2023 C L D 1161
[Balochistan]
Before Gul Hassan Tareen, J
NOVATEX LIMITED AND ANOTHER: In the matter of
Judicial Miscellaneous Petition
No
. 1 of 2022, decided on 9th May, 2023.
Companies Act (XIX of 2017) ---
----Ss. 280, 281, 282, 283 & 285--- Scheme of arrangements, approval of ---Commercial
wisdom ---Scope ---Petitioners sought approval of Scheme of Arrangement ---Validity ---
Where all requisite formalities are complied with including shareholders' and secured
creditors' approval, High Court declines to question commercial wisdom behind the scheme and does not substitute its judgment against the intellect of all shareholders of the company---Shareholders approved the scheme in a meeting and unanimously approved the scheme ---
High Court allowed the scheme of arrangement as it was not duty of Court to substitute its own opinion against intellect of shareholders of petitioners who were the sole judge of their interests in the petitioners ---Petition was allowed accordingly.
Gadoon Textile Mills Limited and 2 others' case 2015 CLD 2010; International
Complex Projects Limited and another's case 2017 CLD 1468 and Dilsons (Private) Limited and others v. Securities and Exchange Commission of Pakistan and another 2021 CLD 1317 rel.
Aimal Khan Kasi and Mikael Azmat Rahim for Petitioners.
Abdul Rehman Khan Tareen, Deputy Registrar, Companies Securities and Exchange
Commission of Pakistan for Respondent.
Date of hearing: 5th May, 2023.
JUDGMENT
GUL HASSAN TAREEN, J. ---Through this petition, filed under section 279 read
with sections 280 to 283 and 285(8), of the Companies Act, 2017, the petitioners seek approval of the Scheme of Arrangement dated 23 November, 2022 ('Scheme') annexed as Annexure G to the petition.
2. Briefly, Novatex Limited (petitioner No. 1) is a public limited company by shares
which is principally engaged in the business of manufacturing and selling PET resin and
other types of resin, PET preforms and BoPET film (Biaxially Oriented Polyethylene
Terephthalate Film). The authorized share capital of the petitioner No. 1 is Rs. 2,900,000,000/ - divided into 290,000,000/ - ordinary shares of Rs. 10/ - each; whereas, the
issued, subscribed and paid up share capital of the petitioner No. 1 is Rs. 1,539,480,600/ -.
Likewise, the Nova Frontier Limited (petitioner No. 2) is a public limited company by shares
which is authorized to invest its capital in shares, bonds, stocks, units of mutual funds or any
other securities or its related instruments or otherwise in all types of real assets and to hold
or sale such real assets, shares, bonds etc. The authorized share capital of the petitioner No. 2 is Rs. 100,000/ - divided into 10,000 ordinary shares of Rs. 10/ - each; whereas, the issued,
subscribed and paid up share capital of the petitioner No. 2 is Rs. 10,040/ -. The petitioners
Nos. 1 and 2 entered into an agreement being the Scheme, according to which, specific portions of the undertaking of the petitioner No. 1 (i.e. the Demerged Undertaking) shall stand demerged from the petitioner No. 1 and be merged with and into the petitioner No. 2 including all assets, rights, liabilities, benefits, powers, privileges, contracts and obligations of the petitioner No. 1 to the Demerged Undertaking and all legal proceedings etc. The Board of Directors of the petitioners Nos. 1 and 2 vide resolutions dated 23 November, 2022 (Annexures H and H -1) approved the Scheme. The audited financial statement of the
petitioner No. 1 as at 30 June, 2022 and un- audited financial statement of the petitioner No. 2
as at on 30 June, 2022 are available on record.
3. After filing of the petition, this Court vide order dated 30 November, 2022 directed;
publication of notices in the two national leading dailies namely, the Dawn, Karachi and Jang, Quetta; to convene meetings of the members/shareholders of the petitioners and the
secured creditors of the petitioner No. 1. The petitioners filed copies of the publications; however, none from the general public entered appearance and raised an objection on the
proposed Scheme. The Chairman filed reports under Rule 57, the Companies (Court) Rules, 1997 ('Rules, 1997'), of the meetings of the members of the petitioners and a report of the meeting of the secured creditors of the petitioner No. 1, held under the said order of this Court. The Deputy Registrar of Companies, Securities and Exchange Commission of Pakistan, Quetta filed para- wise comments ('SECP.')
