MANU/KA/0008/2009

Equivalent Citation: [2009]92C LA93(Kar), [2009]150C ompC as728(Kar), 2009(9)KarLJ8, 2009(2)KC C R907, [2010]103SC L193(Kar)

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

COP. No. 34/2008
Decided On: 09.01.2009
Appellants: Nokia Siemens Network India Private Limited
Vs.
Respondent: Nil
Hon'ble Judges/Coram:
B.V. Nagarathna, J.
Counsels:
For Appellant/Petitioner/Plaintiff: V.M.P. Law Chambers,
For Respondents/Defendant: Deepak and V. Jayaram,Advs. for O.L. and B. Pramod,CGC
for ROC
ORDER
B.V. Nagarathna, J.
1 . The petitioner in this case is M/s. Nokia Siemens Network India Private Limited, a
transferor company seeking sanction of amalgamation with M/s Nokia Siemens
Networks Private Limited (hereinafter referred to as a transferee company) so as to
make the same binding on all the share holders, secured and unsecured creditors of the
transferor as well as the transferee company. Annexure-A is the proposed scheme of
amalgamation.
2 . According to the petitioner company, it was incorporated on 17.12.1993 under the
provisions of the Companies Act having its registered office at 10th floor Kaheja Towers
26/27, M.G. Road, Bangalore-1. The main objects of the transferor company as set out
in Annexure-B is to design, develop, manufacture and trade in computer software such
as software data products and allied hardware for telecommunication and other
industries. The authorized share of the transferee company is Rs. 250,000,000/- divided
into 25,000,000 equity shares of Rs. 10/- each. The issued, subscribed and paid up
capital of the petitioner is presently Rs. 124,250,000/- divided into 12,425,000 equity
shares of Rs. 10/- each. The transferor company has produced the latest audited
balance sheet up to 31.3.2007 setting out the assets and liabilities of the company at
Annexure-l) to the company petition.
3. The Board of Directors of the Transferor company approved and adopted the scheme
of amalgamation on 29.2.2008 by virtue of which the transferor company is proposed to
be merged with the transferee company, which has its registered office at Gurgaon,
Haryana, subject to the confirmation of this Court The board resolution to that effect
dated 29.2.2008 is produced at Annexure-F to the petition. According to the transferor
company, it is a wholly under subsidiary of the transferee company. According to the
petitioner the transferor company has only two shareholders, namely M/s. Nokia
Siemens Networks Private Limited (transferee company) holding 1,24,24,990 equity
shares of Rs. 10/- each i.e., 99.99% paid up capital of transferor company and M/s

