MIS. PA VITRA GOODS AND SUPPLIERS PVT. LTD. v. Official Liquidator

Judgment

1. By this common order I am disposing of Company Petition No. 73 of 2011 and Company Petition No. 76 of 2011 filed under Sections 391 to 394 of the Companies Act, 1956 seeking sanction of the Scheme of Amalgamation of Pavitra Goods and Suppliers Private Limited ('Transferor Company No. 1 ') and Murti Construction Private Limited ('Transferor Company No. 2') with Duggal Builders Private Limited ('Transferee Company').

2. The registered offices of the Transferor and Transferee Companies are situated at New Delhi, within the jurisdiction of this Court.

3. Details with regard to the date of incorporation of Transferor and Transferee Companies, their authorized issued, subscribed and paid up capital have been given in the petition.

4. Copies of the Memorandum and Articles of Association as well as the latest audited Annual Accounts for the year ended 31st March, 2010 of the Transferor and Transferee Companies have also been enclosed with the petition. Co. Pet. 73 & 76 of2011

5. Copies of Resolutions passed by the Board of Directors of the petitioner Companies approving the Scheme of Arrangement have also been placed on record.

6. It has been submitted that no proceedings under Sections 235 to 251 of the Companies Act, 1956 are pending against the petitioner companies.

7. So far as the share exchange ratio for amalgamation is concerned, the Scheme provides that, upon the Scheme finally coming into effect, the Transferee Company shall issue shares to the shareholders of the Transferor Companies in the following manner:- (a) Transferor Company No.1: 3 (three) equity shares ofRs.10/ (Rupees Ten) each in Transferee Company for every 2 (two) equity share of Rs.10/- (Rupees Ten) each held by them in the Transferor Company No.1. (b) Transferor Company No.2 : 1 (one) equity share of Rs.10/ (Rupees Ten) each in Transferee Company for every 1 (one) equity share of Rs.1 01- (Rupees Ten) each held by them in the Transferor Company No.2.

8. The petitioner companies had earlier filed C.A. (M) No. 21 of 2011 and C.A. (M) No.22 of 2011 seeking directions of this Court for dispensation of meetings. Vide order dated 31st January 2011, this Court allowed the application and dispensed with the requirement of Co. Pet. 73 & 76 of2011 convening meetings of shareholders, Secured creditors and Unsecured creditors of the Transferor and Transferee companies.

9. The petitioner companies have thereafter filed the present petitions seeking sanction of the Scheme of Amalgamation. This Court vide order dated 15.02.2011 issued notice in the Petitions to the Regional Director, Northern Region and the Official Liquidator. Citations were also directed to be published in "Statesman" (English, Delhi Edition) and "Jansatta" (Hindi Delhi Edition). Affidavit of service and publication has been filed by the petitioner companies showing compliance regarding service of the petitions on the Regional Director, Northern Region and the Official Liquidator and also regarding Publication of Citations in the aforesaid Newspapers on

27.07.2011. Copies ofthe newspapers cuttings, in original, containing the publications have been filed with the affidavit of service.

10. Pursuant to the notices issued, the Official Liquidator sought information from the Petitioner Companies. Based on the information received the official liquidator has filed his report dated 05.08.2011. In para 1.1 of his report, the official liquidator while submitting his opinion on the valuation of the shares, has observed that for the Co. Pet. 73 & 76 of2011 purposes of deciding the exchange ratio the value per share of the Transferee Company has been incorrectly taken by the Chartered Accountant at Rs. 145/- per share considering the profitability instead of taking value per share at Rs. 96.82 on the basis of net assets value method. He further submits that if the Transferor Company wants to consider profitability factor then it should have the value per share of all the three companies on the basis of average of net asset value per share and profit earning capacity value per share.

11. The official liquidator, however, has stated that he has not received complaint against the proposed Scheme of Amalgamation from any person/ party interested in the Scheme in any manner till the date of filing of this report. The official liquidator has further submitted that the affairs of the Transferor Companies do not appear to have been conducted in a manner prejudicial to the interest of its members or to public interest as per second proviso of section 394 (1) ofthe Companies Act, 1956.

