TMI Blog1987 (5) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided into 7,90,000 equity shares of Rs. 100 each, and 10,000 9% redeemable cumulative preference shares of Rs. 100 each. The issued and subscribed capital of the respondent company is Rs. 3,46,92,000 divided into 3,46,920 equity shares of Rs. 100 each fully paid-up and 2,000 9% redeemable cumulative preference shares of Rs. 100 each fully paid up. The respondent company is engaged in manufacture and sale of pharmaceutical and chemical products. It is also authorised by its object clause to undertake manufacture, produce, use, buy, sell and otherwise deal or traffic in natural, man-made and synthetic yarns, staple fibres, mono-filaments, multi-filaments, etc. The respondent company had promoted Neomer which is engaged in manufacture of polypropylene staple fibre (PSF for short). Neomer is also authorised by its objects clause to manufacture, produce, use, buy, sell and otherwise deal or traffic in natural, man-made and synthetic yarns, staple fibres, mono-filaments, multi-filaments, etc. It is also authorised to amalgamate itself with any other company. The authorised capital of Neomer is Rs. 5,00,00,000 divided into 30,00,000 equity shares of Rs. 10 each and 20,00,000 unclassif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in pharmaceutical line, was in need of some diversification for improving long-term profitability. It was hoped that the required diversification would be provided by Neomer pursuant to the amalgamation. With the amalgamation, the respondent company would be able to use the present infrastructure of Neomer for both existing and new product lines and it was felt that resultant production would be more economical. The respondent company would also be able to use the infrastructure for its own purpose. The financial institutions also agreed that if the proposed amalgamation ultimately went through, certain other concessions like waiving of compound and penal interest and phased out repayment of term loans can be provided to the respondent company. If the amalgamation was approved under section 72A of the Income-tax Act, the respondent company would get the benefit of carried forward losses. It was in the aforesaid background that the board of directors of the respondent company and Neomer decided to amalgamate Neomer with the respondent company with effect from January 1, 1983, and framed the scheme of proposed amalgamation. The specified authority accorded its approval to the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court and at these meetings, the scheme of amalgamation was approved. Thereafter, both the respondent company and Neomer filed a petition under section 394 read with section 391 of the Companies Act for amalgamating Neomer with the respondent company. In other words, petitions were filed to this court for sanctioning the aforesaid scheme of amalgamation. The learned company judge has by his impugned judgment and order sanctioned the scheme of amalgamation. Being aggrieved by the judgment and order passed by the learned company judge, the appellants have preferred this appeal. The. appellants' learned counsel, Mr. K. B. Pujara, raised the following contentions opposing the amalgamation of Neomer with the respondent company: (1)The explanatory statement under section 393 of the Companies Act sent along with the notice did not disclose sufficient particulars which would have influenced the judgment of the shareholders and creditors in supporting or opposing the scheme of amalgamation. (2)There was no fair and adequate representation at the meetings of the shareholders, creditors, etc. (3)The exchange ratio of the shares of 40: 1 was unrealistic and unfair to the sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts between the first half of 1985 and the second half of 1989, that is to say, repayment of Rs. 71.64 lakhs each year from 1986 to 1989. ( viii )Alembic's commitment to discharge Neomer's liability of interest on term loans up to December 31, 1984, amounting to Rs. 166.88 lakhs which is to be repaid by payment of 50%, that is to say, Rs. 82.79 lakhs, on the date of receipt of approval from the High Court and by paying the balance of 50% in the following year. ( ix ) Alembic's agreement to write off its investment of 2,81,400 equity shares in Neomer having a face value of Rs. 28.14 lakhs. ( x ) Alembic's agreement to write off the loan amount of Rs. 10 lakhs given to Neomer. ( xi )Condition imposed by the Central Government in its order dated September 20, 1985, granting approval under section 23(2) of the Monopolies and Restrictive Trde Practices Act, 1969, and the tax savings arising out of amalgamation during the financial years 1984 to 1988 shall be utilised by Alembic for the revival of the undertaking of Neomer. ( xii )The details as to how the share exchange ratio of 1 share of Rs. 100 of Alembic for 40 shares of Rs. 10 each of Neomer was arrived at". Out of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect,..". It will be seen that the aforesaid provision on which reliance is placed by Mr. Pujara provides that the notice calling for the meeting must contain two things: ( i ) a statement setting forth the terms of the compromise or arrangement; and ( ii ) explaining its effect. There is no dispute that along with the notice, a statement setting forth the terms of the scheme was sent. The contention of Mr. Pujara, however, is that the provision has not been complied with on account of failure to explain the effect of the scheme in the statement. The question whether the details as to how the share exchange ratio had been arrived at were required to be stated in the statement sent along with the notice under section 393(1) of the Companies Act had come up for consideration before N. M. Miabhoy J. (as he then was) in Sidhpur Mills Co. Ltd., In re, AIR 1962 Guj 305. Dealing with the contention similar to the one which was raised by Mr. Pujara, the learned judge observed that the first part of clause ( a ) of section 393(1) requires not only that the terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is has reference to something produced by action or cause". In other words, effect is that which is produced and as observed by Miabhoy J. a condition which arises as a result of certain course of action. The aforesaid clause ( a ) of section 393(1) does not lay down as to the effect on what has got to be mentioned in the statement. When it speaks of explaining the scheme's effect, it does not mean details of the scheme or the particulars of the effect, consequence or result which would follow the scheme. The requirement is to state and explain the effect and not the details or particulars of the consequence or result. In other words, the