inre, Bombay High Court held that the term body
corporate and company appearing in Section 390(a) of the Companies Act, 1956
presents no situation of conflict Court has jurisdiction to entertain the petition as the
transferee company was a company within the meaning of the Companies Act, 1956
provided the scheme could be sanctioned upon compliance with conditions related to

178
Surabhi Chemicals and Investments Ltd, Inre, (2009) 149 Comp Cas 278 (Guj).
179
India Metals and Ferro Alloys Limited, Inre, (2009) 149 Comp Cas 362 (Orissa). Also see, HLL
V. State ofMah, (2003) 117 Comp Cas 758 (SC); Hotline Holdings Pvt. Ltd, Inre, (2005) 127
Comp Cas 165 (Delhi); Juggilal Kamalapat Holdings Limited, Inre, (2006) 132 Comp Cas 237
(Ail); KEC International Ltd, v. Kamani Employees Union, (2002) 109 Comp Cas 659 (Bom);
Mankam Investment Limited, Inre, (1996) 87 Comp Cas 689 (Cal); Shivalik Motors Ltd, Inre,
(2008) 143 Comp Cas 462 (Orissa); Miheer H. Mafatlal v. Mafatlal Industries, (1996) 87 Comp
Cas 792.
Zenta Private Limited, Inre, (2009) 149 Comp Cas 413 (Bom).

399
the condition of the application to be made under the law prevalent in Mauritiaus to
the appropriate authorities seeking there sanction and permission.

7.146 Foreign Company can be Amalgamated with the Indian

Company
1 Kl

In Essar Shipping Ports and Logistics Limited, Inre, Gujarat High Court held that
"transferor company" contained in Section 394 (4) (b) of the companies Act, 1956,
interalia includes "body corporate". Thus a transferor company which is situated
outside India can be amalgamated with transferee company situated in India,
subjected to the provisions that such amalgamation should not be violative of
provisions contained in the Companies Act prevailing in such foreign country.

7.147 Scheme of Amalgamation is Sanctioned whole with all Clauses

and Proposals
In Mekastar Valves and Engineering Services Private Limited, Inre, '^^ Gujarat High
Court held that once a court sanctions a scheme of amalgamation, the scheme is
sanctioned as a whole with all its clauses and proposals. Thus once a court sanctions
a scheme of amalgamation proposing amendments in memorandum and article of
association of the transferee company, the shareholders approval of such changes
under Section 17,21,231, 81(1A), 94, 97, 100, 149(2A), 391, 392, 393 and 394. No
separate procedure under the provisions of the act is required to be followed.

7.148 Rights and Liabilities of the Amalgamated Company cannot

have Retrospective Effect

In South India Corporation Limited v. Regional Provident Fund Commissioner,
Madras High Court held that rights and liabilities of the amalgamated company
cannot have retrospective effect and takes effect only form the date of order of court.

Essar Shipping Ports and Logistics Limited, Inre, (2009) 149 Comp Cas 417 (Guj). Also see,
Moship Semiconductor Technology Ltd, Inre, (2004) 120 Comp Cas 108 (AP); Zenta Private
Limited, Inre, (2009) 149 Comp Cas 413 (Bom).
'*^ Mekastar Valves and Engineering Services Private Limited, Inre, (2009) 149 Comp Cas 593
(guj). Also see, Avani Petrochemical Pvt Ltd, Inre, (2009) 149 Comp Cas 604 (Guj); PMPAuto
Industries Ltd, Inre, (1994) 80 Comp Cas 289 (Bom); Vasant Investment Co. Ltd v. Official
Liquidator Colaba Land and Mills Coop Ltd, (1981) 51 Comp Cas 20 (Bom).
'*' Sonth India Coop Ltd v. Regional Provident Fund Commissioner, (2009) 148 Comp Cas 200
(Mad). Also see, Devesh Sandeep Associates v. Regional Provident Fund Commissioner,
(1997). ILLJ 1167 (Cal).

