2008 (9) TMI 563 - HC - Companies Law

Demerger - Compromise and arrangement - Held that - 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 The Company Petition is allowed. The Scheme of Arrangement proposing demerger of the assets of M/s. Bhagwanti Rubber & Allied Products Pvt. Ltd. (Demerged Company) in M/s. Rupani Footcare Pvt. Ltd. (Resulting Company) is confirmed and will come into effect from today, i.e., 16-9-2008, to be treated the effective date of the Scheme of Arrangement for all purposes. The office will issue formal order in the prescribed form within three weeks from today and intimate to the Registrar of Companies.

Summary

Issues:
Confirmation of Scheme of Arrangement between two companies under Companies Act, 1956 - Meeting of shareholders and creditors - Share exchange ratio - Objection on appointed date and incorporation of Transferee Company - Compliance with Companies Act provisions - Reduction of share capital - Approval by shareholders and creditors.

Analysis:
The judgment by the High Court of Allahabad dealt with the Confirmation Petition seeking confirmation of the 'Scheme of Arrangement' between two companies, one being the Demerged Company and the other the Resulting Company. The Demerged Company was involved in the manufacture and sale of 'Hawai Chappals' and 'Shoes.' The Scheme proposed to demerge the 'Shoes unit' of the Demerged Company into the Resulting Company.

The Court ordered the meetings of shareholders and creditors to be convened for approval of the scheme. The shareholders of the Demerged Company approved the scheme, with a significant majority present in person or by proxy. Similarly, the creditors unanimously approved the scheme.

An objection was raised regarding the appointed date in the scheme being prior to the incorporation of the Transferee Company. However, it was argued that the assets and liabilities were available with the Transferor Company on the appointed date, and the effective date under the scheme would be the date of sanction by the Court.

The judgment referenced a Delhi High Court case to support the insignificance of the appointed date being before incorporation. It was clarified that there would be no artificial transfer of assets before the incorporation of the Transferee Company, and the reduction of share capital did not require further petition as the shares were fully paid-up.

The Court found no objections to the scheme, and as it was approved by shareholders and creditors, it did not contravene any provisions of law, public interest, or the interests of stakeholders. Consequently, the Company Petition was allowed, and the Scheme of Arrangement for demerger was confirmed to be effective from the specified date.

In conclusion, the judgment addressed various legal aspects concerning the confirmation of the Scheme of Arrangement between the two companies, ensuring compliance with the Companies Act provisions, addressing objections raised, and ultimately confirming the scheme based on shareholder and creditor approval.