In the matter of : Bulk Explosives Limited; In the matter of: Bharat Explosives Limited

S.P. Mehrotra, J.—The present Company application has been (lied under Section 391(1) read with Section 394 of the Companies Act, 1956 by M/s. Bulk Explosives Limited, a company duly incorporated under the provisions of the Companies Act, 1956, having its Registered office at House No. 45, Gali No.2, Ambedkar Vihar, Near Harijan Basti, Sector37, Noida(U.P.) (hereinafter referred to as �the Transferor Company�).

It is, inter alia, prayed that the meeting of the shareholders/members of the Transferor Company, the meeting of the secured creditors of the Transferor Company, and the meeting of the unsecured creditors of the Transferor Company as envisaged under the Companies Act, 1956 be dispensed with.

It appears that a Scheme of Amalgamation is proposed for the amalgamation of the Transferor Company with M/s Bharat Explosives Limited (hereinafter referred to as �the Transferee Company�) having its registered office at 9 K..M., Lalitpur Jhansi Road, Lalitpur 284403 (U.P.). Copy of the proposed Scheme of Amalgamation has been filed as Annexure No.4 to the Company Application.

It is, inter alia, stated in the Company Application that the Transferor was incorporated in Kolkata, in the State of West Bengal on 9th July, 1999 under the Companies Act, 1956 as a Private united Company ; and that thereafter, the Registered Office of the Transferor Company was shifted from the State of West Bengal to the State of Uttar Pradesh and that the change was duly confirmed by the Company Law Board, E.R. Bench, Kolkata on 25 July, 2003 in C.P. No. 243(17)ERB/2003, and the same was duly filed with the Registrar of Companies, U.P. and Uttaranchal at Kanpur, pursuant to the provisions of Section 18(3) of the Companies Act, 1956.

It is, inter alia, further stated in the Company Application that the Transferee Company was originally incorporated on 2181962 under the name of Narendra Explosives Limited, which name was subsequently changed as Bharat Explosives Limited, by duly passing the special resolution on 30th September, 1986 in terms of Section 21 of the Companies Act, 1956 and obtaining the necessary fresh certificate of Incorporation on 7101986, consequent upon the change of name, from the Registrar of Companies, U.P. at Kanpur.

It is, inter alia, further stated in the Company Application that the Registered Office of the Transferor Company is situate at House No. 45, Gali No. 2, Ambedkar Vihar, Near Harijan Basti, Sector37 Noida (U.P.).; and that authorized share capital of the Transferor Company is Rs. 50,00,000/divided into 5,00,000 Equity Shares of Rs. 10/each ; and the Issued, Subscribed and Paid up capital of the Transferor �Company as on 3132003 is Rs. 50,00,000 divided into 5,00,000 Equity shares of Rs. 10/each fully paid up; and that on 20th November, 2003, the entire share capital of the Transferor Company is held by the Transferee Company together and jointly with Six individual nominees of the Transferee Company, and they together and jointly hold 5,00,000 shares of Rs. 10/each.

It is, inter alia, further stated in the Company Application that consequent upon the entire share capital of the Transferor Company being held by the Transferee Company with effect from 20th November, 2003, by virtue of Section 3(1) (iv) of the Companies Act, 1956, the Transferor Company has become a Public Limited Company; and that accordingly, the Transferor Company has taken all necessary steps to change the name of the Company by removing the word � Private� from its name, and the `Registrar of the Companies, U.P. and Uttaranchal has by fresh `Certificate of Incorporation dated 2212004 sanctioned the change of name by deleting the word �Private� from the its name. Copy of the fresh Certificate of Incorporation has been filed as Annexure No. 1 to the Company Application.

It is, inter alia, further stated in the Company Application that Objects of the Transferor Company are setout in its Memorandum of Association. Copy of the Memorandum and Articles of Association of the Transferor Company has been filed as Annexure No. 2 to the Company Application. The main objects of the Transferor Company have been stated in brief in paragraph No. 7 of the Company Application.

It is inter alia, further stated in the Company Application that the Objects, of the Transferee Company are set out in its Memorandum of Association. Copy of the Memorandum and Articles of Association of the Transferee Company has been filed as Annexure No. 3 to the Company Application. The main objects of the Transferee Company have been stated in brief in paragraph No. 8 of the Company Application.

It is, inter alia, further stated in the Company Application that the authorized capital of the Transferee Company is Rs,20,00,00,000/(Rupees Twenty Crores only) divided into 1,80,00,000 Equity shares of Rs. 10/(Rupees ten only) each, and 2,00,000 Cumulative Preference shares of Rs. 100/; and that the Issued, Subscribed, Called and Paid up Capital of the Transferee Company, as on 31st March, 2003 is Rs. 1,171.50 lacs divided into 1,17,15,000 Equity Shares of Rs. 10/each fully paid up.

It is, inter alia, further stated in the Company Application that the Company Application has been filed seeking sanction of this Court to the proposed Scheme of Amalgamation for the amalgamation of the Transferor Company with the Transferee Company. Copy of the proposed Scheme of Amalgamation, as mentioned above, has been filed as Annexure No. 4 to the Company Application. ''

The objects sought to be achieved by the Proposed merger/amalgamation have been stated in brief in paragraph No. 13 of the Company Application.

