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Judgment
S.D. Dave, J.—The present orders shall govern the disposal of these two company petitions; one by the transferee company, and the other by the transferor company, for the sanction of the proposed scheme of amalgamation.
Company Petition No. 106 of 1996 has been presented by M/s. H. K. Dave (P) Ltd., a company incorporated under the provisions of the Companies Act, 1956, and having their registered office at Bhavnagar, within the State of Gujarat. The petitioner happens to be the transferee company and shall be referred to as such, in the present orders.
Company Petition No. 107 of 1996 has been presented by the petitioner, H. K. Dave Gas Co. (P) Ltd., a Company incorporated under the provisions of the Companies Act, 1956, having their registered office at Bhavnagar, within the State of Gujarat. The petitioner company shall be referred to as the transferor company, in the orders.
The case presented by the transferee company in Company Petition No. 106 of 1996 is that the said company was incorporated on 18 December, 1968, in the State of Gujarat, under the provisions of the Companies Act, 1956, as a private limited company. Annexure A to the petition happens to be the copy of the memorandum and articles of association. The registered office of the transferee company is situated at Khargate, Bhavnagar, within the State of Gujarat. The authorised capital of the transferee company is Rs. 3 crores only divided into 30 equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferee company is Rs. 29,80,100 only consisting of 2,98,010 equity shares each of the value of Rs. 10. Each share is fully paid up.
The objects of the transferee company are set out in the memorandum of association and they include the objects to carry on in India and elsewhere, the business of Stevedores, Dubashes and ship-chandlers, clearing, forwarding chipping and painting agents, shipping and railway agents, warehousemen, transport, cartage, freight, haulage and labour contractors, etc. The latest financial position of the transferee company as on 31 October, 1995 is as under :
Total assets Rs. 4,69,68,603 Less total liabilities Rs. 3,85,63,053 Net worth of the company Rs. 84,05,550 Represented by share capital Rs. 29,60,100 Reserves and surplus Rs. 54,25,450 i.e. shareholders'' funds Rs. 84,05,450
The scheme of amalgamation is for the amalgamation of the transferee company with the transferor company. As indicated above, the transferor company is also before me, by filing the Petition No. 107 of 1996.
The transferor company was incorporated under the provisions of the Companies Act, 1956, on 1 August, 1994, as a private limited company, having their office at Khargate, Bhavnagar, within the State of Gujarat. The objects of the transferor company are set out in the memorandum of association annexed to Company Petition No. 107 of 1996 and include : to carry on the business of manufacturers, bottling, refilling, dealers, agents and suppliers of gases, such as LPG, oxygen, hydrogen, nitrogen, argon, acetylene, carbon dioxide, ammonia, butane and sulphur dioxide, etc.
The authorised capital of the transferor company is Rs. 30,00,000 only divided into 3 lakh equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the transferor company is Rs. 30,00,000 only consisting of 3 equity shares of Rs. 10 each fully paid up. The transferor company has filed with the Registrar of Companies its latest audited balance sheet and profit and loss account for the year ended on 31 October, 1995. The latest financial position of the transferor company as on 31 October, 1995, is as under :
Total assets Rs. 4,69,68,603 Less total liabilities Rs. 3,85,63,053 Net worth of the company Rs. 84,05,550 Represented by share capital Rs. 29,60,100 Reserves and surplus i.e. Rs. 54,25,450 shareholders'' funds Rs. 84,05,450
It is the case of both the transferee company and transferor company that they are under the same management and are having similar objects which can more effectively, more economically and conveniently be combined with and that the amalgamation of both the companies would pave the way for better and more efficient utilisation of resources and funds. The proposeu scheme of amalgamation envisages that the undertaking of the transferor company together with all its rights, properties, etc., without any further act or deed, the same shall stand transferred to and vested in the transferee company. All the debts, liabilities, duties and obligations, if any, of the transferor company shall, without any further act or deed, shall stand transferred to the transferee company. It is also provided that, if any suit, appeal or proceedings of whatsoever nature by or against the transferor company be pending on the effective date, the same shall not abate or be discontinued or in any way be prejudicially affected by reason of transfer of the undertaking, but would be continued, prosecuted and enforced as the case may be, by or against the transferee company in the same manner and to the same extent. It is provided that the transferee company shall, on such transfer, take over all employees of the transferor company on the same terms and conditions on which they are employed by the transferor company with the continuity of service.
So far as the share exchange ratio is concerned, it has been provided that the transferee company, shall, without further application, act or deed, issue and allot to every equity shareholder of the transferor company two equity shares of Rs. 10 each fully paid up in the capital of the transferee company at par for every one equity share of Rs. 10 each fully paid up and held in the capital of the transferor company.
There is no objection to the sanctioning of the proposed scheme of amalgamation from any shareholder or creditor, either of the transferor company or the transferee company, despite the public notices.
