Brief Facts: The petitioner company sought the sanction of the court to a scheme of amalgamation by which a 75% subsidiary was to be merged with it. The scheme was approved by the majority of the equity share holders, all of the secured creditors and unsecured creditors, in the meeting convened for that purpose. The Regional Director and the Registrar of Companies approved the proposed scheme. However, objections were raised by three objectors. It was contended that (i) that the scheme had been moved in undue haste and the valuation report was also prepared in a hurry; (ii) that the valuation report lacked details and due diligence had not been carried out; (iii) that the share exchange ratio determined was unfair to the shareholders; and (iv) that certain proceedings and investigations were pending against the petitioner company and the attempt of propounding the scheme was to frustrate the pending actions. The objectors suggested different methods of valuation which would benefit the shareholders and sought a direction for revaluation.
Companies Act, 1956 – Sections 391, 393 and 394 – Amalgamation of subsidiary company with holding company – Objections on the grounds of share exchange ratio, hasty process of amalgamation and pending proceedings and investigations – Two objections filed after the prescribed – Whether tenable – Held, No.
Decision: Objections overruled and scheme sanctioned.
Reasons: The companies had appointed a renowned firm to undertake the determination of the share exchange ratio of the respective shares. No one had doubted the integrity or honesty of the expert. Moreover, the opinion of the expert was verified and approved by two other independent firms, who agreed that the determination was fair. The creditors and members were furnished with the relevant materials at the meetings to enable them to arrive at an informed decision for approving the scheme. All the requisite materials envisaged under Section 391(2) were placed before the court and the scheme was not prejudicial either to the shareholders or the public. The Registrar of Companies as well as the Regional Director and the concerned stock exchanges had given approval/ consent to the proposed scheme. The scheme was neither violative of any provisions of law nor against the public policy. The scheme was just, fair and reasonable form the point of view of taking commercial decision which was beneficial to the class represented by them for whom the scheme was made. Merely because some other method of valuation could be resorted to and would be slightly more favorable to the shareholders, that alone would not militate against granting approval to the scheme propounded by the petitioner company. The objectors were unable to demonstrate as to how the valuation reports were unfair and to whom. The plea that exchange ratio determined by the experts was wrong was not substantiated.
The meeting of the transferee company was held on February 27, 2009 and the reports of the experts where made ready on March 02, 2009 and the fact that the board of directors approved the proposed scheme on the same day by itself, would not mean that the decision of the board of directors suffered from non-application of mind. The report of the valuers had taken into account all the relevant factors which sought to be kept in mind to form an opinion about the exchange ratio. The fairness of the scheme could not be doubted merely because the petitioner company was keen to speed up the process of amalgamation. The stock holders got complete opportunity and information before they took a conscious decision to approve the scheme with requisite majority. The court could not sit over the decision of the board of directors and of the class of stakeholders as a court of appeal and scrutinize the criticism of the objectors disregarding the commercial wisdom of the majority of the equity shareholders.
The apprehension of the objectors that consequent to merger, the petitioner company would be extricated from all proceedings and investigations pending before the regulatory authority was misplaced. The pending proceedings and investigations would be continued and carried to their logical end irrespective of the approval to the scheme.
The court refused to take cognizance of objections raised by two others on the ground that one had not been filed within the time prescribed by rule 34 of the Companies (Court) Rules, 1959 and the other was received by post after conclusion of the hearing of the petition.
Src: Chartered Secretary Oct 2009 (Issue No.10, P-1431) [LW-126.10.20009]