TaxTMI 
TaxTMI 
2020 (10) TMI 1254
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....vate Limited. The Petitioner Company was then converted into a Public company and was listed on Bombay Stock Exchange (BSE). In June 2007, the equity shares of the Petitioner Company were delisted from BSE Limited under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003. 2. The Petitioner Company is engaged in the business of manufacturing and trading of agrochemicals and processing and selling of seeds. The Petitioner Company manufactures and formulates pesticides, herbicides and fungicides and processes field crops and vegetable seeds. 3. The Petitioner submits that post the delisting of the equity shares of the Petitioner Company, the equity shares of the Petitioner Company could not be traded on any stock exchange in India. Since there is no trading platform available to the shareholders, the shares of the Petitioner Company have lost marketability. In view of this, certain public shareholders expressed their desire to tender and / or surrender their equity shares held in the Petitioner Company. 4. The Petitioner Company therefore decided to reduce the issued, subscribed and paid-up share capital of the Petitioner Company by cancelling and ....
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....st November, 2017. The Board of Directors of the Petitioner Company determined that the higher of the two valuations arrived at by the said reputed independent valuation reports, i.e. Rs. 2444.70 (Rupees Two Thousand Four Hundred and Forty Four and Seventy Paisa Only) per equity share of the Petitioner Company arrived at as per the valuation report issued by PWC represented the fair value of the equity shares of the Petitioner Company. The Board considered and rounded off the value to Rs. 2445 (Rupees Two Thousand Four Hundred and Forty Five Only) 10. The background, reasons/ rationale, commercial justification of the reduction of share capital by the Petitioner Company is as under: (a) The proposed reduction of the equity share capital of the Petitioner Company is being undertaken in accordance with the provisions of Section 66 of the Companies Act, 2013, (including any statutory modification(s) or re-enactment thereof for the time being in force) and the rules made thereunder and specifically the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 which permit a company to undertake a reduction of its share capital in any manner. (....
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...., on 8th December, 2017, it was resolved as under: "RESOLVED THAT pursuant to Section 66 and other applicable provisions of the Companies Act, 2013, (including any statutory modification(s) or re-enactment thereof for the time being in force) and the rules made thereunder (the "Act"), read with Articles of Association of the Company; and the confirmation by the Hon'ble National Company Law Tribunal ("NCLT"); and such other approvals as may be required, and subject to the terms and conditions and modifications, if any, as may be prescribed by the NCLT and any other appropriate authority, as may be required or prescribed by such appropriate authority while granting approval or confirmation, and which may be agreed to by the Board of Directors of the Company, consent of the members of the Company be and is hereby accorded, by way of a special resolution, to reduce the issued, subscribed and paid-up capital of the Company from Rs. 16,47,18,540 (Rupees Sixteen Crores Forty Seven Lakh Eighteen Thousand Five Hundred and Forty) consisting of 3,29,43,708 (Three Crores Twenty Nine Lakh Forty Three Thousand Seven Hundred and Eight) equity shares of Rs. 5 (Rupees Five) each to Rs. 15,88,13,3....
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....nbsp;of the resolution Votes in Favour (in No.) Votes in Favour (in %) Number of Shareholders who voted against the resolution Votes against the resolution (in Nos.) Votes against the resolution (in %) 3,18,35,043 48 3,17,92,365 99.8 7 87 42,67 8 42,67 8 15. The share capital of the Petitioner Company prior to and post the reduction of its share capital shall be as follows - (a) Prior to capital reduction: Authorized Share Capital Amount in Rupees 3,29,50,000 fully paid up equity shares of face value Rs. 5/- each 16,47,50,000 Total 16,47,50,000 Issued and Subscribed Share Capital Amount in Rupees 3,29,43,708 fully paid up equity shares of face value Rs. 5/- each 16,47,18,540 Total 16,47,18,540 Paid Up Share Capital Amount in Rupees 3,29,43,708 equity shares of face value Rs. 5/- each fully paid up 16,47,18,540 Total 16,47,18,540 (b) Post capital reduction: Authorized Share Capital Amount in Rupees 3,29,50,000 fully paid up equity shares of face value Rs. 5/- each 16,47,50,000 Total 16,47,50,000 Issued and Subscribed Share Capital Amount in Rupees 3,17,62,672 fully paid up equity sha....
