TaxTMI 
TaxTMI 
1999 (9) TMI 754
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.... are to carry on the business of manufacture of Coffee, Tea, Chicory, Cocoa, Milk Powder, Condensed Milk, Cheese, Plain and flavoured, Yogada, Shrikhond and the like as also to carry on the business in processing, manipulating, preparing, preserving, canning, refining, bottling, baying, rendering marketable and dealing in their prepared, manufactured or raw state and whether in wholesale and/or in retail. The object of the petitioner-company-ACL is also to carry on the business in Coffee either as principals or agents all or any of the trades or businesses of dealers, merchants, general merchants, buyers etc. The petitioner company-ACL is also engaged in the business of production and sale of instant coffee. 3. The transferee company 'The Consolidated Coffee Estates (1943) Ltd. was incorporated on 19-11-1943 under the provisions of the Indian Companies Act, 1943 and with effect from 12-6-1967 its name was changed to Consolidated Coffee Ltd. ('CCL') and is an existing public company within the meaning of the Companies Act. Its registered office is situated in Kodagu in the State of Karnataka. The authorised share capital of the transferee company-CCL is Rs. 9,80,00,000 divided in....
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....arkets instant coffee (pure) and instant coffee (chicory mixed) under the Tata Cafe (pure) and Tata Kaapi (chicory mixed) brands. 6. Coffee Lands Ltd. ('CLL') is a public limited company and its registered office is situated in Saklaspur, Hassan District, in the State of Karnataka. The main object of CIL is to cultivate any estates, lands and properties and to grow thereon coffee, tea, rubber, pepper, oranges, cardamoms, cincho na, cereals, timber, garden etc., and to carry on the business of planters, growers, curers, manufacturers, farmers, and to prepare, process, manufacture and render marketable the produce and products of any estates, lands or properties of the company etc. The transferee company-CCL holds about 34.45 per cent of the equity share capital of CLL. Charagni Ltd. ('CL') is also a public limited company and its Regis-tered office is situated in Saklaspur of Hassan District in the State of Karnataka. The main objects of CL are to carry on the business of manufacture of smokeless briquetted fule and its by products of tar, gas etc., by conversion of agricultural/forestry residue/wastes of whatsoever nature, and to carry on and undertake the business of finance, i....
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....L B. Balance Sheet Share capital 1,167.58 950.70 Reserves & Surplus 1,218.79 4,028.83 Secured loans 1,396.83 2,014.49 Unsecured loans - 87.21 Total 3,783.20 7,081.23 Fixed assets 1,608.25 3,671.22 Investments 356.33 863.15 Current assets, loans & Advances 2,232.24 6,075.07 Less Current liabilities & provisions (422.80) (4,052.03) Net current assets 1,809.44 2,023.04 Miscellaneous expenses 9.18 523.82 Total 3,783.20 7,081.23 10. The reasons for the proposed amalgamation are more particularly set out in Para 9 of the petition. Some of the salient features of the scheme of amalgamation are that the instant coffee marketed by the transferee company-CCL is manufactured by the transferor company-ACL. The business of the transferor company-ACL primarily comprises of manu-facture of instant coffee at its export oriented unit, the bulk of which is exported and the balance is sold in the domestic tariff area as per applicable rules, including to the transferee company-CCL. The transferor-company ACL is also a subsidiary of TTL. ....
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....ovident fund, gratuity fund, superannuation fund or any other special fund created or existing for the benefit of the staff, workmen and employees of the transferor company-ACL shall be continued by the transferee company-CCL. The transfer of the properties and liabilities of the transferor company-ACL to the transferee company-CCL and the continuance of all contracts and proceedings by or against the transferee company-CCL shall not affect any transaction or proceedings already concluded by the transferor company-ACL prior to the scheme becoming effective. 12. The transferee company-CCL, in consideration of the transfer of and vesting of the undertakings and properties of the transferor company- ACL in terms of the Scheme, shall, without any further application or deed, issue and allot to the members of the transferor company-ACL whose names appear in the register of members of the transferor compa- ny-ACL on such date as the Board of Directors of the Transferee Company will determine (hereafter called 'the record date'), one equity share of Rs. 10 each in the transferee company-CCL credited as fully paid up for every six fully paid up equity shares of Rs. 10 each held by them ....
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....mmend the said exchange ratio as being fair and reasonable. The reports of both the valuers have been accepted by the Board of Directors of both the companies as being fair share exchange ratio. 14. The transferor company-ACL had filed an application C.A. No. 453 of 1998 for convening the meeting of equity shareholders of the petitioner- transferor company-ACL. In pursuance of the order passed by this Court on 17-9-1998, the meeting of the shareholders of the petitioner transferor company-ACL had been convened under the Chairmanship of Mr. Vilas A. A. Afzulpurkar, Advocate. After due notice of the said meeting by pre-paid letter post under certificate of posting to each equity share holder of the transferor company-ACL, together with a form of proxy, meeting was held on 23-10-1998. Prior to that, the notice of the said meeting was also advertised in one issue of English daily, Deccan Chronicle, and one issue of Eenadu, a telugu daily, on 28-9-1998. As per the report of the Chairman, Mr. Vilas A. Af zulpurkar, the said meeting was attended personally or by proxy by 233 equity shareholders of the petitioner transferor company- ACL and entitled together to 77,45,397 equity shares o....
