Madras High Court
Bank Of Madura Shareholders Welfare ... vs Governor, Reserve Bank Of India on 13 February, 2001
JUDGMENT N.V. Balasubramanian, J.
1. This writ petition is filed with the prayer for the issue of a writ of mandamus directing to postpone the extraordinary general meeting announced by the second respondent to a future date until the petitioner association gets an opportunity of being heard and to inspect the auditors' report which was not sent along with the notice for the extraordinary general meeting which is mandatory under Section 219 of the Companies Act, 1956, and to announce the proxies collected by the third respondent as invalid and order an independent Chairman for the extraordinary general meeting whenever it is conducted and to direct the first respondent to intervene in the matter and appoint an independent vote scrutineer for the extraordinary general meeting as provided under Section 184 of the Companies Act in the matter of amalgamation.
2. The writ petition was filed on the file of this Court on 12-1-2001. Even before the writ petition could be taken up for admission, the extraordinary general meeting was held on 19-1-2001. Hence, the main prayer in the writ petition for the postponement of the extraordinary general meeting of the shareholders convened by the second respondent for considering the scheme of amalgamation between the Bank of Madura Ltd. and ICICI Bank Ltd. has become infructuous in the sense that the extraordinary general meeting of the shareholders of Bank of Madura Ltd. was held on 19-1-2001, at Hotel Pandian, Madurai.
3. The case record reveals that the writ petition filed by the petitioner-association came up before my learned brother, K.P. Sivasubramanian, J., and the learned Judge has not passed any order either admitting the writ petition or ordering notice to the respondents for admission prior to the holding of the extraordinary general meeting. On 24-1-2001, the learned Judge directed the Registry to post the matter before the Company Court for hearing and the Registry put up a note to the Hon'ble Chief Justice and on the basis of the direction of the Hon'ble Chief Justice, the matter was posted before the Company Court on 2-2-2001.
4. As already observed by me, even before the posting of the case, the extraordinary general meeting of the shareholders was held on 19-1-2001, and no orders have been passed by this Court in the writ petition.
5. Though the main prayer in the writ petition, as already stated, has become infructuous, however, in view of the extensive and elaborate arguments advanced by Mr. Shyam, President of Bank of Madura Shareholders Welfare Association, it has become necessary to consider the arguments advanced by Mr. Shyam who appeared as party in person. I also heard Mr. C.A. Sundaram, the learned senior counsel appearing for the second respondent and Mr. K.V. Venkatapathi, the learned senior counsel appearing for the third respondent.
6. One of the main objections raised by Mr. C.A. Sundaram, the learned senior counsel, is that the writ petition is not maintainable. Mr. Shyam, party in person, has produced before this Court the original registration certificate of the petitioner-association issued by the Registrar of Co-operative Societies, Chennai, wherein Bank of Madura Shareholders Welfare Association, Royapettai, has been registered in Registration No. 1417 of 2000. Certain other documents have also been produced by Mr. Shyam to show that the petitioner-association is in existence. He also referred to the advertisement given in some Tamil newspapers wherein the petitioner-association had requested the shareholders of Bank of Madura Ltd. not to sign the proxy till the matter was decided by the Court.
7. According to Mr. C.A. Sundaram, the learned senior counsel, the petitioner association was registered on 29-12-2000, and none of the office-bearers including the President was a shareholder of Bank of Madura Ltd. at the relevant time. When the matter came up before this Court on 2-2-2001, the matter was adjourned to 5-2-2001, granting time to the petitioner-association to show that either its President and officebearers were the shareholders of Bank of Madura Ltd. at the relevant time. But, the petitioner-association was not able to produce any evidence to show that the President or the office-bearers of the petitioner-association were shareholders. In the counter-affidavit filed by the second respondent, it is stated that R.M. Chidambaram who subsequently claimed to have become the Secretary of the petitioner-association holds 258 shares. However, it is also stated in the counter-affidavit that the said R.M. Chidambaram acquired the shares while he was an employee of Bank of Madura Ltd. In spite of opportunities granted to the petitioner, the petitioner-association is not able to establish before this Court that either the President or any one of the office-bearers other than R.M. Chi-dambaram or its members was a shareholder of Bank of Madura Ltd. Further, the petitioner association is also not able to establish that R.M. Chidambaram, Secretary of the association, was an office-bearer at the relevant point of time.
