2004 (3) TMI 413 - HC - Companies Law

Summary

Issues Involved:
1. Approval of the Scheme of Arrangement between the Transferee Company and the Transferor Company.
2. Validity of the shareholders' meeting and voting process.
3. Impact on minority shareholders and compliance with Section 106 of the Companies Act, 1956.
4. Jurisdiction and role of the Court under Sections 391 to 394 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Approval of the Scheme of Arrangement:
The Transferee Company filed a petition under Sections 391 to 394 of the Companies Act, 1956, seeking approval for a Scheme of Arrangement with the Transferor Company. The Scheme was approved by the Board of Directors of the Transferee Company and required the sanction of the shareholders and the High Courts of Andhra Pradesh and Mumbai. The Court directed the convening of meetings for shareholders and unsecured creditors, which resulted in the majority approval of the Scheme.

2. Validity of the Shareholders' Meeting and Voting Process:
The Court-appointed Chairperson conducted the meetings, and the report indicated that the majority of shareholders and all unsecured creditors approved the Scheme. Specifically, 22 shareholders holding 2,21,22,551 shares voted in favor, while 7 shareholders holding 1773 shares opposed it. The objections raised by some shareholders about the conduct of the meeting and the alleged exclusion of small shareholders were addressed. The petitioner argued that all relevant information was provided to shareholders, and the meeting was conducted democratically.

3. Impact on Minority Shareholders and Compliance with Section 106 of the Companies Act, 1956:
Objections were raised by minority shareholders regarding the increase in the face value of shares to Rs. 20,000, which they claimed would eliminate small shareholders. The petitioner countered that the restructuring was for administrative convenience and cost reduction and that the Scheme did not create different classes of shares, thus not invoking Section 106. The Court noted that the Scheme provided for compensating shareholders for fractional entitlements and found no violation of the Companies Act or public policy.

4. Jurisdiction and Role of the Court:
The Court emphasized its limited role under Sections 391 to 394, which is peripheral and supervisory, not appellate. The Court's duty is to ensure that the Scheme is not violative of the Companies Act and is not opposed to public policy. The Court cited the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd., which held that the Court should not act as a rubber stamp but must ensure the Scheme is fair, just, and reasonable. The Court found that the Scheme met these criteria and that the objections raised by the minority shareholders did not warrant rejecting the Scheme.

Conclusion:
The Company Petition was allowed, and the Scheme of Arrangement was approved. The petitioner was directed to pay the minority shareholders as per the Scheme and to file a copy of the order with the Registrar of Companies, Andhra Pradesh, Hyderabad, within 30 days. No costs were awarded.