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....from various complainants. The details of complaints are as per Annexure 'A) b. The observations of the Regional Director on the proposed Scheme of Reduction of Capital are as under- (a) This directorate has received a report from jurisdictional ROC Pune it is stated that (i) As per ROC Pune report dated 25.06.2018 it is stated that "this office has not received any complaint against the scheme of reduction. However, this office has received a complainant from Mr. Punit Kumar regarding Syngenta is paying only 43.4 % of Fair Market Price and cheating the small shareholders. This office has taken up the complaint with the company and reply received from the Company is attached for ready reference "bias not offered any comments on the reply of the company) (ii) As per ROC Pune report dated 29.06.2018, 23 complaints are received against reduction. On perusal of shareholding pattern of the petitioner company, Prima facie it appears that the reduction is to bump of entire 12,373 Public Shareholders/11,81,036 Equity Shares consisting of 3.59% at an offer price Rs. 2,445/- Per Share. Such selective reduction of capital is not within the letter and spirit of Section 66 of the ....
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....s to deprivation of their property. Forcible acquisition of shares would constitute as oppression of the minority shareholders. f. It should be noted that no promoter of the Company will sell their own share at Rs. 2,445/- which according to the Company is fair price offered to the minority shareholder. g. It is submitted that the need of reducing share capital may arise in various circumstances, for example, accumulated business losses, assets of reduced or doubtful value, etc. As a result, the original capital may either have become lost or a company may find that it has more resources that it can profitably employ. In either of these cases, the need may arise to reduce the share capital. In this present case neither Company has incurred business loss nor assets are of reduced or doubtful value as it is admitted itself by the Company in its Petition that it is financially strong and has positive net worth. h. Further in view of the report of RD, such selective reduction may not be allowed. 21. Valuation Reports and Fairness Report: a) Price Waterhouse & Co LLP: 1) The Report is based upon market approach, income approach and asset approach method. A detailed report ent....
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....f shareholders who voted against the resolution Votes Against the resolution (in Nos.) Votes Against the resolution (in %) 3,18,35,043 48 3,17,92,365 99.87 87 42,678 0.13 A. List of the Objectors who acquired the shares post the EGM S. No. Name of The Objector Folio No./ DPID-client ID No. of Shares held as per intervention application No. of shares held as on the date of EGM Date of acquisition of shares 1 Anshu Aggarwal IN302365106 82828 525 0 Acquired the shares between 27th April to 4th May 2018 2 Rashmi Aggarwal IN302365100 14386 500 0 Acquired the shares between 27th April to 4th May 2018 3 Nalin V. Shah IN301549541 45091 1000 0 Acquired the shares between 23rd March to 31st March, 2018 4 Shri. Parasram Commodities Private Ltd. IN302365100 21418 3151 0 Acquired the shares between 23rd March to 31st March, 2018 5 Ravinder Kumar Aggarwal IN302365100 10333 669 0 Acquired the shares between 27th April to 4th May 2018 List of the Objectors, who did not exercise their right to vote at the EGM (including through e-voting) S.....
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....ther the objection that there should have been a separate meeting of only minority shareholders and that majority of minority have voted against the Reduction is untenable in law. Section 66 does not contemplate holding of a separate class meeting of only minority shareholders for a reduction of capital. 26. The Objectors have also contended that the majority of the minority have voted against the Reduction and therefore that the Reduction should not be allowed. The concept of majority of minority shareholders is not recognized by law nor under any principles laid down in judgements of Supreme Court. 27. The objectors have to be distinguished in three different groups (i) 9 Objectors have acquired the shares of the Petitioner Company after the EGM was conducted i.e. they did not hold any shares as on the date of the EGM, (ii) 11 Objectors, in aggregate holding 9,148 equity shares of the Petitioner Company as on the date of the EGM, have not attended and / or voted at the EGM, and (iii) 2 Objectors, namely, Mr. Puneet Kumar and Ms. Sangeeta Gupta, jointly holding 20,205 equity shares in the Petitioner Company, voted in favour of the Resolution approving the reduction of the share ....
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....a company/ business is arrived at by using multiples derived from valuations of comparable companies or comparable transactions, as manifested through stock market valuations of listed companies and the transaction values. This approach is based on the principle that market valuations, taking place between informed buyers and informed sellers, incorporate all factors relevant to Valuation. Relevant multiples need to be chosen carefully and adjusted for differences between the circumstances. We have used the Enterprise Value/ Earnings before Interest, Tax and Depreciation (`EV/EBITDA'), Enterprise Value/ Earnings before Interest and Tax (`EV/EBIT') and Price/ Earnings (`P/E') multiples of comparable listed companies for the purpose of our analysis. We have not used the comparable transactions analysis as transaction multiples may include acquirer specific considerations, synergy benefits, control premium, etc. The operating EBITDA, EBIT and PAT of SIL have been considered, based on the Company's historical performance for the twelve months period ended 30 June 2017, and adjustments, as appropriate, for non-operating income and expenses. In particular, income and ....
