2005 (7) TMI 370 - HC - Companies Law

Issues Involved:
1. Sanction of the Scheme of Amalgamation under sections 391 and 394 of the Companies Act, 1956.
2. Objections raised by the Regional Director regarding the exchange ratio of shares.
3. Non-payment of fees for the increase in authorized capital.
4. Requirement of NOC from BIFR due to the transferor company being a sick company.
5. Necessity of obtaining consent from creditors of the transferee company.
6. Complaint from Canbank Venture Capital Fund Ltd. opposing the scheme.

Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petitions were filed by two companies for the sanction of a Scheme of Amalgamation between Phlox Pharmaceuticals Limited (transferor) and Sun Pharmaceutical Industries Limited (transferee) under sections 391 and 394 of the Companies Act, 1956. The transferor company, engaged in the manufacture of cephalosporins, had accumulated losses leading to its classification under the Sick Industrial Companies (Special Provisions) Act, 1985. The transferee company, a profitable and fast-growing pharmaceutical company, saw the amalgamation as beneficial for synergy and economies of scale.

2. Objections Regarding Exchange Ratio:
The Regional Director observed a discrepancy in the exchange ratio of shares. The scheme proposed a ratio of 1 equity share of Rs. 5 each for every 790 equity shares of Rs. 10 each, while the Chartered Accountant's report suggested 1580 equity shares. The petitioner's advocate explained that the change was due to the issuance of bonus shares, effectively halving the value of shares. The court accepted this explanation, noting the change was not detrimental to shareholders.

3. Non-payment of Fees for Increase in Authorized Capital:
The Regional Director objected to the non-payment of fees for an increase in authorized capital from Rs. 110 crores to Rs. 130 crores. The petitioner's advocate argued that this issue was irrelevant to the current proceedings and had been previously addressed by the court, which held that registration fees were not required for the increased authorized capital.

4. Requirement of NOC from BIFR:
The Regional Director contended that an NOC from BIFR was necessary since the transferor company was a sick company. The petitioner's advocate argued that no order had been passed by BIFR declaring the company as sick and that the court had jurisdiction to sanction the scheme under sections 391 to 394 of the Companies Act, 1956. The court agreed, citing precedents that sections 391 to 394 could operate independently of SICA provisions.

5. Consent from Creditors of the Transferee Company:
The Regional Director raised an objection regarding the lack of a specific waiver order for the creditors' meeting of the transferee company. The petitioner's advocate clarified that creditor consent was unnecessary as the scheme did not affect their rights and the transferee company continued its operations. The court found this explanation satisfactory.

6. Complaint from Canbank Venture Capital Fund Ltd.:
Canbank Venture Capital Fund Ltd. opposed the scheme, citing a breach of the equity subscription agreement. The petitioner's advocate argued that such clauses were void under section 28 of the Contract Act, as they restrained legal proceedings. The court noted that the scheme had been approved by the requisite majority of shareholders and dismissed the objection, referencing similar cases where such covenants were deemed void.

Conclusion:
The court, after considering all objections and submissions, found that the Scheme of Amalgamation was in the interest of the companies, their members, and creditors. The objections raised by the Regional Director were adequately addressed, and the scheme was sanctioned as per the prayers in the petitions. The petitions were disposed of, and costs were awarded to the Assistant Solicitor General.

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