JUDGMENT
S.M. Jhunjunuwala, J.
1. Company Petition No. 537 of 1991 has been filed by Govind Rubber Ltd. Bombay (hereinafter referred to as “the transferor company”), and Company Petition No. 538 of 1991, has been filed by Pavan Tyres Ltd., Bombay (hereinafter referred to as “the transferee company”), under sections 391 and 394 of the Companies Act, 1956, for sanction being accorded to the scheme of amalgamation of the said two companies.
2. The transferor company was incorporated under the Companies Act, 1956 (hereinafter referred to as “the said Act”), on February 6, 1981, at Bombay under the name of Govind Rubber Pvt. Ltd. with the liability of members limited by shares. Thereafter, the transferor company’s name was changed to its present name on April 2, 1986. It present authorised capital is Rs. 2 crores divided into 20 lakhs equity shares of Rs. 10 each. Its present issued, subscribed and paid-up capital is Rs. 1.50 crores divided into 15 lakh equity shares of Rs. 10 each fully paid up. The objects of the transferor-company are to manufacture and deal in rubber, tyres and materials which are being used or capable of being used in tyres, tubes and rubber industries and also to manufacture, produce, process, press, vulcanise, repair, retread, re-sole, mould, extrude, regenerate, combine, mix, export and import and deal in all types of tyres, semi-types, inner rubber, flaps, medical and dipper rubber products, rubber tiles, toys rubberised cloth, rubber belts, O seals, V belts mounded and extruded products of commercial, household and industrial uses.
3. The transferee company was incorporated under the provisions of the said Act on May 23, 1985, at Bombay in the name of Vishal Tyres Ltd. with the liability of the members limited by shares. Thereafter, the name of the transferee company was changed to its present name of July, 7, 1988. Its present authorised capital is Rs. 2 crores divided into 20 lakh equity shares of Rs. 10 each. The present issued subscribed and paid-up capital is Rs. 99,50,000 divided into 9,95,000 equity shares of Rs. 10 each fully paid up. The objects for which the transferee-company was formed are to carry on in India or elsewhere the trades or business of buying, selling, importing, exporting and dealing in tyres and tyres, cycles, motor rickshaw, autocar, truck and other automobiles, cycles and cycle parts, rubber products, rubber tiles, rubberised cloth, rubber belts, O seals, V belts, natural rubber, synthetic rubber, reclaim rubber, rubber compound tyre, cords and to manufacture, produce, process, press vulcanise, repair, re-tread, re-sold, mould extrude, regenerate, combine, mix export and import and deal in all types of tyres, semi tyres inner tubes, flaps, medical and dipper rubber products, rubber tiles, toys, rubberised cloth, rubber belts, O seals, V belts, mounded and extruded products of commercial household and industrial uses.
4. The transferor company and the transferee company are companies under the same management and the transferee company has the power under its memorandum of association to carry on the business carried on by the transferor company. Both the transferor company and the transferee company are interested and engaged in the rubber industry and in the manufacture and sale of rubber products, common location of plaints and offices. The transferor company desires to broaden its manufacturing base and activities and to achieve economies of scale and cost savings and, therefore, after considering various proposals, ultimately came to the conclusion that to achieve the objects of broadening its activities it would be advantageous to amalgamate with a similar existing undertaking. The transferee company has the same interest as that of the transferor company. Accordingly, a scheme of amalgamation of the two companies was drawn up. Company Applications Nos. 186 of 1991 and 187 of 1991 were filed before this court for permission to convene meetings of the shareholders of the transferor company as also of the transferee company for the purposes of considering and, if though fit, to pass with or without modification the scheme of amalgamation. These applications were disposed of by the orders passed on July 10, 1991. Both the transferor company as well as the transferee company were directed to convene separate meetings of their respective equity shareholders on August 9, 1991, for the purposes of considering and if thought fit to pass with or without modification, the scheme of amalgamation. As directed by the said order dated July 10, 1991, notices of the said meeting were sent individually to all equity shareholders of the transferor company along with copy of the scheme of amalgamation, statement under section 393 of the said Act and a form of proxy. Similarly, as directed by the said order dated July 10, 1991, notices of the said meeting were sent individually to all equity shareholders of the transferee company along with copy of the scheme of amalgamation, statement under section 393 of the said Act and a form of proxy.
