1995 (7) TMI 260 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction under Sections 391 to 394 of the Companies Act, 1956.
2. Validity and fairness of the Scheme of Arrangement.
3. Objections raised by minority shareholders.
4. Role of the Court in sanctioning the Scheme of Arrangement.

Detailed Analysis of the Judgment:

1. Jurisdiction under Sections 391 to 394 of the Companies Act, 1956:
The objectors contended that the court's power under Sections 391 to 394 of the Companies Act, 1956, could only be exercised for companies liable to be wound up and not for solvent companies. They relied on the judgment in *Seksaria Cotton Mills Ltd. v. A.E. Naik*, which held that Section 391 applies to companies being wound up or in financial distress. However, the petitioners cited various cases, including *Sm. Bhagwantiv. New Bank of India Ltd.*, *Bank of India Ltd v. Ahmedabad Mfg. & Calico Printing Co. Ltd.*, and *Telesound India Ltd., In re*, which dissented from the *Seksaria* judgment, arguing that the term "liable to be wound up" includes all companies subject to winding-up provisions, regardless of their financial condition.

The court agreed with the petitioners, stating that the expression "liable to be wound up" means any company that can be wound up under the Act, not necessarily one in financial distress. The court emphasized that the provisions of Sections 391 to 394 are applicable to all companies, whether solvent or not, as long as they fall within the purview of the Act's winding-up provisions.

2. Validity and Fairness of the Scheme of Arrangement:
The scheme involved the transfer of three tea estates from Rossell Industries Ltd. to Rossell Tea Ltd. in exchange for shares allotted to the shareholders of Rossell Industries Ltd. The scheme was approved by 99.18% of the shareholders of Rossell Industries Ltd. and 100% of the shareholders of Rossell Tea Ltd. The objectors argued that the transfer was virtually a gift and not beneficial to Rossell Industries Ltd. However, the court noted that the transfer was for consideration, as the shareholders of Rossell Industries Ltd. would receive shares in Rossell Tea Ltd.

The court highlighted that the vast majority of shareholders approved the scheme, and the objections were raised by an insignificant minority (0.1171% of the total shareholding). The court referenced the case *Hindusthan General Electric Corpn. Ltd., In re*, which held that the onus of proving unreasonableness or unfairness lies on the objectors, which they failed to discharge.

3. Objections Raised by Minority Shareholders:
The objectors claimed that the scheme was unfair and not in the best interest of Rossell Industries Ltd. They argued that the transfer of profitable tea gardens would ruin the company's financial position. However, the court found no merit in these objections, noting that the transfer was for consideration and that the shareholders of Rossell Industries Ltd. would benefit from the shares allotted to them.

The court also dismissed allegations of fraud and improper conduct, citing the lack of specific particulars. The court referenced *Union of India v. P.K. More* and *Wallingford v. Director, Mutual Society & the Official Liquidator*, which held that general allegations of fraud without specific details are insufficient.

4. Role of the Court in Sanctioning the Scheme of Arrangement:
The court emphasized its role in ensuring that the scheme is fair, reasonable, and in the best interest of the shareholders and creditors. The court noted that the scheme had been approved by the statutory majority and that the objections raised were not substantial enough to warrant rejection.

The court referenced the case *[1961] (1) Chancery Division 289*, which held that a scheme must be patently unfair to be rejected. The court found that the scheme was not unfair or unreasonable and that the decision of the majority of shareholders should be respected.

Conclusion:
The court sanctioned the Scheme of Arrangement, finding that it was fair, reasonable, and in the best interest of the shareholders. The objections raised by the minority shareholders were dismissed as lacking merit and specific particulars. The court ordered the parties to act on a signed xerox copy of the judgment on the usual undertaking.