IN THE HIGH COURT OF KARNATAHA, BANGALORE DATED THIS THE 13th DAY OF JULY, 2005 BEFORE THE HONBLE MR JUSTICE RAM MORAN REDDY IPANY PETITIoLQ498 22Q BE’IWEEN IHA K lOUSING FINANCE LI I) A OMP4 INORPORAIED UNDER Till’ ( MPANIFS ALl, 1956, HAVING 115 RFGD OFFICE AT 1516, VAYUDOO PH CHAMBERS, 4’’ FLOOR, FRINI’IY JUNCTION, M G ROAD, I3ANGALORL 560 001. REP. BY ITS MANAGING DIRECTOR MR. M R ADYANTHAYA. --PETPTIONFR (BY SRI UDAYA HLLA, ADV,) AND NIL RESPONDENY THIS PETITION IS FILED UNDER SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956 TO SANCTION THE SCHEME OF AMALGAMATION AND ETC., THIS PETITK)N COMING ON FOR ORDERS, THIS DAY THE COURT MADE THE FOLLOWING; a 2 ORDER The petitioner a Compar.y, for short the ‘Transtèror company’ incorporat.d on 20 th October 1995 under the Companies Act, 1956 (for short ‘Act’) having its registered office at No. 15 16, Vayudooth Chambers, 4 th Floor, Trinity Junction, MG. Road, Banga1ore560 001 bas presented this petition seekmg sanction of the scheme of amalgamation Exhibih” F”. 2. The main objects of the Transteror company is to earn’ on business of providing long term fmance to any person or persons, firm, company, corporation, society, association of person-s on such terms and conditions as the company may deem ft for the purpose of construction or purchase of house/flat in India br residential purpose, amongst other objects set out in the Memorandum and Articles of asscwiation Exhibit’B” 3 The Authorised share capital of the Transferor company is Es, 10 crores divided into I crore Equity shares of Es. 10/ each while the issued, subscribed and paid up share capital is Es. 10 crores divided into 10 lakh Equity shares of Rs.10/- each. 4. The Balance Sheet made up to 3iH032004 Exhibih “As of the Transferor company duly audited by its Auditors discloses its assets and liabilities. 5. The Board of Directors of the Transferor company, in its meeting approved and adopted the scheme of amalgamation Exhibit—”E” whereunder the Transferor company is proposed to be merged with M/ s Vijaya Bank, for short the ‘Transferee company’, a Company constituted under the Banking Companies (Acquisition and Transter of Undertakings) Act, 1980 (for short ‘Banking Companies Acquisition Act’) having its registered office at 41/2, M.G Road, Bangalore, subject to the sanction of the scheme of amalgamation. by this Court, 6. The Transferor company is the wholly owned subsidiary of the Transferee company which holds all the shares issued by the Transferor company either in its own name or by its nominees. The Transferor Company made an 4 application in (1ANo764/2O&4 seeking pennission to ccnvene and hold the meetings of t]..e members. and creditors for considering the scheme of amalgamation Exhibit-E”. This Court, by order dated 2 II 2OO4 allowed the application and granted permission sought for The meetings of the members mid creditors of.. the Transferor Company were held on the appointed date, thne and place in compliance with the order dated 2” 11 20O4 of this Court. All the members and creditors who attended the meeting unaniniously approved the scheme of amalgamation ExhibiP as is evident from . the report of the Chainnan of the meethg Exhibit”CY. 7. The main objects of the Transferee company is to establish and carry on the business of a Bank amongst other objects set out in th...e Memorandum and Articles of Association Exhibit’D”, 8 The Authorised share capital of the Transtèree company is Rs 1,500 Crore divided into kiO crore Equity shares of [in. 10/ each while the Issued, subscribed and c paihup !hare capital is Rs.433,51,78,OOO/. The. Tra..sleree company has produced. the latest Balance Sheet ExhibiicCS made up to 31O3-2OO4 dul audited by its Auditors disclosing its assets and liabilities, 9. The memorandum of association of both the Ccmpa.ies permit amalgamation while Section 6(1)(m) of the Banking Companies Regulation Act, 1949 (for short ‘Banking Regulation Act also permits the amalgamation. The Reserve Bank of India. by its letter dated 2 lO72OO4 Exhibit-”H” accorded approval to the scheme of amalgamation. 10. The petition was admitted and notices ordered on the Regional Directcr of Company Affairs, Chennai and the Official Liquidator. The request of the Official Liqmdator for appointment of a Chartered Accountant to investigate into the affairs of the Transferor company was allowed by order dated lr022005 in OLR No6l/2005 and 198/2004. The Official Liquidator, in his report dated 28032005 enclosed the report Dt. 10I2O05. Sri. Anand Rao, Char ered Accountant, w.ho after baring investigated into th,e affairs of a the Transferor company for a period of five years preceding the accounting year 2OO4-O5, opined that the affairs of the Transferor corn,.