Areva T and D India Ltd In Re (2008) 81 SCL 140 (Cal)

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Introduction:

In the present case, the scheme of amalgamation with reference to the issues related to authorised capital is dealt with.

Facts of the Case:

Two issues of some importance arise in this the proposed transferee company’s petition for sanction of a scheme of amalgamation. The registered offices of the transferor companies are situated in other states and the proposed transferor companies have applied for approval of the scheme from the appropriate High Courts.

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.

Issues Raised:

The issues that have arisen for consideration before this court is that;

“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.

What is 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?”

Decision of the Court:

 The Hon’ble Court observed that the scheme is approved subject to the certain clauses in the scheme being modified. Further it was ordered that the authorised share capital of the transferee company shall be increased.

Analysis:

The whole crux of this present case deals with the Authorised capital and the nominal capital of the company applying for the amalgamation under the Companies Act. Authorised or ostensible capital as an offer capital in contradistinction to acquired cash, which is in some cases alluded to as advance capital. It implies the ‘ostensible’ capital of the organization, in particular, that which is expressed in the update of relationship of any organization, restricted by shares or by ensure with an offer capital, or in the articles of a limitless organization which has a capital isolated into shares, and any expansion of that ostensible capital which has been made in the way needed by rule.

This ‘ostensible’ capital doesn’t at the start, or essentially whenever, address cash in the coffers of the organization, or resources of any sort; however, the measure of ostensible capital at some random time restricts the force of the organization to restrict shares.

Indeed, even without the advantage of the meaning of approved capital as is presently perceived in the shores where such corporate standards started, it is rudimentary that approved capital doesn’t address any capital whatsoever, yet puts down a boundary that the settled-up capital of an organization may contact at some random mark of time. There is no ban on an organization began with few portions of little worth having a goal-oriented figure for its approved capital.

Authorised capital is, as the principal expression of the articulation suggests, the power given by the supporters or investors to the concerned organization regarding as far as possible, anytime of time, to which the settled-up capital may tend or even reach. It is notional in nature and doesn’t mirror any cash in the till of the organization or any physical resource that it should relate or reply to. The value of an organization isn’t chosen by its authorised capital, its settled up capital may consider it.

Furthermore, the application for sanction of a scheme, regardless of whether one of amalgamation or reconstruction is, basically, a joined application to get a single-window approval in regard of different issue that would somehow have required numerous applications being made. scheme of amalgamation may give, for example, for the modification of the items Clause in the reminder of relationship of the transferee organization; the decrease of the transferee organization’s settled up capital; and the variation of at least one of its articles, notwithstanding the exchange for which the imprimatur of the Court is looked for.

In the typical course, the transferee organization would have needed to apply to the Company Law Board for the expansion of additional items Clauses or the cancellation of any current statement; apply to the Court under Section 100 for the decrease of its offer capital and get endorsement of its investors independently for affecting any adjustment to the articles of affiliation. The different advances need not be taken if every one of the aforementioned three changes are proposed via a plan affirmed by its investors and the approval of the plan by Court will suffice.

The idea of compromise that can be gone into under Section 391 isn’t characterized. The meaning of redesign of capital is a comprehensive definition which would not bar decrease of offer capital or increment of offer capital which would likewise be a sort of rearrangement of the offer capital of an organization.

Moreover, in the event that Section 391 was dependent upon different arrangements of the Act each time the plan of bargain and course of action is advanced for the assent of the Court, on the off chance that it incorporates things for which explicit arrangements are made and that should be gone through before the plan is authorized, it would bring about pointless duplication of system and would be unwieldy.

In actuality, apparently if the lenders and individuals from the organization show up at a specific trade off which the Court thinks about reasonable, it tends to be endorsed under Section 391 in spite of the way that for a portion of those things remembered for the trade off another methodology is recommended in the Companies Act and which has not been completed. It, in this way, gives the idea that Section 391 is a finished Code which accommodates endorsing of the plan of bargain and course of action.

In the event that such a scheme of compromise and arrangement includes increment of share capital, it very well may be done as a piece of the redesign of the offer capital, which would be essential for the course of action that would be achieved between the organization and its individuals. Taking a gander at the matter from a somewhat extraordinary point, apparently Section 391 is an exceptional arrangement for approval of a plan of remaking of organizations, of blend of organizations and for a plan of bargain and course of action. The plan of bargain and course of action, or so far as that is concerned even the plan of blend of two organizations, may imagine revamping of offer capital of either organization.

