Partly allowed

M/s Perpetual Energy Systems Ltd., v. -

Telangana HC7 Sept 2012CP/49/2012

Case brief

AI extract

What is this about?

The court sanctioned a scheme of amalgamation merging two transferor companies into a transferee company. It held that creditor meetings are unnecessary when no dues are outstanding or creditors have no objection. The court found the scheme served a commercial purpose and was in the public interest.

What did the court decide?

Sanction granted to the scheme of amalgamation subject to payment of stamp duty and subsequent registration of the order with the Registrar of Companies.

M/s Perpetual Energy Systems Ltd., Vs - — Company and Corporate | Telangana HC (2012)

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THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

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COMPANY PETITION Nos.49 and 50 of 2012

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COMMON ORDER:

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These Company Petitions are filed under Sections 391 and 394 of the Companies Act, 1956 (for short, the Act), seeking sanction of this Court to the Scheme of Amalgamation of M/s.Perpetual Energy Systems Limited (hereinafter called the “first transferor company”) and M/s.Indur Green Power Private Limited (hereinafter called the “second transferor company”) with M/s.NSL Renewable Power Private Limited (hereinafter called the “transferee company”), and their respective share holders with effect from 01.04.2011.

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While the registered offices of both the transferor companies are situated in Andhra Pradesh, the registered Office of the transferee company is located at New Delhi. While both the transferor companies have filed the Company Petitions before this Court seeking its sanction to the proposed scheme of amalgamation, the transferee company had also filed a petition before the Delhi High Court seeking its sanction to the scheme of amalgamation and, by order in C.P.No.207 of 2012 dated 23.08.2012, the Delhi High Court has already granted its sanction to the scheme of amalgamation.

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The first transferor company was originally incorporated as a private limited company on 26.06.1995. Later the said company became a public limited company with effect from 27.05.1999. It changed its name to Raasi Power Limited and a fresh certificate of incorporation was issued, by the Registrar of Companies, Andhra Pradesh, Hyderabad, on 28.05.1999. The said company again changed its name to the present name and, consequent thereto, a fresh certificate of incorporation was issued by the Registrar of Companies on 05.09.2001. The registered office of the first transferor company is located at Hyderabad. Its authorized share capital is

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Rs.7.5 crores divided into 75,00,000/- equity shares of Rs.10/- each. Its issued, subscribed and paid up capital is Rs.6,41,45,900/- divided into 64,14,590/- equity shares of Rs.10/- each fully paid up. The main objects of the first transferor company is to carry on the business of manufacturing, producing, designing, buying, selling, trading, importing, exporting and dealing in all kinds of wind turbines, vertical axis turbines, EHD turbines and all kinds of wind power generating equipments; to carry on the business of manufacturers, producers, designers, buyers, sellers, traders, importers, stockists, agents, distributors and dealers in all kinds of non-conventional energy systems including biodegradable solid and liquid waste treatment, agro-industry, effluent treatment, solar power generation, small/mini hydro power generation and any other similar industry in India and abroad; to carry on the business of all kinds of power generation and distribution and to manufacture, design, produce, buy, sell, import and trade in all power generation equipment, distribution equipment, electrical machinery and equipment etc. For the financial year ending 31.03.2011, the first transferor company suffered a loss of Rs.6,11,98,441/-.

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The second transferor company was incorporated on 21.09.2001, and its registered Office is situated at Hyderabad. Its authorized share capital is Rs.7,50,00,000/- divided into 75,00,000/equity shares of Rs.10/- each. Its issued, subscribed and paid up capital is Rs.6,11,00,000/- divided into 61,10,000/- equity shares of Rs.10/- each. The main objects for which the second transferor company was incorporated is to generate, harness, develop, accumulate and supply electricity by setting up power plants by use of fossil fuels, biomass, woody waste, wind, solar, steam, hydel or tidel energy for the purpose of light, heat, motive power etc; to carry on business in electricity, power, light and supply of power in all branches, and to construct, establish, fix, carryout and run all necessary power stations, workshops, sub-stations, transmission

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lines, cables, wires, accumulators etc; and to enter into contracts with the Government of India or the State Government or local bodies or individuals for the construction, maintenance of power plants of any kind for the production, transmission of captive use of electricity. For the financial year ending 31.03.2011, the second transferor company made a profit before tax of Rs.13,23,070/-.

