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TMI Blog2002 (10) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 the Scheme envisages the merger of Alstom Power India Ltd. 2A. Pursuant to the prescribed notices, the Regional Director by his affidavit dated 7th August, 2002 has stated that the scheme is not prejudicial to the interest of the creditors and shareholders. Similarly, the official liquidator has also under section 394(1) of the Companies Act, 1956 conveyed his no objection to the scheme and has categorically made a statement that the affairs of the company were not conducted in a manner prejudicial to the interest of their members and general public. 3. Pursuant to the orders and directions of the Delhi High Court, a meeting was held by the Alstom Systems Ltd. to consider the scheme by the shareholders/members and the members of the said company voted for the scheme. 4. Pursuant to the public notices, one Mrs. Darshana Kenia holding 5 shares in the transferee-company APIL and her father Shri Damji Ghalla holding 353 shares and her husband Mr. Prafulkumar Kenia holding 100 shares have opposed the scheme by filing an affidavit before this Court. They, however, did not attend the meeting of the shareholders personally or by proxy. Mr. P.R. Kenia appears to have acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Five equity shareholders holding 360 shares cast invalid votes. ( b )Out of 196 members who attended only two belonged to the Alstom group while 194 were other members. ( c )Neither the SBI as a shareholder attended or voted by proxy nor the IDBI as an equity shareholder voted against the scheme though they attended the meeting. ( d )The scheme was approved by 98.95% in number and 99.99% in value. ( e )115 unsecured creditors of value 38.35 crores attended. 114 unsecured creditors of value 38.32 crores voted for the scheme. One vote of unsecured creditor of value Rs. 3,12,040 was declared invalid. There was no vote cast against the scheme. 10. Shri Aspi Chinoy the learned Senior Counsel has given the salient features of the scheme and other relevant particulars which are as under: Under the scheme the name of APIL is to be changed to "Alstom Projects India Ltd." As per the scheme holders of : ( i )every 85 eq. shares of Rs. 10 in Alstom Transport Ltd. will get 50 new equity shares in Alstom Projects India Ltd. ( ii )every 85 equity shares of Rs. 10 in Alstom Systems Ltd. will get 78 new equity shares in Alstom Projects India Ltd. ( iii )Every 85 equity shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans due to the FIs/SBI and revive the company. After considering the offers made, the BIFR invited the ABB group to take management control, repay the principal sums due to the FIs/SBI and provide funds for the operations of APBL. In 1995 the ABB group acquired management and control of APBL under a BIFR scheme/Order dated 30th May, 1995. As per the Scheme of 1995 :- ABB group was required to induct Rs. 60 crores - 24 crores as equity; 28 crores as preference share capital and Rs. 8 crores as loans. ABB would have 76% equity capital. The ABB Group were to pay of the principal sums due to the FIs/SBI approximately Rs. 45 crores (Rs. 30 crores to SBI and 15 crores to FIs.). The FIs/SBI waived their overdue interest; approximately Rs. 20 crores which was guaranteed by the Government of India. Government s existing loan of Rs. 26 crores was converted to Rs. 4.6 crores equity shares and the balance Rs. 21.4 crores was converted to 10% cumulative preference shares redeemable in 2005. The Governments guarantee for the outstanding loans was to be released. The Government agreed to transfer dividend on the preference shares to the extent of 7.5% to the FIs/SBI and further ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospect of it recouping its accumulated losses, or of ever being in a position to redeem its preference shares. In fact absent such a scheme of merger with a healthy company APBL would be faced with a real prospect of liquidation. Facts re : APIL: APIL was incorporated in 1992 and with effect from 5-9-2000 its name was changed to Alstom Power India Ltd. APIL is engaged in the design, engineering, manufacturing, procurement, supply and commissioning, servicing and renovating and modernisation of power plants for utility and industrial users. Facts re : Alstom Transport Limited :- ATL was set up in 1997 is engaged in the designing, manufacturing, supplying and supporting large scale transportation systems including traction, signalling and train control. Alstom Transport had been making losses but has now turned profitable by virtue of having secured and executed orders for the Delhi Metro. Facts re : Alstom Systems Limited : ASL is engaged in the business of Transmission Systems Energy Management Markets, ASL has always been a profit-making company. 