Gujarat High Court
Adani vs Respondent(S)
Author: K.M.Thaker
Bench: K.M.Thaker
COMP/135/2011 49/ 49 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 135 of 2011 In COMPANY APPLICATION No. 400 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE K.M.THAKER ========================================= ADANI POWER LIMITED - Petitioner(s) Versus . - Respondent(s) ========================================= Appearance : MRS SWATI SOPARKAR for Petitioner(s) : 1, MR PS CHAMPANERI for Respondent(s) : 1, ========================================= CORAM : HONOURABLE MR.JUSTICE K.M.THAKER Date : 11/04/2012 CAV ORDER
1. Present petition is taken out under the provisions of Section 391 to Section 394 of the Companies Act, 1956, hereinafter referred to as the Act) with a prayer to sanction the proposed Scheme of Arrangement in nature of amalgamation of the Transferor Company with the Transferee Company.
2. The petitioner is the Transferee Company while the proposed Transferor Company is a company incorporated and registered in Mauratious and its registered office, as claimed by the petitioner is situate at C/o. Trust Link International Limited, Suite 501, St. James Court, St. Denis Street, Port Louis, Mauritius.
2.1. Before taking out present petition the petitioner company had taken out Company Application No.400 of 2011 wherein under order dated 1st August 2011 the petitioner company was directed to convene meeting of Equity Shareholders. It is claimed that the directions requiring the company to follow the procedure to convene meeting of the Equity Shareholders was duly followed and the meeting was convened on 12th September 2011 as directed by the Court. The petitioner has claimed that the affidavit of compliance of publication of notice and other procedure has been filed on the record of the said application. It is also claimed that the resolution approving the proposed Scheme came to be passed by requisite majority of 95.76% in number and 99.99% in value by the Equity Shareholders present and voting at the meeting. It is also claimed that the Chairman of the meeting has filed his report with supporting affidavit dated 17th September 2011. On perusal of the said report it comes out that the Chairman has reported that:
"1. The meeting of Equity Shareholders was attended either personally or through proxy by 132 (One Hundred and Thirty Two) Equity Shareholders of the Company representing 170,80,12,463 (One Hundred and Seventy Crores Eighty Lacs Twelve Thousand Four Hundred and Sixty Three) Equity Shares aggregating to Rs.17,08,01,24,630/- (Rupees Seventeen Hundred and Eight Crores One Lac Twenty Four thousand Six Hundred and Thirty only) comprising of 53 (Fifty Three) Equity Shareholders in person, 2 (Two) through the Authorised Representatives and 77 (Seventy Seven) Equity Shareholders through proxy.
3. The result of the voting upon the said question was as follows:
(i) Out of 132 shareholders who have attended the meeting (either in person or by proxy or through Authorised representatives), 124 shareholders representing Rs.1708,00,37,700/- as the aggregate value of their shares, had cast their votes and 8 shareholders representing Rs.86,930/- as the value of their shares, abstained from voting. Out of 124 votes, 6 votes collectively representing Rs.7,530/- were declared invalid. The reasons for treating them invalid were: three of them had not marked their vote in favour or against the proposed scheme. In case of two shareholders, the signatures did not tally with the records of the company and in case of one ballot, the person was not a shareholder as per the records of the company. The votes cast by 118 shareholders representing the aggregate value of Rs.1708,00,30,170/- were found to be valid votes. Five ballots being in duplicate were cancelled and not taken into account.
(ii) Out of the said 118 valid votes cast, 113 (One Hundred and Thirteen) shareholders holding representing value of shares at Rs.1708,00,22,440/- voted in favour of the proposed scheme, whereas o5 shareholders having the collective value of shares at Rs.7,730/-
voted against the proposed scheme. Hence, the said meeting, by requisite statutory majority, was of the opinion that the Scheme of amalgamation should be approved and agreed to.
(v) Thus, the resolution approving the proposed scheme was carried by requisite majority i.e. by 95.76% in number and 99.99% in value by the Equity Shareholders of the Company, present and voting a the said meeting. "
2.2. The Chairman of the meeting has also placed on record copy of the scrutinizer's report which, inter alia, reads thus:
"Poll was taken at the Meeting Place at Ahmedabad Textile Mills Association (ATMA) Hall, Ashram Road, Navrangpura, Ahmedabad-380 009 in the State of Gujarat `at 11.00 a.m. and concluded at 12 noon. We have scrutinized the votes and have to report as under.
Particulars Total % Value % Number (in Rs.)
1. Number of Equity Shareholders 132 - 17080124630 -
present at meeting (either in person or through proxy)
2.
Ballot Paper issued (including 5
duplicate
issued against 5
cancelled) 137
-17080124630 -
3.
Ballot Paper received 124 -17080124630
-
4. Members
Abstained from
Voting, if
any 8 - 86930 -
5. Invalid
Votes, if any 6 - 7530 -
6. Valid Votes
Cast 118 100.00 17080030170 100
(a) Votes cast
in favour of
Resolution 113
95.76 17080022440 99.99
(b) Votes cast
against the
Resolution
5 4.24 7730 0.01"
2.3. The
petitioner company has also claimed that necessary approval and permission from concerned Stock Exchange i.e. Bombay Stock Exchange Limited and National Stock Exchange of India Limited have been obtained.
2.4. Upon completion of the prescribed procedure the petitioner company submitted present petition. After hearing the petitioner and upon considering the details mentioned in the petition, the petition came to be admitted by order dated 22.09.2011 and the petitioner company was directed to serve notice of admission of petition to Central Government through Regional Director and to also publish the advertisement in Daily Newspaper in English language and in Gujarati language. The petitioner has filed affidavit of compliance i.e. affidavit dated 9th November 2011 declaring that the advertisement as per the direction by the Court were published on 16th October 2011 and 17th October 2011 in Daily Newspapers "Sandesh" and "Indian Express" (Ahmedabad Edition).
2.5. The record shows that in response to the advertisement two Shareholders viz. Mr. Bhupendra Gandhi and Mr. Rupesh S. Shah have filed objection in the office of Registrar of Companies/Regional Director. So far as the objections raised by the two shareholders are concerned, it is relevant to mention that out of the two shareholders who raised objections during the meeting convened by the company, only one shareholder i.e. Mr.B.C.Gandhi appeared before the Court and submitted his objections and the second shareholder seems to have opted - out and has not appeared before the Court and has not submitted any objection. It is claimed by the learned Senior Counsel appearing for the petitioner that the office of petitioner's Advocate has not received any other objections. The record of the petition also does not disclose that any other objection has been received by the Registry of the Court.
2.6. In response to the notice served to the Central Government it has filed, through the Regional Director (In-charge) North-Western Region, the observations and objections and for that purpose the Regional Director has filed an affidavit dated 25th October 2011. One of the two objectors i.e. Mr. Bhupendra C. Gandhi also appeared before the Court. He was granted opportunity to file his objections and he was also granted opportunity to file written objections. The written objections dated 18th January 2012 by said Mr. Gandhi have been received on record and taken into consideration.
2.7. The Memorandum and Article of Association of the petitioner company are placed on record and the constitution of the Transferor Company is placed on record. A copy of the annual report for the period from 1st April 2010 to 31st March 2011 (of the petitioner company) and Audited Financial Statements of the Transferor Company for the period from 15th September 2010 to 31st March 2011 are placed on record. A copy of the Resolution passed by the Merger Committee of the Board of Directors approving the valuation report and to take necessary actions in furtherance of the proposed Scheme is also placed on record. In this background the petitioner has requested the Court to sanction the scheme.
