TMI Blog1991 (11) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... by KEC without any further act or deed. The transferor-company was incorporated on February 15, 1988, under the provisions of the Companies Act, 1956, as a public limited company. The memorandum and articles of association have also been filed as annexure I to this petition. The authorised capital of the transferor-company is Rs. 11,00,00,000 divided into 1,00,00,000 equity shares of Rs. 10 each, 50,000 preference shares of Rs. 100 each and 50,000 cumulative convertible preference shares of Rs. 100 each. The issued, subscribed and paid up capital of the transferor-company is Rs. 8,88,20,000 divided into 88,82,000 equity shares of Rs. 10 each fully paid-up. The main objects of the transferor-company are fully set out in its memorandum and articles of association. It is seen that the transferor-company is engaged in the business of manufacture and sale of methyl ethyl ketone, a versatile petrochemical solvent. The petitioner-company is engaged in the manufacture of methyl ethyl ketone which is used in the manufacture of lube oil, dewaxing magnetic tapes, adhesives, printing inks, etc. The company has put up a plant at Manali, Madras, for manufacture of methyl ethyl ketone, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by majority of 46,41.660 votes in favour and 7,700 votes against. The following resolution was passed : "Resolved that the scheme of amalgamation between Cetex Petrochemicals Limited and KEC International Limited placed before the meeting and for the purpose of identification initialled by the chairman appointed for the meeting be and is hereby approved and that the directors of the company be and are hereby authorised to assent to any modification of this scheme or to any condition which the court may deem fit to impose and to take all such steps as may be necessary and desirable to implement the scheme and to give effect to this resolution". As stated above, this petition had been filed by the transferor-company for sanction of the scheme by this court as approved by the shareholders of the said company at the meeting held on March 18, 1991. The Regional Director, Department of Company Affairs, Madras, filed his report dated November 6, 1991, and made two submissions and said that subject to the submissions made, the Central Government has no objection to the scheme of amalgamation being sanctioned by this court on its merits. The submissions made by the Central Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the notice of opposition and the additional grounds : ( a )The proposed scheme of amalgamation is against the interest of the shareholders and the public interest and is only for the benefit of the R.P. Goenka group which has a controlling interest in both the companies. The real reason for amalgamation is possibly to reduce the shareholding of the financial institutions in the petitioner-company ; ( b )The object of amalgamation is set out in paragraph 9 of the petition and the reasons given therein are totally untenable and irrelevant and the petition is liable to be rejected. It is stated that the petitioner plans to expand its production capacity and to set up facilities for manufacture of new product lines ; ( c )If the company has plans to expand its production capacity, it could always have gone for a rights issue or issued debentures to the existing shareholders ; ( d )It is also not clear as to why the petitioner wants to make leather chemicals when the prospectus was issued for the manufacture of methyl ethyl ketone, a 100% import substitution product. There is also no mention that the proposed scheme of amalgamation is the only way by which the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t records filed in the proceedings as annexures. It is seen from the records that the company has 34,238 shareholders as on date and that the said shareholders hold the entire issued and subscribed share capital of the company. Of this, it is seen that the shareholders in and around the city of Madras would only be about 1905, while the remaining number of shareholders numbering over 32,000 reside in other parts of the country. Mr. T. Raghavan has also denied the further statement of Mr. Arvind P. Datar that the possible reason for amalgamation is to reduce the holding of the financial institutions as incorrect. It is significant that the financial institutions, viz., IDBI and ICICI themselves are not opposed to the present scheme and have in fact approved the same. As the scheme of amalgamation had not been formulated at the time of the annual general body meeting, it was explained by him that there was no mention of the scheme at that meeting. In answer to the objections made by the objector in paragraphs ( c ) and ( d ) of the notice of opposition, Mr. T. Raghavan contended that it is for the shareholders of the company to decide whether the company should merge with anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r persons owning only Rs. 7,700 shares have voted against the proposed scheme of amalgamation being adopted and carried into effect (without modification). The chairman has also referred in his report to the report of the three scrutineers, viz., Mr. P. Balakrishnan, Mr. Divyesh I. Shah and Mr, R. Lakshmanan. All the three scrutineers have, on March 18, 1991, addressed a letter to the chairman appointed for the meeting of the members of Cetex Petrochemicals Limited for confirmation that the ballot box was duly sealed, after the casting of votes, in front of them and that the same was unsealed at the registered office, at No. 12, Bishop Wallers Avenue (East), Mylapore, Madras-4, on the same day March 18, 1991, at 2.30 p.m. for scrutiny and counting of votes. Proxy forms were also verified and, after scrutiny was completed, a report was made at 11.45 p.m. The said letter was signed by all the abovenamed scrutineers, including Mr. R. Lakshmanan, the only objector in this court opposing the scheme of amalgamation. It is also relevant to extract the circular submitted by them to the chairman appointed for the meeting. The circular in the form of a report, dated March 18, 1991, is repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ) of the notice of opposition, Mr. T. Raghavan, learned senior counsel, submitted that it is for the company to consider alternative methods for raising capital or augmenting the production and these are all essential matters of internal management. As seen from the report submitted by the chairman of the meeting, the majority of the shareholders having accepted the proposal of the board, the objector cannot insist that the company should adopt only the particular mode in regard to his objections raised in paragraph ( e ) in the notice of opposition. Likewise, the objections raised in paragraphs ( f ) and ( g ) are misconceived and incorrect. The proposal to amalgamate with another company has been accepted by the shareholders present holding 99.83 per cent, of the shares out of the members present and voting at the extraordinary general meeting to consider the scheme of amalgamation. It cannot be contended that the said proposal is prejudicial to the interest of any creditors or public interest. The mere fact that one member or some members are not in favour of the scheme or merger cannot be a ground for preventing the company implementing a proposal which has the support of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company