SUMITRA PHARMACEUTICALS AND CHEMICALS LIMITED Vs. STATE

JUDGEMENT

(1.) This is a petition filed by Sumitra Pharmaceuticals Limited, Hyderabad, for sanction of this court to a scheme whereby the entire bulk drug division of the petitioner company will be transferred and merged with Nicholas Piramal India Limited (for short "NPIL") in accordance with the scheme of arrangement approved by the members of the company at its meeting held on 15/12/1995, pursuant to the direction of this court in C.A. No. 203 of 1995. According to the petitioner, the petitioner company was incorporated on 30/11/1988, under the Companies Act. The authorised capital is Rs. 35 crores consisting of 3.2 crores equity shares of Rs. 10 each and the issued and subscribed capital is Rs. 24,53,82,000 while the fully paid-up capital is Rs. 19,53,82,000 and partly paid-up capital is Rs. 1,25,00,000. The main objects of the company are to carry on the business of manufactures, buy, sell, import, export and generally deal in all types of chemicals, pharmaceuticals, drugs and intermediaries, dyestuffs and surgicals and medical equipment. NPIL is a company incorporated on 26/04/1947. Originally the company was incorporated under the name of the Indian Schering Limited. Later its name was changed into Nicholas Laboratories India Limited. It was further changed to Nicholas Piramal India Limited. The authorised capital to NPIL is Rs. 20 crores consisting of 2 crores shares of Rs. 10 each while the issued, subscribed and paid-up capital is Rs. 17,39,05,540. The main objects of NPIL are to carry on business in all kinds of pharmaceutical preparations. As the activities carried on by the petitioner company and NPIL are complementary to each other, the petitioner company thought is advisable to dispose of the entire bulk drug business to NPIL, which is a growing concern. The shares of the petitioner company are listed on the stock exchanges of Hyderabad, Bombay, Calcutta, Delhi and Ahmedabad while those of NPIL are listed on the Bombay and Ahmedabad stock exchanges. The scheme provides that the new equity shares in NPIL issued to the shareholders of the petitioner company shall rank for dividend and voting rights and in all other respects pari passu with the existing shares in NPIL except that they shall be entitled to proportionate dividend for the year in which they are allotted. The scheme is to take effect from 1/04/1995, and the share exchange ratio is 5 : 100 in the case of fully paid up share and 5 : 400 in the case of partly used shares. It also provides that the share capital of the petitioner company shall stand reduced to the authorised capital of Rs. 11,07,52,550 and issued and subscribed capital at Rs. 61,34,550 and paid up capital at Rs. 48,84,550 and partly paid up capital at Rs. 3 lakhs.

(2.) Pursuant to the order of this court in connected Company Application No. 203 of 1995, a meeting of the shareholders of the company was held on 15/12/1995, where the scheme was approved. Notices have been issued to the Regional Director, Company Law Affairs, Madras. The question of issuing notice to the official liquidator does not arise as the petitioner company is not going to be dissolved. The Registrar of Companies has filed a counter raising four objections : (1) In the interest of shareholders of the company, the stock exchange ratio may be fixed at 5 : 50 and 5 : 200 instead of 5 : 100 and 5 : 400 in respect of fully paid and partly paid shares. (2) A separate application has to be filed before this court under section 100 of the Companies Act for reduction in share capital which cannot be part of the arrangement. (3) Delisting of shares on the stock exchange can be done only with the approval of the concerned stock exchanges and the company cannot unilaterally delist. (4) The financial competency of the managing director is not shown as to how he can purchase such of the shares of the company as are offered to him at par.

(3.) The petitioner has filed a reply saying that the share exchange ratio has been approved by the majority of the shareholders of both the companies and the share valuation was fixed after taking into consideration the valuation report of the reputed chartered accountants, viz., Harbakti and Co. and Gautam Doshi and Company. Regarding the reduction of share capital, it is stated that separate meeting of the shareholders for approving the reduction of the share capital was held and the shareholders unanimously approved the proposal by passing a special resolution which was filed the Registrar of Companies accompanied with the requisite fee. It is also stated that as the secured and unsecured loans are being taken over by NPIL, the interests of the creditors are in no way affected. It is further stated that the consortium of financial institutions led by the Industrial Development Bank of India and the consortium of banks led by the State Bank of Hyderabad which are the major secured creditors have given approval to the scheme. Regarding the dislisting of shares on the stock exchanges, the reply says that this is given more as information to the shareholders than as a condition of the scheme. Regarding the last objection also it is stated that this is also more by way of information to the shareholders but not a condition of the scheme.