K.K. Baam, J.@mdashThis petition has been filed by the petitioner, Varuna Investments Limited seeking sanction and approval of the scheme of amalgamation of Varuna Investments Limited with Tata Investment Corporation Limited. This petition has been filed by the petitioner under sections 391 and 394 of the Companies Act, 1956. After the petition was filed, as per procedure, service was effected on the Regional Director of Companies and the official liquidator. The Regional Director of Companies, after investigating into the matter, has submitted no objection to the sanction of the scheme of amalgamation. Even so far as the official liquidator is concerned, after the notice was served upon the official liquidator, he has submitted his report in terms of the second proviso to section 394(1) of the Companies Act, 1956. By the order dated May 5, 2000, M/s. S.J. Agarwal and Associates were appointed as chartered accountants. As per the report submitted by the chartered accountants, the official liquidator has submitted that the affairs of the transferor-company, namely M/s. Varuna Investments Limited have not been conducted in a manner prejudicial to the interests of its members or to the public interest and, therefore, on the basis of the report submitted by the auditors, who have scrutinised the audited accounts of the company for the period of five years from April 1, 1994, to March, 31, 1999, the official liquidator has submitted that there is no objection to the sanction of the scheme of amalgamation. However, despite the no objection received from the Regional Director, Department of Company Affairs, Mumbai, and the official liquidator, an application is made by one Chintan Textiles Private Limited, the applicant in Company Application No. 310 of 2000. By this application, the applicant has sought the rejection of Company Application No. 91 of 2000, filed by Varuna Investments Limited proposing the scheme of amalgamation of Varuna Investments Limited with Tata Investment Corporation Limited u/s 391 read with section 394 of the Companies Act, 1956.
2. By this application, the applicants have sought a direction that this court will be pleased to hold that the scheme of amalgamation is not in the interest of the shareholders of the respondent-company, namely, Varuna Investment Limited as the proposed swap ratio is not appropriate, that the same is illusory and not genuine and does not reflect upon the real net asset value or price of the shares of Varuna Investments Limited. By this application, the applicants have also sought the relief that the same is for the benefit of the Tata group of companies, who are the major shareholders in Varuna Investments Limited and that the scheme of amalgamation is not fair and reasonable to the shareholders of Varuna Investments Limited.
3. In support of this application, it is contended on behalf of the applicants that the applicants, who are the shareholders of Varuna Investments Limited, had purchased these shares in 1983 on the basis of a letter of offer issued by Tata Chemicals Limited at a meeting wherein they had decided to desubsidiarise Varuna Investments Limited by offering 12,566 equity shares of Rs. 100 each at the price of Rs. 150 per share. According to the applicants, the then chairman of the applicants, Shri Vatsal Navanitlal Parikh, was induced by one Firdous Cambatta, son of the said director, S.N. Cambatta, who was the then President of the Ahmedabad Gymkhana Club to purchase the shares as he was informed that after desubsidiarisation of Varuna Investments Limited by Tata Chemicals Limited, Varuna Investment Limited will become a full-fledged independent company and it will soon be registered on all the major stock exchanges of India with the principal stock exchange at Bombay and it will engage itself in the business of shipping and leasing and hire-purchase. This statement was also made in the directors'' report dated August 8, 1984, and on the basis of this statement the applicants were induced to purchase the shares. It is the case of the applicants that the said company did not fulfil the obligations and that, on the contrary, Varuna Investments Limited disguised its operations as a break company of Tata Chemicals and indulged in unfair market operations as by inducing private subsidiarisation by private placement of shares of subscription to the shares of Varuna Investment Limited, the said subscription moneys received from the subscription of shares were inducted into Tata Chemicals Limited by purchase of Tata Chemicals Limited shares.
4. In the course of the arguments advanced on behalf of the applicants, reference is made to the working of Varuna Investment Limited which, according to the applicants, did not come up to the expectation and representations made at the time when the applicants were induced to purchase the shares, as a result of which it is the case of the applicants that they decided to sell their shares. According to the applicants, in the year 1996, they had received an intimation from M.C. Shah Investments that they were interested in purchasing the shares of Varuna Investments Limited at Rs. 175 per share. It is contended on behalf of the applicants that the respondents have misquoted the value of the share and the offer of the shares of Varuna Investments Limited have been undervalued and the offer of four ordinary shares of the transferee-company, namely Tata Investments Corporation as against one share of the applicant-company is grossly undervalued. For that purpose, reliance has been placed on behalf of the applicants upon the report of their auditors Dhirajlal Shah and Company, the chartered accountants.
