2004 (5) TMI 312 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Objections by creditors regarding the scheme.
3. Financial position and solvency of the petitioner company.
4. Procedural compliance and notice to creditors.

Issue-Wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956:
The petitioner, EMCO Ltd., sought the court's sanction for a scheme of arrangement that involved the merger of Verticalbiz.com (India) Ltd. into EMCO Ltd., with the transferor company being dissolved without winding up. The scheme aimed to enhance business efficiency, utilize existing capital and infrastructure, and respond to economic liberalization and competition. The court noted that the scheme did not affect the rights of the members or creditors of the petitioner company, as no new shares were issued, and the capital structure remained unchanged.

2. Objections by creditors regarding the scheme:
Several creditors, including Swami Vessels Pvt. Ltd., Jain Parmar Electronics, Transport Corporation of India Ltd., Freeman Products (India), M.R. Malpani, and Ujwal Udyog, raised objections. They contended that the scheme was designed to defeat their legitimate claims and that proper notices were not issued to them. They relied on the case of Kaveri Entertainment Ltd. to argue that the court should refuse the sanction unless their claims were secured or paid. The court, however, noted that the objections were primarily aimed at recovering dues rather than opposing the scheme itself. The court found that the creditors' objections were not sufficient to halt the sanctioning of the scheme, especially since the petitioner company had a sound financial position and the creditors' claims were disputed.

3. Financial position and solvency of the petitioner company:
The court examined the financial position of EMCO Ltd., noting that its assets far exceeded its liabilities. The company had a positive net worth, and its financial statements and Chartered Accountant certificates demonstrated solvency. The court was satisfied that the financial position of the petitioner company was sound and that it had sufficient resources to meet its liabilities.

4. Procedural compliance and notice to creditors:
The court addressed the procedural aspect, noting that the meeting of secured and unsecured creditors was dispensed with based on the court's order. Notices were sent to individuals, and the scheme was advertised as per legal requirements. The court found that the objections regarding the lack of notice were not tenable, especially since the creditors had appeared before the court and presented their objections. The court emphasized that the objections were primarily focused on recovering dues rather than challenging the scheme's merits.

Conclusion:
The court, after considering the objections and the financial position of the petitioner company, found no reason to reject the scheme. The objections were primarily aimed at recovering disputed amounts, and the court held that such disputes should be resolved in appropriate forums. The scheme was found to be fair, reasonable, and in the interest of the company and its shareholders. The court sanctioned the scheme of arrangement and rejected the objections raised by the creditors. The petition was allowed with the court granting the scheme in terms of the prayer clauses (a) to (k) with liberty, and costs of Rs. 2,500 were awarded to the Regional Director to be paid by the petitioner within four weeks.