TaxTMI 
TaxTMI 
2015 (11) TMI 193
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....s situated at Plot No.564/A/22, Road No.92, Jubilee Hills, Hyderabad; that its authorized capital is Rs. 5 crores, which includes Rs. 4,99,99,000/-divided into 49,99,000 equity shares of Rs. 10/- each and Rs. 10,000/- divided into 1,000 Class-B equity shares of Rs. 10/-each; that its issued, subscribed and paid up capital is Rs. 4,52,60,000/-, which includes Rs. 4,52,50,000/- divided into 45,25,000 equity shares of Rs. 10/- each fully paid up and Rs. 10,000/- divided into 1,000 Class-B equity shares of Rs. 10/-each; and that its main objects, inter alia, are to manufacture, import, export, buy, sell, distribute, and deal in bulk drugs, finished drugs and pharmaceuticals, fine pharmaceuticals, chemicals, fine chemicals, enzmes, anti tuberculosis agents' ayurvedic, unani and cosmetics, etc. The transferee company pleaded that it was originally incorporated as a private limited company under the name and style of "Herren Drugs Private Limited" in the State of Andhra Pradesh on 29.11.1984; that subsequently, it converted itself into a public limited company under the name and style of "Herren Drugs Limited" with effect from 19.10.1992; that its name was changed as "Herren Drugs and Ph....
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....ct offerings. 7 . Cost savings are expected to flow from more focused operational efforts, rationalization, standardization and simplification of business processes, productivity improvements, improved procurement, usage of common resource pool like human resource, administration, finance, accounts, legal, technology and other related functions, leading to elimination of duplication and rationalization of administrative expenses." That the transferee company is held by two major shareholders, viz., MP Laboratories Mauritius Limited and Mylan Luxembourg 2 S.a.r.I. to an extent of 82.79% and 15.38% respectively, i.e., both of them together holding a total of 98.17% shares, and the remaining 1.83% shareholding is held by the minority shareholders; that as a part of this composite scheme of arrangement, the transferee company intends to cancel and extinguish the equity shares held by its minority shareholders by paying cash in lieu of equity shares held by them for the following reasons: "1. Transferee Company was listed on Bombay Stock Exchange and National Stock Exchange having Scrip ID 524794 and MATRIX LABSEQ respectively. The Transferee Company went through a delisting process ....
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....d scheme of arrangement. The transferee Company filed Company Application No.1067 of 2014 for convening the meetings of its equity shareholders and the unsecured creditors. This Court by order, dated 01.09.2014, appointed Sri K.N.Jwala, Senior Advocate, for convening the meetings of the equity shareholders and unsecured creditors on 17.10.2014 at 10.30 am and 2.30 pm, respectively, at Hotel Park Hyatt, Road No.2, Banjara Hills, Hyderabad. Accordingly, the meetings were held by the said Chairperson. In the report, dated 25.10.2014, submitted by the Chairperson, it is inter alia stated that in pursuance of the advertisement published in two daily newspapers, 207 shareholders in person, valued at Rs. 36,30,60,426/-, and 68 members by proxies holding shares, valued at Rs. 1,69,276/-, attended the meeting and that except 16 shareholders in person or through proxy, all the remaining have voted in favour of the proposed composite scheme of arrangement. In another report, dated 30.10.2014, submitted by the Chairperson, it is inter alia stated that in pursuance of the advertisement published in two daily newspapers, 119 unsecured creditors in person, valued at Rs. 7,50,42,15,677/-, atte....
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....d counsel for the objectors, submitted that 98.17% of shares of the transferee company is held by two major shareholders, viz., MP Laboratories Mauritius Ltd and Mylan Luxembourg 2 S.a.r.l. He has further submitted that since this is a case of compulsory buying out of the shares of the minority shareholders of the transferee company, the Valuation report needs a more closer and critical scrutiny by this Court in order to ensure payment of proper value for the shares held by the minority shareholders. He has taken this Court through the Director's report filed in the Company Application No.1574 of 2014 and also the Valuation report, dated 18.08.2014, of Price Waterhouse & Co., LLP and submitted that while the Director's report reflects healthy growth of the financial position of the transferee company, the Valuer while evaluating the shares has taken into consideration the scaling down of production in the year 2014 on the ground that there was slow down in the market. He has further submitted that out of the three recognized methods prescribed for valuation of the shares, viz., Income approach, Market approach and Net Asset Value approach, the Valuer has taken into consideration on....
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....port, wherein the Valuer has given certain reasons for not considering the Net Asset Value approach for value analysis. I have carefully considered the submissions of learned counsel for the parties and perused the record. While considering the scope and the jurisdiction of the Company Court under Sections 391 and 394 of the Act, the Supreme Court in Miheer H.Mafatlal (supra) held that it is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court; that the Court certainly would not act as a Court of appeal and sit in judgment over the informed view of the parties concerned to the compromise as the same would be in the realm of corporate and commercial wisdom of the parties concerned. It was further held therein that the Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority; that consequently, the Company Court's jurisdiction to that extent is peripheral and supervisor....
