mere fact that one of the Chartered Accountants/Valuers is a statutory auditor of the transferee company does not lead to a reasonable inference that the choice of such Valuer was stage-managed by Tata Tea Ltd and a statutory auditor has an independent role to play if he has to effectively perform his part. That the imputations of bias cannot lightly be made against a professional Chartered Accountant who is expected to discharge the duties according to the obligations cast on him by the Statute and the well- established principles of professional conduct and etiquette. The above judgment will put at rest the controversy sought to be stirred up by the objectors that the Valuer being associated with the transferee Company, its Valuation report cannot be accepted. On a careful consideration of the Valuation report, pleadings and submissions of learned counsel for all the parties, I am of the opinion that no interference with the Valuation report is warranted and there is no need for appointing an independent Valuer, as requested by the objectors. For all the above-mentioned reasons, I do not find any merit in the objections raised by the objectors and the same are, accordingly, rejected. In the light of the above noted facts and having regard to the reports submitted by the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad and the Official Liquidator, this Court is of the opinion that the proposed scheme of amalgamation is in conformity with the provisions of the Act and the same does not in any manner affect the interests of any of the stake holders including the public. Therefore, the proposed scheme of amalgamation is approved and the petitioners shall, within 30 days from the date of receipt of a copy of this order, cause a certified copy of this order to be delivered to the Registrar of Companies, Telangana and Andhra Pradesh, Hyderabad for registration and take all other consequential actions in pursuance of the approval of the scheme of amalgamation. The Company Petitions are, accordingly, allowed.
HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY
COMPANY PETITION Nos.245 of 2014
02-03-2015
M/s Astrix Laboratories Limited, Hyderabad ..Petitioner/Transferor Company
M/s Mylan Laboratories Limited, Hyderabad..Petitioner/Transferee Company
Counsel for the petitioners: Sri Iqbal Chagla, senior counsel
for Sri V.S.Raju
Counsel for the respondent: Sri B.Narayana Reddy,
Assistant Solicitor General
Counsel for the Official Liquidator: Sri M.Anil Kumar
Counsel for the Objectors: Sri V.Hariharan
<Gist:
>Head Note:
? Cases Referred:
1.(1997) 1 SCC 579
2.2000 CLC 1356
3.(2009) 92 SCL 272 (BOM.)
THE HONBLE SRI JUSTICE C.V.NAGARJUNA REDDY
COMPANY PETITION Nos.245 and 246 of 2014
02.03.2015
C.P.No.245 of 2014
The Court made the following:
COMMON ORDER:
Company Petition No.245 of 2014 is filed by M/s Astrix
Laboratories Limited, Hyderabad (for short the transferor
company) and Company Petition No.246 of 2014 is filed by
M/s Mylan Laboratories Limited, Hyderabad (for short the
transferee company) for sanctioning the proposed scheme of
arrangement between them.
The transferor company has pleaded that it was
incorporated as a public limited company under the name and
style of M/s Astrix Laboratories Limited in the State of Andhra
Pradesh on 21.09.2005; that its registered office is situated at
Plot No.564/A/22, Road No.92, Jubilee Hills, Hyderabad; that its
authorized capital is Rs.5 crores, which includes
Rs.4,99,99,000/- divided into 49,99,000 equity shares of Rs.10/-
each and Rs.10,000/- divided into 1,000 Class-B equity shares
of Rs.10/- each; that its issued, subscribed and paid up capital is
Rs.4,52,60,000/-, which includes Rs.4,52,50,000/- divided into
45,25,000 equity shares of Rs.10/- each fully paid up and
Rs.10,000/- divided into 1,000 Class-B equity shares of Rs.10/-
each; and that its main objects, inter alia, are to manufacture,
import, export, buy, sell, distribute, and deal in bulk drugs,
finished drugs and pharmaceuticals, fine pharmaceuticals,
chemicals, fine chemicals, enzmes, anti tuberculosis agents
ayurvedic, unani and cosmetics, etc.
The transferee company pleaded that it was originally
incorporated as a private limited company under the name and
style of Herren Drugs Private Limited in the State of Andhra
Pradesh on 29.11.1984; that subsequently, it converted itself
into a public limited company under the name and style of
Herren Drugs Limited with effect from 19.10.1992; that its
name was changed as Herren Drugs and Pharmaceuticals
Limited on a fresh certificate of incorporation issued on
27.06.1994; that, later, its name was changed as Matrix
Laboratories Limited and subsequently, to M/s Mylan
Laboratories Limited on 21.03.2001; that its authorized capital
is Rs.40 crores divided into 20,00,00,000 equity shares of Rs.2/-
each; that its issued, subscribed and paid up capital is
Rs.36,95,13,716/- divided into 18,47,56,858 equity shares of
Rs.2/- each fully paid up; and that its main objects, inter alia, are
to manufacture, import, export, buy, sell, distribute and deal in
bulk drugs, finished drugs and pharmaceuticals, fine
pharmaceuticals, chemicals, fine chemicals, enzmes, anti
tuberculosis agents ayurvedic, unani and cosmetics, etc.
That under the proposed scheme of arrangement, the
transferor company will be amalgamated into the transferee
company and that this arrangement is to derive the following
benefits:
1. The Transferee Company, a public company
limited by shares, is a subsidiary of MP Laboratories
(Mauritius) Limited and is engaged in the manufacture of
Active Pharmaceutical Ingredients (API) and Finished
Dosage Formulations (FDF). The Transferor Company, a
subsidiary of the Transferee Company, is a developer,
manufacturer and marketer of high-quality Antiretroviral
(ARV). The consolidation and amalgamation of the
Transferor Company with the Transferee Company shall
result into synergies in the Transferee Company.
2. The Transferor Companys capabilities, product
portfolio and pipeline complement the Transferee
Companys existing API platform. The amalgamation will
strengthen the foothold of the Transferee Company in the
ARV API segment.
3. Greater integration, financial strength and
flexibility for the Transferee Company, which will improve
the financial position of the Transferee Company.
4. Greater efficiency in cash management of the
Transferee Company, and unfettered access to cash flow
generated by the combined business which can be deployed
more efficiently to fund growth opportunities, to further
improve shareholders value.
5. Benefit of operational synergies to the combined
entity in areas such as raw material sourcing, product
placement, marketing and sale promotions initiatives, freight
optimization and logistics.
6. Grater leverage in operations planning and
process optimization and enhanced flexibility in product
offerings.
7. Cost savings are expected to flow from more
focused operational efforts, rationalization, standardization
and simplification of business processes, productivity
improvements, improved procurement, usage of common
resource pool like human resource, administration, finance,
accounts, legal, technology and other related functions,
leading to elimination of duplication and rationalization of
administrative expenses.
That the transferee company is held by two major
shareholders, viz., Mylan Mauritius and Mylan Luxembourg 2
S.a.r.I. to an extent of 82.79% and 15.38% respectively, i.e., both
of them together holding a total of 98.17% shares, and the
remaining 1.83% shareholding is held by the minority
shareholders; that as a part of this composite scheme of
arrangement, the transferee company intends to cancel and
extinguish the equity shares held by its minority shareholders by
paying cash in lieu of equity shares held by them for the
following reasons:
1. Transferee Company was listed on Bombay
Stock Exchange and National Stock Exchange having
Scrip ID 524794 and MATRIX LABSEQ respectively.
