1996 (10) TMI 416 - HC - Companies Law

Issues Involved:
1. Sanction of a scheme of amalgamation under sections 391 and 394 of the Companies Act, 1956.
2. Compliance with statutory formalities for the scheme.
3. Objections to the exchange ratio and valuation methods.
4. Allegations of unfairness and procedural irregularities.
5. Legal principles governing the court's sanction of the scheme.

Detailed Analysis:

1. Sanction of a Scheme of Amalgamation
The application was made under sections 391 and 394 of the Companies Act, 1956, for sanction of a scheme of amalgamation between Kusum Products Ltd. and Kusum Agrotech Ltd. The entire undertaking of Kusum Agrotech Ltd., including all assets and liabilities, was to be transferred to and vested in Kusum Products Ltd.

2. Compliance with Statutory Formalities
Separate meetings of the equity shareholders of both companies were held on August 4, 1995, following a court order dated June 28, 1995. The meetings were convened to consider and approve the scheme of amalgamation. The scheme was approved by the requisite majority of the shareholders of both companies, with no complaints regarding non-receipt of notice or defects in the explanatory statement. The statutory formalities were duly complied with, and the petition under section 391(2) was properly made for sanction of the scheme.

3. Objections to the Exchange Ratio and Valuation Methods
Tamal Kumar Majumdar, who purchased 100 equity shares after the scheme was propounded, opposed the scheme, arguing that the ratio of exchange was unfair to the equity shareholders of Kusum Agrotech Ltd. He contended that the valuer did not follow the Central Government guidelines regarding valuation of shares and did not consider contingent liabilities. The court noted that the valuation was made by a reputed firm of chartered accountants and that no proper charge of fraud was established.

4. Allegations of Unfairness and Procedural Irregularities
The objections raised by Tamal Kumar Majumdar included:
- Unfair exchange ratio.
- Valuer not considering auditor's remarks and contingent liabilities.
- Non-compliance with Central Government guidelines on share valuation.
- Procedural irregularities in the appointment of the scrutineer and reliance on interested parties.

The court found that the objections did not demonstrate manifest unreasonableness or fraud. The valuation methods adopted were consistent with the principles laid down by the Supreme Court in Hindustan Lever Employees' Union v. Hindustan Lever Ltd.

5. Legal Principles Governing the Court's Sanction of the Scheme
The court emphasized that if statutory formalities are complied with, and the scheme is fair and reasonable, the court would proceed to sanction the scheme. The onus lies on those opposing the scheme to prove it is unfair, unreasonable, or fraudulent. The court referred to several precedents, including Hindustan General Electric Corporation Ltd., In re, and Sussex Brick Co. Ltd., In re, which support the principle that the court should not interfere with the business decision of the shareholders unless there is manifest unreasonableness or fraud.

Conclusion
The court concluded that the scheme of amalgamation was fair and reasonable, and all statutory formalities were complied with. The objections raised did not demonstrate any manifest unreasonableness or fraud. Therefore, the court sanctioned the scheme of amalgamation and dismissed the objections raised by Tamal Kumar Majumdar. The petitioners were ordered to pay costs assessed at 100 G. Ms. to the Central Government. The request for a stay of the operation of the order was denied.

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