' UMAR ATA BANDIAL, J.---Through this petition under section 284 read with sections 285 to 288 of the Companies Ordinance, 1984, the petitioners, Dawood Hercules Chemicals Limited ("Petitioner No,1"), a public listed company and DH Fertilizers Limited ("Petitioner No,2"), a public unlisted company seek sanction of the Scheme of Arrangement ("Scheme") in terms of which Petitioner No,1 would be demerged/divided into two companies by separating on the one hand, its fertilizer business and all related assets and liabilities ("Fertilizer Undertaking") which shall be transferred to and vest in its wholly owned subsidiary Petitioner No,2 and on the other hand its retained business as set forth in the scheme ("Retained Undertaking") which shall remain with the Petitioner No, 1.
According to Article 4 of the Scheme, its principal object is to provide for the division of Petitioner No,1 by:--
(i) the separation of its Fertilizer Undertaking and Retained Undertaking;
(ii) the transfer to, and vesting in Petitioner No,2 of the Fertilizer Undertaking, against the issuance of ordinary shares of Petitioner No,2 to Petitioner No,1;
(iii) the retention only of the Retained Undertaking in Petitioner No,1; and
(iv) the change of the name of Petitioner No,1 to Dawood Hercules Corporation, Limited.
2. As consideration for transferring the Fertilizer Undertaking and vesting it in Petitioner No,2, the latter company shall issue and allot 99,999,994 of its fully paid up ordinary shares with a face value of Rs,10 per share ("Fertilizer Shares") to Petitioner No,
1. As a result, the Petitioner No,2 shall become a wholly owned subsidiary of Petitioner No,1 with only its six other shares being allotted to qualify nominee directors. It is further submitted that to reflect the full consideration for the transfer of the Fertilizer Undertaking, the price of the Fertilizer Shares shall include a premium over the face value which premium is to be determined in terms set forth in Article 13 of the Scheme.
3. This petition was filed after the Scheme was adopted by the Board of Directors of the Petitioner No,1 on 16-6-2010. Pursuant to order dated 18-10-2010 by the Court, notice of this petition was duly published in the dailies "The News" and "Nawa-e-Waqat" on 15-11-2010. Notices in the petition were also separately served on the SECP Islamabad, Registrar of Companies, Lahore and on the Large Tax Payers Unit, FBR where the Petitioner companies are assessed to tax. The said authorities have entered appearance in these proceedings. Except for one observation by the SECP regarding method of valuation for purposes of determining premium, no objection to the Scheme has been raised by any of said departments.
4. By the afore-noted order of the Court dated 18-10-2010, extraordinary general meetings of the members of the two Petitioner companies were separately convened under the supervision of two Court appointed Chairpersons, Mr. Abid Aziz Sheikh, Advocate and Mr. Salman Mansoor, Advocate.
According to the report filed by the learned Chairpersons these meetings were held on 8-12-2010 in the registered office of the Petitioner No,1 at Lahore. The shareholders of Petitioner No,1 holding 107,361,641 shares representing 89.23 percent of its total voting power approved the Scheme whereas one shareholder holding only one share of the Petitioner No,1 opposed the same. The Scheme was unanimously approved by 100% voting power of the Petitioner No,2. The extracts of the resolutions passed by the shareholders of Petitioner No,1 and Petitioner No,2 are reproduced in the reports filed by the Chairpersons on the general meetings conducted by them.
5. Whereas the Petitioner No,2 has no creditors, the Petitioner No,1 has availed a number of short term and long term finance facilities from different financial institutions, the details whereof as on 30-6-2010 and the names of the corresponding creditor financial institutions are given in the certificate of the auditor of the Petitioner No,1 attached as Annexure-I to this petition. All the named financial institutions in the said certificate have consented writing to the terms of the Scheme, which NOCs are attached as Annexure J-1 to J-7 of the petition. It is provided in the Scheme that all the secured creditors of Petitioner No,1 will become creditors of Petitioner No,2 for the amounts owing and with benefit of the same securities as are subsisting against the Petitioner No,1 immediately before the transfer of the Fertilizer Undertaking.
6. In answer to the notices served upon it, the SECP has in its comments made only one observation. This is with regard to the term of the Scheme that provides for the Fertilizer Shares (99,999,994 fully paid up Shares of Petitioner No,2) to be allotted to the Petitioner No,1 at par plus premium; a total of those values constitutes the consideration for transfer of the Fertilizer Undertaking to the Petitioner No,2. It is observed by the SECP that to calculate premium amount on a share, the value of the net assets of the Fertilizer Undertaking on the Effective Date of demerger should be based on the book value of the relevant assets on that date. In the foregoing behalf, Article 13 of the Scheme is somewhat generalized in providing, inter alia, that net asset value of the Fertilizer Undertaking shall be determined by the auditors of the company in accordance with settled accounting principles. To remove any ambiguity in the matter, the Reply of the Petitioners to the SECP comments confirms that the value of the net assets of the Fertilizer Undertaking shall be determined on the basis of their book value on the Effective Date under the Scheme as required' by the SECP. Consequently, the SECP observation shall be complied by the petitioners.
7. No objection from any other quarter was filed in Court in response to the published notices of these proceedings. However, at the hearing on 20-12-2010 an oral objection was raised by a learned counsel appearing on behalf of Mr. Aziz Dawood ("Objector") which was subsequently placed on record in writing. It is claimed by the Objector that millions of shares in the Petitioner No,1 were owned by the late Mr. Ahmad Dawood, ("deceased") father of the Objector and such shares have not devolved in the books of Petitioner No,1 to the legal heirs of the deceased in accordance with Shariah. Accordingly, the shareholding of the deceased in the Petitioner No,1 has been transferred to persons either not entitled thereto or in excess of their entitlement under law.
