1987 (5) TMI 336 - HC - Companies Law

Summary

Issues Involved:
1. Non-compliance with Section 393 of the Companies Act.
2. Fair and adequate representation at meetings.
3. Unfair share exchange ratio.
4. Legality of retrospective dividend payment.
5. Impact on the interest of workmen.

Detailed Analysis:

1. Non-compliance with Section 393 of the Companies Act:
The appellants contended that the explanatory statement under Section 393 of the Companies Act did not disclose sufficient particulars, particularly the financial particulars and the share exchange ratio, which would have influenced the judgment of the shareholders and creditors. The court held that the statement sent along with the notice contained the terms of the scheme and explained its effect, thus complying with Section 393(1)(a). The court emphasized that the requirement is to state and explain the effect of the scheme, not the details or particulars of the consequence or result. The financial particulars and the method of working out the share exchange ratio were not required to be stated in the explanatory statement. The court found no failure to comply with the provision.

2. Fair and Adequate Representation at Meetings:
The appellants argued that there was no fair and adequate representation at the meetings due to the non-disclosure of particulars regarding the share exchange ratio. The court noted that the meetings were held as per the directions of the court, and the scheme was approved by a significant majority of the equity shareholders, preference shareholders, depositors, trade creditors, and secured creditors. The court found that the meetings were adequately, fairly, and truly represented, rejecting the contention of inadequate representation.

3. Unfair Share Exchange Ratio:
The appellants claimed that the share exchange ratio of 40:1 was unrealistic and unfair to the shareholders of the respondent company. The court observed that the share exchange ratio was determined by M/s. Dalai and Shah, Chartered Accountants, based on standard methods of valuation, including yield and break-up methods, and considering the stock exchange quotations. The court found that the valuation of the shares was fair and reasonable, and the share exchange ratio was not unfair or unreasonable.

4. Legality of Retrospective Dividend Payment:
The appellants contended that the scheme of amalgamation provided for the payment of dividends to the shareholders of Neomer with retrospective effect, violating Section 205 of the Companies Act. The court held that once the scheme of amalgamation was sanctioned by the court, it became effective from January 1, 1983, and the shareholders of Neomer became shareholders of the respondent company from that date. Therefore, they were entitled to dividends on the same basis as the existing shareholders of the respondent company. The court found no breach of any provision of the Companies Act in making the payment of dividends to the shareholders of Neomer.

5. Impact on the Interest of Workmen:
The appellants argued that the amalgamation would adversely affect the interest of the workmen of the respondent company. The court noted that it was categorically stated on behalf of the respondent company that no employee would be transferred or retrenched on account of the amalgamation. Regarding the bonus, the court observed that the workmen would be entitled to payment of minimum bonus under the Payment of Bonus Act, and any bonus in excess of the minimum would depend on the profits made by the respondent company. The court found no substance in the contention that the amalgamation would adversely affect the interest of the workmen.

Conclusion:
The court dismissed the appeal, finding no substance in the grounds urged by the appellants. The judgment and order sanctioning the scheme of amalgamation were upheld. The oral application for a certificate under Article 134A read with Article 133(1) of the Constitution of India for preferring an appeal to the Supreme Court was rejected.