Sargon Geosynthetics Limited vs Maccaferri Environmental Solutions Private Limited

Rajive Bhalla, J.—Sargon Geosynthetics Limited has filed the instant petition, u/s 391 of the Companies Act, 1956, inter alia pleading that an order be passed to dispense with the convening, holding and conducting of meeting of share-holders, secured creditors and unsecured creditors, for the purpose of approving with or without modification, the proposed scheme of amalgamation, whereby the entire business and undertaking of the petitioner/transferor company, M/s Sargon Geosynthetics Limited would be amalgamated with Maccaferri Environmental Solutions Private Limited, the transferee company.

Counsel for the petitioner asserts that the scheme of amalgamation would be beneficial to both the transferee and transferor companies. The scheme of amalgamation is a compromise or an arrangement between the company and its shareholders, u/s 391(1)(b) of the Companies Act. The former company holds, by itself or through its nominees, 100% of the equity shares of the transferor company. The scheme of amalgamation would, therefore, ensure a consolidation of the business. Both companies compliment each other''s strength and capabilities and post amalgamation would enhance the transferee company''s effectiveness. The scheme of amalgamation is commercially and economically viable and feasible and would make available larger benefits, financial, managerial, technical etc. to the amalgamated business entity. The amalgamation would necessarily lead to a rationalization of administration, organizational efficiencies, reduction in overhead and other expenses and optimal utilization of recourses.

It is further submitted that the Board of Directors of the petitioner/transferor company has approved the draft scheme, as is apparent from the Board resolution (Annexure P-2). The transferor company was incorporated on 26.7.1976 and after change of its name is now known as Sargon Geosynthetics Limited with its registered office at Gurgaon. The principal objects have been detailed in the Memorandum and Articles of Association of the Transferor Company (Annexure P-3). As per the documents, placed on record, the entire share capital of the Transferor company is subscribed by the Transferee company - Maccaferri Environmental Solutions Private Limited and its nominees. The Transferee company, on the other hand, was incorporated on 24.4.1998 with its registered office at Pune. The objects of the Transferee Company have been set out in the Memorandum and Articles of Association (Annexure P-6). The share capital structure of the Transferee Company has been detailed in Annexure P-7.

It is further submitted that the entire liability of the petitioner-company would be taken over by the transferee company. The rights and interest of the creditors would, therefore, not be adversely affected. The creditors, secured or unsecured, are not called upon to sacrifice their claims nor are they called upon to modify or compromise their claims, in any manner. The scheme of amalgamation would not reduce or extinguish the claim of creditors, in any manner. It is further submitted that the scheme of amalgamation, if approved, would be beneficial to the creditors, as the total assets of the transferee company, after the proposed amalgamation, would be more than sufficient to clear the liabilities of the petitioner-company.

The entire share capital of the transferor company is held by the transferee company or its nominees. The equity share holders of the transferor company have consented to the scheme. The waiver of the meeting of creditors, secured or unsecured would not affect their rights adversely in any manner.

It is further submitted that the High Court of Judicature at Bombay, pursuant to a motion by the transferee company has already dispensed with the holding of meeting of the shareholders and creditors of the said company, vide order dated 11.4.2008.

During the pendency of the present petition, Objections have been filed by an unsecured creditor, namely, Bharat Spun Pipe and Construction Co. Counsel for the Objector/unsecured creditor submits that a meeting of unsecured creditors must be convened, as any deviation from the procedure, prescribed by Section 391 of the Companies Act, is not permissible. It is submitted that the scheme of amalgamation, if sanctioned, would necessarily have an adverse affect on the rights of unsecured creditors more particularly the rights of the objector. It is further submitted that in addition to the present petition, the objector has also filed a petition for winding up of the transferor company. It is further argued that the clauses in the scheme of amalgamation, which appears to protect the rights of creditors, would not suffice to dispense with the meeting of unsecured creditors. A meeting of unsecured creditors is mandatory and can only be dispensed with, where all unsecured creditors agree that such a meeting be waived. It is further submitted that the scheme of amalgamation be rejected, as the transferor company has not filed the latest audited statement of accounts. The latest audited statement of accounts, appended as Annexure P-4 is for the year ending March, 2007. The balance sheet, as on 31.3.2008, does not bear the signatures or stamp of a Chartered Accountant or of any Director of the company. It is argued that no reason has been set out for waiver of the meeting of secured and unsecured creditors and in the absence thereof, the petitioner-company be directed to convene meetings of secured/unsecured creditors. It is also submitted that the petitioner is an unsecured creditor and as on 31.12.2007 is owned a sum of Rs. 40,26,198/- by the petitioner company. Before filing the present petition, the objector was requested to furnish his consent for amalgamation. The objector refused and on 13.2.2008, issued a notice of demand through its counsel. In reply to the said notice, the petitioner-company has changed its stand and stated that as per the accounts, drawn up on 31.12.2007, a balance is shown outstanding against the objector. This complete alteration of stand is unjustified and unlawful and the statement of account, appended with the present petition, is fabricated and an attempt to play a fraud upon the creditors. It is, therefore, prayed that an order be passed directing meeting of secured and unsecured creditors.