400
7.149 Company also Includes a Firm
In Kirtilal Kalidas Diamonds Export Limited, Inre, ' ^ Bombay High Court held that
there can be amalgamation between an unregistered company within the meaning of
Section 582(b) of the Companies Act, 1956 where the partners of the firm had
contested to the proposed scheme of merging their firm with the transferee company
provided all the requisite statutory compliances had been fulfilled and the scheme was
fair and reasonable and not violative of any law or contrary to the public policy

7.150 Amalgamation not Affected by Pendency of Suit Against

Alienation
1 RS

In Sumlion plastics Private Limited, Inre, Gujarat High Court held that if the
scheme of amalgamation is in favour of the interest of the companies, their members
and creditors will not be effected by the pendency of suit against alienation by the
former director of the company subjected to the condition that it shall not fiaistrate
objectors right in any proceedings challenging alienation of property under Section
391 and 394.

7.151 Scheme of Amalgamation and Demerger are Different Schemes

In Jagran TVP Private Limited, Inre, Allahabad High Court held that the scheme
did not violate the provisions of law and is not against the public interest or the
interest of the shareholders and the creditors. AS-14 issued by the Institute of
Chartered Accountants of India was applicable in case of amalgamation, but there was
no amalgamation in this case but demerger as such the scheme is not applicable.

7.152 Court has Power to Dissolve Scheme of Amalgamation under

Section 391
1 87

In Ramco Super Leather Ltd. v. Dhana lakshmi Bank Limited, it was held that
court is entitled to refuse the scheme under Section 391 of the Companies Act, 1956 if

'*" Kirtilal Kalidas Diamonds Export Limited, Inre, (2009) 148 Comp Cas 607 (Bom).
'*' Sumlion Plastics Private Ltd, Inre, (2009) 147 Comp Cas 189 (GuJ).
"* Jagron TVP Private Limited, Inre, (2009) 150 Comp Cas 532 (All).
'*^ Ramco Super Leather Ltd v. Dhana Lakshmi Bank Ltd, (2009) 152 Comp Cas 437.

401
the company or authorized person in this behalf has not disclosed to the court by
affidavit or otherwise all material facts relating to the company.

7.153 No Separate Application under Section 21 of Companies Act,

1956 for the Change of Company's Name
In Mysore Cements Limited, litre, Kamataka High Court held that no separate
application under Section 21 of the Companies Act, 1956 is necessary for change in
companies name once the scheme is approved by majority of shareholders in a
meeting including a proposal of change in the name of the company.

7.154 No Additional fee or Stamp Duty is Required to be Paid

In Nokia Simens Network Private Limited, litre, '^^ Kamataka High Court held that
in amalgamations between a subsidiary and holding company, where in the scheme
provides that the fee paid by the transferee company for its authorized share capital to
be deemed paid by transferee company and hence no additional fee or stamp; duty is
required to be paid.

7.155 Court is Bound to Approve the Scheme if Approved by the

Majority of Equity Shareholders

In Anup Kumar Seth v. Reliance Industries Limited, '^"^ Bombay High Court held
that a scheme of amalgamation approved by majority of the equity shareholders and
unanimously by the secured and unsecured creditors was sanctioned by the court in a
petition by the transferee company.

Mysore Cements Limited, Inre, (2009) 150 Comp Cas 623 (Kam). Also see, Areva T&D India
Ltd V. UOI, (2008) 144 Comp Cas 311 (Cal); Maneckchowk & Ahemdabad Manufacturing Co
Ltd, Inre, (1970) 40 Comp Cas 819 (Guj); Mphasis Ltd, Inre, (2008) 141 Comp Cas 558 (Kam);
Norfolk Infotech Pvt. Ltd, Inre, (2008) 142 Comp Cas 752 (Guj).
189
Nokia Simens Netwrok Limited, Inre, (2009) 150 Comp Cas 728 (Kar). Also see, Andhra Bank
Housing Finance Ltd, Inre, (2004) 118 Comp Cas 295 (AP); Saboo Leasing P. Ltd, Inre, (2003)
117 Comp Cas 728 (AP); Ratnabali Capital Markets Ltd v. SEBI, (2007) 140 Comp Cas 677
(SC).
Anup Kumar Seth v. Reliance Industries Ltd, (2010) 154 Comp Cas 278 (Bom).

402
7.156 Court while Sanctioning the Scheme cannot Interfere in
Technicalities
In Anup Kumar Seth v. Reliance Industries Limited, '^' Bombay High Court held
that in the absence of any material contradicting the conclusion reached by the experts
with respect to the valuation and fairness, it would be difficult to come to a finding
that the conclusion drawn by the experts was absured.

