IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY SCHEME PETITION NO.153 OF 2011 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO.39 OF 2011 IN THE MATTER OF Sections 391 & 394 of The Companies Act, 1956; AND IN THE MATTER OF Goldcrest Trade and Merchandise Private Limited; AND IN THE MATTER OF Scheme of Amalgamation of GOLDCREST TRADE AND MERCHANDISE PRIVATE LIMITED with GOLDCREST FINANCE (INDIA) LIMITED. GOLDCREST TRADE AND ) MERCHANDISE PRIVATE LIMITED ) a company incorporated under the Indian ) Companies Act, 1956 having its registered ) office at Devidas Mansion, 3rd Floor, ) Mereweather Road, Colaba, Mumbai – 400 039)……. Petitioner Company Mr. M. P. Rao, Senior Advocate i/b Nayan Rawal & Associates, Advocate for Petitioner. Dr. T. Pandian, Official Liquidator Present. Mr. Shyam Mehta Counsel with Mr. Abhijit Desai, i/b Mr. H. P Chaturvedi, Advocate for Regional Director. Coram: S. J. Kathawalla, J Date: 8th July, 2011 2 P. C.: 1. Heard the Counsels for Petitioner and the Regional Director. 2. The sanction of this Court is sought, under Sections 391 to 394 of the Companies Act, 1956, to the Scheme of Amalgamation of GOLDCREST TRADE AND MERCHANDISE PRIVATE LIMITED, Transferor / Petitioner Company with GOLDCREST FINANCE (INDIA) LIMITED, Transferee Company. 3. The Petitioner Company which is the Transferor Company is the wholly owned subsidiary of the Transferee Company. By an order passed by this Court on 21st January, 2011 in Company Summons for Direction No.39 of 2011, the filing of separate Application and Petition by the Transferee Company was dispensed with, in view of the Judgment of this Court in Mahaamba Investment Limited v/s. IDI Limited [(2001) 105 Company Cases, pages 16 to 18]. Hence no separate Petition is filed by Goldcrest Finance (India) Limited, the Transferee Company. 4. Counsel appearing on behalf of the Petitioner Company has stated that the Petitioner Company has complied with all requirements as per directions of this Court and they have filed necessary affidavits in the Court. Moreover, the Petitioner Company also undertakes to comply with all statutory requirements, if any, as required under the Companies Act, 1956 and the Rules made there under. The undertaking is accepted. 3 5. The Regional Director has filed an affidavit and has stated that the Scheme appears to be prejudicial to the interest of shareholders and public as per paragraphs 6(a) to 6(f) of the Affidavit. In the paragraphs 6(a) to 6(f), it is stated that: 6. That the Deponent further submits that:- (a) The scheme also provides for conversion of fully convertible debentures issued by the transferor company as provided in Clause 11 of the scheme. It is observed that fully convertible debentures if converted, the transferee company has to allot 14,85,740 number of equity shares to a foreign body corporate namely Quest International FZC Dubai, UAE, which would amount to 19.66% of the post share holding pattern of the transferee company. By issue of this preferential allotment of shares to single body corporate, the share holding pattern of the public at large will be diluted and in view of the above, the interest of the shareholders is likely to be prejudiced. It is respectfully submitted that it is for the shareholders of the transferee company has to consider whether or not the debentures issued by the transferor company has to be considered for conversion into equity and if so under what terms and conditions it has to be converted into equity. Hence, it is respectfully submitted that the consent of the shareholders is very much required in this case and the principle laid down by this 4 Hon’ble Court in Mahaamba Investments Ltd V/s. IDI Limited (105 company cases 16) is not applicable under the facts and circumstances of this case. It appears from the minutes of order dt. 21/01/11, this Hon'ble High Court has granted exemption from convening the meeting/filing a separate petition by transferee company in Company Summons for direction No. 39/11 filed by the transferor company herein, On the pretext that no fresh shares will be issued by the Transferee Company. However, new shares are proposed to be allotted by the Transferee Company to the debenture holders of the Transferor Company. The Hon’ble Court may direct the transferee company to obtain the consent of the shareholders as required u/s. 391 (2) of the Companies Act, 1956, before considering the scheme. (b) The deponent further submits that besides what has been submitted in para (a), for issuing of further shares by a public company, the approval of the shareholders is required u/s.81(1A) of the Companies Act, 1956 in as much as the transferee company is a listed public company and there is a preferential allotment of 14,85,740 number of equity shares to an extent of 19.66% of post shareholding of the transferee company to a foreign body corporate, the mandatory requirement of obtaining the approval of the shareholders by way of special resolution by the the transferee company is required to be complied with. It is 5 therefore respectfully submitted that the Hon’ble Court may direct the transferee company to obtain a specific mandate from the shareholders of the transferee company as required u/s. 81(1A) of the Companies Act, 1956. In this regard, it is submitted that the scheme is also silent as to compliance of sec. 81(1A) of the Companies Act, 1956. In view of the above, the transferee company has to obtain the approval of the shareholders before considering the scheme on merits. (c) The balance sheet of the transferee company as on 31/03/2010 reveals that the company has got share premium of `40,00,593/-, general reserves of `2,79,00,000/- and profit and loss account to a sum of `6,54,84,077/-. This reserves and balance in profit and loss account are for the benefit of the shareholders