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Judgment
Sunil Ambwani, J.—Heard Shri Pushkar Mehrotra, learned Counsel for the applicants-companies. The Official Liquidator, U.P. as well as Regional Director, Northern Region, Ministry of Corporate Affairs, Noida have filed their reports.
By this Confirmation Petition, the petitioners seek to confirm the ''Scheme of Arrangement'', between ''Bhagwanti Rubber & Allied Products Private Limited'' described as the ''Demerged Company'' having its registered office at E-4, Panki Site-1, Kanpur - 208022 and ''Rupani Footcare Private Limited'' described as the ''Resulting Company'' having its registered office at 122/334, Shastri Nagar, Kanpur - 208005. The Demerged Company-Transferor Company is carrying on the business of manufacture and sale of ''Hawai Chappals'' in its ''Hawai Chappals unit'' and manufacture and sale of ''Shoes'' in its ''Shoes unit''. The Scheme proposes to demerge the ''Shoes unit'' of the Transferor Company in the Transferee Company.
The Company Application was filed on 28-4-2008 to call the meetings of the shareholder and creditors of the Transferor Company. By an order dated 30-4-2008, the Court called for a meetings of the shareholders and creditors of the Transferor Company and the creditors of the Transferee Company to be held at the registered office of the company on 5-7-2008. The Order dated 30-4-2008 calling for the meetings is as follows:
Heard Sri Pushkar Mehrotra, learned Counsel appearing for the applicant-company.
A joint application has been filed by Bhagwanti Rubber & Allied Products Private Limited, having its registered office at E-4, Panki Site-1, Kanpur-208022 (Hereinafter referred to as "the demerged company") and Rupani Footcare Private Limited, having its registered office at 122/334, Shastri Nagar, Kanpur-208 005 (Hereinafter referred to as "the resulting company"), under Sections 391 and 394 of the Companies Act, 1956 (hereinafter referred to as "the Act") for a direction to dispense with the convening the meeting of the equity shareholders of both the companies for approving the proposed scheme of demerger between the two companies as the resulting company was earlier 100 per cent holding company of the demerged company and the shareholders are the Directors/Shareholders of the demerged company and the shareholders of both the companies have no objection to the scheme of demerger.
Copy of the proposed scheme of demerger has been filed as Annexure-IV. The scheme of demerger has been approved by the respective Board of Directors of the two companies on 24-2-2008 (the demerged company) and on 18-1 -2008 (the resulting company), copies of which have been filed as Annexures 4 and 5 respectively.
After considering the various averments made in the application, the Court is of the opinion that the meeting of the equity shareholders of the demerged company cannot be dispensed with even if the shareholders of the two companies have resolved in favour of the scheme of demerger. The meeting for the purpose of considering the scheme of demerger has to be convened under the aegis and supervision of the Court. In this view of the matter, the prayer that the meeting of the equity shareholders of the demerged company be dispensed with, cannot be accepted. So far as the meeting of the shareholders of the resulting company is concerned, as it was earlier a 100 per cent holding company of the demerged company and the shareholders are either the directors or the shareholders of the demerged company and they having resolved in favour of the scheme of demerger, the convening of the meeting of the shareholders of the resulting company is dispensed with inasmuch as in the meeting of the shareholders of the demerged company, the scheme of demerger will be put to vote.
Let the meeting of the equity shareholders and the creditors of the demerged company be held at 11.00 A.M. and 12.00 noon respectively at the registered office of the demerged company on 5-7-2008. The notice shall be sent to the shareholders and creditor individually under certificate of posting and enclosing therewith an explanatory statement and form of proxy. The notices shall also be published in daily newspaper Pioneer (English) published from Lucknow and Hindi daily newspaper Dainik Jagran published from Kanpur, given full details of the meeting, place and time of convening meetings. Sri Dev Kant Pandey (Mobile No. 9415616397) and Sri Udayan Nandan (Mobile No. 9936423399) are appointed as Chairman and alternate Chairman of the meeting of the creditors, of the demerged company. They shall be paid Rs. 30,000 for Chairman and Rs. 20,000 for alternate Chairman for each meeting with an additional amount 20 per cent of their fees as incidental expenses. The demerged company shall make their travel arrangements by taxi and stay at a proper Guest House or Hotel on their request.
The notice convening aforesaid meetings shall be sent under the signatures of the Chairman at least 21 clear days before the date appointed for the meetings, along with the scheme of demerger and the statement as required to be furnished pursuant to Section 393 of the Companies Act, 1956 along with prescribed form of proxy, by pre-paid letter posted under certificate of posting, addressed to each of the shareholders/member. and creditor of the company at their respective registered or last known address. In addition, at least 21 clear days before the date appointed for the meetings, as aforesaid advertisement convening the said meetings and stating that copies of the scheme along with copies of the statement -equired to be sent u/s 393 of the Companier Act, 1956 and that the prescribed form of proxy can be obtained free of charge at the registered office of the demerged company.
The quorum of the meetings shall be such as provided in the Articles of Association. The Court, however, will have discretion to record satisfaction with regard to the majority of shareholders of the Demerged Company approving the scheme of demerger.
The voting by proxy shall be permitted provided that the proxies in the prescribed form duly signed by the person entitled to attend and vote at the meeting and in case of company or an association, by a duly authorized representative of such company/association are lodged with the demerged company at its registered office not later than 48 hours before the meetings.
The Chairman shall report to the Court the result of the meetings on or before 11-7-2008. The report shall be verified by the affidavits of Chairman.
List the matter on 14-7-2008.
