2006 (12) TMI 237 - HC - Companies Law

Summary

Issues:
1. Approval of Scheme of Arrangement under sections 391 and 394 of the Companies Act, 1956 between two companies.
2. Compliance with procedural requirements for scheme approval.
3. Role of Stock Exchanges in approving schemes of arrangement.

Detailed Analysis:

1. The petition involved the approval of a Scheme of Arrangement between two companies under sections 391 and 394 of the Companies Act, 1956. The Resulting Company and the Demerged Company sought sanction for the scheme to be binding on all shareholders and creditors from a specified date. The scheme aimed to separate the mining and manufacturing activities into two distinct entities to enhance operational focus and attract strategic investors.

2. The compliance with procedural requirements was a crucial aspect of the judgment. Both companies had approved the scheme in their board meetings and subsequently filed applications with the stock exchanges. Meetings were convened with equity shareholders and creditors, and reports were submitted to the Court. The Regional Director raised concerns regarding the increase in authorized share capital and the lack of attendance by secured creditors at meetings.

3. The role of Stock Exchanges in approving schemes of arrangement was highlighted. The Court considered a letter from the Jaipur Stock Exchange indicating no objection to the scheme. Legal precedents were cited to emphasize that the consent of the Stock Exchange, particularly the Bombay Stock Exchange, was not mandatory for scheme approval. The Court noted that non-compliance with certain provisions of the Listing Agreement did not automatically bar a company from seeking sanction for a scheme of amalgamation under the Companies Act.

4. In the final analysis, the Court sanctioned the Scheme of Arrangement, excluding a specific provision related to the increase in company capital. Both companies were directed to pay a specified amount to the Official Liquidator. The judgment underscored the importance of following procedural requirements and legal precedents in approving schemes of arrangement under the Companies Act, ensuring fairness and compliance with the law.