9911796707
TMI Blog2012 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... in J.K. Agri Genetics. They however claimed, they did hold proxies, that were wrongfully rejected at the meeting of the shareholders. Even if the proxies were taken into account that would not have any remarkable increase in the shareholding pattern as we find from the record. As per the Scheme of Arrangement J.K. Genetics and Florence Alumina agreed to have re-alignment of business operation through demerger. The transferor company was listed at the Bombay Stock Exchange as we find from the record. J.K. Genetics was incorporated on May 25, 1993 whereas Florence Alumina was set up in March 2000. The transferor company claimed, they wanted to create focussed entity on the core business of "Seed Undertaking" and proposed re-alignment of business operation by transferring the "Seed Undertaking" of J.K. Genetics to Florence Alumina in exchange of share premium. They claimed that it would have a larger interest of both the companies and their shareholders. As per the scheme, "Seed Undertaking" was defined as all assets pertaining to research and development production marketing of hybrid seeds. The meeting passed the resolution in favour of the scheme by overwhelming majority save and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falia also filed affidavit as would appear from Page 618-645 of the paper book (Volume-III). He also raised similar objections like Chandak. He elaborated how illegalities were committed in holding of the meeting only to support the interest of the controlling block of shares. The company filed affidavit in reply dealing with the objections raised by respondent no.2. Separate affidavit was filed dealing with objection of respondent no.3 and respondent no.4 respectively. Altogether three affidavits were filed in reply. JUDGMENT AND ORDER IMPUGNED Upon hearing the rival contentions the learned single Judge dismissed the application. The basis of the judgment as we find on perusal was on two counts - i) The petitioners did not comply with the provisions of Section 81(1A) of the said Act of 1956. ii) The learned Judge dealt with the issue of irregularity committed in the meeting and held that even if sixteen proxies, that were rejected, were validly cast and forty one ballots relating to the missing attendance slips were credited to the lot of objector, he could not have defeated the scheme as it would be below the 3/4th majority present and voting in number and value. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sub-section 1 of Section 81 and when no resolution was passed if the members cast vote by show of hands or ballot in favour of the proposal exceed the vote cast against and the Central Government was satisfied on the application of the Board of Directors that the proposal was beneficial to the company. Section 189 would provide that a special resolution would require 3/4th majority of the members present and voted. Section 189(2)(C) would prescribe a special resolution to have votes in favour to the extent of not less than three times the number of the votes cast against the resolution by the members so present and voting. He referred to the Bombay Stock Exchange "no objection" as well as the approval of SEBI. According to Mr. Sarkar, neither the ratio decided in the case of Miheer H. Mafatlal (supra) nor Bedrock Ltd. (Supra) would apply in the instant case as erroneously relied on by His Lordship. Resuming argument on behalf of the appellant on the next day, Ms. Mousumi Bhattacharya took us to the decision in the case of Mafatlal (Supra) also reported in 1997 Volume-I Supreme Court Cases page-579 particularly, paragraph 29 and 40 to contend, the commercial wisdom of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh a scheme of arrangement that would obligate the transferor company to pay off the preference bonds by redeeming the same in phases. Such liability would continue till the date of proposal of the subsequent demerger. However, by the proposed demerger the transferee company would have the "Seed Undertaking" without liability of the transferor company to redeem the preference bonds. Such process was had without any reference being made to the Company Court that sanctioned the 2003 scheme. Hence, it was illegal and would violate the terms of the sanction granted earlier. Mr. Deb demonstrated that its shareholding along with the proxies, he held on the date of the meeting, would constitute 13.41% including personal holding for 7.2%. His personal holding to the extent of 7.2% would get reduced to insignificant minority to the extent of 3.75% in the transferor company and 2.73% in the transferee company. Mr. Deb was critical about the holding of the meeting. He referred to the minutes of the meeting prepared by the Court appointed Chairman who recorded the objection raised by Chandak in the meeting. However, when their records were produced the ballot papers by which Chandak exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that there should be separate meeting for separate classes that was not held in the instant case. Per contra, Mr. Sudipta Sarkar, learned senior counsel appearing for the appellant while giving reply contended that commercial wisdom of the shareholders must be preserved and the Court should not venture to find out reason behind the decision of the shareholders. On merits, Mr. Sarkar contended that merely because the company was having excess of income over expenditure it would not be sufficient to judge the need of the cash flow by converting the bonds into shares. It would depend upon various commercial aspects that could only be judged by the body of shareholders and the Court must preserve the same considering its sanctity. He contended, Order 41 Rule 33 of the Code of Civil Procedure would not allow the respondent to raise issues that was not the subject matter of the appeal. They would only be entitled to support the judgment and would not be authorized to question any of the findings of the learned Judge without preferring any appal or a cross-objection against the same. Dealing with the argument on Section 81(1A), Mr. Sarkar contended, no inward cash flow by the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to judiciously x-ray the scheme to find out any malicious intent contrary to public policy. To that extent, piercing of corporate veil, if required, is justified. In the instant case, the learned Judge rightly held that commercial wisdom could not be called in question. It is true and to some extent justified, when Mr. Deb would argue unfair dealings at the meeting. It would have been proper if such unpleasant things did not happen at the meeting. The learned Judge rightly held, it did not tilt the balance. The question would still remain, is it a fair scheme? The overwhelming majority of the shareholders approved the same. We are not competent to question such decision. Hence, our scope of enquiry comes in a very narrow campus. The earlier scheme of 2003 would provide discharge of liability through redemption of bonds. If those liabilities would still remain with the transferor as on the date of the sanction by the process and those bonds are transformed into shares in the transferor company the substantial chunk would go to the shareholders of the original transferor company who are common with the promoters of the transferor and transferee company. That would certainly tilt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l fairness would concede to the issue. He contended, if this Court would be of the view that a particular date should be fixed for discounting the company should not have any objection. In fact, he placed a chart before us giving different valuation on the discounting on various relevant dates. In our view, the company must adopt the best one that would help the minority shareholders including Chandak and Fofalia. This scheme should stand modified to such extent. The appeal would thus succeed in part and is allowed. The effective date of conversion should be the date being the effective date being the scheme being approved. The effect of conversion must not be "pre-merger". It should be "post-merger". We also hold, discounted value must be the best possible one, beneficial to the minority shareholders including Chandak and Fofalia and such date must be fixed by the company accordingly from the chart handed over in Court by Mr. Sarkar. We make it clear for removal of doubts, the conversion must take effect after the merger and not anterior to it. With these modifications the scheme is sanctioned. The application for sanction of the scheme is allowed with consequential reliefs. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
