1992 (3) TMI 301 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the scheme of amalgamation under sections 391 and 394 of the Companies Act, 1956.
2. Objections raised by the Regional Director regarding the change of name and exchange ratio.
3. Compliance with statutory requirements and fairness of the scheme.

Detailed Analysis:

1. Validity of the Scheme of Amalgamation:
The petitions were filed by the transferor and transferee companies under sections 391 and 394 of the Companies Act, 1956, seeking sanction for the scheme of amalgamation. The scheme proposed that all assets and liabilities of the transferor company would be transferred to the transferee company in exchange for fully paid-up equity shares in the transferee company. The court noted that the scheme was overwhelmingly approved by the shareholders of both companies, satisfying the statutory requirement.

2. Objections Raised by the Regional Director:
Change of Name: The Regional Director objected to para 16 of the proposed scheme, which stated that the name of the transferee company would be changed to "Govind Rubber Ltd." upon the scheme becoming effective. The court agreed with the Regional Director's submission that under section 21 of the Companies Act, a special resolution and Central Government approval are required for a name change, which cannot be effected merely by the scheme of amalgamation. Therefore, para 16 was ordered to be deleted.

Exchange Ratio: The Regional Director argued that the exchange ratio of 1:1 did not represent a proportionate value and suggested a ratio of 3:4. The court examined the valuation methods used by the chartered accountants, which included the net worth method, market value method, and earnings method. The court found that the valuation was fair and reasonable, and there were no allegations of mala fides or gross undervaluation. The court concluded that the shareholders, who are the best judges of the value of their shares, overwhelmingly approved the scheme, and thus, the exchange ratio was deemed fair and reasonable.

3. Compliance with Statutory Requirements and Fairness of the Scheme:
The court assessed whether the statutory requirements under sections 391 and 394 were met, including:
- Resolutions passed by the statutory majority in value and number.
- Fair representation of the class at the meetings without coercion.
- Reasonableness of the scheme as a whole.
- Absence of lack of good faith by the majority.

The court found that the resolutions were passed by an overwhelming majority, with no allegations of undue influence or coercion. The scheme was advertised widely, and the one shareholder who initially opposed the scheme withdrew his objection. The court concluded that the scheme was fair, reasonable, and in the interest of the shareholders, creditors, and the public.

Conclusion:
With the deletion of para 16 regarding the change of name, the court sanctioned the proposed scheme of amalgamation. The transferee company was granted liberty to adopt proceedings for a name change in compliance with section 21 of the Companies Act. The petitions were made absolute with specific terms, and costs were awarded to the Regional Director and the official liquidator.

Certified copies of the order were expedited.