1987 (8) TMI 371 - HC - Companies Law

Summary

Issues:
1. Transfer of drug undertaking from one company to another.
2. Employee opposition to the transfer.
3. Financial viability of the transferee company.
4. Modification of the scheme to exclude compulsory transfer of employees.
5. Fairness of the share ratio in the scheme.
6. Approval of the scheme by shareholders of both companies.

Transfer of Drug Undertaking:
The case involved the proposed transfer of the "drug undertaking" of one company to another, including assets, machinery, permits, and employees. The scheme was approved by shareholders of both companies but opposed by the employee trade union due to concerns about compulsory transfer and potential adverse effects on employees.

Employee Opposition:
The employees, represented by the trade union, objected to the transfer citing potential negative impacts, especially since the transferee company was perceived as a loss-making concern. They had filed a complaint under labor laws against the compulsory transfer, expressing fears about their future under the new company.

Financial Viability of Transferee Company:
The financial performance of the transferee company was scrutinized to assess its ability to sustain the transferred undertaking. Despite past losses, the company showed signs of profitability in recent years, indicating a potential for survival and growth.

Modification of Scheme:
To address the concerns raised by the employees, the scheme was modified to exclude the compulsory transfer of employees. The modified scheme allowed employees the option to join the new company voluntarily, ensuring their rights and benefits were protected.

Fairness of Share Ratio:
The Regional Director raised concerns about the fairness of the share ratio in the scheme, but since shareholders of both companies had unanimously approved it, and considering the overall financial position of the companies, the court found no reason to object to the share allocation.

Approval by Shareholders:
The court noted that the scheme had been approved by the shareholders of both companies, with significant support from the shareholders present at the meetings. The fact that only one undertaking was being transferred and the close relationship between the companies further supported the approval of the scheme.

In conclusion, the court sanctioned the modified scheme, allowing employees the choice to join the new company voluntarily. The shareholders' approval, financial viability of the companies, and the absence of adverse effects on the public led to the approval of the scheme. The complaint filed by the trade union against the original company was to be decided separately, with costs awarded to the Company Law Board.