{"id":23422,"date":"2010-06-07T00:00:00","date_gmt":"2010-06-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/organon-india-limited-vs-unknown-on-7-june-2010"},"modified":"2018-05-15T06:59:05","modified_gmt":"2018-05-15T01:29:05","slug":"organon-india-limited-vs-unknown-on-7-june-2010","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/organon-india-limited-vs-unknown-on-7-june-2010","title":{"rendered":"Organon (India) Limited vs Unknown on 7 June, 2010"},"content":{"rendered":"
Bombay High Court<\/div>\n
Organon (India) Limited vs Unknown on 7 June, 2010<\/div>\n
Bench: S. J. Kathawalla<\/div>\n
                                          1\n\n          IN THE HIGH COURT OF JUDICATURE AT BOMBAY\n              ORDINARY ORIGINAL CIVIL JURISDICTION\n\n\n\n\n                                                                                      \n             COMPANY SCHEME PETITION NO.101 OF 2010\n\n\n\n\n                                                             \n                 In the Matter of Reduction of Equity Share \n                      Capital of Organon (India) Limited\n\n\n\n\n                                                            \n    Organon (India) Limited                            ...             Petitioner\n                                    ....\n    Dr. V. V. Tulzapurkar, Senior Advocate, a\/w  Mr.S.Parikh  for  the \n\n\n\n\n                                                  \n    Petitioner.\n    Mr. D. V. Lakhani in person-objector.\n                                ig  ....\n                               CORAM     :   S. J. KATHAWALLA, J.\n                              \n                              Reserved on    : 14th April, 2010.\n                              Pronounced on  :  7th June, 2010.\n           \n\n\n    JUDGEMENT:            \n<\/pre>\n
    1.          By   this   Company   Scheme   Petition,     Organon   (India) <\/p>\n
    Limited   (the   Petitioner   Company)   seeks     sanction   and <\/p>\n
    confirmation   by   this   Court  with  regard   to  the  special   resolution <\/p>\n
    passed   by   the   Petitioner’s   shareholders   in   its   Extraordinary <\/p>\n
    General Meeting (“EGM”)   held on   15th October, 2009, for the <\/p>\n
    reduction of its equity share capital.\n<\/p>\n
    2.           The Authorized, issued, subscribed and paid up share <\/p>\n
    capital of the  Petitioner Company, as on 31st December, 2008  is <\/p>\n
    as under:\n<\/p>\n
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\n                                          2<\/span><\/p>\n
                     Share Capital                             Rupees\n\n\n\n\n                                                                                     \n    Authorized:                                           10,00,00,000\/-\n    1,00,00,000 Equity Share of Rs.10\/- each\n\n\n\n\n                                                             \n    Issued, Subscribed and Paid up:                       6,07,61,600\/-\n    (60,76,160 Equity  Shares of Rs. 10\/-  each \n    fully paid up)\n\n\n\n\n                                                            \n    Total:                                       6,07,61,600\/-\n     \n\n<\/pre>\n
    3.         Of   the   above,   98.43%   of   the   paid   up   equity   share <\/p>\n
    capital   of   the   Petitioner   Company   is   held   by   the   promoter <\/p>\n
    shareholder,   namely   Organon   Participations   B.   V.   (“promoter <\/p>\n
    shareholders”).  The balance of the paid up equity share capital of <\/p>\n
    the Petitioner Company is held by 1490 members having shares <\/p>\n
    of  the  Petitioner  Company.    There  has   been  no   change  in the <\/p>\n
    share   capital   of   the   Petitioner   Company   from   31st   December, <\/p>\n
    2008 till the date of filing  the present petition.\n<\/p>\n
    4.         The Petitioner Company’s equity shares were listed on <\/p>\n
    the   Calcutta   Stock   Exchange   Association   Limited   and   the <\/p>\n
    National   Stock   Exchange.   Subsequently,   in   accordance   with <\/p>\n
    Regulation 21(3)(a) of the Securities and Exchange Board of India <\/p>\n
    (Substantial   Acquisition   of   Shares   and   Takeovers)   Regulations, <\/p>\n
    1997, the promoter shareholders made an open offer to the public <\/p>\n
    shareholders at Rs. 285\/- per equity share of Rs. 10\/- each fully <\/p>\n
    paid up and over a period of time, acquired   29, 16, 546 shares <\/p>\n
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\n                                             3<\/span><\/p>\n
    from the public. However, the public shareholding of the Petitioner <\/p>\n
    Company fell below the 10% limit as provided under the Stock <\/p>\n
    Exchange norms and the shares of the petitioner company were <\/p>\n
    de-listed from the Calcutta Stock Exchange Association Limited <\/p>\n
    with   effect   from   26th   August,   2002   and   subsequently   from   the <\/p>\n
    National Stock Exchange with effect from 9th October, 2002.  As <\/p>\n
    per   the   requirements   of   the   concerned   Stock   Exchanges,   the <\/p>\n
    promoter shareholders sent offer letters to the public shareholders <\/p>\n
    in respect of the acquisition of the equity shares in the Petitioner <\/p>\n
    Company at a de-listing price of Rs.285\/- per equity share as per <\/p>\n
    the de-listing guidelines under the Security and Exchange Board <\/p>\n
    of India (De-listing of Securities) Guidelines, 2003. The promoter <\/p>\n
    shareholders   extended   to   the   shareholders   of   the   Petitioner <\/p>\n
    Company   an   exit   option   at   the   de-listing   price   of   Rs.285\/-   per <\/p>\n
    equity share. This offer was terminated by a letter dated 9th April, <\/p>\n
    2009 addressed to the shareholders.\n<\/p>\n
    5.          Section 100 of the Companies Act, 1956 (“the Act”) and <\/p>\n
    Article  50 of the Articles of Association of the Petitioner Company <\/p>\n
    empower the Petitioner Company, by way of a special resolution <\/p>\n
    to reduce its share capital in any manner. The Board of Directors <\/p>\n
    of the Petitioner Company proposed the reduction of the equity <\/p>\n
    share capital of the Company.  The reason for the reduction of the <\/p>\n
    equity share capital of the Petitioner Company reads as follows:\n<\/p>\n
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\n                                            4<\/span><\/p>\n
            “The   Company’s   securities   being   de-listed   to  <\/p>\n
            individual   shareholders   do   not   have   a   tradable  <\/p>\n
            security   for   exit.     This   prevents   shareholders   from  <\/p>\n
            realizing   the   optimal   value   and   returns   on   their  <\/p>\n
            investments in the Company. Further, over a period of  <\/p>\n
            time, the management’s focus on overall profitability  <\/p>\n
            and   financial   discipline   including   effective  <\/p>\n
            management   of   the   net   working   capital   has  <\/p>\n
            significantly   reduced  the capital   requirements  of  the  <\/p>\n
            company.”\n<\/p><\/blockquote>\n
    6.          It was proposed by the Petitioner Company that its paid <\/p>\n
    up   equity   share   capital   be   reduced   by   paying   off   the   equity <\/p>\n
    shareholders   (other   than   promoter-shareholders)   an   aggregate <\/p>\n
    sum of Rs.425\/- towards each equity share, with a face value of <\/p>\n
    Rs. 10\/-,   which would therefore include a premium of Rs. 415\/-\n<\/p>\n
    per   equity   share.   Thus   the   Petitioner   Company   sought   to <\/p>\n
    extinguish 95, 106 equity shares and reduce it’s paid up equity <\/p>\n
    share capital by Rs. 9, 51, 060\/-.   A copy of the valuation report of <\/p>\n
    the   certified   individual   valuer,   M\/s   Grant   Thornton   (“valuer”), <\/p>\n
    appointed by the Petitioner Company is annexed to the petition.\n<\/p>\n
    7.         The Board of Directors of the  Petitioner Company had <\/p>\n
    sent  a Notice and an Explanatory Statement  dated 27th  August, <\/p>\n
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\n                                             5<\/span><\/p>\n
