CP/162/2012 of Tirumala Cotton and Agro Products Private Limited Vs - on 31 December 2012

THE HON’BLE SRI JUSTICE SANJAY KUMAR

COMPANY PETITION NOs.161 AND 162 OF 2012

DATED 31[st] DECEMBER, 2012

COMPANY PETITION No.161 of 2012

Thirumala Hydel Power Projects Private Limited,registered office at D.No.26-141,Subbaiah Thota,Chilakaluripet, Guntur District,represented by its Director, Sri KPS Rama Rao.

….Transferor Company

COMPANY PETITION No.162 of 2012

Tirumala Cotton and Agro Products Private Limited,registered office at Thimmapuram,Chilakaluripet, Guntur District,represented by its Director, Sri P.Koti Rao.

…. Transferee Company

THE HON’BLE SRI JUSTICE SANJAY KUMARCOMPANY PETITION NOs.161 AND 162 OF 2012

C O M M O NO R D E R

Thirumala Hydel Power Projects Private Limited, the transferorcompany, and Tirumala Cotton and Agro Products Private Limited, thetransferee company, entered into a scheme of amalgamation wherebythe entire undertaking of the transferor company was to standtransferred to and vest in the transferee company. Sanction of thisCourt under Section 394 read with Section 391 of the Companies Act,1956 (for brevity, ‘the Act of 1956’) is sought by way of these companypetitions.

The transferor company is a private limited companyincorporated on 04.08.1998 in the State of Andhra Pradesh. ItsRegistered Office is situated at Chilakaluripet, Guntur District, AndhraPradesh. Its authorised share capital is Rs.3,00,00,000/- divided into30,00,000 equity shares of Rs.10/- each. Its issued, subscribed andpaid up capital is Rs.2,70,00,500/- divided into 27,00,050 equityshares of Rs.10/- each. Its main objects, as set out in its Memorandumof Association, include, inter alia, carrying on the business ofgenerating, harnessing, developing, accumulating, distributing andsupplying electricity by setting up thermal power plants by use ofliquid, gaseous or solid fuels etc; to construct, establish, operate,manage power stations, boiler houses, steam turbines etc.; and tocarry on the business of electrical, electronics, telecommunications,mechanical, civil and electrical engineers etc. As per its auditedbalance sheet dated 31.03.2011 the transferor company showed a net profit of Rs.81,07,479/-.

The transferor company has, in all, twenty four shareholders.Individual affidavits of all the shareholders are filed wherein theystated that they were aware of the proposed merger of the transferorcompany with the transferee company and that, having read andunderstood the scheme of amalgamation, they stated that the samewas fair and reasonable and that they accepted and approved thesame.

The transferor company, as per audited balance sheet dated31.03.2011, had only one secured creditor viz., Indian RenewableEnergy Development Agency Limited (IREDA), New Delhi. The extentof its liability to IREDA was Rs.8,68,19,367/-. The provisional balancesheet dated 31.03.2012 however reflected that the transferorcompany’s liability to this secured creditor stood reduced toRs.7,56,10,931/- by that date. IREDA furnished letter dated10/17.07.2012 expressing its no objection to the proposed merger ofthe transferor company with the transferee company, subject to theconditions enumerated therein. As the transferor company, along withthe individual guarantors who stood security for discharge of thisliability to IREDA, signed the said letter endorsing that they consentedto and agreed to the conditions, the same would be binding upon thetransferee company after the merger. Subsequently by letter dated21.12.2012, IREDA set out the details of the outstanding liability of thetransferor company and confirmed that, having gone through thescheme, it had already issued its no objection under letter dated10.07.2012. Taking note of the consent affidavits of the shareholders ofthe transferor company and the consent letter dated 10/17.07.2012 ofIREDA, the sole secured creditor of the transferor company, this Court,by order dated 24.07.2012 in Company Application No.821 of 2012,dispensed with the meeting of the shareholders and the securedcreditor of the transferor company.