5. In pursuance of the said order dated July 10, 1991, a meeting of the equity shareholders of the transferor company was held on August 0, 191, at Amar Gian Grover Auditorium Lala Lajpatrai College Buildings Near Haji Ali Bombay 400 034. The meeting was attended by 189 equity shareholders either in person or by proxy. The value of the shares held by the number of members who attended the meeting came to Rs. 77,30,000. Out of 189 members, 187 members holding 7,72,800 equity hares of the value of Rs. 77,28,000 voted in favour of the proposed scheme of amalgamation being adopted and carried into effect. One member holding 100 equity shares of the value of Rs. 1,000 voted against the acceptance of the proposed scheme of amalgamation. The votes cast by one member holding 100 equity shares of the value of Rs. 1,000 were declared invalid.
6. A meeting of equity shareholders of the transferee company was held on August 19, 1991, at Amar Gian Grover Auditorium Lal Lajptrai College Building, Near Haji Ali, Bombay 400 034, in pursuance of the said order dated July 10, 1991. The meeting was attended by 66 equity shareholders of the company either in person or by proxy. They held 7,82,100 equity shares of Rs. 10 each. The value of the shares held by the number of members who attended the meeting came to Rs. 78,12,000. Of the said 66 members of the company holding 7,82,100 equity shares of the value of Rs. 78,12,000 unanimously voted in favour of the proposed scheme of amalgamation being adopted and carried into effect. The chairman, Mahavirprasad Poddar, has filed separate reports regarding the proceedings of the two meetings referred to above.
7. Consequently, the present petitions have now been filed for sanction being accorded to the said scheme of amalgamation of the said two companies.
8. Under the proposed scheme of amalgamation all the assets and liabilities of the transferor company will be transferred to the transferee company in exchange for fully paid-up equity shares in the transferee company. Members of the transferor company will be allotted shares in the transferee company. Every member of the transferor company holding a fully paid-up equity share of Rs. 10 in the transferor company will be allied on fully paid-up equity share of Rs. 10 in the transferee company. These shares are all to rank for dividend, voting rights and in all other respects pari passu with the existing equity shares in the transferee company. It is stated that all debts, liabilities, duties and obligations of every kind, nature and description of the transferor company shall be transferred to and undertaken without further act or deed by the transferee company so as to become the debts, liabilities and obligations of the transferee company. It is further stated that all contracts, deeds bonds, agreements and other instruments of whatsoever nature to which the transferor company is a party and subsisting or having effect on the appointed day, i.e., April 1, 1991, shall be in full force and effect against or in favour of the transfer company, as the case may be, and may be enforced by or against the transferee company as fully and effectively as if instead of the transferor company, the transferee company had been a party thereto. It is further stated that on the proposed scheme of amalgamation becoming effective, the transferor company would be dissolved without winding up.
9. Initially, one Kishore G. Nagda, a shareholder of the transferor company holding 100 equity shares of Rs. 10 each of the value of Rs. 1,000 who had voted against the proposed scheme of amalgamation at the meeting of the members of the company held on August 19, 1991, filed his affidavit, being the affidavit dated October 28, 1991, to oppose sanction being accorded by this court to the said scheme of amalgamation of the said two companies. However, at the hearing of the above petitions, the said K. G. Nagda withdrew his opposition and consented to sanction being accorded to the said scheme of amalgamation of the said two companies.
10. The Regional Director, Department of Company Affairs, Bombay has filed his affidavit, being affidavit dated January 21, 1992, opposing the acceptance of the scheme of amalgamation. The main objections raised by the Regional Director are as under :
(i) In para 16 of the proposed scheme of amalgamation, it is stated that on the said proposed scheme of amalgamation becoming effective, the name of the transferee company would, with reasonable despatch, be changed from “Pavan Tyres Ltd.” to “Govind Rubber Ltd.” in accordance with the relevant provisions of the said Act.
