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TMI Blog2011 (4) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... e registered office of the transferor company was thereafter shifted to the State of Tamil Nadu. 3. The authorised capital of the transferor company as on March 31, 2010, is Rs. 2,00,00,000 (rupees two crores only) divided into 20,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the transferor company as on March 31, 2010, is Rs. 1,54,10,000 (rupees one crore fifty four lakhs and ten thousand only) divided into 15,41,000 equity shares of Rs. 10 each. 4. M/s. India Securities Ltd., the transferee company is a company registered under the Companies Act, 1956, with its registered office at New No. 77/56, C. P. Ramasamy Road, Abhiramapuram, Chennai-18. 5. The transferee company was incorporated under the name and style of "Dear Leasing and Finance Ltd." on June 28, 1984, in the Union Territory of Delhi. The name of the transferee company changed to "India Securities Ltd." on May 1, 1987. The registered office of the transferee company was shifted to the State of Tamil Nadu with effect from November 28, 1988. The name of the transferee company was thereafter changed to "India Securities Ltd." on May 23, 1980 and its registered office was shifted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connected with the company, and will be in public interest. (g) The shareholders, employees and other stakeholders of both the companies would benefit as a result of the proposed amalgamation. 9. As per the scheme, the equity shareholders of the transferor company as on date are to be allotted 330 equity shares of face value of Re. 1 as fully paid-up in the transferee company for every one equity share of face value of Rs. 10. 10. It is also proposed the transferee company on sanction shall without any further application or deed, issue and allot to every member of the transferor company, holding fully paid-up equity shares 1 (one) 0.10 per cent. non-cumulative preference share of Rs. 2,000 each fully paid-up by the transferee company for every equity share held in the transferee company redeemable at the end of 72 months at a price of Rs. 4,000 per share from the date of allotment of each of such preferential share of Rs. 2,000 each. 11. The transferee company is also to issue and allot to every debenture holder of the transferor company holding optionally convertible debenture of Rs. 100 each. One compulsorily convertible debentures of Rs. 100 each in lieu of optionall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a meeting of equity shareholders of the transferee company for the purpose of considering and if thought fit, approving with or without modification of the scheme of amalgamation of the transferor and transferee companies. Whereas in C. A. No. 1724 of 2010 this court was pleased to dispense with the convening, holding and conducting of meeting of equity shareholders of the transferor company for approving the scheme of amalgamation. 17. The transferor company also has no secured creditors. The certificate of chartered accountant in support of this petition has been placed on record. As per the scheme of amalgamation, the entire assets and liabilities of the transferor company is to be taken over by the transferee company from the appointed date as a going concern. 18. There are no proceedings pending against either of the companies under sections 235 to 251 of the Companies Act, 1956, nor any proceedings under the Income-tax Act, 1961, are pending against either of the companies. 19. Mr. P. J. Rishikesh, chairman appointed by this court in C. A. No. 1726 of 2010 has filed his report dated December 13, 2010, as under : "3. Based on the report of the scrutineers, the said meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting, was approved by the requisite majority without any modification. The said resolution is given hereunder : 'Resolved that the scheme of amalgamation of Essar Telecommunication Holdings P. Ltd., with India Securities Ltd., placed before the meeting and initiated by the chairman for the purpose of identification, be and is hereby approved. Further resolved that the board of directors of the company be and is hereby authorised to make and/or consent to any modifications, alterations or amendments in the scheme, which may be deemed to be necessary by them or which are desired, directed or imposed by this court or any other authority and to take all such steps as may be necessary and desirable to implement the scheme and to give effect to this resolution'." 20. In pursuance to the notice of these petitions issued, the Regional Director, Ministry of Corporate Affairs, Chennai has filed an affidavit on behalf of the Central Government in terms of the provisions of section 394A of the Companies Act which read as under : "I, K. Pandian, s/o. Shri S. Krishnan, Indian, Hindu, aged about 58 years having my office at Shastri Bhavan, Vth floor, 26, Haddows road, Chennai-600 006, do he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DD No. 525902 dated February 10, 2010, towards his share of fractional entitlement which was duly encashed by him on April 5, 2010. (5) I further submit that a news item appeared in The Business Line dated January 21, 2011, focussed on the objections raised by Vodafone regarding amalgamation of Essar Telecommunication Holdings P. Ltd., with India Securities Ltd. On January 24, 2011, The Times of India reported that Essar did not give information on merger claimed by Vodafone. Copies of newspaper extracts are enclosed with affidavit (annexures A and B) to enable this court to decide the scheme. (6) I further submit that this office has received an e-mail from the Securities and Exchange Board of India forwarding a letter received from Vodafone International Holdings BV (Vodafone) complaining on the proposed amalgamation. A copy of the said complaint is enclosed as annexure C. In this connection, comments have been called for from the Registrar of Companies, Chennai and he has furnished the following comments : (a) With regard to inadequate disclosures alleged in the notice to the shareholders, the notice to the shareholders of the transferor company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and clause 6.1 of the scheme provides for dissolution of the transferor company without winding up, upon amalgamation. (10) In view of the observations made above, it is prayed that this court may take the above submissions into consideration and pass such order or orders as this court may deem fit and proper in the circumstances." 