Is Dissimilarity of Object of Transferor Company And Transferee Company In Amalgamation Is Hurdle?

During the proceedings of amalgamation, Sometime a question arises by the authority that how two companies having dissimilarity of object can be amalgamated? Lets discuss it in the light of some decided cases.

When the object clauses mentioned in the memorandum of association empower the transferee company to carry on the business of investments in land, building, apartments and all kind of real estate; and also to carry on business of development of land and construction of buildings of all kinds and real estates.

Further, when object of  the proposed amalgamation would result in largescale of economies and pool of their resources to maximum advantage and to create financial Synergy. Also there need not be identity of objects of Transferee Company and Transferor Company, as such, a requirement is not stipulated in the statute.

That there is a complete compliance of sections 230 and 232 of the Companies Act, 2013, and rules made there under, and, therefore, the objection sought to be placed by Hon’ble Official Liquidator is not sustainable.

That the clauses which are styled as independently or ancillary (to) attainment of the main objects clearly and clinchingly establish that the transferee company is entitled to deal with any real estate development business.

That each clause has to be read independently and not correlating to the main objects of the company. That is precisely the reason why specific  clause  has been specifically incorporated whereby specific declaration was recorded to the effect that the objects specified in each paragraph cannot be limited or restricted to a reference to incidental or ancillary objects to the attainment of the main objects of the company, but also incidental and ancillary to the attainment of the other objects of the company as well.

Supporting case laws:

(1) In Birds Investments Ltd. v. Commissioner of Income-tax, Calcutta (1965) 35 Comp Cas 143 (Cal).,The Calcutta High Court held that that each object clause has to be treated as independent clause and the same has to be read in isolation and not (as) ancillary to or limited or controlled by other clauses. In the light of above said decided case, the transferee company is entitled to deal with business of development of land and construction of buildings     of all kinds and real estates, as mentioned in the Other Object Clause of the Company.

(2) Further, it is to be seen that the Calcutta High Court clearly held that this court is vested with the jurisdiction to sanction the arrangement even though there is no power in the company as per the object clauses in the memorandum of association. This court can exercise the power of amalgamation even though there is no special object clause in the memorandum of association of the company for amalgamation with another company. It is to be held that to amalgamate with another company is the power of company and not an object of the company. The amalgamation has to be effected by the order of the court under sections 391 and 394 (section 230 and 232 of the Companies Act,2013). The said power of this court is not subject to any restriction that it must be within the object clauses of both the companies.

(3) In Morarjee Goculdas Spg. and Wvg. Company Ltd. (1995) 5 Comp LJ 598 (Bom) : (1994) 80 Comp Cas 289 (Bom). The Bombay High Court held that in order to enable the amalgamation between two companies, it is not necessary that there should be unison in the object of the two companies. That the objects of the transferor company were different from those of the transferee company could not per se be a fetter to the sanctioning of the scheme of amalgamation. It was further held in the said case that section 391 (section 230 of the Companies Act,2013) is not only a complete code, but [is] intended to be in the nature of a ‘single window clearance’ system to ensure that the parties are not put to avoidable unnecessary and cumbersome procedure of making repeated applications to the court for various other alterations and changes, which must be needed effectively to implement the sanction[ed] scheme whose overall fairness and feasibility has been judged by the court under section 394 of the Act (section 232 of the Companies Act,2013). In this decision, it has been clearly indicated that there need not be any unison of objects of both transferor and transferee company.”

(3) In Golkonda Engineering Enterprises Ltd. vs Ginni Vyappaar Ltd. on 22 December, 1995: (1997) 1 Comp LJ 404 AP, Hon’ble G. Bikshapathy, J., observed “I need not go into the controversies whether in the absence of any similarity of object clause, this court can grant approval for scheme of amalgamation, inasmuch as, in the instant case, I held that the transferee company is having the object clauses similar to that of the transferor company.

(4) That in Canara Bank Ltd. In re (1973) 43 Comp Cas 157 (Mys), it was held that there is no restriction as to the kind of companies with which there can alone be amalgamation. If the shareholders resolve to amalgamate with a company having same or different objects, the court will not sit in judgment over the wisdom or otherwise of the resolution.

Where the Board of Directors of  Transferor Company and the Transferee Company have decided in their commercial wisdom to amalgamate these three Companies and enhance their value, and ensured that this amalgamation is in the best interest of the shareholders, creditors, and employees of  the amalgamating Companies and the amalgamated Company, and further it is ensured that this amalgamation will not put any employees of the existing business in any suffering  in this peculiar economic situation prevailing in the Country, the Court can not stop members of the company from entering into amalgamation. 

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January 2021