The Transferee Company went through a delisting
process in the year 2009 and consequently the
shareholders of the Transferee Company lost liquidity as
the shares are no more traded on the said Stock
Exchanges.
2. The fact that the shares of MLL are de-listed from
the Stock Exchanges and, as a result thereof, the same
cannot be traded on the floor of the Stock Exchange.
The Transferee Company has received numerous
requests from the Minority Shareholders to provide an
exit option by way of buyback of shares. The Composite
Scheme of Arrangement provides an opportunity to the
Minority Shareholders to liquidate their entire
shareholding in respect of equity shares held by them
for cash.
3. The Composite Scheme of Arrangement provides
for greater level of transparency and openness and
secures full involvement of shareholders of MLL. All the
Minority Shareholders of MLL would benefit from the
Scheme in the same proportion as his/her/its share in
the capital of MLL.
Both the petitioners have given the details of the proposed
scheme of amalgamation, particular reference to which is not
necessary, except to the extent relating to the valuation of the
shares, which alone is in dispute in these two cases.
It is stated in Company Petition No.246 of 2014 that the
minority shareholders shall be paid a sum of INR 387 per equity
share, representing an amount not less than the fair value of the
share of the transferee company, as determined by an
independent Valuer.
Both the petitioners have pleaded that their respective
Boards of Directors have approved the proposed scheme of
arrangement.
The transferor Company filed Company Application
No.1066 of 2014 seeking dispensing with of the holding of the
meeting of its shareholders and convene the meeting of the
unsecured creditors.
This Court by order, dated 01.09.2014, has dispensed with
the meeting of the shareholders of the transferor company and
appointed Sri K.Raja Reddy, Advocate, for holding the meeting of
the unsecured creditors of the transferor company on
17.10.2014 at 4.30 pm. Accordingly, the meeting was held by
the Chairperson. In the report, dated 25.10.2014, submitted by
the Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 74 unsecured
creditors in person, valued at Rs.62,81,73,711/-, attended the
meeting and that all the unsecured creditors have unanimously
voted in favour of the proposed scheme of arrangement.
The transferee Company filed Company Application
No.1067 of 2014 for convening the meetings of its equity
shareholders and the unsecured creditors.
This Court by order, dated 01.09.2014, appointed
Sri K.N.Jwala, Senior Advocate, for convening the meetings of
the equity shareholders and unsecured creditors on 17.10.2014
at 10.30 am and 2.30 pm, respectively, at Hotel Park Hyatt, Road
No.2, Banjara Hills, Hyderabad. Accordingly, the meetings were
held by the said Chairperson.
In the report, dated 25.10.2014, submitted by the
Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 207
shareholders in person, valued at Rs.36,30,60,426/-, and 68
members by proxies holding shares, valued at Rs.1,69,276/-,
attended the meeting and that except 14 shareholders in person
or through proxy, all the remaining have voted in favour of the
proposed scheme of arrangement.
In another report, dated 30.10.2014, submitted by the
Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 119
unsecured creditors in person, valued at Rs.7,50,42,15,677/-,
attended the meeting and all of them have unanimously voted in
favour of the proposed scheme of arrangement.
The petitioners have subsequently filed the present
Company Petitions for approving the proposed scheme of
amalgamation.
By separate orders, dated 12.11.2014, in these Company
Petitions, this Court has ordered notices to the Regional Director,
South Eastern Region, Ministry of Corporate Affairs, Hyderabad
and the Official Liquidator attached to this Court.
In obedience to the notices issued by this Court, the
Regional Director, South Eastern Region, Ministry of Corporate
Affairs, Hyderabad, has filed his report, so also the Official
Liquidator attached to this Court.
In his report, dated 19.12.2014, the Regional Director has
stated that in pursuance of General Circular No.1/2014, dated
15.01.2014, issued by the Ministry of Corporate Affairs, New
Delhi, comments from the Income Tax Department have been
called for, vide letter, dated 24.11.2014, and that no
comments/objections were received, by his office, till the date of
filing of the report. He has further stated that the Registrar of
Companies, Telangana and Andhra Pradesh, Hyderabad, has
reported that the transferor company is regular in filing the
statutory returns; that the transferee company has filed the
statutory returns up to the year 2013; and that no complaints,
no investigations and no inspections are pending against the
affairs of both the companies.
The Official Liquidator also in his report, dated
23.12.2014, has stated that the affairs of the transferor
company have not been conducted in a manner prejudicial to
the interests of the members or to the public interest.
In response to the publication of notice, three individual
shareholders have filed Company Application Nos.114, 115,
1572 and 1574 of 2014. For convenience, these shareholders
are referred to as objectors. One of the three objectors has
attended the meeting and voted against the proposed scheme of
arrangement. The objections raised by these objectors are two
fold, viz., (1) that the Valuer to which the valuation of shares
was assigned is not an independent one as, it was the advisor of
one of the major shareholders of the transferee company, viz.,
Mylan, Luxembourg, and (2) that the Valuer has not made a fair
valuation of the shares.
Sri V.Hari Haran, learned counsel for the objectors,
submitted that 98.17% of shares of the transferee company is
held by two major shareholders, viz., Mylan Mauritius and
Mylan Luxembourg. He has further submitted that since this is a
case of compulsory buying out of the shares of the minority
shareholders of the transferee company, the Valuation report
needs a more closer and critical scrutiny by this Court in order
to ensure payment of proper value for the shares held by the
minority shareholders. He has taken this Court through the
Directors report filed in the Company Application No.1574 of
2014 and also the Valuation report, dated 18.08.2014, of Price
Waterhouse & Co., LLP and submitted that while the Directors
report reflects healthy growth of the financial position of the
transferee company, the Valuer while evaluating the shares has
taken into consideration the scaling down of production in the
year 2014 on the ground that there was slow down in the
market. He has further submitted that out of the three
recognized methods prescribed for valuation of the shares, viz.,
Income approach, Market approach and Net Asset Value
approach, the Valuer has taken into consideration only the first
mentioned two criteria excluding the criterion of Net Asset
Value approach and that therefore the Valuation is defective
requiring appointment of an independent Valuer for making a
fair valuation of the shares.
Opposing the above submissions, Sri Iqbal Chagla, learned
senior counsel appearing for Sri V.S.Raju, learned counsel for
the petitioners, submitted that overwhelming majority of
shareholders supported the proposed scheme of arrangement;
that of 1.83% of the minority shareholders, 76% in value and
93% in number have voted in favour of the proposed scheme of
arrangement; and that only 16 shareholders are opposing the
proposed scheme of arrangement only on the ground of alleged
improper valuation of shares. He has further submitted that
Price Waterhouse & Co., LLP, which has valued the shares is a
limited liability partnership concern based at Gurgaon, India
and that it has not advised Mylan Luxembourg at any point of
time. Alternatively, he has submitted that the auditor, which has
submitted Valuation report, being submitted by a professional
auditor, no bias can be presumed merely on account of the fact
that it has advised one of the share holders of the transferee
company in the absence of any defects and apparent
shortcomings existing in the report. He has referred to and
relied upon the judgment of the Apex Court in Miheer
H.Mafatlal Vs. Mafatlal Industries Ltd , a judgment of a Division
Bench of this Court in Vadlamudi Rama Rao Vs. M/s Asian
Coffee Ltd and a judgment of a Division Bench of Bombay High
Court in Sandvik Asia Ltd Vs. Bharat Kumar Padamsi in support
of his submission that the jurisdiction of this Court under
Sections 391 and 394 of the Act is supervisory and not appellate
in nature and that this Court will not examine the intricacies of
valuation. That unless the Court finds serious defects in the
Valuation report of the Valuer, it will seldom interfere with the
Valuation report as it does not possess the expertise to come to a
different opinion from the one arrived at by the Valuer. The
learned senior counsel also referred to the affidavits filed in the
Company Applications and submitted that the Valuer has not
applied the Net Asset Value approach for the reason that if the
same is applied, the value of each share will come down to
around Rs.135/-. He has also invited this Courts attention to
page-32 of the Valuation report, wherein the Valuer has given
certain reasons for not considering the Net Asset Value
approach for value analysis.
