TMI Blog2012 (5) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... d (Transferee) and their respective shareholders and creditors. The sanction is sought from the appointed date that is 1st July 2011. 3 . The Petitioner Zuari Industries Ltd. was incorporated as Zuari Agro Chemicals Limited on 12/5/1967. The change of name was effected on 12/2/1998. The petitioner's name Zuari Industries Ltd. has originated since then. 4. After setting out the objects and Annexuring a certified true copy of the Memorandum and Articles of Association of the Petitioner in paragraph 4 of the petition the details of the authorized, issued, subscribed and paid-up share capital of the petitioner as on 24/5/2011 are set out. Annexue "B" to the petition is a certified true copy of the audited accounts of the petitioner as on 31/3/2011. 5. In paragraph 5 it is stated that the equity shares of the petitioner are listed on the Bombay Stock Exchange and the National Stock Exchange of India. Both Stock Exchanges have given their No Objection to the scheme and the no-Objections are at Anneuxres "C-1" and "C-2" 6. As far as the Transferee Company Zuari Holdings Limited is concerned, it is incorporated on 10/9/2009. It has is registered office within the State of Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meeting of the equity shareholders was convened on 17/8/2011. 11. In paragraphs 13 and 14 of the petition, this is what is stated: "..13. The petitioner Company had filed Company Application in this Hon'ble Court, being Company Application No.19 of 2011, seeking requisite directions for convening the meeting of the Equity shareholders of the Petitioner Company to consider the Scheme. The Petitioner Company had also sought requisite directions for dispensing with the requirement of convening the meetings of its Secured Creditors and Unsecured Creditors, to consider the Scheme. 14. This Hon'ble Court by order dated 07th July 2011 was pleased to direct that a meeting of the Equity Shareholders of the Petitioner Company shall be convened on 17th August 2011 at the Registered Office of the Petitioner Company, to consider and if though fit, approve with or without modification(s), the Scheme. This Hon'ble Court further, by order dated 14th July 2011 was pleased to- ( i ) dispense with the requirement of convening the meetings of the Secured Creditors in view of the No Objection Certificates received from 100% of the Secured creditors and ( ii ) dispense with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the chairman for the purpose of identification be and is hereby approved. Resolved further that the Board of Directors of the Transferor Company be and is hereby authorized to sign, seal and deliver all documents, agreements and deeds and do and perform all acts, matters and things and to take all such steps as may be necessary or desirable to give effect to this resolution. Resolved further that the arrangement embodied in the Scheme of Arrangement and Demerger between Zuari Industries Limited and Zuari Holdings Limited placed on the table and initiated by the Chairman for the purposed of identification, upon the scheme becoming effective the fertilizer undertaking shall stand demerged and transferred by the transferor company to the transferee company and be vested in and managed by transferee company without any further deed or act together with all properties, assets, rights, benefits and interest therein subject to existing charges, liens or lispendens, if any, upon and subject to the terms and conditions contained in the said Scheme of Arrangement and Demerger, be and is hereby approved and that the Board of Directors of the Company, be and are hereby authorised to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest of shareholders and public. As far as paragraph 6 (a) is concerned what has been stated is that Clause 3.8 of the Scheme inter alia provides for change of name of Demerged Company as well as Resulting Company. By this clause it is proposed to changed the name of the Resulting Company by adopting the name of the Demerged company and vice versa. There is no provision in the Companies Act for exchange of name. Further both the companies will continue to be in existence and therefore it is not possible to adopt the name of the other company. Besides the proposed swapping of names would invariably confuse and mislead the mind of the stakeholders of both the companies and therefore it is not just and proper to allow this scheme. In view of the above it is suggested that the said clause may be deleted from the scheme. As far as Clause 4.1 of the scheme, it is stated that the scheme provides for increase in the Authorized Share capital of the Transferee Company to Rs. 42,06,00,000. and therefore the Transferee company may be directed to comply with provisions of section 94/97 read with Schedule IX of the Companies Act 1956, in respect of filing of necessary forms with the Registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the transferor company that the interchange is proposed that has been approved in the meetings as well. Thus, the decision taken in commercial wisdom need not be interfered with. 19. Alternatively, it is proposed in any event and without prejudice to the above, if this Court is of the opinion that it would not be permissible to allow change of names in the manner contemplated under Clause 3.8 of the said scheme, then the petitioners are agreeable to dropping clause 3.8 of the said scheme. 