TaxTMI 
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2025 (11) TMI 207
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....15 passed in Company Petition No. 3 of 2013. The facts leading to the present litigation between the parties arose from an application under Sections 391(2) and 394 of the Companies Act, 1956, seeking sanction of the Court to the scheme of amalgamation of the Buragohain Tea Company Ltd. (the transferor company) with the B & A Ltd. (the transferee company). 3. The company appeal No. 4 of 2016 is filed by the transferor company, namely the Buragohain Tea Company Ltd., whereas the company appeal No. 3 of 2015 was filed by shareholder of the transferor company, namely the Buragohain Tea Company Ltd., who had opposed the scheme of amalgamation of the transferor company with the transferee company, as is evident from the pleadings before this Court is that the transferor company was incorporated on 20.05.1927 under the provisions of Indian Companies Act, 1913 and is existing company under the Companies Act, 1956. The registered office of the transferor company is situated at Govindapur Tea Estate, Post Office-Latekujan in the District of Golaghat. The issued, subscribed and paid up share capital of the transferor company was Rs. 5,30,000.00 divided into 530 equity shares of Rs. 1,000.....
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....heirs/ representatives of Late Hemendra Prasad Barooah, some shareholders of B&A Ltd., some share-holders of Buragohain Tea Co. Ltd. and Smt. Sharmila Vijay Shetty in connection with Buragohain Tea Co. Ltd. and B&A Ltd., viz: a. National Company Law Board (erstwhile Company Law Board): I. Proceedings alleging oppression and mismanagement under Section 397 and 398 of the Companies Act, 1956 was initiated by Smt. Smt. Sharmila Vijay Shetty before the Company Law Board, Kolkata Bench, which was registered and numbered as C.P. No. 186/2013. The said proceeding was transferred to the National Company Law Tribunal, Guwahati Bench [hereinafter referred to as "NCLT-GB" for brevity], where it was re-registered as T.P. No. 13/397/398/GB/2016. II. In connection with T.P. No. 13/397/398/GB/2016 (formerly C.P. No. 186/2013); there appears to be three connected proceedings, being (i) T.A. No. 7/2016 (formerly C.A. No. 126/2016); (ii) T.A. No. 27/2016 (formerly C.A. No. 460/2014); and (iii) T.A. No. 8/2016 (formerly C.A. No. 123/2014). II. The said proceedings was dismissed for default by order dated 13.07.2017, passed by the learned NCLT-GB and the interim ord....
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....e of Late Hemendra Prasad Barooah, he had set-up a trust in the name of Hemen Barooah Benevolent and Family Trust. He had proposed to transfer 8,61,916 equity shares held by him as First Holder to the said trust. Smt. Sharmila Vijay Shetty was the Second Holder of the said shares. Accordingly, he had filed a petition before the Company Law Board, which was registered as C.P. No. 923(KB)/2011. However, the Company Law Board had rejected the said petition on the ground that the said was a dispute between two parties. b. Civil Suit: I. Accordingly, on rejection of C.P. No. 923(KB)/2011, Late Hemendra Prasad Barooah, had filed T.S. No. 41/2012, before the Court of Civil Judge, Jorhat. On his death, one Somnath Chatterjee sought his substitution as plaintiff on the strength of a purported will dated 21.11.2011, left by Late Hemendra Prasad Barooah. It appears that the substitution petition was rejected. Against such rejection order, the said Sri Somnath Chatterjee had preferred CRP No. 97/2013, before this Court, which was also dismissed by order dated 13.11.2014. II. In the meantime, an order of status-quo in respect of those 8,61,916 equity shares was passed....
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....te. In Company Appeal No. 3/2016, this Company is arrayed as respondent No. 1 and in Company Appeal No. 4/2016, this Company is arrayed as the appellant No. 1. In this order, the said Buragohain Tea Co. Ltd. is hereinafter referred to as "the transferor company". c. By virtue of respective resolutions adopted by the Board of Directors of both the Companies, the "draft scheme of amalgamation" along with the "share exchange ratio" were approved. Accordingly, as per the requirement of Sections 391(2) and 394 of the Companies Act, 1956, the "Scheme of Amalgamation" was filed before this Court for sanction of the said scheme by the Company Judge. The said company application was registered as Company Petition No. 2/2013. d. Smt. Sharmila Vijay Shetty is the appellant in Co. Appeal No. 3/2016 and she is arrayed as respondent no. 2 in Co. Appeal No. 4/2016. She had filed her sole objection to the scheme of amalgamation before the learned Company Judge. e. The appellant in Co. Appeal No. 3/2016, namely, Smt. Sharmila Vijay Shetty, is the daughter of Late Hamendra Prasad Barooah, who had died on 31.07.2013, leaving behind his legal heirs. Smt. Sharmila Vijay Shett....
