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Corporate - Restructuring


Court clears Reliance arm in DCL Polyesters deal

C.R. Sukumar

HYDERABAD, March 13

THE Andhra Pradesh High Court has dismissed the serious objections raised by the Registrar of Companies (RoC) against the Reliance group in the case of acquisition of DCL Polyesters Ltd by Synergy Synthetics Ltd, a Reliance arm.

Synergy Synthetics, which acquired a significant holding in DCL Poly through negotiated deal with the promoters of the latter and through open offer made to the public shareholders, prepared a major restructuring programme for turning around the operations of the ailing Hyderabad-based polyester filament yarn producer.

Having obtained the approvals of the creditors as well as shareholders for the restructuring scheme at a court-convened general meeting, the company submitted the scheme to the High Court for its final approval.

Raising objections to the scheme, the RoC submitted to the court that the Reliance group was acquiring DCL Polyesters through the restructuring scheme instead of direct purchase in terms of Section 293 of the Companies Act, 1956 "only to avoid stamp duty on transfer of assets."

However, the RoC failed to establish that the Reliance group was taking over DCL Poly and initiated the restructuring scheme to avoid stamp duty.

The company counsel argued that the undertaking was not being transferred either partly or wholly. The restructuring scheme envisages reduction of the existing share capital in view of the huge losses being suffered by the company and also conversion of debt partly into equity shares.

Further, it was also submitted to the court that Synergy Synthetics was pumping in additional funds for acquiring fresh equity in DCL Poly. The financial institutions were also being issued equity shares through conversion of debt.

After taking into consideration the fact that majority shareholders and creditors approved the scheme of restructuring, the court observed that "it is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the court."

The court opined that it had neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and shareholders of the company.

After taking into consideration the concessions and reliefs sanctioned by the financial institutions while approving the restructuring scheme, the court said: "Though the Registrar of Companies has raised an objection that the undertaking is being taken over by the Reliance group under the scheme by avoiding the stamp duty on transfer of assets, this court does not find any merit in the said objection."

Accordingly, the court approved the scheme, enabling Synergy Synthetics to take control over the affairs of DCL Poly, which was renamed as Central India Polyesters, and to turn around the company by taking advantage of substantial reliefs and concessions granted by the FIs.

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