The Companies Act almost certainly makes arrangement for decrease of share capital simpliciter or increment of offer capital simpliciter or new issue of capital simpliciter without as being part as scheme of compromise and arrangement. The plan of bargain and course of action can be achieved uniquely between the organization which is obligated to be ended up under the Companies Act and its individuals or banks. The exceptional arrangement contained in Section 391, specifically, authorization of the plan of bargain and course of action would as I would like to think prohibit general arrangements for decrease of offer capital or for issue of new capital. It is very much settled that a unique arrangement ought to be offered impact to the degree of its extension, leaving the overall arrangement to control situations where the uncommon arrangement doesn’t have any significant bearing:

Therefore, the arrangements contained in Section 391 is a complete Code. As a vital conclusion, if the scheme of compromise and arrangement incorporates rearrangement of offer capital with the exception of decrease of offer capital, it very well may be endorsed as a piece of the plan of bargain and course of action. The plan has been endorsed by a legal majority share as will be as of now brought up and if the plan is to be authorized as a feature of such a plan, redesign of the offer capital aside from the decrease of offer capital can be endorsed. It will, obviously, be important to see if the method endorsed for affecting decrease of offer capital has been gone through or not.

Amalgamation of a company with another or a amalgamation of two organizations to frame a third is achieved by two equal plans of courses of action went into between one organization and its individuals and the other organization and its individuals and the two separate game plans tie every one of the individuals from the organizations and the organizations when authorized by the Court. Amalgamation is, in this way, a retention of one organization into another or consolidation of both to frame a third, which is certifiably not a simple demonstration of the two organizations or their individuals however is achieved by ethicalness of a legal instrument and to that degree has legal beginning and character, and to that degree it is discernable from a simple reciprocal course of action to union or participate in a typical undertaking of an enterprise.

Moreover, the articles of a transferor organization may give it certain rights as respects method in managing certain issue that the Companies Act leaves an organization allowed to pick. The articles may give exceptional rights to all or a class of investors qua the organization or qua different individuals. Such rights are not persisted by the gathering of investors of a transferor organization once such investors become individuals from the transferee organization, nor can the extra rights that they had there to before appreciated under the articles of the transferor organization, be conveyed forward. Such matters again connect to the pointless shell that is abandoned.

It should be perceived that authorised capital, notional for what it’s worth, is a imaginary capital, the privilege identifying with it being more in substantial than other theoretical, however fairly assessable, rights under any permit or by virtue of any protected innovation. A notional right, for example, this is unequipped for being moved. What has been depicted, in various choices as a consolidation of approved capitals, is, with deference, not a consolidation truth be told.

The approved capital of a transferor organization doesn’t ipso facto vest in the approved capital of the transferee organization. Valid, that upon the investors of the transferee organization affirming a proposed plan of combination which accommodates consolidation of approved capitals, there is understood endorsement that can be separated out for the approved capital of the transferee organization to stand expanded by the quantum of the approved capital of the transferor organization upon consolidation. It is similarly conceivable that the investors of the transferee organization may require the approved capital of the transferee to be kept up.

It is additionally possible that the plan makes no notice of the consolidation of approved capital or of any expansion in the approved capital of the transferee organization. In the event that there were to be a programmed move of the authorised capital of a transferor organization into the approved capital of the transferee organization, the privilege of the investors of the transferee organization to keep up its authorised capital at the predominant level or to build it by a sum which is more prominent or not exactly the joined approved capitals of the organizations in question, must be disregarded or not perceived.

 A scheme of amalgamation might be totally quiet concerning the consolidation of approved capitals or with respect to any adjustment of the approved capital of the transferee organization ensuing upon the consolidation. In such a case, the privilege in regard of the approved capital of the transferor organization, on the off chance that it is a privilege by any means, doesn’t come into the transferee organization and stays with the transferor organization that is equipped for being deserted upon its disintegration.

The matter would be more complex if the privilege were to be a more unmistakable right. Say, the investors of a transferee organization don’t favor of the exchange of one of the steady properties of the transferor organization in the proposed plan of consolidation.

The impact of that would be that there would be no consolidation by any means; as in consolidation nothing remains behind in the transferor organization. On the off chance that, say, the investors of the transferee organization were not to endorse of the vesting of the rights identifying with an enlisted exchange mark or a copyright, again there would be no finished consolidation however the privilege in such licensed innovation is a theoretical right which should be deserted by the transferor organization and its disintegration might be gotten with the generosity in the excepted licensed innovation right going abegging.

Conclusion:

The whole purpose for Section 391 is to reconstitute the organization without the organization being needed to make various applications under the Companies Act for different adjustments. The organization is, in this way, not needed to make a different application under the Companies Act for change of its notice of relationship to show the new share capital. Such an adjustment can be authorized under the actual plan. Therefore, in the present case, the court allowed and approved the scheme of amalgamation with certain modifications.

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