TaxTMI 
TaxTMI 
2013 (4) TMI 1008
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....sed to direct that both, the applications and the company petitions, should be heard together. 3. Brief facts are as under : "(I) Company Petition No.11/2012 was filed in this Court seeking sanction to the scheme of amalgamation (concurrent scheme of Ekaterina Limited (Ekaterina) with Sesa Goa Limited). (II) Ekaterina Limited is a company based in Mauritius. (III) Company Petition No.12/2012 has been filed in this Court, seeking sanction to the Scheme of Amalgamation and Arrangement (Composite Scheme) amongst Sterlite Industries (India) Limited (SIIL), The Madras Aluminium Company Limited (MACO), Sterlite Energy Limited (SEL), Vedanta Aluminium Limited (VAL) and Sesa Goa Limited which is the petitioner herein. The petitioner Company is a transferee company, which is registered in Goa and as such, the present petition has been filed in this Court. The transferor companies have filed their petitions in the appropriate Courts having jurisdiction over them. (IV) So far as Ekaterina is concerned, the concurrent scheme has been approved by the Supreme Court of Mauritius by order dated 24th August, 2012. (V) The company petitions filed by SI....
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.... dealing with the other aspects of the present Petition, if found necessary; (d) any other and further directions that may be issued in view of the facts and circumstances of the present matter by this Honourable Court as deemed fit and proper.' Vide Company Application No.3/2013 in Company Petition No.11/2012, along with corresponding application filed in company Petition No. 12/2012, he is seeking the following reliefs : "7 (a) necessary direction be issued to the Central Government to produce the papers, files (including the processing note, examination note etc.) and other documents in relation to the actions taken and/or contemplated to be taken by the Ministry of Corporate Affairs in terms of reimbursement of the amount of Rs.1,000 crore that has been siphoned away from the Petitioner Company as per the findings arrived at by the SFIO in its Report dated 29th April, 2011; (b) necessary direction be issued to the Central Government to produce the papers, files (including the processing note, examination note etc.) and other documents in relation to the actions taken and/or contemplated to be taken by the Ministry of Corporate Affairs in terms ....
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....f Ekaterina, and consideration. The petitioner Company has annexed all the relevant documents along with the petition, including explanatory statement under Section 393 of the Companies Act, and the judgments. 6. The objector filed his affidavit and has, inter alia, objected to the scheme of amalgamation on the following grounds in the affidavit in reply : (A) Non-disclosure of relevant material to this Honourable Court under the provisions of Section 391(2) of the Act; (B) Non-disclosure of relevant and necessary information to the shareholders of the petitioner Company under the provisions of Section 393 of the Companies Act; (C) Skewed Exchange/Swap Ratio; (D) that it is against public policy and public interest; (E) unconscionable nature of the scheme inasmuch as the interests of the minority shareholders of the petitioner Company have been completely overlooked. (F) Stifle further action in terms of the Serious Frauds Investigation Report; (G) Real reason and rationale behind the proposed Scheme has not been mentioned; (H) transfer of Vedanta Resources Pic's holding of 38.80 % in Cairn India Ltd. al....
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....re exchange ratio; (II) On 25th February, 2012 itself, the Board of Directors of the petitioner Company, SIIL, MALCO, SEL and VAL approved the Composite Scheme and the share exchange ratio(s) after considering the Valuation Report of Grant Thornton India LLP and KPMG India Private Limited, the independent valuers and the fairness opinions of Citi Group Global Markets India Private Limited (to the Board of Directors of the petitioner) and DSP Merill Lynch Private Limited (to the Board of Directors of SIIL). (III) On 2nd April, 2012 and 12th April, 2012, the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited, respectively granted their no objection to the Concurrent Scheme. (IV) On 2nd April, 2012 and 12th April, 2012 itself, the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited, respectively granted their no objection to the Composite Scheme. (V) On 23rd April, 2012, the Competition Commission of India approved the proposed combination, including the proposed combination including the transaction as proved for in the Concurrent Scheme and the Composite Scheme. (VI) On 26th April, 20....
