American Remedies Ltd.

This petition is filed for the grant of sanction to the scheme of amalgamation of the transferor company, M/s.American Remedies Limited with

the transferee company, Dr.Reddy''s Laboratories Limited (hereinafter referred to as ""DRL Ltd."")

The transferor company herein was the transferee company in another scheme of amalgamation which was considered by this Court in

C.P.Nos.464 and 465 of 2000 and this Court, by order of even date, granted sanction to the said scheme of amalgamation. The transferor

company which was the transferee company in C.P.No.465 of 2000 has filed this petition for the grant of sanction to the scheme of amalgamation

with DRL Ltd.

The transferor company herein was originally incorporated as American Remedies Private Limited on 7.1.1986 under the provisions of the

Companies Act, 1956 (hereinafter referred to as ""the Companies Act"") which was later changed into a public limited company on 1.7.1990. The

authorized and issued, subscribed and paid up share capital of the transferor company as on 31.3.1999 are as under: -

SHARE CAPITAL:-

Authorised:

80,00,000 Equity shares of Rs.10 each divided into 2,00,000 redeemable preference shares of Rs.100 each and 60,00,000 Equity shares of Rs.

10 each. Rs. 8,00,00,000

Issued, Subscribed and paid up capital:

52,65,400 Equity shares of

Rs.10 each Rs.5,26,54,000

(a) Of the above 32,08,800 equity shares of Rs.10 each fully paid up represents Bonus shares allotted by capitalization of Reserves.

(b) Of the above, 15,020 Equity shares of Rs.10 were allotted as fully paid up pursuant to a contract without payments Being received in cash.

The petitioner has set out the objects of the transferor company and also its financial position.

In so far as the transferee company, DRL Ltd. is concerned, the said company is having its registered office at Hyderabad. The financial position

and its objects are set out in the petition.

Before considering the scheme of amalgamation, it is relevant to mention here that with a view to takeover the business and the company of

M/s.Softcaps Private Limited (transferor company in C,P.No.464 of 2000), a shareholders agreement dated 25.2.2000 was entered into between

M/s.Softcaps Private Limited, M/s.American Remedies Ltd., the petitioner company herein, and all the shareholders of M/s.Softcaps Private

Limited as listed in the annexure to the said agreement, and under the agreement, it was agreed to allow the petitioner company herein to acquire

the entire issued shareholding of 4005 equity shares of M/s.Softcaps Private Limited, and accordingly, it is stated, the petitioner company herein

have acquired 4005 equity shares of M/s.Softcaps Private Limited and the petitioner company is the holding company of M/s.Softcaps Private

Limited. The transferee company, DRL Ltd. had acquired 36,44,214 equity shares of Rs.10 each in the transferor company and DRL Ltd. had

also offered to acquire 10,53,100 fully paid up equity shares of the transferor company representing 20% of the voting share capital at a price of

Rs.115 per share and in the bargain, acquired 1,10,000 shares representing 14.62% of the voting share capital.

The scheme of amalgamation has to be considered in the light of the above takeover of the business of M/s.Softcaps Private Ltd., the transferor

company in C.P.464 of 2000 by the petitioner company herein as well as the takeover of the business and, company of the transferor company

herein by the transferee company,. DRL Ltd. In the petition it has been stated that the amalgamation of the transferor company with DRL Ltd.

would enable the amalgamated company to carry on the combined business more economically and efficiently and the amalgamated company

would have the benefit of the combined reserves, manufacturing assets and cash flows of both the companies. It is stated that the amalgamation

would result in improved capital structure enabling the amalgamated company to raise, the required finance on better terms and afford access to

resources easily, at lower cost. In the petition, the advantages that would, accrue from the amalgamation are also set out.