It is, inter alia, further stated in the Company Application that the merger/amalgamation would in the best interests of both the Transferor Company and the Transferee Company and all their shareholders and creditors.

It is, inter alia, further stated in the Company Application that clause III (C) (19) of the Objects of the Transferor Company permits the amalgamation of the Transferor Company; and that clause III (54) of the Objects of the Transferee Company permits the amalgamation of the transferee Company.

It is, inter alia, further stated in the Company Application that the proposed Scheme of Amalgamation of Transferor Company with the Transferee Company has been approved by the Board of Directors of the Transferor Company at its meeting held on 3rd January, 2004 as well as by Board of Directors of the Transferee Company in its meeting held on 31st December, 2003. Copies of the Resolution passed in this behalf by the Board of Directors of the Transferor Company and the Resolution passed in this behalf by the Board of Directors of the Transferee Company have been filed as Annexures No. 5 and 6, respectively to the Company Application.

It is, inter alia, further stated in the Company Application that the proposed Scheme of Amalgamation is not intended in any manner to have any beneficial effect on the material interest, if any, of the Directors of the Transferor Company and the Transferee Company, and none of the shares in the Transferor Company are held by any Director.

The financial position of the Transferor Company as on 3rd March, 2003 has been stated in brief in paragraph No. 21 of the Company Application. Copy of the audited Balance sheet and Profit and Loss Account the Transferor Company for the financial year ending 31 March, 2003 has been filed as Annexure No 8 to the Company Application.

The financial position of the Transferee Company as on 31st March, 2003 has been stated in brief in paragraph No. 22 of the Company Application. Copy of the audited Balance sheet and Profit and Loss Account of the Transferee Company for the financial year ending 31 March, 2003 has been filed as Annexure No 9 to the Company Application.

It is, inter alia, further, stated in the Company Application that no investigation proceedings have been initiated or are pending in relation to the transferee Company or the Transferor Company under Section 235 or Section 251 or the like of the Companies Act, 1956.20. It is, inter alia, further stated in the Company Application that the �shares of the Transferor Company are not listed on any Stock Exchange; and that the Equity Shares of the Transferee Company are listed on the Stock Exchanges at Uttar Pradesh and New Delhi ; and that pursuant to the listing Agreement entered into with the aforementioned Stock Exchanges by the Transferee Company, the Stock Exchanges had been duly informed of the proposed Scheme of Amalgamation and their approval have been received. Copies of the approval of the Stock Exchanges of Uttar Pradesh and Delhi been collectively filed as Annexure No. 7 to the Company Application.

It is, inter alia, further stated in the Company Application that in terms of Clause 3.1 of the Scheme of Amalgamation, the investment of the Transferee Company in the fully paid up Equity Shares of the Transferor Company shall on the date of the scheme becoming elective stand cancelled and extinguished against the share capital of the Transferor Company ; and that consequently, there will be no increase in the share capital of the amalgamated company; and that as the proposed Scheme of Amalgamation does not envisage a further allotment of fresh shares, no share valuation report is necessary.

In paragraph No. 30 of the Company application, it is, inter alia, further stated that the entire share capital of the Transferor Company in the shape of fully paidup Equity Shares is held by the Transferee Company together and jointly with 6 nominees ; and that the Transferee Company has also filed an application under Section 391 read with Section 394 of the Companies Act, 1956 seeking sanction of this Court to the proposed Scheme of Amalgamation; and that the Board of Directors of the Transferee Company has passed the resolution, copy whereof has been filed as part of Annexure No. 11 to the Company Application ; and that the said nominee shareholders of the Transferor Company have also filed their affidavits, copies whereof have been filed as part of Annexure No. 11 to the Company Application.

It may be mentioned that certified true copy of the said resolution of. the Board of Directors of the Transferee Company has been filed as part of Annexure No. 2 to Civil Misc. Application No. 49434 of 2004 filed on behalf of the Transferor Company. Further, copies of the affidavits of the said nominee shareholders of the Transferor Company r in original have also been filed as part of Annexure No. 2 to the said Civil Misc. Application No. 49434 of 2004.

It is, inter alia, prayed in the Company Application that in view of the said circumstances, meeting of the shareholders of the Transferor Company as envisaged under the provisions of Companies Act, 1956 be dispensed with.

In paragraph No. 27 of the Company Application, it is inter alia, further stated that in so far as the secured creditor of the Transferor Company is concerned, it is only financed by State Bank of India, Jabalpur Branch, M.P. which has given its letter of consent to the proposed Scheme of Amalgamation and has submitted notarized affidavit indicating their No objection to the said Scheme. Copy of the said letter of consent and copy of the said notarized affidavit submitted by State Bank of India have been filed as Annexure No. 10 to the Company Application.

It may be mentioned that the said letter of consent, in original, and the said affidavit, in original, submitted by State Bank of India have also been filed as Annexure no 1 to the said Civil Misc. Application No 49434 of 2004.

