TMI Blog2016 (10) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... holder value and 99.952% of unsecured creditors. The option to the equity shareholder of the transferor company to swap their shares for the shares of the Tranferor Company--a listed one--opens an exit to the minority shareholder of the Transferor Company who have been seeking an exit for about a decade. There is also no allegation of the inadequacy of consideration for the transfer of the telecom assets of the transferor company constituted of each of ₹ 5/- face value being ₹ 27.65 crores shares and Indian Rupees equivalent of upto US $300 Million under the EOD subject to its terms. The payment of Indian Rupees equivalent of upto US $300 Million under the EOD is subject to approval of DoT for contiguity and combined use of spectrum and these facts have been set put in report dated 30-10-2015 prepared by SR Batliboi & Co. LLP. It is evident from the scheme in issue that both EOD and the Merger agreement have been referred in the scheme itself. The first being between three parties and the second being between eleven parties, to provide for the overall frame work for transfer of business undertaking of the transferor company to the transferee company. The multiparty d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file the sanction order of this court with the Registrar of Companies within a period of thirty days from the date of approval from the Department of Telecommunications for transfer/ merger of licenses/ authorizations as set out in the scheme Annexure-A. vi) The order in prescribed Form No.42 be issued separately by the Registrar as per Rule 84 of the companies (court) Rules, 1959 after the approval by the Department of Telecommunication for transfer/ merger of licenses. vii) The Official Liquidator shall be entitled to ₹ 50,000/- from the Transferor company towards miscellaneous expenses. - S.B. Company Petition No.13, 76/2016, S.B. Company Miscellaneous Application No.76, 124 /2016, , Miscellaneous Application No.17415/2016 (Inward), Miscellaneous Application No.16886/2016 (Inward), Miscellaneous Application No.16978/2016 (Inward) - - - Dated:- 30-9-2016 - Alok Sharma, J. Mr. P. Chidambram, Senior Advocate and Mr. Parag Tripathi, Senior Advocate Mr. Abhinav Vashistha, Senior Advocate with Mr. Anirudh Das , Mr. Anuroop Singhi ] for the petitioner companies. Mr. Manu Krishnan, Mr. Saurabh Jain, Mr. Hemant Sharma, Mr. Kushagra Sharma, Mr. O.P. Pareek Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pur and Delhi Edition. Copies of notices published in news papers on 26-4-2016 have been placed before this court. The Transferor company was incorporated under the Act of 1956 on 20-4-1995 in the name of Telelink Network (India) Limited. The name was thereafter changed to Shyam Telelink Limited and amended certificate of Incorporation dated 3-4-1998 was issued by the Registrar of Company Delhi and Haryana. On 26- 8-2002 the registered office of the Transferor Company was from shifted Delhi to Rajasthan and a certificate of Registration issued afresh by the Registrar of Companies, Jaipur Rajasthan. The name of the Transferor Company was thereafter changed to M/s. Sistema Shyam Teleservices Limited on 22-1-2009. A fresh certificate of incorporation by the Registrar of Companies, Jaipur followed. The Transferor Company is inter alia engaged in the business of telecom services and is one of the telecom service provider in the country. The scheme of arrangement approved by the shareholders and unsecured creditors of which sanction is sought provides for transfer and vesting of the Transferred undertaking defined therein (hereinafter `the telecom business') from the Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of belatedly filing an opinion of a chartered accountant. Objections of the Regional Director to the sanction of the scheme have been set out in a more focused manner by Mr. R.D. Rastogi in his arguments as also submitted by way of written submissions. Mr. R.D. Rastogi, ASG submitted that the scheme of arrangement is incomplete and should not be sanctioned for not having a fixed appointed date and instead providing that it would be the effective date. It was submitted that the effective date itself has been defined to mean opening of business hours of 7 th business day from the last date on which the pre- conditions specified in clause 18 of the scheme of arrangement are complied with. And resultantly with a fluid appointed date valuation of the telecom business of the transferor company is inherently adhoc since it is not at all possible to ascertain the assets and liability of the telecom business which is to be transferred under the scheme at a future date particularly when it is to be transferred as a ongoing concern. It was submitted that a fixed appointed date in the scheme was essential and relevant for the purpose of valuation of the telecom business and determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould become null and void, albeit subject to further Extension by the Board of Directors or their authorized representatives. In that context he submitted that the letter of agreement dated 23-6-2016 signed by authorized representatives of the two companies (namely Mr. Sergey Savechanko and Mr. Amit Mathur) which have been placed on record on 29-7-2016 cannot be termed as a resolution for reason of non compliance with Section 117 of the Act of 1956 as well as clause 22(16)(i) read with rule 24 of the Company's (Management and Administration) Rules, 2014. The submission therefore is that the agreed duration for approval of the scheme