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TMI Blog2017 (12) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order dated 13.07.2017 passed by the National Company Law Tribunal, Hyderabad Bench, Hyderabad (hereinafter referred to as the 'Tribunal') in C.P.(CAA) No.14/230/HDB/2017 & C.P.(CAA) No.15/230/HDB/2017 (connected with Company application No.1641/2016 and 1642/2016) wherein the Scheme of Amalgamation between Appellant No.1 (Wiki Kids Limited) and Appellant No.2 (Avantel Limited) and their respective shareholders and Creditors was rejected by the Tribunal. 2. The brief facts of the case are that the appellant No.1 (transferor company) is a company incorporated under the Companies Act, 1956. The transferor company is non-listed company. Appellant No.2 (transferee company) is a company incorporated under the Companies Act, 1956 and is a listed company. Both the companies are having their registered office at SY No.141, Plot No.47/P, APIIC Industrial Park, Gambheeram (Village), Anandapuram, Distt. Vishakhapatnam. The management of both the appellants proposed a Scheme of Amalgamation pursuant to which appellant No.1 was to be amalgamated into Appellant No.2. Accordingly, both the appellants moved before the Hon'ble High Court of Judicature at Hyderabad for the State of Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess without any gestation. It enables Avantel to improve steadiness of cash flows and to participate more vigorously and profitably in an increasingly competitive and liberalized market; The amalgamation would result in optimizing and ever growing existing resources and infrastructure of Avantel; The combined entity would result in improved cash flows, increased net worth, better credit rating, and thereby strengthening the value of all the stakeholders of the Company. 19. Perusal of the documents also revealed that Cash Flow Statement was not forming part of the Transferor Company and the income earned as on 31.03.2016 is only Rs. 85,490 through interest income on Fixed Deposit. Xxxx 21.As per the share exchange ratio the promoters/shareholders of the transferor company would be eligible "100 (One Hundred) equity shares in the Transferee Company of the face value of Rs. 10/- (Rupees Ten only) each credited as fully paid up for every 289 (Two Hundred and Eighty Nine) equity shares of Rs. 10/- (Rupees Ten only) each fully paid-up held by such member in the Transferor Company". The Audit Committee and the Amalgamation Committee of the Transferee Company has taken into account th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision as to whether to approve/reject the scheme. We are also of the considered view that the entire scheme of amalgamation was conceived/designed to benefit only major common promotors of both the companies and no/negligible public interest is involved in this case especially the transferee company being a listed company having more than four thousand shareholders as on 25.11.2016. 24. Therefore, we are of the considered view that the amalgamation of scheme in question is beneficial only for the common promotors of both the companies and public interest is not being served as envisaged in the scheme. Moreover the rationale, objective and purpose of scheme as stated is not justified based on the above facts/discussions. Therefore, we deem it fit not to sanction/confirm the scheme as prayed for." 3. Learned counsel appearing on behalf of the appellants submitted that the appellants have complied with all the requirements/directions and there was no objection to the Scheme from any concerned authority or stake holders or general public at large even then the Scheme of Amalgamation has been rejected by the Hon'ble National Company Law Tribunal, Hyderabad. 4. Learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned counsel for the appellants stated that no adverse observations has been given by any of authority but the Learned NCLT vide impugned order dated 13.7.2017 rejected the Scheme by recording that the Scheme in question is beneficial only for common promoters of both the companies and public interest is not being served as envisaged in the Scheme. Learned counsel further argued that the share exchange ratio has been computed by an expert independent Chartered Accountant in accordance with the settled principles of valuation and law, which includes value of potential business model in the market, projected revenues and cash flows which is supported by the fairness opinion certificate issued by the Merchant Banker. Learned counsel for the appellants in support of his arguments referred to the cases of M/s Miheer H. Mafatlal Vs Mafatlal Industries Ltd and M/s Hindustan Lever Employees' Union vs Hindustan Lever Limited and Others. Relevant portion of the same is as follows: "28. Xxxxx A.However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid statutory scheme which is clearly discernible from the relevant provisions of the Act, as seen above, has been subjected to a series of decisions of different High Courts and this Court as well as by the Courts in England which had also occasion to consider schemes under pari material English Company Law. We will briefly refer to the relevant decisions on the point. But before we do so we may also usefully refer to the observations found in the oft-quoted passage in Bucklay on the Companies Act 4th Edition. They are as under : "In exercising its power of sanction the Court will see, first that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that he statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purposed to represent, and thirdly, that the arrangement is such as intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such as man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive." Sen, J. Speaking for himself and Venkatachaliah, CJ., also towed the line indicated by Sahai, J., about the jurisdiction of the Company Court while sanctioning the Scheme and made the following pertinent observations in paragraph 84 at page 528 of the Report : "An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the 1st respondent has referred to two judgements namely M/s Miheer H Mafatlal Vs Mafatlal Industries Ltd reported in (1997) 1SCC 579 delivered by the Hon'ble Supreme Court and Kamala Sugar Mills Limited 55 Company Cases p.308 NABY/TN/0005/1980 of Hon'ble Gujarat High Court. 1st respondent in his reply also prayed that the observations of Hon'ble NCLT in para 22 of the impugned order dated 13.7.2017 be expunged with further order or orders as deemed fit. 9. Learned counsel appearing on behalf of the 6th respondent (SEBI) submitted that 6th respondent is not the authority as per law to do valuation, therefore, the observations made in the para 22 of the impugned order is unwarranted. It is further submitted that the 6th respondent has issued Circular dated 30th November, 2015 which lays down the detail requirements to be complied with by listed entities while undertaking scheme of amalgamation. 6th respondent vide their letter dated 11th November, 2016 intimated 5th respondent that the submission of documents/information in accordance with circulars, to 6th respondent should not in any way be deemed to construed that the same has been cleared or approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. 12. There is no dispute that the compliance under the law has been done and no objection certificate from the relevant authorities have been obtained. So we are not commenting on this issue. The conclusion arrived by the Tribunal is on the basis of reservation expressed on the valuation report and that the valuation report will result in undue advantage to the promoter class. 13. We observe that in the Valuation Report at page No.20 of Valuation Report and Page No.801 of the Paper book the Chartered Accountant has observed as under: "The company informed that they did not prepare any Profit and Loss Account till the financial year 2015-16 as the company was in the development phase of its E-Learning platform "Wonderwhiz Kids". The company further informed that the product is ready for commercial launch and is presently hosted on Amazon Server. Thus, the portal is poised to generate revenues." 14. Thus it is clear that the company has not generated any revenue till the financial year 2015-16. 15. The Chartered Accountant has also in Section XI-Disclaimer, Page 822 of the Paper Book has observed as under: "In the course of forming our opinion, we have relied upon the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the amalgamation of TOMCO (Tata Oil Mills Company Ltd) and HLL (Hindustan Lever Ltd) was considered. Both the companies were listed companies. The promoters of both the companies were different. One was promoted by Tata Group and the other was subsidiary of Unilever, London. The products of both the companies were available in the market. In the present case the promoters of both the companies are same and also the registered office of both the companies is the same. Product of transferor company is yet to enter into the market. This may call for a closer look into information made available. Therefore, the facts of the case are different and the present case does not fall in that category. 18. The next case referred by the Learned Counsel for the appellants is Miheer H Mafatlal Vs Mafatlal Industries Ltd (referred-Supra) decided by the Hon'ble Supreme Court on 11.9.1996. The judgement can be distinguished on facts. The principals laid down are however relevant. In this connection we may state the National Company Law Tribunal has been constituted consisting of Judicial and Technical Members as per the provision of Section 409 (3) of the Companies Act read with judgement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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