JUDGMENT Sunil Ambwani, J.
1. Heard Shri R.P. Agarwal--learned Counsel for petitioner. The Official Liquidator, U.P. at Allahabad and Regional Director, Northern Region, Ministry of Companies Affairs, PDIL Bhawan, A-14, Sector -I, Noida (UP) have filed their representations.
2. On 8.11,2005, the Court passed following orders on the application under Section 391 /394 of Companies Act, 1956;
This is an application under Section 391/394 of the Companies Act, 1956 3 for approving scheme of amalgamation of transferor? companies 1 to 5 with Shaw Wallace Distillers Ltd. with its registered office at Udyog Bhawan, 2nd Floor, 29 Walchand Hira Chand Marg, Ballard Estate, Mumbai, transferee company.
It is stated that all the five transferor companies are wholly owned subsidiaries of the transferor companies and that all transferors and transferee companies have resolved in the meeting of board of directors to amalgamate.
A supplementary affidavit has been filed stating in para 3 that the liabilities of the company towards its creditors are only towards the transferor companies and the transferee company. Paras 3, 4, 5 and 6 are quoted as follows:
3. That the above interest free deposits have been taken by the applicant company from the following companies.
4. That the above named Bhankerpur Simbhaoli Beverages (P) Ltd. is the transferor company No. 2 and Shaw Wallace Distilleries Ltd. is the transferee company in the present company application and both are accordingly parties to the proposed scheme of amalgamation.
5. That the other two companies, namely, Shaw Wallace Financial Services Ltd. and Shaw Wallace and Company Ltd., as well as the applicant company, the transferee company and other transferor companies are part of same group popularly known as Shaw Wallace Group.
6. That the board of directors of each of the aforesaid four depositor companies have consented to the proposed scheme of amalgamation.
The applicant had paid full court fee and thus this company application shall be treated as company petition for confirmation of scheme of amalgamation and shall be advertised within three weeks in the daily newspaper Times of India (English) published from Delhi and Bombay as well as Economic Times (English) published from Bombay indicating therein that the confirmation petition will come up for hearing on 21.12.2005. A notice of this petition shall also be given to the Official Liquidator and the Regional Director, Northern Railway Department of Company Affairs, Noida, who shall submit their report by the date of hearing. List on 21.12.2005.
3. The application is also treated as confirmation petition filed by Highland Distilleries Ltd. (applicant/transferor Company No. 1) seeking sanction of the proposed scheme of amalgamation by which the Highland Distilleries Ltd. Is proposed to be amalgamated with the Shaw Wallace Distilleries Ltd. (transferee company) in terms of the scheme of amalgamation annexed to the petition.
4. The transferor companies Nos. 2 to 5 have their registered office outside the State of U.P. They are not the applicants before the Court. It is stated by Shri R.P. Agarwal, learned Counsel for the applicant, that separate applications for considering and confirming the scheme of amalgamation have been made by them in the respective High Courts.
5. Shri N.K. Gupta, authorised officer of the petitioner company, has filed his affidavit dated 3.1.2006 (filed on 4.1.2006) confirming that the notices of the petition have been duly served on the Official Liquidator and the Regional Director and have been published on 19.122005 in the five editions of the three newspapers namely, Times of India, Nav Bharat Times and Economic Times as ordered. Copies of newspapers and acknowledgements of Official Liquidator and the Regional Director have been filed with the said affidavit.
6. The Official Liquidator has filed a report as follows:
1. That there are five transferor companies, out of which transferor Company No. 1 Highland Distilleries Ltd., situated at 1st Floor, 3 Sapru Marg, Lucknow is concerned with the Official Liquidator of this Hon'ble Court
2. That the Official Liquidator has received a copy of petition under Section 391/394 of the Companies Act, 1956 for sanction of the scheme of amalgamation of Highland Distilleries Ltd. (transferor company) with Shaw Wallace Distilleries Ltd. (transferee company).
3. That Shri O.K. Meena, practising Company Secretary, produced books of accounts and statutory records before the Official Liquidator for scrutiny on 20.12.2005 as required under Section 394 of the Companies Act, 1956.
4. That transferor-company was incorporated on 29 July 1991 and obtained Certificate of Commencement of Business on 3 October 1991.
5. That it is seen from the records of the company and the books and accounts that from the date of incorporation in the year 1991, the company has not started any business activities till date. However, the company has maintained ledger and other books of accounts. Copy of ledger account submitted by the company with effect from 1.4.2004 to 31 March 2005 is annexed herewith as Annexure 1. As per ledger account, from 1 April 2004, the company was having cash in hand (debit balance) as Rs. 10. The company has also filed copy of trial balance for the period 1,4.2004 to 313.2005 and copy of the same is annexed herewith as Annexure-2.
6. That as per balance sheet of transferor company as on 31.3.2005, it is having the land, office building, office equipment, office furniture and fixtures and motor car for Rs. 17,18,743 and in the year as on 3L3.2004, net value of the fixed assets was Rs. 17,58,399. Authorised capital of the company was Rs. 5 crores divided into 50 lakhs equity share of Rs. 10 each. Paid-up capital was 50,000 equity shares of Rs. 10 each. Total value Rs. 5 lakhs. The company is wholly owned and subsidiary of Shah Wallace Financial Services Ltd. in the previous years.
7. That as per minute of board of directors, last meeting of the board of directors was held on 29.9.2005 and the resolution for amalgamation in the transferee company was passed on 19.5.2005.
8. That shareholders meeting as per the minutes book was held on 22.9.2005.
9. That since the company has not commenced any business since its incorporation, and also as per the balance sheet of the company, there is no secured loan; however, as per balance sheet of the company as on 31.3.2005, the company has taken unsecured loan of Rs. 42,96,081.
