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Issues involved: Application for sanctioning the scheme of amalgamation under section 394A of the Companies Act, valuation of shares, objections by the Regional Director of the Company Law Board, public interest safeguarding, undervaluation concerns, official liquidator's report.
Scheme of Amalgamation: The transferor-company, a large public limited company, sought amalgamation with the smaller transferee-company. The scheme involved issuing 7 shares of the transferee-company for every 4 shares of the transferor-company. Both sets of shareholders unanimously approved the scheme, which also included changing the name of the transferee-company post-amalgamation. Valuation of Shares: The Regional Director raised concerns about undervaluation of transferor-company shares for determining the exchange ratio. Disagreement arose due to bonus shares issued in 1978, impacting the total number of shares. The auditors of the companies disputed the valuation method proposed by the Regional Director, emphasizing the importance of considering reserves in share valuation. Despite differing opinions on valuation methods, all shareholders accepted the valuation agreed upon by the auditors. Public Interest Safeguarding: The court highlighted that the purpose of involving the Regional Director under section 394A was to protect public interest during amalgamation schemes. The absence of dissenting shareholders and the unanimous approval of the scheme by all shareholders indicated no need for court intervention based on valuation fairness concerns. Undervaluation Impact: The court noted that any undervaluation, if present, would benefit the transferee-company with broader public shareholding, rather than affecting public interest negatively. The transferor-company, being larger with assets worth Rs. 2 crores, had a limited number of closely held shareholders compared to the transferee-company. Official Liquidator's Report: The official liquidator's report confirmed that the transferor-company's affairs were not conducted in a manner prejudicial to its members or public interest, further supporting the approval of the amalgamation scheme. Judgment: The court ordered in favor of the scheme of amalgamation, dismissing objections raised by the Regional Director regarding share valuation. Costs were imposed on the petitioners to cover the expenses of the Regional Director of the Company Law Board. The order required compliance within 30 days from the date of sealing, with immediate consolidation of files by the Registrar.
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