M/s MLR Motors Limited v. Their respective shareholders and creditors

Order

C.P.No.113of 2010 is filed by M/s MLR Motors Limited (hereinafter referred to as “transferor company”) seeking sanction the proposed scheme of arrangement and C.P.No.114 of 2010 is filed by M/s MLR Auto Limited (hereinafter referred to as “transferee company”) seeking sanction for the same scheme of arrangement, wherein demerger of the companies is contemplated.

2. Heard the learned counsel for the petitioners in both the petitions and learned Assistant Solicitor General representing the Registrar of Companies, Hyderabad. Perused the records.

3. The transferor company was incorporated the Companies Act on 19-08-1998 with registered office at Balanagar, Hyderabad. The authorised share capital of the transferor company is Rs.70,00,00,000/-, divided into 7,00,00,000 equity shares of Rs.10/- each. The issued and subscribed share capital of the transferor company is Rs.53,85,00,000/-, divided into Rs.5,38,50,000 equity shares of Rs.10/- each. The paid up share capital of transferor company Rs.34,35,00,000/-, divided into Rs.1,48,50,000 equity shares of Rs.10/- each fully paid up and 3,90,00,000 shares of Rs.10/- each called up Rs.5/- each.

4. The objects of the transferor company as set out in the Memorandum of Association are as follows: a) “To carry on in India or elsewhere the business of manufacturing, assembling, altering, casting, laminating, renovating, designing, developing, reconditioning, types, modifying all descriptions, specifications, varieties, models, shapes, sizes and capacities of motor cars, race cars, omnibuses, jeeps, three wheelers, lorries, locomotive and other vehicles whether propelled or used by any form of power including petrol, oil, gas electricity, battery and solar energy. b) To act as dealers, stockists, franchisers, agents, brokers, wholesalers, exporters, importers, buyers, sellers, retailers or otherwise to deal in all descriptions, specifications, types, varieties, models, shapes, sizes and capacities of motor vehicles viz., motor cycles, scooters, motor cars, race cars, omnibuses, jeeps, three wheelers, lorries, locomotive and other vehicles. c) To carry on in India or elsewhere the business of manufacturing, buying, selling, importing, exporting, hiring, distributing, supplying or otherwise to deal in all types, varieties, models, specifications, descriptions of spare parts, replacement parts, systems, dies, jigs, structures, gauges and other allied goods, articles and things for all descriptions, specifications, types varieties, models, shapes, sizes and capacities of automobile vehicles. d) To own, lease, manage, run, establish, install and build workshops, garages, tyre retreading units, painting units, battery service stations, upholstery units, body building units and fuel stations.”

5. The transferee company was incorporated the Companies Act on 16-02-2009 with registered office at Balanagar, Hyderabad. The authorised share capital of the transferee company is Rs.1,00,00,000/-, divided into 10,00,000 equity shares Rs.10/- each. The issued, subscribed and paid up share capital of the transferee company is Rs.5,00,000/-, divided into Rs.50,000 equity shares of Rs.10/- each.

6. The objects of the transferee company as set out in the Memorandum of Association are as follows: a) in all To manufacture, buy, sell, export, import or otherwise deal types of automobiles including two, three, four or multiple wheeled vehicles used for transporting passengers or goods, and operating on different types of fuels including petrol, diesel, gas, steam, chemical, nuclear or other fuels and electric or nuclear power or combinations thereof, and also the spare parts and automobiles. components of b) To carry on the business of automobile engineers and consultants and to carry out research and development activities in the fields of automobile engineering, fuel and energy efficiency of automobiles and allied products and transportation of passengers and cargo.

7. The transferor and transferee companies have proposed to enter into a scheme of arrangement, wherein it has been decided to demerge the undertaking of the transferor company consisting of demerged division situate at Balanagar to the transferee company. It is also stated that the proposed arrangement is essential to ensure better business opportunities and focus on accumulated growth of the individual segments in the current scenario in the automobile business and it would act to the benefit of the shareholders, creditors and employees. The details of the proposed scheme and its benefits are set out in the scheme, which is appended to the petitions and is also extracted in the petitions and they are not reiterated here for the sake of brevity.

