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TMI Blog2007 (1) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid Company Petitions by the applicants, i.e., Narmada Chematur Petrochemicals Limited Staff Union on behalf of employees of Transferor Company opposing the aforesaid scheme of amalgamation of Transferor Company with Transferee Company. 2. It has been submitted on behalf of the Transferor Company that the Transferor Company is a listed Public Limited Company and was promoted as a joint venture between GNFC, the Transferee Company, Chematur Engineering AB of Sweden and its Indian Associates, IBI Chematur [Engineering Consultancy] for the manufacture of TDI and Aniline. It is further submitted that amongst others, one of the reasons for incorporating the Transferor Company, as a separate company was to facilitate the Technical Collaborator, i.e., Chematur Engineering AB Sweden to participate in the project through equity investment. The Technical Collaborator for NCPL having divested its holding in NCPL and Chematur Group Directors on the Board of NCPL having thereafter resigned it has ceased to be a Joint Venture Company. It is submitted that the Transferor Company is mainly engaged in the business of manufacturing and selling of chemicals and the turn-over of NCPL Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will now freely flow into the merged entity. The advantages of the merger of Transferor Company with Transferee Company are set out in Para 7.3. of the petition. 3. It is further submitted that Board of Directors of the Transferor Company resolved at the Board Meeting held on 28th February 2006, that subject to such approvals of shareholders, and subject to such sanctions of appropriate Courts, as may be required in law, and subject to such consents and permissions of the Central Government and other authorities as may be necessary the Scheme of Amalgamation/Arrangement be made between the Transferor Company and the Transferee Company on the broad basis referred to in the Scheme of Amalgamation. It is further submitted that the learned Single Judge of this Court by order dated 1st May 2006 passed in Company Application No. 224 of 2006 [Annexure 'D' to the petition] directed the Transferor Company to convene separate meetings of the equity shareholders, secured creditors and unsecured creditors of the company for the purpose of considering and if thought fit approving with or without modifications in the said Scheme of Amalgamation. It is further submitted that on 29th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court, vide order dated 21st July 2006 [Annexure 'F'] permitted the petitioner to abandon the outcome of the meeting of the unsecured creditors convened on 29th June 2006 and directed the petitioner company to convene a fresh meeting of only unsecured creditors of the Company on 19th August 2006, and accordingly a fresh meeting of the unsecured creditors was convened on 19th August 2006 and the said meeting of the unsecured creditors of the Company was attended by 68 unsecured creditors; the total value of their debt is Rs. 17,36,53,809; and all the unsecured creditors present for voting at the meeting voted in favour of the resolution approving the proposed scheme. Hence, the resolution approving the proposed scheme has been carried unanimously, i.e., 100% in number and Rs. 100 in value. 3.4. Since the proposed Scheme of Amalgamation has been duly approved by the requisite majority of the equity shareholders, secured creditors and unsecured creditors present at the meetings duly convened and held as per the directions of this Court, the petitioner company has preferred the present company petition for sanction of the Scheme of Arrangement in the nature of Amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations in the said Scheme of Arrangement, and accordingly on 29th June 2006 the meeting of equity shareholders of the Transferee Company was duly convened in accordance with the said order and the Chairman of the said meeting has reported about the result of the said meeting to this Court by Affidavit dated 8th July 2006 [Annexure 'E']. It is further submitted that out of 152 shareholders representing 6,48,06,448 shares of Rs. 10/- each present for voting at the meeting, 125 votes representing the value of Rs. 64,80,27,140/- being 6,48,02,714 shares of Rs.10/- each were found in favour of the Scheme and 4 votes representing value of Rs. 9000 being 900 shares of Rs. 10/- each were found against the scheme. It is submitted that the resolution approving the scheme has been carried by requisite statutory majority of 96.899% in number and 99.999% in value. 6. Since the proposed Scheme of Amalgamation/Arrangement has been duly approved by requisite majority of equity shareholders at the meeting duly convened and held as per the directions of this Court, the Transferee Company has preferred the Company Petition No. 148 of 2006 to approve the proposed Scheme of Amalgamation/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCPL would earn for equivalent grade or class. On absorption of NCPL employees in GNFC in the postamalgamation/ merger scenario, this parity between the two groups is required to be abolished. Moreover the pay-revision of GNFC employees is due from 01.07.2006 and on finalization of the same the wage difference will again increase from 30% to that negotiated %. (B) On amalgamation of NCPL with GNFC, NCPL will cease to be an independent entity for all purpose. By this measure, all employees of the erstwhile NCPL would necessarily become the employees of GNFC on their absorption in GNFC in the postamalgamation/ merger scenario. Thus, after absorption in GNFC, for eg. Grade S3 or S4 employee of the erstwhile NCPL, on his/her absorption in GNFC should be in grade S3 or S4 employee of GNFC in the post-amalgamation/merger scenario. (C) The absorption of the employees of the erstwhile NCPL in GNFC in the postamalgamation/ merger scenario, ought to be effected in such a manner that no loss in seniority is caused to the concerned employees of the erstwhile NCPL on their absorption in GNFC in the postamalgamation merger scenario. 