10. That the balance sheet of the said company as on 313.2005 further shows that company is having cash in hand only Rs. 10 and cash at bank in current account as Rs. 6,951.
11. That Auditors of the company on the balance sheet of the company in Schedule 9, under head notes on accounts with side heading 'B(l)' has also mentioned that as no business activity has been carried out during the period, no profit and loss account has been made. Auditors of the company has further stated that the company has presently been shelved due to non-viability.
12. That as per statement given by the Company Secretary, who produced the statutory record to the Official Liquidator that transferor company Highland Distilleries Ltd., Uttam Place, 1 Floor, 3 Spa.ru Marg, Lucknow, U.P., is a subsidiary company of Shaw Wallace Distilleries Ltd, six are nominee shares and one is holding transferee company share.
13. That the above report is submitted to the Hon'ble Court with the observation that since the company has not commenced any business activity since the date of its incorporation, therefore, it does not affect the interest of its members or the interest of public. Petition may be decided by the Hon'ble Court on merit.
7. Shri U.C. Nahta, Regional Director, in his representation, states in para 4 and 4.1, as follows;
4. That the deponent further craves leave to submit that para 7.5 of Part C of the scheme provides as under:
The difference, being the excess of the value of the net assets of the transferor companies, transferred to SWDL pursuant to the orders of the High Courts, and after giving effect to Clause 7.2 and Clause 7.4 above, would be credited to general reserves account. In case of there- being a shortf all, the same shall be debited to general reserves account.
4.1. It is submitted that aforesaid para of the scheme does not seem to be in conformity with-the provisions of the Companies Act, 1956 as well as normally accepted accounting principles, since surplus arising out of the scheme of amalgamation, i.e., 'amalgamation reserve' is of capital nature, and cannot be considered as general reserve as the same (general reserve) is free for distribution to the shareholders of a company in the form of dividend/ bonus shares, whereas amalgamation reserve' cannot be utilised for distribution to the shareholders. It is, therefore, submitted that the aforesaid clause may not be allowed by this Hon'ble Court.
8. Shri R.P. Agarwal, learned Counsel for the applicant, submits that the accounting for amalgamation vide Accounting Standards (AS-14) issued by Institute of Chartered Accountants of India, appended to the Guide to the Companies Act by A. Ramaiya (14th Edition of 1998) provides for treatment of reserves of amalgamation in paras 16, 17 and 18. According to Shri Agarwal, the transferee company will treat the resultant reserves in accordance with the standards provide by Institute of Chartered Accountants of India. He further submits that since the transferee company did not commence its business, the scheme has provided for the excess of the value of the net of assets of the transferor company to be credited to general reserves. In any case, the company shall follow the Accounting Standard set up by the Institute of Chartered Accountants of India.
9. Paras 16, 17 and 18 of the Accounting Standards for Amalgamation (AS-14) I issued by the Institute of Chartered Accountants of India are quoted as follows:
16. If the amalgamation is an 'amalgamation in the nature of merger'--the identity of the reserves is preserved and they appear in the financial state- ments of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the general reserve of the transferor company becomes the general reserve of the transferee company, the capital reserve of the transferor company becomes the capital reserve of the transferee company and the revaluation reserve of the transferor company becomes the revaluation reserve of the transferee company. As a result of preserving the identity, reserves which are available for distribution as dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company is adjusted in reserves in the financial statements of the transferee company.
17. If the amalgamation is an amalgamation in the nature of purchase, the identity of the reserves, other than the statutory reserves dealt with in paragraph 18, is not preserved. The amount of the consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negative, the difference is debited to goodwill arising on amalgamation and dealt with in (lie manner staled in paragraphs 19-20. If the result of the computation is positive, the difference is credited to capital reserve.
18. Certain reserves may have been created by the transferor company pursuant to the requirements of, or to avail of the benefits under, the Income-tax Act, 1961; for example development allowance reserve, or investment allowance reserve. The Act requires that the identity of the reserves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes. Though, normally, in an amalgamation in the nature of purchase, the identity of reserves is not preserved, an exception is made in respect of reserves of the aforesaid nature (referred to hereinafter as 'statutory reserves) and such reserves retain their identity in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company, so long as their identity is required to be maintained to comply with the relevant statute. This exception is made only in those amalgamations where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with. In such cases, the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g. 'amalgamation adjustment account') which is disclosed as a part of 'miscellaneous expenditure' or other similar category in the balance sheet. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed.
10. In the present case, the amalgamation is in the nature of merger. It is thus directed that resultant reserves being in excess of the value of net asset of the transferor company shall be given same treatment as provided in the Accounting Standard. The reserves which were available for distribution as dividend before the amalgamation, shall also be available for distribution as dividend after the amalgamation.
11. No objection has been taken by any person to the scheme of amalgamation.
12. The Court is satisfied that the required statutory requirements have been duly complied with. The transferor company has disclosed all material facts relating to the company. No investigation proceedings are pending against the company under Sections 235, 351 and the like, all the conditions of amalgamation stipulated under Sections 392(2) and 394 of the Companies Act, 1956 read with Rules 67 and 69 of the Companies (Court) Rules, 1959, have been complied with, and the proposed scheme of amalgamation deserves to he sanctioned.
13. The company petition is accordingly allowed. The scheme of amalgamation is confirmed and will come into effect from the appointed day given in the scheme. The transferor company shall stand dissolved without any order of winding up to be made by the Court.
14. The office shall issue formal order in the prescribed form within two weeks and that the said order shall be filed by the transferor company with the Registrar of Companies within the statutory period prescribed under the Companies Act.