TMI Blog2014 (5) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... NT G.S. Patel, A. The Petitioner, Cadbury India Limited ( Cadbury India ) filed this petition in 2009 under Sections 100 to 104 of the Companies Act, 1956. It is in quite extraordinary circumstances that this petition has been pending for five years. The petition seeks approval of this Court to a special resolution passed by a majority of Cadbury India's shareholders at an extraordinary general meeting, for reduction of Cadbury India's share capital. B. Before I turn to the justifications pleaded by Cadbury India in support of its petition, and, later, to the objections taken by various groups of shareholders, a word about the structure of this judgment. (a) In Section 1, for convenience, I summarize very broadly the controversy and my conclusions. (b) The relevant facts are set out in Section 2. (c) Section 3 contains a summary of the objections, principally those of one set of objectors, Ms Malati Samant (the Samant Group ) and Mr. Alok Churiwala (the Churiwala Group ), who presented their objections together. (d) In Section 4, I have considered the statutory provisions and various authorities cited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Churiwala groups object even to these two Court-compelled E Y valuations. They say that both are unfair, unreasonable, result in inequity and injustice and ought not to be accepted. They demand acceptance of their own valuation, one that is significantly higher. They have attempted to point to several 'deficiencies', 'defects' and 'errors' in the two E Y valuations. The interests of the 'oppressed minority' must prevail, they say. 1.3. After a hearing spread over several days and many hours, on 25th February 2014, I invited both sides to file brief written submissions, no more than 20 pages. I expected these to be a reflection of what was argued before me in Court. 1.4. The Samant Group took undue advantage, and perhaps even abused, this liberty. A first set of written submissions was sought to be tendered. Counsel for Cadbury India mentioned the matter on 10th March 2014, objecting and saying that this set of written submissions from the Samant group contained new and additional material never argued before the Court. I orally directed the Samant group to reconsider its written submissions. On 13th March 2014, an entirely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate and decidedly uncivil. Allegations of misconduct and deceit are made against Cadbury India. Motives are imputed to E Y and its representative, apart from the two firms who first prepared a valuation before the petition was filed, both firms of repute (M/s. Bansi S. Mehta Co. and M/s. SSPA Co). Worst of all are the allegations, only thinly veiled, against the court itself. It is impossible not to see these as a direct and frontal attack on the court. The Samant Group's written submissions purport to set down in the hard, cold immutability of print things alleged to have transpired in court; matters, incidents and statements that form no part of this Court's record. This is beyond egregious. It is wholly unacceptable. It is to be deprecated. No words are sufficient for the excoriation such conduct merits. Let there be no mistake: the linguistic restraints we impose on ourselves in our decisions is no weakness, nor an indication of unwonted indulgence, benevolence or indulgence in such situations. It is merely a refusal by a court to let itself be pulled into the same mire. 1.8. But no party should have to suffer, or have his cause left unheard, because of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. It may accept or reject a given valuation, but that must be for cogent reasons and within the well-defined boundaries of what is judicially permissible and what is not. SECTION 2: FACTS 2.1. Incorporated on 19th July 1948 at Mumbai under the Companies Act, 1913, Cadbury India's name on incorporation was Cadbury Fry (India) Pvt. Ltd. Its name was changed on 7th June 1977 to Cadbury India Pvt. Ltd., and, later that very month, to Cadbury India Ltd. A few years later, in 1982, its name was changed again, this time to Hindustan Cadbury Products Ltd. On 1st December 1989, its name was finally changed to its present name Cadbury India Ltd. 2.2. Cadbury India has its registered office at Cadbury House, Bhulabhai Desai Road, Mumbai 400 026. This is a property at the junction of Bhulabhai Desai Road and Gopalrao Deshmukh Road (Peddar Road) opposite the Mahalaxmi Temple. This property has, it seems, recently been sold. I mention this only because one of the objections (repeatedly) taken to this petition is that the sale price of this transaction is not reflected in the share valuation of Cadbury India. 2.3. While the objects for which Cadbury Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adbury Schweppes Overseas Limited ( Cadbury Schweppes ). This, in turn, is a subsidiary of Cadbury Plc, UK ( Cadbury Plc ). Cadbury India says that the global policy of Cadbury Plc is to operate globally only through wholly-owned subsidiaries or branches. Exceptions have had to be made only for compelling business reasons, foreign investment laws or foreign exchange restrictions. From 1948 to 1977 Cadbury India was a wholly-owned subsidiary of Cadbury Schweppes. In 1977, the policy of the Government then in power required Cadbury Schweppes to dilute its shareholding in Cadbury India from 100% to 60%. It was only then that Cadbury India ceased to be a wholly-owned subsidiary of Cadbury Schweppes. 