Amalgamations: court no judge of commercial wisdom

By Shilpa Shah and Sharan A Kukreja, Singhania & Partners

Ruling in Sesa Industries Ltd v Krishna Bajaj & Ors, the Supreme Court recently held that a scheme of amalgamation should not be held up merely on the ground that the conduct of an official liquidator is found to be blameworthy.

Shilpa Shah Partner Kukreja Singhania & Partners
Shilpa Shah
Singhania & Partners

Revisiting the law on amalgamations under the Companies Act, 1956, the apex court said it was not proper or feasible to lay down absolute parameters as to when an official liquidator’s report could hold up the sanction of such a scheme; what matters are the facts and circumstances of the case.

Ruling that the company court had been justified in sanctioning the amalgamation of Sesa Industries (SIL) with Sesa Goa (SGL), the court observed that the company judge had been presented with all the material facts that had a direct bearing on the scheme. In addition, all material information had been disclosed to the shareholders.

The origins of the dispute

The directors of SIL – a subsidiary of SGL – had resolved to amalgamate the company with SGL and filed applications with the company court to do so. The first respondent, Krishna Bajaj, who held 0.29% of SIL’s shares, had objected to the amalgamation. Bajaj had relied on observations made in an inspection report prepared under section 209A of the Companies Act. The report said that SIL was being controlled by its holding company, Mitsui & Co of Japan, and that the minority shareholders of SIL were being cheated through the systematic siphoning of funds by SGL.

The report had been submitted by the director of inspection and investigation at the Ministry of Corporate Affairs to the regional director of the ministry.

A single judge of Bombay High Court allowed SIL and SGL to convene a general body meeting and also directed the company to disclose relevant observations from the inspection report as a part of the explanatory statement at the meeting. The shareholders of SIL and SGL approved the amalgamation scheme, by a 99% majority, and subsequently the two companies approached the high court for its approval.

Going with the flow

At this stage the Registrar of Companies, Goa, acting in his capacity as a delegate of the regional director, filed an affidavit saying that he did not object to the amalgamation as “any violation which may be noticed during the course of inspection … will not in any way affect the amalgamation”. On the same day, the registrar (acting in his capacity as the official liquidator) submitted a report stating that based on information in an auditor’s report he believed the affairs of SIL had “not been conducted in a manner prejudicial to the interest of its members or the public”. As a result, the company judge sanctioned the scheme.

Sharan A Kukreja Associate Singhania & Partners
Sharan A Kukreja
Singhania & Partners

However, the division bench of Bombay High Court reversed the order of the single judge. In doing so it held that the registrar of companies (who was in possession of the inspection report), should not have filed affidavits in dual capacities, when the inspection report had found serious irregularities and proceedings triggered by it were pending.

The court also held that under the provisions of section 394, the registrar and the liquidator are required to submit separate reports. As such, the court cannot mechanically sanction a scheme of amalgamation even though the majority of shareholders have approved it.

A further appeal

On appeal, the Supreme Court found that the official liquidator’s report had been vitiated as it had not been taken account of the findings of the inspection report. The court was of the opinion that the official liquidator who “acts as a watchdog of the Company Court” is duty bound to satisfy the court that “the affairs of the company, being dissolved, have not been carried out in a manner prejudicial to the interests of its members and the interest of the public at large”.

Despite this lapse by the official liquidator, the apex court held that the company judge was justified in approving the scheme.

Mere supervisor

In its judgment the Supreme Court reiterated the principles laid down in Miheer H Mafatlal v Mafatlal Industries: “the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed.”

Shilpa Shah is a senior partner and Sharan A Kukreja is an associate at Singhania & Partners, which is a full-service national law practice. The firm has offices in New Delhi, Noida, Bangalore, Hyderabad and Mumbai.


S&P House

H 186, Sector 63,

Noida 201301, India

Tel: +91 120 463 1000

Fax: +91 120 463 1001


Website: subscripton ad blue 2022