TaxTMI 
TaxTMI 
1996 (12) TMI 314
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the scheme of amalgamation has already been approved by the Bombay High Court which has also recorded no objection on the part of the Regional Director. 4. So far as the meeting of the transferor is concerned, 6,939 members attended the meeting comprising a total number of 6,38,68,390 shares. Out of the said members present at the meeting, 5,173 members holding 6,36,01,518 shares comprising 99.5 per cent of the members present and voting, voted in favour of the amalgamation, 105 members holding 15,933 shares (0.02 per cent) voted against the amalgamation and 1,661 members holding 2,50,939 shares (0.40 per cent) did not vote. In the circumstances at the meeting, the amalgamation was approved by an overwhelming majority, both in number as well as in voting strength. 5. It has further been submitted by Mr. Sarkar that none of the five objectors, three of whom clearly belong to one family have shown any interest in the matter till their sudden appearance in this Court at a belated stage. None of them has had any correspondence with the company on the subject seeking clarifications on any queries or doubts they may have had on any aspect of the proposed amalgamation. This is evident ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....malgamated company will be able to source and absorb new technology and its capacity to spend on research and development will be enhanced. (f)With the enhanced capabilities and resources at its disposal, the amalgamated company will have greater flexibility to market and meet customer needs, and will be able to compete more effectively, thus, further strengthening its market position in domestic and export markets. (g)A larger and growing company will mean enhanced financial and growth prospects for the people and organisations connected with the company, and will be in public interest. (h )The amalgamation will enable the two companies to pool their financial, managerial and technical and other resources in order to meet the challenges of the New Industrial Policy. In particular, with the major schemes of modernisation, expansion and the capital expenditure required therefor, it will be necessary that the financial resources be pooled together, as the magnitude of the investments contemplated will be better met by the two companies merged together and considerable synergy of operations will be achieved. (i)The amalgamation will provide the two companies with resources to appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall be and stand trans-ferred, without any further act or deed, to the transferee-company, so as to become as from the appointed date the debts, liabilities, duties and obligations of the transferee-company. (d)The Scheme, although operative from the appointed date shall become effective from the effective date. 'The effective date' means the later of the dates on which certified copy of the order of the Hon'ble Bombay High Court and/or the Hon'ble Calcutta High Court vesting the assets, property, liabilities, rights, duties, obliga-tions and the like of the transferor-company in the transferee-company is filed with the Registrar of Companies, Maharashtra and/or the Registrar of Companies, West Bengal, after obtaining all consents, approvals, permissions, resolutions, agreements, sanc-tions and orders necessary thereto. (e)All contracts, deeds, bonds, agreements and other instruments of whatsoever nature to which the transferor-company is a party, subsisting or having effect immediately before the effective date shall remain in full force and effect against or in favour of the transferee-company. (f)All legal and other proceedings by or against the transferor-company, if any,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and allot at par 9 (nine) equity shares of the face value of Rs. 10, credited as fully-paid in the capital of the transferee-company, to the shareholders of the transferor-company whose names are recorded in its register of members, on a date (record date) to be fixed by the Board of Directors of the transferee-company for every 20 (twenty) equity shares of the face value of Rs. 10 each held by the said shareholders in transferor-company. However, no such allotment shall be made in respect of any equity shares held by the transferee-company or its subsidiary company/ies in the share capital of the transferor-company which shall be cancelled. No fractional cou-pons shall be issued in respect of the fractional entitlement, if any, to which the shareholders of the transferor-company may be enti-tled on issue and allotment of the equity shares of the transferee-company. The Directors of the transferee-company shall instead consolidate all such fractional entitlements to which the members of the transferee- company may be entitled and issue and allot equity shares in lieu thereof to a Director or an officer of the transferee-company with the understanding that he shall sell the same in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... debenture holders and creditors (secured and unsecured) of the transferee-company. (iii )the requisite resolution(s) under the applicable provisions of the said Act being passed by the shareholders of the transferee-company as provided in the Scheme. (iv )the sanction of the High Court of Judicature at Calcutta under sections 391 and 394 of the said Act, in favour of the transferor-company and the sanction of the High Court of Judicature at Bombay under the said provisions in favour of the transferee-company and the necessary order or orders under section 394 of the said Act, being obtained. (v)the requisite approval of the Reserve Bank of India under the provisions of the Foreign Exchange Regulation Act, 1973, for the issue of shares in the transferee-company to the non-resident shareholders of the transferor-company. (vi )the issue and allotment of equity shares in the transferee-company to the members of the transferor-company. (p )In the event of any of the said sanctions and approvals not being obtained and/or the Scheme not being sanctioned by the High Court and/or the order or orders not being passed as aforesaid on or before 30-6-1997 or within such further period or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es held more than 50 per cent shares in the petitioner-company Brooke Bond Lipton India Ltd., the