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Calcutta High Court · body

2007 DIGILAW 496 (CAL)

AREVA T AND D INDIA LIMITED v. STATE

2007-07-05

SANJIB BANERJEE

body2007
( 1 ) 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. ( 2 ) 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. ( 3 ) THE other issue is as to 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. ( 4 ) THE first limb of the principal issue in these proceedings, is, in effect, an issue as to the form, but this has a bearing on the second part of the issue. If by virtue of a scheme of amalgamation, all assets and liabilities of a transferor company merges into and vests in the transferee company and if the right to the unissued authorised capital is a property, the corollary may follow: the right accrued to a transferor company as to its authorised share capital upon payment of requisite fees therefor should also merge into and vest in the transferee company without the transferee company being required to pay additional fees for the consequential increase. ( 5 ) AUTHORITIES that rule the field, some as appealing in vintage as in flavour, have been placed by the petitioner to assert that the Act recognises the en masse journey of all properties and liabilities from a transferor company to the transferee following a scheme of amalgamation, such that there is only an imaginary existence of the transferor company thereafter. ( 6 ) COUNSEL for the petitioner has begun from the very beginning. The sixth and seventh editions of Black's Law Dictionary have been placed as to the definition of authorised share capital and the meaning thereof. Authorised capital or nominal capital is such value of shares that a company is authorised by its association documents to issue (Black's, 7th Ed. , page-200 ). Such definition in the later edition is not much at variance with the one found in the earlier edition of the book : "authorised stock.-That amount of stock which the corporate character permits the corporation to issue. The shares described in the articles of incorporation which a corporation may issue. Modern corporate practice recognises authorisation of more shares than it is currently planned to issue. " (Black's, 6th Ed. , page 1416) ( 7 ) AUTHORISED or nominal capital is defined in the following words in words and Phrases Legally defined (3rd Ed. , Volume 1, page-219): "nominal capital the word 'capital', as used in the Companies Act, 1948 [repealed; see now the Companies Act, 1985] and the statutes which it replaces, always means share capital in contradistinction to borrowed money, which is sometimes referred to as loan capital. It sometimes means the 'nominal' capital of the company, namely, that which is stated in the memorandum of association of any company, limited by shares or by guarantee with a share capital, or in the articles of an unlimited company which has a capital divided into shares, and any increase of that nominal capital which has been made in the manner required by statute. This 'nominal' capital does not at the outset, or necessarily at any time, represent money in the coffers of the company, or assets of any kind, but the amount of nominal capital at any given time limits the power of the company to limit shares. [7 Halsbury's Laws (4th edn) para 135]. This 'nominal' capital does not at the outset, or necessarily at any time, represent money in the coffers of the company, or assets of any kind, but the amount of nominal capital at any given time limits the power of the company to limit shares. [7 Halsbury's Laws (4th edn) para 135]. " ( 8 ) EVEN without the benefit of the definition of authorised capital as is now understood in the shores where such corporate principles originated, it is elementary that authorised capital does not represent any capital at all, hut sets a limits that the! paid up capital of a company may touch at any given point of time. There is no embargo on a company started with a small number of shares of small value having an ambitious figure for its authorised capital. Authorised capital is, as the first word of the expression implies, the authority given by the subscribers or shareholders to the concerned company as to the upper limit, at any point of time, to which the paid up capital may tend or even reach. It is notional in nature and does not reflect any money in the till of the company or any corporeal asset that it must relate or answer to. The worth of a company is not decided by its authorised capital, its paid up capital may reflect upon it. ( 9 ) YET Schedule X to the Act provides for a fee being based on the quantum of the authorised capital that the subscribers to the memorandum of association, or the shareholders, of a company may set as the limit that the paid up capital of the company may climb up to. ( 10 ) THE petitioner asserts that a company's right to increase its paid up capital to the limit of its authorised capital is but a property of such company. The petitioner next urges that such right that vests in a company upon it having paid the requisite fees on the basis of its authorised capital, is likewise a property that the definition found in Section 394 (4) (a) of the act recognises and is capable of being transferred to and vesting in the transferee company. Section 394 (4))a) defines "property" such as may be transferred by a transferor company to a transferee in a scheme covered by the section, thus : "394. Section 394 (4))a) defines "property" such as may be transferred by a transferor company to a transferee in a scheme covered by the section, thus : "394. Provisions for facilitating reconstruction and amalgamation of companies.-(1) Where an application is made to the Court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Court, (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies, and (b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a "transferor company") is to be transferred to another company (in this section referred to as the "transferee company")the Court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters :- (i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company ; (ii) the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person ; (iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company ; (iv) the dissolution, without winding up, of any transferor company ; (v) the provision to be made for any person who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement ; and (vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out : provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest : provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Court unless the official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not be conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the I labilities of, the transferee company ; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3 ). . . . . . . . . (4) In this section- (a) "property" includes property, rights and powers of every description ; and "liabilities" includes duties of every description ; and (b ). . . . . . . . . . . " The petitioner suggests that the definition of property is of widest import. It is contended that the authority of and company to have its paid up capital enhanced to the limits of its authorised capital is a right which is acquired upon payment of requisite fees unden Schedule X and it is a property covered by the definition and capable of being passed on, under the scheme, to the transferee company. A scheme of merger, the petitioner submits, results in the transferor being denuded of the entirety of its properties and the same coming into the transferee. The right accused by a company upon its payment of the requisite fee for its authorised capital, it is argued, cannot evaporate and has either to remain in the transferor or travel, along with properties of other description, to the transferee. ( 11 ) IN aid of such contention and as to the treatment of the properties of a transferor company upon its amalgamation with the transferee, several decisions have been cited, not the least of them being the one reported at 40 Company Cases 819 (In re : Maneckchowk and Ahmedabad manufacturing Company Limited) which has been referred to in many later decisions involving sanction of schemes under Chapter V of Part VI of the act. In that case, a scheme of compromise and arrangement between the creditors and members of the company was being considered for sanction. The Gujarat High Court held, as Iras been recognised and accepted, that section 391 (and, the ancillary sections) formed a "complete code". In that case, a scheme of compromise and arrangement between the creditors and members of the company was being considered for sanction. The Gujarat High Court held, as Iras been recognised and accepted, that section 391 (and, the ancillary