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The transferee company was originally incorporated in the State of Andhra Pradesh on 04.01.1985. It was later converted into a deemed public company with effect from 01.07.1996. The transferee company shifted its registered office from the State of Andhra Pradesh to New Delhi, and the same was confirmed by the Company Law Board, Southern Region Bench, Chennai, by its order dated 27.03.2002, and a certificate of registration of the order confirming the transfer of the registered Office was issued on 04.04.2002. The transferee company changed its name to the present name and, consequent thereto, a fresh certificate of incorporation was issued on 16.06.2010. The registered Office of the transferee company is situated at New Delhi. Its authorized share capital is Rs.75,00,00,000/- divided into 7,50,00,000/- equity shares of Rs.10/each. Its issued, subscribed and paid up capital is Rs.59,49,02,020/divided into 5,94,90,202 equity shares of Rs.10/- each. The main objects of the transferee company is to generate, harness, develop, accumulate, transmit, distribute and supply electricity by setting up power plants for the purpose of light, heat, motive power and for all other purposes; generate electric power either by hydro, thermal, oil, gas, wind mills, tidal energy, diesel oil or through renewable energy sources such as biogas, solar, municipal waste, photovoitaic or any other means; to transmit, distribute and supply such power either directly or through transmission lines; to carry on business of electric power, light and supply of power in all branches; and to enter into contracts with the Government of India or the State Government or local bodies or corporate bodies or individuals for construction,

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maintenance of power plants of any kind for the production and transmission of captive use of electricity. For the year ending 31.03.2011, the transferee company earned a profit before tax of Rs.2,16,47,417/-.

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The Board of Directors of both the transferor companies, in their respective meetings held on 17.09.2011, approved the scheme of amalgamation. Both the Company Petitions were admitted on 14.03.2012, and publication of admission of the Company Petitions was made in Business Standard (English Daily) and Andhra Bhoomi (Telugu Daily), Hyderabad Editions, on 23.03.2012. On 21.03.2012 notice was issued to the Official Liquidator. On 22.03.2012 notice was issued to the Central Government. Notice to the Registrar of Companies was issued on 23.03.2012. Sri V.S.Raju, learned counsel for the petitioners, would state that no creditor or shareholder has filed any objections either before him or before the transferor companies.

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Before sanctioning a scheme of arrangement, the Court must be satisfied that the statutory provisions are complied with; in case a meeting, of the members or a class of members or of the creditors or a class of creditors, is called for, the class is fairly well represented; and the scheme of arrangement is such as a man of business would reasonably approve. It is the commercial wisdom of the parties to the scheme, who have taken an informed decision about the usefulness and propriety of the scheme supporting it by the requisite majority vote, that has to be kept in view by the Court. The Court would not act as a court of appeal and sit in judgment over the informed view of the parties to the compromise as it has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. The Company Court’s jurisdiction to that extent is peripheral and supervisory and not appellate. The supervisor cannot ever be treated as the author or the policy-maker. The propriety

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and the merits of the compromise or arrangement has to be judged by the parties who as sui juris, with their eyes open and fully informed about the pros and cons of the scheme, arrive at their own reasoned judgment and agree to be bound by such a compromise or arrangement. The Court cannot scrutinise the scheme to find out whether a better scheme could have been adopted by the parties.

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(Miheer H. Mafatlal v. Mafatlal Industries Lt d^[1] ) .

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When a scheme of amalgamation/merger of a company is placed before the Court for its sanction, the Court should, in the first instance, direct holding of the meetings in the manner stipulated in Section 391 of the Act. This Court, by order in Company Application Nos.49 and 50 of 2012 dated 31.01.2012, dispensed with the meeting of the shareholders of both the transferor companies as all the shareholders of both the companies had given their consent to the proposed scheme of arrangement.