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Nokia Siemens Tietoliikenne Oy, Finland holding 10 equity shares of Rs. 10/- each.
According to the transferor company it has two secured
4 . M/s. Nokia Siemens Networks Private Limited, the transferee company is registered
with the Registrar of Companies at Delhi and as per Annexure-C, the Memorandum of
Association, the main objects of the said company are to acquire or take over the
management, control, operations and development and other facilities being undertaken
by the Networks Division of Nokia India Private Limited as well as to carry out in India
and elsewhere, the business of manufacture, processing, marketing and training in
telecommunication equipment and telephonic instruments and equipment. The
authorized share capital of the transferee company is 1,900,000,000 equity shares of
Rs. 10/- each and issued, subscribed and paid up capital is 1,864,310,000 divided into
186,341 equity shares. The audited balance sheet and Profit and Loss Account as on
31.3.2007 of the transferee company is produced at Annexure-E of the company
petition.
5. According to the transferor company by an order dated 3.4,2008 passed by this Court
in C.A. No. 230/2008, the meeting of the shareholders, secured and unsecured creditors
were dispensed with as all the shareholders, secured creditors and 90% of the
unsecured creditors had submitted their written consent and no objection to the scheme
of amalgamation. The said order is annexed as Annexure-G to the company petition.
Subsequently, the sanction for the scheme of amalgamation has been sought by way of
this petition, the scheme of amalgamation is produced at Annexure-A to the company
petition and the sanction is sought with effect from 1.4.2008 being the appointed day.
6 . I have heard Sri. Prakash, learned Counsel for V.M.P. Law Chambers for the
petitioner and Sri. Deepak, counsel for Official Liquidator and Sri. B. Pramod, C.G.S.C
for the Registrar of Companies (ROC).
7. Learned Counsel for the petitioner while taking me through the documents annexed
to the company petition has submitted that the proposed scheme of amalgamation
would be beneficial to both the petitioner i.e., the transferor company as well as
transferee company which will enable pooling of resources of the two companies to
their common advantage which would result in more productive yields of the resources
and enhance the operational efficiencies which would be beneficial for all stock holders.
He therefore, submits that considering the fact that the business activity of the
transferor company as well as the transferee company being allied, there is no legal
impediment for sanctioning the proposed amalgamation of the two companies. He
further submits that there is no re-organization of shares after amalgamation and that
no shares would be allotted to the transferee after merger.
8. Learned Counsel for the Official Liquidator has submitted OLK. No. 520/2008 under
the provisions of Section 394(1) of the Companies Act which states that M/s. Umesha K.
Associates, Chartered Accountant were appointed to examine books of accounts and
other records of the transferor company and on scrutiny of the books of accounts and
other related records of the company, they have opined that the affairs of the transferor
company have not been conducted in a manner prejudicial to the public interest as per
the second proviso to Sub-section (1) of Section 394 of Companies Act and there being
no adverse finding in the functioning of the company, appropriate orders may be made
with regard to according sanction to the proposed amalgamation.
9. learned Counsel for the Regional Director, ROC, of the Ministry of Corporate Affairs,
Southern Region, Chennai, has however filed an affidavit of ROC raising two major

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objections to the proposed merger. Firstly, he contends that the merger of authorized
capital of the transferor company with that of the transferee company is against the
provisions of Section 94 & 97 of the Companies Act, in the absence of any payment of
Registration Fee or Stamp duty. He cites the following reasons in support of the said
objection:
(a) The authorized capital of a company is a notional limit upon which a
company can increase its paid up capital, Hence, two notional limits cannot be
clubbed together.
(b) The authorized capital of the company is not a liability like other liabilities,
which are to be returned or refunded. Hence the authorized capital will not come
within the purview of transfer of liabilities under the scheme of amalgamation.
(c) The transferor company and the Transferee company are separate legal
entities. On amalgamation, the transferor company will be dissolved and only
the transferee company exists. At this stage if the transferee company on
account of the scheme of amalgamation increases its authorized capital, it has to
comply with the provisions of Sections 94 and 97 of the Companies Act, 1956,
by filing relevant returns with the Registrar of Companies with registration
fee/filing fee.
(d) The Companies Act does not specifically exempt the transferee company on
account of scheme of amalgamation from payment of Registration fee for
increase of its authorized capital pursuant to the scheme of amalgamation.
Hence, if the transferee company is allowed to increase its authorized capital by
dubbing the authorized capital of the Transferor company without any further
act or deed as contemplated in the scheme, it will be not only against the
provisions of the Companies Act, 1956, but it will also involve substantial loss of
the Central Government Revenue, and to the State Government.
(e) Clubbing of the authorized capital of the Transferor company to that of the
transferee company cannot be a part of the scheme since Section 97 of the
Companies Act, 1956 is only a procedural compliance requiring filing of the
prescribed return and payment of registration fee to the Registrar of Companies
and payment of stamp duty to the State Government, which has to be statutorily
complied with In this connection, it is also respectfully submitted that the
original side Appeal No. 26/2007 filed by the Regional Director against the
decision of this Hon'ble Court overruling the objections raised by the Regional
Director in a similar case is pending before the Division Bench of this Court.
(f) Without prejudice to the above submissions, it is also further submitted that
the Transferor Company being a wholly owned subsidiary of the Transferee
Company, the Transferee Company is not going to allot any shares to the
shareholders of the Transferor Company, and hence there is no meaning in
merging the Authorized Share Capital of the Transferor company with the
authorized share capital of the Transferee company.
1 0 . The second objection is that the transferee company has not filed a separate
petition before the High Court at Delhi for the purpose of obtaining sanction and hence
the sanction to be accorded by this Court would be of no avail to the transferor
company. Learned Counsel for the ROC therefore submits that this Court may not accord
sanction to the proposed merger.