sections) formed a "complete code". If the provisions for sanction of a scheme were not a complete code and if it were intended "that various things that can be done by way of a scheme of compromise and arrangement, if they were to fall under different provisions of the Companies Act which prescribe certain procedure for doing the same and that procedure has to be gone through, it was not necessary to provide specifically that if the scheme of compromise and arrangement includes reduction of capital special procedure in respect of reduction of capital must be gone through before it could be sanctioned as part of the scheme of compromise and arrangement. " ( 12 ) THE application for sanction of a scheme, whether one of amalgamation or of compromise or reconstruction is, in effect, a combined application to obtain a single-window approval in respect of various matters that would otherwise have required multiple applications being made. A scheme of amalgamation may provide, for instance, for the alternation of the objects clause in the memorandum of association of the transferee company ; the reduction of the transferee company's paid up capital ; and the alternation of one or more of its articles, in addition to the transfer for which the imprimatur of the Count is sought. In the usual course, the transferee company would have had to apply to the Company Law Board for the addition of further objects clauses or the deletion of any existing clause ; apply to the Court under Section 100 for the reduction of its share capital and obtain approval of its shareholders separately for effecting any alteration to its articles of association. The multiple steps need not be taken if all the aforesaid three changes are proposed by way of a scheme approved by its shareholders and the sanction of the scheme by Court will suffice. ( 13 ) IN the Maneckchowk case, it was held that Rule 85 of the companies (Court) Rules (which, incidentally, were framed with the approval of the Supreme Court) recognises the authority to sanction a scheme to include the authority to also sanction reduction of share capital. ( 13 ) IN the Maneckchowk case, it was held that Rule 85 of the companies (Court) Rules (which, incidentally, were framed with the approval of the Supreme Court) recognises the authority to sanction a scheme to include the authority to also sanction reduction of share capital. If the scheme involves such reduction, "section 391 provides a complete Code of putting through a scheme of compromise and arrangement which may even include reorganisation of share capital". In discussing the wide powers conferred at the time of considering sanction of a scheme, the Maneckchowk case continued : "the nature of compromise that can he entered into under Section 391 is not defined. The definition of reorganization of capital is an inclusive definition which would not exclude reduction of share capital or increase of share capital which would also be a kind of reorganization of the share capital of a company. If Section 391 was subject to other provisions; of the Act every time the scheme of compromise and arrangement is put forth for the sanction of the Court, if it includes things for which specific provisions are made and that will have to be gone through before the scheme is sanctioned, it would result in unnecessary duplication of procedure and would be cumbersome. On the contrary, it appears that if the creditors and members of the company arrive at a certain compromise which the court considers fair, it can be sanctioned under Section 391 despite the fact that for some of those things included in the compromise another procedure is prescribed in the Companies Act and which has not been carried out. It, therefore, appears that Section 391 is a complete code which provides, for sanctioning of the scheme of compromise and arrangement. If such a scheme of compromise and arrangement includes increase of share capital, it can be done as a part of the reorganization of the share capital, which would be part of the arrangement that would be brought about between the company and its members. In case of reduction of share capital, in view of rule 85, the procedure prescribed under Section 100 and onwards will have to be gone through. In case of reduction of share capital, in view of rule 85, the procedure prescribed under Section 100 and onwards will have to be gone through. Looking at the matter from a slightly different angle, it appears that Section 391 is a special provision for sanction of a scheme of reconstruction of companies, of amalgamation of companies and for a scheme of compromise and arrangement. The scheme of compromise and arrangement, or for that matter even the scheme of amalgamation, of two companies, may envisage reorganisation of share capital of one or the other company. The companies Act no doubt makes provision for reduction of share capital simpliciter, increase of share capital simpliciter, or fresh issue of capital simpliciter without its beiing part of any scheme of compromise and arrangement. The scheme of compromise and arrangement can be brought about only between the company which is liable to be wound up under the Companies Act and its members or creditors. The special provision contained in Section 391, namely, sanction of the scheme of compromise and arrangement would in my opinion exclude general provisions for reduction of share capital or for issue of fresh capital. It is well settled that a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where the special provision does not apply : vide south India Corporation (P) Ltd, v. Secretary Board of Revenue (AIR 1963 SC 207) and C. Rajagopalachari v. Corporation of Madras ( AIR 1964 SC 1172 ). Therefore, it appears that the provisions contained in Section 391 is a complete code. As a necessary corollary, if the scheme of compromise and arrangement includes reorganization of share capital except reduction of-share capital, it can be sanctioned as a part of the scheme of compromise and arrangement. In the case of reduction of share capital as part of the scheme of compromise and arrangement, Rule 85 will have to be given full effect. The scheme has been approved by a statutory majority as will be presently pointed out and if the scheme is to be sanctioned as part of such a scheme, reorganization of the share capital except the reduction of share capital can be sanctioned. It will, of course, be necessary to find out whether the procedure prescribed for effecting reduction of share capital has been gone through or not. It will, of course, be necessary to find out whether the procedure prescribed for effecting reduction of share capital has been gone through or not. " ( 14 ) IN the case of amalgamation, as the petitioner rightly suggests, there is complete transfer of all the property of the transferor to the transferee and a vesting thereof in the transferee. The process is well-picturised in the judgment reported at 53 Company Cases 926 (Telesound India Ltd. , in re.) : "amalgamation of a company with another or an amalgamation of two companies to form a third is brought about by two parallel schemes of arrangements entered into between one company and its members and the other company and its members and the two separate arrangements bind all the members of the companies and the companies when sanctioned by the Court. Amalgamation is, therefore, an absorption of one company into another or merger of both to form a third, which is not a mere act of the two companies or their members but is brought about by virtue of a statutory instrument and to that extent has statutory genesis and character, and to that extent it is distinguishable from a mere bilateral arrangement to merge or join in a common endeavour, an undertaking or enterprise J. K. (Bombay)P. Ltd. v. New Kaiser-in-Hind Spg. and Wvg. Co. Ltd. (1970)40 Comp cas 689 (SC ). Once the Court sanctions the amalgamation, the amalgamation is made effective and binding by virtue of statutory power, inter alia, by the transferor to the transferee company of the whole or any part of the undertaking, property rights and liabilities of the transferor-company by virtue of the provisions of Section 394 of the Act, which are intended ho facilitate the process of amalgamation ; sailendra Kumar Ray v. Bank of Calcutta Ltd. (1948)18 Comp cases 1 (Cal ). The expression "property" and "liabilities", which can be transferred on amalgamation, under Section 394 (1) have been defined in very wide terms by sub-section (4) (a) of that section, so as to include "nights and powers of every description" and "duties of every description" respectively. The expression "property" would, therefore, be wide enough to include rights under a contract, including a contract of tenancy. The expression "property" would, therefore, be wide enough to include