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On the question whether, in a scheme of arrangement between the company and its members, a meeting of the creditors or a class of creditors must be held, it is necessary to note that Section 391(1) enables the Court, on the application of a company or a creditor or a member of the company, to order a meeting of the creditors/or the members “as the case may be” to be held and conducted in such manner as the Court directs. Under Section 391(2), if a majority representing 3/4^th in value of the creditors or members agree, in the meeting, to approve the compromise or arrangement, the scheme, on its sanction by the court, would be binding on all the creditors/members “as the case may be” and also on the company. The expression “as the case may be” finds place both in sub-sections (1) and (2) of Section 391. If the words “as the case may be” in Section 391(1) is construed as requiring the Court to order the meeting of only the members, in a Scheme of arrangement between the Company and its members, and only a meeting of the creditors in a

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Scheme of arrangement between the Company and its creditors, then should the expression “as the case may be” in Section 391(2) not be read as to bind only the members where a meeting of the members is held and the creditors where a meeting of the creditors is held? The safeguard in the provision, of ¾ the members or creditors in value voting in the meeting to approve the scheme, is that the wishes of a majority of the class should prevail, and the dissenting minority of 1/4^th or less of the class should not be permitted to derail the scheme of arrangement unless, of course, the Court, on examining the scheme, finds that the objection of the minority is justified. If no meeting of the creditors is required to be held, in a Scheme of arrangement between the Company and its members, then, in the absence of ascertaining whether 3/4^th in value of the creditors approve the scheme or not, would the Court be justified in statutorily imposing such a Scheme of arrangement on the creditors, even though their consent has not been obtained or their wishes ascertained? If it were held that not holding the meeting, and ascertaining the wishes of the creditors, would result in the Scheme of arrangement not to bind them, would the very purpose of sanctioning the Scheme by the Court not be defeated, and approval of the Scheme not be an exercise in futility? If, on the other hand, the view, that a meeting of the creditors/members must necessarily be held in all cases irrespective of whether the Scheme of arrangement is between the Company and its members or the creditors, is accepted would that not render the words “as the case may be” in Section 391(1) mere surplusage?

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On this question, one view is that the creditors are not entitled, as of right, to participate in the process of consideration of sanction of the Scheme, as the Act does not contain a specific provision for notice being given to the creditors at any stage either prior to the making of the order or subsequent thereto, except in so far as the creditors may have notice of it by public advertisement, (Union of India v. Asia

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Udyog Pvt. Lt d^[2] ) , and that the legislature has cast a duty on the Court to ascertain whether the Scheme affects the interests of the creditors to such an extent that holding of their meeting is essential and, if the Court were of the view that the interest of the creditors were adversely affected, it could refuse to sanction the scheme unless their consent has been obtained. (Ansal Properties and Industries Ltd., In r e^[3] ) .

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Another facet of this view is that, under Section 391 of the Act, a compromise or arrangement is either between a company and its creditors or between a company and its members. An arrangement, in the nature of amalgamation, is the result of an agreement between the amalgamating company and its members, as well as a corresponding agreement between the transferee company and its members, and there is, therefore, no provision for the participation of persons other than the members of the two companies to vote on an arrangement of amalgamation proposed between a company and its members. (Nava Bharat Ferro Alloys In r e^[4] ; Mafatlal Industries Ltd., In r e^[5] ; Coimbatore Cotton Mills Ltd and Lakshmi Mills Co. Ltd., In r e^[6] ; and Telesound India Ltd., In r e^[7] ) . However a different view was taken by the Bombay High Court, In Re ICICI Bank Limite d^[8] , and it was held that Section 391(1) gives a discretion to the Court to convene a meeting of the creditors or any class of them; the Court would exercise the discretion by convening a meeting of creditors, if the creditors are likely to be adversely affected by an arrangement between the Company and its members; attending the meeting and voting are steps of participation in the process of consideration of the Scheme; if the creditors have no right of hearing at the time of hearing of the petition under Section 391, the only way of ascertaining whether the creditors are affected or not would be through the wishes of the creditors which may be expressed by them in a meeting which the

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Court is entitled to convene under Sub-section (1) of Section 391; and, therefore, the Court would exercise discretion as a matter of course to convene a meeting of the creditors of the Company under sub-section (1) of Section 391 unless the Court is, prima facie, satisfied that the interests of the creditors are not likely to be adversely affected by the scheme.

