2002 (2) TMI 1224 - HC - Companies Law

Summary

Issues Involved:
1. Justification for the proposed demerger/merger.
2. Exchange ratio and valuation.
3. Non-disclosure of directors' interest.
4. Latest financial position of the companies.
5. Objections raised by a shareholder.

Detailed Analysis:

1. Justification for the Proposed Demerger/Merger:
Alembic Ltd. sought the court's sanction for a scheme of demerger and transfer of the bulk drugs manufacturing unit of Darshak Ltd. to Alembic Ltd. The demerger was justified on the grounds that Darshak Ltd.'s bulk drug division was incurring losses, and Alembic Ltd. required a new manufacturing plant to meet USFDA approval requirements for entering the USA market. The bulk drug division of Darshak Ltd. was deemed suitable for this purpose.

2. Exchange Ratio and Valuation:
The proposed scheme involved Alembic Ltd. issuing six equity shares of Rs. 10 each for every 100 equity shares of Rs. 10 each held in Darshak Ltd. This ratio was based on a valuation report by M/s. Sharp and Tannan Associates, which used the Discounted Cash Flow (DCF) technique to determine the fair value per share of Alembic Ltd. and Darshak Ltd. The court found that the exchange ratio was properly worked out and backed by a recognized firm of chartered accountants. The objections to the exchange ratio were dismissed as the objector failed to demonstrate any detriment to the shareholders of Alembic Ltd. and did not propose an alternative method or ratio.

3. Non-Disclosure of Directors' Interest:
The objector argued that the explanatory statement did not disclose the shareholding of companies in which the directors had substantial interest. The court referred to Section 393 of the Companies Act, which requires disclosure of material interests of directors if the effect of the scheme on those interests differs from its effect on other shareholders. Since the objector did not show that the scheme affected the directors' interests differently, the court found no merit in this objection.

4. Latest Financial Position of the Companies:
The objector contended that the latest financial position of both companies was not provided, citing the need for financial information as of the time of the final hearing. The court noted that the scheme was based on financial positions as at March 31, 2000, and the petition was filed on October 11, 2001, with the latest available audited accounts as of December 30, 2000. The court found no significant change in the financial position of either company that would affect the scheme and dismissed this objection.

5. Objections Raised by a Shareholder:
The sole objector, a shareholder with 30 shares in Alembic Ltd., raised several technical objections, including the exchange ratio, valuation report, non-disclosure of directors' interests, and the latest financial position. The court found these objections to be without merit, noting the overwhelming approval of the scheme by secured and unsecured creditors and shareholders. The court did not award costs against the objector, as there was no evidence of habitual objections for extraneous considerations.

Order:
The petition was allowed, and the court granted sanction to the scheme of arrangement and restructure. The petitioner-company was directed to pay the fees of the learned additional standing counsel for the Central Government, quantified at Rs. 2,500.