••.py have not been c...ondueted in a manner prejudicial to the interest of its members or the publicS 11. The Regional Director of Company Affairs filed a report dated 28O32OO5 stating that the Transferee company is a scheduled Bank a com.pany, within, the meaning of the said term tmder the Banking Companies Acquisition Act, and hence, not a transferee company under Sectioj. 394(4)(b) of the ‘Act.’. in. addition it is stated that no separate petition is filed by the Transferee company. lL The material on record discloses •that the entire shares of the Transferor company is held by the Transferee company mid i.ts nom.inees as reflected in the Balance Sheets Exhibits “A” and “C”. The Board of Directors of both the Companies have opined that the merger of the companies would be beneficial and profitable to operate as a single unit instead of two different units. The Transferee company is said to be a. consistent profit making company. In order to *1-. have synergy of operation an also to avoid administrative overheads, they have decided to amalgamate into one unit so that they can avail the advautage of largescaie operation it is also said that the financial base of the. amalgamated company would he considerably enhanced. Since the Thmstemr company is the subsidiary of th.e Transferee company, its holding company, t is contended that the scheme does not affect the rights of members or creditors of the Transferee company as between themselves and the Tran.sferor company or does not involve re’organisation of the share capital of the Transferee company. 13. The material on record further discloses that the Transfrror company convened and held the meeting of shareholders and creditors in accordance with Sc.ction 391 of the Act and in tenus of the other dated 2 11 2004 passed by this Court in C. A. No.764/2004. The members of the Transferor company who are none other than the members of the Transferee company, who attended th.e meeting unanimously approved the scheme of amalgamation Exhibfl* ape The coreditors of the Transferor company who attei.ded 8 the meeting, too, unanimously approved the scheme of amaigamation. The statutory reqinrement as contained in Section 291(2) of the Act is complied with. The Auditors’ report, discloses that the affairs of the Transferor company are not conducted in a manner prejudicial to the interest of the members, creditors or the public. Despite the publicaÜon of the healing of this petition, none of the members, creditors, employees or any other person have appeared before this Court to oppose the scheme of amalgamation. The report of the Official Liquidator discloses that be has no objection for according sanction. 14 The terms of the scheme of amalgamation Exbihit “E” indicate that, with effect from the said date, all debts, liabilities, dues and obligations of the Transferor company and any accretions or additions or deletions thereto, after the appointed date, shall without any further act or instrnment. or deed stand transferred or deemed to be trnnstbrred and vested in the Transferee company so as to become as and from that date, the debts, hsbulities, dues and obligations of the Transferee Company. Upon the Sc heme of 0 Amalgamation being sanctioned and becom.ing finally effective, no fresh shares of the of the Transferee company are to be •••o•t...ted to acquir the assets and liabilities cf the Transferor company while the share capital of the Transferor company stands cancelled aid reduced together with the reserves. Balance in the Profit and loss account of the Transferor company i.s to be set off against the investments an reflected in the books of account of the Transferor company while the debt if any, to he adjusted against the reserves of the Transferee company. 15. All the employees of the. Transferor company in service on the effective date., shall become the employees of the transferee. company on such date withort any break or interruption in service and on the tenas and cenditions not less favourable than those subsisting with the. transferor company. No employee of the Transferor Company has appeared befr’re the court to oppose the Scheme of Amalgamation, ExhibitE”. Thus, the interest of the employees is taken care of. ; N 10 16. Or. a perusal of th.e iapiv of. the. Regional Direeter for Company Affairs, the following two questions arise for decision making in ffmi pelition: I) Whether sanction of a scheme of amalgamation of the Transferor Company, a subsidiary of the Transfe:.ree C:ompanv. a body corporate, under the Banking Ccmpsnies Ae.quisibon Act, is permissible under SrcOlon 39 1 to 391 of the Companies Act, 1956? 