C.K. Buch, J.
1. Heard the learned counsel for the petitioners and Ms. P.J. Davawala, Addl. Standing Counsel for Central Government. Ms. Davawala has tendered today the letter dated 3-7-2003 received by her from the Registrar of Companies, Gujarat State, Ahmedabad along with the letter dated 27-6-2003 received by her from the Regional Director, Government of India, Ministry of Finance and Company Affairs. These letters are taken on record.
2. These are the petitions filed by two petitioner companies for sanction of a scheme of arrangement in the nature of de-merger and transfer of Vatva Division of Patels Airtemp (India) Limited (the De-merged/ Transferor Company) to Patels Airflow Limited (the Resulting/Transferee Company) under Section 391 read with Section 394 of the Companies Act, 1956.
3. Both the petitioner companies are public limited companies. The Demerged/Transferor company (PAT) is engaged in manufacturing of wide range of Equipments like Heat Exchangers, Industrial Fans and blowers and various heavy duty processing equipments. The Resulting/Transferee Company (PAL) is recently promoted with an objective of taking over the Vatva division of the de-merged company. The de-merger and transfer of the Vatva Division of PAT to PAL is proposed to have different growth strategies and survival plans for two specialised products of the company. The petitions give details of the advantages that would flow by virtue of the arrangement between these companies.
4. The meetings of the shareholders of and creditors of the De-merged/ Transferor company were duly convened and the resolutions approving the said scheme of arrangement were carried unanimously at all the three meetings.
5. In case of the Resulting Transferee company, the meeting of the shareholders was dispensed with in view of the consent letters from all the shareholders of the company approving the scheme being put on record.
6. After the petitions were admitted, the same were duly advertised in the newspapers (The Indian Express and Loksatta-Jansatta Ahmedabad editions dated 21-12-2002 as per the order) and the publication in the Government gazette was dispensed with as directed in the order dated 13-12-2002. No one has come forward with any objections to the said petition even after the publication.
7. Notice of the petitions have been served upon the Central Government and Ms. P.J. Davawala, Additional Standing Counsel appearing for the Central Government has put on record the letter from the Registrar of Companies of Gujarat dated 3-7-2003 along with the letter of the Regional Director dated 27-6-2003 wherein the Regional Director has raised certain issues with regard to various clauses of the scheme. These issues pertain to the listing of the shares of the Transferee Company, the special resolution pertaining to Reduction of Capital under Section 100 of the Companies Act, the appointed date being prior to the date of the incorporation of the Transferee Company and the meeting of the creditors of the Transferee Company. The additional affidavit dated 15-7-2003 filed by the respective directors of the petitioner companies deals with all these issues and gives detailed explanations and justifications of the said clauses of the scheme.
8. It is submitted by Ms. Davawala that the transferor company is a listed company; while the transferee company is a non-listed company. Though Clause 7(f) provides for the transferee company (listing company) for listing its shares, the resultant effect would be that the unlisted company's share, may get listed without following the formalities which are required to be followed under Clause (b) of Sub-rule (2) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 for listing of its shares without making an initial public offer.
9. Ms. Swati Soparkar learned counsel for the petitioner, in response to the submission has submitted that the resulting new company shall have to undergo the formalities for listing of the shares provided under the law and relevant rules. She has pointed out the relevant clause and the structure of Clause 7(f) of the Scheme. I would like to refer to the relevant Clause (f) which says that
'The Resulting Company will endeavour that the Equity Shares of the Resulting Company issued in terms of the Clause 7(a) above be listed and/ or admitted to trading on the relevant Stock exchange/s, whet her in India or abroad, where the equity shares of the De-merged company are listed and/or admitted to trading. The Resulting Company shall enter in such arrangement and issue such confirmation and/or undertakings as may necessary in accordance with the applicable laws or regulations, for the above purpose. But on such formalities being fulfilled all such stock exchange shall list and/or admit the said new shares also for the purpose of trading. All the statutory and Government authorities shall give necessary approvals and permissions forthwith in this regard'.
10. Thus it is clear from the language of this clause that the listing company will have to take steps so that the equity shares of the Resulting Company issued in terms of Clause 7(o) are listed, where the equity shares of the De-merged Company are listed and/or admitted to trading. According to her, the Resulting Company shall have to enter in such arrangement and issue such confirmation which may be necessary in accordance with laws and regulations so that the apprehension/objection expressed vide Clause (a) by the Regional Director in his letter dated 27-6-2003 is not sustainable and well founded.
11. The additional affidavit filed by Mr. N.G. Patel, director of the petitioner company also takes care of other two objections mentioned in Clauses (b) and (c) of the above-said letter dated 27-6-2003. It is submitted that the reduction of capital involved in the present case is the integral part of the scheme and it is the consequent or resultant reduction of capital because of the de-merger and transfer of the Vatva of the company. It is not the scheme for reduction of capital per se. In reference to Section 391 of the Companies Act, she has placed reliance upon the decision in the case of T. Durairajan v. Waterfall Estates Ltd. [1972] 42 Comp. Cas. 563 (Mad.), and in case of Asian Investment Ltd., In re [ 1992] 73 Comp. Cas. 517, 523 (Mad.) The additional affidavit refers to the relevant part of the decision which reads as under :
'Where the reduction of capital is apart of a scheme of arrangement, therequirements of the Companies Act as regards the reduction of capital are not applicable because court can sanction reduction as a part of the scheme'.
12. So far as the contention taken vide Clause (c) the same is also replied by the affidavit and by placing reliance on the decision of Delhi High Court in the case of HCL Ltd. In re [ 1994] 80 Comp. Cas. 228 and followed by Bombay High Court in the case of Bombay Gas Co. (P.) Ltd. v. Central Government [1997] 89 Comp. Cas. 195, where it has been held as under:
'Where in a scheme of arrangement the expression 'Appointed date' was used to reflect the date on which the assets and liabilities of the existing company were to be identified for the purpose of transfer to the newly created company, the fact that the appointed date was falling prior to the incorporation of the Transferee Company was not material because the transfer was to take place on the effective date of the scheme. The Transferee Company should be in existence by that date.
13. The contention taken up by the Regional Director in the letter in reference to transferee company is not sustainable because the transferee company has not prayed formally for dispensation of equity as the same was not required. In short, the points taken by the Government of India, Ministry of Finance and Company Affairs have been taken care of by the Scheme.
14. Having considered the submissions of Ms. Soparkar and after having gone through the petitions, and the additional affidavits, I am satisfied that the proposed arrangement would be in the interest of the companies and their members and creditors. Prayers in terms of paragraph 21 (A) of the Company Petition No. 238 of 2002 and in terms of para 15(A) of the Company Petition No. 239 of 2003 are hereby granted.
15. The petitions are disposed of accordingly. So far as the costs to be paid to the Central Government Standing Counsel is concerned, I quantify the same at Rs. 3,500 per petition. The same may be paid to the learned advocate Ms. P.J. Davawala for the De-merged/Transferor Company and Shri D.N. Patel for the Resulting/Transferee Company.