TMI Blog2003 (7) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of the manufacture and sale of Bulk Drugs, Pharmaceutical formulations, Animal Health Products and Nutritional Supplements. Pfizer was incorporated inter alia with the object of carrying on the business of the manufacture of and of a dealer in pharmaceutical, medical, chemical, industrial, and other preparation and articles. Parke- Davis, the transferor, was incorporated on 18th April, 1958. The authorised share capital of the transferor is Rs. 15 crores while its issued subscribed and paid up share capital is Rs. 12.05 crores. The main objects for which the transferor was incorporated were inter alia to manufacture, refine, import, export, buy, sell and deal in drugs, medicines and chemicals, pharmaceutical, herbal, bacteriological and biological products and the preparation of all kinds of toilet articles and cosmetic articles. The rationale for the Scheme : 3. The Scheme of Amalgamation was proposed and came to be approved by the Boards of Directors of the transferor and transferee in separate meetings held on 27th June, 2002. Amongst the benefits of the amalgamation that have been cited before the Court are these : ( i )Since both the transferor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferee; ( v )All proceedings by or against the transferor pending on the Appointed Date, can be continued or enforced against the transferee; ( vi )All employees of the transferor in service on the date immediately preceding the Effective date shall become the employees of the transferee on the basis that their services will be continuous and uninterrupted and the conditions of service shall not be less favourable than those applicable prior to the transfer. The Share Exchange Ratio : 5. The proposed Scheme of Amalgamation provides for a Share exchange ratio in pursuance of which, upon the Scheme becoming effective, the transferee shall issue and allot 4 equity shares of Rs. 10 each to every equity shareholder of the transferor whose name appears in the Register of Members on the record date for every 9 equity shares of Rs. 10 each held in the transferor. The proposed share exchange ratio was worked out by M/s. N.M. Raiji Co. and M/s. S.B. Billimoria Co. The Boards of Directors of the transferor and the transferee accepted the suggested ratio. 6. As on 30th November, 2001, the total assets net of current liabilities of the transferor aggregated to Rs. 8312.82 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an to "amend and improve" the proposed exchange ratio of shares in favour of the shareholders of the transferor company. According to him, he had moved an amendment for modifying the swap ratio by which he proposed that four equity shares of Pfizer Limited should be issued for every six equity shares each of Rs. 10 held in Parke-Davis (India) Ltd. His grievance is that the Chairman refused to allow the amendment and ruled it as not in order. In his objection, Mr. Lakhani also objected to the Valuation report, and the reports of the Chairman and Scrutineers. 11. A reply to the objections of Mr. Lakhani was filed on behalf of the transferor. There is no dispute about the fact that the amendment which was proposed was ruled as not in order by the Chairman of the meeting. According to the reply of the transferor, the Chairman was of the opinion that if the amendments were to be considered by the members and thereafter, put to vote, it would indefinitely delay and in fact derail the meeting. Moreover, since the meeting had been convened on the directions of the Court, it would have to be thereafter, adjourned to some subsequent date which would warrant further applications to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was not made available to the objectors; ( iii )Shri Lakhani had moved a resolution for amendment of the swap ratio but the amendment was rejected by the Chairman without putting it to vote; ( iv )The Chairman had not conducted the proceedings properly; he was the Chairman of the Board of Directors of the transferor and an alternate Director of the transferee, besides being a partner of Crawford Bayley Co. Solicitors, who are Solicitors of both the transferor and transferee. It was contended that the Chairman had a vested interest in the Scheme of Amalgamation and his acting as Chairman of the meeting was prejudicial to the interest of the members of the Company; ( v )The Chairman had not disclosed in his report to the Court that 18 persons had spoken against the resolution, nor did he mention that the amendment to the resolution had been moved; ( vi )There were discrepancies in the report of the Scrutineers and several votes had been shown as invalid without assigning any reason; ( vii )Several persons have voted more than once in the Meeting which was impermissible under the law; ( viii )Objections had been filed that there are workmen of the transferor whose ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn from 53 to 52 while those against the resolution would stand increased from 46 to 47. The Resolution would still be carried by a majority. The Learned Judge has agreed with the submission of the Company that since votes are taken foliowise, it would be permissible to treat different folios where shares are held jointly with different persons or in a different order of names as separate for the purposes of voting. Finally in so far as the 15 invalid votes were concerned, six had voted in favour of the resolutions and nine had voted against the resolution. Even if all the invalid votes were to be taken into account, the resolution would still be passed by a majority. In so far as the objections filed by the workers were concerned, the Learned Judge noted that they were no longer in the employment of the Company and their matters were pending either before the appropriate Court or the Commissioner of Labour. There was an averment in the petition that all pending litigation of the transferor would be contested by the transferee and all liabilities that may be incurred by the transferor would be taken over by the transferee. In that view of the matter, it was held that the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditors report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like." I. Re: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company, the Court is empowered while sanctioning the compromise or arrangement or subsequently, to make provision for various matters. Amongst these, under clause ( ii ) is the allotment by the transferee-company of any shares in that company which under the compromise or arrangement are to be allotted to or for any person. 