2000 (2) TMI 712 - HC - Companies Law

Summary

Issues:
1. Scheme of arrangement under Companies Act, 1956 between two companies.
2. Approval for holding meetings of shareholders and creditors.
3. Jurisdiction of the court in supervising such schemes.

Analysis:
1. The petition involved a scheme of arrangement under the Companies Act, 1956, between a transferor-company and a transferee-company. The transferee-company was formed with the objective of carrying on the business of spinning, weaving, or dealing in cotton, denim, and jeans, while the transferor-company was involved in manufacturing chemical intermediates. The proposed scheme aimed to hive off the Chandigarh Denim Division of the transferor-company to the transferee-company to enhance shareholder value and integrate operations.

2. The main issue was whether the court should grant permission for holding meetings of shareholders and creditors to consider and approve the scheme of arrangement. Section 391 of the Companies Act empowers the court to order such meetings for approval of compromises or arrangements. The court's jurisdiction is supervisory, ensuring fairness and legality in the proposed scheme. Previous judgments emphasized the need to consider the feasibility and bona fides of the scheme to prevent misuse or defeat of legal provisions.

3. The court analyzed the proposed scheme's contents, which included the transfer of assets, permits, licenses, and employees from the transferor to the transferee-company. However, the court found that the scheme appeared to be a device to transfer assets, including immovable property, without following due legal processes. The scheme was deemed not in the public interest and defeating legal provisions. Consequently, the court dismissed the company petition, as permitting the scheme would not serve any useful purpose and would go against the principles of law and public interest.

In conclusion, the court's decision highlighted the importance of scrutinizing schemes of arrangement to ensure fairness, legality, and public interest. The judgment emphasized the court's supervisory role in approving such schemes and preventing misuse or circumvention of legal provisions.