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CS Executive · Company Law and Practice · Compromise, Arrangement and Amalgamations - Concepts

Under a scheme sanctioned by the Tribunal under Section 232, Gupta Engineering Ltd (transferor) merges into Rao Industries Ltd (transferee). Rao Industries Ltd held 5,000 shares of Gupta Engineering Ltd, which would otherwise convert into shares of Rao Industries Ltd. What is the position regarding shares of the transferee company that would arise to the transferee itself?

The shares cannot be held. The proviso to Section 232(3)(b) bars a transferee company from holding shares in its own name or through any trust, whether for itself or its subsidiary or associate companies, and requires such shares to be cancelled or extinguished.

  1. AThe transferee company may hold them as treasury shares for three years
  2. BThe transferee company may hold them through a trust for its subsidiaries
  3. CThe transferee company must not hold them in its own name or through any trust, and they are cancelled or extinguishedCorrect
  4. DThe transferee company may hold them if the Tribunal records reasons

Explanation

The proviso to Section 232(3)(b) says a transferee company shall not, as a result of the arrangement, hold shares in its own name or in the name of any trust, on its behalf or for its subsidiaries or associates. Such shares are cancelled or extinguished. No exception is given for treasury holding or Tribunal reasons.

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