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TMI Blog2009 (6) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Reliance-Industries Ltd. to obtain sanction to the scheme of Amalgamation of Reliance Petroleum Ltd. (Transferor company) with Reliance Industries Limited (Transferee Company). The Transferor Company is 75 per cent subsidiary of the Transferee Company. 2. The Petitioner Company was incorporated as Mynylon Limited sometime on 8-5-1973 in the State of Karnataka under the provisions of Companies Act, 1956. That name was subsequently changed to Reliance Textile Industries Limited on 11-3-1977. Later on, the place of registered office of the Petitioner company was changed from State of Karnataka to State of Maharashtra on 2-7-1977. Thereafter, the name of the Petitioner Company was changed to Reliance Industries Limited on 27-6-1985. The shares of the Petitioner Company are listed on the Bombay Stock Exchange and the National Stock Exchange of India. 3. The Petitioner Company has been established to carry on business set out in the Memorandum of Association, which is appended to the Petition. The Board of Directors of both the Transferor as well as Transferee Company in their respective Board Meetings approved the proposed scheme, keeping in mind the exchange ratio suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent in number representing 100 per cent in value, present in person or by proxy and voting at the meeting, voted in favour of the Scheme. No Secured Creditors (including debenture holders) present in person or by proxy and voting at the meeting, voted against the Scheme. The vote of one secured creditor (including debenture holders) having aggregate outstanding value of Rs. 12 Crore was declared invalid. Accordingly, the scheme was approved unanimously by the Secured creditors (including debenture holders) present and voting, either in person or by proxy at the said meeting. In the meeting of unsecured Creditors, 994 unsecured creditors either personally or by proxy or authorized representative attended the said meeting. Out of them 801 unsecured creditors having aggregate outstanding value of Rs. 566.76 Crore and constituting 100 per cent in number representing 100 per cent in value, present in person or by proxy and voting at the meeting, voted in favour of the Scheme. No unsecured creditors present in person or by proxy and voting at the meeting, voted against the Scheme. Whereas, votes of 193 unsecured creditors having outstanding value of Rs. 13.37 crores were declared inval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection received by post; and especially because it has been brought to my notice (in chamber) after conclusion of the hearing of the Petition. 6. Be that as it may, it is noticed from the record that the Petitioner company has complied with all the statutory formalities. In that, the Board of Directors of the Petitioner Company as well as the Transferor-Company in their respective Board meetings held on 2-3-2009, have approved the proposed scheme. Both the Transferor and Transferee companies being listed Companies, have obtained approval from the concerned Stock Exchanges. The Petitioner thereafter filed application seeking direction from this Court to hold meeting of its shareholders and creditors to seek their approval to the scheme. This Court issued certain directions on 6-3-2009, including to hold meetings on 4-4-2009. The Petitioner Company has complied with the directions given by this Court. It is noticed that all the relevant documents including valuation report and fairness opinion issued in relation to the scheme were kept for inspection of the shareholders and creditors of the Petitioner Company upto the date of meetings. In the meeting of the Equity Shareholders, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day on 2-3-2009. These circumstances clearly indicate that the matter was hastened by the Petitioner Company for reasons best known to them. It is also possible to suggest, contends the Learned Counsel that it is a clear case of non-application of mind - not only of the Board of Directors, but also by the valuers appointed by the Petitioner Company. The next criticism by the Counsel for objector Shailesh Mehta was in relation to the contents of the valuation report. He was at pains to point out that the valuers report if read clause by clause or as a whole clearly indicates that no details are forthcoming. Forecast is not given, nor the valuation of the shares of the Transferee Company and the basis on which the same is done can be discerned. He submits that the report clearly admits of the fact that due diligence has not been carried out. In his submission, the report gives conflicting opinion, without disclosing any logic. Besides, it is only a document stating the conclusion of the valuers. Even with regard to the contents of the fairness report, similar criticism was made. It was stated that the basis on which the report is founded is not disclosed in any of this report. Adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to frustrate the said pending action. For all these reasons, it was argued that the Court may reject the present Petition. These are the broad arguments which were canvassed across the bar and in my judgment I would deal with the same a little later. 9. As aforesaid, the scope of intervention by the Company Judge while considering the scheme of amalgamation such as the present one, is no more res integra . The objections which are canvassed before this Court in my opinion, would not militate against the Petitioner Company. For, it cannot be said that any requisite statutory procedure has not been complied with. Nor it is a case where the scheme is not supported by requisite majority of votes of class of stakeholders. Significantly, in the present case the Companies appointed a renowned firm to undertake the determination of swap ratio of the respective shares. No one has doubted the integrity or honesty of the said expert. Moreover, the Company got checked and approved the opinion of the former by two other indepen- dent firms, who in turn have agreed with the said determination to be fair. It is also not possible to take the view that the concerned meetings of the Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any which was being merged. The Court s obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. 