21. The official liquidator has also filed his report which reads as under : "(1) The official liquidator begs to submit that M/s. Essar Telecommunications Holdings P. Ltd. (hereinafter referred to as 'transferor company') preferred a petition before the High Court, Madras in C. P. No. 340 of 2010 for (a) sanctioning the scheme of amalgamation with M/s. India Securities Ltd. (hereinafter referred to as 'transferee company') and (b) for dissolution of the transferor company without the process of winding up. By its order dated December 22, 2010, in C. P. No. 340 of 2010 this court directed the Official Liquidator, High Court, Madras to file his report on the affairs of the transferor company in terms of the second proviso to section 394(1) of the Companies Act, 1956. Hence this report is submitted. (2) That as per the said o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. (7) That the chartered accountants have observed and reported as under on the share valuation report dated July 14, 2010, given by M/s. Bansi S. Mehta and Co., Chartered Accountants, Mumbai. (i) The said share valuation report is dated July 14, 2010, whereas the board has adopted the scheme of amalgamation on June 4, 2010, how could the scheme have been adopted by the board without the share valuation report in place. (ii) The share valuation report is dated July 14, 2010 and is based on unaccounted accounts as at March 31, 2010. The accounts of the transferor company were audited immediately thereafter on July 15, 2010 and its subsidiary ETHL Communications Holdings Ltd., which holds shares in Vodafone Essar Ltd., was audited on July 28, 2010. Thus, the share valuation report was based on unaudited financial statements of both the companies. The effect of audit on the share valuation remains unknown. (iii) Workings forming part of the valuation report (financial numbers to arrive at the swap ratio) have not been provided to us, hence we are not able to comment on the share value of the transferor and transferee companies. (iv)& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valuation report of M/s. Bansi S. Mehta and Co., has excluded the finance division from the workings for computation of share value of the transferee company. Since this is only a sale of the undertaking at fair value, such exclusion need not have been done as the transferee company would have received money or money equivalent for the transfer of this division. (vi) Page 7 of the valuation report mentions that pursuant to the scheme of arrangement under section 391 read with section 394 of the Companies Act, 1956, the board of ISL has proposed to transfer its finance division, which is mainly engaged in hire purchase business. The appointed date for the proposed transfer is April 1, 2010. However, it looks like the transferee company has not gone through the above process, instead has chosen to go through section 293(1)(d) of the Companies Act, 1956 and its shareholders have passed a resolution by postal ballot on October 11, 2010. We do not know whether this would have a bearing on the valuation done by the professional. (vii) In page 11 of the valuation report, in paragraph 3.4.1.2, a multiple of market value to book value has been used and the resultant value s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the share valuation to determine the swap ratio. The money raised from these debentures has been invested in a subsidiary company ETHL Communications (Mauritius) Ltd., end use of the funds has not been disclosed in the financials. (xiii) There are a number of companies in the listed space in India doing business quite similar/identical to that of Vodafone Essar Ltd. We do not know why the share value of these companies has not been considered/benchmarked for valuation of shares of Vodafone Essar Ltd. (xiv) The meeting of the equity shareholders of the transferor company was dispensed with. However the hon'ble High Court, Madras directed that a meeting of the equity shareholders of the transferee be held. Such meeting was held on December 13, 2010, after serving due notice to the shareholders. The highlight of the merger is the tacit transfer of shares held by Essar group in Vodafone Essar Ltd., through a subsidiary company of the transferor company to the transferee company. Vodafone Essar Ltd., is an unlisted company ; hence valuing the shares of this company poses a challenge and has been a highly contentious issue. Further this merger is all about transfer of Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. For this prescribed objective, M/s. K. S. Jagannathan and Co., chartered accountants (auditor) were appointed by your office to conduct the scrutiny of books and papers of our company. In our opinion observations/remarks made by the auditor regarding valuation methodology of India Securities Ltd., disclosures made to the shareholders of India Securities Ltd., are not connected with the opinion on whether the affairs of