Shri Dev Kant Pandey, Advocate and Shri Udayan Nandan, Advocate, the Chairmen appointed for the shareholders and creditors meetings, have filed their reports along with their affidavits verifying that in the meetings of the shareholders of the Transferor Company, five persons were present in person and four by proxies representing a total of 97.43 per cent of the total voting rights. Shri Hargun Das Rupani, holding 25.94 per cent shares; Shri Laxman Das Rupani, holding 33.97 per cent shares; Shri R.C. Rupani, holding 9.46 per cent shares; Shri Prakash Rupani, holding 0.06 per cent shares and Shri Sunil Rupani holding 0.06 per cent shares, were present in person. Shri Hargun Das Rupani was also holding the power of attornies of Smt. Kartari, Smt. Meena Rupani holding 22.20 per cent shares. The shareholders completed the quorum and resolved to accept the ''Scheme of Arrangement''. With regard to creditors of the company, it is reported by Shri Udayan Nandan that 11 creditors were present in person and 02 by proxies thereby representing debts of Rs. 1,46,13,951.06 representing 50.34 per cent of the total value of debts. The creditors present in person and their proxies approved the ''Scheme of Arrangement'' unanimously.
The Confirmation Petition has been advertised. The share exchange ratio under the scheme provides that the shareholders of the Demerged Company (Transferor Company) will get 48 shares of Rs. 10 each credited as fully paid-up for every 100 equity shares of Rs. 10 each held by such member in the Demerged Company.
The Official Liquidator has submitted his report No. Jud/1995 of 2008, stating that the appointed date given in the scheme is 1-4-2007, whereas the Transferee Company was incorporated on 26-9-2007. The Official Liquidator has pointed out that fixed assets registers have been prepared separately for the two units and that no material objection was brought to the notice of the Court and that scheme may be considered on merits.
Shri Dhan Raj, Regional Director, Northern Region, Ministry of Corporate Affairs, has made his comments in paras 4 and 5 as follows:
That the deponent further craves leave to submit that the appointed date has been fixed as 1-4-2007 and the Resulting Company viz., M/s. Rupani Footcare Pvt. Ltd. was incorporated only on 26-9-2007 i.e., after the appointed date and it was nowhere in existence as on 1-4-2007. It is not clear as to how the assets and liabilities of the Demerged Company shall be transferred in the Resulting Company when the Company was not in existence.
That the deponent further craves to submit that para 16(b) of Part-IV of the Scheme provides amongst as under:
In view of the demerger and other related provisions of this Scheme and concurrently and as integrally connected part of the Scheme and upon the coming into effect of this Scheme, with effect from the appointed date, the issued, subscribed and paid-up capital of Demerged Company shall be reduced by Rs. 3,82,85,430 (rounded off) respectively as being no longer represented by assets of the Demerged Company and such reduction shall be effected by reducing the Paid-up Share Capital by Rs. 4.80 per equity shares of Rs. 10 each of the Demerged Company which have been issued and are outstanding''.
On the objection on the ''appointed date'', and the ''incorporation of the Transferee Company'' being later to the appointed date, it in stated that the effective date under the scheme is the date on which the scheme may be sanctioned by the Court and that the fact, that the scheme provides for an appointed date prior to the date of incorporation of the Transferee Company, does not violate any of the provisions of the Companies Act. The asset and liabilities were available with the Transferor Company on the appointed date.
Shri Pushkar Mehrotra has relied upon a judgment of Delhi High Court in HCL Hewlett-Packard Ltd., In re [1994] 80 Comp. Cas. 228. In this case it was found that the objection, that the appointed date is prior to the date of incorporation of the Transferee Company, is insignificant. The assets and liabilities of the existing company and the newly incorporated company, are to be taken into consideration by the shareholders. The scheme does not provide for any artificial transfer of any asset prior to the incorporation of the company. The assets will stand transferred only with effect from the date of the incorporation of the Transferee Company. The same judgment as well as the judgment in Patels Airtemp (India) Ltd., In re [2004] 122 Comp. Cas. 387 : 49 SCL 340 deal with other objections namely sanction of the Court for reduction of the share capital.
In the present case, the transfer of the assets would be effective from the date of incorporation of the Transferee Company and thus there will be no artificial transfer of assets prior to the incorporation of the Company. With regard to the reduction of the share capital, there is no diminution of liability in respect of unpaid share capital or payment to an shareholder of any paid-up share capital so as to attract the procedure envisaged u/s 101(2) of the Act. The shares are fully paid-up and that majority of the shareholders have accepted the share exchange ratio. The sanction of the Scheme of Arrangement does not require any further petition for reduction of share capital. The two divisions of the Transferor Company are working separately and that the reserves and surplus have also been divided in the consideration of the share exchange ratio. Since there is no proposal of amalgamation of the companies and as such Accounting Standard-14 i.e. ''Accounting for Amalgamation'' issued by the Institute of Chartered Accountants of India is not required to be followed.
There is no objection to the scheme by any person. The scheme has been approved by the shareholders and creditors and that the Scheme does not violate any of the provisions of law, or public interest or the interest of the shareholders or the creditors.
The Company Petition is allowed. The Scheme of Arrangement proposing demerger of the assets of M/s. Bhagwanti Rubber & Allied Products Pvt. Ltd.'' (Demerged Company) in ''M/s. Rupani Footcare Pvt. Ltd.'' (Resulting Company) is confirmed and will come into effect from today, ie., 16-9-2008, to be treated the effective date of the ''Scheme of Arrangement'' for all purposes. The office will issue formal order in the prescribed form within three weeks from today and intimate to the Registrar of Companies.