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....ut Shri M.J. Thakore, appearing for the appellant, submitted that from the point of view of the transferorCompany it was very profitable to have two shares of the transferee-Company against five shares of the transferor-Company. But the difficulty arises only from the point of view of the transferee-Company shareholders. According to Shri Thakore the proper exchange ratio would be one share of the transferee-Company to six shares of the transferor-Company. It is difficult to appreciate this contention of the appellant. It has to be kept in view that the appellant never bothered to personally remain present in the meeting of equity shareholders for pointing out the unfairness of this exchange ratio to his brother equity shareholders who were likely to be affected by the very same ratio as the appellant. His interest at least to that extent was entirely common and parallel to that of other equity shareholders. But he had no time to remain personally present. He sent his proxy only to record his dissent vote which was in microscopic minority of 5% as compared to 95% majority vote. Not only that even before the Court he did not submit any contrary expert opinion regarding the valuation....
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....o come when the amalgamated companies would operate and when there would be, according to the shareholders, better prospects of earning greater dividends. They willingly agreed to give in exchange two shares of the transferee-Company for five shares of the transferor-Company and made them available to the shareholders of the transferor-Company. The appellant was representing only 5% dissenting shareholders and his objection was almost a voice in the wilderness, which did not appeal to the majority of his brother shareholders. Shri Shanti Bhushan, learned Senior Counsel for the appellant, in this connection invited our attention to the observation of the Division Bench in its judgment at page 375 wherein it has been observed that "if one were to examine the exactitude of exchange ratio that may be offered fairly on the arithmetic scale by taking into consideration various details, there is some force in what were suggested by Mr B.R. Shah on behalf of the appellant. However, keeping in view the scope of enquiry which the Court is required to undertake and with whose findings we are concerned, it will not be permissible for us in law to undertake this exercise in the facts and circum....
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....n from embarking on an exercise of evaluation on its own to test the correctness of the figures reached by the experts; that the Court has to take note of the fact that its role in according approval of the scheme of amalgamation under Section 394 of the Act is nothing more than a supervisory role. The Division Bench has compared the jurisdiction of the Company Court closely with the judicial review of administrative action, where the constitutional Court is not concerned so much with the actual decision reached by the administrative or statutory authority but only with the manner of reaching such decision. The Bench has referred and relied upon the judgment of the Apex Court in Fertilizer Corpn. Kamagar Union Vs. Union of India {AIR 1981 SC 344} and quoted a passage from the said judgment which is profitable to be reproduced herein below: "Certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The Court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be....
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....ion, respondent No.1 Company most respectfully submits that respondent No.1-Company had appointed an independent reputed Valuer for the purpose of determining the fair value of shares. Respondent No.1-Company wishes to submit that the value of INR 387 per share was arrived at by the independent Valuer is not lesser than the fair/intrinsic value of shares of respondent No.1-Company and the independent Valuer has adopted globally acceptable valuation methodologies i.e., Income Approach and Market Approach. The independent Valuer also took cognizance of the fact that the net asset approach be eliminated while arriving at the fair value as it would have resulted in the value being less than the present fair value, i.e., INR 387 per share. Respondent No.1-company wishes to also clarify that a high degree of expertise was exercised by the independent Valuer while arriving at the fair value of the equity shares of respondent No.1-Company. Respondent No.1-Company would like to reiterate the fact that all the factors have been considered while arriving at the valuation and the valuation report shared with the Applicants, vide e-mail dated December 17, 2014 and by courier on December 18, 201....
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....n a consolidated basis, the increase was 130.17% over the previous year. During the year, as part of group restructuring exercise, your Company has sold Matrix Laboratories (Singapore) Pte Limited along with its subsidiaries for a consideration of Rs. 3,495.29 million (EUR 40.9 million) to a fellow subsidiary. Consequent to the sale, the earlier provision made for diminution in the value of investment has been written back and profit of sale of Rs. 2,983.77 million and Rs. 5,615.15 million has been recognized in standalone financials and in consolidated financials respectively." In the valuation report, it is stated as under: "We understand from the Management that the revenues from Mylan group are ascertained based internal pricing studies done by the Management. We understand from the Management that the growth in the contract manufacturing revenues is largely dependant on the Mylan group strategy to scaleup/ utilize the contract manufacturing activities of the Company, as determined by the global production planning team (which is in-turn based on market dynamics and availability of suitable production capacities). As per Management, ramp-up in the production of Gx FDFs has....
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.... the counter-affidavit filed on behalf of the petitioners in Company Application No.115 of 2014, it is stated as under: "With reference to the contents in paragraphs-11(f) and 11(g) of the application, respondent No.1/Transferee company submits that the independent Valuer i.e., Price Waterhouse & Co. LLP., Gurgaon is not related to respondent No.1/Transferee Company nor to Astrix Laboratories Limited (Transferor Company). Furthermore, respondent No.1/Trasnsferee Company also clarifies that Price Waterhouse & Co. LLP., Gurgaon is neither the Statutory Auditor/Tax Auditor/Tax Consultant of respondent No.1/Transferee Company/Mylan Luxembourg S.a.r.I/MP Laboratories Mauritius Limited and as such the applicant cannot state that the valuation was not independent or not at an arm's length. Respondent No.1/Trasnferee Company also clarifies that the value arrived at by the independent Valuer was based on the information/assumptions/future prospects of respondent No.1/ Transferee Company and based on their evaluation of the same. Therefore, respondent No.1/Transferee Company hereby refutes such erroneous claims made against the valuation as carried out." I have no reason to reject the plea....