    2009   in   due   compliances   of   the   provisions   of   the   said   Act   for <\/p>\n
    convening   an   Extraordinary   General   Meeting   of   the   equity <\/p>\n
    shareholders of the Petitioner Company on 15th October, 2009 to <\/p>\n
    consider,  inter alia, the passing of the following special resolution:\n<\/p>\n
             “RESOLVED THAT pursuant to section  100 and other  <\/p>\n
             applicable provisions of the Companies Act, 1956 and  <\/p>\n
             subject   to   the   consent\/confirmation\/approval   of   the  <\/p>\n
             Hon’ble   High     Court   of   Judicature   at   Bombay   and  <\/p>\n
             other appropriate authorities, and pursuant to Article  <\/p>\n
             50 of the Articles of Association of the Company, the  <\/p>\n
             paid-up     equity   share   capital   of   the   Company     be  <\/p>\n
             reduced by  paying off\/returning to the  holders of the  <\/p>\n
             equity shares (other than the promoter-share holder of  <\/p>\n
             the company, namely Organon Participations B.V. ), a  <\/p>\n
             sum  of  Rs.425\/-  (Rupees   four  hundred    twenty   five  <\/p>\n
             only) per share being the face value of Rs.10 (Rupees  <\/p>\n
             ten   only)   and   a   premium   of   Rs.415   (Rupees   four  <\/p>\n
             hundred fifteen only) per share and thereby canceling  <\/p>\n
             and extinguishing all such shares.”\n<\/p><\/blockquote>\n
    8.          Accordingly,   the   EGM   of   the   shareholders   of   the <\/p>\n
    Petitioner Company was held on 15th October, 2009.  At the said <\/p>\n
    meeting,   38   members   were   present   in   person,   by   proxy   and <\/p>\n
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\n                                             6<\/span><\/p>\n
    through authorized representatives, wherein, amongst others, the <\/p>\n
    resolution, as set out in paragraph No.6 above, was passed by <\/p>\n
    way of  show  of  hands  under Section  100 and  other  applicable <\/p>\n
    provisions of the Act. However, two shareholders, holding a total <\/p>\n
    of   160   shares,   which   amounts   to   0.002633242%   of   the   total <\/p>\n
    shareholding, had opposed the aforesaid resolution.\n<\/p>\n
    9.          On the date of filing of this petition i.e. 31st October, <\/p>\n
    2009, there were no secured creditors of the Petitioner Company.\n<\/p>\n
    There   were   245   unsecured   creditors   (trade   creditors   including <\/p>\n
    sundry   creditors)   and   the   amount   payable   to   these   unsecured <\/p>\n
    creditors   aggregated   to   Rs.31,10,10,746\/-.       The   Petitioner <\/p>\n
    Company paid off 192 unsecured creditors, representing 62.83% <\/p>\n
    of the total value of credit and obtained the consent of 44 of the <\/p>\n
    remaining  unsecured creditors  representing  36.24%  of  the total <\/p>\n
    value   of   the   Credit   to   the   reduction   of   share   capital.     There <\/p>\n
    remained around 10 unsecured creditors, representing a minimal <\/p>\n
    of 1.06% of the total value of credit who neither consented nor <\/p>\n
    were re-paid by the Petitioner Company.\n<\/p>\n
    10.          The   Petitioner   Company   had   filed   Company <\/p>\n
    Application No. 57 of 2010 for requisite direction for dispensation <\/p>\n
    of   the   provisions   and   the   procedure   prescribed   under   Section <\/p>\n
    101(2)   of  the  Act.   By   an   order   dated   22nd   January,  2010,   this <\/p>\n
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\n                                               7<\/span><\/p>\n
    Court has  dispensed with the provisions  of, and the procedure <\/p>\n
    prescribed under Section 101(2) of the Act and has accepted the <\/p>\n
    undertaking of the Company Secretary to give individual notices <\/p>\n
    of   hearing   of   the   petition   to   the   said   10   unsecured   creditors <\/p>\n
    holding   a   minimal   1.06   of   the   total   value   of   credit,   referred   to <\/p>\n
    above in paragraph 8.  By an affidavit dated 16th April, 2010, the <\/p>\n
    petitioner   Company   has   pointed   out   that   it   has   received   No <\/p>\n
    objection\/Consent   letters   from   all   unsecured   creditors   for <\/p>\n
    sanction of the proposed reduction of equity share capital.\n<\/p>\n
    11.           By  the Minutes  of Order, dated 11th February, 2010, <\/p>\n
    passed   by   this   Court   in   the   above   petition,   the   Petitioner <\/p>\n
    Company was also directed to get the notice of hearing published <\/p>\n
    in two newspapers and in the Official Gazette of the Government <\/p>\n
    of Maharashtra.   The petitioner company has complied with the <\/p>\n
    same and has filed an affidavit of publication dated 9th March, <\/p>\n
    2010.     It   is   therefore   submitted   on   behalf   of   the   Petitioner <\/p>\n
    Company   that   the   reduction   of       the   equity   share     capital     as <\/p>\n
    embodied in the said resolution passed by the shareholders at the <\/p>\n
    EGM,   held   on   15th   October,   2009,   does   not     prejudice   the <\/p>\n
    shareholders or the creditors of the  Petitioner Company  in  any <\/p>\n
    manner   whatsoever.   The   Petitioner   Company   has   further <\/p>\n
    submitted   that   this   offers   an   opportunity   to   the   remaining <\/p>\n
    individual   shareholders   of   the   Petitioner   Company   to   liquidate <\/p>\n
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\n                                              8<\/span><\/p>\n
    their     entire  shareholding     at  an   attractive  price.  It   is   therefore <\/p>\n
    prayed that the reduction of equity share capital as embodied in <\/p>\n
    special resolution passed at the EGM be confirmed by this Court.\n<\/p>\n
    12.          As   set   out   herein   above,   the   hearing   of   this   petition <\/p>\n
    was   advertised   in   two   newspapers   circulated   in   Mumbai,   and <\/p>\n
    published in the Maharashtra Government Official Gazette in its
\n                                        th                          rd
\n    issue for the period from 25   February, 2010 to 3   March, 2010.\n<\/p>\n
    Only   one   objector   i.e.   Mr.   Dinesh   Vrajlal   Lakhani   (holding   80 <\/p>\n
    shares of the Petitioner Company jointly with his wife Smita D.\n<\/p>\n
    Lakhani) has come forward to object to the grant of relief prayed <\/p>\n
    for in the above petition.  Mr. Lakhani has filed an affidavit dated <\/p>\n
    10th March, 2010 setting out his objections to which, an affidavit <\/p>\n
    in   rejoinder,   dated   25th   March,   2010   is   filed   by   the   Petitioner <\/p>\n
    Company.\n<\/p>\n
    13.           Mr. Lakhani has first submitted that such reduction of <\/p>\n
    the share capital proposed by the Petitioner Company, by paying <\/p>\n
    off the  public holders of equity shares, other than  the promoter-\n<\/p>\n
    share holders and giving them certain compensation, amounts to <\/p>\n
    a forceful acquisition of the shares  held by them. He states that <\/p>\n
    such action on the part of the Petitioner Company is against the <\/p>\n
    principles of natural justice, corporate democracy and corporate <\/p>\n
    governance.   He   states   that   such   reduction   tantamounts   to   a <\/p>\n
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\n                                               9<\/span><\/p>\n
    sophisticated corporate mafiaism.\n<\/p>\n
    14.           In dealing with this objection, I shall briefly discuss the <\/p>\n
    position of law on the issue. The law relating to reduction of share <\/p>\n
    capital of a company is contained in Sections 100 to 105 of the <\/p>\n
    Companies   Act,   1956.   Section   100   authorizes   the   company <\/p>\n
    limited by shares, having a share capital, if so authorized by its <\/p>\n
    Articles of Association, by special resolution to reduce its share <\/p>\n
    capital   in  any   way.  A   company   may   therefore  reduce   its  share <\/p>\n