2.8. Thirty five years later, the economic liberalization of 2002 allowed foreign direct investment of up to 100%. Thereafter, Cadbury Schweppes and another group company, i.e., Cadbury Mauritius Ltd. ( Cadbury Mauritius ; collectively, the Cadbury Group ) increased their collective holdings in Cadbury India to 90%. They did so by making various open offers. Public shareholding fell below 10%. Consequently, Cadbury India then got de-listed from the stock exchanges. Over time, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chweppes, representing about 3.8% of the paid up capital of Cadbury India, at a price of ₹ 750/- per share. Of these 13,54,667 shares, various shareholders offered 13,52,605 shares for buy back. 2.15. On 11th May 2007, Cadbury India made another buy back proposal in respect of 11,53,374 equity shares held by all public shareholders other than Cadbury Schweppes. These represented 3.4% of the paid up capital of Cadbury India. The buy back price offered was ₹ 815/- per equity share. Cadbury India bought and extinguished 11,53,374 equity shares at this price. 2.16. In 2008, a third buy back offer followed in respect of 10,20,408 shares. The price offered was ₹ 980/- per share. Cadbury India bought and extinguished 10,20,300 equity shares. 2.17. In 2009, a final offer was made in respect of 11,16,505 equity shares at a price of ₹ 1,030/- per equity share. Some 11,16,168 equity shares were bought and extinguished by Cadbury India at this rate. 2.18. On the date of the petition, the Cadbury Group held 97.583% of the equity share capital in Cadbury India. 2.417% remained with others. 2.19. In the petition, Cadbury India r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to interest. 2.22. On 15th April 2010, an order was passed in the company petition along with several company applications filed by various objectors. All these objectors took exception to the valuation of Cadbury India's shares, one that was based on the reports prepared by M/s. Bansi S. Mehta Co. and SSPA Co. The Court did not at that stage enter into the controversy or examine the rival merits. In order to cut short the controversy, Cadbury India, through its senior counsel appearing at that time, agreed to a fresh valuation by an independent valuer to be appointed by the Court. The company submitted that this valuation shall be treated as final valuation. It asked for an assurance to this effect. The objectors agreed to the suggestion, with a caveat, noted by the Court, that should the Court find any grave infirmity in the valuation report , then it would be free to interfere. On that basis, an order was passed appointing M/s. Ernst Young as independent valuers. This valuation was to be as on the appointed date and based on the unaudited balance sheet as on 31st July 2009, taking into account the same material as was provided to M/s. Bansi S. Meh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The hearing was thereafter concluded and I allowed all parties to submit concise written statements, a matter I have dealt with in Section 1. 2.28. Before I consider the objections, I believe it is important to put the matter in an appropriate factual context. First, there were a series of open offers at a rate of ₹ 500/- per share. Then there was a series of buy back offers at rates ranging from ₹ 750/- per equity share to ₹ 1,030/- per equity share. The petition is based on two valuation reports (of M/s. Bansi S. Mehta Co. and M/s. SSPA Co.) that put the valuation of the shares at ₹ 1,340/- per equity share. The Court-ordered first E Y report returned a valuation of ₹ 1,743/- per equity share. The second E Y report was based on significantly changed parameters; in fact, the Court itself shifted the goal posts. The second E Y report of 29th July 2011 reported a valuation of ₹ 2,014.50 per share. Between the first and second E Y reports, the objectors obtained their own report from one Shri. J.C. Desai, who valued it at ₹ 1,979/- per share plus a control premium. What the objectors (the Samant and Churiwala Groups) now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies is higher and that is the rate of growth that should have been adopted by Cadbury India as well; 3.1.8. That a multinational conglomerate, Kraft Foods Inc. ( Kraft ), has taken over the holding company of Cadbury India's holding company, namely Cadbury Plc, and that this should have been reflected in the valuation; 3.1.9. That E Y's adoption of Cadbury India's growth rate at 6% is incorrect and should have been taken to be 11%; 3.1.10. That, in any event, E Y should have insisted on following only the DCF method; 3.1.11. That the sale of Cadbury House has not been factored into the valuation of shares; 3.1.12. That the amount spent in open offers and buy backs was deducted, and ought not to have been. 3.2. The written submissions of the Samant Group fall under nine broad heads: 3.2.1. That there is no disclosed basis of valuation in either of the E Y reports; 3.2.2. That there is a lack of transparency while filing Cadbury India's share valuations; 3.2.3. That the valuation of shares by E Y is incorrect. The DCF method and not the CCM method