I ria (c or in tire ase of Mahaamba Investments Ltd. vs Electric Company Limited.

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, 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 Thm stemr company is the subsidiary of th.e Transferee company, its holding company, t is contended that 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 Transferor company who are none other than the members 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 req inrement 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 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. the public. Despite 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 ten as 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 Sr cOlon 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 1 394 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, I 949 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 this Ad) which tIe Central Geverement n.ay, by in. 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 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 ff1- (s) that other contrels the composition of its Board of directors; or (b) that other- (i) where the first mentioned 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 fS 113 4is h (‘onpnAi d in I 01 3 1 (onpan B if )fl f he folbAing r I piied 1t lj mpanB Ithmmnlecfsnnii A 01 conpo i f I Due ton C lb Idsmo fth C U) A’ It Inncnn 1e, r - Con Co A is suns dia f a uhsid in 3 a miPr ) sdfn as i r mpn 10 01 I i I I 1 A t silnlai a ) I 1 i ( q 1 1 Ti s I ctg i + 4 1ff’ I 1 + 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: if Previsions 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 reconstruction omr aiiies, or tI e amalgamation of any hvo or mow companies: and company (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 oinpan in this sectioi referred to as the Ctransferee company”): tue ourt may, either In the order sarietionrng e inpn ise or arnngement or hi a subsequent order, make provisions for all or any llwi gm tters U) tIn tiansteree c anpan ht hal sfer t( the whole or any part of the undertaking, pin at f ibil ix ny tr’ nstero f comparn. u) ,e aiotm nt or appr pr nion oy the transfrree rcmpani of an shares it rca, policies, or o ,hei like interests company svhic h, sn der mpromise or trrangc ment, art ‘4 to he 0 allotted or appropnated by that corn.pax.y to or fOr any person; (iii) continuation again.st hasinree company ]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) hcdentai, consequential supplernental. rnatters as axe necessary to secure reconstruction 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 cornpany cornpanies, 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 conduc ted 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 trar1slcr of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest 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, eflbct to cease to have in, (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 18 certified copy thereof to be flied with the Registrar for re gistratiom. 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 eic tend to. fifty rupees. (4) in this section - (a) propertv’ includes property, tights 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 arbitration, construction, compromise and arrangement enterec between companies, for any purpose conducive to the $;i U\ shareholders, without an thiler, while interest of iccoidmg saw lion to th sehcmc, sc heme a sanction In 19 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 mntomdudeanicomofl1riliaiiaeoinaiiupderht Act while the I ransfernr company to meinde any body corporate, whether a company within thc meaning of the Act At first blush, one gets the impression that r not definition of I ransleror compan mt Indes a tort ign ctnnpany and when read with the definition of the body corporate in the purpose of the Section is to Section 2(7) of the Act, ‘nable the compromise beth cc n i toreign eomp’mx and an the fransferee compa ‘ Nevertheless the Indiar eompan’, tenn Transfert e comparr inc hides anb compan’ w thin flit f the dc finition A cairfitl xam r ati )n meaning of the Act, of Lod corporate nude s lion (7) of Section 2, reveals t is wider h n that, fehti ani fcreigu eampart, c corpnr#te nusu1ii1td under anv Ic. m e mpan,’ cinch takes intl i 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 sub sidiarv M/ s. Audhra Bank Housing Finance Limited, re(AP) (200Y)47 SCL 5.13; W C 21 the tI’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’ purpose. of the Act. Hence, Point No41) j ti swereU. in the afbnna tree 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, 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 shareholders ol C” \ S Transfrror company, nont other than tile members of tile trrnisfcit ‘.cmpau cc nvcnrci 1) consider the scheme of c m&ganahor’ pursuaut 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 \ (Cl 51 f a’ sets i pitt makms c mpan ha m g an cxc c as of assets )ver hablinc to 11 r exter t of Rs r89, ) (‘ion s cc brie tat liansthrci exec s ot; pain- has an liabilities tc he extent of Rs 18 72 Ih ila rcbcs upon the dec isLori ot tin Bomha’ I ria (c or in tire ase of Mahaamba Investments Ltd. Vs. ID! Limited2 waiL at tlc same tune, sceking to distmgutsh 1 cision of tins Court ni the case of Kirloskar n in -t a Sri s Electric Company Limited. JQ1 \Si inc OO1 t5nprrc;r.zz Pg it 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 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, c:apital 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 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 the sanction of the scheme of arrangement. This Court, having tirken uote of the. material terms of the scheme, held that prima