ELGI Ultra Industries Limited vs ELGI Ultra Limited

B.S.V.  Prakash Kumar, J

Under consideration are two Company Petitions No. CP/451 & 452/CAA/2019 filed under sections 230 to 232 of the Companies Act, 2013 r/w the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 and the NCLT, Rules, 2016. The instant Petitions pertain to the proposed Scheme of Arrangement (Demerger) by virtue of which M/s. Elgi Ultra Industries Limited (hereinafter referred to as the "Demerged Company") has proposed to transfer and vest the demerged undertaking of the Demerged Company to M/s. Elgi Ultra Limited (hereinafter referred to as the "Resulting Company").

The Demerged Company is a Public Limited Company, incorporated on the 9th of September, 1981, under the provisions of the Companies Act, 1956, having its registered office at India House, New No. 1443/1, Trichy Road, Coimbatore - 641 018. The Resulting Company is a Public Limited Company, it was incorporated on the 30th of October, 2017, under the provisions of the Companies Act, 2013, having its registered office at India House, New No. 1443/1, Trichy Road, Coimbatore - 641 018.

The Learned Counsel for the Petitioner Companies submits that the Demerged Company is currently engaged in the business of manufacturing of household and domestic appliances including wet grinders, mixer grinders, pressure cookers, gas stoves, induction stoves, etc. and industrial products such as spindle tapes, belts such as heddle belt, conveyor belt, modular belt, leather belt etc., fabric, film, nylon tubes, polyurethane tubes, drip irrigation, horns and wiper. The Resulting Company is incorporated with the object of carrying on the business of manufacturing and supplying all kinds of household and domestic appliances as well as industrial products.

The Learned Counsel for the Petitioner Companies submitted the reasons and circumstances leading to and justifying the proposed Scheme of Demerger, which make it beneficial for both the companies concerned, including their members and creditors. The Scheme provides that the demerged undertaking of the Demerged Company including all properties, assets, whether movable or immovable, whatsoever in nature and wherever situated including all rights, titles, Interest, cash and bank balance, all debts, borrowings, liabilities whatsoever in nature, shall be transferred and vested in the Resulting Company, as a going concern.

This Bench vide its Order dated 19th November, 2018, in CA/188 & 189/CAA/2018, had directed the Demerged Company to convene, conduct and hold meetings for its Equity Shareholders, Secured Creditors and Unsecured Creditors and had further directed the Resulting Company to convene, conduct and hold meetings for its Equity Shareholders, and dispensed with the holding of meetings for its Creditors.

As per the directions of this Tribunal, the meeting of the Equity Shareholders of Petitioner Companies was held on the 18th of January 2019. In the said meeting of the equity shareholders of the Demerged Company, three shareholders holding total of 39,350 shares in the Demerged Company representing 2.17% stake in the Demerged Company had raised certain queries relating to the protection of interests of public shareholders under the Scheme, valuation methodologies and competency of the valuer. The Chairman provided the satisfactory clarification relating to the same, pursuant to which no additional objections were raised.

Further, the shareholder Mr. Zibi Jose ("Objecting Shareholder") had vide his letter dated 1st January, 2019, addressed to this Tribunal, raised certain objections to the present Scheme. The objections that have been raised by the objecting shareholder have been perused, and the Counsel for the Petitioners has filed a detailed Affidavit addressing and countering the various issued raised by the objecting shareholder. Based on the perusal of the said Affidavits filed by the Petitioner Companies and the various other facts and circumstances, it is understood that the objecting shareholder raising an objection to the Scheme holding 30,650 equity shares representing 1.69% stake in the Demerged Company. In this regard, it has to be noted that the proviso to Section 230(4), states that an objection to the arrangement may be made only by persons holding not less than ten percent of the shareholding. Since the objecting shareholder holds less than ten percent of the shareholding, the objection raised by the shareholder is not maintainable, henceforth dismissed on the ground of Locus Standi.

The notices were issued to the statutory authorities as per the procedure prescribed. However, there were no objections raised by them to the Scheme under reference.

The Regional Director, Southern Region (For short, 'RD') has filed his report dated 20th day of March, 2019 and has stated that the Scheme of Arrangement provides for the protection of the interest of the employees of the Demerged Undertaking. The Report further submits that the Petitioner Companies are regular in filing their statutory returns. Further, it is submitted that there are no complaints/prosecution/inspection/investigation pending against the Petitioner Companies.

The Regional Director has raised an objection at paragraph 9 of the Report stating that if the authorized capital of the Demerged Company is cancelled, such authorized capital would not be in existence and that the Demerged Company cannot avail any benefit out of such cancellation. The Report further states that the Resulting Company can raise the authorized capital for the issuance of the Non-Convertible Preference Shares independently and the transfer of authorized share capital should not be allowed under the Scheme of Arrangement as it would be a loss of revenue to the Government.

In so far as the observation made in paragraph 9 of the Report of the Regional Director is concerned, the Petitioner Companies undertake that the Scheme provides for transfer of authorised share capital of the Demerged Company and there is no specific provision of law in case of a demerger which prohibits such transfer and reorganisation of the authorised share capital of the Demerged Company in case of demerger. There are several judicial precedents where such transfer of a part of the authorised share capital has been permitted in case of demerger by several decisions of the High Court as well as this Tribunal.

The observations made by the Regional Director have been explained by the Petitioner Companies in Paragraph 19 of the Affidavit filed by the Petitioner Companies, in this regard. The clarifications and undertakings with respect payment of differential fee on transfer of authorized capital are accepted and the objection raised by the Regional Director is not sustainable.

Further perusal of the Scheme shows that the accounting treatment is in conformity with the established accounting standards. The Scheme will not cast any additional burden on the stakeholders and also will not prejudicially affect the interests of any class of the creditors in any manner. There is no requirement to modify the proposed Scheme. The Scheme of Arrangement (Demerger) appears to be fair and reasonable and is not contrary to public policy and not violative of any provisions of law. All the statutory compliances have been made under section 230 to 232 of the Companies Act, 2013.

Taking into consideration all the above, the Company Petitions are allowed, and the Scheme is hereby sanctioned which shall be binding on all the Equity Shareholders, secured and unsecured creditors of the companies concerned and their respective employees. The Scheme shall become effective from the Appointed Date viz., 01.04.2018.

However, it is further clarified that this Order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges, if payable, as per the relevant provisions of law or from an applicable permissions that may have to be obtained or even compliances that may have to borne as per the mandate of law.

The Companies to the said Scheme or other persons interested shall be at liberty to apply to this Bench for any direction that may be necessary with regard to the working of the said Scheme.

The Petitioner Companies shall file with the Registrar of Companies the certified copy of this Order within 30 days of the receipt of the order.

The Order of sanction to this Scheme shall be prepared by the Registry as per the relevant format provided under the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 notified on 14th December, 2016.

All concerned regulatory authorities to act on a copy of this order along with the Scheme duly authenticated by the Deputy Director or the Assistant Registrar (as the case may be), National Company Law Tribunal, Chennai Bench.

Thus, the Scheme stands sanctioned and the Company Petition Nos. CP/451 & 452/CAA/2019 stand disposed of.