    capital:\n<\/p>\n
          (i)    If   there   is   a   provision   in   its   Articles   of   Association <\/p>\n
                 permitting it to do so;\n<\/p><\/blockquote>\n
          (ii)   If it has passed a special resolution for that purpose;  &<\/p>\n<\/blockquote>\n
          (iii) If such a resolution is sanctioned by the Court.\n<\/p><\/blockquote>\n
    15.           In the leading case of British and American Trustee <\/p>\n
    and   Finance   Corporation   v.   Couper   (   [1894]   AC   399   )  Lord <\/p>\n
    Macnaghten observed on the point:\n<\/p>\n
            “If   there   is   nothing   unfair   or   inequitable   in   the  <\/p>\n
            transaction, I cannot see that there is any objection to  <\/p>\n
            allowing   a   company   limited   by   shares   to   extinguish  <\/p>\n
            some of its shares without dealing in the same manner  <\/p>\n
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\n                                           10<\/span><\/p>\n
           with all other shares of the same class.”\n<\/p><\/blockquote>\n
    However,   in   the   same   case,   Lord   Herschell,   L.C.   made   the <\/p>\n
    following observations:\n<\/p>\n
           “There can be no doubt that any scheme which does  <\/p>\n
           not   provide   for   uniform   treatment   of   shareholders  <\/p>\n
           whose   rights   are   similar,   would   be   most   narrowly  <\/p>\n
           scrutinized   by   the   Court,   and   that   no   such   scheme  <\/p>\n
           ought   to   be   confirmed   unless   the   Court   be   satisfied  <\/p>\n
           that it will not work unjustly or inequitably.”\n<\/p><\/blockquote>\n
    The Madras High Court, while referring to the same judgment in <\/p>\n
    Re Panruti Industrial Co. Private Ltd, AIR 1960 Mad 537 held <\/p>\n
    that   the   Court’s   power   to   sanction   any   reduction   is   to   be <\/p>\n
    determined by whether such reduction is fair and equitable.\n<\/p>\n
    16.         In the landmark case of Miheer H. Mafatlal v. Mafatlal <\/p>\n
    Industries Ltd., (AIR<\/a> 1997 SC 506), the Hon’ble Apex Court was <\/p>\n
    called   upon   to   decide   on   the   validity   of   a   Scheme   of <\/p>\n
    Amalgamation   of   two   public   limited   companies   under   Section <\/p>\n
    391\/393 of the Companies Act. Certain principles posited by the <\/p>\n
    Hon’ble Court are relevant for the present matter:\n<\/p>\n
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\n                                            11<\/span><\/p>\n
           “It has to be kept in view that the question of bonafide  <\/p>\n
           of the majority shareholders or the alleged suppression  <\/p>\n
           by   them   of   minority   shareholders   or   their   attempt   to  <\/p>\n
           suffocate their interest has to be judged from the point  <\/p>\n
           of view of the class as a whole. Question is whether  <\/p>\n
           the majority shareholders while acting on behalf of the  <\/p>\n
           class   as   a   whole   had   exhibited   any   adverse   interest  <\/p>\n
           against   the   appellant’s   minority   shareholders   also  <\/p>\n
           having   a   similar   interest   as   members   of   the   same  <\/p>\n
           class, while approving the scheme, or had acted with  <\/p>\n
           any   oblique   motive     to   whittle   down   such   a   class  <\/p>\n
           interest of the minority.”      (para 38)<\/p>\n<\/blockquote>\n
    17.         This   Court   is   however   bound   by   the   decision   of   the <\/p>\n
    Division Bench of this Court, reported in  Sandvik Asia Ltd. v.\n<\/p>\n
    Bharat   Kumar   Padamsi   [2009   Vol.   111   (4)   Bom.   LR   1421], <\/p>\n
    concerning the reduction of capital of M\/s. Sandvik Asia Ltd. The <\/p>\n
    Learned single-judge of this Court, had refused confirmation of <\/p>\n
    the proposal for reduction of M\/s. Sandvik Asia Ltd. on the ground <\/p>\n
    that   the   promoters   group   could   virtually   bulldoze   the   minority <\/p>\n
    shareholders and purchase their shares at the price dictated by <\/p>\n
    them.   The   Learned   Single   Judge   found   that   the   minority <\/p>\n
    shareholders   were   not   given   any   option   under   the   proposal.\n<\/p>\n
    Hence the Learned Single Judge concluded that such schemes <\/p>\n
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\n                                          12<\/span><\/p>\n
    for reduction of capital were totally unfair and unjust. In appeal, <\/p>\n
    the Hon’ble Division Bench held that they were bound by the law <\/p>\n
    laid   down   by   the   Hon’ble   Apex   Court   in  Ramesh   B.   Desai   v.\n<\/p>\n
    Bipin Vadilal Mehta [ (2006) 5 SCC 638 ] where  the Apex Court <\/p>\n
    recognized the judgment of the House of Lords  in the case of <\/p>\n
    British   and   American   Trustee   and   Finance   Corporation <\/p>\n
    [supra].   The   Learned   Bench   also   referred   to   the   judgment   in <\/p>\n
    Poole & ors v. National Bank of China Ltd. [ (1907) A.C. 229 <\/p>\n
    (HL) ], the relevant portion of which is as follows:\n<\/p>\n
           “The   dissenting   shareholders   do   not   demand,   and  <\/p>\n
           never have demanded, better pecuniary terms, but they  <\/p>\n
           insist on retaining their holdings which in all reasonable  <\/p>\n
           probability  can never bring  profit to any  of them and  <\/p>\n
           may be detrimental to the company.”\n<\/p><\/blockquote>\n
    The Learned Bench granted sanction to the reduction of capital, <\/p>\n
    overruling the order of the Learned Single Judge in Sandvik Asia <\/p>\n
    Ltd. (supra), and posited as follows:\n<\/p>\n
           “Once it is established that non-promoter shareholders  <\/p>\n
           are being paid the fair value of their shares, at no point  <\/p>\n
           of time it is even suggested by them that the amount  <\/p>\n
           that   is   being   paid   is   way   less   and   even   the  <\/p>\n
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\n                                           13<\/span><\/p>\n
           overwhelming   majority   of   non-promoter   shareholders  <\/p>\n
           having voted in favour of the resolution shows that the  <\/p>\n
           Court will not be justified in withholding its sanction to  <\/p>\n
           the resolution.” (para 9)<\/p>\n
    An   SLP   (Petition   for   Special   Leave   to   Appeal   (Civil)   No. <\/p>\n
    12418\/2009) filed therefrom,  was dismissed by the Hon’ble Apex <\/p>\n
    Court, by its order dated 13th July, 2009. Thus this Court is bound <\/p>\n
    by   the   decision   of   the   Learned   Division   Bench   and   cannot <\/p>\n
    withhold sanction to the special resolution for reduction of capital, <\/p>\n
    unless there is some patent unfairness regarding the fair value of <\/p>\n
    the shares or there is lack of an overwhelming majority of non-\n<\/p><\/blockquote>\n
    promoter shareholders who vote in favour of the resolution.\n<\/p>\n
    18.          It is  next  contended  by  Mr.  Lakhani  that at  the  said <\/p>\n
    EGM,   proxies   were   allowed   to   vote   by   show   of   hands.     He <\/p>\n
    submits that under the provisions of the Act, proxies are required <\/p>\n
    to vote on poll only and not by show of hands. Hence, even if the <\/p>\n
    Articles of Association of the Petitioner Company permit proxies <\/p>\n
    to vote by show of hands, the provisions of the Act should prevail.\n<\/p>\n
    The   Court   cannot   agree   with   Mr.   Lakhani’s   contention   on   this <\/p>\n
    point. As per the Proviso to Section 176(1) of the Act, a proxy is to <\/p>\n
    vote   only   on   poll   at   the   meetings   of   a   company,   unless   the <\/p>\n
    Articles   of   Association   provides   otherwise.   Mr.   Lakhani   has <\/p>\n
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\n                                           14<\/span><\/p>\n
    himself admitted that the Articles of Association of the Petitioner <\/p>\n
    Company  allow   voting  by   proxies  through  show  of   hands.  This <\/p>\n
