TMI Blog2005 (7) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing and trading of various items required for medical profession other than drugs and pharmaceuticals. The arrangement is proposed with a view to segregate the manufacturing and trading activities. It is envisaged that this will facilitate the concentrated efforts for expansion in respective activities. The petitions give details of the advantages that would flow by virtue of the arrangement between these companies. 3. The proposed Scheme was approved unanimously by the Equity Shareholders and Unsecured Trade Creditors of the Transferor Company at the duly convened meetings. The same was approved unanimously by the preference shareholders and unsecured loan creditors through the consent letters which were put on record along with the application. The consent letters of the Secured Creditors are also brought on record vide an additional affidavit dated 20th June, 2005. The Equity Shareholders of both Transferee Companies also approved the Scheme through their consent letters. Hence, the meetings of the Preference Shareholders, Secured Creditors and Unsecured Loan Creditors of CHPL were not required to be held and accordingly they were dispensed with vide the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the Company is not a wholly owned subsidiary Company of CHPL till the date of order passed by this Court on 27-12-2004. 8. With regard to the second issue, namely, whether consideration payable by BIPL to CHPL is just and proper, the Auditors have observed that the net assets worth Rs. 948.68 lakhs are transferred to BIPL for a consideration of Rs. 100,000 which is not just and fair. 9. The third issue raised by the Auditors is as to whether the purpose and benefits of transfer of two divisions of CHPL to BIPL are achieved. The Auditors have observed that due to transfer of two divisions of CHPL to BIPL, the purpose and benefits will not be achieved. On the contrary, there will be negative effects as pointed out by them in the report. 10. With regard to the 4th issue, namely, whether the transfer of two divisions of CHPL to BIPL is in the interest of members, the Auditors have observed that due to transfer of two divisions of CHPL to BIPL, the members will loose profit-making divisions and assets worth Rs. 948.68 lakhs. 11. With regard to the 5th issue raised by the Auditors is that whether transfer of two trading divisions of CHPL to BIPL is in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Before dealing with each of these objections, it has been submitted by Mr. Soparkar on the basis of the affidavit that the Auditors have given a report as to the affairs of the Company by clearly stating that they have not been conducted in the manner prejudicial to the interest of its members or to the public interest. That is the only scope of inquiry under the provisions of the Act and in view of the positive report given by the Auditors, observations made by them on merits which are completely irrelevant insofar as the Official Liquidator is concerned, are required to be completely ignored. He has further submitted that the Auditors have exceeded their jurisdiction and travelled in the area which was not, in any way, meant for them. He has, therefore, submitted that all observations made by the Auditors in annexure to investigation report are required to be discarded. Mr. Soparkar has further submitted that before reaching the conclusion, some of which are factually incorrect and some are factually misleading, the Auditors did not even call for explanation from the petitioner on any point/issues opined by them. Had they sought for any further information and/or clarificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mechanism for the financial restructuring for the Company. In light of this, M/s. RSM Co. Chartered Accountants, Mumbai, were appointed to examine the issue. The said firm examined the issue in detail and ultimately suggested the present scheme of restructuring. The said firm believed that two divisions of the petitioner Company, Hospicon and Diacon divisions need to be parked in a separate Company and the other activities viz., Sulfolane and Softgel may continue either in this Company or may be merged with another Company which may be a shell Company for the purpose of ensuring that the Company starts with a clean slate. The Management of the Company did not or does not have any desire, even remotely, to take away any assets of the Company or to do any act which would prejudice the shareholders of the Company. It is for this reason that it was decided to park the two outgoing divisions into a wholly owned subsidiary of the Company so that shareholders of this Company would continue to reap benefits of these divisions even after the restructuring. Mr. Soparkar has further submitted that the Auditors have raised some doubt about the contention of the petitioner that Biosulin I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that so far as the approval of the Stock Exchange, Mumbai is concerned, after examining the issue in great detail, the Stock Exchange Mumbai has already agreed to the Scheme of Arrangement. The letter of approval has already been placed on record of this Court along with the earlier affidavit dated 29-6-2005. This shows that the Stock Exchange is satisfied about the genuineness of the Scheme. 