having come to an end and no valid steps required in law for extension of the term having taken, sanction of the scheme of arrangement ought not be granted by this court. Mr. Rastogi further submitted that the scheme of arrangement is also deserving of rejection for reason of suppression of material facts and documents as mandated under the proviso to Section 391(2) of the Act of 1956. It was submitted that Earn Out Deed (hereinafter `the EOD') referred to in the scheme as the deed entered into between transferor company, the transferee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatorily requiring disclosure in the absence of which the statutory prohibition of the sanction of the scheme obtains. It was submitted that the merger agreement appears to be a relevant document absence of which raises reasonable doubts over the bonafides of the Transferor Company. Mr. R.D. Rastogi, ASG relied on the judgment in case of Spice Communication Limited [(2011)165 Company Cases 334 (Delhi)] wherein the Delhi High court held that the words material facts in the proviso to Section 391(2) of the Act of 1956 include all material facts relating to the affairs of the company. Reliance was placed by Mr. R.D. Rastogi on the judgment in case of M/s. Integrated finance company Limited Vs. Reserve bank of India [2013(179) Company Cases 390] and in the case of Mihir H. Mafatlal (supra) to submit that the court is not a mere rubber stamp for sanctioning the scheme approved by the statutory majority of shareholders and creditors at the court convened meeting and it is for the court to satisfy itself that all terms of the arrangement were conveyed to the shareholders and creditors of the company explaining this effect enable them to arrive at a proper decision for appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of profit and loss on disposal of fixed assets shall be entered into the profit and loss account. It was submitted that the accounting sleight at hand sought to be resorted to by the transferor company under clause 11.1.2 of the scheme of arrangement dealing with accounting treatment of the monies received in the books of account of the transferor company, is blatant financial jugglery deliberately resorted to in order to escape/ circumvent tax liability under cover of the court's sanction as would otherwise accrue to the Transferor Company in the event of excess of funds received by the transferor company pursuant to payments under the terms of the EOD were to be credited to its profit and loss account. It was submitted that as monies under the EOD to be received by the transferor company can be upto Indian Rupees equivalent of US $300 Million (1950 crores) in the ordinary course, on appropriation being lawfully made to the profit and loss account, it would be liable to income tax on the transaction to an extent of 30% thereof i.e. approximately ₹ 690 crores. This accounting jugglery/ fraud should not be permitted under the aegis of the court by granting sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. An appointed date is only a date for identification of assets and liabilities that would be transferred and it can be any date--even an uncertain one in the future. The Sections 391 to 394 of the Act of 1956 which give to the company court is not limited except on the issue of statutory compliances, public interest and the justness, fairness and reasonable of the scheme as a corporate/ commercial document on the test of a prudent businessman. Mr. P. Chidambram submitted that the filing of annual accounts on 31-3-2015 by the transferor company with the first motion for convening the meeting of the equity shareholders and unsecured creditors of the Transferor Company has no corelation with the appointed date under the scheme. Mr. P. Chidambram further submitted that the reference to the earlier Company Petition No.23/2005 is quite irrelevant as all matters in respect thereto have came to a rest with the passing of the order dated 7-8-2015 in DB Special Appeal (Civil) No.9/2015 by the Division Bench of this court which has attained finality. A set of shareholders different from the appellants in DB Special (Civil) Appeal No.9/2015 did indeed file proceedings under Section 397- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es would not attract the transaction being in Indian currency. And the observations of the Regional Director in that respect are mechanical if not biased on a clear misunderstanding. It was submitted that the transferor company in any event undertakes before this court that any payments to the extent received under the EOD shall be in accordance with law and subject to all extant laws and compliant with all regulations. It was then submitted that the concerns of the Regional Director for the only preference equity shareholder is patronising as on the preference shareholders' own consent in writing, the scheme does not provide for any consideration to him. On the Regional Director's concerns with regard to those existing shareholders of the Transferor Company, who do not exercise the option of swapping their shares for that of the transferee company. Mr. P. Chidambram submitted that such shareholders would obviously continue with the Transferor company with all rights of dividends in its remainder businesses and the benefits of Indian Rupee equivalent of upto US $300 Million receivable from the Transferee company in terms of the EOD. Mr. Chidambram addressing the allegati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the transferred undertaking (telecom business) shall be transferred and vested in the transferee