Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (11) TMI 193 - ANDHRA PRADESH HIGH COURT

2015 (11) TMI 193 - ANDHRA PRADESH HIGH COURT - TMI - Amalgamation - scheme of arrangement - Held that:- 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 A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

acts and having regard to the reports submitted by the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad 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, withi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

14 - 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.245 of 2014 is filed by M/s Astrix Laboratories Limited, Hyderabad (for short the transferor company ) and Company Petition No.246 of 2014 is filed by M/s Mylan Laboratories Limited, Hyderabad (for short the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ty shares of ₹ 10/- each and ₹ 10,000/- divided into 1,000 Class-B equity shares of ₹ 10/-each; that its issued, subscribed and paid up capital is ₹ 4,52,60,000/-, which includes ₹ 4,52,50,000/- divided into 45,25,000 equity shares of ₹ 10/- each fully paid up and ₹ 10,000/- divided into 1,000 Class-B equity shares of ₹ 10/-each; and that its main objects, inter alia, are to manufacture, import, export, buy, sell, distribute, and deal in bulk drugs .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2; that its name was changed as Herren Drugs and Pharmaceuticals Limited on a fresh certificate of incorporation issued on 27.06.1994; that, later, its name was changed as Matrix Laboratories Limited on 21.03.2001 and subsequently, to M/s Mylan Laboratories Limited on 05.10.2011; that its authorized capital is ₹ 40 crores divided into 20,00,00,000 equity shares of ₹ 2/- each; that its issued, subscribed and paid up capital is ₹ 36,95,13,716/- divided into 18,47,56,858 equity sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to cash flow generated by the combined business which can be deployed more efficiently to fund growth opportunities, to further improve shareholder s value. 5. Benefit of operational synergies to the combined entity in areas such as raw material sourcing, product placement, marketing and sale promotions initiatives, freight optimization and logistics. 6 . Greater leverage in operations planning and process optimization and enhanced flexibility in product offerings. 7 . Cost savings are expected .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an Luxembourg 2 S.a.r.I. to an extent of 82.79% and 15.38% respectively, i.e., both of them together holding a total of 98.17% shares, and the remaining 1.83% shareholding is held by the minority shareholders; that as a part of this composite scheme of arrangement, the transferee company intends to cancel and extinguish the equity shares held by its minority shareholders by paying cash in lieu of equity shares held by them for the following reasons: 1. Transferee Company was listed on Bombay Sto .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ved numerous requests from the Minority Shareholders to provide an exit option by way of buyback of shares. The Composite Scheme of Arrangement provides an opportunity to the Minority Shareholders to liquidate their entire shareholding in respect 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 Sche .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f 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, dated 01.09.2014, has dispensed with the meeting of the shareholders of the transf .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ave unanimously voted in favour of the proposed scheme of arrangement. The transferee Company filed Company Application No.1067 of 2014 for convening the meetings of its equity shareholders and the unsecured creditors. This Court by order, dated 01.09.2014, appointed Sri K.N.Jwala, Senior Advocate, for convening the meetings of the equity shareholders and unsecured creditors on 17.10.2014 at 10.30 am and 2.30 pm, respectively, at Hotel Park Hyatt, Road No.2, Banjara Hills, Hyderabad. Accordingly .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arrangement. In another report, dated 30.10.2014, submitted by the Chairperson, it is inter alia stated that in pursuance of the advertisement published in two daily newspapers, 119 unsecured creditors in person, valued at ₹ 7,50,42,15,677/-, attended the meeting and all of them have unanimously voted in favour of the proposed composite scheme of arrangement. The petitioners have subsequently filed the present Company Petitions for approving the proposed composite scheme of arrangement. B .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rector 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 sta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

olders have filed Company Application Nos.1572 to 1575 of 2014 and 49, 50, 114 and 115 of 2015. For convenience, these shareholders are referred to as objectors . All the objectors, except one have attended the meeting and voted against the proposed composite scheme of arrangement. The objections raised by these objectors are two fold, viz., (1) that the Valuer to which the valuation of shares was assigned is not an independent one as, it was the advisor of one of the major shareholders of the t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rt needs a more closer and critical scrutiny by this Court in order to ensure payment of proper value for the shares held by the minority shareholders. He has taken this Court through the Director s report filed in the Company Application No.1574 of 2014 and also the Valuation report, dated 18.08.2014, of Price Waterhouse & Co., LLP and submitted that while the Director s report reflects healthy growth of the financial position of the transferee company, the Valuer while evaluating the share .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tment of an independent Valuer for making a fair valuation of the shares. Opposing the above submissions, Sri Iqbal Chagla, learned senior counsel appearing for Sri V.S.Raju, learned counsel for the petitioners, submitted that overwhelming majority of shareholders supported the proposed scheme of arrangement; that of 1.83% of the minority shareholders, 76% in value and 93% in number have voted in favour of the proposed scheme of arrangement; and that only 16 shareholders are opposing the propose .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t 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 jurisdic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and submitted that the Valuer has not applied the Net Asset Value approach for the reason that if the same is applied, the value of each share will come down to around ₹ 135/-. He has also invited this Court s attention to page-32 of the Valuation report, wherein the Valuer has given certain reasons for not considering the Net Asset Value approach for value analysis. I have carefully considered the submissions of learned counsel for the parties and perused the record. While considering th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erned to the compromise as the same would be in the realm of corporate and commercial wisdom of the parties concerned. It was further held therein that the Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority; that consequently, the Company Court s jurisdiction to that extent is peripheral and supervisory and not appellate and that the Court acts l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 manageable profit-basis method (the Earning Per Share Method) (2) The net worth method or the break value method, and (3) The market value method. So many imponderables enter the exercise of valuation of shares. M/s C.C. Chokshi & Co. considering all the relevant aspects and obviously keeping in view the accounting principles underlyin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the transferee-Company against five shares of the transferor-Company. But the difficulty arises only from the point of view of the transferee-Company shareholders. According to Shri Thakore the proper exchange ratio would be one share of the transferee-Company to six shares of the transferor-Company. It is difficult to appreciate this contention of the appellant. It has to be kept in view that the appellant never bothered to personally remain present in the meeting of equity shareholders for po .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ary expert opinion regarding the valuation of shares of transferor and transferee companies for supporting his ipse dixit that the correct ratio would be 6:1 so far as transferor and transferee companies were concerned. Shri Shanti Bhushan, learned Senior Counsel for the appellant, having realized this difficulty submitted that at least these proceedings are continuation of proceedings before the High Court, therefore, this Court may now in order to satisfy itself send for the opinion of an expe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or 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 C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e transferor-Company. As stated earlier it was a sort of a package duly considering all imponderables and implicit factors which the shareholders had to keep in view for deciding whether to approve the Scheme of Amalgamation or not. The exchange ratio was only one of the items. They thought it fit in their commercial wisdom to accept the Scheme as a whole along with the exchange ratio presumably in expectation of better profits in years to come when the amalgamated companies would operate and wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed Senior Counsel for the appellant, in this connection invited our attention to the observation of the Division Bench in its judgment at page 375 wherein it has been observed that if one were to examine the exactitude of exchange ratio that may be offered fairly on the arithmetic scale by taking into consideration various details, there is some force in what were suggested by Mr B.R. Shah on behalf of the appellant. However, keeping in view the scope of enquiry which the Court is required to un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

