2008 (7) TMI 576 - HC - Companies Law

Compromise and arrangement - whether in a Scheme of arrangement between a company and its members a meeting of the creditors of the company is statutorily mandated and is invariably required to be held? Held that - The Scheme as filed in Court would show that it would benefit the transferor the transferee and the resulting companies and their respective shareholders and that the Scheme was drawn up to consolidate the plastics/packaging business and information technology KPO into two distinct entities i.e. the resulting company and the demerged company respectively that the same would be distinctly advantageous to the shareholders of the company that the Scheme upon implementation would result in creation of independent and financially strong entities having the necessary focus to pursue their individual growth strategies thereby resulting in enhancement of shareholder s value that it would allow greater flexibility to the investor in their investment decisions in future that the Scheme would provide the resulting company and the demerged company enhanced flexibility in their business operations formulation of growth strategies and implementation of growth plans that it was likely that the synergies of consolidating the plastics/packaging business and information technology KPO into distinct entities would lead to re-rating of the stock of the resulting company and the demerged company and value enhancement for the shareholders of both the companies and that the Scheme would also provide scope for independent growth and expansion. It is also stated that the Scheme would create enhanced value for the shareholders and allow focused strategy in operations which would be in the best interests of the company the shareholders and all persons connected thereto. The Scheme provides for protection of the services of all the employees who are to be continued on terms and conditions not less favourable than which were applicable to them earlier. It cannot therefore said that the Scheme of amalgamation if approved would be against public interest. Thus sanction the Scheme of arrangement.

Summary

Issues Involved:
1. Sanction of the Scheme of Arrangement
2. Necessity of Creditors' Meeting
3. Compliance with Section 391 and 394 of the Companies Act
4. Public Interest and Fairness of the Scheme

Detailed Analysis:

1. Sanction of the Scheme of Arrangement:
The petitions sought the sanction of the High Court for a Scheme of arrangement involving amalgamation and demerger among three companies: TTPL, MTL, and MPL, effective from specified dates. The Board of Directors of the involved companies approved the scheme and filed for court sanction.

2. Necessity of Creditors' Meeting:
The court examined whether a meeting of the creditors was statutorily mandated in a Scheme of arrangement between a company and its members. It was noted that under Section 391, a meeting of the creditors is not mandatory unless the scheme affects their interests. The court emphasized that the discretion to convene such a meeting lies with the court, especially if the creditors' interests might be adversely affected.

3. Compliance with Section 391 and 394 of the Companies Act:
The court reviewed compliance with Sections 391 and 394, which involve disclosure of material facts, financial positions, and auditors' reports. The court also considered the requirements under Rule 80 to 83 of the Companies (Court) Rules, 1959, which include public notice and the opportunity for creditors to raise objections. The court emphasized the importance of ensuring that the scheme does not prejudicially affect various groups, including creditors.

4. Public Interest and Fairness of the Scheme:
The court scrutinized the scheme to ensure it was fair, reasonable, and not against public interest. The scheme aimed to consolidate business operations into distinct entities, enhancing shareholder value and operational flexibility. The court noted that the scheme provided for the protection of employees' terms and conditions. The court concluded that the scheme was beneficial to the companies and their shareholders and did not violate public interest.

Conclusion:
The court sanctioned the Scheme of arrangement, subject to compliance with specified conditions, including those agreed upon by the petitioners' counsel. The court directed the companies to file certified copies of the order with the Registrar of Companies within thirty days. The fees for the Assistant Solicitor General were fixed at Rs. 2,000, to be paid by the Central Government.