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....l the capital providers (namely shareholders and lenders), weighted by their relative contribution to the total capital of the company. The opportunity cost to the equity capital provider equals the rate of return the capital provider expects to earn on other investments of equivalent risk. To the values so obtained from DCF analysis, adjustments, as appropriate, are made for borrowings, surplus assets and other matters to arrive at the equity value. The equity value is then divided by the total number of equity shares to arrive at the value per equity share. For the purpose of the DCF analysis, the free cash flow forecast is based on financial projections as provided by the Management. We must emphasize that realisations of free cash flow forecast will be dependent on the continuing validity of assumptions on which they are based. While we have analyzed the Management Projections with regard to industry information readily available in the public domain and historical performance of the Company, as made available to us, we express no opinion as to how closely the actual results will correspond to the results projected. Our analysis, therefore, will not, and cannot be directed ....
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....in significantly lower value as compared to the values resulting from the Market Approach. We have not assigned any weight to the value per equity share of SIL arrived using the Income Approach, and have instead considered value per share arrived at using the Market Approach, i.e., EV/ EBITDA, EV/ EBIT and P/ E multiples, with equal weights being assigned to each of the above methods. In view of the above, and on consideration of the relevant factors and circumstances as discussed and outlined hereinabove, value per equity share of SIL of INR 5/- each fully paid up as on the date of this Report is INR 2,444.7 (Two thousand four hundred forty four rupees and seventy paise only). b. Valuation report filed by Haribhakti & Co. LLP 4. Valuation Approach 4.1. The valuation exercise involves selecting a suitable method for the purpose of valuation, by exercise of judgment by the valuers, based on the facts and circumstances as applicable to the business of the company to be valued. 4.2. There are three generally accepted approaches to valuation: (a) "Cost" approach (b) "Market" approach (c) "Income" approach 4.3. Cost Approach The cost approach values the underlying as....
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....ces. Few of such multiples are Enterprise Value ("EV") / Earnings before Interest, Taxes, Depreciation & Amortization ("EBITDA") multiple and EV / Revenue multiple. Market Price Method Under this method, the market price of an equity share of the company as quoted on a recognized stock exchange is generally considered as the fair value of the equity shares of that company where such quotations are arising from the shares being regularly and freely traded. The market value generally reflects the investors' perception about the true worth of the company. 4.5. Income Approach The income approach is widely used for valuation under "Going Concern" basis. It focuses on the income generated by the company in the past as well as its future earning capability. The Discounted Cash Flow (DCF) Method under the income approach seeks to arrive at a valuation based on the strength of future cash flows. Discounted Cash Flow ("DCF") Method Under DCF Method, value of a company can be assessed using the Free Cash Flow to Firm (FCFF) Method or Free Cash Flow to Equity (FCFE) Method. Under the DCF method, the business is valued by discounting its free cash flows for the explicit fore....
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....Accordingly, the total investment of SIL in its fixed assets has reduced considerably. Further, the cost approach does not reflect the future earning capacity that SIL would earn from its intangible assets like research and development activities. Therefore, we have not considered NAV method for the current valuation exercise. 5.3 Market Approach We have used the Comparable Companies' Multiple ("CCM") method under the Market approach to arrive at the value of SIL, whereby we have considered the appropriate multiples of listed comparable companies. We have made a suitable search to find companies comparable to the CP and Seeds business of SIL. We have considered EV/EB1TDA multiple to arrive at enterprise value of SIL. We understand that the Company has received an order dated 24th October 2017 from the honorable Competition Commission of India (CCI) to complete the Proposed Divestment within the time period as laid down in the order dated 24th October 2017. The Proposed Divestment is a part of SIL's CP business segment. However, considering the uncertainty attached to the amount to be realized from the Proposed Divestment and considering the purpose of the current valu....