11. Shri Tulzapurkar, the learned Counsel appearing for the SBI, IDBI, the creditors has strongly opposed the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be jeopardised if the proposed scheme which is in violation of the provisions of the SICA and contrary to the public policy is sanctioned. Shri Tulzapurkar while elaborating the illegality in the scheme, submitted that the petitioners did not convene the meeting of separate classes of the shareholders, members, secured and unsecured creditors, who were distinctly and adversely affected. According to the learned Counsel, a separate meeting of the preferential shareholders viz., the SBI and the IDBI ought to have been convened as a separate and distinct class. Shri Tulzapurkar pointed out that since the opponents had not received the dividend, they became creditors under the law and, therefore, a separate meeting of this class ought to have been convened by the petitioners for approval of the proposed scheme. He pointed out that the petitioner-company had, under the BIFR scheme, allotted to the Government of India 21,40,000 10% cumulative preference shares of Rs. 100 each on 3rd August, 1995. Out of these the redemption proceeds of the preference shares of the value of Rs. 14.18 crores were assigned in favour of the SBI and value of Rs. 5.33 crores in favour of the IDBI aggregating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the company and the subsequent allottees of the other preference shares issued by the company from different classes to be entitled to consider separately on the basis of their interests while considering the proposed scheme of amalgamation. Shri Tulzapurkar also submitted that as the preference shareholders having not received dividend for two years, the Government of India became a distinct class under section 87(2)( b ) of the Companies Act and as such the Government of India was entitled to vote on all matters affecting the company. The Government of India was entitled to voting rights even at the meeting of the equity shareholders of the company as preference shareholders to whom dividend had not been paid for over two years as contemplated under section 87(2)( a ) and ( b ) of the Act. According to the learned Counsel, there was no commonality of interest of the other equity shareholders and the Government of India whose state of facts/rights are distinct and different but the petitioner-company having not given notice to Government of India to attend meeting of a separate class of cumulative preference shareholders whose dividend remained unpaid for a period of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctioned and hence it should not be sanctioned. Shri Tulzapurkar also submitted that the decision of the Calcutta High Court in the case of Zuari Chemicals v. ICICI delivered on August 8, 1995 in Matter No. 362 of 1995 is not applicable. The BIFR scheme still is in force qua the petitioner- company and, therefore, it cannot wriggle out of the scheme having enjoyed the benefits of that scheme. He further submitted that the petitioner-company has ceased to be a sick industrial company because of the sacrifices made by the opponents and not on its own efforts. Shri Tulzapurkar concluded that in both the schemes, the opponents alone are the losers and, therefore, the amalgamation scheme should not be sanctioned by this Court. 15. There are three other opponents who have been already described by me at the outset hereinbefore. They are the individual equity shareholders. The Opponent No. 1 is the wife of the Opponent No. 3 and she holds 5 equity shares of the petitioner-company. Opponent No. 2 is the father of the opponent No. 1 holding 353 shares of APIL and the opponent No. 3 holds 100 equity shares of APIL which appear to have been acquired by him in April 2002. It is the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the current auditors of the APIL who were in the best position to assess the valuation of the APIL. The learned Counsel reiterated his objection that the swap ratio cannot be regarded as fair or equitable or for the benefit of the minority shareholders. Shri Dwarkadas finally submitted that the opponents were threatened and were tried to be pressurised to withdraw the opposition to the scheme. A very serious allegation is made by the learned Counsel that in fact the opponent No. 3 was even offered an illegal gratification of Rs. 7.50 lakhs for this purpose. In effect and the net result of the scheme is total loss for the minority shareholders of the APIL. I may mention here that in the written submissions on behalf of the opponents, very minute and detail calculations are given which I have not referred to in its judgment. 