    makes   the   aforesaid   objection   untenable   and   it   is   therefore <\/p>\n
    rejected.\n<\/p>\n
    19.          The next objection of Mr. Lakhani is that the special <\/p>\n
    resolution   put   forward   at   the   EGM   for   approval   by   the <\/p>\n
    shareholders   appears   to   have   not   been   passed   with   requisite <\/p>\n
    majority.   According to him, at the EGM, he along with one Mr. <\/p>\n
    Aspi Besania, were the only two public shareholders present in <\/p>\n
    person. The remaining people present in the hall happened to be <\/p>\n
    either employees of the Petitioner Company or representatives of <\/p>\n
    legal  firms  and  auditing  firms,  including  proxies  and authorized <\/p>\n
    representatives.   He   states   that   the   Petitioner   Company   did   not <\/p>\n
    clarify as to how many shareholders were present in person or by <\/p>\n
    proxy   or   by   corporate   authorization.   He   further   states   that <\/p>\n
    although he sought documents from the Petitioner Company like <\/p>\n
    photocopies   of   the   attendance   register,   and   of   the   authorized <\/p>\n
    representation and proxy register, the Petitioner Company failed <\/p>\n
    to provide the same. Although the Petitioner Company provided <\/p>\n
    copies of the Articles of Association, Annual Reports, open offer <\/p>\n
    letters and the valuation report, the minutes of the meeting were <\/p>\n
    sent to him only on 11th December, 2009 and in the said minutes, <\/p>\n
    the   break-up   of   the   exact   number   of   shareholders   present     in <\/p>\n
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\n                                              15<\/span><\/p>\n
    person or  through  proxies   and  authorized representation is  not <\/p>\n
    given.  It is also submitted that there is no proof that EGM notice <\/p>\n
    was sent to 1490 members of the Company.\n<\/p>\n
    20.           Mr.   Lakhani   had   admittedly   not   expressed   any <\/p>\n
    apprehension   about   the   special   resolution   appearing   to   have <\/p>\n
    been passed without the requisite majority, at the time when the <\/p>\n
    said resolution was passed or even when he issued a letter to the <\/p>\n
    Company Secretary of the Petitioner Company immediately after <\/p>\n
    the meeting was concluded. Interestingly, the Court finds that Mr. <\/p>\n
    Lakhani has not expressed any doubts in his letter, regarding the <\/p>\n
    lack   of   majority   in   the   passing   of   the   special   resolution,   or   of <\/p>\n
    notice of the meeting not being dispatched to 1490 shareholders.\n<\/p>\n
    Despite the fact that under Section 176 (7) of the Act, Mr. Lakhani <\/p>\n
    was entitled, during the period of 24 hours before the time fixed <\/p>\n
    for the commencement of the meeting and ending with conclusion <\/p>\n
    of   the   meeting   to   inspect   the   proxies   lodged,   he   chose   not   to <\/p>\n
    conduct   any   inspection.   Again,   although   his   letter   dated   21st <\/p>\n
    October,   2009,   addressed   to   the   Company   Secretary   of   the <\/p>\n
    Petitioner Company  inter alia records that at the time of the EGM <\/p>\n
    around   20   to   25   persons   were   present   and   most   of   them <\/p>\n
    appeared   to   be   either   employees     of   the     company   or <\/p>\n
    representatives of legal firms and auditing firms, it is only  on 23rd <\/p>\n
    December,   2009   that   Mr.   Lakhani   sought     copies   of   the <\/p>\n
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\n                                              16<\/span><\/p>\n
    attendance register  in respect of the EGM  held on 15th October, <\/p>\n
    2009   along   with   particulars   regarding   the   shareholders   and <\/p>\n
    proxies who were present at the meeting. These facts establish <\/p>\n
    beyond doubt that Mr. Lakhani who, as can be seen from his letter <\/p>\n
    dated   15th   October,   2009,   wrote   to   the   Company   Secretary <\/p>\n
    immediately after the EGM, had not objected qua the proxies or <\/p>\n
    authorized Representatives who were present and voted at the <\/p>\n
    said meeting and qua the passage of the special resolution and <\/p>\n
    has gradually come up with the aforesaid objections only as an <\/p>\n
    afterthought.\n<\/p>\n
    21.          In   the   Minutes   of   the   meeting,   it   is   inter   alia   clearly <\/p>\n
    recorded   by   the   Petitioner   Company   that   38   members   were <\/p>\n
    present   in   person   by   proxies   and   through   authorized <\/p>\n
    representatives and that the Chairman informed the members of <\/p>\n
    the   receipt   of   29   valid   proxies   representing   99   equity   shares <\/p>\n
    within   the   prescribed   time,   as   well   as   an   intimation   from   one <\/p>\n
    member,   holding   59,   76,   832   equity   shares,   appointing   an <\/p>\n
    authorized  representative to attend  the  meeting.  The  Chairman <\/p>\n
    also informed the members that the documents mentioned in the <\/p>\n
    explanatory   statement   annexed   to   the   notice   were   open   for <\/p>\n
    inspection till 11.00 a.m.   Neither party contends that any of the <\/p>\n
    contents  of the Minutes of the EGM of the petitioner company, <\/p>\n
    dated   15th   October,   2009   is   incorrect.   Therefore,   the   Minutes <\/p>\n
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\n                                           17<\/span><\/p>\n
    clearly   spell   out   the   attendance   at   the   meeting   as   being   38 <\/p>\n
    members, from whom 29 were valid proxies and one member was <\/p>\n
    an authorized  representative. This implies that 8 members were <\/p>\n
    present   in   their   capacity   as   public   shareholders,   including   Mr. <\/p>\n
    Lakhani   and   Mr.   Besania.   Mr.   Lakhani   has   hence   wrongly <\/p>\n
    submitted   that   no   break-up   of   exact   number   of   shareholders <\/p>\n
    present   in   person,   through   proxies   and   through   authorized <\/p>\n
    representation   was   provided.     This   objection   raised   by   Mr. <\/p>\n
    Lakhani, therefore, completely lacks bonafide and seems to be <\/p>\n
    raised only with the intention of creating hurdles for the Petitioner <\/p>\n
    Company that seeks relief from this Court as prayed for in the <\/p>\n
    petition.\n<\/p>\n
    22.          Mr.   Lakhani     has   then   submitted   that   in   a   similar <\/p>\n
    petition of Cadbury India Limited before this Court, his Lordship, <\/p>\n
    Justice (Dr.) D. Y. Chandrachud had ordered that individual notice <\/p>\n
    be sent to the shareholders  and hence similarly in the present <\/p>\n
    petition this Court should direct the Petitioner Company to issue <\/p>\n
    individual notices     to the shareholders. However, I find that the <\/p>\n
    order passed by my Learned Brother Judge, Justice (Dr.) D. Y.\n<\/p>\n
    Chandrachud,   is   passed   while   disposing   of   the   Company <\/p>\n
    Application filed by Cadbury India Limited and not at the stage of <\/p>\n
    final hearing of the Petition. Moreover, in complying with the order <\/p>\n
    of this Court, dated 11th February, 2010, the Petitioner Company <\/p>\n
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\n                                            18<\/span><\/p>\n
    published notices of hearing of the petition for reduction of capital <\/p>\n
    under Section 100 of the Act in two local newspapers, and no <\/p>\n
    objection   has   been   received   in   relation   to   the   present   petition <\/p>\n
    save   and   except   from   Mr.   Lakhani.     This   contention   therefore <\/p>\n
    lacks merits and is rejected.\n<\/p>\n
    23.          Mr. Lakhani has next pointed out that the explanatory <\/p>\n
    statement    under Section 173(2) of the Act, to the notice dated <\/p>\n
    27th August, 2009 mentions that:\n<\/p>\n
             “The   Board   has     recommended   in   accordance   with  <\/p>\n
             the   ‘first-in-last-out   principle’   ,   and     Organon  <\/p>\n
             Participations   B.V.   has   agreed   vide     letter   dated  <\/p>\n
             August,   25,   2009   that   they   being   the   Promoter-\n<\/p><\/blockquote>\n
             shareholder, should not be returned any of its capital  <\/p>\n
             contribution   before   the   public   shareholders   are  <\/p>\n
             returned their capital contribution.”\n<\/p><\/blockquote>\n
    Mr.   Lakhani   submits   in   this   regard   that   the   promoters   and <\/p>\n
    directors prior to the open offer held 50.43% of the paid up capital <\/p>\n
    of the Company. Post the open offer, as of 31st December, 2001, <\/p>\n
    the   promoter’s   holding   was   94.38%,   whereas   presently   the <\/p>\n
    promoters’   holding   is   98.43%   and   the   remaining   1490 <\/p>\n
    shareholders   hold   1.57%   of   the   paid   up   capital.   Therefore   he <\/p>\n
    submits that the shares acquired by the promoters in open offer <\/p>\n
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\n                                           19<\/span><\/p>\n
    was   much   later   than   those   of   shareholders   like   him,   who   had <\/p>\n
    received shares in public offers sometime in the year 1984 and <\/p>\n
    also received bonus shares in the ratio of 3:5 in the year 1996. In <\/p>\n
    view of the principle of ‘first-in last-out’, the subsequent shares <\/p>\n
    acquired   by   the   promoter   through   open   offer   should   also   be <\/p>\n
    subject to reduction of capital before those of shareholders like <\/p>\n
    him.\n<\/p>\n
    24.          In response to this objection, the Petitioner Company <\/p>\n
    has submitted that the principle of ‘first-in last-out’ referred to by <\/p>\n
    the   Petitioner Company implies that the promoter shareholders <\/p>\n
    being   the   initial   shareholders   of   the   Petitioner   Company   would <\/p>\n
    exit   last.   Admittedly,   the   Petitioner   Company   became   a <\/p>\n
    shareholder prior to Mr. Lakhani and therefore should exit later <\/p>\n
    than   him.     Subsequent   acquisition   of   shares   by   the   promoter <\/p>\n
    shareholders   would   not   affect   the   status   of   the   promoter <\/p>\n
    shareholders   being   the   initial   shareholders.   Moreover,   the <\/p>\n
    Petitioner Company submits that Section 100 of the Act does not <\/p>\n
    prohibit the classification of shares for the purpose of effecting the <\/p>\n
    reduction of capital. A special resolution to the effect of proposed <\/p>\n
    reduction of the equity share capital need not affect the shares <\/p>\n
    held by the promoter shareholders. Therefore, the said objection <\/p>\n
    of Mr. Lakhani is untenable. On a reading of Section 100, I find <\/p>\n
    that the submission of the Petitioner Company is correct and this <\/p>\n
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\n                                             20<\/span><\/p>\n
    objection of Mr. Lakhani, raised on the principle of ‘first-in last-out’ <\/p>\n
    is therefore, rejected.\n<\/p>\n
    25.           Mr. Lakhani’s final objection pertains to the valuation <\/p>\n
    report of M\/s Grant Thornton India (“Grant Thornton”), who were <\/p>\n
    appointed by the Petitioner Company to conduct the valuation of <\/p>\n
    its   equity   shares   for   the   purpose   of   the   proposed   reduction   of <\/p>\n
    share   capital,   as   per   the   provisions   of   the   Act.   The   objections <\/p>\n
    pertaining to the valuation method are set out in clauses 6-a – 6-e <\/p>\n
    of Mr. Lakhani’s affidavit dated 10th March, 2010. He submits that <\/p>\n
    these   objections   should   be   considered   by   this   Court   before <\/p>\n
    passing   any   orders   on   the   petition   filed   by   the   Petitioner <\/p>\n
    Company. The said objections were therefore forwarded by the <\/p>\n
    Petitioner Company to Grant Thornton, who in turn have, by their <\/p>\n
    letter dated 24th March, 2010 responded to each objection. The <\/p>\n
    letter dated 24th March, 2010 along with the response of Grant <\/p>\n
    Thornton   to   the   objections   is   annexed   as   “Exhibit   A”   to   the <\/p>\n
    affidavit in rejoinder of the Petitioner Company dated 25th March, <\/p>\n
    2010. According to Mr. Lakhani, the Petitioner Company followed <\/p>\n
    one   method   of   valuation   at   the   time   of   open   offer   in <\/p>\n
    October\/November, 2001 and another method of valuation under <\/p>\n
    the present proposal of reduction of capital which is not proper.\n<\/p>\n
    He submits that the present proposal by the Petitioner Company <\/p>\n
    should be on the basis of that method of valuation, which gives <\/p>\n
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\n                                          21<\/span><\/p>\n
    higher value i.e. either on the basis of book value of the earning <\/p>\n
    per share, or the P.E. ratio and the difference in Sensex then and <\/p>\n
    now, so as to add a reasonable premium for the total buyout of <\/p>\n
    shares.\n<\/p>\n
    26.         The above objections \/ suggestions is responded to by <\/p>\n
    Grant Thornton as follows:\n<\/p>\n
          “Grant   Thornton,   India   was   appointed   to   conduct   a  <\/p>\n
          valuation of Organon (India) Limited’s (the “Company”)  <\/p>\n
          equity shares for the purpose of a proposed reduction  <\/p>\n
          of   its   share   capital   as   per   the   provisions   of   the  <\/p>\n
          Companies   Act,   1956.     For   this   purpose,   we  <\/p>\n
          understand   that   there   are   no   prescribed   methods\/  <\/p>\n
          guidelines   for   carrying   out   the   valuation   under   the  <\/p>\n
          Companies Act, 1956, particularly in cases where the  <\/p>\n
          companies   are   no   longer   listed   on   stock   exchanges.  <\/p><\/blockquote>\n
          Therefore, for this purpose, as detailed in our Valuation  <\/p>\n
          Report   the   standard   of   value   used   in   our   valuation  <\/p>\n
          analysis is “Fair Value” which is often defined as the  <\/p>\n
          price, in terms of cash or equivalent, that a buyer could  <\/p>\n
          reasonably   be   expected   to   pay,   and   a   seller   could  <\/p>\n
          reasonably be expected to accept, if the business were  <\/p>\n
          exposed for sale on the open market for a reasonable  <\/p>\n
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\n                                       22<\/span><\/p>\n
     period   of   time,   with   both   buyer   and   seller   being   in  <\/p>\n
     possession   of   the   pertinent   facts   and   neither   being  <\/p>\n
     under any compulsion to act.\n<\/p>\n
            As   detailed   in   our   report,   to   arrive   at   the   fair  <\/p>\n
     value of the Company’s equity shares, we have applied  <\/p>\n
     generally accepted valuation methodologies, which are  <\/p>\n
     used in several other situations involving a “Fair Value”\n<\/p>\n
     standard   e.g.   mergers\/amalgamations,   and   accepted  <\/p>\n
     by relevant judicial and regulatory authorities of India.\n<\/p>\n
     It   is   important   to   note   that   these   methodologies   are  <\/p>\n
     also widely practised and applied internationally.\n<\/p>\n
            We   understand   that   the   Offer   Price   of   INR  <\/p>\n
     285\/per share made during the Open Offer in October\/  <\/p>\n
     November 2001 was based on the “Negotiated Price”\n<\/p>\n
     under the Share Purchase Agreement dated July, 30,  <\/p>\n
     2001   and   SEBI   Takeover   Regulations   (11)   for  <\/p>\n
     Consolidation of Holding and Delisting of the Shares  <\/p>\n
     as it clearly indicated in the 2001 Letter of Offer.   We  <\/p>\n
     understand that while carrying out the valuation as at  <\/p>\n
     June,   30,   2009,   it   would   be   incorrect   to   apply   the  <\/p>\n
     guidelines that were applicable in October \/ November,  <\/p>\n
     2001 for the Open Offer for the following reasons.\n<\/p>\n
            The   Open   Offer   guidelines   used   in   October   \/  <\/p>\n