company along with intellectual property rights as has been clearly defined in the scheme. With regard to third party consents in respect of the transferor company's contracts and agreements, the objections of the Registrar of Companies have been stated to be again misconceived. It was submitted that the issue of third party consent and of transfer/ assignment/ novation of contracts would be dealt with in terms of clause 6 of the scheme after the sanction thereof by this court. In response to the objections of the Registrar of Companies with regard to reduction of share capital, Mr. Chidambram submitted that the objections are wholly unwarranted, as subsequent to exercise of the swap options by the equity shareholders of the Transferor Company as provided in clause 9.7 of the scheme the paid up equity share capital of the transferor company would be reduced by number of shares which stand exchanged for the equity shares of the transferor company. The resultant reduction in capital of the transferor company is an integral part of the scheme which has been duly approved by the Equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty shareholders which warrants no interference by this court in the exercise of its supervisory powers under Section 391-394 of the Act of 1956. Mr. P. Chidambram further submitted that the Income Tax Department pursuant to communication of the scheme to it by the Regional Director has not furnished any comment on the scheme and thus in terms of Circular No.1/2014 dated 15-1-2014 under the hand of Deputy Director, Ministry of Corporate Affairs, Government of India, there is a presumption that the Income Tax Department has no objection to the scheme. Mr. P. Chidambram emphatically submitted that the objections of the Regional Director based on a speculative assertion of the scheme being an instrument of tax avoidance is in excess of his authority and in the cross hairs of the directions of his administrative authority but in any event the scheme does not seek any determination or conferment of any right vis-a-vis Income Tax Department. The Income Tax Department would be free to scrutinise the effect of the scheme sanctioned and take proceedings qua any income tax liability arising therefrom, vis- a-vis the Transferor company which in turn would be free to respond as advised. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders under Section 393(1) of the Act of 1956 were disclosed to enable them to take a considered and educated view of the scheme of arrangement. The EOD is not a material fact within Section 391(2) of the Act of 1956. The Transferor company is not seeking sanction of EOD which is a commercial document between the parties entitled to confidentiality from this court. So too the merger agreement. Both these documents are matters of pure contract inter-parties of Section 391(2) does not require nor can require disclosure of. The shareholders were aware both fo the EOD and the Merger Agreement which could well detailed in the explanatory statement to the notice under Section 391(b) but did not require disclosure thereof. It was understood that the EOD was a part of consideration for transfer of the telecom assets of the Transferor Company with contingent future, payments of Indian Rupees equivalent of US $300 Million. The value of telecom business undertaking of the transferor company has been determined at ₹ 21,156 Million by a well reputed accounting company i.e. M/s. S.R. Batliboy Co. LLP and in view of liabilities of transferor company, It was then submitted that valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This fact has been clearly set out in the valuation report prepared by S.R. Batliboi Co. LLP part of the explanatory statement with the notice for the court convened meeting of the equity shareholders and unsecured creditors. The EOD and Merger Agreement (MA) have been disclosed in the scheme of arrangement. The EOD is an agreement between three parties while the MA is between eleven parties for the transfer, vesting of the telecom business undertaking with the Transferee Company. The said documents are commercial in nature, fully confidential and the parties thereto are bound by the confidentiality clauses therein, consequent to which aside of not being relevant facts within the meaning of the words in the proviso to Section 391(2) of the Act of 1956, the necessarily required to be kept confidential for commercial reasons. It was submitted that in any event payment of Indian Rupees equivalent of upto US $300 Million in terms of the EOD if at all affects only the shareholders of the transferee company who in fact have approved the scheme which would come for sanction before the Mumbai High Court, within whose jurisdiction the transferee company is situate. It was submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in the aforesaid circumstances the telecom undertaking of the Transferor company as a going concern on such effective date also the appointed date shall stand transferred and vested in the transferee company. Only after such approvals the scheme shall become effective on filing the orders of the High Court, before the jurisdictional Registrar of Companies. With regard to allegation of the Regional Director that the transferor company has violated the provisions of Section 67(3) of the Act of 1956 with respect to rights issue made in the year 2011, it was submitted that the rights issue was pursuant to the letter of offer dated 3-2-2011 and allotment thereon was made on 25-3-2011; Return of allotment following the rights issue was filed with the Ministry of Corporate