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TMI Blog2014 (8) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... y/MPFL") with Networth Stock Broking Limited ("Transferee Company"). 3. Both the Transferor Companies, as also the Transferee Company are in the business of share and stock broking and portfolio management. According to the Petitioner Companies, the Scheme will provide an impetus to their growth, since all the Companies are engaged in similar areas of business. It will also result in enhancing their scale of operations and reduction in, and/or optimization of overhead costs, administrative, managerial and other expenditure. It will also lead to operational rationalization, organizational efficiency and optimal utilisation of resources. It will also help in improving economies of scale and improve shareholder value, benefit all shareholders/investors of all the Companies since the combined amalgamated Company will have an improved financial structure, larger cash flows and stronger consolidated revenue and profitability. It will also result in enhanced leveraging capability of the combined entity, which in turn will allow the combined entity to undertake future expansion strategies and to tap bigger opportunities in the market with considerable lower risk / return ratio because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank guarantee for an amount of Rs. 3 crores to the Small Causes Court and the Transferee Company would hand over possession within one week thereafter. Accordingly, possession of the premises was handed over by the Transferee Company. 7. On 9th August, 2012, the Small Causes Court partly decreed the suit for an amount of Rs. 4.09 crores. The Small Causes Court directed that the deposit of the Transferee Company of Rs. 3 crores lying with the Objector be adjusted against the decretal amount and that the balance amount was to be paid over by the Transferee Company to the Objector. The rest of the claim of the Objector was dismissed. 8. In September 2012, the Transferee Company preferred an Appeal against the decree of the Small Causes Court. The Objector also issued a notice dated 24th January, 2013 against the Transferee Company demanding an amount of Rs. 1.49 crores, i.e. the balance decretal amount after adjustment of the security deposit. 9. The Appeal preferred by the Transferee Company from the decree of the Small Causes Court was admitted on 5th May, 2014. On 16th May, 2014, the decree against the Transferee Company was stayed on the condition of a deposit of 60% of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect creditors of the transferee company. In the circumstances, objections raised by the creditors are rejected." In the matter of the Scheme of Amalgamation between Mayfair Limited and Zodiac Clothing Co. Limited [2004 (2) Bom. CR], this Court held: "......In order to get any relief, the objecting creditor must show : i) that there is a debt due to him and the debt is either admitted by the Company or the Court prima facie comes to the conclusion that the debt is due. ii) that the creditor would be adversely affected by sanctioning of the Scheme. iii) the Scheme is unjust and unfair to the creditors or any class of creditors to whom the objecting creditor belongs." 14. Therefore, for a creditor to object to a Scheme of Amalgamation, he must first cross the threshold of prima facie satisfying the Court that there is a debt due to him. In the present case, the claim of the Objector has, at the first instance been adjudicated by a court of competent jurisdiction and the adjudicated amount stands fully paid or secured. According to the Learned Counsel for the Objector, the Objector has filed a Cross Appeal against the decree of the Small Causes Court. Such Appeal if fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Shareholders have objected to the sanction of the Scheme. In such a situation, the apprehensions sought to be expressed by a solitary person claiming to be a Creditor of the Transferee Company does not have much credence. 16. Thereafter, the Objector has raised various objections as regards the annual accounts for the financial year 2010 to 2013 of the Transferor Companies and the Transferee Company. It is settled law that the Company Court while considering the Scheme of Amalgamation, does not sit in judgment over the commercial wisdom of the shareholders and creditors of the Company. The contours of the Court's jurisdiction while considering a Scheme of compromise and arrangement are set out by the Hon'ble Supreme Court in the case of Miheer H. Mafatlal Vs Mafatlal Industries Ltd. (1996) 87 Company Cases 792 :AIR 1997 SC 506, where the Hon'ble Court observed as under. "In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the company court has clearly got earmarked. The following broad contours of such section having emerged: 1. The sanctioning Court has to see to it that all the requisite statutory procedure for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a better Scheme for the company and its members or creditors for whom the Scheme is framed. The Court cannot refuse to sanction such a Scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the Scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the company court which is called upon to sanction a Scheme of compromise and arrangement, are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction." 17. An overwhelming majority of the shareholders of both the Transferor Companies and the Transferee Company have found the Scheme to be fair and reasonable and in the interest of all concerned. Even though notices have been issued to all Unsecured Creditors of the value of Rs. 25,000/- and above of the MPFL and the Transferee Company, and the Secured Creditors of the Transferee Company, no other Creditor has objected to the sanction of the Scheme. It would be beyond the jurisdiction of the Company Court considering a Petition for sanction of a Scheme of Amalgamation to analyze the accounts of the Companies in depth, unless somethi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures mentioned in the Balance Sheets are only the position as on 31st March. These figures change on a day to day basis. Considering the response of the Transferee Company, I find that the objection is based on lack of proper appreciation of the nature of business carried out by the Transferor Companies, which are broking Companies. In any case, these are not aspects which would weigh with the Court when it exercises its jurisdiction under Section 391 to 394 of the Companies Act, 1956. (c) It is next contended that the both Transferor Companies have obtained short term secured loan facilities from HDFC Bank which are repayable on demand and secured against book debts and stock along with the personal guarantees of Directors. It is alleged that this is obviously since the Transferor Companies are not in a position to recover monies from their Debtors. It is for this reason that the Transferor Companies are compelled to obtain financial facilities from external sources. The obtaining of financial facilities for business requirements cannot be said to be a factor which would reflect upon the operations or functioning of a company. Further, the Transferee Company has explained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsustainable sources of income and the Scheme of Amalgamation would bring down the financial position of the Transferee Company. It is an admitted position that the Balance Sheets of both the Transferor Companies disclosed that they are profit making Companies with a positive net worth. What the Objector seeks to do is to deduct incomes from the balance sheet of the Transferor Companies on the ground that they are not sustainable sources of income. By deleting these items, the Objector contends that if these heads of income are ignored, the Transferor Companies would be making losses. On the basis of such apprehended or notional losses, the Objector contends that the financials of the Transferee Company would be affected as a result of the amalgamation. Firstly, the Objector has not given any basis whatsoever as to why the Objector asserts that the said heads of incomes which it seeks to exclude, are unsustainable. Considering the nature of the business of the Transferor Companies, it is apparent that the said Companies are in broking business and therefore, delayed payment charges and penalty etc. cannot be said to be incomes from sources which are unsustainable. In any case, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt liability and the issue is pending before the Income Tax and Service Tax authorities in appeal. 18. In any case, in order to consider the financial strength of the Companies, this Court required the Petitioner Companies to furnish a statement certified by its Chartered Accountant to disclose the net worth of the Companies and the effect of the amalgamation on the net worth of the Transferee Company post-merger. The Petitioners submitted net worth certificates certified by its Chartered Accountant based on the audited balance sheets for the period ended 31st March, 2013 and the unaudited balance sheets for the period ended 31st March, 2014. The said certificates disclose that considering the net worth of the Transferor Companies, in fact the post- merger net worth of the Transferee Company becomes much more healthier and stronger. The figures are set out as under: As per audited balance sheets for the period ended 31st March, 2013:- Particulars Pre-Merger net worth as on 31st March, 2013 (in Rs. ) Post-Merger as on 31st March, 2013 (in Rs. ) MPFL MRBPL NSBL NSBL Net worth 207370895 58193496 286947363 552511755 As per unaudited balance sheets for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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