Vallabh Steels Limited v. Zoom Vallabh Steel Limited

HON'BLE MR.JUSTICE PERMOD KOHLI PRESENT: Mr.Vikas Mohan Gupta, Advocate for the petitioner Mr.D.P.Ojha, Official Liquidator Permod Kohli, J. CA NO.877/2008 CA is allowed. Documents (Annexures P-15 to P-17) taken on record. CP NO.149 OF 2007 This is a second motion petition filed under Sections 391(2) to 394 of the Companies Act, 1956 for sanction of the Scheme of Arrangement between Vallabh Steels Limited (hereinafter referred to CP NO.149 OF 2007 (O&M) :2: as “the petitioner-Transferor Company No.1”) and Vardhman Industries Limited (hereinafter referred to as “the Transferor Company No.2) with Zoom Vallabh Steel Limited (hereinafter referred to as “the Transferee Company”). Petitioner-Transferor Company No.1 was incorporated on 25.11.1980 under the provisions of the Companies Act, 1956 with the Registrar of Companies, Jalandhar. Transferor Company No.2 was incorporated on 5.12.1984 under the provisions of the Companies Act, 1956 with the Registrar of Companies, Delhi and Haryana at New Delhi. Transferee Company was incorporated on 26.2.1993 under the provisions of the Companies Act, 1956 with the Registrar of Companies, Delhi & Haryana at New Delhi. Earlier the said Company was known as M/s DCM Shriram Fertilizers Limited which was changed to the present name i.e. Zoom Vallabh Steel Limited vide fresh certificate of incorporation issued by the Registrar of Companies, National Capital Territory of Delhi and Haryana on 12.10.2006. Company Petition No.70 of 2007 was filed in this Court for convening and holding the meetings of the Equity Shareholders, Preferential Shareholders, Secured and Unsecured Creditors of petitioner Company. This Court vide its order dated

16.8.2007 ordered holding, convening and conducting of meetings of Equity Shareholders alongwith Preferential Share holders, secured and unsecured creditors of the petitioner Company. Further the Chairpersons were directed to submit the report. The reports of the Chairpersons are placed on record as Annexures P-12 to P-14 wherein it is stated that the meeting of the equity shareholders, CP NO.149 OF 2007 (O&M) :3: secured and unsecured creditors were held on the specified dates and times. It is reported that the Scheme of Arrangement has been unanimously approved by all the equity shareholders, secured and unsecured creditors in their respective meetings. Vide the aforesaid order, the petitioner-Company was permitted to file a second motion petition under Section 391(2) and Section 394 of the Companies Act for sanction of the Scheme of Arrangement. Accordingly, this petition has been preferred.

This petition is duly supported with the affidavits of Directors of the petitioner-Transferor Company no.1. Latest balance-sheets of the transferor and transferee Companies alongwith their respective Memorandum and Articles of Association have been placed on record. Board of Directors of petitioner-Transferor Company No.1, Transferor Company No.2 and Transferee Company has approved the Scheme of Arrangement vide resolutions (Annexures P-8 to P- 10). On presentation of this petition, notice was directed to be served on Regional Director, Northern Region, Department of Company Affairs, Noida and the Official Liquidator attached to this Court. Notice was also published in the Tribune (English), Punjab Kesari (Hindi) and in the Official Gazette of the Punjab Government. Affidavit of Publication has been filed. Regional Director (Northern Region) has filed his affidavit. In the report, the Regional Director has stated that upon sanctioning of the Scheme of Arrangement, all the permanent employees of the De-merged Companies, namely, M/s Vallabh Steels Ltd. and M/s CP NO.149 OF 2007 (O&M) :4: Vardhman Industries Ltd. shall become the employees of the Transferee Company- M/s Zoom Vallabh Steels Ltd. without any break or interruption in their services.

