@JUDGMENTTAG-ORDER
Sanjay Kumar, J.@mdashCompany Petition No. 90 of 2012 is filed by Brilliant Bio Pharma Limited, the demerged company, while Company Petition No. 91 of 2012 is filed by Brilliant Industries Limited, the resulting company. By way of these petitions, the two companies seek sanction of this Court under Sections 391 to 394 of the Companies Act, 1956 (for brevity, ''the Act of 1956'') apropos their proposed scheme of arrangement, whereby the business divisions of vaccines and wind energy of the demerged company are to be transferred to the resulting company. The demerged company was incorporated under the name and style of Brilliant Investments Private Limited on 01.02.1988 in the State of Andhra Pradesh. It was converted into a public company with effect from 21.11.1994 and became Brilliant Investments Limited. Its name was changed to Brilliant Industries Limited on 02.03.1995 and to Brilliant Bio Pharma Limited on 13.05.2008. Its Registered Office is situated at TGV Mansion, III Floor, 6-2-1012, Khairatabad, Hyderabad, Andhra Pradesh. Its authorized share capital is Rs. 6,00,00,000/- divided into 60,00,000 equity shares of Rs. 10/- each. Its issued, subscribed and paid up capital is Rs. 2,25,28,800/- comprising 22,52,880 equity shares of Rs. 10/- each. The main objects of the demerged company as set out in its Memorandum of Association include, inter alia, the business of manufacturing and dealing with pharmaceuticals, power generation etc. It is presently engaged in diverse businesses such as manufacture and sale of veterinary pharmaceuticals, generation and sale of wind energy and investments in bodies corporate. Its audited accounts as on 31.03.2011 reflected a net profit of Rs. 22,53,600/-. The resulting company was incorporated on 11.03.2010 under the name and style of Brilliant Industries Limited. Its Registered Office is situated at TGV Mansion, II Floor, 6-2-1012, Khairatabad, Hyderabad, Andhra Pradesh. Its authorized share capital is Rs. 3,50,00,000/- divided into 35,00,000 equity shares of Rs. 10/- each. Its issued, subscribed and paid up capital is Rs. 2,65,00,000/-, comprising 26,50,000 equity shares of Rs. 10/- each. Its main objects as per its Memorandum of Association include, inter alia, carrying on the business of manufacturing and dealing in injectables, tablets and formulations for human and livestock categories; carrying on the business of generating, accumulating, distributing and supplying wind energy, solar energy etc. Its audited financials as on 31.03.2011 reflected a net loss of Rs. 13,070/- for that year. By individual Resolutions dated 24.03.2012, the Boards of Directors of the two companies approved the scheme of arrangement.
2. The company petitions were admitted by this Court on 13.06.2012 and notice was ordered to the Central Government u/s 394-A of the Act of 1956. The date of hearing of these petitions, as required by Rule 80 of the Companies (Court) Rules, 1959, was directed to be advertised in the Hyderabad Editions of Business Standard (English daily) and Andhra Bhoomi (Telugu daily). The Hyderabad Editions of both newspapers dated 19.06.2012 are placed on record in evidence of due publication. It is stated that no objections were received in response thereto.
3. In so far as the demerged company is concerned, C.A. No. 513 of 2012 was filed by it to convene a meeting of its shareholders for considering the proposed scheme. By order dated 25.04.2012 passed therein, this Court directed the convening of such meeting under the Chairpersonship of Sri V. Lakshmi Harish, Advocate. The Chairperson thereupon filed Report dated 02.06.2012 stating that the convened meeting was attended by twelve members of the company, eleven in person and one through proxy, holding 22,33,054 equity shares of Rs. 10/- each aggregating to the share value of Rs. 2,23,30,540/- out of the total paid up share capital of Rs. 2,25,28,800/-. The attending members unanimously approved the scheme of arrangement and no vote was cast against it.