20. As far as the other objections or comments of the Regional Director are concerned, he has stated that the petitioner will file necessary forms with the Registrar of Companies and pay filing fee and stamp duty. 21. It is stated that the promoters of the Transferor Company would necessarily, as per the provisions of law including various regulations framed by the Securities and Exchange Board of India, be the promoters of the transferee company. The suggestion of the Regional Director regarding deletion of clause 4.8 of the scheme is not only misconceived but is contrary to the provisions of law. 22. As far as the other objections are concerned it is stated that the Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strategic investments and hold securities of other entities. Therefore, there is no point in demerging the fertilizer undertaking and along with it transferring/selling investments and also holdings and securities of other entities. 26. These objections have been replied to by the petitioner and my attention is invited to the rejoinder at page 461 of the paper book in which it is submitted that the objector holds a minuscule quantity of 50 shares in the petitioner company forming 0.00017% of the paid-up capital of the petitioner company. The scheme was approved by an overwhelming majority of the equity shareholders. The meeting was attended by 89 equity shareholders of the petitioner company, 86 out of of 89 equity shareholders who attended the meeting voted in favour of the scheme. Their value is enormous and only three shareholders including the Objector objected the scheme. Though the Objector remained present at the meeting he did not chose to address the other shareholders or to raise any pertinent objections to the scheme. Admittedly, all that the Objector chose to do was to ask the Company Secretary of the petitioner company as to when the petitioner would respond to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in various matters. I crave leave to refer to and rely upon copies of the said schemes and the relevant orders when produced. It is submitted that Sections 391 to 395 of the Companies Act, 1956 are in themselves a complete code and separate approval or procedures including those for change of name are not required to be obtained or followed. It is denied that it is illegal for the transferee company to assume the name of Zuari Industries Limited subsequent on this scheme being sanctioned by this Hon'ble Court. It is denied that any procedure for change of name as contemplated under the companies Act, 1956 will be required to be independently followed. It is denied that the question of availability of names will arise. It is denied that this Hon'ble Court has no jurisdiction to permit change of names or interchange of names. It is denied that there will be any listing through any backdoor method. It is submitted that apart from raising vague and baseless objections, the Objector has failed to make out any case as to how the interests of the shareholders or the general public would be adversely affected by the change of name as contemplated under the said scheme. 17. With referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company would reduce post demerger. I crave leave to refer to and rely upon the relevant charts showing the holdings pre and post demerger of the public and the promoters in the transferor and transferee companies when produced. It is significant that the public shareholders in the transferor company are to the extent of approximately 65.63% and they would continue to have their hold in the affairs of the transferor company. The nominees of the transferor company representing the transferor in the transferee (resulting company) would be obliged to conduct themselves in the manner desired by the general body of the transferor company. The shareholding pattern post demerger will not affect the interest of the public shareholders in any manner. On the other hand, it will create an opportunity for the public shareholders to continue to hold shares in the transferee company or to exit therefrom by selling the shares allotted to them. It is to be noted that the public shareholders will continue to directly hold 45.94% of shares in the transferee company and will get representation to the extent of 19.69% on account of the 30% of shares held by the transferor company and its subsidiary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed the same by referring to any objections or by pointing out anything from the scheme. He only states that he voted against the scheme and his vote is noted. He is just one of the three shareholders who voted against the scheme. His objections should be seen as a result of some personal grudge and out of sheer malice. He has been unable to point out as to whether the scheme would be prejudicial to the Equity shareholders, creditors and general public. On the other hand barring him none of the shareholders including foreign institutional investors and buyers have objected either to the valuation or to the manner in which the shares would be allotted post demerger. Each of the aspects thereof were put for investigation and scrutiny of the shareholders. It is not the case where the promoters have not disclosed the true state of affairs of the company and have framed the scheme to benefit itself at the cost of the other shareholders. This is not a case of minority being forced to accept something against its wishes and because of lack of bona fides on part of the majority. This is a case where one may have a different view of the matter. However, once in commercial wisdom, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of 10 directors, 5 are from the promoter group/employees. Out of 5, independent directors, 2 are partners of the firm who are legal advisers of the company. Therefore, the promoter group and their associates have overwhelming influence over the decision of ZIL. Even, post demerger, the stake of the promoter and public shareholders would reduce by 10.31% and 19.69% respectively and these shares will be held by ZIL (30%). Since promoters will hold stake of 34.37% in ZHL, they can influence key decisions relating to ZHL by virtue of direct holding which is 24.06%, as well as their stake