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11. In reply learned Counsel for the petitioner has answered each of the objections
raised by the Regional Director by way of a reply and both sides have relied upon
certain case law in support of their respective contentions.
12. At this stage it is necessary to clear the decks by considering each of the objections
raised by the Regional Director.
13. One of the objections raised is that transferor company and the transferee company
being separate legal entities and on amalgamation, the transferor company being
dissolved and only the transferee company existing, if the transferee company, at that
stage, increases its authorized capital, then it has to comply with the provisions of
Sections 94 and 97 of the Companies Act by filing returns with the Registrar of
Companies with the registration fee.
14. in response to the said objection, the petitioner has submitted that the merger of
the authorized capital of the transferor company with that of the transferee company
does not violate the provisions of Sections 94 and 97 of the Companies Act Even
according to Section 391 of the Act which provides for a complete code for
incorporating the scheme of amalgamation which is subject to other provisions of the
Act, all specific provisions which are provided under the Act and which have to be
complied with prior to the scheme being sanctioned would in any way have to be
complied with by the petitioner -company and therefore, it is not necessary to once
again comply with certain provisions of the Act as it would result in duplication of
procedure making the entire exercise cumbersome. In support of the said stand of the
company, reliance is placed on a decision of the Andhra Pradesh High Court in the case
of Saboo Leasing Private Ltd. In Re reported in (2003)117 Comp Cas 728.
15. Under Section 94 of the Companies Act, the power of a limited company to alter its
share capital is provided and under Section 95, if a company having a share capital
consolidates the share capital or converts shares into stocks etc., then the company has
to, within thirty days after doing so, give notice thereof to the Registrar of Companies
specifying the shares consolidated, divided, converted or stock reconverted etc., and
any default of the said provision would entail a punishment. Under Section 97. where a
company having a share capital increases its share capital beyond the authorized capital
or where a company not being a company limited by shares increases its members
beyond the registered number, it shall file with the Registrar, notice of the increase of
capital or of members within thirty days after the passing of the resolution authorising
the increase and the Registrar shall record the increase and also make any alterations
which may be necessary in the company's memorandum or articles or both and a
default in complying with the said section entails a punishment with tine. Therefore,
under Sections 95 and 97 of the Companies Act, notice has to be issued by a company
to the Registrar of Companies within thirty days of consolidation of any share capital or
conversion of shares into stock and a default would result in penal consequences. The
object of Sections 95 and 97 of the Act is to keep the Registrar informed about the
changes and to incorporate them in the Memorandum and Articles of Association of the
Company. But, where a scheme of arrangement or amalgamation of companies is
sanctioned by the Court, as per Section 394(3), within thirty days after the making of
an order, every company in relation to which the order is made shall cause a certified
copy thereof to be filed with the Registrar for registration. Hence, the object behind
Sections 95 or 97 and Section 394(3) of the Act is the same. Therefore, when the
certified copy of the order of the Court sanctioning the scheme of amalgamation
involving a change in the share capital is required to be filed before the Registrar for
the purpose of its registration, there is no reason as to why it cannot be treated as