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.... five shares of the transferee company-CCL considering the book value of Rs. 15.02 which is equivalent to Rs. 75.80 per share as per the market quotation prevailing as on that date. However, the book value of share of the transferee company-CCL at present is more than Rs. 25 as per the financial figures given by the management but they are offering one equity share of Rs. 10 each in the transferee company-CCL for every six equity shares of Rs. 10 each of the transferor company-ACL whose market price is less than Rs. 120. The net effect is that the transferor company-ACL share price is arrived at Rs. 20 even though the book value is more than Rs. 20. If the book value of the share is discounted by 10 times, the market price of the share should be Rs. 200 thereby the exchange ratio should be a minimum of two shares in the transferee company-CCL for every one share of the transferor company-ACL. In the year 1995-96, intentionally, an amount of Rs. 356 lakhs was diverted to a sick BIFR company from the transferor company- ACL without any income from the investment and on the contrary borrowings were shown by the transferor company-ACL for its opera- tions by paying interest and this re....
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....eror company-ACL as also the transferee company-CCL being a subsidiary of TTL, the exchange ratio proposed by the transferor company-ACL will only benefit the said companies at the expense of the minority shareholders of the transferor company-ACL. The entire exer- cise of the proposed scheme of amalgamation has been done in haste and without any proper basis of arriving at the exchange ratio. During the meeting held on 23-10-1998, the applicant has questioned the valuation report done by the auditors and had sought information regarding the basis on which the valuation report has been finalised by the auditors, but it was not made available to him. M.N. Raiji & Co., and A.F. Ferguson Company had prepared the valuation report and it was confirmed by the ANZ Grindlays Bank. While M.N. Raiji & Co., are the statutory auditor of the transferee company-CCL, A.F. Ferguson Company are the statutory auditor of the associated company of the transferee company-CCL namely TISCO. ANZ Grindlays Bank is the banker of TTL. Therefore, it cannot be said that fair and independent valuation has been done. The valuation report should be obtained from an independent auditor and till then the scheme of ....
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....e transferor company-ACL, one share of the transferee company-CCL shall be allot- ted. Thus, the transferee company-CCL will allot 19,45,966 shares to the shareholders of the transferor company-ACL at the rate of Rs. 10 each amounting to Rs. 1,94,59,660. On acquiring the shares of the transferor company-ACL, the transferee company-CCL shall get 48,36,030 shares of Rs. 10 each of Sapthagiri Agro Industries Ltd. Excluding the assets and liabilities of Sapthagiri Agro Industries Ltd., the transferee company-CCL will make a clear profit of Rs. 2.90 crores. This clearly exploits the exchange ratio of the scheme and is against the interests of the transfer company ACL and will benefit the shareholders of the transferee compa- ny-CCL to a large extent and TTL will get more benefit at the cost of other minority shareholders. Since the transferor company-ACL is a subsidiary holding of TTL, the remaining 40 per cent shareholders are put to loss if the exchange ratio is not amended. A request for appointment of a leading Advocate to calculate the exchange ratio on the normal accepted principle of calculation of exchange ratio has been made in this report. The transferor company-ACL has submit....
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....ed by the said Valuers is fair to the shareholders of the transferor company-ACL or the transferee company-CCL. ANZ Investment Bank has offered no opinion on any other aspect of the valuation report and/or the proposed amalgamation except the opinion on fixation of the proposed exchange ratio. 24. Shri Y. Ratnakar, the learned counsel appearing for the applicant in C.A. No. 687 of 1998 has urged that the TTL / holding 65 per cent voting in the transferor company-ACL is the holding company of the transferee company-CCL and, therefore, giving lesser number of shares in the transferee company. CCL to the minority shareholders of the transferor company-ACL would benefit only TTL. Only with a view to benefit TTL, the proposed exchange ratio has been fixed at 6 : 1. The Chartered Accountants who have valued the shares are the Chartered Accountants of CCL and TTL and, therefore, there is a built in bias. He has further argued that out of 76,74,443 votes polled in favour of the merger, TTL holds 75,29,904 votes as it holds 75,29,904 shares and, therefore, the number of votes of the other independent shareholders who supported the merger comes to 1,44,539 as against 61,536 votes cast by ....