basis of working on which certain consequence or result of the scheme would flow from the scheme is not required to be stated. It is only the resultant effect of the scheme which is required to be stated. As observed in Sidhpur Mills Co. Ltd., In re, AIR 1962 Guj 305, if there is anything in the scheme of compromise or arrangement which is not quite obvious to a person reasonably acquainted with the facts of the case by merely reading the terms of the scheme, then, a duty is cast upon the persons concerned to mention what the consequence will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provision. In other words, besides enumerating non-disclosure of particulars mentioned above in the statement, Mr. Pujara did not elaborate as to how the failure to mention the above particulars would render the statement not in conformity with the provisions of clause ( a ) of section 393(1). We have already dealt with the main contention of Mr. Pujara with regard to the details of the share exchange ratio and in our opinion, for the reasons which we have already set out above, it was not necessary to state or disclose particulars which are enumerated hereinbefore in the statement. The requirement of the said provision is to send along with the notice a statement setting forth the terms of the scheme and explaining its effect. The terms of the scheme are set out in the statement in question and the effect of the scheme has also been explained. The financial particulars of the assets and liabilities present or contingent of Neomer, etc., were not required to be stated in setting forth the terms of the scheme or in explaining the effect of the scheme. The statement clearly brings out that Neomer had incurred heavy losses and its financial position had become very acute. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cast a duty on the persons concerned to state particulars as urged on behalf of the appellants in the aforesaid statement. We, therefore, reject Mr. Pujara's contention that it was necessary to state the aforesaid particulars in the statement and the failure to do so results in non-compliance with the aforesaid provision contained in section 393(1)( a ) of the Companies Act. With respect, we do not agree with the learned single judge of the Calcutta High Court in the matter of Canon Tea Co. Ltd. [1966] II Comp LJ 278 on which reliance was placed by Mr. Pujara that in the absence of details regarding working of the exchange ratio of shares, the explanatory statement could not be said to conform to the requirements of clause ( a ) of section 393(1) of the Companies Act. The next contention of Mr. Pujara was that there was no fair representation of the shareholders and different classes of creditors at the meetings held under the directions given by this court on December 6, 1985, in Company Application No. 231 of 1985. This argument is based on the failure to disclose particulars of the share exchange ratio referred to above in the statement sent along with notice under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt methods were adopted for valuing the shares of the respondent company and that of Neomer and consequently the share exchange ratio was not fairly worked out. In support of this contention, Mr. Pujara relied on a decision of the Rajasthan High Court in Cotton Agents ( Rajasthan ) Ltd., In re, AIR 1968 Raj 311; [1969] 39 Comp Cas 663 . The share exchange ratio was determined by M/s. Dalai and Shah, Chartered Accountants of Bombay. In their report dated December 27, 1983, the chartered accountants have stated the principles which they have followed in determining the value of the shares of the respondent company and Neomer, and in determining the share exchange ratio. It appears from the report that the valuation of the shares which was made on the basis of a standard method of valuation having due regard to the value of the shares of both the companies as quoted on the stock exchange was not stated in the report, and with the consent of parties, the chartered accountants were directed to give details regarding the working of the share exchange ratio. In compliance with the directions given by this court, Mr. Yogendra C. Amin, partner of M/s. Dalai and Shah, chartered accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be "nil" under both these methods. However, since the respondent company was going to get the benefit of carried forward losses of Neomer in payment of income-tax, that factor and the quotation in the stock exchange were taken into account in working out the value of equity share of Neomer. However, for that reason, it could not be said that different yardsticks were applied in valuing the shares. It cannot be gainsaid that as a result of the amalgamation, the respondent company would acquire all the assets, such as buildings, factory, plant and machinery of Neomer. It is not disputed that the market value of these assets as on the effective date of amalgamation, that is, January 1, 1983, was high, though the actual working is not placed on record. Therefore, taking all the factors into consideration, we are not prepared to hold that the share exchange ratio determined by the chartered accountants is unfair or unreasonable. It was next urged on behalf of the appellants that the shareholders of Neomer will get the benefit of dividend with effect from January 1, 1983, which is appointed as the date on which the scheme of amalgamation was to come into force. It was submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given discriminatory treatment once the shareholders of Neomer become the shareholders of the respondent company. In other words, they cannot be treated differently from other shareholders of the respondent company. It was stated before us that it is proposed to pay dividends to the former shareholders of Neomer with effect from January 1, 1983, from the accumulated profits of the respondent company. It is not disputed that it is permissible to pay dividend out of the accumulated profits. In our opinion, there is, therefore, no breach of any provision of the Companies Act in making payment of the dividends to the shareholders of Neomer as stated above. Dividend has not been paid to the shareholders of Neomer on account of interim relief granted by this court pending the hearing of this appeal. There is no payment of dividend with retrospective effect as urged on behalf of the appellants. The former shareholders of Neomer will be paid dividend not with retrospective effect, but with effect from the date on which they become shareholders of the respondent company. We, therefore, reject the aforesaid contention of Mr. Pujara. The last contention which was raised on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
