In Re: Nahar Spinning Mills Ltd.; In Re: Nahar Exports Ltd.; In Re: Nahar Capital and Financial Services Ltd.

Hemant Gupta, J.—The present petition is filed under sections 391 and 394 of the Companies Act, 1956 (hereinafter to be referred as "the Act") to seek approval/sanction of this Court to a composite scheme of demerger and arrangement in respect of Nahar Spinning Mills Ltd. (hereinafter to be referred as "petitioner No. 1") Nahar Exports Ltd. (hereinafter to be referred as "petitioner No. 2") and Nahar Capital and Financial Services Ltd. (hereinafter to be referred as "petitioner No. 3").

Petitioner No. 1 was incorporated on December 16, 1980, as a private limited company under the provisions of the Act and the word "private" was deleted from the name of petitioner No. 1 on December 9,1983, by the office of the Registrar of Companies, Punjab, H.P. and Chandigarh at Jalandhar. The authorised capital of petitioner No. 1 is Rs. 30,00,00,000 divided into 3,00,00,000 equity shares of Rs. 10 each, whereas issued, subscribed and paid up share capital is Rs. 16,69,03,238 excluding Rs. 13,68,512 allotment money unpaid, divided into 1,68,27,175 equity shares of Rs. 10 each. Petitioner No. 1 is engaged in the business of manufacture and export of yarns and hosiery garments as well as investment in securities. The equity shares of petitioner No. 1 are listed on the Bombay Stock Exchange Association Ltd. and National Stock Exchange of India Ltd. The unaudited balance-sheet duly signed by the company''s auditors as on December 31, 2005, along with segment-wise balance-sheet of investment business and textile business have been produced on record.

Petitioner No. 2, namely, Nahar Exports Ltd., was incorporated on November 11, 1988, as a public limited company under the Act with the Registrar of Companies, Punjab, H.P. and Chandigarh at Jalandhar. As on the appointed date of the proposed scheme, i.e.,. April 1, 2006, the authorised capital of petitioner No. 2 was Rs. 45,00,00,000 divided into 4,50,00,000 equity shares of Rs. 10 each, whereas issued, subscribed and paid up capital excluding allotment money unpaid was Rs. 35,07,76,566 divided into 3,54,75,037 equity shares of Rs. 10 each. Petitioner No. 2 is engaged in the business of the manufacture and export of cotton, synthetic and blended yarns and the investment business. The equity shares of petitioner No. 2 are listed on the Bombay Stock Exchange Association Ltd. and National Stock Exchange of India Ltd. The unaudited balance-sheet duly signed by the company''s auditors as on December 31, 2005, along with the segment-wise balance-sheet of investment business and textile business has been produced on record.

Petitioner No. 3, namely, Nahar Capital and Financial Services Ltd., was incorporated on March 31, 2006, as a public limited company under the Act with the Registrar of Companies, Punjab, H.P. and Chandigarh at Jalandhar. The said company has been formed for the purpose of taking over the investment business of petitioner No. 1 upon sanction/approval of demerger of its business activity by this court. Upon the approval of the scheme, new equity shares shall be issued and allotted by petitioner No. 3 to the shareholders of Nahar Spinning Mills Ltd. (petitioner No. 1), on the record date, to be fixed for the purpose as per scheme. Petitioner No. 3 shall make an application to the Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd., at Mumbai for listing and/or admitting for trading the new equity shares. As on the appointed date of the proposed scheme, the authorised capital of petitioner No. 3 was Rs. 15,00,00,000 divided into 3,00,00,000 equity shares of Rs. 5 each, whereas issued, subscribed and paid up capital was Rs. 5,00,000 divided into 1,00,000 equity shares of Rs. 5 each. It has also been averred that petitioner No. 3 shall apply to the Registrar of Companies, Punjab, H.P. and Chandigarh at Jalandhar for obtaining a certificate of commencement of business after its statutory registration as non-banking finance company with the Reserve Bank of India. With a view to reorganise the business of petitioners Nos. 1 and 2, the board of directors of petitioners Nos. 1 and 2 have resolved that the investment business of petitioner No. 1 be transferred to petitioner No. 3 and the textile business of petitioner No. 2 be transferred to petitioner No. 1 which would be beneficial commercially as well as financially to all the petitioner companies. Such resolutions by the board of directors of petitioners Nos. 1 and 2 were passed on March 30, 2006, whereas the board of directors of petitioner No. 3 passed such resolution on March 31, 2006, adopting the composite scheme of demerger and arrangement.