It is stated that the Board of Directors of the transferor company, at the meeting held on 6th March, 2000, approved the scheme of

amalgamation. In the meeting, it was resolved that the entire undertaking of the transferor company would be merged with DRL Ltd. subject to the

approval of the shareholders and confirmation by this Court as well as by the High Court of Andhra Pradesh. It is stated that the Board of

Directors of the transferee company, DRL Ltd. also, at the meeting held on 6.3.2000, approved the scheme of amalgamation.

The scheme of amalgamation as found in Annexure-A5 provides for the transfer of all assets and liabilities of the amalgamating company in

favour of DRL. Ltd. The scheme contains usual clauses for the transfer of undertakings and for continuation of legal proceedings. The scheme also

contains a clause dealing with the profit that would accrue in favour of the transferor company after the effective date.

In so far as the swap ratio is concerned, the scheme contains a clause that for every 12 equity shares of Rs.10 each held by the shareholders in

the transferor company, one equity share of Rs.10 each in the transferee company, DRL Ltd. credited as fully paid up would be allotted.

The scheme also provides that DRL Ltd. is operating in Hyderabad at leased premises and its employees have already been relrenched in

accordance with the provisions of Section 25FF of the Industrial Disputes Act, 1947 and similar steps would be taken insofar as the Ambattur unit

is concerned The scheme contains a list of employees who would be affected by the retrenchment. The Regional Director, Southern Region,

Department of Company Affairs, Chennai has filed an affidavit wherein it is pointed out that all the employees of the transferor company would

either be retrenched or they are put to notice of retrenchment. However, the Director of the transferor company has filed an affidavit stating that

clause 10 of paragraph No.21 of the petition would be modified to the effect that all the staff, workmen and other employees on permanent rolls of

the transferor company on the date of order shall become the staff, workmen and employees of the transferee company, DRL Ltd. and their

services would be continuous and uninterrupted. It is relevant to mention here that the affidavit has been filed only by the Director of the transferor

company and no such affidavit has been filed by and on behalf of the transferee company, DRL Ltd. and there is no doubt that if the scheme is

sanctioned, it would be subject to the condition that the service conditions of the employees are protected.

Then, it is necessary to consider the objection raised by one of the shareholders of the transferor company, by name, P.B.Gopalan. Before

considering the objection, it is relevant to mention here that on the basis of the directions of this Court, the meeting of the shareholders of the

transferor company was held on 15.7.2000 and the Chairperson of the meeting has filed a report stating that the meeting was attended either in

person or by proxy by 79 shareholders holding together 45,92,680 shares of Rs.10 each of the total face value of Rs.4,59,26,800. It is stated that

out of 79 shareholders, one shareholder did not vote and out of the remaining 78 shareholders, 77 shareholders voted in favour of the scheme and

approved the scheme of amalgamation and one shareholder voted against the scheme of amalgamation. It is seen from the report of the Chartered

Accountants that the paid up share capital of the transferor company is Rs.5,26,54,000 and the transferee company, DRL Ltd. is holding

45,84,470 shares of Rs.10 each of the total face value of Rs.4,5 8,44,700 and other shareholders are holding shares ranging from 10 to 1500.

The shareholder, who has voted against the resolution, has filed his objection and this Court ordered notice to the dissenting shareholder. He

also appeared in person and raised his objection. I heard Mr. Krishna Srinivas, learned counsel appearing for the petitioner, the objector and also

the learned counsel appearing for the Central Government.

There is no doubt that the issued paid up share capital of the transferee company DRL Ltd. is Rs.2648.73 lakhs and it has reserves, of

Rs.40012.14 lakhs and its miscellaneous expenditure is Rs.1747.59 lakhs. The balance sheet as on 31.3.2000 shows that DRL Ltd. has reserves

and surplus of a sum of Rs.4,35,16,30, 000 and its secured and unsecured loans come to Rs.1,74,65,95, 000. Its fixed assets and net current

assets after taking into account its current liabilities and provisions come to Rs.2,23,39,31,000. As already noticed, even after taking over the

liabilities of the transferor company in C.P.No.464 of 2000, DRL Ltd. would be in a financially sound position. There is no doubt about it. The

only issue that arises is whether the scheme of amalgamation is fair or not.

The main objection of the objector is that he is having 200 shares in the transferor company and is getting a dividend of Rs.400 per annum at

20%. The swap ratio, as already seen, is fixed at 1:12, and according to the objector, after the merger, he would be getting 16 shares in DRL Ltd.

with the dividend of Rs.48 per annum. According to him, for the investment of Rs. 15,000, the rate of return would be less than 1%. According to

him, after the merger, to get a dividend income of Rs.400 on 16 shares of DRL Ltd. the rate of dividend should be as high as 250% which is highly

impossible. He therefore submitted that the swap ratio should be liberalized in view of the huge financial loss that may be incurred by him. He

referred to an illustration that if a house owner files a petition for revision upwards of the rent which at present does not fetch him even 1% return,

the Court may not suggest that he may sell the house and put the sale proceeds in fixed deposits to get a better return, and submitted that the

scheme of amalgamation is not fair.

On the other hand, Mr. Krishna Srinivas, learned counsel appearing for the petitioner submitted that the objection is not sustainable. According

to him, the shareholders holding in the transferor company 45,92,470 shares of Rs.10 each of the total value of Rs. 4,59,24,700 approved the

scheme of amalgamation and the dissenting shareholder is having 200 shares and when a large majority of shareholders approved the scheme of

amalgamation, the objection raised by the dissenting shareholder is not sustainable in law. He submitted that the value of the shares would increase

manifold if the merger takes place and the exchange ratio has been fixed on the basis of the expert''s opinion which has been approved by the

majority of shareholders having 99.97% voting rights. Learned counsel submitted that the transferor company has incurred loss and on the other

hand, the transferee company is financially sound and the . merger would give benefit to the dissenting shareholder also. Learned counsel in this

connection referred to the report of the Chartered Accountants and also relied upon the decision of the Supreme Court in Miheer H. Mafatlal Vs.

Mafatlal Industries Ltd., , the decision of this Court in Kamala Sugar Mills Ltd., In re 55 Com. Cases 308 and the decision of the Bombay High

Court in Blue Star Ltd., In re 2000 (2) Com. LJ 245 (Bom) . Learned counsel also referred to the relevant passages of the decisions. Learned

counsel relied upon the decision of this Court in the case of Coimbatore Cotton Mills Ltd., In re 50 Com. Cases 623 and the decisions of the

Supreme Court in the case of Commissioner of Wealth Tax Vs. Mahadeo Jalan and Mahabir Prasad Jalan and Others etc., and in Hind. Lever

Employees'' Union v. Hind. Lever, 83 Comp Cases 30. Learned counsel also relied upon the decisions of the Calcutta High Court in the matter of

Carron Tea Co. Ltd., 1966 (II) Com.LJ 278, Kanti Cement and Industrial Co. Ltd., In re 7 Comp Cases 348 and in Hindustan General Electric

Corporation Ltd., In re 29 Comp Cases 46 . He also relied upon the decision of the Bombay High Court in the case of Piramal Spinning and

Weaving Mills Ltd., In re. 50 Comp Cases 514.

It is now necessary to consider the decisions relied upon by the learned counsel appearing for the petitioner before considering, the objection,

raised by the objector. In Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., , the Supreme Court held as under:-

However, Court cannot have jurisdiction like an appellate authority to minutely scrutinize the scheme and to arrive at an independent conclusion

whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have

approved the scheme as required by section 291, sub-section (2) . The Court certainly would not act as a Court of appeal and sit in judgment over

the informed view of the concerned parties to the compromise as the same would be in the realm of corporate, and commercial wisdom of the

concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors

and members of the company who have ratified the scheme by the requisite majority. Consequently the Company Court''s jurisdiction to that

extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play

their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not

to the umpire. The propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open

eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise

or arrangement. The Court cannot, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a

better scheme could have been adopted by the parties.

