2015 (11) TMI 193 - HC - Companies Law

Amalgamation - scheme of arrangement - Held that - Mere fact that one of the Chartered Accountants/Valuers is a statutory auditor of the transferee company does not lead to a reasonable inference that the choice of such Valuer was stage-managed by Tata Tea Ltd and a statutory auditor has an independent role to play if he has to effectively perform his part. That the imputations of bias cannot lightly be made against a professional Chartered Accountant who is expected to discharge the duties according to the obligations cast on him by the Statute and the well-established principles of professional conduct and etiquette. On a careful consideration of the Valuation report, pleadings and submissions of learned counsel for all the parties, no interference with the Valuation report is warranted and there is no need for appointing an independent Valuer, as requested by the objectors. In the light of the above noted facts and having regard to the reports submitted by the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad and the Official Liquidator, this Court is of the opinion that the proposed composite scheme of arrangement is in conformity with the provisions of the Act and the same does not in any manner affect the interests of any of the stake holders including the public. Therefore, the proposed composite scheme of arrangement is approved and the petitioners shall, within 30 days from the date of receipt of a copy of this order, cause a certified copy of this order to be delivered to the Registrar of Companies, Telangana and Andhra Pradesh, Hyderabad for registration and take all other consequential actions in pursuance of the approval of the composite scheme of arrangement.

Issues Involved:
1. Sanctioning of the proposed composite scheme of arrangement between the transferor and transferee companies.
2. Valuation of shares and objections raised by minority shareholders regarding the valuation process.
3. Alleged conflict of interest involving the appointed Valuer.

Detailed Analysis:

1. Sanctioning of the Proposed Composite Scheme of Arrangement:
The transferor company, incorporated as M/s Astrix Laboratories Limited, and the transferee company, M/s Mylan Laboratories Limited, sought approval for a composite scheme of arrangement. The transferor company aimed to amalgamate into the transferee company to achieve synergies, strengthen their market position, improve financial strength, and realize operational efficiencies. The scheme was approved by the Boards of Directors of both companies. The court dispensed with the shareholders' meeting for the transferor company and conducted meetings for unsecured creditors, equity shareholders, and unsecured creditors of the transferee company, all of whom voted overwhelmingly in favor of the scheme. The Regional Director and Official Liquidator reported no objections or issues with the companies' statutory compliance.

2. Valuation of Shares and Objections Raised:
The primary issue in dispute was the valuation of shares, particularly the fairness of the valuation process. The minority shareholders were to be paid INR 387 per share, as determined by an independent Valuer, Price Waterhouse & Co., LLP. The objectors raised two main objections:
- The Valuer was not independent, having allegedly advised one of the major shareholders, Mylan Luxembourg 2 S.a.r.l.
- The Valuer did not make a fair valuation, specifically by not considering the Net Asset Value approach.

The court emphasized that its role under Sections 391 and 394 of the Companies Act is supervisory, not appellate. It relied on precedents, including the Supreme Court's judgment in Miheer H. Mafatlal vs. Mafatlal Industries Ltd., which stated that the court should respect the commercial wisdom of the shareholders unless there are serious defects in the valuation. The court found that the Valuer provided valid reasons for not using the Net Asset Value approach, stating that it would not be a good indicator of realizable value and would result in a lower share value of INR 135. The court concluded that the Valuer's methodology, which included the Income approach and Market approach, was appropriate.

3. Alleged Conflict of Interest:
The objectors claimed that Price Waterhouse & Co., LLP had a conflict of interest as it had previously advised Mylan Luxembourg 2 S.a.r.l. The court found no merit in this objection, noting that the Valuer was not related to the transferee company or its major shareholders in any capacity that would affect its independence. The court referenced a similar case, Vadlamudi Rama Rao vs. M/s Asian Coffee Ltd., where it was held that professional auditors are expected to discharge their duties independently and without bias. The court saw no reason to doubt the Valuer's independence or the validity of the valuation report.

Conclusion:
The court rejected the objections raised by the minority shareholders, finding no serious anomalies in the Valuation report and no evidence of bias or conflict of interest involving the Valuer. The proposed composite scheme of arrangement was deemed to be in conformity with the provisions of the Companies Act and not prejudicial to the interests of any stakeholders, including the public. Consequently, the scheme was approved, and the objectors' applications were dismissed. The petitioners were directed to deliver a certified copy of the order to the Registrar of Companies for registration and take all necessary consequential actions.

← Previous Next →