JITENDRA R SUKHADIA Vs. ALEMBIC CHEMICAL WORKS COMPANY LIMITED

JUDGEMENT

(1.) This appeal is directed against the judgment and order dated 12/09/1986 passed by the learned Company Judge in Company Petition No. 30 of 1986 sanctioning the scheme of amalgamation of Neomer Limited (Neomer for short) with Alembic Chemical Works Company Limited respondent No. 1 Company (respondent-Company for short). The appellants are the shareholders of the respondent-Company. Some of them are also employees of the respondent-Company.

(2.) The authorised capital of the respondent-Company is Rs. 8 0 0 0 divided into 7 90 0 equity shares of Rs. 100.00 each and 10 0 9 redeemable cumulative preference shares of Rs. 100.00 each. The issued and subscribed capital of the respondent-Company is Rs. 3 46 92 0 divided into 3 44 920 equity shares of Rs. 100.00 each fully paid up and 2000 9% redeemable cumulative preference shares of Rs. 100.00 each fully paid up. The respondent-Company is engaged in manufacture and sale of pharmaceutical and chemical products. It is also authorised by its object clause to undertake to manufacture produce use buy and sell and otherwise deal or traffic in natural man-made and synthetic yarns stable fibers mono-filaments multi-filaments etc. The respondent-Company had promoted Neomer which is engaged in manufacture of Polypropylene Staple Fibre (PSF for short). Neomer is also authorised by its object clause to manufacture produce use buy sell and otherwise deal or traffic in natural man-made and synthetic yarns staple fibres mono-filaments multi-filaments etc. It is also authorised to amalgamate with any other Company. The authorised capital of Neomer is Rs. 5 0 0 0 divided into 30000 0 equity shares of Rs. 10.00 each and 20 0 0 unclassified shares of Rs. 10.00 each. The issued and subscribed capital of Neomer is Rs. 2 95 77 500 divided into 29 57 750 equity shares of Rs 10/- each fully paid up and a sum of Rs. 1 42 875 being the amount of forfeited shares aggregating to Rs. 2 97 20 375 Neomer had in accordance with the policy of the Government of India set up a factory to manufacture PSF in a backward area at village Panelav district Panchmahals which is a notified backward district in the Gujarat State. It appears that Neomer had to face number of difficulties and the production of PSF could be commenced only in early 1977. The concept of Neomer was to introduce PSF having very low price to replace wool and shoddy yarn products. However with the steep increase in prices of petroleum products (basic raw materials) during the subsequent years the expectation of sales and profitability could not materials. It is stated that at the same time the Indian market was full oriented to the use of well established fibres like Nylon Polyester and Acrylic. The production of Neomer remained at a low level on account of the aforesaid constraints and it had included heavy losses. The financial position of Neomer became very adverse due to continuous losses suffered by it. The large cash losses affected its liquidity position. As on 31/05/1985 its liabilities were 720.82 lacs of rupees as against the tangible assets of Rs. 537.01 lacs Thus the liabilities of Neomer for outweighed its assets. It became evident that the production of PSF alone cannot revive Neomer and because of its poor financial position Neomer was neither able to borrow funds nor was able to raise on its own the necessary funds to modify and/or diversify its activities. Under the circumstances the financial institutions who were secured creditors of Neomer submitted a proposal of amalgamating Neomer with the respondent-Company. It was suggested that the proposed amalgamation would not only provide necessary support financially but also result in certain concessions and reliefs. It was hoped that amalgamation would revive Neomer by better utilisation of production facilities of existing product lines and additional product lines like polypropylene multi-filament yarn and polypropylene non-woven products. It was noticed that there was wide application of polypropylene filement yarn. the respondent-Company which is engaged in pharmaceutical line was also in need of some diversification for improving long term profitability. It was hoped that required diversification would be provided by Neomer pursuant to the amalgamation. With the amalgamation the respondent-Company would be able to use the present infrastructure of Neomer for both existing and new product line and it was felt that resultant production would be more economical. The respondent-Company would also be able to use infrastructure for its own purpose. The financial institutions also agreed that if the proposed amalgamation ultimately went through certain other concessions like waiving of compound and penal interest and phased out repayment of term loans can be provided to the respondent-Company. If the amalgamation was approved under Sec. 72A of the Income Tax Act the respondent-Company would get benefit of carried forward losses. It was in the aforesaid background that the Board of Directors of the respondent-Company and Neomer decided to amalgamate Neomer with the respondent-Company with effect from 1/01/1983 and framed the scheme of proposed amalgamation. The specified authority accorded its a proval to the proposed amalgamation under Sec. 72A of the Income Tax Act. The Central Government also approved amalgamation scheme under Sec. 23(2) of the Monopolies and Restrictive Trade Practices Act.

(3.) By an order dated 6/12/1985 passed in Company Application No. 231 of 1985 the learned Company Judge directed the respondent-Company to convene meetings of equity shareholders preference shareholders depositors trade creditors. debenture holders and secured creditors of the respondent-Company for the purpose of considering the aforesaid scheme of amalgamation. Notices of the meetings were served individually to the members of each of the above class together with a copy of the scheme of amalgamation and explanatory statement as required by Sec. 393 of the Companies Act. Notice of the meetings was also advertised as directed by the Court by advertisement dated 23/12/1985 Meetings were held on 23/01/1986 and the Chairman Mr. R. B. Amin submitted his report of the meetings to this Court on 31/01/1986 The scheme of amalgamation was approved by the meeting of equity shareholders by majority 1240 equity shareholders of the respondent-Company including proxies holding 2 4 739 equity shares voted in favour of the proposed scheme of amalgamation being adopted and carried into effect 174 equity shareholders including proxies holding 452 equity shares votedagainst the proposed scheme of amalgamation. It would thus appear that 87.90% of the equity shareholders present and voting had voted in favour of the scheme was 99.78% of the total votes cast. 12.1% of the equity shareholders present and voting had voted against the scheme and the votes cast against the scheme was 0.22% of the total votes cast. Meeting of the preference shareholders of the respondent-Company unanimously approved the scheme of amalgamation. The scheme of amalgamation was approved by the majority of depositors who were present at the meeting Out of 785 depositors who were present of the meeting 772 voted in favour of the scheme of amalgamation which 6 voted against. Meetings of trade creditors debenture holders and secured creditors unanimously approved the scheme of amalgamation.