17. The learned Counsel for their respective parties have relied upon the following judgments in support of their contentions: Shri A. Chinoy : ( i ) Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 10 SCL 70 (SC) ( ii ) Piramal Spg. Wvg. Mills Ltd., In re. [1980] 50 Comp. Cas. 514 ( iii ) Coimbatore Cotton Mills Ltd. and Lakshmi Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr. Dhavan has argued that TOMCO is not yet a sick company. That may be right, but TOMCO at this rate will become a sick company, unless something can be done to improve its performance. In the last two years, it has sold its investments and other properties. If this proposal of amalgamation is not sanctioned, the consequence of TOMCO may be very serious. The shareholders, the employees, the creditors will all suffer. The argument that the company has large assets is really meaningless. Very many cotton mills and jute mills in India have become sick and are on the verge of liquidation, even though they have large assets. The scheme has been sanctioned almost unanimously by the shareholders, debenture-holders, secured creditors, unsecured creditors and preference shareholders of both the companies. There must exist very strong reasons for withholding sanction to such a scheme. Withholding of sanction may turn out to be disastrous for 60,000 shareholders of TOMCO and also a large number of its employees. In view of the aforesaid settled legal position, therefore, the scope and ambit of the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." (p. 98) 18A. My learned Brother Dr. Chandrachud, J. in the case of Ion Exchange (India) Ltd., In re [2001] 32 SCL 56 has very rightly cited the observations of the learned Single Judge of the Gujarat High Court in Sidhpur Mills Co. Ltd., In re in AIR 1962 Guj. 305. The learned Judge indeed has very succinctly described the jurisdiction of the Company Court as under :- " . . . It is not for the court to scrutinise the scheme in the manner of a carping critic, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem of the alleged pernicious effects of the scheme. It is, therefore, too late in the day for him to contend that the scheme was unfair to him..." (p. 108) 20. In our case neither the financial institutions which are opponents of the scheme before this court nor the solitary Kenia family opposing the scheme very vehemently, through the learned counsel have cared or bothered to remain present in the meetings. The financial institutions ought to have considered their duty to have voiced their objections by attending the meeting. It is only legal ingenuity of the learned counsel to have very vociferously canvassed that the financial institutions ought to have been separately called in a separate meeting as they fell in a separate and distinct class as assigned preferential shareholders and unpaid dividend holders. If the management of the financial institutions were so conscious of such hair splitting of the matter, they ought to have written to the conveners of the meeting that they formed a distinct and separate class and that the meeting of such separate class should be convened separately. It is too late in the day to make submissions before the Company Court that they ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clares the same. The preference shareholders are entitled to get dividend in preference to the equity shareholders when the dividend is declared by the company. Similarly the class of creditors as secured and unsecured creditors has been properly carved out and meetings of all the four classes have been properly convened by the petitioners and also by the transferee-company. I do not find any violation of law as contended by the financial institutions. If we accept the contention of Shri Tulzapurkar in respect of the classification of the parties, it would be an endless affair as everyone would pose himself to be a separate and distinct class by himself. This is not what is contemplated by the class in section 391 of the Act. There is no other illegality which is pointed out by Shri Tulzapurkar appearing for the financial institutions as the opponents in the scheme. 22. In any case, both these institutions ought to have been more than anxious to safeguard their own interests by attending the meetings after receipt of the notices even without prejudice to their rights and contentions that they ought to have been separately and distinctly convened in a separate and distinct meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed creditors of APBL, 86 unsecured creditors of the value of Rs. 30.79 crores attended. 85 unsecured creditors of value Rs. 30.74 crores voted for the scheme. One secured creditor of value Rs. 4.48 lakhs voted against the scheme. The scheme was thus approved by 99.85 per cent of unsecured creditors in value and 98.84 per cent in number from those present. 26. To conclude, the scheme was opposed by one unsecured creditors of value Rs. 4.48 lakhs. Barring one such opposition, the scheme was approved by one and all from all the classes. One person cannot dictate his baseless commercial wisdom on the 99 per cent voters. If the majority cannot be allowed to coerce the minority, even the molecule or microscopic minority can never be allowed to stall the scheme approved by almost 100 per cent members. To do so, would be to mock at the vast majority who overwhelmingly are in favour of the scheme. Even minority cannot tyrannise the majority. 