TaxTMI 
TaxTMI 
2025 (5) TMI 1925
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....proposed to transfer the manufacturing facility catering to the domestic market at Khatraj (Demerged Undertaking) from Lincon Polymers Pvt. Ltd. and to merge it with Lincon Polyplast Pvt. Ltd. (Resulting Company). iii) The stated major benefit of the scheme of arrangement was that each unit will be benefited from a focussed management approach adopted to its specific market needs (domestic or export) which will allow better control and management of each unit. iv) Lincon Polymers Pvt. Ltd. was incorporated on 04.03.1996 whereas Lincon Polyplast Pvt. Ltd. was recently incorporated on 06.08.2024. Through application C.A.(CAA)/17(AHM)2025 the applicants sought following directions from the Ld. NCLT: a) Dispensation of meeting of equity shareholders of demerged company (Lincon Polymers Pvt. Ltd.) in view of the consent affidavits given by all the shareholders. b) Meeting of the secured and unsecured creditors of demerged company. c) Dispensation of the meeting of shareholders of Resulting Company in view of the consent affidavits given by the equity shareholders of Resulting Company (Lincon Polyplast Pvt. Ltd.). d) Since there were ....
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....filed on 30.04.2025 before the Ld. NCLT it was clarified that both the companies are family-owned companies and each shareholder has given his consent to the Scheme. ii) Details of assets and liabilities of the domestic and the export undertakings were furnished before Ld. NCLT. These details are again placed on record at page No. 349 to 359 of the Appeal Paper Book. iii) It was submitted that there is no proposal to issue additional 1794 shares. Since 9,38,206 shares were to be issued, the authorised share capital was increased by 9,40,000. The authorised capital was rounded to the nearest round figure. There was only increase in authorised share capital and no additional 1794 shares were proposed to be issued, as mistakenly assumed by the Ld. NCLT. iv) On valuation and swap ratio, the Learned Sr. Counsel referred to the following judgments of the Hon'ble High Court of Gujarat: (a) Mahavir Weaves Pvt. Ltd., In re (1994) SCC OnLine Guj 201: In the facts of this case, both the transferee company and the transferor company were Private Limited companies under the same management. It was noted that in the said case members were belonging to group of....
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....inguishable on the facts whereas the basic principle of maintaining the wishes of the statutory majority of the shareholders flowing from the said decisions applies to the present matters with the greater force. ........... 14. In the facts and circumstances emerging from the record of these three petitions and in view of what is stated above, it is ordered that the transferor companies be amalgamated with the transferee-company with effect from April 1, 1993, as per the proposed scheme of amalgamation placed on record annexure "C" in all these petitions. Consequently, all the rights, liabilities and duties of the transferor companies shall stand transferred to and vest in the transferee-company, namely, Mahavir Weaves Pvt. Ltd., without any further act or deed, and all the liabilities and duties of the transferor companies shall also become the liabilities and duties of the transferee-company and the transferor companies shall stand dissolved, without winding up, in view of the scheme of amalgamation as per annexure "C" being sanctioned." (Emphasis supplied) (b) Takshashila Gruh Nirman Pvt. Ltd., (2012) SCC OnLine Guj 2275: In this case it was n....
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....Department, we look to judicial guidance on this issue. It has been held in Cetex Petrochemicals Ltd., re, (1992) 73 Comp Cas 298 (Mad) that the approval by overwhelming majority is a symbol of the soundness of the scheme. The court would not interfere. It cannot substitute with its wisdom the collective wisdom of the shareholders. 32. It was held in Aradhana Beverages & Foods Company Ltd. V Regional Director of Companies, 1998 (46) DRJ 228 where share exchange ratio is determined by experts, and shareholders are satisfied, no interference at the instance of Regional Director is called for. The relevant portion of the said judgment is reproduced below: "Since as a matter of fact and undisputedly the loan has been subsequently converted into shares, the grievance of the Regional Director in my view does not survive. The shareholders and creditors are better equipped to gauge the value of their shares with reference to market trends & if they have approved the amalgamation, the Regional Director cannot be heard to say that the merger would not be in interest of the shareholders and creditors & consequently in the public interest. To my mind in a given case,....