8. It is stated that the Board of Directors of both the companies in their separate meetings held on 01-03- 2010 have approved the proposed scheme of demerger subject to the approval by the shareholders.

9. It is stated that earlier the transferor company filed C.A.No.350 of 2010 and this Court by order dated 29- 04-2010 appointed Ms.M.Ramya, Advocate Chairperson to convene the meeting of the shareholders. The Chairperson, after issuing individual notices and also general notice published in ‘Business Standard ‘English daily and ‘Andhra Bhoomi’ Telugu daily, held and convened the meeting of the shareholders on 05-06-2010 at Balanagar, Hyderabad and filed a report wherein it is stated that the meeting was attended by 11 shareholders in person and 19 shareholders by proxies and the scheme of arrangement was read over and explained to them and all of them have voted in favour approving the proposed scheme and none of the shareholders or proxy shareholders present, voted against the scheme. The report of the Chairperson was taken on record.

10. It is stated that the transferor company has got two secured creditors i.e., State Bank of India, Hyderabad and State Bank of Indore, Hyderabad and one unsecured creditor viz., Smintage Communications Private Limited, Hyderabad and all of them have furnished no objection certificates, which are filed today along with a memo.

11. It is stated that there are only four shareholders in the transferee company and all of them have given consent for the proposed scheme by way of affidavits, which are filed. This Court, by order dated 29- 04-2010 in C.A.No.351 of 2010 has dispensed with the convening of meeting of the shareholders of transferee company. It is stated that there are no secured or unsecured creditors for the transferee company.

12. While admitting the two company petitions, this Court on 28-06-2010 directed issuance of notice to the Regional Director, Ministry of Corporate Affairs, Sastri Bhavan, Chennai, Registrar of Companies, Hyderabad and also to the Official Liquidator attached to this Court and also ordered issuance of general notice by way of publication in Business Standard English daily and Andhra Jyothi Telugu daily newspapers of Hyderabad editions. No objections have been received from any quarter in response to the publication of the general notice in the newspapers. The learned Assistant Solicitor General, representing the Registrar of Companies, filed an affidavit in both the petitions raising three objections namely: a) The transferor company has availed secured loans and intercorporate loans, NOCs obtained if any have to be furnished by the company. b) The transferee company should pay the stamp duty wherever applicable as per the Regulations of the Andhra Pradesh Stamp Act. c) The transferee company has to increase its authorised capital to enable itself to allot the shares to the shareholders of the transferor company. The company has to comply with section 94, 97 etc., of the Companies Act, 1956.

13. The first objection has since been complied with, as no objection certificates from the secured and unsecured creditors have been filed by the transferor company. Regarding the second objection, the learned counsel for the petitioner would submit that the transferee company would pay the stamp duty wherever applicable. Regarding the third objection pertaining to increase in the authorized share capital, the learned counsel for the petitioner would submit that the authorized share capital would automatically be enhanced proportionately upon the sanction of scheme to enable the allotment of shares shareholders of transferor company and provisions of Sections 94 and 97 of the Companies Act would be complied with.

14. In the circumstances, in view of the fact that the two companies are engaged in similar type of business and the proposed scheme of demerger is considered to be in the interests of both the companies and also their members and that the interests of the shareholders, the creditors and employees of both companies have been taken care of and duly safeguarded under the terms of the scheme and there being no objection received from any quarter and the Board of Directors and the shareholders of both the companies having approved the scheme and given consent for the scheme and there being no objection from the secured and unsecured creditors and objections raised by the Registrar of Companies having been duly complied with, it is considered that the proposed scheme of demerger can be sanctioned and the same accordingly sanctioned subject to compliance with the provisions of Sections 94 and 97 of the Companies Act.

15. The petitioners shall file a certified copy of this order within 30 days of receiving the same before the Registrar of Companies for the purpose of registration and for necessary follow up action.

16. In the result, the company petitions are allowed accordingly. The transferor and transferee companies shall pay costs of these petitions set at Rs.3,000/- each to the learned Assistant Solicitor General. ____________________ G.V.SEETHAPATHY, J 03rd August, 2010. Lrkm