Section 391 read with section 394 of the Companies Act,1956-Compromise and arrangement-Whether an amalgamation requires that transferee Company should increase its authorized share capital under sections 94 to 97.
-Held no
The appellants filed a petition under sections 391 and 394 seeking sanction of scheme of arrangement for amalgamation of the transferor Company ,which was 100 percent subsidiary company of the transferee Company. The Board of Directors of both the Companies had approved the scheme. The Regional Director however, objected clause 10 of the Scheme contemplating the clubbing of the authorized share capital of the transferor Company with the authorized share capital of the transferee Company, which was not acceptable to him on the ground that the transferee Company had to comply with the provisions of sections 94 and 97 ,if it intended to increase its authorized share capital.Therefore ,the Company Court accepted the scheme of amalgamation with a condition that clause 10 of the scheme would not form part of the approved scheme
On appeal:
HELD
On merger the two Companies cease to exist, that is to say, that neither transferor or transferee Company remains, but a third company comes into existence on the basis of the scheme sanctioned by the Court. In such a situation, it is hard to accept that there would be an increase in the share capital of one of the Companies (para 10)
In view of the law laid down by the Court and also the judgement of the Delhi High Court in Telesound India Ltd., the order passed by the Company Court to the effect that clause 10 of the scheme of amalgamation would not be part of the approved scheme, was to be set aside.
