Karnataka High Court
Rapsri Engineering Products Company ... vs Nil on 21 November, 2012
Author: L.Narayana Swamy
Bench: L. Narayana Swamy
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 21ST DAY OF NOVEMBER, 2012
BEFORE
THE HON'BLE MR. JUSTICE L. NARAYANA SWAMY
COMPANY PETITION NO.102 OF 2012
C/W
COMPANY PETITION NO.101 OF 2012 AND
COMPANY PETITION NO. 117 OF 2012
COMPANY PETITION NO.102 of 2012
BETWEEN:
RAPSRI ENGINEERING PRODUCTS COMPANY LIMITED
REGISTERED OFFICE AT
#39 & 40/2, GOWDANAPALYA,
SUBRAMANYAPURA P.O,
BANGALORE-560 061.
...PETITIONER
(BY SRI.UDAY SHANKAR ASSTS., ADVOCATE)
AND:
NIL
... RESPONDENT
(BY SMT.GOWHAR UNNISA CGC FOR ROC)
THIS PETITION FILED UNDER SECTION 391 TO 394 R/W
SECTIONS 100 TO 103 OF THE COMPANIES ACT, 1956
PRAYING TO SANCTION THE COMPOSITE SCHEME OF
ARRANGEMENT AS IN ANNEXURE-A HERETO AND ETC.,
COMPANY PETITION NO.101 OF 2012
BETWEEN:
RAPSRI PRECISION ENGINEERED
COMPONENT PRIVATE LIMITED
2
REGISTERED OFFICE AT
#39 & 40/2, GOWDANAPALYA,
SUBRAMANYAPURA P.O,
BANGALORE-560 061.
...PETITIONER
(BY SRI.UDAY SHANKAR ASSTS., ADVOCATE)
AND:
NIL
...RESPONDENT
(BY SRI K.S.MAHADEVAN & V.JAYARAM, ADVS. FOR OL
SMT.GOWHAR UNNISA CGC FOR ROC)
THIS PETITION FILED UNDER SECTION 391 TO 394 R/W
SECTIONS 100 TO 103 OF THE COMPANIES ACT, 1956
PRAYING TO SANCTION THE COMPOSITE SCHEME OF
ARRANGEMENT AS IN ANNEXURE-A HERETO AND ETC.
COMPANY PETITION NO.117 OF 2012
BETWEEN:
RAPSRI ENGINEERING INDUSTRIES LIMITED
REGISTERED OFFICE AT
#39 & 40/2, GOWDANAPALYA,
SUBRAMANYAPURA P.O,
BANGALORE-560 061.
...PETITIONER
(BY SRI.UDAY SHANKAR ASSTS., ADVOCATE)
AND:
NIL
...RESPONDENT
(BY SMT.GOWHAR UNNISA CGC FOR ROC)
THIS PETITION FILED UNDER SECTION 391 TO 394 R/W
SECTIONS 100 TO 103 OF THE COMPANIES ACT, 1956
PRAYING TO SANCTION THE COMPOSITE SCHEME OF
ARRANGEMENT AS IN ANNEXURE-A HERETO AND ETC.,
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THESE PETITIONS COMING ON FOR ORDERS THIS DAY,
THE COURT MADE THE FOLLOWING:-
ORDER
These Company Petitions have been filed by the Petitioner-Companies under Sections 391 to 394 of Companies Act, 1956 seeking permission to sanction the Scheme of amalgamation with the Transferee Company, which is produced as Annexure-A to the petition. The Petitioner-Company in Company Petition No.102 of 2012, i.e. M/s. Rapsri Engineering Products Company Limited; and the Petitioner in Company Petition No.101 of 2012 i.e. M/s. Rapsri Precision Engineered Components Private Limited (the petitioners in the petitions are hereinafter referred to as "Transferor company"); are proposed to be merged with the petitioner in Company petition No.117 of 2012 i.e. M/s. Rapsri Engineering Industries Limited (hereinafter referred to as "Transferee-Company").