Affairs on 25-3-2011 without any objection thereto till date. Yet the objection has now oddly been raised on a second wind. It was submitted that albeit Section 56 of the Act of 1956 details matters to be stated and reports to be set out in a prospectus. However, Section 56(5) of the Act of 1956 provides that Section 56 shall not apply to the issue to existing members, of a company of a prospectus or form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at its meeting of 30-10-2015 could not have considered the EOD and the Merger Agreement dated 2-11-2015 at it purported to do evidencing the very initiation of the scheme being fraudulent. and (vi) that the scheme is now infructuous in view of it not being sanctioned by this court prior to 30-6-2016 till when in terms of clause 19.2 of the scheme, it was operational. Part-II of the objections can be said to be with regard to the alleged failure of the Transferor company to disclose the alleged material facts such as EOD and Merger Agreement both dated 2-11-2015 purportedly entailing a statutorily mandated rejection of the scheme in terms of proviso to Section 391(2) of the Act of 1956, and Part-III of the objections to the scheme pertains to the alleged evasion of tax and public detriment in view of the provisions in the scheme with regard to the treatment of the amount upto Indian Rupees equivalent of US $300 Million receivable under the EOD being lodged in the general reserve account of the Transferor company when as per the alleged extant generally accepted accounting principles it ought to have been booked in the profit and loss account of the Transferor company entailing a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company choosing if at all to exercise their option after being duly notified within the time set out the scheme by the transferor company subsequent to allotment of 27.65 crore new equity shares being issued by the transferee company as part of the consideration for transfer of the telecom business to it. Mr. P. Chidambram further submitted on instructions that his statement may also be recorded that at that the Board of Directors of the Transferor company will constitute a Committee which would consolidate all the fractional share entitlements and distribute the proceed thereof to the entitled shareholders on proportionate basis. Hence in view of the statement, which is hereunder made a part of the sanction of the scheme it is directed that within 90 days of the last date of allotment of shares in the transferee company to the swap shareholders all fractional share entitlements be consolidated and proceeds thereof be distributed to the entitled shareholders on proportionate basis. I am also of the considered view that the belated objections qua that valuation report relating to the transfer allegedly being incomplete and hence in the teeth of Section 393(1)(a) of the Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The sanction of the scheme can thus always be subject to its validity being extended by the Transferor and transferee company in terms of clause 19.2 thereof. The objection of the Regional Director on this count is also thus liable to be rejected. The objection with regard to the merger agreement and the EOD not being before the Board of Directors of the Transferor company at the meeting on 30-10-2015 is absolutely misplaced and based on an apparent misreading of the said resolution. The Board resolution dated 30-10-2015 does not state that a signed copy of the EOD and the Merger Agreement was before it. It merely approved the merger agreement and EOD amongst other documents/ deeds and authorised Mr. Sergey Savchenko, whole time director (designated as CEO of the Transferor company) to inter alia sign the documents referred to in the resolution including the EOD and the Merger agreement. It was in pursuance to the authority conferred by the Board on Sergey Savchenko that he subsequently signed the EOD and merger agreement dated 2-11-2015. The aforesaid objection is therefore without merit and rejected. As far as the objection of the Regional Director and contention based ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y inter alia allots or agrees to allot any shares of the company with a view to all or any of those shares being offered for sale to the public, any document by which the offer for sale is made shall, for all purposes, be deemed to be a prospectus issued by the company. Thus Mr. P. Chidambram is prima facie right in his contention that assuming that to the rights issue of 2011 at the instance of the Transferor company attracted the Act of 1956 and it was required to issue prospectus; the letter of offer which was issued by the company to its members qua the rights share issued would be a deemed prospectus in terms of Section 64 of the Act of 1956. Thus Section 56 thereof in turn was not applicable to the rights issue of the Transferor company. Be as it may, I am of the considered view that in any event for considering the sanction of the scheme of arrangement within the supervisory jurisdiction of this Court, it is not required that the objection with regard to alleged non-compliance with Section 67(3) of the Act of 1956 in 2011 needs to be adjudicated for the reason that the ROC would be free to pursue the Transferor company on this count if so advised with the transferee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which disclosure is mandatorily required under the proviso to Section 391(2) of the Act of 1956 are not stand alone. They are followed by the words such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 