of the transferee company who have contributed the capital of the company which cannot be extended to the debenture holders of the transferor company at any cost without the knowledge/consent of the shareholders of the transferee company. As the appointed date in the scheme is fixed at 01/10/10, on conversion of the convertible debentures issued by the transferor company by the transferee company one body corporate becomes a shareholder of the transferee company holding a substantial number of shares amounting to 19.66% of the post amalgamation share capital of the company, who is entitled for sharing the above reserves, 6 profit available in the accounts of the transferee company by this preferential shareholders. As the terms and conditions stated in clause 11(b) of the scheme reveals that the new equity shares to be issued to the holders of debentures as above shall rank pari passu with the existing shares of the Transferee Company in all respects. In this regard it is submitted that article no 160 of the Articles of Association of the Transferee Company states that “All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portion of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date, such share shall rank for dividend accordingly”. Hence the new equity shareholders are entitled for the benefit of dividend on their capital only for the period from which their shares have forming part of the equity capital of Transferee Company. As the reserves and the profit earned by the company so far are only for the benefit of the shareholders of the transferee company and this position is likely to be diluted by virtue of clause 11(b) of the scheme, it will be prejudicial to the interest of the public at large. The deponent therefore respectfully submits that without the knowledge of the shareholders of the transferee company such conversion of the 7 debentures issued by the transferor company should not be allowed. (d) The deponent further submits that without prejudice to the submissions made in para 6 (a) to (c) herein above it is respectfully submitted that Clause 11(a) of the scheme provides for obtaining the approval from the concerned regulatory authorities for the issue of new equity shares to the holders of the debentures of Transferor Company. As the existing shares of the transferee company are listed with Bombay Stock Exchange, the transferee company should ensure the listing of those shares with the said Stock Exchange. (e) The deponent further submits that Clause 14(ii) provides for treating the surplus arising out of this amalgamation as revenue reserves in the books of the Transferee Company and further states that the said reserves shall be treated as “free reserves”. In this regard, the deponent respectfully submits that the reserves so created may be treated either as “capital reserves” or “reserves arising out of amalgamation” and the said reserves shall not be treated as free reserves for the purpose of declaring dividend in future. (f) For allotment of new shares to foreign body corporate, the transferee company may be directed to comply with RBI/FEMA Regulation. 8 6. In reply to the paragraphs 6(a) to 6(d) of the Affidavit of Regional Director, the Counsel for Petitioner Company submits that the Scheme of Amalgamation shall stand modified to the effect that 1,48,574 Fully Convertible Debentures issued by the Transferor Company shall be converted into Equity Shares by the Transferee Company in accordance with the Debenture Deed and as per the provisions of law. The Transferee Company shall secure the prior approval of the General Body of its members for the issuance of shares in lieu of the Debentures in accordance with Section 81 (1A) of the Companies Act, 1956 and report the same to the Statutory Authorities. 7. So far as the objection in para 6 (e) of the Affidavit of Regional Director is concerned, the Counsel appearing for Petitioner Company undertakes that the Reserve arising out of this scheme will be treated as “Amalgamation Reserve” and shall not be utilized for the purpose of declaring dividend by the Transferee Company. This undertaking is accepted. 8. With reference to the objection in para 6 (f) of the Affidavit of Regional Director is concerned, the Counsel appearing for Petitioner Company submits that Transferee Company undertakes to comply with the RBI/FEMA Regulations as applicable in connection with the issuance of shares to the Debenture Holder. This undertaking is accepted. 9. The Official Liquidator has filed his Report in Company Scheme Petition No.153 of 2011 stating therein that the affairs of the Transferor Company 9 have been conducted in a proper manner and that the Transferor Company may be ordered to be dissolved. 10. From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy. None of the parties concerned save and except as mentioned above have come forward to oppose the Scheme. 11. Subject to what is stated herein above, the Scheme of Amalgamation between Goldcrest Trade and Merchandise Private Limited, Petitioner / Transferor Company and Goldcrest Finance (India) Limited, the Transferee Company is sanctioned and made absolute in terms of prayer (a) to (g) in Company Scheme Petition No.153 of 2011. 12. The Petitioner to lodge a copy of this order and the Scheme duly authenticated by the Company Registrar, High Court (O.S.), Bombay, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of the order. 13. The Petitioner is to pay cost Rs.10,000/- each to Regional Director and also to the Official Liquidator, High Court, Bombay. Costs to be paid within four weeks from today. 14. Filing and issuance of the drawn up order is dispensed with. 10 15. All concerned authorities to act on a copy of this Order along with the Scheme duly authenticated by the Company Registrar, High Court, Bombay. (S.J. Kathawalla, J.)