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....He submitted that the petitioners had duly complied with the statutory provisions under the Act and the Rules and the requisite meeting as directed by this Court had been convened and the scheme was approved by the equity shareholders in terms of section 391(2) of the Act. The relevant material under Section 391 of the Act was provided to the equity shareholders and/or made available for inspection. It was submitted that the scheme is not violative of any provision of law and is not contrary to the public policy. He submitted that the scheme is just, fair and it advances the interest of the petitioner and their shareholders. He, therefore, submitted that the scheme may be sanctioned. He has relied on a number of Judgments which I will refer to at later stage. 12. Shri Bajaj has filed his objections. Firstly, he submitted that the three applications filed in the company petitions should be allowed. It was submitted that so far as Company Application No.2/2013 in Company Petition No.11/2012 is concerned, notices be issued to FIIs such as "Robeco", "City of New York Group Trust", "Eaton Vance", etc., and their respective custodians viz. Deutsche Bank A.G., JP Morgan Chase Bank N.A.....
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....rived at by the SFIO in its Report dated 29th April, 2011 and seeking further direction to produce the necessary files, etc., in respect of the action taken by the Ministry of Corporate Affairs in terms of the supersession of the Board of Directors in view of the report. In my view, so far as these prayers are concerned, they have nothing to do with the grant of sanction of the scheme which is filed for amalgamation. It is well settled position in law that any pending investigation or proceedings cannot come in the way of the Court considering the grant of sanction under Section 391 of the Act. 14. In Company Application No.4/2013, it is prayed that necessary direction be issued to produce the Valuation Reports compiled by Grant Thornton LLP and KPMG India Private Limited and the Fairness Opinion Report compiled by Citigroup Global Markets India Private Ltd. and for a further direction, directing the concerned persons of the said expert to file their respective affidavits stating therein whether the Petitioner Company had furnished the SFIO Report to them. It has been contended that so far as SFIO Report is concerned, though a letter has now been shown which states that SFIO Rep....
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....ioning the scheme of arrangement/amalgamation. In order to appreciate the nature and scope of the inquiry under section 391 of the Companies Act, 1956, it would be necessary to firstly have a look at section 391 which reads as under:- "391. Power to compromise or make arrangements with creditors and members-(1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company, which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs. (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangemen....
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.... earmarked. The following broad contours of such jurisdiction have emerged : 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 sub-section (2). 3. That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4. That all the necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391 of sub-Section (1). 5. That all the requisite material contemplated by the proviso of sub-Section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sancti....
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....t to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair to the shareholders of the company which was being merged. The Court's obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as even though the chartered accountant who performed this function was a Director of TOMCO but he did so as a member of a renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of shareholders of TOMCO by the High Court and it has been found that the determination did not suffer from any infirmity. The company court, therefore, did not commit any error ....
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....en care of by the labour court if the contingency arises. The learned counsel for the petitioner time and again took strong exception to the observations made by the High Court that any dispute about retrenchment etc could be adjudicated by the labour court. He vehemently submitted that the availability of remedy after retrenchment should not have coloured the vision of the court to adjudicate upon the reasonableness of the scheme. The submission overlooks the primary duties and functions of a company court in matters of merger. When the court found that service conditions of the merged company shall not be to their prejudice it was fully justified in rejecting the claim of employees as it was neither unfair nor unreasonable. Further the court in its anxiety to be fair to the employees recorded the statement of the learned Advocate General who appeared for HLL that no employee of HLL has been rendered surplus and in such contingency the company has resorted to friendly handshake by either giving lump sum or pension. A scheme of amalgamation cannot be faulted on apprehension and speculation as to what might possibly happen in future. The present is certain and taken care of by claus....
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.... Hoare & Co. Ltd. [1933 ALL ER Rep 105, Ch D]and Bugle Press Ltd. [1961 Ch 270 : (1960) 1 All ER 678 : (1960) 2 WLR 658] that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive.' (Emphasis supplied) The Apex Court in Hindustan Lever and aother vs. State of Maharashtra and another (2004) 9 SCC 438 in para 9 of its judgment has observed as under:- "12 Two broad principles underlying a scheme of amalgamation which have been brought out in this judgment are : 1. that the order passed by the court amalgamating the company is based on a compromise or arrangement arrived at between the parties; and 2. that the jurisdiction of the Company Court while sanctioning the scheme is supervisory only i.e. to observe that....