27. Let us now see the voting pattern and the commercial wisdom of the transferee-company i.e., APIL. It was submitted by Shri Dwarkadas that the transferors had nothing to lose but to gain from the scheme and, therefore, the scheme was approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong run. The unification of the functions of all the companies would certainly save the production cost and the operational cost. Duplication of the process work can be avoided and common overhead expenses can be reduced substantially. The members of both the companies have taken into account and consideration all these factors of the long run working of the companies after amalgamation. 31. I do not find any merit in the other submission of the learned Counsel that the petitioners ought to have approached the BIFR for modification of its earlier scheme and that this court has no jurisdiction to modify the BIFR scheme or to substitute any other scheme. There is no question of the petitioners approaching the BIFR as the scheme for their rehabilitation was implemented successfully as the sickness span of petitioners was over and they ceased to be a sick industrial company. The present scheme is for amalgamation of the several entities in the common interest of all so that after the sickness period they can be made financially viable to avoid future sickness. The present scheme has to be sanctioned by the Company Court and not by the BIFR. 32. Now dealing with the objections o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by APBL and APIL and ASL. The overwhelming majority of the APIL have favoured the scheme. The father and the daughter (Kenia) did not attend the meeting to oppose the scheme. Even Mr. P.R. Kenia could not and did not attend the meeting as he was not a shareholder of the APIL at that particular point of time but curiously enough, he purchased the shares of the APIL after the meeting in which the scheme was approved. If Shri Kenia had studied the scheme which was placed before the shareholders and if he was satisfied that the scheme was against the interest of the shareholders of the APIL, I fail to understand any good reason for him to have purchased 100 shares of the APIL. It appears that he has been set up for the purpose of opposing the scheme in the court by someone who is interested to topsyturvy or thwart the smooth sailing of the scheme. According to me, Shri P.R. Kenia lacks bona fides . 35A. In fact Shri Dwarkadas on behalf of Shri P.R. Kenia wants me to enter into the account books and the profit and loss account and the balance sheet of the companies, transferor and transferee. He in fact expects me to carry out the auditing of the accounts as a meticulous accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proxy only to record his dissent vote which was in the microscopic minority of 5 per cent as compared to the 95 per cent majority vote. Not only that, even before the Court he did not submit any contrary expert opinion regarding the valuation of shares of the transferor and transferee-companies for supporting his ipse dixit that the correct ratio would be 6:1. . . . It has also to be kept in view that which exchange ratio is better is in the realm of commercial decision of well informed equity shareholders. It is not for the Court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the entire scheme. . . . As stated earlier it was a sort of a package duly considering all imponderables and implicit factors which the shareholders had to keep in view for deciding whether to approve the scheme of amalgamation or not. The exchange ratio was only one of the items. They thought it fit in their commercial wisdom to accept the scheme as a whole along with the exchange ratio presumably in expectati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been accepted without demur by the overwhelming majority of the shareholders of the two companies or to say that the shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest. . . . " ". . . No grievance, therefore, can be made by the appellant at the stage of company petition proceedings for demonstrating the ratio to be ex facie unfair and unacceptable as the appellant would like to have it. . . ." ". . . But as a package deal when the scheme as a whole is examined and found to be advantageous to the economic and commercial interest of shareholders as a class only one or two items simpliciter for deciding the exchange ratio cannot tilt the balance as so many factors and aspects would enter that exercise. . . ." (pp. 114-119) 36. The main emphasis of the learned Counsel was on the computation of the net worth of the transferor and the transferee-companies and thereby to show that the book value of the APIL would be reduced from Rs. 21.52 to Rs. 17.68 and that the shareholders will not get dividend. Here again, I am of the opinion that the Company Court need not enter into su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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