TMI Blog2020 (1) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... e Valuer in March, 2017 - But the duties of the valuer as all along is necessitated that as a professional he will do his work i.e. Make an impartial, true and fair valuation of any assets which may be required to be valued; Exercise due diligence while performing the functions as valuer; Make the valuation in accordance with such rules as may be prescribed. In view of the serious compromises in the process of the valuation of shares the creditability of the exchange ratio recommended could at best be termed as guess work by the valuer. The scheme based on such a valuation report losses its creditability and will impact the entitlement of the shareholders of the transferor companies. The valuer made a valuation disregarding the methodology, methods or share entitlement ratio even as stated by him in his valuation report. No valuation of each share of every company has been done to arrive at the exchange ratio and we are convinced that only the guess work has been done to arrive at share exchange ratio. We are unable to convince ourselves that on the basis of this valuation report and for other reasons recorded above the amalgamation can be termed as fair to all stakeholders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death of Ms Ganga Devi the said 450 shares of 1st respondent were transmitted to Mr. Laxman Dass. 685 shares of 2nd respondent are held by Mr. Laxman Das under Folio No.A00099. 4. The appellant is the constituted Power of Attorney holder of Mr. Laxman Das. Being Power of Attorney holder he is authorised to attend the general meetings of 1st and 2nd Respondent, make representations to the said companies pertaining to their proposed schemes of amalgamations and/or merger. 5. It is stated by the appellant that the Respondent Companies filed a batch of Company Petitions before the Learned NCLT Chennai with a view to obtain sanction of a scheme or amalgamation and arrangements inter se. It is stated that the Scheme is impermissibly promoter oriented and antiminority/ public shareholders and is illegal, unlawful, unjust and against the public policy in India. 6. It is stated that the Valuation Report of the Scheme has not been prepared by a Registered Valuer and is a completely unreasoned document. It is stated that the swap ratio of shares as contemplated under the scheme is absolutely illegal, unjust and one-sided. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public policy of India, is not sustainable in the eyes of law and the Scheme of Arrangement and Amalgamation inter se the respondent companies is illegal and bad in law. 9. Reply on behalf of 9th Respondent has been filed. It is stated that the present appeal is not maintainable as the appellant does not have any locus standi to file the present appeal as the appeal has been filed by the appellant in his personal capacity and neither as a shareholder in any of the Respondent companies nor as a Power of Attorney holder of any of shareholder in any of the Respondent companies. It is further stated that the appellant is not a shareholder in any of the Respondent companies. It is stated that the appellant is only an interloper who is misusing the process of law to harass the corporates for his personal gain. 10. It is stated by 9th respondent that pursuant to the order dated 30th June passed by the Learned NCLT, all members were despatched notice of the meeting individually as well as through public notice. It is stated that the publication of the notice had been done in Business Standard in English and Malai Malar in the vernacular language on 15t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration while adhering to the principle of natural justice and equity. It is stated that Rule 6 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 posits and clarifies that the service of notice of meeting shall be deemed to have been effected in case of delivery by post, at the expiration of forty eight hours after the letter containing the same has been posted. It is further stated that the valuation in the instant case has been arrived at and determined based on the market value approach. 13. It is stated that the appellant is erroneous in arriving at the conclusion that the scheme does not provide for repayment of capital to the public shareholders of 1st Respondent and 2nd Respondent. It is stated that the scheme had provided for capital repayment for all its shareholders, however, the problem only arose with respect to a handful number of shareholders, whose share value upon re-organisation would be rounded off to zero, as their number of shares would have not met the minimum threshold. It is stated that the NCLT has rightly directed the respondent to make payment to the shareholders whose shares had been cancelled at the book value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder of the 2nd respondent having 685 shares. The applicant submitted that she was not a party to the Company Petition and Company applications before the Learned Tribunal. The applicant submitted that the scheme of amalgamation approved by the Learned NCLT is a fraud on its public shareholders. The applicant stated that she is being attempted to be thrown out of 2nd respondent without repayment of her investments therein. The applicant submitted that the shares of 2nd respondent have been deliberately devalued in the Scheme concerned. The applicant submitted that despite being public shareholder of the 2nd respondent the applicant did not receive any copy of the Scheme of amalgamation whereof the 2nd respondent is party as the transferor company No.2. The applicant submitted that it did not receive any notice or agenda of the Meeting which was convened as per order of NCLT, Chennai. The applicant submitted that 2nd respondent has 246 shareholders, out of which 14 are promoters shareholders and these 14 shareholders were present in the said meeting. The applicant submitted that the meeting of 2nd respondent