As per the audited balance sheet dated 31.03.2011, the transferor company had no unsecured creditors. It however had currentliabilities to the tune of Rs.16,35,211/-. The provisional balance sheetdated 31.03.2012 reflects that the current liabilities of the companystood reduced to Rs.14,01,901/-. The total outstandings to other thanmicro enterprises and small enterprises, which stood at Rs.71,675/- inthe earlier balance sheet, stood reduced to Rs.71,568/- while theprovision for expenses of Rs.15,28,989/- came down to Rs.13,30,333/-. The cheques issued but not presented being of the value ofRs.34,547/- in the earlier balance sheet came down to zero.

By affidavit dated 24.12.2012, the Director of the transferorcompany stated that the dues to the tune of Rs.71,568/- had been paid.Details in this regard were furnished in Annexure-2A appended to thesaid affidavit, wherein the payment in cash of Rs.11,200/- andRs.2,377/- respectively to K.Tirumala Rao & Co. and Sri Sai LakshmiMill & Gin Stores, along with the payment by cheques of Rs.14,047/-,Rs.2,893/-, Rs.23,843/- and Rs.17,208/- to Sri Gajanan Cranes andHosists, Indira Electricals, APSPDCL and APSPDCL respectively areset out. In so far as the provision for expenses is concerned, Annexure-2A reflects that amounts to the tune of Rs.13,30,333/- have also beenpaid. Details of such payment in the form of receipts, cash vouchersand account statements have been filed along with the affidavit. In all,Rs.14,01,901/- has been cleared out of the current liabilities bringing itdown to nil.

The transferee company was incorporated on 14.09.1990 as aprivate limited company in this State. Its Registered Office is situated atChilakaluripet in Guntur District. Its authorized share capital isRs.9,00,00,000/- divided into 90,000 equity shares of Rs.1,000/- each.Its issued, subscribed and paid up capital is Rs.7,95,29,000/-comprising 79,529 fully paid up equity shares of Rs.1,000/- each. Itsmain objects, as set out in the Memorandum of Association, include,inter alia, production and purchase of cotton kapas; conversion of thesame into gin cotton, cotton seed and by-products, etc.; carrying on the

business of trading, manufacturing and extracting edible oils fromgroundnut, castor linseed, tobacco seed, sunflower, etc.; to take onlease, acquire, establish, ginning, pressing, spinning, weaving anddyeing factories and oil mills, etc.; purchase and taking of agriculturallands on lease for the purpose of growing cotton, paddy, pulse, etc.;and to generate, harness, develop, accumulate, distribute and supplyelectricity by setting up thermal power plants by use of liquid, gaseousor solid fuels, etc. As per its audited balance sheet dated 31.03.2011the transferee company showed a net profit of Rs.5,31,42,009/-. As perthe provisional balance sheet dated 31.03.2012, its net profit for thefinancial year 2011-12 stood at Rs.3,15,40,795/-.

The transferee company has, in all, 33 shareholders. All of themfurnished notarized individual affidavits praying for waiver of theshareholders’ meeting, wherein they stated that they were aware of theproposed merger of the transferor company with the transfereecompany and that, having read and understood the scheme ofamalgamation and the issue of shares in the transferee company, theydeclared that the same was fair and reasonable, that they did not haveany objection for the same and that they accepted and approved thescheme.

As per the audited balance sheet dated 31.03.2011, thetransferee company had secured loans of Rs.77,85,45,480/-. However,as per the provisional balance sheet dated 31.03.2012, the securedloans grew to Rs.87,03,80,417/-. These secured loans comprised longterm and short term loans from Tamilnad Mercantile Bank Limited,Guntur, and HDFC Bank Limited, Guntur. Tamilnad Mercantile BankLimited, Guntur, furnished letter dated 18.07.2012, wherein its ChiefManager, Guntur Branch, while setting out the details of the transfereecompany’s dues to it, stated that the Bank had no objection to themerger of the transferor company with the transferee company. Hefurther stated that the higher authorities of the Bank had alreadypermitted the merger process. Similarly, HDFC Bank Limited, Guntur, furnished letter dated 18.07.2012 stating that it had no objection to themerger of the transferor company with the transferee company and thatthe higher authorities of the Bank had already permitted the mergerprocess. The details of the outstandings of the transferee companywere also set out in the said letter.

