1998 (4) TMI 443 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the scheme of amalgamation under sections 391-394 of the Companies Act, 1956.
2. Valuation of shares and fairness of the share exchange ratio.
3. Compliance with statutory formalities and public interest.
4. Filing of the latest auditor's report.

Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The transferee company, Aradhana Beverages & Foods Co. Ltd., sought the court's sanction for the amalgamation of Sunrise Products with it. The authorized share capital of the transferee company was Rs. 30 crores, and the subscribed and paid-up capital was Rs. 27.10 crores at the time of the judgment. The transferor company, Sunrise Products, had an authorized and paid-up capital of Rs. 15 crores. Both companies passed resolutions for amalgamation on 2-4-1997, and the scheme was approved by shareholders and creditors on 19-7-1997.

2. Valuation of Shares and Fairness of the Share Exchange Ratio:
The Regional Director contended that the valuation of shares by Bharat S. Raut & Co. was not fair and reasonable, criticizing the assumption of an increased equity capital of Rs. 27 crores for the transferee company. However, the court noted that the debt liability was indeed converted into share capital, as evidenced by the issuance of shares worth Rs. 8 crores on 1-4-1997 and Rs. 17 crores on 20-10-1997. The court emphasized that the shareholders and creditors of both companies approved the scheme unanimously, indicating their satisfaction with the valuation and exchange ratio.

3. Compliance with Statutory Formalities and Public Interest:
The court cited precedents from EITA India Ltd. and Mcleod Russel (India) Ltd., asserting that if statutory formalities are complied with and the scheme is fair, reasonable, and free from fraud, the court should not interfere. The Supreme Court in Hindustan Lever Employees' Union v. Hindustan Lever Ltd. held that the court's jurisdiction is based on fairness, not mathematical accuracy. The court found no evidence of fraud or non-compliance with statutory formalities and noted that the shareholders and creditors are the best judges of their interests.

4. Filing of the Latest Auditor's Report:
The Regional Director argued that the latest auditor's report for the financial year ending 31-12-1997 should have been filed. However, the court clarified that the relevant auditor's report is the one available at the time of filing the application, which was the report for the financial year ending 31-12-1996. This report had been duly filed by the transferee company.

Conclusion:
The court approved the scheme of amalgamation, as all statutory formalities were complied with, the valuation was fair and reasonable, and there was no evidence of fraud. The judgment respected the unanimous approval of the shareholders and creditors and dismissed the objections raised by the Regional Director. The formal order for the amalgamation was directed to be prepared in accordance with the law.