the transferor company were conducted in a manner prejudicial to the interest of their members, or their creditors or to the public. Notwithstanding the above, we are submitting our point wise explanations to the points raised for the sake of clarity : (i) reply to query at point 1 of the letter-at the board meeting held on June 4, 2006, the board approved the amalgamation of the company with India Securities Ltd., and appointed experts for advice on fair ratio of exchange and delegated the authority to finalise the scheme. The scheme was finalised after receipt of report on fair ratio of exchange by M/s. Bansi S. Mehta and fairness opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be noted that both these allotments are made to the holding company holding 100 per cent. share capital of the company and as such reflection of underlying assets is not a pre-requisite for the same as the pre and post shareholding pattern of the company remains the same after these allotments. (viii) reply to query at point 5 of the letter-regarding exclusion of finance division ISL, auditor is contradicting his statement in point No. 8 which is self explanatory. (ix) reply to query at point 6 of the letter it is clarified that it was proposed to transfer the finance undertaking of ISL through scheme of arrangement under section 391 of the Companies Act, 1956, however as a matter of procedural convenience and flexibility, with due approval from shareholders as per section 293(1)(a) of the Companies Act, 1956, finance division of ISL was sold to Frontier Leasing and Finance Ltd. (x) reply to query at point 7 of the letter-it is submitted that point No. 3.4.1.3 of the valuation report refers to addition of realisable value of investments properties and surplus cash to the book value arrived after application of multiple of market value to book value b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of conclusion of court convened meeting. A copy of the valuation report as well as copy of notice sent to the shareholders (page 8 specifies documents available for inspection) is enclosed herewith. Further it is stated that put option agreement is merely an option available with Essar group which may or may not be exercised and hence has no bearing on the proposed scheme of amalgamation. Thus as rightly specified in point No. 20 of the disclosures as prescribed by the SEBI, there is no other information required to be disclosed to the shareholders under section 393 of the Companies Act, 1956, which is necessary for enabling them to make an informed decision. It is also submitted that the said observation is on disclosures by the transferee company and is not connected to conduct of affairs of the company. (xvii) reply to query at point 15 of the letter as specified in clause 8 of the scheme of amalgamation, conversion of compulsorily convertible debentures (CCD) into equity shares cannot be made in terms of existing listing requirements. Therefore conversion has been prescribed subject to compliance with continuous listing requirements as per clause 40A of the listin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the interest of their members or their creditors or to the public, or there were any transactions to attract the provisions of sections 542 and 543 of the Companies Act, 1956. (15) In view of the above, suitable order or orders as this hon'ble court may deem fit and proper may kindly be passed." 22. The reading of the affidavit filed by the Regional Director, Ministry of Corporate Affairs, Chennai would show that a positive report is submitted that Vodafone, has no locus standi to object to the scheme, whereas suggestion has been made to give an opportunity of hearing to the Assistant Commissioner of Income-tax to file objection to protect the interest of the revenue. 23. The official liquidator's report also shows that on detailed consideration of the points raised, it is reported that the affairs of the transferor company were not conducted in the manner prejudicial to the interest of the members or their creditors or to the public. 24. It has also been reported that the transaction would not attract the provisions of section 542/543 of the Companies Act, 1956. Thus, prima facie, there is no objection by the official liquidator or the Regional Director to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the SEBI has already filed no objection stating that it has no concern or locus standi in the matter. 33. Even otherwise, it is not for Vodafone International Holdings to request for impleading of the parties by invoking provisions of Order 1, rule 8A and rule 10(2) of the Code of Civil Procedure, 1908, read with rules 6, 9, 11 and 19 of the Companies (Court) Rules, 1959. 34. C. A. No. 311 of 2011 has been filed directing the respondent to provide copies of the documents enumerated in the schedule to the judge's summons to the application. This application is again misconceived. Vodafone International Holdings, admittedly is not a party to the petition and is an objector to the scheme of amalgamation. The documents are required to be claimed from the counsel for the petitioner in pursuance to public notice. No company application is competent to claim documents if absence of request to counsel. 35. C. A. No. 312 of 2011 is also for directing the respondent to supply documents in C. P. No. 341 of 2010. For the reasons stated in rejecting C.A. No. 311 of 2011, this application is also dismissed. 36. M/s. Vodafone International Holdings B. V., has also filed objections to C.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the chairman appointed by this court, have considered the scheme and approved it. 43. The objections filed by Vodafone International P. Ltd., are objected to by the petitioner-companies by raising preliminary objection, that it has no locus standi to file objections. 