The Supreme Court in the above decision also laid down the following law:-

... In this connection we may also refer to a decision of Maughm, J., in Re Hoare & Co. (No.2) case 1933 AH ER 105 wherein it was laid down

that where statutory majority had accepted me offer the onus must rest on the applicants to satisfy the Court that the price offered is unfair. In this

connection following pertinent observations were made by the learned Judge:

''The other conclusion I draw is this ...... the Court ought to regard the scheme as a fair one inasmuch as it seems me impossible to suppose that the

Court, in the absence of any strong grounds, is to be entitled to set up its own view of fairness of the scheme in opposition to so very large a

majority of shareholders who are concerned. Accordingly, without expressing a final opinion on the matter because there may be special

circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me; unless it is

affirmatively established that notwithstanding the views of a very large majority of shareholders, the scheme is unfair

We may also refer to a decision of the Gujarat High Court (or Madras High Court?) in Kamala Sugar Mills limited, 1984 (55) Com. Cases 308

dealing with an identical objection about the exchange ratio adopted in the scheme of compromise and arrangement. The Court observed as under:

''Once the exchange ratio of the shares of the transferee-company to be allotted to the shareholders of the transferor-company has been worked

out by a recognized firm of chartered accountants who are experts in the field of valuation and if no mistake can be pointed out in the said

valuation, it is not for the Court to substitute its exchange ratio, especially when the same has been accepted without demur by the overwhelming

majority of the shareholders of the two companies or to say that the shareholders in their collective wisdom should not have accepted the said

exchange ratio on the ground that it will be detrimental to their interest.''

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 M/s. C.C. Chokshi & Co. had suggested the ratio but another independent body ICICI Security & Finance Company Limited,

reached the same conclusion which was conveyed by its letter dated 10th November, 1999 to the company approving of the entire scheme along

with suggested ratio.

In Hindustan Lever Employees'' Union v. Hindustan Lever Ltd. and others, 83 Comp. Cases 30, the Supreme Court considered the question

of power of the Court while sanctioning a scheme of amalgamation and held as under:-

The question is what method should be adopted for arriving at a proper exchange ratio. The usual rule is that shares of the going concern must be

taken at the quoted market value. This principle was also recognized by this Court in the case of Commissioner of Wealth Tax Vs. Mahadeo Jalan

and Mahabir Prasad Jalan and Others etc., .

In this case, Mr. Malegam adopted a combination of three well-accepted methods to arrive at the fair value of the shares. The methods are: (I) the

yield method; (II) the asset value method; and (III) the market value method. After considering all the relevant factors, the valuer recommended an

exchange ratio of 2 equity shares of HLL for every 15 ordinary shares of TOMCO.

Mr. Dholakia has contended that a combination of two methods of valuation was condemned by this Court in the case of Commissioner of Gift

Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, . The valuation of the shares done by Mr. Malegam was clearly erroneous and contrary to the

principles laid down by this Court in that case.

The observations made by this Court in Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, , were in connection with the

valuation of shares of a going concern under the provisions of Wealth-tax and Gift tax Acts and the rules framed thereunder. Under those two

Acts, at the material lime, valuation had to be done on the basis of the price which, in the opinion of the Assessing Officer, the shares would fetch if

sold in the open market. Both section 6 of the. Gift-tax Act and section 7 of the Wealth-tax Act had adopted the same principle of valuation. If

that method of valuation is adopted, then the exchange, ratio fixed in this case cannot be described as unfair to the company''s shareholders in any

way. If profits earning method had been adopted, the ratio would have been very much worse for TOMCO shareholders.

This problem of valuation in the case of amalgamation of two companies has been dealt with by Weinberg and Blank in the book Take-overs and

Mergers, in which it has been stated that some or all of the following factors will have to be taken into account in determining the final share

exchange ratio:

(1) The stock exchange prices of the shares of the two companies before the commencement of negotiations or the announcement of the bid.