This Court on August 17, 2006, in Company Petition No. 118 of 2006, directed to convene separate meetings of shareholders, secured and unsecured creditors of petitioners Nos. 1 and 2 on October 7, 2006, for the purpose of considering and, if thought fit, to pass with or without modification the proposed composite scheme of demerger and arrangement. The aforesaid meetings were held under the chairmanship of the chairman appointed by this court. In respect of petitioner No. 1, 43 equity shareholders present either in person/proxy or through their authorised representatives, holding 96,76,292 equity shares having 96,76,292 votes attended the meeting. The vote of one shareholder, namely, Faqir Chand Jandey holding 150 equity shares having 150 votes was declared invalid. Thus, 42 equity shareholders holding 96,76,142 equity shares having 96,76,142 votes representing 100 per cent, in number as well as value, have approved the composite scheme of demerger and arrangement in accordance with Section 391 of the Act. 76 unsecured creditors of petitioner No. 1 representing the debts of an aggregate sum of Rs. 3,02,36,319.16 attended the meeting. The votes of 2 unsecured creditors representing the debt of an aggregate sum of Rs. 2,45,779 was rejected as invalid votes. Thus 74 unsecured creditors representing the sum of debt of Rs. 2,99,91,140.16 in value approved the composite scheme of demerger and arrangement unanimously in accordance with Section 391 of the Act. 4 secured creditors of petitioner No. 1 representing the debts of an aggregate sum of Rs. 25,960.34 lakhs in value approved the composite scheme of demerger and arrangement unanimously. 58 equity shareholders of petitioner No. 2 were present either in person/proxy or their authorised representatives, holding 2,11,41,085 equity shares having 2,11,41,085 votes attended the meeting. The votes of 5 equity shareholders holding 14,413 equity shares having 14,413 votes were rejected. Thus, out of 53 valid votes, 49 shareholders holding 2,11,22,272 equity shares having 2,11,22,272 votes cast their ballot in favour of the scheme. One shareholder having four votes holding 4,400 equity shares having 4,400 votes cast her votes against the scheme. Thus, the composite scheme of demerger and arrangement was approved by majority in numbers representing 99.98 per cent, in value. Similarly, 129 unsecured creditors of petitioner No. 2 were present through their authorised representatives, representing the debts of an aggregate sum of Rs. 1,96,77,188.49 in value, approved the composite scheme of demerger and arrangement unanimously. 5 secured creditors of petitioner No. 2 were present through their authorised representative, representing the debts of an aggregate sum of Rs. 1,35,20,17,778 in value approved the composite scheme of demerger and arrangement unanimously. The meeting of equity shareholders was dispensed with in respect of petitioner No. 3 and that there was no secured and unsecured creditor of the said company.

Notice of the present petition was published in the newspapers, namely, The Tribune, Times of India (All India edition), Punjab Kesari (Hindi) Delhi and Jalandhar editions, and Official Gazette of State of Punjab. Notice was also issued to the Regional Director, Northern Region, Ministry of Company Affairs, Noida. However, no objection has been received in pursuance of such publication except the chairman appointed for the meeting of petitioner No. 1 has forwarded a letter from the Cranials Printers vide forwarding letter dated October 18, 2006. In the said letter, it has been pointed out that the said printer has a claim of Rs. 3,54,336. In response to the said communication, an affidavit has been filed by one of the directors of petitioner No. 1 wherein it has been pointed out that the said M/s, Cranials Complex has supplied bar code stickers. Such stickers were not scannable and the foreign buyer has raised a claim of US $ 5277.75 on the company and the company had to pay the said amount to them. Therefore, petitioner No. 1 has raised debit note for Rs. 2,36,179.30. It is further pointed out that, as per company books of account, there is no outstanding money payable to M/s. Cranials Complex.

It has also been averred that upon the scheme being approved, Nahar Spinning Mills will continue to operate like an independent public limited company and, if any, suit or other proceedings of whatsoever nature are pending, the same shall be continued and shall be enforceable against the company and that in the event any liability is fastened upon the company with regard to the aforesaid matter by any civil court, the company shall pay such amount, as may be decreed, without demur.