19. With regard to the various observations made by the Auditors, Mr. Soparkar has submitted that the first observation made by the Auditor is that (BIPL) was not a wholly owned subsidiary of the petitioner in the month of April 2004, though, the petitioner has claimed to that effect. The said observation is made on the basis of the fact that consideration for transfer of shares has been released by the transferor somewhere in the month of March 2005. The transfer of shares has taken place from one group company to another group Company and therefore, actual date of transfer of consideration is not material. On the records of BIPL, the transfer of shares is effected on 3-10-2004. Under the circumstances, BIPL became wholly owned subsidiary of the petitioner on and from 3-10-2004. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (including term loan of Rs. 20 crores) in order to finance the new activity of the petitioner Company. For this, new set of security in the form of immovable assets is being created. This is clear from the sanction letter of State Bank of Indore dated 2-8-2004 which is produced by the Auditors in their report at page Nos. 58 to 64. In fact, if the two almost worthless divisions are continued to be owned by the petitioner, the petitioner would have difficulty in undertaking the new project. Therefore, assumption made by the Auditors is completely contrary to the correct facts. The Auditors have assumed that what is being transferred to the BIPL are profitable divisions and assets and that BIPL is the Company in which some of the Directors of the Group are interested. Both these assumptions are clearly and factually incorrect as is pointed out earlier. 24. Mr. Soparkar has, therefore, submitted that the opinion of the Auditors that the transfer of two divisions of the petitioner to BIPL is not in the public interest is contrary to the facts. 25. With regard to the merger of residual of petitioner Company with GPPL, Mr. Soparkar has submitted that the Auditors have made certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 6 lakhs. Effectively, the promoters are, therefore, taking hit of approximately Rs. 11 crores. This aspect was not taken into consideration by the Auditors. He has, therefore, submitted that the whole exercise undertaken by the Auditors is completely misconceived and it is not the function of the Auditors to opine on the issue beyond the scope prescribed under the Act. Having once certified that the affairs of the Company have not been conducted in a prejudicial manner, the negative aspect of the report is required to be ignored. In any case, the observation that the purpose and benefits of amalgamation can be achieved by financial restructuring of the Company as proposed through special resolution in Annual General Meeting clearly shows that the Company does need a financial restructuring. If that be so, how the same is to be done is left to the Company and its Management. It is not for anyone else, at least the Auditors of Official Liquidator, to make the comments in this regard. 28. Notice of the petition has also been served upon the Central Govern-ment and Shri J.M. Malkan, learned Assistant Solicitor General appeared for the Central Government. Shri Malkan has put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans not exceeding Rs. 600 lakhs into 10 per cent Cumulative Preference Shares at a face value of Re. 1 which would be redeemed at a premium of Rs. 99 per share after a period of six years from the date of redemption. However, the redemption period should not exceed 6 years from the date of issue in view of section 80(5A) of the Act. The Company has informed that it is intended to redeem these preference shares at the end of 6 years from the date of allotment. 31. The next issue raised by the Regional Director is that para (9) of the Scheme provides for increase in authorized share capital of GPPL (Transferee Company) without complying with any procedure or filing any notice. This provision is objectionable. The Company has to comply with the provisions of section 97 of the Act by filing Form No. 5 with ROC with necessary registration fees in addition to payment of stamp duty as required under Stamp Act. The Regional Director has also referred to judgment of Madras High Court in the case of Ashok Leyland Finance Ltd. v. Official Liquidator [Company Petition No. 88 of 2004 connected with Company Application No. 167 of 2004]. However, the copy of the said judgment is not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Balance Sheet as at 31-3-2004. In this connection, Mr. Soparkar has submitted that division-wise balance sheet was prepared to facilitate the clear demarcation of properties and liabilities at the time of proposing the Scheme. It was not necessary to give this break up for the Balance Sheet as at 31-3-2004 as per the prevailing accounting standards. 33. The next issue raised by the Regional Director is that as per Company s Advocate s letter dated 9-6-2005, consent letter of secured creditors will be filed with the Gujarat High Court before the date of final hearing. The petitioner Company may be directed to confirm the compliance in this regard. In this connection, Mr. Soparkar has submitted that the petitioner Company has already put the consent letters of the Secured Creditors vide an additional affidavit dated 20-6-2005. 34. In view of the above explanations given on various observations made by the Regional Director, Mr. Soparkar has submitted that the Scheme deserves to be sanctioned and the prayers made in para 23 of the petition be granted. 35. After having heard learned Senior advocate Mr. Soparkar appearing for the petitioner Companies and Mr. Jitendra Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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