In Re: Zenith Electro-systment Pvt. Ltd

Mrs. Sujata Manohar, J.—Both these petitions are for amalgamation of Zenith Elector Systems P. Ltd. with Zenith Technologies Ltd. u/s 391 of the Company Petition No 32 of 1989 is by the transferor-company, namely, Zenith Electro- Systems P Ltd., while Company Petition No. 33 of 1989 is by the transferee company, namely Zenith Technologies Ltd. Meeting of shareholders and creditors of both the companies have been dispensed with in view of the consent letters annexed to the petitions. the official liquidator's report u/s 394 has already been filed. There are no objections in that report.

Mr. Rele, learned for the Central Government, has objected to the scheme of amalgamation on the ground that the transferee company has violated section 372(2) of the Companies Act. (The amendment to this section has not come into operation so far). u/s 372(2), "the board of directors of the investing company shall be intitled to incest in any shares of any other body corporate up to 10% of the subscribed capital of such other body corporate: provided that the aggregate of the investments so made by the board in all other bodies corporate shall not exceed 30% of the subscribed capital of the investing company." The transferee company in May, 1988, applied for the shares of public limited company known as Zenith Computers Ltd. The application was for 58, 800 shares in Zenith Computers Ltd. The allotment of these shares was made to the transferee company in September 1988. The investment so made by the transferee company far exceeded 30% of its subscribed capital.

It is, however, pointed out by Mr. D.J. Khambatta, learned counsel for the petitioners that u/s 372(14), the provisions of the section are not applicable to a private limited company unless it is a subsidiary of a public limited company. In the present case, the transferee company prior to December 1, 1987, was a private limited company. On December 1, Zenith Computers Ltd., a public limited company. These2,000 shares u/s 43A(1) of the Companies Act, the transferee company became a deemed public limited company. On August 26, 1988, the share capital of the transferee company was increased and a fresh allotment of further equity share capital of the transferee company was made. as a result, the total paid-up equity share capital of the transferee company substantially increased and the holding of Zenith computers Ltd. in the transferee company was reduced to 10% of the total paid-up share capital of the transferee company. The transferee company has subsequently obtained a certificate form the Central Government dated August 25, 1989, to the effect u/s 43A(1) of the Companies Act, 1956, the name of the said company upon reconcersion is on that day changed to Zenith Technologies P.Ltd."

In these circumstances, it is submitted by learned counsel for the petitioners that the violation of section 372(2) by the transferee company is only technical. Looking to the above circumstances, there is force in this contention.

Moreover, for violation of section 372, a remedy is provided u/s 374. It imposes a fine of Rs. 5.000 on the company and every officer of the company in default. In case the Central Government desires to take any steps against the transferee- company for this alleged violation of section 372, it has a remedy at law which is not effected in any way by virtue of this amalgamation. Because the transferee-company will continue to exist, steps can, therefore, be taken against the transferee- company if so required.

The alleged violation of section 372(2), therefore, does not stand in the way of the amalgamation scheme. In any case, the transferee-company present is not violating section 372(2) as this section is no longer applicable to the transferee-company. There is no provision under the Companies Act which prevents the present amalgamation scheme.

In In Re: Sulekha Works Ltd., the Calcutta High Court considered the questions whether violation of section 372 by a company would be a just or equitable ground for winding up the company and answered t in the negative. The ratio of that decision has no application to the present case.

In the case of Navjiwan Mill Co Ltd., Kalol, In re [1972] 42 Comp Cas 265, the Gujrat High Court held that when the shares of a company are being taken over by another company by way of a scheme of compromise and arrangement, the scheme need not comply with the provisions of section 372. In other words, the restraint placed by section 372 on the acquiring of shares in another company cannot apply to a scheme for amalgamation of the the two companies. In the case before the Gujarat HighCourt, as a result of the amalgamation scheme, the provisions of section 372 were being violated. the Gujrat High Court held that section 372 is operative in a different area. the section puts a restriction, inter alia company. It is meant to prevent a merger or amalgamation of two company. it is meant to prevent a merger or amalgamation of two companies by the method of buying over shares without going through the procedure the scheme of amalgamation even though lit would have amounted to violation of section 372 had the section applied.

In the present case, no such situation has arisen. There is only an alleged violation of section 372 in the past by the transferee-company relating to a totally separate transaction which has no connection with the present scheme of amalgamation.

In the premises, petition No. 32 of 1989 is made absolute in terms of prayers (a) to (g). Petition No.33 of 1989 is made absolute in terms of prayers (a) to (f).

Costs of the official liquidator in. petition No. 32 of 1989 are fixed at Rs. 300. Costs of the Regional Director in each of the petitions are fixed at Rs. 300.