In view of the said affidavit, it is apparent that the amount claimed by M/s. Cranials Printers is disputed liability of the company. The same needs to be settled by the competent court of law.

The Regional Director in his report has pointed out that petitioner No. 3 is a non-banking finance company which has been incorporated for the purpose of the scheme and certificate of commencement of business has not been issued as net owned funds are less than the prescribed norms of Rs. 2 crores as per Reserve Bank of India and that company has not yet got registered itself with the Reserve Bank of India.

I have heard learned Counsel for the petitioners at length. As per scheme, the investment business of petitioner No. 1, i.e., Nahar Spinning Mills Ltd., is to be demerged and transferred to petitioner No. 3, namely, Nahar Capital and Financial Services Ltd. As per balance-sheet in respect of investment business as on December 31, 2005, investments aggregating to Rs. 34,576.54 lakhs are proposed to be transferred to petitioner No. 3. Petitioner No. 3 on transfer of the investment business is to issue and allot one fully paid up equity share of Rs. 5 each in respect of one equity share of Rs. 10 fully paid up on the record date to be fixed by the board of directors in this regard. Accordingly, paid up value of each existing equity share of petitioner No. 1 of Rs. 10 shall stand reduced to Rs. 5 paid up value. Thus, demerger of the investment business would result into reduced paid up value of existing equity share of petitioner No. 1 by Rs. 5 and the balance Rs. 5 will be represented by fully paid up equity share of Rs. 5 of petitioner No. 3.

In the explanatory statement u/s 393 of the Act, annexure Pll, it has been averred that petitioner No. 3 shall apply to the Registrar of Companies, Punjab, Haryana, H.P. and Chandigarh for obtaining certificate of commencement of business after statutory registration as non-banking finance company with the Reserve Bank of India.

In view of the above, investment business aggregating to Rs. 34,576.54 of petitioner No. 1, as per balance-sheet ending on December 31, 2005, are permitted to be transferred to petitioner No. 3 as well as equity shareholdings in terms of the scheme. Such transfer of investments and equity shares is to facilitate petitioner No. 3 to seek registration from the Reserve Bank of India as a non-banking finance company as well as to obtain certificate of commencement of business.

The other aspect of the scheme is demerger and transfer of textile undertaking of Nahar Exports Ltd., petitioner No. 2 to petitioner No. 1. Nahar Exports Ltd. is engaged in the business of manufacture and export of cotton, synthetic and blended yarn and also investment business. It is thought prudent and expedient to consolidate the textile business of Nahar Exports Ltd. and petitioner No. 1 under a single umbrella by way of a demerger and arrangement which would lead to more efficient utilisation of resources and create a stronger base for the future growth of the amalgamated entity. Since such hiving off of the textile business of Nahar Exports Ltd., is not objected to by the Regional Director, Northern Region, Ministry of Company Affairs, Noida, and the same has been approved by the equity shareholders, secured and unsecured creditors of petitioners Nos. 1 and 2, the same is liable to, be sanctioned.

In the aforesaid circumstances and having regard to the averments made in this petition, the material placed on record, the affidavit filed by the Regional Director, Ministry of Company Affairs, Noida, I am satisfied that the prayer made in the petition deserves to be allowed in the manner detailed herein. Hence, sanction to the scheme of demerger and arrangement, annexure P9, is hereby granted u/s 391(2) read with Section 394 of the Companies Act, 1956, subject to petitioner No. 3 obtaining the certificate of commencement of business from the Registrar of Companies, Punjab and Haryana, H.P. and Chandigarh and also registration from the Reserve Bank of India as non-banking finance company within six months. In the event of failure to obtain requisite permission/sanction in accordance with law, the aforementioned scheme, annexure P9, shall stand revoked to the extent applicable in respect of petitioners Nos. 1 and 3.

The order of sanctioning the scheme in respect of petitioners Nos. 1 and 2 shall be duly notified by public notice in Punjab Kesari (Hindi) Delhi and Jalandhar edition, The Tribune, The Times of India (All India edition) and Official Gazette of Punjab Government within 30 days.

Any person interested shall be at liberty to approach this Court in the abovenoted matter for any directions that may be necessary.

The petition stands disposed of in terms of the aforesaid order.