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notice to the Registrar as envisaged under Sections 95 and 97 of the Act. The necessary
changes that are required to be made in the concerned register by the Registrar of
Companies can be effected after receiving the certified copy of the order of the Court
sanctioning the scheme. The scheme upon being sanctioned by the Court becomes
operational by virtue of the order passed by the Court and therefore, has statutory
genesis and character. In that view of the matter, no separate notice informing the
Registrar under Sections 95 or 97 need be given.
1 6 . In the instant case, it is noticed that the Board of Directors of the respective
companies had passed necessary resolutions and the transferor company i.e., the
petitioner herein being a wholly owned subsidiary of the transferee company and the
transferee company holding 99.99% of the total paid up capital of the transferor
company and also holding a beneficial interest in the remaining 10 equity shares of the
company and there being no new shares issued under the scheme of amalgamation
which will not have effect on the transferee company and therefore, no separate notice
informing the Registrar under Sections 95 or 97 of the Act need be given.
17. 1 am fortified in my view by the judgment of the Andhra Pradesh High Court in the
case of Saboo Leasing Pvt. Ltd., In re reported in 2003 (Vol.117) Company Cases 729
which states that the scheme upon being sanctioned by the court becomes operational
by virtue of orders passed by the courts and therefore, has statutory genesis and
character. In that view of the matter, in such a case, no separate notice informing the
Registrar under Section 95 or 97 need be given. The necessary changes that are
required to be made in the register by the Registrar of Companies can be effected after
receiving the certified copy of the order of the court sanctioning the scheme.
18. The other objection raised is that the Companies Act does not exempt a transferee
company on account of the scheme of amalgamation from payment of registration lee
for increase of its authorized capital pursuant to the scheme of amalgamation. If the
transferee company is allowed to increase the authorized capital by clubbing the
authorized capital of the transferor company, it will involve substantial revenue loss to
the Central Government and the State Government In support of the said submission,
learned Counsel for the respondent has relied upon a decision of the Hon'ble Supreme
Court reported in the case of Ratnabali Capital Markets Ltd. v. Securities and Exchange
Board of India and Ors. (2007)140 Comp Cas 677.
19. Her contra, it is submitted by the learned Counsel for the petitioner that requisite
fee has already been paid by the petitioner -transferor company on the authorized share
capital and therefore, it would not be necessary to pay necessary fee again by the
transferee company upon merger. It is further submitted that the fee paid by the
transferor company on the authorized share capital must be deemed to have been paid
by the transferee company and therefore, the contention of the Regional Director that
the merger would cause substantial revenue loss to the Central Government and the
State Government is not correct in support of his submission, learned Counsel for
petitioner has relied upon a judgement of this Court reported in the case of Mphasis
Limited v. Nil MANU/KA/7068/2007 : ILR2007KAR3375 . He also submits that against
the said judgment, OSA No. 26/2007 has been filed by the Regional Director and it is
pending consideration before the Division Bench and that the order of the Division
Bench would be binding on the petitioner also.
20. In the case of Ratnabali Capital Markets Ltd. v. Securities and Exchange Board of
India and Ors. (2007)140 Comp Cas 677, the facts were that Ratnabali Securities
Limited (RSL) was registered as a broker with the National Stock Exchange and it had

