Karnataka High Court
Microchip Technology (India) Private ... vs Nil on 8 November, 2013
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
IN THE HIGH COURT OF KARNATAKA, BANGALORE
DATED THIS THE 8th DAY OF NOVEMBER 2013
BEFORE
THE HON'BLE MR. JUSTICE ANAND BYRAREDDY
COMPANY PETITION NO.58 OF 2013
C/W COMPANY PETITION NO.59 OF 2013
COP No.58/2013
Between:
Microchip Technology (India) Pvt. Ltd.
No.149B, I Phase
EPIP Industrial Area, Whitefield
Bangalore - 560 066 ... Petitioner
(By Sri.Saji.P.John, Adv.)
And:
NIL ... Respondent
(Sri.Halesha R.G., CGC for ROC)
COP No.59/2013
Between:
Bridgeco Technologies India Pvt. Ltd.
No.C 501 to C 516, 5th Floor
Tower 'C' Diamond District
Kodihalli, Old Airport Road
2
Bangalore - 560 008 ... Petitioner
(By Sri.P.John, Adv.)
And:
NIL ... Respondent
(Sri.K.S.Mahadevan, Adv. for OL
Sri.R.G.Halesha, CGC for ROC)
---
These company petitions are filed under Sections 391 to
394 of the Companies Act, 1956, praying to BridgeCo India,
SMS India, MT India and their respective shareholders and all
other persons, and etc.
These petitions coming on for Orders this day, the Court
made the following
ORDER
Heard the learned counsel for the petitioners.
2. These petitions are considered together and disposed of by this common order.
3. The petitions are filed seeking sanction of scheme of amalgamation, whereunder M/s. BridgeCo Technologies India Private Limited (hereinafter referred to as 'the Transferor 3 Company No.1', for short), M/s. Standard Microsystems India Private Limited (hereinafter referred to as 'the Transferor Company No.2', for short) are proposed to be amalgamated with M/s.Microchip Technology (India) Private Limited (hereinafter referred to as 'the Transferee Company', for short).
4. The Transferee Company was said to be incorporated on 17.1.2000 and the said Company is engaged in the business of software engineering, application and development services to its parent company. The registered office of the Transferee Company is at No.149B, I Phase, EPIP Industrial Area, Whitefield, Bangalore - 560 066. The authorized share capital of the petitioner - Company is `40,00,00,000/- divided into 4,00,00,000 equity shares of `10/- each and the issued, subscribed and paid-up share capital of the petitioner - Company is `38,06,19,980/- divided into 3,80,61,998 equity shares of `10/- each fully paid up.
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5. The Transferor Company No.1 was incorporated on 24.9.2008 and is engaged in the business of embedded software development having its registered office at No.C 501 to C 516, 5th Floor, Tower 'C', Diamond District, Kodihalli, Old Airport Road, Bangalore - 560 008.
6. The Board of Directors of Transferor Company No.1 and the Transferee Company have approved and adopted the scheme of amalgamation at their respective meetings held on 14.1.2013, subject to confirmation by this Court and the High Court at Delhi.
7. The Transferee Company has filed Company Application No.220/2013 and the Transferor Company No.1 had filed Company Application No.221/2013 seeking dispensation of convening meetings of shareholders, secured and unsecured creditors in order to approve the scheme of amalgamation. Those applications were allowed by separate orders dated 28.2.2013 and the convening of meetings were dispensed with.
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8. The present petitions were filed on 29.3.2013 and notices were issued to the Regional Director in both these petitions as well as the Official Liquidator in COP No.59/2013. Notices of these petitions were published in the English daily 'The Hindu' and the Kannada daily 'Udayavani' on 4.4.2013. This Court, by its order dated 18.4.2013 appointed the Chartered Accountant to verify the books and records of the Transferor Companies. The Official Liquidator has filed his report enclosing the Chartered Accountant's report.
9. The Registrar of Companies has filed an affidavit on behalf of the Regional Director, Ministry of Corporate Affairs, Hyderabad to raise and issue regarding accounting standards 14 which is required to be complied with and seeking a direction to the Transferee Company in this regard and also as per the annual return of the Transferor Company No.1 made up to 13.11.2012, the entire paid up capital of the Company is said to be held by two foreign entities and in view of the 100% foreign holding in respect of the capital of Transferor Company No.1, 6 in order to issue new equity shares to the shareholders of the Transferor Company No.1 in consideration for the amalgamation as provided, the Transferor Company was required to comply with applicable provisions of Foreign Exchange Management Act and therefore, there should be an undertaking in this regard. Further, that the Transferee Company shall issue and allot 688 and 372 equity shares of `10/- each to the shareholders of Transferor Companies No.1 and 2, respectively in respect of every 1(one) equity share held by them in the Transferor Companies on effective date. Whereas, the present authorized share capital of the Transferee Company is not sufficient for the purpose. Therefore, the Transferee Company is required to increase the authorized capital to meet the requirements of issue of shares to the shareholders of the Transferor Companies in terms of the scheme as required under the provisions of Sections 94 and 97 of the Companies Act, 1957 and the Transferee Company to undertake before this Court in this regard. There is one further aspect, namely that the scheme provides for exchange ratio of 7 1:688 to equity shareholder of Transferor Company No.1 based on the valuation report of M/s DSKP & Co., Chartered Accountants which was on the basis of unaudited financial statements as at 30.9.2012, whereas as per clause 1.2 of the scheme, the appointed date is 1.4.2012 and Clause 11 of the scheme provides that the Transferor Companies shall carry on their business transaction between appointed date and effective date and in trust for the Transferee Company of the scheme and therefore, has opined that the proposed share exchange ratio is not fair and seeks a clarification in this regard. Further, since the registered office of the Transferor Company No.2 is situated at New Delhi, sanction of the scheme by this Court would have to be subjected to the sanction of the scheme of the High Court of Delhi.