(2) The dividends presently paid on the shares of the two companies. It is often difficult to induce a shareholder, particularly an instilution, to agree

to a merger or a share-for-share bid if it involves a reduction in his dividend income.

(3) The relative growth prospects of the two companies.

(4) The cover (ratio of after lax earnings to dividends paid during the year) for the present dividend of the two companies. The fact that the

dividend of one company is better covered than that of the other is a factor which will have to be compensated for at least to some extent.

(5) In the case of equity shares, the relative gearing of the shares of the two companies. The ""gearing"" of an ordinary share is the ratio of

borrowings to the equity capital.

(6) The values of the net assets of the two companies. Where the transaction is a thorough-going merger, this may be more of a talking-point than

a matter of substance, since what is relevant is the relative values of the two undertakings as going concerns.

(7) The voting strength in the merged enterprise of the shareholders of the two companies.

(8) The past history of the prices of the shares of the two companies.

It will, therefore, appear that in the case of amalgamation a combination of all or some of the methods of valuation may be adopted for the purpose

of fixation of the exchange ratio of the shares of the two companies. It is to be noted that even in such a situation, the book value method has been

described as ''more of talking point than a matter of substance''.

In Commissioner of Wealth Tax Vs. Mahadeo Jalan and Mahabir Prasad Jalan and Others etc., , the Supreme Court held as under:

The general principle of valuation in a going concern is the yield on the basis of average maintainable profits, subject to adjustment, etc. The

maintainable profits'' would ''be an certain percentage (say (80%) of the net profits of the company, after deduction of taxes payable by it and this

would be a measure of potential yield per share.

In Kamala Sugar Mills Ltd., In Re, 55 Comp. Cases 308, this Court construed the provisions of section 391(2) of the Companies Act and laid

down the law as under:-

Under S. 391(2) of the Companies Act, 1956, a scheme of amalgamation should be approved by a majority in number representing three-fourths

in value of the member or class of members present and voting either in person or by post. The Court has to ensure that the majority of the

members have been acting bona fide and the minority has not been overridden by the majority having interests of its own clashing with those of the

minority whom they seek to coerce. This can be gathered from the fact as to whether any shareholder objects to the scheme. The court has to

further see that the scheme as a whole is a reasonable and fair one and if the court finds that having regard .to the general conditions and

background and object of the scheme, the scheme as a whole is a fair and reasonable, it is not for the court to substitute its judgment for the

collective wisdom of the shareholders of the two companies. If the court finds that the scheme is fair and reasonable the burden will be on the

objector to show that the scheme is so unfair and unreasonable that no reasonable man would accept it notwithstanding the views of the large

majority of the shareholders that the scheme is a fair and reasonable one. ...... Once the exchange ratio of the shares of the transferee-company to

be allotted to the shareholders of the transferor-company has been worked out by a recognized firm of chartered accountants who are experts in

the field of valuation and if no mistake can be pointed out in the said valuation, it is not for the Court to substitute its exchange ratio, especially

when the same has been accepted without demur by the overwhelming majority of the shareholders of the two companies or to say that the

shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest.

In Blue Star Ltd., In re, 2000 (2) Comp LJ 245, the Bombay High Court in considering the objection of shareholders having minuscule

minority, held as under: -

It is settled law that the power of the court in sanctioning the scheme is to satisfy itself that the provisions of the Companies Act, 1956, have been

complied with and that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve

between two private companies.

In this case, over 98 per cent of the shareholders including the financial institutions have approved the scheme. The financial institutions were in

fact, so vigilant that they moved an amendment resolution and approved the scheme only after the valuation was to their satisfaction. It would also

not be possible to hold that the shares have been unnecessarily undervalued or that the promoters have been unduly benefited from, the scheme.