3. The Regional Director has filed affidavit dated 25th October 2011 making below mentioned observations and raising certain objections which read thus:
"2(a) That, the Transferor company namely M/s. Growmore Trade and Investment Pvt. Ltd. is a company registered under the provisions of Companies Act, of Mauritius. From the list of members of the Transferee Company, provided by the Transferee Company, it has been observed that the said Transferor company is subsidiary of M/s. Opal Investments Pvt. Ltd., a foreign Company holding 100% shares in the said Transferor Company. Since shares are to be issued by the Petitioner Transferee Company to the said foreign Company, towards the consideration as per the exchange ratio of shares as provided in the Scheme, the Hon'ble Court may be pleased to direct the Petitioner Transferee Company to comply with the requirements of the FEMA and/or the approval of the Reserve Bank of India, if any, prior to the allotment of shares to such foreign/NRI shareholders.
(b) That, the office of the Deponent has received two complaints from the Shareholders namely Mr. Rupesh S. Shah and Bhupendra Gandhi opposing the Scheme. The matter of the complaint of Mr. Rupesh Shah was taken up by the Registrar of Companies, Gujarat with the Transferee Company vide his letter dated 11.10.2011. The said company furnished its explanation/comments vide its letter dated 13.10.2011..............the Complainants have right to raise any objection before this Hon'ble Court in pursuance to the notice of petition published in newspapers by the company. The Hon'ble Court may therefore, be pleased to issue appropriate directions to the complainants, if considered fit by this Hon'ble Court, to raise their objections if any, before this Hon'ble Court by filing appropriate affidavit/application in the present proceedings of the Scheme presented by the Petitioner company.
(c) ..........However, the meeting of the Creditors of the Transferee company have not been directed by this Hon'ble Court. This Hon'ble Court may, however, pass such orders as may be deemed fit and proper in the circumstances.
(d) ..............the Transferor Company namely M/s. Growmore Trade and Investment Private Limited is registered under the Law of Mauritius, is not liable to be dissolved without winding up by this Hon'ble Court. The Hon'ble Court, may, therefore be pleased to direct the Transferee company namely Adani Power Limited to ensure the striking off/removal of the name of said Transferor Company situated in Mauritius upon sanctioning of the scheme of amalgamation/arrangement by this Hon'ble Court."
3.1. Having made the aforesaid observations the Regional Director has then also made reference of the report received in his office from the Registrar of Companies. The Regional Director has, citing the said report of Registrar of Companies, mentioned that except the two complaints received from the two Shareholders, the office of Registrar of Companies has not received any compliant and/or representation against the proposed Scheme.
3.2. In the background of such observations, the Regional Director has, then, observed that:
"2(f) ............there appears no other objection to the proposed scheme of amalgamation of M/s. Growmore Trade and Investment Private United (Mauritius) with the Petitioner Transferee company here in this present Petition and registered in India and the scheme does not, prima facie appear to be prejudicial to the interest of the shareholders of the Petitioner Transferee Company and the public at large."
3.3. In response to the observations made and objections raised by the Regional Director, the petitioner company has, through its Company Secretary and Authorized Signatory Mr. Rahul Shah filed an affidavit dated 21.01.2012 wherein it is clarified and asserted that:
"2(i) ........Since the Transferor company is subsidiary of one Opal Investments Limited which is a foreign company, the Regional Director has observed that directions should be issued for compliance of the requirements of FEMA and/or approval of the Reserve Bank of India, prior to the allotment of such shares to such foreign/NRI shareholders. It is hereby respectfully submitted that clause 10.4 of the Scheme has already provided for the said compliance and it reads as under:
"10.4. For the purpose of issue of equity shares to the shareholders of the Transferor Company, the Transferee Company shall, if and to the extent required, apply for and obtain the required statutory approvals and other concerned regulatory authorities for the issue and allotment by the Transferee Company of such equity shares."
However, the petitioner Transferee Company hereby undertakes to comply with the applicable provisions of FEMA and obtain necessary permissions, if required, from the Reserve Bank of India.
(iii) .......the proposed Scheme of Arrangement does not affect the rights and interests of the Creditors of the Transferee Company in any manner. The Transferee Company is a financial strong company having substantially positive net worth. The company has been regularly meeting all its financial commitments towards its creditors. Upon the scheme being effective, it shall continue its business in the same manner as at present and shall make the payments to its creditors in the normal course of business. As submitted in the petition, the Transferor Company is essentially an investment company and has no outstanding creditors. It is a company with positive net worth. The operative loss of US $4373 as per the audited Balance sheet of the company at 31st March 2011 (annexed to the petition as Annexure D) is negligible arising merely out of the administrative expenses. Hence, even after the amalgamation of the Transferor Company with the Transferee Company, the rights and interests of the creditors of the Transferee Company shall not be affected in any manner. The said contention is further strengthened by the fact that no creditor of the Transferee Company has come out with any objection whatsoever to the proposed scheme.
(iv) .........It is hereby respectfully submitted that as provided in the said Clause 13 of the Scheme, and as per the applicable provisions of the Mauritius Act, the Petitioner Company hereby undertakes to file the order passed by this Hon'ble Court, sanctioning the scheme, with the Office of the Registrar of Companies, Mauritius in order to enable the said authority to dissolve the said Transferor company without winding up and remove the company from its Register. I clarify that the Scheme does not contemplate that the Transferor Company shall be dissolved by an order of this Hon'ble Court.
3.4. However, with a view to removing any doubt, it is, hereby directed that the petitioner and the transferor company shall diligently and completely comply all applicable Laws Rules and Regulations including all applicable provisions, conditions and requirements under FEMA, FERA and RBI Act and Companies Act and shall also strictly and completely comply all instructions - directions and guidelines issued by the RBI with reference to the issue / allotment of shares to Foreign/Non Resident Indian shareholders and subscribers and also regarding the process of amalgamation and obtain all necessary permissions, licences, authorization etc. as may be required and that it shall comply all directions, guidelines and instructions issued by RBI and/or Income Tax Department and/or Enforcement Directorate or any other body/authority in the matter of any transaction with foreign/NRI shareholders and/or foreign based/incorporated companies and for that purpose one of its Directors and the Company Secretary and Managing Director (if any) shall jointly file an affidavit and make declaration to the said effect that it shall comply.
3.5. In view of such stipulation, assurance and declaration by the company in its above referred affidavit and in light of the above direction, the observations and remarks by the Regional Director would stand duly addressed and complied with.
4. Before proceeding further, it is appropriate to mention, at this stage, the objections dated 15th November 2011 filed by one of the two shareholders, viz. Mr. Bhupendra C. Gandhi who has, in his aforesaid written objections alleged, with reference to the proposed Scheme, inter alia, that:
"7. I say that Growmore Trade and Investment Private Limited (Transferor) is a Private Limited Company incorporated in Mauritius on 15th September 2010 under Mauritius Companies Act. The company has shown its Registered Office as C/o Trust Link International Limited, Suite 501, St. James Court, St. Denis Stree, Port Louis, Mauritius. (Point No.8 - Page No. non provided). I say the Transferor Company is based in a Tax Haven Country Mauritius and the company has no business income but some mount is shown as US $23 earned as interest and after adjustment of Expenses of US $4396 has shown loss of US $4373 as per the Audited Financial Statements provided with period as from 15th September 2010 to 31st March 2011.
8. I say that our company Adani Power Limited is a profit making company with profits shown as Rs.523.75 crores as on 31st March 2011 (Page No.37 of the 15th Annual Report). I say that Adani Power has en-number of Subsidiaries with its holding in most at 100% and in only one subsidiary Adani Power Maharashtra Limited it is 74% (Page No.62 of 15th Annual Report).
9. I say that the Company Adani Power Limited with Promoter Holding 73.50% as on 31st March 2011 (Page No.30 of Annual Report) rather than declaring dividend to benefit the Minority shareholders has been avoiding the same in the name of conserving the resources. I say the resignation of three of the Directors within a span of Two Months in February and March 2011 is a matter of concern and investigation to ascertain with regards to the proposed amalgamation.