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....er, we are of the opinion that the Market approach is most appropriate for the current valuation exercise since it would best reflect the expectations of minority shareholders for the Proposed Transaction. Thus, we have assigned 100% weight to the Comparable Companies Method under the Market approach for the current valuation. 6.6. On consideration of all relevant factors and issues discussed herein, in our opinion, the total equity value of SIL as per CCM method is arrived at INR 76,870 Mn, and a per share value of INR 2,333.36/-. The details captured in the two valuation report thus depict the assumptions and calculations considered by them, while concluding the share price of the petitioner company. 30. We need to consider the reasoning and assumptions of the valuation Report with reference to the judgement of Mumbai High Court in Re Cadbury India Limited, reported in [2015]125CLA77(Bom) The Court held as follows: "7.1.5 Before a Court can decline sanction to a scheme on account of a valuation, an objector to the scheme must first show that the valuation is ex-facie unreasonable, i.e., so unreasonable that it cannot on the face of it be accepted. That unreasonableness mus....
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....al and supervisory, not appellate. The Court is not "a carping critic, a hairsplitting expert, a meticulous accountant or a fastidious counsel; the effort is not to emphasize the loopholes, technical mistakes and accounting errors". 7.1.10 Valuation is not an exact science. Far from it. It is always and only an estimation, a best-judgment assessment. The fact that a particular estimation might not catch an objector's fancy is no ground to discredit it. All valuations proceed on assumptions. To dislodge a valuation, it must be shown that those assumptions are such as could never have been made, and that they are so patently erroneous that the end result itself could not but be wrong, unfair and unreasonable. The court must not venture into the realm of convoluted analysis, extrapolation, and taking on itself an accounting burden that is no part of its remit or expertise, and no part of a statutory obligation. In particular, the court must guard against the seductiveness of a proposition that suffers from the fallacy of the undistributed middle: all x is z; some y is z; ergo, all y is z.27 The errors and consequent unreasonableness must be shown to be patent and self-evident. ....
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....es for the next ten years. This Court has no power or jurisdiction to exercise any appellate functions over the scheme. It is not a valuer. It does not have the necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. The Petitioner Company having carried out the valuation exercise and complied with the requirement of approval by absolute majority and therefore the Reduction of the Capital is in compliance with the requirement of Section 66 of Companies Act 2013. 32. The third issue before the Court is whether the proposed scheme has the effect of wiping out entirely a class of shareholders, namely, the non-promoter shareholders, though on payment of certain compensation in view of the objection raised by them and whether such selective reduction can be allowed? 33. Section 66 of the 2013 Act expressly permits companies to undertake reduction of their share capital in any manner, i.e. including by way of selective reduction of share capital, as laid down by numerous High Courts. In Re: R.S. Live Media Pvt. Ltd reported in[2014] 187 Comp Cas 243 (Delhi), while approving the se....
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....issue regarding the objection raised by RD is that the report of ROC, Pune that no complaint has been received, but one M. Punit Kumar regarding Syngenta has complained that the company is paying only 43.4 % of Fair Market Price and cheating the small shareholders, therefore the company is seeking to bump of entire 12,373 Public Shareholders/11,81,036 Equity Shares consisting of 3.59% at an offer price Rs. 2,445/- Per Share. Such selective reduction of capital is not within the letter and spirit of Section 66 of the Act. This is against the public interest as the present value/status of the company is also due to public participation. The selective reduction is detrimental to the public participation in equity market. The objections are untenable in view of ratio laid down by Hon'ble Supreme Court and Hon'ble High Courts quoted in the aforesaid paragraphs. 39. The Petitioner is relying on the judgement in Re: HCL Infosystems Limited and Ors, [2004] 121 Comp Cas 861 (Delhi), wherein it was held that in a matter relating to a scheme of arrangement of the applicant company with two other companies, the Regional Director had raised objections regarding valuation - that the valuation r....
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....erent method which might have given a different exchange ratio could not justify interference unless it was found to be unfair." 41. The objection of the RD cannot be accepted on two grounds 1) that they have not considered the Valuation Report produced by the Petitioner Company 2) The dictum of several Courts where they have allowed the Selective Reduction in view of corporate governance and democratic rights of the Company to reduce its share capital by calling it an Domestic/internal decision of the company. 42. However, it would be worthwhile to refer to a relevant Judgement of Hon'ble Delhi High Court in a similar case in Reckitt Benckiser (India) Limited ((2005) 122 DLT 612). It was held by the Hon'ble Delhi High Court in para no. 21 as follows: "21. The principles, which can be distilled from the aforesaid judicial dicta, are summarized as under: (i) The question of reduction of share capital is treated as matter of domestic concern, i.e. it is the decision of the majority which prevails. (ii) If majority by special resolution decides to reduce share capital of the company, it has also right to decide as to how this reduction should be carried into effect. (iii) Wh....