Therefore, until the disputed ownership of such shares is decided by the relevant court, the present directors of the Petitioner No,1 have no authority to approve the Scheme transferring assets of the Petitioner No, 1.
8. The objection application attaches a copy of the plaint in the Objector's Suit No,1564 of 2010 filed before the Hon'ble Sindh High Court. That suit seeks a declaration and permanent injunction in relation to the shares that are also presently claimed to have belonged to the deceased. The application for interim relief filed in the suit seeks an injunction against implementation of the resolution dated 16-6-2010 of the Board of Directors of the Petitioner No,1 approving the Scheme. On that prayer for interim relief, the Hon'ble Sindh High Court vide order dated 28-10-2010 declined to restrain the demerger proceedings in the following words:-- "The defendants before alienating, encumbering or transferring the share in question, shall inform this Court. The above shall. However, not effect the de-merger proceedings. The order shall remain in operation till next date of hearing."
9. The petitioners have filed reply to the Objector's application. Pursuant thereto learned counsel for the petitioners challenges the Objector's locus standi as he is not for the time being a member of either of, the petitioners according to their register of members. It is submitted that the. Objector's disputes regarding ownership of certain shares in Petitioner No,1 are a family dispute which should not be permitted to adversely affect the operation of a company that has over 2,500 members.' In the Objector's suit that assails the board resolution for demerger of Petitioner No,1 on account of the family dispute, the order dated 28-10-2010 by the Hon'ble Sindh High Court expressly allows the demerger proceedings to continue unaffected. On the merits of the objection, it is submitted by the learned counsel that under the provisions of the Scheme, Petitioner No,1 does not transfer its shares to any person and therefore the Objector's claim is unaffected. There is a transfer of certain assets of Petitioner No,1 to its wholly owned subsidiary, Petitioner No,2 at a value determined transparently by auditors in return for shares of equivalent value in Petitioner No,2. There would be zero loss of value in the net assets of Petitioner No,1, and that all its shareholders would continue to hold the same number of shares in Petitioner No,1 as before. Therefore no prejudice, loss or injury is caused to the objector, if the Scheme is sanctioned by Court and duly implemented.
10. Learned counsel have been heard and the record been perused.
11. The fact that the Fertilizer Undertaking of the Petitioner No,1 is being transferred to its wholly owned subsidiary, the Petitioner No,2 and that there is no transfer of the property of which the Objector is a claimant, namely, shares in Petitioner No,1, therefore, no prejudice or loss to the Objector is evident as a result of the Scheme. For the foregoing and the other reasons given in the Reply filed by the petitioners, the application by the Objector has no force and is therefore dismissed.
12. On a perusal of the record in this case, it is evident that the member's resolution dated 8-12-2010 approving the Scheme was passed by 99.99% of the shareholders of Petitioner No,1 present and voting at the extraordinary general meeting which was attended by 89.23% of the total voting power of the Petitioner No,
1. A similar resolution was unanimously passed by the members of the Petitioner No,2 in their extraordinary general meeting held on the same date. All the secured creditors of the Petitioner No,1 have consented to the Scheme being duly implemented. As already noted above the. Petitioner No,2 has no secured creditors.
13. Furthermore the SECP and FBR who are represented in the proceedings on Court's notice have raised no objection to the Scheme' and the SECP's proposal about the method of A calculating the value of net assets of the Petitioner No,1 has been duly accepted by the management of that company. Finally, the objection to the sanction of the Scheme filed by a non-member of the Petitioner No,1, one Aziz Dawood, based on a family dispute with certain members of the said company has already been considered and rejected above on account of its irrelevance to the present proceedings. Consequently, there is .No ground militating the sanction of the Scheme approved by a huge majority of shareholders of both the petitioners companies and duly supported by creditors of such companies. The requirements of section 284 of the Companies Ordinance, 1984 ("Ordinance") imposing statutory safeguards for the finalization and sanction of a Scheme of arrangement are duly met in this case.
14. The present Scheme of de-merger involves the transfer of assets by the Petitioner No,1 to its wholly owned subsidiary, Petitioner No,2. Such an arrangement attracts the provisions of section 287 of the Ordinance. As the control of the transferee company, Petitioner No,2 remains entirely in the hands of the Petitioner No,1 and the transfer of Fertilizer Undertaking is recorded at book value, therefore provision for the respective criteria mentioned in section 287 ibid can be made on the existing record.
15. In view of the foregoing discussion and in terms of foretasted provisions of law, it is ordered that the Scheme approved by shareholders of both the petitioner companies on 8-12-2010 is sanctioned under section 284(3) of the Ordinance according to its terms as of the effective date given IB therein and in furtherance to its object reproduced above. One object of the Scheme is the change of name of the Petitioner No, l. Let that be done consequent upon authorization and approval mentioned in section 39 of the Ordinance.
16. Further consequential orders are duly passed under section 287 of the Ordinance for transfer of the Fertilizer Undertaking to the Petitioner No,2, the issuance and allotment of shares in Petitioner No,2 to the Petitioner No, I , the continuation of proceedings pending on the effective date against the Petitioner No,1 to be continued against the Petitioner No,2 and adoption by and the creation of corresponding securities, rights and interests by the Petitioner No,2 in favour of the secured creditors of Petitioner No,1 that are securitized against the assets of the Fertilizer Undertaking transferred to the Petitioner No,2.
17. The petition is allowed in the foregoing terms: