2001 (10) TMI 1067 - HC - Companies Law

Court approves scheme transferring Barium Chemicals Division under Companies Act, 1956. Shareholders' and creditors' interests protected.

Vishnu Chemicals (P.) Ltd., In re

The court sanctioned the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956, between the transferor-company and the ... Compromise and arrangement Issues Involved:1. Sanctioning of the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956.2. Consent of shareholders and creditors.3. Financial position and obligations of the transferee-company.4. Impact on employees of the transferor-company.5. Secured creditors' objections and interests.Issue-wise Detailed Analysis:1. Sanctioning of the Scheme of Arrangement:The petitions were filed under sections 391 and 394 of the Companies Act, 1956, seeking the court's sanction for a scheme of arrangement between the transferor-company (Vishnu Chemicals (P.) Ltd.) and the transferee-company (Vishnu Bariums Chemicals (P.) Ltd.). The scheme aimed to transfer the Barium Chemicals Division of the transferor-company to the transferee-company, believed to be beneficial by both managements. The court's role in such cases is to ensure compliance with the statutory requirements and safeguard the interests of all parties involved.2. Consent of Shareholders and Creditors:The court dispensed with the requirement of holding shareholders' meetings, noting that notarized affidavits filed by the shareholders indicated their consent for the proposed scheme. The court directed the transferor-company to hold a meeting of secured creditors, chaired by an advocate, whose report indicated mixed responses from the creditors. The majority consent required under section 391(2) was discussed, with the court noting that the consent of the majority in number representing three-fourths in value of the creditors present and voting is necessary.3. Financial Position and Obligations of the Transferee-Company:The Registrar of Companies raised an issue regarding the financial position of the transferee-company, which was newly incorporated and had not yet produced financial statements. The petitioners clarified that the transferee-company had no creditors, either secured or unsecured, and provided details of its subscribed and paid-up share capital.4. Impact on Employees of the Transferor-Company:Clause 6(a) of the scheme ensured that all permanent employees of the transferor-company's Barium Chemicals Division would become employees of the transferee-company without any interruption in service. The transferee-company undertook to abide by existing agreements and settlements with employee unions and to account for past service for retirement benefits, retrenchment compensation, gratuity, and other terminal benefits.5. Secured Creditors' Objections and Interests:The advocate-chairman's report indicated that two secured creditors (APIDC and APSFC) voted in favor of the scheme, while IDBI and SBH abstained, citing concerns. The court examined the nature of the secured creditors' interests, noting that the IDBI had a mortgage on fixed assets and SBH had a working capital loan secured by hypothecation of inventory and book debts. The court found that the scheme did not adversely affect IDBI's interests as the mortgage would continue with the assets in the hands of the transferee-company. Regarding SBH, the court noted the creation of a second charge on the transferor-company's assets and SBH's in-principle agreement to the scheme, concluding that their interests would not be prejudicially affected.Conclusion:The court emphasized that the consent of parties is one of the considerations for sanctioning a scheme under section 391, but not the only one. The court must ensure that the scheme does not prejudicially affect the interests of any class of creditors or the public interest. In this case, the court found no objections from shareholders or significant prejudice to the secured creditors' interests and sanctioned the scheme of arrangement, allowing the company petitions.