1991 (11) TMI 194 - HC - Companies Law

Summary

Issues Involved:

1. Sanction of the Scheme of Amalgamation.
2. Objections raised by the Regional Director, Department of Company Affairs.
3. Objections raised by an individual shareholder.
4. Compliance with Section 73(2A) of the Companies Act, 1956.
5. Fairness and reasonableness of the Scheme of Amalgamation.

Issue-Wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:

The petitioner, Cetex Petrochemicals Limited, sought court sanction for a scheme of amalgamation with KEC International Limited under sections 391 and 394 of the Companies Act, 1956. The scheme was approved by the shareholders in a meeting held on March 18, 1991. The scheme proposed that the entire business and obligations of Cetex would vest in KEC from June 1, 1990. The court noted that the scheme had been approved by an overwhelming majority of shareholders, both in number and value, and that the statutory requirements under section 391(2) were satisfied. The court emphasized that it is not its role to substitute its judgment for the collective wisdom of the shareholders unless the scheme is found to be unfair or unreasonable.

2. Objections Raised by the Regional Director, Department of Company Affairs:

The Regional Director submitted two main objections:
(a) Complaints of non-refund of excess share application money by the petitioner-company, resulting in a delay beyond the statutory grace period, making the company liable to pay interest under section 73(2A).
(b) The dissolution of the petitioner-company without winding up would nullify potential penal proceedings for the violation of section 73(2A). The court held that the Central Government could proceed against the company and its officers for any violations, and the scheme's sanction would not preclude such actions.

3. Objections Raised by an Individual Shareholder:

An individual shareholder raised several objections, including:
(a) The scheme benefits the R.P. Goenka group and reduces the financial institutions' shareholding.
(b) The reasons for amalgamation were untenable, and the company could have raised funds through other means.
(c) The merger would result in financial loss to shareholders and affect tax benefits under section 80CC of the Income-tax Act.
(d) Allegations of threats and coercion during the shareholders' meeting.

The court found these objections unsubstantiated, noting that the majority of shareholders approved the scheme, and the financial institutions did not oppose it. The court emphasized that the scheme was in the interest of the shareholders and public, and the objections raised were either irrelevant or unsupported by evidence.

4. Compliance with Section 73(2A) of the Companies Act, 1956:

The court acknowledged the Regional Director's concern regarding the non-compliance with section 73(2A) but held that the Central Government could still take action against the company and its officers for any violations. The court did not find it necessary to postpone the scheme's sanction based on this issue.

5. Fairness and Reasonableness of the Scheme of Amalgamation:

The court examined whether the scheme was fair and reasonable, considering the collective wisdom of the shareholders. The court found that the scheme was approved by an overwhelming majority and that there was no evidence of coercion, fraud, or undue influence. The court also noted that the transferee-company was solvent and capable of meeting the liabilities of the transferor-company. The court concluded that the scheme was fair, reasonable, and not detrimental to public interest.

Conclusion:

The court sanctioned the scheme of amalgamation, making it operative from June 1, 1990. The court held that the scheme was in the interest of the shareholders and public, and that the objections raised were either irrelevant or unsupported by evidence. The court allowed the Central Government to proceed against the company and its officers for any violations of section 73(2A).