1999 (10) TMI 589 - HC - Companies Law

Summary

Issues:
Application under section 391, read with section 394 of the Companies Act, 1956 for approving the scheme of arrangement transferring and merging the cement division of the petitioner company with another company and for reduction of share capital.

Detailed Analysis:

Issue 1: Scheme of Arrangement and Transfer of Cement Division
The application sought approval for transferring the cement division of the petitioner company to another company, along with a reduction of share capital. The petitioner company, Raasi Cement Ltd. (RCL), had the main object of producing and dealing in various types of cement. India Cements Ltd. (ICL) held more than 90% of RCL's share capital and had agreed to transfer the Cement Division of RCL to ICL for synergy in marketing and distribution. The scheme of arrangement detailed the transfer of assets and liabilities to ICL, with shareholders other than ICL receiving Rs. 300 per equity share held by them in RCL. The employees of the cement division were to continue their employment with ICL without interruption.

Issue 2: Reduction of Share Capital
The scheme proposed a reduction in the nominal and paid-up value of the issued and subscribed equity shares of RCL. The reduction involved consolidating the equity shares into a lesser number with a revised nominal and paid-up value per share. The memorandum and articles of association of RCL were to be altered accordingly to reflect the reduced share capital structure.

Issue 3: Shareholder and Creditor Approval
A meeting of equity shareholders was convened, where the scheme of arrangement was approved by the majority of votes. The creditors, including State Bank of India and IDBI, provided their consent subject to certain conditions. The Regional Director of Department of Company Law Affairs did not file any representation regarding the scheme.

Issue 4: Compliance and Legal Formalities
The Court found that the statutory procedures were substantially complied with, and the scheme was approved by an overwhelming majority of equity shareholders. The secured creditors had consented to the arrangement, ensuring the protection of their interests. The Court determined that the scheme was just, fair, reasonable, and not violative of any law or public policy.

Conclusion
The Court ordered the transfer of the cement division of RCL to ICL as per the scheme of arrangement, with consequential reliefs. ICL was directed to fulfill certain conditions, and RCL was instructed to file the order with the Registrar of Companies. The Registrar of Companies was to take necessary actions, and the approved scheme was to be published in newspapers. Interested parties were granted the right to seek appropriate directions from the Court if needed.

This detailed analysis covers the key issues and outcomes of the judgment delivered by the High Court of Andhra Pradesh regarding the scheme of arrangement and reduction of share capital under the Companies Act, 1956.