THE HON’BLE Ms. JUSTICE G. ROHINI COMPANY PETITION No.129 OF 2010 Connected with COMPANY APPLICATION No.514 OF 2010 Dated: 30.11.2010 In the matter of Companies Act, 1956 (1 of 1956) And In the matter of Sections 391 and 394 of the said Act And In the matter of Scheme of Arrangement; Between Bio Green Industries Limited (Demerged Company); And Its Shareholders and Creditors: And Bio Green Papers Limited (Petitioner Company): M/s. Bio Green Papers Limited, A company incorporated Under the Companies Act, 1956 having its registered Office at 7.1.34, IInd floor, Sridevi Mansion, Shamkaran Road, Ameerpet, Hyderabad-500016. … Petitioner (Petitioner Company) THE HON’BLE Ms. JUSTICE G. ROHINI COMPANY PETITION No.129 OF 2010 ORDER : This petition is filed under Sections 391 and 394 of the Companies Act, 1956 for sanction of the scheme of arrangement as approved by the shareholders of the petitioner company and the demerged company. The petitioner - M/s. Bio Green Papers Limited (hereinafter referred to as ‘the petitioner company’) was originally incorporated on 17.3.1994 in the name of Shivsagar Paper & Chemicals Limited. Later the name was changed as Bio Green Papers Limited and a fresh Certificate of incorporation was obtained on 9.4.2008. The registered office of the petitioner company is situated at Ameerpet, Hyderabad and its main objects are to carry on the business of manufacturers and dealers in pulp board and paper of all kinds and etc., (morefully described in para-5 of the Company petition). The authorised capital of the petitioner company is Rs.9,00,00,000/- divided into 90,00,000 equity shares of Rs.10/- each. The issued, subscribed and paid-up share capital of the said company is Rs.8,00,35,000/- divided into 80,03,500 equity shares of Rs.10/- each. It is stated that the Petitioner company is the wholly owned subsidiary of Bio Green Industries Limited (hereinafter referred to as ‘the demerged company’) and that the shares of the Petitioner company are not listed on any Stock Exchange. It is also explained that the demerged company was originally incorporated on 27.2.1985 in the name of Suryamukhi Trading & Finance Limited and later on the name was changed as Bio Green Industries Limited and fresh Certificate of incorporation was issued by the Registrar of Companies on 25.1.2007. The registered office of the said company is situated at Mumbai and the company was formed with the main objects of carrying on business as merchants, traders commission agents, buying agents, selling agents, and etc., (morefully described in para-14 of the company petition). The authorized share capital of the demerged company as on 31.03.2010 is Rs.11,00,00,000/- and its issued, subscribed and paid-up share capital is Rs.8,00,35,000/- divided into 80,03,500 equity shares of Rs.10/- each. The demerged company is a listed company on Bombay Stock Exchange Limited. It is further stated that in order to achieve the objective of carrying on business of the company in an efficient manner, it has been decided to re-organize by demerging the paper business between the two companies having the same shareholders with the same interest inter se as M/s. Bio Green Industries Limited to be managed and operated independently. It is further stated that the said arrangement /reorganization is essential to ensure better business opportunities and focus on accelerated growth of the individual segments in the current scenario in the paper business and that the proposed arrangement of reorganization would act to the benefit of the shareholders, creditors and employees and would sub-serve their interests with further growth. Accordingly, a scheme has been propounded and the same has been approved by the Board of Directors of both the companies in their respective meetings held on 12.4.2010. The salient features of the Scheme of Arrangement have been explained in para-24 of the company petition. It is further stated that the Petitioner company had earlier filed Company Application No.514 of 2010 and by order dated 2.7.2010 this Court had dispensed with the meeting of the shareholders as all the shareholders had given their no objection by means of affidavits. The Petitioner company has not availed any secured loans and no investigations or proceeding are pending under Sections 235 & 237 of the Companies Act or any other under any Act. Hence the present company petition for sanction of the Scheme of Arrangement as approved by the Board of Directors of both the companies. This Court by order dated 16.7.2010 directed notice to the Regional Director, Ministry of Corporate