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TMI Blog2004 (4) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the wealth of the shareholders of the petitioner-company." The scheme of arrangement in question is revolving around the above objective of the Companies. 1a. This is a company petition under sections 391 to 394 of the Companies Act, 1956 in the matter of scheme of arrangement between Larsen & Toubro Ltd. (for short 'L&T' or 'demerged company' or 'petitioner-company' or 'transferor company') and UltraTech CemCo Ltd. (for short 'CemCo' or 'resulting company' or 'transferee-company') and their respective shareholders, creditors and Grasim Industries Ltd. (for short 'Grasim') as a shareholder of L&T, and L&T Employees Welfare Foundation (for short 'Trust'). 2. Companies (A) Larsen & Toubro Ltd. - Larsen & Toubro was incorporated on 7th February, 1946, under the Indian Companies Act, 1913, having its registered office at L&T House, Ballard Estate, Mumbai, Maharashtra. The present capital structure of the petitioner-company is as follows:- Authorised Rs. in crore 32,50,00,000 equity shares of Rs. 10 each Issued 325.00 24,90,59,412 equity shares of Rs. 10 each subscribed and paid-up 249.00 24,87,39,591 equity shares of Rs. 10 each includes equity 248.74 share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons which deal with the scheme of compromise or arrangement or amalgamation or demerger or such other schemes. The other relevant sections of the Companies Act referred are sections 78 and 100 to 104. The other provisions which deals with meetings of the creditors or the members or companies or shareholders and procedural requirement for convening and holding such meanings are also essential to note. The Company Rules, which are relevant for the purpose of sanction of scheme of arrangement or amalgamation or demerger, are Rules 6, 7, 9, 10 and 59 to 87. Facts and statutory compliances 4. A Board meeting was held, after due notice to the directors of the respective companies as per section 286 of the Act, to prepare and finalise the draft scheme of arrangement in question. On 4th September, 2003, after due deliberation on the proposals, the Board of directors of the petitioner-company and the demerged company approved the scheme of arrangement in question. 5. On 3rd November, 2003, the restructuring agreement was executed between the demerged company, Grasim, Samruddhi, the resulting comp-any and the Trust. On 19th November, 2003 and 25th November, 2003, respectively, the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of reduction of share capital was also passed unanimously. In the meeting of the shareholders, the scheme and the special resolution relating to the reduction of share capital were passed with an overwhelming majority of votes. 8. The chairman of the meetings filed his report as per the rule 78 of the Company (Court) Rules in the court in respect of the result of the said meetings, dated 3rd February, 2004. The report of the chairman provides the details of the meeting of the secured creditors, unsecured creditors, equity shareholders and about transactions of business resolved in the said meetings. Various modifications and suggestions made by the shareholders to the scheme were discussed. The details of the basic ingredients of the scheme and respective modifications and its decisions by majority have been placed on record (ex. H). Basically, 3 shareholders suggested 3 modifications in the meeting. Those are Mr. V.M. Raaste, Mr. Mustafa Kargaluiala and Mr. Nalin V. Parekh. After following the due procedure, including of rule 77 of the Company Rules, the poll was conducted and after due scrutiny and completion of the required formalities, the results were declared. In all the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reflect the same as an integral part of the scheme, the equity share capital and certain reserves comprising of the shareholders' fund is proposed to be recognised, as set out in the scheme restrachun? The creditors have supported the proposed share capital of the petitioner-company. The proposal of the reduction of share capital in the present scheme, involves neither diminution of liability in respect of unpaid share capital nor payment to any shareholder of any paid-up capital. The financial position of L&T is sound and its assets are far in excess of its liabilities. There is no default in the statutory dues. Therefore, the reduction of the share capital of the petitioner-company in L&T has been an integral part of the scheme and the equity shareholders, secured creditors and unsecured creditors approved the scheme and the reduction of the share capital and passed the resolution accordingly. This hon'ble court, therefore, after considering the above background dispensed with the application of the provisions and the procedure under sections 100 to 102 and rules made thereunder. The provisions relating to the proposed reduction of the share capital have been subsequently com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uences and result. 