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TMI Blog2020 (10) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned with the first issue of objection of the 3.59% of minority shareholders as a whole, is with regard to their legitimate expectation to be adequately compensated with regard to valuation of shares. The rights of minority shareholders qua the Valuation of shares as per the two Valuers and the Fairness report has to be examined. Method of valuation and assumptions carried out by the Valuers - HELD THAT:- The details captured in the two valuation report depict the assumptions and calculations considered by them, while concluding the share price of the petitioner company. Whether the proposed scheme has the effect of wiping out entirely a class of shareholders, namely, the non-promoter shareholders, though on payment of certain compensation in view of the objection raised by them and whether such selective reduction can be allowed? - HELD THAT:- Section 66 of the 2013 Act expressly permits companies to undertake reduction of their share capital in any manner, i.e. including by way of selective reduction of share capital, as laid down by numerous High Courts - Given the facts of the present case and that the objectors being class of Non-Promoter shareholders who have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Deshpande, Advocate, i/b Cyril Amarchand Mangaldas, Advocates for the Petitioner. For the Objectors: Adv. Sejal Shah, Mr Samir Hemani, CA Nitin Gutka, Mr Piyush Shah, Mr Amish Shah, Mr Rupesh Jhaveri, Mr Salim Merchant, Mr Dinoo Vasunia, Mr Rohan, Singhania, Mr Rajesh Kapadia, Mr L. Firdos For Regional Director: Mrs. Rupa Sutar, Deputy Director. ORDER Per: Suchitra Kanuparthi, Member (J) 1. The Petitioner Company was incorporated on 23rd March, 2000 in Mumbai in the State of Maharashtra under the provisions of the Companies Act, 1956, as Novartis Agribusiness India Private Limited . Consequent to the Fresh Certificate of Incorporation issued on Change of Name dated 5th September, 2000, the name of the Petitioner Company was changed to Syngenta India Private Limited. The Petitioner Company was then converted into a Public company and was listed on Bombay Stock Exchange (BSE). In June 2007, the equity shares of the Petitioner Company were delisted from BSE Limited under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003. 2. The Petitioner Company is engaged in the business of manufacturing and trading of agrochemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Banker, Avendus Capital Private Limited ( Avendus ) to provide a fairness opinion on the valuation of the equity shares of the Petitioner Company, as determined by the two aforesaid independent valuers. 8. PWC and Haribhakti issued their respective Valuation Reports dated 25th October, 2017 and 26th October, 2017 respectively and Avendus submitted its Fairness Opinion dated 28th October, 2017 to the Petitioner Company. 9. The Petitioner Company submits that the Valuation Reports submitted by the said reputed independent valuers and the fairness opinion given by Avendus were considered by the Audit Committee and the Board of Directors of the Petitioner Company (which included detailed deliberations with the said reputed independent valuers and Avendus) at their respective meetings held on 1st November, 2017. The Board of Directors of the Petitioner Company determined that the higher of the two valuations arrived at by the said reputed independent valuation reports, i.e. ₹ 2444.70 (Rupees Two Thousand Four Hundred and Forty Four and Seventy Paisa Only) per equity share of the Petitioner Company arrived at as per the valuation report issued by PWC represented the fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary General Meeting of the equity shareholders of the Petitioner Company, to be held on 8th December, 2017 ( EGM ) and subject to confirmation to the said reduction of capital by this Hon ble Tribunal. 12. The Petitioner Company had sent the Notice of its EGM to be held on 8th December, 2017 at 10:00 a.m., at Yashwantrao Chavan Academy of Development Administration (YASHADA), Rajbhavan Complex, Baner Road, Pune- 411 007, inter alia setting out the resolution proposed to be passed therein, to all the equity shareholders of the Petitioner Company, along with the Explanatory Statement attached thereto. 13. A special resolution of the shareholders of the Petitioner Company was duly passed in accordance with Section 66(1) of the Companies Act, 2013, at the EGM held, after due notice as provided in the Companies Act, 2013, on 8th December, 2017, it was resolved as under: RESOLVED THAT pursuant to Section 66 and other applicable provisions of the Companies Act, 2013, (including any statutory modification(s) or re-enactment thereof for the time being in force) and the rules made thereunder (the Act ), read with Articles of Association of the Company; and the confirmation by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrendering of share certificates with transfer forms), 11,81,036 (Eleven Lakh Eighty One Thousand and Thirty Six) equity shares of ₹ 5 (Rupees Five) each of the Company held by the Public Shareholders shall stand cancelled and extinguished and rendered invalid. 14. The Petitioner Company states that the result of said EGM is as under: a) Break-up of shareholders present and voting: Sr. No. Particulars Number of Shareholders Number of shares or voting power held 1 Shareholders present and voting at the EGM 42 3,17,73,448 2 Shareholders who voted through evoting option 93 61,595 Total (1+2) 135 3,18,35,043 3 Invalid ballot forms 0 0 b) Shareholder voting details: Number of valid votes (including those voted through evoting option) at the EGM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid up 15,88,13,360 Total 15,88,13,360 16. The Petitioner Company does not have any deposits as covered under the provisions of Sections 73 to 76 of the Companies Act, 2013 and the Rules made thereunder. Hence the Petitioner Company has no arrears in the repayment of any deposits, either before or after the commencement of the Companies Act, 2013, or the interest payable thereon, as on the date of filing of this Petition before this Hon ble Tribunal. The certificate of Chartered Accountant further confirms that there are no deposits issued by the Company. 