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TMI Blog2020 (1) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench, Chennai in Company Petitions No.CP/159/CAA/2017, CP/160/CAA/2017, CP/161/CAA/2017, CP/162/CAA/2017, CP/163/CAA/2017, CP/164/ CAA/2017 and CP/165/CAA/2017 vide which the scheme of amalgamation submitted by the respondents was approved. 2. The brief facts of the case are that in the year 2017, 7 company petitions were filed by 1st to 6th Respondents to be amalgamated with 9th Respondent under a Scheme. The Scheme further contemplated proposed transfer of identified undertakings in Keshav Power Ltd and Shree Nirman Ltd (7th and 8th Respondents) to 9th Respondent. Learned NCLT vide order dated 30th June, 2017 (Page 312 and 314) directed 1st, 2nd and 8th Respondent to convene, hold and conduct meetings of equity shareholders thereof on 17th August, 2017. Learned NCLT vide the same order also dispensed with holding of Meeting in respect of 3rd, 4th, and 7th respondent. Meetings were convened and the report was submitted. After considering the report the amalgamation scheme was approved by Learned NCLT. 3. Being aggrieved by the said scheme the appellant has preferred the instant appeal. The case of the appellant is that one Mr Laxman Das resident of Palwal held and still holds 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders went ahead with the scheme and got the same approved behind closed doors. It is stated that the public shareholders did not get any opportunity to consider the scheme and approve and/or object to it. It is stated that the companies misrepresented before NCLT, Chennai with regard to service of EGM Notice to all the shareholders. It is stated that the said EGM is bad in law for nonservice of notice thereof to all the shareholders of the participating companies. Therefore, the resolutions taken in the said EGM are also bad in law, illegal and cannot be given effect to. NCLT Chennai ought to have directed fresh valuation of shares and determine the share exchange ratio in accordance with the fair market value. It is stated that the Regional Director Southern Region, Ministry of Corporate Affairs Chennai also filed its objections against the scheme. It is stated that the NCLT approved the scheme subject to minor interventions despite the objections of the appellant and the Regional Director not being satisfactorily addressed to by the companies. 8. Lastly the appellant prayed that the impugned order dated 12th April,2018 passed by he Learned Tribunal is bad in law and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class of creditors, members, class of members, as the case may be. It is further stated that the Board of Directors of each individual Respondent company had approved the Scheme on 21st March, 2017 and the same was approved by majority of the shareholders in shareholders meeting on 17th August, 2017 and thereafter was approved by the Learned NCLT and it has become statutorily binding on the appellant and thus, no appeal, could lie therefrom. 12. It is stated that Mr. Laxman Dass did receive the Court Convened Meeting notice of 1st Respondent alongwith a copy of the purported scheme including the Valuation Report, which has been annexed in the appeal. It is stated that the said annexure is not the Court Convened Meeting noticed of 1st respondent but is in fact the CCM notice of 8th Respondent of whom the appellant owns no share. It is stated that the said Annexure contains the Board Resolution approving the Scheme of 1st Respondent and 2nd Respondent at Pages 563 and 564 respectively and also valuation report and share entitlement ratio of each Respondent company of the appeal paper book. It is stated that the NCLT has passed a well reasoned order after taking all the relevant pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n outstanding debt to not less than 5% of the total outstanding debt as per the latest audited financial statement and that the appellant in the instant case is not a shareholder but a Power of Attorney of shareholder, whose shareholding is evidently less than 10%, which is the threshold limit to file objections to the Scheme and thus the objector is not entitled to oppose the Scheme and his objections are not required to be considered. 17. It is stated that the Scheme is neither promoter oriented nor affects the minority shareholders prejudicially. It is stated that the Respondent had taken complete care and given due consideration and deliberations to the interests of the minority shareholders and only upon being satisfied with the objective and the repercussions of the Scheme was the Scheme approved and the modifications directed by Ld. NCLT was accepted and acted upon by the Respondent. Case of Maya Devi, Intervener and Mr. Ved Prakash 18. The intervenors/applicants being aggrieved by the impugned order filed an IA No.1365/2018 and IA No. 1364/2018 seeking impleadment in the matter. The applicant stated that she is the shareholder of the 2nd respondent having 685 shares. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents but the Learned NCLT sanctioned the scheme without ensuring the objections of the Regional Director are satisfied. 