14. By order dated 13th February, 2004, the present company petition was admitted and fixed for hearing on 18th March, 2004. The notices of the hearing was ordered to be advertised and to be given to the Regional Director, Department of Company Affairs under section 394A of the Act. In view of the averments made in paragraph 26 of the petition, the application of the provisions and the procedures to be followed under sections 100 to 102 of the Act and Rules framed thereunder for convening of the meetings of the creditors was dispensed with. 15. By affidavit dated 20th February, 2004, of one Mr. Prabhakar Yevle, an employee of advocates of L&T, the company averred about the service of the notice of hearing of the petition and the petition on the Regional Director. An affidavit dated 17th March, 2004, proving publication of the notice of hearing of the Petition in the Free Press Journal, Times of India and Navshakti. All these affidavits are part of the record. 16. By affidavit dated 24th March, 2004, the Regional Director, Western Region, Department of Company Affairs, after examining the report of the affairs of the company from the point of view of the shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Ltd., In re [1995] 19 CLA 305 (Cal.) (3) Grierson Oldham & Admas Ltd., In re [1967] 1 WLR 3851 (C) Mr. Janak Dwarkadas, senior counsel appearing on behalf of Swastik Trading & Investment Ltd. and also supported the petition by the following decisions: (1) Brooke Bond India Ltd. v. U.B. Ltd. [1994] 79 Comp. Cas. 346 (Bom.) (2) Hindusthan Commercial Bank Ltd. v. Hindusthan General Electrical Corpn. [1960] 30 Comp. Cas. 367 (Cal.) (3) Guardian Assurance Co., In re [1917] 1 Ch. D. 431. 18. Mr. Virendra Tulzapurkar, senior counsel for the petitioner-company laid the foundation by referring to Miheer H. Mafatlal's case (supra), Hindustan Lever Employees' Union's case (supra ), and Nicholas Piramal (India) Ltd.'s case (supra), Renuka Datla's case (supra), Piramal Spg. & Wvg. Mills Ltd.'s case (supra). He further referred to Investment Corpn. of India Ltd.'s case (supra), Vasant Investment Corpn. Ltd.'s case (supra), PMP Auto Industries Ltd.'s case (supra), ICICI Ltd's case ( supra ), Reliance Industries Ltd.'s case (supra ). Strikingly, Apex Court decision is an exemplar on the subject and issue. The well arranged principle [Miheer H. Mafatlal's case (supra)] is reproduced as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 could 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. 818) 18a. The above broad contours have been read and referred by all the senior counsels including objectors' counsel. 18b. From the same judgment, i.e., Miheer H. Mafatlal's case (supra), petitioner's counsel has invited attention to the following paragraphs to justify the scope of interference objection by a few shareholders or objectors to show that the company Judge or court has v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nything so narrow as mere curiosity, whereas the interest of the particular locality 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 than 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 subsidiary of foreign company, the consideration may be entirely different. It is not the interest of 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. 6. Section 394 casts an obligation on the court to be satisfied that the scheme of amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and, therefore, the scheme is unfair and unlawful or illegal. No case of illegality of fraud has been pointed out in the present matter, except bald allegations and general statement by a shareholder like the obejctors. The Supreme Court has further crystallised the effect of unanimous decisions by the shareholders secured creditors, unsecured creditors and preferential shareholders of the related companies. There are no strong reasons made out to reject the sanction, as prayed. The relevant para 84 is very clear to support the case of the petitioner in the present case also. "An argument was also made that as a result of the amalgamation, a large share of the market will be captured by the HLL. But there is nothing unlawful or illegal about this. The court will decline to sanction a scheme or merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own grow up to capture a large share of the market. But unless it is shown (that) there is some illegality or fraud involved in the scheme, the court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and is not contrary to public policy and; that the members or class of members or creditors or class of creditors were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 12. In this case there is no dispute about the position that the requisite statutory procedure has been followed and that the resolution has been passed by a requisite majority. The court has no material to come to the conclusion that the majority of the shareholders were coercing the minority of shareholders in order to promote any interest adverse to that of the minority. All the existing shareholders of the petitioner are being allotted shares in the transferee in the same proportion. The shareholders of the petitioner who claim to represent the minority will, therefore, have the same benefits as the other shareholders of the petitioner of the allotment of shares in the transferee-company which would then be tradeable in the market upon the listing of the transferee-company. In the circumstances, this is not a case where the court can hold, having regard to the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution and, therefore, the approval of the resolution is invalid, is sought to be buttressed by relying on the judgment of the Supreme Court in Miheer H. Mafatlal (supra). In our view, Miheer H. Mafatlal (supra) affords no support to the appellant....' ****** '...this clearly pre-supposes that if the scheme of arrangement or compromise is offered to the members as a class and no separate scheme is offered to any