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paid initial registration fees under the relevant Regulations for the first year and
thereafter, had paid fees on turnover basis for subsequent four years and no further
fees on turnover basis was paid by RSL under the Regulations for continuation of
registration except a tee of rupees five thousand for a block of next live years. Since
Securities and Exchange Board of India stipulated that no company whose net worth
was less than rupees three crores would be allowed to trade as a broker in the
derivative segment of the stock exchange and to meet this net worth criteria, RSL and
RCML (Ratnabali Capital Markets Limited) merged under a Scheme of Amalgamation
which was sanctioned by the order of the Calcutta High Court under which, all rights,
licences, assets, properties and registrations of RSL stood transferred by operation of
law to RCML. After the merger of RSL with RCML, a demand was made by Securities and
Exchange Board of India for registration fees on turnover basis. RCML claimed the
benefit of initial registration of RSL as a stockbroker stating that by the merger
approved by the Calcutta High Court, all assets and liabilities of RSL stood transferred
by operation of law to RCML and therefore, it was not liable to once again pay a fresh
registration fee. The said claim was rejected by the Securities Appellate Tribunal. On
appeal, the Hon'ble Supreme Court held that when the two companies merged, a new
entity emerged viz., RCML which was given a right to operate in the derivative segment
and it has to pay fresh registration fees on the turn over basis and the new entity -RCML
was not given the benefit of continuity of fees deposited earlier by RSL which got
merged with RCML. In the said case, the Securities and Exchange Board of India (SEB1)
had issued a circular dated 30.9.2002 stating that in the case of merger carried out as a
result of compulsion of law, fees would not have to be paid afresh by a transferee entity
provided that the majority shareholders of the transferor entity continued to hold the
majority shareholding in the transferee entity.
21. Interpreting the said circular, The Hon'ble Supreme Court held that under Section
391 of the Companies Act, 1956, a compromise arrangement is proposed generally as
an alternative to liquidation. Where a scheme appears to be feasible and workable, it
should be preferred to a winding up order. It would depend upon the facts of each case
where a scheme under Section 391 could be construed as an alternative to liquidation.
Under Circular dated 30.9.2002, what SEBI intended to say was, the fresh
turnover/registration fees would not be payable by the company which went in for
amalgamation/merger as an alternative to liquidation. In other words, if the company's
net worth was negative and if that company was on the brink of liquidation which
compelled it to go for a scheme under Section 391, SEBI exempted such companies for
payment of fresh turnover or registration fees. It further held that in the said case, the
transferee companies were not on the brink of liquidation and amalgamation had taken
place in order to increase the "reserves* component of the net worth and therefore, the
circular dated 30.9.2002 was not applicable. The Hon'ble Supreme Court, however,
opined that it would depend on the facts of each case whether a scheme under Section
391 could be construed as an alternative to liquidation. On the facts of the said case,
the Hon'ble Supreme Court held that when the two companies merged, a new entity
emerged viz., RCML which was given a right to operate in the derivative segment and
therefore, it has to pay fresh registration fees on turnover basis and the new entity
RCML was not entitled to the benefit of continuity of fees deposited earlier by RSL which
got merged into RCML.
2 2 . It is relevant to note that the Hon'ble Supreme Court, in the context of
interpretation of the circular dated 30.9.2002 issued by SEW with regard to paying a
fresh registration fee on turnover basis to be paid afresh by the entity which emerged as
a result of the scheme of merger, held that the fee was payable in the said case.

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23. The above decision is however not applicable to the facts and circumstances of the
present case. in the instant case, it is relevant to note that the transferor company and
the transferee company have already paid requisite fee or stamp duty on the authorized
share capital of the respective companies and upon merger of the transferor company
with the transferee company under the instant Scheme of Amalgamation, the share
capital of the transferor company is combined with the share capital of the transferee
company to an extent of 99.99% and the transferee company is also holding a
beneficial interest in the remaining 10 equity shares of the transferor company and no
new shares are being issued under the scheme and the scheme would have no effect or
impact on the members and the creditors of the transferee company. Further, the
scheme provides that the fee paid by the transferor company to the concerned Registrar
of Companies for its authorized share capital would have to be deemed to have been
paid by the transferee company. Therefore, in reality, there is no increase in the share
capital of the transferee company so as to attract payment of any additional fee or
stamp duty. 1 am fortified in my view by the decision of this Court in the case of
Mphasis Limited v. Nil reported in MANU/KA/7068/2007 : ILR2007KAR3375 wherein, it
has been held that there is no obligation or reason for the two amalgamated companies
to pay duty again on the same authorised capital on which they have already paid the
duty particularly, when there is no increase in the share capital of the transferee
company so as to attract payment of any additional tee or stamp duty.
24. It is brought to my notice that the aforesaid judgment has been appealed against
and O.S.A. No. 26/07 has been filed by the Regional Director, but there is no stay of the
operation of the judgment in the aforesaid case. However, in the event of the Division
Bench holding in favour of the Regional Director in the said appeal or the issuance of a
notice by the Regional Director, the petitioner-company would be liable to pay the
requisite stamp duty and registration tee on the increased authorised share capital of
the transferee company as per Clause 7.
25. In the event of Division Bench reversing the decision of the single judge in the case
of Mphasis Ltd., reported in ILK 2007 karnataka 3375 held that the Regional Director is
at liberty to issue notice to the petitioner regarding the payment of requisite stamp duty
and registration fee.
26. The other objection raised by the Regional Director is that the transferee company
has not filed a separate petition before the Delhi High Court seeking sanction of the
Scheme of Amalgamation.
27. The reply given by the petitioner to this objection is that the transferor company is
only a subsidiary of the transferee company. The transferee company holds 99.99% of
the paid up capital of the transferor company as also the beneficial interested in the
remaining 10 equity shares. Further no new shares are issued under the scheme which
does not have any effect on the members and creditors of the transferee-company. As it
is, the transferee-company the holder of 10 equity shares has consented to the scheme
of amalgamation. Therefore, a separate petition by the transferee-company is not
necessary. In support of his submission, learned Counsel for the petitioner has relied
upon the following decisions:
(a) MANU/KA/0535/2005 : ILR2006KAR255 in the case ofVibank Housing
Finance Ltd. v. Nil, wherein it has been held that the holding company being the
holder of 100% of shares of its subsidiary company, in the meeting of the
shareholders of the transferor company convened as directed by this Court
under Section 391 of the Act, the very same shareholders of the transferee