I have carefully considered the submissions of learned
counsel for the parties and perused the record.
While considering the scope and the jurisdiction of the
Company Court under Sections 391 and 394 of the Act, the
Supreme Court in Minheer H.Mafatlal (supra) held that it is the
commercial wisdom of the parties to the scheme who have
taken an informed decision about the usefulness and propriety
of the scheme by supporting it by the requisite majority vote that
has to be kept in view by the Court; that the Court certainly
would not act as a Court of appeal and sit in judgment over the
informed view of the parties concerned to the compromise as
the same would be in the realm of corporate and commercial
wisdom of the parties concerned. It was further held therein
that the Court has neither the expertise nor the jurisdiction to
delve deep into the commercial wisdom exercised by the
creditors and members of the company who have ratified the
Scheme by the requisite majority; that consequently, the
Company Courts jurisdiction to that extent is peripheral and
supervisory and not appellate and that the Court acts like an
umpire in a game of cricket who has to see that both the teams
play their game according to the rules and do not overstep the
limits and subject to that how best the game is to be played is left
to the players and not to the umpire.
While dealing with the submission made by the objectors
on the exchange ratio of the equity shareholders, the Supreme
Court held as under:
It was submitted that the exchange ratio of equity
shareholders so far as the transferee-Company is
concerned works very unfairly and unreasonably to them.
As per the proposed Scheme 5 equity shares of the
transferor-Company are to be exchanged for 2 equity
shares of the transferee-Company. So far as this contention
is concerned it has to be kept in view that before
formulating the proposed scheme of compromise and
amalgamation an expert opinion was obtained by the
respondent-Company as well as the transferor-Company,
namely, MFL on whose Board of Directors the appellant
himself was a member. M/s C.C. Chokshi & Co., a reputed
firm of chartered accountants, having considered all the
relevant aspects suggested the aforesaid exchange ratio
keeping in view the valuation of shares of respective
companies. It must at once be stated that valuation of
shares is a technical and complex problem which can be
appropriately left to the consideration of experts in the
field of accountancy. Pennington in his Principles of
Company Law mentions four factors which had to be kept
in mind in the valuation of shares:
(1) Capital Cover,
(2) Yield,
(3) Earning Capacity, and
(4) Marketability.
For arriving at the fair value of share, three well-known methods are
applied:
(1) The manageable profit-basis method
(the Earning Per Share Method)
(2) The net worth method or the break
value method, and
(3) The market value method.
So many imponderables enter the exercise of valuation of
shares. M/s C.C. Chokshi & Co. considering all the relevant
aspects and obviously keeping in view the accounting
principles underlying the valuation of shares suggested the
said ratio which was found acceptable both by the Board of
Directors of the respondent-Company as well as the Board of
Directors of the transferor-Company. That the appellant
himself as a director of the transferor-Company gave green
signal to the Scheme and to this very ratio of exchange of
shares. But Shri M.J. Thakore, appearing for the appellant,
submitted that from the point of view of the transferor-
Company it was very profitable to have two shares of the
transferee-Company against five shares of the transferor-
Company. But the difficulty arises only from the point of view
of the transferee-Company shareholders. According to Shri
Thakore the proper exchange ratio would be one share of the
transferee-Company to six shares of the transferor-Company.
It is difficult to appreciate this contention of the appellant. It
has to be kept in view that the appellant never bothered to
personally remain present in the meeting of equity
shareholders for pointing out the unfairness of this exchange
ratio to his brother equity shareholders who were likely to be
affected by the very same ratio as the appellant. His interest at
least to that extent was entirely common and parallel to that
of other equity shareholders. But he had no time to remain
personally present. He sent his proxy only to record his
dissent vote which was in microscopic minority of 5% as
compared to 95% majority vote. Not only that even before the
Court he did not submit any contrary expert opinion
regarding the valuation of shares of transferor and transferee
companies for supporting his ipse dixit that the correct ratio
would be 6:1 so far as transferor and transferee companies
were concerned. Shri Shanti Bhushan, learned Senior Counsel
for the appellant, having realized this difficulty submitted that
at least these proceedings are continuation of proceedings
before the High Court, therefore, this Court may now in order
to satisfy itself send for the opinion of an expert. It is difficult
to agree. The appellant who was propounding this theory of
correct exchange ratio had nothing to offer in support of his
contention both before the learned Single Judge as well as
before the High Court. It has to be kept in view that the matter
was fiercely contested on all permissible points before the
learned Single Judge. The proceedings were pending before
the High Court for more than two years from 8-2-1994 till
12-7-1996 when the Division Bench disposed of the appeal.
For all these years neither before the learned Single Judge nor
before the High Court in appeal the appellant thought it fit to
request the Court to either call for the report of any other
expert on valuation of shares nor did he himself get such
report for placing for consideration of the Court in support of
his supposed better ratio. It has also to be kept in view that
which exchange ratio is better is in the realm of commercial
decision of well-informed equity shareholders. It is not for the
Court to sit in appeal over this value judgment of equity
shareholders who are supposed to be men of the world and
reasonable persons who know their own benefit and interest
underlying any proposed scheme. With open eyes they have
okayed this ratio and the entire Scheme. 40% of the majority
shareholders were financial institutions who were supposed
to be well versed on the aspect of valuation of shares. They
had no objection to the exchange of 2 shares of the
transferee-Company for 5 shares of the transferor-Company.
As stated earlier it was a sort of a package duly considering all
imponderables and implicit factors which the shareholders
had to keep in view for deciding whether to approve the
Scheme of Amalgamation or not. The exchange ratio was only
one of the items. They thought it fit in their commercial
wisdom to accept the Scheme as a whole along with the
exchange ratio presumably in expectation of better profits in
years to come when the amalgamated companies would
operate and when there would be, according to the
shareholders, better prospects of earning greater dividends.
They willingly agreed to give in exchange two shares of the
transferee-Company for five shares of the transferor-
Company and made them available to the shareholders of the
transferor-Company. The appellant was representing only 5%
dissenting shareholders and his objection was almost a voice
in the wilderness, which did not appeal to the majority of his
brother shareholders. Shri Shanti Bhushan, learned Senior
Counsel for the appellant, in this connection invited our
attention to the observation of the Division Bench in its
judgment at page 375 wherein it has been observed that if
one were to examine the exactitude of exchange ratio that
may be offered fairly on the arithmetic scale by taking into
consideration various details, there is some force in what were
suggested by Mr B.R. Shah on behalf of the appellant.
