2004 (4) TMI 307 - HC - Companies Law

Compromise and arrangement - Scheme of Arrangement under Sections 391 to 394 of the Companies Act 1956 - Compliance with Statutory Provisions - Objections by Shareholders - Reduction of Share Capital - Valuation of Shares - HELD THAT - It is settled law that the party who alleges must prove its allegations. Majority decisions on significant aspects unanimous and/or overwhelming in the meetings dated 3rd February 2004 cannot be skate over while approving the scheme of arrangement. The law itself requires to submit such company petition under sections 391 to 394 after getting more than 75 per cent majority of votes. It means at the threshold itself need of law has been complied with. Therefore presumption in favour of the scheme cannot be rebutted by a few shareholders in the present case 4 objectors by making bald and vague allegations at such a stage. Having given consideration to whole aspect of the scheme of arrangement including statutory compliances objectors failed to discharge their burden to prove demerits of the scheme in question. Nothing has been placed on record to prove illegality unfairness unrecommendableness of the scheme. Merely giving unsupported and baseless views cannot be accepted specially when merits of the scheme of arrangement has been recognised and approved by all others. In this case the above conclusion turns upon the material placed by the parties. First and foremost issue is meaning scope and purpose of arrangement . The scheme of arrangement in question falls within the ambit of the provisions of sections 391 to 394 of the Companies Act and the Rules made thereunder. The word arrangement is not specifically defined under the Companies Act. This scheme of arrangement has the ingredients of demerger and reduction of share capital and scheme of arrangements with the concerned companies and Trust cannot be said to be beyond the purview of sections of the Companies Act the scheme of arrangement in question therefore is maintainable. The word arrangement though not defined specifically has a wide range and ambit. The present scheme of arrangement is between the petitioner-companies and its shareholders and/or creditors and a Trust. By that itself it cannot be said that the scheme of arrangement in question is not maintainable or not sustainable. The scheme is affecting the shareholders and the creditors as Cement Division of the petitioners is being transferred to the transferee-company. There is no objection raised even by the Regional Director about the maintainability of the scheme of arrangement. It is difficult to reject the whole scheme of arrangement like this which has definitely an element of demerger and reduction of shares which are permissible mode of various schemes under the provisions of sections 391 to 394 merely on technical grounds. The scheme of arrangement in absence of any specific bar or limitation falls within the ambit of sections 391 to 394 of the Companies Act and is maintainable. These company petitions were already admitted and parties have already acted on that basis and further all legal formalities have also been completed. Therefore now there is no reason to accept any objection to the effect that the present scheme of arrangement cannot be sanctioned under the provisions of sections 391 to 394 of the Companies Act. Conclusion - ( a ) All the legal and essential and necessary formalities have been complied with by the companies and the petitions were filed within the framework of law. ( b ) Requisite and essential materials and documents mere made available and notified published and available with the requisite details and documents before to all concerned including the shareholders creditors and competent authorities. No objections were raised about the non-disclosure of materials or documents. ( c ) All the resolutions have been passed unanimously and/or by overwhelming majority in proportion 00.01 99.99 and the scheme of arrangement has been approved accordingly with due deliberation and discussion on all issues including the suggested modifications. ( d ) The Regional Director Company Registrar - all these authorities have after due verification of the record of the company endorsed and re-confirmed that the scheme is not against public interest prejudicial to shareholders and all actions of the companies are within the framework of law. There is nothing illegal unjust unsound or against public policy or interest. No other department have raised any objection. ( e ) All the experts/professionals submitted their report and opinion and accepted the scheme. These experts/professionals include financiers auditors chartered accountants bankers creditors financial institutions and above all company managements apart from unanimous majority decisions to support the scheme. ( f ) Once creditors financial institutions expert in respective business and professionals approved the scheme (of arrangement) unanimously by overwhelming majority of shareholders in proportion to 99.99 00.1 and also approved the scheme after due and effective deliberation on all issues and satisfied by all the classes in my view also such determination and/or commercial merits of the scheme need not be gone into or interfered with as a fault finder and/or to pick holes in it merely because some objections have been taken or raised by some shareholders. There are no strong and cogent reasons made out and pointed out by any one to disapprove such scheme. No other objectors have pressed their objections or appeared in court to support such objections. ( g ) No illegality of any other law has been placed and proved with supporting material in reference to the scheme in question. Companies are bound to comply with all legal formalities. ( h ) The objections are frivolous unfair and mala fide and are not within the framework of the law. No evidence or material have been placed to justify to show that the scheme is illegal unjust or against public policy or interest. Such objectors are estopped from raising such frivolous objections. Their whole object is to halt and to hinder the scheme for ulterior purpose. ( i ) In the present case no other alternative or possible view was explained or suggested on any material issues including the share of ratio. In my opinion any view should not be given or expressed as it will amount to thrusting and imposing decision against unanimous and majority decisions of the shareholders creditors. Financial institutions such imposition is out of the court s domain. ( j ) In this competitive market the corporate world with exhaustive strategies is a must. Companies know-how to make or arrange and adjust their business to run with the national and international markets. Third person may not be in a position to provide them business strategies and above all companies know their respective shareholders need may not be bound by the views expressed by the third persons. Unless there is apparent illegality unfairness unreasonableness where it is essential to pierce the veil of corporate strategies. Otherwise it is difficult to have judicial review of this aspect of globalisation and utility of material sources by the businessman or experts in the field. Business strategy is not the court s domain. It is difficult for the courts to express their opinion on such matters. Business adjustments or arrangements cannot be decided or trusted or imposed by the court specially when such arrangement or adjustment or such scheme is within the framework of the law. ( k ) Scheme has taken care of all significant aspects of law public policy and it is based on need and time of particular business and market. Scheme is fair sound reasonable and takes into consideration interest of shareholders creditors workmen and employees. ( l ) The scheme of the Companies Act cannot be overlooked in such a matter. Shareholders carry on business through the medium of company and cannot act alone or in minority and democratic procedure of resolutions and decisions are well accepted even in company affairs and action. Result - In view of the above the sanction of the scheme as prayed is granted. The Company Petition No. 120 of 2004 is made absolute in terms of the prayer clauses ( a ) to ( k ) with liberty. Parties to proceed in accordance with law. Costs of Rs. 2, 500 to the Regional Director be paid by the petitioner within a period of four weeks from today.