Affairs, Chennai; Registrar of Companies, Hyderabad and the Official Liquidator attached to this Court. Having received the notice, the Registrar of Companies filed an affidavit dated 27.9.2010 stating as under : “(a) As the demerged company is situated in the State of Maharashtra, the scheme is subject to approval of the Hon’ble High Court at Bombay also. (b) The transferee company should pay the Stamp Duty wherever applicable as per the Regulations of Andhra Pradesh Stamp Act. (c) There are some typographical errors in para No.2, Para No.24 (11)(a), 1(b), (2)(c) of the petitioner and clauses 2.7 & 2.14 of the Scheme of arrangement. The said paras should be corrected.” The Official Liquidator in his report dated 24.9.2010 while stating that the affairs of the Petitioner Company did not appear to have conducted in a manner prejudicial in the interest of its members or to the public interest, raised the following objections: “1. That, the authorised capital of the petitioner company is Rs.90,00,00,000/- divided into 90,00,000 equity shares of Rs.10/- each. The issued, subscribed and paid- up share capital of the petitioner company is Rs.8,00,35,000/- divided into 80,03,500 equity shares of Rs.10/-. However, as per the copy of the Balance sheet as at 31.3.2009 annexed to the petition, the share capital of the company is Rs.7,00,00,000/-, while the equity application money stands at Rs.5,00,00,000/-. Convertible Debentures amounting to Rs.19,99,29,400/- have also been shown in the above said balance sheet. No schedules to the balance sheets have been attached by the petitioner company. Furthermore, the scheme is silent as to the treatment / status of the convertible debentures amounting to about Rs.19.00 crores. This aspect along with the equity application money needs to be clarified by the petitioner company. 2. That upon the scheme becoming operative and upon vesting of the Bio-Green Papers Limited (a 100% wholly owned subsidiary of BGPL) by way of demerger of the investments of Bio Green Industries Limited in Bio Green Papers Limited in terms of this scheme, BGPL shall without any further application or deed, issue and allot 1 (one) equity share of the face value of Rs.10/- each credited as fully paid up to all shareholders of BGIL and whose name appears in the Registrar of members of BGIL on the Record Date. However, no valuation report has been submitted by the petitioner company. 3. That as per the copy of the balance sheet as at 31.03.2009 made available, the petitioner company has no secured creditors. However, an unsecured loan amounting to Rs.1,57,57,167/- has been shown. No details of the unsecured creditor are furnished. It is presumed that no objection to the proposed scheme has been submitted before this Hon’ble Court in C.A.No.514 of 2010 by the petitioner company wherein this Hon’ble Court vide order dated 2.7.2010 had dispensed with the meeting of the shareholders and unsecured creditors of the said company. The balance sheet as at 31.3.2009 reveals that the petitioner company had been making profits for the last two years.” On behalf of the petitioner company, an additional affidavit dated 21.10.2010 has been filed answering the objections raised by the Official Liquidator and annexing the audited balance sheet of the company certified by the Chartered Accountant with all the schedules for the year 2008-2009 and the provisional balance sheet of the company Accountant for the year 2009-10 with all the schedules. It is also explained that the petitioner company had only one unsecured loan from the lender in the company by name V.Venkateswarlu who is also one of the Directors of the Company and whose consent has already been annexed. A further affidavit dated 29.10.2010 has been filed on behalf of the petitioner company enclosing a copy of the resolution passed at the meeting of the Board of Directors of the demerged company held on 12.4.2010 consenting for the proposed scheme of arrangement. However the Official Liquidator in his further report dated 12.11.2010 contended that the petitioner company ought to have filed the original provisional balance sheet or the adopted balance sheet as on 31.3.2010 since the statutory period of six months from March, 2010 as provided under the Companies Act for conducting the Annual General Meeting and adoption of the financial results has expired on 30.9.2010. It is also contended that the petitioner company had failed to clarify as to the method of treatment of the left over FCDs held by the parent company in the proposed scheme of arrangement. In response to the same, the petitioner