in ZIL. On the other hand, the non-promoters shareholders will face a decline in their combined holding in ZHL and their percentage will come down from 65.63% to 45.94%. Thus, stake of the promoter group will increase by 54.06% and it may go up to more than 75%, if the holding of the promoter Transferor company is taken into account. All this shows that the scheme is not fair and the approval thereto is by all interested parties such as promoters and employees. The public shareholders did not attend the meeting and major financial Institutions/Investors such as M/s. Franklin Templeton Mutual Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the provision of sub-Section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view of to satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9. Once the aforesaid broad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Secondly, the company will have to hold a Board meeting and pass the resolution authorizing the person to sign Form "A" along with fees. The company will have to hold general body meeting for passing said resolution for change of name. The reasons have to be provided accordingly for change in name. He has stated that this Court has no jurisdiction over Registrar of Companies in the matter of change of names. Precisely, this is what I have concluded. Clause 3.8 will come into force only upon compliance with the provisions of the Companies Act, 1956 and particularly the procedure laid down in the Affidavit of Furtado. Equally this Court putting its seal of approval and sanction to the scheme does not mean that the Registrar of Companies would not exercise independent power under the Companies Act, 1956 in relation to change or swapping of names. Therefore, by clarifying that clause 3.8 would be subject to the provisions of the Companies Act, 1956, the scheme can be sanctioned. 39. Mr. Rajadhyaksha, learned Senior counsel reliance upon the decision of this Court in the case of Intertek Testing Services India (P) Ltd. ( supra ) is well placed. The learned Single Judge while r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an undertaking to this Court and clause 5.3 of the scheme is approved in terms subject to this statement and undertaking. 43. As far as the main objection and that is raised by Mr. Furtado is concerned, equally that is without any substance and merit. It is pertinent to note that Shri Furtado has not denied the fact that he attended the meeting. He has also not denied the fact that during the course of the meeting he has not raised any of the objections now noted but chose to seek clarification from the Company Secretary as to what is the response by the company to his letter dated 11/8/2011. The said Furtado was present at the meeting and particularly till the end. He has also voted against the scheme along with 2 others equity shareholders. However, other shareholders have approved the scheme by voting at the said meeting . The statements made in report of the Chairman are not denied. In fact Shri Furtado's affidavit would reiterate the position and the factual basis in the report. As far as his contention that the circular of the Ministry of Corporate Affairs dated 26/7/2011 is not adhered to by the Regional Director is concerned, I am of the opinion that the report of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexed. The scheme has been scrutinized by independent body such as Registrar of Companies and Regional Director. Independent thereof, the scheme appears to be to increase the effectiveness of the business operations and better co-ordination and efficiency. The scheme has been envisaged so that fertilizer undertaking gets demerged in holding company and thereafter in the transferor company. The petitioners before this court can concentrate in a better manner on other activities and other business in which they are specialized. It is in such circumstances and for better coordination and efficiency the said scheme is envisaged, the decisions which are essentially commercial cannot be set aside merely because on some of the objections raised by the objector another view is possible The test that has been laid down by the Hon'ble Supreme Court and followed from time to time would not enable me to exercise an appellate power. In these circumstances, I do not see how the objections of the sole objector can be taken note of. 46. Besides the said objection it has been also pointed out by the sole objector that the scheme of Bajaj Auto Ltd. was being scrutinized by this Court. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in BAL and addition would get same number of shares in respective two resulting companies. In addition, they would indirectly hold shares through BAL who will have direct holding of equity shares in the respective two resulting companies to the extent of 30%. Considering all this holding cumulatively, the pattern of share holding remains the same and there would be no sucking of valuation of shares as is contended. 25. On the above finding, I find no merits in the grievance of the objector that any prejudice will be caused to any shareholder or there would be a situation of reduction of valuation of all shares, as is contended." The chart that has been handed over by Shri Rajadyaksha is nothing but reiteration of shareholding pattern emerging from the books to demonstrate that the promoter grouping being made shareholders of the transferee company does not show that non-promoters shareholders, who are sizable in number and more than 65%, would be adversely affected. The entire attempt appears to cast a shadow of doubt and question the bonafides of the promoters group. However, making such allegations by themselves would not be of any assistance to the sole objector. His object ..... X X X X Extracts X X X X X X X X Extracts X X X X
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