rights under a contract, including a contract of tenancy. These are co-extensive with the property and right which the transferor-company has in relation to its assets, but could not be wider than what the transferor-company was entitled to enjoy. The rights, property, as indeed the liabilities of the transferor company, become the rights, property and liabilities of the transferee-company by virtue of the order of vesting made by the Court consequent on amalgamation. It is neither an assignment of right or property, nor an assignment of property by the company. It is the transfer of rights, property and liabilities along with the company itself and it is only as a result of confusion of thought that it could be described as an assignment by the company to another person, which is independent and distinct from the company. Such a notion ignores the peculiar position of amalgamation in company law and its true legal incident. It is for historical reasons that the device of amalgamation was built into the company law for facilitating the merger of companies, inter alia, with a view to help restoration of sick units to health, better, more effective and economical management of the corporate sector to ensure continued production, increased employment avenues and generation of revenue's. Section 72a of the I. T. Act is one of the incentives for this kind of absorption of one company into another. On amalgamation the transferor-company merges into the transferee-company shedding its corporate shell, but for all purposes remaining alive and thriving as part of the larger whole. In that sense the transferor-company does not die either on amalgamation or on dissolution without winding-up under subsection (1)of Section 394. It is not wound up because it has merged into another. Winding-up is unnecessary. It is dissolved not because it has died, or ceased to exist, but because for all practical purposes, it has merged into another forming part of one corporate shell. The dissolution is the death of its independent corporate shell, because a company cannot have two shells. It is, therefore, dissolved because, the independent shall or corporate name is superfluous. The company in its essence means its members, who compose it, the assets, property and rights that it had, its liabilities, its undertaking, business or other activity. It is not synonymous with the shell or name. It is, therefore, dissolved because, the independent shall or corporate name is superfluous. The company in its essence means its members, who compose it, the assets, property and rights that it had, its liabilities, its undertaking, business or other activity. It is not synonymous with the shell or name. On amalgamation and consequential dissolution all these attributes continue to live as part of a larger entity. The only part that dies is the shell and the name. It is unlike the death of a natural person and yet in a larger and deeper sense the same. It is unlike it, because a natural person, as ordinarily understood, does not survive the death in any physical form. The transferor-company, however, does survive, in that there is a continuity even after dissolution of its members, its assets, undertaking, etc. The estate of a natural person continues in the hands of the successor for a limited period. In a larger and a deeper sense even a natural person survives his physical death in the continuation of a being, which is supposed to merge in the wider cosmic whole. That, however, is an area of study of life after death, or what is sometimes described as life after life, where the process is of a different dimension and defies description and is, in any event, too deep and wide for the rrarrow compass of this judgment. The analogy, therefore, between the death of a natural person and dissolution without winding-up is inappropriate. " ( 15 ) THE next judgments cited by the petitioner, reported at 80 company Cases 289 (PMP Auto Industries Ltd. , In re :) and 89 Company cases 754 (Rangkala Investments Ltd. , In re :) also recognise that the provisions found in Sections 391 to 394 of the Act constitute a complete code and such provisions obviate additional applications being made for amending the objects clause of the memorandum of association of the transferee company. Indeed, the Court receiving a petition for sanction of a scheme becomes, at the same time, the window that can receive an application for reduction of share capital, the window that can entertain a plea for amendment of the memorandum of association of one or more of the companies involved, and the authority to accord sanction to the scheme, all rolled into one. Courts have repeatedly frowned upon suggestions by objectors for duplication of procedure. Courts have repeatedly frowned upon suggestions by objectors for duplication of procedure. Though it is accepted that the provisions in the Act relating to divers approvals need to be complied with, but as to whether they have been complied with, need be tested only at the one window at which approval of the scheme is sought. There is good reason for recognition of such single-window clearance. It is the Court sanctioning the scheme that has to sanction every bit of it and a part of it may involve alteration of the memorandum of association of one or more of the companies involved or the reduction of share capital of one more of the applicants. The statutory prerequisites of alteration of memorandum and of reduction of share capital must necessarily be complied with for the scheme to be made fit for sanction. It would be unnecessary for two sets of proceedings to be instituted for approval of the same scheme being facilitated as the court that may approve the scheme can also conveniently enquire as to whether other provisions, whether for alteration of memorandum or reduction of capital or any other matter, have been complied with. ( 16 ) BUT that is not what is in issue in these proceedings. If the Act were to require that a fee would be payable for the alteration of the memorandum of association of a company, the fact that a scheme involved such alteration and that the statutory pre-conditions therefor were met, would not relieve the company seeking such alteration from its liability to pay the fee. The sanctioning Court's right to receive requests that would otherwise have been directed under different provisions of the Act, would not result in the company's obligation to pay fees, if applicable, being obliterated. The answer to this issue may be found more in Schedule X to the Act than in chapter V of Part VI of the Act. IK is irrelevant whether such fee, as the one payable for increase in authorised capital, is regulatory or compensatory ; it is enough that a fee is recognised to be payable upon increase of the authorised capital of a company. IK is irrelevant whether such fee, as the one payable for increase in authorised capital, is regulatory or compensatory ; it is enough that a fee is recognised to be payable upon increase of the authorised capital of a company. ( 17 ) COUNSEL for the petitioner argues that if the abstract right under a licence enjoyed by a transferccr company can become the property of the transferee company upon the transferor's merger, there should be no difficulty in the right to increase the authorised capital of the transferor company and the fee paid in that regard being vested in the transferee company upon amalgamation, for the transferee company to enjoy the benefit of such fee already paid. Though such analogy appears attractive, there are some other factors that differentiate the two situations. Licence, however personal it may be to the grantee, is a more tangible right that the notion that authorised capital denotes and the right that accrues to a company to increase its paid up capital to its authorised capital upon deposit of the requisite fee for the authorised limit. ( 18 ) RIGHTS under a licence arrd rights of similar nature are some what capable of being assessed in value. Similar rights as copyright, trademark and patent certainly standl transferred upon merger and vest in the transferee company. However abstract such rights, the goodwill relating thereto can be assessed by accountants and there are measures therefor. The right to increase the paid up capital of a company to a part or the outer limit of its authorised capital, cannot be assessed and there is no need to assess it. Such right cannot be equated to the quantum of the fee paid in that regard by a company, and, in any event, payment of fees, is a different matter altogether. The goodwill in a registered trademark is not weighed by the quantum of the fixed fee paid by the trader. The goodwill in an unregistered mark is not diluted only by the owner not having had the mark registered or on not paying the registration fee. ( 19 ) THERE are certain things that do not move upon merger of a company with another and the ipso facto transfer thereupon of all the properties and liabilities of the transferor to the transferee. For one, the name of the transferor is left behind ). ( 19 ) THERE are certain things that do not move upon merger of a company with another and the ipso facto transfer thereupon of all the properties and liabilities of the transferor to the transferee. For one, the name of the transferor is left behind ). After all, the transferee cannot have two names. The name, and the goodwill in it, of the transferor company is left with the shell, to borrow the Telesound expression, that remains to be pronounced dead upon the dissolution of the transferor company without winding up. For another, the memorandum and articles of the transferor company or the rights of the transferor company qua the members thereunder and the corresponding rights of the members of the transferor company inter se, do not vest in the transferee company. The memorandum and articles of association of the transferor company are abandoned and attach, meaninglessly, with the same shell that remains and is ultimately declared dead. The articles of a transferor company may give it certain rights as regards procedure in dealing with certain matters that the companies Act leaves a company free to choose. The articles may give special rights to all or a class of shareholders qua the company or qua other members. Such rights are not carried over by the group of shareholders of a transferor company once such shareholders become members of the transferee company, nor can the additional rights that they had there to before enjoyed under the articles oil the transferor company, be carried forward. Such matters again attach to the useless shell that is left behind. ( 20 ) EVERY company is required to pay a fee for its registration and such fee gives a right to the company or its shareholders through the company to carry on business. Upon the merger of a company with another, the registration fee paid by the transferor company, and the rights corresponding thereto, are not carried forward to the transferee company. The transferee company had already paid a fee upon its registration and such fee would permit it to continue its business, receive assets under any scheme from another company or give up assets under any scheme to another company. The registration fee paid by the transferor company is lost to the transferor company upon the merger of its properties with another. The registration fee paid by the transferor company is lost to the transferor company upon the merger of its properties with another. There is no reason why the fee paid tor the authorised capital of a transferor company should not be similarly lost. Conceptually, there is nothing that requires the fee paid for the authorised limit of capital to be treated on a higher pedestal than the fee paid toy a company for its registration. If the one can be lost upon merger and dissolution, so can the other. ( 21 ) THIS leads to the consideration of the other aspect, a thought that appears to have been sown in the Maneckchowk and Telesound decisions and which has found mention in the later judgments cited on behalf of the petitioner. Does the authorised capital of the transferor company merge with and into the authorised capital of the transferee company ? ( 22 ) IT must be understood that authorised capital, notional as it is, is an imaginary capital, the right relating to it being more intangible than other intangible, but somewhat assessable, rights under any licence or on account of any intellectual property. A notional right such as this is incapable of being transferred. What has been described, in a number of decisions as a merger of authorised capitals, is, with respect, not a merger in fact. The authorised capital of a transferor company does not ipso facto vest in the authorised capital of the transferee company. True, that upon the shareholders of the transferee company approving a proposed scheme of amalgamation which provides for merger of authorised capitals, there is implicit approval that can be culled out for the authorised capital of the transferee company to stand increased by the quantum of the authorised capital of the transferor company upon merger. It is equally possible that, the shareholders of the transferee company may require the authorised capital of the transferee to be maintained. It is also conceivable that the scheme makes no mention of the merger of authorised capitals or of any increase in the authorised capital of the transferee company. It is equally possible that, the shareholders of the transferee company may require the authorised capital of the transferee to be maintained. It is also conceivable that the scheme makes no mention of the merger of authorised capitals or of any increase in the authorised capital of the transferee company. If there were to be an automatic transfer of the authorised capital of a transferor company into the authorised capital of the transferee company, the right of the shareholders of the transferee company to maintain its authorised capital at the prevailing level or to increase it by an amount which is greater or less than the combined authorised capitals of the companies involved, has to be overlooked or not recognised. A scheme of amalgamation may be completely silent as to the merger of authorised capitals or as to any change in the authorised capital of the transferee company consequent upon the merger. In such a case, the right in respect of the authorised capital of the transferor company, if it is a right at all, does not come into the transferee company and remains with the transferor company that is capable of being abandoned upon its dissolution. The matter would be different if the right were to be a more tangible right. Say, the shareholders of a transferee company do not approve of the transfer of one of the immovable properties of the transferor company in the proposed scheme of merger. The effect of that would be that there would be no merger at all, as in merger nothing is left behind in the transferor company. If, say, the share holders of the transferee company were not to approve of the vesting of the rights relating to a registered trademark or a copyright, again there would be no complete merger though the right in such intellectual property is an intangible right which may as well be abandoned by the transferor company and its dissolution may be obtained with ths goodwill in the excepted intellectual property right, going abegging. ( 23 ) WHAT is commercially known as merger of one company into another is, legally speaking, the merger of the properties and liabilities of the transferor company with the transferee company. Companies do not merge, their assets and liabilities may. The shell of the transferor company is left behind to be ultimately discarded. ( 23 ) WHAT is commercially known as merger of one company into another is, legally speaking, the merger of the properties and liabilities of the transferor company with the transferee company. Companies do not merge, their assets and liabilities may. The shell of the transferor company is left behind to be ultimately discarded. The shell retains the name of the transferor company, its memorandum and articles, and the right relating to fees of such nature as may have been paid by the transferor company under Schedule X to the Act. There may be other matters that could be left behind, but which need not be gone into in the context of the present proceedings. ( 24 ) JUST as the objects clause of the transferor company does not get added to the objects clause of the transferee company upon amalgamation, so will the authorised capital of the transferor company not attach to the authorised capital of the transferee company upon the merger. Such right to increase its paid up capital to its authorise limit, is a right unique to each company and incapable of being transferred just as the fee paid for registration of a company is also incapable of being transferred. It is not necessary that every company that pays a high fee to have an ambitious authorised capital, expends such right by increasing the paid up capital to the authorised limit. The company may choose not to do so and the company may legally die, without any merger, without ever having taken any step for its paid up capital to match its authorised capital. There can be no goodwill attached to such a right, if it be one. It is not a property at all that is covered by the definition found in Section 394 (4) (a) of the Act. ( 25 ) WHEN a scheme seeks the merger of the authorised capital of a transferor company into that of the transferee, there is neither any merger sought nor is any merger of such kind possible. It