sub-class of members which has a separate interest and a separate scheme to consider, no question of holding a separate meeting of such a sub-class would at all survive . . . . Consequently when one and the same scheme is offered to the entire class of equity shareholders for their consideration and when the commercial interest of the appellant so far as the scheme is concerned is in common with other equity shareholders he would have a common cause with them either to accept or to reject the scheme from commercial point of view....' For these reasons, a similar argument that a separate meeting of a sub-class of the appellant ought to have been called, was rejected. Finally, the Supreme Court observed: 'It is therefore, obvious that unless a separate and different typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee why such a scheme minus the deleted clauses, should once again be resubmitted for approval of the shareholders. Section 392 of the Act, gives wide power to the company court to make addition to the scheme or omission therefrom solely for the purpose of making it workable. In fact, in S.K. Gupta v. K.P. Jain AIR 1979 SC 734, the Supreme Court went so far to say that strictly speaking omission of the original sponsor and substituting another one would not change the basic fabric of the scheme. The Supreme Court in S.K. Gupta (supra), quoted with approval, the observations of the Gujarat High Court in Mansukhlal v. M.V. Shah [1976] 46 Comp. Cas. 279 as under: ****** '. . .The court has a continuing supervision over the implementation of compromise and arrangement. Unenvisaged unanticipated, unforeseen or even unimaginable hitches, obstruction and impediment may arise in the course of implementation of the scheme of compromise and arrangement and if on every such occasion, sponsors have to go back to the parties concerned for seeking their approval for a modification and then seek the approval of the court, it would be a long drawn out protracted time consuming process with no gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be made out for the formulation of a better scheme, of a fairer scheme, of one which would have been more attractive to the shareholders if they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have been evolved, but is that enough ? Is it necessary to establish the validity of such an offer as put forward in the present case ? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment might have been offered to persons whose shares are sought to be expropriated ? A better and fairer offer might have been made, possibly, but I do not think that because a scheme is not 100 per cent fair or right there is the kind of unfairness with which Maugham, J. was dealing in the case to which I have referred. The mere finding of items, or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment. A scheme must be obviously unfair, patently, unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be effective to bind a dissenting shareholder unless it complies to the extent of 100 per cent with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the majority of the shareholders who have accepted the scheme in question. He referred at page 391, the following paragraph : "The third general observation which arises out of the arguments that have been put forward concerns the question whether the test of the fairness of the offer is fairness to the individual shareholder or fairness to the body of shareholders as a whole. In my judgment, the test of fairness is whether the offer is fair to the offerees as a body and not whether it is fair to a particular shareholder in the peculiar circumstances of his own case. Mr. Burney Champion suggested that the contrary was the true view, and he referred in support of that submission to certain remarks made by Vaisey, J. in Sussex Brick Co., In re [1961] Ch. 289/[1960] 30 Comp. Cas. 536 which is reported as a note to Bugle Press, In re [1961] Ch. 270." (p. 363) 18k. It is settled and approved that the provisions for sanction of scheme by court is based on "single window clearance system". The reliance has been placed on the reported judgment in PMP Auto Industries Ltd.'s case (supra). This judgment further elaborates the power of court to approve or sanction a scheme of amalga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India is also on the similar lines to the report submitted by the valuers appointed by the two companies. Considering the jurisdiction of the court in considering the question of sanction to amalgamations scheme, in my opinion, unless and until the objectors who are challenging the valuation, produce material before the court that the valuation arrived at is grossly unfair, the court will not be justified in withholding its sanction. In the present case no such attempt was made by the objectors." (p. 8) Objectors and objections 19. The objections have been raised to the present scheme of arrangement by Mr. Rasik S. Poladia from Mumbai, V.M. Raaste from Pune, V. Ranganathan and S. Shekhar from Chennai. Mr. Poladia has been represented by Advocate Mr. Sanjay Jain. The Objectors from Chennai have sent their objections in writing to the court by registered A/D. The said objections from Chennai dated 16th February, 2004, were not as per the prescribed form or procedure of the Company Rules. They had never attended or appeared before the court at any point of time during any dates of hearing or even earlier. The petitioner-company, however, after due inspection, have resisted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Companies Act and Rules made thereunder to show that such affidavit are impermissible and, therefore, must be rejected. 