felt that if it merged with a financially strong company, it would be able to receive financial support for both its current as well as diversified activities. As the transferee is a highly profitable company and also a financially sound company and is looking for diversification, it was recognised that the merger of the transferor-company with the transferee-company would be in the interest of both the companies. The salient features of the scheme of amalgamation of the petitioner-company with KEC International Limited have been explicitly and fully set out in the affidavit itself. It is also mentioned that, on and from the appointed date, all debts, liabilities, duties and obligations of the transferor-company shall also be and shall stand transferred without any further act or deed to the transferee-company pursuant to the provisions of the Act so as to become the debts, liabilities, duties and obligations of the transferee-company and that all proceedings, if any, by or against the transferor-company relating to its undertaking, liabilities, obligations and duties pending on and after the appointed date shall be continued and enforced by or against the transferee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be retained in the same company at least for a period of three years. He further stated that, following the merger proposals, the shareholders face the risk of the assessments being reopened by the income-tax authorities. Mr. Arvind P. Datar urged that this court has to see that the scheme is a fair and reasonable one and that the courts should not be carried away by the majority of members voting in favour of the scheme of amalgamation. It is also the duty of this court to see whether the majority of the members have been acting bona fide and the minority has not been overridden by the majority having interests of its own clashing with those of the minority whom they seek to coerce. Though the argument of Mr. Arvind P. Datar is attractive at first blush, yet, on a deeper examination, it does not appear to be tenable. The question for consideration is whether the necessary sanction of the court should be accorded to the proposed scheme of amalgamation. Section 391(2) of the Companies Act, 1956, provides that the scheme of amalgamation should be approved by a majority in number representing three-fourths in value of the members or class of members present and voting e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the scheme of amalgamation, on the face of it, is fair to the shareholders of the petitioner-company. It is also made clear in the scheme of amalgamation as to how the transferee-company would meet the liabilities of the transferor-company. None of the creditors of the company have raised any objections. That apart, the financial institutions like IDBI, ICICI, IFCI, SBI and LIC are not before this court to object to the scheme of amalgamation. I am not persuaded by the submissions of Mr. Arvind P. Datar that this court should be concerned with the commercial merits or demerits of the scheme in question. In my view, it is not for this court to see whether a particular scheme is beneficial or not and it is only for the members of the company to decide that question. It is also the contention of Mr. Arvind P. Datar that the transferee-company is not solvent enough to meet the liabilities of the transferor-company. The scheme itself postulates that all the debts and liabilities of the transferor-company will automatically stand transferred to the transferee-company. As rightly pointed out by Mr. T. Raghavan, if any creditor did not accept the scheme of amalgamation, he would have ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be paid. I am unable to countenance the argument of the learned Additional Central Government Standing Counsel. Ample safeguards are provided under the provisions of the Act itself. It is stated in the report that penal proceedings might be taken up by the Central Government against the company. It is not for this court to wait till the proceedings are initiated by the Central Govern ment for violation, if any, and for that purpose, this court need not postpone the sanction of the scheme as prayed for. The interest of the Central Govern ment will be safeguarded if liberty is reserved for the Central Government to initiate proceedings against the company and every officer of the company for the alleged violation of the provisions of section 73(2A) of the Act. Likewise, the argument of Mr. A.S. Venkatachalamoorthy, learned Additional Central Government Standing Counsel, is that the petitioner-company should not be dissolved without winding up unless and until the same company complies with the provisions of section 73(2A) of the Act and also till a report is received from the Official Liquidator, Madras High Court, pursuant to the second proviso to sub-section (1) of section 394 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the scheme is a fair one. In my view, the objector has miserably failed to prove that the scheme is not a fair or a reasonable one. The scheme as a whole, in my view, is a fair and reasonable one. It is not the duty of this court to launch on an investigation upon the commercial merits or demerits of the scheme which is the function of those who are interested in the arrangement. In my view, there is also no lack of good faith on the part of the majority. The materials on record showed that the provisions of the Act had been fully complied with and that no ground existed to withhold sanction to the scheme of amalga mation in its essentially broad features. Mr. Arvind P. Datar cited the decision in Central India Industries Ltd. v. CIT [1975] 45 Comp Cas 229 (Cal) to show that, under the scheme of amalgamation, the two amalgamating companies lost their existence by operation of law after the amalgamation and that the shares allotted will be issued and delivered to the registered shareholders in exchange for ordinary shares in some proportion which will amount to a case of transfer of shares, if not an exchange. The view taken by the Division Bench of the Calcutta High Court m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 922. The Commissioner of Income-tax issued a notice under section 33B of the Act to the assessee stating that the receipt of 45 shares of the New Shorrock Co. in exchange for his original holding of 90 shares in the Shorrock Co. in December, 1960, had resulted in an assessable profit, and this aspect had been overlooked by the Income-tax Officer when making the regular assessment, and, therefore, he proposed a revision of the assessment. The Commissioner of Income-tax passed an order directing the Income-tax Officer to revise the assessment and to include an amount of Rs. 49,350 representing the capital gains resulting from the transaction of the acquisition of 45 shares of New Shorrock Co. in the place of the 90 shares held in the Shorrock Co. On appeal by the assessee before the Income-tax Appellate Tribunal, the Appellate Tribunal held that the transaction represented neither an exchange nor a relinquishment and, therefore, section 12B of the Act was not attracted. At the instance of the Revenue, the Appellate Tribunal referred the following questions to the High Court for its opinion : 1.Whether, on the facts and in the circumstances of the case, the sum of Rs. 49,350 could b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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