2009 (6) TMI 580 - HC - Companies Law

High Court approves amalgamation under Companies Act, dismissing objections and directing implementation.

The High Court sanctioned the scheme of amalgamation under Section 394 of the Companies Act, approving the transfer of the undertaking from the Transferor ... Amalgamation scheme - Held that:- It is not possible to accept the grievance of the Intervenor that the Transferor company has made false and/or irresponsible statement as is contended. Accordingly, objection raised on behalf of the Intervenor company will have to be overruled. Since the Petitioners have complied with all the requirements as per the directions given by this Court and they have filed necessary affidavits of compliance in Court and that they have undertaken to comply with all statutory requirements, if any, as required under the Companies Act , 1956 and rules made therein, coupled with the fact that the Regional Director as well as the Official Liquidator has opined that the scheme is not prejudicial to the interest of creditors, shareholders and public and that no objection from any other quarter much less from the shareholders and creditors is forthcoming, both the Petitions ought to succeed. Issues Involved:1. Sanction of the scheme of amalgamation under Section 394 of the Companies Act.2. Compliance with statutory requirements.3. Objections raised by an intervenor regarding the transfer of rights under a Supply Agreement.4. Validity of the intervenor's locus standi to object.5. Alleged breach of contractual obligations.Issue-Wise Detailed Analysis:1. Sanction of the Scheme of Amalgamation under Section 394 of the Companies Act:The petitions were filed by the Transferor and Transferee companies to obtain the sanction of the High Court for a scheme of amalgamation. The scheme proposed the transfer of the entire undertaking of the Transferor company, Sequent Scientific Ltd., to the Transferee company, P.I. Drugs and Pharmaceuticals Ltd., and the dissolution of the Transferor company without winding up. The scheme was approved by the Board of Directors of both companies and received no objection from the Bombay Stock Exchange. The valuation report for the Share Exchange Ratio was obtained from Deloitte Touche Tohmatsu India Pvt. Ltd., and Chartered Capital and Investment Ltd. was appointed as the merchant banker for fairness opinion.2. Compliance with Statutory Requirements:The Transferor and Transferee companies complied with the directions of the High Court, including holding meetings of equity shareholders, secured creditors, and unsecured creditors. The scheme was approved by the requisite majority in these meetings. The Regional Director and the Official Liquidator confirmed that the scheme was not prejudicial to the interests of shareholders and the public, and no objections were raised by any other shareholders or creditors.3. Objections Raised by an Intervenor Regarding the Transfer of Rights under a Supply Agreement:An objection was raised by M/s. CIBA (India) Ltd., which had a subsisting Supply Agreement with the Transferor company. The Intervenor argued that the scheme would transfer the benefits of the Supply Agreement to the Transferee company without its consent, in violation of the agreement's terms. The Intervenor claimed that the technology provided under the agreement was non-transferable without prior written consent.4. Validity of the Intervenor's Locus Standi to Object:The Court addressed whether the Intervenor had the locus standi to object to the scheme. It was held that Section 391 of the Companies Act recognizes only creditors and shareholders as participants in the consideration of a proposed scheme of amalgamation. Since the Intervenor was neither a shareholder nor a creditor, it was not entitled to object to the scheme.5. Alleged Breach of Contractual Obligations:The Court considered whether the objection regarding the breach of the Supply Agreement could be addressed at this stage. It was held that the possibility of a breach of contractual terms due to the scheme of amalgamation could not be the basis for examining the scheme's efficacy. The Court referred to precedents, including decisions from the Delhi High Court and the Calcutta High Court, which established that such objections should be addressed in separate proceedings after the scheme's approval.The Court noted that the Transferor company would become the successor in interest of the Transferor company and would be bound by the terms of the Supply Agreement. The Transferee company assured the Court that it would abide by every condition of the Supply Agreement, including the confidentiality clause.Conclusion:The Court overruled the objections raised by the Intervenor, noting that the Transferor and Transferee companies had complied with all statutory requirements and that the scheme was not prejudicial to the interests of creditors, shareholders, and the public. The petitions were granted, and the scheme of amalgamation was sanctioned.Order:1. Company Petition No. 99 of 2009 filed by the Transferor Company was made absolute in terms of prayer clauses (a) to (h).2. Company Petition No. 100 of 2009 filed by the Transferee Company was made absolute in terms of prayer clauses (a) to (g).3. The Petitioner Companies were directed to lodge a copy of the order and the Scheme with the concerned Superintendent of Stamps for stamp duty adjudication within 30 days.4. The Petitioner Companies were ordered to pay costs of Rs. 7,500 each to the Regional Director within four weeks.5. Filing and issuance of the drawn-up order were dispensed with.6. All concerned parties were directed to act on a copy of the order along with the Scheme authenticated by the Company Registrar, High Court, Bombay.