19. The applicant submitted that the Scheme provides for capital reduction of the 2nd respondent and liquidation thereof without winding up. The applicant stated that it appears that a portion of the capital of the 2nd respondent is being sought to be cancelled and the same is also sought to be converted into capital reserve of the transferee company without any repayment to the shareholders. The applicant submit that such an arrangement is in blatant violation of Section 66 of the Companies Act, 2013. The applicant submitted that the scheme appears to be illegal and she reserves her rights to file further pleadings dealing with the said Scheme. The applicant further submitted that the Tribunal has modified the scheme to the extent of capital repayment to the shareholders whose shares are going to be cancelled consequent upon giving effect to the swap ratio proposed in the Scheme to the extent of only its book value and buy back of the fractional shares. The applicant submitted that such modification of the scheme is insufficient in as much as the sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take necessary steps to convert itself into a public limited company. The applicant submits that the scheme attempts to send out, inter alia, the majority of the public shareholders of 1st respondent without repaying their just entitlement. The applicants further submit that the said scheme does not provide for capital repayment to public shareholders of 1st respondent. The applicants submit that the manner in which the scheme has been sanctioned and allowed, the public shareholders would be left with only 47 shares of Rs. 100 each in 9th respondent. The applicants further submit that majority public shareholders of 1st respondent would not get any share in 9th respondent. The applicants submit that the said scheme is a fraud upon the numerical majority public shareholders of 1st respondent. The applicants submit that the said scheme does not envisage allotment of shares of 9th respondent to the numerical majority of public shareholders of 1st respondent in which besides the appellant, the applicants herein are also concerned nor does it provide for repayment of capital in a realistic manner based on the appropriate valuation. The applicants further submit that the maximum portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contravention of the applicable laws and 400 shares allotted by 2nd respondent do not form part of the scheme. The applicants stated that the Ld. NCLT merely recorded without reasons that the objections raised by the Regional Director were satisfied. 23. The applicants lastly prayed for rejection of the scheme of amalgamation and arrangement. 24. Rejoinder affidavit on behalf of the appellant has been filed. The appellant has reiterated the contents which have been stated by him in the appeal. The appellant has stated that nothing has been disclosed that the said R.K. Agarwal is conversant with the affairs of the Respondents including 9th respondent. It is reiterated that the Respondents have cleverly violated the provisions of Sections 230(3) of the Companies Act, 2013. 25. We have heard the parties and perused the record. 26. Learned counsel for the appellant argued that the Learned NCLT directed the Respondents to convene meeting and the notice may be published in the Business Standard, all India edition and another in vernacular language the Malai Malar newspapers. Learned counsel further argued that no proof of service of Court Convened Meeting notice to shareholders exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power of Attorney on behalf of Mr Laxman Das, who was holding shares in 1st and 2nd Respondent. Learned counsel for the appellant argued that the appellant has filed the appeal as Special Power of Attorney holder of Mr. Laxman Das and not his personal capacity. Learned counsel for the appellant argued that as the appellant is objecting the scheme on behalf of Mr. Laxman Das, therefore, he has every right to oppose the same. Learned counsel for the appellant argued that the locus of Mr. Laxman Das and of appellant was not questioned before the NCLT and this issue cannot be taken up for the first time in appeal and may be considered to have been waived. 30. Learned counsel for the Respondent argued that the appeal has been filed by an alleged Power of Attorney holder of one Mr. Laxman Das but the appeal has been filed by the said Power of Attorney holder in his own name. Learned counsel for the Respondent argued that this is not permissible in law. Learned counsel argued that the appeal be dismissed on this ground alone. 31. We have seen the cause title of the appeal and noted that the appeal has been filed in the name of Mr. Ankit Mittal. We have noted that the appellant has pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of a particular class who may not be able to meet the threshold limit to see the scheme but it may be a pointer enough for the Tribunal to see that the scheme may be loaded against the interest of the objectors. 34. Learned counsel for the appellant argued that the valuation report and the swap ratio qua 1st and 2nd respondent with 9th respondent is arrived at market value approach but the market value of 1st, 2nd and 9th respondent is neither mentioned nor discussed nor compared in the Report. Learned counsel for the appellant further argued that the valuation report also does not indicate any nexus between the market value of 1st, 2nd and 9th respondent and their inter se swap ratio. Learned counsel for the appellant further argued that the valuation report is unreasoned and the only basis for the Share Entitlement Ratio is representation made by the management which the valuer considered to be fair. Learned counsel for the appellant further argued that the valuer in their report at para 7 Page 516 of the appeal has also stated that they have relied on the representation made to them by the management including financial information, significant trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of 1st and 2nd Respondent merely Rs. 173.38 and Rs. 280.51 respectively. Public shareholders are being weeded out for the above value despite valuer claiming market value approach followed. Learned counsel for the appellant argued that the book value of 1st respondent is 0.83% of its market value whereas the 2nd respondent's book value is 1.8% of its market value. Learned counsel for the appellant argued that the Learned Tribunal ought not to have allowed escape of the 1st and 2nd Respondent by paying the public shareholders only 0.83% and 1.8% of their market value per share. Learned counsel further argued that no return on investment was provided for in the original Scheme, however, the same was modified by the Ld Tribunal at the instance of appellant. Learned counsel for the appellant further argued that the valuation has been got done from an unregistered/unqualified valuer in violation of Section 230(2)(c) (iv) of the Companies Act, 2013. 