value whereof is over Rs. 6 crores. (c)( i)The total number of shareholders is claimed over 2 lakhs whereas it appears from the Chairman's report that only 6,900 and odd members were present in person or by proxy at the said meeting. (ii)It also appears from the Chairman's report that the votes cast at the meeting in favour of the scheme is valued just over Rs. 6 crores. (d)It will appear from a Schedule annexed hereto and marked 'A' that apart from the Unilever Plc. and its subsidiaries, insignificant num- ber of shareholders attended the meeting and voted in favour of the scheme. Thus, in the instant case, it cannot be said that those who attended the meeting are fairly representatives of the equity share-holders of the petitioner and as such, the scheme ought not to be sanctioned. It is also significant to note that although it is claimed that Financial Institutions are shareholders of Brooke Bond Lipton India they did not attend the meeting nor voted in favour of the scheme. (e)Although technically the scheme might have been approved by the requisite statutory majority, it is s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax assessment in Greece and Templeman, J. held that this individual loss should be borne in mind even though each shareholder 'must put himself in the impossible position of deciding what is in the best interest of the class'. But the scheme failed on other grounds and these would seem to have been the dominant reasons for refusing approval. Mr. Mukherjee has also relied upon the said judgment and decision in Hellenic & General Trust Ltd. Re [1975] 3 All ER 282. 15. It has also been pointed out on behalf of the objector that in the Bombay High Court, the transferee-petitioner, Hindustan Lever Ltd. obtained an order for holding a meeting of the members as well as the creditors and also debentureholders on identical grounds but in this Court, the petitioner-company obtained an order under section 391(1) only for holding a meeting of its members. 16. Mr. Mukherjee, the Advocate for the said objector has referred to clause 9 of the scheme which provides that the equity shares held by the transferee-company or its subsidiary companies in the share capital of the transferor-company Brooke Bond Lipton India Ltd. shall stand cancelled. 17. It has been argued that there is no mention in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1. Mr. Mukherjee has also referred to Chairman's statement made at a meeting held in pursuance of the order of the Court and has submitted that grounds for merger as stated in paragraph 13 of the petition are not consistent with the Chairman's statement. It has also been argued that the valuation of the shares and the ratio of exchange of shares is unreasonable and unfair to the shareholders of Brooke Bond Lipton India Ltd. for the following reasons : (a)The valuation of shares is alleged to have been made by S.B. Billimoria & Co. and N.M. Raiji & Co., Chartered Accountants. The valuation report has not been annexed to the petition and in course of hearing a copy thereof was handed up to the opposing share-holders. (b)The valuation report is not correct and should not be accepted by the Court. (c)In the valuation report, no details have been given by the valuers. It appears from clause 3.02 of the said report that the valuers have not carried out any independent audit or test to verify the accuracy of the information supplied by the management of the companies. In fact, the objectors have filed an application for appointment of independent valuer by Judge's summons dated 9-9-19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trade marks and brand names are not reflected in the audited accounts of the company. The value of the said trade marks and brand names has not been taken into account by the said valuers while recommending the exchange ratio. Such omission totally viti-ates the purported valuation reports. Had the value of the said brand names and trade marks been taken into account the value of the shares of the company would have gone up considerably resulting in an exchange ratio far more favourable to the shareholders of the company and that the value of the said brand names and trade marks was not taken into account deliberately to manipulate the share exchange ratio ? (v)No provision has been made in the scheme with regard to the shareholding of the company in Hindustan Lever Ltd. Howev- er, in an affidavit filed in the instant proceeding it has been sought to be contended by and on behalf of the company that prior to the scheme becoming effective the shareholding of the company in Hindustan Lever Ltd. will be sold. The valuation report of S.B. Billimoria & Co. and N.M. Raiji & Co. do not take into account the consequences of such sale and as such, the said valuation report fails to take in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& Finance Co. Ltd. but also of its holding company, i.e., the Industrial Credit & Investment Corporation of India Ltd. (ICICI) and a host of its other subsidiaries. (d )The brand names of Brooke Bond Lipton India Ltd. are very valuable intellectual properties of this company. It is not known what valua-tion has been put on the brand names in arriving at the exchange ratio. Mr. Sarkar cited a case in William Currie & Co. v. James Currie 15 RPC 339 at 343 in support of his contention that brand names are part of the goodwill of the business and cannot be valued separately. It is submitted that this case is of no assistance to the petitioner. Under the scheme the entire business assets and liabilities are being transferred to the transferee-company. Schedule VI of the Compa- nies Act, 1956 also requires the costs of the brand names or trade-marks to be mentioned. It has not been so done in the instant case. It has been submitted that in arriving at the exchange ratio the value of the brand names and trademarks should have been taken into consideration even in spite of the fact that a challenge has been thrown on the correctness of the valuation report, the valuers have not chosen to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to the application for independent valuation wherein another certificate was annexed from Lovelock & Lewes dated 10-9-1995 who, inter alia, certified that they have reviewed the 'methodology' used by S.B. Billimoria & Co. and N.M. Raiji & Co. in determining the fair exchange ratio and confirmed that the methodology used is appropriate and the share exchange ratio arrived appeared to be fair and reasonable. It has been submitted by Mr. Mukherjee that the said certificate is vague and does not provide any details what-soever and no reliance can be placed thereon. 