251. And thereafter the said words are again immediately followed by the words and the like . No doubt the words such as have been interpreted by the Apex Court in several decided cases as being illustrative in nature and so does the legal position obtain. However a situation where the words and the like have immediately followed the words such as indeed illustrative words is required to be considered in the present case. The words and the like , in my view opinion are words of limitation on the immediately preceding illustrations and this would confine the disclosure of material facts about the affair of the company only to matters akin (like) to disclosing of the latest financial position of the company, the latest auditor's report of the accounts of the company and the pendency of any investigation proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whether an inspection under Section 209A of the Act of 1956 against the company seeking sanction of the court for its scheme was a material fact within the language of proviso to Section 391(2) of the Act of 1956 and was required to be disclosed. The Court held it was so is as much as if in the course of inspection under Section 209A of the act of 1956 against the company if anything objectionable or fraudulent about the conduct of its affairs was found it would have been the foundation for an investigation under Section 235 and 231 of the Act of 1956. Two aspects are thus apparent from the Court's holding i.e. (i) Statutory proceedings, such as an inspection, underway with potential to entail investigation under Section 235 to 251 of the Act of 1956 should be disclosed when a scheme of arrangement under Section 391 to 394 of the Act of 1956 is entered into between the concerned stake holders of the company in question and the sanction of the court thereto sought and (ii) such alleged material facts in issue not disclosed should having a direct bearing on the scheme of arrangements of which sanction from the court is sought. Importantly the Apex Court did not hold that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f notice of the scheme it would not be right to hold that the explanatory statement was not proper or that the resolutions at the court convened meetings not legally passed. Indeed either the EOD and MA were not put before the shareholders and unsecured creditors, this court and even the Regional Director, despite his application therefor. The EOD is admittedly a part consideration for transfer of telecom business of the Transferor company besides allotment of 27.65 crore shares at face value of ₹ 5 by the Transferee company to Transferor Company. The EOD is not a bipartite agreement between the Tranferor company and the Transferee company alone, but also includes a third party i.e. STA Capital LLC. The merger agreement is an agreement between eleven entities including the Transferor and Transferee companies. Defence of confidentiality of the two agreements has been set up by the Transferor company as the reason for non disclosure, aside of contending that contents of the two agreements do not constitute material facts within the words as occurring in the proviso to Section 391(2) of the Act of 1956 for the reason that they do not relate either to financial position of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artial and incomplete reading of clause 11.1.2 of the scheme. The said clause does indeed in the first instance propose that excess of the value of net assets (i.e. value of assets as reduced by value of liabilities which have been transferred pursuant to the scheme) over the value of consideration received by transferor company would be appropriated, to begin with the securities premium account and then the general reserves and only subsequent to appropriations aforesaid it would be further adjusted against the statement of profit and loss of the transferor company. But immediately following the proposed treatment of money received as consideration for the transfer of the telecom business, clause 11.1.2 itself categorically provides in the alternative that the treatment in respect of monies received under the EOD will be given as per the applicable law in force on the effective date of the scheme. It is thus quite clear that the scheme does not necessarily warrant an immutable lodgement of monies received under the EOD in the general reserve account but leaves it overridingly to the then extant law applicable to the transaction and obligation arising thereon. Important to note is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed the objection to the scheme being sanctioned alleging that evasion of tax of upto ₹ 690 crores would result by the Transferor company if the scheme were sanctioned. Mr. R.D. Rastogi has also relied on the judgment of this court in the case of Uma Enterprises (supra) to submit that the scheme in the instant case being a mechanism for evading tax by providing for lodgement of the amount to be received under the EOD in general reserve and not the profit and loss account of the Transferor company where it would be taxable at the corporate income tax at the rate of 30% contrary to the generally accepted accounting principles, be rejected. That objection based on alleged evasion of tax in the manner alleged however is a non sequitur in view of clause 9.7 of the scheme itself providing that in the alternative moneys received from the Transfer of the telecom business to the Transferee company would be subject to all extant laws at the relevant time. And inevitably that would also include extant Income Tax Laws. Mr. P. Chidambram, Senior