35. Learned counsel for the 9th respondent argued that to prepare the valuation is a function of experts. Learned counsel further argued that it involves various factors and even if the correct principles are applied, different valuers m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent as capital reserves by throwing them out for mere book value of the shares and the resolution of the respondent No.2 is bad in law for violation of Section 230(3) of the Companies Act, 2013. 37. We have heard the parties and perused the record. We have noted that the appellant and Intervenors have mainly stressed that the valuation report is unfair and unjust and the impugned scheme is promoter oriented. We have noted that the Valuer in his Valuation Report at Page 513 has stated as under:- "Methodology 4.1 For the purpose of valuation, it is necessary to select an appropriate basis of valuation amongst the various alternative. It is universally recognised that valuation is not an exact science and that estimating values necessarily involves selecting a method or approach that a suitable for the purpose. The application of any particular method of valuation depends upon various factors including the size of company, nature of its business and purpose of valuation. Further, the concept of of valuation is all about the price at which a transaction takes place i.e. the price of which seller is willing to sell and buyer is willing to buy. Thus, the market value of any compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y time during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him." As regards the arguments of the learned counsel for the appellant that the valuation report has been got prepared from an unregistered valuer is concerned, we note that earlier there was no such section in Companies Act. We note that Section 247 of the Companies Act, 2013 was notified w.e.f. 8.10.2017. The compliance of Section 247 would arise only after this date. There has been no regulation of valuers under the Companies Act, 1956 though the practice has been well established that this valuation was being done by the Chartered Accountants or valuers. The valuation report was submitted by the Valuer in March, 2017. But the duties of the valuer as all along is necessitated that as a professional he will do his work i.e. Make an impartial, true and fair valuation of any assets which may be required to be valued; Exercise due diligence while performing the functions as valuer; Make the valuation in accordance with such rules as may be prescribed. Having gone through the valuation report, we have noted that there are three to four methods t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se shares were cancelled in terms of respective clauses of the scheme and on the intervention of the Tribunal, the Transferee companies accepted to make payment to the objector/shareholders at the book value as on 1.4.2016. If the principle of Book Value given by the Ld. Tribunal is accepted for the scheme, this will require re-working of the exchange share ratio for all the companies. This will amount to re-writing the scheme of amalgamation together again which will necessitate that the process of approval of amalgamation scheme be initiated de novo. In view of the serious consequences it would be unfair to approve the scheme the foundation of which is seriously compromised. We have also noted that the 2nd Respondent is the promoter of Dalmia Bharat with 21.82%. Dalmia Bharat is a listed company on the Stock Exchange. The net worth of Dalmia Bharat is around Rs. 50 billion. We note that the swap ratio inter se 2nd respondent and the 9th respondent as proposed in the scheme is erroneous on the face of it and the Regional Director of Chennai has also raised certain concerns over the merit of the scheme. NCLT has also directed the transferee company to make to the objector at the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit regarding lack of clarity/lack of furnishing of crucial information/details on many aspects of the scheme which has been pointed out in para (9) and (11) (Page 704 to 711 of appeal) and prayed that the Bench may dispose of the matter on merits and pass such order/orders as deemed fit and proper. We find that the objections raised by the Regional Director were material. Impugned order however has given no good reasons to ignore the objections. Conclusion We find that the valuer made a valuation disregarding the methodology, methods or share entitlement ratio even as stated by him in his valuation report. No valuation of each share of every company has been done to arrive at the exchange ratio and we are convinced that only the guess work has been done to arrive at share exchange ratio. We are unable to convince ourselves that on the basis of this valuation report and for other reasons recorded above the amalgamation can be termed as fair to all stakeholders. Such Scheme could not have been approved. In view of the above the following order is passed. i) The appeal filed by the appellant is allowed. ii) Impugned order dated 12th April, 2018 is quashed and set aside. ii ..... X X X X Extracts X X X X X X X X Extracts X X X X
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