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....nd it can be carried out more conveniently and advantageously. On one hand, it was felt that the amalgamation will enable the transferee company to expand its business with an established tea estate and to utilize its surplus tea processing capacity more productively, in larger quantities of black tea from its own captive production. On the other hand, the amalgamation will also benefit the transferor company as it will have direct access to in house tea processing capacity as well as to the expertise and the well established management setup, distribution, marketing network and goodwill of the transferee company which is already an established entity in the business of manufacturing and sale of black tea. The particulars of the benefits vis-à-vis the transferor company and the transferee company have been laid out in the scheme of amalgamation, which is a part of the pleadings before this Court. The scheme of amalgamation was to be given effect to from the appointed date, which was on 01.04.2011, which, however, will be made the effective date only upon the sanction granted by this Court. Once the sanction is granted by this Court, with effect from the appointed date, all a....
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.... confirmed that such ratio vis-a-vis the share exchange ratio arrived at between the transferor company and the transferee company is fair. The transferee company being a company listed in the "Bombay Stock Exchange" has also filed this scheme of amalgamation with the Stock Exchange whereafter the "Bombay Stock Exchange" has given its No Objection to the said scheme. 8. Before the learned Single Judge in the proceedings seeking sanction of the scheme of amalgamation, an affidavit was filed on behalf of Smt. Sharmila Vijay Shetty, namely the appellant in Company Appeal No. 3/2016. In the said affidavit, it was mentioned that said Smt. Sharmila Vijay Shetty is holding 3,16,200 shares in her own name and is a joint shareholder of another block of 8,61,918 shares along with her father Lt. Hemendra Prasad Barooah. Smt. Sharmila Vijay Shetty is the daughter of Lt. Hemendra Prasad Barooah who was the Chairman of the Board of Directors of the transferee company. In the said affidavit it is stated that with a view to divest the appellant Smt. Sharmila Vijay Shetty from the same block of shares in the transferee company Title Suit No. 41 of 2012 was filed by Lt. Hemendra Prasad Barooah an....
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....25.05.2012 but was inserted subsequently because of certain disputes between the management and the objector namely Smt. Sharmila Vijay Shetty. It was urged that in order to dilute the shareholding of the objector Smt. Sharmila Vijay Shetty in the transferee company and also to cover up the mismanagement and oppression of the transferee company, the entire scheme to merge the transferor company having no intrinsic value with the transferee company was concealed. A petition being Company Petition No.923/2012 was filed by Lt. Hemendra Prasad Barooah before the Company Law Board, New Delhi Bench under Section 111A of the Companies Act, to have the name of the objector Smt. Sharmila Vijay Shetty be deleted as a shareholder in respect of the joint shareholding of 8,61,918 shares. The said petition was dismissed by the Company Law Board on 31.07.2012 and before the Company Law Board no information with regard to the amalgamation scheme was ever placed. It was urged before the Company Law Board that the management fabricated the minutes of the board meeting dated 25.05.2012 and notified the "Bombay Stock Exchange" on 26.09.2012. It was also urged before the learned Company Judge that Rock....
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....ector however, never attended any of the annual general meetings of the transferee company in the past. 9. An affidavit was also filed by the Regional Director, Eastern Region, Ministry of Corporate Affairs, Government of India, Kolkata. In the said affidavit, it was stated that as per the balance sheet of both companies, they appear to be secured creditors. However, no meeting of the creditors has been held and/or consent obtained. Further, the scheme of amalgamation does not confirm to the requirement of Accounting Standard 14 read with Section 211 (3A) of the Act. The Regional Director further objected that the provision to pay 786 equity shares of Rs. 10.00 each of the transferee company against one equity share of Rs. 1,000.00 of the transferor company is not at all justified. Further, that the provision to pay 786 equity shares of Rs. 10.00 each of the transferee company against one equity share of the transferor company is not at all justified considering the status of the two companies. It was stated that the balance sheet of the transferor company does not portray the correct picture of the said company having a direct impact on the share exchange ratio of 1:786. It was....
