2004 (2) TMI 372 - HC - Companies Law

Summary

Issues Involved:
1. Approval of the Scheme of Arrangement and reduction of share capital under sections 391 to 394 read with section 110 of the Companies Act, 1956.
2. Objections raised by the Central Government regarding the approval from the Hyderabad Stock Exchange and the valuation of shares.
3. Jurisdiction and role of the Court in sanctioning the Scheme of Arrangement.

Detailed Analysis:

1. Approval of the Scheme of Arrangement and Reduction of Share Capital:
The petitions were filed by the Transferor Company and the Transferee Company seeking approval of the Scheme of Arrangement and reduction of share capital. The Transferor Company, incorporated on 4-3-1997, and the Transferee Company, incorporated on 1-11-1991, had their respective Board of Directors approve the Scheme of Arrangement on 31-7-2003. The scheme was subsequently approved by the shareholders of both companies in meetings held on 7-11-2003. The Official Liquidator reported that the companies were not conducting their affairs in a manner prejudicial to the interests of their members or the general public.

2. Objections Raised by the Central Government:
The Central Government, through the Registrar of Companies, raised two objections:
- The Transferee Company had not received the "No Objection" letter from the Hyderabad Stock Exchange.
- The shares were not valued by well-accepted accounting principles, and different methods were used to arrive at a fair exchange ratio.

The petitioners countered these objections by producing a letter from the Hyderabad Stock Exchange dated 1-9-2003, indicating no objection for the Transferee Company to prefer the petition. Regarding the valuation of shares, it was argued that the shareholders had approved the scheme, and the Central Government, not being affected by the allotment, could not have any grievance.

3. Jurisdiction and Role of the Court:
The Court's role under sections 391 to 394 of the Companies Act is peripheral and supervisory, not appellate. It must ensure that the scheme is fair, just, and reasonable, and not contrary to law or public policy. The Court cited the Supreme Court's judgment in Miheer H. Mafatlal v. Mafatlal Industries Ltd., emphasizing that the Court should not act as an appellate authority over the informed decision of the shareholders. The Court must ensure that the scheme is not unconscionable, illegal, or unfair to any class of shareholders or creditors.

Conclusion:
The Court found that the objections raised by the Central Government were adequately addressed by the petitioners. The shareholders and secured creditors had approved the scheme, and the Official Liquidator's report indicated no prejudicial conduct. The Court concluded that the Scheme of Arrangement was neither opposed to public policy nor violated any statutory provisions. Consequently, the Company Petitions were allowed, the Scheme of Arrangement was sanctioned, and the reduction of share capital was approved. The Transferor Company was ordered to be dissolved and amalgamated with the Transferee Company without the process of winding up.