9911796707
TMI Blog1999 (8) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... originally incorporated on May 7, 1945, in the name of Kamani Engineering Corporation Ltd. Thereafter the name was changed to the present name and a fresh certificate of incorporation consequent on change of name was issued by the Registrar of Companies on June 5, 1984. The transferor-company viz ., the petitioner-company has subscribed 3,23,85,854 equity shares of Rs. 10 each. Out of the authorised 7,50,00,000 equity shares of Rs. 10 each, the aforesaid 3,23,85,854 equity shares of Rs. 10 each have been fully paid-up. Apart from the aforesaid fully paid-up equity shares there are also 35,00,000 equity shares of Rs. 10 each partly paid-up to the extent of Rs. 2.50 per share. Over and above the same, 2,00,000 shares of 16 per cent, redeemable cumulative preference shares of Rs. 100 each are also paid-up. The, petition discloses that as per the last audited balance-sheet of the petitioner-company for the yean which ended on March 31, 1997, the petitioner company had reserves and surplus of Rs. 25,442.08 lakhs. It is also mentioned that they have investment of Rs. 12,048.82 lakhs, current assets, loans and advances of Rs. 66,467.23 lakhs. Against these assets the petitioner-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid proposed scheme of amalgamation. By an order dated October 3,1997, this court had directed that the petitioner-company to hold a meeting of fully paid-up as well as partly paid-up shareholders on November 17, 1997, for the purposes of considering approval with or without modifications to the aforesaid proposed scheme of amalgamation. The said order also had directed Shri Harsh Vardhan Goenka to act as a chairman of the said meeting and report the result of the said meeting to this court. The petitioner-company contends that as per the said order dated October 3,1997, notices of the said meetings were sent individually to all equity shareholders of the petitioner-company along with the scheme of amalgamation. It is also mentioned that as per the aforesaid order dated October 3,1997, a meeting of the fully paid-up equity shareholders as well as partly paid-up equity shareholders were duly convened and hold on November 17, 1997, in the morning at Patkar Hall, New Marine Lines, Mumbai 400 020. It is also stated that Shri. H. V. Goenka had acted as the chairman of the said meeting. It is further averred in the said petition, in the report of the chairman dated Decemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror-company and their respective members and will also enable the petitioner-company to carry on its business activity more economically and profitably and at the same time it will not prejudicially affect the rights and interest of the members of the petitioner-company, as also the rights and interests of the creditors of the petitioners company as also public interest. This scheme of amalgamation is being strongly opposed on behalf of the Kamani Employees Union wherein various employees are also shareholders in the said company. The shareholders and employees of the company have raised various objections with regard to the aforesaid amalgamation scheme contending that the statutory requirements as contemplated under sections 391 and 394 have not been complied with as well as the requirements as per the Companies (Court) Rules have not been complied with, as such the company petition for amalgamation scheme ought to be rejected. Learned counsel for the petitioner Shri Tulzapurkar states that the proposed amalgamation scheme ought to be approved. He submitted that pursuant to the directions of this court a meeting was held on November 17,1997, wherein both the fully paid-up sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the modification proposed which was rejected, 194 members have cast their vote with regard to the scheme. Out of 194,172 had voted in favour of the scheme and 11 members had cast their vote against. According to Shri Tulzapurkar total number of votes cast with regard to the proposed amalgamation was 194 and out of that 172 members either in person or by proxy or by the authorised representatives and holding 1,28,17,227 equity shares of Rs, 10 each and representing in value the sum of Rs. 12,81,72,270 had voted in favour of the scheme of amalgamation as proposed by the petitioner-company while 11 members either in person or by proxy or by authorised representatives and holding 695 equity shares of Rs. 10 each representing in value the sum of Rs. 1950 had voted against the scheme of amalgamation as proposed by the petitioner-company while votes cast by 11 members holding 81 equity shares of Rs. 10 each and representing in value the sum of Rs. 810 were declared invalid. Therefore, according to Shri Tulzapurkar, the majority of persons had approved the scheme. They are holding 99 per cent, of the value of the shares which is more than three-fourths of the value of the shares. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class whom they purported to represent. 8.That the scheme as a whole is also found to be just, fair and reason able from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9.Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the company court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the court's jurisdiction." S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality which may be affected by the letters in question. Interest shared by citizens generally in affairs of local, State or national government.' It is an expression of wide amplitude. It may have different connotation and understanding when used in service law and yet a different meaning in criminal law or civil law and its shade may be entirely different in company law. Its perspective may change when merger is of two Indian companies. But when it is with a subsidiary of a foreign company the consideration may be entirely different. It is not the interest of the shareholders or the employees only but the interest of the society which may have to be examined. And a scheme valid and good may yet be bad if it is against public interest." The apex court thereafter in para. 6 has observed as under (p. 39) : "The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered into between, parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle of, 'prudent business management test or that the scheme should not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to learned counsel the said material has been disclosed to this court and also there is no need to disclose further or later financial position. According to him what is required to be considered by this court is the financial position on the basis of which the shareholders took the decision. According to him this court is not sitting as an appellate authority but is acting in its supervisory jurisdiction. He also relied on the legal maxim actus curiae neminem gravabit meaning that an act of the court shall prejudice no man that is to say the court should not vitiate the decision taken by the shareholders after a lapse of time by holding that the subsequent material does not warrant; the decision taken at an earlier date. According to him, it is not the parties who are responsible for the gap between the date when the petition for sanction is presented to the court and the date on which the petition is ultimately heard. According to learned counsel the latest financial position means the actual financial position as on the date when the petition was filed under section 391(2). In that behalf Shri Tulzapukar had relied on the following judgments to contend that the latest fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal with the latest auditors report etc. wherein the court has held that the latest auditor's report of the company which is required to be disclosed is the one which would be available as on the date of filing of the application. Since the application was filed on August 8, 1997, the latest auditor's report would be the one relating to the financial year ending on December 31, 1996, which had been filed by the transferee-company. Shri Tulzapurkar also pointed out another judgment of the Delhi High Court in Bhagwan Singh and Sons P. Ltd. v. Kalawati [1986] 60 Comp Cas 94. In this case the Delhi High Court took a categorical view that as per the proviso to section 391(2) of the Companies Act, which lays down that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company has disclosed to the court all material facts relating to the company such as the latest financial position of the company, the latest auditor's report on the accounts of the company, etc. This has to be up to the stage when the petition becomes due for sanction. According to Shri Tulzapurkar in another judgment of the Delhi High Court viz ., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and notice was given in accordance with the rules and as far as public notice was concerned they had filed an application for condonation as per affidavit dated November 2, 1987. With regard to the contention that the resolution of authorising the representatives was not available at the relevant time, the contention is that the resolutions were deposited with the petitioner-company at various points of time much before 48 hours of the meeting date and as such there is substantial compliance with regard to all the objections raised. With regard to the fifth objection raised by the opponents that is to say non-compliance with the order of this court dated October 9,1997, in respect of the fully paid shareholders. According to learned counsel, that 21 days clear notice was given and that there is no lapse on their part. In this behalf it was argued that even if there was little deficiency in the 21 days notice, there is no prejudice to anyone. In support of this contention counsel relied on the judgment of this court in Shailesh Harilal Shah v. Matushree Textiles Ltd., AIR 1994 Bom 20 ; [1995] 82 Comp Cas 5 . In this case 20 days clear notice was given. The court came to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial so as to refuse the scheme. In that behalf, he relied on the judgment of the Karnataka High Court in the case of S. M. Holding Finance Pvt. Ltd. v. Mysore Machinery Manufacturers Ltd. ( In Liquidation ) [1993] 78 Comp Cas 432. In that case the Karnataka High Court has taken a view that section 391(2) is not mandatory but appears to be only directory in nature. Learned counsel for the petitioner also relied upon the judgment of the apex court in Mahanth Ram Das v. Ganga Das, AIR 1961 SC 882 and Kamaluddin v. Chhotelal, AIR 1987 MP 39, to show that the rules of procedure are meant to facilitate justice and not hamper justice. According to learned counsel for the petitioners, provisions of law have to be interpreted in such a manner