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....period with accumulated losses cannot be valued in the manner projected in the scheme that is for every 1,000 value of shares in the transferor company, a shareholder in the transferor company would get Rs.7860.00 value of shares in the transferee company. The learned Company Judge did not accept the explanation. It was held by the learned Company Judge that nothing has been placed before the Court and no material has been disclosed either in the petition or in the affidavits as to how the particular exchange ratio has been worked out. The learned Company Judge was of the view that while from the standpoint of commercial strength of the two companies the exchange ratio does not appear to be sound, the same can also be examined in the light of the recent litigation history of the transferee company vis-a-vis the objector. The learned Company Judge concluded that although the Court had in principle agreed to sanction the scheme, but the exchange ratio was found to be unfair and unjust and not based on the market realities. Accordingly, it appeared to the learned Company Judge that it would be just and proper if the Registrar of Companies is directed to examine the matter through expe....
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....uestion of share equation equivalent and to redirect the Registrar of Companies to re-examine the matter by using independent authorities and to place the same before the Court. 13. On the other hand, the Objector, Smt. Sharmila Vijay Shetty has assailed the order of the learned Company Judge on the ground that once the Court found that the share exchange ratio was not just and proper, the scheme should have been rejected there, instead of referring the matter back to the Regional Director, Ministry of Corporate Affairs to revisit the share exchange ratio by using any independent methods. The Court also did not take into consideration the fact that the objector was never served with a proper notice to attend the meeting of shareholders, wherein she could have raised these objections. Under such circumstances, the company petition seeking sanction of the scheme of amalgamation ought to have been rejected by the learned Company Judge. 14. Mr. R. Banerjee, learned Senior Counsel, appearing for the appellant in Company Appeal No. 4 of 2016 and for the transferee company namely B&A Limited submits that the claim of the objector Smt. Sharmila Vijay Shetty as regards the share excha....
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....rary inasmuch as while it concludes that it is up to the commercial wisdom of the shareholders to agree or disagree to the amalgamation scheme, yet the learned Company Judge proceeded to direct re-evaluation of the shareholding equation solely relying on the affidavit filed by the Regional Director of Corporate Affairs, Government of India. It is reiterated that without any specific materials before the Regional Director of Corporate Affairs, it has no locus standi to question or raise objections to the shareholding ratio adopted by the shareholders of both the Companies in their meetings. 16. The Learned Senior Counsel has pressed into service the judgment of the Apex Court in Miheer H. Mafatlal vs. Mafatlal Industries Ltd. reported in (1997) 1 SCC 579 to submit that family disputes, litigation between the parties, financial conditions of the transferor company vis-à-vis the transferee company are not grounds on which the Company Court can decline to grant sanction to a scheme of amalgamation which has been passed by proper resolution adopted by the shareholders of the transferor and the transferee company. Such resolutions adopted by the shareholders are on the basis of....
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....ntly followed in subsequent judgments more particularly in Hindustan Lever Employees' Union vs. Hindustan Lever Ltd. and Others reported in AR 1995 SC 470 paragraph 3,5, 6, 31 and 58. In Dinesh Vrajlal Lakhani vs. Parke Davis (India) Limited reported in (2005) 124 Comp Cas 728 paragraph 5, 12 (i), 18, 19 and 40. 18. Learned Senior Counsel also presses into service the judgment of the Apex Court reported in GL Sultani and Another vs. Securities & Exchange Board of India and Others reported in (2007) 5 SCC 133 to submit that the learned Single Judge was swayed by litigation history and the face value of the shares which was totally uncalled for and unwarranted in the facts of the case. He therefore submits that the directions of the learned Company Judge remitting the matter back to the Director of Corporate Affairs, Government of India for pre-evaluation of the share exchange ratio should be interfered with and set-aside and the scheme of amalgamation placed before the Court be approved. 19. Mr. D. Mazumdar, learned Senior Counsel assisted by Mr. B. Kaushik, learned counsel for the respondent No. 2 in Co. Appeal No. 4 of 2016 and for the appellants in Co. Appeal No. 3 of 2016 ....