The unsecured loans of the transferee company, as per theaudited balance sheet dated 31.03.2011, were Rs.2,30,39,584/-. Thisfigure comprised the deferred sales tax liability of Rs.1,13,201/- of thecompany to the State Government and loans repayable ofRs.2,29,26,383/- to others. The provisional balance sheet dated31.03.2012 however discloses that as on that date the unsecuredloans had grown to Rs.4,01,63,324/-. The break-up of this figure showsthat the deferred sales tax liability of the company to the Governmentstood reduced to Rs.28,811/- while its loans repayable to others grewto Rs.4,01,34,513/-. Letters of consent have been furnished by thetransferee company from these unsecured creditors. Tirumala TradingCorporation, Chilakaluripet, Guntur, furnished letter dated 18.07.2012stating that the transferee company owed it a sum of Rs.3,18,77,783/-as on 31.03.2012 and that it was aware of the proposed merger of thetransferor company with the transferee company. It further stated that,having read and understood the scheme of amalgamation, it was feltthat the same was fair and reasonable, that the concern had noobjection and that it accepted and approved the scheme. This letter issupported by the resolution dated 16.07.2012 passed by the partnersof the said concern agreeing to the furnishing of the letter of consent forthe merger of the transferor company with the transferee company andauthorizing the Director of the concern to give the written consent asrequired. By letter dated 18.07.2012, one Budati Lakshmi Vijay Kumarstated that he was the unsecured creditor of the transferee companyand that it owed him a sum of Rs.21,00,000/- as on 31.03.2012. Hefurther confirmed that he was aware of the proposed merger of thetransferor company with the transferee company and that, having read and understood the scheme of amalgamation, he felt that the samewas fair and reasonable, that he did not have any objection to thesame and that he accepted and approved the scheme. Letter dated18.07.2012 was furnished by one Bandarupalli Rama Krishna,wherein he confirmed that he was an unsecured creditor of thetransferee company and that it owed him a sum of Rs.38,24,240/- ason 31.03.2012. He further confirmed that he was aware of theproposed merger and that, having read and understood the scheme ofamalgamation, he felt that the same was fair and reasonable, that hedid not have any objection to the same and that he accepted andapproved it. A similar letter, bearing the date 18.07.2012, wasfurnished by Nadella Lakshminarayana, wherein he stated that he wasan unsecured creditor of the transferee company to the tune ofRs.3,85,000/- as on 31.03.2012 and that he accepted and approvedthe scheme. Letter dated 18.07.2012 was also furnished by oneChilakapati Vallabh stating that he was an unsecured creditor of thetransferee company and that he was owed a sum of Rs.15,00,000/- byit as on 31.03.2012. He confirmed that he was aware of the proposedmerger and that, having read and understood the scheme ofamalgamation, he had no objection to the same. One NadellaAnupama furnished letter dated 18.07.2012 confirming that she was anunsecured creditor of the transferee company which owed her a sum ofRs.4,47,490/- as on 31.03.2012 and that she had no objection to thescheme, having read and understood the same. These unsecuredcreditors, in toto, account for Rs.4,01,34,513, the sum total of the loansrepayable by the transferee company to others. They have allconsented to the scheme.

As regards the deferred sales tax liability of Rs.28,811/-, it isnow reported that the same has been paid. Treasury challan No.15264dated 20.12.2012 of the Government of Andhra Pradesh is produced inproof of the said payment.

In the light of the letters of consent produced by the transferee company from its shareholders, its secured and unsecured creditors,this Court, by order dated 24.07.2012 passed in Company ApplicationNo.822 of 2012, dispensed with the meeting of the shareholders andthe creditors of the transferee company.

The audited balance sheet dated 31.03.2011 of this companyreflected current liabilities to the tune of Rs.4,37,67,520/-. Theprovisional balance sheet dated 31.03.2012 however showed that thecurrent liabilities of the company as on that date came toRs.20,06,33,351/-. This figure comprised sundry creditors ofRs.9,58,89,725/-, creditors for capital goods of Rs.8,72,72,591/- andadvances received against sales of Rs.1,74,71,035/-. It is stated thatout of these current liabilities, the transferee company has alreadyrepaid the sum of Rs.19,07,26,549/-. Details of such payment werespelt out by the transferee company in its affidavit dated 18.12.2012.Therein, it stated that the outstanding sundry creditors to the tune ofRs.8,59,82,923/- had been cleared; the amount due to the creditors forcapital goods, being the sum of Rs.8,72,72,591, had been fully clearedand the advances received against sales, to the tune ofRs.1,74,71,035/-, had also been cleared. The repayment of thesecurrent liabilities would constitute 95.06% of the outstandings reflectedin the provisional balance sheet dated 31.03.2012 and would thereforebe far in excess of the number required by the statute for this class ofcreditors to approve the scheme. Proof of discharge of these currentliabilities has been filed in the form of account statements, cashvouchers and receipts in three separate volumes.

