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TMI Blog2013 (6) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate Limited (hereinafter referred to as "Transferor Company No.3"), Canvas M Technologies Limited (hereinafter referred to as "Transferor Company No.4"), Mahindra Logisoft Business Solutions Limited (hereinafter referred to as "Transferor Company No.5) (The Petitioner Company, Transferor Company No.1, Transferor Company No.3, Transferor Company No.4 and Transferor Company No.5 collectively (hereinafter referred to as the "Transferor Companies") and Tech Mahindra Limited (hereinafter referred to as "Transferee Company") wherein it is proposed to merge Venturbay Consultants Private Limited, the Petitioner Company, C & S System Technologies Private Limited, CanvasM Technologies Limited, Mahindra Logisoft Business Solutions Limited with Tech Mahindra Limited and their respective shareholders and creditors. 02. The petitioner is a leading information communications and technology Company has got wide range of expertise and also business nationally and internationally. The other Companies and also the transferee Company Tech Mahindra Limited (TML) also deals with the similar business. The particulars of their investments and the memorandum of articles of association have been detaill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Private Limited controlled by them and also in the petitioner-Company. They have got about 8.27% of issued capital by 12-12-2008. On 07-01-2009 certain disclosers were made by the then Chairman Sri B. Ramalinga Raju with regard to fudging of the accounts and irregularities in conducting the business and he has stepped down as Chairman. The Company Law Board in C.P.No.1 of 2009 suspended the entire Board with immediate effect. On 09-01-2009 a fresh Board was constituted with some of the nominated members and also Chartered Accountants and Solicitors. Forensic investigation was also directed to be undertaken. The CBI has taken up investigation and Serous Fraud Investigation Office (SFIO) and SEBI have also taken up investigation. The CBI filed a charge sheet against the former promoters. SFIO has also started investigation into seven cases and the petitioner compounded the offences. The petitioner has also settled with the Security Exchanges Commission, USA by paying $ 10 Million dollars. 05. The Board of Directors, who are constituted by the orders of the Company Law Board, intended to bring strategic investor who could bring in funds and managed the affairs of the Company. A com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies of the erstwhile promoters had benefited by the inflation of share price which was as a result of inflation of receipts and bank balances. It would appear that SRSR Holdings Private Limited was the principal shareholder in the erstwhile promoter's group. It is claimed that certain other group companies of the erstwhile promoters had borrowed funds from certain institutions and that the Petitioner Company's shares held by SRSR Holdings Private Limited were offered as collateral. It is claimed that the group companies of erstwhile promoters advanced the funds so raised in the market to the Petitioner Company. It is also claimed that the shares were sold by Financial Institutions and that the loans have been squared off as between lenders and group companies of erstwhile promoters. Several group companies have filed suits against the Petitioner Company and these are being contested by the Petitioner Company". 07. It was also pleaded that the transferor-Company has got sound financial capability and potentiality for advancement of the common business effectively. As per the scheme of amalgamation with regard to legal proceedings under Part "C" with reference to the petitioner-Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .192 of 2012 for winding-up. According to the petitioner, the petitioner has advanced money to the transferor- Company and it is reflected in the accounts and there is a prima facie establishment of the claim, which is also admitted and the claim of the petitioner is that the creditors are dubious and consequently no need to call for the unsecured creditors' meeting and the claim for ignoring the debts is not illegal. 11. According to the petitioner in C.A.No.862 of 2012, mere solvency of the petitioner is not sufficient and the refusal to pay and taking shelter under the investigation by the Central Bureau of Investigation or SFIO is not proper. In fact, a civil suit was filed for recovery of a sum of Rs. 275 Crores against the petitioner and it is a fit case for admission of the winding-up petition. This claim was objected by the petitioner solely on the ground that the debt is not genuine and also on the ground that it is barred by time and the claim for winding-up is not bona fide and it was only a ruse to pressurise the payment of money even without determining the liability. 12. 37 creditors have filed Company Applications objecting the scheme of amalgamation mainly contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of amalgamation is fair and in the public interest and if so it has to be sanctioned as pleaded? POINTS:- 16. Before considering the rival contentions, it is necessary to take note of the necessary factors in an application for amalgamation or arrangement. The decision on this aspect is Miheer H. Mafatial Vs. Mafatial Industries (AIR 1997 SC 506), which has been followed consistently in the subsequent decisions relied on by both the parties and consequently the other decisions are not being referred to as they only reiterated the same law. In para.28 the Supreme Court has laid down the following broad principles while considering an application under Section 391 of the Act, which reads as under:- 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 Sub-Section (2). 