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.... is not even bestowed on such an authority under the Companies Act, 1956. Therefore, such directions issued by the learned Company Judge being beyond the powers bestowed under the statute was totally uncalled for and the same should therefore be set aside and interfered with and the sanction for scheme of amalgamation ought not to be granted and the appeals filed by the Companies should be dismissed. Referring to the judgment of the Company Court, it is submitted that there are specific findings on fact that no materials have been placed by the transferee company to show as to how the share exchange ratio is arrived at although it was the responsibility of the transferee company to place these materials. Therefore, in view of such findings, the learned Company Judge ought to have declined to grant sanctions to the scheme of amalgamation. Instead the direction was given to the Regional Director of Corporate Affairs, ROC to re-evaluate the share exchange ratio. The further contention of the Senior counsel is that the Buragohain Tea Company Ltd. and its tea estate remained closed for about 6 (six) years due to lock look out. The Rockland Realty Private Limited Company holds 96% of the....
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....any Court is laid down by the Apex Court in the said judgment. Therefore, it is clear that the penultimate direction of the Company Board of revaluation of the share exchange ratio is contrary not only to the statutes but also to the law laid down by the Apex Court in Miheer H. Mafatlal (supra). He submits that the law laid down in Miheer H. Mafatlal (supra) is subsequently followed in several other judgments, namely, Hindustan Lever Employees' Union vs. Hindustan Lever Limited reported in 1995 Supp (1) SCC 499, Meghal Homes Private Limited vs. Shree Niwas Girni K.K. Samiti reported in (2007) 7 SCC 753 paragraph 45 and 46 and Chembra Orchard Produce Ltd. v. Regional Director of Company Affairs reported in (2009) 2 SCC 547 para 13. 22. Mr. D. Mazumder, learned Senior Counsel for Smt. Sharmila Vijay Shetty therefore submits that no notice of the meeting of the shareholders was served on the objector namely Srimati Vijay Shetty approving the scheme. The very scheme of amalgamation is a ploy to dilute the shareholding of the objector namely Srimati Vijay Shetty who holds about 38% of the shares. The scheme of amalgamation is contrary to the semi notification regarding the amalgamati....
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....ng for accord a sanction to a scheme of amalgamation under the Companies Act, can issue the directions as have been done in the present proceedings which are under appeal. In order to examine this question, it will be necessary to refer to the relevant sections of the Companies Act, 1956. The provisions for facilitating reconstruction and amalgamation of companies are prescribed under Section 394 of the Companies Act 1956. Under Section 394 of the Companies Act, 1956, a notice is to be given to Central Government for applications under section 391 and 394 of the Act, 1956. Section 395 prescribes the power and duty to acquire the shares of shareholders dissenting from the scheme or the contract approved by majority. The relevant Provisions of these Sections are extracted below: "394. PROVISIONS FOR FACILITATING RECONSTRUCTION AND AMALGAMATION OF COMPANIES.- (1) Where an application is made to the [Tribunal] under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the [Tribunal] - (a) that the compromise or arrangement has been proposed for the purposes o....
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....he affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee-company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 3 [five hundred] rupees. (4) In this section - (a) "property" includes property rights and powers of every description ; and "liabilities" includes duties of every description ; and (b) "transferee-company" d....
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....class, in a company are transferred to another company or its nominee, and those shares together with any other shares or any other shares of the same class, as the case may be, in the first-mentioned company held at the date of the transfer by, or by a nominee for, the transferee-company or its subsidiary comprise nine-tenths in value of the shares, or the shares of that class, as the case may be, in the first-mentioned company, then,- (a) the transferee-company shall, within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement), give notice of that fact in the prescribed manner to the holders of the remaining shares or of the remaining shares of that class, as the case may be, who have not assented to the scheme or contract; and (b) any such holder may, within three months from the giving of the notice to him, require the transferee-company to acquire the shares in question; and where a shareholder gives notice under clause (b) with respect to any shares, the transferee-company shall be entitled and bound to acquire those shares on the terms on which, ....
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....ctors to accept such offer shall be accompanied by such information as may be prescribed ; (ii) every such offer shall contain a statement by or on behalf of the transferee-company, disclosing the steps it has taken to ensure that necessary cash will be available ; (iii) every circular containing, or recommending acceptance of, such offer shall be presented to the Registrar for registration and no such circular shall be issued until it is so registered ; (iv) the Registrar may refuse to register any such circular which does not contain the information required to be given under sub-clause (i) or which sets out such information in a manner likely to give a false impression ; and (v) an appeal shall lie to the [Tribunal] against an order of the Registrar refusing to register any such circular. (b) Whoever issues a circular referred to in sub-clause (iii) of clause (a), which has not been registered, shall be punishable with fine which may extend to [five thousand] rupees. (5) In this section - (a) "dissenting shareholder" includes a shareholder who has not assented to the scheme or contract and any shareholder who has fai....