9. Shri Shalin Mehta, learned advocate appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(1), as a result of which it cannot be said that clause (v) of Section 394(1) restricts the meaning of the words for any persons to members and creditors of company only. In support of his above submission that employees or workers of the Transferor Company can challenge or raise objections to a Scheme of Amalgamation, he has relied upon the following Judgments; (1) (2000) 1 COMPANY LAW JOURNAL 351 (BOMBAY), at 371 [Para 66]; (2) (1995) 83 COMPANY CASES 30 (SC) at Page 64; (3) (1990) 1 COMPANY LAW JOURNAL 285 (DELHI) at 289 (Para 30); (4) (2006) 134 COMPANY CASES 99 (Madras) at 102 (Para 10). 11. Shri Mehta, learned advocate appearing on behalf of employees of the Transferor Company has submitted that the proposed Scheme of Amalgamation is prejudicial to the employees of the Transferor Company inasmuch as the proposed scheme does not deal with various issues of parity, fitment, seniority and placement vis-avis, new recruits of the Transferee Company. Clause 12 of the proposed scheme does nothing at all to prevent the future discrimination against the employees of the Transferor Company. According to the employees, Clause 12 gives a carte blanche to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... today and if the scheme is highly prejudicial to the employees of the Transferor Company it cannot be said that the same is in public interest. 13. Relying upon decision of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., (1997) 1 SCC 579 At Page 596, it is submitted by Shri Mehta that the litmus test for upholding or sanctioning a Scheme of Amalgamation when such a Scheme is viewed against the objections raised by the employees of the Transferor Company, is not whether the employees of the Transferor Company would be worse after amalgamation. According to him, the litmus test is whether the scheme is fair, just and reasonable to all concerned, which would include the employees of the Transferee Company and the burden to establish this is on the companies. It is submitted that, in the present case as the proposed scheme is not just, fair and reasonable to the employees of the Transferee Company, the scheme does not pass muster of the test laid down in the case of Miheer H. Mafatlal (supra). 14. It is further submitted by Shri Mehta that the decision of this Court relied upon by the petitioners in the case between G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by him that Clause 12 of the Scheme clearly provides that all the employees of the Transferor Company in service on the effective date shall become employees of the Transferee Company and on such date as they were in continuous service without any break or interruption in service and on the terms and conditions as to remuneration not less favourable than those subsisting with reference to the transferor company on the said date . So, the scheme protects the employees of Transferee Company by clearly providing that post merger they would continue to have, (i) continuity of service; (ii) terms and conditions as to remuneration not less favourable than those subsisting today. 16. It is submitted that it is not possible to treat the employees of Transferor Company at par with employees of Transferee Company. The Transferee Company was incorporated in May 1976 whereas the NCPL the Transferor Company was incorporated in September 1992 and during the period of 29 years of its existence the Transferee Company has achieved excellence in production and marketing of fertilizers and industrial chemicals. With the growth of company,the pay and perks and remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the realm of Sections 391-394 of the Act. 18. He has further submitted that even the said issue is also covered by the judgment of the Hon'ble Supreme Court in the case of Hindustan Lever Employees Union Vs. Hindustan Lever Limited [supra]. It is submitted that the very argument was canvassed before the Hon'ble Supreme Court that inasmuch as post merger the employees of two companies would be treated differently the scheme should not be sanctioned. The Hon'ble Supreme Court specifically rejected that argument by holding that so long as the employees of the respective companies do not, post merger, suffer any change to their detriment, the sanction of the scheme cannot be refused. It is submitted by him that it is clearly held by the Hon'ble Supreme Court that (a) post-merger it is not necessary that the employees of two companies must be treated alike and (b) even if the scheme does not provide for such equality sanction cannot be refused. 19. It is further submitted by Shri Soparkar that merely because under the scheme the Transferee Company does not undertake to equalize the terms of remuneration of both the companies the same cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Transferee Company. 23. Heard the learned advocates appearing on behalf of the respective parties. By the proposed scheme of amalgamation, Transferor Company, i.e., NCPL is sought to be amalgamated with Transferee Company, i.e., GNFC. The proposed scheme of amalgamation has been approved by the shareholders, creditors and unsecured creditors of the Transferor Company by statutory majority. Similarly, the proposed scheme of amalgamation has also been approved by the equity shareholders of the Transferee Company by requisite statutory majority. The Official Liquidator attached to this Court has submitted his Report dated 26th September 2006 that pursuant to the order passed by this Court, a Chartered Accountant was appointed for the purpose of scrutiny/investigation of the affairs of the company and the Chartered Accountant has submitted his report that the accounts and transactions of the company were prima facie conducted within the objects mentioned in the Memorandum of Association of the Company and that the affairs of the Company have not been conducted in a manner prejudicial to the interests of the members or to public interest. 