2012 (8) TMI 250 - HC - Companies Law

Petition for sanction of a Scheme of Arrangement - Held that - Transfer of authorised capital and consequent increase in the share capital of the Resultant Company has been undertaken under Section 391 to 394 of the Companies Act, which are a complete code. Thus, having duly complied with the provisions of Section 391 to 394 and obtained due consent from the shareholders and creditors, the Petitioner Companies viz., the Demerged Company and the Resulting Company have duly adhered to the provisions of the Act - the Transferor Company/Demerged Company has increased its authorised share capital after having duly complied with the provisions of the Act and the Bombay Stamp Act, 1958 and payment of registration charges and stamp duty. Reconstruction entails business-wise bifurcation, which is within the purview of the arrangements contemplated under Sections 391 to 394 of the Companies Act and the same is permissible - Once the Scheme of Arrangement falls squarely within the four corners of this section, it can be sanctioned, even if it involves doing acts for which the procedure is specified in other sections of the Companies Act - Having once duly paid the amounts on periodic increases in share capital, further duty and charges cannot be levied when part of the same share capital becomes the share capital of the Resulting Company by effect of law - that none of the objections raised by the Regional Director are sustainable - Scheme of arrangement / demerger is allowed.

Issues Involved:
1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Compliance with Sections 94, 97, and 192 of the Companies Act, 1956.
3. Objections by the Regional Director regarding the authorized share capital and procedural compliance.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956:
The petitions were filed by two companies seeking the sanction of a Scheme of Arrangement involving the demerger of Elitecore Technologies Private Limited (Transferor/Demerged Company) and the transfer of its Cyberoam Division to Cyberoam Technologies Private Limited (Transferee/Resultant Company). The Transferor Company was originally incorporated on 17.12.1999 and underwent several changes in its status and name. The Transferee Company was incorporated on 2.3.2006 and also underwent name changes. The Transferee Company is a wholly-owned subsidiary of the Transferor Company. The Board of Directors of both companies approved the Scheme on 15.3.2012. The Transferor Company has one secured creditor and eighteen unsecured creditors, all of whom consented to the Scheme. The Transferee Company had no outstanding creditors. The shareholders of both companies also consented to the Scheme. The Scheme aimed to segregate the distinct business activities of the Cyberoam Division and the Telecom Division to provide greater focus and increase the efficacy of business operations.

2. Compliance with Sections 94, 97, and 192 of the Companies Act, 1956:
The Transferor Company sought dispensation of the meetings of shareholders and creditors, which was granted by the Court on 3.4.2012. Similarly, the Transferee Company sought dispensation of the meeting of equity shareholders, which was also granted on 3.4.2012. The petitions were duly advertised, and no objections were received. Notice was served upon the Central Government, and the Regional Director filed a report stating no complaints were received against the petitioner companies or the proposed Scheme. The Regional Director's report indicated no objection to the Scheme, stating it did not appear prejudicial to the shareholders or the public.

3. Objections by the Regional Director regarding the authorized share capital and procedural compliance:
The Regional Director raised objections regarding the transfer and reduction of authorized share capital, stating there is no provision in the Companies Act, 1956 for such actions. The petitioner companies responded, stating that Sections 391 to 394 of the Act are a complete code, and compliance with these sections suffices. They argued that the transfer of authorized share capital is integral to the Scheme and has been duly sanctioned by shareholders and creditors. The Regional Director's additional affidavit reiterated the objections, but the petitioners maintained that the Scheme's compliance with Sections 391 to 394 should suffice, citing precedents where courts upheld the principle of Single Window Clearance.

Judgment:
The Court, after hearing the arguments and considering the submissions and judgments cited, concluded that the objections raised by the Regional Director were not sustainable. The Court held that the principle of Single Window Clearance applies to both demerger and amalgamation cases, allowing all formal requirements to be addressed in a single petition. The Court was satisfied that the Scheme of Arrangement was in the interest of the companies, their members, and creditors. Consequently, the prayers in the petitions were granted, and the Scheme of Arrangement was sanctioned. The costs to be paid to the Central Government Counsel were quantified at Rs. 7,500 per petition. The petitions were disposed of accordingly.

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