2. The Transferor Company in Company Petition No. 102 of 2012 Rapsri Engineering Products Company Limited was incorporated on 29th March 2012 under the provisions of Companies Act, 1956 with the Registrar of Companies, 4 Karnataka at Bangalore under the name and style of "M/s. Rapsri Engineering Products Company Limited". The Registered Office of the Transferor-Company is at 39 & 40/2, Gowdanapalya, Subramanyapua PO, Bangalore-560 061. The Memorandum of Articles of Association of the Transferor Company is produced as Annexure-B with the petition. The authorised share capital of the Transferor Company as on 31st March 2012 is Rs.50,00,000/- divided into 5,00,000 equity shares of Rs.10/- each and Rs.5,00,00,000/- divided into 5,00,00,000 worth Redeemable non-cumulative preference shares of Rs.1/- each. Issued, Subscribed and Paid-up share Capital is Rs.5,00,000/- divided into 50,000 equity shares of Rs.10/- each. The unaudited balance sheet of the transferor- company as on 31st March 2012 is enclosed as Annexure-C to the petition. The main objects of the Transferor-company, as set out in its Memorandum of Articles of Association, is to carry on the business of manufacture of machinery implements, small machine tools, forging and castings, forging and foundry materials, aircraft spare parts, automobile spare parts, electric motors an other electrical accessories, pump sets, trolleys, commutators, commutator segments, 5 busbars, rotor strips, earthing strips, foundry machinery, jigs, dies, dies, tools carbon insulating tapes, P.V.C. tapes, insulating tapes and adhesive tapes; to carry on the business of non-ferrous founders, refiners, metal and alloy makers in all its branches and to manufacture and deal in electrical appliances, fittings, furniture, sanitary fixtures, utensils and things for household and domestic use; to carry on the business of metallurgists, electrical and mechanical engineers, galvanizers, machinists, annealers, welders, metal workers, gas markers, analytical manufacturing chemists and to buy, sell, manufacture, repair, refit, convert, let on hire and deal in machinery, implements, rolling stock, metal furniture, fittings, utensils, hardware and building materials; and morefully described in Memorandum of Articles of Association. The latest audited Balance Sheet of the Transferor Company, as on 31st March 2011, is produced at Annexure-B to the petition.
3. The Transferor-Company in Company Petition No.101 of 2012-M/s. Rapsri Precision Engineered Components Private Limited was incorporated on 16th April 2012 under the provisions of Companies Act, 1956 with the Registrar of 6 Companies, Karnataka at Bangalore under the name and style of "M/s. Rapsri Engineering Products Company Limited". The Registered Office of the Transferor-Company is at 39 & 40/2, Gowdanapalya, Subramanyapua PO, Bangalore-560 061. The Memorandum of Articles of Association of the Transferor Company is produced as Annexure-B with the petition. The authorised share capital of the Transferor Company as on 31st March 2012 is Rs.10,00,00,000/- divided into 1,00,00,000 equity shares of Rs.10/- each. Issued, Subscribed and Paid- up Capital is Rs.9,91,46,050/- divided into 99,14,605 equity shares of Rs.10/- each. The unaudited balance sheet of the transferor-company as on 31st March 2012 is enclosed as Annexure-C to the petition. The main objects of the Transferor-Company, as set out in its Memorandum of Articles of Association, is to carry on the business of manufacture of machinery implements, small machine tools, forging and castings, forging and foundry materials, aircraft spare parts, automobile spare parts, electric motors an other electrical accessories, pump sets, trolleys, commutators, commutator segments, busbars, rotor strips, earthing strips, foundry machinery, jigs, dies, dies, tools carbon insulating tapes, 7 P.V.C. tapes, insulating tapes and adhesive tapes; to carry on the business of non-ferrous founders, refiners, metal and alloy makers in all its branches and to manufacture and deal in electric appliances, fittings, furniture, sanitary fixtures, utensils and things for household and domestic use; to carry on the business of metallurgists, electrical and mechanical engineers, galvanizers, machinists, annealers, welders, metal workers, gas markers, analytical manufacturing chemists and to buy, sell, manufacture, repair, refit, convert, let on hire and deal in machinery, implements, rolling stock, metal furniture, fittings, utensils, hardware and building materials; to carry on the business of farming, poultry farming, livestock breeding and to carry on the business of cultivation and dealing in all cash crops, all kinds of farm produce and to carry on the business of manufacturing and processing of finished products utilizing as raw material such cash crops or other agriculture produce; and morefully described in Memorandum of Articles of Association.