However, keeping in view the scope of enquiry which the
Court is required to undertake and with whose findings we
are concerned, it will not be permissible for us in law to
undertake this exercise in the facts and circumstances of the
present case in absence of bona fides. We fail to appreciate
how this observation can be of any avail to the learned Senior
Counsel for the appellant as all that the Court wanted to
suggest was that even assuming that some other exchange
ratio can be suggested to be a better one, it was for the equity
shareholders who acted bona fide in the interest of their class
as a whole to accept even a less favourable ratio considering
other benefits that may offset such less favourable ratio once
an amalgamation goes through. We wholly concur with this
view. In this connection we may also refer to a decision of
Maugham, J., in Hoare & Co. (No. 2) Re, case5 wherein it was
laid down that where statutory majority had accepted the
offer the onus must rest on the applicants to satisfy the court
that the price offered is unfair. In this connection the
following pertinent observations were made by the learned
Judge:
The other conclusion I draw is this the court
ought to regard the scheme as a fair one inasmuch as
it seems to me impossible to suppose that the court, in
the absence of very strong grounds, is to be entitled to
set up its own view of the fairness of the scheme in
opposition to so very large a majority of the
shareholders who are concerned. Accordingly,
without expressing a final opinion on the matter,
because there may be special circumstances in special
cases, I am unable to see that I have any right to order
otherwise in such a case as I have before me, unless it
is affirmatively established that, notwithstanding the
views of a very large majority of shareholders, the
scheme is unfair.
The Court has also taken into consideration, the fact that
the appellant before it was representing only 5% dissenting
shareholders and his objection was almost a voice in the
wilderness, which did not appeal to the majority of his brother
shareholders.
The Division Bench of this Court in Vadlamudi Rama Rao
(supra) followed the ratio in Minheer H.Mafatlal (supra).
Echoing similar views, this Court held that it is not in doubt that
the Court, while granting approval of the scheme of
amalgamation, has to be satisfied that a fair procedure had been
adopted and an honest attempt was made to arrive at a fair and
reasonable Share Exchange Ratio in the interests of the general
body of the shareholders and the creditors, that the Court should
nevertheless refrain from embarking on an exercise of
evaluation on its own to test the correctness of the figures
reached by the experts; that the Court has to take note of the fact
that its role in according approval of the scheme of
amalgamation under Section 394 of the Act is nothing more
than a supervisory role. The Division Bench has compared the
jurisdiction of the Company Court closely with the judicial
review of administrative action, where the constitutional Court
is not concerned so much with the actual decision reached by
the administrative or statutory authority but only with the
manner of reaching such decision. The Bench has referred and
relied upon the judgment of the Apex Court in Fertilizer Corpn.
Kamagar Union Vs. Union of India {AIR 1981 SC 344} and
quoted a passage from the said judgment which is profitable to
be reproduced herein below:
Certainly, it is not part of the judicial process to
examine entrepreneurial activities to ferret out
flaws. The Court is least equipped for such
oversights. Nor, indeed, is it a function of the judges
in our constitutional scheme. We do not think that
the internal management, business activity or
institutional operation of public bodies can be
subjected to inspection by the Court. To do so, is
incompetent and improper and therefore, out of
bounds. Nevertheless, the broad parameters of
fairness in administration, bona fides in action, and
the fundamental rules of reasonable management of
public business, if breached, will become justiciable.
The Bench observed that the role of the Court and the
scope for interference when it is called upon to sanction the
compromise or arrangement, which includes within its sweep a
scheme for arrangement, has been succinctly laid down by the
Supreme Court in Mafatlal Industries (supra).
An identical view was taken by a Division Bench of the
Bombay High Court in Sandvik Asia Ltd (supra). The Bench has
copiously quoted several passages from the judgment in British
and American Trustee & Finance Corpn. Vs. Couper {(1894)
A.C. 399}.
Applying the ratio laid down by the various Courts,
including the Apex Court, discussed above, to the facts of the
present case, this Court does not find any serious anomalies in
the Valuation report.
Perhaps, the objection raised by the objectors that the
Valuer has not taken into consideration the Net Asset Value
approach while valuing the shares, appears on a superficial
consideration, as somewhat serious.
As submitted by learned senior counsel appearing for the
petitioners, the Valuer himself has set out the reason for
omitting the said criterion. At page-32 of the Valuation report, it
is stated as under:
Given the purpose of the Value Analysis we have
not considered the Net Asset Value Approach for
Value analysis. The value under the approach,
particularly when this approximates the realizable
value, is often used as an estimate of break-up
value, and therefore, is particularly relevant in the
event of liquidation. Hence, this value may not be a
good indicator of the realizable value as it merely
reflects historic costs and requires adjustments on
account of estimated disposal costs and possible
shortfall or appreciation in realization of both fixed
assets and net current assets.
In para-6(e) of the counter-affidavit filed on behalf of the
transferee company in Company Application Nos.1574 and
1575 of 2014, its Company Secretary and General Manager
(Legal) has stated the following reasons for not adopting the Net
Asset Value approach by the Valuer while valuing the shares: -
With reference to paras-5 to 7 of the Application,
respondent No.1 Company most respectfully submits
that respondent No.1-Company had appointed an
independent reputed Valuer for the purpose of
determining the fair value of shares. Respondent
No.1-Company wishes to submit that the value of
INR 387 per share was arrived at by the
independent Valuer is not lesser than the
fair/intrinsic value of shares of respondent No.1-
Company and the independent Valuer has adopted
globally acceptable valuation methodologies i.e.,
Income Approach and Market Approach. The
independent Valuer also took cognizance of the fact
that the net asset approach be eliminated while
arriving at the fair value as it would have resulted in
the value being less than the present fair value, i.e.,
INR 387 per share. Respondent No.1-company
wishes to also clarify that a high degree of expertise
was exercised by the independent Valuer while
arriving at the fair value of the equity shares of
respondent No.1-Company. Respondent No.1-
Company would like to reiterate the fact that all the
factors have been considered while arriving at the
valuation and the valuation report shared with the
Applicants, vide e-mail dated December 17, 2014
and by courier on December 18, 2014 has all the
necessary details that the applicants have sought
for.
As noted above, learned senior counsel for the petitioners
has orally submitted that if the Net Asset Value approach is
taken into consideration, each share value would have come
down to Rs.135/- which will be detrimental to the non-
promoter shareholders.
As held by the Apex Court, this Court has no expertise in
judging whether the Valuation report is correct or not. So long
as the Court is satisfied that the prescribed parameters for
valuation are taken into consideration, it will not undertake a
roving enquiry or venture into fishing expedition with a view to
finding out the defects or lacunae, if any, in the Valuation
report.. The Valuer as well as the transferee company have given
reasons for adopting the criteria of Income approach and
Market approach. Except pointing out that the third criterion
referred to above has not been applied, learned counsel for the
objectors failed to further demonstrate as to whether the same
has resulted in any prejudice being caused to his clients. The
Valuer, being an expert in the field, is the best judge to adopt
such criteria as he deems fit and proper for valuing the shares
and it is no part of the duty of this Court to make a deep probe
into the methodology adopted by the Valuer.
Coming to the submission of learned counsel for the
objectors that there is variation in the approach between the
Directors on one side and the Valuer on the other while valuing
the shares, on a careful consideration of this submission, I do not
find any merit whatsoever in the same.
