TaxTMI 
TaxTMI 
1998 (9) TMI 482
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....rangement in the nature of amalgamation 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 However, at the hearing of these petitions, the said shareholders have withdrawn their objections to the scheme of amalgamation as per the pursis signed by all of them and also by their learned advocate.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 partnersh....
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....have withdrawn all their objections. Conse-quently, 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....
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....hall remain accountable. Issue No. 5 : For unsecured loans/deposits taken from the group com-pany and others and given to the other companies, neces-sary papers, documents, 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 ....
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....ic properly. Reply : It may be stated that in the year 1994 when the public Issue was made as per the guidelines of the SEBI it was open to the petitioner to charge any premium of its choice. There was no law, rule or regulation prohibiting a company like the petitioner from charging premium of its choice. This issue, therefore, is wholly irrelevant. According to the petitioner, 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....
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....e necessary accounting entries. The nature of service rendered by the Equipment Division was in its normal course of business and, therefore, amount of Rs. 65 lakhs charged was taken to profit and loss account. If at all the objection is tenable, it would be for the Income-tax Department and/or the Sales-tax Department to look into this aspect. Hence, sanction of the scheme for amal- gamation would not come in the way of the concerned authority looking into this aspect and the liability, if any, of this transferor-company would obviously 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 Ac....
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.... The company has availed more subsidy than sanctioned amount of Rs. 5.79 lakhs. Reply : The petitioner-company has not availed of any excess subsidy. It is not conceivable to think that the Government would release subsidy greater than what a party would be entitled to. The petitioner was entitled to two different subsidies. One sanction letter was readily available and, therefore, the same was produced and the second sanc- tion letter could not be produced as it was not immediate-ly traceable. Here again, if at all there is any substance in this objection, it would be for the Industries Department of the State Government to look into the matter and the amalgam- ation would not dilute the liability, if any, which would be fastened upon the transferee-company upon amalgamation. Issue No. 3 : The books of account for the years 1990-91 and 1991-92 are not presented for the verification. Reply : The same has been presented for verification as confirmed on page 5 para 7(1) of their report. In view of the above reply, the objection does not survive. Issue No. 4 : For unsecured loans/deposits taken f....
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....C.C. Choksi & Co., a leading Chartered Accountant. Their 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 (supra), it would appear that the role of the statutory authorities or of this Court in examining this question would be very limited. This issue is discussed in detail hereinafter along with the same issue in respect of the first transferor-company. Issue No. 9 : There is a heavy under utilization of installed capacity of saw pipe division of the company. Reply : Firstly, there is no Saw Pipe Division in this company. Therefore, there is a factual error on the part of the Official Liquidator. In the initial period there is bound to be under-utilization of capacity for various commercial reasons. Under-utilization of the company would at the highest indicate inefficiency of the company, unless there are ....
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....g the company from charging premium of its choice. Its case before the Chartered Accountant Mr. Kaushik K. Patel was also that the prospectus did refer to the inter-departmental service charges. 10.3 While appreciating that the objection raised by Chartered Accoun- tant Mr. Kaushik K. Patel cannot be said to be irrelevant or unfounded especially in view of the low level of financial awareness of general investing public, and without shutting the door against any inquiry by the SEBI in this regard, it is only on account of the following redeeming features that the Court would not go to the length of holding that the affairs of the first transferor company-REL were conducted in a manner prejudicial to the interest of its members or public interest: (i )The promoters were issued the equity shares in October, 1992 at the premium of Rs. 4 per equity share and subsequently, at the time of public issue, the promoters had also subscribed at the premium of Rs. 5 per share. (ii )C.C. Choksi & Co. have mentioned in para 17.2 of their report that the Bombay Stock Exchange where the equity shares of REL were regularly traded, though not in high quantum, the market quotations of REL flu....
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....report of C.C. Choksi & Co., a leading and reputed firm of Chartered Accountants. It is, therefore, necessary to refer to the value of the shares of the transferor companies and the transferee company under different meth- od as computed by C.C. Choksi & Co. in their report dated 16-11-1995 : As on 31-3-1995 Value per share of Rs. 100 Rs 10 Rs. 10 RFTPL REL RMTL (a ) Net asset value on the basis of book value 186 15 41 (b ) Net asset value after considering the market value fixed assets 353 16 137 (c ) Earning capacity method : (Yield method) previous three years 132 6 79 (d ) Yield method on the basis of projected profit after tax 820 13 13 Recommended exchange ratio 3 shares in REL (Rs. 10 each) = 1 Share in RMTL of Rs. 10 each 1 share in RFTPL = 6 share in RMTL (Rs. 100 each) of Rs. 10 each C.C. Choksi & Co. also noted in their report that the average market value of the shares in the Bombay Stock Exchange where the shares of the REL and RMTL were mainly tr....
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.... 5 requires that the requisite material contemplated by the proviso to section 391 (2) should be placed before the Court to the satisfaction of the Court. Parameter No. 6 is formulated as under : "6. That the proposed scheme of compromise and arrangement is not found to be violative of any provisions of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judicially X-ray the same." After laying down the aforesaid broad parameters, the Apex Court laid down the following principle : "Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the 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 ....
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....any of the shareholders or any of the creditors to the scheme of amalgamation despite advertisement of the public notices of these petitions in two daily newspapers, viz., Times of India and Gujarat Samachar which have the largest circulation in the State. The objections raised by Chartered Accountant Mr. Kaushik K. Patel have already been considered hereinabove. There is no reason for disapproving the scheme of amalgamation on account of those objections. The scheme of amal-gamation does not appear to be contrary to law or contrary to public interest. Hence, there does not appear to be any impediment to granting sanction to the scheme of amalgamation as proposed at Annexure 'C' in each of these petitions. 15. The Court would also like to make clear that some of the objections raised by Chartered Accountant Mr. Kaushik K. Patel pertain to matters in respect of which no inquiry or proceedings are reported to have been initiated nor any adverse finding appears to have been given by any statutory authority so far, but which can be looked into by the various statutory authorities including SEBI and the authorities under the Income-tax Act, 1961, and the Sales Tax Act. By passing thi....