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A perusal of the Balance Sheet of the first transferor company as at 31.03.2011 would show that its secured loans are Rs.1,39,69,589/- i.e., from Power Finance Corporation Limited (a Government of India Undertaking) for Rs.93,09,937/-, and working capital loan from State Bank of India for Rs.46,59,652/-. In the affidavit dated 05.09.2012 the authorized signatory of the first transferor company would submit that the entire dues payable to Power Finance Corporation Limited was paid subsequent to 31.03.2011, and that the said company gave its no due certificate to the first transferor company vide their letter dated 18.10.2011; the working capital loan was availed from State Bank of India, Commercial Branch, Hyderabad, which, as at 31.03.2011, was for Rs.46,59,652/was still due and payable to them; a copy of the letter issued by State Bank of India dated 17.07.2012, whereby the first transferor company was informed that they did not have any objection for their proposal of amalgamation with the transferee company, is enclosed to the said affidavit. The deferred tax liability reflected in the Balance Sheet for Rs.63,81,727/- is explained in schedule 4 as representing the difference in depreciation and deferred tax on account of disallowances under tax books, but allowed for tax purposes in the following years. It is also stated that, subsequent to 31.03.2011, the first transfer company availed unsecured loan of Rs.2,85,00,000/from the transferee company. A copy of the no objection letter of the transferee company dated 28.08.2012 is also annexed to the affidavit dated 05.09.2012. Under the head “current liabilities”, sundry creditors and other liabilities are shown to be for Rs.1,23,36,178/-, and

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provision for gratuity as Rs.7,13,383/-. In the affidavit filed by the authorized signatory of the first transferor company dated 04.09.2012 it is stated that, from out of the current liabilities of Rs.1,23,36,178/-, they had subsequently repaid current liabilities to a tune of Rs.1,22,04,965/-. The details of repayment are enclosed to the said affidavit in the form of a statement. It is evident therefrom that nearly 99% of the sundry creditors, under the head “current liabilities”, have been repaid their dues subsequent to 31.03.2011. In such circumstances, it is not necessary that a meeting of the creditors of the first transferor company be convened and held seeking their consent to the proposed scheme.

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A perusal of the Balance Sheet of the second transferor company, as at 31.03.2011, would show that its secured loans are for Rs.61,23,564/-, and the said loan in its entirety is from Power Finance Corporation Limited. In the affidavit dated 05.09.2012, the Director of the second transferor company has stated that the entire dues of Power Finance Corporation Limited was subsequently repaid, and a copy of the no dues letter dated 20.07.2011 was being filed. Enclosed to the affidavit is the letter of the Power Finance Corporation Limited dated 20.07.2011 informing the second transferor company that their loan had been fully repaid, and there were no dues against the same as on that date. The deferred tax liability for Rs.57,02,723/- is explained in Schedule 4 of the Balance Sheet as representing the differences in depreciation and deferred tax on account of disallowances. Under the head “current liabilities”, a sum of Rs.67,43,326/- is shown to be the amount due and payable to the sundry creditors as on 31.03.2011. In the affidavit dated 04.09.2012, sworn to by the authorized signatory of the second transferor company, it is stated that they had repaid current liabilities to a tune of Rs.55,02,931/- which is nearly 82% of the current liabilities of Rs.67,43,326/-. In the affidavit filed on 05.09.2012 the Director of the second transferor company has also stated that they had availed

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working capital loan from the State Bank of India, Commercial Branch, Hyderabad, subsequent to the Balance Sheet as at 31.03.2011; Rs.10,72,463/- was still due and payable; and State Bank of India had given their no objection vide letter dated 07.07.2012. Enclosed to the said affidavit is the letter addressed to the second transferor company by State Bank of India dated 17.07.2012 conveying their no objection to the proposed scheme of amalgamation. Holding of the meeting of the creditors of the second transferor company, (secured loans, unsecured loans or sundry creditors shown under the head “current liabilities”), is, therefore, not necessary.