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....rmination did not suffer from any infirmity. The company court, therefore, did not commit any error in refusing to interfere with it. May be as argued by the learned counsel for the petitioner that if some other method would have been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95% of the shareholders who are the best judges of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by courts as, "[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 subjected to inspection by the court. To do so, is incompetent and improper and, therefore, out of bounds. Nevertheless, the broad parameters of fairness in administration, bona fides in action, and the fundamental rules of reasonable management of public business, if breached, will ....
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....ppropriately left to the wisdom of the experts, having regard to the many imponderables which enter into the process of valuation of shares. If the valuer adopts the method of valuation prescribed, or in the valuation, his valuation cannot be assailed unless it is shown that the valuation was made on a fundamentally erroneous basis, or that a patent mistake had been committed, or the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter. Where a method of valuation is prescribed the valuation must be made by adopting scrupulously the method prescribed, taking into account all relevant factors which may be enumerated as relevant for arriving at the valuation". ( Emphasis supplied ) 37. Hon'ble Bombay High Court in the case of Alstom Power Boilers Ltd. vs. State Bank of India & IDBI 2002 SCC Online Bom 1084 has held the Company Court has supervisory jurisdiction, and where Scheme is approved by overwhelming majority, the dissenting minority shareholders cannot tyrannise the majority. The relevant part of judgement is as under: "........ 28. The parameters of the jurisdiction of the Company Court under S....
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....l Mr. Mavank Buch for the petitioning companies places reliance upon the Supreme Court pronouncement in Miheer H. Mafatial v. Mafatial Industries Ltd., [1996] 87 Comp Cas 792; [1996] 4 Comp 124, with a view to canvass the principle that, it is 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, or the say of that the shareholders in their collective wisdom should not have accepted the exchange ratio on the ground that it will be detrimental to their interest. The Supreme Court precisely says so, In the petitions on hand there is absolutely no demur by any of the shareholders against the exchange ratio. On the contrary the shareholders of the transferor-companies and transferee-company also have accepted the exchange ratio proposed in the scheme of amalgamation. Therefore, it appears that, it would not be open to me to say that the exchange ratio accepted by the shareholders of the transferor-companies and the transferee company would be prejudicial or detrimental to their interest. Therefore, the above said communication should not come in the way of the pe....
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....sideration the apparent rise in the fixed assets of the company as valued and reported by the expert valuer. As indicated above, there is no reason to believe that the valuer can be said to be guilty of submitting an inflated valuation- report, which would not correctly reflect the revaluation reserve. In this connection, a reference is made to the Kerala High Court decision, in the case of Malayalam Plantation (India) Ltd. v. Mathew Philip. [1986] TLR 1753, in which the learned single Judge has taken a view that, when there was no evidence of fraud or mala fides on the part of the persons making the valuation and when the standard method of valuation is adopted, the objection to the valuation should be overruled. Here also, in the instant case before me, there is not only no evidence of fraud or mala fides on the part of the valuer, but even there is no such whisper in the affidavit-in-reply, filed on behalf of the Central Government. In view of this factual and legal position, the contention does not appear to be open to the Central Government. The exchange ratio, therefore, cannot be said to be unreasonable or unfair. This requires to be said and emphasised regard being had to t....
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....e approval accorded by the equity shareholders, secured and unsecured creditors of the petitioner companies, and the Regional Director, Northern Region, to the proposed Scheme of Arrangement, as well as the submissions of the Income Tax Department, there appear to be no further impediments to the grant of sanction to the Scheme of Arrangement. Consequently, sanction is hereby granted to the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956 on the aforesaid terms while reserving the right of the Income Tax Authorities to the extent stated above". ( Emphasis supplied ) 43. The Hon'ble Bombay High Court in Parke Davis (India) Ltd, In re [Company Petition No. 894 of 2002] while deciding the legality of swap share ratio discussed the judgement of Hindustan Lever (Supra) and held that: "It is clear from the observations that if any objection is raised before the company court to the swap ratio of shares, the enquiry that the court has to make is whether it is contrary to any law, whether the valuation is carried out by an independent body and to find out whether it can be said that the ratio is unfair. The court has to see how the ....