Chapter XV if the Companies Act, 2013 deals with the compromises, arrangements and amalgamations. Section 230 provides the power to compromise or make arrangements with creditors and members by the National Company Law Tribunal. The Tribunal may on the application of the company or of any creditor or member of the company, or in the case of company which is being would up, of the liquidator, order for a meeting of the creditors or class of creditors or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Section 232 of the Act provides for the procedure of merger and amalgamation. The provisions of Chapter XV of the Act have not been notified for the implementation. Therefore in respect of mergers or amalgamation or compromise the provisions of the Companies Act, 1956 are to be followed till the provisions of Chapter XV are notified.
Section 117 of the Act provides that a copy of every resolution or any agreements in respect of matters-
- Special resolutions;
- Resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolution;
- Any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director;
- Resolutions or agreements which have been agreed to by any class of members but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by a specified majority or otherwise in some particular manner, and all resolutions or agreements which effectively bind such class of members though not agreed to by all those members;
- Resolutions passed by a company according consent to the exercise by its Board of Directors of any of the powers under Section 180 (1) (a) and 180 (1)(c);
- Resolution regarding a company to be wound up voluntarily passed in pursuance of Section 304;
- Resolutions passed in pursuance of Section 179 (3); and
- Any other resolution or agreement as may be prescribed and placed in the public domain.
together with the explanatory statement, if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within 30 days of the passing or making thereof in Form- MGT- 14. The proviso to this Section provides that the copy of every resolution which has the effect of altering the articles and the copy of every agreement shall be embodied in or annexed to every copy of the articles issued after passing of the resolution or making of the agreement.
The issue to be discussed in this article whether in case of amalgamation, compliance with the provisions of Section 117 of the Act and also to file MGT – 14 with relevant fees to Registrar of Companies is required or not, with reference to the decided case law in In Re. :- Sigma Soya Industries Pvt. Limited and Sigma Spice Industries Pvt. Limited 2015 (3) TMI 115 – GAUHATI HIGH COURT.
Facts of the case
The facts of the case run as follows:
The petitioner filed the present petition under Section 391(2) and 394 of the Companies Act, 1956 in the matter of amalgamation between the petitioners companies. The petitioner No. 1 is the Sigma Soya Industries Private Limited. The said company with all its assets and liabilities are to be transferred to the petitioner No. 2 M/s Sigma Spice Industries Private Limited. The approval/sanction of the court is sought in respect of the scheme of amalgamation.
The court after seeing the reports of the meetings submitted under Rule 78 of the Companies (Court) Rules, 1959, verified the affidavits held in compliance with the Court’s order dated 19.02.2014. The Court also perused the petitioner for confirming the scheme of amalgamation in Form No. 40 and fixed for hearing. Notices were ordered to be advertised in the Assam Tribunal, Gauhati and ‘Asomiya Pratidin’, Gauhati not less than 14 days before the date fixed for hearing. Notice of the petition was also ordered to be served on the Regional Director, Company Law Board, Eastern Region, Shillong not less than 28 clear days before the date fixed for hearing.
The Regional Director has filed an affidavit on behalf of the Central Government.
Submissions of Regional Director
The following are the submissions by the Regional Director before the Court:
- The capital clause in the Memorandum of Association and Articles of Association of the company can be amended by following requisite procedure as laid down in the Companies Act, 2013 and by filing e-form MGT 14 to the office of the Registrar of Companies;
- There is no clause in the scheme that ‘the transferor company shall be dissolved without winding up’ as per the provisions of Section 394 of the Companies Act, 1956 in the instant petition;
- The accounting treatment of asset and liabilities in the books of Transferee company shall be made at their respective book values and any deficit or surplus shall be adjusted against reserves only in terms of provisions of Accounting Standard 14. However, the surplus, if any, arising should be treated as general reserve since the nature of such gain/surplus has arisen out of amalgamation and not out of operational activities of the company, thereby the nature of such surplus should be capital reserve.
Prayer of Regional Director
On submitting the above before the Court the Regional Prayed the following:
- To direct the petitioner companies to suitably amend the scheme by inserting a sentence ‘subject to compliance of the provisions of Section 117 of the Companies Act, 2013’ in the last line of the said para of the scheme;
- To direct the petitioner companies to amend the scheme by inserting ‘the transferor company shall be dissolved without winding up’ to bring it in order;
- To amend such para of the scheme by inserting a para that any surplus arising out of the resultant acquisition in the books of the Transferee company.
Submission of the petitioners
In response to the submissions of the Regional Director, the petitioners submitted the following before the Company Court:
- It is already mentioned in clause 6 of the Part II of the Scheme of amalgamation the required information i.e., ‘the transferee company stand dissolved without winding up’; otherwise also that is the statutory requirement under Clause – IV of Section 394 (1)(h) of the Companies Act, 1956 and that has to be complied with and the High Court ordered accordingly;
- The production of the commercial activity has not been started and no profit and loss account has been drawn till date and also the company does not have any reserve and surplus in the balance sheet. Since the share exchange ratio is fixed as 1:1, no surplus shall arise post amalgamation. If any surplus accrues, the same shall be transferred to capital reserve and the scheme shall be amended accordingly as may be directed by the High Court;
- The provisions of Section 117 of the Companies Act, 2013 and filing of form MGT 14 are not required since clause 25 of the Articles of Association of the transferee company specifically states that the share capital can be altered by passing any ordinary solution;
- As stated in clause 101 of the scheme of amalgamation, the authorized share capital of the transferee company shall automatically stand increased without any further act, instrument and deed on the part of the transferee company;
- The transferee company has already increased its authorized capital from ₹ 1.50 crores to ₹ 3 crores in its Extra ordinary General Meeting held on 23.06.2014 and has also paid the requisite fees to the Registrar of Companies.