I have heard counsel for the petitioner, as also counsel for the Objector.

As noticed herein above, Sargon Geosynthetics Limited and Maccaferri Environmental Solution Private Limited have presented a scheme of amalgamation, salient features whereof are detailed in the scheme itself. It is not denied that the equity shareholders of the transferor company, who are none other than the transferee company or its nominees have accorded their consent to the scheme of amalgamation and have no objection if the meeting of equity shareholders, is waived.

The dispute that survives adjudication is whether, in view of the facts and circumstances, narrated herein above, and in view of the terms and conditions of the scheme of amalgamation, the meetings of secured and unsecured should be waived. As per the statement of accounts, there are three secured creditors, namely, City Bank, Bajaj Auto Finance Limited and Union Bank of India, for a total amount of Rs. 5,99,276/-. The unsecured creditors have been named in the list of unsecured creditors. However, objections have been filed by M/s Bharat Spun Pipe and Construction Co., claiming itself to be an unsecured creditor. The objector in essence, prays that a meeting of the unsecured creditors be notified and till such time, as the amounts payable to it, are not settled, by the petitioner company, the scheme of amalgamation be not sanctioned. The objector, as noticed herein above, has submitted detailed objections alleging various malpractices on the part of the transferor company in their business relationship with the objector, the non-filing of the latest audited statement of accounts etc. It is, however, not disputed by counsel for the objector that this Court may, in the exercise of its discretion, and upon being satisfied of the need to do so, waive the convening, holding and conducting of meetings of equity shareholders, secured and unsecured creditors. It is, therefore, apparent that in view of the prayer for waiver of meetings, this Court would be called upon to opine as to the bona fides of the prayer for waiver and whether the objector has pointed out any legal or factual impediment that should lead to a rejection of the prayer for waiver of meetings.

The only objection, against the prayer for waiver of the meeting has been raised by an unsecured creditor, namely, Bharat Spun Pipe & Construction Co. In essence, it is asserted that the petitioner-transferor company should discharge its debt towards the objecting company before the scheme is sanctioned, as sanction of the scheme without holding a meeting of unsecured creditors would adversely affect the rights of the creditors, and a meeting of unsecured creditors be, therefore, convened so as to ascertain their views with respect to the scheme of amalgamation.

As noticed herein above, and more particularly by reference to the clauses of the scheme of amalgamation, the rights of creditors, secured and unsecured, have been protected.

The salient features of the scheme of amalgamation have been set out in the scheme. Relevant paragraphs, necessary for adjudication of the prayer made in this petition, are re-produced hereinbelow:

B-8(a). All secured and unsecured debts (whether in Indian rupees or in foreign currency), all liabilities, duties, obligations and undertakings of the Transferor Company of any nature whatsoever along with any charge, encumbrance, lien or .. security thereon (hereinafter referred to as the ''Liabilities'') shall, pursuant to the applicable provisions of the Act, without any further Act, instrument, deed be and stand transferred to and vested in or deemed to have been transferred to and vested in the Transferee Company, so as to become the Liabilities of the Transferee Company and it shall not be necessary to obtain the further consent of any third party or other person who is a party to any contract or arrangement by virtue of which such Liabilities have arisen in order to give effect to the provisions of this Clause.

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(f) All loans raised and utilized and all debts, duties, undertakings, liabilities and obligations incurred or undertaken by the Transferor Company after the Appointed Date and prior to the Effective Date subject to the provisions of this Scheme shall be deemed to have been raised, used, incurred or undertaken for and on behalf of the Transferee Company and to the extent they are outstanding on the Effective Date, shall upon the coming into effect of this Scheme and pursuant to the applicable provisions of the Act, without any further act, instrument or deed be and stand transferred to or vested in or be deemed to have been transferred to and vested in the Transferee Company and shall become the debts, duties, undertaking, liabilities and obligations of the Transferee Company which shall meet, discharge and satisfy the same.