4. In so far as the resulting company is concerned, this Court passed order dated 25.04.2012 in C.A. No. 514 of 2012 dispensing with the meeting of its shareholders as the entire paid up capital of the company was held by only ten shareholders (nine individuals and a private limited company) and separate letters of consent were given by all of them signifying their approval of the scheme. The demerged company, as per its balance sheet dated 31.03.2011, had only one secured creditor, viz., the State Bank of Hyderabad. The demerged company had availed working capital and term loans from it to the tune of Rs. 32,43,74,167/-. By letter dated 14.11.2012, the State Bank of Hyderabad conveyed its ''no objection'' to the scheme of arrangement.
5. The balance sheet dated 31.03.2011 also showed that the demerged company had unsecured loans, in the form of fixed deposits and trade deposits aggregating to Rs. 3,43,26,063/-. Further, the current liabilities of the demerged company, comprising ''trade creditors'', ''other creditors'' and ''creditors for expenses'', were to the tune of Rs. 13,40,39,228/-. As the demerged company had not obtained letters of consent from these unsecured creditors, this Court, by order dated 26.09.2012 passed in C.A. No. 928 of 2012, directed a meeting of the unsecured creditors of the demerged company to be held under the Chairpersonship of Sri T.S.V. Prasad Naik, Advocate, on 31.10.2012. The Chairperson conducted the meeting and filed his Report dated 31.10.2012 stating that unsecured creditors representing the value of Rs. 5,31,35,127.35 Ps. were present in person and unsecured creditors of the value of Rs. 5,50,82,647.35 Ps. were present by proxy. All the unsecured creditors present at the meeting voted in favour of the scheme of arrangement. Thus, unsecured creditors representing the value of Rs. 10,82,17,774.70 Ps. voted in favour of the scheme of arrangement and no attending unsecured creditor voted against it. The affidavit of service filed by the Chairperson reflects that notice was dispatched to each of the 416 unsecured creditors of the company as on 08.10.2012. These figures demonstrate that the requisite majority, as posited by Section 391(2) of the Act of 1956, was duly fulfilled in so far as this class of creditors is concerned.
6. The demerged company''s balance sheet dated 31.03.2011 further reflected that it held share application money of Rs. 5,87,50,000/-. Affidavit dated 19.02.2013 was filed by the demerged company stating that out of this sum, Rs. 20,00,000/- was repaid in the financial year 2011-12 and the outstanding share application money as on 15.02.2013 was Rs. 5,67,50,000/-. ''No Objection Certificates'' were obtained from the share applicants to the tune of Rs. 4,44,50,000/-, constituting 78.33% of this class of creditors. Certificate dated 18.02.2013 of M/s. S.T. Mohite & Co., Chartered Accountants, was filed confirming the above facts. The requisite majority of this class, as per Section 391(2) of the Act of 1956, has therefore expressed its consent to the scheme.
7. As regards the deferred tax liability reflected by the demerged company in its balance sheet dated 31.03.2011, Sri L.V.V. Iyer, learned counsel, clarified that the same was only because of a timing difference in the mode of accounting relatable to Accounting Standard No. 22 of the Accounting Standards prescribed by the Institute of Chartered Accountants of India. This deferred tax liability therefore does not constitute a real liability and would not impede consideration of the scheme of arrangement.
8. The resulting company, as per its audited balance sheet dated 31.03.2011, had no secured or unsecured creditors. It however had current liabilities amounting to Rs. 1,87,500/-. By affidavit dated 26.02.2013, the resulting company stated that these current liabilities were paid in full. S.T. Mohite & Co., Chartered Accountants, furnished Certificate dated 25.02.2013 confirming that the current liabilities were fully discharged in June, 2011 itself and that the resulting company had no unsecured creditors or current liabilities as on 25.02.2013. The Regional Director, South East Region, Ministry of Corporate Affairs, Hyderabad, filed affidavit dated 05.07.2012 stating that as per the report dated 02.07.2012 of the Registrar of Companies, Andhra Pradesh, the demerged company and the resulting company were regular in filing their statutory returns and no complaints or investigations were pending against them.
