ELPRO INTERNATIONAL LTD


 

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Postal Ballot

Pursuant to Section 192A(2) of the Companies Act, 1956

Dear Shareholder(s)
Notice is hereby given pursuant to Section 192A of the Companies Act, 1956, read with Companies (Passing of Resolution by Postal Ballot) Rules, 2001, for the consent of the shareholders of the Company for the following special businesses, to be obtained by means of Postal Ballot process:

ITEM 1.  According to Section 293(1)(a) of the Companies Act, 1956, sale, lease or otherwise disposal of the whole or substantially the whole of the undertaking of the Company or where the Company owns more than one undertaking, of the whole or substantially the whole of any such undertaking requires the approval of the shareholders by way of an Ordinary Resolution.

The Company’s Board of Directors and Senior Management are responsible for and are committed to setting the standards of conduct contained in this Code and for updating these standards, as appropriate, to ensure their continuing relevance, effectiveness and responsiveness to the needs of all stakeholders. This Code should be adhered to in letter and in spirit.

ITEM 2.  According to Section 100 of the Companies Act, 1956, the reduction of share capital of a company requires the approval of the shareholders by way of a Special Resolution.

The Company proposes to pass a Special Resolution under Section 100 of the Companies Act, 1956 to enable it to reduce unto twenty five per cent (25%) of its issued and paid-up share capital in order to readjust the relation between capital and assets and to accurately and fairly reflect the liabilities and assets of the Company in its books of accounts. After detailed deliberations, the Board of Directors of the Company is of the view that reduction of share capital in accordance with Section 100 of the Companies Act, 1956 is the only practical and economically efficient legal option available to the Company to reflect its assets and liabilities at their real value and maximize its business value. The Special Resolution (as proposed) and the relevant explanatory statement thereto are annexed. As per Section 192A of the Companies Act, 1956 read with Companies (Passing of Resolution by Postal Ballot) Rules, 2001, the consent of the shareholders under Section 293(1)(a) of the Companies Act, 1956 is required to be obtained by means of a postal ballot. The Company also propose to pass the Special Resolution under Section 100 by means of postal ballot. Accordingly, the said draft Ordinary and Special Resolutions and Explanatory Statements are being sent to you along with a Postal Ballot Form for your consideration. The Company has appointed Mr. Anant Awasare, Senior Manager, Deloitte Haskins and Sells, Chartered Accountants, as Scrutinizer for conducting the postal ballot process in a fair and transparent manner. You are requested to carefully read the instructions printed in the Postal Ballot Form and return the Form duly completed, in the attached self-addressed postage pre-paid envelope so as to reach the Scrutinizer on or before Wednesday, March 15, 2006 The Scrutinizer will submit his report to the Chairman after completion of the scrutiny and the results of the Postal Ballot will be announced at 3.30 p.m. on March 23, 2006, Thursday at the Registered Office of the Company at 17, Nirmal, Nariman Point, Mumbai 400 021.

ITEM NO. 1:

ORDINARY RESOLUTION (AS PROPOSED):
To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED THAT subject to the consents, approvals and permissions being obtained from appropriate authorities to the extent applicable or necessary, consent of the Company be and is hereby given pursuant to Section 293(1)(a) of the Companies Act, 1956, to the transfer of the Undertaking of the Company engaged in the business of manufacture and sale of isolators, including the manufacturing facilities at Balanagar, Hyderabad, to Siemens Limited, by way of sale or assignment for a consideration of about Rs. 25 crores with effect from such date as the Board of Directors of the Company may think fit and that the Board of Directors of the Company (which shall include a Committee of Directors constituted for this purpose) be and is hereby authorized to complete the transfer of the said undertaking with such modifications as may be required by any of the concerned authorities or which it may deem to be in the interest of the Company and to do all such acts, deeds, matters and things as may be deemed necessary and /or expedient in the interest of the Company.”

ITEM NO. 2:

SPECIAL RESOLUTION (AS PROPOSED):
To consider and if thought fit, to pass with or without modification(s), the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to Section 100 of the Companies Act 1956, and subject to confirmation by the High Court of Judicature at Mumbai, the paid-up share capital of the Company, be reduced from Rs. 3,55,66,770/- (consisting of 35,56,677 equity shares of Rs. 10/- each fully paid-up) by an amount of upto Rs.88,91,690/-, the amount by which the capital is proposed to be so reduced being in excess of the requirements of the Company and that such reduction be effected by cancelling and extinguishing upto 8,89,169 shares held by shareholders constituting upto twenty five per cent (25%) of the issued and paid-up share capital of the Company and returning capital to such shareholders Rs. 183/- (subject to payment of applicable taxes) per equity share of Rs. 10/- each so cancelled and extinguished.”

