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TMI Blog2004 (3) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... he main objects of establishing, owning or acquiring ferrous and non-ferrous metal melting furnaces and rolling mills; to carry on business as traders, manufacturers and fabricators of ferrous and non-ferrous ingots, blocks, billets, slabs, sheets, hot ralled and cold rolled steel strips, strips with edges, coated strips, steel strappings of various ranges of tensile strength, seals of various types, non-metallic strapping systems; designing of industrial and construction adhesives, preventive and protective coating products, non-destructive testing equipment, all kinds of engineered components, all kinds of wire and wire products, all kinds of value added products, materials for detection, all devices and equipment for various cooling types, all kinds of professional grade switches, all kinds of machine tools; manufacturing of industrial systems and related consumables, epoxies polyurethanes, all kinds of polyurethane cast parts, machining fluids, corrosion control products; and producing, generating, storing, distributing and dealing in any form of energy and power or sources of energy and undertaking power projects, etc. 4. The authorized share capital of the Transferee Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme, 7 members holding 1773 shares voted against the scheme and votes of 6 members holding 405 shares, were declared invalid; and in respect of the meeting of the unsecured creditors, it is stated that all the 25 unsecured creditors of the Transferee Company unanimously approved the Scheme of Arrangement. 9. It is stated that the Transferee Company has two secured creditors and they filed letters approving the proposed Scheme of Arrangement. It is also stated that the Transferor Company is also moving a separate petition before the Mumbai High Court for sanction of the proposed scheme. 10. This Court while admitting the Company Petition, by order dated 18-12-2003, directed publication of notice in newspapers namely "Eenadu" and "Business Standard" of Hyderabad editions and issued notices to the Central Government and the Official Liquidator. The petitioner having taken out paper publication, filed proof thereof into Court. 11. On behalf of the Central Government, the Registrar of Companies, filed common affidavit, stating that inasmuch as the Transferee Company has its registered office at Hyderabad and the Transferor Company has its Registered Office at Pune, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o eliminate them. It is stated that the High Court of Maharashtra at Mumbai in the case of M/s. Sandvik Asia Ltd., while acceding to a similar plea raised by a minority Indian shareholder admitted the Company Petition for consideration. 15. The petitioner denied the contention of Mr. Praful Chavda that the shareholders were misled by the management. It is stated that all the relevant information in relation to the scheme was sent to all the shareholders. The relevant recorders, memorandum and articles of association of both the companies, audited balance sheets and valuation report were made available at the registered office of the Transferee Company for inspection by the shareholders. The meeting was conducted in a democratic manner and four persons who attended the meeting also voted against it. In reply to the contention raised by the minority shareholders that the scheme proposes to eliminate the small shareholders from the Transferee Company, the petitioner states that the reasons that prompted the company to go for reorganization of its share capital whereby the face value of each equity share would be Rs. 20,000 have been clearly stated, and it is not as if the Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the petitioner submitted that the Scheme of Arrangement merely proposed to increase the face value of each share to Rs. 20,000 and it does not create any different classes of shares, and inasmuch as the Scheme of Arrangement does not propose to create any different classes of shares, the provisions of section 106 of the Companies Act, 1956 need not be followed. Denying the contention of the objection petitioners that the shareholders were misled by the management, the learned counsel submitted that inasmuch as all the material pertaining to the Scheme of Arrangement was sent to the all the shareholders, the question of the shareholders, and more particularly the objection petitioners, cannot make any complaint of their being misled by the management. He further submitted that the Mumbai High Court in relation to the Transferor Company had already approved the Scheme of Arrangement, and thus prayed that the Scheme of Arrangement as approved by the Board of Directors and majority of shareholders in respect of the Transferee Company also be ordered. 19. The report filed by the Chairman to oversee the conduct of the Meeting of the Shareholders discloses that in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be holding majority of the shares in a company and several individuals may be holding minority shares. But in the realm of corporate matters, the value in the shareholding of the individual matters, and if a single individual holding majority of the shareholding, votes in favour of the Scheme, the same shall be binding on the several individuals, who constitute minority having regard to the fact that their shareholding constitutes a minority and is far less when compared to the majority holding of a single individual. In the instant case, admittedly all the creditors and majority of the shareholders constituting more than 99% in value of the shares have in their respective meetings approved the Scheme of Arrangement between the Transferee Company and the Transferor Company, which inter alia provides for increase in the face value of each share to Rs. 20,000, and provides for payment of the monies to the shareholders who are entitled of fractional entitlement on the basis of Rs. 80 per equity share. Inasmuch as majority of the shareholders have approved the Scheme of Arrangement, the objection petitioners, who constitute a miniscule, cannot take any objection to the approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the shareholders of creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to find out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a Court of law. No Court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently, it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members of any class of them for whom the scheme is mooted by the concerned company has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improve their financial structure and cash flow management, and having regard to the fact that a large number of small shareholders had not claimed the dividend declared on the earlier occasion, and with a view to reduce the cost of distribution of dividend, cost of printing and posting of annual reports and dividend warrants, it was decided for administrative convenience to increase the face value of the equity share to Rs. 20,000 though in the course of such exercise high number of small shareholders are likely to be eliminated. By reading of the contents of the Scheme of Arrangement, it is clear that the petitioner is not creating any variation in the rights of shares or creating different classes of shares, and it is not as if the petitioner has proposed to divide the face value of the shares into different classes, one for the minority holders and the other for the majority holders. When such is not the case, merely because by reason of increase in the face value of each share, the minority shareholders are eliminated, it cannot be said that a different class of shares have been created, and therefore, the provisions of section 106 of the Companies Act, 1956 which pertain to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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