In Re: Ucal Fuel Systems Ltd. and another

Lakshmanan, J.—Company Petition No. 59 of 1990 was filed by Ucal Fuel Systems Limited, having its registered office at No. 118, Anna

Salai, Madras 2, and Company petition No. 60 of 1990 was filed by Suncarb Private Limited, having its registered office at No. 8, Haddows

Road, madras-6. Both the company petitions were filed under sections 392 and 394 of the Companies Act, 1956, hereinafter referred to as ""the

Act"", praying for according sanction to a scheme of amalgamation of the aforesaid two companies. Ucal Fuel Systems Limited is a public limited

company and it is the transferee company. Suncarb Private Limited is a private limited company and is the transferor company. The scheme

submitted to the court for sanction involves amalgamation of the transferor company with the transferee company and amongst others it involves

dissolution without winding up.

Suncarb Private Limited, Madras-6, the transferor-company, was incorporated on November 7, 1985, under the provisions of the Act, having

its registered office at No. 8, Haddows Road, Madras-6. As stated above, the object of their Company Petition No. 60 of 1990 is to obtain

sanction of this court for the scheme of amalgamation, where under the assets and liabilities of the transferee-company are to be transferred to Ucal

Fuel Systems Limited, the transferee-company. The authorised capital of the transferee-company is Rs. 10,00,000 divided into 1,00,000 equity

shares of Rs. 10 each. The amount credited as paid-up capital, as per the last balance-sheet ending March 31, 1990, consists of 30 equity shares

of Rs. 10 each of which is fully paid. The authorised capital of the transferee-company is rupees six crores divided into 60,00,000 equity shares of

Rs. 10 each. The amount credited as paid-up capital as per last balance-sheet ending March 31, 1990, is Rs. 5,19,00,000 consisting of

51,90,000 equity shares of Rs. 10 each of which is fully paid.

The objects clause of the transferor company, as set out in the memorandum and articles of association, are as under :

To carry on generally the business of merchants, dealers, agents, traders, exporters, importers, assemblers, rebuilders, reconditioners, repairers

of engineering goods and mechanical, constructional, electrical, electronic and instrumentation engineers, carriers and hirers of freight and

forwarding agents.

They also enable the company to carry on the business of founders of ferrous and non-ferrous metals, mechanical engineers, chemical and heat

treatment engineers, etc.

The prime objects and the objects incidental or ancillary to the attainment of the main objects have been fully and explicitly set out in the

company petitions themselves. Clause 14 of the objects incidental or ancillary to the attainment of the main objects provides to amalgamate, enter

into partnership, or into any arrangement for sharing profits, etc., with any person or company carrying on or engaged in or about to carry on or

engage in any business or transaction which the company is authorised to carry on.

The other objects of the company not included in the main objects or ancillary to the attainment of the main objects have also been set out in the

main company petition.

The objects clauses of the transferee company, as set out in the memorandum and articles of association, are as follows :

To manufacture and market components, accessories, sub-systems any systems required for handling, control and/or management of fuel in

combustion engines, stationary or automotive, such as carburetors, fuel injection systems and fuel pumps, with or without the usage of electronics :

To manufacture and market cooling system components, accessories and sub-systems for combustion engines such as water pumps and

components thereof and other accessories connected to the cooling systems;

To manufacture and market components, accessories, sub-systems and systems for the control and management of spark timing, ignition and/or

injection using mechanical, electrical, electronic and other technologies for combustion engines;

To manufacture and market centralised electronic control and management systems using micro processors or other appropriate technologies

for management and display of various operating parameters of combustion engines; and

To deal in, purchase, import sell and export mechanical, electrical, electronic and other engineering goods.

The objects incidental or ancillary to the attainment of the above main objects have also been set out in the main company petitions.

It also enables the transferee company to purchase or otherwise acquire any patents, invention licences, etc., directly or indirectly to benefit the

company. It also provides for the transferee-company to enter into partnership or into any agreement for sharing profits union of interest, co-

operation, joint adventure, or otherwise any person or company in India or abroad carrying on or engaged in, or about to carry on, or engaged in

any business or transaction which the transferee company is authorised to carry on. Clause 9 also provides to amalgamate with any other

company, having similar to those of the transferee company.