10. I say that the proposed valuation done is unfair to the shareowners of Adani Power Limited. It is mentioned in Point No.10 under heading Issue and Allotment of shares that for every holding of 10000 shares of US $ 1/- each in transferor company Growmore, the transferee company Adani Power Limited would issue 16615 shares of Rs.10/- each.
11. I say that Adani Power Limited is already in Majority with 74% holding with Management Control in Adani Power Maharashtra Limited (APML) in which Growmore is said to be holding the balance and after amalgamation would become wholly owned subsidiary (Point No.12). I say that APML has not shown any profits for 31st March 2011. I say the proposal for amalgamation is done in haste and may be with high valuation for the Company APML shares as the APML project is yet to take off.
12. I say that the Registered office address of Growmore is shown as C/o. Trust Link International Limited, Suite 501, St. James Court, St. Denis Street, Port Louis, Mauritius (Point No.8 Page No. not provided) and in the High Court order for Company Petition No.80 of 2010 in Point No.9 there is the reference of letter dated 23.04.2010 from Trustlink. I say that clarification may be sought for the similarity in name for this C/o. address and earlier ones. I submit the copies of email/s, Copy of Order, Newspaper articles collectively marked as Exhibit "A".
13. I say that if the scheme is allowed, we shareowners would be deprived of the benefits which belongs to us and created from our wealth now and may be also in future."
4.1. As against the written objections filed by Mr. Gandhi, the petitioner company has, through its Company Secretary and Authorized Signatory, Mr. Rahul Shah, filed a composite additional affidavit dated 21st January 2012 wherein, while dealing with the objections raised by the Shareholder, it is stated, inter alia, that:
"7(vi) .........It is true that the Transferee Company is a profit making company and has not declared dividend. It is pertinent to note that the company is in the process of developing several power projects and the Board of Directors has found it appropriate not to distribute the earnings in form of dividend and thought it prudent to conserve resources for the development of several projects being implemented at different stages. It is respectfully submitted that the same being the commercial decision of the board of Directors of the Company is strictly out of the realm of the shareholders for the purpose of consideration of the proposed scheme.
(vii) ......the resignation of some of the Directors of the company for personal reasons and induction of new Directors is an issue totally irrelevant for the consideration of the proposed Scheme.
(viii) ........the Exchange ratio was worked out on the basis of the Valuation undertaken by Ernst & Young Private Limited, an independent valuer. The same was duly approved by the Board of Directors and the majority of shareholders at the meeting. It is pertinent to note that the concerned Stock Exchanges viz. BSE and NSE did not find the same objectionable or against the interest of the shareholders. It is also pertinent to note that apart from the bald allegation that the valuation is unfair, the said shareholder has not been in a position to substantiate his contention.
(ix) It is true that APML i.e. Adani Power Maharashtra Limited has not made any profits as yet as the project is yet in its development stage and has not started power generation. Once again it is in the realm of the Board of Directors' commercial decision as to at which stage the interest in the said company should be acquired by the Petitioner Company. The only relevant issue for the consideration of the scheme has to be that the same is not to the detriment of the shareholders of the petitioner company. It is hereby asserted and reiterated that the present scheme is in the interest of the company and its shareholders and not to the detriment to the interest of the shareholders.
8. .....the Transferor Company has complied with the requisite process for amalgamation in compliance with the applicable provisions of Companies Act, Mauritius."
4.2. With reference to the written submissions (dated 18th January 2012) filed by the objector-Shareholder Mr. Gandhi in support of his written objections dated 15th November 2011, the petitioner company has filed further affidavit wherein the Deponent Mr. Rahul Shah, Company Secretary and Authorized Signatory, for the company, stated, inter alia, that:
"3...........the shareholder has suggested an alternate mode of presenting the result of the meetings. It is hereby respectfully submitted that the Chairman's report is presented to the Hon'ble Court in consonance with the statutory format provided vide Form No.39 of the Company Court Rules, 1959. The petitioner is duty bound to present the result of the meeting in the given format only. Further, the bifurcation as per the shareholding pattern shall not impact the result of the meeting and the statutory compliance of Sec.391(2) of the Companies Act, 1956."
4.3. As regards the petitioner company's submission against the shareholder's objections that the shareholder who has raised objections holds only five shares and therefore has no locus to raise objection, it is necessary and appropriate to observe at the outset that, merely because the shareholder raising objection is in minority or holds only few shares it does not mean that such minority shareholder has no locus and/or that his objection should not be considered or should be or can be ignored. If any of the objections, even by a solitary or singular shareholder or shareholders holding only one share or couple of shares is found to be substantial or of such nature or scope or gravity which may persuade the Court to take different view or hold back the sanction, then such objection has to be given due weightage and consideration.
4.4. So far as the objections raised by the aforesaid shareholder who appeared before the Court are concerned, the company has filed its response and with reference to the said shareholder's submission that though the petitioner transferee company is a profit making company it has not declared dividend, the company has in its reply, submitted that it is in process of developing several power projects and therefore the Board of the company considered it appropriate to not to distribute the earnings and instead to conserve the resources for development of projects. It appears that since the inception - incorporation of the petitioner transferee company and until now i.e. all along the Annual Reports of the company have been approved by the Annual General Meeting of the members of the company and that therefore the Board's decision (of distributing profit and not declaring - paying the dividend) is said to have been ratified and approved and accepted by the members of the company. In such situation it would not be for the Court to comment on the decision of the Board, much less to interfere with the said decision. Those are the matters which are within the realm of the management and internal administration of the company and are governed by the collective commercial wisdom with which the Court would rarely interfere i.e. unless it is shown that there is mis-management, malfeasance or fraud on shareholders. In present case, neither the said shareholder has made such allegation nor any data or material is placed before the Court to form even prima facie opinion to such effect and any proceedings before the competent authority do not appear to have been taken out, on such ground. Therefore, at this stage, it would not be justified or permissible for the Court to delve into the said submissions made by the said shareholder.
4.5. The said shareholder has, then, made reference of a company named Adani Power Maharashtra Limited (APML for short) and has raised objection on the ground that the APML project is yet to take off and the proposal for amalgamation is done in haste. He has also raised objection on the ground that APML has not shown any profits in the financial year ending as on 31st March 2011. The said shareholder has also mentioned that the transferor company is holding about 26% shares of said APML while the petitioner transferee company is holding 74% of APML's shares and upon amalgamation, said APML will become wholly owned subsidiary of the transferee company.
4.6. On this count, the petitioner company has mentioned, in its additional affidavit that, such decisions are in the realm of the Board of Directors and are always taken in light of commercial inputs and the interest of the company. It is also claimed that the Board has not found the decision detrimental to the interest of the company or the members and even the Central Government and/or members of the company have also not considered the decision detrimental or prejudicial to the interest of the company or its members.
4.7. So far as the said shareholder's objections or submissions with reference to the determination of exchange ratio are concerned, the petitioner transferee company has, in its reply, stated that the decision has been taken on the basis of the valuation report submitted by an independent valuer viz. Ernst & Young Private Limited. The exchange ratio fixed by the company does appear a little odd and out of ordinary and usual inasmuch as for every 10,000 ordinary shares in the value of US $ 1/-, 16,615 equity shares of Rs.10/- each are to be issued by the transferee company to the members of the transferor company. However, it is also noticed that majority shareholders, except two shareholders, have accepted and approved the said decision. Besides this, as submitted by the company, the decision is based on valuation undertaken by an independent valuer. Furthermore, the Regional Director has also not raised any objection on this count and has found, after examining the report of the independent valuer, the said decision proper in the facts of the case and the Regional Director has not raised any objection or not offered any adverse comment. The concerned Stock Exchanges i.e. Bombay Stock Exchange and National Stock Exchange have also not found the said decision objectionable. On the other hand the shareholder has not placed any material, data or details on record to demonstrate as to how the determination of exchange ratio is improper, unjustified and unsustainable and he has also not placed any material, data or details to suggest proper ratio i.e. what could be proper exchange ratio having regard to the valuation and the financial and economical aspects and details of both companies as well as the market related position. Therefore, in background of such facts, any base or cause for interference by the Court is not available. Nonetheless, the clarification and directions contained in present order particularly the requirement to forward a copy of present order to the competent authority in Income-tax Department and also to the Enforcement Directorate would take care of the said aspect and if any irregularity is noticed, the said authorities would submit their objections.