19b. One Mr. V.M. Raaste has filed his affidavit dated 12th March, 2004, and resisted through the grounds of objection, the scheme of arrangement in question. Mr. Raaste is a shareholder of L&T and of Narmada Cement. His shareholding is only 2 shares of L&T and 4 shares of NCCL. Mr. Raaste participated in the meeting and suggested some modification along with Mr. Rasik S. Poladia. Those modifications were rejected by the majority. Mr. Raaste appeared throughout the hearing of the proceedings in person. The petitioner-company has filed reply to Mr. Raaste's affidavit dated 22nd March, 2004, and vehemently resisted the said grounds of objections. Mr. Raaste, despite the opportunity given, failed to file addi- tional affidavits and written submission and/or failed to engage any Advocate. On 5th April, 2004, after considering the conduct and attitude of Mr. V.M. Raaste, his application for adjournment of the hearing was rejected. The counsel appearing for all the companies, including the objector Mr. Rasik S. Poladia concluded their arguments. Except Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aste's objections and suggestions, supported by Mr. Poladia, were rejected in the 3rd February, 2004 meeting. Now, both have gone beyond those objections for the first time in court and raised other objections which cannot be tested or approved by the other majority shareholders and companies and creditors. Therefore also, such objections are not acceptable and/or entertainable. The points of objection of the objectors are as under : Suppression of material facts and documents, false statements. Non-disclosure of all relevant facts and documents. Transfer of shares of NCCL is in valuation of SEBI (Takeover) Regulations and throw-away price will be transfer to Grasim. The scheme is against public policy. The scheme with third party, i.e., foundation trust is not contemplated as same is not an 'arrangement' within the meaning of section 390 and as such, the petition is not maintainable. Reduction of capital is not bona fide and correct. No procedure, as contemplated under sections 100 to 104 has been followed. Concentration of business and to high-off (sic) the cement division of Grasim at a throw-away price. No proper valuation report is produced. Report of N.R. Raiji and Earnst an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in our view, the phrase 'public policy of India' used in section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar case it is required to be held that the award could be set aside if it is patently illegal. The result would be award could be set aside if it is contrary to : (a)fundamental policy of Indian law; or (b)the interest of India; or (c)justice or morality; or (d)in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20f. K.K. Modi v. SAT [2000] 2 Bom. CR 523.-This judgment was referred by the objectors to explain the provisions of Security and Exchange Board of India Act, 1992 ('SEBI') read with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. No one has disputed the provisions as well as the principle laid down in that judgment refers to SEBI law. Paragraph 4 of the said judgment deals with valuation report of scheme of arrangement. Discharge of burden of proof 21. In my view, the present scheme of arrangement is fair, just and in the interest of the public. Mere allegations of the objectors are not sufficient and what is to be seen by the court in such circumstances has been crystallised in the following words : "The Chancery Division in Sussex Brick Co. Ltd., In re [1961] Ch. D. 289, while discussing the scope and the jurisdiction of the company court, has held at page 291 that- 'I think that the present scheme and the present offer are undoubtedly open to criticism, and that a clever business man, a man well versed in the company law and matters which influence dealings on the stock exchange, could find many a loop-holes in it.'" And further that, "That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en passed by majority and 99.99 per cent of shareholders and unanimously by the creditors or unsecured creditors. The burden is heavy on such objectors, to prove otherwise, with material and evidence on record. Mere vague and bald averments are not sufficient. Interest of workers and employees, creditors, unsecured creditors, financial institutions have been taken care of and approved. In this background, objectors or others, unable to place on record any contrary material. The objectors have failed to discharge their burden to prove their bald and vague allegations. In this background, court cannot unveil the companies corporate veil and its commercial wisdom and make the scheme of arrangement, unworkable or delay its implementation, specially when, scheme has been widely advertised and approved by overwhelming majority and in absence of even other possible view of the matter. There is no other view or alternative scheme, even suggested or pointed out. 21b. It is settled law that the party who alleges must prove its allegations. Majority decisions on significant aspects, unanimous and/or overwhelming, in the meetings dated 3rd February, 2004 cannot be skate over while approving t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the share escrow arrangement; and (iii)the announcement to the public of the open offer. (c)the open offer; (d)the occurrence of all of the