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....s a sizeable percentage of shares. This contention of the objector is disputed by the learned Senior Counsel representing the Companies that the objector never attended any Annual General Meeting and the notice was served on the address which was available in the register maintained by the Companies of the members/ shareholders. The claim of the objector is that the address to which the notice was sent was her earlier address and the notice ought to have been sent to her present address is also disputed on the ground that the objector being a shareholder is aware of the procedure required to be maintained and any change in the notice ought to have been brought to the notice of the companies so that the necessary changes would have been effected to the address maintained in the registers by the Company. Therefore, such recourse which ought to have been taken by the objector not having been resorted to, there is no fault on the part of the company and the meeting was held in terms of the liberty granted by the Court under the chairmanship of the Court appointed Chairperson. That apart, it was widely circulated in both English and vernacular newspapers. Therefore, the claim of the obj....
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....as also been pressed into service by Mr. Banerjee, learned Senior Counsel as well as by Mr. R. Mazumdar, learned Senior Counsel. In Miheer H. Mafatlal (supra), the Apex Court was considering the order passed by Division Bench of the High Court of Gujarat, whereby the Appeal of the appellant therein was dismissed confirming the order of the learned Single Judge who had sanctioned the scheme of amalgamation of two public limited companies, namely, Mafatlal Industries Limited being the transferee company with which Mafatlal Fine Spinning and Manufacturing Company Limited being the transferor company was to be amalgamated. The Single judge therein granted the sanction to the transferee company to amalgamate it in the transferor company under Section 391(2) under the Companies Act of 1956. This order was assailed before the Division Bench which came to be dismissed and consequently, the matter traveled in the Supreme Court. 29. The Court after consideration of the facts and circumstances of the case, formulated some questions in paragraph-26 of the said judgment. Those questions are quoted herein below: 1. "Whether the respondent-Company was guilty of hiding the special inte....
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....lders is contemplated either by the Act or by the Articles of Association of the respondent-Company. The appellant is admittedly an equity shareholder. Therefore, he would fall within the same class of equity shareholders whose meeting was convened by the orders of the Company Court. However it is vehemently contended by the learned counsel for the appellant that because of the family arrangement of 1979 on which he relies he was a special class of minority equity shareholder who had separate rights against the director of the company and whose special interest because of the pending litigation between him and the Director Shri Arvind Mafatlal was likely to be adversely affected by the Scheme. Therefore, a separate meeting had to be convened as he represented a class within the class of equity shareholders. It is difficult to agree with this contention. Even though the Companies Act or the Articles of Association do not provide for such a class within the class of equity shareholders, in a given contingency it may be contended by a group of shareholders that because of their separate and conflicting interests vis-à-vis other equity shareholders with whom they formed a wider ....
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....commercial interest of the appellant so far as the Scheme is concerned is in common with other equity shareholders he would have a common cause with them either to accept or to reject the Scheme from commercial point of view. Consequently there was no occasion for convening a separate class meeting of the minority equity shareholders represented by the appellant and his group as tried to be suggested. It is also to be kept in view that it is not the case of the appellant that any different terms of compromise were offered to persons holding equity shares who were covered by the family arrangement of 1979 or otherwise. In fact the entire proposal of the scheme of arrangement was one affecting equally and in the like manner all the existing equity shareholders of the respondent-Company. In this connection it is profitable to refer to what the learned author Palmer in his Treatise Company Law, 24th Edn., has to say: "What constitutes a class: The Court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. This is for the Company to decide, in accordance with what the scheme purports to achieve. The applicati....
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....it has to be kept in view that before formulating the proposed scheme of compromise and amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors the appellant himself was a member. M/s C.C. Chokshi & Co., a reputed firm of chartered accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once be stated that valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy. Pennington in his Principles of Company Law mentions four factors which had to be kept in mind in the valuation of shares: "(1) Capital Cover, (2) Yield, (3) Earning Capacity, and (4) Marketability. For arriving at the fair value of share, three well-known methods are applied: (1) The manageable profit-basis method (the Earning Per Share Method) (2) The networth method or the break value method, and (3) The market value method." So many imponderables ente....
