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TMI Blog2002 (6) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting held on 8-9-2001 be sanctioned so as to binding on the appellant-company and all the members and creditors of the appellant-company effective from 1-1-2001, have been rejected by the learned Single Judge. 2. The said company petitions are filed under sections 391 and 394 of the Companies Act, 1956 ( the Act ). Annamallai Finance Co. Ltd. is the transferee-company and Shiva Texyarn Limited is the transferor-company. In company Application Nos. 638 and 639 of 2001 taken out by the abovesaid companies to hold and conduct a meeting of the shareholders of the company for the purpose of considering and approving the scheme of amalgamation, this Court directed the convening of the meeting of the equity shareholders of the transferor and transferee companies under section 391 on 8-9-2001 on 10.30 AM at 252, Mettupalayam, Coimbatore at the place specified. This Court also directed publication of the company petitions in leading English and Tamil dailies. After conducting the meeting of equity shareholders as directed by this Court, of both the transferor and transferee companies, the Chairman has filed the above applications with the prayer as stated above. 3. The Regional Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each equity share in the transferor-company, though a premium is proposed by the Directors in the scheme at the rate of Rs. 5 per share, as to how the said amount has to be paid back and kept in reserve or kept in deposit or kept in investment is not disclosed. Such premium amount as proposed is a substantial amount and it benefits the promoters of the company and directors, who hold the major portion of the shares as seen from the shareholding partners of both the campanies. Though there are thousands of shareholders, the substantial number of shares will be in the hands of Shiva Distilleries, its directors or associates, who are also the subscribers of the shares in the names of various companies of which either as shareholder or a partner or a director, as the case may be. The seven shareholders of the Shiva Texyarn are enable to have an undue advantage and extraor- dinary concession in detriment of other shareholders in the transferee-company. 6. The learned Judge further found that the Shiva Texyarn became a separate company just within a year and within few months thereafter the present move has been made and, according to the learned Judge, it is a calculated design by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Ministry of Law, Justice and Company Affairs, Government of India, wherein the Regional Director has stated that the affidavit filed by him in C.P. Nos. 227 and 228 of 2001 is exhaustive in nature, wherein the Department of Company Affairs has not objected the scheme and as such he has nothing to add furthermore than what has been stated in the said affidavit. 9. In order to appreciate the controversy, a little more facts, which are relevant to the issue under consideration are necessary. 10. The appellant Annamallai Finance Ltd., for brevity hereinafter referred to as the transferee-company , was incorporated on 28-5-1980 as a private limited company and was subsequently converted into a public limited company. The certificate of incorporation was issued on 25-11-1985 and the amended certificate of incorporation was issued on 3-12-1985 since the name of Annamallai Finance Ltd. was changed as Annamallai Finance Ltd. . The authorised share capital of the transferee-company is Rs. 22 crores divided into 2,20,00,000 equity shares of Rs. 10 each. The issue and paid-up capital is Rs. 11,25,24,000 divided into 1,12,52,400 equity shares of Rs. 10 each. The promoter Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1106.40 lakhs as at 31-12-2000. Further, 56 Wind Electric Generator owned by the Transferee Company having an installed capacity of 13,445 kilo Watts was among others utilised by the Transferor Company under an operational lease. Considering all this, it was proposed to merge the textile business of the transferor company with the Transferee Company and to give the Transferee Company a better source of revenue and better business opportunity. ( b )The scheme of amalgamation was to be effective from 1-1-2001. Every equity shareholder of the Transferor Company was to get three equity shares in the Transferee Company. The exchange ratio was determined based on report of Suri Co., Chartered Accountants and K Kandaswamy Associates, Registered Valuers. The shares of the Transferor Company were valued at Rs. 50.54 per share and the shares of the Transferee Company were valued at Rs. 16.46 per share. Though the valuer suggested higher value for the shares of the Transferor Company the Board of Directors of both the companies decided to value the share as Rs. 45 and Rs. 15, respectively. Since the shares of the Transferee Company were valued at Rs. 15, the proposal was to allot shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share Capital : Allotment of 103,52,121 Equity shares of fully paid-up (normal value of Rs. 10 each allotted in the ratio of 1:3) : Rs. 10,35,21,210 b . Statutory Reserve - Debenture Redemption Reserve as per Books of Transferor Company : Rs. 3,00,00,000 c . General Reserve - retained in business as reserve available to the equity shareholders : Rs. 27,97,18,185 d. Balance consideration adjusted by Share Premium on 103,52,121 Equity Shares of Rs. 5 per share (to be retained as Permanent Capital) : Rs. 5,17,60,605 Total : Rs. 46,50,00,000 17. As a consequence of merger, the shares to be allotted to the shareholders of Shiva Texyarn Ltd. are to be in the ratio of 1:3. Therefore, for accounting purpose, the consideration of Rs. 46,50,00,000 after deducting the statutory reserve and general reserve is required to be apportioned towards share capital by allotment of shares in the ratio of 1:3. While so allotting, inasmuch as the equity shares of Annamallai Finance Ltd. are of the value of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantage to the directors or putting the other shareholders in a disadvantageous position, so also the value. 19. As per section 78, the share premium cannot be transferred to any account other than security premium account and this premium can be utilised by the company only for the purpose enumerated in sub-section (2) of section 78, i.e., in paying the unused shares of the company to be issued to members of the company as fully paid bonus shares, in writing off the preliminary expenses of the company; in writing off the expenses of/or the commission paid or discount allowed on any issue of shares or debentures of the company; or in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. Hence, there is no question of paying back or keeping in reserve or keeping in deposit or keeping in investment arises as concluded by the learned Judge. Further, the premium has arisen only as a result of their peculiar difference in the net consideration remaining to be adjusted for allotment of shares at par and after deducting the reserve. Further, the shareholders neither obtain an advantage nor lose anything as a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or merger was not contrary to public interest. 22. In view of our discussion as to the exchange ratio of the shares of the transferee-company and transferor company-arrived at by the experts are followed in the Scheme, there cannot be any complaint as to the exchange ratio, i.e., 1:3 being against public interest. The premium of Rs. 5 for each equity share as provided in the scheme and the provision for accounting the same and the purpose for which the amount so accounted could be utilised are all governed by section 78. Hence, the applications for approval of the Scheme in our considered view deserve to be allowed. 23. In view of the above discussion, we are of the view that the reasoning given by the learned Judge is not in accordance with law and as such it is not sustainable and it has to be set aside. Both the original side appeals are allowed setting aside the Order dated 25-4-2002 made in the Company Petitions in C.P. Nos. 227 and 228 of 2001. The appellant-companies do file with the Registrar of Companies, Chennai, a certified copy of the Order within 30 days from the date of receipt of copy of this order. The parties to the Scheme of amalgamation or other p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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