10. Pursuant to this, the authorized signatories of the Transferee and Transferor Companies have filed reply affidavits dated 10.7.2013, respectively, undertaking to comply with the observations made as above. In so far as observation 8 as regards Clause 9 of the scheme, it is stated that the accounting standards 14 prescribes the nature of treatment of the reserves on amalgamation. The scheme provides that accounting shall be as per pooling of interest method as prescribed under Accounting Standard 14. In so far as the other aspects, especially the interest ratio is concerned, it is stated that it is fixed by an independent Chartered Accountant and the same was accepted by the Board of Directors as well as the shareholders of the Transferee and Transferor Companies and therefore, objection raised by the Regional Director were superfluous as there is no substance in such a challenge to the credibility and in so far as the sanction being subject to High Court of Delhi is concerned, the same would be complied. The Registrar of Companies has thereafter filed a fresh affidavit to state that the Central Government, having no locus standi to challenge the credibility of the Swap Ratio has been incorrect and not maintainable and insist that the total assets and liabilities have to be ascertained as on the appointed date and to evaluate the share value for the purpose of consideration based 9 on the financial statements on the said date. The appointed date is 1.4.2012 and as such, the financial statements of both the Companies as on 31.3.2012 would have to be taken into consideration for the Swap Ratio towards consideration for the transfer of entity, whereas, the valuer have taken into consideration the unaudited financial statements of both the Companies as on 30.9.2012 which is not in accordance with the accounting standards prescribed by the Institute of Chartered Accountants of India and hence, seeks an appropriate direction to the petitioner - Company. In this regard, learned counsel for the petitioner has placed reliance on a decision of the Andhra Pradesh High Court in the case of 'SUMITRA PHARMACEUTICALS v. NIL' (1997 88 CompCas 619 AP), wherein, as regards the swap ratio, the same objection having been raised and in ordinary circumstance, the Andhra Pradesh High Court has held thus:
4. Heard the parties. Regarding the first objection about the share exchange ratio, Mr.Ravi, learned counsel for the petitioner, submits that when the shareholders of both the companies approved the 10 share exchange ratio based on the valuation made by reputed chartered accountants who have taken the average value arrived at by the net asset method, the profit earning capacity method and the market quotation, giving due weightage, the Central Government has no locus standi to object.
It is submitted that the role of Central Government is only to see whether the scheme is prejudicial to the interests of the shareholders. He replied on a decisions of the Supreme Court in Hindustan Lever Employees' Union v. Hindustan Lever Ltd. [1995] 83 Comp Cas 30, where it was held that a combination of three well known methods of valuation of shares, namely, the yield method, the net assets value method and the market value method to arrive at the share exchange ratio giving due weighted to each method based on the company's performance, operating losses and future maintainable profits is a fair method to arrive at the averaged value of the share and that the fact that at the relevant time the book value of the share of one company was higher than that of another is not material. Further, it was held that as the financial institutions which held 41 per cent, shares in one of the companies as well as two 11 independent valuers and the ICICI approved of the valuation there cannot be any objection to the share exchange ratio. Here also the average of the three methods was adopted giving due weightage. It was approved by the shareholders of the two companies and also by major financial institutions. The only objections of the Central Government is while the appointed date is April 1, 1995, the valuation of the share is taken as on August 31, 1995. There is no substance in their objection. If the valuation of one company is taken as on one date and the other company as on a different date, then there may be a valid objection. But both are taken as on August 31, 1995. As Mr.Ravi rightly contends, merely because the appointed date is April 1, 1995, the actual position of the two companies on the relative date of negotiations cannot be ignored while fixing the share exchange ratio."
11. The learned counsel would submit that given this authority which would again re-affirm that the valuation having been accepted by the shareholders, there is little that could be raised by way of objection and the contention that it is not in 12 accordance with law is therefore answered by the decision of the Andhra Pradesh High Court.
12. Given the above circumstances, it cannot be said that there is any irregularity which would be an impediment to the scheme being sanctioned.
Accordingly, the petition is allowed subject to the petitioner confirming to the accountant standard in Form 14.
13. It is also stated that the Delhi High Court has already approved the sanction of the scheme, in which event there is no impediment in the scheme being sanctioned. Accordingly, the scheme stands sanctioned. A copy of this order shall be filed before the Registrar of Companies within thirty days and the office shall draw up a common decree in terms as above, in Form No.42 of the Companies Rules, 1959.
Sd/-
JUDGE RV