OPINION
Clause (a) of sub-section (4) of Section 394 of the Companies Act, 1956 reads as follows:
“property” includes property, rights and powers of every description; and “liabilities” includes duties of every description;
The word ‘property’ has been given a very wide meaning under this section so as to include rights of every description but the legislature in enacting this section and Section 391 did not intend to provide that by a vesting order under this section the court could transfer rights and properties which are not assignable and transferable in law, such as a mere right to sue or contracts of personal service. Albion Jute Mills Co. Ltd., v. Rivers Steam Navigation Co., (1957) 100 Cal LJ 70 (Cal) following Nokes v. Doncaster Amalgamated Collieries Ltd., (1940) 3 All ER 549: (1941) 11 Com Cases 83 and Re. ‘L’ Hotel Co. Ltd. and Langham Hotel Co. Ltd (1946) 1 All ER 319; (1946) 16 Com Cases 151.
In re. Telesound India Ltd., (1983) 53 Comp. Cas 926 it was held as follows:
“The expression “properties” 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 “rights 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. 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.”
On the basis of the judgment of the Delhi High Court, in Telesound India case, some High Courts in India have held that in the process of amalgamation, the authorized capital of the Transferor Company can be clubbed with the authorized capital of the Transferee Company.
In Black’s Law Dictionary, Sixth Edition, on page no.134 against the term ‘authorised capital’ the following entry appears “see authorized stock issue”. The meaning of the term “authorized stock issue” is given as follows:
The shares of all classes a domestic or foreign corporation is authorized to issue. Rev. Model Bus Corp. Act 1.40.
In other words, the amount of authorized capital to a particular company gives the power to that particular company to issue its own shares up to that amount contained in the authorized capital. Parenthetically, authorization under the authorized capital is only to issue shares of the Company to which such authorized capital belongs; it is not a general authorization to issue shares of any company. To that extent power under the authorized capital is personal to the Company and is not transferable. Hence going by the law as stated above, in the Albion Jute Mills case, authorized capital of the Transferor Company is not the property within the clause (a) of sub-section (4) of Section 394 of the Companies Act, 1956 and hence cannot be transferred to the Transferee Company. This is all the more since the Transferor company is dissolved and the shares of the Transferor company are cancelled, in the course of amalgamation. In other words, if the authorized capital of A Co. Ltd., is clubbed with the authorized capital of B Co Ltd., for issuance of the shares of B Co. Ltd.,, there is an alteration of the right which is beyond the scope of the amalgamation; in an amalgamation all that takes place is a mutation of the rights which are transferable from the Transferor Company to the Transferee Company and not the alteration of the right itself. Hence, the decisions of some of the High Courts stating that the authorized capital of the Transferor company can be clubbed with that of the Transferee company, it is humbly submitted, does not seem to be correct in law and requires urgent reconsideration.
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