2017 (12) TMI 1643 - AT - Companies Law

Scheme of Amalgamation - Tribunal discretion to reject the amalgamation - Held that - The Tribunal below has enough expertise to look into the Scheme of Amalgamation and can also see whether it is not just and fair to all shareholders. It has a duty to act in public interest. In the matter of company, it needs to see if it is in the interest of all the shareholders and the company. In the light of this it is desirable not to look into the mathematical details but a broad look at the scheme of amalgamation. If it shows that there are wide variation in the valuation as can be achieved, it will be desirable that expertise available in the Tribunal has to look so that unfair advantage does not flow to one of the group of shareholders or the other. We are noting in this case that the net worth as reported by the Tribunal below is ₹ 22.32 lakhs and the valuation at ₹ 5.05 crores is having a considerable variation making it imperative to have a broad look into it. The look by the Tribunal into the issue may not be looking into too much mathematics of the scheme and may be in the best interest and protection of the stakeholders. After noticing the same the Tribunal has come to the conclusion that the Scheme of amalgamation is beneficial to the promoters only. The Tribunal has justified its discretion to reject the amalgamation. We do not find mitigating factors to differ with the same.

Summary

Issues Involved:
1. Compliance with statutory requirements.
2. Validity of the Scheme of Amalgamation.
3. Valuation and financial benefit to promoters.
4. Public interest and fairness to shareholders.
5. Jurisdiction and role of the Tribunal.

Issue-wise Detailed Analysis:

1. Compliance with statutory requirements:
The appellants complied with all statutory requirements and obtained no-objection certificates from relevant authorities, including the Registrar of Companies, Regional Director, Official Liquidator, and the Bombay Stock Exchange. Despite this, the National Company Law Tribunal (NCLT), Hyderabad, rejected the Scheme of Amalgamation.

2. Validity of the Scheme of Amalgamation:
The Scheme of Amalgamation proposed the merger of Wiki Kids Limited (transferor company) into Avantel Limited (transferee company). The Tribunal scrutinized the scheme and found that Wiki Kids Limited had not commenced commercial operations since its incorporation in 2004 and had no profit and loss account, with income only from fixed deposits. The Tribunal noted that the scheme seemed beneficial only to the promoters, as the transferor company's value was significantly lower than the financial benefits projected.

3. Valuation and financial benefit to promoters:
The Tribunal observed that the valuation report, prepared by M/s Nekkanti Srinivasu & Co., Chartered Accountants, and the fairness opinion by M/s Mark Corporate Advisors Pvt Ltd, indicated that the share exchange ratio would disproportionately benefit the promoters. The Tribunal highlighted that the transferor company had not generated any revenue and the valuation was based on future projections, which were speculative. The scheme was seen as designed to benefit the promoters, with a financial benefit of approximately ?12 crores for a company valued at ?22.32 lakhs.

4. Public interest and fairness to shareholders:
The Tribunal emphasized that the scheme did not serve public interest and was not fair to all shareholders. The promoters of both companies were the same, and the merger would immediately benefit them, while other shareholders' benefits were contingent on future performance. The Tribunal concluded that the scheme was conceived to benefit the major common promoters of both companies, with negligible public interest, especially since the transferee company was a listed company with over four thousand shareholders.

5. Jurisdiction and role of the Tribunal:
The Tribunal's role is to ensure that the scheme is fair and just to all shareholders and in the public interest. The Tribunal has the expertise to scrutinize the scheme and ensure that it does not unduly benefit a particular group of shareholders. The Tribunal noted that it should not delve into the commercial wisdom of the stakeholders but must ensure that the scheme does not result in unfair advantages. The Tribunal's decision to reject the scheme was based on its assessment that the scheme was beneficial only to the promoters and not in the public interest.

Conclusion:
The appeal was rejected, and the Tribunal's decision to not sanction the Scheme of Amalgamation was upheld. The Tribunal's discretion to reject the scheme was justified, as the scheme was found to be beneficial only to the promoters and not in the public interest. The appeal was dismissed with no order as to costs.