In the Directors report pertaining to the financial
performance of the transferee company for the financial year
ended March 31st 2014, it is stated as under: -
Your Company posted yet another impressive year
of performance. During the year under review, the
turnover, on a standalone basis, increased by
29.20%, while on a consolidated basis, the sales
increased by 24.07% over the previous year. The
increase in sales was mainly due to the increase in
the sales of Active Pharmaceutical Ingredients (APIs)
and Finished Dosage Forum (FDF) products and also
due to amalgamation of Agila Specialties Private
Limited (ASPL) and its subsidiary with your
company with effect from December 6, 2013. The
net profit for the year also showed an impressive
growth of 62.63% on a standalone basis, while on a
consolidated basis, the increase was 130.17% over
the previous year.
During the year, as part of group
restructuring exercise, your Company has sold
Matrix Laboratories (Singapore) Pte Limited along
with its subsidiaries for a consideration of
Rs.3,495.29 million (EUR 40.9 million) to a fellow
subsidiary. Consequent to the sale, the earlier
provision made for diminution in the value of
investment has been written back and profit of sale
of Rs.2,983.77 million and Rs.5,615.15 million has
been recognized in standalone financials and in
consolidated financials respectively.
In the valuation report, it is stated as under:
We understand from the Management that the
revenues from Mylan group are ascertained based
internal pricing studies done by the Management.
We understand from the Management that the
growth in the contract manufacturing revenues is
largely dependant on the Mylan group strategy to
scale-up/utilize the contract manufacturing
activities of the Company, as determined by the
global production planning team (which is in-turn
based on market dynamics and availability of
suitable production capacities).
As per Management, ramp-up in the
production of Gx FDFs has been scaled down in CY
2014, owing to slow down in the global/US markets,
accordingly the observed growth trend in contract
manufacturing revenues witnessed slow down in
3M 2014.
I fail to understand as to how these two documents
contradict each other. While in the Directors report increase in
turn-over over the previous year was mentioned, in the
Valuation report, scaling down of production of one particular
product, viz., Gx FDFs in the financial year 2014 was
mentioned.
Be that as it may, it is not the pleaded case of the objectors
that the transferee Company has manipulated the turn over
figures or profit figures in order to down play the performance
of the company with a view to fix lower value for the shares of
the minority shareholders. This Court cannot presume any
such conduct on the part of the transferee company unless a
strong case in this regard is made out.
As rightly submitted by learned senior counsel for the
petitioners the objectors have failed to file the opinion of an
independent expert with reference to the Valuation report of
Price Waterhouse & Co., LLP. The objectors have only tried to
fish out the so-called deficiencies from the Valuation report. No
convincing reason has been put forth by learned counsel for the
objectors for not obtaining an independent experts opinion
regarding the correctness or otherwise of the Valuation report
submitted by Price Waterhouse & Co. LLP. Therefore, this Court
cannot be persuaded to accept the plea of the objectors,
unsupported by any material, which would impeach the
soundness and correctness of the valuation report, merely based
on presumptions and conjectures.
As regards the objection that the Valuer is not an
independent Valuer, the objector in Company Application
No.115 of 2014 has raised the following pleading:
The applicant further submits that the PwC has not
disclosed any conflict of interest that it has in respect
of the valuation carried out by it. The applicant, with
great responsibility submits that PwC has been a tax
consultant and has represented the Mylan
Luxembourg S.a.r.I, one of the majority shareholders
of the present respondent No.1 Company. The
applicant responsibly submits that the value has been
involved with the respondent Transferee Company
and MP Laboratories (Mauritius) Limited in respect of
their approval of FDI before the Foreign Investment
Promotion Board.
In the counter-affidavit filed on behalf of the petitioners
in Company Application No.115 of 2014, it is stated as under:
With reference to the contents in paragraphs-11(f)
and 11(g) of the application, respondent
No.1/Transferee company submits that the
independent Valuer i.e., Price Waterhouse & Co.
LLP., Gurgaon is not related to respondent
No.1/Transferee Company nor to Astrix Laboratories
Limited (Transferor Company). Furthermore,
respondent No.1/Trasnsferee Company also clarifies
that Price Waterhouse & Co. LLP., Gurgaon is neither
the Statutory Auditor/Tax Auditor/Tax Consultant of
respondent No.1/Transferee Company/Mylan
Luxembourg S.a.r.I/MP Laboratories Mauritius
Limited and as such the applicant cannot state that
the valuation was not independent or not at an
arms length. Respondent No.1/Trasnferee Company
also clarifies that the value arrived at by the
independent Valuer was based on the
information/assumptions/future prospects of
respondent No.1/ Transferee Company and based on
their evaluation of the same. Therefore, respondent
No.1/Transferee Company hereby refutes such
erroneous claims made against the valuation as
carried out.
I have no reason to reject the plea of the petitioners to the
effect that the Valuer, viz., Price Waterhouse & Co., LLP is
neither related to the transferee company nor the transferor
company nor the same is the statutory auditor/tax auditor/tax
consultant of the transferee company or its major shareholders-
Mylan Mauritius and Mylan Luxembourg
Assuming that the Valuer has any connection with the
transferee company or its major shareholders, whether the same
by itself throws any cloud on the Valuation report is the next
question to be considered.
When a similar objection was raised before the Division
Bench of this Court in Vadlamudi Rama Rao (supra), the Bench
has unhesitatingly repelled the same. In that case, it was pointed
out that M.N.Raiji & Co. are the statutory auditors of the
Consolidated Coffee Limited (transferee Company) and
A.F.Ferguson & Co. are the statutory auditors of their associated
Companies by name TISCO and ANZ Bank Ltd, which has
approved the valuation done by the aforesaid Chartered
Accountants.
While agreeing with the view of the learned single Judge,
the Division Bench held that the mere fact that one of the
Chartered Accountants/Valuers is a statutory auditor of the
transferee company does not lead to a reasonable inference that
the choice of such Valuer was stage-managed by Tata Tea Ltd
and a statutory auditor has an independent role to play if he has
to effectively perform his part. That the imputations of bias
cannot lightly be made against a professional Chartered
Accountant who is expected to discharge the duties according to
the obligations cast on him by the Statute and the well-
established principles of professional conduct and etiquette.
The above judgment will put at rest the controversy
sought to be stirred up by the objectors that the Valuer being
associated with the transferee Company, its Valuation report
cannot be accepted.
On a careful consideration of the Valuation report,
pleadings and submissions of learned counsel for all the parties,
I am of the opinion that no interference with the Valuation
report is warranted and there is no need for appointing an
independent Valuer, as requested by the objectors.
For all the above-mentioned reasons, I do not find any
merit in the objections raised by the objectors and the same are,
accordingly, rejected.
In the light of the above noted facts and having regard to
the reports submitted by the Regional Director, South Eastern
Region, Ministry of Corporate Affairs, Hyderabad and the
Official Liquidator, this Court is of the opinion that the proposed
scheme of amalgamation is in conformity with the provisions of
the Act and the same does not in any manner affect the interests
of any of the stake holders including the public. Therefore, the
proposed scheme of amalgamation is approved and the
petitioners shall, within 30 days from the date of receipt of a
copy of this order, cause a certified copy of this order to be
delivered to the Registrar of Companies, Telangana and Andhra
Pradesh, Hyderabad for registration and take all other
consequential actions in pursuance of the approval of the
scheme of amalgamation.
The Company Petitions are, accordingly, allowed.
