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Section 391, read with sections 21 and 23 of Companies Act

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Court :
High Court of Madras

Brief :

Citation :
Sun Metals and alloys (P.) Ltd., In re S. RAJESWARAN J. CP NOS. 189 AND 190 OF 2007

High Court of Madras Sun Metals and alloys (P.) Ltd., In re S. RAJESWARAN J. CP NOS. 189 AND 190 OF 2007 November 13, 2007 Section 391, read with sections 21 and 23 of Companies Act, 1956, read with rules 11 and 79 of Companies Court Rules, 1959 - Compromise and arrangements - Demerged/petitioner company filed petition to sanction scheme of arrangement as approved unanimously by shareholders of petitioner - company so as to be binding on petitioner - company and on all its members and creditors - Board of directors of both demerged company and resulting company had approved proposed scheme of demerger - Regional Director, Ministry of Corporate Affairs, however, raised an objection that change of names proposed in scheme could not be given effect to without obtaining necessary approval from Registrar of Companies as required under section 21 and hence, both companies had to comply with requirements of sections 21 and 23 for giving effect to change of name proposed - Whether objections of Regional Director were formal in nature and even otherwise requirements of sections 21 and 23 could be complied with after sanctioning scheme of arrangement, thus, these objections could not be held against petitioners - Held, yes - Whether in such circumstances, petition seeking sanctioning of scheme was to be allowed - Held, yes FACTS The demerged petitioner company filed petition under sections 391 to 394 read with rules 11(a)(10) and 79 of 1959 Rules to sanction the scheme of arrangement as approved unanimously by the shareholders of the petitioner-company so as to be binding on the petitioner-company and on all the members and creditors of the petitioner-company. The board of directors of the demerged company and the resulting company had at their meetings considered and approved the proposed scheme of demerger. The Regional Director, ministry of corporate affairs filed an affidavit on behalf of Central Government raising objections to the effect that the name of the demerged company would be changed to the name which was presently the name of the resulting company. The change of names proposed in the scheme could not be given effect to without obtaining necessary approvals from the Registrar of Companies as required under section 21; and hence, both the companies had to comply with the requirements of sections 21 and 23 for giving effect to the change of the name proposed. The petitioner, however, stated that the objections of the Regional Director were only formal in nature and even otherwise sections 21 and 23 could be complied with after sanctioning the scheme of arrangement and these objections could not be held against them. HELD There was force in the submissions of the petitioners as objections of this nature could not be put against the petitioners at the time of considering the sanctioning of the scheme of arrangement. Further, as rightly contended on behalf of the petitioners, the petitions filed under sections 391 to 394 are like a single window system and the petitioners could not be burdened with taking out various applications which were cumbersome in nature. Further, it was pointed out that, if necessary, the petitioners could always go before the Registrar of Companies for obtaining the necessary approval even after the scheme of arrangement was sanctioned by the court. [Para 42] The objections of the Regional Director were rightly met by the petitioners and accordingly, the proposed scheme of arrangement was for both the companies and for their shareholders. Hence, the petition was to be allowed as prayed for. [Para 43]
 

C.rajesh
on 03 April 2008
Published in Corporate Law
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