1994 (10) TMI 236 - HC - Companies Law

Summary

Issues Involved:
1. Valuation of shares and exchange ratio.
2. Sufficiency of authorized share capital of the transferee-company as on the appointed date.

Detailed Analysis:

Valuation of Shares and Exchange Ratio:
The first objection raised by the Central Government pertained to the valuation of shares and the exchange ratio fixed at 1:1 by the companies themselves without any valuation by a chartered accountant. The net intrinsic worth of one equity share based on the balance-sheets as of March 31, 1993, was calculated as follows:
- Mahavir Fabrics (Surat) Pvt. Ltd.: Rs. 422
- Mahavir Marketing (Surat) Pvt. Ltd.: Rs. 394
- Mahavir Weaves Pvt. Ltd.: Rs. 622

The Central Government suggested a fair exchange ratio of 2:3. The court considered precedents cited by the Central Government, including cases like Patiala Starch and Chemicals Works Ltd., Bank of Baroda Ltd. v. Mahindra Ugine Steel Co. Ltd., and M. G. Investment and Industrial Company Ltd. v. New Shorrock Spinning and Mfg. Co. Ltd. These cases highlighted the importance of expert valuation and the court's duty to ensure compliance with legal provisions and reasonableness of the scheme.

However, the court noted that the present case involved private limited companies with shareholders from two families who had consented to the scheme. The companies' operations were intermingled, and the exchange ratio was based on mutual agreement without any objections from shareholders. The court found no unreasonableness in the 1:1 exchange ratio and decided not to disturb the shareholders' wishes, distinguishing the present case from the cited precedents.

Sufficiency of Authorized Share Capital:
The second objection was that the authorized share capital of the transferee-company was not sufficient as of the appointed date (April 1, 1993). The Central Government argued that the scheme could not be effected without increasing the authorized share capital beforehand.

In response, the petitioners contended that the authorized capital is typically increased after the scheme is sanctioned, to avoid an anomalous situation if the scheme is not approved. The petitioners affirmed that the authorized capital had already been increased to give effect to the scheme. The court agreed with the petitioners, noting that the provisions of sections 391 and 394 of the Companies Act, 1956, do not mandate an increase in authorized share capital beforehand. The court directed the transferee-company to increase the authorized capital if it had not already done so, thus dismissing the Central Government's objection.

Conclusion:
The court ordered the amalgamation of the transferor companies with the transferee-company effective from April 1, 1993, as per the proposed scheme. All rights, liabilities, and duties of the transferor companies were transferred to the transferee-company, and the transferor companies were dissolved without winding up. The petitioners were directed to file the order with the Registrar of Companies within thirty days, and the Registrar was to treat the transferor companies as dissolved from the appointed date. The petitioners were also directed to bear the costs of the petitions and pay fees to the additional standing counsel for the Central Government. The petitions were disposed of accordingly.