44. The locus standi of M/s. Vodafone International Holding B. V., is questioned, on the ground that the scheme of amalgamation is arrangement between the shareholders and creditors of the transferor and transferee companies. 45. This court while considering the scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956, is to ascertain that the scheme in question as a whole, to be just, fair and reasonable from the point of view of men of business taking commercial decision which is not detrimental to the interest of the shareholders and creditors. The only parties who can object to the scheme are either the shareholders or the creditors. 46. In support of this contention, learned counsel for the petitioner placed reliance on the judgment of the hon'ble Bombay High Court in the case of Sequent Scientific Ltd., In re [2009] 151 Comp Cas 1/94 SCL 55, wherein the hon'ble Bombay High Court was plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amined and decided in accordance with the special jurisdiction created by that Act or on a regular civil action, if maintainable. No cause of action accrues to the landlord before the amalgamation and consequential vesting. The cause of action, if any, follows the amalgamation and the vesting. Neither the amalgamation nor the vesting would deprive the landlord of any plea based on alleged assignment which may be open in law to the landlord. If there is any assignment in law, which may attract the provisions of the Delhi Rent Control Act, the landlord would be free to take recourse to the proceedings under that Act or in a regular civil action and such proceedings would be dealt with and decided by the appropriate authority in accordance with law'." 47. Learned counsel for the petitioner also placed reliance on the judgment of the hon'ble Supreme Court in the case of S. K. Gupta v. K. P. Jain [1979] 49 Comp Cas 342 ; to contend that a clear distinction was drawn by the hon'ble Supreme Court while interpreting sections 391 and 392 of the Companies Act, 1956, to hold that it is only under section 392 of the Act any person can file objection. Therefore, by implication, the third party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officio as soon as the scheme of compromise and arrangement is sanctioned by it. The court has a continuing supervision over the implementation of compromise and arrangement. Unenvisaged, unanticipated, unforeseen or even unimaginable hitches, obstruction and impediments may arise in the course of implementation of a 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 guarantee of result and the whole scheme of compromise and arrangement may be mutilated in the process. Parliament has, therefore, thought it fit to trust the wisdom of the court rather than go back to the interested parties. If the parties have several times to decide the modification with the democratic process, the good part of an election machinery apart, the dirt may step in, the conflicting interests may be bought and sold, and, in the process, the whole scheme of compromise and arrangement may be so twisted and torn out of context as to be thoroughly useless and may be jettisoned. In ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs of the company not for modifying the scheme or for any directions but for winding up the company. But when the court is required to act under section 392(1), the limitations and restrictions imposed upon the court under section 391(1) must be read in section 392(1) because the sections are complementary to each other. This submission overlooks the two different stages at which sections 391 and 392 operate though they may be complementary to each other. Two sub-sections of section 392 have to be harmoniously read and sub-section (2) clearly indicates the power of court to take action suo motu while taking action under sub-section (1). Again this approach is inconsistent with the language employed in section 392(2) in that the court can wind up the company under section 392(2) if and only if it is satisfied that the compromise and/or arrangement sanctioned by it cannot be satisfactorily worked with or without modifications. The court has to reach an affirmative conclusion before acting under section 392(2) that the compromise and/or arrangement cannot be worked satisfactorily with or without modification (see J. K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i to file objection. 52. It is also the contention of learned counsel for the petitioner that the hon'ble Supreme Court in the case of National Textile Workers' Union v. P. R. Ramakrishnan [1983] 53 Comp Cas 184, while considering the objection filed by the workmen against winding up order, held that as the workmen will be directly affected by the order of winding up, they have a right to be heard. 53. The contention of learned senior counsel for the objector therefore is that on the same principle, as the petition is advertised in Form No. 5, therefore any person would be entitled to file objection, but the hon'ble High Court of Bombay while holding that third party cannot object to the scheme of amalgamation, completely overlooked the Companies (Court) Rules, 1959 and statutory forms. 54. It is also the contention of learned senior counsel for the objector that even in the case of S. K. Gupta (supra), the hon'ble Supreme Court was pleased to lay down that this court can exercise suo motu power to examine the validity of the scheme, which would entitle any person to bring to the notice of this court, the illegality in the scheme by filing objection. 55. On consideration, I fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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