____________________________
JUSTICE C.V.NAGARJUNA REDDY
02nd March, 2015
COMPANY PETITION Nos.245 of 2014
02-03-2015
M/s Astrix Laboratories Limited, Hyderabad ..Petitioner/Transferor Company
M/s Mylan Laboratories Limited, Hyderabad..Petitioner/Transferee Company
Counsel for the petitioners: Sri Iqbal Chagla, senior counsel
for Sri V.S.Raju
Counsel for the respondent: Sri B.Narayana Reddy,
Assistant Solicitor General
Counsel for the Official Liquidator: Sri M.Anil Kumar
Counsel for the Objectors: Sri V.Hariharan
<Gist:
>Head Note:
? Cases Referred:
1.(1997) 1 SCC 579
2.2000 CLC 1356
3.(2009) 92 SCL 272 (BOM.)
THE HONBLE SRI JUSTICE C.V.NAGARJUNA REDDY
COMPANY PETITION Nos.245 and 246 of 2014
02.03.2015
C.P.No.245 of 2014
The Court made the following:
COMMON ORDER:
Company Petition No.245 of 2014 is filed by M/s Astrix
Laboratories Limited, Hyderabad (for short the transferor
company) and Company Petition No.246 of 2014 is filed by
M/s Mylan Laboratories Limited, Hyderabad (for short the
transferee company) for sanctioning the proposed scheme of
arrangement between them.
The transferor company has pleaded that it was
incorporated as a public limited company under the name and
style of M/s Astrix Laboratories Limited in the State of Andhra
Pradesh on 21.09.2005; that its registered office is situated at
Plot No.564/A/22, Road No.92, Jubilee Hills, Hyderabad; that its
authorized capital is Rs.5 crores, which includes
Rs.4,99,99,000/- divided into 49,99,000 equity shares of Rs.10/-
each and Rs.10,000/- divided into 1,000 Class-B equity shares
of Rs.10/- each; that its issued, subscribed and paid up capital is
Rs.4,52,60,000/-, which includes Rs.4,52,50,000/- divided into
45,25,000 equity shares of Rs.10/- each fully paid up and
Rs.10,000/- divided into 1,000 Class-B equity shares of Rs.10/-
each; and that its main objects, inter alia, are to manufacture,
import, export, buy, sell, distribute, and deal in bulk drugs,
finished drugs and pharmaceuticals, fine pharmaceuticals,
chemicals, fine chemicals, enzmes, anti tuberculosis agents
ayurvedic, unani and cosmetics, etc.
The transferee company pleaded that it was originally
incorporated as a private limited company under the name and
style of Herren Drugs Private Limited in the State of Andhra
Pradesh on 29.11.1984; that subsequently, it converted itself
into a public limited company under the name and style of
Herren Drugs Limited with effect from 19.10.1992; that its
name was changed as Herren Drugs and Pharmaceuticals
Limited on a fresh certificate of incorporation issued on
27.06.1994; that, later, its name was changed as Matrix
Laboratories Limited and subsequently, to M/s Mylan
Laboratories Limited on 21.03.2001; that its authorized capital
is Rs.40 crores divided into 20,00,00,000 equity shares of Rs.2/-
each; that its issued, subscribed and paid up capital is
Rs.36,95,13,716/- divided into 18,47,56,858 equity shares of
Rs.2/- each fully paid up; and that its main objects, inter alia, are
to manufacture, import, export, buy, sell, distribute and deal in
bulk drugs, finished drugs and pharmaceuticals, fine
pharmaceuticals, chemicals, fine chemicals, enzmes, anti
tuberculosis agents ayurvedic, unani and cosmetics, etc.
That under the proposed scheme of arrangement, the
transferor company will be amalgamated into the transferee
company and that this arrangement is to derive the following
benefits:
1. The Transferee Company, a public company
limited by shares, is a subsidiary of MP Laboratories
(Mauritius) Limited and is engaged in the manufacture of
Active Pharmaceutical Ingredients (API) and Finished
Dosage Formulations (FDF). The Transferor Company, a
subsidiary of the Transferee Company, is a developer,
manufacturer and marketer of high-quality Antiretroviral
(ARV). The consolidation and amalgamation of the
Transferor Company with the Transferee Company shall
result into synergies in the Transferee Company.
2. The Transferor Companys capabilities, product
portfolio and pipeline complement the Transferee
Companys existing API platform. The amalgamation will
strengthen the foothold of the Transferee Company in the
ARV API segment.
3. Greater integration, financial strength and
flexibility for the Transferee Company, which will improve
the financial position of the Transferee Company.
4. Greater efficiency in cash management of the
Transferee Company, and unfettered access to cash flow
generated by the combined business which can be deployed
more efficiently to fund growth opportunities, to further
improve shareholders value.
5. Benefit of operational synergies to the combined
entity in areas such as raw material sourcing, product
placement, marketing and sale promotions initiatives, freight
optimization and logistics.
6. Grater leverage in operations planning and
process optimization and enhanced flexibility in product
offerings.
7. Cost savings are expected to flow from more
focused operational efforts, rationalization, standardization
and simplification of business processes, productivity
improvements, improved procurement, usage of common
resource pool like human resource, administration, finance,
accounts, legal, technology and other related functions,
leading to elimination of duplication and rationalization of
administrative expenses.
That the transferee company is held by two major
shareholders, viz., Mylan Mauritius and Mylan Luxembourg 2
S.a.r.I. to an extent of 82.79% and 15.38% respectively, i.e., both
of them together holding a total of 98.17% shares, and the
remaining 1.83% shareholding is held by the minority
shareholders; that as a part of this composite scheme of
arrangement, the transferee company intends to cancel and
extinguish the equity shares held by its minority shareholders by
paying cash in lieu of equity shares held by them for the
following reasons:
1. Transferee Company was listed on Bombay
Stock Exchange and National Stock Exchange having
Scrip ID 524794 and MATRIX LABSEQ respectively.
The Transferee Company went through a delisting
process in the year 2009 and consequently the
shareholders of the Transferee Company lost liquidity as
the shares are no more traded on the said Stock
Exchanges.
2. The fact that the shares of MLL are de-listed from
the Stock Exchanges and, as a result thereof, the same
cannot be traded on the floor of the Stock Exchange.
The Transferee Company has received numerous
requests from the Minority Shareholders to provide an
exit option by way of buyback of shares. The Composite
Scheme of Arrangement provides an opportunity to the
Minority Shareholders to liquidate their entire
shareholding in respect of equity shares held by them
for cash.
3. The Composite Scheme of Arrangement provides
for greater level of transparency and openness and
secures full involvement of shareholders of MLL. All the
Minority Shareholders of MLL would benefit from the
Scheme in the same proportion as his/her/its share in
the capital of MLL.
Both the petitioners have given the details of the proposed
scheme of amalgamation, particular reference to which is not
necessary, except to the extent relating to the valuation of the
shares, which alone is in dispute in these two cases.
It is stated in Company Petition No.246 of 2014 that the
minority shareholders shall be paid a sum of INR 387 per equity
share, representing an amount not less than the fair value of the
share of the transferee company, as determined by an
independent Valuer.
Both the petitioners have pleaded that their respective
Boards of Directors have approved the proposed scheme of
arrangement.
The transferor Company filed Company Application
No.1066 of 2014 seeking dispensing with of the holding of the
meeting of its shareholders and convene the meeting of the
unsecured creditors.