following concurrently upon the shareholding of Grasim (along with that of its associates) in CemCo amounting to at least one share more than 41.5 per cent of the shares of CemCo : (i)release of escrow in relation to the CemCo shares and the purchase consideration in accordance with the share escrow arrangement; (ii)release of escrow in relation to the L&T shares and the sale consideration in accordance with the share escrow arrangement; and (iii)acquisition of management control. (e)various other matters consequential or otherwise integrally connected herewith, including the reorganisation of the capital of the demerged company; pursuant to sections 391 to 394 and other relevant provisions of the Act in the manner provided for in this scheme and in compliance with the provisions of section 2(19AA) of the Income-tax Act, 1961. (F) In order to impact certainty to, and to facilitate the transactions contemplated here the financial institutions holding equity shares in the demerged company have expressed their in principle appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the open offer escrow agreement shall accrue on a proportionate basis to the successful offerees of the open offer. In the event that the open offer is not fully successful, the distribution of interest to the successful offerees will be limited pro rata to the extent of subscription to the open offer. It is clarified that such interest shall not be considered as an increase in the offer price. The arrangements set out in sub-clauses (a), (b), (c ) and (d) above shall hereinafter be referred to as the 'open offer escrow arrangement'." 23a. The essentials of the scheme, as submitted by the learned counsel for the petitioner, can be crystallised in the following way: (i)As per the scheme, the cement business of the transferor-company (L&T) together with all the assets and liabilities will be transferred to the transferee-company (CemCo). The assets pertaining to the cement business will also include all the shares of NCCL as held by the transferor-company. Every shareholder, in consideration of such transfer of the transferor-company (L&T) holding 5 shares will be entitled to get two fully paid-up shares of the transferee-company (CemCo) as per the ratio fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital and scheme of arrangements with the concerned companies and Trust, cannot be said to be beyond the purview of sections of the Companies Act, the scheme of arrangement in question, therefore, is maintainable. The word 'arrangement', though not defined specifically, has a wide range and ambit. The present scheme of arrangement is between the petitioner-companies and its shareholders, and/or creditors and a Trust. By that itself it cannot be said that the scheme of arrangement in question is not maintainable or not sustainable. The scheme is affecting the shareholders and the creditors as Cement Division of the petitioners is being transferred to the transferee-company. There is no objection raised even by the Regional Director about the maintainability of the scheme of arrangement. It is difficult to reject the whole scheme of arrangement like this, which has definitely an element of demerger and reduction of shares which are permissible mode of various schemes under the provisions of sections 391 to 394 merely on technical grounds. Investment Corpn. of India Ltd.'s case (supra), the word 'arrangement' has been interpreted in a wider manner. Another case is Guardian Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of shares of different classes or by the division of shares into shares of different classes or by both those methods. The court has the power to sanction a scheme of arrangement though the scheme modifies the special rights attached to a class of shares.' These observations on the contrary support the position that the word 'arrangement' used in section 391 is inclusive and that a scheme of arrangement which modifies rights of the shareholders can be brought under this section." (p. 95) Guardian Assurance Co.'s case (supra) observed as follows: "I think what is proposed to be done in perfect good faith, and for very good business reasons, is not a compromise, but is an arrangement proposed between a company and its members using the words of section 120 and that there is no necessity to put such a limitation upon those words as Younger, J. felt bound to do with the greatest possible respect to him, having carefully considered his very able judgment. I am unable to come to the same conclusion as he did. I think the order ought to be made as asked by the petition. Warrington LJ: I am of the same opinion. The scheme which we are asked to sanction is no doubt one of a somewha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4a. The word 'arrangement' has a very wide dimension. It is a term of wider connotation. Section 390 of the Companies Act itself provides that the arrangement includes reorganisation of the shares, share capital of the company by the consolidation of shares of different classes. Unanimous and/or majority decisions 25. Mr. Virendra Tulzapurkar, learned senior counsel for the petitioner-company (L&T) read and referred the Supreme Court judgments (supra) and pointed out, after going through the salient features of the scheme, that all the statutory formalities and procedures have been complied with as per the Companies Act and the Rules made thereunder. The scheme was approved by 463 members holding 140, 210, 213 votes who attended the meetings, either in person