1999 (12) TMI 754 - HC - Companies Law

Issues Involved:
1. Sanction of Scheme of Amalgamation.
2. Compliance with statutory requirements.
3. Valuation and exchange ratio of shares.
4. Objections by shareholders.
5. Financial condition and management of transferee-company.
6. Interests of creditors and employees.
7. Public policy considerations.

Issue-wise Detailed Analysis:

1. Sanction of Scheme of Amalgamation:
The petitions sought the sanction of the Scheme of Amalgamation of Arvind Intex Ltd. (AIL), Arvind Polycot Ltd. (APL), and Arvind Cotspin Ltd. (ACL) with Arvind Products Ltd. (APRL) effective from 1-10-1998. The scheme was placed pursuant to Sections 391 to 394 of the Companies Act, 1956. The scheme included the reorganization of capital and the exchange ratio for shareholders. The scheme was conditional upon various approvals and consents, including those from the Reserve Bank of India and other governmental authorities.

2. Compliance with Statutory Requirements:
The scheme was approved by the requisite majority of shareholders and creditors as required under the Act. The Official Liquidator submitted reports confirming that the affairs of the transferor companies were not conducted prejudicially to the interest of members or public interest. The Central Government, through the Registrar of Companies, suggested that the matter be decided by the Court on its merits.

3. Valuation and Exchange Ratio of Shares:
The exchange ratio was determined as follows: 4 equity shares of APRL for every 7 equity shares of AIL, 1 equity share of APRL for every 1 equity share of APL, and 5 equity shares of APRL for every 7 equity shares of ACL. The valuation was conducted by renowned Chartered Accountants Bansi Mehta & Co. and C.C. Chokshi & Co., who considered various factors including book values, market values, and projected profitability. The Court emphasized that the valuation should be fair and reasonable and conducted by independent experts.

4. Objections by Shareholders:
Three objectors challenged the scheme. One objector claimed non-receipt of notice for the shareholders' meeting and lack of disclosure of material facts. Another objector, represented by an advocate, raised concerns about the fairness of the exchange ratio and alleged collusion in the valuation process. The Court found that the objections were not substantiated by any counter-valuation report or evidence of fraud. The scheme was overwhelmingly approved by the shareholders, and the Court held that it was not its role to interfere with the commercial decisions of the shareholders unless there was manifest unfairness or fraud.

5. Financial Condition and Management of Transferee-Company:
The transferee-company APRL was used as a shell company for the amalgamation. The Court noted that the capital of APRL would be restructured post-merger. The objections regarding the financial condition of APRL were dismissed as the amalgamation aimed to integrate business operations and reduce inter-company transactions, ultimately benefiting the shareholders.

6. Interests of Creditors and Employees:
The scheme ensured that the interests of creditors and employees were protected. All employees of the transferor companies would become employees of the transferee-company without any break or interruption in service. The Official Liquidator and Chartered Accountants did not raise any adverse suggestions regarding the scheme.

7. Public Policy Considerations:
The Court found that the scheme was not violative of any provisions of law or contrary to public policy. The amalgamation was expected to strengthen the financial position of the companies and improve their market competitiveness. The scheme was considered beneficial for the shareholders, creditors, workers, and the concerned industry.

Conclusion:
The Court sanctioned the scheme of amalgamation, subject to the modification that instead of 13.5% redeemable preference shares, 10% redeemable preference shares would be allotted to the existing shareholders of APRL. The objections raised by the shareholders were dismissed, and the scheme was found to be fair, reasonable, and in the interest of all stakeholders. The Court directed the petitioners to file copies of the order with the Registrar of Companies within 30 days, and the transferor companies were to be dissolved upon filing. The petitioners were also directed to pay costs to the objectors and the Central Government's counsel.

← Previous Next →