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TMI Blog2001 (4) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferor ) ( DIL ) was incorporated on 1-5-1991. The company known as Duphar Pharma India Ltd. (The transferee) ("DPIL") was incorporated on 24-1-2000. A Scheme was formulated for demerger of the Pharmaceutical Division and transfer of DIL thereof to DPIL. The scheme envisaged the transfer of the Pharmaceutical business carried on by DIL together with all assets, liabilities to the transferee-company, i.e., DPIL , with effect from 1-4-2000. The scheme provides that, upon the scheme coming into effect, and in consideration of demerger and transfer of the Pharmaceutical Division in favour of DPIL, DPIL shall issue or allot to each member of DIL whose name appears on the register of members of DIL as on the Record Date, two equity shares of DPIL of the face value of Rs. 10 each credited as fully paid up for every one fully paid equity share of face value of Rs. 10 each held by such member in DIL. Clause 5.8 of the scheme is important and reads as under : "5.8 Post allotment of Equity Shares by DPIL in terms of Clause 5.1 above and in pursuance of this Scheme, the Foreign Collaborators shall transfer 9,80,000. Equity Shares of Duphar Interfran in favour of the Vasant Kumar Family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Appeals. These shareholders intervened in the Company Petition and opposed the scheme as a fraud perpetrated on the transferor-company and its shareholders on the ground that the scheme was designed to benefit a small group of shareholders, namely, Vasant Kumar and his family and the foreign collaborators group consisting of Solvay BV. The learned Company Judge heard the objections and by different orders made on 29-11-2000, overruled the objections. Hence, the appeal. 8. The learned counsel for the appellant raised three contentions in support of the Appeal. The first contention is that, though the scheme has been overwhelmingly approved by the shareholders, there was no informed consent of the shareholders. This is so because the shareholders were never informed the manner in which the share exchange ratio was arrived at. Though the scheme states that the share transfer ratio was arrived at on the basis of the recommendations of Arthur Andersen Associates, the Report of Arthur Andersen Associates does not disclose any basis at all. Hence, the consent of the shareholders given to the scheme was not informed consent and, therefore, the scheme should not be allowed to go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s itself recommended by the financial experts. In our view, the criticism is unjustified. In the first place, the procedures adopted by the financial experts indicate that they had a clear picture of the profit potential of the Pharma Division of the transferor-company projected right upto the end of the financial year. They also had the figures of performance of the transferor-company. Given the proposed capital structure - abeit that it was not proposed by the financial experts - and the financial figures, if the financial experts suggested the share transfer ratio of 1:2, and knowing these facts if the shareholders overwhelmingly approve the Scheme, it is by no means a situation of uninformed consent being given by the shareholders to the proposed Scheme. As the Supreme Court pointed out in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 792 1 "the shareholder is the best judge of the commercial validity of transaction and it is not for the Court to sit in appeal over the judgment". We do not think that merely because the capital structure of the transferee-company was suggested by the transferor-company and not by Arthur Andersen Associates, the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is was done with a view to evade payment of revenue by way of stamp duty. Further, in the guise of transferring property of DIL to the transferee-company, certain valuable brand names were being transferred as a part of the scheme, though they belonged to the transferor-company. The value of these brands is not disclosed, and the transfer is effected under the scheme, even though the respondent-company is not the owner of the brands but only the marketing agent. Cost of the transfer to DIL is undisclosed and its shareholders get nothing in return. This contention appears to be without merit, both on facts and in law. In the first place, the material on record clearly shows that the two brand names "Vertin" and Colospa were not the properties of DIL. They were the properties of Vasant Kumar and family and the DIL were merely marketing agents. Secondly, the inter se transfer contemplated under clause 5.8 is only after the scheme comes into force. This is made clear by the opening words of clause 5.1 of the scheme which says, "Upon the coming into effect of this scheme and in consideration of the demerger . . . ." Again, clause 5.8 starts by saying, "Post allotment of Equity Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of equity shareholders either defined by the Act or articles of association. The appellant before the Supreme Court was undoubtedly an equity shareholder and, therefore, he would fall within the same class of equity shareholders whose meeting was convened by the orders of the Company Court. It was argued before the Supreme Court that, because of a particular family arrangement, on which the appellant relied, the appellant therein was a special class of minority equity shareholder who had separate rights against the directors of company, and had special interest against the directors of the company because of the pending litigation between him and one of the directors. While dismissing the contention, the Supreme Court observed that even though the Companies Act or the articles of association did not provide for such a class within the class of equity shareholders, in a given contingency it may be contended by a group of shareholders that because of their separate and conflicting interests, vis-a-vis other equity shareholders with whom they formed a wider class, a separate meeting of such separately interested shareholders should have been convened. The Supreme Court, however, rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio is to be uniformly applied to all the shareholders of the transferor-company. In any event, merely because a scheme is propounded for consideration of the Court under section 391, the Court is not bound to sanction it as propounded. The court has the jurisdiction and the duty to sanction the Scheme subject to such modifications as the court may desire to make. The order of the learned Company Judge shows that, at the hearing, the learned counsel for the respondent-company, agreed that clauses 5.8, 5.9 and 9.7 of the scheme of arrangement may be deleted from the scheme. This was accepted by the learned Company Judge as deletion of the said clauses did not in any way alter, affect or prejudice the scheme of the arrangement so as to require reconsideration of the scheme of demerger or approval of the shareholders. It is contended by the learned counsel for the appellant that this was not permissible at all. Irrespective of what was conceded before the Company Judge, if the scheme approved is not something identical to what was approved by the shareholders, the whole-thing must be sent back for the approval of the shareholders once again. In our view, this contention is unsound. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promise and arrangement and if on every such occasion, sponsors have to go back to the parties concerned for seeking their approval for a modification and then seek the approval of the court, it would be a long-drawn out, protracted, time-consuming process with no guarantee of result and the whole scheme of compromise and arrangement may be mutilated in the process. Parliament has, therefore, thought it fit to trust the wisdom of the Court rather than go back to the interested parties. If the parties have several times to decide the modification with the democratic process, the good part of an election machinery apart, the dirt may step in, the conflicting interests may be bought and sold, and, in the process, the whole-scheme of compromise and arrangement may be jettisoned. In order, therefore, to guard against this eventuality and situation, which is clearly envisa- geable, Parliament has conferred power on the court, not only to make modifications even at the time of sanctioning the scheme, but at any time thereafter during the period the scheme is being implemented. Conceding that before the Court sanctions the scheme, it partakes the character of an emerging contract between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with and that the requisite meetings as contemplated by section 391(1)( a ) have been held. ( 2 )That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391(2). ( 3 )That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. ( 4 )That all necessary material indicated by section 393(1)( a ) is placed before the voters at the concerned meetings as contemplated by section 391(1). ( 5 )That all the requisite material contemplated by the proviso to sub-section (2) of section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same. ( 6 )That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying th ..... 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