In Re: Nova Polyyarn Ltd.

Jayant Patel, J.—Present petitions are for sanctioning the scheme of demerger of Nova Petrochemicals (hereafter referred to as ''Demerger Company'', petitioner of Company Petition No. 2 of 2009). Nova Polyyarn Limited is the resulting company (petitioner of Company Petition No. 3 of 2009). The scheme of the arrangement is produced at Annexure E to the petition.

In Company Petition No. 2 of 2009 vide order dated 26-11-2007 passed by this Court, as the consent letters of equity shareholders, unsecured creditors were produced the said meetings were dispensed with by recording the statement that there is no secured creditors of the company.

In Company Petition No. 3 of 2009, vide order dated 26-11-2007 in Company Application No. 529 of 2007, meetings of equity shareholders, creditors for secured loans and meetings of secured creditors and unsecured creditor were ordered to be convened. Accordingly, the meetings have been convened and the chairman has filed the report dated 22-12-2008. Copy whereof is produced at Annexure G, whereby the equity shareholders as well as secured creditor had approved the scheme but secured creditors suggested modification, which has also been incorporated and thereafter, scheme was approved by requisite majority.

Both the petitions came to be admitted on 12-1-2009 and it was ordered to be published into daily newspapers, namely, ''Indian Express''(English daily) and ''Sandesh''(Gujarati daily) both Ahmedabad editions and the publication in the Government Gazette was dispensed with. Notices were also issued to the Central Government through the Regional Director, Ministry of Corporate Affairs. It was also observed by the Court for issuing the notices to the petitioners of the Company Petition Nos. 224 of 2007 and 298 of 2008, which were pending for seeking winding up of the company concerned, since they were also to be affected by present scheme of demerger.

The affidavit has been filed dated 2-2-2009 stating that the order for publication is complied with and together with the said affidavit, the relevant abstract of the advertisement in the newspapers is also produced. It is stated in additional affidavit filed on behalf of the petitioning company dated 21-8-2009 at para 2 that none has approached to take copies of the petition and no one has filed any objections except the petitioner of Company Petition Nos. 224 of 2007 and 298 of 2008. In a very affidavit, it has been further stated that the matter has been settled with the petitioner of Company Petition Nos. 224 of 2007 and 298 of 2008 and they have withdrawn the petitions. The copy of the order passed for withdrawal of such petition dated 20-4-2009 in Company Petition No. 298 of 2008 and on 30-7-2009 in Company Petition No. 224 of 2007 are also produced with the said affidavit. Under these circumstances, direction for publication is complied with as well as objection as was recorded by the Court qua the aforesaid both the petitioners of Company Petition Nos. 224 of 2007 and 298 of 2008 also would no more survive.

On behalf of the Central Government, Mr. R.K. Dalmiya, Deputy Registrar of Companies, has filed the affidavit raising objections on basis of communication received by the Registrar of Companies from the office of Regional Director dated 1-4-2009. The first objections relates to for directing the petitioning companies to submit the latest financial statement before this Court at the time of hearing. The said objection is complied with and would no more survive, in view of the aforesaid affidavit dated 21-4-2009 together with which the balance-sheet as on 31-3-2008 and thereafter, unaudited balance-sheet to 31-12-2008 have been produced.

The second objection raised on behalf of the Central Government reads as under:

(ii) As per Clause 29(c) of the scheme, upon the scheme being effective the name of the resulting company stand changed to CIL Nova Petrochemicals Limited and the name of Demerged company would stand changed to GSL Nova Petrochemicals Limited. In this connection, Demerged company and resulting company may be directed to comply with the provision of Sections 20 and 21 of the Act since availability of name is subject to availability as approved by the Registrar of Companies at the time of making such application for adoption of new name, as under MCA 21 system it is systemically not possible to reserve names without a formal application made by the applicant and allotment of the same by the official of the Registrar of Companies.