11) Whether the. Transferee company, a boda corporate is required to file. separate e.titious ranier Section 39 1 to 394 of the. Act for sanc.Iion of the sche.me of nuaigan ition? .5. Vijaya. Bank is a Pan.king c.ompany as defined in the Banking Coiuparde.s Regalialion Act, I949 and a holy corporate under the Banking Companies Acquisiticai. Act.. The toni ‘Hod corporate’ is d.ehned u.ude.r Section 2(7) of the Act which reads thus: 11 “Body corporate” or aroIrationn includes a company incorporated outside India but does not include— a) a corporation sale; b) a co-operative society registered under any law relathig to co-operative societies; and c) any other body corporate (not being a company as defined in. this Ad) which tIe Central Geverement n.ay, by notification in the Official Gazette, specify in this behafy The term ‘body corporate’ is wider than the expression ‘company’ and is used in several sections of the tct to denote not only a compam incorporated. in India, but also a••• foreign company. It includes a corporation formed under any special law of India or a Ibreign country, except as expressly excluded by the definition, It includes all public financial institutions mentioned in section 4-A as well as the nafionalised banks incorporated under section 3(4) of the Banking Companies Acquisition and Transfer of Undertakings Act, t970. However it excludes a Body corporate, which is not a company under the Act, and which is specified by th.e Cr.ntral Govemment i.. the notification in the official gazette in othe.r words, it melnde.s a body corporate other than which Central Government my by notification in th..e official. gazette specify. s Vijaya. Bank squarely fails within the aforesaid definition of the term body corporate. 17. The terms ‘Holding company’ and subsidiar are defined in Section 4 of the Act, which reads as follows: “4. Meaning of ‘holdi.g company’ and subsidiaryu (I) Fcir the purposes of this Act, a company shall, subject to the provisions of suta section (3), he deemed to be a subsidiary of another if, but. onir ff 1- (s) that other contrels the composition of its Board of directors; or (b) that other- (i) where the firstmentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rihts in all respects as the holders of equity shares, exercises or controls more. than half of the total voting power of such c.ompany; t:ii) where the ti.rstnnentioncu company rs any other company, hokis more than hart rn. nominal value of its equity share capital; or (c) the finthmcntioncd corn panv is a subsidiary: of ary company which is that other’s subsidiary.” T if fS 113 4is h (‘onpnAi d in I he 01 3 1 (onpan B if )fl f he folbAing dit r I piied 1t lj mpanB Ithmmnlecfsnnii A ii 01 th conpo i f I lid Due ton C rai lb Idsmo lb he fth C U) A’ It - Inncnn 1 e, r Con Co A is suns dia f a uhsid in 3 a miPr ) ja sdfn as i hidg tan r mpn 10 01 I I lion t silnlai I 1 i a ) I tel A 1 1 1 i ( pa 1ff’ I q sh Ti s pro i I ctg 1 + + 4 14 euuitv shares issued by the Transferor company being held liv the Transferee company, it could be satelv concluded that the Transferor company is the subsidiary of the Transfrree company which is its holding company. In view of sub section (4), the Transferor being the subsidiary of the other company, the Transferee company is deemed to be a holding company Sub-section (5) provides that the expression ‘Company’ in the said section includes any body corporate. Thus, under this clause the tenn ‘Compan.v’ under t••he Act h eludes any ‘body corporate’. (Emphasis suppbed) Section 394 of the Act reads thus: ifPrevisions for facilitating reconstruction and amalganation of companies:- (1) Where. an apphcation is made to the Court under Section 391 lur the sanctioning of a o.mpromise or arrangement proposed between a company and. any such persons as air mentioned in that section, and it is shown to the Court- (a) that the compromise or arrangement has been proposed for the purposes of, or in r S flflecti)fl is th a h xix for th reconstruction of any company or omr aiiies, or tI e amalgamation of any hvo or mow companies: and (b) tnt under the scheme the is hole or aix part cf the undertakmg proper or liabilities ot [my coinpani concerned m the scheme (in it is section referred to as tnmsferor company”) is to be translerred o nothc oinpan in this sectioi referred to as the Ctransferee company”): tue ourt may, either In the order sarietionrng th e inpn ise or arnngement