According to the Regional Director, the change of name of the transferee company after amalgamation is a matter under Section 21 of the said Act and could not be a part of the scheme of amalgamation inasmuch as under section 21 of the said Act, the company is to pass a special resolution and obtain the approval of the Central Government for change of its name. According to the Regional Director, the said para 16 of the proposed scheme of amalgamation should be deleted therefrom;
(ii) That the exchange ratio on the basis of which the scheme provides for a allotment of one fully paid-up equity share of Rs. 10 in the transferee company to every holder of a share of Rs. 10 in the transferor company does not represent a proportionate vale and that, therefore, the scheme is not in the interest of the large body of members of the transferor company.
11. As per the Regional Director, on the basis of the value of the shares derived by adopting the average of net worth and yield basis, the appropriate/fair exchange ratio should be 3 : 4 and accordingly, as per the Regional Director, the exchange ratio is required to be changed from 1 : 1 to 3 : 4 that is against three equity shares of Rs. 10 each of the transferor company, four equity shares of Rs. 10 each of the transferee company should be allotted.
12. An affidavit of one Nandkishore Kakani, Vice-President (Finance) of the transferor company being affidavit dated February 20, 1992, has been filed in reply to the said affidavit of the Regional Director, in which it has been stated that the proposed scheme of amalgamation of the said two companies is in the interest of the members of both the transferor company and the transferee company and neither the members’ interest nor the creditors’ interest nor the public interest is likely to be prejudicially or adversely affected in any manner whatsoever as a result of the scheme of amalgamation and as such the same should be sanctioned by this court. It is also stated in the said affidavit that the exchange ratio of 1 : 1 has been worked out and certified to be fair and reasonable by N. M. Raiji and Co., Bombay, a reputed firm of chartered accountants and the shareholders of both the said companies have overwhelmingly approved the scheme of amalgamation and the share exchange ratio and this court should sanction the scheme of amalgamation as proposed and should reject the objections raised by the Regional Director.
13. The question for considering is whether the necessary sanction of the court should be accorded to the proposed scheme of amalgamation. Before the court sanctions a scheme under sections 391 and 394 of the said Act, court should normally be satisfied about the following matters :
(i) that the resolutions are passed by the statutory majority in value and in number in accordance with section 391(2) of the said Act at a meeting or meetings duly convened and held. The court should not usurp the right of the members of creditors to decide whether they approve the scheme or not;
(ii) that those who took part in the meeting are fairly representative of the class and that the statutory meeting did not coerce the minority in order or promote the adverse interest of those of the class whom they purport to represent;
(iii) that the scheme as a whole, having regard to the general conditions and background and object of the scheme, in a reasonable one and if the court so finds, it is not for the court to interfere with the collective wisdom of the shareholders of the company. If the scheme as a whole is fair and reasonable, it is the duty of the court not to lunch an investigation upon the commercial merits or demerits of the scheme which is the function of those who are interested in the arrangement;
(iv) that there is no lack of good faith on the part of the majority.
In the instant, from the figures already given which gave an analysis of the members present and actually voting it is seen that the proposed scheme of amalgamation has been approved by an overwhelming majority both in number and value of the shareholders of both the companies. Thus, the statutory requirement has been fully satisfied. There is no averment that there has been no fair representation of the shareholders at the meeting of both the said companies. The one shareholder of the transferor company who voted against the proposed scheme of amalgamation has also withdrawn his objection. There is no allegation of any undue influence or coercion exercised by the majority on the minority shareholders. The petitions have been widely advertised.