5. The applicants have by their letter of March 18, 2000, addressed to the respondent-company, Varuna Investments Limited recorded their objection to the swap value of the shares and have contended that instead of amalgamating with Tata Investment Corporation. Limited, it would be in the interest of the shareholders to liquidate the shareholding investment of Varuna Investments Limited and pay back the shareholders either in the form of dividend or in the form of bonus shares of Varuna Investments Limited. This contention recorded by the applicants in the said letter reflects upon the intention and bona fides of the applicants as to whether the objection to the amalgamation has been raised bearing in mind the interest of the shareholders of the company or whether the same has been made only with a view to stall the amalgamation. By this letter, the applicants have contended that the net asset value of the shares of Varuna Investments Limited as on March 31, 1999, would come to Rs. 1,700 per share. However, the applicants have not supported this statement by reliance on any documents as being the basis of arriving at the valuation. The applicants have relied on the report of Dhirajlal Shah and Company, the chartered accountants, dated March 25, 2000, which is submitted subsequent to the applicants'' letter of March 18, 1999. The report of Dhirajlal Shah and Company, the chartered accountants has been scrutinised by M/s. N.M. Raiji and Company. M/s. N.M. Raiji and Company, chartered accountants have in pursuance of the request made to value the shares of Tata Investments Corporation and Varuna Investments Limited for the purpose of the proposed merger of the two companies have submitted their valuation report and the exchange ratio of the shares for the purpose of effecting the merger. So far as Dhirajlal Shah and Company, the chartered accountants are concerned, they have submitted their report on the basis of the break-up value of the shares; whereas M/s. N.M. Raiji and Company, chartered accountants, have based their valuation on the basis of the fair value of the shares which has been determined by merging the values under different methods, namely, value per share of the company under merger, the net assets method, the earning capitalisation method, and the market price method. It is after considering the aforesaid values that M/s. N.M. Raiji and Company, chartered accountants have recommended four fully paid-up equity shares of Tata Chemicals for every one share of Varuna Investments Limited.
6. It is urged on behalf of the applicants that the applicants do not have the benefit of the report, the balance-sheet and on that count it is urged on behalf of the applicants that the respondent-company did not comply with nor did it follow the procedural formalities. However, so far as this argument is concerned, the same has no basis as the notice of the meeting was sent to all the shareholders of the respondent-company. In the explanatory statement that was appended to the notice, the documents were offered for inspection at the registered office of the company, i.e., memorandum and articles of association of the transferor-company and the transferee-company, the balance-sheet and profit and loss account as on March 31, 1994 of the transferor-company and the transferee-company, the scheme of amalgamation, the valuation report of M/s. N.M. Raiji and Company, chartered accountants, certified copies of the order dated February 21, 2000, in Company Applications Nos. 91 and 92 of 2000. This notice is dated February 25, 2000, which was for convening a meeting on Monday, March 27,2000. Therefore, it is not open for the applicants to contend that the balance-sheet, the statement of account, the valuation report or the bases on which the valuation was made was not available to the applicants.
7. It is pertinent to note that the applicants remained present at the meeting, raised their objections and voiced their grievance which was considered by the shareholders present and despite the objection raised by the applicants, a majority of the shareholders voted in favour of merger. It would be too far-fetched on the part of the applicants to contend that the shareholders were swayed away in favour of the scheme of amalgamation as the shareholders have with open eyes after being apprised of the fact that the applicants have a grievance and despite their objections have voted in favour of the merger. So far as the applicants before the court are concerned, I am constrained to note that the applicants are disgruntled microscopic shareholders who from the course of arguments advanced on behalf of the applicants it transpires were induced to purchase the shares on the basis of a certain offer made to them which, according to the applicants, did not fructify and which was as far back as in 1983-84 cannot for that account hold up or challenge a scheme of amalgamation which the applicants have not been able to show is mala fide or is prejudicial to the interests of the general body of creditors.
8. The applicants have by a fax message of July, 1984, intimated their desire to sell 3,040 shares of the respondent-company and had requested the respondent-company to intimate the offer of purchase as the shares were unquoted. By the letter dated July 20, 1984, the applicants were informed that they were getting valuation of the shares of the company and an intimation will be sent to them. By the letter dated September 10, 1984, the applicants informed the respondent-company that they intended to transfer these shares to another company in their own group. Therefore, if the shares were to be transferred to their group company, there was no question of disposing of the shares because the company did not, act upon the representation made at the time when they purchased the shares. By this letter, the applicants have also recorded the grievance to the effect that in the year 1983, the company had declared dividend of 75 per cent, on the share and no dividend has been distributed for the year 1984. By the letter of September 12, 1984, the applicants were informed of the value of the unquoted equity shares being at Rs. 95.85 per share. According to the applicants by their letter of August 7, 1983, they accepted Rs. 300 per equity share and requested the company to send a counter offer. The basis of the valuation does not find place in the said letter. The applicants have relied upon the letter which they have received from M.C. Shah Investment, wherein the value of Varuna Investments Limited has been reflected at Rs. 200 per share. On what basis this letter was received and the identity of M.C. Shah Investment has not been established. Except for this circular, the applicants have not been able to furnish any details.