or hi a subsequent order, make provisions for all or any cfthe llwi gm tters U) ht hal sfer t( tIn tiansteree c anpan the whole or any part of the undertaking, pin at f ibil ix f ny tr’ nstero comparn. u) ,e aiotm nt or appr pr nion oy the transfrree rcmpani of an shares cli it rca, policies, or o ,hei like interests xi that company svhic h, snder the mpromise or trrangc ment, art to he ‘4 0 lb allotted or appropnated by that corn.pax.y to or fOr any person; (iii) the continuation by or again.st the hasinree company of an ]egai proceedings pending by or against any transferor cornpany; (iv) the dissolution, without winding up, of any trrn sferor cornpany; (v) the provision to be rnade for any persons who, within such tine and in such rn.anner as the court din.cts , dissent frorn the cornprornise or a*angernc.nt; and (vi) such hcdentai, consequential and supplernental. rnatters as axe necessary to secure that the reconstruction or arnalgarnahon shall be fully and effectively carried out: Prcvided that no cornprornse or arrangernent proposed for the purposes ol, or in connection wit]., a scherne for the anudgaination of a cornpany, which is being worrnd up, with any other cornpany or cornpanies, shall be sax cloned by the court unless the court has received a report frorn the Cornpany Law Board or th.e Registrar that the afilairs of the company have not been conduc ted in a manner prejudicial to the interests of its members or to puhlic interest: Provided farther that no order for the dissolution of any transferor company under Clause (iv) shall be made by the court unless the Official Liquidator Las, no scrutiny of the hooks and papers of the company, made a report to the court tht the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public irterest. (2.) where an order under this section provides for the trar 1 slcr of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be translbrred to and become the bahilitics of, the transferee company; and in the case of any property, if the on. er so directs, freed from any .charge which, is, by virtue of the compromise or arrangement, to cease to have eflbct (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a ill 18 certified copy thereof to be flied with the Registrar for registratiom. If default s made in eompiying wit!. this sub section, the company, and every officer of the company who is in default, shall be punishable with. fine which may eictend to. fifty rupees. (4) in this section - (a) propertv’ includes property, tights and powers of every: description: and ‘liabilities’ includes duties of every description; and (b) ‘trrmsferee company’ does not inchrde any company othc:r than a company within the me:aning of this Act;. but ‘transferor company’ includes any body corporate, whether a company within the tneaning of this Act or not” A bare reading of the said provisions in conjunction. with Sections 39 I to 393 in Chapter-V of the Act ]eaves no room for rjoubt that the Legislature invested in the Court powers or wide amplitude navmg regard to arbitration, re construction, compromise and arrangement enterec into between companies, for any purpose conducive to the $;iU\ interest of the shareholders, without an thiler, while iccoidmg saw lion to th sehcmc, 19 In fbi case of sanction ot a sc heme of amalgamation between two companies, what is c ssential is a Transferor compan and a Transferee company. Sub st elton 1(b) of Section 3°4 of the Act defines 1 ransferec ccmpanv as mntomdudeanicomofl 1 riliaiiaeoinaiiupderht Act while the I ransfernr company to meinde any body corporate, whether a company within thc meaning of the Act r not At first blush, one gets the impression that the definition of I ransleror compan mt Indes a tort ign ctnnpany and when read with the definition of the body corporate in Section 2(7) of the Act, the purpose of the Section is to ‘nable the compromise beth cc n i toreign eomp’mx and an Indiar eompan’, the fransferee compa ‘ Nevertheless the tenn Transfert e comparr inc hides anb compan’ w thin flit meaning of the Act, A cairfitl xam r ati )n f the dc finition of Lod corporate nude s ins lion (7) of Section 2, reveals that, t is wider h n i Ic. m e mpan,’ cinch takes intl its fehti ani fcreigu eampart, c corpnr#te nusu1ii1td under anv V 4 20 special law of India and the hcxlv corporate. a company defined under the Act, while excluding a Corporation or a Craoperafive Society. MIs. Vijaya Bank, a body corporate constituted under the Banking -ompanies Acpnsition Act is the holding compaay jpthp . ses, of this Act, as defined in Section 4 of the Act, in respect of