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TMI Blog1998 (9) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferor-companies with the transferee-company. The scheme of amalgamation was approved unanimously by the share-holders of the second transferor-company and of the transferee-compa- ny. The shareholders of the first transferor-company approved the scheme by an overwhelming majority to the extent of 99.61 per cent of the shareholding. The objections of four shareholders of the first transferor company are referred to hereinafter. However, at the hearing of these petitions, the said shareholders have withdrawn their objections to the scheme of amalgamation as per the pursis signed by all of them and also by their learned advocate. The scheme of amalgamation was also approved by the secured creditors of the first transferor-company and of the second transferor-company. Similarly, the scheme was also unanimously approved by all the unse- cured creditors of the first transferor-company as well as by all the unsecured creditors of the second transferor-company. The transferee company has no creditor-secured or unsecured. 3. In response to the public notice, only one person, viz., Bhagyam International, a partnership firm claiming to be an unsecured creditor had lodged its obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of hearing of these petitions, no creditors or shareholders of any of the companies have raised any objection to the proposed scheme of amalgamation. 7. However, since the objections raised by the Official Liquidator on the basis of the report of the Chartered Accountant still subsist, it is necessary to deal with the same at some length. Ratnamani Engg. Ltd. (REL - First Transferor-company) 8. In respect of the first transferor-company (Ratnamani Engg. Ltd.- Company Petition No. 17 of 1986), the observations made by the Char-tered Accountant and the reply through the affidavit filed by Mr. Prakash Sanghvi, Chairman of Ratnamani Engg. Ltd. on different issues and the Court's observations/findings thereon are as under : Issue No. 1 : Availability of Report of Internal Auditor. Reply : There is no adverse comment made by the Chartered Accountant or the Official Liquidator. Issue No. 2 : The company has availed more tax deferment than sanc-tioned amount to the tune of Rs. 2.33 lakhs. Reply : The company had made the payment of above amount vide challan No. 33 dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate action in accordance with law for which the transferee-company shall remain accountable. Issue No. 5 : For unsecured loans/deposits taken from the group com-pany and others and given to the other companies, neces-sary papers, documents, formalities like resolution etc. are not presented for verification. Reply : Unsecured loans/deposits were taken in the ordinary course of business. The same did not require execution of any formal document. More so, when the persons giving loans/deposits did not insist for the same. The objections do not disclose the quantum of the depos-its/loans. In the facts and circumstances of the case, the objection cannot be treated so substantial as to warrant rejection of the scheme of amalgamation. This observa-tion shall not, however, prejudice the liability of the transferor-company for breach of any statutory provi- sions for which ultimately the transferee-company shall be liable. Issue No. 6 : In the year 1994-95 more interest rate is given to group companies as compared to the others. Reply : The allega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch at a premium of Rs. 5 per share on 18-4-1994. However, fair market price of the shares as per the erstwhile CCI formula is not calculated correctly, to that extent the prospectus is not guiding the investing public properly. Reply : It may be stated that in the year 1994 when the public Issue was made as per the guidelines of the SEBI it was open to the petitioner to charge any premium of its choice. There was no law, rule or regulation prohibiting a company like the petitioner from charging premium of its choice. This issue, therefore, is wholly irrelevant. According to the petitioner, it was justified in maintaining the books of account in the matter in which it has maintained. There-fore, justification of premium was rightly made. This issue is required to be discussed at some length. Hence, it is dealt with hereinafter. Issue No. 11 : Consent letter of the secured creditors is not given to the Chartered Accountant. Reply : On page 8 para 10 of the Official Liquidator's report, it has been confirmed that the consent letter of the secured creditors has been submitted. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two divisions belong to one company cannot mean that two divisions should not charge inter se. This becomes obvious because if the Saw Pipe Division were to take services from an outsider, it would have charged appropriate amount from the outsider. In order to show a relative profitability of the two departments it is must to make necessary accounting entries. The nature of service rendered by the Equipment Division was in its normal course of business and, therefore, amount of Rs. 65 lakhs charged was taken to profit and loss account. If at all the objection is tenable, it would be for the Income-tax Department and/or the Sales-tax Department to look into this aspect. Hence, sanction of the scheme for amal- gamation would not come in the way of the concerned authority looking into this aspect and the liability, if any, of this transferor-company would obviously be fastened upon the transferee-company. Issue No. 15 : Pending litigation for payment of dividend in transferor-company and issue of bonus shares excluding the share-holder of the transferor-company. Reply Pending litigation for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Looking to the reply, it appears that it would be a dispute between the Sales-tax Department and the second transferor-company. Therefore, the sanction of the scheme for amalgamation would not wipe out the liability, if any, because upon amalgamation the liability of the second transferor-company is to be taken over by the transferee-company. Issue No. 2 : The company has availed more subsidy than sanctioned amount of Rs. 5.79 lakhs. Reply : The petitioner-company has not availed of any excess subsidy. It is not conceivable to think that the Government would release subsidy greater than what a party would be entitled to. The petitioner was entitled to two different subsidies. One sanction letter was readily available and, therefore, the same was produced and the second sanc- tion letter could not be produced as it was not immediate-ly traceable. Here again, if at all there is any substance in this objection, it would be for the Industries Department of the State Government to look into the matter and the amalgam- ation would not dilute the liability, if any, which would be fastened upon the transferee-company upon ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above reply, the objection does not