Transfer scheme under Section 392 sanctioned; employees not compulsorily transferred but may opt to join with protections.

A company transfer scheme involving the drug undertaking is sanctioned under the Companies Act after unanimous shareholder approval and without material proof that the transferee's substratum was destroyed; concerns about valuation and share ratio were noted but not shown to be unfair, so the modified scheme is approved. Employees of the undertaking are not to be compulsorily transferred; the automatic transfer clause was removed and employees are given a limited period to elect to join the transferee with specified protections, while those who do not join retain existing legal rights and remedies.

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Issues: (i) Whether the scheme of transfer of the "drug undertaking" from Geoffrey Manners and Co. Ltd. to John Wyeth (India) Ltd. should be sanctioned under Section 392 of the Companies Act, 1956; and (ii) Whether employees engaged in the drug undertaking can be compulsorily transferred to the transferee company under the scheme.

Analysis: Issue (i): The scheme transfers a single undertaking and has been unanimously approved by the shareholders of both companies; the transferee holds a majority interest in the transferor and the transfer does not affect the public at large. Financial statements and projected results do not establish that the transferee's substratum is gone or that it cannot function; the reported loss for one year must be viewed against overall assets and reserves. The Regional Director's concerns about valuation and share ratio were noted but no material was shown to prove unfairness given unanimous shareholder approval.

Conclusion: Issue (i) is answered in favour of the petitioners seeking sanction; the modified scheme is sanctioned under Section 392 of the Companies Act, 1956.

Analysis: Issue (ii): The original scheme defined the drug undertaking to include specified employees and provided automatic transfer with certain protections; there is no statutory provision shown that permits compulsory transfer of employees between separate companies. The parties consented to a modification excluding the automatic transfer of employees and providing that such employees shall have an option, within a specified period, to join the transferee with protections under the scheme, while those who remain retain their legal rights and remedies including pending industrial complaints.

Conclusion: Issue (ii) is answered against compulsory transfer of employees; employees are not to be compulsorily transferred but may elect to join the transferee within the prescribed period and, if they do so, will be protected by the scheme's terms.

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