company filed an additional affidavit dated 22.11.2010 explaining that in view of the ongoing demerger process the company’s management had decided to postpone the meeting of AGM till 31.12.2010 to approve the audited accounts for the year 2009-10 and accordingly it had taken time from the Registrar of Companies, Hyderabad, to allow the company to convene the AGM by 31.12.2010. Accordingly, the Registrar of Companies granted time till 31.12.2010 for the adoption of Audited Financial results and therefore the company had filed only the provisional balance sheet for the year 2009-10. So far as the further objection raised by the Official Liquidator, it is explained as under : “Bio Green Industries Limited (BGIL) has 1,99,294 fully convertible debentures of Rs.100/- each worth RS.1,99,29,400/- as on 31.3.2010 in Bio Green Papers Limited (BGPL) and the BGIL management has decided to continue the same as zero coupon FCD’s in BGPL till the completion of 5 year full term. The FCD’s held by BGIL after the completion of 5 year term would then either be converted into Equity shares at a pre-determined price i.e., @ 229.20 per share or will be redeemed as per the prevailing market conditions. Bio Green Industries Limited has already given NOC to the proposed scheme of arrangement as a FCD holder.” In support of the said submissions, the petitioner company had filed along with the additional affidavit dated 22.11.2010 the original copy of the provisional balance sheet for the year 2009-10, a copy of the approval received from the Registrar of Companies, Hyderabad granting extension of time for AGM and a certified copy of the Board Resolution of the demerged company with regard to the left over fully convertible debentures. I have heard the learned counsel for the petitioner as well as the learned counsel appearing for the Official Liquidator and the learned Assistant Solicitor General of India; and perused the material available on record including the scheme of arrangement. As could be seen from the material placed before this Court, the scheme of arrangement proposes the demerger of the investments made by the demerged company in the petitioner company which is a 100% wholly owned subsidiary of the demerged company into a separate listed company in the name and style of M/s. Bio Green Papers Limited. The Memorandum of Association of the petitioner company contained an enabling clause for amalgamation / arrangement. As could be seen from the report of the Official Liquidator, the scheme of arrangement has taken due care for protecting the services of the permanent employees of the petitioner company and that nothing could be revealed about pending litigation and prosecution either against or by the petitioner company and its directors. Except certain objections raised in the report dated 24.09.2010, it was stated by the Official Liquidator that the affairs of the petitioner company did not appear to have been conducted in a manner prejudicial in the interests of its members or to the public interest. Having carefully gone through the explanation offered by the petitioner in the additional affidavits dated 21.10.2010, 29.10.2010 and 22.11.2010 as well as the documents enclosed to the said affidavits, this Court is satisfied that all the objections raised by the Official Liquidator have been properly answered and therefore there is no justifiable reason factual or legal for not granting the sanction of the scheme of arrangement. Even with regard to the objection raised by the Registrar of Companies as to the payment of stamp duty by the transferee company, it is submitted by the learned counsel for the petitioner that the transferee company upon sanction of the scheme would necessarily pay the stamp duty as required under the Stamp Act so as to make the scheme effective. The typographical errors pointed out in the report of the Registrar of Companies have also been corrected. However as rightly pointed out in the affidavit of the Registrar of Companies, the scheme shall be subject to approval of the High Court of Mumbai since the demerged company is situated in the State of Maharashtra. Accordingly, the Company Petition is allowed and the Scheme of Arrangement as approved by the shareholders of both the companies is hereby sanctioned subject to the approval by the High Court of Mumbai in the petition filed by the demerged company. The petitioner company shall submit a copy of this order before the Registrar of Companies, A.P., Hyderabad, within 30 days from the date of receipt of this order. _____________ G. ROHINI, J. Dt. 30.11.2010 gbs