19. The meeting which is convened by the Court under section 391(1) is for a specific purpose. The purpose of the meeting is to consider a compromise or arrangement and, where it involves a Scheme of Amalgamation of two or more Companies, the meeting is to consider whether the proposed Scheme of Amalgamation should be accepted. The proposal for amalgamation which is placed before the Court for its sanction is one that has been agreed upon by the Boards of Directors of the transferor and transferee. The share exchange ratio or swap ratio as it is called is an integral part of the proposed amalgamation. The meeting which is convened by the Court is for considering whether the proposed compromise or arrangement should or should not be accepted by the creditors or, as the case may be, by the members of the company. The procedural provisions embodied in the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posal which is before the meeting and an amendment to the swap ratio will operate to nullify the basis of the Scheme of Amalgamation. Whether the Scheme of Amalgamation should or should not be accepted is for the members of the Company to decide but, there can be no gainsaying that an amendment to the swap ratio would nullify basis and foundation of the Scheme of Amalgamation. Consequently, the Chairman of the meeting was justified in his ruling that the amendment to the swap ratio that was proposed by Shri Lakhani had to be ruled as not in order. 21. In any case, apart from this, it has been stated before the Court that all the members who desired to speak, including Shri Lakhani, were allowed to speak after which the resolution came to be passed with an overwhelming majority of 99.94 per cent shareholders in support. Therefore, in any event of the matter, we do not find any infirmity or ground for interference. 22. Two judgments have been relied upon by the Appellant, one a judgment of a Learned Single Judge of this Court in T.H. Vakil v. Bombay Presidency Radio Club Ltd. AIR 1945 Bom. 475 and another of the Court of Appeal in England in Henderson v. Bank of Austra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision entirely on its special facts. Slade, J. held that the principles relating to a notice of and the subsequent amendment of, special resolutions are these: ( i )A valid notice of an intention to propose a special resolution, must identify the intended resolution by specifying either the text or the entire substance of the resolution which it is intended to propose; ( ii )If a special resolution is to be validly passed, the resolution as passed must be the same resolution as that identified in the preceding notice; ( iii )The resolution may correct a grammatical or clerical error or reduce it into the form of a new text, so long as there was no departure from the substance; ( iv )In deciding whether there is complete identity between the substance of a resolution as passed and the substance of an intended resolution as notified, there is no room for the Court to apply a "limit of tolerance". The substance must be identical or else the requirement that a notice has been given specifying the intention to propose the resolution as a special resolution is not satisfied; ( v )An amendment to the previously circulated text of a special resolution can properly be put to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be placed before the meeting of the shareholders. In the absence of mala fides, fraud or illegality the Court would not rule in favour of the objector particularly having regard to the overwhelming support which the Scheme of Amalgamation had received on the part of the members of the Company. The judgment of the Learned Single Judge was carried in appeal and was sustained by a Division Bench of this Court on 27th August, 1997. The Division Bench distinguished both Henderson s case ( supra ) as well as the judgment of the Learned Single Judge of this Court in T.H. Vakil s case ( supra ). The Division Bench held that where the swap ratio has been discussed and the scheme was approved with the overwhelming support of the shareholders, the Court ought not to disturb the commercial decision of the shareholders. 26. In so far as this Court is concerned, the question is not res integra and it has been considered in a judgment of the Division Bench in P.D. Shamdasani v. Tata Industrial Bank Ltd. AIR 1925 Bom. 49. The appeal before the Division Bench arose out of a suit instituted by the Appellant for a declaration that the proceedings of a meeting of the Tata Bank in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en enunciated by the Division Bench over three quarters of a century ago. The judgment of the Division Bench clearly concludes the issue against the appellant. 