2009 (8) TMI 712 - HC - Companies Law

Court approves demerger scheme between companies under Companies Act, 1956

The Court sanctioned the demerger scheme between two companies, addressing issues such as compliance with statutory provisions, objections raised by the ... Scheme of demerger - Held that:- No bar to this Court in denying the sanction to the scheme of arrangement for demerger, but keeping in view the aspect of availability of the names, only observation deserves to be made is that the scheme of demerger would stand operated for the change of name provided, the name is available with the Registrar of Companies. In the event, the name is not available, existing names of demerged company will have to be retained. Hence, order accordingly. Hence, present scheme of demerger is sanctioned subject to the modification and the observation made hereinabove, in the present order. Issues:Sanctioning the scheme of demerger of two companies, compliance with financial statement submission, change of company names, violation of sections 295 and 297 of the Companies Act, 1956, and related party transactions.Analysis:The judgment involves the sanctioning of a demerger scheme between two companies, referred to as the Demerger Company and the resulting company. In Company Petition No. 2 of 2009, meetings were dispensed with as there were no secured creditors. However, in Company Petition No. 3 of 2009, meetings were convened, and the scheme was approved by equity shareholders and secured creditors after modifications were suggested and incorporated.The petitions were admitted, and notices were published in newspapers and issued to relevant parties, including the Central Government and other petitioners seeking winding up of the company. The objections raised by the Central Government regarding financial statements submission and company name changes were addressed by filing necessary documents before the Court.Regarding the change of company names, objections were raised by the Central Government concerning compliance with sections 20 and 21 of the Act. The Court held that approval from the Central Government was not required under sections 20 and 21, and the scheme could proceed, provided the names were available with the Registrar of Companies.Another objection raised by the Central Government related to possible violations of sections 295 and 297 of the Companies Act, 1956, regarding related party transactions. The petitioner-company submitted that any alleged contraventions would be addressed post-sanction and necessary applications for compounding of defaults would be made.The Court noted that no adverse circumstances were brought to its attention and sanctioned the demerger scheme subject to modifications and observations made in the judgment. The petitions were allowed, and the fees of the Central Government were quantified. The petitioner-company was directed to pay the costs directly to the Central Government.In conclusion, the judgment addresses various legal issues related to demerger schemes, compliance with statutory provisions, objections raised by the Central Government, and the Court's decision to sanction the demerger subject to necessary modifications and observations.