2008 (5) TMI 431 - HC - Companies Law

Scheme of demerger - Held that - After having heard learned advocates appearing for the respective parties and after having perused the entire scheme, the objections contained in the two affidavits and the reply affidavits filed on behalf of the petitioner-company, more particularly, at various stages it is clearly stated that the petitioner has made payment of licence fee and has complied with the requirement of due performance of all the terms and conditions and that the petitioner has not tried to circumvent any process of law and has rightly approached this court for sanction of the scheme of demerger and that there is no intention on the part of the petitioner demerged company to give a go bye to the necessary statutory sanctions and that no objections were raised either from the shareholders or any one, else pursuant to the public advertisement, the court is satisfied that the observations made by the Registrar of Companies do not survive and the scheme of arrangement would be in the interest of the companies and their members., Prayer in terms of paragraph 25(a) of the petition is required to be granted and it is accordingly granted.

Issues Involved:
1. Sanctioning of the scheme of arrangement in the nature of demerger.
2. Compliance with statutory requirements and obtaining necessary approvals.
3. Objections raised by the Regional Director regarding the scheme.
4. Financial viability and transparency of the demerger.
5. Allegations of the scheme being a camouflage to circumvent telecom policy.

Issue-Wise Detailed Analysis:

1. Sanctioning of the Scheme of Arrangement in the Nature of Demerger:
The petitioner sought the court's sanction for a scheme of arrangement involving the demerger and transfer of the PMRTS Business Division from Arvind Mills Limited to Arya Omnitalk Radio Trunking Services Private Limited (AORTSPL). The petitioner company, a significant player in the textile industry, decided to spin off its PMRTS division to achieve focused growth and operational efficiency. The scheme was approved unanimously by both equity and preference shareholders in meetings convened as per the court's directions.

2. Compliance with Statutory Requirements and Obtaining Necessary Approvals:
The court directed the petitioner to convene meetings of shareholders, which were duly held, and the scheme was approved unanimously. The petitioner complied with the court's order to publish notices in specified newspapers and served notice to the Central Government through the Regional Director. The petitioner also addressed the need for prior written permission from the licensor for the transfer of the PMRTS license as per telecom policy guidelines.

3. Objections Raised by the Regional Director Regarding the Scheme:
The Regional Director raised concerns that the petitioner could have opted for section 293(1)(a) of the Companies Act, 1956, instead of sections 391/394. However, the petitioner argued that the telecom license could not be transferred under section 293(1)(a) due to specific non-transferable conditions attached to the license. The petitioner provided the latest financial statements and clarified that the scheme was necessary to comply with the telecom policy, which allows for license transfer under a court-sanctioned scheme of arrangement.

4. Financial Viability and Transparency of the Demerger:
The objections included concerns about the financial transparency of the PMRTS division and the resulting company's financial health. The petitioner provided a chartered accountant's certificate and explained that the financial details of the PMRTS division were based on the company's books of account. The resulting company, AORTSPL, although recently incorporated with a small paid-up capital, was backed by a well-established group with significant turnover and plans to raise capital post-demerger.

5. Allegations of the Scheme Being a Camouflage to Circumvent Telecom Policy:
The Central Government argued that the scheme was a camouflage to bypass the telecom policy's restrictions on license transfer. The petitioner countered that the scheme was a legitimate business strategy to achieve operational efficiency and that prior written permission from the licensor would be sought post-court sanction. The court found that the petitioner had complied with all necessary statutory requirements and had not attempted to circumvent any legal processes.

Conclusion:
After considering all objections and submissions, the court found that the scheme of arrangement was in the interest of the companies and their members. The court sanctioned the scheme, granting the prayer in terms of paragraph 25(a) of the petition. The petitioner was directed to pay costs to the Central Government Standing Counsel.

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