2003 (8) TMI 566 - HC - Indian Laws

Demerger Scheme Approved: Companies Act Petitions Granted

In Re: Search Chem Industries Ltd.

Two public limited companies filed petitions for sanction of a demerger and transfer scheme under Sections 391 and 394 of the Companies Act, 1956. The ... - Issues:Petitions for sanction of a scheme of arrangement in the nature of demerger and transfer under Sections 391 and 394 of the Companies Act, 1956.Analysis:The judgment pertains to petitions filed by two public limited companies for the sanction of a scheme of arrangement involving the demerger and transfer of the manufacturing division of one company to another under Sections 391 and 394 of the Companies Act, 1956. The demerged company is engaged in manufacturing agro-chemicals, while the resulting company is a subsidiary engaged in manufacturing chlorine molecules and phosphorus-based products. The proposed demerger aims to achieve synergic advantages between the companies. Separate meetings of shareholders and creditors of both companies were held to approve the scheme, and the requisite majorities were obtained. The petitions were duly advertised in newspapers, and no objections were raised post-publication.The Central Government raised three observations regarding the scheme, specifically related to changes in company names, objects clause of the transferee company, and pending prosecution against the demerged company. The court considered the submissions made by the petitioner companies' advocate, emphasizing that the scheme under Sections 391 and 394 acts as a 'single window clearance' and does not require separate clearances under the Companies Act, 1956. Citing previous judgments, the court concluded that there is no need for additional formalities for name or objects clause changes in the resulting company. Regarding the pending prosecution against the demerged company, the court noted that since the demerged company would continue to exist post-sanction, the proceedings would proceed in accordance with the law.After reviewing the submissions and petitions, the court found the Central Government's observations to be misconceived. Relying on previous judgments, the court held that the proposed arrangement would be in the interest of the companies, members, and creditors. Consequently, the prayers in the petitions were granted, and the petitions were disposed of accordingly. The court also directed the petitioner companies to file necessary forms as prescribed under law for the changes, and the pending proceedings against the demerged company would continue as per legal requirements. Additionally, costs to be paid to the Central Government standing counsel were quantified per petition, and the registry was instructed to keep a copy of the judgment in the companion matter.