23.1. Assistant Registrar of Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assuming that the employees have some locus and can object to the scheme, in that case also it should be restricted while submitting views and make submissions whether the scheme is prejudicial to the interests of the employees or not. Even otherwise, considering the judgments of the Delhi High Court as well as of the Bombay High Court, it cannot be said that the employees have no locus at all to object to the scheme of amalgamation. Even in the case of Hindustan Lever Employees Union Vs. Hindustan Lever Limited [supra], the Hon'ble Supreme Court considered the objections on behalf of the employees of the companies. Now, so far as the decision relied upon by the learned counsel appearing on behalf of the companies in the case of Gujarat Nylon Company Ltd [supra] is concerned, it is required to be noted that, in the said case it was the contention on behalf of the Employees Union that before an action of proposed amalgamation a meeting of the workers of the Transferor Company must be held and they have right to object to proposed scheme of amalgamation, and since such meeting is not held all the actions taken by the company can be said to be illegal and contrary to law. While de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L [Transferor Company] by clearly providing that post merger they would continue to have (i) continuity of service; and (ii) terms and conditions as to remuneration not less favourable than those subsisting today. This Court, at present, is not expressing any opinion on the question whether there is any justifiable reason for different pay-scales of the employees of the Transferor Company and the employees of the Transferee Company after the amalgamation. As held by the Hon'ble Supreme Court in the case of Hindustan Lever Employees Union Vs. Hindustan Lever Limited [supra], so long as the employees of respective companies do not, post merger, suffer any change to their detriment, the sanction of the scheme cannot be refused. The Hon'ble Supreme Court, in the said decision, has observed as under; Next it was argued on behalf of the employees of TOMCO that the scheme will adversely affect them. This argument is not understandable. The scheme has fully safeguarded the interest of the employees by providing that the terms and conditions of their service will be continuous and uninterrupted and their service conditions will not be prejudicially affected by reason of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transferee Company as the case may be will get more salary, it cannot be said that prejudice will be caused as they will still be getting what they were getting earlier. In the case before the Hon'ble Supreme Court, the employees of the Transferor Company were working under better terms and conditions and an objection was raised by the employees of the Transferee Company that they will be getting less salary than the employees of the Transferor Company after amalgamation, and dealing with the same, the Hon'ble Supreme Court has observed as above. Under the circumstances, the objections raised on behalf of the employees of the Transferor Company cannot be sustained and are hereby overruled. 28. In the case of Gujarat Nylon Company Ltd [supra], the learned Single Judge of this Court has also considered the very argument which has been made on behalf of the employees of the Transferor Company in the present case that after the amalgamation of the Transferor Company with the Transferee Company the workmen of the Transferor Company are deemed to be workers of Transferee Company and all the workmen can be said to be employees of one company and therefore they cannot be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Mysore Electrical Works Ltd. v. I.T.O., Bangalore, reported in 52 Company Cases 32. In the latter case, it was specifically held by the High Court of Karnataka that the direction by the Company Court cannot relate to matters outside the scheme and obviously it is so. When the Company Court exercises jurisdiction under the Act, it has to decide the matter in accordance with the provisions of that Act. It is neither deciding any question nor expressing any opinion on the points which do not strictly fall within the purview of the Scheme of amalgamation. Therefore, if the employees of the transferee Company feel aggrieved in connection with payment of wages or other conditions of service, it is always open to them to approach an appropriate forum in accordance with law and all those questions will be decided in those proceedings. Granting of sanction of amalgamation of companies by this court would not come in the way of workmen, while deciding the question which may be raised in those proceedings. Even though this legal position is abundantly clear, Mr. Raval stated that if the employees of the transferee company feel aggrieved, they can approach an appropriate forum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt to the satisfaction of the Court. Parameter No.6 is formulated as under; 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provisions of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judicially x-ray the same. After laying down the aforesaid broad paramters the Apex Court laid down the following principle: Once the aforesaid parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground, as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders or any of the creditors, to the Scheme of Amalgamation despite advertisement of the public notices of these petitions in two daily newspapers, i.e., 'Indian Express' and 'Sandesh' which have the largest circulation in the State. The objections raised by the Employees Union of Transferor Company have already been considered hereinabove. There is no reason for disapproving the Scheme of Amalgamation on account of those objections. The Scheme of Amalgamation does not appear to be contrary to the law or contrary to public interest. As stated above, the Central Government has submitted their No Objection as well as the Official Liquidator attached to this Court has also submitted his Report and no objection has been raised by the Official Liquidator. Hence, there does not appear to be any impediment to granting sanction to the Scheme of Amalgamation as proposed. 32. For the reasons stated above, both the petitions, namely Company Petition No. 147 of 2006 and Company Petition No. 148 of 2006 are allowed. Prayers in terms of paragraph 28(a) of the Company Petition No. 147 of 2006 and 21(a) of the Company Petition No. 148 of 2006 are hereby granted. Company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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