2009 (6) TMI 583 - HC - Companies Law

Amalgamation scheme - Held that - No hesitation in taking the view that since the petitioner-company has complied with all the statutory requirements and formalities and the Regional Director as well as Registrar of Companies including the concerned Stock Exchanges have given their approval/consent to the proposed scheme and the scheme not being prejudicial to any stakeholders of the petitioner-company or public, the Petition deserves to be allowed.

Summary

Issues Involved:
1. Sanction of the scheme of amalgamation.
2. Compliance with statutory formalities.
3. Objections regarding undue haste and non-application of mind.
4. Validity and fairness of valuation and fairness reports.
5. Impact of pending legal proceedings and investigations.
6. Concerns regarding inter-company transactions and share acquisitions.

Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petition was filed by Reliance Industries Ltd. to obtain sanction for the amalgamation of Reliance Petroleum Ltd. (Transferor company) with Reliance Industries Ltd. (Transferee Company). The scheme was approved by the Board of Directors of both companies, and the exchange ratio was suggested by M/s. Ernst & Young Private Limited and M/s. Morgan Stanley India Company Private Limited, and further validated by Merrill Lynch and City Group Global Market India Ltd. The scheme received overwhelming support from equity shareholders, secured creditors, and unsecured creditors in their respective meetings held on 4-4-2009.

2. Compliance with Statutory Formalities:
The petitioner company complied with all statutory formalities, including obtaining approvals from the Bombay Stock Exchange and National Stock Exchange, and filing the necessary application seeking directions from the court to hold meetings of shareholders and creditors. The court directed the petitioner company to convene meetings on 4-4-2009, and the scheme was approved by an overwhelming majority of equity shareholders and unanimously by secured and unsecured creditors. The Regional Director and Registrar of Companies also consented to the proposed scheme.

3. Objections Regarding Undue Haste and Non-Application of Mind:
Objectors argued that the petitioner company acted with undue haste, as the decision to amalgamate was taken on 27-2-2009, and the valuation report was prepared by Morgan Stanley on 2-3-2009, followed by the fairness report and Board of Directors' approval on the same day. The court found that the process, although expedited, did not indicate non-application of mind. The reports took into account all relevant factors and methodologies for determining the swap ratio.

4. Validity and Fairness of Valuation and Fairness Reports:
The court noted that the valuation and fairness reports were prepared by renowned firms and were based on tangible material and methodologies such as net asset value, comparable companies' multiple (CCM) method, and historical and current market price method. The reports were found to be fair and reasonable, and the court emphasized that it cannot sit over the commercial wisdom of the majority of stakeholders who approved the scheme. The objectors failed to demonstrate any flaws in the valuation reports or provide an alternative expert report.

5. Impact of Pending Legal Proceedings and Investigations:
Objectors raised concerns about pending proceedings regarding a Gas Supply Agreement and other investigations against the petitioner company. The court observed that the facts relating to the proceedings were in the public domain and had been considered by the valuers. The pending proceedings would not impact the approval of the scheme, as they would continue irrespective of the merger.

6. Concerns Regarding Inter-Company Transactions and Share Acquisitions:
Objectors argued that 41% of the shares were acquired by group companies and expressed concerns about the elimination of inter-company transactions post-merger. The court found that the elimination of transactions between the transferor and transferee companies was a natural consequence of the merger. The argument regarding share acquisitions was not relevant to the approval of the scheme under section 391 of the Companies Act.

Conclusion:
The court concluded that the petitioner company complied with all statutory requirements and formalities. The scheme was not prejudicial to any stakeholders or the public, and the objections raised did not warrant rejection of the scheme. The petition was allowed, and the scheme of amalgamation was sanctioned. The court ordered the petitioner to pay costs to the Regional Director and stayed the operation of the decision for four weeks upon request from the objector.