8. Insofar as Mr. Shyam, party in person, is concerned, though he has stated during the course of arguments that his other name is Shanmugam, he is not able to produce any share certificate standing either in the name Shyam, or in the name of Shanmugam. On the other hand, the learned senior counsel appearing for the second respondent has produced before this Court copies of folios showing the names of Shanmugam, who are holding shares in Bank of Madura Ltd. They are : P.L. Shanmugam Chettiar, R.M. Shanmugam, K.M. Shanmugam and V.R. Shanmugam. But Mr. Shyam, party in person and the President of the petitioner-association, is not able to produce any evidence in support of his case that he was a shareholder of Bank of Madura Ltd. on the date of convening of the extraordinary general meeting or subsequently. He is also not able to produce any share certificate standing in the name 'Shanmugam'. The main submission of Mr. Shyam, party in person, is that the swap ratio of 2:1-- for one share of Bank of Madura Ltd., two shares in ICICI Bank Ltd.-- proposed in the scheme of amalgamation--is not fair to the shareholders of Bank of Madura Ltd. His submission is that there should be an increase in the swap ratio as the book value of the shares of Bank of Madura Ltd. was Rs. 210.6 on the relevant date, but whereas, the book value of ICICI Bank Ltd. was Rs. 58.4. Mr. Shyam, party in person, submitted that Bank of Madura Ltd. has 57 years standing, but ICICI Bank Ltd. was incorporated only four years back and considering the goodwill of Bank of Madura Ltd., the swap ratio should be more than 2:1. Mr. Shyam, in the course of arguments, referred to a copy of a news item published in the Economic Times dated 10-1-2001. He also referred to the rights issue offer letter issued by Bank of Madura Ltd. in the month of February, 1996, wherein the book value of a share of Bank of Madura Ltd. is said to be Rs. 235.41 as on 31-3-1995. Mr. Shyam, party in person, therefore, submitted that the swap ratio proposed is not fair to the shareholders.
9. Insofar as this submission is concerned, Mr. C.A. Sundaram, the learned senior counsel appearing for the second respondent, submitted that the valuation of shares has been done by a well-known chartered accountant firm, called, Deloitte Haskins and Sells, Mumbai, and the value of shares of both the banks was evaluated considering the book value/intrinsic worth of their net assets and the capitalisation of future maintainable earnings basis of both the banks and the market price of their equity. The learned senior counsel also produced before this Court the report of Deloitte Haskins and Sells, Mumbai, on fair exchange ratio for the amalgamation of Bank of Madura Ltd. with ICICI Bank Ltd.
10. I am of the view that the submissions of Mr. Shyam, party in person as well as the submissions of Mr. C.A. Sundaram, the learned senior counsel appearing for the second respondent, have to be considered in the light of the provisions of the Banking Regulation Act, 1949. The Banking Regulation Act has been enacted with a view to consolidate and amend the law relating to banking. Part III of the Banking Regulation Act deals with suspension of business and winding-up of banking companies. Section 44A of the Banking Regulation Act deals with the procedure for amalgamation of banking companies. Under Sub-section (1) of Section 44A, the following conditions must be fulfilled for the amalgamation of one banking company with another banking company :
(a) the scheme containing terms of amalgamation has to be placed in draft before the shareholders of each of the banking companies concerned, and
(b) the scheme should be approved by the resolution passed by a majority in number representing two-thirds of value of the shareholders of each of the companies present either in person or by proxy at a meeting called for that purpose.
