1995 (4) TMI 239 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the amalgamation scheme.
2. Disclosure of material facts.
3. Impact on public interest, specifically sugarcane growers.
4. Financial viability and liabilities.
5. Requirement of the Official Liquidator's report.

Issue-wise Detailed Analysis:

1. Validity of the Amalgamation Scheme:
The amalgamation scheme proposed by Sakthi Sugars Ltd. and Sakthi Soyas Ltd. was approved by the majority of shareholders in meetings held on 13-5-1994 and 20-5-1994. The scheme was considered beneficial for both companies, enabling diversification and financial support. The High Court of Madras sanctioned the scheme under sections 391 and 394 of the Companies Act, 1956, after ensuring compliance with statutory requirements and confirming that the scheme was fair and reasonable.

2. Disclosure of Material Facts:
The appellant contended that material facts were not disclosed. However, the court found that all relevant particulars and records were made available. The respondent disclosed the market value of the transferor company's assets, which exceeded its liabilities by Rs. 7.27 crores. The court referred to various affidavits and annual reports to confirm the transparency of disclosures, including the financial status of the pharmaceutical and foundry divisions and the operations in Orissa.

3. Impact on Public Interest, Specifically Sugarcane Growers:
The appellant, representing sugarcane growers, argued that the amalgamation would be detrimental to their interests. The court, however, noted that the respondent had agreements with sugarcane growers to pay prices as per the Sugarcane (Control) Order, 1966. The respondent also paid additional amounts over the statutory minimum price as a goodwill gesture. The court held that the growers were not creditors and their interests were safeguarded by government orders, dismissing the claim of adverse impact on public interest.

4. Financial Viability and Liabilities:
Concerns were raised about the heavy liabilities of the amalgamated company. The court noted that the market value of the transferor company's assets was more than its liabilities, and the combined operations' income was sufficient to meet liabilities. The debt-equity ratio was found to be 1.1:1, indicating financial stability. The court emphasized that the future potential of the business justified the amalgamation, dismissing the contention that no reasonable businessman would approve the scheme.

5. Requirement of the Official Liquidator's Report:
The appellant argued that the court should have obtained a report from the Official Liquidator before sanctioning the amalgamation. The court clarified that under the second proviso to section 394(1) of the Companies Act, the report is required only for the purpose of passing an order of dissolution, not for sanctioning amalgamation. The consistent practice in the court was to sanction amalgamations without waiting for the Official Liquidator's report, which was deemed compliant with statutory provisions.

Conclusion:
The court dismissed the appeal, holding that all material facts were disclosed, the scheme was fair and reasonable, and the amalgamation did not adversely affect public interest or financial viability. The requirement for the Official Liquidator's report was not a pre-condition for sanctioning the amalgamation. The appellant was ordered to pay the costs of the respondent.