2015 (12) TMI 1085 - HC - Companies Law

Court approves amalgamation scheme but finds exchange ratio unfair, Registrar of Companies to determine fair ratio.

IN RE : BURAGOHAIN TEA COMPANY LIMITED

The Court approved the scheme of amalgamation between Buragohain Tea Company Ltd. and B&A Ltd. but found the proposed exchange ratio unfair. The ... Scheme of amalgamation - Held that:- Court has no objection to sanction the scheme for amalgamation of Buragohain Tea Company (Transferor Company) with B & A Ltd. (Transferee Company). However, having regard to the litigation history in the Transferee Company involving the Objector and other related developments and also having regard to the financial status of the Transferor Company as discussed above, objection raised by the Objector and by the Central Govt. through the Regional Director regarding the exchange ratio of shares between the two companies cannot be brushed aside. The exchange ratio of 786 fully paid up equity shares of ₹ 10.00 each of the Transferee Company to be issued and allotted for every one equity share of ₹ 1,000.00 held in the Transferor Company does not appear to be fair and justified. Accordingly, Court directs the Registrar of Companies, Shillong to work out the exchange ratio in a fair manner through independent experts keeping in view the discussions made above and submit the same to the Court in two months time.Thereafter Court may sanction the scheme with modification(s). Issues Involved:1. Sanction of the scheme of amalgamation under sections 391(2) and 394 of the Companies Act, 1956.2. Financial status and valuation of the Transferor and Transferee Companies.3. Justification and fairness of the exchange ratio of shares.4. Objections raised by a significant shareholder (Objector) and the Central Government.5. Compliance with statutory procedures and SEBI guidelines.6. Role of the Registrar of Companies and the Central Government in the amalgamation process.Detailed Analysis:1. Sanction of the Scheme of Amalgamation:The application sought the Court's sanction for the amalgamation of Buragohain Tea Company Ltd. (Transferor Company) with B&A Ltd. (Transferee Company). The scheme proposed the transfer of the entire undertaking of the Transferor Company to the Transferee Company. The Court's role was to ensure that the scheme was fair, just, and reasonable, and complied with legal requirements.2. Financial Status and Valuation:The Transferor Company, incorporated in 1927, had an authorized share capital of Rs. 6,00,000 divided into 600 equity shares of Rs. 1,000 each, with issued, subscribed, and paid-up share capital of Rs. 5,30,000. The company had assets valued at Rs. 19,53,87,760 and liabilities of Rs. 6,26,27,175. The Transferee Company, incorporated in 1915, had an authorized share capital of Rs. 10,00,00,000 divided into 50,00,000 equity shares of Rs. 10 each and 5,00,000 Redeemable Cumulative Preference Shares of Rs. 100 each. Its issued, subscribed, and paid-up share capital was Rs. 3,10,00,000. The assets of the Transferee Company were Rs. 1,12,48,96,650, with liabilities of Rs. 62,68,26,053.3. Justification and Fairness of the Exchange Ratio:The scheme proposed an exchange ratio where 786 fully paid equity shares of Rs. 10 each of the Transferee Company would be issued for every one equity share of Rs. 1,000 each in the Transferor Company. The Court found this ratio to be unrealistic and illogical, considering the financial conditions of the two companies. The valuation of shares and the exchange ratio should be fair and based on market realities.4. Objections Raised by the Objector and the Central Government:The Objector, holding a significant number of shares in the Transferee Company, raised concerns about the fairness of the scheme, alleging it was designed to dilute her shareholding and control. The Central Government, through the Regional Director, also objected to the exchange ratio, stating it was not justified and appeared to benefit the promoter group exclusively.5. Compliance with Statutory Procedures and SEBI Guidelines:The Objector contended that the scheme was not discussed in the Board meeting of the Transferee Company on 25.05.2012 and that the SEBI circular dated 14.02.2013 was not complied with. The petitioners argued that the scheme was filed before the SEBI circular came into effect, and all necessary procedures were followed.6. Role of the Registrar of Companies and the Central Government:The Court emphasized the role of the Registrar of Companies and the Central Government in ensuring that the scheme was fair and in public interest. Given the objections raised and the financial conditions of the companies, the Court directed the Registrar of Companies, Shillong, to work out a fair exchange ratio through independent experts.Conclusion:The Court had no objection to sanctioning the scheme of amalgamation but found the proposed exchange ratio to be unfair and unjust. The Registrar of Companies was directed to determine a fair exchange ratio and submit it to the Court within two months. The scheme would be sanctioned with necessary modifications based on this determination. The matter was listed for further orders on 16.11.2015.