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TMI Blog2012 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... if the balance is tilted in favour of the promoter that would be a consequence for which the respondent would have to suffer without a redressal. We are helpless on that count. Discounted value must be the best possible one, beneficial to the minority shareholders including Chandak and Fofalia and such date must be fixed by the company accordingly from the chart handed over in Court by Mr. Sarkar. To make it clear for removal of doubts, the conversion must take effect after the merger and not anterior to it. Thus with these modifications the scheme is sanctioned. - A.P.O. No. 249 of 2010 & C.P. No. 361 of 2006 - - - Dated:- 10-9-2012 - Mr. Ashim Kumar Banerjee And Mr. Shukla Kabir Sinha JJ. Sudipto Sarkar, Debangshu Basak and Ms. Mousumi Bhattacharya for the Appellant. Ranjan Deb, Surajit Nath Mitra, Asish Chakraborty, Amitava Ghosh, Rohitendra Deb, Rajeev Kumar Jain, U.S. Menon, Ratnanko Banerjee, Suddhasatya Banerjee, Kuldip Mallik and A.K. Mishra for the Respondent. ASHIM KUMAR BANERJEE.J: BACKDROP This appeal would involve Scheme of Arrangement between J.K. Agri Genetics Limited and Florence Alumina Limited, sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gested in the scheme and the Clause pertaining thereto should be deleted. They stated, unless there was appropriate increase of authorized capital in Florence Alumina it would not be in a position to allot appropriate shares to J.K. Agri Genetics Ltd and its shareholders in respect of the Seed Undertaking" that was being transferred to it. The Central Government also objected to the free reserve as also change of name of the company after its demerger. The Central Government also objected, unless there was appropriate increase of subscribed capital as per the provisions of Section 81 of the said Act of 1946 and such increase was approved by a special resolution by the shareholders the scheme could not be implemented. Chandak also filed affidavit. According to Chandak, the re-structure by way of demerger would have achieved the growth of the company. It would affect the interest of the minority shareholders of J.K. Genetics and would make them hopeless insignificant minority. The sole intention was to undervalue the shares. He also elaborated how the promoters of J.K. would gain control of the shareholding having a controlling block of shares to the exclusion of the minority. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been considered. According to His Lordship, no prudent businessman would suggest such scheme without considering the discounting aspect. Dealing with the no objection received from SEBI, His Lordship observed, the said approval was subject to certain relaxation granted by SEBI. Coming back to the issue of conversion, His Lordship observed, the reason for conversion was insufficient in cash flow, however, that was far from truth. His Lordship relied on the decision in the case of Miheer H. Mafatlal VS- Mafatlal Industries Ltd. reported in Volume-87 Company Cases Page-792 and Bedrock Ltd. reported in Volume-101 Company Cases Page-344 to support her view that the Court was competent to judiciously x-ray the same and would not function as a rubber stamp or post office. His Lordship also relied upon the English decision in the case of Sussex Brick Co. Ltd. reported in 1960 Volume-I All England Law Reports Page-772 to support her view that the conversion was intended to promote the interest on JKIL being a separate class and a meeting of such class ought to have been held. His Lordship rejected the Scheme of Arrangement and Demerger. Hence, this appeal. RIVAL CONTENTIONS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the promoters and none else. Per contra, Mr. Ranjan Deb, learned senior counsel supported the judgment by contending that the learned Judge was right in holding that the scheme was unfair to the general body of the shareholders. He made critical comments on the holding of the shareholders meeting. He contended, the entire process was vitiated by illegality and unfair dealings that would only benefit the promoters and promoters only. He lastly questioned the validity of the said scheme that would propose demerger of the Seed Undertaking from the transferor company to a company which was nothing but a paper company on the day when it was picked up by the promoter to achieve their purpose. Elaborating his argument, Mr. Deb took us to page 136 of the paper book to show that the public holding in the transferor company would get reduced if scheme was approved. As per the shareholding at page 136 the public shareholding was 25.74% that would get reduced to 13.37%. Hence, the public holding by itself was sufficient to block the special resolution that would get reduced in case of demerger being sanctioned. He contended, the transferor company was a paper company having an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conversion was taken only to benefit the promoters as would be appearing from the observations of Ernst Young, the surveyor who was appointed to give certificate as to the fairness of the fixation of the share exchange ratio. Mr. Deb took us to various pages of the supplementary paper book to show that the company did not act upon the advice of Bombay Stock Exchange or Ernst Young. Both the organizations categorically pointed out that the scheme was unfair to the general shareholders. He lastly contended, even if the demerger would get the seal of approval of this Court that must be having prospective effect having conversion being effective as on the date of sanction of the scheme or the effective date that could not be made retrospectively. Appearing for Fofalia, Mr. S. Banerjee learned counsel adopted the submissions made by Mr. Deb. In addition, Mr. Banerjee contended that the Seed Division was the only effective business that the transferor company would be having. Hence, the demerger would effectively make the transferor company crippled. He would refer to page 895 of the paper book to show that the cash flow which was posed as the main cause of demerger, would be pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders of the company. The issue of further shares to the persons other than the existing shareholders could not be said to be wholly barred. It would require special resolution. In the instant case, the process of demerger would require allotment of shares to the transferor company that was sanctioned by the shareholders of both the companies through overwhelming majority. Hence, this decision would be of no assistance to the respondents. He lastly contended that preferential allotment of shares to a particular class or a conversion that would otherwise benefit a particular class, could not be said to be impermissible under the corporate law even if such process would ultimately result in reduction of the shareholding percentage of a particular class of shareholding that would, per se, not be termed as illegal. We heard this matter on the above mentioned dates. We are told, Central Government appeared before the learned Judge however, no such noting would appear from the judgment. However, no one appeared before us. Hence, we were compelled to close the hearing in their absence. OUR VIEW Mafatlal and Bedrock, if read together, would determine the scope and extent of judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or also commented that the effective date of conversion should be the date of merger meaning thereby, it would be a post-merger issue and not pre-merger as suggested in the scheme. Mr. Sarkar strenuously contended, that would have no significant relevance. It might be so. He might be correct at the end of the day. We, however, feel, no reasonable plea was placed before us to ignore the opinion of the expert on that count. In our view, the opinion of the surveyor, having the competent expertise, must prevail, particularly, when the company relied on the same at the meeting of the shareholders as contended by Mr. Deb and not confronted by Mr. Sarkar. This is the only small arena where we feel, the scheme would need little re-touch from our end. This would take us to the last issue of discounting. The learned Judge found, there was some impropriety on this issue. Paragraphs 6.12 and 6.13 being relevant herein are quoted below : 6.12 By virtue of the conversion the said Bonds and Preference Shares are being redeemed much before the time specified and the present day discounted value ought to have been considered. This has also not been done. 6.13 This is relevant as no prudent b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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