2003 (7) TMI 486 - HC - Companies Law

Court approves scheme of arrangement between companies under Companies Act, 1956 despite objections

The court granted sanction to the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, between three companies. Despite objections ... Amalgamation Issues Involved:1. Sanction to the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956.2. Objections regarding the necessity of holding separate meetings for unsecured creditors.3. Objections regarding the adequacy of the explanatory statement.4. Allegations of illegality, fraud, and lack of proper approval for the scheme.5. Objections regarding the manner and mode of holding the meetings.6. Allegations of denial of inspection of documents and statutory records.7. Objections to the valuation report and share exchange ratio.8. Allegations of siphoning off profitable business and its impact on minority shareholders.Detailed Analysis:1. Sanction to the Scheme of Arrangement:The petitions were filed under sections 391 to 394 of the Companies Act, 1956, seeking sanction for a scheme of arrangement between HCL Infosystems Limited, HCL Technologies Limited, and HCL Infinet Limited. The scheme was approved by the Boards of all three companies, and directions were issued for convening meetings of shareholders and creditors. The court appointed Chairpersons to conduct these meetings, and reports were submitted indicating approval of the scheme by the shareholders and creditors.2. Necessity of Holding Separate Meetings for Unsecured Creditors:The court dispensed with the requirement of convening separate meetings for unsecured creditors owed less than Rs. 10 lakhs, considering it unnecessary. Meetings for shareholders, secured creditors, and unsecured creditors owed above Rs. 10 lakhs were directed to be convened. The court was satisfied with the manner in which these meetings were conducted and approved the scheme based on the reports submitted.3. Adequacy of the Explanatory Statement:Objections were raised regarding the sufficiency of the explanatory statement. The court held that the explanatory statement provided all necessary disclosures as required under section 393 of the Companies Act. The court referred to precedents, including Tata Oil Mills Co. Ltd. and Hindustan Lever Employees' Union, to establish that the explanatory statement was neither misleading nor insufficient. The court found that the objectors failed to prove any material interest that was not disclosed.4. Allegations of Illegality, Fraud, and Lack of Proper Approval:The objectors alleged that the scheme was illegal, fraudulent, and lacked proper approval. The court noted that the objectors were ex-employees with potential biases. The court emphasized that its jurisdiction was limited to the merit of the present scheme and not to past incidents unrelated to the scheme. The court found no evidence of fraud or misrepresentation and held that the scheme had been approved by an overwhelming majority of shareholders and creditors.5. Manner and Mode of Holding the Meetings:Objections were raised regarding the conduct of the meetings, including the adequacy of time, the appointment of scrutinizers, and the process of voting. The court found that the meetings were conducted in accordance with the court's directions and the provisions of the Companies Act. The court rejected the objections, noting that the scheme was approved by 99.99% of the shareholders present and voting. The court also addressed specific objections about amendments proposed during the meeting, finding that proper procedures were followed.6. Denial of Inspection of Documents and Statutory Records:The objectors claimed they were denied access to necessary documents. The court appointed a Local Commissioner to oversee the inspection of records. The Commissioner's report indicated that the objectors were given access to relevant documents as per legal provisions. The court concluded that the objectors were not prejudiced in contesting the scheme and rejected the objection.7. Valuation Report and Share Exchange Ratio:Objections were raised regarding the fairness and transparency of the valuation report and the share exchange ratio. The court noted that the valuation was conducted by reputed firms, Pricewaterhouse Coopers Pvt. Ltd. and Bansi S. Mehta & Co., and was approved by the majority of shareholders. Citing the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd., the court held that it would not interfere with the valuation unless there was evidence of fraud or mala fide. The court found no such evidence and rejected the objections.8. Allegations of Siphoning Off Profitable Business:The objectors alleged that the scheme was an attempt to siphon off the profitable business, adversely affecting minority shareholders. The court found no basis for this allegation, noting the significant increase in the company's revenue and profits. The court emphasized that the scheme was approved by an overwhelming majority of shareholders, indicating their confidence in the arrangement.Conclusion:The court dismissed all objections raised against the scheme of arrangement, finding them without merit. The court granted sanction to the scheme, concluding that it would be beneficial to all concerned parties. The petitions were disposed of accordingly.