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TMI Blog2008 (5) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... etition is required to be granted and it is accordingly granted. - C.P. NO 216 OF 2007 - - - Dated:- 16-5-2008 - K.A. PUJ, J, Mrs. Swati Soparkar for the Petitioner. Harin P. Raval and Rashmin M. Chhaya for the Respondent. JUDGMENT K.A. Puj, J. The petitioner has filed this petition for sanctioning the scheme of arrangement in the nature of demerger and transfer of Public Mobile Radio Trunking Services Business Division (PMRTS Business Division) of Arvind Mills Limited to Arya Omnitalk Radio Trunking Services Private Limited (AORTSPL). 2. The petitioner demerged company was registered on June 1, 1931 under the Indian Companies Act, 1913 as a limited company in the office of the Registrar of Companies, Mumbai. The petitioner demerged company started its business in the year 1931 and has been carrying on since then. The petitioner-company is a flagship company of the Arvind group, having business spanning across the entire value chain of textiles. The main business of the petitioner-company was manufacturing and marketing of textile products and the petitioner-company got listed in the year 1956 with the Ahmedabad Stock Exchange. It is one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific objective of undertaking the telecom business. The management of the petitioner demerged company considers that the demeger of the PMRTS business of the company into AORTSPL shall help to achieve the following objectives : Consolidation of various licences pertaining to the PMRTS business for all cities/regions-into one entity to enable ease of operation and introduce considerable synergies ; To achieve economies of scale by curtailing unnecessary costs associated in carrying on of the PMRTS business separately ; To ensure a focused approach towards expansion/diversification of the PMRTS business, so as to become leading players-of this business ; To achieve administrative and operative efficiency and achieve cost effective operations ; To achieve higher profitability due to optimum utilization of the combined resources of both the entities. 5. Considering the aforesaid objectives, it is anticipated that the proposed arrangement shall be advantageous to both the business groups. 6. In view of the above circumstances, the board of directors of the petitioner demerged company vide resolution passed in the board meeting dated May 12, 2007, resolved that subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meeting. The detailed discussions and deliberations were made on the proposed scheme. The poll was taken to ascertain the wishes of the preference shareholders, which showed that all the four preference shareholders present in person or through proxy representing the value of Rs. 33,30,00,000 participated in the voting and all of them voted in favour of the proposed resolution. Thus, the resolution approving the scheme of arrangement was carried unanimously, i.e., 100 per cent, in number and 100 per cent, in value of the preference shareholders present and voting at the said meeting. 8. The meeting of the equity shareholders of the company convened on November 1, 2007 was attended to by 123 equity shareholders of the said company either personally or by proxy entitled together to Rs. 73,43,52,260 being 7,34,35,226 equity shares of Rs. 10 each. The said scheme of arrangement was taken as read with the permission of all the equity shareholders present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. The poll was taken to ascertain the wishes of the equity shareholders which showed that out of the equity shareholders present at the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have opted for the provisions of section 293(1)( a ) of the Companies Act, 1956, instead of the scheme of arrangement under section 391/394 of the Act. The petitioner-company was also directed to furnish the latest financial position before this court at the time of hearing. 13. In response to the affidavit of the Deputy Registrar, an additional affidavit was filed on behalf of the petitioner-company by Mr. R. V. Bhimani, company secretary and authorised signatory of the petitioner demerged company. With regard to the first observation made by the Regional Director, it was stated in the said affidavit that the said section deals with the powers of the board to sell or dispose of whole or part of its undertaking with the consent of its shareholders at the general meeting. Though this is only an alternative, the company is not statutorily required to follow only this option. Further, it was pertinent to note that particularly, in the present case, the undertaking proposed to be transferred, viz., PMRTS Division is engaged in the telecom business under a specific licence issued by the Government of India through the Ministry of Communication and IT Department of Telecommunica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, fresh licences are to be considered after verifying the requirement of frequency spectrum in a particular service area. That the following options under the migration for existing operators are open for PMRTS : ( i )That the existing operators shall be required to give preference for migration to digital technology and, therefore, fresh licences shall be considered after verifying the requirement of frequency spectrum in a particular service area. ( ii )All the existing licensees were to intimate their willingness for migration to digital technology within a period of one month and may be required to sign a fresh licence agreement in terms of the NTP-99. ( iii )The licence of the existing operators, who are not willing to migrate, to the new licensing regime, would be extended, if requested, up to another ten years so as to make the total licence period up to 15 years for continuing with analogue systems during which period the. operators may change over to digital technology. However, no spectrum will be kept reserved for them. ( iv )In case of operators willing to migrate to the digital technology, they shall be allocated up to 1 Mhz additional frequency spectrum digi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense." 