2001 (4) TMI 851 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the Court for a scheme of arrangement under sections 391 and 394 of the Companies Act, 1956.
2. Compliance with statutory procedures and majority approval.
3. Objections regarding non-receipt of the scheme of arrangement.
4. Ultra vires objection concerning the memorandum and articles of association.
5. Commercial necessity and wisdom of the scheme.
6. Exchange ratio of shares.

Detailed Analysis:

1. Sanction of the Court for a Scheme of Arrangement:
The Court was asked to sanction a scheme of arrangement under sections 391 and 394 of the Companies Act, 1956, involving the transfer of two divisions of the transferor-company to two transferee-companies. The transferor-company, Mather & Platt (India) Ltd., sought to transfer its Fire and Security Engineering Division and Fluid Engineering Division to Veedip Financial Services P. Ltd. and Datum Trading P. Ltd., respectively. The scheme included provisions for the transfer of assets, liabilities, and employees to the transferee-companies, with the appointed date being 1-4-1999.

2. Compliance with Statutory Procedures and Majority Approval:
The Court found that the requisite statutory procedures were followed, including the convening of a shareholders' meeting as directed by the Court. The meeting was held on 2-2-2000, and the scheme was approved by an overwhelming majority of shareholders, with 98.09% in favor. The Court noted that all necessary materials were provided to shareholders as required under section 393 of the Act.

3. Objections Regarding Non-receipt of the Scheme of Arrangement:
An objection was raised by a shareholder claiming non-receipt of the scheme of arrangement with the notice of the meeting. The Court found this objection to be lacking in bona fides, noting that the objector had submitted his objections only one day before the meeting, despite having received the notice well in advance. The Court concluded that the objector should have raised the issue immediately upon receipt of the notice if he had not received the scheme.

4. Ultra Vires Objection Concerning the Memorandum and Articles of Association:
The objector argued that the scheme of arrangement was ultra vires as the memorandum and articles of association did not provide for such a scheme. The Court rejected this contention, stating that the memorandum of association expressly provided the power to sell or dispose of the undertaking of the company or any part thereof for such consideration as the company deemed fit.

5. Commercial Necessity and Wisdom of the Scheme:
The objector questioned the necessity of the scheme, arguing that there was no need to transfer two divisions of a 40-year-old company to newly formed transferee-companies. The Court held that it was not within its jurisdiction to assess the commercial merits or demerits of the scheme, which lay within the commercial wisdom of the shareholders and the Board of Directors. The Court cited the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd., emphasizing that the Court's role is supervisory and not appellate in such matters.

6. Exchange Ratio of Shares:
The objector challenged the exchange ratio specified in the scheme, arguing that it was not appropriate. The Court distinguished the present scheme from an amalgamation, noting that in a spin-off, shareholders of the transferor-company continue to hold shares in the company while receiving additional shares in the transferee-companies. The exchange ratio was determined by a reputed firm of Chartered Accountants, Bansi Mehta & Co., and the Court found no basis to question their valuation. The Court cited previous judgments, including Miheer H. Mafatlal's case, to support its position that it is not for the Court to substitute its judgment for that of the shareholders who have accepted the exchange ratio.

Conclusion:
The Court concluded that all objections raised by the objector lacked merit and bona fides. The scheme of arrangement was backed by the requisite majority of shareholders, complied with statutory requirements, and was not violative of any law or public policy. The Court sanctioned the scheme of arrangement as proposed, deferring to the commercial wisdom of the shareholders. Company Petition Nos. 381, 382, and 383 of 2000 were made absolute in terms of their respective prayer clauses. The costs of the regional director were quantified at Rs. 1,500.