facie the real purpose was to tmnsic.r primanr and valuable assets of the company which inchided the entire movable properties of the company to the Transferee companies which are said to be paper companies without paving Che stamp duty and that it was not in public interest Having found that petitioner-company therein had followed the formalities, the learned Judge proceeded to answer the question as to 25 whether a similar requirement is necessary qua shareholders of the Tran sinree company. Having thoroughly semmed and examined the scope and object of Sections 391 to 394 of the Act His Lordship H. L, Dattu was of the view that the application nnder Suinsections (ii) and (in) of Clause (b) of Section 394 of the Act referable to the Transferee companies, were rcqnired to petition the con pany by making an application under Section 391 of the Act and thereafter a petition under Section 394. The observations, in the very words of His lordship is thus: “In view of the above, it can safely be said that both the transferor and transferee company should make either a joint petition or separate petition as envisaged under section 394 of the Companies Act. Sninclanse (v) of the section is equally applicable to the tianslbror and the transferee company, for it cannot be the position the shnrehoiders of the transferor that it is on company, who can dissent. The general powers contained in clause (vi) may require application both. in the case of transferor company and the if an arrangement transferee company. tinder s inc’toned and directions air cimises (I) and (iii of scetion 394 ot the Act, on a petition filed by the transferor company, the orders so made by the court may not bind its members transfei cc company, ‘intl traustcror arranpenicnt view that both the creditors In my view, the vanous inc ongi a )U5 situation sub Inns s of section 3( 4 of the Act, confirm transferee c umpanv should make an application rnder secttons 391 to 394 of the Act before the sanctioned. scheme Fticrctorc, mere tiling ot apphcation under rule 9 of the (‘ompamcs (Comt) Rules by the transferee c ompan cs ii cold not satish the rcqmrc ment I heretorc, in Icr section 391 to 394 of the Act. p n , cm h of the comp nit’s for the ‘omplv with the of mn ngcmcnt must sc hc in ic p nraents ot st —ton 391(1; of the Act hr inter ann for holdmg the ohtainmg directions, ncciing of ttic shareholders mid creditors of the C\lmpanit 5, n an tip, To s’ini this petition is onh hr the transferor compan and the piaycr made in the sanction p if ion c a, t3 b bind u5 a’ all memh an, i -t ingcu’crt scheme secured creditors unsecured creditors of d.c petitionercom.pany, as well as on the petitioner- company and that by true construction of sections 391 to 394 of the Companies Act, the transferee company should also join in this petition and their should be meeting of the shareholders of the transferee company after obtaining dirt etions from this Court convening the meeting as well as approving the scheme of arrangement. Sir cc the assets and liabilities of the petilioner-coinpany .will be trausferTed to the transferee companies under the scheme of arrangement the sharebolding and other rights of the transferee companies would he affected and it is going to change the capitirl structure of the transferee eompaniesJ

23. The question as to whether a joint petition or a separate petition as envisaged under Section 394 of the Act is required to be filed by both the Transferor and Transferee companies fell for consideration in the ease of Electro Carbon Private Limited4 wherein a learned Single Judge of re(KARI i99 Vol.19 Pg825 I is onit held th t pmt p tthon is impenrussible and that a eparate petit as air rqtnred to b fd-d It appears that this judgment was not brought to the notice of His lordship ILL. Dattn, J.. and therefore, His Lordship held that it could he either a joint petition or a separate petition. 01 rae this is at noticed is it may have no h sung on tae c nclusions at this petiti n 2t ‘I here is considerable force in the snbmissxn I the learned Senior counsel that the jndgement in kirloskar’s is rIr’tingnishable on facts, since that was not a case of albamation f i snhsidi in company with its hold ng c rp at. c h kìmg Cot pa tbemg h tolderof lOaoot aba a of its hsidian’ )mpc n in the m etnig f tl sh rcholdets of ‘I ransleror compant convened directed in thts Court under Section 391 of the Act, the i’erv shareholarrs of the Transferee compam havmg pated m h said ira fl , nd appro e die scher o a Igat aIr n -a not d taat I hi I e Tr tie ‘ornpctr i mt-rn’ ad ere t Tb Board c I La rIots of tin transferee ampant at 11w ‘0 meeting held approved and adopted scheme amalgamatro x LxInbit °‘L I h Reserve Bank of India permitted the I ransferee company to enter into a contract to take over its subsidian. 1 he scheme of transfer does not ffc t thc nghts c f the mcmlxi’s or reurtors )f 11 e Transferee company as beta ecu themselves and the conipanv. No new shares are issued, there bemg no rorg nisation of c apnal of I ransferor company In these circnmslances, I am of the considered opinion, that there is no nt ed for the Transteree compain to in a 1hc hon and a petth a i r d Stctxon 391 to 3Y’ ot tli Ac 2% fo the r as ns aft ed supra the petiti mci’ has made out a case foi acronling sanction of this Court to the sciem of ax algainitxc n l’xh hi l, lie ii , the foilowi ig ml a he sch in d amxigxm tar proposed by thc I ransleror Company is Inc g cx ntin al lxh’bit IC t r sI rn Canrj’ny hare i Id rs r duo n) 1 I Itnu ( mpiny sh’ill s cdnifl u thueb uganorderol urdu ip (i ) T s dirt. n I di 1% rq dccrec flu F rmNo4 u I e Fr ii Irtor (tomin dinx tur j ) thus order on the I’Zcg six n I Conpamc in Kna’ka nrthm 30 I KS