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 company having participated in the said meeting and approved the scheme of
amalgamation, it cannot be said that the decision cannot bind the transferee
company, its members and creditors. The Board of Directors of the Transferee
company in the meeting held approved and adopted the scheme of
amalgamation. The Reserve Bank of India permitted the Transferee company to
enter into a contract to take over its subsidiary. The scheme of transfer does
not affect the rights of the members or the creditors of the transferee company
as between themselves and the company. No new shares are issued and there
being no reorganisation of the share capital of the transferor company. In these
circumstances, there would be no need for the transferee company to file an
application and a petition under Sections 391 - 394 of the Act.
(b) Similarly in the case of Nebula Motors Ltd. v. Nil reported in
MANU/AP/0456/2003 : 2003(5)ALD327 the Andhra Pradesh High Court has held
that in a scheme of amalgamation of the subsidiary company with holding
company for convenience of business and efficient administration would not
involve any reorganisation or restructuring of shares of members of transferee
company and therefore, there would be no transferee company to approach the
court for sanction.
28. In the said case, the transferor company was the 100% subsidiary of the transferee
company which was the holding company and the question was, as to whether the
transferor company was to seek sanction of amalgamation from the appropriate court.
The court held that the scheme in the said case did not involve any reorganisation or
restructuring of the shares of the members of the transferee-company and therefore, the
right of the members of the transferee company was not touched upon. It was nothing
but the amalgamation of the subsidiary company (Nebula Motors Ltd.) - transferor
company with holding company (Concord Motors Ltd.) -transferee company for the
convenience of the business and efficient administration. Therefore, it was not
necessary for the transferee company to approach the court for necessary sanctioning of
the scheme.
(c) Similarly, in the case of Andhra Bank Housing Finance Ltd. v. Andhra Bank
reported in MANU/AP/0318/2003 : 2003(3)ALD654 , the Andhra Pradesh High
Court has held that the petitioner-company (Andhra Pradesh Housing finance
Ltd.) transferor company, was a 100% subsidiary of the respondent (Andhra
Bank) which is a body corporate and after adverting to the provisions of Section
394 and Section 4 of the Companies Act which defines holding company and a
subsidiary, the court held that the transferee company was holding 100% of
Andhra Bank Housing Finance Ltd., as the body corporate and hence, it was not
necessary to file a separate application by the holding company (transferee
company) seeking sanction of the scheme.
(d) In MANU/DE/0262/1976 in the case of Sharat Hardware Industries P. Ltd. v.
Nil, it is held that in a scheme of amalgamation of a subsidiary company and
the parent company holding its 100% equity under Section 391 of the
Companies Act, 1956, the share-holders of the parent company would have
attended the meeting to approve the scheme of arrangement qua the subsidiary
company and under such circumstances, the approval of all the shareholders of
the transferee company was not necessary.
(e) In (2001)105 Comp Cas 16 in the case of Mahaamba Investment Ltd. v. IDI
Limited, the Bombay High Court while dealing with the office objection that no