This Court by order, dated 01.09.2014, has dispensed with
the meeting of the shareholders of the transferor company and
appointed Sri K.Raja Reddy, Advocate, for holding the meeting of
the unsecured creditors of the transferor company on
17.10.2014 at 4.30 pm. Accordingly, the meeting was held by
the Chairperson. In the report, dated 25.10.2014, submitted by
the Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 74 unsecured
creditors in person, valued at Rs.62,81,73,711/-, attended the
meeting and that all the unsecured creditors have unanimously
voted in favour of the proposed scheme of arrangement.
The transferee Company filed Company Application
No.1067 of 2014 for convening the meetings of its equity
shareholders and the unsecured creditors.
This Court by order, dated 01.09.2014, appointed
Sri K.N.Jwala, Senior Advocate, for convening the meetings of
the equity shareholders and unsecured creditors on 17.10.2014
at 10.30 am and 2.30 pm, respectively, at Hotel Park Hyatt, Road
No.2, Banjara Hills, Hyderabad. Accordingly, the meetings were
held by the said Chairperson.
In the report, dated 25.10.2014, submitted by the
Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 207
shareholders in person, valued at Rs.36,30,60,426/-, and 68
members by proxies holding shares, valued at Rs.1,69,276/-,
attended the meeting and that except 14 shareholders in person
or through proxy, all the remaining have voted in favour of the
proposed scheme of arrangement.
In another report, dated 30.10.2014, submitted by the
Chairperson, it is inter alia stated that in pursuance of the
advertisement published in two daily newspapers, 119
unsecured creditors in person, valued at Rs.7,50,42,15,677/-,
attended the meeting and all of them have unanimously voted in
favour of the proposed scheme of arrangement.
The petitioners have subsequently filed the present
Company Petitions for approving the proposed scheme of
amalgamation.
By separate orders, dated 12.11.2014, in these Company
Petitions, this Court has ordered notices to the Regional Director,
South Eastern Region, Ministry of Corporate Affairs, Hyderabad
and the Official Liquidator attached to this Court.
In obedience to the notices issued by this Court, the
Regional Director, South Eastern Region, Ministry of Corporate
Affairs, Hyderabad, has filed his report, so also the Official
Liquidator attached to this Court.
In his report, dated 19.12.2014, the Regional Director has
stated that in pursuance of General Circular No.1/2014, dated
15.01.2014, issued by the Ministry of Corporate Affairs, New
Delhi, comments from the Income Tax Department have been
called for, vide letter, dated 24.11.2014, and that no
comments/objections were received, by his office, till the date of
filing of the report. He has further stated that the Registrar of
Companies, Telangana and Andhra Pradesh, Hyderabad, has
reported that the transferor company is regular in filing the
statutory returns; that the transferee company has filed the
statutory returns up to the year 2013; and that no complaints,
no investigations and no inspections are pending against the
affairs of both the companies.
The Official Liquidator also in his report, dated
23.12.2014, has stated that the affairs of the transferor
company have not been conducted in a manner prejudicial to
the interests of the members or to the public interest.
In response to the publication of notice, three individual
shareholders have filed Company Application Nos.114, 115,
1572 and 1574 of 2014. For convenience, these shareholders
are referred to as objectors. One of the three objectors has
attended the meeting and voted against the proposed scheme of
arrangement. The objections raised by these objectors are two
fold, viz., (1) that the Valuer to which the valuation of shares
was assigned is not an independent one as, it was the advisor of
one of the major shareholders of the transferee company, viz.,
Mylan, Luxembourg, and (2) that the Valuer has not made a fair
valuation of the shares.
Sri V.Hari Haran, learned counsel for the objectors,
submitted that 98.17% of shares of the transferee company is
held by two major shareholders, viz., Mylan Mauritius and
Mylan Luxembourg. He has further submitted that since this is a
case of compulsory buying out of the shares of the minority
shareholders of the transferee company, the Valuation report
needs a more closer and critical scrutiny by this Court in order
to ensure payment of proper value for the shares held by the
minority shareholders. He has taken this Court through the
Directors report filed in the Company Application No.1574 of
2014 and also the Valuation report, dated 18.08.2014, of Price
Waterhouse & Co., LLP and submitted that while the Directors
report reflects healthy growth of the financial position of the
transferee company, the Valuer while evaluating the shares has
taken into consideration the scaling down of production in the
year 2014 on the ground that there was slow down in the
market. He has further submitted that out of the three
recognized methods prescribed for valuation of the shares, viz.,
Income approach, Market approach and Net Asset Value
approach, the Valuer has taken into consideration only the first
mentioned two criteria excluding the criterion of Net Asset
Value approach and that therefore the Valuation is defective
requiring appointment of an independent Valuer for making a
fair valuation of the shares.
Opposing the above submissions, Sri Iqbal Chagla, learned
senior counsel appearing for Sri V.S.Raju, learned counsel for
the petitioners, submitted that overwhelming majority of
shareholders supported the proposed scheme of arrangement;
that of 1.83% of the minority shareholders, 76% in value and
93% in number have voted in favour of the proposed scheme of
arrangement; and that only 16 shareholders are opposing the
proposed scheme of arrangement only on the ground of alleged
improper valuation of shares. He has further submitted that
Price Waterhouse & Co., LLP, which has valued the shares is a
limited liability partnership concern based at Gurgaon, India
and that it has not advised Mylan Luxembourg at any point of
time. Alternatively, he has submitted that the auditor, which has
submitted Valuation report, being submitted by a professional
auditor, no bias can be presumed merely on account of the fact
that it has advised one of the share holders of the transferee
company in the absence of any defects and apparent
shortcomings existing in the report. He has referred to and
relied upon the judgment of the Apex Court in Miheer
H.Mafatlal Vs. Mafatlal Industries Ltd , a judgment of a Division
Bench of this Court in Vadlamudi Rama Rao Vs. M/s Asian
Coffee Ltd and a judgment of a Division Bench of Bombay High
Court in Sandvik Asia Ltd Vs. Bharat Kumar Padamsi in support
of his submission that the jurisdiction of this Court under
Sections 391 and 394 of the Act is supervisory and not appellate
in nature and that this Court will not examine the intricacies of
valuation. That unless the Court finds serious defects in the
Valuation report of the Valuer, it will seldom interfere with the
Valuation report as it does not possess the expertise to come to a
different opinion from the one arrived at by the Valuer. The
learned senior counsel also referred to the affidavits filed in the
Company Applications and submitted that the Valuer has not
applied the Net Asset Value approach for the reason that if the
same is applied, the value of each share will come down to
around Rs.135/-. He has also invited this Courts attention to
page-32 of the Valuation report, wherein the Valuer has given
certain reasons for not considering the Net Asset Value
approach for value analysis.
I have carefully considered the submissions of learned
counsel for the parties and perused the record.
While considering the scope and the jurisdiction of the
Company Court under Sections 391 and 394 of the Act, the
Supreme Court in Minheer H.Mafatlal (supra) held that it is the
commercial wisdom of the parties to the scheme who have
taken an informed decision about the usefulness and propriety
of the scheme by supporting it by the requisite majority vote that
has to be kept in view by the Court; that the Court certainly
would not act as a Court of appeal and sit in judgment over the
informed view of the parties concerned to the compromise as
the same would be in the realm of corporate and commercial
wisdom of the parties concerned. It was further held therein
that the Court has neither the expertise nor the jurisdiction to
delve deep into the commercial wisdom exercised by the
creditors and members of the company who have ratified the
Scheme by the requisite majority; that consequently, the
Company Courts jurisdiction to that extent is peripheral and
supervisory and not appellate and that the Court acts like an
umpire in a game of cricket who has to see that both the teams
play their game according to the rules and do not overstep the
limits and subject to that how best the game is to be played is left
to the players and not to the umpire.