In paragraph No. 29 of the Company Application, it is, inter alia, prayed that in the light of the above facts, the convening of the meeting of the secured creditors of the Transferor Company be dispensed with.

In paragraph No. 28 of the Company Application, it is, inter alia, stated that there are no debenture holders or public deposits in the Transferor Company.

In paragraph No. 32 of the Company Application, it is, inter alia, stated that he Transferor Company has trade creditors amounting to Rs. 27,55,024 only as on 3132003; and that as per the Scheme of Amalgamation/merger the interest of these unsecured creditors will not be affected.

In paragraph No. 33 of the Company Application, it is, inter alia, prayed that in view of the facts, the convening of the meeting of the unsecured creditors as envisaged under the Companies Act, 1956 be dispensed with.

I have heard Sri Yashwant Verma, learned counsel for the Transferor Company/applicant.

During the hearing of the Company Application, a question, which has arisen, is as to whether in view of the fact that the share capital of the Transferor Company will stand extinguished on the date of the Scheme becoming effective in view of Clauses 3.1 and 3.2 of the proposed Scheme Amalgamation, the provisions of Sections 100, 101 and 102 of the Companies Act, 1956 are attracted to the present case, and the requirements of the said provisions of the Companies Act, 1956 are required to be fulfilled in the present case or not.

Sri Yashwant Verma, teamed counsel for the transferor Company Submits that the provisions of Sections 100, 101 and 102 of the Companies Act, 1956 apply to a case where the Company remains in existence even after the reduction in the share capital. The said provisions, the submission proceeds, are not applicable to the case of Amalgamation where besides the share capital of the Transferor Company becoming extinguished, the Transferor Company stands dissolved without winding up. In this regard, Sri Verma refers to Clauses 2.14, 3.1, 3.2. and 4.1 (a) of the proposed Scheme of Amalgamation at pages 105 and 106 of the paper book.

Sri Verma further places reliance on the following decisions:

(1) T. Durairajan and others v. Waterfall Estates Limited and others, (1972) 42 Company Cases 562 (Madras).

(2) In re. Asian Investments Limited and others, (1992)73 Company Cases 517 (Madras).

(3) In the matter of Mcleod Russel (India) Limited, (1997) 4 Company Law Journal 60 (Calcutta).

(4) In the matter of M/s. Motiwala Investment Company Pvt. Limited etc, and M/s. Prashant Glass Works Pvt. Limited (Company Petition No. 10 of 1997 connected with Company Application No. 24 of 1996), decided by the Allahabad High Court on 2011998.

In order to appreciate the submissions made by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant, it is relevant to refer to the provisions of Sections 100,101 and 102 of the Companies Act, 1956, and Rule 85 of the Companies (Court) Rules, 1959. The said provisions are quoted below :

�Section 100 Special resolution for reduction of share capital (1) Subject to continuation by the Court, a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorized by its articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may

(a) extinguish or reduce the liability on any of its slrares in respect of share capital not paid up;

(b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid up share capital which is lost, or is unrepresented by available assets; or

(c) either with or without extinguishing or reducing liability on any of its shares, pay off any paidup share capital which is in excess of the wants of the company;

and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly.

(2) A special resolution under this Section is in this Act referred to as � a resolution for reducing share capital.�

�Section 101. Application to Court for confirming order, objections by creditors, and settlement of list of objecting creditors.(1) Where a company has passed a resolution for reducing share capital, it may apply, by petition, to the Court for an order confirming the reduction.

(2) Where the proposed reduction of share capital involves either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paidup share capital, and in any other case if the Court so directs, the following provisions shall have effect, subject to the provisions of subsection (3):

(a) every creditor of the company who at the date fixed by the Court is entitled to any debt or claim which, if that date were the commencement of the winding up of the company, would be admissible in proof against the company, shall be entitled to object to the reduction;

(b) the Court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a day or days within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction;

(c) where a creditor entered on the list whose debt or claim is not discharged or has not determined does not consent to the reduction, the Court may, if it thinks fit, dispense with the consent of that creditor, on the company securing payment of his debt or claim by appropriating, as the Court may direct, the following amount

(i) if the company admits the full amount of the debt or claim, or, though not admitting it, is willing to provide for it, then, the full amount of the debt or claim;

(ii) if the company does not admit and is not willing to provide for the full amount of the debt or claim, or if the amount is contingent or not ascertained, then, an amount fixed by the Court after the like inquiry and adjudication as if the company were being wound up by the Court.

(3) Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paidup share capital, the Court may, if, having regard to any special circumstances of the case, it thinks proper so to do, direct that the provisions of subsection (2) shall not apply as regards any class or any classes of creditors.�

�Section 102. Order confirming reduction and powers of Court on making such order.(1) The Court, if satisfied with respect to every creditor of the company, who under Section 101 is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged, or has determined or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit.

(2) Where the Court makes any such order, it may

(a) if for any special reason it thinks proper so to do, make an order directing that the company shall, during such period commencing on, or at any time after, the date of the order, as is specified in the order, add� to its name as the last words thereof the words � and reduced � ; and

(b) make an order requiring the company to publish, as the Court directs the reasons for reduction or such other information in regard thereto as the Court may think expedient with a view to giving proper information to the public, and, if the Court thinks fit, the causes which led to the reduction.