But, it requires to be appreciated that the communication addressed to the learned Central Government Standing Counsel, under the signature of the Registrar of Companies, Gujarat, dated 23 October, 1996, says that it has been decided to bring to the notice of this court that the exchange ratio of 2 : 1 proposing the scheme of amalgamation based on the valuation report of the chartered accountants seems to be unrealistic and against the interest of the shareholders of the transferee company and that the abovesaid fact should be brought to the notice of this court. Accordingly, learned Central Government Standing Counsel has placed the abovesaid communication before me.
The details furnished along with the abovesaid communication are in respect of the so-called unrealistic ratio of exchange proposed in the scheme of amalgamation. It is said that the ratio of exchange proposed is 2 equity shares of Rs. 10 each of the transferee company for one equity share of Rs. 10 each of the transferor company. It is said that the chartered accountants have valued the shares of the transferor company on the basis of the book value as on 31 October, 1995. It is also said that the addition of Rs. 30,00,000 as the appreciation in the value of the land, value of the goodwill and bright potentials of business of the transferee company does not seem to be proper regard being had to the date of its incorporation and the possession of the paid up capital which came to be increased only after 31 March, 1995, from Rs. 6.99 lakhs to Rs. 30 lakhs.
The whole objection regarding the exchange ratio appears to have been based upon the contention that the valuation report submitted by the valuer does not appear to be a realistic one and that the ratio of exchange recommended in the valuation report appears to be unrealistic. The explanations to the said points coming from the transferee company require to be noticed. It has been stated that, while arriving at the exchange ratio, a reputed firm of chartered accountants have taken into consideration all the guidelines for the valuation of the shares prescribed by the Ministry of Finance, Department of Economic Affairs, dated 13 October, 1996. It is pointed out that the exchange ratio is usually worked out on the basis of the average of (a) Net Asset Value (NAV), (b) Profit Earning Capacity Value (PECV), and (c) Market Value (MV) in case of listed shares. It is being pointed out that, as none of the above companies is a listed company, their shares have no market value, and though the transferor company was incorporated on 1 August, 1994, the value of the land purchased by the said company had appreciated very substantially after it was acquired and to find out its appropriate and reasonable market value, the valuation of the said land was got done through N. Nayak Associate, a reputed Government approved valuer. According to the said valuation report, the market value of the land had substantially appreciated and, as on 31 October, 1995, it was Rs. 25,15,600. Moreover, the transferor company had set up a project for LPG bottling plant near Bhavnagar and that the said project was also complete and is ready for commencement of commercial production. The transferor company, therefore, will be transferring the entire project to the transferee company on amalgamation as a readymade turnkey project and there will not be any Gestation period at all. It is therefore, said that, on account of these factors, though the transferor company has yet not started the actual production, its project has a high goodwill value. In view of this, the valuer has valued appreciation in the value of the land and goodwill, etc., to be of Rs. 30,00,000 which is fair and reasonable. It is also said that, both the companies are private limited companies, shares of which belong to and are beneficially owned by the same family and group. All the shareholders of both the companies have gathered commercial wisdom unanimously in writing approved the exchange ratio.
Looking to the abovesaid communication, the objections and the explanations, it appears that the objection regarding the exchange ratio being unrealistic and against the interest of the shareholders of the transferee company cannot be sustained.
A reference in this respect is required to be made to the Supreme Court decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1996) 4 Comp LJ 124 (SC). It has been said thus in this decision (para 39 at page 158 of Comp LJ) :
"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 recognised 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."
When the exchange ratio proposing the scheme of amalgamation is examined in view of the abovesaid say of the Supreme Court, it appears that the exchange ratio has been worked by a recognised firm of chartered accountants who are experts in the field of valuation. The assets of the company have been valued by a Government approved valuer. Both the companies are the group companies of one and the same family. When the shareholders in their commercial wisdom have agreed to the abovesaid exchange ratio, no genuine mistake could be pointed out in the valuation made by the chartered accountants. Regard being had to all this, it appears that the objection coming from the Regional Director, in respect of the exchange ratio, cannot be accepted.
On the overall appreciation of the scheme of amalgamation, it appears that, it is in the interest of all concerned and it cannot be said to be against the interest of all the shareholders of any of the companies or of the public in general.
In view of all this, the present petitions require recognition and the scheme of amalgamation proposed thereunder requires to be sanctioned. I order accordingly.
Therefore, with effect from the appointed date, the entire undertaking and all the assets, properties movable and immovable of whatsoever nature of the transferor company shall, without any further act or deed, stand transferred and vested in the transferee company, pursuant to section 394 of the Companies Act, 1956.
The remuneration of each of the Senior Central Government Standing Counsel and the Additional Central Government Standing Counsel appearing in these two company petitions is quantified at Rs. 2,500 (rupees two thousand five hundred only).