Findings of the Court
The Company Court heard both the sides. The Court accepted the contentions of the petitioner. The Court held that the observations of the Regional Director that the scheme may be suitably amended by inserting a sentence ‘subject to compliance of the provisions of Section 117 of the Companies Act, 2013 in the last line of said para of the scheme are unnecessary. The Court further held that compliance with provisions of Section 117 of the Companies Act, 2013 and filing of e-form MGT – 14 are not required. The Court granted the prayer of the petitioners for approval/sanction of the scheme of amalgamation.
The Companies Act, 1956 is the longest Act in the world having 658 sections. By changing time and scenario the act ought to have been changed. It has been expected for the last two decades for the complete replacement of the Companies Act, 1956. The Government has also tried to do the same but could not able to do so. Therefore amendments have been made to the Companies Act, 1956. The amendment brought out in the year 2002 has a bearing in the Companies Act.
Now the Government is able to promulgate the new Companies Act, 2013 having 470 sections. It is unfortunate that all sections have not been implemented at the same time. Some Sections were made effective from 12.09.2014 and some sections were made effective from 01.04.2014. 283 sections have been notified and the remaining sections are yet to be notified. The provisions relating to Chapter XV to XX and other provisions relating to-
- Setting up of/exercise of powers by National Company Law Tribunal/National Company Law Appellate Tribunal;
- Investor Education and Protection Fund;
- National Financing Reporting Authority; and
- Special Courts.
The Act is not complete itself. It provides sub legislation. Because of this rules have to be framed by the Central Government. So far 22 rules have been framed by the Ministry of Corporate Affairs.
Compliance under the New Act and rules framed there under cause many hardship to the Corporate Sector in many areas. There are many confusing prevailing in the compliance.
The present case law involves amalgamation of two companies. For the purpose resolutions has to be passed by Board, general meeting etc., Section 117 of the new Act provides for the compliance of filing the resolution to the Registrar of Companies. Chapter XV of the Act deals with the amalgamation process. But the provisions of Chapter XV have not yet been notified. Therefore there is no other way except to comply with the provisions relating to amalgamation under Companies Act, 1956. Once the Companies Act, 1956 is to be followed the compliance procedure in that Act is to be followed.
In this case the petitioners complied with all the directions of the Company Court in the matter of amalgamation. The Regional Director is also issued notice for giving opportunity to the Central Government of being heard before granting the sanction for amalgamation. The Regional Director raised three objections and prayed the Court for the compliance of the same by the petitioner companies. The petitioners gave suitable replies for the second and third objections. The first prayer of Regional Director before the Company court is to direct the petitioner companies to suitably amend the scheme by inserting a sentence ‘subject to compliance of the provisions of Section 117 of the Companies Act, 2013’ in the last line of the said para of the scheme. According to this Section the Regional Director required the petitioners to file MGT-14 form to the Registrar of Companies as laid down in Section 117 of the Companies Act, 2013. The petitioners contended that the said procedure is not required to be complied with under the New Companies Act. The High Court agreed with the contentions of the petitioners and held that it is not required to file MGT – 14 form.
The Companies (Management and Administration) Rules, 2014 was framed with effect from 01.04.2014. The Rule provides that MGT-14 form should be filed to Registrar of Companies in pursuant to the sections 94(1), 117 (1) of the Companies Act, 2013 and Section 192 of the Companies Act, 1956 and rules made there under. Section 94 (1) provides that the registers required to be kept and maintained by a company under Section 88 and copies of the annual return filed under Section 92 shall be kept at the registered office of the company. The proviso to the said section provides that such registers or copies of return may also be kept at any other place in India in which more than one tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the Registrar has been given a copy of the proposed special resolution in advance. Section 192 of the Companies Act, 1956 contains the provisions similar to the provisions of Section 117 of the Companies Act, 2013.
Rule 15 (6) provides that special resolution passed under Section 94(1) shall be filed with the Registrar at least one day before the date of general meeting of the Company in Form MGT – 14. Rule 24 provide that a copy of every resolution or any agreement required to be filed, together with the explanatory statement under Section 102 shall be filed with the Registrar in Form MGT – 14.
In the present case the transferee company has increased its authorized capital in its Extraordinary general meeting held on 23.06.2014 and also paid the requisite fees to the Registrar of Companies. Therefore the Court held that the observations of the Regional Director are unnecessary and it is not required to file MGT – 14 form.
When all the provisions of the Companies Act, 2013 are made effective and required rules are framed then only the confusion will be much reduced for the better compliance.
- : Corporate Law