(3) Where a company is ordered to add to its name the words � and reduced�, those words shall, until the expiration of the period specified in the order, be deemed to be part of the name of the company.�

�Rule 85. Compromise or arrangement involving reduction of capital Where a proposed compromise or arrangement involves a reduction of capital of the company, the procedure prescribed by the Act and these rules relating to the reduction of capital, and the requirements of the Act and these rules in relation thereto, shall be complied with, before the compromise or arrangement so far as it relates to. reduction of capital, is sanctioned.�

A perusal of the aforesaid provisions shows that the said provisions apply to a case where the Company continues to remain in existence even after the reduction in the share capital. In case the existence of the Company itself comes to an end simultaneously with the reduction in the share capital, the above provisions regarding reduction in the share capital will evidently have no application.

In case of amalgamation of the Transferor Company with the Transferee Company, the share capital of the Transferor Company becomes extinct. This extinction of the share capital of the Transferor Company may be accompanied by corresponding issuance of shares in the Transferee Company, in terms of the exchange ratio, to the shareholders of the Transferor Company.

It is also possible that the extinction of the share capital of the Transferor Company may not be accompanied by corresponding issuance of shares in the Transferee Company to the shareholders of the Transferor Company depending upon the proposed Scheme of Amalgamation, and in such a situation, there will be no necessity of fixing the exchange ratio.

Besides extinction of the share capital of the Transferor Company, as mentioned above, the amalgamation also contemplates dissolution of the Transferor Company without winding up, and provision is made in this regard in the proposed Scheme of Amalgamation. The Court may make an order for the dissolution, without winding up, of the Transferor Company while sanctioning the Scheme of Amalgamation or by subsequent order, as provided in Section 394(1) (iv) of the Companies Act, 1956. On such an order being passed for dissolution, without winding up, of the Transferor Company, the existence of the Transferor Company will come to an end.

Therefore, where the Scheme of Amalgamation provides for dissolution, without winding up, of the Transferor Company and also provides for extinguishment of the share capital of the Transferor Company, the aforesaid provisions of Sections 100 to 102 of the Companies Act, 1956 are not attracted because the existence of the Transferor Company comes to an end on the passing of the order by the Court for dissolution, without winding up, of the Transferor Company.

One more aspect may be considered in this regard. Section 391 of the Companies Act, 1956 deals with compromise or arrangement. Such compromise or arrangement may take various forms. One such compromise or arrangement may be in regard to a scheme of amalgamation of two or more Companies as mentioned in Section 394 of the Companies Act, 1956. In case of amalgamation of the Transferor Company with the Transferee Company, the proposed compromise or arrangement contemplates the transfer of the entire assets and liabilities of the Transferor Company to the Transferee Company. Amalgamation is not a case of mere reduction of share capital.

Rule 85 of the Companies (Court) Rules, 1959 shows that where the �proposed compromise or arrangement involves a reduction of capital of the company�, the requirements of Sections 100 to 102 of the Companies Act, 1956 must be fulfilled. In case of amalgamation, as noted above, the proposed compromise or arrangement contemplates the transfer of the entire assets and liabilities of the Transferor Company to the Transferee Company, and not mere reduction in share capital of the Transferor Company. Hence, neither Rule 85 of the Companies (Court) Rules, 1959 nor Sections 100 to 102 of the Companies Act, 1956 are attracted to the case of amalgamation.

In the present case, Clauses 2.14, 3.1, 3.2 and 4.1 (a) of the proposed Scheme of Amalgamation appearing at pages 105 and 106 of the Paper Book provide as follows :

�2.14. In respect of the shares held by BEL in BEPL, no allotment of shares shall be made against such holding, in pursuance with the Scheme and the said holding shall stand cancelled/extinguished.

3.1. Subject to Clause 2.14 of this Scheme,upon the Scheme becoming finally effective, and in consideration of the transfer and vesting of the said. Undertakings, assets and the said liabilities of BEPL in BEL.,BEL shall not be required to allot any equity shares to the shareholders of BEPL as all shares of BEPL are held by BEL only, in view of the fact, that BEPL is 100% subsidiary of BEL and the shares of BEL in the capital of BEPL will cancel/extinguish against investments by BEL in BEPL and necessary accounting entry will be made in the books of accounts of BEL, and hence it is not necessary to value the shares of the Transferor or Transferee Company and no valuation report is prepared.

3.2. Upon the coming into effect of this Scheme, the shareholders of BEPL shall surrender their share certificates for cancellation thereof to BEL. The ultimate extinction of capital in view of the merger/amalgamation of BEPL with BEL, if amounting to reduction in capital of amalgamated BEL is the part and parcel of this Scheme and such reduction of capital in the event of merger/amalgamation shall not be required to be approved separately by the Hon''ble High Court of Allahabad, in view of the present application for sanctioning the scheme of merger/amalgamation by the Hon''ble High Court of Allahabad.