These company petitions were admitted on 05.09.2012 and thedate of the hearing of the petitions was directed to be advertised, asrequired by Rule 80 of the Companies (Court) Rules, 1959, in theVijayawada Editions of Deccan Chronicle (English daily) and AndhraBhoomi (Telugu daily). Notice under Section 394-A was ordered to theCentral Government and to the Official Liquidator under the secondproviso to Section 394(1) of the Act of 1956 respectively. Proof of publication in the Vijayawada Editions of Deccan Chronicle andAndhra Bhoomi newspapers was filed on 27.09.2012. It is stated thatno objections were received.

The Regional Director, South Eastern Region, Ministry ofCorporate Affairs, Hyderabad, filed affidavit dated 19.11.2012 whereinhe stated that as per the report dated 18.10.2012 of the Registrar ofCompanies, Andhra Pradesh, the transferor and transferee companieswere regular in filing their statutory returns and no complaints,investigations or inspections were pending against them. He furtherstated that the scheme of amalgamation had been examined and thatthere was no objection thereto.

The Official Liquidator filed report dated 29.11.2012, wherein hereferred to the fact that the audited balance sheet dated 31.03.2011 ofthe transferor company reflected that it had secured a loan ofRs.8,68,19,367/- from IREDA and that the letter dated 10/17-07-2012issued by IREDA reflected certain conditions imposed by it, subject towhich, it consented to the proposed amalgamation. Except for thisobservation, the Official Liquidator stated that the affairs of thecompanies were not conducted in a manner prejudicial to the interestsof the members or to public interest and that he had no objection to theproposed amalgamation. As already referred to supra, the transferorcompany and the guarantors, who stood security for its liability toIREDA, consented to the conditions imposed by IREDA in its consentletter and therefore, these conditions would be binding upon thetransferee company after the amalgamation. The only aspect raised bythe Official Liquidator thus stands settled.

Now, the scheme of amalgamation: Clause 10 of the schemesets out the objects/benefits of the amalgamation. It is stated that theamalgamation would result in better and efficient utilization of theresources of the transferor and transferee companies resulting insynergy of operations, captive consumption of the power generated bythe transferor company, which would provide uninterrupted power supply to the transferee company, and economies of scale. Theamalgamation, in general, was perceived to have beneficial results forboth the companies, their shareholders, employees and all concerned.The modalities of the scheme are set out in detail under clauses 4 to 9.Clause 7 deals with the staff, workmen and employees of the transferorcompany and states to the effect that all the staff, workmen and otheremployees on the permanent rolls of the transferor companyimmediately before the amalgamation would become the staff,workmen and employees of the transferee company on the basis thattheir services would be continuous and would not stand interrupted byreason of the transfer and that the terms and conditions of their servicewould not be in any way less favourable than those applicable to thembefore such transfer. Protection of their service benefits is dealt withunder clause 7.3. The consideration for the scheme of amalgamationis set out in clause 11 and reflects that, upon the scheme coming intoeffect, the transferee company would issue and allot to eachshareholder of the transferor company one equity share of Rs.1,000/-for every 189 fully paid up equity shares of Rs.10/- each held by suchshareholder in the transferor company as on the record date. Upon thescheme becoming fully effective, clause 11.6 provides that theauthorized equity share capital of the transferor company would standcombined with the authorized equity share capital of the transfereecompany, whereby the authorized equity share capital of the transfereecompany would stand enhanced to Rs.12,00,00,000/- divided into1,20,000 equity shares of Rs.1,000/- each. The shareholders of thetransferor company were to surrender their share certificates forcancellation to the transferee company whereby, the transferorcompany was to stand dissolved without winding up.