or through the proxies. Only 35 members holding 13,845 who attended the meeting either in person or through proxies voted against the proposed scheme. In the meeting of the unsecured creditors which was attended by 63 unsecured creditors, entitled together to 2,487,405,000.00 value of debts and FDs have unanimously approved the scheme. Equity shareholders who attended the meeting were 620 in number, holding equity shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to believe that the objectors have no knowledge of the materials which were placed on record, to demonstrate that the whole scheme of arrangement is bad, unjust or unfair or against public policy or interest. Full opportunity was available to the shareholders like objectors to raise their respective objections and in the present case admittedly they have participated and placed and suggested the modifications which, after due deliberation and by majority of shareholders, were rejected. Such objectors now cannot be allotted to raise new grounds to challenge a scheme of this nature piece meal. They should gracefully accept the majority decision. The relevant observation from Reliance Industries Ltd.'s case (supra) is reproduced as under : "In the absence of existence of any such factor, to my mind, the existence of any such factor, to my mind, the objection by a shareholder who was not present at the meeting did not put up for consideration of other shareholders these objections and have now raised them before this court, clearly shows that this is merely an attempt to delay the scheme. To my mind the objections by the objectors are not really bona fide which the court ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure of the Company Rules, Mr. V. Ranganathan and R. Shekhar have not even filed affidavit or application in prescribed form and no leave of any kind was obtained from the court. The allegations made in their so-called objections are vague, bald and without any supporting material and the same cannot be considered and definitely cannot be a reason to discard the present scheme of arrangement. The Apex Court in Miheer H. Mafatlal's case (supra) particularised cases like objectors in question and their objections which is as follows: "...So far as the transferee-company is concerned though the appellant was not a director he was a 5 per cent shareholder who did not think it fit to personally remain present at the time of voting and simply relied upon the proxy. If he was feeling that the scheme was unfair to him or was not going to protect his interest as shareholder in the respondent-company nothing prevented him from remaining present and voicing his grievance before the general body of the equity shareholders and to apprise them of the alleged pernicious effect of the scheme. It is, therefore, too late in the day for him to contend that the scheme was unfair to him and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disputed by the objectors or by any other parties that the substantial material were available on the website of the company. The objectors, despite having full knowledge of those basic documents have raised these unsupported objections to oppose the scheme. The restructuring agree- ment, as referred by Mr. Rasik Poladia in his affidavit dated 2nd April, 2004, is already referred in paragraph 13 of the petition. Objectors have full knowledge of the contents of the restructuring agreement and report in question. Insofar as the balance sheet of Narmada Cement Co. Ltd. or Grasim in respect of the same is concerned, is not very vital, for deciding the scheme of arrangement between the companies in question. Narmada Cement Co. Ltd. ('NCCL') and it's working accounts, valuation of shares are well within knowledge of objections at least, even though are outside the scope of consideration. The balance sheet of L&T takes into consideration the requirement of other material document as alleged. For considering the sanction of the scheme of arrangement, the trust deed of the Employees Welfare Foundation, the person incharge of the Foundation, the balance sheet of Narmada Cement Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after following the due statutory procedure, there is nothing to suggest that there were suppression of facts or there were false statements made by the petitioner at any stage of the proceedings of the sanction of the scheme. All the relevant materials and documents are perused and published and placed on record to justify the sanction of the scheme of arrangement. The Regional Director has also not raised any such objection in his affidavit regarding the same. No other regulartory authority has raised any objections of these nature. In this matter, there is sufficient disclosure of material and documents on record as per the law and procedure. The wrong understanding of accounts or balance sheet by any shareholder including objectors, cannot be the reason to interfere and re-check the accounts or expertised details furnished by the petitioner-company. The price at which Grasim company has agreed to sell the shares of the petitioner-company to the Trust is a matter between Grasim and the Trust and it has nothing to do with the scheme or has no bearing whatsoever on the scheme. The price fixed by Grasim to be sold to the foundation is based on valuation report. The reason and foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 'Public interest' or 'public policy' is a vital element which is required to be considered while sanctioning any kind of scheme. Public