9911796707
TMI Blog2001 (4) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... reaves P. Ltd. The name of that company came to be changed on 14-6-1979. The authorized capital of the transferor is Rs. 25 crores divided into 2,50,00,000 Equity Shares of Rs. 10 each. The issued, subscribed and paid-up share capital is Rs. 18,90,19,120 divided into 1,89,01,912 equity shares of Rs. 10 each fully paid-up. The transferor has been incorporated with the main objects inter alia of carrying on business as Machinists, makers of machinery, manufacturers or Pressed Bowls, mechanical engineers and iron founders. 3. The first transferee-company was incorporated on 2-7-1993. The authorised capital of the company is Rs. 5 lakhs divided into 50,000 equity shares of a face value of Rs. 10 each. The issued, subscribed and paid-up share capital of the company is Rs. 200 divided into 20 equity shares of Rs. 10 each fully paid-up. The second transferee-company was incorporated on 17-10-1996 with an authorised capital of Rs. 1 lakh divided into 10,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up share capital is Rs. 2000 divided into 200 equity shares of Rs. 10 each fully paid-up. 4. The transferor-company has two divisions : (1) The fire and security en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division, every shareholder holding equity shares in the transferor-company on the effective date or on such other date as may be specified by the Board of Directors of the first transferee shall be entitled to be allotted equity shares in the first transferee in the ratio of nine equity shares of the first transferee-company for every fifty equity shares held in the transferor-company. Similarly in clause 21 of the scheme, it has been provided that in consid-eration of the transfer of the fluid engineering division to the second transferee-company, every shareholder holding equity shares is the transferor-company on the effective date or on such other date as may be fixed by the Board of Directors of the second transferee-company shall be entitled to be allotted equity shares in the second transferee-company in the ratio of three equity shares in the second transferee-company for every five equity shares in the transferor-company. A provision has been made in clauses 8 and 18 of the Scheme for the transfer of the services of the workers of the transferor-company to the transferee-companies without interruption in service on the existing terms and conditions. 5. By an order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court, an objection has been raised to the scheme of arrangement by Mr. Vinod Jagmohandas Paymaster, an Advocate, who states that he holds 300 shares in the company. The objections which have been raised before the Court may now be consi-dered. ( i )The first objection which was sought to be raised was that a copy of the scheme of arrangement was not sent together with the notice of the meeting to the objector; The learned counsel appearing on behalf of the company stated that the objection is factually incorrect and that in compliance with the order passed by this Court, a copy of the scheme of arrangement was enclosed with the copy of the notice which was sent to each shareholder. The learned counsel has stated that the petitioner undertakes to file an affidavit in this proceeding recording the aforesaid statement on or before 23-4-2001. Insofar as the objection is concerned, it is stated that by the intervener before the Court that he received a copy of the notice on 10-1-2000. The meeting was scheduled to take place on 2-2-2000. On 1-2-2000, which was one day prior to the meeting, the objector submitted his objections to the proposed scheme of arrangement and at that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 or 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 of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the objector, the exchange ratio which has been specified in clauses 11 and 21 of the scheme was sought to be impugned. At the outset, before dealing with the grievances of the objector it will be necessary to state that a scheme of the kind involved in the present case must be distinguished from a scheme of amalgamation. In a scheme of amalgamation, the transferor-company seeks to be merged with the transferee-company as a result of which, the transferor-company as an amalgamating entity ceases to have any existence. In consideration of the scheme of amalgamation, shares are offered to the shareholders of the transferor-company in the transferee-company. The shares which are offered in the transferee-company are in lieu of the shares which the shareholders have held in the transferor-company. In a case such as the present involving a spin off, two divisions of the transferor-company are fought to be transferred to the two transferee-companies, respectively. As consideration for the transfer of the two divisions the shareholders of the transferor-companies are to be allotted certain shares in the two transferee-companies. In case of the first transferee-company, shares are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of 25 per cent in the value of 4 shares of BSL. 16. Mr. Narula, the learned counsel for the appellant, criticized the compromise on the ground that the issuance of shares by BSIL was not done by a proper valuation of the shares of BSL by any known method of valuation. In our view, this was wholly irrelevant and unnecessary. Whatever, the value of the shares of BSL in the market, the terms of the scheme proceed on the footing of valuation of the assets as at book value to determine the extent to which the capital of BSL stands reduced. It was also not a situation where shares of BSL were being swapped for the shares of BSIL. Instead of BSIL handing over cash payment to the shareholders of BSL for proportionate reduction in their share value, and the shareholders thereafter making payment to BSIL for subscribing to the shares of BSIL, the scheme makes a composite arrangement by which shares of BSIL are allotted to the shareholders of BSL in the ratio as aforesaid. We see nothing unconscionable in the bargain which has been approved by an overwhelming majority who held about 99.98 per cent of the shareholding and by the Financial Institutions who held about 9 per cent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,56,000 equity shares of Rs. 10 each. ( iv )The value of Net Assets of FSD FED of MPIL based on the book value of the assets and liabilities, identified for being transferred to VSPL and DTPL, work out to Rs. 546.83 lacs, and Rs. 1240.71 lacs respectively (as per Annexure A ). ( v )We have noted that under clause 30 of the Scheme, the excess of the net value of the relative undertaking over the paid-up value of shares to be allotted pursuant to the Scheme is to be credited by the Transferee to General Reserve Account. ( vi ) Finally, regard is had to the fact that all the shareholders of MPIL will become the shareholders of each of the Transferee-Companies in the same proportion in which they hold shares (on the record date) in MPIL as also that the capital of both VSPL and DTPL is minimal, so that the question or aspect of adjusting the equities between two or more disparate groups of shareholders (which is ordinarily at the root of fixing such ratio of allotment) is not relevant in this case. V. Exchange Ratio ( i )We have considered the serviceability of capital in view of the expected profitability of the undertakings to arrive at the reasonable level of share ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reflective of the correct legal position. In this case a reference was made to a leading firm of Chartered Accountants. The objector has been fair in stating that he does not make any allegation or submission whatsoever of improper conduct or otherwise against the said firm of Chartered Accountants and rightly so. That being the position, and in the absence of any alternative valuation being pointed out to the court, I am of the view that the contention of the objector is liable to be rejected. The valuation has been accepted by an overwhelming body of shareholders. In the scheme of arrangement it has also been provided in clause 23 that the share capital of the transferor-company amounting to Rs. 18,90,19,120 shall be reduced to Rs. 75,60,000 by reducing the amount of the paid-up shares from Rs. 10 to Rs. 0.40 (ps. 40) per share and by transferring the balance of Rs. 18,14,59,120 to the reconstruction reserve account which will be utilised for absorbing the book values of the assets and liabilities of the F.S. Division and F.E. Division transferred thereunder to transferee-company No. 1 and transferee-company No. 2 respectively. Consequently, it has been provided that twenty fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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