In Re: The KTM Jewellery Limited and Aathava Garments India Private Limited

Vinod K. Sharma, J.—These Company Petitions are filed by Demerger Company and Resulting Company to sanction the Scheme of

Demerger, which is marked as Annexure-D so as to be binding on all the Equity Shareholders of the Petitioner/Demerged Company, with effect

from 01.04.2010.

The Petitioner, M/s. The KTM Jewellery Limited in C.P. No. 329 of 2010 is the Demerger Company and the Petitioner, M/s. Aathava

Garments India Private Limited is the Resulting Company in C.P. No. 330 of 2010.

M/s. The KTM Jewellery Limited was originally incorporated as M/s. The KTM Jewellery Limited on 14.07.2000, vide certificate of

incorporation of the company, issued by the Registrar of Companies, Tamil Nadu, Coimbatore. Whereas, the transferee company M/s. Aathava

Garments India Private Limited, was originally incorporated on 10.07.2006, vide certificate of incorporation of the company, issued by the

Registrar of Companies, Tamil Nadu, Coimbatore.

The authorized share of both the companies and the business of Demerger as well as Resulting companies are set out. The main object of

Demerger company was to carry on all or any of the business of goldsmiths, silversmiths, jewellers, gem and diamond merchants and of

manufacturing and dealing in clocks, watches, jewellery, cutlery and their components and accessories and of producing, acquiring and trading in

metals, bullion, gold and silver utensils, diamonds, precious and semiprecious stones and imitation jewellers and items, paintings, manuscripts,

curios, antiques and objects of art made with any of the above items for domestic and international trade. Whereas the business of Resulting

company was to carry on the business as Manufacturers, Importers, Exporters and dealers both in whole sale as well as retail, in all kinds, types

and varieties of woven and knitted readymade garments, clothing and yarn of all types, kinds, descriptions and varieties.

The scheme of demerger complies with the provisions of Section 2(19AA) of the Income Tax Act, 1961. As per the scheme, the entire

undertaking of the assets and liabilities of the Demerger company is proposed to be taken over by the Resulting company, set out in the scheme of

Demerger. All the shareholders of Demerger and Resulting companies have given consent affidavit, consenting to the scheme of demerger. The

transferor company has no secured creditors, whereas, the transferee company has one secured creditor, i.e. City Union Bank Limited for a sum

of Rs. 87,12,030.20 (Rupees Eighty Seven Lakhs Twelve Thousands and Thiru and paise twenty only).

This Court, vide order dated 30.11.2010, dispensed with the meeting of the equity shareholders of Demerger and Resulting companies and that

no investigation proceedings have been instituted or pending in relation to Demerger and Resulting companies nor does the directors of either of the

company have any interest in the scheme, except to the extent of their shareholding in the company.

The Resulting company has taken over the liability of the Demerger company, thus, the interest of secured creditor is not likely to be prejudiced.

Notice of company petitions in C.P. Nos. 329 and 330 of 2010 was served.

The Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai submitted his report as under:

I, K. Pandian, S/o. Shri S. Krishnan, Indian, Hindu, aged about 58 years having my office at Shastri Bhavan, vth Floor, 26, Haddows Road,

Chennai 600 006, do hereby solemnly affirm and sincerely state as follows:

I am the Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai and I am authorized to file this affidavit on behalf of the

Central Government for due consideration of this Hon''ble Court.

I, respectfully submit that the Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai, had been served with copy of the

petitions pursuant to Section 394A of the Companies Act, 1956 in C.P. No. 329 and 330 of 2010 and the same have been examined in detail.

I submit that the Demerged/Transferor company and the Transferee/Resulting Company have their registered offices at Coimbatore within the

jurisdiction of this Hon''ble Court.

I further submit that as per Part IV Para 6 of the scheme, all the employees of the demerged undertaking of the demerged company as and from

the effective date shall become the employees of the resulting company from the effective date.

The Memorandum of Association of the Demerged/Transferor Company does not have the enabling provision for arrangement. The incidental

objects should be amended to include amalgamation clause.

In view of the observations made above, it is prayed that the Hon''ble Court may take the above submissions into consideration and pass such

order or orders as this Hon''ble Court may deem fit and proper in the circumstances.

Dated at Chennai, this the 7th day of February, 2010.

The Hon''ble High Court of Calcutta, in the case of Marybong and Kyel Tea Estate Ltd. reported in (1977) 47 Comp Cas 80, has been

pleased to lay down as under:

Regarding the contention of Mr. Bose that without specific powers in the memorandum or the articles of both the companies and without an

application u/s 17 of the Companies Act, 1956, for alteration of the objects clause of the memorandum of the companies by incorporating powers

to amalgamate, the scheme for amalgamation in this case cannot be sanctioned. I am unable to accept the same. First, after going through the

objects clauses, it appears that the company has powers to amalgamate; secondly, the transferor company is an English company and no

confirmation by Court as required u/s 17 of the Companies Act, 1956, is necessary u/s 5 of the English Companies Act, 1948; and, thirdly, there

is a statutory power of amalgamating a company with another company without any specific power in the memorandum under Sections 391 to 396

of the Companies Act, 1956. I may refer to the observations of A.N. Ray. J., as he then was, in Hari Krishna Lohia Vs. Hoolungooree Tea Co.

Ltd. and Another, at 314, paragraph 4, which are as follows:

The power to amalgamate may flow from the memorandum or it may be acquired by resorting to the statute. Section 17 of the Companies Act

indicates that a company which desires to amalgamate with another company will take necessary steps to come before a court for alteration of its

memorandum in aid of such amalgamation. The statute confers a right on a company to alter its memorandum in aid of amalgamation with another

company. The provisions contained in Sections 391 to 396 and 494 illustrate some instances of statutory power of amalgamating a company with

another company without any specific power in the memorandum.

The said principle seems to me also to be applicable in the present case if the objects clause in the memorandum of association of any of the

companies is construed as not to specifically empower any of the companies to amalgamate with any other company as there is a statutory power

of amalgamation under the said Section. I may also refer to an unreported judgment of mine in United Bank of India Ltd., which is under appeal,

where I have held the same view as I am doing here as to the statutory power to amalgamate without any specific power for amalgamation in the

memorandum of association of a company.

Therefore, I am unable to accept any of the contentions of Mr. Bose raised on behalf of the Company Law Board and I accept the contention of

S.B. Mukherjee for the Petitioners.

Thus, in view of law laid down by the Calcutta High Court, mere facts, that the Memorandum of Association of Demerger of transferor

company does not have enabling provision for arrangement, cannot be the ground to refuse sanction. There is no objection from the secured

creditor, i.e. City Union Bank Limited. After going through the scheme of Demerger, this Court does not find any objectionable features.

Accordingly, the scheme of Demerger is sanctioned.

The company petitions are, accordingly, ordered.

The remuneration to the Additional Central Government standing Counsel is fixed at Rs. 2,500/- for each petition to be paid by the Petitioner

companies.