Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Section 390 to 395 of Companies
Act, 1956 deal with arrangements, amalgamations, mergers and the procedure to
be followed for getting the arrangement, compromise or the scheme of
amalgamation approved. The business people or the MBA students look at the
issue of mergers in a different angle to that of legal professionals. It is
very often been criticized by legal professionals that the sections providing
for amalgamation etc. are being misused and it may be true to some extent, but,
its not wholly true. But, when we discuss the issue of mergers with business
people and MBA graduates, then, they talk about business strategies like market
penetration strategy etc. Its true that when a company is not doing well and
its financial position is weak, then, the Act itself guides the Company to go
for settlement with creditors or go for some arrangement instead of winding-up
the Company. The Act can not force the company to go for compulsory merger or
settlement and it all depends upon the commercial wisdom and viability of a
Company. While the Act facilitates the arrangement or settlement with creditors
etc. when the Company is not doing well, it is for the creditors and other
stake-holders to decide as to whether they agree for settlement etc. or not.
The act facilitates arrangement, settlement, amalgamation and merger etc. If it
is a private company or a public limited company, the Company has to follow the
procedure laid down under the Companies Act apart from the Central Government
rules in this regard. If it is a listed public company, then, the company has
to comply with the SEBI regulations too and its all in the nature of giving
prior relevant information to the stake holders/public or giving further
material information when the deal is over.
Dealing with the issue of mergers
and amalgamations elaborately is a bigger and complicated affair.
In this article, I would like to
deal with, in brief, as to whether it is right to say that the amalgamation
provisions as provided in the Act are being misused and the procedure to be
followed while getting the scheme of amalgamation approved under the provisions
of Companies Act, 1956.
Is it correct to say that the
provisions dealing with the arrangement and amalgamations will be useful for
the unscrupulous as an escape route?
There is a general assumption
that the provisions of Act especially provisions providing for compromise,
arrangement or amalgamation, are getting misused. Even though, there is nothing
in law even by implication to suggest that the provisions will get misused, it
is general thought that the persons charged with will take the plea that the
application has been filed for sanctioning the scheme and the proceedings will
automatically get abated. Law is very clear in this regard that the criminal
proceedings against the persons connected with the affairs of the company will
not get abated just because an application seeking sanction of scheme is filed
or scheme is being implemented. Only the proceedings, to some extent, sought to
be stayed when a scheme is filed and implemented. It is based on the logic that
if the civil proceedings are going on simultaneously when the scheme is being
approved, then, the scheme could not be worked out. Dealing with the same, the
High Court of Bombay, in State of Tamilnadu Vs. Uma Investments Pvt. Ltd (1977)
47 Com Cases 242, was pleased to observe that “it is in respect of these
classes of creditors that a proposal is put forward by the company for a
compromise or arrangement. The compromises or arrangements are, therefore,
concerned with civil liabilities where a creditor will accept a lesser payment
or receive less on distribution or grant time or waive interest and work out
other kindred things. It is not possible to take the view that section 391 is
meant for freezing criminal proceedings which may be instituted either by a
creditor or a member of a company or by the State either against the company or
its officers. The section does not provide an umbrella to a company or its
directors and officers for a thing which is an offence or an infringement or
violation of any law, rule or regulation punishable by imprisonment or fine or
both. Such criminal proceedings can be commenced or continued notwithstanding
the fact that a scheme for compromise or arrangement has been initiated under
section 391”.
Procedure to be followed while
approving the scheme of amalgamation:
The procedure to be followed
while getting the scheme of amalgamation is approved will depend upon sections
391 to 394A. Though, section 391 deals with the issue of compromise or
arrangement which is different from the issue of amalgamation as deal with under
section 394, as section 394 too refers to the procedure under section 391 etc.,
all the section are to be seen together while understanding the procedure of
getting the scheme of amalgamation approved. Again, it is true that while the
procedure to be followed in case of amalgamation of two companies is wider than
the scheme of compromise or arrangement though there exist substantial
overlapping. The procedure to be followed while getting the scheme of
amalgamation and the important points, are as follows:
(1) Any company, creditors of the
company, class of them, members or the class of members can file an application
under section 391 seeking sanction of any scheme of compromise or arrangement.
However, by its very nature it can be understood that the scheme of
amalgamation is normally presented by the company. While filing an application
either under section 391 or section 394, the applicant is supposed to disclose
all material particulars in accordance with the provisions of the Act.
(2) Upon satisfying that the
scheme is prima facie workable and fair, the Tribunal order for the meeting of
the members, class of members, creditors or the class of creditors. Rather,
passing an order calling for meeting, if the requirements of holding meetings
with class of shareholders or the members, are specifically dealt with in the
order calling meeting, then, there won’t be any subsequent litigation. The
scope of conduct of meeting with such class of members or the shareholders is
wider in case of amalgamation than where a scheme of compromise or arrangement
is sought for under section 391.
(3) The scheme must get approved
by the majority of the stake holders viz., the members, class of members,
creditors or such class of creditors. The scope of conduct of meeting with the members,
class of members, creditors or such class of creditors will be restrictive some
what in an application seeking compromise or arrangement.
(4) There should be due notice
disclosing all material particulars and annexing the copy of the scheme as the
case may be while calling the meeting.
(5) In a case where amalgamation
of two companies is sought for, before approving the scheme of amalgamation, a
report is to be received form the registrar of companies that the approval of
scheme will not prejudice the interests of the shareholders.
(6) The Central Government is
also required to file its report in an application seeking approval of
compromise, arrangement or the amalgamation as the case may be under section
394A.
(7) After complying with all the
requirements, if the scheme is approved, then, the certified copy of the order
is to be filed with the concerned authorities.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
