1996 (3) TMI 398 - HC - Companies Law

Summary

Issues Involved:
1. Confirmation of the Scheme of Amalgamation
2. Opposition by Shareholders
3. Objections by Central Government
4. Compliance with Statutory Requirements
5. Financial Solvency of Companies
6. Fairness of Share Exchange Ratio

Detailed Analysis:

1. Confirmation of the Scheme of Amalgamation:
The application sought confirmation of the Scheme of Amalgamation of petitioner Nos. 2 to 7 with petitioner No. 1. Separate meetings of the members of the petitioner companies were directed by an order dated 28-9-1994 to consider and approve the Scheme. The meetings, chaired by Court-appointed Chairmen, unanimously approved the Scheme. The application for confirmation was subsequently made under section 391(2) of the Companies Act, 1956, based on the Chairmen's report.

2. Opposition by Shareholders:
Initially, Narayan Prasad Lohia, representing a group of shareholders, opposed the application. However, after two days of hearing, the opposition was withdrawn as talks of settlement among family members were ongoing. The company's counsel noted that the company was neither aware nor concerned with the settlement, and it was irrelevant to the matter.

3. Objections by Central Government:
The Central Government, represented by Mr. Susanta Kundu, raised several objections:
- The transferee company, E.I.T.A. India Ltd., primarily engaged in transport business, did not carry on business in shares like the transferor companies.
- Clause B-7 in the memorandum and articles of association did not permit the present amalgamation.
- Some transferor companies lacked an amalgamation clause in their memorandum and articles of association.
- Section 17 of the Act allows for alteration of the memorandum to include an amalgamation clause, a procedure now governed by the Company Law Board.

4. Compliance with Statutory Requirements:
The Court examined whether statutory requirements were met, including the proper convening and holding of meetings and approval of the Scheme by the requisite majority. The Chairman's duties included issuing notices, advertising meetings, presiding over meetings, and submitting a report to the Court. Notices were sent to all members, and meetings were advertised in 'The Statesman' and 'Jansatta'. No shareholder of the transferor companies complained of non-receipt of notices or defects in the explanatory statement.

5. Financial Solvency of Companies:
The financial positions of the petitioner companies were detailed in the petition, showing that each company was solvent. For example, the transferee company, E.I.T.A., had assets exceeding liabilities by Rs. 23,59,72,637. Similar financial details were provided for each transferor company, demonstrating their solvency.

6. Fairness of Share Exchange Ratio:
Mr. Kundu contended that the share exchange ratio of 10:1 required scrutiny. The valuation by Bhuteria & Co., Chartered Accountants, was questioned. However, the Court noted that the ratio was fixed by a reputed firm of Chartered Accountants and accepted by the majority of shareholders. The Court referenced several decisions, including Hindustan Lever Employees Union v. Hindustan Lever Ltd., emphasizing that valuation is a matter of opinion and should not be interfered with if done by an independent body without fraud.

Conclusion:
The Court found that all statutory formalities were complied with, and the Scheme was fair, reasonable, and free of fraud. The objections raised by the Central Government were dismissed, and the Scheme was confirmed. The Court ordered in terms of prayers (a) to (i) of the petition and directed all parties, including the Registrar of Companies and the Official Liquidator, to act on the judgment.