which was called pursuant to the order of Learned NC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fractional shares. The applicant submitted that such modification of the scheme is insufficient in as much as the shareholders including the applicant deserves to be repaid as per the market value of the shares. The shareholders are entitled to be paid the accruals of their respective investments in the 2nd respondent. Case of Prem Prakash Pareek 7 Ors 20. An IA No.1845/2018 has been filed by the applicants seeking directions to implead them in the Company Appeal, set aside the impugned order dated 12th April, 2018 and also reject the purported scheme of amalgamation and arrangement approved in the impugned order. The applicants submit that they were shareholders of 1st Respondent and hold 1400 shares in the said company. The applicants submit that 1st, 2nd and 9th respondents are promoters of Dalmia Bharat Ltd (DBL) and the net worth of DBL is ₹ 4964.87 crores as on 31st March, 2017. The applicants submit that they did not receive the notice for the meeting of 1st respondent held on 17.8.2017 as well as other companies involved in the Scheme of Amalgamation which was held in terms of the direction given by the Learned NCLT. The applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re also concerned nor does it provide for repayment of capital in a realistic manner based on the appropriate valuation. The applicants further submit that the maximum portion of the stake of the public shareholders in 1st appellant is being clandestinely sought to be converted into capital reserves of 9th respondent. The applicants submit that the net asset value of each equity share of 1st respondent is ₹ 20,677.11, however, the valuation report forming part of the scheme does not specify the basis on which the swap ratio of the shares of 1st, 2nd respondent and 9th respondent and other companies participating in the scheme is calculated. The applicants submit that the public shareholders of 1st respondent holds 1,41,331 shares the value whereof is ₹ 292.23 crores(approximately). The applicants submit that only 47 shares would be held by the public shareholders in 9th respondent, a substantial part of the investments of the public shareholders in 1st respondent running into hundreds of crores of rupees are going to be misappropriated by the promoters of these companies who are going to hold more than 98% of the shares of 9th respondent post scheme. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents to convene meeting and the notice may be published in the Business Standard, all India edition and another in vernacular language the Malai Malar newspapers. Learned counsel further argued that no proof of service of Court Convened Meeting notice to shareholders except purported certificates by one Ashish claiming dispatch of notice. However, no postal receipt of said post office is on record. Learned counsel for the appellant argued as there is clear violation of directions of NCLT, therefore, the resolutions taken in the CCM dated 17.8.2017 approving the Scheme impugned is bad in law. Learned counsel further argued that the Ld. NCLT failed to appreciate the same. 27. Learned counsel for the 9th Respondent argued that Learned NCLT vide order dated 30.6.2017 directed the Respondent Companies to convene a shareholders meeting on 17.8.2017 while issuing a notice of the meeting to the shareholders at least 30 days prior to the date fixed and also publishing a public notice in English in Business Standard and in the vernacular language in Malai Malar. Learned counsel for the 9th Respondent argued that the as per the directions of Ld.Tribunal the notice wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey holder in his own name. Learned counsel for the Respondent argued that this is not permissible in law. Learned counsel argued that the appeal be dismissed on this ground alone. 31. We have seen the cause title of the appeal and noted that the appeal has been filed in the name of Mr. Ankit Mittal. We have noted that the appellant has purchased the shares from Mr Laxman Dass and Ms Ganga Devi and sent for transfer and these shares were not transferred. The appellant has placed an affidavit from these two individuals authorising to take appropriate action on their behalf. However, learned counsel of the appellant has categorically argued that the appellant has filed the appeal as Power of Attorney holder of Mr. Laxman Das. Further Mr. Laxman Das has not come forward to state that he has not authorised the appellant to file the appeal. The Respondent have also not raised this issue before the Learned Tribunal. Therefore, we find that there is no force in the argument of Learned counsel for the Respondent and reject the same. 32. Learned counsel for the Respondent argued that proviso to Section 230(4) envisages that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther argued that the valuation report is unreasoned and the only basis for the Share Entitlement Ratio is representation made by the management which the valuer considered to be fair. Learned counsel for the appellant further argued that the valuer in their report at para 7 Page 516 of the appeal has also stated that they have relied on the representation made to them by the management including financial information, significant transactions and events occurring subsequent to the balance sheet date and they have assumed such representations to be reliable and their conclusions are dependent on such information being complete and accurate in all material respects. Learned counsel for the appellant further argued that the swap ratio is merely but solely based on speculations and assumptions admittedly based on management representations not guaranteed by the valuer to be at least genuine/truthful. Learned counsel for the appellant further argued that 9th respondent being the worst performer financially but the following swap ratio recommended by the valuer is unjustified:- i) 4(Four) fully paid up equity share of INR 100(Rupees Hundred) each of 9th respondent shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal Scheme, however, the same was modified by the Ld Tribunal at the instance of appellant. Learned counsel for the appellant further argued that the valuation has been got done from an unregistered/unqualified valuer in violation of Section 230(2)(c) (iv) of the Companies Act, 2013. 