1996 (6) TMI 288 - HC - Companies Law

Summary

Issues:
1. Sanction of scheme for transfer and merger of bulk drug division.
2. Share exchange ratio approval and objections raised.
3. Reduction of share capital approval and objections raised.
4. Delisting of shares and financial competency of managing director.
5. Confirmation of scheme and effective date.

Analysis:

Issue 1: Sanction of scheme for transfer and merger of bulk drug division
The petition was filed for approval of a scheme transferring the bulk drug division of the petitioner-company to another company. The scheme was approved by the members of the company in a meeting. The petitioner-company aimed to transfer its business to a growing concern, and the scheme detailed the share exchange ratio and capital adjustments. The court confirmed the scheme, subject to further approval by the Bombay High Court.

Issue 2: Share exchange ratio approval and objections
The Central Government raised objections to the share exchange ratio, suggesting a different ratio for fully paid and partly paid shares. However, the petitioner justified the ratio based on shareholder approval and valuation by chartered accountants. Citing a Supreme Court decision, the petitioner argued that the valuation methods used were fair and approved by major financial institutions. The court dismissed the objections, emphasizing the shareholder and financial institution approvals.

Issue 3: Reduction of share capital approval and objections
Objections were raised regarding the reduction of share capital and delisting of shares on stock exchanges. The petitioner clarified that shareholders had unanimously approved the reduction and that major creditors had agreed to the scheme. The court held that the objections lacked merit, as the interests of creditors were protected by the takeover. The objections were dismissed, and the reduction of share capital was approved.

Issue 4: Delisting of shares and financial competency of managing director
Concerns were raised about delisting shares and the managing director's financial competency. The court clarified that delisting required stock exchange approval and was not a mandatory condition of the scheme. Similarly, the financial competency issue was deemed informational and not essential to the scheme. Both objections were considered non-substantive and were dismissed.

Issue 5: Confirmation of scheme and effective date
Given the overwhelming shareholder and creditor approval, the court confirmed the scheme, subject to Bombay High Court confirmation. The effective date was set as 1-4-1995. The company petition was allowed without costs, concluding the legal proceedings.

This detailed analysis highlights the approval process, objections raised, legal justifications, and final confirmation of the scheme for the transfer and merger of the bulk drug division, addressing all pertinent legal aspects and considerations in the judgment.