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Composite Scheme of Arrangement can’t be held in abeyance for insufficient Authorized Share Capital of transferee company

October 28, 2011
Bhopal Gelatines (P) Ltd V/s. Bhopal Glues and Chemicals (P) Ltd - Decision by Madhya Pradesh High Court, on 26th July 2011 The petition under Section 394 of the Companies Act, 1956, was filed seeking sanction of Madhya Pradesh Court (Court) with regard to a composite scheme of arrangement (scheme) whereby the undertaking of the petitioner, Transferor Company with all assets and liability was being merged with the respondent transferee company. All the requirements as per directions of this Court had been complied with but, the Regional Director contended that the Authorized Share capital of the Transferee Company is insufficient to pay the consideration as per Exchange Ratio and insisted that the Authorized Share Capital of the company be increased only after complying with the provisions of the Section 16,17,94,97 and 192 of the Companies Act, 1956. The petitioner contended that present Authorized Share Capital of the Transferee is Rs. 30.00 Lacs only which is proposed to be increased to Rs.1.30 crores. Decision: The Madhya Pradesh High Court approved the scheme on the following grounds and directed the transferee company to comply with the requirements for increase in Authorized Capital:
  • As per the conditions mentioned in the scheme, the Authorized Share capital of the transferee company will be increased to Rs. 1.30 crores.
  • The Scheme appears to be fair and reasonable and as there is no violation of any provision of law and there is nothing contrary in the scheme to show that it is against public policy.
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