is, indeed, a term of the scheme or an application to the Court sanctioning the scheme for an increase in the authorised capital of the transferee company by the extent of the authorised capital of the transferor company or the authorised capitals of the transferor companies if there bei more than one. It is, indeed, a term of the scheme or an application to the Court sanctioning the scheme for an increase in the authorised capital of the transferee company by the extent of the authorised capital of the transferor company or the authorised capitals of the transferor companies if there bei more than one. ( 26 ) SUCH a term may or may not be found in a scheme of amalgamation and to hold that uponiamalgamation the transferee company, in its new avatar, has an authorised capital which is the sum of its existing authorised capital and that of the transferor company, would be unwise. ( 27 ) THE single-window clearance that the sanction of a scheme affords to the applicants is as to the procedure, and so as to avoid several applications being made in respect of several matters and for all of them being combined into one. Such abridged or facilitating procedure cannot affect the right of the Revenue to receive fees that would otherwise be payable in respect of any part of the approval or for the purpose of giving effect to the approval. The procedure is simplified, the obligations under the various parts of the Act that are required to be complied with are not discharged or exempted. And, payment of fees is much more than the compliance with statutory requirements. An order sanctioning a scheme may approve the reduction of share capital of a company, but only upon section 100 or other relevant provisions in that regard being complied with. The Court sanctioning a scheme may permit the memorandum of association of a company being altered, but subject to the requirements of Section 17 being met. The single-window clearance does not give a go-by to the requirements under Section 100 far reduction of capital or the requirements of Section 17 for alteration of the memorandum. Chapter V of Part VI of the act merely empowers the sanctioning Court to receive one composite application for approval under divers provisions of the Act, it does not exempt compliance with the applicable substantive provisions found elsewhere in the Act, only the multi-procedure formalities are dispensed with. Chapter V of Part VI of the act merely empowers the sanctioning Court to receive one composite application for approval under divers provisions of the Act, it does not exempt compliance with the applicable substantive provisions found elsewhere in the Act, only the multi-procedure formalities are dispensed with. ( 28 ) A charter received by a company, upon payment of requisite fee to increase its paid up capital upto a particular limit is not a matter that is capable of being transferred to another company or a property or a right or a power of the kind that the definition of property in Section 394 (4) (a) takes in its fold. It is personal to the company that is granted it and perishes with such company upon its legal death. ( 29 ) WITH respect, such matters have not been referred to or discussed in the decisions cited on Ibehalf of the petitioner in, in effect, seeking a waiver of the fees payable in that regard upon the increase of its authorised capital following the approval of the present scheme. To be fair to the petitioner, it does not exactly seek a waiver of the fees, but insists that the authorised capital of the transferor companies get merged into that of the transferee company consequent upon the sanction of the scheme and there is no increase, in the strict sense, that would make the transferee liable to pay additional fees. Such contention is unacceptable. There is no merger of authorised capitals consequent upon a scheme of amalgamation and that the quantum of increase in the authorised capital of the transferee company sought is the sum of the authorised capitals of the transferor companies is merely a coincidence on made to suit the petitioner's contention of merger of authorised capitals. ( 30 ) IT is necessary to appreciate the judgments cited on the petitioner's behalf in such regard and to cull out the reasons therefrom that the petitioner seeks to rely on. In the decision reported at 127 Comp Case 165 (Hotline Hol Celdings Pvt. Ltd. and Ors. ( 30 ) IT is necessary to appreciate the judgments cited on the petitioner's behalf in such regard and to cull out the reasons therefrom that the petitioner seeks to rely on. In the decision reported at 127 Comp Case 165 (Hotline Hol Celdings Pvt. Ltd. and Ors. , In re : the Delhi High Court received the Central Government's objection of the transferee company's attempt to deny the Revenue the requisite fee and dealt with the same in the following words : "in the affidavit filed by the Regional Director, Northern Region, department of Company Affairs, Kanpur, it is stated that the Regional director also has no objection to the proposed amalgamation. However, it is stated that the authorised share capital of the company be increased only after following the procedure prescribed under the relevant provisions of the Companies Act and on payment of fees to the Registrar of Companies and stamp duty to the State Government and thus, para 2. 9 of Part II of the scheme of amalgamation should not be allowed. This contention is in founded. In case of a merger like this where it is provided jhat the share capital of the transferor companies become the authorised capital of the transferee Company, no such payment of fee to the Registrar of Companies or stamp duty to the State Government is payable. This issue is no more res integra and stands settled by series of judgments of various High Courts, including the judgment; of this Court in the case of Telesound India ltd. , In re (1983)53 Comp Case 926. " ( 31 ) THE Delhi High Court thereafter referred to a judgment rendered by the Andhra Pradesh High Court reported at 117 Comp Cas 728 (Saboo leasing Private Ltd. , In re :), which has also been cited by the petitioner in the present proceedings. Upon noticing the Saboo Leasing Private Ltd. case, the Delhi High Court ordered as follows : "in the aforesaid circumstances and having regard to the averments made in this petition and the materials placed on record and the affidavits filed by the Regional Director, Department of Company affairs, Kanpur, and the official liquidator. I am satisfied that the prayers made in the petition deserve to be allowed but subject to fulfilling the condition of enhancing the authorised capital after following the procedure under the Companies Act. I am satisfied that the prayers made in the petition deserve to be allowed but subject to fulfilling the condition of enhancing the authorised capital after following the procedure under the Companies Act. I also do not find any legal impediment to the grant of sanction to the scheme of amalgamation. Hence, sanction is hereby granted to the above-mentioned scheme of amalgamation under Section 391 (2) read with section 394 of the Companies; Act, 1956. " ( 32 ) THE Central Government suggests that the words "after following the procedure under the Companies Act" appearing in the ordering portion would-mean that the transferee company in the Delhi case was ultimately made to pay the requisite fees, consequent upon the increase of its authorised capital. That would have been a possible view of the matter, had the judgment earlier not specifically provided that "in a case of merger like this where it is provided that the share capital of the transferor companies become the authorised capital of the transferee company, no such payment of fee to the Registrar of Companies or stamp duties to the state Government is payable. " ( 33 ) IT is, thus, the Saboo Leasing Private Ltd. case that needs next to be seen to ascertain the meaning attributed to it by the Delhi High Court in repelling the Central Governments contention as to fees being payable upon increase in the transferee company's authorised capital. The Delhi high Court relied on the following passage of the Saboo Leasing Private ltd. case : "the present scheme of arrangement or amalgamation if it is sanctioned by this Court, the certified copy of the order of this Court is required to be filed before the Registrar within 30 days from the date of the order under sub-section (3) of Section 394 of the companies Act, for the purpose of its registration. The object behind such intimation, which is required under law either under Section 95 or under Section 97 or under Section 394 (3) of the Companies Act, appears to be one and the same. Again the default in not filing certified copy of the order of this Court before the Registrar within 30 days entails penal consequences. The object