The transferor company, when it was about to commence activity as manufacturers of two-wheeler carburetors, has entered into an agreement

with Mikuni Corporation, Japan, for the manufacture of two-wheeler carburetors. The transferee company is in the field of manufacturing four-

wheeler carburetors and the transferor company has obtained a letter of intent for the manufacture of 7,00,000 numbers of two-wheeler

carburetors in Chingleput District, Tamil Nadu. The said letter of intent was obtained from the Central Government and the transferor company has

obtained approval for the foreign collaboration with Mikuni Corporation, who is also a collaborator of the transferee company for four-wheeler

carburetors. Needless to point out, the transferee company is in the field of manufacturing four-wheeler carburetors for Maruti vehicles. Having

regard to the nature of the business of the transferor company, it was felt that the business of the transferor company can be conveniently combined

with the business of the transferee company to avoid duplication and achieve efficiency. In the opinion of the board of directors, such merger or

amalgamation would also result in achievement of better economy and utilisation of the resources by pooling the finance and expertise into a

common stream. Accordingly, the board of directors of the transferor company (Suncarb Private Limited) at its meeting held on May 2, 1990,

resolved to merge and amalgamate the transferor company with the transferee company as per the terms and conditions as contained in the scheme

of amalgamation. Such merger or amalgamation was also approved by the board of directors of the transferee company at its meeting held on May

2, 1990, wherein it was resolved to merge and amalgamate the transferor company with the transferee-company, as per terms and conditions

contained in the scheme of amalgamation. Thus, a consensus was reached by the management of the two companies and the business of the

transferor company should be merged with the business of the transferee company for the aforesaid reasons.

With a view to achieve the said merger, the board of directors of the two companies have decided to seek recourse under sections 391 and

394 of the Act for the amalgamation of the transferor company with the transferee company and, consequently, for the transfer of assets, if any,

and the liabilities of the transferor company as a going concern to the transferee company.

The material terms of the scheme of amalgamation are as set out hereunder :

Subject to the approval of the court, the date of amalgamation will be April 1, 1990, which date shall hereinafter be called ""appointed date"".

With effect from the appointed date the entire undertaking and all the properties and other assets tangible and intangible of whatsoever nature,

including all rights and powers of every description and industrial and other licences of SPL shall without any further act, deed or order be

transferred to and vested in or deemed to be transferred to and vested in UFSL in accordance with section 394(2) of the Companies Act, 1956.

With effect from the appointed date, all debts, secured and unsecured liabilities including any tax liabilities, duties and obligations of SPL shall be

transferred or deemed to be transferred without any further act or deed to UFSL and UFSL shall discharge all such debts and obligations of SPL

including payment of all taxes, levies, duties, public charges, Income Tax and dues to any Government or public authority.

With effect from the appointed date, SPL shall be deemed to have been carrying on and to be carrying on all business and activities, if any, for

and on account of UFSL until the scheme of amalgamation is approved by the High Court.

On such amalgamation, the shareholders of SPL will be paid the money equivalent to the face value of the shares held by each shareholder of

SPL.

On the scheme being approved by the respective boards of UFSL and SPL, the two companies will, with reasonable despatch apply to the

High Court of Judicature at Madras for sanctioning this scheme of amalgamation u/s 391(2) of the Companies Act, 1956, and for an order or

order u/s 394 of the Companies Act, 1956, to carry into effect this scheme and for dissolution of SPL without winding up.

The two companies, viz., SPL and UFSL (by their authorised representatives), may agree to any modification of this scheme which the

shareholders at their meeting or the High Court by their order may deem fit to approve or impose and may give such directions as they may

consider necessary to settle any question or difficulty arising under the scheme or in regard to its implementation and in all matters connected

therewith.

It is mentioned that the scheme will be operative from the appointed date, viz., April 1, 1990, and shall take effect after the sanction or

approval by this court.