He has further stated that the individual assets and liabilities and the values thereof pertaining to “De-merged Undertaking i.e. “ `SIP' and `SMS' & `CS' Undertakings” of the De-merged Companies namely, Vallabh Steels Ltd. and M/s Vardhman Industries Ltd. to be transferred in the Transferee Company-M/s Zoom Vallabh Steels Ltd. are not mentioned in the Scheme. Since shareholders and creditors of the Companies have approved the Scheme of Arrangement as such, it should have been part of the Scheme of Arrangement so that the details of individual assets and liabilities and the values thereof pertaining to “De-merged Undertaking” are known to the shareholders & creditors of all the Transferor & Transferee Companies. In reply to the aforesaid objections of the Regional Director, the petitioner-Company has filed affidavit dated 6.9.2008 wherein it is stated that Undertaking-1 of M/s Vallabh Steels Limited to be hived off to M/s Zoom Vallabh Steel Limited is defined in para IX of the Scheme of Arrangement.

Para IX (a) of the Scheme of Arrangement defines all the assets, properties, and land (as mentioned in Schedule-A) and current assets (as mentioned in Schedule B). Para IX (b) of the Scheme of Arrangement defines all the debts, defined current liabilities (as mentioned in Schedule C). Details of the assets (fixed and current) and liabilities and their respective values pertaining to Undertaking-1 (SIP) of Vallabh Steels CP NO.149 OF 2007 (O&M) :5: Limited to be hived off to Zoom Vallabh Steels Limited have been specified and mentioned in Schedule-A, Schedule-B and Schedule-C, respectively. The said Schedules form part of the Scheme of Arrangement. In view of the aforesaid facts, the objections raised by the Regional Director do not survive. The petitioner-Company has further filed an affidavit dated 26.11.2008 wherein it has been stated that similar objections as raised in the present petition by the Regional Director have been dealt with by Hon'ble High Court of Delhi while allowing similar Scheme of Arrangement between the same Companies vide its order dated 23.9.2008 (Annexure P-17) passed in Company Petition No.90/2008.

The petitioner-Company further placed on record Valuation Report regarding valuation of assets as Annexures P-15 and P-16. I have carefully examined the scheme of arrangement. From the arrangement scheme, it appears that both transferor Companies and Transferee Company are engaged in the same line of business and the merger of both the Companies would bring synergy of operation and improve the business prospects, besides reduction of costs through the process of arrangement, Financial resources of the amalgamated company would be further consolidated and place it in a strong financial position. It would also integrate the management activities and resultantly reduce the over all administrative costs. The Scheme also provides for the transfer of all the employees of the transferor company to the transferee company, without interrupting their services and reducing emoluments in any manner. It has also been mentioned in the petition that there are no CP NO.149 OF 2007 (O&M) :6: proceedings or investigations pending against the companies under Sections 235 to 251 of the Companies Act, 1956.

I am of the opinion that in view of the approval accorded by the equity shareholders, secured and unsecured creditors of the petitioner-Companies to the proposed Scheme of Arrangement and there being no surviving objection to the same by the Regional Director, Northern Region, there appears to be no impediment to the grant of sanction of the Scheme of Arrangement. Similar objections have also been dealt with by the Delhi High Court in Company Petition No.90/2008. Further more, arrangement will be in the best interest of the transferor and transferee companies, their shareholders and creditors. The Scheme is also not against public interest and is fair, reasonable and practical. The Scheme also provides for issue and allotment to each member of the transferor Company, shares in the transferee company, as per the Scheme which has been approved by its equity shareholders, secured and unsecured creditors.

No person has objected to the sanction of the Scheme of arrangement after notice of the petition was published in two newspapers and official gazette of Punjab Government. I accordingly allow this petition and sanction the Scheme of Vallabh Steels Limited (Petitioner-Transferor Company No.1) and Vardhman Industries Limited (Transferor Company No.2) with Zoom Vallabh Steel Limited (Transferee Company). The petitioner-transferor Company No.1 shall stand dissolved without being wound up. The Scheme shall come into operation from the effective date, on completion of necessary formalities. The petitioner-Companies will comply with CP NO.149 OF 2007 (O&M) :7: the statutory requirements in accordance with law. A notice of this order be published in the Indian Express (English), Dainik Bhaskar (Hindi) and official gazette of Government of Punjab within 30 days. Any person interested shall be at liberty to approach this Court in the above matter for any directions that may be necessary. Let formal order of sanction be drawn in accordance with law.

5.12.2008 MFK (PERMOD KOHLI) JUDGE