4.1 On the Scheme being agreed to by the requisite majorities of the members of BEPL and BEL.

(a) BEPL shall with reasonable despatch, apply to the Hon''ble High Court of Allahabad at Allahabad for sanctioning this Scheme under Section 391 of the Act and for an order or orders under Section 394 of the Act for carrying this Scheme into effect and for dissolution of BEPL without winding up as also any order or orders as may be necessary and appropriate under the Act;

......................�

It may be mentioned that BEPL in the above Clauses stands for Bulk Explosives Limited, i.e., the Transferor Company while BEL in the above Clauses stands for Bharat Explosives Limited, i.e., the Transferee Company, as is evident from the Definition clause of the proposed Scheme of Amalgamation at page 102 of the Paper Book.

It will, thus, be seen that the proposed Scheme of Amalgamation contemplates extinguishment of the share capital of the Transferor Company and also dissolution of the Transferor Company without winding up.

Clauses 2.1, 2.2, 2.3 and 2.4 of the proposed Scheme of Amalgamation appearing at pages 103 and 104 of the proposed Scheme of Amalgamation further show that all the assets and liabilities of the Transferor Company will stand transferred to the Transferee Company.

Evidently, the provisions of Sections 100 to 102 of the Companies Act, 1956 and Rule 185 of the Companies (Court) Rules, 1959 are not applicable to the present case. The submission of Sri Yashwant Verma, learned counsel for the Transferor Company/applicant, in my opinion, is correct.

The above conclusion is supported by the aforementioned decisions relied upon by Sri Yashwant Verma, learned counsel for the Transferor Company/applicant.

In T. Durairajan case (supra), the Madras High Court held as follows (at pages No. 567 and 568 of the said Company Cases):

�The scheme of Sections 101 and 102 of the Companies Act as well as rule 85 of the Companies (Court) Rules, 1959, clearly envisages that reduction in capital is in the context of an existing or continuing company. Where, as in this case, preference shares of amalgamating companies are paid out by the new company under a Scheme of Amalgamation by the terms of which the amalgamating companies go out of existence by a merger of the same in the new company, it will be hardly appropriate to view the process of such payment as involving reduction of capital of the amalgamating company which, by amalgamation, loses its existence and identity. The object of asking for confirmation by Court of reduction of capital is to safeguard the interests of the creditors of the company, and other obligations or rights coming into existence in the light, or on the strength of existing capital structure either fully paid up, or realizable at call. The Scheme, in the instant case, involves transfer of the entire assets, rights and liabilities of the amalgamating companies to the new company which becomes, when the scheme takes effect, liable to lie creditors of the amalgamating companies to the fullest extent. To such a case the procedure for reduction of share capital, as provided for by Sections 100,101 and 102 is hardly applicable. Rule 85, in our opinion, does not contemplate a compromise or arrangement in the nature of a scheme of amalgamation, such as we have here�.

�..............................................The context of the decision makes it inapplicable to the facts before us. It is not every extinguishment of shares, as we are inclined to think, that is reduction in capital, unless the company continues to exist. Where by the process of arrangement the company itself is dissolved without winding up it is hardly a case of reduction in capital as contemplated by the provisions of Companies Act, 1956�.

(Emphasis supplied)

In Asian Investments Limited case (supra), the Madras High Court held as follows (at page 523 of the said Company Cases) :

�..........Section 77 imposes a restriction on purchase by a company of its own shares. It is not necessary that extinguishment of shares in all cases should necessarily result in reduction of share capital. Section 100 will nut come into to play where the scheme of amalgamation contemplates the transfer of the entirety of assets and liabilities of the transferor company to the transferee company. In such a case, in my view, there is no release of assets. The assets of the transferor company, on amalgamation, stand transferred to and vested in the transferee company.

Further, rule 85 of the Companies (Court) Rules, 1959, which is part of the scheme of Section 101 and Section 102 of the Act, provides that where a proposed compromise or arrangement involves reduction of capital of the company, the procedure prescribed by the Act and the rules relating to reduction of capital shall be complied with before the compromise or arrangement so far as it relates to reduction of capital is concerned. It. is, therefore, evident that Section 101 and Section 102 and rule 85 would stand attracted only to cases of compromise or arrangement involving reduction of capital and not to cases of amalgamation simpliciter where the entirety of the assets and liabilities are transferred and when there is no release of any assets.

.............Further, the procedure prescribed under Sections 101 and 102 read with rule 85. do not stand attracted to a case of scheme of amalgamation, where there is no release of assets but which involves transfer of all the assets and liabilities �.

(Emphasis supplied)

In Mcleod Russel case (supra), the Calcutta High Court held as follows (paragraphs No. 23 and 35 of the said Company Law Journal) :

�23. On the question of reduction of share capital, Mr. Mukherjee submitted that rule 85 referred to by Mr. Kundu was in relation to a proposed compromise or arrangement which involved reduction of capital of the company and not in respect of a proposed scheme of amalgamation or merger where the transferor companies merged their identities with the transferee company. According to Mr. Mukherjee, rule 85 had no application where a scheme of amalgamation simpliciter was under consideration involving transfer of the entire assets and liabilities of the transferor companies �.