     November,   2001   are   not   applicable   in   the   current  <\/p>\n
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\n                                         23<\/span><\/p>\n
          valuation     context,   moreover   the   standard   of   value  <\/p>\n
          applied in the current valuation context is “Fair Value”.\n<\/p>\n
                 The   Company   has   been   delisted.   The   Offer  <\/p>\n
          Price   in   October   \/   November,   2001   was   determined  <\/p>\n
          based on the “Negotiated Price” of Rs. 285\/- as per the  <\/p>\n
          Share Purchase Agreement entered into between the  <\/p>\n
          Promoter   Shareholder   and   some   of   the   Indian  <\/p>\n
          Promoters of the Company.\n<\/p>\n
                 Further,   we   have   also   appropriately   factored  <\/p>\n
          under various methods the Book value (referred as Net  <\/p>\n
          Value   in   our   report),   Earnings   per   share,   Earnings  <\/p>\n
          based multiples, the prevailing stock market conditions  <\/p>\n
          and   other   factors   detailed   in   our   Valuation   Report  <\/p>\n
          (Refer   paragraph   IV   “Valuation   Methodology”   and  <\/p>\n
          “Organon’s Valuation”).\n<\/p>\n
          In the light of this response, I find that the Grant Thornton <\/p>\n
    has explained in detail why the valuation method suggested by <\/p>\n
    Mr. Lakhani cannot be acceded to.\n<\/p>\n
    27.        Mr. Lakhani has contended that the open offer at Rs.\n<\/p>\n
    285\/- per share in October\/November, 2001 was at 3.07 times of <\/p>\n
    the book value and if the same 3.07 times the present book value <\/p>\n
    is taken into consideration, the price per share would become Rs.\n<\/p>\n
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\n                                            24<\/span><\/p>\n
    718.38\/-. In response, Grant Thornton have stated that they have <\/p>\n
    considered the book value (Net Asset value) of the company and <\/p>\n
    the same has been even adjusted to reflect the  market value of <\/p>\n
    surplus\/non   operating   assets   and   the   impact     of   potential <\/p>\n
    contingent   liabilities.   They   have   pointed   out   that   this   has   been <\/p>\n
    explained by them in para IV (1) of  the valuation report, which is <\/p>\n
    reproduced hereunder:-\n<\/p>\n
             “Net Asset Value Method (NAV):\n<\/p><\/blockquote>\n
             The value arrived at under this approach is based on  <\/p>\n
             the   latest   available   audited\/provisional   financial  <\/p>\n
             statements   of  the   business   and  may   be   defined   as  <\/p>\n
             Shareholders’   Funds   or   Net   Assets   owned   by   the  <\/p>\n
             business.   Under this method, the net assets as per  <\/p>\n
             the financial statements are adjusted for market value  <\/p>\n
             of   surplus\/non   operating   assets,   potential   and  <\/p>\n
             contingent liabilities if any. To derive value per equity  <\/p>\n
             share, the adjusted Net Assets value is divided by the  <\/p>\n
             number of outstanding equity shares.  We have used  <\/p>\n
             this method for the purpose of estimating the share  <\/p>\n
             value.\n<\/p><\/blockquote>\n
                      We have relied on the Net Asset Value of the  <\/p>\n
             Company as of June 30, 2009 and have adjusted for  <\/p>\n
             the   market   value   of   surplus   assets   i.e.   Land   and  <\/p>\n
             reduced the potential contingent liabilities.  Since, we  <\/p>\n
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\n                                             25<\/span><\/p>\n
             have applied various methods and it is important to  <\/p>\n
             arrive   at   a   single   equity   value,   we   have   assigned  <\/p>\n
             appropriate weight to the Net Asset Value method.”<\/p><\/blockquote>\n
           Thus, the Book value \/ Net Asset Value of the Petitioner <\/p>\n
    Company was considered by Grant Thornton for the purpose of <\/p>\n
    arriving at the fair value of the petitioners’ shares.\n<\/p>\n
    28.             Mr. Lakhani has next contended that when the open <\/p>\n
    offer   in   October\/November   2001   was   made   at   Rs.   285\/-   per <\/p>\n
    share, the Earning Per Share (EPS) was Rs. 14.76\/-. This comes <\/p>\n
    to a PE ratio of 19.31, whereas the present offer of Rs. 425\/- is at <\/p>\n
    a   PE   ratio   of   9.97,   as   per   the   EPS   of   Rs.   42.64\/-,   for   the <\/p>\n
                                            st
\n    accounting   period   ending     31     December,   2008   (Rs.   42.64\/-\n<\/p>\n
    multiplied by 9.97 gives Rs. 425\/-). The above contention of Mr. <\/p>\n
    Lakhani is explained by Grant Thornton as under:\n<\/p>\n
                    “As at the Valuation Date (June 30, 2009), the  <\/p>\n
            Company’s   shares   are   de-listed   and   hence,   as  <\/p>\n
            detailed in our Valuation Report [Paragraph IV(2) and  <\/p>\n
            “Organon’s Valuation”] we have used Market Multiple  <\/p>\n
            method   which   factors   and   appropriate   measure   of  <\/p>\n
            earnings multiple and the prevailing market conditions  <\/p>\n
            for   the   comparable   companies   operating   in   the  <\/p>\n
            multinational   pharmaceuticals   companies’   sector  and  <\/p>\n
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\n                                     26<\/span><\/p>\n
     further   adjusted   for   the   Company’s     shares   towards  <\/p>\n
     lack of marketability and being illiquid as it is no longer  <\/p>\n
     listed on any stock exchange.<\/p><\/blockquote>\n
            The Offer Price in October\/November 2001 was  <\/p>\n
     determined   based   on   the   “Negotiated   Price”   of   Rs.\n<\/p>\n
     285\/- as per the Share Purchase Agreement entered  <\/p>\n
     into between the Promoter Shareholder and some of  <\/p>\n
     the Indian Promoters of the Company.  Hence, for the  <\/p>\n
     purpose of discussion on the Intervenor’s arguments,  <\/p>\n
     the   implied   multiples   (Price\/Earnings(PE)   Ratio,  <\/p>\n
     Price\/Book  Value ratios) computed  by  the Intervenor  <\/p>\n
     derived based on the Offer Price of Rs. 285\/- are not  <\/p>\n
     comparable.   Moreover,   if   the   implied   multiples   are  <\/p>\n
     computed   based   on   the   ruling   market   price   of   the  <\/p>\n
     Company at that time (Price on NSE was Rs. 182.7  <\/p>\n
     and Calcutta Stock Exchange was Rs. 165.5 as stated  <\/p>\n
     in the Offer Document), the multiples would be much  <\/p>\n
     lower than what the Intervenor has stated.\n<\/p>\n
            In   addition,   the   Offer   document   of  <\/p>\n
     October\/November   2001   makes   a   reference   to   the  <\/p>\n
     Industry   PE   ratio   comprising   of   multinational  <\/p>\n
     pharmaceuticals which was at a ratio of 19.0x as per  <\/p>\n
     the Capital Market Magazine dated 5th August, 2001.\n<\/p>\n
     If   the   same   source   is   considered,   the   P\/E   ratio   of  <\/p>\n
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\n                                             27<\/span><\/p>\n
            multinational   pharmaceuticals   is   16.0x,   based   on   an  <\/p>\n
            average   last   four   editions   preceding   the   date   of  <\/p>\n
            valuation,   which   after   adjustment   towards   lack   of  <\/p>\n
            marketability of the Company’s shares, will be closure  <\/p>\n
            to implied P\/E ratio of the Company as per the current  <\/p>\n
            Offer   Price   of   Rs.   425,   the   estimated   annualized  <\/p>\n
            earnings as at June 30, 2009.   It is further submitted  <\/p>\n
            that   as   per   several   researches   carried   out   by  <\/p>\n
            academicians and as a general practice, it is common  <\/p>\n
            to   apply   a   discount   for   lack   of   marketability   in   the  <\/p>\n
            range of 25% to derive the Fair Value of equity of an  <\/p>\n
