1990 Supreme(Raj) 505
RAJASTHAN HIGH COURT
M.B.Sharma, J.
In re. Indo Continental Hotels And Resorts Ltd. & Ors. - Appellants
Company Petitions Nos. 4, 5 and 14 of 1988.
Decided On : 20-04-1990
The court has the power to sanction a scheme of amalgamation if it is satisfied that the scheme is fair and reasonable, in the interest of the members, creditors, and public, and not for the purpose of avoiding capital gains tax liability.
Headnote:
COMPANY - Amalgamation - Scheme of amalgamation of two companies - Sanction by court - Principles to be considered - Whether the scheme is fair and reasonable - Whether it is in the interest of the members, creditors, and public - Whether the scheme is for the purpose of avoiding capital gains tax liability.
Fact of the Case:
Two companies, Indo Continental Hotels and Resorts Ltd. (transferee-company) and Hotel Pink City Pvt. Ltd. (transferor-company), filed petitions under Section 391 of the Companies Act, 1956, seeking sanction for a scheme of amalgamation. The transferee-company was a four-star hotel in Jaipur, while the transferor-company ran a three-star hotel in Agra. The scheme proposed that for every one equity share of Rs. 100 each of the transferor-company, five equity shares of Rs. 10 each of the transferee-company would be allotted. However, in the meetings of the members and creditors of both companies, the scheme was approved with the modification that four equity shares of Rs. 10 each of the transferee-company would be allotted for every one equity share of Rs. 100 of the transferor-company.
Finding of the Court:
The court held that the scheme of amalgamation, as modified, was fair and reasonable and in the interest of the members, creditors, and public. The court noted that the amalgamation would allow the transferee-company to expand its operations and provide better facilities to tourists, while the transferor-company would benefit from the transferee-company's financial strength and expertise. The court also rejected the argument that the scheme was for the purpose of avoiding capital gains tax liability, finding that the primary purpose of the amalgamation was to improve the operations of both companies.
Issues: 1. Whether the scheme of amalgamation was fair and reasonable. 2. Whether the scheme was in the interest of the members, creditors, and public. 3. Whether the scheme was for the purpose of avoiding capital gains tax liability.
Ratio Decidendi: The court applied the principles laid down in In re Coimbatore Cotton Mills Ltd. and Lakshmi Mills Co. Ltd., [1980] 50 Comp Cas 623, which held that the court should consider the following factors when sanctioning a scheme of amalgamation: (1) whether the resolutions were passed by the statutory majority in value and in number in accordance with Section 391(2) of the Companies Act; (2) whether those who took part in the meeting are fairly representative of the class and that the statutory meeting did not coerce the minority; (3) whether the scheme as a whole is a reasonable one; and (4) whether there is any lack of good faith on the part of the majority.
Final Decision: The court sanctioned the scheme of amalgamation with the modification that four equity shares of Rs. 10 each of the transferee-company would be allotted for every one equity share of Rs. 100 of the transferor-company. The scheme was to take effect from April 1, 1987.
JUDGMENT
1. - Company Petitions Nos. 4 of 1988 and 5 of 1988 have been filed by Indo Continental Hotels and Resorts Ltd. (for short, "the transferee-company") and Hotel Pink City Pvt. Ltd. (for short, "transferor-company") under Section 391 of the Companies Act, 1956 (for short, "the Act"), read with Rule 57 of the Companies (Court) Rules, 1959 (for short, "the Rules"), and Company Petition No. 14 of 1988 has been filed jointly by both the transferee and transferor-companies under Sections 391 and 394 of the Act and it has been prayed that a scheme of amalgamation of the two companies, namely, the transferee and transferor-companies be sanctioned.
2. The transferee-company was incorporated under the provisions of the Act on May 2, 1970, in the name of S. B. Properties and Enterprises Ltd. However, with effect from December 11, 1982, the name of the transferee-company has been changed to Indo Continental Hotels and Resorts Ltd. The registered office of the transferee-company is situated at Sansar Chandra Marg, Jaipur. The authorised share capital of the transferee-company is Rs. 1,00,00,000 (rupees one crore only) divided into 10,00,000 (ten lakhs) equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the transferee-company is Rs. 65,00,000 (rupees sixty-five lakhs) divided into 6,50,000 (six lakhs and fifty thousand) equity shares of Rs. 10 each. The objects of the transferee-company are set out in the memorandum of association annexed with Company Petition No. 4 of 1988. Besides those objects, the object is also to construct, reconstruct, alter, improve, decorate and furnish hotels, restaurants, cinema houses, theatres, shops, factories, warehouses, wharves, buildings, etc. The object is also to carry on the business of hotel, restaurant, cafeteria, bar-house, lodging house, keepers, licensed victuallers, wine, beer and spirit merchants, malters, dealers of aerated minerals and artificial waters and other drinks purveyors, caterers for public amusement, etc. The object is also to carry on business as industrialists, concessionaires, guarantors, financiers, merchants, underwriters, promoters and other agents and to undertake and carry on and execute all kinds of financial, commercial, trading and other operations. The transferee-company commenced the business of running a four star hotel, namely, "Mansingh" at Jaipur and another five star hotel is under completion at Ajmer and has been carrying on the same since January, 1979.
3. The transferor-company was incorporated on April 26, 1973, as a private limited company and its registered office is situated at Sansar Chandra Road, Jaipur. The authorised, issued, subscribed and paid-up capital of the transferor-company is Rs. 25,00,000 (rupees twenty-five lakhs only), divided into 25,000 (twenty-five thousand) shares of Rs. 100 each. All the shares are fully paid-up and are of the same class. The objects of the transferor-company are set out in the memorandum of association annexed to the company petition. The main object of the transferor-company is to construct, manufacture and to provide for sale all forms, types of lodging, foods and beverages, entertainment and all products available for sale, shops, super markets and stores. The object is also to carry on the business of hoteliers, hotel manager and operations, refreshment contractors, boarding and lodging, house-keepers, inn-keepers, restaurateurs, publications, caterers, jewellers, hairdressers and stylists, both for men and women, florists, cashiers and money-changers, travel agents, charter and tour operators and of shop-keepers for trade in all services, materials and products. The object is also to run hotels, hostels, boarding and lodging houses, services and other apartments and flats and to fit up and furnish such properties, buildings, houses, flats, out-houses, courtyards and quarters for the purpose of letting or otherwise giving the same to visitors or guests or others in cottages, rooms, suit
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