- (1.) BACKDROP This appeal would involve Scheme of Arrangement between J.K. Agri Genetics Limited and Florence Alumina Limited, sanction of which was refused by the learned company Judge vide judgment and order dated May 20, 2010 in C.P. No.361 of 2006, that gave rise to the present appeal. The application was opposed by two shareholders namely, Shri Krishnagopal Motilal Chandak, the respondent no.3 and Ramesh Kumar R. Fofalia being respondent no.4. They represented about two per cent of the shareholding in J.K. Agri Genetics. They however claimed, they did hold proxies, that were wrongfully rejected at the meeting of the shareholders. Even if the proxies were taken into account that would not have any remarkable increase in the shareholding pattern as we find from the record. As per the Scheme of Arrangement J.K. Genetics and Florence Alumina agreed to have re-alignment of business operation through demerger. The transferor company was listed at the Bombay Stock Exchange as we find from the record. J.K. Genetics was incorporated on May 25, 1993 whereas Florence Alumina was set up in March 2000. The transferor company claimed, they wanted to create focussed entity on the core business of "Seed Undertaking" and proposed re-alignment of business operation by transferring the "Seed Undertaking" of J.K. Genetics to Florence Alumina in exchange of share premium. They claimed that it would have a larger interest of both the companies and their shareholders. As per the scheme, "Seed Undertaking" was defined as all assets pertaining to research and development production marketing of hybrid seeds. The meeting passed the resolution in favour of the scheme by overwhelming majority save and except objection raised from shareholders having insignificant holding. The petition for sanction came up after advertisement. Central Government did not raise any objection to the said scheme being sanctioned. Chandak and R. Fofalia however objected to the said scheme as according to them, the share of Florence Alumina that was being offered in exchange of transfer of undertaking was grossly undervalued. The Central Government filed affidavit through the Regional Director. They objected to a portion of the scheme as pointed out in the said affidavit. According to them, the scheme would attract appropriate registration fee and stamp duty. It would also require compliance of Sections 16 and 94 of the Companies Act 1956. The shareholding could only be increased as per the appropriate provisions of law and not as suggested in the scheme and the Clause pertaining thereto should be deleted. They stated, unless there was appropriate increase of authorized capital in Florence Alumina it would not be in a position to allot appropriate shares to J.K. Agri Genetics Ltd and its shareholders in respect of the "Seed Undertaking" that was being transferred to it. The Central Government also objected to the free reserve as also change of name of the company after its demerger. The Central Government also objected, unless there was appropriate increase of subscribed capital as per the provisions of Section 81 of the said Act of 1946 and such increase was approved by a special resolution by the shareholders the scheme could not be implemented.
(2.) Chandak also filed affidavit. According to Chandak, the re-structure by way of demerger would have achieved the growth of the company. It would affect the interest of the minority shareholders of J.K. Genetics and would make them hopeless insignificant minority. The sole intention was to undervalue the shares. He also elaborated how the promoters of J.K. would gain control of the shareholding having a controlling block of shares to the exclusion of the minority. He also objected the conversion of redeemable preference shares and the nonconvertible bonds, the way it was suggested in the scheme. Chandak also objected to the manner of holding of the meeting of the shareholders including objection raised with regard to rejection of proxies. He claimed to have filed affidavit on his behalf as well as other ninety nine shareholders.
(3.) R. Fofalia also filed affidavit as would appear from Page 618-645 of the paper book (Volume-III). He also raised similar objections like Chandak. He elaborated how illegalities were committed in holding of the meeting only to support the interest of the controlling block of shares.;