2010 (6) TMI 332 - HC - Companies Law

Scheme of arrangement - Held that - There is nothing to indicate that there has been an adverse change in the financial position of the company which would warrant the scheme being rejected. Further the audited standalone financial results for the year ended 31-3-2010 were in fact tendered in Court and to Mr. Lakhani also. The same are marked X . They were also published in the newspapers. In the circumstances, the company petition is made absolute in terms of prayers (a) and ( b). The Petitioner is granted liberty to present the minutes of reduction of the securities premium account. The company shall pay the costs of the Regional Director fixed at ₹ 10,000 to be paid within six weeks from today.

Issues Involved:
1. Sanctioning of the scheme of arrangement.
2. Objections by the Regional Director regarding the appointed date and modification powers.
3. Objections by a shareholder regarding procedural compliance and fairness of the scheme.

Issue-wise Analysis:

1. Sanctioning of the Scheme of Arrangement:
The petitioner sought an order sanctioning a scheme of arrangement between itself and four transferor-companies. The scheme aimed to transfer the entire business of the Indian undertakings of the transferor-companies to the petitioner without further act or deed pursuant to sections 391 and 394 of the Companies Act, 1956. The rationale was to simplify and consolidate the structure and business operations, leading to greater efficiency in cash management and reduced legal and regulatory compliances. The Board of Directors of the respective companies approved the scheme on 9-12-2009.

2. Objections by the Regional Director:
The Regional Director raised two objections:
- Uncertainty of the Appointed Date: The scheme did not provide a specific "effective date," leaving it to be determined by the Board of Directors. The Court found this objection well-founded and ordered the deletion of certain phrases in clause 1.9 and the last sentence in clause 20.2 to eliminate the uncertainty.
- Modification of the Scheme without Court Sanction: Clause 19.1 authorized the Board of Directors to modify the scheme without the Court's sanction. The Court agreed with the Regional Director that such power lies only with the High Court. Therefore, the clause was modified by deleting specific words to ensure that any modifications would require Court approval.

3. Objections by a Shareholder:
- Procedural Compliance: The shareholder argued that the names of all joint holders of shares should be mentioned in Form-39 to prevent multiple voting. The Court found that Rule 78 and Form-39 did not support this requirement and rejected the objection.
- Fairness of the Scheme: The shareholder contended that clause 11, which allowed the adjustment of goodwill against the securities premium account, was unfair. The Court held that such decisions are best left to the members unless there is evidence of impropriety, mala fides, fraud, or absurdity. The shareholder's apprehension regarding the impact on future bonus shares was deemed unfounded.
- Compliance with Section 391(2): The shareholder argued that the latest financial position as of the hearing date should be provided. The Court referred to various judgments and concluded that the latest financial position should be reasonably proximate to the hearing date. In this case, the audited standalone financial results for the year ended 31-3-2010 were tendered in Court and considered sufficient.

Conclusion:
The objections raised were addressed adequately, and the scheme was sanctioned with modifications to certain clauses. The petition was made absolute in terms of the prayers, and the petitioner was granted liberty to present the minutes of reduction of the securities premium account. The petitioner was also directed to pay the costs of the Regional Director.

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