4. The Transferee-Company i.e. the Petitioner in Company Petition No.117 of 2012 - M/s. Rapsri Engineering Industries Limited was incorporated under the provisions of 8 Companies Act, 1956 with the Registrar of Companies, Karnataka at Bangalore on 2nd April 1971 1st February 2010 2004 the name and style of "M/s. Rapsri Engineering Industries Private Limited". Later the name of the said company, vide certificate dated 25th November 1994, was changed as "M/s. Rapsri Engineering Industries Limited" The Registered Office of the Transferee Company is at 39 & 40/2, Gowdanapalya, Subramanyapura P.O., Bangalore - 560 061. The authorised share capital of the Transferee-Company as at 31st March 2011 is Rs.100,000,000/- divided into 10,000,000 equity share of Rs.10 each. Issued, subscribed and Paid up capital is Rs.48,696,000/- divided into 4,869,600 equity shares of Rs.10/- each. The unaudited latest Balance Sheet of the Transferee-company is produced at Annexure-D to the petition. The main objects of the Transferee Company is to carry on the business of manufacture of machinery implements, small machine tools, forging and castings, forging and foundry materials, aircraft spare parts, automobile spare parts, electric motors an other electrical accessories, pump sets, trolleys, commutators, commutator segments, busbars, rotor strips, earthing strips, foundry machinery, jigs, 9 dies, dies, tools carbon insulating tapes, P.V.C. tapes, insulating tapes and adhesive tapes; to carry on the business of non-ferrous founders, refiners, metal and alloy makers in all its branches and to manufacture and deal in electrical appliances, fittings, furniture, sanitary fixtures, utensils and things for household and domestic use; to carry on the business of metallurgists, electrical and mechanical engineers, galvanizers, machinists, annealers, welders, metal workers, gas markers, analytical manufacturing chemists and to buy, sell, manufacture, repair, refit, convert, let on hire and deal in machinery, implements, rolling stock, metal furniture, fittings, utensils, hardware and building materials; and morefully described in Memorandum of Articles of Association enclosed as Annexure-B to the petition.
5. The Board of Directors of the Transferor Company and the Transferee-company have approved the scheme of amalgamation of Transferor and Transferee companies, at its meeting held on 17th April 2012. The relevant Board Resolution is produced herewith as Annexure-H to the petition. The Memorandum of Articles of Association of the resulting company is produced as Annexure-J to the petition. 10 The main objects of the resulting company, as set out in the Memorandum of Articles of Association, are to carry on the business of manufacture of machinery implements, small machine tools, forging and castings, forging and foundry materials, aircraft spare parts, automobile spare parts, electric motors an other electrical accessories, pump sets, trolleys, commutators, commutator segments, busbars, rotor strips, earthing strips, foundry machinery, jigs, dies, dies, tools carbon insulating tapes, P.V.C. tapes, insulating tapes and adhesive tapes; to carry on the business of non-ferrous founders, refiners, metal and alloy makers in all its branches and to manufacture and deal in electrical appliances, fittings, furniture, sanitary fixtures, utensils and things for household and domestic use; to carry on the business of metallurgists, electrical and mechanical engineers, galvanizers, machinists, annealers, welders, metal workers, gas markers, analytical manufacturing chemists and to buy, sell, manufacture, repair, refit, convert, let on hire and deal in machinery, implements, rolling stock, metal furniture, fittings, utensils, hardware and building materials.
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6. This Court, vide order dated 20th April 2012 in Company Application No.580 of 2012, dispensed with the holding of meeting of the unsecured creditors and directed the transferee-company to conduct the meeting of the shareholders and secured creditors and to file the Chairman's equity shareholders. As per the order dated 20th April 2012 the meeting of the share holders and secured creditors has been conducted on 23rd May 2012 and the Chairman of the Meeting has filed his report dated 23rd May 2012.
7. Thereafter, the present petitions have been filed. This Court, vide order dated 8th June 2012 issued notice to the Regional Director and Official Liquidator and permitted the Petitioners to take out advertisement in English Daily "The Hindu" and Kannada Daily "Vijaya Karnataka" on or before 19th June 2012 indicating the date of hearing as 10th July 2012. Accordingly, the Petitioner has furnished the copy of advertisement taken out advertisement on 26th December 2011 in the English daily "The Hindu" and "Vijaya Karnataka"
and filed a memo to that effect before this Court.
