9911796707
Advanced Search 
TMI Blog2021 (8) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed and paid-up equity share of Rs. 10 each in the share capital of the applicant-company by increasing the nominal value of such consolidating 250 equity shares of Rs. 10 to Rs. 2,500 each ; (b) Such other and/or further orders as are deemed necessary by this hon'ble Tribunal in the facts and circumstances of the case." 2. C. P. No. 1408 of 2019 filed under section 66 of the Companies Act, 2013 read with the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 by M/s. Simpson and Co. Ltd. (hereinafter referred to as "applicant/petitioner-company") for confirming the reduction of share capital of the applicant-company seeking the following prayers : (a) That the special resolution for reduction of capital resolved in the extraordinary general meeting held on November 7, 2019 set out in paragraph 21 of the application be confirmed. (b) That to this end, all the directions necessary and proper be made and given. (c) That the minutes to be proposed and filed be approved. (d) That such further or order/orders be made in the premises as to the Tribunal shall deem fit and proper and thereby render justice. 3. The company applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any track or surface adapted for the use thereof, etc., and various similar objects as set out therein." 6. The details of the capital structure, viz., the authorised, issued, subscribed and paid-up share capital of the applicant-company as on March 31, 2019 are as follows : Authorised share capital Amount in Rs. 1,10,00,000 equity shares of Rs. 10 each 11,00,00,000 1,00,000 redeemable preference shares of Rs. 100 each 1,00,00,000 Total 12,00,00,000 Issued, subscribed and paid-up capital Amount in Rs. 73,77,500 equity shares of Rs. 10 each 7,37,50,000 Total 7,37,50,000 7. Learned counsel for the applicant has submitted that the shares of the petitioner-company have been dematerialised as per the relevant rules and demat account has been opened through a depository namely Central Depository Services Ltd. 8. Learned counsel for the applicant has submitted that clause 12(a) and (b) of the articles of association of the applicant-company provides for consolidation of shares and the same is extracted and reproduced hereunder : "12. Consolidation and division of shares.- (a) The company shall have power to alter the conditions of its memorand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the applicant has submitted that the applicant-company engaged the registered valuer Mr. T. V. Balasubramaniam, partner of M/s. PKF Sridhar and Santhanam LLP, Chartered Accountants (Registered under the IBBI) and RBSA Capital Advisors LLP, a SEBI Registered Category 1 Merchant Banker for valuations of shares. The registered valuers have arrived at the fair value of each share of face value of Rs. 10 at Rs. 14,860 per share. The said fair value and they have confirmed the fairness of the valuation arrived by the registered valuers and same was accepted by the board of directors in their meeting held on September 25, 2019. 11. Learned counsel for the applicant submitted that the board of directors of the applicant-company at the same meeting held on September 25, 2019 subject to the approval of the shareholders and this Tribunal, resolved that any fractions arising from such consolidation (both physical and demat mode) will be reduced under the provisions of section 66 of the Companies Act, 2013 and Rules framed thereunder, from the capital of the applicant-company and the consideration to be paid for the equity shares reduced has been determined at the rate of Rs. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministrative and procedural work and legal compliances, and general efficiency in corporate decision making. (d) The proposed consolidation would provide an option for the small shareholders to exit at a fair consideration as otherwise in view of non-availability of ready tradability, it will impair the value of such shares. 14. Learned counsel for the petitioners submitted that after approval of the shareholders for the consolidation of shares and consequent reduction was obtained through a special resolution passed at the extraordinary general meeting of the applicant-company held on November 7, 2019. At the meeting, the poll was ordered to be taken by the chairman of the meeting pursuant to section 109(1) of the Companies Act, 2013, wherein 63 share-holders holding 73,38,864 shares of face value of Rs. 10 each were present in person or proxy and out of which 12 shareholders holding 73,28,255 shares constituting 99.86 per cent. in value have approved and passed the said special resolutions for consolidation and reduction. However, 47 shareholders holding 10,492 shares constituting 0.14 per cent. have voted against the said resolutions. Votes polled by 4 shareholders holding 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided under section 66(1)(a) or (b). In the case on hand, the reduction of capital is only consequent to consolidation of shares, in respect of any fractions arising thereof and it does not involve any extinction or reduction of any liability in respect of any unpaid share capital or cancellation of a paid-up share capital which is lost or is unrepresented by available assets. It is further submitted that upon consolidation, the provisions of section 61 of the Act do not contemplate the manner in which the fractional shares are to be treated or paid off the capital. Hence it may not strictly fall under any of the methods specified under section 66(1)(a) or (b)(i) of the Act. In view of payment to shareholders holding fractional share capital which is in fraction and which is also in excess of the wants of the applicant (on account of consolidation), such reduction is also considered in excess of the wants of the company and consequentially would be falling under section 66(1)(b)(ii) of the Companies Act, 2013. 18. Hence, this application is filed under section 66 for confirmation and the reduction of capital if any consequent to consolidation of shares in respect of any fractions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished by registered valuer to the said objections of Mr. M. A. A. Annamalai as stated in reply dated November 5, 2020 to the said objections. 