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Under the proviso to Section 391(2), no order sanctioning any compromise or arrangement shall be made unless the Court is satisfied that the company has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 to 251, and the like. The latest financial position of both the transferor companies, and their latest auditor’s reports of the accounts, is the Balance Sheet as at 31.03.2011 and its enclosures. In the affidavits filed on 05.09.2012, on behalf of both the transferor companies, it is stated that the accounts for the year ending 31.03.2012 have not yet been finalized and audited as on date. In the Company Petitions filed by both the transferor companies it is stated that no investigation or proceedings are pending under Sections 235 and 237 or other provisions of the Act against them.

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A combined reading of the first and second provisos of Section 394(1), with Section 394A of the Act, shows that the scheme of amalgamation would not be sanctioned unless the court has considered the report of the Official Liquidator or the representation of the Central Government, as the case may be. (Sumani Pvt. Ltd., In

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r e^[9] ) . The second proviso to Section 394 provides that no order for the dissolution of any transferor company under clause (iv) of subsection (1) of Section 394 of the Act shall be made unless the official liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. Thus, Section 394 of the Act casts an obligation on the Court to be satisfied that the scheme of amalgamation or merger is not prejudicial to the interest of its members or to public interest. (Sesa Industries Limited v. Krishna H. Bajaj^[10] ) .

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An Official Liquidator acts as a watchdog of the Company Court, reposed with the duty of satisfying the Court that the affairs of the company, being dissolved, have not been carried out in a manner prejudicial to the interests of its members and the interest of the public at large. In essence, the Official Liquidator assists the Court in appreciating the other side of the picture before it, and it is only upon consideration of the amalgamation scheme, together with the report of the Official Liquidator, that the Court can arrive at a final conclusion that the scheme is in keeping with the mandate of the Act, and that of public interest in general. For examining the questions as to why the transferor-company came into existence; for what purpose it was set up; who were its promoters; who were controlling it; what object was sought to be achieved by dissolving it and merging with another company, by way of a scheme of amalgamation, the report of an official liquidator is of seminal importance and, in fact, facilitates the Company Judge to record his satisfaction as to whether or not the affairs of the transferor company had been carried on in a manner prejudicial to the interest of the minority, and to the public interest. (Sesa Industries Limited¹⁰ ).

¶31

In his report No.129/2012 in C.P.No.49 of 2012 the Official Liquidator states that he had, vide letter dated 26.03.2012, called for

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the statutory books and other relevant information from the first transferor company, which furnished the said documents/information on 10.04.2011 and 19.06.2012. The Official Liquidator, thereafter, refers to the incorporation, the capital structure, registered Office and the main objects. In paragraph No.3(g) of his report the Official Liquidator observes that, as per the audited Balance Sheet as at 31.03.2011, the first transferor company had availed secured loans for Rs.1,39,69,589/-, but had not furnished details of the secured creditors and their consents to the proposed scheme of amalgamation, and that there was a deferred tax liability for Rs.63,81,727/-. Both these aspects have already been considered in the aforesaid paragraphs and, as such, these objections do not survive. Except for these objections, there is no objection raised by the Official Liquidator who states that, except for the observations in paragraph 3(g), the affairs of the first transferor company appears to have not been conducted in a manner prejudicial to the interests of the members or to public interest. In his report No.130/2012 in C.P.No.50 of 2012, a similar objection is raised with regards the second transferor company, which has also been dealt with in the preceding paragraphs. The Official Liquidator concludes by stating that, in his opinion, except for the observations made in paragraph 3(g), the affairs of the second transferor company appears not to have been conducted in a manner which is prejudicial to the interests of the members or to public interest.