17. The Petitioner Company states that there are no secured creditors of the Petitioner Company as on 8th December, 2017. Further, there are unsecured creditors of the Petitioner Company with aggregate outstanding of ₹ 2,79,28,59,006/- as on 8th December, 2017. The interest of the creditors of the Petitioner Company are not prejudicially affected in any manner. The rights of the creditors therefore are not affected. The creditors of the Petitioner Company will be paid off in the ordinary course of business. 18. The Public Shareholders, as on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is also due to public participation. The selective reduction is detrimental to the public participation in equity market. Further, the fair value of the assets/shares is not made available. Hence, the Scheme deserves to be rejected. 20. Written submissions filed by the Objector; a. It is undisputed fact that 3.59% of shares constituting 11,81,036 shares are held by minority non-promoter shareholders. During the voting of the resolution of Company for reduction of share capital, only 45 public shareholders consisting of 29,693 shares had voted in favour against 87 public shareholders consisting of 42,678 shares had voted against the special resolution. This is shareholders' money and by way of accepting the proposed resolution, the minority shareholders will lose out on the future benefit and growth prospect. b. In consolidated voting result including E-voting and physical voting 41% of minority shareholders voted in favour of resolution and 59% of minority shareholders voted against the resolution for reduction of share capital. This strongly indicates that public shareholders are unwilling to surrender Company shares due to its future growth and dissatisfied s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : In view of the above, and on consideration of the relevant factors and circumstances and discussed and outlined hereinabove, value per equity share of SIL of INR5/ each fully paid up as on date of this INR 2,444.7/(Two Thousand four hundred forty rupees and seventy paise only) b) Haribhakti Co. LLP: 1) The Valuation approach adopted by the above valuers are cost approach, market approach and income approach. The valuers at para 6.5 and 6.6 of their report concluded as follows: 6.5 Further, we are of the opinion that the Market Approach is the most appropriate for the current valuation exercise since it would best reflect the expectations of minority shareholders for the proposed transaction. Thus, we have assigned 100% weight to the Comparable companies method and under the market approach for current valuation. 6.6 On consideration of all relevant factors and issues discussed herein, in our opinion, the total equity value of SIL as per CCM method is arrived at INR 76,870Mn and a per share value of INR 2,33.36/. 2) Fairness Value Report by Avendus Capital Private limited: On the basis of and subject to the foregoing, it is our view that, as of the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rashmi Aggarwal IN302365100 14386 500 0 Acquired the shares between 27th April to 4th May 2018 3 Nalin V. Shah IN301549541 45091 1000 0 Acquired the shares between 23rd March to 31st March, 2018 4 Shri. Parasram Commodities Private Ltd. IN302365100 21418 3151 0 Acquired the shares between 23rd March to 31st March, 2018 5 Ravinder Kumar Aggarwal IN302365100 10333 669 0 Acquired the shares between 27th April to 4th May 2018 List of the Objectors, who did not exercise their right to vote at the EGM (including through e-voting) S. No . Name of the Objectors Folio No./DPID client ID No. of Shares held as per intervention applicationn No. Of shares held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intervention application No. of Shares held as on the date of EGM % of Shares as on date of EGM 1 (i) Sangeeta Gupta and IN30290244571630 -9205 20205 9205 0.779 (ii) Punit Kumar IN30018311696050 11000 11000 0.931 TOTAL 20,205 1.71 FINDING: 24. Upon perusal of the statistics of voting it can be said that 87 shareholders voted against the proposed resolution, having 42,678 shares and therefore the voting percentage who voted against the resolution is 0.13%. Further it is pointed that out of the 36 Objectors who have filed their Intervention Applications / Objections to the Company Petition, (i) 9 Objectors have acquired the shares of the Petitioner Company after the EGM was conducted i.e. they did not hold any shares as on the date of the EGM, (ii) 11 Objectors, in aggregate holding 9,148 equity shares of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rhouse Co. LLP VALUATION APPROACH There are several commonly used and accepted methods for determining the value of the equity shares of a company/ business, which have been considered in the present case, to the extent relevant and applicable, for valuing the Company, including: Market Approach a. Comparable Companies' Multiples method b. Market Price method Income Approach - Discounted Cash Flow method Asset Approach - Net Asset Value method It should be understood that the Valuation of any company or business is inherently subjective and is subject to certain uncertainties and contingencies, all of which are difficult to predict and are beyond our control. Our analysis is inter-alia based on various assumptions with respect to industry performance and general business and economic conditions, which may be beyond the control of the Company. In addition, the value will fluctuate with changes in prevailing market conditions, the conditions and prospects, financial and otherwise, of the Company, and other factors which