behind such intimation, which is required under law either under Section 95 or under Section 97 or under Section 394 (3) of the Companies Act, appears to be one and the same. Again the default in not filing certified copy of the order of this Court before the Registrar within 30 days entails penal consequences. Well, when the certified copy of the order sanctioning the scheme by this Court is required to be filed before the Registrar for the purpose of its registration, there is no reason as to why it shall not be treated as notice to the Registrar as envisaged under sections 95 and 97 of the Companies Act. Inasmuch as, as discussed hereinabove, the object being the same, the necessary changes that are required to be made in the concerned register by the Registrar of Companies can be effected after receiving the certified copy of the order of this Court sanctioning the scheme. The sanction of the scheme by this Court has its own effect. It is not a mere act of the parties individually and volitionally. The scheme upon being sanctioned by this Court, it becomes operational by virtue of the orders passed by this Court. In other words, by operation of law, such changes would come into effect. Therefore, it has statutory genesis and statutory character, but not mere individual acts of the companies. In that view of the matter, no separate notice informing the Registrar under Section 95 or 97 of the Companies Act need be given, unlike the other cases which do not require the sanctions of the Court, in my considered view, inasmuch as the scheme is required to be sanctioned by this Court and such sanction is required to be registered with the Registrar ccf Companies by filing the certified copy of the order of this Court. Therefore, I am of the considered view that there has been no infraction of the provisions of Section 95 or Section 97, as the case may be, in any manner. I am reinforced in my above view by the judgment of a learned single Judge of this Court in C. P. Nos. 149 and 150 of 2001 dated January 4, 2002. I am reinforced in my above view by the judgment of a learned single Judge of this Court in C. P. Nos. 149 and 150 of 2001 dated January 4, 2002. The learned single judge of this Court extracted a passage from the judgment of the delhi High Court in Telesound India Ltd. , In re : (1983)53 Comp Cas 926 upon which reliance has been placed. The same passage may be profitably extracted hereunder, thus (page 942) : "amalgamation of a company with another or an amalgamation of two companies to form at third is brought about by two parallel schemes of arrangements entered into between one company and its members and the other company and its members and the two separate arrangements bind all the members of the companies and the companies when sanctioned by the Court. Amalgamation is, therefore, an absorption of one company into another or merger of both to form a third, which is not a mere act of the two companies or their members but is brought about by virtue of a statutory instrument and to that extent has statutory genesis and character, and to that extent it is distinguishable from a mere bilateral arrangement to merge or join in a common endeavour, an undertaking or enterprise. Having regard to the same, the second objection raised by the learned Registrar of Companies merits no consideration. As regards the first objection as to the cancellation of equity investment, the scheme shall be suitably modified by making it conditional by incorporating this objection," ( 34 ) THE discussion in the Saboo Leasing Private Ltd. case was for the filing of notices under Sections 95 and 97 of the Act with the concerned registrar. There is nothing in such discussion that refers to payment of fees or absolves the transferee company of its liability to pay fees for its increased authorised share capital. Of the several ministerial duties cast upon a Registrar of Companies under the Act, one is to receive notices in the statutory form as regards certain matters. A company is required to intimate the relevant Registrar, in the prescribed statutory form, upon increase of its authorised capital, or upon increase of its paid up capital. A company is required to inform the concerned Registrar, again in prescribed form, of the changes in its Beard of Directors. A company is required to intimate the relevant Registrar, in the prescribed statutory form, upon increase of its authorised capital, or upon increase of its paid up capital. A company is required to inform the concerned Registrar, again in prescribed form, of the changes in its Beard of Directors. The mailbox at a Registrar's office is also open to receive divers other intimations from companies within his territory and documents such as annual accounts of such companies. There is a statutory limit prescribed by the Act as to the time within which intimations in such prescribed manner must be deposited. It is one thing for the Act to require intimation to be given and quite another for such intimation to be accorded the status of an application for approval of the matters covered by the intimation. If no intimation in the prescribed form is given, the Court may in appropriate proceedings doubt that such decision was taken. A company or its officers may be visited by penal consequences upon a statutory form not being filed, or not being filed within the prescribed time. The failure to file such form will not impinge upon the company's right to take a decision or to implement it though it is susceptible to challenge, as is usually seen in proceedings under Sections 397 and 398 of the Act. The Andhra Pradesh High Court merely recognised that since the Court was granting an approval and such approval was upon appreciation of the terms contained in the scheme, the insistence of the Registrar or the Central government on ministerial matters as recognised in Section 95 or 97 being complied with, was of little consequence. It is for such purpose that the passage from the Telesound case: was quoted and relied upon. Nothing in the Te/esound case, or in the passage therefrom quoted in the Saboo leasing Private Ltd. matter, recognise the merger of the authorised capital of the transferor company into that of the transferee company or the consequential right to not pay any additional fee following the increased authorised capital of the transferee company. The matter as to merger of authorised capital, or the benefits incidental thereto, were not in issue in the Te/esound case. The matter as to merger of authorised capital, or the benefits incidental thereto, were not in issue in the Te/esound case. ( 35 ) THE petitioner has referred to the Allahabad High Court judgment reported at 122 Comp Cas 854 (Jaypee Cement Limited, In re) and the following passage found at pp. 874-75 thereof : "regarding the increase of authorised share capital by merger of the authorised capitals of the two companies, an order can be passed under Section 391 of the Companies Act itself. This has been laid down by the Bombay High Court in the case of Vasant Investment corporation Ltd. v. Official Liquidator Co/aba Land and Mill Co. Ltd. (1981 )51 Comp Cas 20 (at page 35 ). The relevant part of the judgment is reproduced below : "the whole purpose of Section 391 is to reconstitute the company without the company being required to make a number of applications under the Companies Act for various alterations which may be required in its memorandum and articles of association for functioning as a reconstituted company under the scheme (vide Maneckchowk and Ahmedabad Manufacturing Co. Ltd. , In re (1970)40 Comp Cas 819 (Guj ). The company is, therefore, not required to make a separate application under the Companies Act for alteration of its memorandum of association to show the new share capital. Such an alteration can be sanctioned under the scheme itself. " A similar view has been taken by the Bombay High Court in the case of PMP Auto Industries Ltd. , In re (1994)80 Comp Cas 289 (at pages 295, 296) and by the Gujarat High Court in the case of maneckchowk and Ahmedabad Manufacturing Col Ltd. , In re (1970)40 comp Cas 819 (at page 854 ). Therefore, both the objections of the Regional Director, Northern region, Department of Company Affairs, Kanpur, as overruled. " ( 36 ) THERE is no dispute with the proposition found in the judgment quoted by the Allahabad High Court or with the recognition in the maneckchowk case of the sanctioning Court being the single window to receive approvals relating to mattens provided other than in Chapter V of part VI of the Act. But neither the quoted passage nor the Maneckchowk judgment expressly, or by implication, refers to the merger of authorised capitals. But neither the quoted passage nor the Maneckchowk judgment expressly, or by implication, refers to the merger of authorised