            unlisted company.”\n<\/p>\n
           Therefore,   the   Petitioner   Company   is   correct   in   its <\/p>\n
    contention   that   the   fair   value   of   the   share   is   Rs.425\/-   as   per <\/p>\n
    current PE ratio of the Petitioner Company.\n<\/p>\n
    29.           Mr. Lakhani also has contended that the BSE Sensex <\/p>\n
    is rising and is approximately five and a half times of what it was <\/p>\n
    in 2001. Hence the present offer price should also take the  same <\/p>\n
    into  consideration.    In  response,   Grant   Thornton  explained  as <\/p>\n
    follows:\n<\/p>\n
           “….We   have   factored   the   stock   market   conditions  <\/p>\n
           prevailing  as at the   Valuation Date, which reflected in  <\/p>\n
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\n                                          28<\/span><\/p>\n
           the   market   prices   of   the   comparable   companies   and  <\/p>\n
           consequently   impacting   the     markets   multiples.   We  <\/p>\n
           have explained this in para IV and Organon’s Valuation  <\/p>\n
           in our Valuation Report”<\/p><\/blockquote>\n
           The above answer of Grant Thornton shows that they have <\/p>\n
    already considered the suggestion of Mr. Lakhani while submitting <\/p>\n
    their  valuation  report  and  thereafter  arrived   at  fair  value  of  the <\/p>\n
    shares of the Petitioner Company.\n<\/p>\n
    30.            Mr.   Lakhani   has   further   contended   that   if   the <\/p>\n
    management   of   the   Petitioner   Company   wants   a   complete <\/p>\n
    buyout,   then   it   should   pay   a   substantial   amount   of   premium <\/p>\n
    towards the prices arrived at on the basis of the above method of <\/p>\n
    valuation.     To this argument, Grant Thornton’s response is as <\/p>\n
    follows:\n<\/p>\n
           “We have arrived at the fair value of equity shares of  <\/p>\n
           the company. The full buy out premium or   commonly  <\/p>\n
           referred   as   control   premium   would   be     usually  <\/p>\n
           applicable     when   the   buyer   gets   control   due   to  <\/p>\n
           purchase of shares.  In the current  valuation  context,  <\/p>\n
           we have valued   company’s equity as a whole and not  <\/p>\n
           specifically   any   specific   category       or   class   of  <\/p>\n
           shareholders (i.e. Minority stake). If one has to value a  <\/p>\n
                                                             ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                           29<\/span><\/p>\n
           minority stake there could be a possibility of Minority  <\/p>\n
           Discount   that   would   need   to   be   considered   as   the  <\/p>\n
           minority shareholder cannot control the company.”  <\/p><\/blockquote>\n
           I   find   that   Grant   Thornton   has   thereby   given   cogent <\/p>\n
    reasoning as to why Mr. Lakhani’s suggestion for a full buy out <\/p>\n
    premium cannot be accepted.\n<\/p>\n
    31.            Mr. Lakhani has further contended that the valuation <\/p>\n
    report methodology used by the valuer and its full disclaimer is <\/p>\n
    not clear as it has valued the assets of the Petitioner Company, <\/p>\n
    more   particularly   the   real   estate,   at   current   market   value.   He <\/p>\n
    hence   submits   that   the   earlier   method   of   valuation   used   in <\/p>\n
    October\/November, 2001 should be taken into consideration.   In <\/p>\n
    response,   Grant   Thornton   has   pointed   out   that   the   valuation <\/p>\n
    report   has   considered   the   Petitioner   Company’s   assets <\/p>\n
    particularly the market value of surplus assets and in addition the <\/p>\n
    business and the interest in which the company operates. This <\/p>\n
    has been dealt with in para IV of the said Valuation Report.\n<\/p>\n
    32.          Mr.   Lakhani   has   in   this   manner   raised   several <\/p>\n
    concerns regarding the valuation of shares. Before concluding on <\/p>\n
    this point, I must point out certain observations of the Courts in <\/p>\n
    the   country   regarding   valuation   of   shares.   Mr.   Tulzapurkar, <\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                        30<\/span><\/p>\n
    Learned   Senior   Counsel   appearing   for   the   Petitioner   Company <\/p>\n
    has relied on the decision of the Hon’ble Apex Court in the case <\/p>\n
    of  Miheer H. Mafatlal [supra]. One of the objections raised by <\/p>\n
    the appellant therein  was that  the  exchange  ratio of  the  equity <\/p>\n
    shareholders   so   far   as   the   Transferee   Company   is   concerned <\/p>\n
    works very unfairly and unreasonably towards them. As per that <\/p>\n
    scheme five equity shares of the Transferor Company were to be <\/p>\n
    exchanged for 2 equity shares of the Transferee Company.   It is <\/p>\n
    pertinent to record the observations of the Hon’ble Apex Court in <\/p>\n
    this regard:\n<\/p>\n
            “…Pennington   in   his   ‘Principles   of   Company   Law’  <\/p>\n
            mentions four factors which has to be kept in mind in  <\/p>\n
            the valuation of shares:\n<\/p><\/blockquote>\n
            (1) Capital Cover;\n<\/p><\/blockquote>\n
            (2) Yield;\n<\/p><\/blockquote>\n
            (3) Earning Capacity;\n<\/p><\/blockquote>\n
            (4) Marketability….\n<\/p><\/blockquote>\n
          Valuation of shares is a technical and complex problem  <\/p>\n
          which can be approximately left to the consideration of  <\/p>\n
          experts   in   the   field   of   accountancy.   Many  <\/p>\n
          imponderables exist in the exercise of the valuation of  <\/p>\n
          shares…\n<\/p><\/blockquote>\n
                                                           ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                          31<\/span><\/p>\n
             …It has also to be kept in view that which exchange  <\/p>\n
             ratio is better is in the realm of commercial decision of  <\/p>\n
             well informed shareholders. It is not for the Court to sit  <\/p>\n
             in   appeal   over   the   value   judgment   of   equity  <\/p>\n
             shareholders who are supposed to be men of the world  <\/p>\n
             and  reasonable   persons   who  know   their  own  benefit  <\/p>\n
             and   interest   underlying   any   proposed   scheme.   With  <\/p>\n
             open eyes they have okayed this ratio and the entire  <\/p>\n
             scheme.”   (para 40)ig\n<\/p><\/blockquote>\n
    33.           In Hindustan Lever Employees Union v. Hindustan <\/p>\n
    Lever Ltd. (AIR<\/a> 1995 SC 470), the Hon’ble Apex Court rejected <\/p>\n
    the argument of the Petitioner therein, that if some other method <\/p>\n
    was adopted, probably the determination of valuation could have <\/p>\n
    been more in favour of the shareholders. Merely because some <\/p>\n
    other   method   of   valuation   could   be   resorted   to,   which   would <\/p>\n
    possibly  be  more  favourable, that  alone  cannot militate against <\/p>\n
    granting approval  to the scheme  propounded  by  the  Company.\n<\/p>\n
    The Court’s obligation is to be satisfied that the valuation was in <\/p>\n
    accordance of the law and it was carried out by an independent <\/p>\n
    body.\n<\/p>\n
    34.           In the case of  Re Tata Oil Mills Co. Ltd. [ (1994) 81 <\/p>\n
    Comp Cases 754 (Bom) ], this Court observed thus:\n<\/p>\n
                                                             ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                             32<\/span><\/p>\n
           “…the exchange ratio arrived at by Mr. Malegam has  <\/p>\n
           received   the   approval   of   shareholders   holding   more  <\/p>\n
           than 99 percent (in number and value) shares at the  <\/p>\n
           meetings. No one except the shareholders holding the  <\/p>\n
           minimum percentage of shares has complained before  <\/p>\n
           me. The valuation has been confirmed by two eminent  <\/p>\n
