2009 (3) TMI 561 - HC - Companies Law

Compromise and arrangement - demerger - Held that - In the present case apart from stating that the details of the assets which form a part of the scheme have not been enumerated nothing adverse regarding the scheme as such is stated. Nor is it even suggested that as a result thereof the interest of any concerned party has been adversely affected. Further still the entire procedure has been complied with and no objection has been raised by any party including the creditors and members. the members and the creditors of the petitioners will not be affected adversely by the scheme as there are no creditors of the transferee-company. Nor are there any liabilities that the transferee-company is exposed to. This is so provided in the balance sheet and the profit and loss account for the year ending 31-3-2008. The unaudited balance sheet and the profit and loss account for the period ended on 30-9-2008 indicates the liability of only ₹ 38,000. The creditors are the directors of the company themselves. The same does not warrant a refusal of an order sanctioning the scheme. Scheme allowed.

Summary

Issues:
1. Sanctioning a scheme of arrangement involving demerger and merger of companies.
2. Compliance with procedural requirements.
3. Lack of detailed information regarding assets and liabilities in the scheme.
4. Interpretation of the definition of "Steel Division" in the scheme.
5. Requirement of enumerating each asset in a demerger scheme.
6. Consideration of objections and concerns raised by interested parties.
7. Impact on creditors and members of the companies involved.

Analysis:
1. The petitioners sought approval for a scheme involving the demerger of the steel division of one company and its merger into another. The Regional Director confirmed that, except for a minor observation, the scheme did not appear prejudicial to shareholders or the public interest.

2. The Regional Director highlighted a lack of detailed information in the scheme regarding the assets and liabilities of the steel division to be transferred. However, the compliance with procedural requirements was acknowledged.

3. The definition of the "Steel Division" in the scheme was detailed extensively, covering assets, liabilities, employees, and other related aspects. The balance sheet and profit and loss account also provided a clear separation of the steel division from other divisions.

4. The judgment clarified that there is no legal requirement mandating the enumeration of each asset in a demerger scheme. While interested parties can request specific details, the decision to grant such requests depends on the case's circumstances.

5. It was emphasized that, in this case, no adverse implications of the lack of detailed asset enumeration were identified. The scheme's compliance, absence of objections from concerned parties, and minimal liabilities of the companies supported the approval of the scheme.

6. The judgment highlighted that the scheme did not adversely affect the members and creditors of the companies involved. The minimal liabilities and the absence of external creditors or significant financial risks justified sanctioning the scheme.

7. Ultimately, both petitions were granted, with the transferee-company instructed to lodge the order and scheme for stamp duty adjudication. The transferor-company was directed to pay costs to the Regional Director, and the filing and issuance of the order were dispensed with for efficiency.