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....he Chairperson of the meeting in which the voting is made. 18. Keeping in mind the aforesaid principles laid down by the Apex court, I propose to first examine the chronology of dates and events which has not been disputed and which is as under:- Date Events 25.02.2012 The Board of Directors of Ekaterina and the Petitioner approved the Concurrent Scheme including the share exchange ratio. 25.02.2012 The Board of Directors of the Petitioner, SIIL, MALCO, SEL and VAL approved the Composite Scheme and the share exchange ratio(s) after considering the Valuation Report of Grant Thornton India LLP and KPMG India Private Limited, the independent valuers and the Fairness Opinions of Citi Group Global Markets India Private Limited [to the Board of Directors of the Petitioner] and DSP Merill Lynch Private Limited [to the Board of Directors of SIIL] 02.04.2012 and 12.04.2012 The National Stock Exchange of India Limited and the Bombay Stock Exchange Limited respectively granted their No Objection to the Concurrent Scheme. 02.04.2012 and 12.04.2012 The National Stock Exchange of India Limited and the Bombay Stock Exchange Limited respectively granted their No Ob....
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....e by the Valuers about SFIO Report and that the affidavit stating that the said Report was placed is an afterthought. (ii) The share exchange ratio between the Companies which are amalgamated is skewed. In the present case, Valuers have given opinion that a shareholder who has 100 shares in Sesa Goa Ltd would get 29 shares in the amalgamated Company. Great emphasis has been laid on the fact that this ratio is not in favour of the minority shareholders and is in favour of majority shareholders and promoters of the Company. It has been submitted that the said ratio is arrived at on certain absurd valuations for financially sick companies and is also arithmetically not in compliance. Secondly, it is contended that it is hedged by several qualifications which can be seen from the reply filed by the Petitioner-Company to Company Application No. 4 of 2013. It has been submitted that the valuation which is made in respect of valuation of the shares is not uniform. Reliance has been placed on the judgments of the Apex Court in Miheer H. Mafatlal (supra), Hindustan Lever Employees Union (1995) 83 Comp Cases 30 (SC) and this Court in Larsen and Toubro Limited (2004) Company Cases 52....
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....rent Scheme and Composite Scheme including the share exchange ratio had been approved by the equity shareholders of the Company and the Objector representing himself and his family members who voted against the Concurrent Scheme and Composite Scheme, represents only 0.43% in number and 0.01% in value of the Equity Shareholders present and voting at the court convened meeting held on 19/06/2012. He submitted that the objections raised are mere conjectures and surmises and no resolution was proposed by the Objector at both court convened meetings for amendment of the share exchange ratio nor has he provided any alternative Valuation Report. It has been submitted that subsequent to the filing of the Petitions before this Court, the relatives of the Objector have increased their equity shareholding in the Petitioner-Company. 21. In my view, submission made by the Objector is without any substance. It is a well settled position in law that the Court, while making inquiry under section 391, cannot substitute the conclusions which are arrived at by the experts. It is not disputed by the Objector that the said Valuers are experts in the field and no allegations of mala fide have been ma....
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.... the Objector is not an expert in the field since he is an engineer by profession as submitted by him during the course of his arguments. There is no material on record to show that minority shareholders would suffer by this ratio whereas promoters and the majority shareholders would stand to gain by this ratio. It is an admitted position that this ratio is applicable to all the equity shareholders without making any exception either in respect of promoter shareholders or any other category of equity shareholders. There cannot be any dispute regarding the ratio of the judgments on which reliance has been placed by the Objector. However, the said observations have been made in the facts of each individual case and, therefore, the said ratio cannot be made applicable to the facts of the present case. 24. Secondly, it has been submitted by the Objector that the present Scheme violates the proviso appended to sub-section (2) of section 391 of the Companies Act which states that the Court has to be satisfied that the Company has disclosed by affidavit or otherwise all material facts relating to the Company. It has been submitted that the Petitioner-Company has deliberately suppressed....
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....been further contended that the Objector had been in possession of the SFIO Report and no other equity shareholder has raised any issue with respect to the alleged non-disclosure of the matters in respect of SFIO Report. 26. In my view, submissions made by the Objector cannot be accepted. It is a well-settled position in law that pending investigation or pending cases cannot come in the way of the Court granting sanction to the Scheme of amalgamation filed by the Company under section 391. It is further held that even after the Scheme is sanctioned, prosecution, if any, initiated by the Central Government or any other Agency would continue against those Directors or persons responsible for committing the said illegalities and, as such, therefore, merely because Report has been tendered making allegations against the Company would not deter the Court from granting sanction on that ground alone, if it is satisfied that the provisions of section 391 have been complied with by the Company. 27. The Apex Court in Sesa Industries Limited (2011) 3 SCC 218 has observed in paras 28, 43, 44 of its judgment as under:- "28. The learned counsel then contended that the fact of huge....