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 petition was filed by the transferee-company with regard to the amalgamation
sought by the petitioner with the respondent which was the transferee-
company, it was held that the relevant clauses of the said scheme of
amalgamation stated that no new shares were sought to be issued by the
shareholder of the transferee-company. The scheme did not affect the
transferee-company and the creditors of the transferee-company were not likely
to be affected by the scheme and therefore, filing of a separate petition by the
transferee-company was not necessary.
2 9 . In view of the above rulings, what emerges is that, if in the proposed scheme
reorganisation of share capital is absent and when the 100% subsidiary company is
seeking to amalgamate with its holding company and where the scheme is not
detrimental in any manner to the interests of members or creditors of the transferee
company, there is no need to examine the scheme by the court within its territorial
jurisdiction the transferee company is situate. In such a case, the sanctioning court
which has been approached by the transferor company can examine the scheme and see
whether it does affect the rights of the members or creditors of the transferee company
either because it involves reorganisation of its share capital or otherwise and if the
rights of the members of the transferor company has not been touched upon, then there
is no need for the transferee company to approach the court separately for necessary
sanction of the scheme.
30. In the instant case, clause 7.1 with regard to cancellation of share of the transferor
company reads as follows:
7 . 1 Upon the scheme becoming effective, as the Transferor Company is a
wholly owned subsidiary of the Transferee Company, all the Equity Shares
issued by the Transferor Company and held by the Transferee Company shall
stand cancelled and in lieu thereof no allotment of any shares in the Transferee
Company shall be made to any person whatsoever. The shares held by
Transferee Company in Transferor Company shall be cancelled and the
difference, if any arising on cancellation of shares shall be adjusted against the
following of the Transferor Company, in the order specified, to the extent
required:
a) Capital Redemption Reserve Account;
b) Foreign Project Reserve Account;
c) Securities Premium Account;
d) General Reserve Account; and
e) Profit & Loss Account
The balance, if any, remaining after the adjustment under this Clause 7.1 shall
be adjusted to the Profit & Loss Account of the Transferee Company.
31. In view of the equity shares held by the transfer company being cancelled and there
being no allotment shares in the transferee company to any person, following the ratio
of the aforesaid rulings, in my view, it is no necessary for the transferee company in the
instant case 1 approach the court for necessary sanction of the scheme.
3 2 . According to the petitioner, the circumstances that necessitated the scheme of

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amalgamation and arrangement are as follows:
a) The Petitioner/Transferor Company is a wholly owned subsidiary of the
Transferee Company. As per the share capital structure of the Petitioner/
Transferor Company, the Transferee Company holds 124,24,990 equity shares
aggregating to about 99.99% of the total paid up capital of the
Petitioner/Transferor Company. The Transferee Company also holds the
beneficial interest in the remaining 10 equity shares of the Petitioner/Transferor
Company. Having regard to the benefits sought to be achieved as narrated
herein below, it became necessary for the Transferee Company and the
Petitioner/ Transferor Company to formulate the Scheme of Amalgamation.
33. The benefits sought to be achieved by the said scheme and its effects are culled out
as under
a) The amalgamation will enable pooling of resources of the Transferor and the
Transferee Company to their common advantage, resulting in m ore productive
utilisation of said resources, cost and operational efficiencies which would be
beneficial for all stakeholders.
b) The amalgamation will result in greater economies of scale, reduction in
overheads and other expenses.
c) The amalgamation will achieve business synergies and the business can be
carried on more economically.
d) The banks, creditors and institutions, if any are not affected by the proposed
amalgamation as their security, if any, is maintained.
e) There will be an improvement in the financial structure and cash flow
management of the Transferee Company.
f) The amalgamation shall result in the combination of manpower resources of
both the Companies and a single management structure for the Companies.
g) The combined managerial and technical expertise would enable the
Transferee Company to develop a business and would be competitive and
cogent.
34. The broad terms of the compromise or arrangement are as follows:
a) It has been agreed under the scheme that all the property, rights and powers
of every description of the Petitioner/ Transferor Company should be
transferred to and vested in the Transferee Company.
b) The scheme provides that all liabilities and duties of the Petitioner/transferor
Company with effect from the appointed date should also be transferred to the
Transferee Company, so as to become the liabilities and duties of the
Transferee Company.
c) It has agreed that all the creditors of the Petitioner/ transferor Company shall
become creditors of the Transferee Company, as it exists presently. The scheme
of amalgamation also provides that the services of all employees of the
petitioner/transferor company should stand transferred to the transferee
company on the same terms and conditions on which they have been employed.