9. The scheme of arrangement may now be examined. Thereby, the vaccines division and the wind energy division of the demerged company are proposed to be transferred to the resulting company. Part-II of the scheme deals with the demerger. Clause 3.1 thereof states that upon the coming into effect of the scheme, the demerged undertakings would stand demerged from the demerged company and be transferred to and vest in the resulting company. Clause 3.4 states that in consideration of the demerger, the resulting company shall issue its shares to the shareholders of the demerged company in terms of Clause 11.1. Clause 4 in Part-II deals with debts, liabilities, duties and obligations and states to the effect that the same shall stand transferred to the resulting company to the extent that they are outstanding as on the effective date. Clause 8 deals with the staff, workmen and employees of the demerged undertakings. Clause 8.1 states that upon the coming into effect of the scheme, all permanent employees of the demerged company working in the demerged undertakings as on such date shall become the employees of the resulting company on terms and conditions not less favourable than those on which they were employed in the demerged company and without any interruption of service as a result of the transfer of the demerged undertakings. Clauses 8.2 and 8.3 deal with the protection of service benefits of such employees. Clause 11 deals with the consideration for the scheme and states that the resulting company shall issue and allot to the shareholders of the demerged company 374 fully paid-up equity shares of Rs. 10/- each for every 100 fully paid up equity shares of Rs. 10/- each held by such shareholders in the demerged company. The entitlement ratio was worked out on the basis of the fair valuation exercise jointly conducted by M/s. Praturi & Sri ram, Chartered Accountants and M/s. S.T. Mohite & Co., Chartered Accountants. Clause 12 deals with re-organization of the share capital of the resulting company. Clause 12.1 states that upon the scheme becoming effective and after the issue of equity shares by the resulting company, the issued, subscribed and paid-up share capital of the resulting company shall stand reduced to the extent of Rs. 79.34 lakhs represented by goodwill, being excess of liabilities over the assets after considering issue of shares pursuant to the scheme. The face value of Rs. 0.72 out of each fully paid up equity share of Rs. 10/- shall be treated as cancelled and the balance paid up value of Rs. 9.28 per equity share shall be consolidated into a fully paid up equity share of Rs. 10/- each so that every 1000 paid up equity shares of Rs. 10/- each shall stand restructured into 928 fully paid up equity shares of Rs. 10/- each. The reduction in the issued, subscribed and paid-up share capital of the resulting company is dealt with in Clause 12.2 and is deemed to be in accordance with Sections 100 to 104 of the Act of 1956. The reduction however does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up share capital. Clause 13 deals with reduction of reserves, including share premium, of the demerged company. Clause 13.1 states that the reserves, including share premium, of the demerged company shall be reduced to the extent of Rs. 763.24 lakhs not represented by its assets. Rs. 699.99 lakhs out of the share premium account, Rs. 20 lakhs out of the Investment Subsidy and Rs. 43.25 lakhs out of the General Reserve were to be written off, being unrepresented by available assets. This reduction was deemed to be in accordance with Sections 100 to 104 of the Act of 1956 and did not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of paid up share capital.
10. Trite to state, it would be open to a company to cause reduction of its capital in the process of giving effect to a scheme of arrangement or compromise. In AL-AHALI BUSINESS TRADE LINKS P. LTD., In re, the Kerala High Court observed:
I shall first deal with the question as to whether it was proper on the part of the petitioner to seek sanction for reduction of the share capital u/s 100 of the Companies Act as a compromise or arrangement under Sections 391 and 394 of the Act. As rightly pointed out by counsel for the petitioner, what is involved here is not merely reduction of the share capital. If it was a mere reduction of the share capital the released capital has to be returned to the shareholders. Instead of refunding the money released on reduction of the share capital, the company has entered into a compromise or arrangement with the shareholders of the company to retain the money so released as unsecured loans from the shareholders to the company, on which the company is to pay interest to the shareholders at a rate not exceeding 18 per cent. per annum computed at quarterly/monthly rests. Reduction of such share capital and conversion thereof as unsecured loans is a composite transaction for which sanction of this court is sought for. If merely the procedure prescribed under Sections 100 and 101 of the Companies Act is to be complied with, then the second part of the transaction cannot be considered along with the first part. The second part is essentially a compromise or arrangement with the shareholders. The two being reciprocal arrangements, both together can be considered as a compromise or arrangement under Sections 391 and 394 of the Companies Act. Nobody would be prejudiced if both are considered together under Sections 391 and 394 of the Companies Act. The petitioner has complied with the procedure prescribed for the same. In fact there is substantial compliance with the requirements for sanction of both reduction of share capital as well as the scheme of compromise and arrangement. Therefore the procedure adopted by the petitioner by seeking sanction of reduction of share capital and the reciprocal arrangement with the shareholders for conversion of the released share capital as unsecured loan, under sections 391 and 394, is perfectly in order.