Sub-section (2) of Section 44A deals with the procedure for the issue of notice for the convening of the meeting. Sub-section (3) of Section 44A is relevant and under the sub-section, if any shareholder has voted against the scheme of amalgamation at the meeting convened for that purpose or has given notice in writing at or prior to the meeting to the Presiding Officer of the meeting that he dissents from the scheme of amalgamation, he would be entitled, in the event of the scheme being sanctioned by the Reserve Bank of India, to claim from the banking company concerned, in respect of the shares held by him in that company, the value of the shares as determined by the Reserve Bank of India while sanctioning the scheme and on such determination by the Reserve Bank of India, the value of the shares has to be paid to the dissenting shareholder and the valuation so determined shall be final for all purposes. Sub-section (4) of Section 44A provides that the scheme approved by the shareholders should be sanctioned by the Reserve Bank of India and if so sanctioned by the Reserve Bank of India, the order passed in writing would bind the banking companies concerned as well as the shareholders. It is not necessary to refer to other provisions of Section 44A. Section 45 of the Banking Regulation Act empowers the Reserve Bank of India to apply to the Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation.
11. I am of the view that the provision contained in the Banking Regulation Act, viz., Section 44A, regarding amalgamation of banking companies is a self-contained provision and a complete code on the amalgamation of banking companies. The scheme of amalgamation of two banking companies should contain in it the complete details regarding the proposed merger of the two companies. A close reading of the provisions of Section 44A of the Banking Regulation Act shows that it departs from the provisions of the Companies Act, in two important aspects, namely, the High Court is not given the power to grant its approval to the scheme of merger of banking companies and the Reserve Bank of India is given such a power and, secondly, the Reserve Bank of India is also empowered to determine the market value of shares of the shareholder who has voted against the scheme of amalgamation or who has given such notice against the amalgamation in writing prior to the meeting of the company to the Presiding Officer concerned. The Banking Regulation Act enables the dissenting shareholder to obtain from the banking company concerned the market value of his shares as determined by the Reserve Bank of India, The provisions of Section 44A also enable the Reserve Bank of India to determine the market value of shares of the dissenting shareholder. If the petitioner association is really aggrieved that the market value of shares of both the companies has not been determined properly, it is always open to it to get the market value of shares evaluated by the Reserve Bank of India, and obtain the value of the shares from the banking company.
12. Mr. Shyam, party in person, submitted that though the petitioner-association is not opposing the scheme of amalgamation, yet, the petitioner-association is concerned with the swap ratio of the shares. I am of the view that the Reserve Bank of India is the authority empowered under the Banking Regulation Act to determine the market value of shares and to direct payment of the value of shares to the dissenting shareholder. I, therefore, hold that though this Court has wide powers under Article 226 of the Constitution, however, in view of the specific provisions contained in the Banking Regulation Act for the determination of the value of shares by the Reserve Bank of India to be paid to the dissenting shareholder and for directing payment of the value of shares to the dissenting shareholder, I am not inclined to go into the question whether the swap ratio adopted in the scheme of amalgamation is fair or not.
13. In my view, it is the Reserve Bank of India that has been vested with the power to determine the market value of shares under the provisions of the Banking Regulation Act for payment to the dissenting shareholder. The Reserve Bank of India is also vested with the power to grant its approval to the scheme of amalgamation of banking companies. I hold that when a specific authority has been appointed by the Parliament to determine the value of shares to be paid to a dissenting shareholder and to grant the approval to the scheme, this Court should not go into the disputed question as to the valuation of shares, and whether the swap ratio mentioned in the scheme of amalgamation is fair, correct or not. It is also relevant to mention here that in the extraordinary general meeting held on 19-1-2001, persons having 73,83,903 shares have voted for the scheme of amalgamation and persons having 1,270 shares have voted against the resolution and persons having 842 shares have cast invalid votes and persons having 7,937 shares have not exercised their voting rights.
