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TMI Blog2009 (9) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah for the Appellant. S.N. Shelat, Mihir Thakore, S.N. Soparkar, K.S. Nanavati, Nandish Chudgar and Maulik R. Shah for the Respondent. JUDGMENT R.M. Doshit, J. These two appeals preferred under section 483 of the Companies Act, 1956 (hereinafter referred to as "the Act") arise from the judgment and order dated July 22, 2009, passed by the learned company judge in the above Company Petition No. 81 of 2009 ( Reliance Petroleum Ltd., In re [2010] 154 Comp Cas 286 (Guj)). 2. The matter arises from a scheme of amalgamation of the respondent Reliance Petroleum Ltd. (hereinafter referred to as "the transferor company") and of Reliance Industries Ltd. (hereinafter referred to as "the transferee company"). 3. The transferor company has its registered office at Moti Khavdi in the State of Gujarat. A scheme of amalgamation of the transferor company and the transferee company was proposed and was approved by the board of directors of the transferor company. Under the proposed scheme, it was resolved, inter alia , that against 16 shares in the transferor company, on amalgamation, a member would receive one share in the transferee company. 4. The transferor comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io of 16 : 1 was not supported by any material. It is the grievance of the appellants that the shareholders of the transferor company have been duped and are offered far less shares in the transferee company than due. According to the appellant in O.J. Appeal No. 52 of 2009 the transferee company is known for its manipulations. It had, in the past, clandestinely sold a huge stock in the transferor company at a far higher price. Out of the proceeds of the said sale, a substantial amount was siphoned away. Once again, the transferee company has played trick with the shareholders of the transferor company. They are denied the fair value of their holding in the transferor company. 7. Learned advocates Mr. Kirti Shah and Mr. Hemang Shah have taken us through the above referred objections filed by the respective appellant, several affidavits filed before the learned company judge and the documents produced before the learned company judge. The learned advocates have taken particular exception in respect of the valuation report presented before the learned company judge to justify the proposed exchange ratio of the shares ; perused by the learned company judge but not offered to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared for the transferor company. Mr. Soparkar has submitted that the proposed scheme of amalgamation has been sanctioned by the Bombay High Court on application made by the transferee company (registered in the State of Maharashtra) ( Reliance Industries Ltd., In re [2009] 151 Comp Cas 124 ). The challenge to the said sanction in appeal has also failed ( Anup Kumar Sheth v. Reliance Industries Ltd. [2010] 154 Comp Cas 278 (Bom)). He has further pointed out that the proposed scheme of amalgamation has been approved unanimously by the secured and the unsecured creditors and by the shareholders by majority of more than 99 per cent. in value and in number. He has also submitted that the valuation report was not offered to the appellants for their comments as that may lead to speculation and manipulation of the stock market. Nevertheless, it was produced before the learned company judge. The learned company judge was satisfied about the fairness of the scheme particularly the proposed exchange ratio of the shares. He has submitted that at the time of filing of the petition the latest audited balance-sheet available was as of March 31, 2008. The unaudited balance-sheet as of Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt rejected the objection. The court observed that the share exchange ratio proposed by the director was endorsed by two other eminent firms of chartered accountants and also by ICICI. The court considered various factors for determining the final share exchange ratio such as the stock exchange price before the commencement of negotiations or the announcement of the bid ; the dividends presently paid ; the relative growth prospects ; the relative gearing of the shares ; the values of the net assets of the two companies ; the voting strength in the merged enterprise and the past history of prices of the shares. It further observed (page 53) : "It will, therefore, appear that in the case of amalgamation a combination of all or some of the methods of valuation may be adopted for the purpose of fixation of the exchange ratio of the shares of the two companies. It is to be noted that even in such a situation, the book value method has been described as 'more of talking point than a matter of substance'." 11. In the matter of Miheer H. Mafatlal [1996] 87 Comp. Cas. 792 ; AIR 1997 SC 506 ; [1997] 1 SCC 579, the hon'ble Supreme Court had occasion to consider identical argument. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme is grossly unfair. This is especially so because no attempt has been made to get the assets of the company valued, preferably by an expert, who may bring his disinterested and independent judgment to bear on the point." 13. Similar was the case of KEC International Ltd. [2000] 1 Comp. LJ 351 ; [2002] 109 Comp Cas 659 (Bom). The court refused the sanction to the scheme of amalgamation for the reason (page 688) : "Only the manner in which the meeting was held and the manner in which the purported approval on behalf of the 19 corporate shareholders was obtained were apparently bogus and concocted, holding of the very meeting on November 17, 1997 and the approval thereon cannot be sustained." 14. In the matter of Canon Tea Co. Ltd., In re [1966] 2 Comp. LJ 278 , the High Court of Calcutta had occasion to consider the scope of jurisdiction of the company court under section 391 of the Act. In respect of the proposed exchange ratio of shares in two companies, the hon'ble court was pleased to observe : "The ordinary law would suggest that the market price of the shares of the amalgamating company would be the proper basis for determining the ratio of exchange. So the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. alone, I do not find that there had been a proper purposeful and meaningful compliance of the provisions of the Act". 18. We are unable to countenance the objections raised by the appellants. Though it is alleged that a large scale fraud was perpetrated by the transferee company in sale of its holding in the transferor company, the allegation is not substantiated by facts and evidence. Besides, the transaction talked about was of the period prior to the proposal for scheme of amalgamation. It is not demonstrated how the alleged fraud has affected the interest of the creditors or shareholders of the transferor company. The appellants have also not demonstrated before us, how the proposed scheme of amalgamation is in anyway unjust or improper or is prejudicial to a class of members. In respect of the proposed exchange ratio of the shares also though it is argued vehemently that the exchange ratio proposed is unfair, it is not demonstrated before us that how the said ratio is unfair or what should be the fair proposal. 19. In the absence of a genuine or real objection, we would not interfere with the proposed scheme of amalgamation approved by the board of directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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