L&T's Cement Business Demerger Approved: Court Validates Fair Valuation and Compliance with Public Interest.

The HC sanctioned the scheme of arrangement involving the demerger of L&T's cement business into CemCo and its acquisition by Grasim. The scheme complied with Sections 391 to 394 of the Companies Act, 1956, and was approved by the majority of shareholders and creditors. Objections by a few shareholders were dismissed as unsupported. The court found the valuation fair and the scheme aligned with public interest and policy. Regulatory compliance was ensured, and the reduction of share capital was confirmed. The petition was granted with conditions for legal formalities, awarding costs to the Regional Director.

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Issues Involved:
1. Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956
2. Compliance with Statutory Provisions
3. Objections by Shareholders
4. Public Interest and Policy
5. Valuation of Shares
6. Reduction of Share Capital
7. Role of Regulatory Authorities

Summary:

1. Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956:
The scheme involves the demerger of the cement business of Larsen & Toubro Ltd. (L&T) into UltraTech CemCo Ltd. (CemCo) and the eventual acquisition of management control by Grasim Industries Ltd. (Grasim). The objective is to enhance global competitiveness and increase shareholder wealth.

2. Compliance with Statutory Provisions:
The scheme complies with sections 391 to 394 of the Companies Act, 1956, and relevant Company Rules. The Board of Directors of L&T and CemCo approved the scheme after due deliberation. Meetings of secured creditors, unsecured creditors, and equity shareholders were convened and approved the scheme with an overwhelming majority.

3. Objections by Shareholders:
Objections were raised by a few shareholders, including Mr. Rasik S. Poladia and Mr. V.M. Raaste, alleging suppression of material facts, improper valuation, and that the scheme was against public policy. However, these objections were found to be unsupported by evidence and were dismissed. The court emphasized that the majority decision of shareholders, secured creditors, and unsecured creditors should prevail.

4. Public Interest and Policy:
The scheme was not found to be against public interest or public policy. The Regional Director, Department of Company Affairs, did not oppose the scheme except for suggesting compliance with certain procedural requirements. The court noted that the scheme is in line with the liberalized economic policy and promotes industry growth.

5. Valuation of Shares:
The valuation of shares was conducted by experts and approved by the Board of Directors and shareholders. The court held that unless it is shown that the valuation is grossly unfair, it will not interfere with the expert's opinion. The valuation was found to be fair and reasonable.

6. Reduction of Share Capital:
The scheme involves the reduction of share capital, which was approved by the shareholders. The court confirmed that the reduction of share capital is an integral part of the scheme and complies with sections 100 to 104 of the Companies Act.

7. Role of Regulatory Authorities:
The scheme received no-objection letters from the Bombay Stock Exchange and National Stock Exchange. The Regional Director suggested compliance with procedural requirements, which the court directed the companies to follow. The court emphasized that the scheme is not violative of any provision of law and is not contrary to public policy.

Conclusion:
The court sanctioned the scheme of arrangement, finding it fair, just, and in the interest of the public and shareholders. The objections raised by a few shareholders were dismissed as frivolous and unsupported by evidence. The scheme was approved with the condition that the companies comply with all legal formalities, including the payment of stamp duty. The Company Petition No. 120 of 2004 was made absolute in terms of the prayer clauses (a) to (k) with liberty, and costs of Rs. 2,500 were awarded to the Regional Director.

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