14. Further, in my opinion, any opinion expressed by this Court on the valuation of shares adopted to determine the swap ratio for the allotment of shares would foreclose the right of the Reserve Bank of India to determine the value of shares when the scheme of amalgamation is under consideration before the Reserve Bank of India and would prevent the Reserve Bank of India from freely exercising its statutory power conferred on it by the Parliament. I am of the view that the present writ petition filed is at premature stage. Though this Court under Article 226 has the power to examine the question whether the statutory conditions to be fulfilled for amalgamation of banking companies have been satisfied or not or whether there is any mala fide intention in the scheme of amalgamation proposed or whether the amalgamation of banking companies has been done on some extraneous consideration, yet, ultimately, it is for the shareholders to determine whether the scheme of amalgamation proposed by the banking companies concerned should be granted their approval or not, with the ultimate control vested with the Reserve Bank of India. In the statutory set-up, I am of the view that it is neither desirable, nor permissible, to express any opinion on the valuation of shares adopted for the determination of the swap ratio of shares.
15. Mr. Shyam, party in person, made a complaint that respondent Nos. 2 and 5 have not furnished the book value of the shares. The submission of Mr. Shyam is not correct as the learned senior counsel appearing for the second respondent has produced before this Court the report of the chartered accountants which contains the book value of shares of Bank of Madura Ltd. as well as ICICI Bank Ltd.
16. One other contention urged by Mr. Shyam was that the notice of the meeting of shareholders was not published in the newspapers having circulation in the locality where the registered office of the banking company is situate. The submission is stated to be rejected as the learned senior counsel for the second respondent has produced before this Court the copies of the bills issued by the advertisers dated 29-12-2000, and 3-1-2001, by which a sum of Rs. 79,794 each was paid for effecting publication in all editions of 'The Hindu' and 'Daily Thanthi' and also copies of the publication effected in 'The Hindu' dated 26-12-2000, and 3-1-2001, and 'Daily Thanthi' of Madurai Edition dated 26-12-2000, and 3-1-2001, which show that the publication has been effected in the manner provided under Sub-section (2) of Section 44A.
17. Mr. Shyam also contended that the promoter of Bank of Madura Ltd. was the Chairman of the extraordinary general meeting held on 19-1-2001, and he has influenced the voters. This contention is also bereft of force as the report of the Chairman of the extraordinary general meeting of Bank of Madura Ltd. held on 19-1-2001, clearly shows that one S. Nandagopal was the Chairman of the meeting and not the promoter of Bank of Madura Ltd.
18. One other submission made by Mr. Shyam was that the third respondent has committed the offence punishable under Section 176(4) of the Companies Act. According to him, the third respondent has invited proxies in his name by letter dated 26-12-2000, to all the shareholders. In the counter-affidavit filed by the second respondent, it is clearly stated that the third respondent has sent letters to all shareholders of the company inviting proxies in his personal capacity and at his personal expense and not at the cost of the company attracting the provisions of Section 176(4).
19. Mr. Shyam, party in person, also submitted that the third respondent has committed an offence punishable under Section 17 of the Prevention of Corruption Act, 1988. The above submission of Mr. Shyam is also liable to be rejected as there are no materials produced by the petitioner-association before this Court to show that the third respondent has invited proxies from the shareholders in the capacity of an officer of the banking company and at the expense of the banking company. Further, the allegation made against the third respondent has no connection or link with the question of determination of the validity of the scheme of amalgamation proposed by the board of directors of Bank of Madura Ltd. and ICICI Bank Ltd.
20. Mr. Shyam, party in person, also submitted that there is a heavy inside trading in the Bombay Stock Exchange of the shares of Bank of Madura Ltd. as the second respondent in his counter-affidavit has admitted that the Bombay Stock Exchange has called for certain particulars from Bank of Madura Ltd. This contention is also liable to be rejected as there are no materials to establish the inside trading with reference to the dealing of shares of Bank of Madura Ltd., and the calling for certain particulars by the Bombay Stock Exchange does not establish that there were certain violations and there was heavy inside trading with reference to the dealing of shares of Bank of Madura Ltd. In any event, the petitioner association has not produced any material in support of such plea.