11. Rule 85 of the Companies (Court) Rules, 1959 however makes it clear that when a scheme of arrangement involves reduction of capital, the procedure prescribed in the Act of 1956 with regard to reduction of capital would have to be complied with. Section 78 of the Act of 1956 makes the said procedure applicable when a company undertakes reduction of its share premium account. The present cases therefore fall squarely within this domain and the demerged and resulting companies must necessarily demonstrate due adherence to the required procedure for reducing share premium reserves and capital. Further, though the sanction of this Court is sought only under Sections 391 and 394 of the Act of 1956, the two companies are, in effect, seeking sanction of this Court for reduction of capital under Sections 78 and 100 to 102 of the Act of 1956 also. This order shall therefore be deemed to have been passed not only under Sections 391 to 394 of the Act of 1956 but also Sections 78 and 100 to 102 thereof.
12. The first and foremost requirement for effecting reduction of capital would be that the Articles of Association of the company must enable it to undertake such reduction. Article 42 of the Articles of Association of the demerged company authorizes it to reduce its share capital, capital redemption reserve account or its share premium account by way of a special resolution. Similarly, Article 66 of the Articles of Association of the resulting company authorizes it to reduce its capital in any way by way of a special resolution. Article 67 elucidates that it could reduce its share capital, capital redemption reserve account or its share premium account by way of a special resolution. The two companies were therefore empowered by their Articles to undertake reduction of reserves/capital. However, though the subject scheme of arrangement envisaged reduction of the share premium/reserves/share capital of the demerged company and the resulting company, neither of the companies passed a specific special resolution for such reduction. The question would therefore arise whether the requirements of the Act of 1956 have been satisfactorily complied with. It would be beneficial in this regard to study the case law on this and related issues.
13. In the matter of KHATTAR ELECTRICAL ENGINEERING AND GENERAL SUPPLY CO. LTD. was a case involving reduction of share capital. The Articles of Association of the company permitted reduction of the capital by special resolution. The question before the Judicial Commissioner''s Court of Peshawar was whether the company had, by a valid resolution, resolved that such reduction should be carried out. The argument of the contesting shareholders was that a full 21 days notice had not been given prior to the meeting as required by the amended Section 81 of the Companies Act, 1913 and therefore, the resolution passed at the said meeting, which was termed as an ordinary meeting, was ultra vires. The Court however held that mere omission to name the meeting as an extraordinary meeting was of no importance and could not vitiate the proceedings once it was clearly indicated in the agenda that the object of the meeting was to consider reduction of capital and the shareholders understood that they had met to consider the said agenda. As regards the issue of 21 days notice, the Court accepted that the first meeting was convened in accordance with Section 81 of the Act as it stood prior to its amendment and was therefore valid. The confirmatory meeting was held to be wholly unnecessary in the light of the amended Section 81. Referring to British precedents on the subject, the following principles were culled out by the Court:
These authorities lay down the following principles: 1. That a company has the power to reduce its capital, much more so if the power is conferred by the Articles of Association. 2. Subject to confirmation by the Court, which is the safeguard of the minority, the question of reducing capital is a domestic one for the decision of the majority. 3. The Company is to determine the extent, the mode and incidence of the reduction. 4. The Company may reduce the share capital of all its share-holders pro rata or may reduce the shares of any individual share-holder or any class of share-holders wholly or in part. 5. That the Court has to see that interests of the minority have been protected and no unfairness has been shown to it. 6. That in doing so, the Court should keep in view the consideration that the decision has been arrived at by businessmen who are fully cognizant of their necessities and are the best custodians of their interests and should therefore be slow to interfere.