8. Pursuant to the notice issued to the Regional Director, the Registrar of Companies, Karnataka has filed 12 affidavit dated Nil on behalf of the Regional Director making the following observations:
"(a) Though the scheme provides for accounting treatment vide clause 11 for amalgamation it is not stated as to which method of accounting is being proposed to be adopted by the transferee-company.
However, it is stated vide clause 11(iv) of the scheme that the difference, being the excess or shortfall between the assets and liabilities of transferor company transferred to the transferee-company at book value shall be credited/debited to General Reserve which is not in accordance with the Accounting Standard-14 according to which the same should be credited to the Capital Reserve and debited to Goodwill.
(b) As regards Accounting Treatment, in respect of demerger, of Alloy Business Division of REIL into REPCL, though it is the case of demerger, the excess or shortfall between the assets and liabilities of Alloy Business Division of Demerged company transferred to the resulting company at Book values should be credited to Capital Reserve and debited to Goodwill.
(c) It is observed from the petitioner that Rapsri Engineering Industries Ltd. in the course of demerger is transferring its entire fixed assets i.e. plant and machinery equipment except land and building. The building on which the said plant and machinery/factory situated is lying with transferor company where only plant and machinery passed on to the building is 13 proposed to be transferred to transferee-company. Hence it is not clear how such an agreement is possible u/s 391-394 without transferring factory/building.
*(d) The scheme provides for reduction of share capital of 4,00,000 equity shares of Rs.10/- each on the basis of "first in last out". However, company has failed to disclose in petition or in the scheme the relevant provision of sub sec (1) of Sec. 100 of such reduction is possible. In determining exchange ratio company has obtained valuation report prepared by Basavaraja and Dileep, Chartered Accountants wherein the Annexure-B of the said valuation report contains proposed Post Amalgamation structure wherein it contains names of 16 persons including some of nominee shareholders at relevant time whereas company REIL has 627 share holders. Therefore, company has already predetermined or pre-decided the share holders from whom the shares are proposed to be purchased. Therefore company has to clarify the concept of 'first in last out' as on record date as provided in para 4.2 of Part 2 of the scheme, in the circumstances wherein the company has already predetermined the list of share holders proposed to be transferred.
(e) Further the company's resolution for approval for reduction of share capital is also determined to be defective because of such resolution should have been part and parcel of the scheme. Shareholders should know whose shares are purchased back.
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(f) Further by considering all these aspects of reduction it is nothing but buy back of shares which is also falling under Section 77A of the Companies Act, 1956. In such a buy back it is essential that option is given to shareholders, whether the shareholders buy back or not instead of predetermined list in the form of compulsory purchase.
(g) There is no source to make payment to shareholders holding 4,00,000 shares in the event of buy back since entire liquid fund/assets is proposed to be transferred as through the scheme.
(h) This Hon'ble Court may be pleased to direct the Transferee-Company/Resulting Company to specify the terms and conditions in issuance of preferential shares to the shareholders of the demerged company."
10. Pursuant to the same, the petitioner files its reply affidavit and with regard to the same the learned Counsel for the Registrar of Companies submits that she has no objection to the scheme of amalgamation. In view of the submission made by the learned counsel, the report of the Registrar of Companies is accepted. Accordingly, as per Scheme Annexure-a, the Transferor companies are permitted to be amalgamated with the Transferee company. Further, the Transferor companies M/s. Rapsri Engineering Products 15 Company Limited and M/s. Rapsri Precision Engineered Component Private Limited, are ordered to be dissolved.
12. Hence the following:
ORDER i. The Company Petitions are allowed.
ii. The Scheme of Amalgamation at Annexure-A to the petition is hereby sanctioned and the same shall be binding on the shareholders and creditors of the Petitioner Transferor-Companies and also the Petitioner Transferee-Company.
iii. The Resultant Petitioner Company shall file copy of this order with the Registrar of Companies, Karnataka within thirty days from the date of receipt of a copy of this order.
Sd/-
JUDGE lnn