9. To the objections raised by the applicants with regard to the swap ratio, M/s. N.M. Raiji and Company, chartered accountants, have replied to the contention of the applicants that the net asset value of the shares of Varuna Investments Limited is artificially brought down with a view to see that similar number of shares of Tata Investment Corporation Limited are required to be issued to the shareholders of Varuna Investments Limited. M/s. N.M. Raiji and Company, chartered accountants have in their report stated that to arrive at the swap ratio for the purpose of merger between two companies the same is recommended by comparing the relative values of the shares of two companies involved and not their absolute values. The fair values of the shares of Tata Investments Corporation Limited and Varuna Investments Limited are worked out using a combination of well accepted methods of valuation. M/s. N.M. Raiji and Company, chartered accountants have worked out the value of the shares on the basis of the following methods of valuation:
(a) Net assets (at book value).
(b) Net assets (considering appreciation in value of underlying investments).
(c) Earnings capitalisation.
(d) Market price (in the case of VIL-imputed market price).
10. M/s. N.M. Raiji and Company, chartered accountants, have also pointed out that in the valuation carried out by Dhirajlal Shah and Company, the chartered accountants have considered the appreciation in value of investment held by only Varuna. Investments Limited. The market price as on a particular date of investments held by one of the companies cannot be the only criterion for recommending the swap ratio. It is pertinent to note that Dhirajlal Shah and Company, the chartered accountants, while submitting the report has not considered the tax liability that would arise on investment. Further, curiously enough, the applicants'' contention that the company should be liquidated reflects upon the bona fides of this application as the concept of liquidation would be prejudicial to the interest of the company and the same would bring upon the company several liabilities, including the liability towards capital gains, distribution to shareholders and other statutory liabilities.
11. It is contended on behalf of the applicants that the matter be referred to independent chartered accountants to hold an enquiry and to submit a report. So far as this argument and the contention are concerned, the same have no basis inasmuch as the procedure as laid down under sections 391 and 394 of the Companies Act, 1956, has been duly followed. The Regional Director, Department of Company Affairs, Mumbai, has carried out his investigation. The official liquidator has also investigated into the matter. For that purpose, an independent chartered accountant has been appointed as per the order of the court, who has also given his opinion that so far as this scheme is concerned, the same is not prejudicial to the interests of the shareholders. Hence there is no substance in the argument canvassed on behalf of the applicants that the scheme should be rejected. It is urged on behalf of the applicants that merely because a majority of the shareholders have accepted the scheme, the court should not grant it as a matter of course and the same requires to fee considered. For that purpose, reliance is placed upon the ruling in the case of Bank of Baroda Ltd. v. Mahendra Ugin Steel Co. Ltd. (decided by P.D. Desai J. of the Gujarat High Court on April 7, 1975). So far as this ruling is concerned, the same does not apply to the facts of the present case as in the case under reference, an objection was raised on behalf of the Central Government that the scheme would affect the rights of the members of the transferee-company as between themselves and the company and it will also involve reorganization of the share capital of the transferee-company, and, therefore, unless the transferee-company took steps under sections 391 and 394 of the Companies Act and obtained requisite approval and sanction for the same, it should not be sanctioned by the court. So far as the present scheme is concerned, the procedural formalities have been complied with except for the objection by the applicants who are disgruntled microscopic shareholders, the other shareholders have consented to the approval of the scheme despite objections having been placed before them at the time of the meeting. Therefore, so far as this ruling is concerned, the same would not apply to the facts of the present case.
12. Reliance is also placed on behalf of the applicants and the respondents on the ruling in the case of
The company court which is called upon to sanction a scheme of compromise and arrangement 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.
13. It is also observed in the said ruling as follows:
However, court cannot have 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 under; section 391 of sub-Section (2). The court certainly would not act as a Court of Appeal and sit in judgment 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 has 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 supervisory and not appellate. 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. The propriety and 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 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.
14. So far as the present scheme of amalgamation is concerned, the same has been minutely scrutinised inasmuch as the procedure under sections 390 and 391 has been followed. The scheme has been scrutinised by the Regional Director, Department of Company Affairs, Mumbai, and the official liquidator as also the chartered accountants appointed by the court. The same has been approved by a majority of the shareholders except for the applicants who, as I have stated above, are disgruntled and hold microscopic minority and who have not been in a position to bring cogent and concrete evidence to support their application. I am, therefore, of the opinion that there is no objection to the scheme being sanctioned. Further, the applicants have not been able to place before the court any other ratio, but have left the matter for determination to the court and for the appointment of an independent chartered accountant who has already been appointed by the official liquidator who has sanctioned the scheme. Hence, in the light of the aforesaid ruling, there is no reason why there should be any objection to the scheme being sanctioned by this court.
15. On behalf of the applicants, reliance is placed on several rulings. However, in view of the ruling in the case of
16. Hence, so far as this application is concerned, the same stands rejected with costs quantified at Rs. 25,000. In view of my order in this application, the petition is allowed in terms of prayers (a) to (g).
Held:
Expedite the drawn up order.
