2006 (1) TMI 245 - HC - Companies Law

Summary

Issues Involved:
1. Scheme of Amalgamation under sections 391 to 394 of the Companies Act, 1956.
2. Objection to the scheme by a minority shareholder.
3. Compliance with the Listing Agreement clauses 24(f), 24(g), and 24(h).
4. Validity of the voting process and the appointment of scrutineers.
5. Valuation method for determining the swap ratio.

Issue-wise Detailed Analysis:

1. Scheme of Amalgamation Under Sections 391 to 394 of the Companies Act, 1956:
The petitions were filed by the transferor and transferee companies to seek sanction for a scheme of amalgamation. The scheme included usual clauses regarding the transfer of assets and liabilities, and legal proceedings by or against the transferor company being continued against the transferee company. The board of directors of both companies approved the scheme, and shareholders' and creditors' meetings were held as per court orders. The scheme was overwhelmingly approved by the shareholders, with 99.99% in value voting in favor.

2. Objection to the Scheme by a Minority Shareholder:
An objection was raised by a shareholder holding 833 shares (0.008% of the transferee company). The objection primarily concerned the swap ratio specified in the scheme. The court found no evidence of mala fide intention or prejudice to any party, including the objector, resulting from the non-disclosure of certain information in the explanatory statement under section 393 of the Companies Act.

3. Compliance with the Listing Agreement Clauses 24(f), 24(g), and 24(h):
The objector argued that the transferee company violated clauses 24(f), 24(g), and 24(h) of the Listing Agreement, which required disclosure of pre and post-arrangement capital structure and shareholding pattern. The court held that non-compliance with the Listing Agreement does not bar a company from seeking sanction of a scheme of amalgamation under sections 391 to 394 of the Companies Act. The court noted that the transferee company had disclosed all material particulars to the stock exchanges, which had given their no-objection certificates. The court also emphasized that no prejudice was caused to any party by the alleged non-disclosure.

4. Validity of the Voting Process and the Appointment of Scrutineers:
The objector contended that the votes cast by him were wrongly declared invalid and that the scrutineers appointed by the Chairman were unsuitable. The court found no merit in these objections, noting that the Chairman's exercise of discretion in appointing scrutineers was proper and that there was no evidence of tampering with the ballot box.

5. Valuation Method for Determining the Swap Ratio:
The objector challenged the valuation method used to determine the swap ratio, arguing that different methods were used for the transferor and transferee companies. The court found that the valuation was conducted by an independent body (statutory auditors) and that the methodology used was reasonable and in accordance with law. The court cited the Supreme Court's observation that the jurisdiction of the company court in sanctioning a scheme of merger is founded on fairness, not mathematical accuracy.

Conclusion:
The court rejected the objections raised by the intervenor and sanctioned the scheme of amalgamation. The transferor and transferee companies were directed to pay costs to the Official Liquidator and Regional Director. The operation of the order was stayed till 1-3-2006 at the request of the intervenor.