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A common report is filed in both C.P.Nos.49 and 50 of 2012 on behalf of the Central Government by the Regional Director, South East Region, Ministry of Corporate Affairs, Hyderabad, wherein the only objection taken is that the transferee company is required to comply with the provisions of Sections 95 and 97 of the Act. The Delhi High Court has, on a petition being filed by the transferee company, already accorded sanction to the scheme of amalgamation and, as such, this objection with regards the transferee company does not fall for

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examination in these proceedings. In the said report, the Regional Director would further state that, as per the report of the Registrar of Companies, Andhra Pradesh, Hyderabad, dated 03.07.2012, both the transferor companies were regular in filing their statutory returns and no complaints, investigation and inspection are pending against both the companies.

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While the Court, called upon to sanction a scheme of amalgamation, would not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to the scheme, as the same is best left to the corporate and commercial wisdom of the parties concerned, it is clear that the Court, before whom the scheme is placed, is not expected to put its seal of approval on the Scheme merely because the majority of the shareholders have voted in favour of the scheme. Since the Scheme, which gets sanctioned by the Court would be binding on the dissenting minority shareholders or creditors, the Court is obliged to examine the scheme in its proper perspective together with its various manifestations and ramifications to find out whether the scheme is fair, just and reasonable to the concerned members, and is not contrary to any law or public policy. The expression “public policy”, though incapable of precise definition, connotes some matter which concerns the public good and the public interest. (Sesa Industries Limited¹⁰ ; Hindustan Lever Employees' Union v Hindustan Lever Ltd.,^[11] ; Central Inland Water Transport Corporation Limited. v Brojo Nath Gangul y^[12] ) . Before according its sanction to a scheme of amalgamation, the Court has to see that the provisions of the Act have been duly complied with; the statutory majority has acted bonafide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purport to represent; and the scheme, as a whole, is just, fair and reasonable from the point of view of a prudent and reasonable businessman taking a commercial

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decision. (Sesa Industries Limited¹⁰ ).

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The only question which remains to be examined is whether the scheme of amalgamation is in public interest. The Court cannot abdicate its duty simply because the statutory majority has approved it and there is no opposition to the scheme of amalgamation in Court. It must scrutinize the scheme to find out whether it is an arrangement which can, by reasonable people conversant with the subject, be regarded as beneficial to those who are likely to be affected by it. In pursuit of such an enquiry the Court is not tied down by any rigid principles or strait-jacket formulae. No enumeration contained in judicial decisions of the factors which can be taken into account, howsoever precise, can be treated as exhaustive so as to limit the scope of the inquiry which, having regard to varying circumstances, might differ from case to case. The burden lies on the petitionercompany to show that the scheme of amalgamation is fair, reasonable, workable and is such that a man of business would reasonably approve. The Court would, of course, take into account the fact that it has been approved by a big majority vote, but it would not shirk its duty to scrutinize the scheme. (Bank of Baroda Ltd. v Mahindra

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Ugine Steel Co. Ltd.^[13] ) . When it exercises the power, conferred on it by Section 391(2), to sanction the scheme of compromise or arrangement, the Court, by its act, is imposing the scheme on the dissenting members of that class. Before taking such an action, it would be open to the Court to examine the scheme before imposing it on the unwilling/dissenting members of the class. Even if all the statutory formalities are duly carried out, the Court has still the discretion either to sanction or refuse to sanction the scheme. (Mahindra Ugine Steel Co. Ltd.¹³ and Bengal Hotels P. Ltd. In r e^[14] ) .

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The amalgamation must fulfill some felt need, some purpose, some object and that must have some co-relation with public interest.

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The Court is charged with a duty to ascertain whether the affairs, of both the transferor and the transferee, have been carried on not only in a manner not prejudicial to its members but also that it is not against public interest. The expression “public interest” must take its colour and content from the context in which it is used. (Union of India v. Ambalal Sarabhai Enterprises Lt d^[15] ) . The Indian law, a departure from the English law, enjoins a duty on the Court to examine objectively whether the merger is, or is not, violative of public interest. What would be in public interest cannot be put in a strait-jacket. It is a dynamic concept which keeps on changing. It has been explained in Black’s Law Dictionary as:-

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“Something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, or as the interests of the particular locality which may be affected by the matters in question. Interest shared by citizens generally in affairs of local, State or national Government.”