FURTHER RESOLVED THAT the option of reduction and return of capital be given to the entire body of shareholders of the Company, and the actual return of capital be made to such shareholders that either assent or do not object by postal ballot to the proposed reduction, provided however that if the shareholding of the shareholders assenting or not objecting to the proposed reduction of capital exceeds twenty five per cent (25%) of the total issued and paid up share capital of the Company, priority be given to the small shareholders of the Company and the shareholding of the shareholders holding the least number of shares be extinguished and their capital be returned first, starting from the shareholder holding the least number of shares in the Company, till twenty five per cent (25%) of issued and paid up share capital offered is returned.

FURTHER RESOLVED THAT the proposed reduction of share capital is subject to and dependent upon the realization of adequate funds from the sale of the Isolator Division by the Company. Accordingly, in the event the sale of the Isolator Division by the Company fails to be effected and adequate funds are not realized, the present proposal for reduction of share capital be withdrawn.

FURTHER RESOLVED THAT consequential amendments be made in the capital clause of the Memorandum of Association of the Company after the said reduction becomes operative and effective.

FURTHER RESOLVED THAT for the purpose of giving effect to the above Resolution, the Board of Directors, any Committee appointed by the Board of Directors or any other person authorized by the Board of Directors, be and is hereby authorized to do and perform all such acts, deeds, matters and things as it may in its absolute discretion deem necessary or desirable and to settle any question, difficulty or doubt that may arise in regard to the subject matter of the above Resolution as it may in its absolute discretion deem fit and proper.”


By order of the Board of Directors
Place: Mumbai
Date: January 27, 2006
R. S. Balasubramanyam
CFO & Company Secretary

EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956.

ITEM NO. 1:

For the last couple of years, the Isolator manufacturing division of the Company located at Balanagar, Hyderabad, is facing severe competition in terms of input costs and margins, both in domestic and international markets.

The Company believes that the long term viability of the Isolator business would be best served by aligning to a local or global player for whom Isolators and allied categories are core to its business and who is willing to invest in R&D and technical sales support to secure the longer term sustainability of the business.

It is therefore proposed to transfer the business to Siemens Limited for a consideration of about Rs. 25 crores so that the Company does disengage itself from the Isolators business.

The proposed transfer of the said undertaking will be in total conformity with the provisions of proviso to Section 25FF of the Industrial Dispute Act, 1947, ensuring that the services of concerned employees including the workmen engaged in this business would be transferred with continuity of service and full protection of their existing terms and conditions of service.

The Board is satisfied that it would be in the best interest of the Company, its shareholders and its concerned employees and trade associates to transfer the said undertaking as referred to in the draft Ordinary Resolution.

The Board of Directors of the Company accordingly commend the Ordinary Resolution for approval by the members.

None of the Directors except Mr. R. K. Dabriwala and Mr. Surbhit Dabriwala is deemed to be concerned or interested in the resolution to the extent of shares held by them in the Company.

ITEM NO. 2:

The Company is a public limited company. It was incorporated on July 27, 1962 under the name and style of “Elpro International Limited” vide Certificate of Incorporation No.12425 of 1962-63. It was incorporated with an initial authorized share capital of Rs. 5,00,00,000/- and its present authorized share capital is Rs. 5,00,00,000/-.

The existing issued and paid-up share capital of the Company is Rs. 3,55,66,770/-.

The Company
's equity shares are listed on the Bombay Stock Exchange Limited and the Pune Stock Exchange Limited.

The Company proposes to sell its Isolator Division located in Balanagar, Hyderabad due to the severe competition faced by it in terms of input costs and margins, both in domestic and international markets. Subsequent to such sale, the residual business of the Company will be the manufacture of lightning arresters. c The sale of the Isolator Division is expected to generate surplus funds for the Company. As a result, the Company would have more capital resources than it could profitably employ and the capital would be surplus to its needs. The Company may face serious cash flow difficulties due to unavailable business, which would also negatively impact its cash reserves. This has given rise to the need to readjust the relation between capital and assets and to accurately and fairly reflect the liabilities and assets of the Company in its books of accounts. The Company has evaluated the effect of such over-capitalization upon the Company
's functioning and has carefully examined the following options available to the Company:

a) Growth of Lightning Arrester Division - The Lightning Arrester Division of the Company located at Pune is a low yield business and is currently operating at a break even level. Based on the Company’s projections in relation to the profitability, asset and liability position and cash flow requirements of the Lightning Arrester Division for the next three to five years, the Lightning Arrester Division is expected to have a limited fund requirement which would be met through its internal accruals and would not require the infusion of any additional capital.

b) Acquisition of a Company in Similar Business - Based on the Company's analysis of market conditions, it has been noted that the current valuation of companies engaged in the business of manufacturing isolators and lightning arresters is significantly high. In view of the foregoing, the Company does not intend to acquire any manufacturing business at such high value and risk the funds of its shareholders.

c) Diversification of Business - Since its incorporation in the year 1962, the Company has been mainly engaged in the manufacture of lightning arresters and since 1994 the Company also been engaged in the manufacture of isolators. As the fundamental business plan of the Company has been to engage its manufacturing competencies in the production and manufacture of equipments utilized by the power sector, the Company has concluded that entering into a new area of manufacture would not lead to effective utilization of funds.

