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TMI Blog2002 (2) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... micals and other products. The demerged company, i.e., Darshak Ltd. was incorporated in the year 1972, with its registered office situate in the State of Karnataka. Earlier Darshak Ltd. had also been acting as a marketing agent for selling and distribution of the products of Alembic Ltd. in the southern India region. Darshak Ltd. also entered the manufacturing field in 1996 for manufacturing bulk drugs. It came out with a public issue and a rights issue of shares to meet its financial requirements. However, Darshak Ltd. could not perform well and has been incurring losses which are attributed to the bulk drug division, as the other operations are found to be profitable even now. On account of the losses of the bulk drug division, Darshak Ltd. is making overall losses since last two years. Since Alembic Ltd. is looking forward to enter into the highly potential USA market in a big way, it requires approval from the United States Federal Drug Authority (USFDA). However, in view of the stringent requirements being stipulated by the said authority which Alembic Ltd. cannot provide for at its existing manufacturing plant in Baroda, and also because Alembic Ltd. is required to manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demerger, as certified by the statutory auditors of Darshak Ltd. as detailed in the schedule and the other liabilities shall be paid and discharged by Alembic Ltd. The operations of Darshak Ltd. shall not stand dissolved or wound up by virtue of sanction to the proposed scheme and Darshak Ltd. shall continue with its business as a going concern for the remaining undertakings, i.e., other than the bulk drug division. Procedure Meetings Results. Alembic Ltd. filed Company Application No. 231 of 2001 before this court and by order dated August 9, 2001, this court directed Alembic Ltd. to convene separate meetings of the secured and unsecured creditors of the company and the workers of Alembic Ltd. for considering the scheme of arrangement and restructure. As far as the shareholders of Alembic Ltd. is concerned, this court directed by the aforesaid order to obtain approval of the equity shareholders to the proposed scheme by way of postal ballots as envisaged under the Companies (Passing of Resolutions by Postal Ballot) Rules, 2001. Notices of the meetings were advertised in Indian Express and Jansatta (both Baroda editions) of August 29, 2001, and also in Indian Express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and restructure. While admitting the petition on October 12, 2001, this court directed public notice to be advertised in Indian Express (English) and Jansatta (Gujarati), both Baroda editions as the registered office of the petitioner-company is situate at Baroda. The notice in the Official Gazette was dispensed with. Notice was also ordered to be issued to the Central Government. In response to the aforesaid notice to the Central Government, Ms. P.J. Davawala, the learned additional standing counsel for the Central Government has produced a photostat copy of the letter dated December 11, 2001, from Mr. S.K. Mandal, Registrar of Companies, Gujarat, to the learned additional standing counsel stating that the matter may be left to this court to decide on the merits. The learned additional standing counsel has submitted that the Central Government has no objection to appropriate orders being passed by this court on the merits as the Central Government does not propose to oppose the sanction being granted to the scheme of arrangement and restructure proposed by the petitioner-company. Objections to the proposed scheme. In response to the public notice published in the news ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)( a ) have been held. 2.That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391(2). 3.That the concerned meetings of the creditors or members of any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4.That all necessary material indicated by section 393(1)( a ) is placed before the voters at the concerned meetings as contemplated by section 391(1). 5.That all the requisite material contemplated by the proviso to sub-section (2) of section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. 6.That the proposed scheme of compromise and arrangement is not found to be violative of any provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f M/s. Sharp and Tannan Associates, chartered accountants. In their report dated April 17, 2001, the chartered accountants have referred to the following valuation techniques which are generally used in ascertaining the fair value of a business : ( a )Net Asset Value (NAV); ( b )Profit Earning Capacity Value (PECV); ( c )Combination above; ( d )Valuation based on Discounted Cash Flow technique (DCF). The chartered accountants have then discussed the merits and demerits of the different techniques and thereafter suggested that since the DCF method captures all the elements of the value of a business compared to the other methods, the DCF method comprehends the difference bet-ween the values of firms having similar accounting earnings due to the difference in capital investments and other cash flows required to sustain these earnings. By adopting the said technique, the chartered accountants have worked out the fair value per share of Alembic Ltd. and Darshak Ltd. as under : CompanyValuer per share Alembic Ltd.Rs. 287.17 Darshak Ltd.Rs. 15.91 The chartered accountants have, therefore, suggested that on the basis of the aforesaid fair value per share, they consider f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n value) out of the shareholders who res-ponded to the postal ballot under the Companies (Passing of Resolutions by Postal Ballot) Rules, 2001. The scheme is also unanimously approved by the secured creditors and all the unsecured creditors who were present at the meeting convened pursuant to the orders of this court in Company Application No. 213 of 2001. In view of the above, the first as well as the second objections raised by the objector cannot be sustained. Objection No. ( iii ) Non-disclosure of directors interest. Coming to the third objection, the objector has submitted that the information presented to the shareholders along with postal ballot papers indicated the shareholding of the directors in their individual capacity as on June 30, 2001, in the demerged company and also in the resulting company, but the brochure did not give details about the shareholding of the companies in which the directors are substantially interested and having controlling interest in such other companies which are holding shares in Alembic Ltd. and Darshak Ltd. In this connection, it is necessary to refer to the provisions of section 393 of the Act. The relevant provision of section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial position as at the time of final hearing of the petition. It is submitted that the petitioner has not complied with this mandatory statutory requirement. The proposed scheme is to come into effect from April 1, 2000. The chartered accountants in their report dated April 17, 2001, have also stated that they had undertaken the valuation of the bulk drug division of Darshak Ltd. and determined the share exchange ratio between Alembic Ltd. and Darshak Ltd. as at March 31, 2000. The chartered accountants have also considered the financial position of the two companies as at March 31, 2000. Pursuant to the orders passed by this court on August 9, 2001, the meetings were convened on September 29, 2001, and after approval of the proposed scheme by all the secured creditors and unsecured creditors present and voted at the meeting and by 99 per cent of the shareholders who responded through postal ballot, the scheme came to be presented on October 11, 2001, for sanction of this court. Hence, it is obvious that on the date of filing this application, i.e., October 11, 2001, the company could have produced only the audited accounts of Alembic Ltd. as at December 30, 2000. Th ..... 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