1996 (3) TMI 456 - HC - Companies Law

Summary

Issues Involved:
1. Confirmation of the scheme of amalgamation.
2. Objections raised by Narayan Prasad Lohia.
3. Objections raised by the Central Government.
4. Compliance with statutory requirements.
5. Fairness and reasonableness of the scheme.
6. Financial positions of the petitioner companies.
7. Ratio of exchange of shares.

Issue-wise Detailed Analysis:

1. Confirmation of the Scheme of Amalgamation:
The application sought confirmation of the amalgamation scheme of petitioners Nos. 2 to 7 with petitioner No. 1. Separate meetings of the members of the petitioner companies were directed to be held to consider and approve the scheme. The meetings were duly held, and the scheme was unanimously approved by the members. An application under section 391(2) was subsequently made for confirmation based on the chairman's report.

2. Objections Raised by Narayan Prasad Lohia:
Narayan Prasad Lohia, representing a group of shareholders of the transferee-company, initially opposed the application. However, after two days of hearing, his counsel submitted that he had instructions not to oppose the application, citing ongoing settlement talks between family members.

3. Objections Raised by the Central Government:
The Central Government, represented by Mr. Susanta Kundu, raised several objections. The primary contention was that the transferee-company, E.I.T.A. India Ltd., does not carry on business in shares like the transferor-companies and that the amalgamation clause in the memorandum of association does not permit the present amalgamation. It was argued that the memorandum defines the limitations of the company's power and any act not authorized is ultra vires. Mr. Kundu cited several decisions, including Pacific Coast Coal Mines Ltd. v. Arbuthnot and Ashbury Railway Carriage and Iron Company v. Riche, to support his argument.

4. Compliance with Statutory Requirements:
The court examined whether the statutory requirements were complied with, including the convening and holding of meetings and approval of the scheme by the requisite majority. The chairman appointed for the meeting performed duties such as issuing notices, advertising the meetings, presiding over the meetings, and submitting a report to the court. The notices and explanatory statements were settled by the Assistant Registrar (Company) of the court, and individual notices were sent to all members. The court found that all formalities under the statutes were complied with.

5. Fairness and Reasonableness of the Scheme:
The court referred to the Supreme Court decision in Hindustan Lever Employees' Union v. Hindustan Lever Ltd., which held that the court's jurisdiction in sanctioning a merger is founded on fairness and not on mathematical accuracy. The court must be satisfied that the valuation was in accordance with law and carried out by an independent body. The court found that the scheme was fair and reasonable, and there was no fraud involved. The onus was on those opposing the scheme to prove it was unfair, unreasonable, or fraudulent, which they failed to do.

6. Financial Positions of the Petitioner Companies:
The financial positions of the petitioner companies were detailed in the petition. The transferee-company, E.I.T.A. India Ltd., was solvent with a significant excess of assets over liabilities. Similarly, the transferor-companies were also solvent with excess assets over liabilities. The court found no impediment in the amalgamation based on the financial positions of the companies.

7. Ratio of Exchange of Shares:
The ratio of exchange of shares was fixed by a reputed firm of chartered accountants. The court noted that valuation is a matter of opinion and, in the absence of any fraud, accepted the valuation and ratio of exchange. The court cited several decisions, including M.G. Investment and Industrial Company Limited v. New Shorrock Spinning and Mfg. Co. Ltd. and Hindustan Lever Limited, In re, to support its view. The court also noted that none of the shareholders raised any objection to the ratio of exchange, and the Central Government's objection on this point was not maintainable.

Conclusion:
The court confirmed the scheme of amalgamation, finding that all statutory formalities were complied with, the scheme was fair and reasonable, and there was no fraud involved. The objections raised by the Central Government were dismissed, and the scheme was approved as beneficial for all concerned. The court ordered in terms of prayers (a) to (i) of the petition and directed all parties, including the Registrar of Companies and the Official Liquidator, to act on a signed copy of the operative portion of the judgment.