Madras HC dismisses Subhiksha's merger proposal

The Madurai bench of the Madras High Court today dismissed cash-trapped Subhiksha Trading Services’ merger proposal with Blue Green Construction and Investments Ltd (BGCIL). The Bench observed that “chances of its (Subiksha) survival depends only on miracles”.

Justice V Ramasubramanian, while passing his judgment, said, “the order was passed based on public interest” and objected to the Rs 230-crore transaction between Subhiksha and BGCIL. “The scheme is not fair and reasonable, and the company is in a financial intensive care unit,” he observed.

In August last year, a scheme of agreement proposal was filed by Cash and Carry Wholesale Traders Private Ltd (C&C), a subsidiary of Subhiksha Trading Services. According to the proposal, the secured creditors of Subhiksha had to settle for 50 per cent of the principal taken from October 2008.

For the unsecured lenders, the company would start repaying the principal amount between January and December 2011.

However, creditors, including Kotak Bank, Zash Investments, ICICI Ventures, ICICI Bank and DCB, had opposed the scheme of agreement. They said the company’s motive did not seem to be in the public interest and statutory information, including the application for the scheme, has not been provided to them.

After hearing the parties, the court passed the order, saying, “The plan submitted by the petitioners makes it obvious that the proposed scheme is not financially viable, since it is structured on many ifs and buts and presumption on surmises.”

“Therefore, the court cannot permit consciously, the transfusion of blood of several members of the public, to a patient who has suffered multiple organ failure and various other ailments and whose chances of survival depends on miracles,” the order further said.

The order will now allow the High Court to hear the winding-up petition, filed against Subhiksha by Kotak Bank. In November 2009, the Supreme Court had stayed the winding up proceedings initiated against Subhiksha. A bench headed by Justice S H Kapadia, while disposing the petition filed by C&C, had asked the high court to take up amalgamation proceedings before the winding-up plea can be taken up.

The order passed by the Madurai bench will be a setback to Subhiksha, which had earlier planned to infuse Rs 250 crore through C&C after the merger.

C&C, in its petition, had said the board of directors of BGCIL and Subhiksha had approved the merger scheme in June last year, whereby all the assets and liabilities of the retailer would be taken over by BGCIL and the new entity would be named Subhiksha.