Ayesha A. Malik J: Through this ICA, the Appellant has impugned judgment dated 6.9.2010 passed by the learned Single/ Company Judge in CO No.58/2009.
2. The basic facts of the case are that the Respondents moved a petition under Section 284 read with Section 287 of the Companies Ordinance, 1984 ("Ordinance") for merger of Respondent No.1 into Respondent No.2. The scheme of arrangement was approved and sanctioned by the learned Company Judge through his judgment dated 6.9.2010. The Appellant is aggrieved by the findings contained in paragraph 23 of the impugned judgment wherein it provides that since the authorized capital of the transferor which is transferred to and stands vested in the transferee has already been subject to payment of the prescribed fee, requiring the transferee to again seek approval of the SECP or to pay fee all over again is neither logical nor appears to be the intent of the law. It is common ground between the parties that the transferor company paid the entire statutory fee payable on its authorized capital. After merger, the authorized share capital of the transfer will, therefore, be the aggregate of the authorized capitals of the transferor and the transferee company on which the required fee has already been paid by both companies.
3. Learned counsel for the Appellant argued that the process for increasing the authorized capital is provided in Section 94 of the Ordinance which procedure must be followed. Where companies are merged, the surviving or transferee company must resolve to increase its authorized capital through a special resolution. If there is any increase in the authorized capital, it must be notified by the Registrar of Companies and is liable to the fee prescribed by the Securities and Exchange Commission of Pakistan ("SECP"). Learned counsel argued that by way of a petition under Section 284 read with Section 287 of the Ordinance, the authorized capital cannot be transferred or increased. It is his contention that if the authorized capital of the merged entity is to increase, it can only be done by following the procedure under Section 94 of the Ordinance and as such cannot be done through an order of the court sanctioning a scheme of arrangement under Section 284 read with Section 287 of the Ordinance.
4. Despite notice and citation in newspaper, no one has appeared on behalf of the Respondents, hence they were proceeded against exparte on 29.9.2015.
5. The relevant facts are that Omer Iqbal Solvent (Pvt.) Ltd (Respondent No.1) with its authorized capital of Rs.200 million divided into 2,000,000 ordinary shares of Rs.100 each, merged into Tahir Omer Industries (Pvt.) Ltd (Respondent No.2) by virtue of the impugned judgment dated 06.09.2010.
The authorized capital of Tahir Omer Industries (Pvt.) Ltd was Rs.200 million divided into 2,000,000 ordinary shares of Rs.100 each. As per clause vi(7) of the scheme of arrangement the authorized capital of Omer Iqbal Solvent(Pvt.) Ltd merges into the authorized capital of Tahir Omer Industries (Pvt.) Ltd. The SECP raised an objection on the scheme of arrangement to the effect that if the authorized capital of Tahir Omer Industries (Pvt.) Ltd. Is to be increased, it must be done as per Section 92 and 94 of the Ordinance. This objection was decided in the impugned judgment against the Appellant. Hence this appeal.
6. The basic question is whether the authorized capital of the company can be merged and thereby increased vide an order of the court in a petition under Section 284 read with Section 287 of the Ordinance? Authorized share capital essentially is a notional value which denotes the upper limit for the paid up capital of a company. It does not reflect any investment or actual money put into the company but prescribes a limit on the investment that can be made. At the time of incorporation, the company fixes its authorized capital in the Memorandum of Association and a fee is charged by the SECP on this amount for the purposes of incorporation. The first question is whether the authorized capital of the transferor company merges or gets added to the authorized capital of the transferee company? And that the authorized capital of the transferor company is reflected in the authorized capital of the transferee company? As per the Appellant the authorized capital cannot be added on or merge into the transferee company's authorized capital without following the process under Section 92 read with Section 94 of the Ordinance.
7. The Respondents applied for sanction of its scheme of arrangement for merger of two companies. Merger or amalgamation is the absorption of one company into another. Sanction of a scheme of arrangement by the Court under Section 287 of the Ordinance means that the property of the transferor company transfers into the transferee company. "Property" as per Section 287 of the Ordinance includes rights and powers of every description. Authorized capital represents the total share capital which a company is authorized to maintain. The shareholders have agreed on this upper limit to which their paid up capital can reach. At the time of incorporation a registration fee is paid on the value of the authorized capital of the company which is provided in the Memorandum of Association of the Company. To increase the authorized share capital, the company has to pass a special resolution and once approved registration fee is paid to the SECP on the revised value of the authorized share capital. Therefore the authorized share capital is the notional value which represents the ability of the shareholders to invest in the company. This value is approved by the SECP and a fee is paid on it. It is thus the right of a shareholder to subscribe to the share capital of the company. Hence it is not the notional value which is being transferred or merged but the 'right' to subscribe to the share capital of the company. This right to subscribe is covered under Section 284 read with Section 287 of the Ordinance which can be transferred to the transferee company. Furthermore we are of the opinion that for the purposes of Section 284 of the Ordinance, an aggregate sum of the authorized capital of both companies is calculated which is reflected in the transferee company's authorized capital. As such there is no increase in the authorized share capital which is liable to a fee from the SECP. We are also of the opinion that this fee cannot be charged because it has already been paid by each company and would impose an unnecessary burden on the surviving company.
8. The next question is does the merger of authorized capital require a separate process under Section 92 of the Ordinance or is it accomplished under Section 287 read with Section 284 of the Ordinance. Section 284 of the Ordinance gives the company power to sanction compromise or arrangement between the companies and its members or its creditors. Section 284 read with Section 287 is a complete code which sanctions a merger/amalgamation, therefore, there is no reason for a separate application to be filed for this purpose. The whole process of Section 284 read with Section 287 of the Ordinance is to reconstitute the company without making several applications under the Ordinance for effectuating the merger. Section 284 of the Ordinance itself provides for the process to compromise in a summary way by an order of the Court, which order becomes effective when it is filed with the Registrar within 30 days. Hence Section 284 read with Section 287 of the Ordinance does not require a separate application to be filed for the merger of authorized share capital.
9. The arguments of learned counsel for the Appellant that in fact the merged entity has a new authorized capital and must seek approval of the same through a special resolution is baseless.
This contention of the Appellant has been dealt with in great deal through the impugned judgment which finds that when a scheme is sanctioned by the Court, it would automatically result in the merger of the authorized capital of the merging company without the need of enhancement of the authorized capital for the transferee company. Further that Section 287 of the Ordinance is a complete code in the form of a single window clearance system which ensures that the parties are not put to unnecessary procedure for making applications for authorized changes on account of the merger. We find no illegality with this finding of learned Company Judge.
10. Therefore, we do not find any illegality in the impugned judgment, as the Appellant has not been able to show how the issue of the authorized capital stands outside the ambit of Section 284 read with 287 of the Ordinance. Under the circumstances, the instant appeal is dismissed and judgment dated 6.9.2010 passed by the learned Single Judge is maintained.