3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the courts jurisdiction. 17. The above decision also considered the swap ratio and the basis for consideration in Para No.39, which reads as under:- "It was submitted that the exchange ratio of equity shareholders so far as the transferee-Company is concerned works very unfairly and unreasonably to them. As per the proposed scheme 5 equity shares of transferor-Company are to be exchanged for 2 equity shares of transferee-Company. So far as this contention is concerned it has to be kept in view-that before formulating the proposed Scheme of Compromise and Amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors appellant himself was a members. M/s. C.C. Choskhi & Co., a reputed firm of Chartered Accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once stated that valuation of shares is a technical and complex problem which can be appropriately left 1 to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat are the defects with regard to the procedure and as to whether the court has to reject the scheme for the several contentions raised by the objectors. 21. Evidently, in this case, the meeting of the unsecured creditors was not called for on the ground that so-called debts are not real and binding on the Company and they are said to be tainted. The contention of the objecting petitioners is that the petitioner cannot individually decide about the nature of the debts. The purpose of calling for amalgamation meeting of the creditors is to ascertain their views and mostly it is the interest of the creditors to be safeguarded. Under Section 391(2) of the Act, the opinion of majority of 3/4th of the creditors will be binding on the others. In this case, except 37 Companies who filed the objections petitions, there is no other unsecured creditor opposing the petition and on the other hand the secured creditors have accepted for the scheme. It is also not in dispute that though the meeting was not called earlier, it can be called by the court subsequently. The object of calling such a meeting is only to obtain the views of the creditors. Now those creditors themselves have come up bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yderabad (2013) 176 Company Cases 483 (AP). Reliance is also placed on the other decisions reported in In Re M/s. Northgate Technologies Limited (2012) 172 Company Cases 438 (AP) and in G.V. Films Limited Vs. Metage Special Emerging Market Fund Limited and Others (2013) 176 Company Cases 483 (AP) to contend that the meeting of the creditors cannot be dispensed with and it is mandatory. This objection has already been answered earlier. Since the claim of the creditors is being considered based on the material, there is no prejudice for not calling the meeting. 23. Before considering the merits of all these applications, a few facts have to be noted. The petitioner-Company was in high reputation and globally recognized with respect and nobody has lifted the veil of secrecy of the affairs of the Company till 07-01- 2009 when the confessional statement of the Ex-Chairman Sri B. Ramalinga Raju was addressed to the Board of Directors about the affairs of the Company, which, for the purpose of convenience, reads as under:- "The Balance Sheet carries as of September 30, 2008. a. Inflated (non-existent) cash and bank balances of Rs. 5,040 crore (as against Rs. 5361 crore reflected in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also mentioned that the Company had an understated liability of Rs. 1,230 Crores and that the same was not reflected in the Books of Accounts. Along with this letter he enclosed the details regarding the loans received from 37 companies and details about return of part of the amount to 15 companies. This clearly establishes that Shri B. Ramalinga Raju (A-1) was aware of these financial transactions between M/s SCSL and the companies and also that the other Board of Directors of M/s SCSL were kept in the dark with regard to these borrowals and the resultant liability on M/s SCSL. The accused persons fraudulently and dishonestly suppressed the liability on M/s SCSL on account of these borrowals to the investors also. 76. After the said letter of confession dt. 7.1.09 of Sri B. Ramalinga Raju(A-1), letters were issued to M/s SCSL by 37 companies who had advanced loans to M/s SCSL, the next day i.e. 8.1.09 demanding repayment of the outstanding amounts. These letters were issued by the Directors of these companies at the behest of Sri B. Ramalinga Raju(A-1) and Sri B. Suryanarayana Raju(A-6) as revealed during the investigation. These borrowed amounts were not reflected in the Books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans by erstwhile management of M/s. Satyam Computer Services Limited, the new management is justified in not crediting the amounts received from 37 companies in their names and not showing of them as creditors in Company's books and further reflecting such amount as "Amounts received pending investigation suspense account (net)". In the circumstances explained above, since no creditor is identified, disclosure requirement under AS 18 as to 'Related party' does not arise. d. Ekdanta Greenfields Private Limited claimed that in spite of receipt of funds by Mahindra Satyam it was not recognized as a Creditor. In this regard Ekdanta Greenfields Private Limited submitted their statement of account maintained with Axis Bank,F.No.201, H.No.1-11-192, Kamala Arcade, sham Lal Building, Begumpet, Hyderabad - 500016. The bank statement clearly states that from 31st July, 2008 to 22nd September, 2008 Rs. 36.50 Crores have been paid to "Satyam Computer Services Ltd through 7 cheques bearing Nos.2201 to 2207. In this