interest or public policy has to be read in the content in which it is used or referred. The general principle of public interest or public policy is also necessary to see if a case is made out by placing material and evidence or record. In the present case, Regional Director has filed the affidavit in pursuance to the Notice under section 394A of the Companies Act and has nowhere even suggested that the scheme in question is not in the interest of public or its shareholders. The obligations and purpose of giving notice to the Regional Director under the Companies Act cannot be overlooked. If the Regional Director after considering the material record and report of the Company Registrar and/or report of the Chartered Accountants, makes a positive statement in the court that they have no objection to consider the scheme of arrangement in question, I see that this itself is a sufficient reason to consider that the scheme of arrangement in question is in the interest of public and/or at least not against the public interest or shareholders interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so desire and wish to retain their shares in the resulting company, CemCo. There is nothing material to show that Grasim is not competent to manage the cement business. It is worth to note that after the scheme of arrangement, the shareholders of L&T will have a choice to participate in both the business or exist from either or both, depending upon the prospect of these businesses, as at present both the Engineering & Cement Division belongs to the L&T. It is noteworthy, at this stage, that the shares of NCCL have been de-listed as per Securities and Exchange Board of India (Substantial Acquisition of Sharer and Takeovers) Regulations, 1997 (for short 'SEBI Takeover Regulations') by letter of SEBI dated 10th April, 2003, by operation of law. It has been accordingly declared that the existing option to the remaining shareholders of NCCL would be kept open by the acquirer for a period of one year from the date of de-listing. Objectors, even though raised vague objections in respect of NCCL, there is nothing to substantiate the same except the bald statements. When majority shareholders financial institutions, competent authorities have taken note of all these aspects and granted no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be noted that Mr. Tulzapurkar, learned senior counsel for the petitioner-company has also made a statement that the shares in NCCL are offered at a price of Rs. 34 per share till October 2004. Therefore, Mr. Poladia or Mr. Raaste or such other shareholders can sell those shares at the rate of Rs. 34 per share, if they so desire. Payment of stamp duty 32. The Regional Director, Department of Company Affairs, in its affidavit has not raised any specific objections so far as the merits of the scheme of arrangement in question is concerned. It is nowhere mentioned that it is against public policy or public interest or that it is against the interest of the shareholders. The basic opposition is of payment of stamp duty as the scheme results in increase of authorised share capital of the transferee-company. To this, Mr. Virendra Tulzapurkar, learned senior counsel appearing on behalf of the company conceded that payment of stamp duty will be made as per the law after the scheme is sanctioned by the court and that itself cannot be a ground for opposing the scheme. There is no doubt that the petitioner-companies are bound to pay the requisite stamp duty in accordance with law. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he open offer after the listing. As submitted by the learned senior counsel for the petitioner-company that the open offer will be made as per the scheme only if the scheme is sanctioned by the court and not otherwise. He further contended that such a condition cannot be imposed as the said open offer is not an offer in terms of the Takeover Code. The open offer is an implementation of the scheme which is post sanctioned. This position has been accepted by SEBI in its letter. Therefore, the shareholders of the transferee-company are in no manner affected. In absence of such condition from the Bombay Stock Exchange, the insistence by the Regional Director, in the circumstances, cannot be accepted. Now, as Regional Director has given no objection to the sanction of the scheme. All consequences or obligations as per the scheme have to be complied with, by the companies. It cannot be further overlooked that those words in the said letter dated 19th November, 2003, are just observations and not mandatory conditions imposed by the Bombay Stock Exchange. It is also necessary to note that the open offer is exempt from the purview of SEBI Takeover Regulations, 1997 in terms of Regulation 3( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible for the court to examine the various methods of valuation which are available for valuing the shares of a company. The valuation of shares is a technical matter which requires considerable skill and expertise. There are bound to be differences of opinion as to what the correct value of the shares of any given company is. Simply because it is possible to value the shares in a manner different from the one which has been adopted in a given case, it cannot be said that the valuation which has been agreed upon is unfair. What is important in the present case is that all the shareholders of both the companies have unanimously accepted the valuation which has been arrived at by the auditors of the transferor