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TMI Blog2014 (5) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005, its name was changed to SKS Ispat Limited. A fresh certificate of incorporation consequent on change of name was obtained. On 29th December 2006, its name was once again changed, this time to the present name of SKS Ispat & Power Limited. Yet another fresh Certificate of Incorporation consequent on this change of name was obtained. 3. SKS Cements Limited, the Resulting Company, was originally incorporated on 2nd April 2008. On 14th October 2008, SKS Cements obtained a certificate of commencement of business. 4. Four years later, on 15th October 2012, the present proposed Scheme of Arrangement was formulated. The Board of Directors of both SKS Ispat and SKS Cements approved the proposed Scheme of Arrangement. All equity shareholders consented to proposed Scheme of Arrangement, issuing consent letters. On 7th February 2013, SKS Ispat and SKS Cements filed Company Summonss for Direction No. 202 of 2013 and 203 of 2013 seeking dispensation from holding and convening a meeting of their equity shareholders, secured creditors and unsecured creditors. On 1st March 2013, these Company Summonses for Direction were allowed. The present petitions have been filed thereafter. 5. The av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk for a fresh valuation to value the assets defined as demerged under Clause 1.1 of the Scheme. Accordingly, M/s. S.M. Pradhan & Co, Chartered Accountants, on the panel of the Official Liquidator of this Court were directed to value the assets as defined in Clause 1.1 of the Scheme and to submit a report to this Court in a sealed cover. 9. M/s. S.M. Pradhan & Co submitted their report dated 18th December 2013. That report shows that M/s. S.M. Pradhan & Co called for additional documents. In their report, M/s. S.M. Pradhan & Co examined the accounts for the years ending 31st March 2013, 2012, 2011, 2010 and 2009. They found that the entire expenditure of Rs. 96.27 lakhs incurred by SKS Ispat was on tangible assets, capital work in progress and intangible assets under development. The expenditure, M/s. S.M. Pradhan & Company reported being told, consisted of mining rights and other licenses, and certain legal and professional fees. It was only the initial expenditure in relation to the development of limestone mines in Bilaspur in the Bilaspur of Chhattisgarh, in the nature of geological reports, acquisition of mining rights and other pre-operative related expenses that was attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit 16th August 2013. It is undisputed that Tata Capital is one of SKS Ispat's creditors. In the August 2013 affidavit, Tata Capital alleges that the cement division has been undervalued by SKS Ispat "to cheat its creditors". It expresses an apprehension that SKS Ispat is attempting to hive off the cement division to its subsidiary at a meagre value so that it can later be sold to a third party at a higher valuation. 12. There is no stated basis to these expressed apprehensions. Tata Capital, like L&T, is a secured creditor of SKS Ispat. Tata Capital's dues are secured inter alia by a pledge of SKS Ispat's shares held by a promoter associate company, Shree Krishna Structures Private Limited, a first and exclusive charge on the residential property of the promoter, promoter associate company, personal guarantees and corporate guarantees. (L&T Finance is similarly secured.) Some of these securities have in fact been enforced. 13. Ms. Ghone, learned counsel for the petitioner, points out that there is a Corporate Debt Restructuring ("CDR") Scheme in place for SKS Ispat. This has been favourably considered and approved by both CDR and non-CDR lenders. 92.49% of these lenders have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are available in any scenario. Not all of them can always be deployed. For instance, a discounted cash flows ("DCF") method is of virtually no utility when valuing a greenfield project. Project costs and means of finance cannot be valued at this nascent stage. Future cash flows, terminal values, discount rates, net present values, investment risks, opportunity costs etc. cannot be estimated. Similarly, where a plant is not commercially operational and has not even been set up, and there is no history of past earnings, it is impossible to estimate future profits in order to use a profit-based valuation method. The market approach too is unviable since the cement plant is not established and has no commercial operations. Comparisons with other established cement companies and cement plants are unrealistic and apt to lead to distortions. In this context, I must note that both Chartered Accountants have arrived at a similar valuation. They have also both used an identical method for arriving at their valuation. It is, in these circumstances, difficult for a Court to sit in judgment over the opinions of professionals, especially when an independent professional has been appointed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it was contrary to the interest of the shareholders as a class". Importantly, in Miheer Mafatlal, one of the issues raised was as to the share exchange ratio. The question of what is an appropriate share exchange ratio is a commercial decision of well informed equity shareholders. It is not for the Court to sit in appeal over this value judgment; and once expert Chartered Accountants have taken relevant factors into account, and where this opinion of the Chartered Accountants has carried weight with the Board of Directors and the shareholders, it is not for any individual creditor to insist that some other ratio should be adopted or that some other valuation method might or ought to have been preferred. This Court cannot act as a Court of Appeal to sit in judgment over the informed view of the parties concerned. It has neither the expertise nor the jurisdiction to examine matters that lie within the commercial wisdom of creditors and members of the Company. The sanctioning Court must ensure that the requisite statutory procedure has been followed and that the scheme as a whole is found to be just, fair and reasonable from the point of view of prudent men of business taking a comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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