4. Mr. Aimal Khan Kasi, learned counsel for the petitioners states that the petitioners
were desirous to demerge the specific portions of the undertaking of the petitioner No. 1 and to merge the same with and into the petitioner No. 2 and for such purpose, they have entered into the proposed demerge/merger amalgamation Scheme with the approval of the Board of Directors of the petitioners Nos. 1 and 2. He states that the meetings of the shareholders of both the companies were held at Quetta and the members unanimously voted in favour of the resolution of the Scheme. Likewise, the meeting of the thirteen representatives of the secured creditors of the petitioner No. 1 was held and the secured creditors voted 100% in favour of resolution of the Scheme. Concluding his arguments, the learned counsel states that all statutory requirements have been complied with and there is no impediment under the Act, 2017 or under any other law for the time being enforce, for sanction of the Scheme.
5. Abdul Rehman Khan Tareen, the Deputy Registrar of S.E.C.P. placed reliance on his
para- wise comments and states that the two financial institutions namely N.I.B. Bank Ltd and
Samba Bank Ltd. are also the registered secured creditors of the petitioner No. 1; whereas,
petitioner No. 1 has not solicited N.O.C(s) from said creditors. He states that the Scheme
does not provide any rationale on which 1,078 Demerging Shareholders have been identified under the Scheme. He finally states that un -audited balance sheet of the petitioner No. 2
relating to the period ending 23 November, 2022 has been filed with the petition.
6. I have heard petitioners' counsel and the Deputy Registrar of Companies, SECP at
length, gone through the record and the case laws cited at Bar by the petitioners' learned counsel.
7. The perusal of the Scheme reveals that the specific portions of the undertaking of the
petitioner No. 1 i.e. Demerged Undertaking will be demerged from the petitioner No. 1 and shall be transferred to, stand vested in and assumed by the petitioner No. 2 with all assets, rights, liabilities etc attached to the Demerged Undertaking. The Board of Directors of the petitioners Nos. 1 and 2, vide resolutions dated 23 November, 2022, unanimously approved the Scheme. At the admission of this petition, on 30 November, 2022, this Court passed an order on the application made by the petitioner under Rule 55, the Rules, 1997 read with section 151 the Civil Procedure Code, 1908 for holding meetings of the members/shareholders and the secured creditors of the petitioners and, to make publications. The meeting of the members of the petitioners Nos. 1 and 2 were held on 26 December, 2022 and 02 January, 2023 respectively and the Chairman filed reports along with resolutions passed in the said meetings. The resolution is reproduced hereunder:
"Resolved that the Scheme of Arrangement dated November 23, 2022, for, inter alia, the bifurcation/separation of Novatex Limited into two segments/undertakings i.e. the Demerged Undertaking and Retained Undertaking, and the merger, by way of
amalgamation, of the Demerged Undertaking with and into Nova Frontiers Limited, along with all ancillary matters thereto, placed before the meeting for consideration and approval, be and is hereby approved and adopted, along with any modifications/amendments required or conditions imposed by the High Court of Balochistan at Quetta, subject to sanction by the Honorable High Court of Balochistan at Quetta, in terms of the provisions of the Companies Act, 2017."
On 02 March, 2023, the Chairman filed report along with resolution passed in the
meeting of the petitioner No. 1 and the representatives of the secured creditors. The meeting of the secured creditors of the petitioner No. 1 held on 24 February, 2023 and the resolution of the Scheme was unanimously approved.
8. The petitioners, as per direction of the Court, filed publications advertized in Daily
Jang Quetta and Daily Dawn, Karachi. However, none appeared before this Court raising any objection to the grant/ sanction of the Scheme.