Yet again, it may be that the respondents are not satisfied with the valuation done, but this is no ground for rejecting the valuation which has been

done by a renowned firm of chartered accountants. The grievance voiced by the respondents is not share by more than 98 per cent of the

shareholders.

In Coimbatore Cotton Mills Ltd., In re, 50 Comp. Cases 623, this Court held that in the absence of any allegation of fraud or mala fides on the

part of the chartered accountants, the exchange ratio had to be considered as fair and reasonable especially when the same has been approved by

an overwhelming majority of shareholders and no shareholder had come forward before the court for opposing the ratio or the scheme.

The Calcutta High Court in the matter of Carron Tea Co., Ltd., 1966 (II) Comp.LJ 278 held as under:-

The Court should not sanction a scheme relaying on the wisdom of the Board of Directors and the approval of the same at a statutory meeting of

the shareholders. It is the bounden duty of the Court to probe into matters to find out whether the scheme is reasonable and if it finds it is so,

unhesitatingly sanction the same.

The ordinary law would suggest that the market price of the shares of the amalgamating companies would be the proper basis for determining the

ratio of exchange. So the quotation of the Stock Exchange would be a safe and proper basis for fixing the ratio, unless it, is demonstrated that the

Stock Exchange quotation is not reliable and does not represent the true value.

In Hindustan General Electric Corporation Ltd., In re 29 Comp. Cases 46, the Calcutta High Court held as under: -

Where in a meeting for the sanction of a scheme, holders of shares of the value of. Rs. 6,42,700 were present but holders of shares of the value,

of Rs.4,42,700 alone voted in favour of the resolution and the others remained neutral, voting neither in favour of, nor against, the resolution;

Held, that there was a unanimous passing of the resolution and the requisite three-fourths majority contemplated by section 391(2) of the

Companies Act, 1956, agreed to the scheme of arrangement. Section 81(1) of the Companies Act, 1956, clearly provides that if a company at a

general meeting resolves that newly issued shares should be allotted to persons other than equity shareholders, or otherwise than in proportion to

their existing shareholding, such decision prevails and is not open to question.

In Kanti Cement and Industrial Co. Ltd., In re, 7 Comp. Cases 348, the Bombay High Court laid down the law as under:-

The Court can u/s 153 sanction a scheme, even though it involves acts which, apart from such provisions would be ultra vires the company; but

this rule is subject to the limitation that if the Companies Act contains express provision enabling the doing of any act in a particular way, the

provisions of that enabling section, and not those of S. 153, must be followed.

In sanctioning a scheme under Sec. 153 the Court must look at the scheme and see whether the Act has been complied with, whether the majority

are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to

represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that

any reasonable man might say that he could not approve of it. The test of reasonable compromise or scheme is whether it is regarded by

reasonable people conversant with the subject as a beneficial to those on both sides who are making it. The question is, is the scheme made for the

common benefit of all the shareholders.

The Court does not necessarily make any provision in favour of the dissentients, if the Court is satisfied that the scheme is reasonable and fair and

in the interests of the general body of the shareholders. In any case, under the modern practice, such a provision is not a sin quo non to sanctioning

the scheme if it is reasonable and fair.

I have considered the various decisions cited supra. The question that arises is whether the share exchange ratio adopted in this case is fair and

reasonable. It is no doubt true that while considering the scheme of amalgamation the Court is not acting as an appellate authority sitting in

judgment over the informed view of shareholders who have taken a conscious decision on the basis of their commercial wisdom that the scheme

should be approved with the share exchange ratio mentioned therein. The Court should have regard to the collective wisdom of the shareholders

when considering the question whether the Scheme is fair and to be sanctioned. The view of large majority of the shareholders should be respected

and the Court cannot delve deep into the commercial merits and demerits of the scheme ratified by the requisite majority of shareholders. One

other principle that has been established is that when the expert has taken into account the market value of shares of both the companies in the

case of amalgamation, that should be given due weight.