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....l or criminal proceedings which may arise pursuant to the action initiated under Sections 209-A or 235 of the Act, or any criminal proceedings filed by Respondent 1." The Apex Court in Hindustan Lever Employees Union vs. Hindustan Leve Ltd and Others (1995) Supp. 1 SCC 499 has observed in paras 71 and 77 of its judgment as under:- "71. As a result of the amalgamation, it is found that the working of the Company is being conducted in a way which brings it within the mischief of the MRTP Act, it would be open to the authority under the MRTP Act to go into it and decide the controversy as it thinks fit." "77. Nor do we think that "public interest" which is to be taken into account as an element against approval of amalgamation would include a mere future possibility of merger resulting in a situation where the interests of the consumer might be adversely affected. If, however, in future the working of the Company turns out to be against the interest of the consumer or the employees, suitable corrective steps may be taken by appropriate authorities in accordance with law. As has been said in the case of Fertilizer Corpn. Kamgar Union v. Union of India: (SCR p.77 : ....
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....d meeting and, as such, he contended that counting of such vote is in violation of provisions of section 391(2) of the Act. It has been then contended that there was no true and correct representation of the shareholders of the Petitioner-Company in the court convened meeting since votes of deceased persons had been counted in the process of arriving at the result of the court convened meeting. Reliance has been placed on the judgment in T. Mathew (supra). It has been then submitted that majority votes of the promoters of the Petitioner-Company comprises of 55.13% and if the said votes are excluded from the counting of the votes of persons who had allegedly voted in favour of the Scheme then both the Schemes had miserably failed to garner support of the minority shareholders of the Petitioner-Company. Reliance has been placed on the judgment in Hellenic & General Trust Ltd., In re [1975] 3 All ER 382 which has been followed by the Apex Court in Miheer H. Mafatlal (supra) and this Court in Bedrock (supra). It has been submitted that separate meetings for promoters and minority shareholders ought to have been held in the facts of the present proceedings since the terms offered to bot....
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.... with respect to the said shareholder's holding in a company. It has been submitted that this exercise of discretion by a shareholder could not be objected to or questioned by the Objector in view of provisions of Section 183 of the Act. It has been submitted that the Objector could not be permitted in the present proceedings to go behind the Chairperson's report and embark on fishing and roving inquiry with the exercise of discretion of the equity shareholder. It has been then submitted that invalid votes are not considered for the purpose of counting and determining the majority by which a resolution is passed. It has been submitted that result of the meetings was duly reported to the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited and also had been posted on the website of the Petitioner. However, no shareholder or FII had, pursuant to the declaration of results, objected to the voting on the concurrent Scheme and the Composite Scheme or to the Reports. So far as the case of Bimal S. Gandhi is concerned, it has been submitted that the shares held by the said individual were under transmission pursuant to the request made by Ms. Ramila Gandh....
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....s contended that the Valuers have also considered the valuation in terms of transfer of 38.8% stake in the Company known as Cairn India Ltd. (CIL) into one of the 100% subsidiaries of Petitioner-Company along with associated debt of $ 5924 million into the same from one of the subsidiaries of Vedanta Resources Pic. viz. Twin Star Energy Holdings Ltd. ("THEL"). He invited my attention to paragraphs on pages 44, 46 and 47 and also the Fairness Opinion Report of Citibank at pages 41 and 42 of the reply filed by the Petitioner-Company in Company Application No. 4 of 2013. He has also submitted that even if the statement made by ultimate promoter company of the Vedanta group viz Vedanta Resources Pic to the London Exchange shows the inclusion of Cairn India Ltd and its associated debt in valuations arrived at by the Valuers. Reliance has been placed on the extract of the statement at page 927 of the Company Petition No. 11 of 2012. It has been submitted that the Scheme as presented before the shareholders and as filed before this Court do not refer to transfer of the stake in Cairn India Ltd and the resultant debt associated with. Secondly, it is submitted that so far as Petition No.12 ....
