2008 (9) TMI 562 - HC - Companies Law

Compromise and arrangement - Scheme of Amalgamation - Held that - Since there is no proposal of amalgamation of the companies and as such Accounting Standard-14 i.e. Accounting for Amalgamation issued by the Institute of Chartered Accountants of India is not required to be followed.There is no objection to the scheme by any person. The scheme has been approved by the shareholders and creditors and that the Scheme does not violate any of the provisions of law, or public interest or the interest of the shareholders or the creditors. Both the Company Petition are allowed. The Scheme of Arrangement proposing demerger of the assets of Kothari Products Ltd. (demerged company) in Pan Parag India Ltd. (resulting company) is confirmed and will come into effect from the appointed date given in the scheme. The office will issue formal order in the prescribed form within three weeks from today.

Summary

Issues:
1. Confirmation of 'Scheme of Amalgamation' under sections 391 and 394 of the Companies Act, 1956.
2. Exemption sought for holding meetings based on specific circumstances.
3. Approval of the scheme by shareholders and creditors.
4. Concerns raised by a minority shareholder regarding valuation and terms of the scheme.
5. Compliance with legal requirements and absence of objections.

Analysis:
1. The judgment pertains to two Company Petitions seeking confirmation of a 'Scheme of Amalgamation' under sections 391 and 394 of the Companies Act, 1956. The demerged company, engaged in various business activities, proposed to demerge specific divisions into the resulting company. Advertisements were published, meetings were convened, and approvals were sought from shareholders and creditors.

2. An exemption from holding meetings was granted for the resulting company due to specific circumstances, including the absence of creditors apart from the demerged company itself and unanimous approval from all shareholders. The court considered the resolutions and approved the exemption based on the provided information and affidavits.

3. Shareholders and creditors of the demerged company attended meetings and unanimously approved the 'Scheme of Arrangement'. The quorum was complete, and the resolutions were carried out without objections. The court received reports from the appointed Chairmen of the meetings confirming the approvals.

4. A minority shareholder raised concerns regarding the valuation and terms of the scheme, emphasizing the transfer of assets to the resulting company and the involvement of promoters. However, as the objections did not impact the overwhelming majority approval and compliance with legal requirements, the court proceeded with the confirmation of the scheme.

5. The judgment highlighted compliance with legal procedures, including the provision of necessary information to shareholders and creditors, publication of advertisements, and addressing objections raised by relevant parties. The court confirmed the 'Scheme of Arrangement' for demerger, ensuring it did not contravene any legal provisions or public interest, leading to the approval of both Company Petitions.

Conclusion:
The High Court of Allahabad allowed both Company Petitions, confirming the 'Scheme of Arrangement' for demerger between the demerged and resulting companies. The judgment emphasized compliance with legal requirements, unanimous approval from shareholders and creditors, and the absence of objections impacting the validity of the scheme. The court's decision ensured the effective implementation of the demerger as proposed in the scheme.