14. The objection as to shortfall in the notice period was also overruled by the Court in the light of the change in the legal position owing to amendment of Section 81 of the Companies Act.
15. In re PEARCE DUFF & CO. LTD. was a matter involving a defective special resolution in the context of reduction of share capital. This case arose under the British Companies Act, 1948. Section 141(2)thereof provided that a resolution shall be a special resolution when it has been passed by such a majority as is required for passing of an extraordinary resolution and at a general meeting of which not less than 21 days notice, specifying the intention to propose the resolution as a special resolution, has been duly given. The company failed to give the notice of 21 days for reduction of its capital. Thereafter, the written consent of all the shareholders was obtained to treat the resolution as a valid special resolution. On the petition presented for confirmation of reduction of capital on the footing of the written consent of every shareholder to treat the earlier resolution as a valid special resolution, Buckley, J, held that the proviso to Section 141(2) of the Act of 1948 required persons agreeing to a resolution being passed at short notice to appreciate that fact, and as the shareholders in the instant case did not appreciate the initial notice of the special resolution was defective in point of the time stipulation, the consent given at the meeting could not cure that defect. However, as every shareholder had subsequently consented to the resolution being treated as a valid special resolution and the petition was presented on that footing, no shareholder could be heard to say that the resolution had not been validly passed and, therefore, the reduction of capital could be confirmed. The learned Judge was of the opinion that the question for consideration was not whether the resolution bound the company as a special resolution but whether any shareholder could say that the resolution was not properly passed as a valid special resolution having regard to the 100% consent which had been obtained from the shareholders to treat the said resolution as valid. The learned Judge however stated that the case was a rather exceptional one and the Court was therefore entitled to regard the special resolution as sufficient basis for the reduction which the Court was asked to confirm.
16. In RE DUOMATIC, LTD., the company''s articles required a resolution in a general meeting to determine Directors'' remuneration. Without such resolution being passed, basing on the assent of all the shareholders at a general meeting, the Directors were paid. In this context, Buckley, J, stated:
... The fact that they did not take that formal step but that they nevertheless did apply their minds to the question of whether the drawings by Mr. Elvins and Mr. Hanley should be approved... seems to me to lead to the conclusion that I ought to regard their consent as being tantamount to a resolution of a general meeting of the company. In other words, I proceed on the basis that where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.
17. This is called the Duomatic Principle. Referring to this principle and case law on the subject, Neuberger, J, in RE TORVALE GROUP LTD. observed:
...The essence of the Duomatic Principle is that, where a statute or a company''s articles provide that a course can be taken only with the sanction of a certain group, which sanction is to be given in accordance with a prescribed procedure, then, provided that all the members of that group agree to that course, the prescribed procedure is not normally treated as being of the essence. This is particularly likely to be the case if (i) the Court is satisfied that the sole purpose of the prescribed procedure is for the protection of the members of the relevant group, and (ii) the prescribed procedure enables a majority of that group to bind the minority in relation to the course in question. The articles constitute a contract, and if the parties to that contract, or if the parties for whom the benefit of a particular term has been included in that contract, are happy unanimously to waive or vary the prescribed procedure for a particular purpose, then, unless there is a ground of the sort considered in (R W Peak [Kings Lynn) Ltd. (1998) BCC 596] and in { WRIGHT Ltd., 301 BCLC 2 (1999) (Europe) Wright Atlas s. V>for the Duomatic Principle not to be applied, it seems to me that there is no good reason why it should not be capable of applying.
