2012 PLP 645 (CLD)

UMAR ATA BANDIAL, J.

Through this petition under sections 284 to 286 of the Companies Ordinance, 1984 ("Ordinance"), sanction is requested for the scheme merger/amalgamation Merger whereby petitioners Nos.2 and 3 will stand merged into petitioner No.1 with all its assets and liabilities ("Scheme").

2. The petitioner No.1 is a listed public limited company with an authorized capital of Rs.250,000,000 divided into 25,000,000 ordinary shares of Rupees 10 each, while its paid up capital is Rs.175,00,000 divided into 17,500,000 fully paid ordinary shares of Rupees 10 each. Similarly petitioner No.2 is an unlisted public limited company with an authorized capital is Rs.700,000,000 divided into 70,000,000 ordinary shares of Rupees 10 each, while its paid up capital is Rs.47,500,00,000 divided into 47,500,000 fully paid ordinary shares of Rs.10 each. In the foregoing behalf, petitioner No.3 is an unlisted public limited company with its authorized capital is Rs.10,000,000 divided into 1,000,000 ordinary shares of Rs.10 each. Its paid up capital is Rs.400,000 divided into 40,000 fully paid ordinary shares of Rs.10 each.

3. The petition claims that consequent upon the merger contemplated in the Scheme the surviving entity namely, petitioner No.1 will become more profitable, its manufacturing and production operations shall improve significantly its administrative expenses/overheads shall be reduced and its credit arrangements be simplified and streamlined. The re organized capital obtaining through amalgamation will be advantageous both for the shareholders/members of three of the petitioner companies as well as their creditors.

4. On the presentation of the petition, this Court vide order dated 24-2-2011 directed that notices be issued in national dailies namely 'Nawa-e-Waqat' and 'Dawn' for the purposes of informing the general public about the Scheme proposing merger of the petitioners and inviting objections to the Scheme from members and creditors of the petitioners as well as from any person having interest in the affairs of the petitioners. In addition, notices were also directed to be issued to the Registrar of Companies of the Securities and Exchange Commission of Pakistan ("SECP") at Faisalabad and Islamabad and the Commissioner Inland Revenue at Faisalabad, assessing the income and sales of the petitioners.

5. The said order also directed that respective Extra-Ordinary General Meetings of the petitioner companies be separately convened at their head offices so as to ascertain the wishes of their respective members/certificate holders with regards to the Scheme that proposes Merger/ Amalgamation of petitioners Nos.2 and 3 in petitioner No.1. Mr. Muhammad Suhail Dar, Advocate and Mr. Shams Mehmood Mirza, Advocate, were appointed as Co-Chairpersons of the said general meetings with a direction for their report on the proceedings of the said general meetings of the petitioners to be filed in Court.

6. In compliance with the aforementioned order by the Court office public notices issued in Dailies 'Nawa-e-Waqt' and 'Dawn' on 25-4-2011 respectively; copies whereof are available on record. In response thereto, however, none has filed any objections to the grant of sanction to the Scheme as proposed in this petition. In this respect, owing to the transfer of and assumption of liabilities and obligations of the merging entities, petitioners Nos.2 and 3, by the surviving entity petitioner No.1, the counsel appearing for the Commissioner Inland Revenue have not made any comment or objection to the sanction of the Scheme.

7. The petitioners C.M.Nos.184 of 2011 and 224 of 2011 have placed on record No Objection Certificates (NOCs) issued by the secured creditors of the petitioners and by the Competition Commission of Pakistan. Messrs Standard Chartered Leasing Company Limited has, however, expressed concern about the security of its leased machinery. The counsel for the petitioners has assured that under the Scheme all objections and liabilities of the merging entities including the duties in relation to lease finance and leased machinery are to be borne and discharged by the surviving entity i.e. petitioner No.1. This aspect has been covered under paragraph No.5 of the tendered Scheme. This settles the concern of the mentioned leasing company.

8. The Co-Chairpersons of the general meetings of the petitioners submitted their report on 5-5-2011, which is duly supported by the relevant record. According to the report, the respective Extraordinary General Meetings of the petitioner companies were convened at their registered offices on 30-4-2011. Notices of these meetings were issued by the petitioner companies to their shareholders in terms of section 159 of the Companies Ordinance 1984, as well as, by publication in the Dailies Nawa-e-Waqt and Dawn appearing on 8-4-2011 and 9-4-2011 respectively. The copies of the dispatched notices and names of the shareholders, as well as, the notices published in the aforementioned newspapers are mentioned in and attached to the Co-Chairpersons' report.

9. The Co-Chairpersons' Report refers to correspondence between the SECP and the petitioner No.1 company regarding the SECP reservations inter alia about the swap ratio of the shares of the merging petitioner companies with the shares of the surviving petitioner No.1 Company. As a result, vide letter dated 22-4-2011 the SECP directed the petitioner companies to provide additional information to their shareholders and in particular to rectify the Swap Ratio in the following terms:-- "1 share of JFML = 0.96 shares of JKS; and 1 share of ATML=8.69 shares JKS". The petitioner No.1 issued an addendum to the Scheme on 22-4-2011 complying with the aforenoted SECP direction and informed its shareholders about the amendment made in the proposed Scheme of Merger by substituting its Articles "9.1", "9.9" and "Annexure-A" thereto.

10. The Report states that the general meetings of the petitioner companies were convened as scheduled and presided by the Co-Chairpersons. The attendance sheet of shareholders of the petitioners have also been placed on record, which show the participation of 96%, 97% and 100% of voting power of shareholders of the petitioner No.1, petitioner No.2 and petitioner No.3 in their respective general meetings. The proposed Scheme updated in compliance with the direction of the SECP, as referred above, has been unanimously approved by the shareholders present in the stated meetings. The approved Scheme of Merger is annexed as "Annexure-A" with the report of the Co-Chairpersons.

11. As a result the observation by the SECP relating to the calculation underlying the swap ratio of shares inter se the petitioner companies is not pressed. As noted above the swap ratio of shares of the petitioner companies was duly corrected through amended Articles "9.1" and "9.9" of the Scheme in compliance with the communication of SECP. The amended Scheme was duly considered and approved by the shareholders.

12. The SECP comments make another observation/ comment about the Scheme. According to Mr. Saqlain Arshad, the authorized capital of the petitioner companies is to merge and be consolidated pursuant to the provisions of the Scheme. According to him the proposed consolidation of authorized capitals of merging entities is violative of section 92 of the Companies Ordinance, 1984. This observation is, however, without force since this objection already stands rejected in the judgment of this Court in Messrs Umer Iqbal Solvent (Pvt.) Limited and another (2010 CLD 1802) and other precedents relied therein. It is ruled in the said authority that, there is no impediment in the consolidation of authorized capitals of the merging and surviving entities as part and parcel of a scheme of merger.

13. Another SECP observation with regard to the non-furnishing of NOCs by the creditors stands cured, as all the creditors have given their NOCs to the mentioned Scheme. The Competition Commission of Pakistan has also issued its NOC on 23-2-2011 which is attached as "Annex-G" to the C.M. petition. As already noted above none has come forward to oppose the Scheme.

14. In view of the foregoing there remains no impediment to the grant and sanction of the Scheme of Merger of petitioner companies No.2 and No.3 into petitioner No.1. Accordingly this petition is allowed and the updated Scheme attached as "Annex-A" with the report of the special Co-Chairpersons Messrs Muhammad Suhail Dar and Shams Mehmud Mirza (Adv.) is hereby sanctioned in terms thereof. M.H./J-1/L Petition allowed.