22. The other objections raised by Mr. Balu Sridhar is that valuation report has not been provided by the petitioner-company and in this regard it is submitted that the valuation report and fairness certificate are not documents placed for consideration at the shareholders meeting and as such there is no requirement for attaching the same to the notice. Section 102(3) of the Companies Act, 2013 only requires that where any item of business refers to any document, which is to be considered at the meeting, the time and place where such document can be inspected must be specified in the explanatory statement. In the instant case as the valuation report is not a document placed for consideration at the meeting the same was not attached to the notice of the extraordinary general meeting. Further the Regional Director in his report dated September 16, 2020 filed before this Tribunal has annexed the valuation report and the same is available to the said objecting shareholder as a copy of it can be obtained from the registry as per procedure. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions if any arising out of consolidation of shares. The company has no secured creditors. In so far as the unsecured creditors are concerned the same aggregates to Rs. 151.14 crores (forming part of 10.59 per cent. of the total equity of the company of Rs. 1,631.91 crores) and occurs in the day-to-day business of the applicant-company. Furthermore, the applicant-company as stated supra is a profit-making company with sound financial position and assets. The petitioner-company has positive net worth of Rs. 1,631.91 crores. The income for the financial year 2018-19 is Rs. 1,652.03 crores and the corresponding profit after tax is Rs. 176.29 crores. Hence the said liabilities of unsecured creditors will be paid as and when the same is due and payable and, in any event, the said temporary debts are protected/secured, considering the financial position of the company. In any event, though wide advertisements of notice of petitions were issued in leading newspapers Indian Express and Dinamani, none of the creditors of the applicant have filed any objections for either the consolidation or the consequential reduction before this Tribunal. 26. It was further submitted that, no one will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 per cent. of the majority share holders 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 two shares of transferor company for five shares of the transferor company . . . In this connection we may also refer to a decision of Moughm J. in Hoare and Co., In re [1933] All ER 105 (Ch D), wherein it was laid down that where statutory majority had accepted the offer the onus must rest on the applicants to satisfy the court that the price offered is unfair . . . These observations in our view represent the correct legal position on this aspect. We may also keep in view that in the present case not only expert like C. C. Chokshi and Co., had suggested the ratio but another independent body ICICI Security and Finance Co. Ltd., reached the same conclusion which was conveyed by its letter dated November 10, 1993 to the company approving of the entire scheme along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, the records submitted and the documents filed in its support. We are of the view that the apprehension as expressed by minority shareholders with regard to consolidation of shares is concerned, the company has well taken care of their concern. The company having complied with the statutory requirement, as con templated in the Act, we are of the view that the appeal deserves to be allowed. The reason taken for dismissal of company petition by the National Company Law Tribunal does not have any substance. As on the date of extraordinary general meeting, it is evident that the votes cast in favour of the resolution for consolidation of shares is more than 95 per cent. It is noteworthy to mention that during pendency of the appeal, most of the shareholders, who objected for consolidation of shares, have sold their shares to the director of the appellant-company. Considering and taking into consideration the transfer of shares, more than 95 per cent. of shareholding, appears to be in favour of consolidation of shares. From the records, only two share holders holding 172 and 335 shares respectively remained as share holders of the company and unequivocally their percentage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the applicant-company approved the resolution. (iii) Since the consolidation of shares of the applicant-company in the manner hereinabove described results infraction of holding of certain number of shareholders, majority of whom hold less than 250 shares of Rs. 10 each approached this Tribunal as objectors to the above course of action. (iv) Learned counsel Mr. H. Karthik Seshadri appeared for 20 objectors. The list of the objectors and shares held by the objectors are given below : Sl. No. Name of the objectors Folio No./Demat account No. No. of shares held 1. M. A. A. Annamalai and Ulagamman 1301740000003840 394 2. A. Meyyappan and A. Ulagammai 1301740000011100 84 3. A. Ulagammai and M. A. A. Annamalai 1301740000003830 1 4. M. Nachammai and A. Meyyappan 1301740000117320 1 5. M. A. A. Annamalai (HUF) 1301740000122590 1 6. M. Krishna (minor) 1301740000165400 1 7. A. Meyyappan (HUF) 1301740000179540 1 8. Arun Lakashman (minor) 1301740000180620 1 9. R. Rajan 3665 10. Karthik Seshadri (H.) 1301740000189310 140 11. Nishank Sakariya F. No. 543 400 12. Vijayalashmi Muthu and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The valuation has neither been stipulated under section 61 nor under section 66 of the Act. Hence the pro visions of section 247 would not apply to the facts of the case. The petitioner, in order to address the fractional shares that may arise, has carried out the valuation in the bona fide interests. (ix) It has been submitted by the applicant that the valuer should exercise due diligence while carrying out valuation, which is very vivid on plain reading of the whole valuation report. The statement of valuation analysis has been carried out without a detailed "due diligence" made by valuer in report cannot be equated with the exercise of due diligence (proper care) as stated under section 247 of the Companies Act, 2013, the valuer has exercised proper and all the care while arriving at the value and the same has been tested by SEBI approved valuer in their fairness report. Hence such