�35. The objections relating to rule 85 and Section 391(2) have been adequately answered by Mr. Mukheriee. Rule 85 would not apply in a scheme of merger simpliciter where the assets and liabilities of the transferor companies stand transferred as a whole to the transferee. As to the statutory majority contemplated in Section 391(2), it is quite clear that the same refers to members not only present, but also voting at meeting convened under Section 391(1) thereof.

(Emphasis supplied)

In M/s. Motiwala Investment Company Pvt. Limited case (supra) this was laid down as follows:

�Having heard learned counsel for the parties, prima facie I find force in the submission made by the learned counsel for the petitioner transferor Companies that in the facts of the present case Sections 101 and 102 of the Act and Rule 85 of the Rules will not be attracted because this is not a case where there is any reduction in the capital. In a case where is a scheme of amalgamation in which there is no release of assets but which only involves transfer of all the assets and liabilities it can not be said that there is a reduction in capital. Support to this view can be had from the decision of the Madras High Court in re: Asian Investments Limited and others reported in (1992) 73 Companies Cases 517�.

(Emphasis supplied)

Let us now consider the submissions made by Shri Yashwant Verma, learned counsel for the Transferor Company/Applicant, on merits of the Company Application.

As regards, convening of meeting of the shareholders/members of the Transferor Company, it is submitted by Sri Verma that in view of the averments made in the Company Application, particularly in paragraph No. 30 thereof, the convening of the meeting of the shareholders/members of the Transferor Company may be dispensed with.

Sri Verma has further referred to Annexure No. 11 to the Company Application, and Annexure No. 2 to the said Civil Misc. Application No. 49434 of 2004.

I have considered the submissions made by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant.

As is evident from the averments made in paragraph No. 30 of the Company Application, the entire share capital of the Transferor Company in the shape of fully paid up Equity shares is held by the Transferee Company together and jointly with six nominees. The Transferee Company has filed an application under Section 391 read with Section 394 of the Companies Act, 1956 seeking sanction of this Court to the proposed Scheme of Amalgamation, and the said application has been numbered as Company Application No. 7 of 2004.

It is further evident that the Board of Directors of the Transferee Company has passed resolution on 2712004, inter alia, stating that the Transferee Company has �No Objection� to the Scheme of Merger of the Transfer Company with the Transferee Company has �No Objection�, if the meeting of the shareholders of the Transferor Company is waived off by this Court. Certified true copy of the resolution passed by the Board of Directors of the Transferee Company on 2712004 has been filed as part of Annexure No. 11 to the Company Application (at page 191 of the paper book). Further, certified true copy of the said resolution has also been filed as part of Annexure No. 2 to the said Civil Misc. Application No. 49434 of 2004.

It is, further evident that S.G. Raman, Constituent Authority of the Transferee Company, has filed an affidavit sworn on 1222004, inter alia, stating that the Transferee Company has no objection to the Scheme of Amalgamation/merger of the Transferor Company with the Transferee Company; and the Transferee Company is holding 499994 Equity Shares of the Transferor Company; and that the Transferee Company as a shareholder has no objection if the meeting of the shareholders of the Transferor Company is waived off by this Court. Copy of the said affidavit of S.G. Raman has been filed as part of Annexure No. 11 of the Company Application at page 192 of the paper book. Further, the said affidavit of S.G. Raman, in original, has filed as part of Annexure No. 2 to the said Civil Misc. Application No. 49434 of 2004.

It is further evident that six nominee shareholders of the Transferor Company, namely Awadesh Kumar Gupta, Anita Thakur, Ravi Gadi, S.G. Raman, Pankaj Garg and V. Nagnathan have filed their respective affidavits each sworn on 1222004, inter alia, stating that they give their consent to the proposed merger of the Transferor Company with the Transferee Company, and they as shareholders have no objection if the meeting of the shareholders of the Transferor Company is waived off by this Court. Copies of the said affidavits have been filed as part of Annexure No. 11 to the Company Application at pages No. 193, 194,195,196,197 and 198, respectively of the paper book. Further, the said affidavits, in original, have also been filed as part of Annexure No. 2 to the said Civil Misc. Application No. 49434 of 2004.

In view of the aforesaid, it is evident that all the shareholders of the transferor Company including the Transferee Company have given their consent to the proposed Scheme of Amalgamation and have further stated that they have no objection if the meeting of the shareholders of the Transferor Company is waived off.

In the circumstances, I am of the opinion that it is not necessary to hold the meeting of the shareholders/members of the Transferor Company for consideration of the proposed Scheme of Amalgamation, as required under Section 391(1) and (2) read with Section 393 of the Companies Act, 1956, and as such, the requirement for holding the meeting of the shareholders/members of the Transferor Company for consideration of the proposed Scheme of Amalgamation is dispensed with.

As regards convening of meeting of the secured creditors of the Transferor Company/Applicant Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant, refers to the averments made in paragraph No. 27 of the Company Application Sri Verma has further referred to Annexure No. 10 to the Company Application, and Annexure No. 1 to the said Civil Misc. Application No. 49434 of 2004.

