2013 (6) TMI 8 - HC - Companies Law

Court Sanctions Amalgamation Scheme under Companies Act

The court sanctioned the scheme of amalgamation under Sections 391 to 394 of the Companies Act, 1956, between multiple transferor companies and the ... Scheme of Amalgamation - the proposed scheme of amalgamation as prayed for it came to be approved by 94.74% majority - only one unsecured creditor voted against it - objector has filed an affidavit of objections in his capacity as shareholder, creditor and also in public interest against the proposed scheme of arrangement - Held that:- As it appears from the record that the objector was part of IBPL and he has resigned and has signed the share transfer forms, and has received money on such transfer of shares in favour of the purchaser and having expected everything and even having withdrawn the legal notice on 10.09.2011 have filed these objections in the month of June 2012. Even the allegation to the effect that the petitioner companies are run by one family and, therefore, different parameters should be adopted, requires to be rejected outright as Sections 391-394 of the Act provides for complete procedure and there are no different parameters when the scheme involves family run companies. Reliance placed on the ESOP Scheme to object the scheme is also baseless as considering the scope and ambit of Sections 391-394 as it is a contract between the employer and employees and the employees may have right to challenge termination in different proceedings before different forum and that cannot be a ground to disapprove the scheme of amalgamation and, therefore, the objections raised by the objector deserve to be negatived. Also as borne from the record that the ESOP Scheme has been terminated by IBPL on 02.08.2011 ans thus as such a scheme does not exist and the shares of IBPL are admittedly not listed and, therefore, by no stretch of imagination, it cannot be presumed that the ESOP Scheme is in existence and that the objector is a shareholder. As objector asserts that in lieu of the consultancy dated 01.07.2010 even if the said agreement is terminated before the time the objector is entitled to Rs. 3,00,000/- for the months of August-September, 2012, which has not been paid by IBPL. The said contention raised by the objector is disputed by IBPL. It is stated by IBPL that the consultancy agreement came to be terminated and, therefore, in the months of August-September, 2012 no consultancy was derived from the objector and, therefore, he is not entitled to Rs. 3,00,000/- for the said months. Considering this aspect the case of the objector that he is a creditor is disputed. Even if it is presumed that the objector is a creditor of IBPL it has rightly been contended by IBPL that the same would be even less than 0.01% and even if the objector would have objected to the scheme the same would not have affected the majority view and voice of the creditors, who have approved the scheme. As the scheme also further provides that liability of the transferor companies shall stand transferred to the transferee company. It may also be noticed that the claim raised by the objector is a disputed claim and unless such a dispute or liability are crystallized and settled in appropriate court or forum in appropriate proceedings, the scheme cannot be held or stopped or delayed as decided by the Bombay High Court in the case reported in Emco Ltd.'s case (2004 (5) TMI 312 - HIGH COURT OF BOMBAY). Further the objector has not brought on record any material to show that IBPL has admitted that Rs. 3,00,000/- is payable nor the objector has initiated any proceedings for recovery of such an amount. The objector contention that IBPL has disposed of shares at a higher value, whereas the objector has been paid less amount is not essential to be considered while considering the scheme for approval of the scheme under Section 391 of the Act. The record indicates that the shares of IBPL as well as the other companies were sold to a private person and not to IBPL. The record further reveals that in case of transfer of shares in Celestial Biologicals Limited, ATMRF and Indus Biotherapeutics Ltd. the shares were in the joint names and, therefore, name of the objector has been deleted. Apart from the fact that such transfer of shares is executed wherein the objector has signed transfer forms and the same has been recorded even before the Registrar of Companies the validity of transferors cannot be gone into in the present proceedings. Therefore the objections raised on this ground also deserve to be negatived. The objector has also raised an objection to the effect that IBPL and the transferee company operate in two different areas and, therefore, requires to be rejected. As held by this Court in the case of Core Health Care Ltd. (2007 (3) TMI 369 - HIGH COURT OF GUJARAT) there is no statutory bar or prohibition for amalgamation of companies with different objects. Objector contention that the proposed scheme is not in the public interest and