2006 (7) TMI 332 - HC - Companies Law

Summary

Issues Involved:

1. Sanction of the scheme of arrangement and amalgamation under sections 100, 101, and 391 to 394 of the Companies Act, 1956.
2. Objections raised by shareholders regarding the scheme's fairness, valuation of shares, and reduction of share capital.
3. Compliance with statutory procedures and requirements under the Companies Act, 1956.
4. Role and jurisdiction of the company court in sanctioning the scheme.

Detailed Analysis:

1. Sanction of the Scheme of Arrangement and Amalgamation:

The petitions sought the court's sanction for a scheme of arrangement, including amalgamation, between Torrent Power AEC Ltd. (TPAL), Torrent Power SEC Ltd. (TPSL), Torrent Power Generation Ltd. (TPGL) (collectively the transferor companies), and Torrent Power Ltd. (TPL) (the transferee company). The scheme aimed to consolidate the power business of the Torrent group to enhance competitiveness and growth opportunities. The scheme included the reorganization of the share capital of the transferee company.

2. Objections Raised by Shareholders:

Several shareholders raised objections against the scheme. The main objections included:
- Pending Litigation: One objector challenged a Government resolution affecting 28.89% of equity shares in Torrent Power AEC Ltd., which was pending in court.
- Erosion of Share Capital: The scheme's reduction in the face value of shares was alleged to result in financial losses for shareholders.
- Public Institutions' Role: The objectors argued that public institutions failed to protect investors' interests.
- Valuation Discrepancies: There were concerns about differing valuations of shares by two firms of chartered accountants within a short span.
- Reduction of Share Capital: The objectors claimed that mandatory provisions of sections 101 and 102 of the Companies Act were bypassed.
- Monopoly Concerns: The scheme was alleged to create a monopoly and accumulate reserves unfairly.

3. Compliance with Statutory Procedures and Requirements:

The court examined whether the statutory procedures under sections 391 to 394 of the Companies Act, 1956, were complied with:
- Meetings and Voting: Separate meetings of equity shareholders, unsecured creditors, and secured creditors were convened, and the scheme was approved by an overwhelming majority.
- Notices and Explanatory Statements: Notices with explanatory statements were sent to all stakeholders, and relevant documents were made available for inspection.
- Reports and Affidavits: Reports from the chairman of the meetings, the official liquidator, and the Regional Director were submitted, indicating no objections to the scheme.

4. Role and Jurisdiction of the Company Court:

The court's role in sanctioning the scheme is supervisory, ensuring compliance with statutory procedures and that the scheme is fair and reasonable. The court does not sit in appeal over the commercial wisdom of the shareholders. The court referred to several precedents, including Miheer H. Mafatlal v. Mafatlal Industries Ltd., which outlined the broad parameters for sanctioning a scheme:
- Compliance with statutory procedures.
- Fair representation and bona fide actions by the majority.
- Provision of relevant material for informed decision-making.
- The scheme should not be violative of any law or public policy.

Judgment:

The court found that the scheme complied with all statutory requirements and was approved by an overwhelming majority of stakeholders. The objections raised were not sufficient to deny the scheme's sanction. The court held that the scheme was fair, reasonable, and in the public interest. Consequently, the scheme of arrangement and amalgamation was sanctioned, and the reduction of share capital was approved as an integral part of the scheme. The court rejected the request to stay the operation of the order and quantified the fees for the learned Assistant Solicitor General of India at Rs. 3,500 to be paid by the petitioner-company.