that they facilitate in rendering proper justice and not hamper justice. With regard to the ninth ground of objection regarding amendments to the proposed scheme, learned counsel justified that the same was rightly rejected as indicated in the chairman's report. According to learned counsel the meeting was properly conducted and it did not vitiate the said rejection of amendments. With regard to the tenth ground of objection tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment have to be judged by the parties who are sui juris with their eyes open and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement. The court cannot, therefore, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties." According to learned counsel for the petitioner the court cannot sit in appeal over the commercial decision taken by the shareholders. According to learned counsel for the petitioner, the opponents have not produced any material before the court or any substantial reasons have been given to substantiate the reason given for contending that the share exchange ratio was unfair. He also relied on the observations of the Supreme Court in the same judgment as under (p. 835) : "it must at once be stated that the valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy." It has also observed at page 530 as under (p. 836 of 87 Comp Cas) : "It has also to be kept in view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not produced any material to justify that the scheme was against public interest. Learned counsel for the petitioner also disputes that the petitioner-company had adopted some dubious policies or that they have given the loans which are against public interest. According to learned counsel for the petitioner, the Delhi High Court has already considered in detail with regard to the transferor-company and there was nothing found objectionable. And as far as transferee-company is concerned no shareholder has grievance that the company has mismanaged and therefore the opponents cannot object to the said scheme. Learned counsel therefore has submitted that the amalgamation scheme is fair, reasonable and it is not against public interest and the same cannot be faulted with on any of the above grounds. Learned counsel for the petitioner has contended that the instant case is within the parameters as prescribed by the Supreme Court as well as various other High Courts, the amalgamation scheme ought to be sanctioned. The objections raised by the opponents are frivolous. Shri Tulzapurkar has contended that almost 99 per cent, of the shareholders support the scheme before this court and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sense that disclosure to the court is of material facts relating to the company and of any investigation proceedings. Shri Grover has also relied on the aforesaid judgment in Navjivan Mills Co. Ltd., Kalol, In re [1972] 42 Comp Cas 265 and contended that the said proviso to section 391(2) is mandatory and the same will have to be adhered to strictly. According to Shri Grover the wording of the proviso to section 391(2) is very clear which, in fact, enjoins the court not to sanction any scheme of amalgamation unless the court is satisfied with regard to the latest financial position. According to Shri Grover the final sanction of the amalgamation scheme is at the stage of final hearing of the petition and not at the stage of admission. According to him the "latest financial position" is not with regard to the date of the meeting of the shareholders or on the date of the filing of the petition. Shri Grover has also pointed out that the petitioners have deliberately not presented the latest financial position of the companies to the court though the objection has been taken repeatedly in their affidavit-in-reply as well as in arguments even then the petitioners have not chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to understand as to how on October 23, 1997, the shareholders were able to know that the meeting is likely to be held and the notices are likely to be despatched on October 25, 1997. According to Shri Grover very serious manipulations have been adopted on the records to justify proper compliance. According to Shri Grover there is a clear non-compliance with the mandatory provisions to secure requisite three-fourths support to the scheme of amalgamation as contemplated under section 391(2) of the Companies Act. Shri Grover also pointed out that as per rule 72 of the Companies (Court) Rules, the chairman's report must mention the number of persons who had attended the meeting. This is amply clear from Form 39 which contemplates a report wherein the number of persons who had, either in person or by proxy or by the authorised representatives, attended the meeting together with the total value of their shares which has to be specifically shown. He has also pointed out that names of the persons as per Form 40 which requires mentioning the number of persons who had attended the meeting either in person or by proxy or by their authorised representative together with their total value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rules as well as the said form. According to learned counsel for the opponents, Shri T. N. Balasubramaniam's affidavit dated July 8, 1999, filed after the arguments had commenced and submissions were being made tries to cover up the actual position. According to learned counsel for