21. The next submission of Mr. Shyam was that shareholders were coerced and the third respondent has compelled the shareholders to give proxies. In my view, the said contention has to be examined only by the Reserve Bank of India while considering the question whether the scheme of amalgamation should be sanctioned or not. Moreover, it is seen from the report of the Chairman of the extraordinary general meeting that no shareholder has raised the protest that proxies were obtained by force or coercion, and no shareholder has come forward before this Court stating that proxies were obtained by force or coercion by the third respondent. Hence, the submission of Mr. Shyam in this regard is also rejected.
22. The other submission of Mr. Shyam was that the third respondent has sent threatening letters to shareholders and oppressed small-term shareholders. He referred to the letters of the third respondent dated 26-12-2000, and 9-1-2001, and submitted that the third respondent has stated that it would be difficult for small banks to grow fast and compete with large financial service entities and international competition due to the emerging trends. This submission of Mr. Shyam is also liable to be rejected on the ground that no shareholder has made a complaint at the time of holding of the extraordinary general meeting that a particular shareholder was threatened, and no shareholder has also made a complaint before this Court that he was prevented from casting his vote freely either in favour of or against the scheme of amalgamation. Moreover, it is a matter for the Reserve Bank of India to examine the said issue and, hence, the submission of Mr. Shyam in this regard is also rejected.
23. One other submission made by Mr. Shyam was that shareholders have not been furnished with valuation report of the chartered accountants. He also submitted that Deloitte Haskins and Sells, Mumbai, is the chartered accountants of ICICI Bank Ltd. and it is not advisable to get valuation report from the chartered accountants of ICICI Bank Ltd. In support of his submission, Mr. Shyam produced copy of letter dated 29-12-2000, wherein the petitioner-association has stated that valuation report was not forwarded to any of the shareholders to take effective steps and the inspection of the document was also denied.
24. Insofar as the said submission of Mr. Shyam is concerned, the petitioner-association has not proved that any one of its members was a shareholder of Bank of Madura Ltd. as on 29-12-2000. In the letter dated 29-12-2000, also the petitioner association has not stated the name and address of the shareholder who was refused permission to inspect the documents. In the notice of extraordinary general meeting issued by the Executive Vice-President and Company Secretary, Bank of Madura Ltd., it is seen that there was an explanatory statement along with the notice explaining the salient features of the scheme of amalgamation, and the notice lists out various documents which were kept open for inspection at the registered office of the transferor-bank on any working day except Sunday till the date of meeting between 10 a.m. and 4 p.m. and one such document is the valuation report of the chartered accountants. As already stated, the petitioner association has not proved that any of its members except the second petitioner was a shareholder of Bank of Madura Ltd. or a particular shareholder was denied the opportunity of inspecting the documents. Further, the petitioner association has not produced any letter to show that any shareholder has made a complaint to the effect that he was not allowed to inspect the documents.
25. Insofar as the appointment of the chartered accountants is concerned, the chartered accountants are expected to arrive at the market value of shares of both the companies and, hence, it is desirable to appoint the same chartered accountants with the power to go through books of account of both the banking companies, and evaluate the value of shares of both the companies. It must be remembered that the companies proposed to be merged are banking companies, and considering the nature and scope of banking transaction which involve great deal of confidential information, the appointment of the chartered accountants of the transferee-bank cannot be faulted. Hence, the submission of Mr. Shyam regarding appointment of Deloitte Haskins and Sells, Mumbai, as chartered accountants for Bank of Madura Ltd. cannot be taken exception to, and is rejected.