Advocate, appearing for the Transferor Company has also conceded that this court can direct that the sanction of the scheme would not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's 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 in the proviso to Section 391(2) of the Act of 1956 would entail redundancy to the words and the like . Beside of the above, it is indeed true that in terms of the judgments in the case of Integrated finance Company Ltd. (supra) and Mihir H. Mafatlal (supra) relied upon by Mr. R.D. Rastogi the court does not act as a rubber stamp while granting sanction to the scheme approved by the requisite statutory majorities at the court convened meeting and has to reckon for statutory compliances, upholding of the law and ensure that the scheme is not contrary to public interest. But those are questions of fact in each case before the court. For the reasons set out earlier in this judgment or neither on the aforesaid tests, the scheme under consideration is liable to be rejected. This court has evaluated the scheme from a 360* perspective and found it to be fully compliant with the mandatory requirements of law and the enunctiations of Apex Court, on the subject as also founded on the best interests of the shareholders and unsecured cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent order dated 7-8-2008 to complete the process of listing of its shares within 18 months of the court's subsequent order and further that in the event of the shares not being listed, provide an acceptable, just and fair exit option to the minority shareholders. That has not been done and the transferor company has yet again approached this court to further shortchange its minority shareholders by offering an abysmally poor share swap ratio for the shares in the transferee company. The objectors aforesaid pray that the transferor company therefore be directed to acquire the shareholding of applicant minority shareholders in terms of Section 395 of the Act of 1956 on a fair price in the context of the valuations of the shares of the transferor company at the time the exit option ought to have been granted and appropriate directions be issued that the shares of minority shareholders be acquired by the transferor company at the 49.31 per shares as of the year 2009 with interest thereon as a condition for the sanction of the scheme by this court. Mr. Parag Tripathi appearing for the transferor company has submitted that the two companies agitating the objections hold a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being offered shares of the Transferee Company listed on various Stock Exchanges. The disappointment, with the share swap ratio, removed from the reality of the condition of the Transferor Company reflected in the valuation report of the expert Chartered Accountant S.R. Batliboi Co. LLP cannot be a cause to obstruct the scheme very apparently in the best interest of all stakeholders. The current value of the shares of the Transferor company has to be determined by a well reputed CA and can not be on the ipse dixit of the objectors with reference to a wholly different fact situation and time. It was submitted that in any event the application of M/s. Jindal Securities Private Limited deserves to be dismissed at the threshold for concealment of material facts as it has been falsely stated that the Company's representatives attended the court convened meeting and objected to the scheme or to the share swap ratio. Further the judgment of this court on 9-1- 2015 in SB Company Application No.45/2012 and 7-8-2015 in DB Special Appeal (civil) No.9/2015 were concealed evidencing that the application has not been moved bonafide and with clean hands. With regard to the objections of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has submitted that an appeal against the judgment and decree dated 10-2-2016 (No.174/2016) has been filed before the District Judge Gurgaon, Haryana. It was further submitted that SB Company Petition No.13/2016 was filed on the first motion by the Transferor company on 20-1-2016 and list of unsecured creditor as of 31-12-2015 annexed thereto, if time antecedent to the judgment and decree dated 10-2-2016. And in any event the applicant claiming to be an unsecured creditor could have attended the court convened meeting of the unsecured creditors pursuant to the court directed public notice dated 18-2- 2016. That was not done. Further even if the decreetal amount of ₹ 1.84 crore is reckoned for, it is inconsequential in moving the needle even by a fraction for the purpose of ascertaining the price of the majority of unsecured creditors in the context of passing of the resolution by the attending unsecured creditors at the court convened meeting approving the scheme of arrangement by 99.618% in number and 99.952% in value of a unsecured debt of ₹ 1425,8726884/-. It was further submitted that in any event the claim is disputed, and the applicant cannot seek adjudication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pendency of legal proceedings. It was submitted that under clause 8.1 of the scheme of arrangement between the Transferor Company and the Transferee Company disclosure of legal proceedings have been provided. Yet a false declaration was made that no legal proceedings are pending in relation to the Transferor Company's business, operation, affairs or conduct. It was submitted that the factum of the suit [CS (OS) No.3029/2014] filed by the Transferor company itself against the applicant objector before the Delhi High Court for permanent injunction seeking restraint on infringement