18. Adverting to the Duomatic Principle, Oliver, J in RE NEW CEDOS ENGINEERING CO. LTD. stated thus:
... the ratio of Buckley J''s decision is that where that which has been done informally could, but for an oversight, have been done formally and was assented to by 100% of those who could have participated in the formal act, if one had been carried out, then it would be idle to insist upon formality as a precondition to the validity of the act which all those competent to effect it had agreed should be effected.
19. Closer home, D.A. Desai, J, as the learned Judge then was, in MANECKCHOWK AND AHMEDABAD MANUFACTURING CO. LTD. In re, observed as under:
......... If section 391 was subject to other provisions of the Act every time the scheme of compromise and arrangement is put forth for the sanction of the court, if it includes things for which specific provisions are made and that will have to be gone through before the scheme is sanctioned, it would result in unnecessary duplication of procedure and would be cumbersome.......... The special provision contained in section 391, namely, sanction of the scheme of compromise and arrangement would in my opinion exclude general provisions for reduction of share capital or for issue of fresh capital. It is well settled that a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where the special provision, does not apply: vide
20. In VASANT INVESTMENT CORPORATION LTD. V/s. OFFICIAL LIQUIDATOR, COLABA LAND AND MILL CO. LTD., the Bombay High Court however observed:
Even assuming that the scheme involves a reduction of the share capital of the company, it is possible to say, on the facts of the present case that the procedure prescribed under Ss. 100 to 102 of the Companies Act for the reduction of share capital has been substantially complied with by the company before the filing of this petition (by the petitioners). In this connection, the petitioners have relied upon a decision of the Gujarat High Court in Maneckchowk and Ahmedabad Manufacturing Co. Ltd., In re reported in
21. In MEKASTER VALVES AND ENGINEERING SERVICES P. LTD., In re, it was observed:
Having gone through the petition and the annexures attached therewith and having considered the above referred authorities, the court is satisfied that since all these changes are proposed to be effected as an integral part of the scheme, the approval granted by the shareholders at the meeting to the scheme as a whole amounts to approval to all such incidental proposals and no separate procedure is required to be followed as envisaged by Sections 17, 31, 94, 97, 81(1A), 100 and 149(2A), respectively. It goes without saying that when this court sanctions the scheme, the scheme is sanctioned as a whole with all its clauses and proposals....
22. Though no specific reference was made to the Duomatic Principle, this Court also gave effect to the said principle in fitting cases. In NOVOPAN INDIA LIMITED, In re., this Court observed:
It is also true, as contended by the transferor and transferee companies, that while sending notice to the shareholders a statement as required u/s 393 of the Act had been sent along with the copy of the scheme of amalgamation of the transferor company with the transferee company and arrangement between the transferee company with its members. Sufficient material was, therefore, available with the shareholders, which could be treated as substantial compliance with the provisions of Section 173 of the Act which provides for an explanatory statement to be annexed to the notice. The sole purpose of calling the meeting was to consider the scheme of amalgamation and arrangement. There was no other item of business to be transacted at that meeting, and therefore, there is no reason why the resolution proposed and passed by the shareholders could not be treated as satisfying all the requirements of the special resolution, more particularly, in view of the fact that it was passed unanimously. The Gujarat High Court also observed in Maneckchowk and
23. The same principle was reiterated in SUMITRA PHARMACEUTICALS AND CHEMICALS LTD., In re. and RAASI CEMENT LTD., In re by this Court.
24. The thrust of the Duomatic Principle is that strict adherence to a statutory requirement may be dispensed with if it is demonstrated on facts that the substance of such requirement has been accomplished or fulfilled indirectly. Thus, while construing a scheme or resolution effecting reduction of capital, though Section 100(2) of the Act of 1956 requires the same to be done through a special resolution for reducing share capital passed by the members, it would be sufficient if all the members were put on notice of the proposed agenda of reduction of the share capital and the requisite majority for a special resolution, as posited by Section 189(2) of the Act of 1956, approve or consent to the same. As pointed out in RE NEW CEDOS ENGINEERING CO. LTD., the formality of the prescribed procedure can be watered down once the essence thereof is achieved indirectly or informally.