X XXX XXX XX

B-8 Legal Proceedings:

Upon the coming into effect of this scheme, all suits, actions and proceedings (''the Proceedings'') by or against the Transferor Company pending and/or arising on or before the effective date shall be continued and be enforced by or against the Transferee Company as effectually as if the same had been pending and/or arisen by or against the Transferee Company.

B-9 Contracts:

(a) Upon the coming into effect of this Scheme, and subject to the provisions of this Scheme, all contracts, deeds, bonds, agreements, arrangements, assurances and other instruments of whatsoever nature including all tenancies, leases licenses (''the Contracts'') to which the Transferor Company is a party or to the benefit of which the Transferor Company may be eligible and which are subsisting or having effect immediately before the Effective Date, shall be in full force and effect in favour of or against the Transferee Company and may be enforced as fully and effectually as if, instead of the Transferor Company, the Transferee Company had been a party or obligee thereto. The Transferee Company may if and wherever necessary, enter into and/or issue and/or execute deeds, writings, or confirmations, at any time, enter into any tripartite arrangements, confirmations, or novations, prior to the Effective Date, to which the Transferor Company, will, if necessary, also be a party in order to give formal effect to the provisions of this clause.

(b) The Transferee Company may, at or any time after the coming into effect of this Scheme, in accordance with the provisions hereof, if so required, under any law or otherwise, execute deeds of confirmation in favour of any party to any contract or arrangement to which the Transferor Company is a party to any writings as may be necessary to be executed in order to give formal effect to the above provisions. The Transferee Company under the provisions of Part B of this Scheme, be deemed to be authorized to execute any such writings on behalf of the Transferor Company and to carry out or perform all such formalities or compliances referred to above on the part of the Transferor Company to be carried out or performed.

A perusal of the above re-produced extract of the scheme of amalgamation prima facie suggests that the scheme of amalgamation protects the rights of creditors, both secured and unsecured.

The Transferee Company i.e. Maccaferri Environmental Solutions Private Limited would, therefore, necessarily be required to discharge any liability that may have accrued against the Transferor Company with respect to its creditors both secured and unsecured. It is true that as a general rule, before sanction of the scheme of amalgamation, meeting of equity shareholders, secured creditors and unsecured creditors are to be convened. The general rule, however, admits to an exception, more particularly where there appears to be no factual or legal impediment to the waiver of such meetings. In the present case, as held herein above, the interest of the creditors, both secured and unsecured would be suitably protected by the scheme of amalgamation. The objector would be entitled to press its claim, as much, against the transferor company, its assets, as also against the transferee company or its assets, thus, protecting the rights of all creditors, whatsoever.

A scheme u/s 391 of the Companies Act, more particularly a scheme, u/s 391(1)(b) of the Companies Act, is an arrangement between a company and its member or any class of them. The object of such an arrangement of amalgamation is to create a corporate entity i.e. commercially and economically stronger than the two companies, and would lead to a better management of financial, managerial and technical matters, thus, creating a better corporate entity. The creditors, on the other hand, while opposing the prayer for waiver of meeting and the scheme of amalgamation, must, establish that the scheme is mala fide or fraudulent or is likely to adversely affect their rights. The scheme of amalgamation cannot be used as a tool by a creditor to recover his money or to coerce a company to pay its dues, whether disputed or not. The objector, in my considered opinion, has failed to allege or assert that the scheme is in any manner mala fide or fraudulent. The objector has failed to advance any substantial argument to show that the scheme would adversely affect his rights or the rights of creditors.

As noticed herein above, the interest of creditors, both secured and unsecured, has been adequately protected by the scheme and more particularly when counsel for the petitioner, by reference to the relevant clause of the scheme of amalgamation, has submitted that the claims of all unsecured creditors, if established, would be the liability of the transferee company, I find no reason to accept the objections, against a plea for waiver of the meetings. The objections are, therefore, rejected. However, it would be necessary to mention here that the objector would be entitled to raise any such objection, as may be available to him, during the stage of second motion.

In view of what has been stated above, I find no impediment factual or legal, in the exercise of discretion, to decline the prayer for waiver of the meetings of the shareholders and the creditors, both secured and unsecured of the petitioner-company. Consequently, the present petition is allowed, the meetings of equity shareholders, secured creditors and unsecured creditors of the petitioner company are dispensed with and liberty is granted to file a second Motion, in accordance with law.