ought to have been followed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation Ltd. Reduced vs. John Couper, 1894 A.C. 399 (H.L.) Poole Ors vs. National Bank of China, (1907) A.C. 229 (H.L.) In Re: Elpro International Ltd., 2008 (86) SCL 47 (Bom) : [2009] 149 Company Cases 646 (Bom.) and In Re Reckitt Benckiser (India) Ltd. 122 (2005) DLT 612 4.3. In Sandvik, a petition was filed seeking the Court's sanction to a special resolution for reduction in its share capital passed by the members of the appellant-company at an extraordinary general meeting. The resolution was that the share capital of the company would be reduced by paying off or returning to non-promoter equity shareholders an amount of ₹ 850/- per share, of which ₹ 750/- was a premium. That petition, like this one, was filed under Section 100 of the Companies Act, 1956. The petition was opposed. The objectors were non-promoter shareholders. The learned Single Judge declined to sanction the resolution. The company appealed. In appeal it was pointed out, inter alia, that the special resolution was passed by an overwhelming majority of 99.05% of the votes polled of the equity shareholders present and voting, and that only about 0.05% of the votes polled were again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case. In our opinion, therefore, the learned single Judge was in error in declining to grant sanction to the special resolution. 4.5. The Supreme Court decision in Ramesh B. Desai followed the decision of the House of Lords in British American Trustee and Finance Corporation Ltd. (Supra) Paragraph 11 of Ramesh B. Desai reads: 11. The vexed question of the legality of the purchase by a limited company of its won shares was set at rest by the decision of the House of Lords in (Trevor Vs. Whitworth), 1887 (12) AC 409, since which it has been clear law that a limited company cannot purchase its own shares except by way of reduction of capital with the sanction of the court. (See Buckley on the Companies Act, 14 the Edn. p. 1499.) In the same decision it was also held that even express authority to the contrary in the memorandum is unavailing. The main reasons for this prohibition were that such a purchase could either amount to trafficking in its own shares, thereby enabling the Company in an unhealthy manner to influence the price of its own shares on the market, or it would operate as a reduction of capital which can only be effected with the sanction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of share capital not paid up; (b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost, or is unrepresented by available assets; or (c) either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital which is in excess of the wants of the company; and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. (2) A special resolution under this section is in this Act referred to as a resolution for reducing share capital . (Emphasis supplied) 4.8. On a plain reading of the statutory provision, the basic requirements of Section 100 are that (1) the Articles of Association of the company must permit such a reduction of share capital; (2) the scheme for reduction must be approved as a special resolution, i.e., at an extraordinary general meeting called for that purpose; and (3) the Court's sanction must be obtained to such a resolution, if passed by the requisite majority. Now the third requirement has this trifecta, albeit not expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per se unfair, incorrect or unreasonable, in fact what is being suggested is that non-promoter shareholders are being discriminated against. Yet, in the present case, nobody suggests that promomter shareholders, or the non-promoters who voted in favour, or any other class of shareholder have got a better deal than any of the objectors. They are not in any way being paid or offered any less . An overwhelming majority of the non-promoter shareholders have already voted in favour of the resolution: there were 7,51,120 non- promoter shares represented at the meeting. Those against held only 12,784 shares. In such a situation, following Sandvik, a court would not be justified in withholding its sanction. 4.12. Much emphasis is lead by Mr. Samant on the decision of the Supreme Court in Miheer H. Mafatlal vs. Mafatlal Industries Ltd. AIR 1997 SC 506 Particular emphasis is lead on paragraph 28 of that decision, which reads thus: 28. The relevant provisions of the Companies Act, 1956 are found in Chapter V of Part VI dealing with 'Arbitration, Compromises, Arrangements and Reconstructions'. In the present proceedings we will be concerned with Sections 391 and 393 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholder or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned company has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the requisite majority. Consequently the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. (Emphasis supplied) 4.14. I believe Mr. Samant's submission to be entirely unfounded. It is nobody's suggestion that the mere ipse dixit of the majority will dictate the hand of the Court. But in assessing whether the scheme is fair, just and reasonable, the Court must have regard to both the terms of these scheme as also to the informed decision taken by the majority of the shareholders. When such a scheme is assessed, there must be cogent, clear and unambiguous material to show that the scheme is inherently unjust or unreasonable. A sanctioning court is not an appellate body. It will not and cannot substitute its own view, however strongly held, for the collective, commercial wisdom of the voting members. 