1979 (12) TMI 124 - HC - Companies Law

Amalgamation scheme approved for Vijaya Durga Cotton Trading & Nava Bharat Enterprises

The court sanctioned the amalgamation scheme between Vijaya Durga Cotton Trading Ltd. and Nava Bharat Enterprises Private Ltd., approving the takeover of ... Amalgamation Issues Involved:1. Approval of the scheme of amalgamation.2. Valuation and exchange ratio of shares.3. Conversion of NBE P. Ltd. into a public company.4. Objections regarding creditors' meetings.5. Objections regarding the objects of the memorandum of association.6. Proposed allotment of shares to creditors and outsiders.Issue-wise Detailed Analysis:1. Approval of the Scheme of Amalgamation:The petitions were filed under sections 394 and 391(2) of the Companies Act, 1956, for sanctioning the amalgamation of Vijaya Durga Cotton Trading Ltd. (VDCT Ltd.) with Nava Bharat Enterprises Private Ltd. (NBE P. Ltd.). The scheme proposed that all undertakings, properties, and liabilities of VDCT Ltd. would be taken over by NBE P. Ltd. from September 30, 1977. The scheme was unanimously approved by the members of both companies. The official liquidator and the Regional Director, Company Law Board, raised objections which were addressed in the reply affidavits. The court found that the scheme was beneficial to both companies and sanctioned it subject to certain conditions.2. Valuation and Exchange Ratio of Shares:The Central Government objected to the valuation of shares, stating that the valuation was defective and suggested an exchange ratio of 1:320 instead of 1:4. The auditors, M/s. Brahmaiah & Company, justified the valuation, explaining the methodology used, including asset revaluation for VDCT Ltd. The court found the valuation and exchange ratio of 1:4 reasonable and in the best interest of the shareholders of both companies. The court emphasized that the scheme should be viewed from the perspective of a reasonable shareholder and not scrutinized excessively.3. Conversion of NBE P. Ltd. into a Public Company:An objection was raised that NBE P. Ltd., a private company, would need to convert into a public company due to the merger. The court held that this conversion could be achieved by amending the articles of association through a special resolution. The scheme was sanctioned with the condition that NBE P. Ltd. would convert into a public company before the transfer of shares and dissolution of VDCT Ltd.4. Objections Regarding Creditors' Meetings:The Central Government contended that meetings of the creditors of both companies should be held. The court noted that the principal creditors of VDCT Ltd. had consented to the scheme and that the financial position of NBE P. Ltd. would improve post-merger, benefiting its creditors. The court held that it was not mandatory to hold creditors' meetings unless the scheme adversely affected their interests, which was not the case here. The court cited precedents to support its decision, emphasizing the role of the court in protecting creditors' interests.5. Objections Regarding the Objects of the Memorandum of Association:The Central Government argued that NBE P. Ltd.'s memorandum of association did not include the business of oil extraction. The court found that clauses 49 and 76 of the memorandum, which allowed dealing in food products and consumable articles, were broad enough to cover oil extraction. Thus, this objection was overruled.6. Proposed Allotment of Shares to Creditors and Outsiders:The Central Government objected to the proposed allotment of shares to a creditor and outsiders. The court accepted the petitioners' argument that the allotment would be subject to approval by the Controller of Capital Issues and did not pose a legal impediment to sanctioning the scheme. The court concluded that this issue did not affect the validity of the amalgamation scheme.Conclusion:The court ordered the sanction of the amalgamation scheme subject to the condition that NBE P. Ltd. convert into a public company and that the scheme come into effect from July 1, 1978, or another date specified by the Central Government. The petitions were ordered as prayed for, with no order as to costs.