           firms of auditors. It would be extremely difficult to hold  <\/p>\n
           that   the   same   is   unfair.   In   any   case,   it   has   been  <\/p>\n
           approved   by   an   overwhelming   majority   of   persons  <\/p>\n
           affected and there is no basis to doubt their judgment.”\n<\/p><\/blockquote>\n
    35.           In the landmark case of  Gold Coast Selection Trust <\/p>\n
    Ltd. v. Humphey (30 TC 209) it was posited as follows:\n<\/p>\n
           “Valuation is an art, not an exact science. Mathematical  <\/p>\n
           certainty is not demanded, nor indeed is it possible”\n<\/p>\n
    36.             Mr.   Tulzapurkar   has   also   relied   on   an   unreported <\/p>\n
    decision of the Learned Single Judge of this Court (Coram: A.M.\n<\/p>\n
    Khanwilkar,   J.)   in     the   case   of  Reliance   Industries   Ltd.\n<\/p>\n
    [Company   Application   No.   288   of   2009],   dated   29th   June, <\/p>\n
    2009.   The learned Single Judge in the said decision has   dealt <\/p>\n
    with   the   criticism   of   the   objectors     that   the     contents   of   the <\/p>\n
                                                                  ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                           33<\/span><\/p>\n
    valuation report does not  give any  forecast or  disclose  any logic <\/p>\n
    but   only conclusion and   the opinion of the Valuers\/Experts   is <\/p>\n
    based   on   the     information   provided   by   the   Company,   in   the <\/p>\n
    following terms:\n<\/p>\n
          “Insofar as the criticism with regard to the contents of the  <\/p>\n
          valuation report either on the ground that it does not give  <\/p>\n
          any forecast or disclose any logic but only conclusion.  Even  <\/p>\n
          this argument does not commend to me. As aforesaid, on  <\/p>\n
          reading the reports clause by clause and as a whole, no  <\/p>\n
          fault can be found with the ultimate opinion reached by the  <\/p>\n
          experts   regarding   share   swap   ratio,   which   is   founded   on  <\/p>\n
          tangible material and basis.  I am not at all impressed by the  <\/p>\n
          argument of the objectors that the report is manifestation of  <\/p>\n
          conflicting   opinion   in   any   manner.     The   fact   that   the  <\/p>\n
          language of the report would give an impression that the  <\/p>\n
          Expert does not take the responsibility of the accuracy of  <\/p>\n
          the figures furnished to them by the Company or that they  <\/p>\n
          have not made any independent valuation of the assets and  <\/p>\n
          liability of the companies on their own, does not mean that  <\/p>\n
          the relevant factors for determination of swap ratio have not  <\/p>\n
          been considered by the experts.   Obviously, the opinion of  <\/p>\n
          the   Experts   is   based   on   the   information   provided   by   the  <\/p>\n
          Company.     There   is   nothing   to   show   that   the   figures  <\/p>\n
          available in the Books of Accounts provided to the Experts  <\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                            34<\/span><\/p>\n
          were incorrect or otherwise.   Thus, there is nothing in the  <\/p>\n
          said Reports to indicate that the consideration weighed with  <\/p>\n
          the   Experts   in   arriving   at   the   opinion   is   impermissible   or  <\/p>\n
          unacceptable.     It   is   not   possible   to   countenance   the  <\/p>\n
          grievance of the objectors that the reports deprive the Court  <\/p>\n
          from basic information regarding justification of share swap  <\/p>\n
          ratio.”\n<\/p><\/blockquote>\n
          In the said   decision, the learned Single Judge noted that-\n<\/p><\/blockquote>\n
           “Even   in   the   present   case,   no   one   has   doubted   the  <\/p>\n
           integrity  and honesty of the valuers, who have given  <\/p>\n
           their share valuation report or fairness  report, as  the  <\/p>\n
           case may be. Nor the objectors have been able to point  <\/p>\n
           out   that   the   method   adopted   by   the   valuers   was  <\/p>\n
           impermissible   or   absurd.   If   so,   I   find   no   reason   to  <\/p>\n
           discard   the   valuation   of   shares   or   the   swap   ratio  <\/p>\n
           determined by the Experts”             (para 14)<\/p>\n<\/blockquote>\n
    37.          In the present case, the petitioner company does not <\/p>\n
    have any secured creditors as set out herein above. Not a single <\/p>\n
    unsecured   creditor   has   raised   objection   qua   the   reduction   in <\/p>\n
    capital proposed by the Petitioner Company. The hearing of the <\/p>\n
    petition was advertised by the Petitioner Company as directed by <\/p>\n
                                                                 ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                           35<\/span><\/p>\n
    this   Court   in   two   local   newspapers   and   in   the   Maharashta <\/p>\n
    Gazette.   However,   except   for   Mr.   Lakhani,   none   of   the   public <\/p>\n
    shareholders have come forward to oppose the petition. I find that <\/p>\n
    the valuation of the shares by the Petitioner Company is therefore <\/p>\n
    also accepted by all the shareholders and creditors with the single <\/p>\n
    exception   of   Mr.   Lakhani.   Mr.   Lakhani   himself   has   also   not <\/p>\n
    attributed any motives to Grant Thornton nor commented on its <\/p>\n
    independent   professional   status   or   competency.   In   fact   the <\/p>\n
    Petitioner Company has taken the pains of getting a response of <\/p>\n
    Grant   Thornton   to   every   objection   raised   by   Mr.   Lakhani <\/p>\n
    pertaining to the valuation carried out by Grant Thornton.   The <\/p>\n
    report of Grant Thornton sets out the basis for arriving at the final <\/p>\n
    opinion.   The   report   clearly   mentions   that   valuation   is   done   by <\/p>\n
    giving   predominant weightage to the value computed under the <\/p>\n
    Market Multiple Method and Discounted Cash Flow Method, with <\/p>\n
    a lower weight being given to the value computed under the NAV <\/p>\n
    method.\n<\/p>\n
    38.          In view  thereof,  keeping in view  the  observations  of <\/p>\n
    the Hon’ble Apex Court as well as this Court, I see no reason why <\/p>\n
    the Valuation Report of Grant Thornton, which I find to be fair, <\/p>\n
    reasonable and based on cogent reasoning and which has also <\/p>\n
    been   accepted   by   all   the   non-promoter   shareholders   of   the <\/p>\n
    Petitioner   Company,   with   the   lone   exception   of   Mr.   Lakhani, <\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>
\n                                      36<\/span><\/p>\n
    should not be accepted by this Court.\n<\/p>\n
    39.        Under   the   circumstances,   the   Company   Scheme <\/p>\n
    Petition is allowed in terms of prayer clauses (a) and (b).\n<\/p>\n
                Order Accordingly.\n<\/p>\n
                                          (S. J. KATHAWALLA, J.)<\/p>\n
                                                       ::: Downloaded on – 09\/06\/2013 15:59:10 :::<\/span>\n <\/p>\n","protected":false},"excerpt":{"rendered":"
Bombay High Court Organon (India) Limited vs Unknown on 7 June, 2010 Bench: S. J. Kathawalla 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY SCHEME PETITION NO.101 OF 2010 In the Matter of Reduction of Equity Share Capital of Organon (India) Limited Organon (India) Limited … Petitioner …. Dr. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11,8],"tags":[],"class_list":["post-23422","post","type-post","status-publish","format-standard","hentry","category-bombay-high-court","category-high-court"],"yoast_head":"\nOrganon (India) Limited vs Unknown on 7 June, 2010 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/organon-india-limited-vs-unknown-on-7-june-2010\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Organon (India) Limited vs Unknown on 7 June, 2010 - 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