TaxTMI 
TaxTMI 
2020 (10) TMI 1254
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....ner Company was changed to Syngenta India Private 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 c....
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....ependent valuers and Avendus) at their respective meetings held on 1st 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 perm....
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....the Companies Act, 2013, at the EGM held, after due notice as provided in the Companies Act, 2013, 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 F....
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....older voting details: Number of valid votes (including those voted through evoting option) at the EGM Number of shareholders who voted in favour 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 16,4....
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....is office has taken up the complaint with the company and reply received from the company for ready reference. Further this Directorate has received another Report from ROC, Pune No ROC/STA/66/2018/1164 dated 29.06.2018 at point No 12 inter alia mentioned that: Today this office has received 23 complaints against the scheme of reduction 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....
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....siness, they have proposed this present reduction. Therefore the Company is not approaching this Hon'ble Tribunal with clean hands to approve the scheme of reduction of share capital. e. Holding a share in the company by the shareholder is holding of a bundle of rights in the company. The shareholders are owners of their shares, possessing vested right to retain their property and thus squeezing their rights leads 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 bus....
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....nity from 8th December, 2017 until 10th January, 2018 i.e. a period of 2 months, to inspect the Valuation Reports and Fairness Opinion. 23. The shareholder voting details at the EGM, as set out in the Report of the Scrutinizer on E-Voting and Ballot Process dated 9th December, 2017, are as follows: Number of valid votes (including those voted through evoting option) at the EGM Number of shareholders who voted in favour 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 99.87 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 20....
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.... 20,205 1.71 FINDING: 24. Upon perusal of the statistics of voting it can be said that 87 shareholders voted against the proposed resolution, having 42,678 shares and therefore the voting percentage who voted against the resolution is 0.13%. Further it is pointed that out of the 36 Objectors who have filed their Intervention Applications / Objections to the Company Petition, (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 capital. 25. Further 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 onl....
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....d that the Valuation of any company or business is inherently subjective and is subject to certain uncertainties and contingencies, all of which are difficult to predict and are beyond our control. Our analysis is inter-alia based on various assumptions with respect to industry performance and general business and economic conditions, which may be beyond the control of the Company. In addition, the value will fluctuate with changes in prevailing market conditions, the conditions and prospects, financial and otherwise, of the Company, and other factors which generally influence the value of the Company. The application of any particular method of Valuation depends on the purpose for which the Valuation is done. Our choice of methodology of Valuation has been arrived at using usual and conventional methodologies and our reasonable judgment, in an independent and bona fide manner. Market Approach a. Comparable Companies' Multiple (`CCM') Under this method, value of the equity shares of a company/ business is arrived at by using multiples derived from valuations of comparable companies or comparable transactions, as manifested through stock m....
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.... as a whole. b. Market Price Method The market price of an equity share as quoted on a stock exchange is normally considered as the value of the equity shares of that company where such quotations are arising from the shares being regularly and freely traded in. SIL is not a listed company and accordingly, the market price method has not been adopted. Income Approach - Discounted Cash Flows (`DCF') Method Under the DCF method, the projected free cash flows to the firm are discounted at the weighted average cost of capital. The sum of the discounted value of such free cash flows is the value of the firm. Using the DCF analysis involves determining the following: Estimating future free cash flows: Free cash flows are the cash flows expected to be generated by the company that are available to all providers of the company's capital - both debt and equity. Appropriate discount rate to be applied to cash flows i.e. the cost of capital. This discount rate, which is applied to the free cash flows, should reflect the opportunity cost to all the capital providers (namely shareholders and lender....
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....sents the minimum value or support value of a share of a going concern. Adjustments, as appropriate, are made for contingent liabilities, appreciation/ depreciation in the value of surplus assets and other matters to arrive at the equity value. SIL is a going concern with positive earnings, and the historical book values of assets and liabilities are not considered representative of the earnings potential of the Company. Accordingly, the NAV method has not been adopted. Basis Of Value Per Share The basis of the fair value per share of SIL would have to be determined after taking into consideration all the factors and methodologies mentioned hereinabove. By its very nature, Valuation work cannot be regarded as an exact science and the conclusions arrived at in many cases will of necessity be subjective and dependent on the exercise of individual judgement. There is no indisputable single value and we normally express our analysis as falling within a likely range; however, at your request and as per requirements of this engagement, we have provided a single value as our conclusion. The equity value resulting from the Income Approach (DCF method) re....
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....ount the earning capacity of the business or any intangible assets that have no historical cost. In many respects, the NAV represents the minimum benchmark value of an operating business. 4.4. Market Approach Under the Market approach, valuation is based on the market value of the company in case of listed companies and comparable companies trading or transaction multiples for unlisted companies. The Market approach generally reflects the investors' perception about the true worth of the company. Comparable Companies Multiples ("CCM") Method The value is determined on the basis of multiples derived from valuations of comparable companies, as manifest in the stock market valuations of listed companies. This valuation 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. Comparable Transactions Multiples ('CTM') Method Under the CTM Method, the value is determined on the basis of multiples derived from valuations of s....
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.... operations. The Business/Enterprise Value (aggregate of the present value of explicit period and terminal period cash flows) so derived, is further reduced by the value of debt, if any, (net of cash and cash equivalents) to arrive at value to the owners of the business. 5. Selection of Valuation Approach 5.1. It is pertinent to note that the valuation of any company or its assets is inherently imprecise and is subject to certain uncertainties and contingencies, all of which are difficult to predict and are beyond our control. In performing our analysis, we have made numerous assumptions with respect to industry performance and general business and economic conditions, many of which are beyond our control. In addition, this valuation will fluctuate with changes in prevailing market conditions, and prospects, financial and otherwise, of the Company, and other factors which generally influence the valuation of companies and their assets. Accordingly, we have summarized the selection of valuation method for the current valuation exercise as below: 5.2 Cost Approach The NAV method under Cost approach is more suitable for asset intensive comp....
