2013 (5) TMI 465 - HC - Companies Law

Validity of the scheme of amalgamation sanctioned - Held that - Scheme was sanctioned in the year 2004 and has in fact being implemented in 2004 itself and majority of the shareholders whose shares were acquired under the scheme have already accepted their money and it is only the present appellant who possesses only 0.001% of the shareholding is approaching to the court for rejecting the scheme. A shareholder holding only 0.001% shares cannot be permitted to hold the company to ransom where 99% of the shareholders have accepted the scheme and the majority of the remaining shareholder comprising 1% have accepted the scheme and taken the moneys in lieu of their shares. Much water has flown under the bridge for this court now to interfere with the scheme of amalgamation/arrangement. The scheme has been examined by the Company Court not only at the time when it was sanctioned in 2004 but also at the time of the passing of the impugned order. The company Court has found the scheme to be reasonable bona fide and not unjustified. Thus no reason to take a contra view to the view taken by the Single Judge. As present appeal has been filed under section 483 of the Companies Act which forms part of Part VII of Chapter II which deals with winding up of a company but in the present case, we are concerned with a scheme of amalgamation/ arrangement which would be governed by Part VI, Chapter V dealing with Arbitration, Compromises, Arrangements and Reconstructions. In fact, u/s 391 of the Companies Act there was earlier a provision of appeal under sub-section (7) which since stands deleted without creating a corresponding provision for appeal. The present appeal has been filed impugning the order dismissing the application seeking recall of the sanction of the scheme which would virtually amount to being an appeal against the order of review - no infirmity in the impugned order and the appeal being devoid of merit is accordingly dismissed.

Summary

Issues Involved:
1. Validity of the scheme of amalgamation.
2. Compliance with procedural requirements under Sections 391 and 394 of the Companies Act.
3. Classification of shareholders and the necessity of separate meetings.
4. Fairness and reasonableness of the scheme.
5. Rights of minority shareholders and the legality of forced share transfer.
6. Jurisdiction and scope of the Company Court in sanctioning amalgamation schemes.

Issue-wise Detailed Analysis:

1. Validity of the Scheme of Amalgamation:
The appellant challenged the validity of the scheme of amalgamation sanctioned by the Company Judge on 24.08.2004. The scheme involved the amalgamation of M/s Indrama Investment Private Limited (transferor company) with M/s Select Holiday Resorts Ltd. (transferee company). The appellant's application questioning the validity was dismissed on 01.06.2012.

2. Compliance with Procedural Requirements under Sections 391 and 394 of the Companies Act:
The court noted that the procedure under Section 391 was duly followed at both the first and second motion stages. The transferor company's meetings were dispensed with, while the transferee company held separate meetings for equity shareholders and creditors, which approved the scheme with the requisite majority. Notices were issued, and the scheme was advertised, with no objections filed. The Regional Director, Department of Company Affairs, also filed a no-objection report.

3. Classification of Shareholders and the Necessity of Separate Meetings:
The appellant contended that shareholders with fractional shares should be treated as a separate class and a separate meeting should have been held for them. However, the court held that under Section 391, all equity shareholders constitute the same class, regardless of the shareholding pattern. The appellant's attempt to create a class within a class was not supported by the Companies Act.

4. Fairness and Reasonableness of the Scheme:
The scheme proposed to amalgamate the companies to reduce costs, manage more efficiently, and pool resources. The court found that the scheme was examined twice and was not unfair or inequitable. The majority of shareholders (99%) approved the scheme, and the court found full disclosure of relevant facts and financial positions.

5. Rights of Minority Shareholders and the Legality of Forced Share Transfer:
The appellant argued against the forced transfer of shares. The court referenced the judgment in Reckitt Benckiser (India) Ltd., which supported the legality of such schemes if they were fair and reasonable. The court found no evidence of malafide intentions or ulterior motives in the scheme, and it was deemed beneficial for the company and its stakeholders.

6. Jurisdiction and Scope of the Company Court in Sanctioning Amalgamation Schemes:
The court emphasized that its role is not to act as an appellate authority over the scheme but to ensure it is fair, reasonable, and lawful. The court's jurisdiction is supervisory, not appellate. It cannot scrutinize the scheme minutely or substitute its judgment for the commercial wisdom of the shareholders and creditors. The court's role is to check for fairness, legality, and compliance with public policy.

The court dismissed the appeal, finding no infirmity in the impugned order and ruling that the appellant's minuscule shareholding (0.001%) could not override the overwhelming majority approval (99%). The appeal was found to lack merit and was dismissed without costs.