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....t has to be kept in view that the matter was fiercely contested on all permissible points before the learned Single Judge. The proceedings were pending before the High Court for more than two years from 8-2-1994 till 12-7-1996 when the Division Bench disposed of the appeal. For all these years neither before the learned Single Judge nor before the High Court in appeal the appellant thought it fit to request the Court to either call for the report of any other expert on valuation of shares nor did he himself get such report for placing for consideration of the Court in support of his supposed better ratio. It has also to be kept in view that which exchange ratio is better is in the realm of commercial decision of well-informed equity shareholders. It is not for the Court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the entire Scheme. 40% of the majority shareholders were financial institutions who were supposed to be well versed on the aspect of valuation of shares. They had no object....
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.... Rep 105, Ch D] wherein it was laid down that where statutory majority had accepted the offer the onus must rest on the applicants to satisfy the court that the price offered is unfair. In this connection the following pertinent observations were made by the learned Judge: "The other conclusion I draw is this ... the court ought to regard the scheme as a fair one inasmuch as it seems to me impossible to suppose that the court, in the absence of very strong grounds, is to be entitled to set up its own view of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. Accordingly, without expressing a final opinion on the matter, because there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that, notwithstanding the views of a very large majority of shareholders, the scheme is unfair." We may also refer to a decision of the Gujarat High Court in Kamala Sugar Mills Ltd., Re [(1984) 55 Comp Cas 308 (Mad)] dealing with an identical objection about the exchange ratio adopted in the scheme o....
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....the MIL as well as subsidiary and sister concern in hand. It has also taken into account the market price of equity shares of past 24 months, declared dividend by the two companies, the overall effect of security scam in the market price, realisable investment and their market value. Taking into consideration multifarious considerations detailed in the report, note was also taken of the fact that MIL held substantial shares of MFL, which shall have to be cancelled on merger of MFL with MIL. Two fully paid-up equity shares of MIL of Rs 100 each for every five equity shares of Rs 100 each of MFL, was considered to be a fair exchange ratio to be offered as term of amalgamation. It was clarified that, "in absolute terms it would mean that the MIL is keeping consideration of equity capital of par value of Rs 7.77 crores which at the last issue price of share amounts about to Rs 38.84 crores and which at the current market price amounts to Rs 57.4 crores. At the stage of dividend declared for 1992-93, it will result in a cost in terms of distributable profits of Rs 2.72 crores. For an undertaking in a diversified business activity of textile and chemicals with the total infrastr....
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.... in Hindustan Lever Employees' Union [1995 Supp (1) SCC 499]. In paragraph 41 of the Report Justice Sen speaking for himself and Venkatachaliah, C.J. and to which Sahai, J. concurred has observed that the problem of valuation in the case of amalgamation of two companies has been dealt with by Weinberg and Blank in the book Take-overs and Mergers in which it is stated that some or all of the 8 listed factors will have to be taken into account in determining the final share exchange ratio. The Court has also approved the fixation of exchange ratio of the shares of the companies on the basis of adoption of combination of two or more well-known methods of valuation of shares out of many such methods. In para 37 of the Report it has been observed that the question is what method should be adopted for arriving at a proper exchange ratio. The usual rule is that shares of the going concern must be taken at quoted market value. This principle was also recognised by this Court in the case of CWT v. Mahadeo Jalan [(1973) 3 SCC 157 : 1973 SCC (Tax) 103]. It is not the case of the appellant that M/s C.C. Chokshi & Co. had not taken into consideration the quoted market value of shares of bot....
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....osed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 to 251, and the like. 393. (1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under Section 391,- (a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing directors, managing agents, secretaries and treasurers or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and insofar as, it is different from the effect on the like interests of other persons; and (b) in every notice calling the meeting which is given by advertisement, there shall be included eith....
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....erely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the company concerned, has to act merely as a rubber stamp and must almost automatically ....
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....he 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 the 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 to the umpire. The supervisory jurisdiction of the Company Court can also be culled out from the provisions of Section 392 of the Act which reads as under: "392. (1) Where a High Court makes an order under Section 391 sanctioning a compromise or an arrangement in respect of a company, it- (a) shall have power to supervise the carrying out of the compromise or arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under Section 391 cannot be worked satisfactoril....