generally influence the value of the Company. The application of any particular method of Valuation depends on the purpose for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eventual buyer. The transaction value for the Divestment Products may get influenced by the transaction structure and the timeline provided to complete the sale process. However, considering that revenues from Divestment Products are not significant and operating margins are in line with that of SIL as a whole, for our analysis we have not made any adjustment with respect to the Divestment Products and the same have been valued as part of the Company as a whole. b. Market Price Method The market price of an equity share as quoted on a stock exchange is normally considered as the value of the equity shares of that company where such quotations are arising from the shares being regularly and freely traded in. SIL is not a listed company and accordingly, the market price method has not been adopted. Income Approach - Discounted Cash Flows (`DCF') Method Under the DCF method, the projected free cash flows to the firm are discounted at the weighted average cost of capital. The sum of the discounted value of such free cash flows is the value of the firm. Using the DCF analysis involves determining the following: Estimating future free cash flows: Fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assigned to the DCF value in arriving at the final conclusion of value. For further details, please refer para on 'Basis of value per share' below. Asset Approach - Net Asset Value Method The Net Asset Value (`NAV') of a share represents the value of a share with reference to the historical costs of the assets owned by the Company. Such NAV usually represents the minimum value or support value of a share of a going concern. Adjustments, as appropriate, are made for contingent liabilities, appreciation/ depreciation in the value of surplus assets and other matters to arrive at the equity value. SIL is a going concern with positive earnings, and the historical book values of assets and liabilities are not considered representative of the earnings potential of the Company. Accordingly, the NAV method has not been adopted. Basis Of Value Per Share The basis of the fair value per share of SIL would have to be determined after taking into consideration all the factors and methodologies mentioned hereinabove. By its very nature, Valuation work cannot be regarded as an exact science and the conclusions arrived at in many cases will of necessity be subjectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidated i.e. it does not meet the going concern criteria. As an indicator of the total value of an entity, the NAV method has the disadvantage of only considering the status of the business as at one point in time. Additionally, Net Asset Value does not properly take into account the earning capacity of the business or any intangible assets that have no historical cost. In many respects, the NAV represents the minimum benchmark value of an operating business. 4.4. Market Approach Under the Market approach, valuation is based on the market value of the company in case of listed companies and comparable companies trading or transaction multiples for unlisted companies. The Market approach generally reflects the investors' perception about the true worth of the company. Comparable Companies Multiples ( CCM ) Method The value is determined on the basis of multiples derived from valuations of comparable companies, as manifest in the stock market valuations of listed companies. This valuation is based on the principle that market valuations, taking place between informed buyers and informed sellers, incorporate all factors relevant to valuation. Relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cash flows over the last year of the forecast period. The discounting factor (rate of discounting the future cash flows) reflects not only the time value of money, but also the risk associated with the business' future operations. The Business/Enterprise Value (aggregate of the present value of explicit period and terminal period cash flows) so derived, is further reduced by the value of debt, if any, (net of cash and cash equivalents) to arrive at value to the owners of the business. 5. Selection of Valuation Approach 5.1. It is pertinent to note that the valuation of any company or its assets is inherently imprecise and is subject to certain uncertainties and contingencies, all of which are difficult to predict and are beyond our control. In performing our analysis, we have made numerous assumptions with respect to industry performance and general business and economic conditions, many of which are beyond our control. In addition, this valuation will fluctuate with changes in prevailing market conditions, and prospects, financial and otherwise, of the Company, and other factors which generally influence the valuation of companies and their assets. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It would be in the light of the aforesaid, after taking into consideration the principles of valuation as propounded by various authorities, that one would have to consider the value of the equity shares of the Company. 6.2. In HLL and TOMCO merger case, the Supreme Court endorsed that a fair and proper approach for valuing the shares of the companies would be to use a combination of three approaches. The weights for different methods were as under: Approach Weights Asset Value Method 20 % Income Method 40% Market Method 40% However, these are not definitive. It may be modified depending upon the facts and circumstances of each case, given it should be explained and justified. 6.3. The current valuation exercise is a purpose-driven valuation wherein it is essential to arrive at the fair value considering the best interests of the minority shareholders. Accordingly, it is essential to distinguish the current valuation exercise from the applicability of Supreme Court judgment in case of HLL and TOMCO merger. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution? Can it be said, on reading a valuation as any fair-minded and reasonable person would do, and without microscopic scrutiny, that the valuation is so egregiously wrong that the judicial conscience will not permit it? Has the valuer gone so far off-track that the results his valuation returns cannot but be wrong? 7.1.7 A court called upon to sanction such a scheme is not bound by the ipse dixit of a majority. It must weigh the scheme and look at it from all angles. It must see whether the scheme is fair, just and reasonable, not unconscionable and is not contrary to any provisions of law and it does not violate any public policy. But it must also balance the commercial wisdom of the shareholders expressed at a properly convened meeting against the desires and fancies of the few. The court will take into account, but not be bound by, the views of the majority. In particular, the court will see what the views are of most of the nonpromoter (minority) shareholders at the meeting. If the bulk of them have voted in favour, the court will not lightly disregard this expression of an informed view, one that lies in the domain of corporate strategy and commercial wisdom. 7.1.8 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (AIR 1997 SC 506), elucidating the role of court while dealing with commercial matters, the Hon'ble Supreme Court held that: The court does not have the expertise nor the jurisdiction to delve into the deep commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently, the Company Court'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 teams play their game 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 the umpire . (emphasis supplied.) In view of the ratio laid down in the above judgements, this bench is of the view that the objector to the scheme has not shown that the valuation is ex-facie unreasonable, i.e., so unreasonable that it cannot on the face of it be accepted, the valuation method adopted by the valuers are unacceptable, or are based on patently erroneous assumptions and lastly if the Valuations are vitiated by fraud or malafides. The Minority shareholders are objecting to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34. In Re: Elpro International Ltd., reported in [2009] 149 Comp Cas 646 (Bom) the Hon ble Bombay High Court observed that: In the present case, the Court must first and foremost have regard to the well-established position that a selective reduction of share capital is legally permissible. 35. In Re: Indrama Investment Pvt. Ltd. Ors. [2012] 172 Comp Cas 271 (Delhi), the Hon ble Delhi High Court, following the law laid down inter alia in Reckitt 2011 (supra) observed: As pointed out above, it has been held by the Court that merely because the arrangement results in extinguishing some shares and resulting into 100% shareholdings in the hands of a particular group cannot be treated improper per se. (emphasis supplied.) 36. In Wartsila India Limited v. Janak Mathuradas, reported in (2011 (1) Bom. C.R. 600, the Hon ble Bombay High Court upheld reduction of share capital as undertaken by the company therein which resulted in the extinguishment of non-promoter shareholding of the company. The Hon ble Court further held answering in the question whether the special resolution which proposes to wipe out a class of shareholders after paying them just compensation can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out by a recognised firm of chartered accountants who are experts in the field of valuation and if no mistake can be pointed out in the said valuation, it is not for the court to substitute its exchange ratio, especially when the same has been accepted without demur by the overwhelming majority of the shareholders of the two companies . 30. The aforesaid ratio of the decision of the Supreme Court [in Hindustan Lever Employees Union (supra)] is squarely applicable to the facts of the present case and on that count the objection raised by the objectors as also by the Regional Director cannot be entertained, and rather required to be rejected which I hereby do. 40. The petitioner also relied on the judgement of Ratan Housing Development Ltd, [2004] 122 Comp Cas 24 (All), in relation to respect of a Petition seeking sanction of a High Court to a scheme of amalgamation, the objection of the RD that the share exchange ratio proposed in the Scheme was not in the interests of the shareholders of the transferor company, and that the book value of the shares, and not the value as quoted by the Stock Exchange should be regarded as the fair value, was rejected by the Hon ble All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reduction is permissible within the framework of law (see Re. Denver Hotel Co., 1893 (1) Chancery Division 495). (v) When the matter comes to the Court, before confirming the proposed reduction the Court has to be satisfied that (i) there is no unfair or inequitable transaction and (ii) all the creditors entitled to object to the reduction have either consented or been paid or secured. 43. The matter came for hearing on 18.02.2020, the counsel for the petitioner was heard, the following objectors were heard as party in person 1. Adv. Sejal Shah 2. Samir Hemani 3. CA Nitin Gutka 4. Piyush Shah 5. Amish Shah 6. Rupesh Jhaveri The following Objectors who are present in the court submitted that they will adopt the submissions made by the above six objectors. 1. Salim Merchant 2. Dinoo Vasunia 3. Rohan Singhania 4. Rajesh Kapadia 5. L. Firdos 44. The petitioner company has complied with the statutory compliances by sending notices to the Regional Director, Western Regional Ministry of Corporate Affairs (RD) and the Registrar of Company, Pune. No notice has been issued to SEBI as the petitioner company is not a listed company. The notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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