Summary

Issues Involved:
1. Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956
2. Compliance with Statutory Provisions
3. Objections by Shareholders
4. Public Interest and Policy
5. Valuation of Shares
6. Reduction of Share Capital
7. Role of Regulatory Authorities

Summary:

1. Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956:
The scheme involves the demerger of the cement business of Larsen & Toubro Ltd. (L&T) into UltraTech CemCo Ltd. (CemCo) and the eventual acquisition of management control by Grasim Industries Ltd. (Grasim). The objective is to enhance global competitiveness and increase shareholder wealth.

2. Compliance with Statutory Provisions:
The scheme complies with sections 391 to 394 of the Companies Act, 1956, and relevant Company Rules. The Board of Directors of L&T and CemCo approved the scheme after due deliberation. Meetings of secured creditors, unsecured creditors, and equity shareholders were convened and approved the scheme with an overwhelming majority.

3. Objections by Shareholders:
Objections were raised by a few shareholders, including Mr. Rasik S. Poladia and Mr. V.M. Raaste, alleging suppression of material facts, improper valuation, and that the scheme was against public policy. However, these objections were found to be unsupported by evidence and were dismissed. The court emphasized that the majority decision of shareholders, secured creditors, and unsecured creditors should prevail.

4. Public Interest and Policy:
The scheme was not found to be against public interest or public policy. The Regional Director, Department of Company Affairs, did not oppose the scheme except for suggesting compliance with certain procedural requirements. The court noted that the scheme is in line with the liberalized economic policy and promotes industry growth.

5. Valuation of Shares:
The valuation of shares was conducted by experts and approved by the Board of Directors and shareholders. The court held that unless it is shown that the valuation is grossly unfair, it will not interfere with the expert's opinion. The valuation was found to be fair and reasonable.

6. Reduction of Share Capital:
The scheme involves the reduction of share capital, which was approved by the shareholders. The court confirmed that the reduction of share capital is an integral part of the scheme and complies with sections 100 to 104 of the Companies Act.

7. Role of Regulatory Authorities:
The scheme received no-objection letters from the Bombay Stock Exchange and National Stock Exchange. The Regional Director suggested compliance with procedural requirements, which the court directed the companies to follow. The court emphasized that the scheme is not violative of any provision of law and is not contrary to public policy.

Conclusion:
The court sanctioned the scheme of arrangement, finding it fair, just, and in the interest of the public and shareholders. The objections raised by a few shareholders were dismissed as frivolous and unsupported by evidence. The scheme was approved with the condition that the companies comply with all legal formalities, including the payment of stamp duty. The Company Petition No. 120 of 2004 was made absolute in terms of the prayer clauses (a) to (k) with liberty, and costs of Rs. 2,500 were awarded to the Regional Director.