TMI Blog2002 (6) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... t the scheme of amalgamation as approved unanimously by the shareholders of the appellant-company in the meeting held on September 8, 2001, be sanctioned so as to be binding on the appellant-company and all the members and creditors of the appellant-company effective from January 1, 2001, have been rejected by the learned single judge. The said company petitions are filed under sections 391 and 394 of the Companies Act, 1956. Annamallai Finance Company Limited is the transferee-company and Shiva Texyarn Limited is the transferor-company. In Company Applications Nos. 638 and 639 of 2001 taken out by the above said companies to hold and conduct a meeting of the shareholders of the company for the purpose of considering and approving the scheme of amalgamation, this court directed the convening of the meeting of the equity shareholders of the transferor and transferee-companies under section 391 of the Companies Act on September 8,2001 at 10.30 a.m at 252, Mettupalayam, Coimbatore, at the place specified. This court also directed publication of the company petitions in leading English and Tamil dailies. After conducting the meeting of equity shareholders as directed by this court, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re so, when even according to the valuation by the chartered accountant, it was assessed that the three equity shares could be the conversion ratio for each equity share in the transferor-company, though a premium is proposed by the directors in the scheme at the rate of Rs. 5 per share, as to how the said amount has to be paid back and kept in reserve or kept in deposit or kept in investment is not disclosed. Such premium amount as proposed is a substantial amount and it benefits the promoters of the company and directors, who hold the major portion of the shares as seen from the shareholding partners of both the companies. Though there are thousands of shareholders, the substantial number of shares will be in the hands of Shiva Distilleries, its directors or associates, who are also the subscribers of the shares in the names of various companies either as shareholder or a partner or a director as the case may be. The seven shareholders of Shiva Texyarn are enabled to have an undue advantage and extraordinary concession to the detriment of other shareholders in the transferee-company. The learned judge further found that Shiva Texyarn became a separate company just within a year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 78(2) of the Companies Act, 1956. Hence, the learned judge went wrong in rejecting the applications. We heard learned counsel representing the Department of Company Affairs, who produced a letter from the Ministry of Law, Justice and Company Affairs, Government of India, wherein the Regional Director has stated that the affidavit filed by him in C.P. Nos. 227 and 228 of 2001 is exhaustive in nature wherein the Department of Company Affairs has not objected to the scheme and as such he has nothing to add furthermore than what has been stated in the said affidavit. In order to appreciate the controversy, a little more facts, which are relevant to the issue under consideration are necessary. The appellant Annamallai Finance Limited, for brevity hereinafter referred to as "the transferee-company", was incorporated on May 28, 1980, as a private limited company and was subsequently converted into a public limited company. The certificate of incorporation was issued on November 25, 1985, and the amended certificate of incorporation was issued on December 3,1985, since the name of "Annamalai Finance Limited" was changed as "Annamallai Finance Limited". The authorised share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionary trend, performance of the textile business of the transferor-company was good as far as this group was concerned. The textile undertaking of the transferor-company is an existing profit making export oriented undertaking with 65 per cent, exports and a positive net worth of Rs. 1,106.40 lakhs as at December 31, 2000. Further, 56 Wind Electric Generator owned by the transferee-company having an installed capacity of 13,445 Kilo Watts was among others utilised by the transferor-company under an operational lease. Considering all this, it was proposed to merge the textile business of the transferor-company with the transferee-company and to give the transferee-company a better source of revenue and better business opportunity. ( b )The scheme of amalgamation was to be effective from January 1, 2001. Every equity shareholder of the transferor-company was to get three equity shares in the transferee-company. The exchange ratio was determined based on report of Suri and Co., chartered accountants and K. Kandaswamy Associates, registered valuers. The shares of the transferor-company were valued at Rs. 50.54 per share and the shares of the transferee-company were valued at Rs. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advantage of continued listing and this was an area which was essentially in the realm of decision making by the shareholders. The net purchase consideration due as per paragraph 1.6 of the scheme of amalgamation for excess of assets over liabilities of the textile undertaking is Rs. 46,50,00,000. The same is charged as under : (Rs.) "( a )Share capital : Allotment of 103,52,121 equity shares of fully paid up (normal value of Rs. 10 each allotted in the ratio of 1:3) : 10,35,21,210 ( b )Statutory reserve-Debenture redemption reserve as per books of transferor-company : 3,00,00,000 ( c )General reserve retained in business as reserve available to the equity shareholders : 27,97,18,185 ( d )Balance consideration adjusted by share premium on 103,52,121 equity shares of Rs. 5 per share (to be retained as permanent capital) : 5,17,60,605 Total : 46,50,00,000" . As a consequence of merger, the shares to be allotted to the shareholders of Shiva Texyarn Limited to be in the ratio of 1:3. Therefore, for accounting purpose, the consideration of Rs. 46,50,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies was adopted as Rs. 15 and Rs. 45. The share premium account is only a book entry, which would be available to all the shareholders of the transferee-company. The exchange ratio of the shares as prescribed by the experts has not been opined by the learned single judge as giving extra advantage to the directors or putting the other shareholders in a disadvantageous position, so also the value. As per section 78 of the Companies Act, the share premium cannot be transferred to any account other than security premium account and this premium can be utilised by the company only for the purpose enumerated in sub-section (2) of section 78 i.e. , in paying the unissued shares of the company to be issued to members of the company as fully paid bonus shares, in writing off the preliminary expenses of the company; in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. Hence, there is no question of paying back or keeping in reserve or keeping in deposit or keeping in investment aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the necessary materials indicated by section 393(1)( a ) are placed before the voters at the meeting concerned as contemplated by section 391. The company court has to apply its mind to the public interest involved in the merger and section 394 casts an obligation upon the court to be satisfied that the scheme of amalgamation or merger was not contrary to public interest. In view of our discussion as to the exchange ratio of the shares of the transferee-company and transferor-company arrived at by the experts are followed in the scheme, there cannot be any complaint as to the exchange ratio, i.e. , 1:3,being against public interest. The premium of Rs. 5 for each equity share as provided in the scheme and the provision for accounting the same and the purpose for which the amount so accounted could be utilised are all governed by section 78 of the Companies Act. Hence, the applications for approval of the scheme in our considered view deserve to be allowed. In view of the above discussion, we are of the view that the reasoning given by the learned judge is not in accordance with law and as such it is not sustainable and it has to be set aside. Both the original side appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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