2012 (5) TMI 174 - HC - Companies Law

Scheme of Arrangement and Demerger - between Zuari Industries Limited (Transferor) and Zuari Holdings Limited (Transferee) and their respective shareholders and creditors. The sanction is sought from the appointed date that is 1st July 2011. - held that - objection based on increase in the stake of the promoter shareholders is liable to be rejected. - the scheme is not demonstrated and proved to be prejudicial to the interest of the shareholders/creditors and general public.

Issues Involved:
1. Jurisdiction of the Court under Sections 391, 394, and 395 of the Companies Act, 1956.
2. Sanctioning of the Scheme of Arrangement and Demerger between Zuari Industries Limited and Zuari Holdings Limited.
3. Compliance with statutory requirements and objections raised by shareholders and the Regional Director.
4. Impact on shareholders and creditors, including the increase in the stake of the promoter group.
5. Validity and implications of swapping or interchanging names of the companies involved.

Detailed Analysis:

1. Jurisdiction of the Court under Sections 391, 394, and 395 of the Companies Act, 1956:
The court's jurisdiction was invoked under Sections 391, 394, and 395 of the Companies Act, 1956, to sanction a Scheme of Arrangement and Demerger between Zuari Industries Limited (Transferor) and Zuari Holdings Limited (Transferee). The court examined whether all statutory procedures were complied with, including holding requisite meetings and obtaining necessary approvals.

2. Sanctioning of the Scheme of Arrangement and Demerger:
The petitioner sought sanction for the Scheme from the appointed date of 1st July 2011. The scheme aimed to transfer and vest the Fertilizer Undertaking of Zuari Industries Limited into Zuari Holdings Limited. The scheme was approved by the Board of Directors of both companies and received No Objection Certificates from the Bombay Stock Exchange and the National Stock Exchange of India. The scheme was also approved by an overwhelming majority of equity shareholders in a meeting convened on 17th August 2011.

3. Compliance with Statutory Requirements and Objections Raised:
The Regional Director, after examining the scheme, stated that it was not prejudicial to the interest of shareholders and the public, except for certain clauses. Clause 3.8, which proposed the interchange of names between the companies, was objected to as it could confuse stakeholders. The court clarified that Clause 3.8 would be subject to compliance with the Companies Act, 1956. The petitioner agreed to comply with all statutory requirements, including filing necessary forms and paying fees.

4. Impact on Shareholders and Creditors:
The objections raised by a shareholder, Mr. R.G. Furtado, included concerns about the valuation report, dilution of non-promoter shareholders' stake, and increased control of the promoter group post-demerger. The court noted that the scheme was approved by a significant majority of shareholders and that the objections did not demonstrate any prejudice to the shareholders, creditors, or the public. The court emphasized that the commercial wisdom of the majority should not be interfered with unless there is a lack of bona fides.

5. Validity and Implications of Swapping or Interchanging Names:
The Regional Director and the objector raised concerns about Clause 3.8, which proposed swapping the names of the companies. The court clarified that such a change would be subject to compliance with the Companies Act, 1956, and that the Registrar of Companies would exercise independent power regarding the change of names. The court referenced previous judgments where similar schemes were approved, indicating that swapping names is not prohibited by law.

Conclusion:
The court concluded that the scheme was fair, reasonable, and just, and not prejudicial to the interests of shareholders, creditors, or the public. The objections raised were not substantial enough to reject the scheme. The court sanctioned the scheme, subject to compliance with statutory provisions and accepted undertakings from the petitioner. The request to stay the operation of the order was refused, affirming the overwhelming approval by the shareholders.

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