In the said paragraph 27 of the Company Application, as noted above, it has inter alia, been stated that in so far as the secured creditor of the Transferor Company is concerned, it is financed by State Bank of India, Jabalpur Branch, Madhya Pradesh which has given its letter of consent to the proposed Scheme of Amalgamation and has submitted notarized affidavit indicating their no objection to the said Scheme. Copies of the said letter of consent and the said notarized affidavit submitted by State Bank of India have been filed as Annexure No. 10 to the Company Application. Further, as mentioned earlier, the said letter of consent, in original, and the said notarized affidavit, in original, have also been filed as Annexure No. 1 to the said Civil Misc. Application No. 49434 of 2004.

A perusal of the said letter of consent dated 1922004 annexed is part of Annexure No. 10 to the Company Application at page No. 188 of the paper book shows that it is, inter alia, stated in the said letter of consent that the approval for the proposed merger is being given subject to the condition that no dilution takes place in the securities/charges created in favour of the said secured creditor (i.e., State Bank of India), and the interest of the said secured creditor is not affected in any manner upon amalgamation, and that the merger should strictly be as per the scheme submitted to the said secured creditor (i.e., State Bank of India).

A perusal of the said notarized affidavit submitted by State Bank of India (secured creditor), annexed as part of Annexure No. 10 to the Company Application, shows that it is, inter alia, stated in the said affidavit that State Bank of India ( secured creditor) shall have no objection in the event of amalgamation of the Transferor Company with the Transferee Company pursuant to the Draft Scheme of Amalgamation subject to the condition that the charge in favour of the secured creditor is not diluted and continued with the company to be created upon amalgamation; and that the guarantees (personal and corporate), mentioned in the said affidavit, are continued till their substitution by other suitable guarantees acceptable to the Bank; and that the secured creditor (i.e. State Bank of India) shall have no objection if the meeting of secured creditors is waived by this Court.

Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant refers to Clauses 2.1, 2.2, 2.3 and 2.4 of the proposed Scheme of Amalgamation annexed as Annexure No. 4 to the Company Application at page 101 of the paper book.

The said Clauses of the proposed Scheme of Amalgamation appearing at pages 103 and 104 of the paperbook are as follows:

�2.1 All the properties, rights and claims whatsoever of BEPL and its entire undertakings, trade marks, patents, permits, quotas authorities, privileges, various exemptions/incentives, granted under different schemes of State/Central Government, licences including the existing industrial licence for manufacturing and/or carrying on of its business and any other authorization/permission there under and, rights in respect of property, movable and immovable properties allotted by Government agencies whether by ownership, lease or otherwise, fittings and fixtures, telephones, telex and fax connections, cash balances, reserves, security deposits, refunds, goodwill, outstanding balances, stocks, investments, leases, licences, contracts, approvals, authorizations, agreements and other rights and interests of all description in or arising out of such properties as may belong to or be in possession of BEL and all books of account and documents and records relating thereto, all of which is hereafter called (the �said Undertakings�) shall, without further act or deed, be transferred to and vest in BEL pursuant to Sections 391 and 394(2) of the Act, with effect from the Appointed Day, so as to become the assets and properties and authorization, permission and licence of BEL, but subject to voluntary and statutory charges if applicable or due, affecting the same. Provided always that any reference in any security document/arrangement to which BEPL is a party, to any assets of BEPL offered as security for any financial obligation or assistance shall be construed as a reference to only the assets or authorization or licences and permission of BEPL as are vested in BEL, under this Scheme and the Scheme shall not operate to enlarge the security for any loan, deposit or facility created by or available to BEPL, which shall vest in BEL by virtue of the amalgamation/merger and BEL shall not be obliged to create any further or additional security thereon after the amalgamation has been effective or otherwise.

2.2 All the debts, duties, obligations and liabilities of the said Undertakings of BEPL (herein after referred to as the �said Liabilities�) shall also stand transferred to BEL with effect from the Appointed Day without further act or deed pursuant to Section 394(2) of the Act, so as to become the said Liabilities of BEL.

2.3 In respect of such of the assets as are movable in nature or are otherwise capable of manual delivery or by endorsement and delivery the same shall also stand transferred from the appointed day and shall become the assets and property of BEL and thereon as an integral part of BEL, but subject to all such charges effecting the same.

2.4 BEL may, at any time after the coming into effect of this Scheme in accordance with the provisions hereof, if so required, under any law or otherwise, execute deeds of confirmation in favour of any party to any contract or arrangement to which BEPL is a party or any writings as may be necessary to be executed in order to give formal effect to the above provisions. BEL shall under the provisions of this Scheme, be deemed to authorized to execute any such writings on behalf of BEPL to carry out or perform all such formalities or compliances referred to above on the part of BEPL to be carried out or performed.�

It may be mentioned that BEPL in the above Clauses stands for Bulk Explosives Limited, i.e., the Transferor Company, while BEL in the above Clauses stands for Bharat Explosives Limited, i.e., the Transferee Company, as is evident from the Definition clause of the proposed Scheme of Amalgamation at page 102 of the Paper Book.