and transferee-companies. Under these circumstances, the application cannot be rejected on the ground that the valuation of shares is unfair to the shareholders of the transferor-company. In fact, none of the shareholders have complained of any such unfairness. In this connection Mr. Cooper, who appears for the transferor-company, has drawn my attention to the case Grierson Oldham & Adams Ltd., In re [1968] 1 Ch. 17/[1967] 37 Comp. Cas. 357 (Ch.D.). The learned Single Judge in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness 37. The answer to this objection has been clearly decided in the following words also : "There is nothing shown under any Act, Rule or Regulation or any other law in force under which the company court in the event of a possibility or likelihood of monopoly imposed refuse in exercise of its discretion sanction to scheme of amalgamation. As pointed out by the Apex Court, it is for the shareholders to decide what is in the best interest of the Company and shareholders considering the prudent business management test. There is also nothing on record which would show that; if there would be monopoly which affect the public interest or the economy of the country, which factor would have been a relevant consideration. [Reliance Industries Ltd. (supra)]. As a result of the amalgamation, if it is found that the working of the company is being conducted in a way which proves it within the mischief of the MRTP Act, it would be open to the authority under the MRTP to go into and decide the controversy as it thinks fit. But there is nothing unlawful or illegal about this. The court will decline to sanction a scheme if merger if any tax fraud or any other illegality is involved." [Hin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is nothing on record to show that such scheme which is in favour of Employees' Welfare Foundation Trust in question in any way or unfair or against public policy or bad in law. This is admittedly a scheme where sufficient care has been taken into consideration welfare of the workers or employees, cannot be said to be unfair or against public policy. On the contrary the exit of Grasim and Samruddhi under the proposed scheme from the petitioner-company by the sale of their shareholdings in the petitioner-company to a Trust, established for the purpose of promoting Employees' Welfare scheme and measures, would add in preserving the character of ownership and the management of the petitioner-company and help to further modify and enhance their commitment to the petitioner-company. These averments and submissions of the petitioner-company, therefore, is an additional factor to sanction the present scheme of arrangement. Trend of objections 41. The trend which is noted, is that in such matters where shareholders have admittedly lost their case in the respective meetings as they were unable to convince the majority of shareholders and/or in spite of their objections and the majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests modifications also, but other majority shareholders, by overwhelming majority, refuse and reject such modification and suggestion, such shareholder, in this background, did not vote but raised objection half-heartedly in the court and opposed the scheme. (c) A shareholder, one who knows every proceedings, participates, but one way or other, just to halt the hearing of the scheme deliberately appears in person, tries to create and get court's sympathy on one pretext or the other and requests for adjournment without engaging advocate. 41a. In all these cases, court should award costs and such unhealthy trend should be stopped. Bona fide, prompt and genuine objectors are always welcome, because they assist the court to adjudicate on various aspects from their point of view and that, in the end, results into fair justice. Conclusion 42. (a) All the legal and essential and necessary formalities have been complied with by the companies and the petitions were filed within the framework of law. (b) Requisite and essential materials and documents mere made available and notified, published and available with the requisite details and documents, before to all concerned, including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir whole object is to halt and to hinder the scheme for ulterior purpose. (i) In the present case, no other alternative or possible view was explained or suggested, on any material issues, including the share of ratio. In my opinion, any view should not be given or expressed, as it will amount to thrusting and imposing decision against unanimous and majority decisions of the shareholders, creditors. Financial institutions, such imposition is out of the court's domain. (j) In this competitive market, the corporate world with exhaustive strategies is a must. Companies know-how to make or arrange and adjust their business to run with the national and international markets. Third person may not be in a position to provide them business strategies and above all, companies know their respective shareholders' need, may not be bound by the views expressed by the third persons. Unless there is apparent illegality, unfairness, unreasonableness where it is essential to pierce the veil of corporate strategies. Otherwise, it is difficult to have judicial review of this aspect of globalisation and utility of material sources by the businessman or experts in the field. Business strategy is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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