2009 (7) TMI 791 - HC - Companies Law

Scheme of amalgamation - Held that - The only factum deserves to be recorded is that the High Court of Bombay in the case of the transferee company has accorded the sanction to the very scheme of amalgamation, may be keeping in view the interest of the shareholders of the transferee company, but the pertinent aspect is that the scheme is common and the sanction has been granted. Even if the interest of the shareholders of the transferor company, i.e., the petitioner herein is to be considered, in view of the observations made hereinabove, it cannot be said that the scheme is unfair to the shareholders of the transferor company, nor can it be said that the commercial decision taken by the shareholders in their commercial wisdom, deserves to be interfered with by declining the sanction at the instance of the objectors herein, more particularly when as observed earlier there is compliance with the statutory requirement for sanction to the scheme. In the result the petition is allowed. The scheme of amalgamation at exhibit G is sanctioned, subject to the observations made hereinabove in the present order.

Summary

Issues Involved:
1. Sanction of the scheme of amalgamation.
2. Validity of the shareholders' and creditors' meetings.
3. Fairness and adequacy of the valuation report.
4. Compliance with statutory requirements.
5. Allegations of mismanagement and misuse of funds.
6. Role and satisfaction of the Central Government and Official Liquidator.
7. Objections raised by minority shareholders.
8. Comparison with the decision of the Bombay High Court.

Issue-Wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petitioning transferor company, RPL, sought sanction for its amalgamation with the transferee company, RIL. The court noted that the scheme was approved by the requisite majority of shareholders and creditors. The fairness of the scheme was scrutinized, and it was found that the scheme was not unfair to the shareholders of RPL. The court emphasized that its role was not to sit in appeal over the commercial wisdom of the shareholders but to ensure the scheme's fairness and compliance with statutory provisions.

2. Validity of the Shareholders' and Creditors' Meetings:
Meetings of equity shareholders, secured creditors (class 1 and class 2), and unsecured creditors were convened as per court directions. The majority of equity shareholders and all secured and unsecured creditors voted in favor of the scheme. The court found that the statutory requirements for convening these meetings were duly followed, and the scheme was approved by the requisite majority.

3. Fairness and Adequacy of the Valuation Report:
The valuation report by Ernst and Young and other experts was scrutinized. The court noted that the experts considered three methods: Market Price Method, Comparable Companies Multiples' Method, and Net Asset Value Method. The exchange ratio of 1:16 was derived by giving appropriate weightage to these methods. The court found no material produced by objectors to contradict the experts' opinion and concluded that the valuation report was fair and beneficial to RPL shareholders.

4. Compliance with Statutory Requirements:
The court observed that all statutory procedures were complied with, including the production of the latest financial statements. The balance sheet used for the scheme was produced, and the court found no non-compliance with section 391(2) of the Companies Act.

5. Allegations of Mismanagement and Misuse of Funds:
Objectors raised concerns about mismanagement and misuse of funds by RIL's directors. The court clarified that granting sanction to the scheme would not shield any director from prosecution or cover up any mismanagement. The court emphasized that any ongoing prosecutions or inquiries would not be affected by the sanctioning of the scheme.

6. Role and Satisfaction of the Central Government and Official Liquidator:
The Central Government, through the Registrar of Companies and the Regional Director, found the explanations provided by the transferor company satisfactory and raised no objections to the scheme. The Official Liquidator's report, based on the Chartered Accountant's findings, concluded that the affairs of RPL were conducted within the objects of the memorandum of association and were not prejudicial to the interest of its members or the public.

7. Objections Raised by Minority Shareholders:
The court considered the objections raised by minority shareholders regarding the valuation report, non-compliance with statutory requirements, and allegations of mismanagement. The court found these objections to be without merit and concluded that the objections did not warrant rejection of the scheme.

8. Comparison with the Decision of the Bombay High Court:
The scheme of amalgamation was also sanctioned by the Bombay High Court for RIL, the transferee company. The court noted that the scheme was common and had been approved by the Bombay High Court, considering the interests of RIL shareholders. The court found no reason to interfere with the commercial decision of the shareholders of RPL.

Conclusion:
The petition was allowed, and the scheme of amalgamation was sanctioned. The court directed the petitioning company to pay the costs of the Central Government and the Official Liquidator. The operation of the order was suspended for two weeks to allow the objectors to approach a higher forum. The papers supporting the valuer's report and expert's opinion were returned to the petitioning company's counsel in a sealed envelope.