1975 (4) TMI 137 - HC - Companies Law

Court approves amalgamation scheme, finds compliance with statutes, fair representation, and reasonable terms. Central Government objections rejected.

Bank of Baroda Ltd. Versus Mahindra Ugine Steel Co. Ltd.

Bank of Baroda Ltd. Versus Mahindra Ugine Steel Co. Ltd. - [1976] 46 Comp Cas 227 (Guj) Issues Involved:1. Compliance with statutory provisions and representation of classes.2. Legal objections raised by the Central Government.3. Jurisdictional issues related to the registered offices of transferor and transferee companies.4. Determination of whether the transferor-company is a 'banking company' under the Banking Regulation Act, 1949.5. Reasonableness and fairness of the scheme from a business perspective.6. Exchange ratio of shares and cash payment options for shareholders.Detailed Analysis:1. Compliance with Statutory Provisions and Representation of Classes:The court examined whether the statutory provisions under sections 391 and 394 of the Companies Act, 1956, were complied with. It was found that the classes were fairly represented by those who attended the meeting, and the statutory majority acted bona fide. The scheme was deemed to be one that a reasonable businessman would approve.2. Legal Objections Raised by the Central Government:The Central Government contended that the scheme would affect the rights of the members and creditors of the transferee-company and involve a reorganization of its share capital. The court noted that the transferee-company must also seek approval under sections 391 and 394 of the Act from the appropriate court. The transferee-company had already initiated proceedings in the Bombay High Court. Therefore, the court held that the objection raised by the Central Government was unsustainable, as the sanction by this court would not make the scheme operative until the conditions laid down in the scheme were satisfied.3. Jurisdictional Issues Related to the Registered Offices:The court addressed the practical difficulties when the registered offices of the transferor and transferee companies are within different jurisdictions. It was observed that the High Court first moved for sanction would make a judicial order conditional upon the approval by the shareholders and creditors of the other company and the sanction by the High Court within whose jurisdiction the registered office of such other company is situated. The court decided to reserve the giving of directions under section 394(1) until after the proceedings initiated by the transferee-company in the Bombay High Court had successfully terminated.4. Determination of Whether the Transferor-Company is a 'Banking Company':The court examined whether the transferor-company was a 'banking company' under the Banking Regulation Act, 1949, requiring a certificate from the Reserve Bank under section 44B. It was found that the transferor-company had ceased to be a banking company since its entire undertaking was transferred to a new bank under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The court concluded that the transferor-company was not carrying on any business, much less banking business, and section 44B was not attracted.5. Reasonableness and Fairness of the Scheme from a Business Perspective:The court emphasized that due weight must be given to the fact that the scheme was approved by a statutory majority of members. It was noted that the court must scrutinize the scheme to ensure it is fair, reasonable, and workable. The court found that the scheme was reasonable and beneficial to the shareholders and the transferee-company, as it provided a better choice than winding up the company. The scheme was also approved by the members of the transferee-company and was deemed to facilitate the expansion program of the transferee-company.6. Exchange Ratio of Shares and Cash Payment Options for Shareholders:The ratio of exchange of shares and cash payment options was scrutinized. The court found that the exchange ratio was reasonable and fair, as the market value of the shares and debentures of the transferee-company was more than the market value of the shares of the transferor-company. The court was satisfied that the cash option figure was determined fairly, considering the break-up value of the shares and the potential tax implications. The court emphasized the need for sufficient material on record regarding the method and basis of valuation, especially in cases of serious contest.Conclusion:The court concluded that no ground existed to withhold sanction to the scheme of amalgamation. The transferor-company was directed to file a certified copy of the order with the Registrar of Companies, Gujarat, and move the court for suitable orders making provision for matters specified in section 394(1) within fifteen days of filing with the Registrar of Companies, Maharashtra. Liberty was reserved for the parties to apply for suitable orders and directions as contemplated by section 392 of the Act. The petitions were to stand over till the court was moved by a judge's summons or till further orders.