TaxTMI 
TaxTMI 
TaxTMI 
1998 (9) TMI 482
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....tion of the above named two transferor-companies with the transferee-company. The scheme of amalgamation was approved unanimously by the share-holders of the second transferor-company and of the transferee-compa- ny. The shareholders of the first transferor-company approved the scheme by an overwhelming majority to the extent of 99.61 per cent of the shareholding. The objections of four shareholders of the first transferor company are referred to hereinafter. However, at the hearing of these petitions, the said shareholders have withdrawn their objections to the scheme of amalgamation as per the pursis signed by all of them and also by their learned advocate. The scheme of amalgamation was also approved by the secured creditors of the first transferor-company and of the second transferor-company. Similarly, the scheme was also unanimously approved by all the unse- cured creditors of the first transferor-company as well as by all the unsecured creditors of the second transferor-company. The transferee company has no creditor-secured or unsecured. 3. In response to the public notice, only one person, viz., Bhagyam International, a partnership firm claiming to be an unsecured credi....
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....y, as on the date of hearing of these petitions, no creditors or shareholders of any of the companies have raised any objection to the proposed scheme of amalgamation. 7. However, since the objections raised by the Official Liquidator on the basis of the report of the Chartered Accountant still subsist, it is necessary to deal with the same at some length. Ratnamani Engg. Ltd. (REL - First Transferor-company) 8. In respect of the first transferor-company (Ratnamani Engg. Ltd.- Company Petition No. 17 of 1986), the observations made by the Char-tered Accountant and the reply through the affidavit filed by Mr. Prakash Sanghvi, Chairman of Ratnamani Engg. Ltd. on different issues and the Court's observations/findings thereon are as under : Issue No. 1 : Availability of Report of Internal Auditor. Reply : There is no adverse comment made by the Chartered Accountant or the Official Liquidator. Issue No. 2 : The company has availed more tax deferment than sanc-tioned amount to the tune of Rs. 2.33 lakhs. Reply : The company had made the payment of above amount vide challan No. 33 dated 17-5-1995. Hence, there is no question of excess availment of Sales-Tax Deferment Loan. ....
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....ts, formalities like resolution etc. are not presented for verification. Reply : Unsecured loans/deposits were taken in the ordinary course of business. The same did not require execution of any formal document. More so, when the persons giving loans/deposits did not insist for the same. The objections do not disclose the quantum of the depos-its/loans. In the facts and circumstances of the case, the objection cannot be treated so substantial as to warrant rejection of the scheme of amalgamation. This observa-tion shall not, however, prejudice the liability of the transferor-company for breach of any statutory provi- sions for which ultimately the transferee-company shall be liable. Issue No. 6 : In the year 1994-95 more interest rate is given to group companies as compared to the others. Reply : The allegations are without any basis or substance. The rate of interest is not static figure and it depends upon the market forces of demand and supply. In any case, rate of interest at the rate of 21 per cent per annum cannot be regarded as unreasonable or excessive. Looking to the nature of objections, the same cannot be allowed to override the company's scheme for amalgam-a....
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....ioner, it was justified in maintaining the books of account in the matter in which it has maintained. There-fore, justification of premium was rightly made. This issue is required to be discussed at some length. Hence, it is dealt with hereinafter. Issue No. 11 : Consent letter of the secured creditors is not given to the Chartered Accountant. Reply : On page 8 para 10 of the Official Liquidator's report, it has been confirmed that the consent letter of the secured creditors has been submitted. In view of the above reply, the objection does not survive. Issue No. 12 : Fixation of exchange ratio. Reply : Exchange ratio has been worked out by C.C. Choksi & Co., a leading Chartered Accountant. There report is on pages 341 to 367 of Company Petition No. 17 of 1996 and their further comments are on pages 384 to 393 of the said proceedings. In view of the fact that the exchange ratio has been worked out by C.C. Choksi & Co., a leading and reputed firm of Chartered Accountants and in view of the decision of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 87 Comp. Cas. 792/[1996] 10 SCL 70 it would appear that the role of the s....
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....sly be fastened upon the transferee-company. Issue No. 15 : Pending litigation for payment of dividend in transferor-company and issue of bonus shares excluding the share-holder of the transferor-company. Reply Pending litigation for the payment of dividend does not have bearing on the present amalgamation. It is further submitted that as the exchange ratio certificate prepared by C.C. Choksi & Co., Chartered Accountants takes into consideration issuance of bonus shares post appointed date no adjustment is called for on account of issuance of bonus shares. Section 81 of the Act has no bearing and hence there is no breach thereof. Since all the shareholders of the two transferor-compa- nies as well as the transferee-company have considered the scheme and there is no objection from any of the shareholders or any of the creditors and in view of the discussion in para 11 hereinafter, the objection is not sustained. Ratnamani Fine Tubes (P.) Ltd. (RFTPL - Second Transferor-Company) 9. As far as Company Petition No. 18 of 1996 (Ratnamani Fine Tubes (P.) Ltd.) is concerned, the objections raised by the Chartered Accountant as reflected in the Official Liquidator's report and the r....