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It is an expression of wide amplitude. A scheme, valid and good, may yet be bad if it is against public interest. The basic principle of the satisfaction, that the scheme is not contrary to public interest, is none other than the broad and general principles inherent in any compromise or settlement entered into between the parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, Courts have evolved the principle of “prudent business management test” or that the scheme should not be a device to evade the law. (Hindustan Lever Employees' Union¹¹ ). No court of law would ever countenance any scheme of compromise or arrangement if it finds that it is an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. The fairness of the scheme, qua the disputing minority shareholders or creditors, also has to be kept in view by the High Court while putting its seal of approval on the scheme.

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The High Court should examine whether the proposed scheme of compromise and arrangement is violative of any provision 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 judiciously x-ray the same. The High Court has also to satisfy itself that the members or class of members or the creditors or class of creditors, as the case may be, were acting bonafide and in good faith and were not coercing the minority in order to promote any interest adverse to them. It must also ensure that the scheme as a whole is also 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. (Miheer H. Mafatlal¹ ). Unless the scheme is shown to be contrary to any law or is such as to shock the conscience of the court or is patently unfair to the members or creditors or any class of them, or is against public interest or against public policy, the Court should not come in the way of business by rejecting a bonafide scheme under

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Section 391. (Zee Interactive Multimedia Ltd., In r e^[16] ) .

¶45

Clause 4 of the proposed scheme of amalgamation relates to transfer and, under Clause 4.1 thereof, upon the scheme coming into effect, the entire business and whole of the undertaking of the transferor companies shall stand transferred to, and be vested in, the transferee company without any further act or deed. Under Clause 4.2.1(a), all the assets and properties of the transferor companies are to stand transferred to, and vested in, the transferee company. Likewise under Clause 4.3.1, the liabilities and debts of the transferor companies are to stand transferred to, and vested in, the transferee company. Clause 4.4 relates to encumbrances. Clause 5 relates to consideration and, under Clause 5.1, the transferee company is required to allot one fully paid up equity shares of Rs.10/- each of the

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transferee company for every six fully paid up equity shares of Rs.10/- each held by the equity shareholders of the first transferor company; and one fully paid up equity share of Rs.10/- each of the transferee company for every five fully paid up equity shares of Rs.10/- each held by the equity shareholders of the second transferor company. Clause 7 relates to aggregation of authorized capital and, under Clause 7.2, the authorized share capital of the transferee company shall stand automatically increased by the authorized share capital of the transferor companies without any further act or deed on its part including payment of stamp duty and fees payable to the Registrar of Companies; Clause 9 relates to employees and, under Clause 9.1, on the scheme becoming effective the employees, if any, of the transferor companies are to become the employees of the transferee company without any break or interruption in their services, and on same terms and conditions on which they were engaged by the transferor companies. The superannuation fund, provident fund and gratuity fund in the transferor companies are also to be transferred to the respective trusts/funds of the transferee company under Clause 9.2. Clause 13 relates to the dissolution of the transferor companies and, under Clause 13.1, on the coming into effect of the scheme, the transferor companies are to stand dissolved without winding up. The rationale of the scheme, as is evident from Clause B, is that both the transferor companies are part of the NSL Group of companies; merger of the transferor companies into the transferee company would consolidate the business operations, and have benefits such as consolidation of operations, reduction in administrative cost and overheads; redundancies would be eliminated, and synergies are expected to bring in cost savings in operations which would lead to better monitoring from the senior management. It cannot, therefore, be said that the scheme, if approved, would be against public interest.

¶47

I consider it appropriate, therefore, to sanction the scheme of amalgamation on condition that stamp duty would be paid as

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stipulated under Article 20(d) of Schedule 1-A of the Indian Stamp Act, and proof of payment is enclosed along with the certified copy of the sanctioned order to be filed with the Registrar of Companies. As required under Section 394(3) of the Companies Act, read with Rule 81 of the Companies (Court) Rules, 1959, the petitioners shall file a certified copy, of the Order of this Court, with the Registrar of Companies for its registration within thirty days from the date of the order.

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_______________________________ (RAMESH RANGANATHAN, J)

¶50

07.09.2012 vs

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