7.157 Once the Share Exchange Ratio is Decided and Approved by

Board of Directors and Majority of Shareholders Court cannot
cancel the Scheme of Amalgamation
In Shailesh P. Mehta v. Reliance Petrochemicals, Gujarat High Court held that
once the scheme of amalgamation has been approved by the board of directors and
majority of shareholders and both are satisfied with the experts decisions on the share
exchange ratio, the process of amalgamation stands approved under Section 391 to
394.

7.158 Section 21 is not Required to be Complied with in Case of

Change in the Company's Name
In Intertek Testing Services India Private Limited, Iner, Bombay High Court held
that change in the name of company was a part of scheme sanctioned by the court and
the registrar of company is bound by order of court sanctioning scheme and there
exist no need of implication of Section 21 of Companies Act, 1956.

Anup Kumar Seth v. Reliance Petro Chemicals Ltd, (2010) 154 Comp Cas 278 (Bom). Also see,
Reliance Industries Ltd, Inre, (2009) 151 Comp Cas 124, Davar (J.S.) v. S. V. Marath, AIR 1967
(Bom) 456; German Remedies Ltd, Inre, (2005) 125 Comp Cas 615 (Bom); Kamala Sugar Mills
Ltd, Inre, (1984) 55 Comp Cas 308 (Mad).
Shailesh P Mehta v. Reliance Petrochemicals, (2010) 154 Comp Cas 476 (Bom). Also see.
Reliance Petro Chemicals Ltd, Inre, (2010) 154 Comp Cas 278 (Bom); Larsen & Turbo Ltd,
Inre, (2004) 121 Comp Cas 523 (Bom); Canon Tea Co Ltd, Inre, (1966) 2 CLJ 278 (Cal).
Intertek Testing Services India Private Limited, Inre, (2010) 154 Comp Cas 476 (Bom). Also
see, YOU Telecom India Pvt Ltd, Inre, (2008) 141 Comp Cas 43 (Bom); PMP Auto Industries
Ltd, Inre, (1994) 80 Comp Cas 289 (Bom); Vasant Investment Co. Ltd v. Official Liquidator
Lolaba Land & Mills Co. L/rf, (1981) 51 Comp Cas 20 (Bom).

403
7.159 Sanctioning of the Scheme of Amalgamation does not Require
any Special or Specific Permission for Amalgamation in the
Memorandum of Association
In Bhuyankhat Tea Co. Pvt. Inre, '^"^ Gujarat High Court held that since the
amalgamation is sought on the basis of the courts sanction, it was permissible without
a specific provision for amalgamation in the memorandum of association.

7.160 Workmen of Transferee Company has no Locus Standii to

Interfere in the Scheme of Amalgamation
In IPCL Employees Association and Another v. Indian Petrochemical Corporation
Ltd, '^^ Gujarat High Court held that the workmen of the transferor company has no
locus standii to express their views before the company court when proceedings under
391 and 394 of the act are pending.

7.161 Amalgamated Company can Always sue for the Rights

Accrued to it as Consequence of the Amalgamation
In Dabour India Limited v. Vishwa Properties Private Limited, '^^ Delhi High Court
held that if any rights have accrued as a consequence of amalgamation to the
amalgamated company in any property, having succeeded to these rights, the
amalgamated company can always sue for its due or for enforcement of those rights.

194
Bhuyankhat Tea Co. Pvt Ltd, Inre, (2011) 163 Comp Cas 316 (Gauhati). Also see, Amico
Pesticides Ltd, Inre (2001) 103 Comp Cas 463 (Bom); E.I.T.A. India Limited v. N.Phonia (2000)
99 Comp Cas 273 (Cal); India Credit and Development Coop Ltd, (1977) 47 Comp Cas 689
(Cal); Hari Krishna Loltia v. Hoolungooree Tea Co. Ltd, (1970) 40 Comp Cas 458 (Cal);
Marybong and Kyel Tea Estate ltd, Inre, (1977) 47 Comp Cas 802 (Cal).
195
IPCL wemployees Association and Another v. India Petrochemical Coop Ltd, (2011) 161 Comp
Cas 627 (Guj).
1%
Dabour India Limited, v. Vishwa Properties Private Ltd, (2011) 162 Comp Cas 434 (Delhi).
Also see, Hindustan Lever v. State ofMah, (2003) 117 Comp Cas 758 (SC).

404