TMI Blog2015 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... rabad and the Official Liquidator, this Court is of the opinion that the proposed composite scheme of arrangement is in conformity with the provisions of the Act and the same does not in any manner affect the interests of any of the stake holders including the public. Therefore, the proposed composite scheme of arrangement is approved and the petitioners shall, within 30 days from the date of receipt of a copy of this order, cause a certified copy of this order to be delivered to the Registrar of Companies, Telangana and Andhra Pradesh, Hyderabad for registration and take all other consequential actions in pursuance of the approval of the composite scheme of arrangement. - Company Application Nos.1572 & 1573 of 2014, Company Petition No.245 of 2014, Company Application Nos.1574 and 1575 of 2014, and 49, 50, 114 and 115 of 2015, COMPANY PETITION No.246 of 2014 - - - Dated:- 2-3-2015 - SRI C.V.NAGARJUNA REDDY, JJ. For The Petitioner : Sri Iqbal Chagla, senior counsel For The Respondent : Sri B.Narayana Reddy Assistant Solicitor General For The Official Liquidator: Sri M.Anil Kumar For The Objectors: Sri V.Hariharan COMMON ORDER: Company Petition No.24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pharmaceuticals, fine pharmaceuticals, chemicals, fine chemicals, enzmes, anti tuberculosis agents ayurvedic, unani and cosmetics, etc. That under the proposed scheme of arrangement, the transferor company will be amalgamated into the transferee company and that this arrangement is to derive the following benefits: 1. The Transferee Company, a public company limited by shares, is a subsidiary of MP Laboratories (Mauritius) Limited and is engaged in the manufacture of Active Pharmaceutical Ingredients ( API ) and Finished Dosage Formulations ( FDF ). The Transferor Company, a subsidiary of the Transferee Company, is a developer, manufacturer and marketer of highquality Antiretroviral ( ARV ). The consolidation and amalgamation of the Transferor Company with the Transferee Company shall result into synergies in the Transferee Company. 2. The Transferor Company s capabilities, product portfolio and pipeline complement the Transferee Company s existing API platform. The amalgamation will strengthen the foothold of the Transferee Company in the ARV API segment. 3 . Greater integration, financial strength and flexibility for the Transferee Company, which will improve t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of equity shares held by them for cash. 3 . The Composite Scheme of Arrangement provides for greater level of transparency and openness and secures full involvement of shareholders of MLL. All the Minority Shareholders of MLL would benefit from the Scheme in the same proportion as his/her/its share in the capital of MLL. Both the petitioners have given the details of the proposed composite scheme of arrangement, particular reference to which is not necessary, except to the extent relating to the valuation of the shares, which alone is in dispute in these two cases. It is stated in Company Petition No.246 of 2014 that the minority shareholders shall be paid a sum of INR 387 per equity share, representing an amount not less than the fair value of the share of the transferee company, as determined by an independent Valuer. Both the petitioners have pleaded that their respective Boards of Directors have approved the proposed scheme of arrangement. The transferor Company filed Company Application No.1066 of 2014 seeking to dispense with the holding of the meeting of its shareholders and to convene the meeting of the unsecured creditors. This Court by order, date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad, has filed his report, so also the Official Liquidator attached to this Court. In his report, dated 19.12.2014, the Regional Director has stated that in pursuance of General Circular No.1/2014, dated 15.01.2014, issued by the Ministry of Corporate Affairs, New Delhi, comments from the Income Tax Department have been called for, vide letter, dated 24.11.2014, and that no comments/objections were received, by his office, till the date of filing of the report. He has further stated that the Registrar of Companies, Telangana and Andhra Pradesh, Hyderabad, has reported that the transferor company is regular in filing the statutory returns; that the transferee company has filed the statutory returns up to the year 2013; and that no complaints, no investigations and no inspections are pending against the affairs of both the companies. The Official Liquidator also in his report, dated 23.12.2014, has stated that the affairs of the transferor company have not been conducted in a manner prejudicial to the interests of the members or to the public interest. In response to the publication of notice, five indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have voted in favour of the proposed scheme of arrangement; and that only 16 shareholders are opposing the proposed scheme of arrangement only on the ground of alleged improper valuation of shares. He has further submitted that Price Waterhouse Co., LLP, which has valued the shares is a limited liability partnership concern based at Gurgaon, India and that it has not advised Mylan Luxembourg at any point of time. Alternatively, he has submitted that the auditor, which has submitted Valuation report, being submitted by a professional auditor, no bias can be presumed merely on account of the fact that it has advised one of the share holders of the transferee company in the absence of any defects and apparent shortcomings existing in the report. He has referred to and relied upon the judgment of the Apex Court in Miheer H.Mafatlal Vs. Mafatlal Industries Ltd, a judgment of a Division Bench of this Court in Vadlamudi Rama Rao Vs. M/s Asian Coffee Ltd and a judgment of a Division Bench of Bombay High Court in Sandvik Asia Ltd Vs. Bharat Kumar Padamsi in support of his submission that the jurisdiction of this Court under Sections 391 and 394 of the Act is supervisory and not appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned works very unfairly and unreasonably to them. As per the proposed Scheme 5 equity shares of the transferor-Company are to be exchanged for 2 equity shares of the transferee-Company. So far as this contention is concerned it has to be kept in view that before formulating the proposed scheme of compromise and amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors the appellant himself was a member. M/s C.C. Chokshi Co., a reputed firm of chartered accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once be stated that valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy. Pennington in his Principles of Company Law mentions four factors which had to be kept in mind in the valuation of shares: (1) Capital Cover, (2) Yield, (3) Earning Capacity, and (4) Marketability. For arriving at the fair value of share, three well-known methods are applied: (1) The man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounding this theory of correct exchange ratio had nothing to offer in support of his contention both before the learned Single Judge as well as before the High Court. It has to be kept in view that the matter was fiercely contested on all permissible points before the learned Single Judge. The proceedings were pending before the High Court for more than two years from 8-2-1994 till 12-7-1996 when the Division Bench disposed of the appeal. For all these years neither before the learned Single Judge nor before the High Court in appeal the appellant thought it fit to request the Court to either call for the report of any other expert on valuation of shares nor did he himself get such report for placing for consideration of the Court in support of his supposed better ratio. It has also to be kept in view that which exchange ratio is better is in the realm of commercial decision of well-informed equity shareholders. It is not for the Court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgamation goes through. We wholly concur with this view. In this connection we may also refer to a decision of Maugham, J., in Hoare Co. (No. 2) Re, case5 wherein it was laid down that where statutory majority had accepted the offer the onus must rest on the applicants to satisfy the court that the price offered is unfair. In this connection the following pertinent observations were made by the learned Judge: The other conclusion I draw is this the court ought to regard the scheme as a fair one inasmuch as it seems to me impossible to suppose that the court, in the absence of very strong grounds, is to be entitled to set up its own view of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. Accordingly, without expressing a final opinion on the matter, because there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that, notwithstanding the views of a very large majority of shareholders, the scheme is unfair. The Court has also taken into consideration, the fact that the appellant befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been succinctly laid down by the Supreme Court in Mafatlal Industries (supra). An identical view was taken by a Division Bench of the Bombay High Court in Sandvik Asia Ltd (supra). The Bench has copiously quoted several passages from the judgment in British and American Trustee Finance Corpn. Vs. Couper {(1894) A.C. 399}. Applying the ratio laid down by the various Courts, including the Apex Court, discussed above, to the facts of the present case, this Court does not find any serious anomalies in the Valuation report. Perhaps, the objection raised by the objectors that the Valuer has not taken into consideration the Net Asset Value approach while valuing the shares, appears on a superficial consideration, as somewhat serious. As submitted by learned senior counsel appearing for the petitioners, the Valuer himself has set out the reason for omitting the said criterion. At page-32 of the Valuation report, it is stated as under: Given the purpose of the Value Analysis we have not considered the Net Asset Value Approach for Value analysis. The value under the approach, particularly when this approximates the realizable value, is often used as an estimate of brea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed parameters for valuation are taken into consideration, it will not undertake a roving enquiry or venture into fishing expedition with a view to finding out the defects or lacunae, if any, in the Valuation report. The Valuer as well as the transferee company have given reasons for adopting the criteria of Income approach and Market approach. Except pointing out that the third criterion referred to above has not been applied, learned counsel for the objectors failed to further demonstrate as to whether the same has resulted in any prejudice being caused to his clients. The Valuer, being an expert in the field, is the best judge to adopt such criteria as he deems fit and proper for valuing the shares and it is no part of the duty of this Court to make a deep probe into the methodology adopted by the Valuer. Coming to the submission of learned counsel for the objectors that there is variation in the approach between the Directors on one side and the Valuer on the other while valuing the shares, on a careful consideration of this submission, I do not find any merit whatsoever in the same. In the Director s report pertaining to the financial performance of the transfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year 2014 was mentioned. Be that as it may, it is not the pleaded case of the objectors that the transferee Company has manipulated the turn over figures or profit figures in order to down play the performance of the company with a view to fix lower value for the shares of the minority shareholders. This Court cannot presume any such conduct on the part of the transferee company unless a strong case in this regard is made out. As rightly submitted by learned senior counsel for the petitioners the objectors have failed to file the opinion of an independent expert with reference to the Valuation report of Price Waterhouse Co., LLP. The objectors have only tried to fish out the so-called deficiencies from the Valuation report. No convincing reason has been put forth by learned counsel for the objectors for not obtaining an independent expert s opinion regarding the correctness or otherwise of the Valuation report submitted by Price Waterhouse Co. LLP. Therefore, this Court cannot be persuaded to accept the plea of the objectors, unsupported by any material, which would impeach the soundness and correctness of the valuation report, merely based on presumptions and conjectur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether the same by itself throws any cloud on the Valuation report is the next question to be considered. When a similar objection was raised before the Division Bench of this Court in Vadlamudi Rama Rao (supra), the Bench has unhesitatingly repelled the same. In that case, it was pointed out that M.N.Raiji Co. are the statutory auditors of the Consolidated Coffee Limited (transferee Company) and A.F.Ferguson Co. are the statutory auditors of their associated Companies by name TISCO and ANZ Bank Ltd, which has approved the valuation done by the aforesaid Chartered Accountants. While agreeing with the view of the learned single Judge, the Division Bench held that the mere fact that one of the Chartered Accountants/Valuers is a statutory auditor of the transferee company does not lead to a reasonable inference that the choice of such Valuer was stage-managed by Tata Tea Ltd and a statutory auditor has an independent role to play if he has to effectively perform his part. That the imputations of bias cannot lightly be made against a professional Chartered Accountant who is expected to discharge the duties according to the obligations cast on him by the Statute and the wel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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