SUTLEJ INDUSTRIES LTD Vs. STATE

JUDGEMENT

(1.) THE petitioner companies, i.e., Sutlej Indus - 1 tries Ltd. and Sutlej Textiles and Industries Ltd. filed the present petition under sections 391(2) and 394 of the Companies Act seeking approval of the scheme of arrangement so as to be binding upon all the shareholders, secured and unsecured creditors.

(2.) THIS Court on January 25, 2006, issued notice of this petition to the 2 Regional Director, Northern Region, Ministry of Company Affairs, NOIDA (UP) and also directed for publication of the same in two newspapers Rajasthan Patrika, Kota edition, and the Times of India, Jaipur edition. The hearing of the petition was notified to be March 8, 2006.

(3.) THE Regional Director in relation to clause 2(a) of Part II of the scheme 4 of arrangement stated that 'all the permanent employees of the transferor company engaged in the 'textile division' shall become the employees of the transferee company without any break or interruption in their services.' In relation to para. 9.9 of Part III of the scheme, the Regional Director stated that : 'In case any capital reserve arises pursuant to clause 9.7, the same shall be treated as free reserves of STIL. The Regional Director took objection that this scheme docs not seem to be in conformity with the provisions of the Companies Act, 1956, as well as normally accepted accounting principles, since surplus arising out of the scheme of arrangement, i.e., arrangement/amalgamation reserve is of capital nature and cannot be considered as general reserve as the same is free for distribution to the shareholders of a company in the form of dividend/bonus shares, whereas 'arrangement/amalgamation reserve' cannot be utilised for distribution to the shareholders.