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TMI Blog2011 (10) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... the year ended 31st March, 2010 of the Transferor and Transferee Companies have also been enclosed with the Petitions. 5. Copies of the Resolution passed by the Board of Directors of the Petitioner Companies approving the Scheme have also been placed on record. 6. It has been submitted that no proceeding under Section 235 to 251 of the Act is pending against the Petitioner Companies. 7. So far as the share exchange ratio for amalgamation is concerned, the Scheme provides that, upon the Scheme finally coming into effect, the Transferee Companies shall issue shares in the following manner:- (One) Equity Share of ₹ 10/- (Rs. Ten Only) each, credited as fully paid-up of the Transferee Company for every 10 (Ten) Equity Share of ₹ 10/- (Rs. Ten Only) each held in the Transferor Company. 8. The Petitioner Companies had earlier filed CA (M) Nos. 73/2011 and 74/2011 seeking directions of this Court for dispensation of meetings. Vide orders dated 04th April, 2011, this Court allowed the Applications and dispensed with the requirement of convening meetings of Shareholders and Un-secured creditors of the Transferor and Transferee Companies. None of these Companies had any S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation report but same have not been considered in calculating Fair value per share. Details is as under: Transferee Company (Rs.) Transferor Company (Rs.) Net Asset value (N.A.V.) Price Earning Capacity Value (PECV) Issue price 100% per share (at premium of ₹ 90/- per share) 42/- 6/- 11/- Not relevant ₹ 20/- ( at premium of ₹ 10/- per share Actual NAV per share in the case of Transferee company is ₹ 37.42 and in the case of Transferor company is ₹ 25.20 It is clear from the above that there is no basis for taking Fair value ₹ 100/- per share in the case of Transferee Company and ₹ 10/- per share in the case of Transferor Company. The exchange ratio on the basis of Actual NAV per share would be 4 Equity shares of the Transferee Company for every 6 Equity Shares of Transferor Company." 12. Subject to the aforesaid observations, the Official Liquidator has confirmed that the affairs of the Transferor Company do not appear to have been conducted in a manner prejudicial to the interest of its members, creditors or to public interest. 13. In reply to the observations made by the Official Liquidator, the Petitioners Companies have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Co. considering all the relevant aspects and obviously keeping in view the accounting principles underlying the valuation of shares suggested the said ratio which was found acceptable both by the Board of Directors of the transferor -Company". "It has also to be kept in view that which exchange ratio 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 entire Scheme. 40 % of the majority shareholders were financial institutions who were supposed to be well versed on the aspect of valuation of shares. They had no objection to the exchange of 2 shares of the transferee-Company for 5 shares of the transferor-company. As stated earlier it was 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 if f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s C.C. Chokshi and Co had suggested the ratio but another independent body ICICI Security and Finance Company Limited reached the same conclusion which was conveyed by its letter dated 10.11.1993 to the company approving of the entire scheme along with suggested ratio. A mere look at the report of the Chartered Accountants M/s C.C. Chokshi and Co. shows that various factors underlying the scheme compromise and arrangement were taken into consideration while suggesting the exchange ratio by the aid reputed firm of chartered accountant. The said opinion had taken into account the fact that on amalgamation shares have to be cancelled. Increase in the share premium account in equity capital of the MIL will also have to be taken into account as a result of final call made in respect of Bond 1992 issue. It has also taken into account significant increate in the paid-up equity of MIL as a result of issue of its Bond in the international market. It is has undertaken exercise in calculating net worth of the two companies. It has also referred to the method of valuation of exchange ratio on the basis of earning per share of the two companies by taking account five years working result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f combination of two or more well-known methods of valuation of shares out of many such methods. In para 37 of the Report it has been observed that the question is what method should be accepted for arrival at a proper exchange ratio. The usual rule is that shares of the going concerned must be taken at quoted market value. This principle was also recognized by this Court in the case of CWT Vs. Mahadeo Jalan. It is not the case of the appellant that M/s C,.C. Chokshi and Co. had not taken into consideration the quoted market value of shares of both the companies which were going concerns and which were subjected to the Scheme of Amalgamation in question . For all these reasons, therefore , there is no substance in this contentions canvassed on behalf the appellant that the exchange ratio was ex-facie unfair to the equity shareholders of the transferee company." 17. In view of the aforesaid and particularly in the present case, where the Petitioner Companies are closely held Companies with a common set of persons as shareholders, this Court does not find any merit in the observations made by the Official Liquidator and accordingly, this Court is not inclined to order any modificati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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