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3 5 . I n Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1996)87 Comp. Cas. 792, the
Hon'ble Supreme Court has laid down the broad approvals of the jurisdiction of the
Company Court in the matter of scheme of amalgamation as under.
(1) The sanctioning Court has to see to it that all the requisite statutory
procedure for supporting such a scheme has been complied with and that the
requisite meeting as contemplated by Section 391(1)(a) have been held.
(2) That the scheme put up for sanction of the court is backed up by the
requisite majority vote as required by Section 391(2).
(3) That the concerned meetings of the creditors or members or any class of
them had the relevant material to enable the voters to arrive at an informed
decision for approving the scheme in question. That the majority decision of the
concerned class of voters is just and lair to the class as a whole so as to
legitimately bind even the dissenting members of the class.
(4) That all necessary material indicated by Section 393(1)(a) is placed before
the voters at the concerned meetings as contemplated by Section 391(1).
(5) That all the requisite material contemplated by the proviso to Sub-section
(2) of Section 391 of the Act is placed before the Court by the concerned
applicant seeking sanction for such a scheme and the Court gets satisfied about
the same.
(6) That the proposed scheme of compromise and arrangement is not found to
be violative of any provision of law and is not contrary to public policy. For
ascertaining the real purpose underlying the scheme with a view to be satisfied
on this aspect, the court if necessary, can pierce the veil of apparent corporate
purpose underlying the scheme and can judiciously x-ray the same.
(7) That the company court has also to satisfy itself that members or class of
members or creditors or class of creditors, as the case may be, were acting
bona fide and in good faith and were not coercing the minority in order to
promote any interest adverse to that of the latter compromise the same class
whom they purported to represent.
(8) That the scheme as a whole is also found to be just, fair and reasonable
from the point of view of prudent men of business taking a commercial decision
beneficial to the class represented by them for whom the scheme is meant
(9) Once the aforesaid broad parameters about the requirements of a scheme
for getting sanction of the court are found to have been met, the court will have
no further jurisdiction to sit in appeal over the commercial wisdom of the
majority of the class of persons who with their open eyes have given their
approval to the scheme even if in the view of the court there could be a better
scheme for the company and its members or creditors for whom the scheme is
framed. The court cannot refuse to sanction such a scheme on that ground as it
would otherwise amount to the court exercising appellate jurisdiction over the
scheme rather than its supervisory jurisdiction.
3 6 . Having regard to the parameters enunciated by the Apex Court in Miheer H.
Mafatlal's case, the sanctioning court has to consider whether the scheme put forth for
sanction is backed up by the requisite majority vote as required under Section 391(2) of

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the Act and that the scheme is not violative of any provision of law and is not contrary
to public policy; that the members or the creditors of the company are acted in a
bonafide manner and in good faith and not coercing the minority in order to promote
any interest against the interest of the minority and also where the scheme affects
members or its creditors either because it involves reorganisation of the share capital or
otherwise. In the proposed scheme, as per clause 7 extracted above, there is no
reorganisation of the share capital and when 100% subsidiary company is seeking to
amalgamate with its holding company where the scheme is not detrimental in any
manner to the interests of the members or creditors of the transferee company, in my
considered view, it is not necessary to examine the scheme by the court within whose
territorial jurisdiction the transferee company is situate. Since the instant scheme does
not affect rights of the members or the creditors of the transferee company as it does
not involve reorganisation of the share capital, in my view, the instant scheme is
nothing but the amalgamation of the subsidiary company with the holding company for
the convenience of business and efficient administration. Hence, the scheme of
amalgamation as per Annexure-A is sanctioned so as to be binding on all the
shareholders secured and unsecured creditors of the petitioner (transferor company)
and on the transferee company,
37. Company petition is accordingly allowed.
The Office is directed to draw up a decree in Form No. 42. The petitioner-company shall
file a certified copy of the order with the Registrar of Companies within 30 days from
the date of receipt of this order.

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