1999 (12) TMI 764 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956.
2. Compliance with statutory provisions and procedural requirements.
3. Validity of objections raised by shareholders and creditors.
4. Adequacy of disclosures and valuation of assets.
5. Impact on employees and public interest.

Summary:

1. Sanction of the Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956:
The petition sought the High Court's sanction for a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, for transferring the International Software Division (ISD) of Blue Star Limited (BSL) to Blue Star Infotech Limited (BSIL). The scheme was overwhelmingly approved by 89.7% of the shareholders in number and 99.8% in value.

2. Compliance with Statutory Provisions and Procedural Requirements:
The court noted that the procedure prescribed under the Act had been followed. The scheme had been approved by an overwhelming majority of shareholders, and the financial institutions had also given their approval. The court rejected the argument that creditors cannot oppose the scheme if they are secured, stating that creditors have the right to oppose the scheme in court.

3. Validity of Objections Raised by Shareholders and Creditors:
The objections raised by the employee shareholders and creditors were considered. The court held that the objectors had locus standi to object but found their objections unsubstantiated. The court emphasized that the principle of corporate democracy must be upheld unless the scheme is found to be fraudulent or mala fide.

4. Adequacy of Disclosures and Valuation of Assets:
The court addressed the objections regarding non-disclosure of information and undervaluation of assets. It was noted that the valuation was done by a renowned firm of Chartered Accountants and was approved by the financial institutions. The court found no merit in the argument that the valuation was unfair or that material facts were not disclosed to the shareholders.

5. Impact on Employees and Public Interest:
The court considered the impact on employees and public interest, noting that the scheme provided for the transfer of employees to BSIL without interruption in their service conditions. The court found that the scheme did not adversely affect the employees or public interest and that hypothetical future adverse events could not be considered while sanctioning the scheme.

Conclusion:
The court concluded that the scheme of arrangement was fair and reasonable, complied with the statutory provisions, and was overwhelmingly approved by the shareholders. The objections raised were found to be without merit, and the petition was made absolute in terms of the prayer clauses (a) to (g). The request for a stay of the order was rejected.