CASE STUDY BASED QUESTIONS
CHAPTER
Q1. Case Study:
ABC Ltd. was incorporated on May 12, 1986, under the Indian Companies Act, having its registered office at Mumbai, Maharashtra. The present capital structure of the petitioner company is as follows: ` 1,000 Crore Authorized Capital – 100 Crore equity shares of ` 10 each. Issued Subscribed Capital and paid-up capital of ` 780 Crore – 78 Crore equity shares of ` 10 each [includes equity shares represented by GDRs]. The company is having 4 business segments related to manufacturing of products L, M, N and O. Turnover of O product is around ` 1,300 Crore. Asset of ABC Ltd. are ` 2,700 Crore out of which product O related asset are ` 1,400 Crore.
XYZ Ltd. is a company having its registered office at Surat, Gujarat. Authorized, issued and paid up capital of company is ` 750 Crore having turnover of ` 820 Crore. It is engaged in the business of manufacture and sale of product O. Assets of XYZ Ltd. are ` 1,500 Crore.
XYZ Ltd. already hold 14.98% of the equity shares of the ABC Ltd. acquired at ` 267 per share from Six ventures and got two directors in Board of Directors of ABC Ltd. XYZ Ltd. has made an open offer to shareholders of ABC Ltd. at ` 190 per share to acquire controlling stake of ABC Ltd. ABC Ltd. Management opposed the open offer citing reasons of low price that was not beneficial to the shareholders of ABC Ltd. but in reality the management of ABC Ltd. had fear of losing control over the company. XYZ Ltd. had an eye on the Product O business of ABC Ltd. for a long time. The open offer was a step towards fulfilling the dream. Full control of product O business was ultimate purpose of XYZ Ltd. ABC Ltd. script was trading at ` 207.50 on the closing hours of trading at the Bombay Stock Exchange.
After lot of fights and hassles, both companies came to truce. Pursuant to acquisitions through negotiated transactions, a proposal to demerge the ABC Ltd. company’s Product O business into company TRM Ltd. and acquisition of 51% controlling stake in TRM Ltd. was given by XYZ Ltd. and after due deliberation, the Board of Directors of the ABC Ltd.
company accepted the proposal for demerger of the Product O business into TRM Ltd. and subsequent acquisition of 51% stake in same by XYZ Ltd. After demerger TRM Ltd. will have around 35% market share of product O business on pan India basis.
ABC Ltd. Employees Welfare Foundation is an employee welfare trust established under the Indian Trusts Act, 1882.
Shareholders of ABC Ltd. and XYZ Ltd. call meeting of shareholders, creditors and pass special resolution. They submit copy of resolution to ROC, NCLT and publish in newspaper about successful arrangement. Few members of ABC Ltd. having 1.5% shares of valued ` 10 lakh objected to scheme of Acquisition by XYZ Ltd. ABC Ltd. Employee trust also objected to acquisition. NCLT cancelled the scheme citing grounds of unfair, unjust and objections of members having 1.5% shares in company. Based on above facts, answer the following with reasons quoting relevant provisions:
(
a) Whether the proposed combination crosses the thresholds prescribed by the Competition Commission of India thus necessitating notice to CCI before going for proposed acquisition?
(b) Is it a hostile or friendly acquisition? Is it beneficial to go for taking control of ABC Ltd. for gaining access to product O business or is it beneficial to cause demerger of Product O business by ABC Ltd into TRM Ltd. and then acquiring of 51% controlling stake in same by XYZ Ltd? Will it result in reduction of capital requiring separate approvals? Explain briefly.
(c) Whether the compliance approvals given by the shareholders is sufficient for successful acquisition of product O business of ABC Ltd. Examine critically.
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d) Analyze whether NCLT will approve the draft scheme keeping in view the objection raised by shareholders of ABC Ltd.? [June 2024 (5 + 5 + 5 + 5 = 20 Marks)]
Ans.: (a) As per section 5(a) of the Competition Act, 2002, the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, if any acquisition where the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have, in India, the assets of the value of more than ` 2,000 Crore or turnover more than ` 6,000 Crore
In the present case, the proposed demerger of ABC Ltd. into TRM Ltd. in which ABC Ltd. and XYZ Ltd. will hold shares will attract provisions of the Competition Act, 2002 as combined assets of the group will be more than threshold limits of ` 2,000 Crore and hence provisions relating to notice to Competition Commission of India needs to be complied.
(
b) In hostile takeover ‘acquirer’ does not offer the target company the proposal to acquire its undertaking instead purchases shares in open market to gain control in it against the wishes of existing management. Such hostile takeovers are difficult to operate in India due to strict compliance of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011. Friendly takeover take place after negotiation with existing management. In friendly takeover, there is an agreement between the management of two companies through negotiations and the takeover bid is made with the consent of majority shareholders of the target company. This kind of takeover is done through negotiations between two groups.
In present case, acquisition is through negotiation and hence it is friendly takeover.
(
c) For the given case in addition to compliance of provisions of the Companies Act, 2013 relating to approval, applicable provisions relating to the Competition Act, 2002 and Takeover Regulations are also required to be complied.
(d) As per section 230(4) of the Companies Act, 2013, any objection to the compromise or arrangement shall be made only by persons holding not less than 10% of the shareholding or having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement.
Power of the Tribunal for compromise and arrangements are wide hence Tribunal may ask the minority shareholders of the company to make offer to majority shareholders to purchase the minority equity shareholding at fair price.
In S K Gupta v. K P Jain, it was held that after a scheme is approved, it becomes binding even on those who were dissenting.
The Tribunal has neither expertise nor jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have approved the Scheme by the requisite majority. The Tribunal cannot, therefore, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the concerned creditors and members of the company who in their best commercial economic interest by majority agree to give green signal to such a compromise or arrangement.
In view of above, disapproval of scheme by the Tribunal on objection of shareholders who are holding 1.5% is incorrect.
Employees may be herd: In KEC International Ltd. v. Kamani Employees Union, it was held that if the scheme of compromise and arrangement were to affect the employees prejudicially, the employees have right to oppose it. Trade Union representing them also has locus standi to object the scheme.
Corporate Restructuring Valuation & Insolvency (CRVI) | CRACKER
AUTHOR : N.S. ZAD, DIVYA BAJPAI
PUBLISHER : TAXMANN
DATE OF PUBLICATION : JANUARY 2025
EDITION : 2ND EDITION
ISBN NO : 9789364550178
NO. OF PAGES : 516
BINDING TYPE : PAPERBACK
DESCRIPTION
This book is prepared exclusively for the Professional Level of Company Secretary Examination requirement. It includes comprehensive past exam questions (topic-wise) and detailed answers aligned with the latest ICSI syllabus.
The Present Publication is the 2nd Edition for the CS-Professional | New Syllabus | June/ Dec. 2025 Exams. This book is authored by CS NS Zad and CS Divya Bajpai, with the following noteworthy features:
• [Strict Adherence to the New ICSI Syllabus] Ensuring complete alignment with the latest requirements
• [Comprehensive Coverage]
o Past Exam Questions (Topic-wise), including:
CS Professional – Dec. 2024 | Suggested Answers
• [Most Updated & Amended] Answers are fully updated as per relevant provisions and case laws
• [Chapter-wise Marks Distribution] from June 2019 onwards
• [Exam Trend Analysis] for previous exams, starting June 2024
• [ICSI Study Material Comparison] is provided chapter-wise for a comprehensive understanding