the opponents the total ballot slips were 1087. Actual number of voter's list there were only 309, whereas there are no details furnished as to what happened to the 788 balance persons. Learned counsel for the opponents has also objected to the procedure adopted by the petitioners with regard to the passing of the two resolutions. According to learned counsel due to the faulty procedure adopted by the petitioners, a large number of ballot papers were declared invalid. Learned counsel for the opponents had also pointed out that after almost three-fourths days of hearing the petitioners had produced various extracts of resolutions purportedly passed by those 19 shareholders companies in the month of October, 1997. It is clear that most of these resolutions purported to have been passed in October, 1997, have been typed on a fresh letterhead in a fresh condition and on none of these so called extracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid affidavit of Mr. Joglekar dated July 8, 1999. He has stated that after reading the copy of the affidavit dated July 8, 1999, he had personally taken inspection of the registers and other mail in the office of KEC on July 14, 1999. According to the said affidavit which clearly mentions that the petitioner has a centralised inward/outward section which receives a large amount of mail through post, courier, speed-post and by hand delivery. It further makes it clear that when the registered office was at Kamani Chambers, the centralised inward register was maintained by Mr. A. B. Shinde, a clerk in the Administration Department there. Now, Satish Biwankar is the concerned clerk who accepts the inward letters and affixes a stamp on the letter and enters the same in a register maintained by him. He has annexed copies of such letters. The said affidavit further discloses that after the inward clerk affixes the inward stamp along with the date on the incoming letter, the same is kept in a box and he informs the respective department to collect the mail and accordingly the respective department receives the same. The inward stamp is also affixed on the envelope. He has also annexed a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate shareholders purportedly claiming that they had ratified such authority and also ratifying the voting in favour such amalgamation scheme were produced. Shri Grover had also raised an objection that even the petitioners did not disclose special interests of directors or the effect of the amalgamation on those interests in the explanatory statement to shareholders of the petitioners as contemplated under section 393(1)( a ) of the Companies Act. According to learned counsel, the provisions of section 393(1)( a ) make it abundantly clear that all the directors whether in their capacity as members or creditors of the company or otherwise therein, their interests ought to be disclosed. According to learned counsel, the petitioner-company did not disclose the inter se cross holdings of the transferor and transferee-company. Learned counsel has also contended that the transferee-company is acting as a contractor for the transferor-company and that several of the creditors of the petitioner-company include companies in which the directors of the petitioner-company are interested, the names and particulars of the trustees of the debenture holders of the debentures issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the opponents had pointed out that the aforesaid amalgamation scheme was against public interest. According to learned counsel, the court ought to scrutinise the scheme whether the same is in public interest or not. Under the aforesaid facts and circumstances learned counsel for the opponents has strongly contended that the petitioner-company has not complied with the mandatory requirements under sections 391 and 394 of the Companies Act and also that the scheme was unfair, unjust and unreasonable. It is also contended that the majority of the shareholders appear to be acting in a mala fide manner and against the interests of the minority. Learned counsel appearing for E. I. D. Parry (India) Ltd., had relied on the affidavit of Shri S. Shamsuddin dated July 14,1999, that the financial position of the petitioner-company was steadily deteriorating. As set out in para. 9 of the said affidavit, the above position was as on March 31, 1998. It is also mentioned in the said affidavit that the above position was as on March 31, 1998 and the position regarding March 31, 1999, was not known. Learned counsel has referred to eight points in para. 9 of the said affidavit which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit for the year has come down from Rs. 4686 lakhs to Rs. 2,655 lakhs. Similarly the amount of dividend that is proposed has also been reduced from Rs. 1,274 lakhs to Rs. 1,103 lakhs. All these figures indicate that the profitability of the petitioner is under a severe threat. Similarly the balance-sheet also reveals that the liability of the petitioner had increased from Rs. 29,991 lakhs to Rs. 40,840 lakhs as mentioned in the said affidavit. In the said affidavit it is also disclosed that various suits are filed against RPG-T for recovery. In various suits decrees have been obtained by the said creditors. If the company is to be amalgamated their rights will be frustrated. Learned counsel for the petitioner-company had also referred to the affidavit of Shri T. N. Balasubramaniam dated July 22, 1999, wherein the xerox copies of letters dated July 12, 1999, of Life Insurance Corporation of India, dated July 16,1999, of General Insurance Corporation of India and Unit Trust of India are annexed. These letters also admittedly appear to have come on record since repeatedly queries were raised whether the three financial institutions viz ., LIC, GIC and UTI have granted the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amalgamation, it is pertinent to note that a large number of employees are also shareholders in the petitioner-company, hence even learned counsel for the company has categorically conceded that they as shareholders are entitled to object. As far as the employees are concerned they have a right to object with regard to an amalgamation as the employees are the backbone of the petitioner-company and their interests ought to be protected and in fact it has been held that even in a company winding up petition, employees are entitled to be heard since company if wound up, the employees interest should be directly affected. Applying the same analogy if a particular amalgamation scheme were to be prejudicially affecting the employees, employees' interest ought to be protected. In fact, this court in the judgment Industrial Credit and Investment Corporation of India Ltd. v. Financial Management Services Ltd. [1998] 98 Comp Cas 241 ; [1998] 3 Bom CR 471, has observed that a wider interpretation will have to be given with regard to the "voters". In fact, in this context the Supreme Court has held in National Textile Workers' Union v. P.R. Ramakrishnan [1983] 53 Comp Cas 184 ; A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as the financial position should be when the matter is due for sanction. Obviously, it means at the time of final hearing of the petition and this requirement is statutory since the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp Cas 792 ; AIR 1997 SC 506, has categorically held that all the statutory requirements have to be strictly complied with before sanctioning amalgamation scheme. Therefore what is required is the latest financial position at the time of final hearing of the application, i.e. , at the time of sanctioning. Our High Court in Bharat Synthetics Ltd. v. Bank of India [1995] 82 Comp Cas 437, has categorically held that the petitioners have not placed before the court, its authenticated latest financial position and deprecated the manner in which the company had not cared to do the same. In the present case the petitioners have failed to place before the court, the latest financial position of the company which is a mandatory statutory requirement. Therefore, I hold that the petitioner-company has failed to place before the court the "latest financial position" which is a mandatory requirement under section 392 of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on fresh letterheads without any reference numbers. Another important aspect is that the resolutions have come from various parts of India to the petitioner-company, strangely most of the so called resolutions bear no covering letters to the resolutions, nor any inward registered number, stamp etc. is being given to them. Prima facie, most of them appear to have been prepared subsequently. When questioned as to the authenticity of these purported resolutions, the petitioner-company after a couple of weeks filed affidavits of these 19 corporate shareholders mentioning therein that those resolutions were passed in 1997 and also subsequent thereto in the month of April-May 1999, the said company has held the meetings of the board of directors which confirmed and ratified the decision of approving the proposed scheme of amalgamation. This is to also rather strange that there is no such ratification for almost two years and if this were to be really true then the company could have very well filed this affidavit before the matter commenced for hearing. One also wonders as to what was the need of such resolutions of ratifications, which are not normally done, when there are proper reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early borne out that the petitioner-company still has an inward and outward section with appropriate inward and outward registers, from the affidavit of Shri Thankappan. The next objection is whether there is requisite majority to support the scheme of amalgamation. The chairman's report unfortunately is not in accordance with the format prescribed as well as in accordance with the rules. Shri Grover also pointed out that from the number of attendance slips and the number of the votes cast, there is no explanation whatsoever as to why such a large number of persons were not present at the time of voting. There are a number of discrepancies in the voting procedure and the manner in which the voting and counting had taken place. With regard to the improper passing of the resolutions it is an admitted position that only one vote was cast by the respective representatives on behalf of 19 shareholders, and these authorisations are prima facie fabricated and concocted as stated hereinabove. With reference to the objections of non-disclosure of any interest of directors as mentioned hereinabove, as held in the judgment of the court in Comp. Cas. Mills Co. Ltd., In re, AIR 1962 Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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