High Court approves demerger scheme enhancing shareholder value

The High Court sanctioned a Scheme of Arrangement under sections 391 to 394 of the Companies Act involving the demerger of a company's cement business, with L&T holding 20% equity and the rest distributed among its shareholders. The restructuring aimed at enhancing shareholder value and global competitiveness, with the Board of Directors' approval and support from stock exchanges. Despite objections raised, the court found the Scheme fair, just, and in the interest of shareholders and creditors, granting absolute approval with costs to be paid to the Regional Director.

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Issues:
1. Scheme of Arrangement under sections 391 to 394 of the Companies Act between companies and shareholders.
2. Approval and execution of the restructuring agreement by the Board of Directors.
3. Objective of the restructuring and acquisition of management control.
4. No Objection letters from Bombay Stock Exchange and National Stock Exchange.
5. Dispensing with meetings of equity shareholders and unsecured creditors.
6. Sanction of the Scheme by the High Court.
7. Objections raised by shareholders and activists.
8. Compliance with statutory provisions and fairness of the Scheme.

Analysis:

1. The petitioner-company, a subsidiary, sought sanction for a Scheme of Arrangement under sections 391 to 394 of the Companies Act between itself, Larsen & Toubro Limited (L&T), Grasim Industries Limited, and Larsen & Toubro Employees Foundation Trust. The Scheme involved the demerger of the cement business to the petitioner-company, with L&T holding 20% equity and the remaining 80% distributed among L&T shareholders. The restructuring aimed at enhancing shareholder value, size, and global competitiveness, as explained by senior counsel Mr. I.M. Chhagla.

2. The Board of Directors approved the draft Scheme after due deliberation, leading to the execution of a restructuring agreement involving the acquisition of management control and exit of Grasim and Samruddhi from the demerged company. The Scheme's rationale included integration, financial strength, and business strategy alignment, with detailed provisions for share acquisition and open offers.

3. The Bombay Stock Exchange and National Stock Exchange issued No Objection letters, supporting the Scheme. The High Court dispensed with the meetings of equity shareholders and unsecured creditors based on their consents, while L&T held separate meetings where the Scheme was approved by a majority of shareholders and creditors.

4. The Regional Director, after examining the Scheme, did not oppose it but suggested addressing objections related to capital clause amendments and stock exchange listing before an open offer. Shareholder objections were raised by Mr. Raaste, but no specific affidavit was filed in the present petition, and no other interveners were recorded.

5. The High Court, after considering compliance with statutory provisions, fairness, and absence of public policy violations, granted sanction to the Scheme. The court found the Scheme fair, just, and in the interest of shareholders and creditors, leading to the absolute approval of the Company Petition with costs to be paid to the Regional Director.

In conclusion, the judgment detailed the process and rationale behind the Scheme of Arrangement, highlighting compliance with legal requirements, shareholder approvals, and the absence of substantive objections, ultimately resulting in the High Court's sanction of the Scheme.

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