4.15. The only decision cited by Mr. Samant on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be distinguished by Mr. Samant during oral arguments. 4.17. I do not see how the Samant Group's submissions advance their cause. Indeed, some of them are against the Samant Group. Bluestar, for instance, holds that where a valuation is done by a reputed firm, and is accepted by a majority, even if assets are being transferred at a low price, that does not per se vitiate a valuation report. To dislodge a valuation from a reputed firm, an objector must show mala fides or fraud. Hindustan Lever Employees Union v Hindustan Lever Ltd, AIR 1995 SC 470. To 'show' is not merely to allege. Mala fides or fraud must be established. The decisions in Piramal Spinning, ICICI Ltd., Re: Grierson, Oldham and others are all authorities for the proposition that in any valuation, opinions may vary; and that no court should be swayed by acidulated allegations in generalities. A court must be satisfied that the unfairness is gross and patent. Further, as Mr. Dwarkadas points out, business strategies and corporate planning are not the province of courts. In Re: Larsen Toubro Ltd, [2004] 54 SCL 461 (Bom). 4.18. There is no quarrelling with the propositions that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dbury Plc, has an impact on the valuation of Cadbury India's shares. This is stated on the basis that Kraft has a global presence. It has not been demonstrated how this takeover has had any impact, other than the objector's speculation, on Cadbury India's shares. Additional submissions relate to the sale of Cadbury House, a comparison with other companies such as Nestle, and the imperative for a 'control premium'. 5.3. At least three of these objections should be dealt with first. They occur repeatedly. The first is that E Y should have been adopted fully the growth rate of comparable companies while using the CCM method. Stated in absolute terms, this is ex-facie untenable. The product mixes, divisions, range of offer, process, markets, wedge bill and pay roll factors are all issues that differentiate companies. It is not possible to say, as Mr. Samant does, that because two companies both happen to make some chocolates and confectionery products, therefore, the growth rate of one must be used for the other without any adjustment. He sought to draw a comparison principally with Nestle, a company used in the E Y CCM analysis. The suggestion is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a high share valuation; Kraft now owns the holding company of the holding company of Cadbury India; therefore Cadbury India's share valuation must also be high. Clearly, this is incorrect. It ignores every salient parameter in an assessment of Cadbury India's share valuation. 5.6. The third, much-repeated, allegation relates to the sale of Cadbury House. Cadbury India is reported to have recently sold its property at Bhulabhai Desai Road. Mr. Samant contends that this affects Cadbury India's share valuation and must be taken into account inter alia because that property has significant development potential. There are two problems with this. The first is that this involves yet another change in the valuation parameters. As I have noted, the Court itself altered the frame of reference when it asked for the second E Y report. Had that report been dealt with and this matter decided at that time this issue could never have arisen, for the sale is a matter post facto. It simply cannot be that on account of the vagaries of litigation, a petitioner is placed on constantly shifting stands in this manner. Second, the suggestion in oral arguments seemed to be tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form no part of the record. There is absolutely no substance in these submissions. 5.8. In the second E Y report of 2011, Cadbury India's shares have been valued by the CCM and DCF methods. Strangely, the results of both these methods are unacceptable to the objectors. The objectors' claim that E Y approach on the CCM method is fraudulent, erroneous and incorrect. They also claim that the valuation of shares on the DCF method is not transparent and is, therefore, unfair as it does not allegedly, have a disclosed basis, and that the projections of Cadbury India have not been disclosed in relation to the DCF analysis in the second E Y report. Not only is this submission couched in extremely intemperate temperament language, but it does not disclose, other than ungraciously worded allegations, any substantial basis for the challenge on this ground. It ignores, importantly, the fact that the order of 8th July 2011 tied E Y hand and foot to a non-disclosure and confidentiality requirement. No such disclosure could have been made by E Y. 5.9. It is not possible for a Court to go into the exercise of carrying out a valuation itself. That, as the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter all, a ratio (total equity value divided by number of shares). It is, clearly, an untenable proposition to use a higher numerator (the enterprise equity value before the buyback) and a lower denominator (the total number of shares after the buyback). That seems to be the Samant Group's suggestion. What is manifestly incorrect is, therefore, not what E Y did, but what the Samant Group proposes. 