17. Mr. Chhaya has, therefore, submitted that without prior permission of the licensor, the licensee is obliged under the said policy not to assign or transfer its rights in any manner whatsoever under the licence to a third party or enter into any agreement for sub-licence and/or partnership relating to any subject-matter of the licence to any third party either in whole or in part, that is, there shall be no sub-leasing/partnership or third party interest created. It specifically provides that transfer of PMRTS licence may be permitted by the licensor only in case where the proposed transferee company meets with the conditions of eligibility for grant of a fresh PMRTS license: Thus, in the absence of fulfilment of eligibility conditions by the transferee, transfer is impermissible under the policy. Furthermore, bare perusal of paragraph 10 thereof indicates that prior written permission of licensor would be required for transfer of rights in any manner. Eligibility of criteria as discernible from the said policy are as under : (A)Clearance of all dues of DoT in respect of all payments arising out of any licence granted under section 4 of the Indian Telegraph Act, 188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned is a must. Prior approval would also be rendered meaningless if the parties have to solely act on representation being made like the present petitioner which would contain that simply because sanction has been accorded by this court to the scheme of demerger. As a matter of course, such permission for transfer is to be granted. Such course can and would defeat the very object and purpose of having restriction in the matter of transfer of license. 20. Mr. Chhaya has further submitted that from the above submission, the facts of the present case show that the present scheme of arrangement/demerger is a sham so as to ostensibly cover up in the name of transfer of licence simplicitor in the names of sanction order of arrangement/demerger. This is apparent from paragraph 7.2 of the scheme of arrangement. He has, therefore, submitted that the petitioner itself has stated that PMRTS division was 0.27 per cent, of the total turnover of the company and the profit contribution was only Rs. 0.36 crores of the total profit of Rs. 122 crores. This does not show any reasonable basis wherefrom these figures are gathered. 21. Mr. Chhaya has further submitted that the resultant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. Bare perusal of the certificate at page 52 of the petition shows that the net worth of the petitioner Arvind Mills Limited at Rs. 1,362.51 crores and the net worth of Rs. 1,362.46 crores clearly shows that there is no significant change in the net worth before and after the scheme of demerger. He has, therefore, submitted that the scheme does not at all reflect as to what will the shareholders get when net worth is not undergoing any substantial change. Change is negligible to the extent of Rs. 5 lakhs only. 23. Mr. Chhaya has, therefore, submitted that the scheme is only with a view to circumvent the NTP 99 as amended and to overcome the transferability clause in-the name of demerger scheme. The scheme does not deserve to be sanctioned in public interest since it is nothing else but an attempt to overcome the transferability clause/restriction contained in the policy in the matter of sanction of the scheme. The sanction to the scheme does not deserve to be granted. 24. An additional affidavit is filed by Mr. R. V. Bhimani, company secretary on behalf of the petitioner demerged company on April 24, 2008. Mr Swati Soparkar, learned advocate appearing for the petitioner h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten prior permission. The petitioner shall now approach the licensor authority on obtaining the sanction of this court for obtaining the written permission to transfer the impugned licenses. This further makes it clear that the petitioner has not tried to circumvent any process of law and has rightly approached this court for sanction of the scheme of demerger. 25. Mrs. Swati Soparkar has further submitted that paragraph 7.2 of the petition gives the commercial details of the petitioner-company. The financial details included therein like the turnover and profits and the percentage share of the same in the total turnover of the company is based on the books of account of the company. The said contention was specifically substantiated by a certificate of a chartered accountant as the same cannot be apparently observed from the balance-sheet of the company. The balance-sheet gives the consolidated data about the total turnover and profits of the company. The petitioner though maintains its accounts separately for each division, is not required under any legal provision, to produce the balance-sheet separately for each division. Mrs. Soparkar has further submitted that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of Rs. 600 lakhs. This issue is not a relevant consideration for the sanction of the scheme by this court. Further, various clauses of the scheme has been referred by Mr. Chhaya on the basis of the affidavit indicating that the endeavour of the company is to by pass the approval of the Department of Telecommunications and the transfer of the assets is proposed to be made only on the order of this court. The clauses of the scheme are applicable to the two contracting parties only meaning thereby that no further action or deed is necessary between the parties to effect the said transfer. It nowhere implies that the necessary statutory sanctions shall not be obtained. In fact, the petitioner-company has already informed the Department of Telecommunications, vide letter dated March 26, 2007, that is much before moving the application before this court about its intention as well as the proposed legal proceedings. She has further submitted that pursuant to the said communication, the concerned department has not raised any objection to the said proposal. 27. Mrs. Soparkar has further submitted that the provisions of law do not require the petitioner-company to give financia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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