NOTHING IN THE COMPANIES ACT PROHIBITS THE SWAPPING OR INTERCHANGE OF NAME OF COPMANY IN AN ARRANGEMENT.

[Mr. M. GOVINDARAJAN]

                        In re ‘Zuari Holdings Limited’ – 2012 (5) TMI 174 - BOMBAY HIGH COURT the petitioner seeks to the scheme of arrangement and demerger between ‘Zuari Industries Limited’ (transferor) and Zuari Holdings Limited (transferee) and their respective shareholders and creditors.   The appointed date is 01.07.2011.  The petitioner Zuari Industries Limited was incorporated as ‘Zuari Agro Chemicals Limited’ on 12.05.1967.   The change of name was effected on 12.02.1998 as ‘Zuari Industries Limited’.  ‘Zuari Holdings Limited’ was incorporated on 10.09.2009.

Both the Bombay Stock Exchange and National Stock Exchange of India have given their no objection to the scheme.  The Board of Directors of both the companies approved the scheme.  The scheme contemplates transfer and vesting of the fertilizer undertaking of the company in the transferee company.  The salient features of the scheme are also set out with details.  The petitioner is primarily engaged in the business of fertilizers, but also has distinct and diverse business activities.   The petitioner has grown to a very sizeable organization and has evolved into a well diversified and progressive industrial group.  Each of the businesses of the petitioner are distinct and diverse in their characteristics, growth trajectories, risk profiles, maturity stage, requirement of funds and require entirely different approaches.   For the purposes of effectively and efficiently catering to independent growth plans, for each of the respective businesses and with the intent of adopting a linear structure in the business of the petitioner, the Board of Directors of the petitioner have decided to demerge the fertilizer undertaking of the petitioner into transferee company. The benefits of this scheme were also set out.

Secured creditors and unsecured creditors have also conveyed their no objection.  The Court also dispensed with the meetings of the secured creditors and the unsecured creditors but it directed to conduct the equity shareholders meeting on 17.08.2011 at the registered office of the petitioner.  The notice of the meeting of the equity shareholders of the petitioner company, together with a copy of the scheme, explanatory statement under Section 393 of the Act, form of proxy and attendance slip were dispatched by post to the equity shareholders.   The notice of the aforesaid meeting of the equity shareholders was also published in the newspapers.  In the meeting 86 equity shareholders representing 1,74,01,756 equity shares of the petitioner company and which are 96.63% in number and 97.03% in value, present and voted in favor of the resolution.   The 3 equity shareholders representing 5,32,680 equity shares, which constitute 3.37% in number and 2.97% in value, present and voting and voted against the resolution.

The petitioner stated that there is no criminal proceeding, no investigation proceedings under Sec. 235 and 250A of the Act have been instituted or pending against the petitioner and there are no winding up proceedings.

A copy of the petitioner and its annexure were served on the Regional Director, Mumbai. The Regional Director submitted the following before the High Court:

• It appears that the scheme is not prejudicial to the interest of shareholders and public;
• Clause 3.8 of the scheme, inter alia, provides for change of name of demerged company as well as well as resulting company.  By this clause it is proposed to change the name of the resulting company by adopting the name of the demerged company and vice versa. There is no provision in the Act for exchange of name.   Further both the companies will continue to be in existence and, therefore, it is not possible to adopt the name of the other company. Besides the proposal swapping of names would invariably confuse and mislead the mind of the stakeholders of both the companies and therefore, it is not just and proper to allow this scheme, view of the above it is suggested that the said clause may be deleted from the scheme.

In reply to the Regional Director’s above said objection the petitioner filed rejoinder affidavit in which the petitioner contended that clause 3.8 of the scheme can be retained inasmuch as interchanging of name has been sanctioned by this court and also other courts in respect of various other schemes involving other companies.  The Regional Director has not pointed out as to how such change of names is prohibited or impermissible or as to what prejudice would be caused to the shareholders or the public at large.   It is denied that interchanging of names would confuse or mislead the stakeholders of the company. The petitioner further contended that Zuari Industries Limited is associated in the minds of the stakeholders with fertilizer business of the petitioner. Therefore upon demerger and this business coming in the hands of the transferor company that the interchange is proposed that has been approved in the meetings as well.  Thus the decision taken in the commercial wisdom need not be interfered with.

The petitioner also submitted that if the Court is of the opinion that it would not be permissible to allow change of names in the manner contemplated under clause 3.8 of the said scheme, then the petitioners are agreeable to dropping clause 3.8 of the said scheme. Sections 391, 392, 393, 394 & 395 of the Act are themselves a complete code and separate approval or procedures including those of change of name are not required to be obtained or followed.  It is denied that it is illegal for the transferee company to assume the name of Zuari Industries Limited subsequent on this scheme being sanctioned by the Court. It is denied that any procedure for change of name contemplated under the Act will be required to be independently followed. It is denied that the question of availability of names will arise.   It is denied that this Court has no jurisdiction to permit change of names or interchange of names.

One Shri R.G. Furtado, one of the shareholders of the demerged company against the present scheme objected the scheme.   He submitted that it is illegal for a company Zuari Holding Limited to assume the name, corporate identity number and old dates of registration of Zuari Industries Limited.  For this objection the petitioner contended that the following:

• The objector holds a minuscule quantity of 50 shares in the petitioner company forming 0.00017%  of the paid up share capital of the petitioner company;
• The scheme was approved by an overwhelming majority of the equity shareholders;
• The meeting was attended by 89 equity shareholders of the petitioner company, 86 out of 89 equity shareholders who attended the meeting voted in favor of the scheme;
• Their value is enormous and only 3 shareholders including the objector objected the scheme;
• Though the objector remained present at the meeting he did not chose to address the other shareholders or to raise any pertinent objections to the scheme;
• The overwhelming majority having voted in favor of the scheme, it is not permissible for this court to sit over in judgment over the decision of the equity shareholders who are supposed to be men of the world and reasonable, they know the benefits and interest underlying the present scheme;
• Apart from raising vague and baseless objections, the objector has failed to make out any case as to how the interests of the shareholders or the general public would be adversely affected by the change of name as contemplated under the said scheme;
• In these circumstances the objections of Shri Furtado, be rejected.

The Regional Director on these arguments submitted that if the statutory compliance has been made and if the Court is of the opinion that the interchange of names would cause no confusion or misleading then the swapping may be approved subject to the undertaking of the petitioner.

The Court, after hearing the parties in this regard it was of the opinion that both the Regional Director as also the sole objector have failed to point out anything in the Act which prohibits the swapping or interchange of name or that the provisions would enable the authority to consider the application for change of name only in the light of Section 22(2) of the Act. It is not as if the Regional Director’s affidavit proceeds on the basis of swapping of names or interchange names of the company is against the statute.   That is something which the Registrar will decide when the company approaches him with the request of interchanging of the names.  The objector, Furtado, in his affidavit rightly relied upon the fact that the clause 3.8 will have to be subject to the procedure for change of name prescribed under the Act.   The RoC cannot name ZHL as ZIL, as ZIL is an existing company with separate registration number.  Secondly, the company will have to hold a Board meeting and pass the resolution authorizing the person to sign Form ‘A’ along with fees.  The company will have to hold general body meeting for passing the resolution for change of names.  Clause 3.8 will come into force only upon compliance with the provisions of the Act and particularly the procedure laid down in the affidavit of Furtado.   Equally this court putting its seal of approval and sanction to the scheme does not mean that RoC would not exercise independent power under the Act in relation to change or swapping of names.  Therefore, by clarifying that fact clause 3.8 would be subject to the provisions of the Act, the scheme can be sanctioned.