5.11. The same reason must apply to the further submissions regarding the allegedly incorrect weightage given by the valuer to the DCF and CCM methods respectively. What weightage should be given is itself dependent on a slew of other factors. To merely say that the weightage is incorrect is hardly a sufficient basis to dislodge what, after all, is the collective, commercial decision of a majority, including a majority of the non-promoter minority. In any event, this point was never once argued or urged despite the matter been heard over several days. 5.12. Paragraph 6 of the Samant Group's written submissions contains a repetition of many submissions made elsewhere, including that the future prospects of the company had not been taken into account; that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders for a buyback of their shares. This pattern, one that is self evident, does not sit well with the Samant Group's objections of unfairness. 5.15. I turn now to a set of submissions that are singularly distressing. Paragraph 8 of the Samant Group's written submission is captioned Conduct of the Petitioner Company . Couched in much the same immoderate tone and language as the rest of these written submissions, the contentions under this head are actually not so much about the conduct of Cadbury India as a frontal attack on the Court itself. In using the kind of language that it does, and in making the kind of submissions that it does, the Samant Group sails dangerously close to the wind. Motives are attributed to the Court. It is not permissible for any party to speculate as to why a Court passed a particular order. Our orders speak for themselves. 5.16. What is significantly worse is that on page 23 of the written submissions, the Samant Group has purported to record something that allegedly transpired before the Court. It attributes observations and comments to Court that find no place in any order. An allegation is made that a representative of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike, especially in reference to what happened in court, is a reprehensible practice to be deprecated in formal legal documents, especially those filed in courts. All law is discourse; and the discourse of law is the discourse of civility. It is easy to make strongly worded and even egregious allegations. More often than not, such allegations are meant only to camouflage a lack of all substance. This case is no exception. The Samant Group's submission is a straw man argument: it seeks to destroy a non-existent case. The submission says very little; but it says it very badly. 5.20. Paragraph 8 of the written submissions also contains a startling submission never made before that no fair valuation can ever be made on the basis of unaudited accounts. This was not once the case in arguments before me. There is neither logic nor material to support this. 5.21. The submissions in paragraph 9, regarding an undervaluation of shares of the Petitioner Company comes for the first time in these written submissions. Many of the subsidiary submissions under this head are repetitive. What is undoubtedly true is that valuation is not an exact science. German Remedies, supra; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shareholders. Within this minority, there are again two classes or divisions: those who voted in favour of the proposed resolution at the extraordinary general meeting, and those who voted against. Where among the non-promoters those in favour out-number those against, it is these that must constitute the relevant 'majority' for the present purposes. When viewed like this, the allegation that has been made by the Samant Group is not so much that they have been done in by the promoter group of Cadbury India, but by those non-promoter shareholders (a minority in the context of all shareholders) who voted in favour of the scheme. We have here, thus, a peculiar situation: overall, the majority of shareholders (including the promoter-shareholders) voted for the scheme. At the same time, the overwhelming bulk of non-promoter shareholders (i.e., a majority of the minority) have also voted in favour of the scheme. Those who voted against held only 12,784 shares. Of those, excluding the Gidwani group, the present group of objectors (the Samant and Churiwala Groups) hold collectively less than 2000 shares of Cadbury India; only 1899 shares. What is this in percentage terms? They re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent valuation (twice). It is because of that assurance that Cadbury India, adhering to its own assurance, finds itself faced with a valuation several hundred rupees higher than the one with which it first came to court. Cadbury India's share purchase offers rose from an initial ₹ 500/- per share to an amount four times as high in the second E Y report, ₹ 2,014.50/- per fully paid up equity share. Even this does not state the Samant Group's appetency. 