In the additional affidavit, reply has been submitted by and on behalf of the petitioner-company as under:

That the provisions of Section 391 being an independent code, the change of name is covered under the principle of ''Single Widow Clearance'', no approval of Central Government under Sections 20 and 21 is required. However, the companies will file necessary forms in order to facilitate RoC to issue fresh certificate of incorporation consequent upon change of name.

As such the issue is covered by the decision of this Court in case of Norfolk Infotech (P.) Ltd. Company Petition No. 30 of 2007 and allied matters. Therefore, such objections are not to operate as a bar to this Court in denying the sanction to the scheme of arrangement for demerger, but keeping in view the aspect of availability of the names, only observation deserves to be made is that the scheme of demerger would stand operated for the change of name provided, the name is available with the Registrar of Companies. In the event, the name is not available, existing names of demerged company will have to be retained. Hence, order accordingly.

The third objection raised on behalf of the Central Government is as under:

That it is observed from para 8 of the Notes to Account in Schedule 19 attached to the published Accounts for 2007-08 of the demerged company that the Debitors include Rs. 224.28 lakhs (previous year Rs. 8.27 lakhs) due from private companies in which some of the Directors are interested as directors and Rs. 2.56 lakhs (previous year Rs. 2.56 lakhs) due from the firm in which some of the directors are interested as partners. This disclosure points to a possible violation of Section 297. Hence, when the matter taken up with the demerged company, it admitted to the violation of Section 297 and represented that it would file compounding application for the same. Moreover, from para 9 of the Notes of Accounts in Schedule 19 of the Accounts for 2007-08 of the demerged company states that the loans and advances include Rs. 996.79 lakhs, (previous year Rs. 878.89 lakhs) due from private companies in which some of the Directors are interested as Director and Rs. 117.86 lakhs (previous year Rs. 117.86 lakhs) due from the firms in which some of the Directors are interested as partner. When the demerged company was asked to clarify as to compliance of Section 295 in respect thereof, it had represented (copy enclosed and marked as Annexure - ''A'' to this affidavit) that this are ''Trade Advances'' without submitting any proof/evidence to that effect in view of lack of any evidence to the Company. It appears that the provisions of Section 295 have been contravened in this respect. Hence, the Registrar of Companies is advised to issue show-cause notices for the same. The above facts are being brought to the notices of this Hon''ble Court since these are "Related Party transaction" which require prior approval of the Central Government under Sections 297 and 295 respectively and with which the demearged company did not comply. Further these are required to be appreciated from the point of view of Corporate Governance norms which demerged company is expected to comply with, being a listed company.

The explanation has been submitted on behalf of the petitioner-company in the additional affidavit, which reads as under:

That even the scheme of demerger is sanctioned by Hon''ble High Court both the demerged and resultant companies would exist and, therefore, necessary application will be made for compounding of default, if any, established to have been committed in accordance with the provisions of the Companies Act, 1956. It is respectfully submitted that alleged contravention of Section 295/ 297 of the Companies Act have not relevance when scheme to be sanctioned.

Further in view of the aforesaid explanation, as such the issue would not get concluded for the alleged contravention and will have to be kept open as per the decision of this Court in the case of Norfolk Infotech (P.) Ltd. (supra) and allied matters. Only observation deserve to be made is that the aspects of alleged contravention as per the competent authority and of available defence as permissible to the Company or its officers shall remain open and the sanction granted by this Court to the scheme shall not operate as a bar for initiation, continuation and conclusion of such proceedings in accordance with law. Hence, said clarification would operate accordingly.

No other adverse circumstances are brought to the notice of this Court.

Hence, present scheme of demerger is sanctioned subject to the modification and the observation made hereinabove, in the present order.

The petitions are allowed to the aforesaid extent.

The fees of the Central Government is quantified at Rs. 3,500 in each petitions. It will be open to the petitioner-company to pay the costs at Rs. 3,500 to Mr. P.S. Champaneri, learned Assistant Solicitor General for the Central Government directly by Account Payee cheque.