capitals. The principles laid down in the Maneckchowk case cannot be invoked to facilitate the non-payment of requisite fees upon increase in the authorised share capital of the transferee company as the Maneckchowk case recognises transfer of all properties and liabilities of the transferor to the transferee and, in the view taken in these proceedings, the abstract and unreal right relating to authorised share capital is incapable of being a property or being transferred upon merger. ( 37 ) IN the Madras High Court judgment, next relied upon by the petitioner, reported at 129 Comp Cas 915 (Cavin Plastics and Chemicals p. Ltd. , In re), the Court relied on the Saboo Leasing Private Ltd. passage that the Delhi High Court noticed in the Hotline Hol Celdings Pvt. Ltd. matter and, purely on such basis, overruled the Central Government's objection. Three later judgments reported at 132 Comp Cas 237 (Juggilal Kamlapat holding Ltd. , In re) ; 134 Comp Cas 99 (Bysani Consumer Electronics Ltd. ,, in re); and 134 Comp Cas 542 (Jaypee Greens Ltd. , In re) cited by the petitioner, with respect, give no additional reason save the Maneckchowk and Telesound arguments noticed in similar earlier matters, to negate the central Government's contention. The Allahabad High Court, in both the juggilal Kamlapat Holding Ltd. and in the Jaypee Greens Ltd. cases, quoted the same passage from the Andhra Pradesh High Court judgment in Jaypee cement Limited to find the Regional Director's objections untenable. The madras High Court has dealt with the Central Government's objections of clubbing two notional limits in the following words ; "in answer to the objections raised by the learned Additional central Government Standing Counsel, learned Counsel for the petitioners placed reliance con the decision of this Court in C. P. Nos. 90 and 91 of 2005 dated June 18, 2005 (Cavin Plastics and Chemicals p. Ltd. , In re (2006)129 Comp Cas 915) and C. P. Nos. 191 and 192 of 2005, dated November 25, 2005 and submitted that the objections on the front of notional limit was totally unsustainable. 90 and 91 of 2005 dated June 18, 2005 (Cavin Plastics and Chemicals p. Ltd. , In re (2006)129 Comp Cas 915) and C. P. Nos. 191 and 192 of 2005, dated November 25, 2005 and submitted that the objections on the front of notional limit was totally unsustainable. The decisions given by this Court on earlier occasions on similar counters from the regional Director rested on the decision of the Delhi High Court, reported in Hotline Hol Celdings P. Ltd. , In re (2005)127 Comp Cas 165 and Jaypee Cement Ltd, In re (2004)122 Comp Cas 854 (All ). I have perused the judgment of this Court rendered rejecting similar contentions as put forth by the Regional Director herein. Following the abovesaid decisions, I do not find any merit in sustaining the objections made by the learned Additional Central Government standing Counsel. In the absence of any contra decisions, the objections both on the count of two notional limits not to be clubbed as well as the necessity for complying with sections 94 and 95 of the Companies act are hereby rejected. As I had stated that the transferor companies are subsidiaries of the transferee company, a single application at the instance of the transferor company would be sufficient. In the scheme of amalgamation, all the assets and liabilities of the transferor companies are transferred to and vested in the transferee company. It is stated in clause 12 that the employees of the respective transferor companies would become the employees of the transferee company and thus the interest of the employees are taken care of. There is mo objectionable feature in the scheme of amalgamation which is detrimental to either the creditors or the employees of the company. There is no clause violative of any statutory provision. . . . " ( 38 ) WHETHER one sees the clubbing of the authorised capital of the transferor company and the transferee company as a merger of the notional capitals or whether one views it as an i ncrease of the authorised capital of the transferee company by the amount of the authorised capital of the transferor company, it is only a question of form and of little practical consequence. But whether the authorised capital of the transferee company stands increased by merger of authorised capitals or de hors the merger of authorised capitals, there is an increase which will require fees for such increase to be paid. ( 39 ) CLAUSE 11. 7 of Part II of the scheme, in is material part, provides as follows : ". . . consequent to and as part of the amalgamation of the transferor companies with the transferee company herein the authorised Share Capital of the transferor companies shall stand merged into and combined with the Authorised Share Capital of the transferee company pursuant to the scheme without any further act of deed and without payment of any registration or filing fee on such combined Authorised Share Capital under Section 611 of the Act, the transferor companies and the transferee company having already paid such fees thereon. Accordingly, the Authorised Share Capital of the transferee company resuming from the amalgamation of the transferor companies with the transferee company shall be a sum of rs. 125,50,00,000/- divided into 12,50,00,000 equity shares of Rs. 10/-each clause V of the Memorandum of Association of the transferee company and Article 4 of the Articles of Association of the transferee company shall stand altered accordingly. " ( 40 ) THE Central Government ccbjects to the provision inasmuch as petitioner seeks approval of Court that:no fee is required to be paid upon its authorised capital being increased in the manner provided. The Central government cannot be flawed for objecting to the possible loss of revenue upon sanction of the clause as part of the approved scheme. The petitioner is entitled to increase its authorised capital, even to limits beyond what the combined authorised capitals of the three concerned companies would be. There is no impediment to the increase being made, or to the increase being greater than, equal to or less than the combined authorised capitals of the three concerned companies. The limits set by the authorised capitals of the transferor companies are completely irrelevant to the issue. If the central Government is right in seeking fees on the basis of the authorised or notional capital of a company, a matter which is not in issue here, it is equally right in insisting that the transferee company must pay the additional fee for the consequential increase of its authorised capital following the sanction of a scheme of amalgamaticcn. If the central Government is right in seeking fees on the basis of the authorised or notional capital of a company, a matter which is not in issue here, it is equally right in insisting that the transferee company must pay the additional fee for the consequential increase of its authorised capital following the sanction of a scheme of amalgamaticcn. The sanction accords the transferee company the approval to increase its authorised capital, it does not afford it the luxury of enjoying the enhanced limit without tendering the requisite fee. ( 41 ) FEES payable under Schedule X to the Act have undergone multiple upward revisions in the last decade or so. The argument now being made by transferee companies based on the concept, of merger of authorised capitals is a result of the phenomenal increase in the quantum of fees payable. At the time that the Maneckchowk or the Telesound cases were decided, the fees payable for increase in authorised capital were not such that would have detained a transferee company to insist upon the effective waiver of additional fees consequent upon merger. It is an argument of recent vintage that cannot be propped up by the reasoning found in the maneckchowk or Te/esound judgments. ( 42 ) THE other objection of the Central Government as to the treatment of the accounts on the basis of clause 12. 3 of Part II of the scheme fails. The petitioner succeeds on such count more by default than by virtue. ( 43 ) THE Central Government refers to clause 12. 