1997 (10) TMI 316 - HC - Companies Law

Summary

Issues Involved:

1. Compliance with statutory requirements under Sections 391 and 394 of the Companies Act, 1956.
2. Validity of the exchange ratio and valuation method for shares/assets.
3. Objections raised by the Registrar of Companies regarding management control and valuation method.
4. Judicial scrutiny of the scheme's fairness, reasonableness, and absence of fraud.

Detailed Analysis:

1. Compliance with Statutory Requirements:

The petition was filed under Sections 391 and 394 of the Companies Act, 1956, seeking the Court's sanction for a scheme of amalgamation between the transferor-company and the transferee-company. The Court directed meetings of the equity shareholders, secured and unsecured creditors of the transferee-company to consider the scheme. The meetings were duly held, and the scheme was unanimously approved. The statutory requirements, including the requisite majority approval and the provision of necessary materials to voters, were complied with. The Court emphasized that it must be satisfied that the scheme is fair, just, and reasonable, and not violative of any law or public policy.

2. Validity of the Exchange Ratio and Valuation Method:

The Registrar of Companies objected to the scheme on the grounds that the companies were not under common control and that the valuation of shares/assets was based on book value rather than market value. The petitioner-company countered that the valuation was conducted by a recognized Chartered Accountant following guidelines issued by the Ministry of Finance. The Court noted that book value is an accepted method of valuation and that the valuation report was approved by the shareholders and directors of both companies. The Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. was cited, emphasizing that the Court should not substitute its judgment for the commercial wisdom of the shareholders unless there is evidence of fraud or unfairness.

3. Objections Raised by the Registrar of Companies:

The Registrar of Companies raised objections regarding the exchange ratio, arguing that the fixed assets should have been valued at market value. The Court found that the method of book value is recognized and that the valuation was conducted by a reputable firm of Chartered Accountants. The Court reiterated that it should not interfere with the commercial decisions of the shareholders unless there is evidence of fraud. The Court also noted that the scheme had already been sanctioned by the Calcutta High Court without any objections from the Central Government.

4. Judicial Scrutiny of the Scheme's Fairness, Reasonableness, and Absence of Fraud:

The Court emphasized that its role is peripheral and supervisory, not appellate. It must ensure that the scheme is fair, reasonable, and not fraudulent. The Court found that the statutory formalities were complied with, the valuation method was accepted, and there was no evidence of fraud. The Court cited previous judgments, including Miheer H. Mafatlal and Hindustan Lever Employees' Union v. Hindustan Lever Ltd., to support its conclusion that it should not interfere with the commercial wisdom of the shareholders.

Conclusion:

The Court approved the scheme of amalgamation, finding it beneficial for all concerned. The scheme was confirmed, and no order as to cost was made. The Court emphasized that it had no jurisdiction to sit in appeal over the commercial decisions of the shareholders, provided that the statutory requirements were met and there was no evidence of fraud or unfairness. The scheme, as approved by the members, stands confirmed.