4.8. On this count, having regard to the decision of the Apex Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. (AIR 1997 SC 506) the Court is not to sit in appeal over the decision of the Board of Directors which is duly approved, ratified and accepted by the statutory majority of members of the company, unless it is shown that the decision is rigged by the Board or by any interested Director or it is established, with appropriate and relevant and scientific data and details, that the decision is a commercial harakiri and fraud on the members, it would be difficult for the court to interfere with and upset such decision which is claimed to have been taken with collective commercial wisdom and not objected by anyone except the two shareholders. The shareholder has attempted to cast a shadow of doubt over the decision, however, any material whatsoever is not placed before the Court to justify such allegations or apprehension. Therefore, it is difficult and not possible for the Court to interfere with the said decision, particularly when the transferee company is, even as per the said shareholder, already holding more than 75% shares of said APML.
4.9. The said shareholder has, then, submitted that the minority shareholders would be deprived of the benefits which belong to them and created out of their wealth. The said submission is also unsubstantiated. There is no material available on record to lead the Court to such conclusion or to satisfy the Court on this count. Even the shareholder has not placed any material or data before the Court to demonstrate as to how the minority shareholders would be deprived of their wealth or rights.
4.10. As regards the submissions made by the said shareholder with reference to the office and address of the transferor company, the petitioner company has, in its reply affidavit, tendered explanation by stating that according to the applicable provisions under the Mauritius Companies Act, 2001, particularly Section 187 of the said Act, every company is obliged to have its registered office in Mauritius to receive all communications and notices which shall constitute the address for service of legal proceedings on the company. The said provision, according to the deponent of the affidavit filed by the petitioner company and according to the submissions by the learned counsel appearing for the petitioner company, also provides that a company incorporated and registered under the Mauritius Companies Act, 2001 can have a registered office at the office of any firm of any Chartered Accountant or Attorney at Law or other person. It is also mentioned in the affidavit that it is in view of the provisions under the said Act that the registered office of the transferor company is shown at C/o. Trust Link International Limited, Suite 501, St. James Court, St. Denis Street, Port Louis, Mauritius. It is also clarified that Trust Link is appointed as an agent for the previous schemes of arrangement and also present scheme and to facilitate continuity of informations/communications. The said explanation, it seems addresses the remarks by the shareholder but they also make it clear that the transferor company does not own any assets or property of its own, not even office premises.
4.11. So far as the suggestion made by the shareholder about the alternate mode of presenting the result of the meeting is concerned, it is submitted by the learned counsel for the petitioner that the Chairman's report is presented on the record of the Court in consonance with the statutory format provided vide form No.39 under Company Court Rules, 1959 and that the company is duty bound to present the result of the meeting in the given format. It is also stated that the bifurcation of the shareholding patent would otherwise also have no impact on the result of the meeting and statutory compliance under Section 391(2) of the Companies Act, 1956.
5. Having regard to aforesaid aspects and on overall consideration of the provisions under the scheme and the reply - explanation tendered by the petitioner company by its affidavit it emerges that the objections raised by the said shareholder are satisfactorily explained or dealt with by the petitioner company. It also emerges that the said shareholder has not placed any material, data or details or any scientific base to support the objections and he has also not offered any suggestion supported by any material or data to justify the objections raised by him.
Unless it is satisfactorily demonstrated that what is proposed in the scheme is a facade and the end result would be detrimental to or prejudicial to the interest of the shareholders and / or creditors, the Court would not be inclined to entertain the objection based on apprehensions or on the grounds suggested by the shareholder. In present case if the apprehension expressed by the said shareholder had any real base and substance then at least some substantial number of shareholders, if not majority of the shareholders, would have raised objection. However, when the scheme is unanimously (according to the result of the meeting declared on affidavit by the Chairman - which is not controverted or denied by anyone including present objector) approved by the shareholders of the companies and any apprehension (as expressed by the above named shareholder) is not ventilated by other shareholders and when the above named shareholder has not been able to substantiate and support or justify his apprehensions by any affidavit or appropriate and relevant figures or data and has merely come out with unsubstantiated apprehension, then the Court does not find it worthy of acceptance more particularly when any authority has also not raised objections (except the observations by Regional Director which are mentioned above).
5.1 Hence, not on the ground that the said shareholder is the only shareholder (or there are only 2 shareholders) raising objections against the scheme but on the ground that the objections are not substantiated and any material to take a different view, particularly contrary to the opinion given by the Registrar of Companies, the Regional Director, the two Stock Exchanges and the independent valuer, and that too in absence of any material or scientific base and data to justify such different view is not made out or possible and having regard to the observations by the Apex Court in the case of Miheer Mafatlal (supra), the said objections are not accepted.
5.2 However, in respect of some of the aspects mentioned by the shareholder and some other aspects which the Court has noticed, appropriate directions and clarifications have been made in present order imposing certain conditions and obligations on the companies which shall have to be complied by them so as to make the scheme effective. Hence, on overall consideration of all these aspects the objections raised by the said shareholder would not survive.
6. Before proceeding further, it is relevant and necessary to note, at this stage, that the transferor company is not incorporated and registered in India but is incorporated and registered in Mauritius and that therefore the question would arise as to whether a company which is not incorporated and registered under the provisions of the Act and consequently is not "a company" under the provisions of the Act, can be wound up under the provisions of the Act or not.
6.1. The said issue had also come up for consideration and decision before the Court in case of Essar Shipping Port and Logistic Limited in Re wherein the Court in the decision dated 16.1.2009 in Company Petition No. 280 of 2008 in Company Application No.490 of 2008 considered similar objection and relying on the decision Bombay High Court in case of Zenta P. Limited, in Re, the Court rejected the objection in light of the provisions contained under Section 394 (4)(b) holding that since the provisions contained under Section 394 (4)(b) includes the term "body corporate" the transferor company situated outside India can be amalgamated with the transferee company which is incorporated, registered and situate in India and the only condition would be that amalgamation should not be in violation of provisions contained under the companies act and the Act applicable and prevailing in such foreign Country or any laws prevailing and applicable in India.
6.2. Thus, as held in the aforesaid earlier cases if the transferor company is a "body corporate" as contemplated under Section 394 (4)(b) then though the transferor company is not incorporated and registered in India, it can be amalgamated with the transferee company so long as the transferee company is incorporated and registered and situate in India. However, it would be subject to the condition that such amalgamation must not be in violation of the provision contained under Reserve Bank of India Act, 1934 and / or Foreign Exchange Management Act, 1999 and also the provision of the Companies Act or any other law. Such amalgamation also should not be in violation of any provision applicable to the transferor company i.e. should not be in violation of the laws applicable to the companies in the Country where the transferor company is formed and registered and situate.
6.3. Hence, it is necessary to examine and ascertain whether the said aspects exist and are complied with in present case, or not.
6.4.