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....bjection does not survive. Issue No. 4 : For unsecured loans/deposits taken from the group com-pany and other necessary papers, documents, formalities like resolutions etc. are not presented for verification. Also the acceptance of loans has not been reported in the statutory report as per the requirement of the Companies Act, 1956. Reply : Unsecured loans/deposits were taken in the ordinary course of business. The same did not require execution of any formal document. More so, when the persons giving loans/deposits did not insist for the same. The objections do not disclose the quantum of the depos-its/loans. In the facts and circumstances of the case, the objection cannot be treated so substantial as to warrant rejection of the scheme of amalgamation. This observa-tion shall not, however, prejudice the liability of the transferor-company for breach of any statutory provi- sions for which ultimately the transferee company shall be liable. Issue No. 5 : In the year 1994-95 more interest rate is given to group company as compared to the others. Reply : The allegations are without any basis or substance. The rate of interest is not static figure and it depends upon the m....
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....ursued 10. Objection regarding statements in prospectus for Public Issue of Ratnamani Engineering Ltd. (REL). 10.1. The objection pertains to the premium of Rs. 5 charged by the first transferor company (REL). This objection is raised by the Official Liqui-dator on the basis of the report of Mr. Kaushik K. Patel on the ground that the prospectus did not correctly mention the value of the assets of the company as per the erstwhile CCI formula so as to enable the investors to make a reasonable judgment of the value of the equity shares of the REL by the investing public. The case against the REL is that it resorted to window dressing of its accounts to inflate the profits by including the inter-department service charges of Rs. 40 lakhs in the accounts for the period upto 30-9-1993 along with the other entry of Rs. 25 passed after 30-9-1993. After coming out with the public issue in April 1994, however, in its income-tax returns for the relevant assessment year 1994-95, the REL excluded the inter-department service charge of Rs. 65 from the income on the following contentions : (a)This being Inter-Department entries and as such there being no realization, is not at all the real in....
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....une, 1995, but it started looking up from July 1995 presumably after it was conveyed to the shareholders that it was considered to merge all the group companies in a single entity and, therefore, the price went up to Rs. 18.50 and then hovered around Rs. 17 in August/September, 1995 and came down to Rs. 15 in October, 1995. The market price of the share at the stock exchange, therefore, did not go below Rs. 15 for at least a year and a half after the public issue, but remained higher than the premium charged for a considerable period. 11. It is necessary to say a few words on the issue of exchange ratio in respect of which the Chartered Accountant has raised his objection. The exchange ratio is provided in para 10(f)(A) of the scheme in the following proportion : "(i )One fully paid-up equity share of Rs. 10 each of the transferee company (RMTL) shall be issued for every three fully paid up equity shares of Rs. 10 each held by the members of the first transferor company (REL) ... (ii)Six fully paid-up equity shares of Rs. 10 each of the transferee shall be issued for every one fully paid up equity share of Rs. 100 each held by the members of the second transferor company (RFTPL....
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....ed by RMTL by virtue of a resolution passed by the sharehold-ers of the RMTL 20-9-1995. 12. Mr. Kaushik K. Patel has further raised some objection about the valuation of the fixed assets which the reply of the petitioners is that the assets of the company were got valued by a Government approved valuer. Regarding this objection, it is required to be noted that even as per the rejoinder dated 25-10-1996 of Mr. Kaushik K. Patel, the difference in the value of the fixed assets of all the three Companies as considered by C.C. Choski & Co. and as reported by the valuer Dixit Consultants was as under: Sr. No. Name of the company Value as per Value as per Dixit Difference CC Choksi & Co. Consultants (Rs. in lakhs) (Rs. in lakhs) (Rs. in lakhs) 1. RMTL 4000.00 4168.16 168.16 2. REL 820.00 835.00 15.63 3. RFTPL 80.00 81.20 1.20 It appears to the Court from the aforesaid figures that while there is some variation between the valuations the variation is not so substantial as to knock the bottom out of the exchange ratio fixed under the scheme. 13. The real question which arises for consideration of the Court is whether the Court is required to go into the merits o....
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.... has to be kept in view by the Court .... The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors & members of the company who have ratified the scheme by the requisite majority. Consequently the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire . .." (p. 813) In view of the aforesaid settled legal position, the merits of the objections raised by the Chartered Accountant and reflected in the Official Liquida-tor's reports about exchange ratio are not required to be gone into, more particularly when the exchange ratio has been worked out by a leading and reputed firm of Chartered Accountants C.C. Choksi & Co., and they have given the justification for the same which cannot be said to be such as no reasonable person would have arrived at. General discussion and clarifications 14. The scheme has detailed the benefits whi....
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....the objections are not such as to warrant disapproval of the scheme of amalgamation. 16. In response to a query from the Court, Mr. Soparkar, the learned counsel for the transferee company has made it clear that all the existing employees of both the transferor companies are going to absorbed in the service of the transferee company and that, therefore, upon amalgam- ation, the transferee company will have not only the record of the transferor companies, but also the officers and employees conversant with the affairs of both the transferor companies and, therefore, if any of the statutory authorities have any doubt on any of the affairs of either or both the transferor companies, even after amalgamation the transferee company would be in a position to attend to all the queries which may be raised or inquiry which may be initiated by any such authority. Hence, any inquiry or investigation which may be pending or initiated against any of the transferor companies will not be prejudiced by amalgamation of the transferor companies with the transferee company. 17. In view of the above discussion, the scheme of amalgamation at Annexure "C" to each of Company Petition Nos. 17, 18 and 19 ....