35. Learned counsel for the 9th respondent argued that to prepare the valuation is a function of experts. Learned counsel further argued that it involves various factors and even if the correct principles are applied, different valuers may arrive at different valuations. Learned counsel for the 9th respondent argued that each one of them may be right yet the valuations may differ. Learned counsel for the respondent argued that even the swap ratio, which is a result of the valuation exercise, is also a function of experts. Learned counsel for the 9th respondent argued that the appellant has not cited, much less contended any fundamental error in the share valuation or resultantly in the swap ratio determined. Learned counsel for the 9th respondent argued that the only ground to challenge the valuation is that it ought to have been done on Asset Valuation Method relyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to select an appropriate basis of valuation amongst the various alternative. It is universally recognised that valuation is not an exact science and that estimating values necessarily involves selecting a method or approach that a suitable for the purpose. The application of any particular method of valuation depends upon various factors including the size of company, nature of its business and purpose of valuation. Further, the concept of of valuation is all about the price at which a transaction takes place i.e. the price of which seller is willing to sell and buyer is willing to buy. Thus, the market value of any company would be most indicative price. Accordingly, a fair and proper approach for pricing the shares of the company is to use a combination of these methods. 4.2 The methods generally used for determining the fair value of equity shares are Market Value, Profit Earning Capacity Value and Asset based valuation techniques. Xxx 4.4 Accordingly the share entitlement ratio is determined based on the market value approach. 5. Consideration of Factors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is concerned, we note that earlier there was no such section in Companies Act. We note that Section 247 of the Companies Act, 2013 was notified w.e.f. 8.10.2017. The compliance of Section 247 would arise only after this date. There has been no regulation of valuers under the Companies Act, 1956 though the practice has been well established that this valuation was being done by the Chartered Accountants or valuers. The valuation report was submitted by the Valuer in March, 2017. But the duties of the valuer as all along is necessitated that as a professional he will do his work i.e. Make an impartial, true and fair valuation of any assets which may be required to be valued; Exercise due diligence while performing the functions as valuer; Make the valuation in accordance with such rules as may be prescribed. Having gone through the valuation report, we have noted that there are three to four methods to arrive at the fair price of the shares. As stated by the valuer the share entitlement ratio is determined on the market value approach. Further we find that no valuation of each share in each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, the Transferee companies accepted to make payment to the objector/shareholders at the book value as on 1.4.2016. If the principle of Book Value given by the Ld. Tribunal is accepted for the scheme, this will require re-working of the exchange share ratio for all the companies. This will amount to re-writing the scheme of amalgamation together again which will necessitate that the process of approval of amalgamation scheme be initiated de novo. In view of the serious consequences it would be unfair to approve the scheme the foundation of which is seriously compromised. We have also noted that the 2nd Respondent is the promoter of Dalmia Bharat with 21.82%. Dalmia Bharat is a listed company on the Stock Exchange. The net worth of Dalmia Bharat is around ₹ 50 billion. We note that the swap ratio inter se 2nd respondent and the 9th respondent as proposed in the scheme is erroneous on the face of it and the Regional Director of Chennai has also raised certain concerns over the merit of the scheme. NCLT has also directed the transferee company to make to the objector at the book value as on 1.4.2016 whose shares were cancelled in terms of respective c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections raised in the affidavit regarding lack of clarity/lack of furnishing of crucial information/details on many aspects of the scheme which has been pointed out in para (9) and (11) (Page 704 to 711 of appeal) and prayed that the Bench may dispose of the matter on merits and pass such order/orders as deemed fit and proper. We find that the objections raised by the Regional Director were material. Impugned order however has given no good reasons to ignore the objections. Conclusion We find that the valuer made a valuation disregarding the methodology, methods or share entitlement ratio even as stated by him in his valuation report. No valuation of each share of every company has been done to arrive at the exchange ratio and we are convinced that only the guess work has been done to arrive at share exchange ratio. We are unable to convince ourselves that on the basis of this valuation report and for other reasons recorded above the amalgamation can be termed as fair to all stakeholders. Such Scheme could not have been approved. In view of the above the following order is passed. i) The appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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