When the facts of present case are considered, it is noticed, as mentioned hereinabove, that the transferor company is incorporated, registered and situated outside India i.e. in Mauritius and under the provisions of the laws prevailing and applicable in Mauritius. From the proposed scheme and the details mentioned in present petition it comes out that the said transferor company fall within the purview of the terms "body corporate" which is defined under Section 2(7) read with Section 394(4)(b) of the Act and the petitioner transferee company is incorporated, registered and situated in India.
6.5. Thus, so as to support and justify the request for sanction and so as to satisfy the Court to grant the request, the transferor company and the petitioner company shall have to comply and fulfill all requirements under the laws applicable in Mauritius and in India and the transferor as well as the petitioner company shall have to obtain, before the scheme can be implemented, all types and categories of permission, approval, licences, consents, etc. from all concerned and appropriate authorities, as may be necessary under the relevant and applicable laws.
6.6. In this context it is necessary to note at this stage that the learned Counsel for the petitioner has declared and stipulated that any provision under Reserve Bank of India Act, and / or FEMA Act and / or any applicable laws are not violated and that the scheme does not violate and it shall not result into any violation of any provisions under any applicable laws including the provisions under RBI Act and / or FEMA Act and all provisions shall be diligently complied with.
6.7. It is also clarified and declared / stipulated by the learned Counsel that the transferor company has also diligently followed and complied and shall always comply all relevant provisions applicable in Mauritius. The learned advocate for the petitioner company has stated that the petitioner company undertakes to comply with all provisions of law with respect to amalgamation under the laws of Mauritius and that the petitioner company also undertakes that upon the scheme being sanctioned by this Court, the petitioner company shall take necessary steps for getting the names of the amalgamating companies (Transferor Companies) struck-off in accordance with the Companies Act, 2001 as applicable in Mauritius.
6.8. So as to satisfy the Court to consider the request in this petition, it appears, having regard to the provisions contained in the scheme, that:-
(a) The transferor company shall have to obtain and accordingly then shall obtain appropriate orders, as may be necessary in law applicable in Mauritius sanctioning the proposed scheme from the competent Court, for satisfying the Court to consider the request for sanction.
(b) Board of Directors, through one of the Directors of the petitioner company, the Company Secretary and the Managing Director (if any), must file an undertaking on affidavit that there is no violation of and there shall not be any violation of any provisions under any of the applicable laws, including the guidelines, instructions, policy or directions issued by RBI or other competent authority, particularly and including the provisions under RBI Act and FEMA and that the petitioner shall comply all conditions, provisions and requirements under all applicable laws, rules and regulations including RBI Act, FEMA and all guidelines, directions and instructions, Rules, etc. issued by RBI and/or by Enforcement Directorate and/or any other body-authority constituted by Central or State Government as may be applicable to cases of amalgamation of a body corporate/company incorporated and registered outside India and/or for allotment of shares to foreign/NRI shareholders. Such undertaking shall be filed within two weeks, to satisfy the Court about the assurance to comply all conditions.
(c) One of the directors shall file an undertaking on affidavit that all permission, licences, registrations, sanctions, approvals etc. including prior permission as may be required in India and in Mauritius shall be obtained from all competent authorities and that if the Scheme is sanctioned, it shall prepare all entries and accounts and shall maintain the Accounts as per AS 14 notified by Central Government.
7. The above discussed aspects and the clarifications as well as directions contained in this order would take care of the objections raised by the Regional Director and the shareholder.
8. Now, after considering the shareholder's objections and the observations-objections by the Regional Director, the petitioner's request for sanction to the scheme may be considered.
9. Under the Scheme provisions are made, inter alia, for the Effective and Operative Date, Appointed Date, for transfer and vesting of the undertaking of the Transferor Company, for the contracts etc. to which the Transferor Company is party, legal proceedings and their continuation, the employees of Transferor Company, issue and allotment of shares by the Transferee Company, accounting procedure, dissolution of Transferor Company, etc. Clause No.4 which contains provision regarding transfer and vesting of the undertaking, inter alia, reads thus:
"4.1 Upon the coming into effect of this Scheme and with effect from the Appointed Date, and subject to the provisions of the Scheme in relation to the mode of transfer and vesting, the Undertaking of the Transferor Company shall, without any further act, instrument or deed, be and stand transferred to and vested in and/or be deemed to have been transferred to and vested in the Transferee Company as a going concern so as to become on and from the Appointed Date, the estate, assets, rights, title, interests and authorities of the Transferee Company, pursuant to Section 394(2) of the Act.
4.2. Without prejudice to Clause 4.1 above, in respect of the assets of the Undertaking of the Transferor Company as are movable in nature or are otherwise capable of transfer by manual delivery or by endorsement and/or delivery, the same shall be so transferred by the Transferor Company, and shall, upon such transfer, become the property, estate, assets, rights, title, interests and authorities of the Transferee Company as an integral part of the Undertaking of the Transferor Company transferred to the Transferee Company.
4.3. In respect of the assets of the Undertaking of the Transferor Company other than those referred to in clause 4.2 above, the same shall, without any further act, instrument or deed, be transferred to and vested in and/or to be transferred to and vested in the Transferee Company pursuant to the provisions of Section 394 of the Act.
4.4. All estates, assets, rights, title, interests and authorities accrued to and/or acquired by the Transferor Company after the Appointed Date and prior to the Effective Date shall be deemed to have been accrued to and/or acquired for and on behalf of the Transferee Company and shall, upon the coming into effect of this Scheme, pursuant to the provisions of Section 394(2) and other applicable provisions of the Act, without any further act, instrument or deed be and stand transferred to or vested in or be deemed to have been transferred to or vested in the Transferee Company to that extent and shall become the estates, assets, rights, title, interests and authorities of the Transferee Company.
4.7. Upon coming into effect of this Scheme and with effect from the Appointed Date, all debts, liabilities, duties and obligations of every kind, nature and description of the Transferor Company shall, pursuant to the provisions of Section 394(2) and other applicable provisions of the Act, without any further act, instrument or deed be and stand transferred to and vested in and/or be deemed to have been transferred to and vested in the Transferee Company, so as to become as and from the Appointed Date, the debts, liabilities, duties and obligations of the Transferee Company on the same terms and conditions as were applicable to the Transferor company and further that it shall not be necessary to obtain the consent of any person who is a party to any contract or arrangement by virtue of which such liabilities and obligations have arisen in order to give effect to the provisions of this clause."
9.1. Clause 5 of the proposed Scheme which makes provision regarding contracts etc. to which the Transferor Company is party, inter alia, provides that:
"5.1 Upon coming into effect of this Scheme and subject to the provisions of this Scheme, all contracts, deeds, bonds, agreements, schemes, arrangements, understandings whether written or oral and other instruments, if any, of whatsoever nature to which the Transferor company are parties or to the benefit of which the Transferor Company may be eligible and which are subsisting or having effect immediately before the Effective Date, without any further act, instrument or deed, shall be in full force and effect or against or in favour of the Transferee Company, as the case may be, and may be enforced by or against the Transferee Company as fully and effectually as if, instead of the Transferor Company, the Transferee Company had been a party or beneficiary or oblige thereto.
5.2. Notwithstanding the fact that vesting of the Undertaking of the Transferor Company occurs by virtue of this Scheme itself, the Transferee Company may, at any time after coming into effect of this Scheme in accordance with the provisions hereof, if so required under any law or otherwise, execute such deeds (including deeds of adherence), writings, confirmations or enter into any tripartite arrangements or novations with any party to any contract or agreement to which the Transferor Company is a party or any writings as may be necessary to be executed in order to give formal effect to the provisions. The Transferee Company shall, under the provisions of this Scheme, be deemed to be authorized to execute any such writings on behalf of the Transferor Company and to carry out or perform all such formalities or compliances referred to above on the part of the Transferor Company to be carried out or performed."
