2007 (11) TMI 405 - HC - Companies Law

Demerger - Compromise and arrangement - Held that - Find force in the submissions of learned counsel for the petitioners as objections of of the Regional Director could not be put against the petitioners at the time of considering the sanctioning of the scheme of arrangement. Further, as rightly contended by learned counsel for the petitioners, the petitions filed under sections 391 to 394 of the Companies Act are like a single window system and the petitioners could not be burdened with taking out various applications which are cumbersome in nature. Further, learned counsel for the petitioners, has rightly pointed out that, if necessary, the petitioners could always go before the Registrar of Companies for obtaining the necessary approval even after the scheme of arrangement is sanctioned by this Court. Proposed scheme of arrangement allowed.

Issues Involved:
1. Sanctioning the scheme of arrangement for the demerger of the smelter division.
2. Compliance with the Companies Act, 1956, specifically sections 21, 23, and 391 to 394.
3. Addressing objections raised by the Regional Director, Ministry of Corporate Affairs.

Issue-Wise Detailed Analysis:

1. Sanctioning the Scheme of Arrangement for Demerger:
The petitions, C.P. No. 189 and C.P. No. 190 of 2007, were filed by the demerged company and the resulting company, respectively, under sections 391 to 394 of the Companies Act, 1956, read with rules 11(a)(10) and 79 of the Companies (Court) Rules, 1959. The objective was to obtain the court's sanction for the scheme of arrangement, which had been unanimously approved by the shareholders of both companies. The scheme involved the demerger of the smelter division of Sun Metals and Alloys (P.) Ltd. (the demerged company) and its transfer to Sunmet Holdings India (P.) Ltd. (the resulting company).

The demerged company, Sun Metals and Alloys (P.) Ltd., was engaged in the manufacture and distribution of ferro silicon and other materials. The resulting company, Sunmet Holdings India (P.) Ltd., was incorporated specifically to carry on the business of manufacturing ferro silicon and silicon manganese post-demerger. The demerger aimed to achieve synergies, core competitiveness, and enhanced value for shareholders by segregating the investments and holdings division from the smelter division.

2. Compliance with the Companies Act, 1956:
The scheme of arrangement was intended to comply with sections 391 to 394 of the Companies Act, 1956, and section 2(19AA) of the Income-tax Act, 1961. The board of directors of both companies approved the scheme on 16-7-2007, and consent affidavits were obtained from shareholders. The court had previously dispensed with the convening of shareholders' meetings and directed the filing of the company petitions.

The authorized share capital of the demerged company was Rs. 1,50,00,000, and the resulting company had an authorized share capital of Rs. 5,00,000. The demerged company had sufficient assets to meet its liabilities, and the resulting company was expected to discharge all binding obligations, ensuring no prejudice to creditors.

3. Addressing Objections Raised by the Regional Director:
The Regional Director, Ministry of Corporate Affairs, raised an objection regarding the proposed change of names for the demerged and resulting companies. According to clause 13 of the scheme, the name of the demerged company was to be transferred to the resulting company, and the demerged company would adopt the name 'Sunmet Holdings India (P.) Ltd.' The Regional Director argued that this change could not be effected without obtaining necessary approvals from the Registrar of Companies under sections 21 and 23 of the Companies Act, 1956.

The court heard arguments from the petitioners' counsel, who contended that the objections were formal in nature and could be addressed after sanctioning the scheme. The court agreed, noting that the petitions under sections 391 to 394 of the Companies Act functioned like a single window system, and the petitioners should not be burdened with additional applications. The court acknowledged that the petitioners could seek necessary approvals from the Registrar of Companies post-sanction.

Conclusion:
The court found the objections raised by the Regional Director to be adequately addressed by the petitioners. It concluded that the proposed scheme of arrangement was beneficial for both companies and their shareholders. Consequently, the court allowed both petitions, C.P. Nos. 189 and 190 of 2007, as prayed for, and awarded a fee of Rs. 2,500 to the senior panel counsel from each petitioner-company.

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