14. According to the Regional Director, while valuing the shares of the said two companies, the said chartered accountants have disregarded the past earnings of both the transferor company and the transferee company and substituted the estimated future earnings of the said companies covering the financial year up to March 31, 1994, with added weightage. This approach on the part of the said chartered accountants is said to be contrary to the accepted principles of valuation of shares. According to the Regional Director, it would be reasonable to value the shares of both these companies based on their adjusted net worth after revaluation as reflected in the audited balance-sheets as at March 31, 1991, and also based on their earnings during the year ending March 31, 1991, for which the audited accounts are available. It is not correct to say that while valuing the shares of both the said companies, the said chartered accountants have disregarded the past earnings of both the said companies and have substituted the estimated future earnings of the companies covering the financial year up to March 31, 1994, with added weightage. The said chartered accountants who are expert valuers have adopted a combination of three well accepted methods to arrive at the fair value of the shares which methods are (i) the net worth method, (ii) the market value method and (iii) the earnings method. In all the said methods adopted by the said valuers the past results are considered. In the circumstances of the case it is incorrect to say that the approach of the said valuers have been contrary to the accepted principles of valuation of shares. There are no allegations of mala fides on the part of the said valuers; so also there are no allegations of gross under valuation. The proposed ratio of exchange was specifically placed before the members of the transferor company and was accepted. It is nobody’s case that the majority of the shareholders of the transferor company has coerced the minority in any manner in accepting the said ratio of exchange. It is also not the case that the shareholders of the transferor-company would not get anything in lieu of their shares in the transferor-company. If the contention of the Regional Director is accepted, the shareholders of the transferor company would no doubt get a little more on the basis of a more favourable ratio. However, valuation is ultimately a matter of expert opinion. There are more than one method of valuation and a valuation would vary if different methods are adopted. The shares are the property of the shareholder and they are the ultimate and the best judge of the value which they would put on their shares. There is no requirement under the said Act in such case. None of the shareholders of the transferor company has objected to the valuation on the basis whereof the exchange ratio has been determined. In the absence of any challenge from the shareholders of the transferor-company who are primarily and exclusively interested on the question of the ratio of exchange, I am not inclined to interfere in the matter at the instance of the Regional Director. On the facts, it cannot be said that there is any illegality or that any fraud has been committed on the shareholders of the transferor company. I am, therefore, satisfied that the exchange ratio adopted in the scheme is fair and reasonable.
15. I may mention here that in the view which I have taken, I am supported by the cases decided in the matters of Coimbatore Cotton Mills Ltd. and Lakshmi Mills Co. Ltd., In re [1980] 50 Comp Cas 623 (Mad) and Kamala Sugar Mills Ltd. and Tirumurti Mills Ltd., In re [1984] 55 Comp Cas 308 (Mad), on which reliance has been placed by Mr. Tulzapurkar, learned counsel appearing for the said companies.
16. As regards the objections of the Regional Director, so far as para 16 of the proposed scheme of amalgamation is concerned. In my view, Mr. Shah, learned counsel appearing for the Regional Director, is right in his submission that under section 21 of the said Act, the company is required to pass a special resolution and obtain approval of the Central Government for change of its name. The change in the name of the company cannot be effected merely on the scheme of amalgamation becoming effective. Accordingly, para 16 of the proposed scheme of amalgamation is required to be deleted therefrom.
17. In the result, with the detection of para 16 from the proposed scheme of amalgamation, both the petitions succeed and sanction is accorded to the proposed scheme of amalgamation with the detection of the said para 16 therefrom. The transferee company is however at liberty to adopt proceedings for change of its name after complying with the requirements of section 21 of the said Act, Company Petition No. 537 of 1991 is made absolute in terms of prayers (a), (b), (c) and (d) and Company Petition No. 538 of 1991 is made absolute in terms of prayers (a), (b) and (c) with the deletion of the said para 16 from the proposed scheme of amalgamation. The transferor company shall pay the costs of the Regional Director and of the official liquidator quantified at Rs. 500 each. The transferee company shall pay the costs of the Regional Director quantified at Rs. 500.
18. Issuance of certified copy of the minutes of this order is expedited.