Both the transferor company and the transferee company filed separate Company Applications Nos. 420 and 421 of 1990, respectively,

requesting this court to give directions for convening a meeting of the creditors and members to whom compromise/arrangement was offered. In

the case of the transferee company, the meeting of the equity shareholders was held at Hotel Connemara, Madras-2, on July 5, 1990, at 10 a.m.

to consider and if thought fit to approve with or without modification the said scheme of amalgamation. This court appointed Mr. S. Muthukrishnan

acted as chairman of the meeting of the meeting and to report the results thereof. In the meeting held on July, 5, 1990, Mr. S. Muthukrishnan acted

as chairman of the meeting and has submitted the result of the meeting by filing his report on July 11, 1990. The scheme of amalgamation was read

out and explained by its chairman and then it was put to vote and the following resolution was passed unanimously :

Resolved that the arrangement embodied in the scheme of amalgamation proposed to be entered into between the company and its members and

Suncarb Private Ltd. and its members, placed on the table and initialled by the chairman for the purpose of identification, for vesting the

undertaking of Suncarb Private Ltd. in the company upon and subject to the terms and conditions contained in the said scheme of amalgamation be

and is hereby approved and that the board of directors of the company be and is hereby approved and that the board of directors of the company

be and is hereby authorised to take all such steps as may be necessary or desirable and do all such acts, deeds and things as are considered

requisite or necessary to effectively implement the said scheme of amalgamation and this resolution and to accept such alterations, modifications

and/or conditions, if any, which may be proposed, required or imposed by the Hon''bel High Court of Judicature at Madras while sanctioning the

scheme"".

In the case of the transferor-company, directions were given by this court on May 4, 1990, in Company Application No. 420 of 1990. The

company was directed to convene a meeting of the equity shareholders for the purpose of considering the scheme of amalgamation. This court

appointed Mr. R. Veeraraghavan, failing him Mr. T. Sampathkumaran as chairman of the meeting and to report the results thereof. On July 5,

1990, a meeting of the equity shareholders of the transferor company was convened in accordance with the said order. The chairman of the

meeting reported the results of the meeting to this court by his report, dated July 11, 1990. The scheme of amalgamation was read out and

explained by its chairman and then it was put to vote and the resolution was passed unanimously. Hence, the transferee company has filed

Company Petition No. 59 of 1990 u/s 394 of the Act for obtaining confirmation of this court for the scheme of amalgamation. The transferor

company likewise has filed Company Petition No. 60 of 1990 u/s 394 of the Act for obtaining confirmation for the scheme of amalgamation.

A notice of the admission of both the company petitions was served upon the learned Central Government Standing Counsel as envisaged by

section 394A of the Act. The Regional Director, Department of Company Affairs, Southern Region, Madras, filed his counter-affidavit, dated May

15, 1991.

I have heard Mr. Dulipsingh on behalf of the petitioners in both the company petitions and Mr. A. S. Venkatachalamoorthy, learned Additional

Central Government Standing Counsel on behalf of the Regional Director in the Department of Company Affairs.

Mr. Dulipsingh, learned counsel for the petitioners submits that when a scheme of compromise or arrangement is submitted to the court for its

sanction, the court would only see the following questions :

(i) Whether the statutory provisions have been complied with or not;

(ii) Whether the arrangement is such as a man of business would reasonably approve; and

(iii) Whether the class or classes have been fairly represented.

He further submitted that in respect of these three points, there is absolutely no dispute between the parties, that the members in the case of the

transferor company as well as the transferee company have approved the scheme of compromise or arrangement offered to them and that,

therefore, there cannot be any impediment or objection for approving the scheme of amalgamation. It was further argued on behalf of the

petitioners that this court in exercise of its discretionary power in the matter when it is satisfactorily established that statutory formalities have been

duly carried out in favour of the scheme, should approve the scheme. According to the petitioner, this is eminently a fit case for this court to

exercise its discretion in favour of amalgamation.