against the interest of stock holders and is mala fide is unacceptable as considering the documents on record of Regional Director and the Official Liquidator, it transpires that the Official Liquidator on examination of the record and on the basis of the report submitted by C.A., has opined that the scheme is not prejudicial to the public at large and that the companies are not engaged in any activities which is prejudicial to the public interest. In view of the above, it cannot be said that the scheme under consideration is mala fide in any manner. Both the authorities have not only examined the record of the companies, which are part of the scheme, but the Official Liquidator has also got it examined by C.A. Thus as objector has no locus standi to raise objections on the basis that he is shareholder. Similarly, the status of the objector as a creditor is also not only doubtful but is a disputed and even if it is presumed, as observed earlier, it is less than even minimal for which the objector has other remedy under law and, therefore, on such ground the scheme cannot be halted. Thus the petitions are accordingly allowed and the sanction is granted to the scheme of arrangement Issues Involved:1. Sanction of the scheme of amalgamation under Sections 391 to 394 of the Companies Act, 1956.2. Procedural compliance and meetings of shareholders and creditors.3. Observations and objections by the Regional Director.4. Objections by Unimark Remedies Limited.5. Objections by Shri Mani Swaminathan Iyer.6. Compliance with accounting standards (AS-14).7. Public interest and fairness of the scheme.Summary of Judgment:I. Facts of Procedure Followed:The petitions were filed under Sections 391 to 394 of the Companies Act, 1956, seeking sanction of the scheme of amalgamation between several transferor companies and the transferee company, IPL. The court ordered dispensation of meetings for equity shareholders and secured creditors based on written consent and directed meetings for unsecured creditors. The meetings were held, and the scheme was approved by a significant majority of unsecured creditors.II. Details of the Present Petitions:The petitions were admitted, and notices were issued to the Central Government and the Official Liquidator. The notices were published in newspapers, and affidavits of publication were filed.III. Response of the Central Government, Through Regional Director:The Regional Director raised observations regarding compliance with AS-14, a pending winding-up petition against one transferor company, and termination of the ESOP scheme. The transferee company responded, agreeing to comply with AS-14 and addressing other observations.IV. Response of the Official Liquidator:The Official Liquidator, based on a Chartered Accountant's report, stated that the transferor companies were not sick and their affairs were not conducted prejudicially. The companies were directed to preserve their records.V. Objections Filed by Unimark Remedies Limited:Unimark Remedies Limited initially objected to the scheme, alleging improper conduct in the meeting of unsecured creditors. The objections were later withdrawn.VI. Objections Filed by Shri Mani Swaminathan Iyer:Shri Iyer objected to the scheme, claiming it was against public interest and detrimental to employees. He alleged misuse of corporate shelter and personal enrichment by promoters. IBPL responded, denying the allegations and stating that Iyer was neither a shareholder nor a creditor.VII. Observations of Regional Director:The court noted that Section 211(3B) requires disclosure if accounting practices vary from AS-14. The court referred to previous judgments, concluding that the transferee company should disclose any deviations in its financial statements. The first observation by the Regional Director did not survive, and the other observations were addressed.VIII. Objections Raised by Shri Iyer:The objections were divided into three limbs: as a shareholder, as a creditor, and on public interest grounds. The court found that Iyer was neither a shareholder nor a creditor and that his objections were baseless. The scheme was approved by the majority and found to be fair and reasonable.IX. Conclusions of the Objections:The court concluded that Iyer had no locus standi to object. The scheme was found to be in the interest of shareholders, creditors, and the public. The objections were dismissed, and the scheme was sanctioned.Order:The petitions were allowed, and the scheme of arrangement was sanctioned. The companies were directed to pay fees to the Senior Central Government Counsel and the Official Liquidator.Key Points:- Compliance with Sections 391 to 394 of the Companies Act, 1956.- Approval of the scheme by the majority of creditors and shareholders.- Observations by the Regional Director and responses by the transferee company.- Dismissal of objections by Unimark Remedies Limited and Shri Mani Swaminathan Iyer.- Sanction of the scheme by the court, finding it fair, reasonable, and in public interest.