interest of their class as a whole to accept even a less favourable ratio considering other benefits that may offset such less favourable ratio once an amalgamation 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 connec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re 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 before it was representing only 2% dissenting shareholders and his objection was almost a voice in the wilderness, which did not appeal to the maj .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s, that the Court should nevertheless refrain from embarking on an exercise of evaluation on its own to test the correctness of the figures reached by the experts; that the Court has to take note of the fact that its role in according approval of the scheme of amalgamation under Section 394 of the Act is nothing more than a supervisory role. The Division Bench has compared the jurisdiction of the Company Court closely with the judicial review of administrative action, where the constitutional Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aws. The Court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be subjected to inspection by the Court. To do so, is incompetent and improper and therefore, out of bounds. Nevertheless, the broad parameters of fairness in administration, bona fides in action, and the fundamental rules of reasonable management of public bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 sub .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of liquidation. Hence, this value may not be a good indicator of the realizable value as it merely reflects historic costs and requires adjustments on account of estimated disposal costs and possible shortfall or appreciation in realization of both fixed assets and net current assets. In para-6(e) of the counter-affidavit filed on behalf of the transferee company in Company Application Nos.1574 and 1575 of 2014, its Company Secretary and General Manager (Legal) has stated the following reasons f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent No.1-Company and the independent Valuer has adopted globally acceptable valuation methodologies i.e., Income Approach and Market Approach. The independent Valuer also took cognizance of the fact that the net asset approach be eliminated while arriving at the fair value as it would have resulted in the value being less than the present fair value, i.e., INR 387 per share. Respondent No.1-company wishes to also clarify that a high degree of expertise was exercised by the independent Valuer whi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

set Value approach is taken into consideration, each share value would have come down to ₹ 135/- which will be detrimental to the non-promoter shareholders. As held by the Apex Court, this Court has no expertise in judging whether the Valuation report is correct or not. So long as the Court is satisfied that the 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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

algamation of Agila Specialties Private Limited ( ASPL ) and its subsidiary with your company with effect from December 6, 2013. The net profit for the year also showed an impressive growth of 62.63% on a standalone basis, while on a consolidated basis, the increase was 130.17% over the previous year. During the year, as part of group restructuring exercise, your Company has sold Matrix Laboratories (Singapore) Pte Limited along with its subsidiaries for a consideration of ₹ 3,495.29 milli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Management. We understand from the Management that the growth in the contract manufacturing revenues is largely dependant on the Mylan group strategy to scaleup/ utilize the contract manufacturing activities of the Company, as determined by the global production planning team (which is in-turn based on market dynamics and availability of suitable production capacities). As per Management, ramp-up in the production of Gx FDFs has been scaled down in CY 2014, owing to slow down in the global/US .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pany 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dness and correctness of the valuation report, merely based on presumptions and conjectures. As regards the objection that the Valuer is not an independent Valuer, the objector in Company Application No.115 of 2014 has raised the following pleading: The applicant further submits that the PwC has not disclosed any conflict of interest that it has in respect of the valuation carried out by it. The applicant, with great responsibility submits that PwC has been a tax consultant and has represented t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(f) and 11(g) of the application, respondent No.1/Transferee company submits that the independent Valuer i.e., Price Waterhouse & Co. LLP., Gurgaon is not related to respondent No.1/Transferee Company nor to Astrix Laboratories Limited (Transferor Company). Furthermore, respondent No.1/Trasnsferee Company also clarifies that Price Waterhouse & Co. LLP., Gurgaon is neither the Statutory Auditor/Tax Auditor/Tax Consultant of respondent No.1/Transferee Company/Mylan Luxembourg S.a.r.I/MP La .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. I have no reason to reject the plea of the petitioners to the effect that the Valuer, viz., Price Waterhouse & Co., LLP is neither related to the transferee company nor the transferor company nor the same is the statutory auditor/tax auditor/tax consultant of the transferee company or its major shareholders- MP Laboratories Mauritius Limited and Mylan Luxembourg 2 S.a.r.I. Assuming that the Valuer has any connection with the transferee company or its major shareholders, whether the same by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version