regard we would like to bring to your attention that the bank statement submitted by Ekdanta Greenfields Private Limited is not in the name of Ekdanta Greenfields Pvt. Ltd, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to any of the thirty seven companies and has replied to the legal notices stating that the claims are legally untenable. The Directorate of Enforcement ("ED"), Government of India, is conducting an investigation under the Prevention of Money Laundering Act, 2002 on the amounts allegedly advanced by the aforesaid parties and has directed the Company not to return the amounts until further instructions from the ED. The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings initiated by these thirty seven companies. In view of the above, we are unable to determine whether any adjustments/disclosers will be required in respect of the aforesaid alleged advances amounting to Rs. 12,304 Million (net) and in respect of the non-accounting of any damages/compensation/ interest in these financial statements." We are therefore of the opinion that the accounting system adopted by M/s. Satyam Computer Services Limited., in accounting for Rs. 1,230.40 crores for the years ended 31-03-2009 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of these transactions are not raised by the transferee-Company but even before the Board of Directors were appointed, the disclosure was made by the Chairman and, therefore, they continued to be under cloud. Any right for the objecting creditors can be considered only if in the particular circumstances of this case, the genuineness of the debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors. 29. Added to the above circumstances, the payments by the 37 Companies were alleged to have been made from 2006 to 2008, which are not supported by any corporate document or resolutions. Though the repayment was made by SCSL to Ekadanta, it was also not reflected. It can only be taken as an internal understan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehension is as to whether what will happen if the transferee-Company is unable to pay the debts subsequently. The same reason also applies to the same situation if the petitioner-Company is also unable to pay the amounts in future even if it is to be continued individually without amalgamation. The solvency of both the Companies and the potentiality after the merger is clearly disclosed in the financial statements and in fact it is not seriously disputed by any person about the competency of the transferee-Company or the beneficial advantage to the petitioner by scheme of amalgamation. The transferee-Company and the petitioner-Company as on date are sufficiently solvent to meet the demand of the creditors provided the binding nature of the debts on the petitioner-Company is established by the objecting creditors. 31. Ignoring the basic truth, a Court cannot base findings on imaginations or surmises. The arguments of the objectors is more personalised in their own interest for money rather than the duty of the court which has to consider several circumstances about the validity of scheme of amalgamation and also the beneficial interest to the public or the majority of the sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scam has broken up and when the share value has fallen and after the intervention of the Company Law Board, as a strategic investor global tenders were called and the meeting was presided by Justice S.P. Bharucha, Former Chief Justice of India, and the bid of the Venturbay Consultants has been accepted and lot of money has been supplied and, therefore, the transactions as to how Venturbay Consultants became an investor with the petitioner- Company is not behind the scenes and it is open. Further-more, merely because it happens to be a subsidiary of the transferee- Company, no fraud or undue advantage can be attributed to the transferee-Company or to Venturbay Consultants. The Court cannot ignore the fact that the investment made by Venturbay Consultants was at a time when the share value has collapsed. Merely because, with the further investments and with the effort of the newly constituted Board at the instance of the Company Law Board, the petitioner could post some profits on higher side, it cannot be said that all the dealings are not fair. In fact, the Company nominees and the shareholders participated in the meeting and majority of the shareholders have approved the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioner. In fact, the petitioner has accepted all the requirements of the Regional Director with regard to furnishing of the information or with regard to the prosecution and the liability undertaken by the transferee- Company. Therefore, the report of the Official Liquidator or the Regional Director cannot be taken advantage by objecting creditors and on the other hand they do certify the beneficial interest of amalgamation. I, therefore, find that there is also no violation of the requirement from calling information from the Official Liquidator or the Regional Director. It has been already observed that the reports of the Official Liquidator or the Regional Director are not final and it is ultimately for the Court to consider the effectiveness of those reports. In this case, the court was inclined to accept the conditions that are to be imposed for amalgamation as suggested by the Regional Director. 38. Therefore, on a comprehensive assessment of the claims, this court feels that the scheme of amalgamation is in the interest of the public and the shareholders and the interest of the workmen is also protected. There is no attempt to defeat any provision of law with re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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