2002 (2) TMI 1210 - HC - Companies Law

Summary

Issues Involved:
1. Approval and sanction of the scheme of amalgamation u/s 391 to 394 of the Companies Act, 1956.
2. Objections raised by creditors regarding the erosion of substratum and the requirement of the latest financial position.

Summary:

Approval and Sanction of the Scheme:
1. Zee Interactive Media Ltd. (transferor-company) proposed to amalgamate with Siti Cable Network Ltd. (transferee-company) under a scheme of arrangement u/s 391 to 394 of the Companies Act, 1956. The transferor-company sought approval and sanction of the scheme in Company Petition No. 1096 of 2001, while the transferee-company sought approval in Company Petition No. 1097 of 2001.

2. The transferor-company, a wholly-owned subsidiary of the transferee-company, had a paid-up capital of Rs. 700 and had not commenced commercial operations till the end of the accounting year 2000-01.

3. The convening and holding of meetings of the equity shareholders and creditors of both companies were dispensed with by the court, except for two meetings of the transferee-company's shareholders, where the scheme was approved with a modification.

4. Notices of the petitions were issued in Economic Times and Maharashtra Times, and affidavits of publication were filed. The Regional Director and the Official Liquidator had no objections to the scheme.

Objections Raised by Creditors:
1. Erosion of Substratum: Creditors argued that the substratum of the transferor-company had been eroded due to its minimal paid-up capital and significant loans. The court noted that the loans were used for asset acquisition and that the creditors would have better security post-amalgamation, as they could look to the assets of both companies.

2. Latest Financial Position: Creditors contended that the latest financial position was not disclosed, as the balance sheet annexed was for the period ending 31-3-2001. The court clarified that the statutory requirement u/s 391(2) is to disclose the latest auditor's report available at the time of filing the petition. The court directed the petitioner to file the balance sheet and profit and loss account up to 30-9-2001, which was complied with.

3. Payment of Dues: Creditors of the transferee-company argued that the scheme should not be sanctioned unless their dues were paid. The court held that a scheme u/s 391 is not a tool for creditors to recover money and that the objecting creditors failed to show that the scheme was mala fide, fraudulent, or adversely affecting their interests.

4. Commercial Realities: The court acknowledged the commercial realities and the creation of special purpose vehicles for business reasons. It emphasized that unless the scheme is contrary to law, shocks the conscience of the court, or is patently unfair, the court should not interfere with bona fide business decisions.

Conclusion:
The court sanctioned the scheme, allowing Company Petition No. 1096 of 2001 in terms of prayer clauses (a) to (j) and Company Petition No. 1097 of 2001 in terms of prayer clauses (a) to (i).