3 of Part II of the proposed scheme and submits that the following words appearing therein are not in conformity with recognised accounting principles : ". . . the difference between the amount recorded as additional share capital issued by the transferee company on amalgamation and the amount of share capital of the transferor companies in lieu whereof such additional share capital is issued shall subject to the other provisions contained herein, be adjusted against and reflected in the General Reserves and/or such other reserves of the transferee company as its Board of Directors may determine. " ( 44 ) ACCORDING to the Central Government, the surplus or difference arising out of a scheme of amalgamation should be treated by the transferee company in its books of accounts as Amalgamation Reserve. " ( 44 ) ACCORDING to the Central Government, the surplus or difference arising out of a scheme of amalgamation should be treated by the transferee company in its books of accounts as Amalgamation Reserve. The Regional director suggests in his affidavit that such Amalgamation Reserve is of capital nature and cannot be free for distribution to the shareholders in the form of dividend or bonus shares. In such affidavit filed on its behalf, the central Government seeks a direction on the transferee company to treat what has been described as General Reserves in the closing words of clause 12. 3 as Amalgamation Reserves and stipulate that such Amalgamation reserve should not be made available for distribution by way of dividend or bonus shares. ( 45 ) THE petitioner refers to Acconting Standards 14 (AS-14) issued by the Council of the Institute of Chartered Accountants in India. The petitioner submits that nothing in AS-14 that deals with treatment of accounts upon amalgamation requires such a stipulation that the Central Government seeks. The petitioner places revised paragraph 42 of AS-14 and asserts that an amalgamation in the nature of merger does not require the surplus or deficit to be made part of the capital. ( 46 ) PARAGRAPH 28 of AS-14 provides that an amalgamation may be either in the nature of a merger or in the nature of a purchase. Paragraph 29 sets down five conditions and an amalgamation is considered to be one in the nature of merger when all such conditions are satisfied. It is not in dispute that each of the five conditions set in paragraph 29, is met in the present case and the amalgamation here is one in the nature of merger. ( 47 ) THE petitioner cites paragraphs 31, 35 and revised paragraph 42 of AS-14 and submits that if such accounting norms do not require the additional stipulation as sought by the Central Government herein, to be met, the modification sought in the Regional Director's affidavit should be disregarded and the petitioner should be permitted of retain clause 12. 3 of part II of the proposed scheme in the form as approved by shareholders of the concerned companies. Paragraphs 31, 35 and revised paragraph 42 need to be examined to assess the petitioner's contention : "31. 3 of part II of the proposed scheme in the form as approved by shareholders of the concerned companies. Paragraphs 31, 35 and revised paragraph 42 need to be examined to assess the petitioner's contention : "31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33-35. " "35. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves. " "42. Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been fallowed had no treatment been prescribed by the scheme, the following disclosures should be made in the first financial statements following the amalgamation : (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Statement. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement that would have, been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. " ( 48 ) THE Accounting Standards issued by the Institute have for long had acceptance not only amongst practicing Chartered Accountants but also for statutory authorities assessing or examining company accounts. Recent amendments to some of the provisions of the Companies Act, section 211 for instance, have given statutory recognition to the Accounting standards. There may, however, he issues that arise in course of writing accounts or auditing the same that would appear not to be covered by the accounting Standards. Peculiar instances may arise, which the Council of the Institute of Chartered Accountants of India may not have conceived of or may deliberately not have provided for in the general stipulations found in the Accounting Standards. Peculiar instances may arise, which the Council of the Institute of Chartered Accountants of India may not have conceived of or may deliberately not have provided for in the general stipulations found in the Accounting Standards. The Accounting Standards do not set down a formula for every set of accounts to be treated on such basis. The Accounting standards recognise notes to be given by a company or its auditors not only in respect of peculiar instances but also for deviation from the accounting Standards with the reason for, and impact of such deviation explained in the notes. ( 49 ) CONVENTIONAL wisdom - and the Court is no more than a layman in the absence of adequate assistance in such specialised matters from the Central Government - would require the difference between the paid up capital received from a transferor company and the amount covered by the value of shares issued pursuant to a scheme by a transferee company, to be treated as part of its share capital. There would be no difficulty in such conventional wisdom being applied if it can be conceived that in every case there would be a surplus that would come into the till of the transferee company. But it is not necessary that each time there is an amalgamation, there is a surplus on such account that comes into the transferee company. The shareholders involved may approve of a share exchange ratio that would lead to a deficit on such account being received by the transferee company. The Court would ordinarily not interfere with the commercial sagacity of the shareholders concerned in arriving at the share exchange ratio, unless clear prejudice to a group of shareholders or some other legal infirmity therein is demonstrated. Paragraph 35 of AS-14 uses the word "difference" and not surplus. Paragraph 35 also recognises that a transferee company may provide for consideration other than shares for receiving the assets of the transferor company. If, in such case, there is a surplus on account of the difference between the share capital issued by the transferee company and the amount of the share capital of the transferor company, a part of such surplus should also be adjusted against the cash or other assets that the transferee company may have issued as consideration. If, in such case, there is a surplus on account of the difference between the share capital issued by the transferee company and the amount of the share capital of the transferor company, a part of such surplus should also be adjusted against the cash or other assets that the transferee company may have issued as consideration. ( 50 ) THE Central Government has not been able to demonstrate that anything in AS-14 requires the surplus or deficit on such account to be treated as part of the transferee company's share capital to be made unavailable for issuance of dividend or bonus shares. In fact, in course of hearing, it was merely urged on behall of the Central Government that the treatment of accounts on such score should be as the Central Government had suggested in its affidavit. It may be so, but as at present the Central government has not been able to demonstrate why it should be so. ( 51 ) IN the absence of any assistance from the Central Government in such regard and inasmuch as AS-14 does not specifically require the treatment of such surplus or deficit in the manner that the Central government suggests, there is no reason to foist such onerous condition on the petitioner. . ( 52 ) THE scheme is approved subject to clause 11. 7 of Part II thereof being modified. Clause 11. 7 of the scheme should be deleted and replaced by the following : "11. 7. Consequent to and as part of the amalgamation of the transferor Companies with the Transferee Company herein, the authorised Share Capital of the Transferee Company shall stand increased by the sum of the Authorised Capitals of the Transferor companies. Accordingly, the Authorised Share Capital of the transferee Company shall be a sum of Rs. 125,00,00,000/- divided into 12,50,00,000 Equity Shares of Rs. 10/- each. Clause V of the memorandum of Association of the Transferee Company and Article 4 of the Articles of Association of the Transferee Company shall stand altered accordingly. " ( 53 ) IT is also clarified that the inprease in the authorised capital of the transferee company shall be effective only upon the transferee company paying requisite fees in that regard in accordance with the structure found in Schedule X to the Act. ( 54 ) UPON clause 11. " ( 53 ) IT is also clarified that the inprease in the authorised capital of the transferee company shall be effective only upon the transferee company paying requisite fees in that regard in accordance with the structure found in Schedule X to the Act. ( 54 ) UPON clause 11. 7 of the scheme being modified as above, there will be an order in terms of prayers (a) to (g) of the petition. The petitioner shall pay costs assessed at 200 GMs to the Regional Director within a fortnight from date.