2016 (1) TMI 548 - HC - Companies Law

Sanction of Amalgamation and Arrangement - composite scheme - Held that - In terms of provisions of Section 394 of the Act, there could be amalgamation of any number of companies in one company but not that part of business of one company A is to be merged in company B and other companies are sought to be merged with Company-A. Both the schemes independently have no connection whatsoever as these are independent schemes. Balance-sheets, figures and financial of all the companies would be different. The shareholders sitting in the Board rooms may approve or disapprove anything but it is ultimately for the Company Court to see as to whether the process followed can be approved or not. Section 392 of the Act authorises to the Company Court to pass any order at the time or any time after sanction of the scheme to monitor as to whether the scheme is being properly implemented or not. In case the object is not achieved, the company can even be ordered to be wound up. If a composite scheme involving different companies with different objects is presented before the Court, it will not be possible for the Court to examine as to whether the object sought to be achieved by the first part in the scheme has, in fact, been achieved or not. After the implementation of part one of the scheme, shareholding pattern, the business, the profits etc. of the transferor and the transferee company will certainly have a change. Those figures are required to be presented before the members and shareholders of the resultant company and the other companies, which are sought to be merged or demerged with the resultant company. Merely because, as is sought to be claimed by learned counsel for the petitioners that, there may be some delay in the process of sanctioning the scheme will not be a good ground to approve a composite scheme involving different companies and different aspects having no relations inter-se. If a composite petition is to be filed, it should be arrangement between two or more companies not different arrangements involving different companies. No doubt, the Court will not examine the business principles or commercial wisdom of the members of the companies at the time of sanctioning of scheme, but still compliance of procedural requirement is within the domain and this would fall in that. It is the duty of the Company Court to ensure presentation of correct facts, numbers, figures before the members and the creditors of the company. The companies have different causes of actions and may have to approach the Court independently. Hence, the petitions seeking approval of kind of Scheme presented before the Court, cannot be entertained.

Issues Involved:

1. Maintainability of a single composite petition for the merger/demerger of different companies or parts of their businesses.
2. Compliance with statutory procedures under Sections 391, 392, and 394 of the Companies Act, 1956.
3. Examination of the Scheme's approval by shareholders/creditors and its alignment with public policy and interest.
4. Presentation of correct financial data and figures before the Company Court and stakeholders.
5. The role of the Company Court in supervising and sanctioning the Scheme.

Issue-wise Detailed Analysis:

1. Maintainability of a Single Composite Petition:
The petitions sought approval for Schemes of Arrangement/Amalgamation involving multiple companies and different parts of their businesses. The primary issue was whether a single petition could be filed for such complex arrangements. The court examined the arguments and concluded that composite petitions involving different companies and independent schemes were not maintainable. The court emphasized that separate petitions should be filed for each arrangement to ensure clarity and proper examination of each scheme's details.

2. Compliance with Statutory Procedures:
The court analyzed the compliance with Sections 391, 392, and 394 of the Companies Act, 1956. Section 391 deals with the proposal of a compromise or arrangement between a company and its creditors or members. Section 392 empowers the Company Court to supervise the implementation of the compromise or arrangement. Section 394 outlines the aspects to be considered while sanctioning the Scheme. The court referred to the judgment in Miheer H. Mafatlal vs. Mafatlal Industries Limited, which provided guidelines for the Company Court's jurisdiction in approving such schemes. The court noted that the procedural requirements must be strictly followed to ensure the Scheme's validity.

3. Scheme's Approval by Shareholders/Creditors and Public Policy:
The court considered whether the Scheme had been sanctioned by the members and creditors and if it aligned with public policy and interest. The petitioners argued that the Scheme had been approved by the shareholders/creditors and should not be dismissed on maintainability grounds. The court referred to various judgments, including Miheer H. Mafatlal's case, which emphasized that the Company Court should ensure the Scheme is just, fair, reasonable, and not against public policy. The court highlighted that the Scheme's approval by shareholders/creditors does not override the need for compliance with legal procedures.

4. Presentation of Correct Financial Data:
The court stressed the importance of presenting accurate financial data and figures before the Company Court and stakeholders. The court noted that the exact figures, financials, and status of the companies post-implementation of the Scheme's first part would not be available if a composite petition was filed. This lack of clarity would hinder the proper examination of the Scheme by the members and creditors. The court emphasized that each part of the Scheme must be independently examined to ensure transparency and accuracy.

5. Role of the Company Court in Supervising and Sanctioning the Scheme:
The court reiterated its role in supervising and sanctioning the Scheme under Section 392 of the Act. The court must ensure that the Scheme is properly implemented and achieves its intended objectives. If the Scheme fails to work satisfactorily, the court has the authority to order the winding up of the company. The court highlighted that a composite scheme involving different companies with independent objectives would complicate this supervisory role, making it difficult to assess the Scheme's success and compliance.

Conclusion:
The court dismissed the petitions seeking approval of the composite Schemes, stating that such petitions were not maintainable. The court clarified that the dismissal does not prevent the petitioner companies from filing appropriate separate petitions for each arrangement. The judgment underscored the need for strict compliance with statutory procedures, accurate presentation of financial data, and the Company Court's supervisory role in ensuring the Scheme's proper implementation.

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