the petitionencompanv, the snbsidiarv company. Hence, it is not difficult to hold that Vijaya Bank, though a body co:rate is a eompany for the purpose of the Act. If that be so, then Vijava Bank is the Tran •fcree company for the purpose of Section 394 of the Act. (emphasis supplied) 20. The leaned Senior cone sd Sri. Udaya Holla would make reference to the decision of the High Court of Andhra Pradesh in the case of Andhra Bank Housing Finance Limited (SEBI and Corporate Lawsuleports), which, too, was a case of a scheduled Bank, a body corpo . rate and a company under the Banking Companies Acquisition Act, a Transferee company seeking to take over its subsidiarv M/ s. Audhra Bank Housing Finance Limited, re(AP) (200Y)47 SCL 5.13; W C 21 the t I’ransfbror flr’nI15-inV wiiicii. was toe. petrtioirer in the C.ompariv petition. In identical circumstances, the And.hra Pradesl. High Court held that, under Section 4() of the Act, the e.xpression ‘company’ includes a body corporate aid therefore, the Batik which is a body corporate and a holding c.onpany fell within the expression tompany’ for the purpose. of the Act. Hence, Point No41) j ti swereU. in the afbnnatree Sri. Udava Holla, Icarned Senior Counsel contends that M/s. Vijaxa Bank, the Tran.siEiee Company being a 1.00% b,oiding company wherein all the shareholde.rs or the shareholders of its subsidiary the Transferor comuanv b.aving consented to the scheme of amalgamation, the c;ontract between two coin.pames. there is no need tbr a setiarate petition to seek the irnprirnatnr of this Court to the sc.hex,ne 01 analgimmnatlore Amplrlying the sari con.tentmon, Sri U dam.: I-I ella points out to the report Exhibit to’ in the Chairman of the meeting of the shareholders ol ttie C” \ S Transfrror company, nont other than tile members of tile trrnisfcit ‘.cmpau cc nvcnrci 1) consider the scheme of c m&ganahor’ pursuau t to 1hz dirttion (I this Court in C. A,No 7( 1/2004 whence all the members who attendcd the meting unanimously -ipproved the scheme and agreed th -it up n the s theme bee ming efihetive, the share capital af the Transferor company isould stand automatically cancelled and no shares hi the Transft roe company icould 1w alIenee to them, Further that in terms of the scheme file cieditors of the Trai sferor c ompans woul 1 no he altec tc I since the Transferee c u pal \ s (Cl 51 i pitt makms c mpan ha m g an cxc c as of assets )ver hablinc to 11 r exter t of Rs r 89 , ) (‘ion s cc brie tat liansthrci ot; pain- has an exec s f a’ sets ci liabilities tc he extent of Rs 18 72 a Sri Ih ila rcbcs upon the dec isLori ot tin Bomha’ I ria (c or in tire ase of Mahaamba Investments Ltd. Vs. ID! Limited 2 waiL at tlc same tune, sceking to distmgutsh n in -t lit 1 cision of tins Court ni the case of Kirloskar Electric Company Limited. JQ1 \Si inc t5nprrc;r.zz Pg it OO1 1’ 3Cc rrp’n aces Pg 2 1 The factual matrix noticed supra demonstrates that the petitioner the Transferor company is sought to be merged with M/ . Vijaya Bank, the Transferee companv That the Transferor co]..pany is a subsidiary of the Transferee com.pany, the Holding Company by now is well established. Clause I I of the scheme of amalgamation Exbibiti” E” provides that on the scheme becoming effecting, the said share c:apital of the Transferor company automatically stands cancelled and no shares will be allotted to any of the shareholders of the Transferor compau as the Transferee company holds all the sharys issued by the Transferor company. The scheme is not likely to affect the interest of the creditors of the Transferor company in view of the fmanclal position of the Transferee company, The scheme Exinbitali” does not involve reorganisation of the share capital of the Transferee company. 22. Keeping in mind th.e est.hlished facts, I proceed to examine the decision... of this Court in Kirioskar’s case supra. Certain essential facts must Ire first noticed. M/ s Kirloskar Electric Company filed a petition under Section 391 to 394 of 2.4 the Act seeking sanction of th..e scheme of arrangement whereunder some of the divisions/undertakings of the petitioner Company were sought to be hived ott and transferred in favour of K.T. Switch Gear Private Limited and M/ s. Pest Trathng Agencies Limited, which Transferee companies did not tile petitions before the Court. However, on the objections taken by the Regional Director of Company Affairs, the said two Transferee companies sought to come on record h filing applications under Rule 9 of the Company Court Rules, 1959. in addition, secured creditors as well as the employees association objected to