objections are irrelevant in the present circumstances of the case and deserves to be discarded by this Tribunal. Common objectors : (a) The contentions of the common objectors center around the corporate action taken by the company in order to consolidate each bundle of the 250 equity shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be less than Rs. 50,000 per share. Yet the small minority shareholders were being offered a miniscule amount of Rs. 14,860 per share which is less than one-third the fair price. (iv) They have submitted that the valuation given by the company at INR 14,860 is grossly undervalued. One of the subsidiary companies of Simpson and Co., where the company holds 76 per cent. stake is TAFE with an EPS of 505 for year ended March 31, 2019. A comparable peer for TAFE in the listed market segment is Escorts which is currently trading at a PE multiple of 36 times. A peer valuation analysis translates to a value of INR 13,816 per share of Simpson and Co., for just one company, i. e., TAFE. Considering this valuation alone, it is very clear that the valuation arrived at by the company is grossly undervalued as Simpson and Co., has several subsidiaries, associates and joint ventures apart from its core operating business. Furthermore, it is noticed that TAFE holds 88,86,831 shares in AGCO Corporation which is a NASDAQ listed entity which is currently trading at US $ 80 per share. The approximate value of such investment in INR is Rs. 5,300 crores for TAFE. There are several such hidden valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which had been confirmed by the SEBI Registered Category-I Merchant Banker. According to the objectors, the value arrived at and proffered by the applicant-company is only Rs. 14,860 which is abysmally low. One of the objectors has categorically stated that the value per share could be in the range of Rs. 50,000 to Rs. 5,00,000. (d) This Tribunal observes that the value of any investment particularly equity share is based on its ability to produce a return. Admittedly, investors of equity shares listed in the stock market have two kinds of rea sonable expectations, viz., (i) to get regular dividend, and (ii) appreciation in the market price which will maximize their wealth ; capital appreciation. Price earnings ratio signifies the relationship between price and earnings (market price divided by earnings per share) ; evidently in the case of listed shares. It is not so in the case of equity shares of unlisted public limited companies for which there is no regular or assured market in which case the determinants of value per share cannot be attributed to P/E ratio. (e) There can be many determinants or a few determinants depending upon the perception of an individual investor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainment of which is also disputable by the objector. Therefore this Tribunal is unable to discern the contention of the objectors pertaining to disregarding of the discounted cash flow method. (h) This Tribunal is unable to observe any inappropriateness in the value arrived at Rs. 14,860 per equity share of Rs. 10 each which is 1,486 times of the nominal value of Rs. 10 per equity share gained over a period of time. The equity shares of the applicant-company being unlisted, do not carry liquidity as there can be no takers to acquire these shares for a price of Rs. 14,860 or even below since higher the price demanded the greater will be the illiquidity discounting factor. (i) Therefore, the objectors who are the dissenting shareholders are certainly free to enjoy their constitutional rights of holding these shares after consolidating by institutionalizing a Trust or sell these shares for a better price than what is proffered by the applicant-company, if there are buyers. (j) This Tribunal is also persuaded by the judgment rendered by the hon'ble High Court of Karnataka in the matter of Vijay Kumar D. Shah v. Hewlett-Packard Global Soft Ltd. [2014] 184 Comp Cas 314 (Karn), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be bound to see the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale." The verdict by the High Court upheld this arrangement and dismissed the challenge of the petitioner who is a minority shareholder. 36. We order that in order to safeguard the interest of those who are in the dissenting minority category, who would otherwise not be willing to accept the price of Rs. 14,680 per share offered by the petitioner-company in consideration of cancellation of their shares and reduction, the petitioner-company shall facilitate constituting a trust in which the fractional shares shall be vested for benefit of the dissenting shareholders. 37. We further that in order the safeguard of interest of the dissenting shareholders, who do not offer the shares to the company for cancellation of the shares held by them by accepting price of Rs. 14,680 per share, the petitioner-company shall facilitate constituting Trust, in which fractional shares of the dissenting shareholders shall be vested for their benefit arising thus shares through an appropriate deed, delineating and rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be distributed to all the eligible fraction holders who volunteers to offer their shares to the company for cancellation within 30 days of the record date to be determined for this purpose by the Board after approval of the Tribunal. Pursuant to the confirmation and payment by the company, the shares of the company held in physical and demat mode by such shareholders entitled to fractional shares, arising out of consolidation, shall be deemed to have been automatically surrendered and thereafter can celled by the company and be of no effect." 41. In view of the same, this Tribunal is of the view that it is just and proper to confirm the consolidation of share capital of the applicant-company. Thereafter, reduction of share capital of the applicant as resolved by the members of the company by passing a special resolution and by way of the consents in the form of affidavit. This Tribunal also approves the special resolution set out in paragraph 21 of the application and as extracted in paragraph 40 supra. Respect to modification made by this Tribunal. 42. Notwithstanding the above, if there is any deficiency found or violation committed qua any enactment, statutory rule or regula ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