27. There is no substance in the first objection. Re: Counting of Votes: 28. On the question as to manner in which the votes were counted, it would at the outset be necessary to appreciate that under the provisions of section 391(2) of the Companies Act, 1956, the requirement is that the compromise or arrangement must be agreed upon by "a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed, by proxy at the meeting". The contention of the Appellant is that section 391(2) postulates two requirements. The first is that there must be a majority of creditors or members, as the case may be, present and voting and the second that this majority must reflect three-fourths in value of the creditors or members. Now, there is no dispute about the fact that the requirement that the compromise or arrangement be agreed upon by three-fourths in value of the members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in respect of such capital, on every resolution placed before the company. Furthermore, the section provides that his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company. Before considering the Articles of Association of Parke-Davis (India) Limited in the present case, it would be instructive to refer to Table-A of Schedule-I of the Act which provides model Regulations for the management of a Company limited by shares. Article 56 provides that subject to any rights or restrictions for the time being attached to any class or classes of shares ( a ) on a show of hands, every member present in person shall have one vote and ( b ) on a poll, the voting rights of members shall be as laid down in section 87. Then Article 57 provides that in the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members. 31. In the present case, Articles 102, 103 and 105 of the Articles of Association of Parke-Davis (India) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... votes or cast all the votes which he used in the same way. Article 103 of the Articles of Association provides as follows: "On a poll taken at a meeting of the Company a member entitled to more than one vote, or his proxy or other person entitled to vote for him, as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses." Article 105 provides for the manner in which the votes of joint members are to be cast and is as follows: " If there be joint registered holders of any shares, any one of the such persons may vote at any meeting or may appoint another person (whether a Member or not) as his proxy in respect of such shares, as if he were solely entitled thereto, and the proxy so appointed shall not have the right to speak at the meeting and if more than one of such joint holders be present at any meeting, that one of the said persons so present, whose name stands higher on the Register, shall be alone entitled to speak and to vote in respect of such shares, but the other or others of the joint-holders shall be entitled to be present at the meeting. Several executors or administrators of a deceased Member, in whose name share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel has also relied upon the practice of Hindustan Lever Ltd. in support of the practice which has been adopted by the Company in the present case. Therefore, from the practice or usage which has been adverted to by Counsel for the Respondents it does appear that the procedure followed by the Scrutineers has precedent in Company practice. As we have already noted earlier, it is valid as a matter of principle. Be that as it may, the Court cannot be unmindful of the overwhelming support for the Resolution. This is not a case where the Company acted mala fide or where the majority has sought to stifle the voice or interests of the minority. We are of the view that there was no illegality on the part of the Scrutineers in the counting of votes. Re: The Authenticated Copy: 35. The third submission urged on behalf of the Appellant is that under the provisions of section 391(3), an order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. In the present case, it was urged that all steps which were taken after the order of the Learned Company Judge dated 7th February, 2003 and until the ad interim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Company Judge permitted parties to act on a copy of the order duly authenticated by the Company Registrar/Personal Secretary as a true copy. The procedure for the issuance of authenticated copies of orders passed by the Court has been laid down in the office orders dated 7th February, 1996 and 29th February, 1996 issued by the Prothonotary and Senior Master of this Court on the Original Side. An authenticated copy of the order of the Court is an authentic version of the order of the Court. There is, therefore, due compliance with the provisions of law. 37. The Scheme of Amalgamation has been substantially implemented after the judgment and order of the Learned Company Judge sanctioning the Scheme under section 391. The effect of the order of sanction is that from 1st December, 2001, the entire business of the transferor company has been vested in the transferee as a going concern. The share capital and reserves of the transferor became those of the transferee and all the assets, properties and liabilities of the transferor stood transferred to the Transferee. All contracts and legal proceedings to which the transferor was a party stood transferred to the transferee. On 10t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon had another method been adopted. The Court is neither a valuer nor an appellate forum to reappreciate the merits of the valuation. What the Court has to ensure is that the determination should not be contrary to law or unfair to the shareholders of the Company which has been merged. In Hindustan Lever Employees Union s case ( supra ), the Supreme Court held that it is not a part of the judicial process in such a matter "to examine entrepreneurial activities to ferret out flaws". The Supreme Court held, in paragraph 4 of the judgment of Mr. Justice R.M. Sahai, that where more than 95 per cent of the shareholders had agreed to the valuation determined by the chartered accountant, the procedural irregularities which were present in it could not vitiate the determination. These principles have been reiterated in the judgment of the Supreme Court in Miheer H. Mafatlal s case ( supra ). The Supreme Court has laid down that the sanctioning court has to consider whether ( i ) the requisite statutory procedure has been complied with; ( ii ) the scheme is backed up by the requisite majority; ( iii ) the creditors or members had the relevant material to enable the voters to arrive a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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