12. Dealing with the submissions made by the Official Liquidator

in para 1.1 of his report, Mr. Nagesh Counsel for the Petitioners submits that the Chartered Accountant while determining the share Co. Pet. 73 & 76 of2011 7 exchange ratio has considered net asset value method of the Transferee Company. However, as the business and profitability of the Transferee Company was exceptionally good in the last three financial years and stated to grow in future the profitability factor was given due consideration and accordingly a weightage of multiple of

1.5 has been given by the Chartered Accountant to the value of the shares of the Transferee Company. After giving a multiple of 1.5 to its value of Rs. 96.82 per share the fair value of the Transferee Company comes to Rs. 145/- per share. The Chartered Accountant has not given the weightage of multiple of 1.5 to the value ofthe shares ofthe Transferor Companies as they do not have significant business activity which is evident from their audited balance sheets as on

31.03.2010.

13. In my opinion, the share exchange ratio has been approved by the shareholders of all the three petitioner companies in their commercial wisdom and this Court in several judgments relying on the judgment of the Hon'ble Supreme Court in Miheer H Mafatlal Vs Mafatlallndustries Ltd.(1996) 87 Com Cases 792 (SC) has held that the Court will not sit in appeal over the valued judgment of the Co. Pet. 73 & 76 of2011 equity shareholder who are supposed to be commercial men. Further, the Bombay High Court in German Remedies Limited (2005) 125 Com Cases 615 (BOM) has held that "the valuers had made valuation by considering three methods of value namely, the net asset value, profit earning value and the market value of the shares of the companies as quoted on the stock exchange. The valuers arrived at the valuation on the basis of relative valuation of shares of both the companies based on the aforesaid methodologies and various qualitatively factors relating to each company, business dynamics and growth potential of business. Valuation is not an exact science. Different methods are applied for valuation. Valuations made by different methods widely differ and valuer generally considers appropriate weighted average of the valuation determined by the different methodologies to arrive at the fair market value. What weightage should be given to each factor would depend upon the facts and circumstances of each case ...... ,,

14. Consequently, I am of the view that this Court is only to see whether the ratio is so wrong or error is so gross as would make the scheme unfair or unjust or oppressive to the minority of members or Co. Pet. 73 & 76 of2011 any class of them. The share exchange ratio determined by the Chartered Account has been approved unanimously by all the petitioner companies. I, therefore, see no merit in the submissions made by the Official liquidator in relation to the share exchange ratio in para 1.1 of his report and I uphold the share exchange ratio as mentioned in the scheme of arrangement.

15. In response to the notices issued m the Petition, Regional Director, Northern Region, Ministry of Corporate Affairs has filed his affidavit I report dated 12.07.2011. Relying on clause 8 of the Scheme of Amalgamation, he has stated that, upon sanction of the Scheme of Arrangement all the employees of the Transferor Company shall become the employees of Transferee Company without any break or interruption in their services upon sanctioning of the Scheme of Amalgamation by this Court. He further states in the report that the Central Government has no objection to the proposed Scheme of Arrangement and the case may be decided by this Court on merits.

16. No objection has been received to the Scheme of Arrangement from any other party. Mr. P. Nagesh, learned counsel for the Transferor and Transferee companies has filed an affidavit dated Co. Pet. 73 & 76 of2011

05.08.2011 confirming that neither the petitioner companies nor the Counsel has received any objection pursuant to the citations published in the Newspapers. 1 7. The counsel for the Official Liquidator and the representative of Regional Director who are present in the Court today have not raised any further objections in sanctioning the Scheme of Amalgamation.

18. In view of the approval accorded by the Shareholders and Creditors of the petitioner Companies, representations/ reports filed by the Regional Director, Northern Region and the official liquidator, attached with this court to the proposed scheme of Amalgamation, there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation. Consequently sanction is hereby granted to the Scheme of Amalgamation under Section 391 and 394 of the Companies Act, 1956. The petitioner companies will comply with the statutory requirements in accordance with law. Certified copy of the order be filed with the Registrar of Companies within 30 days from receipt of the same. In terms of the provisions of Section 391 and 394 of the Companies Act, 1956 and in terms of the Scheme, the whole or part of the undertaking, the property, rights and powers of the Co. Pet. 73 & 76 of 2011 ( I Transferor companies be transferred to and vest in the Transferee Company without any further act or deed. Similarly, in terms of the Scheme, all the liabilities and duties of the Transferor Companies be transferred to the Transferee company without any further act or deed. It is, however, clarified that this order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges, if payable in accordance with any law; or permission/ compliance with any other requirement which may be specifically required under any law.

19. Mr. Nagesh states that the petitioner Companies would voluntarily deposit a sum of Rs. 1,00,000/- with the Common Pool Fund of the Official Liquidator within three weeks from today. The said statement is accepted.

20. The petitions are allowed in the above terms. Order dasti. ll-1 MANMOHAN,J AUGUST 09, 2011 NG Co. Pet. 73 & 76 of2011