11. In the case of Tata Oil Mills Co. Ltd., In re [1994] 81 Comp. Cas. 754 (Bom.). This Court while considering objection of the shareholders that alternative share exchange ratio would have been appropriate and that the exchange ratio arrived at by the Company was incorrect, observed thus : "In my opinion, the exchange ratio as arrived at by Mr. Malegam has received the approval of shareholders holding more than 99 per cent (in number and value) shares at the meetings. No one except the shareholders holding minimum percentage of shares have complained before me. The valuation has been confirmed to be fair by two eminent firms of auditors. It would be extremely difficult to hold that the same is unfair. In any case, it has been approved by an overwhelming majority of persons affected and there is no basis to doubt their judgment. I, therefore, do not find any substance in this objection." This view taken by the High Court has been approved by the Apex Court in the case of Hindustan Lever Employees Union ( supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mind. If, the meeting of the transferee company was held on 27-2-2009 and the report of the experts were made ready on 2-3-2009 coupled with the fact that the Board of Directors approved the proposed scheme on the same day on 2-3-2009, that, by itself, in my opinion, does not mean that it is a case of non-application of mind. The report of the valuers either prepared by Morgan Stanley or the fairness report prepared by Merrill Lynch if read as a whole, it takes into account all the relevant factors which ought to be kept in mind to form an opinion about the swap ratio. The valuers have indicated the approach and the basis of the amalgamation. It has referred to four possible methods that could be borne in mind for arrival of the decision. Each method has been analysed in the report. Insofar as net asset value methodology is concerned, it is mentioned that the valuers have computed net asset value of equity shares of both the companies. They have used the provisional consolidated balance sheet as at 31-12-2008 of RIL, and provisional balance sheet as at 31-12-2008 of RPL to make suitable adjustment as deemed appropriate. The valuers have adverted to the Comparable Companies Mul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight to the NAV method of valuation. Since RPL is also a listed company and frequently traded on BSE and NSE, we have used Historical and Current Market Price method and CCM method and given higher weight to the same. The exchange ratio of equity shares of RIL and RPL has been arrived on the basis of a relative equity valuation for RIL and RPL based on the various methodologies explained herein earlier and various qualitative factors relevant to each company and the business dynamics and growth potentials of the business of the Companies, having regard to information base, management representations and perceptions, key underlying assumption and limitations. In the ultimate analysis, valuation will have to be tempered by the exercise of judicious discretion and judgment taking into account all the relevant factors. There will always be several factors, e.g. quality and integrity of the management, present and prospective competition, yield on comparable securities and market sentiment, etc., which are not evident from the face of the balance sheets but which will strongly influence the worth of a share. This concept is also recognized in judicial decisions. For example, Visc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have material adverse effect on the contemplated benefits of the merger. The third report of City Group Global Market India Pvt. Ltd., copy whereof was produced, also more or less reiterates the same position. 13. The question is: whether the experts have given their opinion without analysing the relevant matter. Looking at the report, it is not possible to come to that conclusion. The report refers to aspects which according to the experts would require consideration for arriving at decision regarding appropriateness of share swap ratio. It is not the case of the objectors that said considerations were extraneous as such. Nor the objectors are in a position to point out as to how the opinion recorded by the experts regarding swap ratio can be termed as absurd or manifestly wrong. Suffice it to observe that the reports given by the experts which were the basis to accord approval by the Board of Directors cannot be said to suffer from the vice of non-application of mind. The fact that the entire process was completed in short spell, may at best indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e criticism pressed into service by the Objectors disregarding the commercial wisdom of the overwhelming majority of the Equity Shareholders as a class. 14. Insofar as the criticism with regard to the contents of the valuation report either on the ground that it does not give any forecast or disclose any logic but only conclusion. Even this argument does not commend to me. As aforesaid, on reading the reports clause by clause and as a whole, no fault can be found with the ultimate opinion reached by the experts regarding share swap ratio, which is founded on tangible material and basis. I am not at all impressed by the argument of the objectors that the report is manifestation of conflicting opinion in any manner. The fact that the language of the report would give an impression that the Expert does not take the responsibility of the accuracy of the figures furnished to them by the Company or that they have not made any independent valuation of the assets and liabilities of the companies on their own, does not mean that the relevant factors for determination of swap ratio have not been considered by the experts. Obviously, the opinion of the Experts is based on the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exchange ratio, especially when the same 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 . (p. 309) These observations in our view represent the correct legal position on this aspect..." (p. 117) Even in the present case, no one has doubted the integrity and honesty of the valuers, who have given their share valuation report or fairness report, as the case may be. Nor the objectors have been able to point out that the method adopted by the valuers was impermissible or absurd. If so, I find no reason to discard the valuation of shares or the swap ratio determined by the Experts. 15. Insofar as the grievance made by the objectors that the experts have not reckoned the impact of the liability of the Company in relation to the pending proceedings against the Company pertaining Gas Supply Agreement. The Petitioner in the reply filed before this Court has stated that the facts relating to the said proceedings have been in public domain. The valuers and advisor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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