2007 (1) TMI 643 - HC - Companies Law

Summary

Issues Involved:
1. Locus standi of the Employees Union to object to the Scheme of Amalgamation.
2. Consideration of service conditions of employees in the Scheme of Amalgamation.
3. Allegation that the Scheme is prejudicial to the interests of the employees of the Transferor Company.
4. Allegation that the Scheme is against public policy.
5. Allegation of defects in the affidavit filed in Company Petition.

Issue-wise Detailed Analysis:

1. Locus Standi of the Employees Union:
The Employees Union argued that they have the right to object to the Scheme of Amalgamation under Section 394(1)(v) of the Companies Act, 1956. They cited various judgments to support their claim, including the case of Hindustan Lever Employees Union vs. Hindustan Lever Ltd. The court acknowledged that employees have locus standi to object if the scheme is prejudicial to their interests. The court referred to the judgments of the Delhi High Court and Bombay High Court, which support the employees' right to object. Consequently, the court held that the employees of the amalgamating company have the locus standi to object to the Scheme of Amalgamation if it is found to be prejudicial to their interests.

2. Consideration of Service Conditions of Employees:
The Employees Union contended that the Scheme of Amalgamation did not adequately address the service conditions, pay parity, seniority, and other benefits of the employees of the Transferor Company. They argued that there is a significant disparity between the wages of employees of the Transferor Company and the Transferee Company. The court noted that Clause 12 of the Scheme provides that all employees of the Transferor Company will become employees of the Transferee Company without any break in service and on terms and conditions not less favorable than those subsisting with the Transferor Company. The court referred to the Hindustan Lever Employees Union vs. Hindustan Lever Ltd. decision, which held that as long as employees do not suffer any change to their detriment, the scheme cannot be refused. The court concluded that the Scheme protects the employees' interests and overruled the objections regarding service conditions.

3. Allegation that the Scheme is Prejudicial to Employees:
The Employees Union argued that the Scheme is prejudicial to the employees of the Transferor Company as it does not ensure pay parity and other benefits. They claimed that the Scheme allows for discrimination between the employees of the two companies. The court held that the Scheme ensures continuity of service and terms and conditions not less favorable than those existing. The court referred to the Gujarat Nylon Company Ltd. case, which held that issues of pay disparity can be addressed under labor laws and do not fall within the purview of Sections 391-394 of the Companies Act. The court concluded that the objections regarding prejudice to employees are not sustainable and overruled them.

4. Allegation that the Scheme is Against Public Policy:
The Employees Union contended that the Scheme is against public policy as it involves the merger of two profit-making companies. The court referred to the Hindustan Lever Employees Union vs. Hindustan Lever Ltd. decision, which laid down parameters for granting sanction under Sections 391 and 394 of the Companies Act. The court noted that the Scheme has been approved by the requisite majority of shareholders and creditors and that the Central Government and Official Liquidator had no objections. The court concluded that the Scheme is not against public policy and overruled the objection.

5. Allegation of Defects in the Affidavit:
The Employees Union argued that the affidavit filed in the Company Petition was defective and not in accordance with Rule 21 of the Company Court Rules. The court referred to the Associated Journals Limited vs. Mysore Paper Mills Ltd. decision, which held that substantial compliance with the affidavit requirements is sufficient. The court found that the affidavit was in substantial compliance and overruled the objection.

Conclusion:
The court concluded that the Scheme of Amalgamation is not prejudicial to the interests of the employees of the Transferor Company, is not against public policy, and complies with the requisite statutory procedures. The objections raised by the Employees Union were overruled, and the Scheme of Amalgamation was sanctioned. The court allowed Company Petition No. 147 of 2006 and Company Petition No. 148 of 2006, and dismissed Company Applications No. 572 of 2006 and 573 of 2006. The costs to be paid to the learned Additional Central Government Standing Counsel were quantified at Rs. 3500 per petition.