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....ould have to consider the value of the equity shares of the Company. 6.2. In HLL and TOMCO merger case, the Supreme Court endorsed that a fair and proper approach for valuing the shares of the companies would be to use a combination of three approaches. The weights for different methods were as under: Approach Weights Asset Value Method 20 % Income Method 40% Market Method 40% However, these are not definitive. It may be modified depending upon the facts and circumstances of each case, given it should be explained and justified. 6.3. The current valuation exercise is a purpose-driven valuation wherein it is essential to arrive at the fair value considering the best interests of the minority shareholders. Accordingly, it is essential to distinguish the current valuation exercise from the applicability of Supreme Court judgment in case of HLL and TOMCO merger. 6.4. The present valuation exercise would have to proceed on a going concern basis. Hence the underlying asset value is of limited relevance and is accordingly relegated to the background. However, it is important to lay emphasis on the earning capacity of the....
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....one so far off-track that the results his valuation returns cannot but be wrong? 7.1.7 A court called upon to sanction such a scheme is not bound by the ipse dixit of a majority. It must weigh the scheme and look at it from all angles. It must see whether the scheme is fair, just and reasonable, not unconscionable and is not contrary to any provisions of law and it does not violate any public policy. But it must also balance the commercial wisdom of the shareholders expressed at a properly convened meeting against the desires and fancies of the few. The court will take into account, but not be bound by, the views of the majority. In particular, the court will see what the views are of most of the nonpromoter (minority) shareholders at the meeting. If the bulk of them have voted in favour, the court will not lightly disregard this expression of an informed view, one that lies in the domain of corporate strategy and commercial wisdom. 7.1.8 The unfairness must apply to a class, even if that class is of one. This class is not to be identified not by a shared ire against the petitioning company or even an ideological animosity, but by the character or nature of their ....
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....nto the deep commercial wisdom exercised by the creditors and 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 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 the umpire". (emphasis supplied.) In view of the ratio laid down in the above judgements, this bench is of the view that the objector to the scheme has not shown that the valuation is ex-facie unreasonable, i.e., so unreasonable that it cannot on the face of it be accepted, the valuation method adopted by the valuers are unacceptable, or are based on patently erroneous assumptions and lastly if the Valuations are vitiated by fraud or malafides. The Minority shareholders are objecting to the said scheme on three basic grounds that the petitioner company after a lapse of 10 years and post delisting are opting for reduction of capital, that the China Chem company is buying out the petition....
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....foremost have regard to the well-established position that a selective reduction of share capital is legally permissible." 35. In Re: Indrama Investment Pvt. Ltd. & Ors. [2012] 172 Comp Cas 271 (Delhi), the Hon'ble Delhi High Court, following the law laid down inter alia in Reckitt 2011 (supra) observed: "As pointed out above, it has been held by the Court that merely because the arrangement results in extinguishing some shares and resulting into 100% shareholdings in the hands of a particular group cannot be treated improper per se." (emphasis supplied.) 36. In Wartsila India Limited v. Janak Mathuradas, reported in (2011 (1) Bom. C.R. 600, the Hon'ble Bombay High Court upheld reduction of share capital as undertaken by the company therein which resulted in the extinguishment of non-promoter shareholding of the company. The Hon'ble Court further held answering in the question "whether the special resolution which proposes to wipe out a class of shareholders after paying them just compensation can be termed as unfair and inequitable" in the affirmative, observed that "...In our opinion, once it is established that non-promoter shareholders are being paid fair value o....
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....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.... 30. The aforesaid ratio of the decision of the Supreme Court [in Hindustan Lever Employees Union (supra)] is squarely applicable to the facts of the present case and on that count the objection raised by the objectors as also by the Regional Director cannot be entertained, and rather required to be rejected which I hereby do." 40. The petitioner also relied on the judgement of Ratan Housing Development Ltd, [2004] 122 Comp Cas 24 (All), in relation to respect of a Petition seeking sanction of a High Court to a scheme of amalgamation, the objection of the RD that the share exchange ratio proposed in the Scheme was not in the interests of the shareholders of the transferor company, and that the book value of the shares, and not the value as quoted by the Stock Exchange should be regarded as the fair value, was rejected by the Hon'ble Allahabad High Court holding that: "11. The Regional Director in his objection has not contended that the valuer has played a fraud. The Regional Direct....
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.... (v) When the matter comes to the Court, before confirming the proposed reduction the Court has to be satisfied that (i) there is no unfair or inequitable transaction and (ii) all the creditors entitled to object to the reduction have either consented or been paid or secured." 43. The matter came for hearing on 18.02.2020, the counsel for the petitioner was heard, the following objectors were heard as party in person 1. Adv. Sejal Shah 2. Samir Hemani 3. CA Nitin Gutka 4. Piyush Shah 5. Amish Shah 6. Rupesh Jhaveri The following Objectors who are present in the court submitted that they will adopt the submissions made by the above six objectors. 1. Salim Merchant 2. Dinoo Vasunia 3. Rohan Singhania 4. Rajesh Kapadia 5. L. Firdos 44. The petitioner company has complied with the statutory compliances by sending notices to the Regional Director, Western Regional Ministry of Corporate Affairs (RD) and the Registrar of Company, Pune. No notice has been issued to SEBI as the petitioner company is not a listed company. The notice of hearing of the company petition was published in....