After detailed deliberations, the Board of Directors of the Company is of the view that reduction of share capital in accordance with Section 100 of the Companies Act, 1956 is the only practical and economically efficient legal option available to the Company. In order to reflect its assets and liabilities at their real value and maximize its business value, the Company proposes to return capital to its shareholders, in accordance with Section 100 of the Companies Act, 1956.

The option of reduction and return of share capital would be given to the entire body of shareholders. However, the Company is in a position, keeping in view its foreseeable cash flow requirements, to return only upto twenty five per cent (25%) of its present issued and paid-up share capital to those shareholders of the Company who either assent or do not object to the proposed reduction of share capital by way of postal ballot. Accordingly, the Board in the interests of the shareholders holding the least number of shares in the Company has proposed that though the offer for reduction and return of share capital would be made to the entire body of shareholders of the Company, in the event the shareholding of the shareholders assenting or not objecting by way of postal ballot to the proposed reduction of capital exceeds twenty five per cent (25%) of the total issued and paid up share capital of the Company, priority be given to the small shareholders of the Company and the shareholding of the shareholders holding the least number of shares would be extinguished and their capital returned first, starting from the shareholder holding the least number of shares in the Company, till twenty five per cent (25%) of issued and paid up share capital offered is returned.


The primary concern of the Company is the protection of the interests of the shareholders holding the least number of shares in the Company so that the non-effective utilization of surplus funds does not affect such persons. Therefore, in the event the shareholding of the shareholders assenting or not objecting by way of postal ballot to the proposed reduction of capital exceeds twenty five per cent (25%) of the total issued and paid up share capital of the Company, the shareholders holding the least number of shares in the Company would be given a priority and made the beneficiaries of the proposed reduction and would be returned their entire capital contribution instead of a pro rata return of their capital shared with the other larger shareholders of the Company.

The reduction and consequent return of capital is proposed in accordance with the provisions of Sections 100 and 101 of the Companies Act, 1956 read with Section 101(3) thereof, whereby the paid-up share capital of the Company in excess of its requirements be reduced and that such reduction be effected by cancelling and extinguishing upto twenty five per cent (25%) of the total issued and paid-up share capital of the Company.

The Company and the management have proposed that the shareholders
' value be adequately protected by extinguishing and returning share capital at Rs.183/- per equity share, which is a value determined after providing a premium of ten per cent (10%) over the current market price of Rs.166.50/- per share as on 25th January 2006, and which will be met from the proceeds of the sale of the Isolator Division.

The Company had as a measure of investor protection appointed external valuers, namely T.R. Chadha & Co. Chartered Accountants to determine the value of the shares of the Company. As a measure of investor protection, the price at which share capital is proposed to be returned to the shareholders of the Company is the highest of the parameters taken into consideration by T.R. Chadha & Co. in preparing the weighted average value of the shares, and is at a premium over the weighted average value of each share as determined by T.R. Chadha & Co. as well as the current market value of the shares as on 25th January 2006. On the reduction being approved by the special resolution and confirmed by the High Court of Judicature at Mumbai, the shareholders assenting or not objecting to the proposed reduction and holding the least number of shares in the Company, subject to a maximum of twenty five per cent (25%) of the share capital of the Company, as on the date determined by the Board and confirmed by the High Court of Judicature at Mumbai, will receive a sum of Rs. 183/- per equity share (subject to payment of applicable taxes) for the return of their issued share capital. The reduction and consequent return of capital to the shareholders is subject to and dependent upon the realization of adequate funds from the proposed sale of the Isolator Division by the Company. Accordingly, in the event the proposed sale of the Isolator Division by the Company fails to be effected and adequate funds are not realized, the present proposal for reduction of share capital would be withdrawn.

The Company proposes that the decision to reduce share capital be taken pursuant to a special resolution passed in accordance with the provisions of Section 100, Companies Act, 1956 to reduce its existing issued and paid-up equity share capital by upto Rs. 88,91,690 consisting of upto 8,89,169 equity shares of Rs. 10/- each.

The Company
's petition to be filed with the High Court of Judicature at Mumbai for confirmation of the reduction resolution will propose a detailed mechanism for return of the share capital pursuant to the confirmation of the present resolution for reduction by the High Court of Judicature at Mumbai.

A copy of the valuation report prepared by T.R. Chadha and Co. would be open for inspection by the members entitled to vote on the proposed resolution for reduction of share capital of the Company at the Registered Office of the Company on any working days except holidays from February 10, 2006 to March 15, 2006 between 10:00 a.m. to 1:00 p.m.

The Board of Directors of the Company accordingly commend the Special Resolution for approval by the members.

None of the Directors except Mr. R. K. Dabriwala and Mr. Surbhit Dabriwala is deemed to be concerned or interested in the resolution to the extent of shares held by them in the Company.

By order of the Board of Directors
Place: Mumbai
Date: January 27, 2006
R. S. Balasubramanyam
CFO & Company Secretary

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