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....fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which it is empowered to bind, or some blot is found in the scheme." In the case of Alabama, New Orleans, Texas and Pacific Junction Rly. Co., Re [(1891) 1 Ch 213 : (1886-90) All ER Rep Ext 1143] the relevant observations regarding the power and jurisdiction of the Company Court which is called upon to sanction a scheme of arrangement or compromise between the company and its creditors or shareholders were made by Lindley, L.J. as under: "What the court has to do is to see, first of all, that the provisions of that st....
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....adverse to those of the class whom they purport to represent; and, thirdly, that the arrangement is such as a man of business would reasonably approve." The learned Single Judge of the Calcutta High Court in the case of Mankam Investments Ltd., Re [(1995) 4 Comp LJ 330 (Cal)] relying on a catena of decisions of the English courts and Indian High Courts observed as under on the power and jurisdiction of the Company Court which is called upon to sanction a scheme of merger and amalgamation of companies: "It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefited or will be able to economise in the matter of expenses is a matter for the shareholders to consider. If three companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However....
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....ith 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." Sen, J., speaking for himself and Venkatachaliah, C.J., also towed the line indicated by Sahai, J., about the jurisdiction of the Company Court while sanctioning the scheme and made the following pertinent observations: (SCC p. 528, para 84) "An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. I....
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.... Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9. Once the aforesaid broad parameters about the requirements of a scheme ....
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....ontrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members of class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the majority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9. Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the Court are found to have been met. the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the vie....
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....nce sheet. Such explanation did not inspire confidence of the learned Company Judge to sanction the said scheme as no materials have been disclosed in the petition or in the pleadings as to how the particular share exchange ratio is worked-out. The learned Company Judge had concluded from the standpoint of commercial strength of the two companies that the share exchange ratio did not appear to be sound and that the same is also required to be examined in the light of the litigation history of the transferee company and the following consequential directions were issued: i) Court has no objection to sanction the scheme for amalgamation of Buragohain Tea Company (Transferor Company) with B&A Ltd. (Transferee Company). ii) However, having regard to the litigation history in the Transferee Company involving the Objector and other related developments and also having regard to the financial status of the Transferor Company as discussed above, objection raised by the Objector and by the Central Govt through the Regional Director regarding the exchange ratio of shares between the two companies cannot be brushed aside. iii) The exchange ratio of 786 fully paid up....
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....ge in Company Petition no. 3 of 2013 filed by Buragohain Tea Co. Ltd., namely, the transferor company on 28.07.2015. It is not in dispute that the scheme of amalgamation adopted by the shareholders and members of the transferor company and the transferee company was based on the commercial wisdom of the shareholders and the advisories issued by the financial advisors or auditors in these companies. It will therefore not be a prudent to accept that business and commercial decisions were taken in the meetings held in the year 2013 when the shareholders agreed to the appointed date of the scheme to be 01.04.2011 subject to sanction being granted by the High Court, the business dynamics and the commercial equations between the companies have continued to remain static for more than a decade and the grant of sanction at this stage by the Company Court will be in the best interest of the companies concern. 37. The judgments which are referred to by the parties and which still governs the field clearly reveals that the Company Court does not sit as an appellate authority over the scheme of amalgamation placed before the Court and will not review the matter by substituting the decision ....
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....narily in an Intra Court appeal unless the directions issued by the Court are found to be perverse or contrary to the findings of the statutes or the law laid down by the Apex Court, an Appellate Court will not ordinarily interfere in such Intra Court Appeal. Reference at this stage is required to be made to the judgment of the Apex Court rendered in Management of Narendran and Company Private Limited vs. Workmen of Narendra and Company reported in (2016) 3 SCC 340, where the Apex Court declined to interfere with the orders passed in an Intra Court appeal unless the same is found to be perverse or contrary to law. In Management of Narendran and Company Private Limited (supra), the Apex Court held that in an Intra Court Appeal on a finding of fact unless the Appellate Bench concludes that the findings of the learned Single Judge are perverse, it will not disturb the same, merely because another or a better view is possible, the order of the learned Single Judge should not be interfered with unless both sides agree for a fairer approach on the review. Similar view is also reiterated in N. Ramachandra Reddy vs. State of Telangana and others reported in (2020) 16 SCC 478 as well as in ....