26. The other submission of Mr. Shyam, party in person, was that only 57 days prior to the announcement of the scheme of amalgamation, the Chairman of Bank of Madura Ltd. in his statement dated 17-10-2000, has stated that the bank was going to introduce measures with a view to alter the entire structure of the business of Bank of Madura Ltd., such as branch rationalisation, automation, branch networking, etc. He, therefore, submitted that when the Chairman has stated that the transferor-bank is a strong institution, there is no need to merge 57 years old bank having branches in rural areas in the State with a relatively young company, ICICI Bank Ltd. I am unable to accept the submission of Mr. Shyam for the reason that it is for the shareholders of the transferor-bank to decide whether Bank of Madura Ltd. should be merged with ICICI Bank Ltd. or not. The view of the Chairman assumes only secondary importance, and when majority of the shareholders have expressed their view in favour of the scheme of amalgamation, the earlier view expressed by the Chairman of Bank of Madura Ltd. does not assume much importance. It is also relevant to mention here that the statement of the third respondent was issued not long before the holding of extraordinary general meeting held on 19-1-2001, and it must be held that the shareholders were well aware of the statement of the Chairman and in spite of the same, they have exercised their votes in favour of the scheme of amalgamation. Therefore, the submission of Mr. Shyam that in view of the statement of the third respondent dated 17-10-2000 the scheme of amalgamation is not called for, is rejected.
27. The next submission of Mr. Shyam is that the merger should be probed. I am unable to accept the submission of Mr. Shyam as the petitioner-association has not made out any case to order probe into the merger scheme proposed by the board of directors of the transferor-bank and the transferee-bank. As already observed by me, it is for the shareholders either to accept or to oppose the scheme of amalgamation, and when the requisite majority shareholders of the transferor-bank have accepted and approved the scheme of amalgamation, the question of ordering probe by this Court into the scheme of amalgamation does not arise.
28. The other submission of Mr. Shyam was that under clause 34 of the scheme, time is available up to 31-7-2001, and, therefore, the writ petition should be admitted and the petitioner-association should be given further opportunity. This submission is also liable to be rejected as the effective date of the scheme of amalgamation is the date on which the scheme is sanctioned by the Reserve Bank of India, and it may be either the date mentioned in the scheme or such other date as may be fixed by the Reserve Bank of India by order in writing. Though in clause 34 of the scheme, the outer time-limit is fixed as 31-7-2001, it does not mean that this Court should admit the writ petition when the petitioner-association has not made out any prima facie case calling for interference by this court.
29. Moreover, it is relevant to note the conduct of the petitioner. When the writ petition was filed before this Court, the petitioner-association has also filed an application, W.M.P. No. 1328 of 2001 seeking leave of this Court to file a single writ petition as there are two writ petitioners in the writ petition. This Court, by order dated 18-1-2001, granted leave to the petitioner association to file a single writ petition and that order was taken advantage of by the petitioner-association and wide publicity was given stating that this Court has allowed W.M.P. No. 1328 of 2001 and directed the matter to be posted before the Company Court. A general notice was given and a telegram was also issued to the Reserve Bank of India, the Chairman, Executive Vice-President and the Secretary of Bank of Madura Ltd. to stop the meeting to be held on 19-1-2001. It is also stated that any meeting held on 19-1-2001, would be sub judice. It is also stated therein that in case of any violation, contempt proceedings would be taken as the matter was subjudice. It is relevant to notice that what the Court ordered in the W.M.P. No. 1328 of 2001 was to permit the petitioner to file a single writ petition and that was taken advantage of by the petitioner-association which issued notice to the general public in newspapers. The petitioner association has also issued telegrams to all the interested parties stating that the matter was sub judice and contempt proceedings would be taken in the case of any violation, and at that relevant point of time, this Court had not taken the writ petition on its file and had not issued notice to the respondents. The conduct of the petitioner-association clearly shows that it is interested in the postponement of consideration by the Reserve Bank of India on the ground that it has filed the writ petition seeking postponement of the extraordinary general meeting of shareholders. I hold that when the petitioner-association has not made out any prima facie case for admitting the writ petition, the question of admitting the writ petition does not arise. It is made clear that any expression of opinion made in the judgment will not bind the Reserve Bank of India while considering the scheme of amalgamation of Bank of Madura Ltd. with ICICI Bank Ltd.
30. I, therefore, hold that the petitioner has not made out any case calling for interference by this Court at this stage, and I am not inclined to admit the writ petition and issue notice to the respondents. Consequently, the writ petition fails at the admission stage itself, and is dismissed. Consequently, W.M.P. No. 1554 of 2001 is closed.