2010 (6) TMI 330 - HC - Companies Law

Scheme of arrangement in the nature of amalgamation - Held that - With the modification and substitution of clause 9.1, that Fully paid equity shares of face value of ₹ 1,000 each credited as fully paid-up of the Transferee-Company i.e., Gufic Private Ltd., shall be issued and allotted at par against 10,000 equity shares of face value of ₹ 10 each to the shareholders of the Transferor-Company i.e., Placer Mercantile and Investment Private Ltd the proposed scheme of amalgamation is hereby sanctioned.

Summary

Issues:
1. Sanction of proposed scheme of arrangement for amalgamation under Companies Act, 1956.
2. Error in the exchange ratio in the proposed scheme.
3. Approval of the scheme by shareholders and creditors.
4. Objections, if any, to the proposed scheme.
5. Role of Central Government and Official Liquidator.
6. Final decision and cost implications.

Issue 1: Sanction of Proposed Scheme of Arrangement

The High Court of Gujarat considered Company Petition No. 224/2009 and Company Petition No. 225/2009 for the sanction of a proposed scheme of arrangement involving the amalgamation of two companies under sections 391 and 394 of the Companies Act, 1956. The petitions were admitted, and meetings of creditors and shareholders were conducted to seek approval for the scheme. The Court noted that the proposed amalgamation would benefit both companies, ensuring that the combined assets were sufficient to cover all liabilities without adversely affecting creditors. Public notices were published, and no objections were raised against the scheme. The Central Government, through the Regional Director, had no objections to the scheme, subject to a modification in the exchange ratio as discussed later.

Issue 2: Error in Exchange Ratio

An error was identified in the exchange ratio mentioned in the scheme, specifically in clause 9.1. To rectify this error, an additional affidavit was filed, seeking permission to amend the scheme. The Court considered the correction necessary and allowed the modification in the exchange ratio. The revised exchange ratio was detailed in the judgment, ensuring that the interests of shareholders and the public were not prejudiced by the change.

Issue 3: Approval by Shareholders and Creditors

The Court noted that the shareholders of both companies had consented to the modification in the scheme, particularly in clause 9.1. Meetings of creditors were conducted, and approvals were obtained from unsecured trade creditors and secured creditors of the transferee-company. The unanimity in the approval process was highlighted, indicating that the scheme had the necessary support from the relevant stakeholders.

Issue 4: Objections to the Scheme

Despite public notices and invitations for objections, no party came forward to challenge the proposed scheme of amalgamation. The absence of objections was confirmed through affidavits and reports, indicating that the scheme did not face any significant opposition or legal hurdles.

Issue 5: Role of Central Government and Official Liquidator

The Central Government, represented by the Regional Director, Ministry of Corporate Affairs, and the Official Liquidator attached to the Gujarat High Court played crucial roles in reviewing the scheme. Their observations and reports supported the approval of the scheme, confirming that the interests of members and the public were not compromised by the proposed amalgamation. The Official Liquidator's report specifically stated that the company's affairs were not conducted in a manner prejudicial to stakeholders.

Issue 6: Final Decision and Cost Implications

After considering all aspects of the case, including the modifications in the exchange ratio and the support from stakeholders and authorities, the Court allowed both petitions for the proposed scheme of amalgamation. The judgment sanctioned the scheme with the specified modification in clause 9.1, ensuring the legal validity and integrity of the arrangement. Additionally, the judgment outlined the costs to be paid to the Assistant Solicitor General and the Official Liquidator, quantifying the amounts and specifying the responsible parties for payment.

In conclusion, the High Court of Gujarat meticulously analyzed the issues surrounding the proposed scheme of amalgamation, addressing concerns related to the exchange ratio, stakeholder approvals, objections, governmental observations, and cost implications. The judgment ultimately sanctioned the scheme with the necessary modifications, emphasizing compliance with legal provisions and stakeholder interests.