Per contra, Mr. A. S. Venkatachalamoorthy, learned Additional Central Government Standing Counsel reiterating the representation made by

the Regional Director, Department of Company Affairs, raised the following objections in regard to the scheme of amalgamation :

Under the scheme of amalgamation; the shareholders of the transferor company, viz., Suncarb Private Limited, will be paid the money equivalent

to the face value of the shares held by each shareholder in the said company;

The proposal to pay back to the equity shareholders is an unusual one and not specifically in accordance with the provisions of the Act;

The purpose of amalgamation is nothing but the sale or transfer of the letter of intent issued in favour of the transferor company. As under the

provisions of the Industries (Development and Regulation) Act, the letter of intent cannot be transferred to another party without the specific

approval of the authorities concerned in the said Act.

Thus, it was argued by Mr. A. S. Venkatachalamoorthy that this court should not allow the scheme of amalgamation unless the petitioners first

produce necessary permission authorising the transfer of the letter of intent issued by the Department of Industrial Development in the Ministry of

Industry, Government of India and hence for this purpose this court may also consider impleading the department of Industrial Development as a

necessary party to the present proceedings.

I shall now consider the objections of the Central Government seriatim before I deal with the main aspect of the case whether amalgamation

should be ordered or not. As regards the objection that the notice to the Department of Industrial Development in the Ministry of Industry,

Government of India, I do not think that such a notice is necessary or contemplated under the scheme of the Act. The fact that the authorities under

the Industries (Development and Regulation) Act have to give their approval for transfer of the letter of intent does not mean that this court has to

implead or hear the Industries Department, even if it is satisfied that this is a fit case for sanctioning a scheme of amalgamation. The Industries

(Development and Regulation) Act, 1951, has been enacted only to provide development and regulation of certain industries. The provisions of the

Industries (Development and Regulation) Act and in particular sections 10, 11 and 14 were relied on by the learned Additional Central

Government Standing Counsel in connection with the licensing of industries. While considering an application u/s 394 of the Act, the court has to

give notice to the Central Government and shall take into consideration the representation having been made by them. Therefore, having regard to

the specific provision of section 394A of the Act, there is no need to implead the Industries Department as contended by the learned Additional

Central Government Standing Counsel.

Section 394A of the Act makes it obligatory on the court to give notice to the Central Government of every application made to it u/s 391 or

section 394 and to take into consideration the representations made by that Government before passing any order on the proposed scheme of

amalgamation. This would enable the Central Government to study the proposal and raise objections thereto as it thinks fit in the light of the facts

and information available with it, and also place the court in possession of certain facts which might not have been disclosed by those who appear

before it so that the interests of the investing public at large may be fully taken into account by the court before passing its order. The powers and

functions of the Central Government under this section have been delegated to the regional directors who are to exercise the same, subject to the

control of the Company Law Board (Notification G.S.R. No. 416, dated February 22, 1969).

Replying to the argument of Mr. A. S. Venkatachalamoorthy, learned counsel for the petitioners, has cited the judgment of the Bombay High

Court in M. G. Investment and Industrial Co. Ltd. v. New Shorrock Spinning and Manufacturing Co. Ltd. [1972] 42 Comp Cas 145. That was a

petition u/s 391 and 394 of the Act by the M. G. Investment and Industrial Co. Ltd. for sanctioning a scheme of amalgamation of the petitioner

company with the respondent therein, viz., New Shorrock Spinning and Manufacturing Co. Ltd. The respondent-company supported the petition.

Notice of that petition was given, as required by section 394A of the Act, to the Central Government and the Central Government contended that

the petition was not maintainable as approval of the Central Government u/s 23 of the Monopolies and Restrictive Trade Practices Act, 1969

(Monopolies Act), was not obtained as required. Nain J. of the Bombay High Court held thus (headnote) :

Held, that the Legislature has though fit under the provisions of section 394A of the Companies Act to procure the presence of the Central

Government by notice and not by its being added as a party. There was no jurisdiction to add a party except for the purpose of effective and

complete adjudication of all questions involved. There was also no jurisdiction to add a party to confer on it a right of appeal.