It is submitted by Shri Yashwant Verma, learned counsel for the Transferor Company/Applicant that in view of the above Clauses of the proposed Scheme of Amalgamation, it is evident that the charge created in favour of the secured creditor (State Bank of India) of the Transferor Company will not be affected as a result of the amalgamation, and the same will continue to remain in operation even after the amalgamation.

It is further submitted by Sri Yashwant Verma that in order to remove any doubt regarding fulfillment of any of the conditions mentioned in the said letter of consent and the said notarized affidavit submitted the secured creditor (State Bank of India) annexed as Annexure No. 10 to the Company Application, including the condition regarding the continuance of the personal guarantees and the corporate guarantees mentioned in the said notarized affidavit, necessary affidavit(s) will be filed while filing Petition for confirmation of the proposed Scheme of Amalgamation.

In view of the aforesaid, the submission proceeds, the convening of meeting of the secured creditors of the Transferor Company be dispensed with.

I have considered the submissions made by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant.

As is evident from the averments made in paragraph No. 27 of the Company Application that there is only one secured creditor of the Transferor Company, namely, State Bank of India, Jabalpur Branch, Madhya Pradesh. The said secured creditor has given its aforementioned letter of consent dated 1922004 and has also submitted the aforesaid notarized affidavit. A perusal of the said letter of consent and the said notarized affidavit submitted by the said secured creditor shows that the said secured creditor has given its consent to the proposed amalgamation of the Transferor Company with the Transferee Company subject to the conditions mentioned in the said letter of consent and the said notarized affidavit.

A perusal of the aforementioned Clauses, namely, 2.1, 2.2, 2.3, and 2.4 of the proposed Scheme of Amalgamation shows that the conditions mentioned in the said letter of consent and the said notarized affidavit regarding the continuance of the charges in favour of the said secured creditor with the company to be created upon amalgamation is taken care of by said clauses of the proposed Scheme of Amalgamation.

Further, as submitted by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant, while filing the Petition for confirmation of the proposed Scheme of Amalgamation, necessary affidavit(s) will be filed containing averments so as to remove any doubt regarding fulfillment of the conditions mentioned in the said letter of consent and the said notarized affidavit ( annexed as Annexure No. 10 to the Company Application) including the conditions regarding the continuance of the personal guarantees and the corporate guarantees given to the said secured creditor.

In view of the aforementioned facts and circumstances of the case, particularly in view of the fact that the only secured creditor ( State Bank of India) of the Transferor Company/Applicant has given no objection to the proposed Scheme of Amalgamation and to dispensing with the requirement of holding the meeting of the secured creditors of the Transferor Company, and also keeping in view the submission made by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant that necessary affidavit(s) as mentioned above, will be filed while filing the petition for confirmation of the proposed Scheme of Amalgamation, I am of the opinion that it is not necessary to call the meeting of the secured creditors of the Transferor Company for consideration of the proposed Scheme of Amalgamation as per the requirements of Section 391(1) and (2) read with Section 393 of the Companies Act, 1956. In the circumstances, the requirement for holding the meeting of the secured creditor of the Transferor Company for consideration of the proposed Scheme of Amalgamation as per the requirements of Section 391(1) and (2) read with Section 393 of the Companies Act, 1956 is dispensed with.

As regards convening of meeting of the unsecured creditors of the Transferor Company. Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant refers to the averments made in paragraph No. 28 of the Company Application wherein it has, inter alia been stated that there are no debenture holders or public deposits in the Transferor Company. It is submitted that in view of the averments made in the said paragraph No. 28 of the Company Application there are no unsecured creditors of the Transferor Company.

It is further submitted that as regards the trade creditors mentioned in paragraph No. 32 of the Company Application, they are sundry creditors of the Transferor Company in the usual course of business, and the interest of the said sundry creditors will not be affected by the proposed Scheme of Amalgamation.

In view of the aforesaid circumstances, the submission proceeds, it is not necessary to hold the meeting of the unsecured creditors of the Transferor Company, and the requirement for holding the meeting of the unsecured creditors of the Transferor Company be dispensed with.

I have considered the submissions made by Sri Yashwant Verma, learned counsel for the Transferor Company/Applicant.

A perusal of the averments made in paragraph No. 28 of the Company Application shows that there are no unsecured creditors of the Transferor Company. As regards the trade creditors mentioned in paragraph No. 32 of the Company Application, they are evidently the sundry creditors in the usual course of business of the Transferor Company.

In view of the aforesaid facts and circumstances, I am of the opinion that it is not necessary to call the meeting of the unsecured creditors of the Transferor Company for consideration of the proposed Scheme of Amalgamation, as per the requirements of Section 391(1) and (2) read with Section 393 of the Companies Act, 1956. In the circumstances, the requirement for holding the meeting of the unsecured creditors of the Transferor Company for consideration of the proposed Scheme of Amalgamation, as per the requirements of Section 391(1) and (2) read with Section 393 of the Companies Act, 1956 is dispensed with.

In the above circumstances, the Transferor Company/Applicant is permitted to file the petition for confirmation of the proposed Scheme of. Amalgamation within two months from today. The Company Application is disposed of accordingly.