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....e ratio which was based on factors as stated in the Valuation Report. So far as the liabilities of Residual VAL is concerned, it has been submitted that in terms of the Composite Scheme, it was proposed that Aluminium Business Undertaking of VAL would be demerged and transferred into the Petitioner and Residual VAL would operate the Power Business Undertaking and on the effectiveness of the Concurrent Scheme and the merger of the SIIL into the Petitioner becoming effective, VAL would become a wholly owned subsidiary of the Petitioner. So far as the transfer of debt of Residual VAL is concerned, it has been submitted that this submission was made in the affidavit dated 2/10/2012 in the proceedings pending before the Madras High Court and this was merely an undertaking given to the Madras High Court in the form of a comfort for the benefit of the Unsecured Creditors of Residual Val and would become effective only upon effectiveness of the Composite Scheme. It has been submitted that therefore this is independent of and not a part of the Scheme and the said affidavit is not an amendment of or modification to the Composite Scheme. 34. The submission made by the Objector is without a....
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.... the transferor companies herein along with Cairn India Ltd and the Petitioner/transferee Company was already prepared and was ready on 22/02/2012 i.e. even before the swap/exchange ratio arrived at by the Valuers was known to anybody. It has been contended that the Valuers in the present Scheme had in fact filed their Valuation Report on 24/02/2012. It has been contended that both, DSP Merrill Lynch and Citibank in their Fairness Opinion Reports have stated that the final terms of the scheme of merger ought not to materially vary from those set forth in the draft or else the opinion report given by them would not stand good. It has been contended that the Petitioner-Company and the transferor companies knew about swap/exchange ratios that would be arrived at by the Valuers in the present Scheme at least two days in advance. It has been submitted that ultimate promoters of the Petitioner-Company also knew the swap/exchange ratio at least a day in advance i.e. on 23/02/2012 since while making the representation at London Stock Exchange, the ultimate promoting company of the group viz Vedanta Resources Pic happened to provide the swap/exchange ratios to the London Stock Exchange whil....
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....ing of iron ore exports which is not only against the principles of public policy but also causing great harm to the interests of general public of our country. Secondly, it has been contended that both Vedanta Aluminium Ltd and Sterlite Energy Ltd are making huge losses in their respective operations over the last few years. It has been contended that different appointed dates have been given for each of the amalgamated companies and this was for the purpose of avoiding income-tax. It has been contended that such a Scheme was nothing else but colourable device by virtue of which refunds of tax amounts were being indirectly claimed by the amalgamating companies. Reliance has been placed on the Judgment of the Apex Court in Mcdowell & Company Ltd vs. Commercial Tax Officer (1985) 3 SCC 230 which approves the judgment of Gujarat High Court in Wood Polymers Ltd 1977 (47) Company Cases 597 Reliance has been placed on paras 17, 45 and 46 of the said judgment. It has been contended that this judgment was approved by the Apex Court in Vodafone International Holding BV VS. Union of India & Anr. (2012) 6 SCC 613. Reliance has also been placed on paras 68, 69 and 70 of the said judgment. Rel....
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....may in this connection usefully refer to the judgment of the Madras High Court in M.V. Vallippan v. ITO which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though, the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corpn. Ltd and did not have the benefit of the House of Lord's pronouncement in Craven the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. 148. We may also refer to the judgment of the Gujarat High Court in Banyan and Berry v. CIT where referring to McDowell, the Court observed : (ITR p.850 E-H). "The Court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or ....
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.... it is honourable to avoid payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinnappa Reddy, J. has proposed a separate opinion with which we agree". The words "this aspect" express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17 and 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance - these are clearly only in the context of artificial colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance,....
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....n contended that position of Sesa Goa Ltd has deteriorated in the last one year since mining operations have been stopped in view of the orders passed by the Apex Court and since May 2012 mining operations have been stopped completely. In this context, financial position of all the Companies as per their audited accounts as of September, 2012 needs to be taken into consideration. It is submitted that from the said figures, it can be seen that, after amalgamation, position of the Petitioner-Company would dramatically increase even after absorbing the so-called loss making companies. It has to be remembered that when entrepreneurs take commercial decisions, it is not open for the Court to judge their commercial wisdom. Whenever entrepreneurs take a commercial decision, there is always an element of risk involved and businessmen take such calculated risk after taking into consideration various facts and circumstances and pros and cons of all situations. It has been consistently held that the Court is not expected to dissect and conduct a post-mortem of such decisions which are based on business experience and commercial wisdom. The Court has to examine the Scheme on well-settled param....