TMI Blog1968 (3) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation of both the companies prohibit an invitation to the public to subscribe to any shares or debentures or debenture stocks of the companies and they also prohibit the transfer of the shares to a person who is not a member so long as any member or any person selected by the directors, as one who should be admitted to the membership of the company, is willing to purchase them. There is of course no such prohibition for the transfer of shares by a member to his family. Both the companies have been carrying on their business, and their balance-sheets have been placed on the record. It also appears that the nature of the business of the two companies is not dissimilar. It has been urged in this court that both the companies deal in shares and securities and they are mainly financiers and investors. As has been stated, both the companies have prayed for their amalgamation under a scheme of amalgamation (exhibit 2). Under it, all the properties, rights and powers of the transferor company are to be transferred to and vest in the transferee company. So also, all the liabilities and duties of the transferor company are to be transferred to the transferee company. The scheme provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unduly favourable to the members of the transferor company because the fair price of the share of the transferor company was Rs. 25 per share of the face value of Rs. 100 paid up to the extent of Rs. 50 while it was Rs. 60 in the case of a fully paid up share of the transferee company of the face value of Rs. 100. It has, therefore, been represented that the proper rate of exchange should be 5 shares of the transferee company for 12 shares of the transferor company. The learned counsel for the petitioners filed a representation on November 8, 1967, challenging the computation of the value of the shares by the Central Government and praying that it may be asked to disclose the basis of its calculation. On a further notice from the court, the Central Government has made an additional representation on January 22, 1968, pointing out the reasons for its representation that the method of calculation adopted by the petitioners was not correct and giving the basis on which the Government had suggested the exchange ratio of the shares of the two companies in its earlier representation. It may be mentioned that the Central Government, has further pointed out that even according to the bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government has stated that while Rs. 25 would be the fair value of a share of the transferor company, Rs. 60 would be the fair value of a share of the transferee company. Details of the calculation have been shown in annexure "A" filed with the additional representation of the Central Government. As has been stated, the petitioners have relied on the balance-sheet for the purpose of determining the net worth of each share. It has further been pointed out that while almost all the funds of the transferor company have been invested in quoted shares and that investment is more safe and sound, the investment of the funds of the transferee company is in unquoted shares which yield no dividends or in money-lending transactions which are not equally safe. It has also been pointed out that the low yield on the investments of the transferor company is due to recession, which is a temporary phase and that the suggestion of the Central Government for valuation of the shares on the basis of their earning power will not be suitable. It would thus appear that the dispute before me is regarding the method of valuation of the shares of two companies, and the only question for decision is whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profitable. As regards the relative growth prospects of the two companies, nothing has been stated by the petitioners or the Central Government, and it seems that this factor cannot also be availed of in the present case. It would thus appear that quite a few of the usual factors for assessing the relative values of the shares of the companies are not helpful for settling the present controversy. There is also a great deal of dispute regarding the ratio of distributable earnings to dividends paid during the prior years, and the weight to be attached to the value of the net assets. But I feel that it is not really necessary for me to take any serious notice of the controversy, for I am inclined to think that even if it is assumed that the valuation proposed in the scheme is open to criticism, that by itself will not necessarily justify the conclusion that I should withhold my sanction in the circumstances of the present case on the ground that the valuation is unfair. The reason is that in such cases it is for the objector to show why the court should exercise its discretion to reject the scheme; and this is quite a heavy onus. Such a view was taken by Maugham J. in In re Hoa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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