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TMI Blog2017 (12) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal below is ₹ 22.32 lakhs and the valuation at ₹ 5.05 crores is having a considerable variation making it imperative to have a broad look into it. The look by the Tribunal into the issue may not be looking into too much mathematics of the scheme and may be in the best interest and protection of the stakeholders. After noticing the same the Tribunal has come to the conclusion that the Scheme of amalgamation is beneficial to the promoters only. The Tribunal has justified its discretion to reject the amalgamation. We do not find mitigating factors to differ with the same. - C.A. (AT) No.285 of 2017 (Arising out of order dated 13.07.2017 passed by the NCLT, Hyderabad, Hyderabad in C.P.(CAA) No.14/230/HDB/2017 & C.P. (CAA) No.15/230/HDB/2017 (connected with C.A. No.1641/2016 and 1642/2016 - - - Dated:- 21-12-2017 - A.I.S. Cheema And Mr. Balvinder Singh, JJ. Mr. Ramesh Kosaraju, Mr. Naveen Nandigam, Dr. U.K.Chaudhary, Senior Advocate with Shri Naveen Dahiya, Shri Y. Suryanarayan, Shri Himanshu vij and Shri Lokesh, Advocates For appellant. Shri Sanjib K Mohanty, Ms Swarupama Chaturvedi, Mr. Arun Devdas, Sr. Panel Central Government Counsel for Respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts received from them. After hearing the parties and perusing the record relating to the Scheme of Amalgamation, the Tribunal passed the impugned order dated 13.7.2017 thereby rejecting the Scheme of Amalgamation stating that this scheme is beneficial to the promoters only, relevant portion of the impugned order is as under: 17. Upon perusal of the documents submitted the Petitioners Company, it is observed that the Transferor Company viz Wiki Kids was incorporated on 15.10.2004. But it has not yet started any commercial operations and hence no Profit and Loss Account was prepared and it has also stated that income from business operation is NIL and the Transferor Company had income from other source i.e. only on Fixed Deposit amounting to ₹ 85,490 for the year ended 31.03.2016 18. As per the details provided under the Head Capital Work in progress an amount of ₹ 94.67 lakhs ahd been spent out of ₹ 117 lakhs Issued subscribed and Paid up Share Capital which means the Transferor Company s value is approximately ₹ 22.32 lakhs. The facts of the case shows that the Transferor Company is yet to commence its commercial production/operation for almost 13 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 12.40 crores. The shares to be allotted by the transferee company to the shareholders of Transferor Company are nothing but common promoters of both the transferor and transferee company (M.s Wiki Kids Limited and Avantel Ltd). 22.We have also observed that neither, BSE, SEBI, Registrar of Companies (ROC); Regional director (RD) and Official Liquidator (OL) have not scrutinized the above angle, financial benefit flowing only to the few common promoters for an amount of Rupees approx. ₹ 12 crores for a net worth/value of approx.. ₹ 22.32 lakhs to transferor company. 23. Further it is also observed that the Company Petition was filed under Section 230 to 232 of the Companies Act, 2013 whereas the Board Resolution dated 03.09.2016 was under Section 391 to 394 of the Companies Act, 1956. The transferor company i.e. Wiki Kids Ltd was promoted by promoters of Avantel Ltd and they hold 99.90% of the Paid up Share Capital of Wiki Kids Ltd. The Scheme of amalgamation submitted/circulated to the Shareholders and Creditors do not have the list of names of shareholders, names of Directors of both the Companies, the disclosure that shares of the transferee company would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on launched and the Transferee company intended to acquire by way of present Scheme. Learned counsel for the appellants further argued that the Tribunal has overlooked the well settled law that the Courts should not supplement its wisdom with the commercial wisdom of the stakeholders and that the share exchange ratio has been computed by an expert independent Chartered Accountant in accordance with the settled principle of valuation and law. 7. It is further argued that all the directions given by the Hon ble Court were complied with and due notice was given to shareholders along with requisite explanatory statement and other relevant documents, which are already placed on record and on the scheduled day and venue, the meeting of shareholders of Appellant No.2 was held and the proposed scheme was approved by the shareholders. The Chairperson, who was appointed to convene the meeting, also filed his report before Hon ble Tribunal stating that the Scheme has been approved by the shareholders. Accordingly, the appellants filed the Company Petitions before the National Company Law Tribunal, Hyderabad for sanction of Scheme of Amalgamation. Learned counsel for the appellants further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. Of course this Section deals with post-sanction supervision. But the said provision itself clearly earmarks the field in which the sanction of the Court operates. It is obvious that the supervisor cannot ever be treated as the author or a policy maker. Consequently, the propriety and the merits of the compromise or arrangement have to be judged by the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the Scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement. The Court cannot, therefore, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction ........... Section 394 casts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle prudent business management test or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of foreign company then test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure the merger shall not result in impeding promotion of industry or shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing on behalf of 1st respondent submitted that transferor company has 10 shareholders and all of them have given their consent to the proposed scheme by way of affidavits and it has no secured and unsecured creditors. It is further submitted that the transferee company has a sole secured creditor and eight trade creditors and all of them have given their consent to the proposed scheme by way of affidavits. It is further submitted that a meeting of shareholders of transferee company was held on 27.1.2017 and other details were provided to the shareholders of the transferee company including pre and post amalgamation shareholding pattern of the two companies. The members of transferee company approved the Scheme with requisite majority. It is stated that the share exchange ratio was arrived at on the basis of a valuation report issued by an Expert and there was no cause for the 1st respondent to disbelieve the premises on which the share exchange ratio was arrived. It is also stated that NCLT had also accepted the facts that the Transferor company had developed certain e-learning platforms but did not do any business. It is further argued that the valuer takes into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders against it. It is further submitted that the 6th respondent is not expert in valuation and it relies only upon the fairness opinion of its registered merchant banker. It is stated that as on 11.11.2016 the share price of M/s Avantel Ltd was ₹ 120/- and after that it went upto ₹ 295.40 on June 30, 2017. It is stated that once 6th respondent has issued its observations as per SEBI guidelines, it has no means to give its observation on movement of market price of the scrip. It is further stated that since no grievance or objection has been raised, therefore, they have no objection. 10. Learned counsel appearing on behalf of the Official Liquidator submitted that on receipt of notice from the Transferor Company and subsequently the transferor company provided information and books and records. Based on the information made available by the Transferor Company, the Official Liquidator submitted its report before the Hon ble Tribunal conveying its opinion that the affairs of the Company appear to have not been conducted in a manner prejudicial to the interest of the members or to public. It further submitted it has submitted in its report that the combined entity wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue in future to add value. Future projections if based on past performance would be sound basis. We further observe that the NCLT Hyderabad has rightly observed that financial benefit is flowing only to the few common promoters for an amount of ₹ 12 crores approx. for a net worth/value of ₹ 22.32 lakhs approx. of transferor company. One of the objective of the Scheme should be fair to the interest of all the shareholders and not only to a few among them. In this Scheme of amalgamation, the interest of promoters has been kept in mind and well protected on the merger itself whereas for other shareholders it depends on the future performance. It clearly shows that the entire scheme has been designed just to give benefit to the promoters of both the companies. Further the projection given can be a guess and not a forecast. The benefit of scheme of amalgamation will immediately flow to the promoters but not to the shareholders. The other class will be contingent upon the realisation of the revenue in future. The figures have been given by the Management and has been accepted by the valuer as it is and has disclaimed accuracy and reliability. The shareholders cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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