9.2. Clause 6 and Clause 7.1, which contain provisions with reference to the legal proceedings and employees, read thus:
"6. Legal Proceedings Upon the coming into effect of this Scheme, all suits, actions, and other proceedings including legal and taxation proceedings, (including before any statutory or quasi-judicial authority or tribunal) by or against the Transferor Company, whether pending and/or arising on or before the Effective Date shall be continued and/or enforced by or against the Transferee Company as effectually and in the same manner and to the same extent as if the same had been instituted and/or pending and/or arising by or against the Transferee Company.
7.1. The employees of the Transferor Company who are in service on the Effective Date, shall become the employees solely of the Transferee Company with the benefit of continuity of service and such that the terms and conditions of their employment with the Transferee Company are not less favourable than those applicable to them as employees of the Transferor Company on the Effective Date."
9.3. So far as the issue and allotment of shares to the Transferor Company is concerned, this proposed Scheme provides, inter alia, that:
"10.1 Upon the Scheme being effective, and in consideration of the transfer and vesting of the Undertaking of the Transferor Company in the Transferee Company in terms of the Scheme, the Transferee Company shall, without any further application, act, instrument or deed, issue and allot to the shareholders of the Transferor Company, whose names are recorded in the Register of Members of the Transferor Company, on a date (hereinafter referred to as "Record Date") to be fixed in that behalf by the Board of Directors or a committee thereof of the Transferee Company, equity shares of the face value of Rs.10/- each in the Transferee Company, credited as fully paid-up, in the following manner:
16,615 equity shares of Rs.10/- each credited as fully paid up of the Transferee Company for every 10,000 ordinary shares of USD 1/- each fully paid-up held by such shareholder in Growmore;
10.2. The shares issued to the shareholders of the Transferor Company by the Transferee Company pursuant to clause 10.1 above shall be issued in dematerialized form by the Transferee Company.
10.4. For the purpose of issue of equity shares to the shareholders of the Transferor Company, the Transferee Company shall, if and to the extent required, apply for and obtain the required statutory approvals and other concerned regulatory authorities for the issue and allotment by the Transferee Company of such equity shares.
10.5. The equity shares of the Transferee Company issued in terms of this Scheme will be listed and/or admitted to trading on the Stock Exchanges where the shares of the Transferee Company are listed and/or admitted to trading. The Transferee Company shall enter into such arrangements and give such confirmations and/or undertakings as may be necessary in accordance with the applicable laws or regulations for complying with the formalities of the Stock Exchanges."
9.4. As regards the accounting procedure, it is, inter alia, provided that:
"11.2. All assets and liabilities, including reserves, of the Transferor Company transferred to the Transferee Company under the Scheme shall be recorded in the books of the Transferee Company at the value as recorded in the Transferor Company books as on the Effective Date or in any other manner as may be deemed fit by the Board of Directors of the Transferee Company.
11.3. The Transferee Company shall account for the amalgamation in accordance with 'Pooling of Interest Method' laid down by Accounting Standard 14 (Accounting for Amalgamations) prescribed under Companies (Accounting Standards) Rules, 2006."
9.5. So far as the transferor company is concerned, it is mentioned in the proposed scheme that:
"14.1. Growmore is incorporated under the Mauritius Act. Presently, Growmore is holding a Category 2 Global Business License issued by Financial Services Commission under the laws of Mauritius.
14.2. In terms of the Mauritius Act, a company holding a Category 2 Global Business License can merge with one or more companies incorporated under the laws of jurisdiction other than that of Mauritius."
9.6. In the scheme it is also mentioned and clarified that in view of the terms of para 4(2)(a) of part-II of fourteenth Schedule to the Mauritius Act, the transferor company shall have to comply with the laws of India and that it shall so do. Under para 14.5 of the scheme the details about the documents and material which the companies will have to submit before the Registrar of Companies of Mauritius are also mentioned.
9.7. Another relevant aspect with reference to the transferor company which is mentioned in the scheme is that the said transferor company has passed resolution approving the scheme and the shareholders of the transferor company have also approved the scheme.
9.8. However, copy of the said resolution is not placed on record.
9.9. Therefore, the petitioner company is directed to place on record of present petition a copy of the resolution passed by the shareholders of the transferor company and the details about the date when the meeting of the shareholders of the transferor company was convened, the names and total number of shareholders who attended the meeting and the result of voting, along with copy of the resolution said to have been passed. Before taking final decision and passing final order, the Court would prefer to be satisfied about these aspects.
9.10. In this context, before proceeding further it would be appropriate to take into account some of the observations made by the Apex Court in the decision in the case of Mihir H. Mafatlal vs. Mafatlal Industries (supra) wherein the Apex Court has observed that:-
"The aforesaid provisions of the Act show that compromise or arrangement can be proposed between a company and its creditors or any class of them, or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another. When such a scheme is put forward by a company for the sanction of the Court in the first instance the Court has to direct holding of meetings of creditors or class of creditors, or members or class of members who are concerned with such a scheme and once the majority in number representing three fourths in value of creditors of class of creditors, or members or class of members, as the case may be, present or voting either inn person or by proxy at such a meeting accord their approval to any compromise or arrangement thus put to vote, and once such compromise is sanctioned by the Court, it would be binding to all creditors or class of creditors, or members or class of members, as the case may be, which would also necessarily mean that even to dissenting creditors or class of creditors or dissenting members or class of members such sanctioned scheme would remain binding. Before sanctioning such a scheme even though approved by a majority of the concerned creditors or members the Court has to be satisfied that the company or any other person moving such an application for sanction under sub-section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to sub-section (2) of that Section. So far as the meetings of the creditors or members, or their respective classes for whom the Scheme is proposed are concerned, it is enjoined by Section391 (1)(a) that the requisite information as contemplated by the said provision is also required to be placed for consideration of the concerned voters so that the parties concerned before whom the scheme is placed for voting can take an informed and objective decision whether to vote for the scheme or against it. On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a Court of law. No Court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned company, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a Scheme of Compromise and Arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote.
28-A. However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by Section 391 sub-section (2). On this aspect the nuture of compromiser arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a Court of appeal and sit in judgement over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The Court his neither the expertise nor the jurisdiction to delve deep into the 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 super-visory and not appellant. The Court acts like an umpire in a game of cricket who has to see that both the 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 to the umpire...........
.........It is obvious that the supervisor cannot ever be treated as the author or a policy maker. Consequently the propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the Scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement. The Court cannot, therefore, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial and economic interest by majority agree to give signal to such a compromise or arrangement.................But before we do so we may also usefully refer to the observations found in the oft-quoted passage in Bucklay on the Companies Act, 14th Edition. They are as under:
"In exercising its power of sanction the Court will see, first that the provisions of the statute have been complied with, secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of this interest, might reasonably approve.
The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the Court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considering the matter with a view to the interest of the class which it is empowered to bind, or some bolt is found in the Scheme."
Learned single Judge of the Calcutta High Court in the case of Re, Mankam Investments Ltd.,(1995) 4 Comp LJ 330 (Cal.) relying on a catena of decisions of the English Courts and Indian High Courts observed as under on the power and jurisdiction of the Company Court which is called upon to sanction a scheme of merger and amalgamation of companies:
"It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The Court is really not concerned with the commercial decision of the shareholders until and unless the Court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud these other shareholders. Whether the merged companies will be ultimately benefited or will be able to economise in the matter of expenses is a matter for the shareholders to consider. If three companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However, the Court is really not concerned with the exact details of the matter and if the shareholders approved the scheme by the requisite majority, then the Court only looks into the scheme as to find out that it is not manifestly unfair and/or is not intended to defraud or do injustice to the other shareholders."
