1995 (11) TMI 311 - HC - Companies Law

Issues Involved:
1. Sanction of the scheme of amalgamation between the transferor-company and the transferee-company.
2. Objection by the Central Government regarding the amalgamation.
3. Revaluation of fixed assets of the transferor-company.
4. Exchange ratio of shares.
5. Compliance with SEBI guidelines and future public issue.

Detailed Analysis:

1. Sanction of the scheme of amalgamation between the transferor-company and the transferee-company:
The court was presented with two company petitions seeking sanction for the amalgamation of Apco Electrical Products Pvt. Ltd. (the transferor-company) and Apco Industries Ltd. (the transferee-company). The transferor-company, a private limited company incorporated on March 3, 1978, and engaged in manufacturing PVC battery separators, sought to amalgamate with the transferee-company, a public limited company promoted for manufacturing glass fiber separators in collaboration with Evanite Fiber Corporation of the USA. The scheme proposed that, effective from February 1, 1995, all assets, liabilities, and obligations of the transferor-company would transfer to the transferee-company under Section 394 of the Companies Act, 1956. The scheme also included provisions for issuing 150 fully paid-up equity shares of Rs. 10 each of the transferee-company for every fully paid-up equity share of Rs. 100 each held by the members of the transferor-company. The court examined the scheme to ensure it was fair, reasonable, and beneficial to shareholders and public interest.

2. Objection by the Central Government regarding the amalgamation:
The Central Government, through an affidavit-in-reply by the Assistant Registrar of Companies, objected to the amalgamation on several grounds. The primary objection was that the transferee-company, incorporated on January 16, 1995, had no assets, business, performance, or past record, and amalgamating it with an existing private limited company within 15 days of its incorporation seemed unjustified. However, the court found that the amalgamation was justified as the transferee-company, being a public limited company, could secure a collaboration program with a foreign-based company, which the private limited transferor-company could not achieve.

3. Revaluation of fixed assets of the transferor-company:
The Central Government raised concerns about the revaluation of the transferor-company's fixed assets, which were revalued to Rs. 65,49,642. The court noted that there was no contention or evidence suggesting that the valuation expert was guilty of inflating the assessment. The court emphasized that the revaluation was done as of March 31, 1994, and there were no allegations of fraud or mala fides against the valuer. The court concluded that the revaluation was reasonable and should not hinder the sanction of the amalgamation.

4. Exchange ratio of shares:
The exchange ratio of 150 shares of the transferee-company for each share of the transferor-company was challenged as being high. The court observed that the exchange ratio was determined based on the revalued fixed assets of the transferor-company. There was no evidence of fraud or mala fides in the valuation process. The court referenced the Kerala High Court decision in Malayalam Plantation (India) Ltd. v. Mathew Philip, which supported the view that objections to valuation should be overruled in the absence of evidence of fraud or mala fides. Consequently, the court found the exchange ratio fair and reasonable.

5. Compliance with SEBI guidelines and future public issue:
Concerns were raised about the promoters' contribution and the issuance of bonus shares out of the revaluation reserves. The court noted that the SEBI guidelines for disclosure and investor protection did not apply to existing private, closely held, and unlisted companies. However, the court accepted the concession from the transferor-company's counsel that necessary disclosures would be made to SEBI and other relevant authorities if the transferee-company went for a public issue in the future. The court emphasized that compliance with SEBI guidelines and proper disclosure would ensure investor protection and prevent any violation of relevant provisions.

Conclusion:
The court allowed and sanctioned the scheme of amalgamation, effective from February 1, 1995. All assets, liabilities, and obligations of the transferor-company would transfer to the transferee-company, and the transferor-company would be dissolved without winding up. The court directed the petitioners to file the order with the Registrar of Companies within 30 days and pay the fees of the Central Government's counsel. The company petitions were disposed of accordingly.

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