In view of the above pronouncement, I reject the contention of the learned Additional Central Government Standing Counsel on the question

of impleading the Industries Department, Ministry of Industry, Government of India. The role played by the Central Government in such cases is

that of an impartial observer who acts in public interest and advises the court whether it is or it is not feasible for the two companies to amalgamate.

If on an overall consideration of the entire picture, the court''s conscience is satisfied that an amalgamation would benefit not only the company

amalgamating but the company with which amalgamation is made and it is in the mutual interest of both the companies that such a scheme should

be sanctioned, this court should not hesitate to sanction the compromise and should not falter in giving effect to the genuine and bona fide scheme

chalked out by the two companies. I am, therefore, convinced that the objections of the Regional Director, Department of Company Affairs,

madras, have no force at all. The other objections raised by the Regional Director in his affidavit are also of no substance. The paid-up capital of

the transferor company is Rs. 300 consisting of 30 equity shares of Rs. 10 each fully paid-up and held by three shareholders and that the proposal

to pay back to the equity shareholders is an unusual one and not specifically in accordance with the provisions of the Act. This is again a matter

coming within the doctrine of indoor management and no unnecessary or untoward inroad can be made against the decision taken by the

preference shareholders out of their own volition and which, as I have already held, appears to be bona fide and perfectly reasonable and

acceptable to my mind. In fact, the essence of amalgamation is that the transferor company intends to reconstruct itself and for that matter be an

aid to the transferee company. I am satisfied, on the materials placed and in the absence of any other material to the contrary, the scheme of

amalgamation has got to be sanctioned.

Ramaprasada Rao J. (as he then was) in W. A. Beardsell and Co. (P.) Ltd., In re [1968] 38 Comp Cas 197 (Mad) while sanctioning a

scheme of amalgamation held as follows :

The word ''amalgamation'' has not been defined in the Act. The ordinary dictionary meaning of the expression is ''combination''. Judging from the

context and from the marginal note of section 394 which appears in Chapter V relating to arbitration, compromise, arrangements and

reconstructions, the primary object of amalgamation of one company with another is to facilitate reconstruction of the amalgamating company and

this is a matter which is entirely left to the body of shareholders of the primary company which offers or intends to amalgamate with another. There

is indeed an absorption by the company with which it is amalgamated, the latter being statutorily called the transferee-company and the former the

transferor company. In fact, the company amalgamating and the company with which it is amalgamated are so statutorily defined u/s 394(1)(b) of

the Companies Act, 1956. On a prima facie examination of the relevant provisions in Chapter V, it is abundantly clear that it is essentially an affair

relating to the internal administration of the transferor company. Of course, there should be consensus ad idem between the transferor company

and the transferee company in the matter of such amalgamation. The indicia of such consensus initiates from the transferor company as an offer

which is accepted by the transferee-company. The initiative thus lying on the shoulders of the transferor company, it is obligatory that a scheme or

arrangement should be proposed by that company and the shareholders put on notice of such intendment and objects and they being informed of

the benefits, facilities and privileges attendant upon such an obligation. Thus, amalgamation being within the scope of the decision of the body of

shareholders, such a decision if made by the body unanimously ought not to be lightly interfered with by the court. This does not necessarily mean

that the consideration of public interest which always figures as a halo ought to be totally ignored.

If the above salient features are borne in mind, and applied to the case on hand, I am satisfied that this is a fit case, in which the scheme of

amalgamation should be sanctioned. There is ample scope for improvement of the transferor company and incidentally the transferee company is

benefited by much coalition.

A scheme of amalgamation may be open to criticism, but unless it was affirmatively shown that the scheme was unfair, the court would not

interfere. There was no reason to doubt the bona fide recommendation made by the board of directors of the two companies.

The two company petitions are, therefore, ordered and sanction is accorded to the scheme of amalgamation as set forth in the respective

petitions, so as to be binding on the petitioners herein.

In this result :

(a) the scheme of amalgamation is ordered as prayed for; and

(b) the official liquidator is directed to submit a report to this court on scrutiny of the books and papers of the company, to the effect that the affairs

of the company have not been conducted in a manner prejudicial to the interest of its members or to the public, within six weeks from this date.