of its purported trade mark, passing off, damages and rendition of account and a counter claim thereagainst by the applicant objector for grant of permanent injunction and restraining the transferor company from directly or indirectly dealing in any manner with look alike telecommunication products of the applicant objector has been suppressed and not disclosed. It was submitted that the applicant objector has also written to the Government of India, Ministry of Communication and IT department of telecom requesting for registration of complaint against the transferor company for causing threat to nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manisha Tele Sanchar Limited are untenable as they are on a patent misreading of clause 8.1 of the scheme on which they are premised. It is not the case of the applicant objector that any legal proceedings are pending with regard to the telecom business of the Transferor company which is to be transferred and vested in the Transferee company under the scheme. Legal proceeding for whatever their worth against the Transferor company in a matter other than telecom business to be transferred, cannot and are not relevant to the scheme, as the Transferor company is to continue in its corporate existence even after the scheme of arrangement in issue is sanctioned. Mr. Gunjan Pathak apparently realising the baselessness of the objections laid, tried to expand the scope of the objections filed beyond the pleadings, arguing that the objector/ applicant Manisha Tele Sanchar Limited by the mere fact of laying a counter claim, in law equals an unsecured creditor entitled to notice of the court convened meeting of unsecured creditors but was deliberately left out, entailing a vitiation of the direction of this court to convene a meeting of all secured creditors and vitiating the approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the scheme of arrangement under Sections 391-394 of the Act of 1956 is fundamentally a commercial document based on the commercial wisdom of the shareholders and creditors of the company. The company court cannot sit in judgment thereof on merits as if in appeal and seek to evaluate the scheme meticulously prior to grant of sanction. That however is not the end of the matter or the complete statement of law. For it is equally well settled that the sanction of the court under sections 391(2) 394 of the Act of 1956 is not to be mechanically granted on the mere askance as if the court were a mere rubber stamp. The company court has to wisely exercise its discretionary jurisdiction vested in it to sanction the scheme, having regard to various aspects such as considering the background and material facts of the case, determining the good faith and foundation of scheme under consideration, ascertaining the purpose of scheme, ensuring that it is not prejudicial to the public interest, that it does not violate any provision of law rendering it contrary to public policy and is not a mere device to evade tax. The scheme should be bonafide to advance business efficacies and shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer and vesting of the telecom business undertaking of the Transferor Company, whereunder the views and observations of the equity shareholders, unsecured creditors and statutory authorities i.e. Regional Director, ROC and Income Tax Department as also the scrutiny of the court at the time of sanction of the scheme has been invited. Bonafides of the scheme therefore cannot be at all therefore be doubted. The value of telecom business undertaking of the Transferor Company, has been determined at ₹ 21,156 million as per the report dated 30-10- 2015 prepared by SR Batliboi Co. LLP, wherein also the recommendations of share exchange ratio for the swap of equity shares of Transferor Company for the Transferee company was made. The recommendations of SR Batliboi Co. LLP records that the share exchange ratio for the proposed equity share swap of Transferor company for the equity shares of the Transferee company could not be mathematically determined since the equity value of the Trasnferor company was NIL. Neither the valuation of the assets under transfer nor the share swap ratio was doubted by the shareholders and unsecured creditors or any question raised inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the telecom wireless business of transferee company and with the transferor company as its shareholder to the extent it turns out after the Transferor Company's shareholders exercise their option to swap their shares in the transferor company for that of the transferee company, it would be to its benefits too. The upshot of the aforesaid discussion is that the company petition for sanctioning the scheme of arrangement between the Transferor company and the Transferee Company is just, fair and reasonable, fully compliant with prescribed statutory provisions for its approval, not opposed in any manner to law or public policy and is therefore allowed in the following terms: i) The objections filed by the Regional Director and the Registrar of Companies are rejected; ii) The objections filed by Manisha Tele Sanchar Private Limited and Mr. Srinivasraghvan Seshadri are also rejected. iii) The objections filed by M/s. Jindal Securities Private Limited and M/s. Aman Finvest Private Limited are rejected with costs of ₹ 1 lac payable to the Common Pool fund of the Official Liquidator within three months from today. iv) The petition filed by the petitioner transferor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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