As far as the report of the Chartered Accountants is concerned, the Chartered Accountants has taken into account share capital, net worth

and earning capacity value of both the companies. The Chartered Accountants has also taken into consideration the expenditure incurred by both

the companies on the research and development activities and the projected turnover and the future earnings of the transferee company, and

determined the market price of shares on the basis of the price quoted in the stock exchange which is an approved method of valuation as held by

the Supreme Court in Commissioner of Wealth Tax Vs. Mahadeo Jalan and Mahabir Prasad Jalan and Others etc., and in Commissioner of Gift

Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, wherein the Supreme Court held that in case of quoted shares, the stock exchange price of

shares prevailing on the valuation date would represent the market value of the shares. The Chartered Accountants found that the value of the

quoted shares of DRL Ltd. fluctuated between a high of Rs.1810 and to a low of Rs.668, and determined the average 12 months price of a share

at Rs.1121 and the current market price of an equity share as on 3.3.2000 at Rs.1272.20. The Chartered Accountants also found that the value of

equity shares of the transferor company fluctuated between a high of Rs.179 and to a low of Rs.38, and determined the average 12 months price

of a share at Rs.93 and the current market price of a share as on 3.3.2000 at Rs.138.50. It is stated that there was an increase, in the value of

equity shares of the transferor company due to the impending amalgamation. The Chartered Accountants has taken into account the capital

appreciation in the value of shares in the event of merger. The Chartered Accountants has no doubt taken into account the fact that DRL Ltd.

continued to declare dividend at 30% for the past five years and the transferor company declared dividend at 20% for the past three years, 15%

for 1995-96 and 10% for 1994-95 and no dividend has been declared for the year 1999-2000, and on that basis, the Chartered Accountants has

determined the swap ratio of 1:12, that is, for every 12 equity shares of the transferor company, one equity share in DRL Ltd. The Chartered

Accountants in another report dated 10.4.2000 has taken into account the cash flow projections and adopted the same share exchange ratio 1:12.

Learned counsel appearing for the petitioner produced before this Court the report of M/s.Karra & Co., Chartered Accountants, dated

28.3.2001 wherein the value of equity shares of the transferor company has been ascertained on Yield Basis at Rs.120 and the value of equity

shares of the transferee company, DRL Ltd. has been ascertained at Rs.1625.

Learned counsel also referred to the report of M/s. Ernst & Young Pvt. Ltd., dated 26.6.2000. The said company was requested by DRL

Ltd. to render an independent opinion as to the fairness of the methods adopted by the Statutory Auditors of the DRL Ltd. for arriving at the swap

ratio. The said company ultimately found that the swap ratio adopted is fair and reasonable. Learned counsel also referred to another report of

M/s. Ramachandra Rao & Co., Chartered Accountants dated 28.3.2001 wherein the Chartered Accountants opined that Dividend Yield Method

of valuation should not be applied where the dividends do not correctly reflect profit earning capacity. According to the Chartered Accountants,

the earnings per share of DRL Ltd. for the last five years worked out is Rs.18.40 against Rs.4.55 in the case of the transferor company. It is stated

that DRL Ltd. declared dividend of Rs.3.00 out of the earnings of Rs.18.40 whereas the transferor company declared an average dividend of

Rs.1.70 out of the average earnings of Rs.4.55. It is also stated that in view of the higher percentage retained by DRL Ltd., the net asset value of

DRL Ltd. is higher compared to the transferor company.

I have carefully gone through all the reports of the Chartered Accountants. I find that the share exchange ratio arrived at by the above said

three Chartered Accountant firms adopting three different methods is fair. No doubt, there would be a loss of dividend income, which is the main

objection of the objector. As already seen, the Chairperson of the meeting of equity shareholders of the transferor company in her report has

stated that out of 79 shareholders, 78 shareholders were present and 77 shareholders holding 45,92,470 shares of the value of Rs.4,59,24,700

voted in favour of the resolution approving the scheme of amalgamation and only one person voted against the resolution.

