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High Court Of Calcutta
Before Sanjib Banerjee, J.
AREVA T AND D INDIA LIMITED - Appellant
Versus
STATE - Respondent
C. A. 29 Of 2007
Decided On : 07/05/2007
AMALGAMATION - INCREASE IN AUTHORISED SHARE CAPITAL - FEES - WHETHER AUTHORISED SHARE CAPITAL OF TRANSFEROR COMPANIES MERGES INTO AUTHORISED SHARE CAPITAL OF TRANSFEREE COMPANY - WHETHER TRANSFEREE COMPANY LIABLE TO PAY FEES FOR INCREASE IN AUTHORISED SHARE CAPITAL.
Fact of the Case:
Petitioner company sought approval of a scheme of amalgamation of three companies. The main issue was whether the authorised capital of a transferor company merges into the authorised capital of the transferee company upon the scheme being sanctioned and implemented, along with the rights relating thereto. The second issue was as to the treatment of the difference between the amount recorded as the additional share capital issued by the transferee company to the shareholders of the transferor companies in terms of the scheme and the amount of share capital of the transferor companies received by the transferee company in lieu whereof the additional shares of the transferee company are issued.
Finding of the Court:
1. Authorised capital does not represent any capital at all, but sets a limit that the paid-up capital of a company may touch at any given point of time. 2. The right accrued to a company upon it having paid the requisite fees on the basis of its authorised capital, is a property that the definition found in Section 394 (4) (a) of the Act recognises and is capable of being transferred to and vesting in the transferee company. 3. The authorised capital of the transferor company does not ipso facto vest in the authorised capital of the transferee company. 4. The right to increase its paid up capital to its authorised limit, is a right unique to each company and incapable of being transferred just as the fee paid for registration of a company is also incapable of being transferred. 5. There is no merger of authorised capitals consequent upon a scheme of amalgamation and that the quantum of increase in the authorised capital of the transferee company sought is the sum of the authorised capitals of the transferor companies is merely a coincidence on made to suit the petitioner's contention of merger of authorised capitals.
Issues: 1. Whether the authorised capital of a transferor company merges into the authorised capital of the transferee company upon the scheme being sanctioned and implemented, along with the rights relating thereto. 2. Whether the transferee company is liable to pay fees for the increase in its authorised capital.
Ratio Decidendi: 1. The authorised capital of the transferor company does not ipso facto vest in the authorised capital of the transferee company. 2. The right to increase its paid up capital to its authorised limit, is a right unique to each company and incapable of being transferred just as the fee paid for registration of a company is also incapable of being transferred. 3. There is no merger of authorised capitals consequent upon a scheme of amalgamation and that the quantum of increase in the authorised capital of the transferee company sought is the sum of the authorised capitals of the transferor companies is merely a coincidence on made to suit the petitioner's contention of merger of authorised capitals. 4. The transferee company is liable to pay fees for the increase in its authorised capital.
Final Decision: Scheme is approved subject to clause 11. 7 of Part II thereof being modified. Clause 11. 7 of the scheme should be deleted and replaced by the following : "11. 7. Consequent to and as part of the amalgamation of the transferor Companies with the Transferee Company herein, the authorised Share Capital of the Transferee Company shall stand increased by the sum of the Authorised Capitals of the Transferor companies. Accordingly, the Authorised Share Capital of the transferee Company shall be a sum of Rs. 125,00,00,000/- divided into 12,50,00,000 Equity Shares of Rs. 10/- each. Clause V of the memorandum of Association of the Transferee Company and Article 4 of the Articles of Association of the Transferee Company shall stand altered accordingly. ". It is also clarified that the inprease in the authorised capital of the transferee company shall be effective only upon the transferee company paying requisite fees in that regard in accordance with the structure found in Schedule X to the Act. UPON clause 11. 7 of the scheme being modified as above, there will be an order in terms of prayers (a) to (g) of the petition. The petitioner shall pay costs assessed at 200 GMs to the Regional Director within a fortnight from date.
( 2 ) THE first issue is as to whether the authorised capital of a transferor company merges into the authorised capital of the transferee company upon the scheme being sanctioned and implemented, along with the rights relating thereto. There are two aspects to such matter the first, whether following a scheme of amalgamation or complete merger the authorised capital of the transferor company gets added on to the authorised capital of the transferee company so that the post-amalgamation authorised capital of the transferee company swells by the amount of the authorised capital of the transferor company ; secondly, whether following such increase of the authorised capital of the transferee company, if permissible, the transferee company is not obliged to pay the additional fee for the increase in its authorised capital in terms of Schedule X to the Companies Act, 1956.
( 3 ) THE other issue is as to the treatment of the difference between the amount recorded as the additional share capital issued by the transferee company to the shareholders of the transferor companies in terms of the scheme and the amount of share capital of the transferor companies received by the transferee company in lieu whereof the additional shares of the transferee company are issued.
( 4 ) THE first limb of the principal issue in these proceedings, is, in effect, an issue as to the form, but this has a bearing on the second part of the issue. If by virtue of a scheme of amalgamation, all assets and liabilities of a transferor company merges into and vests in the transferee company and if the right to the unissued authorised capital is a property, the corollary may follow: the right accrued to a transferor company as to its authorised share capital upon payment of requisite fees therefor should also merge into and vest in the transferee company without the transferee company being required to pay additional fees for the consequential increase.
( 5 ) AUTHORITIES that rule the field, some as appealing in vintage as in flavour, have been placed by the petitioner to assert that the Act recognises the en masse journey of all properties and liabilities from a transferor company to the transferee following a scheme of amalgamation, such that there is only an imaginary existence of the transferor company thereafter.
( 6 ) COUNSEL for the petitioner has begun from the very beginning. The sixth and seventh editions of Black's Law Dictionary have been placed as to the definition of authorised share capital and the meaning thereof. Authorised capital or nominal capital is such value of shares that a company is authorised by its association documents to issue (Black's, 7th Ed. , page-200 ). Such definition in the later edition is not much at variance with the one found in the earlier edition of the book :
"authorised stock.-That amount of stock which the corporate character permits the corporation to issue. The shares described in the articles of incorporation which a corporation may issue. Modern corporate practice recognises authorisation of more shares than it is currently planned to issue. " (Black's, 6th Ed. , page 1416)
( 7 ) AUTHORISED or nominal capital is defined in the following words in words and Phrases Legally defined (3rd Ed. , Volume 1, page-219):
"nominal capital the word 'capital', as used in the Companies Act, 1948 [repealed; see now the Companies Act, 1985] and the statutes which it replaces, always means share capital in contradistinction to borrowed money, which is sometimes referred to as loan capital. It sometimes means the 'nominal' capital of the company, namely, that which is stated in the memorandum of association
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