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2014 (8) TMI 1254 - HC - Companies LawSanction of Scheme of Amalgamation - Sections 391 to 394 of the Companies Act 1956 - locus of Creditor (Objector) to raise any objection to the Scheme - jurisdiction of the court to delve deep into the commercial aspects of the Scheme or the commercial wisdom of the shareholders and creditors. Whether the Objector has no locus to raise any objection to the Scheme of Amalgamation? - HELD THAT - There is merit in the submission made by the Learned Counsel on behalf of the Petitioner that though the Petitioner/Transferee Company does not accept any liability to the Objector or even their status as a creditor as of now the entire claim of the Objector has been adjudicated and the adjudicated amount has been fully adjusted/secured. In such circumstances the Objector has no locus to raise any objection to the Scheme of Amalgamation - for a creditor to object to a Scheme of Amalgamation he must first cross the threshold of prima facie satisfying the Court that there is a debt due to him. In the present case the claim of the Objector has at the first instance been adjudicated by a court of competent jurisdiction and the adjudicated amount stands fully paid or secured. According to the Learned Counsel for the Objector the Objector has filed a Cross Appeal against the decree of the Small Causes Court. Such Appeal if filed would be considered on its own merits by the Small Causes Court. But the fact remains that as on date there is an adjudication of the claim of the Objector which is fully adjusted and/or secured. Jurisdiction of the court to delve deep into the commercial aspects of the Scheme or the commercial wisdom of the shareholders and creditors - HELD THAT - It would be beyond the jurisdiction of the Company Court considering a Petition for sanction of a Scheme of Amalgamation to analyze the accounts of the Companies in depth unless something manifestly illegal or malafide is brought to the notice of the Court. In the present case nothing of that sort has been brought to the notice of this Court. In fact the Transferee Company has responded to each of the objections raised and on considering the said responses it is found that the objections raised by the Objector are devoid of merit. The Court while considering the Petition for sanction of a Scheme has only a supervisory role. In exercise of such power the Court has neither the expertise nor the jurisdiction to delve deep into the commercial aspects of the Scheme or the commercial wisdom of the shareholders and creditors - The statements produced by the Transferee Company disclose that the Transferee Company has accumulated losses whereas neither of the Transferor Companies has any accumulated losses. The financial position of the Transferee Company is not in any manner prejudiced by the amalgamation but in fact becomes stronger. Sanction of the scheme - HELD THAT - The various objections raised by the Objector do not make out any ground for declining sanction to the Scheme under Sections 391 to 394 of the Companies Act 1956. As stated herein above these are not the issues which the Court can investigate in depth. In any case the Petitioner Company has given explanations to the accounting issues which appear to me to be bonafide and plausible. An overwhelming majority of the Shareholders have approved the Scheme. Though individual notices were issued no other Creditor has objected to the Scheme. The adjudicated claim of the Objector also stands adjusted / secured - The Objector has not made out any case to establish that the Scheme is malafide or not in public interest or that it will adversely affect the interests of the Creditors. Conclusion - It is found that the Scheme is in any manner malafide or that it in any way prejudices the rights of the Creditors of the Transferee Company. It is not found that the Scheme to be unjust or unfair to the Objecting Creditor nor does it adversely affect the interest of the other Creditors. The Scheme is not violative of any provisions of law and is not contrary to public policy.
Issues Involved:
1. Sanction of the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956. 2. Objections by the Creditor (Objector) regarding the Scheme. 3. SEBI proceedings and their disclosure. 4. Financial objections related to the Transferor and Transferee Companies' accounts. Issue-wise Detailed Analysis: 1. Sanction of the Scheme of Amalgamation: The Court was approached for the sanction of a Scheme of Amalgamation involving Monarch Research and Brokerage Private Limited (1st Transferor Company), Monarch Project and Finmarkets Limited (2nd Transferor Company), and Networth Stock Broking Limited (Transferee Company). The Scheme aimed to enhance growth, operational efficiency, and shareholder value by consolidating resources and expertise. The Scheme received overwhelming approval from shareholders, and no objections were raised by creditors, except for one. SEBI provided a no-objection certificate, and the Regional Director found the Scheme non-prejudicial to shareholders and the public, subject to certain conditions, which the Petitioners agreed to meet. 2. Objections by the Creditor (Objector): The Objector, claiming ownership of certain premises, objected to the Scheme due to an ongoing legal dispute over a terminated Leave and License Agreement with the Transferee Company. The Objector's claim had been adjudicated by the Small Causes Court, resulting in a decree for a partial amount, which was fully adjusted/secured by the Transferee Company. The Court held that the Objector lacked locus to object, as the claim was fully secured and there was no prima facie debt due. The Court emphasized that objections from creditors must demonstrate that the Scheme is mala fide, fraudulent, or adversely affects creditors, which the Objector failed to do. 3. SEBI Proceedings and Their Disclosure: The Objector contended that SEBI proceedings against the Transferor Companies were not disclosed during shareholder meetings. However, the Court noted that the SEBI order was ex parte and subsequently revoked. The proceedings were publicly available, and SEBI had granted no objection to the Scheme. The Court found that the pending SEBI inquiry did not render the Scheme unfair or prejudicial, especially given the overwhelming shareholder approval. 4. Financial Objections Related to the Companies' Accounts: The Objector raised several financial objections concerning loans, trade receivables, and financial facilities of the Transferor Companies. The Court reiterated that it does not sit in judgment over the commercial wisdom of shareholders and creditors. The Transferee Company provided detailed responses, explaining business exigencies and clarifying financial positions. The Court found the objections lacked merit, noting that the financial strength of the Companies post-merger was certified by a Chartered Accountant, indicating a healthier net worth. The objections did not demonstrate any manifest illegality or mala fide intent, and the Scheme was deemed just, fair, and reasonable. Conclusion: The Court concluded that the Scheme was not mala fide, unfair, or prejudicial to creditors. The objections were rejected, and the Scheme was sanctioned, as it complied with statutory requirements and received overwhelming shareholder support. The financial position of the Transferee Company was not prejudiced, and the Scheme was found to be in the best interest of all parties involved.
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