The Supreme Court in Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., held that the exchange ratio is one of the items and it is for the equity

shareholders to think it fit in their commercial wisdom to accept the scheme as a whole along with the exchange ratio presumably in expectation of

better profits in years to come when the amalgamated company would operate and when there would be better prospects of earning greater

dividend. The Supreme Court also held that what is required to be considered by the Court while sanctioning the scheme is the bona fide of the

majority acting as a class and not of one single person. I am unable to accept the submission of the objector that the majority shareholders have

acted unfairly to the objector and have not protected his interest. I am of the view what is to be protected is the class interest'' of minority

shareholders failing in the same class along with the majority. It is not the case of the objector that there was an oblique motive in the minds of

majority shareholders, particularly in the transferee company to fructify any adverse commercial interest qua the objector. It is seen that the

minority shareholders in the transferor company have expressed their willingness to continue to be shareholders in the transferee company, and

their rights are also fully protected in the scheme. It is also seen that by adopting various methods of valuation, it was found that the value of the

shares in the transferee company is higher than that of the transferor company. It is seen that the transferee company is having high potential market

in pharmaceutical line and it has consolidated its position in the formulation of market both domestic and export through brand acquisition and

aggressive product launch and the transferee company has been transformed into a global corporation. It is also seen that the transferee company

has incurred expenditure on research and development activities. It is stated that the transferee company has taken efforts in the field of research

and development and making substantial investments resulting in a good future returns. Though the objector raised an objection that there is a fall

or reduction in the return of dividend income if the scheme is permitted to go through and except the objector herein no other has raised the

objection. Taking into consideration the positioa of the transferee company which has consolidated in the formulation of market both domestic and

export and its high potential market in the field of pharmaceutical and there would be capital appreciation in the value of shares, the objection

raised by the objector is not a ground to hold that the scheme is not fair. In the light of the decisions cited supra by the learned counsel for the

petitioner and various methods of valuation adopted by the Chartered Accountants and also taking into account that 99.97% shareholders have

approved the scheme with the share exchange ratio, 1:12, I examined the scheme of amalgamation with great care that is needed to prove that the

scheme is fair, particularly when the transferee company is a company holding more than 84% of shares in the transferor company and there was

an earlier attempt by the transferee company to purchase all the shares in the transferor company. It is seen that majority of shareholders approved

the scheme of amalgamation except the objector herein and his objection is not against the scheme of amalgamation, but his concern is with regard

to the reduction in the dividend income. I am of the view, it is matter for commercial wisdom of the shareholders to approve the scheme of

amalgamation. The market value of shares of both the companies have been determined by three Chartered Accountant Firms by adopting

different methods of valuation and arrived at the share exchange ratio. In the absence of any defect pointed out by the objector to the valuation of

the shares, I hold that the share exchange ratio adopted is fair. I do not find any objectionable features in the scheme of amalgamation. As already

mentioned, the services of the employees of the transferor company should be protected.

Accordingly, the scheme of amalgamation is sanctioned subject to the condition that the employees of the transferor company on its permanent

rolls should become the employees of the transferee company without any break in service and their services should be protected. The approval of

the scheme is on the condition that the DRL Ltd. should discharge all liabilities arising out of hire purchase loans, fixed deposits, security deposits,

inter-corporate loan, unsecured debentures and foreign currency loan and also other liabilities of the transferor company. The approval of the

scheme is also subject to the condition that the transferee company should fully discharge the liabilities of the creditors of the transferor company,

both secured and unsecured, if any. It is made clear that the proceedings initiated and pending against the transferor company on or after the

transferable would be continued against the transferee company and the transferee company is liable to discharge the liabilities that may arise out of

such proceedings. Accordingly, the prayers (a) to (d) and (f) to (h) of paragraph-37 of the petition are ordered. Counsel for the Central

Government is entitled to costs of a sum of Rs.5,000.