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TMI Blog2011 (10) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferor and Transferee Companies have also been enclosed with the Petitions. 5. Copies of the Resolution passed by the Board of Directors of the Petitioner Companies approving the Scheme have also been placed on record. 6. It has been submitted that no proceeding under Section 235 to 251 of the Act is pending against the Petitioner Companies. 7. So far as the share exchange ratio for amalgamation is concerned, the Scheme provides that, upon the Scheme finally coming into effect, the Transferee Companies shall issue shares in the following manner:- (One) Equity Share of ₹ 10/- (Rs. Ten Only) each, credited as fully paid-up of the Transferee Company for every 10 (Ten) Equity Share of ₹ 10/- (Rs. Ten Only) each held in the Transferor Company. 8. The Petitioner Companies had earlier filed CA (M) Nos. 73/2011 and 74/2011 seeking directions of this Court for dispensation of meetings. Vide orders dated 04th April, 2011, this Court allowed the Applications and dispensed with the requirement of convening meetings of Shareholders and Un-secured creditors of the Transferor and Transferee Companies. None of these Companies had any Secured Creditors. 9. The Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not been considered in calculating Fair value per share. Details is as under: Transferee Company (Rs.) Transferor Company (Rs.) Net Asset value (N.A.V.) Price Earning Capacity Value (PECV) Issue price 100% per share (at premium of ₹ 90/- per share) 42/- 6/- 11/- Not relevant ₹ 20/- ( at premium of ₹ 10/- per share Actual NAV per share in the case of Transferee company is ₹ 37.42 and in the case of Transferor company is ₹ 25.20 It is clear from the above that there is no basis for taking Fair value ₹ 100/- per share in the case of Transferee Company and ₹ 10/- per share in the case of Transferor Company. The exchange ratio on the basis of Actual NAV per share would be 4 Equity shares of the Transferee Company for every 6 Equity Shares of Transferor Company. 12. Subject to the aforesaid observations, the Official Liquidator has confirmed that the affairs of the Transferor Company do not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) The manageable profit-basis method (the earning Per Share Method) (2) The networth method or the break value method, and (3) The market value method? So many imponderables enter the exercise of valuation of shares. M/s C.C. Chokshi and Co. considering all the relevant aspects and obviously keeping in view the accounting principles underlying the valuation of shares suggested the said ratio which was found acceptable both by the Board of Directors of the transferor -Company . It has also to be kept in view that which exchange ratio is in the realm of commercial decision of well-informed equity shareholders. It is not for the court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the entire Scheme. 40 % of the majority shareholders were financial institutions who were supposed to be well versed on the aspect of valuation of shares. They had no objection to the exchange of 2 shares of the transferee-Company for 5 shares of the transferor-company. As stated earlier it was so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not have accepted the said exchange ratio on the ground that if will be detrimental to their interest These observations in our view represent the correct legal position in this aspect. We may also that in the present case not only expert like M/s C.C. Chokshi and Co had suggested the ratio but another independent body ICICI Security and Finance Company Limited reached the same conclusion which was conveyed by its letter dated 10.11.1993 to the company approving of the entire scheme along with suggested ratio. A mere look at the report of the Chartered Accountants M/s C.C. Chokshi and Co. shows that various factors underlying the scheme compromise and arrangement were taken into consideration while suggesting the exchange ratio by the aid reputed firm of chartered accountant. The said opinion had taken into account the fact that on amalgamation shares have to be cancelled. Increase in the share premium account in equity capital of the MIL will also have to be taken into account as a result of final call made in respect of Bond 1992 issue. It has also taken into account significant increate in the paid-up equity of MIL as a result of issue of its Bond in the international ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich it is stated that some or all of the 8 listed factors will have to be taken into account on determining the final share exchange ratio. The court has also proved the fixation of exchange ratio of the shares of the companies on the basis of adoption of combination of two or more well-known methods of valuation of shares out of many such methods. In para 37 of the Report it has been observed that the question is what method should be accepted for arrival at a proper exchange ratio. The usual rule is that shares of the going concerned must be taken at quoted market value. This principle was also recognized by this Court in the case of CWT Vs. Mahadeo Jalan. It is not the case of the appellant that M/s C,.C. Chokshi and Co. had not taken into consideration the quoted market value of shares of both the companies which were going concerns and which were subjected to the Scheme of Amalgamation in question . For all these reasons, therefore , there is no substance in this contentions canvassed on behalf the appellant that the exchange ratio was ex-facie unfair to the equity shareholders of the transferee company. 17. In view of the aforesaid and particularly in the present case, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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