5.28. The Samant and Deepak Gidwani groups both submit that they are entitled to interest. All told the Gidwani Group's 30,157 equity shares in Cadbury India are about 15 times more than the Samant and Churiwala Groups. The Gidwani Group has, after an initial objection, specifically accepted the valuation in the second E Y report of ₹ 2,014.50/- per fully paid up equity share. In its written submissions, the Deepak Gidwani Group claims interest from 30th July 2011 (i.e., from the day after the submission of the second E Y report) till date. The basis is that had the amount been paid out then, the Gidwani Group would have had use of these funds. This delay is not attributable to the Gidw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Comparable Companies Multiples method is an alternative theory predicated on the assumption that similar assets sell at similar prices. This assumes a parity in measuring the values of enterprise-specific variables (cash flows, operating margins, etc). An underlying assumption is that the two firms or companies in question are in fact comparable. Marked differences can yield decidedly skewed results. As all valuation is a judgement, CCM provides a simple framework that shows relative values. Calculations in CCM are somewhat easier than in the DCF method. CCM analysis is based on uniformity: both firms must have similar accounting policies, substantially similar business and revenue models, valid valuations, etc. CCM does not lend itself to accurate long-term projections, and cyclical industries require additional compensation. A CCM is essentially a snapshot at a given point in time. It will not easily capture business expansions, evolutions and changes; it is by definition static. 6.3. There are two E Y reports, both court-ordered. E Y called the second, of 29th June 2011, a supplementary report. The covering letter indicates that it is an update to the main re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this report to include a valuation based on the DCF method as well as the CCM method, and to reflect a valuation as on 30th September 2009. E Y was bound to a non-disclosure and confidentiality condition. 6.10. It was on this basis that E Y submitted its second or supplementary report, now much pilloried by the Samant Group. E Y assigned equal weightage to both methods. This, as I have noted, is challenged by the Samant Group, but the challenge is without substance. It is impossible to say what competing weightages ought or ought not to have been given. It is, after all, sufficient that the second E Y report returned a valuation of ₹ 2,014.50 per fully paid up equity share, significantly higher than the valuation in the first E Y report of ₹ 1,743/- per fully paid up equity share. 6.11. The second E Y report was based on unaudited financial statements as on 30th September 2009. Again, I find this unexceptionable. It was only for the contrasting CCM method, one that the Samant Group decries, that E Y applied the weighted average P/E multiples on Cadbury India's consolidated Profit After Tax (PAT) for the year ending 31st March 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of universal application in such matters. 7.1.1. Section 100 requires three things: that (1) the Articles of Association of the company must permit such a reduction of share capital; (2) the scheme for reduction must be approved as a special resolution, i.e., at an extraordinary general meeting called for that purpose; and (3) the Court's sanction must be obtained to such a resolution, if passed by the requisite majority. 7.1.2. In considering the application for sanction, the Court must ensure that (1) the scheme is not against the public interest; (2) the scheme is fair and just, and not unreasonable; and (3) the scheme does not unfairly discriminate against or prejudice a class of shareholders. 7.1.3. Prejudice here must mean something more than just receiving less than what a particular shareholder may desire. It means a concerted attempt to force a class of shareholders to divest themselves of their holdings at a rate far below what is reasonable, fair and just. Prejudice in this context must connote a form of discrimination, a stratagem by which an entire class is forced to accept something that is inherently unjust. 7.1.4. One tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in of corporate strategy and commercial wisdom. 7.1.8. The unfairness must apply to a class, even if that class is of one. This class is not to be identified not by a shared ire against the petitioning company or even an ideological animosity, but by the character or nature of their holding, and by the way that class is sought to be singled out for differential, unfair treatment. 7.1.9. The sanctioning court has no power or jurisdiction to exercise any appellate functions over the scheme. It is not a valuer. It does not have the necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. The Court is not a carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel; the effort is not to emphasize the loopholes, technical mistakes and accounting errors . 7.1.10. Valuation is not an exact science. Far from it. It is always and only an estimation, a best-judgment assessment. The fact that a particular estimation might not catch an objector's fancy is no ground to discredit it. All valuations proceed on assumptions. To dislodg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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