25. Viewed in the backdrop of the above legal position, this Court finds that there is sufficient compliance with the statutory requirements by both the companies for effecting reduction of their share premium/capital. Though the meeting of the shareholders of the demerged company convened pursuant to the order dated 25.04.2012 of this Court in C.A. No. 513 of 2012 was not specified to be for the purpose of passing a special resolution, it was attended by shareholders representing the share value of Rs. 2,23,30,540/- out of the total paid up share capital of Rs. 2,25,28,800/- and all the shareholders were aware that the meeting was convened for the sole purpose of considering and approving the scheme which involved reduction of the company''s share premium reserves. Similarly, the shareholders of the resulting company, though no general meeting was convened for the purpose, approved the scheme unanimously. Their knowledge and approval of the proposed reduction of the resulting company''s capital is therefore implicit in their unconditional consent. The Duomatic Principle would therefore be squarely applicable to the cases on hand. It may also be noted that neither of the companies on hand is a listed company. Therefore, it would only be necessary to see whether the members and creditors of these companies were aware of and took an informed decision approving the reduction.
26. The Company Court, before it sanctions a scheme of arrangement, must be satisfied that the procedures prescribed in the Act of 1956 are duly complied with. The interests of the members and the creditors of the companies concerned must be protected by seeing that they are duly and properly informed of the pros and cons of the proposed arrangement and they take an informed decision. The commercial wisdom of the parties about the usefulness of the scheme has to be kept in mind by the Court, which would not sit in appeal and judgment over the same. The Company Court''s jurisdiction to that extent is not appellate but peripheral and supervisory. The supervisor cannot be the author or policymaker. The merits of the arrangement have to be judged by the parties who arrive at their own reasoned judgment and agree to be bound by such arrangement. The Court cannot scrutinize the scheme to find out whether a better scheme could have been adopted by the parties. The Company Court should also verify whether the proposed scheme is violative of any legal provision or contrary to public interest. It must also ensure that the scheme as a whole is just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. (Miheer H. Mafatlal Vs. Mafatlal Industries Ltd.).
27. The subject scheme envisages that the shareholders of the demerged company would receive 374 fully paid up equity shares of Rs. 10/- for every 100 fully paid up equity shares of Rs. 10/- each held by them. This ratio having already been accepted and approved by all the shareholders, their interest is adequately protected. The requisite majority of secured and unsecured creditors of both the companies, as the case may be, have consented to the scheme. The companies are closely held companies and their creditors have been put on notice of the impending reduction of capital/reserves. Ergo, this Court finds no grounds for insistence upon the words ''and reduced'' being added as a suffix to the name of either company.
28. This Court therefore sanctions the subject scheme of arrangement involving reduction of the demerged company''s reserves, including a massive reduction of its share premium account, and reduction and reconstruction of the resulting company''s capital. It is however to be noticed that under the scheme, the resulting company is required to issue equity shares to the shareholders of the demerged company entailing payment of stamp duty under Article 20(d)of Schedule I-A of the Indian Stamp Act, 1899. Proof of such payment must therefore be enclosed along with the certified copy of this sanction order when filed with the Registrar of Companies, Andhra Pradesh. A certified copy of this order, including the minutes as approved, shall be delivered to the Registrar of Companies, Andhra Pradesh, within 30 days from the date of receipt of this order. Notice of the registration by the Registrar of Companies, Andhra Pradesh, of this order and of the minute shall be published in the Hyderabad editions of ''Business Standard'' (English Daily) and ''Andhra Bhoomi'' (Telugu Daily) within 14 days of the registration as aforestated.