We may also in this connection profitably refer to the judgment of this Court in the case of Hindustan Lever Employees' Union v. Hindustan Lever Ltd. 1995 Supp (1) SCC 499:(1994 AIR SCW 4701) wherein a Bench of three learned Judges speaking through Sen, J. on behalf of himself and Venkatachaliah, C.J., and with which decision Sahai, J., concurred. Sahai, J., in his concurring judgment in the aforesaid case has made the following pertinent observations in the connection in paras 3 and 6 of the Report:
"But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A Company Court does not exercise an appellate jurisdiction. ...."
9.11. Now, the proposed scheme should be examined in light of the observations by the Apex Court in the above referred judgment and while keeping in focus that the Court has to balance the examination or the scrutiny of the scheme in such a way that it does not take up the examination
- scrutiny of the scheme as if sitting in appeal and at the same time it does not merely concentrate and merely ensure whether majority has taken the decision bonafide or not.
9.12. However, so far as the commercial perspective of the decision is concerned, unless and until the Court is of the opinion that the proposal is manifestly unfair or amounts to fraud on the shareholders, it ought not be deeply concerned with the commercial decision including the issues as to whether the amalgamation, merger or demerger are beneficial or not.
9.13. As explained by the Apex Court "the Court is really not concerned with the exact details of the matters and if the shareholders approved the scheme by the requisite majority, then the Court only looks into the scheme to find out that it is not manifestly unfair and/or is not intended to defraud or do injustice to the other shareholders." The Apex Court has also observed that " It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court and the Court certainly would not act as a Court of appeal and sit in judgment over the informed view." The Apex Court has also observed that "the Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members". The Apex Court has then mentioned the broad contours which the Court has to keep in focus. They are:
"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 jurisdiction have emerged:
1.
The sanctioning Court has to see to it that all the requite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391 (1)(a) have been held.
2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section(2).
3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
4. That all necessary material indicated by Section 393 (1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391,sub-section (1).
5. That all the requisite material contemplated by the proviso to sub-section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8.That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the requirement of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would 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."
10. In this background now, at the outset, it is relevant and appropriate to take into consideration the facts emerging from the record of present petition. It comes out that the Board of Directors of both the companies have, after considering the report of the independent valuer and other financial adviser, approved the proposed scheme and thereafter the scheme was placed for consideration and approval by the shareholders/members of the companies. It is mentioned in the proposed scheme that the shareholders of the transferor company have approved the proposed scheme. So far as the transferee company is concerned, the report of the Chairman of the meeting convened pursuant to the orders of the Court reveals that the statutory majority of shareholders/members of the petitioner - transferor company have also approved the scheme. It is also declared by the petitioner company in the affidavits filed by it that the concerned stock exchanges have also not raised any objections against the proposed scheme and have not found anything objectionable in the provisions under the scheme. The authorities viz. the Regional Director and the Registrar of Companies have also observed that anything objectionable and/or prejudicial to the interest of the company and/or interest of the shareholders or creditors or public has not been found in the scheme and the scheme does not appear to be prejudicial to the interest of the company or the members or the creditors or the public. The Registrar of Companies has, in the report submitted to the Regional Director, clarified that except the objections by two shareholders (of which reference has been made in present order) any other objections from any member or creditor have not been received in the office of Registrar of Companies. Similar declaration and clarification is made by the Senior Counsel for the company.
11. Upon considering the provisions in the scheme and also having regard to the fact that neither the shareholders/members (except the two shareholders referred to hereinabove) of the transferee or transferor company neither the Regional Director nor the Stock Exchanges or any other person or authority have raised any objection even pursuant to the public advertisement about the scheme or any of the provisions therein and also having regard to the explanations offered and assurance, undertaking given by the petitioner in the additional affidavits, it would, prima facie, emerge that the petitioner has made out case for sanction.
11.1. However, in view of the two important aspects or provisions in the scheme, the Court considers it appropriate to first call for certain details and reports, in addition to the compliance of the conditions and requirement demanded by the Court by way of the direction in present order, before taking final decision and before passing final order. In view of the law laid down by the Apex Court about the Court's role and scope of examination in the matter of arrangement or amalgamation, the Court is conscious about the limitation in examining the scheme as well as about the duty of the Court to examine the scheme.
11.2. One of the two aspects is about the exchange ratio and the second is the fact that the transferor company does not have any assets or properties. So far as the first aspect is concerned, some of the issues connected therewith have been discussed and dealt with hereinabove earlier while taking note of the fact that against 10 ,000 shares in the value of US$ 1/-, the members of the transferor company are to be issued/allotted 16615 shares in the vaule of Rs.10/- each of the transferee company. It is also noticed that the valuation has been done by financial expert and independent valuer. It is also noticed that the statutory majority shareholders of the transferee company have accepted the valuation and exchange ratio. In this context, reference is also required to be made, besides the decision in case of Miheer Mafatlal (supra) to the decision in case of Alembic Limited v. Deepakkumar J. Shah [(2002) Volume 112 Company Cases P. 64]. In the said case one shareholder holding about 30 shares of the resulting company had raised objection to sanction being granted and against the scheme on the ground that the share exchange ratio and the share valuation was not proper. In the said case, 6 equity shares of Rs.10/- each of the resulting company i.e. Alembic Ltd. was proposed to be issued and allotted at par against 100 equity shares of Rs.10/-
each to the shareholders of the demerged company. The proposal was approved by the majority shareholders of 90.85% in number and 99.32% in value. In present case, as mentioned hereinabove earlier while considering the Chairman's report, it is noticed that majority of 95.76% in number and 99.99% in value have approved the scheme including the provisions related to exchange ratio. In the said decision in case of Alembic Ltd. (supra) the Court considered the judgment of the Apex Court in case of Miheer Mafatlal and the Court also took into consideration the broad contours laid down by the Apex Court which should be considered by the Company Court while examining scheme for arrangement or amalgamation and then the Court dealt with the objections raised on ground of exchange ratio. Thereafter, the Court observed, in the said decision that:-
"Apart from the fact that the objector has not been able to make any dent in the reasoning given by the Chartered Accountants for adopting the discounted cash flow technique as the basis of valuation, the objector himself has not suggested any other alternative method or ratio. In the aforesaid decision in the case of Miheer H Mafatlal (Supra), the Apex Court has already held that when the majority of the shareholders with their open eyes have given their approval to the scheme, even if in the view of the Court there would be a better scheme for the Company and its members, 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. In the aforesaid decision, the Apex Court has also quoted with approval the following observations made by the Madras High Court in Kamla Sugar Mills Ltd., (1984) 55 Company Cases 308 dealing with an identical objection about the exchange ratio adopted in the Scheme of Compromise and Arrangement :-
"Once the exchange ratio of the shares of the transferee-company to be allotted to the shareholders of the transferor-company has been worked out by a recognized 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 or the two companies or to say that the shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest."
In the facts of the instant case also, the aforesaid exchange ratio and the other features of the Scheme of Arrangement and Restructure have been accepted by an overwhelming majority of shareholders (90.85% in number and 99.32% in value) out of the shareholders who responded to the postal ballot under the Companies (Passing of Resolutions by Postal Ballot) Rules, 2001. The scheme is also unanimously approved by the secured creditors and all the unsecured creditors who were present at the meeting convened pursuant to the orders of this Court in Company Application No. 213 of 2001.
In view of the above, the first as well as the second objections raised by the objector cannot be sustained."
11.3. Thus, if the exchange ratio determined in present case is considered in light of the observations by the Apex Court in the case of Miheer Mafatlal (supra) and this Court in case of Alembic Ltd. (supra) then there does not appear to be any ground or material available on record to justify any reservation on that count or to suggest any other ratio or direct the company to adopt any other exchange ratio. However, so as to remove any doubt or reservation and to ensure that there may not be any breach of any provision of any applicable laws, Rules, policy, etc. or any illegality or irregularity, more particularly in view of the fact that the shares of the transferee company are proposed to be issued and allotted in the above mentioned ratio to the members of the transferor company which has no assets, the Court has considered it appropriate to pass final order only after and subject to the reports/views from the concerned and competent authority of Income Tax and Enforcement Directorate and upon compliance of the clarifications and directions mentioned in present order.