25. Mr. Mukherjee has relied upon the judgment and decision in Associ-ated Hotels of India Ltd. In re [1968] 2 CLJ 292. It has been argued by him that K.L. Ray, J., as he then was, could not be satisfied with regard to the valuation and insisted upon the affidavits being filed by the senior partner of Ray & Ray, Chartered Accountants to justify the valuation and the ratio of exchange and the sanction of the scheme was deferred until such affidavit has been filed giving the details of the valuation report. Accord-ingly, he has submitted that the Court, in the instant case, should insist upon affidavit to be filed and/or o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stant scheme also provides vide clause 13.5 that it is conditional upon the approval of the Reserve Bank of India. Therefore, such approval should be obtained first before the scheme is sanctioned by this Court. 28. It has been contended that bonus track record of Brooke Bond Lipton India Ltd. is far superior to that of Hindustan Lever Ltd. In the past 10 years, Hindustan Lever Ltd. had made only two bonus issues in the ratio of 1 : 1 in 1987 and 1 : 2 in 1990; whereas during the same period, Brooke Bond Lipton India Ltd. made a bonus issue of 3 : 5 in August 1986, 4 : 5 in July 1989 and 1:3 in August 1991. It has been submitted that the proposed merger is not bona fide but only to strengthen the position of Unilever Plc. as the holding company of Hindustan Lever Ltd. and Brooke Bond Lipton India Ltd. In this connection, Mr. Mukherjee has relied upon the judgment and decision in the case of Hindustan Lever Employees' Union v. Hindustan Lever Ltd. [1994] 4 CLJ 267 (SC). 29. It has been contended by Mr. Mukherjee that in the aforesaid case, the Supreme Court being dissatisfied with the valuation and an independent valuer who had valued shares came to conclusion that the ratio of ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tors does not, in my view, assist the objectors in any way. In the said decision, by reason of proposal of amalgamation, the company was going to become a subsidiary of the holding company of the shareholder, whereas in the instant case, both the transferor and the transferee are already subsidiaries of Unilever and there is no change whatsoever. Moreover, the said decision has been doubted in the case of Mafatlal Industries Ltd., In re [1995] 84 Comp. Cas. 230 (Guj.). Mr. Mukherjee has raised objection on the ground that the transfer of assets would also include monthly tenancies and monthly tenancies cannot be transferred without the consent of the landlord. In support of the said contention, he has relied upon the judgment and decision in the case of General Radio & Appliances Co. Ltd. ( supra). 34. It may be noted that the question of transfer only takes place after the scheme becomes effective. The Court cannot assume that the consent will not be granted. It is only after the scheme is sanctioned that the consent of the landlord has to be obtained. In any event, the said decision is not an authority for the proposition. If such a proposition is accepted that will amount to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Dean v. Prince [1954] 1 All ER 740 does not apply in the instant case which is relied upon by Mr. Mukherjee as that is not a case of amalgamation. The other decision in the case of Associated Hotels of India Ltd. ( supra) relied upon by Mr. Mukherjee where the valuer failed to disclose the grounds does not also appear to have any application in the instant case in view of the judgment and the observation of Supreme Court as already recorded. 38. The objection with regard to exchange ratio of shares cannot be accepted in the instant case. It may also be noted that the valuer was asked to provide an exchange ratio and not to provide the value of the shares. The report is similar to the one upheld by the Supreme Court. The auditor of the transferor-company Lovelock & Lewes has also certified that the valuation is fair and reasonable. 39. It has been strongly contended on behalf of the objectors that the valuation report has not taken into consideration various well-known brands of the transferor-company and as such, the same suffers from gross infirmity. The said submission of Mr. Mukherjee, however, does not appear to be correct. It appears from the affidavit of Shyamal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kherjee that under the proposed scheme the said shares will become property of Hindustan Lever Ltd. which would be in violation of law since no company can hold its own shares. The Company Secretary of the petitioner, however, affirmed an affidavit on 13-4-1996 being the affidavit-in-reply filed on behalf of the petitioner-company specifically mentioned that 'the company proposes to sell the said shares in Hindustan Lever Ltd. before the scheme becomes effective'. 46. To clarify the exact position the matter was placed in the list 'To be mentioned' and on 6-12-1996 Mr. Sarkar, the learned Advocate for the petitioner produced copy of the certified true copy of the resolution passed by the Directors of Brooke Bond Lipton India Ltd., dated 28-8-1996. The said resolution is as follows :- "Resolved that 2,36,910 equity shares of Rs. 10 each held by the company in Hindustan Lever Ltd. be disposed of at the best available market price. Resolved further that Mr. K.B. Dadiseth, Chairman, Mr. R. Gopalakrishnan, Vice Chairman and Managing Director, Mr. J.C. Pinto, Divisional Vice President - Commercial, Mr. V. Sudan, Controller Accounts, Mr. Ananda Ghosal, Treasurer and Mr. Shyamal Sen, Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....romote any interest adverse to that of the latter comprising of the same class whom they purported to represent. (8) That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. (9) Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court, there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." (p. 126) 49. On the question of exchange ratio of the shares the Supreme Court, inter alia, held as follows :- "Once the exchange ratio of the shares of the transferee-company to be allo....