2000 (3) TMI 914 - HC - Companies Law

Summary

Issues Involved:
1. Prejudicial effect on workmen of BSL.
2. Compliance with section 393(1)(a) of the Companies Act, 1956.
3. Disclosure of shareholding and valuation of shares.
4. Compliance with section 391(2) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Prejudicial Effect on Workmen of BSL:
The appellant argued that the scheme negatively impacted the workmen of BSL by not providing sufficient protection for their interests. Upon reviewing clauses 3.8.1 to 3.8.5 of the scheme, it was determined that the conditions of service for BSL employees would remain unchanged, and their employment terms would not be interrupted or broken. Employees had the option to be absorbed by BSIL or continue with BSL. The court found no provision in the scheme that would adversely affect the workmen's conditions of service. The appellant's concern about the potential reduction in BSL's profitability and employment was deemed hypothetical and not within the court's purview. The issuance of a notice under section 9A of the Industrial Disputes Act, 1947, was considered an independent act and not part of the scheme.

2. Compliance with Section 393(1)(a) of the Companies Act, 1956:
The appellant contended that the explanatory statement did not disclose that some directors would gain controlling interest in BSIL. The court clarified that section 393(1)(a) requires disclosure of any material interest a director has in the scheme, which is different from the shareholders' interest. The appellant failed to provide evidence of any director having such a material interest. The alleged non-disclosure of a director's shareholding was also dismissed, as this information could be obtained from the Register of Members. The court found no contravention of section 393(1)(a).

3. Disclosure of Shareholding and Valuation of Shares:
The appellant argued that the scheme did not disclose the method of share valuation, leading to a lack of informed consent by the shareholders. The court noted that the scheme involved a unique situation where ISD was spun off into BSIL, and shareholders received BSIL shares in lieu of cash compensation for the reduction in BSL's capital. The valuation was based on book value, and the scheme was overwhelmingly approved by 99.98% of shareholders and financial institutions. The court found no issue with the valuation method or the scheme's fairness.

4. Compliance with Section 391(2) of the Companies Act, 1956:
The appellant claimed that the Chairman's report did not disclose the number of persons present and voting separately. The court examined the affidavit and found that 266 shareholders participated, representing Rs. 13,19,36,810 in share value. Section 391(2) and Rule 78 of the Company Court Rules require reporting the number of persons present and voting. The court held that the Chairman's report complied with these requirements, as the critical factor was the total shareholding supporting the scheme.

Conclusion:
The court found no merit in the objections raised by the appellants. The scheme was approved by an overwhelming majority of shareholders and financial institutions. The court emphasized that its role was not to nitpick the scheme but to ensure statutory compliance and fairness. The appeals were dismissed, and costs of Rs. 15,000 were imposed on the appellants for impeding the company's business. The ad interim order was vacated, and the application for stay of the judgment was refused.