ORDER CONFIRMING REDUCTION OF THE SHARE
PREMIUM ACCOUNT AND APPROVING MINUTE
i. Upon the petition of Brilliant Bio Pharma Limited, Hyderabad, presented on the 11th day of June, 2012, upon hearing Sri L.V.V. Iyer, Advocate, and upon reading the said petition and the affidavit in support thereof filed on the 11th day of June, 2012, the minutes of the meeting dated 2nd day of June, 2012, upon perusing ''Business Standard'' and ''Andhra Bhoomi'' (Hyderabad Editions) containing the notice of the date of hearing of the petition, and the Court being satisfied with respect to every creditor entitled to object to the reduction that either is consent to the reduction has been obtained or his debt or claim has been discharged or has determined;
THIS COURT DOTH ORDER:
1. That the reduction of the share premium account of the above company resolved on and effected by the resolution passed at the meeting of the demerged company held on the 2nd day of June, 2012 in terms of the scheme of arrangement, whereby Rs. 6,99,99,000/- out of the company''s share premium account of Rs. 11,37,50,000 is to be written off be and the same is hereby confirmed.
2. That the minute set forth in the schedule hereto be and is hereby approved.
3. That a certified copy of this order including the minute as approved be delivered to the Registrar of Companies, Andhra Pradesh, within 30 days from the date of receipt of the order.
4. That notice of the registration by the Registrar of Companies, Andhra Pradesh, of this order and of the said minute be published once each in ''Business Standard'' and ''Andhra Bhoomi'' (Hyderabad Editions) within 14 days of the registration as aforesaid.
Dated this, the day of March, 2013
SCHEDULE
IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD
(ORIGINAL JURISDICTION)
IN THE MATTER OF THE COMPANIES ACT, 1956
AND
IN THE MATTER OF BRILLIANT BIO PHARMA LIMITED
COMPANY PETITION NO. 90 OF 2012
The share premium account of Rs. 11,37,50,000/- of Brilliant Bio Pharma Limited, Hyderabad, shall be Rs. 4,37,51,000, standing reduced by Rs. 6,99,99,000/-, which is written off as it unrepresented by available assets.
ORDER CONFIRMING REDUCTION OF CAPITAL AND APPROVING MINUTE
ii. Upon the petition of Brilliant Industries Limited, Hyderabad, presented on the 11th day of June, 2012, upon hearing Sri L.V.V. Iyer, Advocate, and upon reading the said petition and the affidavit in support thereof filed on the 11th day of June, 2012, and upon perusing ''Business Standard'' and ''Andhra Bhoomi'' (Hyderabad Editions) containing the notice of the date of hearing of the petition, and the Court being satisfied with respect to every creditor entitled to object to the reduction that either his consent to the reduction has been obtained or his debt or claim has been discharged or has determined;
THIS COURT DOTH ORDER:
1. That the reduction of the share capital of the above company resolved on and effected by the resolution passed by the Board of Directors of the company on the 24th day of March, 2012 in terms of the scheme of arrangement, whereby the paid up capital of the company would stand reduced by Rs. 79,34.000/- be and the same is hereby confirmed.
2. That the minute set forth in the schedule hereto be and is hereby approved.
3. That a certified copy of this order including the minute as approved be delivered to the Registrar of Companies, Andhra Pradesh, within 30 days from the date of receipt of the order.
4. That notice of the registration by the Registrar of Companies, Andhra Pradesh, of this order and of the said minute be published once each in ''Business Standard'' and ''Andhra Bhoomi'' (Hyderabad Editions) within 14 days of the registration as aforesaid.
Dated this, the day of March, 2013
SCHEDULE
IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH
AT HYDERABAD
(ORIGINAL JURISDICTION)
IN THE MATTER OF THE COMPANIES ACT, 1956
AND
IN THE MATTER OF BRILLIANT INDUSTRIES LIMITED
COMPANY PETITION NO. 91 OF 2012
The authorized share capital of Brilliant Industries Limited, Hyderabad, is Rs. 0,00,000/- divided into 35,00,000 equity shares of Rs. 10/- each. Its paid up share capital shall henceforth be Rs. 1,85,66,000/- reduced from the paid up share capital of Rs. 2,65,00,000/-.
The company petitions are ordered accordingly.