11.4. The Court is conscious of the fact that the Court cannot probe deeper into the object and purpose of the amalgamation / scheme and such aspects are mainly in the realm of the commercial wisdom of the Board of Directors and the members of the company. However, as observed by the Apex Court in the decision in the case of Miheer H. Mafatlal (supra) the Court has to consider the pros and cons of the scheme with a view to find out that the scheme is just, fair and reasonable and is not contrary to any provisions of law and does not violate any public policy. The Apex Court has also observed that, it cannot be said that a company Court before whom application for sanctioning the scheme is moved has to act merely as a rubber stamp and must almost automatically puts its seal of approval to such a scheme. Therefore, the Court has considered it appropriate and necessary to pass certain directions, more particularly because the transferor does not have any assets, which are mentioned in present order and to defer the final order regarding sanction until the reports by the above mentioned authorities are submitted.
12. Having clarified these aspects the Court considers it appropriate to also mention that when present scheme is examined then it is noticed that the Regional Director for the Central Government has clarified that the scheme is not prejudicial to the interest of the shareholders or the company or the public. The Stock Exchanges have also not found any provisions objectionable. The statutory majority shareholders of both the companies have also approved the scheme. Under the circumstances, on overall consideration of the scheme there does not appear, except the above mentioned aspects, any other objectionable feature in the scheme which would oblige the Court to decline the sanction requested for. The Regional Director, the Registrar of Companies and the counsel for the company have stipulated and declared that even after the public advertisement any objection has not been received from any shareholders (except from the above mentioned two shareholders), creditors or anyone else. Therefore also there does not appear any reason or justification for declining the consent as prayed for. So far as the objections or observations by the Regional Director are concerned (as mentioned in the affidavit filed by the Regional Director) the same have been considered hereinabove along with the explanation tendered by the company and appear to have been satisfactorily dealt with by the company. So far as the objections by one shareholder who appeared before the Court are concerned, the same have been discussed and dealt with hereinabove earlier. However, before making final order regarding the request for sanction, the Court would want to receive the reports from Income Tax Department and Enforcement Directorate for being satisfied that the proposed arrangement is not contrary to any applicable law, guidelines, policy, etc. and/or it may not be a mask to cover any clause in the Scheme which may be contrary to law and/or adverse to the interests of members. Hence, before passing the final order, the company is directed to ensure compliance of all observations, directions and conditions prescribed in present order, including those mentioned in para 3.4, 6.5, 6.8, 9.9, and those mentioned in the following paragraph (i.e. para 13) etc. and the final order shall be passed only after the compliance of conditions and observations in this order is reported and certified and after the reports from the concerned authorities are submitted/received and placed on record and provided the said reports do not raise any objectionable grounds or features and all directions are complied.
13. It is further clarified, observed and directed that:-
A. The petitioner company shall apply for and obtain, within prescribed time limit and in prescribed manner, all necessary permissions, licences, registrations, certificates, etc. as may be required under all relevant and applicable laws, rules and regulations.
B. A copy of present order shall be immediately forwarded by the Regional Director to the concerned officer in Enforcement Directorate and to the concerned Commissioner or Dy. Commissioner of the concerned section/division of the Income-tax Department under which the petitioner is registered as the assessee with a request to submit, within 40 days the Directorate's/Department's views, objections and comments with reference to the transferor company, the holding company of the transferor company, the legality of the proposed merger having regard to the conduct, business and affairs of the transferor company and its holding company and the relevant provisions of all applicable laws and Rules and to also report as to whether the proposed scheme, if sanctioned, will result into and/or is/are likely to result into breach of any provision of any applicable Acts including the Income Tax Act and Companies Act. The Court shall pass final order only after and subject to the objections, if any, and after the period for submitting the objections expire. It would be open to the office of Enforcement Directorate and Income Tax Department to seek comments from RBI.
The petitioner is permitted to serve sufficient number of certified copies of this order to the Regional Director with a request to forward the copies to the concerned authorities.
C. A copy of the order shall also be forwarded to the office of concerned and competent Superintendent of Stamps and Registrar of Documents, for the opinion as to whether stamp duty shall be payable if the Scheme is sanctioned and is to be implemented and in that event whether the document shall have to be registered or not.
D. The observations in this order shall not absolve and/or release and/or exempt and/or protect (and/or provide any type of protection to) the companies, and/or the promoters and/or the officers and/or the executives and/or the directors and/or any responsible/ accountable person from any obligation and/or from any action already initiated or proposed to be initiated or under contemplation by any authority and/or Government and/or anyone competent or authorised or having right to take any action against the company and/or directors and/or officers / executives / managers / promoters.
E. It is clarified that present order will not stand in way of the authorities to initiate any action as may be required under any applicable law, rules, regulations, etc. and/or from continuing any and all actions if already initiated.
F. The petitioner shall comply the directions in para 3.4, 6.5, 6.8, 9.9 and 13 as well as the stipulation and declaration by their counsel as recorded in this order (e.g. in para 6.6 and 6.7).
G. One of the Directors of the petitioner company, and the Company Secretary and Managing Director (if any) shall jointly file, an undertaking on affidavit, that the Scheme is not in contravention of any provision of any relevant and applicable laws, rules, regulations, etc. including the applicable policies and guidelines issued by Central/State Government, Reserve Bank of India or other Statutory Authorities and/or the provisions under Income-tax Act, FEMA, FERA and also declaring, undertaking and stipulating that all necessary and prescribed permissions, licences, registrations, etc. shall be applied for and obtained within prescribed time frame and in prescribed manner and that so far as the Transferor Company is concerned appropriate order from the Court of competent jurisdiction in Mauritius shall be requested for in accordance with relevant and applicable provisions of law in Mauritius and that the companies shall comply all requirements, conditions and provisions under FEMA - FERA and/or RBI Act and shall obtain all prior permissions and approval of RBI and shall follow all guidelines and instructions (as are relevant and applicable including those under FEMA - FERA and/or issued by RBI) with reference to amalgamation as well as for allotment of shares to foreign / NRI shareholders.
H. A copy of the resolution said to have been passed by the shareholders of the transferor company shall be placed on record to satisfy the Court on the count that all conditions and formalities required to be complied have been complied.
I. The Regional Director shall forthwith forward a copy of this order to the Enforcement Directorate (ED) and/or DRI with intimation that in light of and with reference to the conduct of affairs and business of the transferor company and the holding company of the transferor company and relevant provisions of the scheme a report with their views, objections or comments stating whether there is any objectionable feature/provision in the scheme and/or in the affairs and conduct of the companies may be conveyed, within 40 days to the office of the Regional Director and the Regional Director shall, by filing an application, immediately place on record such objections. The final decision and order shall be passed only after and subject to such reports and after the period for submitting such reports is over.
14. Upon completion of the period within which the above mentioned authorities are asked to submit their report, the Regional Director shall immediately move an application placing before the Court the reports or he shall inform the Court if the reports are not received. The Regional Director shall also clarify in the application/report as to whether any objectionable features or facts are noticed by the authorities. After the reports are placed on record and if the reports do not contain any objections then further-final order with regard to the Scheme will be passed. However, if any objections are raised by the authorities with regard to any provision, then appropriate orders will be passed on such application filed by the Regional Director. For the aforesaid purpose, the petition shall remain pending and shall be placed for further-final order alongwith the application that may be filed by the Regional Director.
Orders accordingly.
[K.M.Thaker, J.] jani