Though there is a seeming increase in the share capital of thetransferee company, which would normally attract the provisions ofSection 95 and 97 of the Act of 1956, in the light of the law laid downby this Court in SABOO LEASING PRIVATE LTD., In re[[1]], the certified copy of the sanction order which would be filed with theRegistrar of Companies within 30 days can be treated as notice to theRegistrar as envisaged by Sections 95 and 97 of the Act of 1956. Thenecessary changes required to be made in the Register by theRegistrar of Companies can be effected upon receiving the saidcertified copy of the order passed by this Court while sanctioning thescheme. In view thereof, there is no need for a separate notice to beissued to the Registrar in terms of Sections 95 and 97 of the Act of1956.

Further, as regards the clubbing of the share capital of thetransferor company with the transferee company, the Division BenchJudgment of this Court in KEMIRA LABORATORIES LTD., In Re[[2]]comes to the aid of the transferee company. The Division Bench,relying on the view taken by the Delhi High Court in TELESOUND

INDIA LTD., In Re[[3]],held that there would be no increase in theshare capital of the company in which the other company stoodmerged.

Again in MAGNAQUEST SOLUTIONS PVT LTD., In Re[[4]], alearned Judge of this Court held that as the authorised capital of thetransferor company, which is transferred to and stands vested in thetransferee company, was already subjected to payment of theprescribed fee, the contention that approval of the Registrar has to besought afresh and fees paid all over again must necessarily berejected.

In the light of this legal position, enhancement of the authorisedcapital of the transferee company upon the subject amalgamation doesnot require payment of fees afresh or separate adherence to Sections95 and 97 of the Act of 1956.

T h e Company Court, before it sanctions a scheme ofamalgamation, must be satisfied that the procedures prescribed in theAct of 1956 are duly complied with. The interests of the members and the creditors of the companies concerned must be protected by seeingthat they are duly and properly informed of the pros and cons of theproposed amalgamation and they take an informed decision. Thecommercial wisdom of the parties about the usefulness of the schemehas to be kept in mind by the Court, which would not sit in appeal andjudgment over the same. The Company Court’s jurisdiction to thatextent is not appellate but peripheral and supervisory. The supervisorcannot be the author or policy-maker. The merits of the amalgamationhave to be judged by the parties who arrive at their own reasonedjudgment and agree to be bound by such amalgamation. The Courtcannot scrutinize the scheme to find out whether a better schemecould have been adopted by the parties. The Company Court shouldalso verify whether the proposed scheme is violative of any legalprovision or contrary to public interest. It must also ensure that thescheme as a whole is just, fair and reasonable from the point of view ofprudent men of business taking a commercial decision beneficial tothe class represented by them for whom the scheme is meant. (Miheer

H. Mafatlal Vs. Mafatlal Industries Ltd[[5]]).

Applying the above norms to the case on hand, the statutoryrequirements are found to have been duly satisfied. The proposedamalgamation aims at better and efficient utilization of resources of thecompanies resulting in synergy of operations and economies of scale.The scheme is therefore for a discernible purpose. It is not found to beopposed to law or public interest.

This Court therefore considers it appropriate to sanction thesubject scheme of amalgamation. It is however to be noticed thatunder the scheme, the transferee company is required to issue equityshares to the shareholders of the transferor company entailingpayment of stamp duty under Article 20(d) of Schedule I-A of theIndian Stamp Act, 1899. Proof of such payment must therefore beenclosed along with the certified copy of this sanction order when filedwith the Registrar of Companies, Andhra Pradesh. The sanction is also subject to the transferee company abiding by the conditionsimposed by the secured creditor of the transferor company whileconsenting to the scheme. A certified copy of this order shall be filedwith the Registrar of Companies, Andhra Pradesh, within thirty days asrequired by Sections 394(3) of the Act of 1956 r/w Rule 81 of theCompanies (Court) Rules, 1959.

The company petitions stand disposed of accordingly.

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SANJAY KUMAR, J.

31[st] DECEMBER, 2012.

PGS

[1] (2003) 117 Comp Cas 728 (A.P.)

[2] (2007) 140 Comp Cas 817 (A.P.)

[3] (1983) 53 Comp Cas 926 (Delhi) (1983) 53 Comp Cas 926 (Delhi)

[4] (2008) 141 Comp Cas 728 (A.P.)

[5] 1997(1) SCC 579 1997(1) SCC 579