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.... 10 fully paid up of the transferee company-CCL. The management of transferor company-ACL has diverted substantial money into a sick company Saptagiri Agro Industries Ltd., in the year 1996 and has suppressed that fact with the shareholders. N.M. Raiji & Co. and A.F. Ferguson & Co., the Valuers, are interested in TTL and, therefore, their opinion should not be relied upon, particularly because they have not supplied the calculations. The pro- posed exchange ratio is neither fair nor reasonable. The transferor company-ACL has earned profit of Rs. 809.79 lakhs in the year 1995-96, but with a view to reduce the value of the share, the profits have been reduced to Rs. 152.13 lakhs and Rs. 149.15 lakhs respectively for the years 1996-97 and 1997-98. It has also been urged that the votes have not been properly counted by the chairperson. The shareholders who are interest- ed in TTL and the transferee company-CCL have voted for the merger only with a view to ultimately help TTL. Relying on Patiala Starch & Chemical Works Ltd., In re AIR 1958 30 (Punjab) and on Bank ofBaroda Ltd. v. Mahindra Ugine Steel Co. Ltd. [1976] 46 Comp. Case. 227 (Guj.), it has been argued that where the shareholde....
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....one share in the transferee company-CCL for every six shares of the transferor company-ACL and the exchange ratio is not different for TTL. Even if the share ratio is changed and the minority shareholders are benefited, TTL will get more shares and, therefore, it is wrong to say that only with a view to benefit TTL, the proposed share exchange ratio has been deliberately fixed. The votes were validly cast and have been duly accepted by the Chairman and there is no substance in the argument that the shares held by TTL should be excluded while consid-ering whether the resolution has been passed with overwhelming major- ity or not. The request for furnishing the details of calculations relating to the exchange ratio has been rejected by this Court on 1-3-1999 and, therefore, this point cannot be reagitated now. The Auditors have applied the three well accepted methods for arriving at the exchange ratio, that is (1) the yield method (2) the asset value method and (3) the market value method and, therefore, no reliance can be placed on the share exchange ratio arrived at only on the basis of the book value method. The applicant in C.A. 674 of 1998 himself is not certain on the share exc....
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.... the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction." 29. The Apex Court formulated the following broad contours of jurisdic-tion of the Company Court which is called upon to sanction a scheme of compromise or arrangement, in the case of Miheer H. Mafatlal (supra) . "1.The sanctioning Court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held. 2.That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section (2). 3.That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4.That a....
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....s: "(1)Capital Cover, (2)Yield, (3)Earning Capacity, and (4)Marketability." So many imponderables enter the exercise of valuation of shares. Once the exchange ratio of shares of the transferee company to be allotted to the shareholders of the transferor company has been worked out by a recognised firm of chartered accountants who are experts in the field of valuation and if no mistake can be pointed out in the said valuation, it is not for the Court to substitute its exchange ratio, especially when the same has been accepted without demur by the overwhelming majority of the shareholders of the two companies or to say that the shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest. 31. The grievance of the applicants-objectors is regarding the proposed exchange ratio. The question, therefore, falls for determination is whether the proposed exchange ratio is reasonable and fair or not?. 32. In the light of Tinter he law laid down by the Supreme Court in the case of Miheer H. Mafatlal ( supra) and referred to above, I will now proceed to deal with the point for determinat....
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....aluer with it and another Body ANZ Investment Bank has confirmed their opinion after scrutinising their report. There appears to be no substance in the contention of Shri V.S. Raju, the learned counsel of the applicant in C.A. No. 674 of 1998 that the mere obtaining of the views of ANZ Investment Bank is indicative of the fact that the work was entrusted to it because the transferor company- ACL and the transferee company-CCL were themselves doubtful about the correctness of the valuation report. On the other hand, it appears that, only with a view to have a second opinion, the work was entrusted to ANZ Investment Bank. 37. From what is stated above, it cannot be said that the Valuers have only narrated in their report the theory as to how the exchange ratio should be worked out and have actually not applied that theory on the relevant material and data for working out the proposed exchange ratio. 38. True that TTL holds 75,29,904 shares, but there appears to be no valid reason for excluding these votes while determining whether the scheme of amalgamation has been passed with overwhelming majority by its members including through proxies present and voting, or not. Even for t....
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.....A. No. 674 of 1998, cannot be preferred to the valuation report of the Valuers reviewed by ANZ Investment Bank for three reasons. The first reason is that the report of Narasimharao & Associates is based only on the balance sheets of the transferor company-ACL and the transferee company-CCL. The second reason is that, as stated in this report, the market value of the fixed assets as on 31-3-1998, physical verification and valuation reports of inventories as on 31 -3-1998, balance confirmation certificates in respect of the secured loans, unsecured loans, sundry debtors, cash and bank balances, loans and advances, current liabilities and contingent liabilities, though required for determination of the exchange ratio, were not supplied to it. The third reason is that the market value of the shares has not been considered by it. It is apposite to mention that the applicant-objector, Mr. Challa Rajendra Prasad, did not obtain the valuation report from Narasimharao & Associates before the extraordinary general body meeting was scheduled to be convened and did not place it to be considered at that meeting so as to enable the members to consider the same. On the other hand, the Board of ....