survive. Issue No. 7 : The consent letter of the secured creditors are not given to the Chartered Accountant. Reply : Secured creditors have granted the consent and copy of the same has been produced by the Official Liquidator. In view of the reply, the objection does not survive. Issue No. 8 : Fixation of exchange ratio. Reply : Exchange ratio has been worked out by C.C. Choksi Co., a leading Chartered Accountant. Their report is on pages 341 to 367 of Company Petition No. 17 of 1996 and their further comments are on pages 384 to 393 of the said proceedings. In view of the fact that the exchange ratio has been worked out by C.C. Choksi Co., a leading and reputed firm of Chartered Accountants and in view of the decision of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal ( supra ), it would appear that the role of the statutory authorities or of this Court in examining this question would be very limited. This issue is discussed in detail hereinafter along with the same issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue price of the fresh capital issue). The detailed calculation of the same can be found in Annexures A B respectively to the report of Mr. Kaushik Patel as against Rs. 13.25 as disclosed by the company in the prospectus. To that extent, it can be said that the prospectus is not guiding the investing public properly. 10.2 Prima facie the company does not seem to have attempted to give reply to the aforesaid specific objection and has contended that it was open to the petitioner to charge any premium of its choice as there was no law, rule or regulation prohibiting the company from charging premium of its choice. Its case before the Chartered Accountant Mr. Kaushik K. Patel was also that the prospectus did refer to the inter-departmental service charges. 10.3 While appreciating that the objection raised by Chartered Accoun- tant Mr. Kaushik K. Patel cannot be said to be irrelevant or unfounded especially in view of the low level of financial awareness of general investing public, and without shutting the door against any inquiry by the SEBI in this regard, it is only on account of the following redeeming features that the Court would not go to the length of holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by its shareholders in the Annual General Meeting held on 20-9-1995. " [Emphasis supplied] The objection raised by the Official Liquidator on the basis of the report of Mr. Kushik K. Patel is that though the effective date of amalgamation is 1-4-1995, the shareholders of the transferor companies (REL RFTPL) will not be entitled for the bonus shares issues by the transferee company (RMTL) as per resolution dated 20-9-1995 in the ratio of one equity share for two equity shares held. The company's reply to the above objection is that the exchange ratio is worked out as per the report of C.C. Choksi Co., a leading and reputed firm of Chartered Accountants. It is, therefore, necessary to refer to the value of the shares of the transferor companies and the transferee company under different meth- od as computed by C.C. Choksi Co. in their report dated 16-11-1995 : As on 31-3-1995 Value per share of Rs. 100 Rs 10 Rs. 10 RFTPL REL RMTL ( a ) Net asset value on the basis of book value 186 15 41 ( b ) Net asset value after considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge ratio fixed under the scheme. 13. The real question which arises for consideration of the Court is whether the Court is required to go into the merits of the objection raised by the official liquidator against the exchange ratio. As already stated above, almost all the shareholders and all the creditors of all three companies have to approve the scheme of amalgamation. In the case of Employees Union v. Hindustan Lever Ltd. AIR 1995 SC 470, the Supreme Court has laid down eight broad parameters for granting sanction under sections 391 and 394 of the Act. Most of the parameters provide for compliance with the requisite statutory procedures including approval by the requisite majority of the members and creditors of the companies in question and also for ensuring that the members and creditors act bona fide and are not coercing the minority. Parameter No. 5 requires that the requisite material contemplated by the proviso to section 391 (2) should be placed before the Court to the satisfaction of the Court. Parameter No. 6 is formulated as under : "6. That the proposed scheme of compromise and arrangement is not found to be violative of any provisions of law and is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same which cannot be said to be such as no reasonable person would have arrived at. General discussion and clarifications 14. The scheme has detailed the benefits which it will bring to all the three Companies under the same management group on account of amalgam-ation of the three companies including the minimization of administra- tion, marketing and operative costs which would increase the profitability of the company and which would also result into economies of scale and integrated operations, resulting in efficiencies in production and market- ing and also result into neutralization of cyclical adverse fluctuations to any segment of business by a better condition for any other segment of the business. Almost all the shareholders as well as all the creditors of the three companies have approved the scheme of amalgamation and there is no objection from any of the shareholders or any of the creditors to the scheme of amalgamation despite advertisement of the public notices of these petitions in two daily newspapers, viz., Times of India and Gujarat Samachar which have the largest circulation in the State. The objections raised by Chartered Accountant Mr. Kaushik K. Pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor companies with the transferee company. 17. In view of the above discussion, the scheme of amalgamation at Annexure "C" to each of Company Petition Nos. 17, 18 and 19 of 1996 is hereby sanctioned so as to be binding on all the equity shareholders of all the three companies and also on all the secured and unsecured creditors of the three companies. It is accordingly ordered that the entire undertakings and all the proper- ties, rights and powers of both the transferor companies be transferred to and vest in the transferee company pursuant to section 394(2) subject to all charges affecting the same and that all the debts, liabilities, dues and obligations of the transferor companies be transferred to and become the debts, liabilities dues and obligations of the transferee company with effect from 1-4-1995. All the proceedings pending by or against the transferor companies shall be continued by or against the transferee company. The present order of amalgamation will not absolve any of the transferor companies or its Directors or employees from the liability, if any, for breach of any law which might have been committed before this order of amalgamation nor will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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