COIMBATORE COTTON MILLS LIMITED Vs. STATE

JUDGEMENT

(1.) C . P. No. 21 of 1978 has been filed by the Coimbatore Cotton Mills Ltd., Coimbatore (hereinafter referred to as the "transferor company"), and C. P. No. 22 of 1978 has been filed by the Lakshmi Mills Co. Ltd. (hereinafter referred to as the "transferee -company") under ss. 391 and 394 of the Companies Act, 1956, for sanction being accorded to the scheme of arrangement and amalgamation of the said two companies. The transferor -company was incorporated under the Indian Companies Act, 1913, on December 16, 1929, at Coimbatore with the liability of the members limited by shares. Its present authorised capital is rupees one crore divided into 95, 000 equity shares of Rs. 100 each and 5, 000 shares of Rs. 100 each with preferential rights to cumulative dividend at 7% (tax -free). Its present issued, subscribed and paid up capital is 36, 000 equity shares of Rs. 100 each amounting in all to Rs. 36, 00, 000. All the issued shares are fully paid up. The objects of the company are ginning, spinning and whenever thought fit making arrangements in connection with weaving, dyeing and printing cotton, wool, silk and such other articles and undertaking such processes at Coimbatore and at other places in the Madras Presidency which the company may decide from time to time.

(2.) THE transferee -company was incorporated under the Indian Companies Act, 1882, on April 1, 1910, at Coimbatore with the liability of the members limited by shares. Its present authorised capital is rupees two crores divided into 2 lakhs equity shares of Rs. 50 each and 5 lakhs equity shares of Rs. 25 each. The present issued, subscribed and paid -up capital is 1, 42, 000 equity shares of Rs. 50 each and 3, 55, 000 equity shares of Rs. 25 each amounting in all to Rs. 1, 59, 75, 000. The objects for which the transferee -company was formed are to carry on all or any of the businesses of cotton spinners and doublers, wool, flax, jute and hemp and wool merchants, wool combers, worsted spinners, woollen spinners, yarn merchants, worsted stuff manufacturers, bleachers, and dyers and makers of vitriol, bleaching and dyeing, materials to purchase, sell, comb, prepare, spin, dye and deal in flax, hemp, jute, wool, cotton, silk and other fibrous substances and to weave or otherwise manufacture, buy and sell and deal in linen, yarn, cloth and other goods and fabrics, whether textile, felted, netted or looped and to supply power.Since the last three or four years, the transferor -company had been facing adverse conditions due to high cost of production. Further, the plant and machinery were old and required modernisation to achieve economic production. As a matter of fact, 40% of the plant and machinery have to be replaced. The transferor -company has been finding it difficult to secure the necessary credit facilities to launch an effective scheme of modernisation. On the other hand, the transferee company has an established reputation with highly sophisticated modern machinery and a well knit selling organisation throughout India. On November 2, 1977, the board of directors of the transferor -company in consultation with the board of directors of the transferee -company considered that it would be in the interest of both the companies, the shareholders as well as the workers and the public, if the transferor -company was amalgamated with the transferee -company so as to form one single unit under a scheme of amalgamation, the transferor -company ultimately being dissolved without being wound up. Accordingly, a scheme of amalgamation of the two companies was drawn up. C. A. Nos. 322 and 323 of 1978 were filed before this court for permission to convene a meeting of the shareholders for the purpose of considering and if thought fit, to pass with or without modification the scheme of amalgamation. These applications were disposed of by Ramaprasada Rao J. (as he then was) by his order dated February 20, 1978. The learned judge directed that a meeting of the equity shareholders of the transferor -company should be held on 27th March, 1978, at 10 a.m. at the registered office of the Lakshmi Mills Co. Ltd., at No. 348, Avanashi Road, Coimbatore. The learned judge appointed Mr. K. Sundaram, managing director of the transferor -company, as the chairman of the said meeting, with directions that the chairman should report to the court about the proceedings of the meeting on or before 3rd April, 1978. Similarly, the learned judge directed that a meeting of the equity shareholders of the transferee -company should be held on the 27th March, 1978, at 3 p.m. at its registered office at No. 348, Avanashi Road, Coimbatore, and Mr. K. Sundaram, managing director of the transferor -company, was appointed chairman of the said meeting with directions to report to the court about the proceedings of the meeting on or before 3rd April, 1978. Similarly, the learned judge directed that a meeting of the debenture -holders should be held on the 27th March, 1978, to consider a scheme of amalgamation as proposed at 12 noon on 27th March, 1978, under the chairmanship of Mr. K. Sundaram.Pursuant to the order of this court dated February 20, 1978, a meeting of the equity shareholders of the transferor -company was held at 10 a.m on March 27, 1978. The meeting was attended by 424 members either in person or by proxy. The value of the shares held by the number of members who attended the meeting came to Rs. 30, 08, 400. Out of 424 members, 423 members holding 27, 277 shares of the value of Rs. 27, 27, 700, voted in favour of the proposed scheme of amalgamation being adopted and carried into effect. One member, holding 2, 807 shares of the value of Rs. 2, 80, 700 voted against the acceptance of the scheme of amalgamation.

(3.) A meeting of the equity shareholders of the transferee -company was held at Coimbatore on March 27, 1978, under the chairmanship of Mr. K. Sundaram. The meeting was attended by 1, 228 members either in person or by proxy. They held 1, 13, 939 shares of Rs. 50 each and 2, 90, 496 shares of Rs. 25 each, the total value of the shares being Rs. 1, 29, 59, 350. 1, 225 shareholders, holding shares of the value of Rs. 1, 13, 56, 175, voted in favour of the scheme of amalgamation. Three shareholders, holding shares of the value of Rs. 16, 02, 300, voted against the scheme of amalgamation. The Chairman, Mr. K. Sundaram, has filed separate reports regarding the proceedings of the three meetings referred to above.Consequently, the above company petitions have now been filed for sanction being accorded to the said scheme of arrangement and amalgamation.