9. The Scheme was approved by the Board of Directors of the petitioners Nos. 1 and 2.
The meetings of the shareholders of the petitioners Nos. 1 and 2 were duly convened and the shareholders of both petitioners unanimously approved the Scheme. The meeting of the thirteen representatives of the secured creditors of the petitioner No. 1 was convened on the order of the Court, wherein, resolution of the proposed demerged/merger vide Scheme was approved. Notices to the general public were issued through leading dailies, The Dawn
Karachi and The Jang Quetta, however, none appeared before this Court and raised objection
on the sanction of the Scheme. I have gone through the Scheme but, could not find that either, the Scheme is not fair and reasonable or against the national interest. Court is not supposed to intermeddle with the commercial wisdom of the shareholders of the petitioners who unanimously approved the proposed Demerged Undertaking of the specific portions of
the petitioner No. 1 with and into the petitioner No. 2 vide the Scheme. The petitioners prior
to the institution of the petition and later, complied with all the statutory conditions under the
Act, 2017 and the Rules, 1997 and the directions of the Court. In the case law, cited by the petitioners' counsel, reported as Gadoon Textile Mills Limited and 2 others, (2015 CLD 2010), the Company Bench of the Sindh High Court has held as under:
"To question the de -merger and merger it is rather to be seen from the perception that
a wise group of businessmen has taken a decision considering all its pros and cons. While taking such decision there are chances of success and failure but then while questioning such decision the bona fide is the real litmus test. A businessman takes decision foreseeing the future aspect. The Court could only see that all legal formalities have been fulfilled and that the scheme is neither unjust nor unfair or against the national interest but cannot challenge the wisdom of a decision of businessman as by doing that the Court would be overriding the wisdom of a businessman and their prerogative. There are advantages and disadvantages attached to a business decision and if the majority of group has subscribed to it, prima facie bona fide stands proved. While de -merging shares of Real Estate and Textile the
representatives or shareholders may have in their collective wisdom decide to keep them separately which could not be challenged before the Court as it is a collective business decision. Prima facie it appears that the petitioner No.2 was conducting two
businesses i.e. of Real Estate and Textile which are being separated. Advantages and disadvantages of keeping them together would remain there by disassociating the two businesses and their shareholding. Both separately would yield profit and loss and hence the cumulative effect of the net result would not matter."
10. Where all the requisite formalities were complied with including shareholders' and
secured creditors' approval, the Court would not question the commercial wisdom behind the Scheme and substitute its judgment against the intellect of all shareholders of the company. Reliance is placed on the case cited by the petitioners' counsel and reported as International Complex Projects Limited and another, (2017 CLD 1468).
11. So far as contentions of the Deputy Registrar, SECP are concerned, the same are not
well founded. The secured creditor of the petitioner No. 1 namely N.I.B. Bank was merged with the Muslim Commercial Bank Ltd. and a representative of M.C.B. attended the meeting of the secured creditors and voted in favour of the resolution. The Samba Bank Limited is no longer a secured creditor of the petitioner No. 1. N.O.C for charge vacation are available on the record. The contention of the Deputy Registrar, S.E.C.P . that Scheme does not provide
any rationale on which 1,078 Demerging Shareholders have been identified under the Scheme, is without substance. The shareholders approved the Scheme in a meeting held on 26 December, 2022 and unanimously approved the Scheme. It is not the duty of the Court to substitute its opinion against the intellect of the shareholders of the petitioners who are the sole judge of their interests in the petitioners. Reliance is placed on the case, cited by
petitioners' counsel, reported as Dilsons (Private) Limited and others v. Securities and
Exchange Commission of Pakistan and another, (2021 CLD 1317), wherein it has been held as under:
"28. In the preset case, all the shareholders of the Petitioners have unanimously approved the scheme of merger. Since the scheme of merger has been approved unanimously, there is no reason to interfere with their business decision……"
The last contention of Deputy Registrar, is not relevant for, the petitioner No. 2 was
incorporated on 02 September, 2022. Since, the first financial year of the petitioner No. 2 shall end on 30 June, 2023; therefore, it cannot have annual accounts. The requirement of audited financial statements does not arise at all.
12. For afore discussion, the petition is allowed and the Scheme of Arrangement dated 23
November, 2022 annexed at Annexure G is sanctioned and approved as prayed.
A certified copy of this order shall be forwarded to the Registrar, Securities and
Exchange Commission of Pakistan, within seven days per section 279 subsection (3) of the Companies Act, 2017.
MH/94/Bal. Petition allowed.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
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