While dealing with the submission made by the objectors
on the exchange ratio of the equity shareholders, the Supreme
Court held as under:
It was submitted that the exchange ratio of equity
shareholders so far as the transferee-Company is
concerned works very unfairly and unreasonably to them.
As per the proposed Scheme 5 equity shares of the
transferor-Company are to be exchanged for 2 equity
shares of the transferee-Company. So far as this contention
is concerned it has to be kept in view that before
formulating the proposed scheme of compromise and
amalgamation an expert opinion was obtained by the
respondent-Company as well as the transferor-Company,
namely, MFL on whose Board of Directors the appellant
himself was a member. M/s C.C. Chokshi & Co., a reputed
firm of chartered accountants, having considered all the
relevant aspects suggested the aforesaid exchange ratio
keeping in view the valuation of shares of respective
companies. It must at once be stated that valuation of
shares is a technical and complex problem which can be
appropriately left to the consideration of experts in the
field of accountancy. Pennington in his Principles of
Company Law mentions four factors which had to be kept
in mind in the valuation of shares:
(1) Capital Cover,
(2) Yield,
(3) Earning Capacity, and
(4) Marketability.
For arriving at the fair value of share, three well-known methods are
applied:
(1) The manageable profit-basis method
(the Earning Per Share Method)
(2) The net worth method or the break
value method, and
(3) The market value method.
So many imponderables enter the exercise of valuation of
shares. M/s C.C. Chokshi & Co. considering all the relevant
aspects and obviously keeping in view the accounting
principles underlying the valuation of shares suggested the
said ratio which was found acceptable both by the Board of
Directors of the respondent-Company as well as the Board of
Directors of the transferor-Company. That the appellant
himself as a director of the transferor-Company gave green
signal to the Scheme and to this very ratio of exchange of
shares. But Shri M.J. Thakore, appearing for the appellant,
submitted that from the point of view of the transferor-
Company it was very profitable to have two shares of the
transferee-Company against five shares of the transferor-
Company. But the difficulty arises only from the point of view
of the transferee-Company shareholders. According to Shri
Thakore the proper exchange ratio would be one share of the
transferee-Company to six shares of the transferor-Company.
It is difficult to appreciate this contention of the appellant. It
has to be kept in view that the appellant never bothered to
personally remain present in the meeting of equity
shareholders for pointing out the unfairness of this exchange
ratio to his brother equity shareholders who were likely to be
affected by the very same ratio as the appellant. His interest at
least to that extent was entirely common and parallel to that
of other equity shareholders. But he had no time to remain
personally present. He sent his proxy only to record his
dissent vote which was in microscopic minority of 5% as
compared to 95% majority vote. Not only that even before the
Court he did not submit any contrary expert opinion
regarding the valuation of shares of transferor and transferee
companies for supporting his ipse dixit that the correct ratio
would be 6:1 so far as transferor and transferee companies
were concerned. Shri Shanti Bhushan, learned Senior Counsel
for the appellant, having realized this difficulty submitted that
at least these proceedings are continuation of proceedings
before the High Court, therefore, this Court may now in order
to satisfy itself send for the opinion of an expert. It is difficult
to agree. The appellant who was propounding this theory of
correct exchange ratio had nothing to offer in support of his
contention both before the learned Single Judge as well as
before the High Court. It has to be kept in view that the matter
was fiercely contested on all permissible points before the
learned Single Judge. The proceedings were pending before
the High Court for more than two years from 8-2-1994 till
12-7-1996 when the Division Bench disposed of the appeal.
For all these years neither before the learned Single Judge nor
before the High Court in appeal the appellant thought it fit to
request the Court to either call for the report of any other
expert on valuation of shares nor did he himself get such
report for placing for consideration of the Court in support of
his supposed better ratio. It has also to be kept in view that
which exchange ratio is better is in the realm of commercial
decision of well-informed equity shareholders. It is not for the
Court to sit in appeal over this value judgment of equity
shareholders who are supposed to be men of the world and
reasonable persons who know their own benefit and interest
underlying any proposed scheme. With open eyes they have
okayed this ratio and the entire Scheme. 40% of the majority
shareholders were financial institutions who were supposed
to be well versed on the aspect of valuation of shares. They
had no objection to the exchange of 2 shares of the
transferee-Company for 5 shares of the transferor-Company.
As stated earlier it was a sort of a package duly considering all
imponderables and implicit factors which the shareholders
had to keep in view for deciding whether to approve the
Scheme of Amalgamation or not. The exchange ratio was only
one of the items. They thought it fit in their commercial
wisdom to accept the Scheme as a whole along with the
exchange ratio presumably in expectation of better profits in
years to come when the amalgamated companies would
operate and when there would be, according to the
shareholders, better prospects of earning greater dividends.
They willingly agreed to give in exchange two shares of the
transferee-Company for five shares of the transferor-
Company and made them available to the shareholders of the
transferor-Company. The appellant was representing only 5%
dissenting shareholders and his objection was almost a voice
in the wilderness, which did not appeal to the majority of his
brother shareholders. Shri Shanti Bhushan, learned Senior
Counsel for the appellant, in this connection invited our
attention to the observation of the Division Bench in its
judgment at page 375 wherein it has been observed that if
one were to examine the exactitude of exchange ratio that
may be offered fairly on the arithmetic scale by taking into
consideration various details, there is some force in what were
suggested by Mr B.R. Shah on behalf of the appellant.
However, keeping in view the scope of enquiry which the
Court is required to undertake and with whose findings we
are concerned, it will not be permissible for us in law to
undertake this exercise in the facts and circumstances of the
present case in absence of bona fides. We fail to appreciate
how this observation can be of any avail to the learned Senior
Counsel for the appellant as all that the Court wanted to
suggest was that even assuming that some other exchange
ratio can be suggested to be a better one, it was for the equity
shareholders who acted bona fide in the interest of their class
as a whole to accept even a less favourable ratio considering
other benefits that may offset such less favourable ratio once
an amalgamation goes through. We wholly concur with this
view. In this connection we may also refer to a decision of
Maugham, J., in Hoare & Co. (No. 2) Re, case5 wherein it was
laid down that where statutory majority had accepted the
offer the onus must rest on the applicants to satisfy the court
that the price offered is unfair. In this connection the
following pertinent observations were made by the learned
Judge:
The other conclusion I draw is this the court
ought to regard the scheme as a fair one inasmuch as
it seems to me impossible to suppose that the court, in
the absence of very strong grounds, is to be entitled to
set up its own view of the fairness of the scheme in
opposition to so very large a majority of the
shareholders who are concerned. Accordingly,
without expressing a final opinion on the matter,
because there may be special circumstances in special
cases, I am unable to see that I have any right to order
otherwise in such a case as I have before me, unless it
is affirmatively established that, notwithstanding the
views of a very large majority of shareholders, the
scheme is unfair.
The Court has also taken into consideration, the fact that
the appellant before it was representing only 5% dissenting
shareholders and his objection was almost a voice in the
wilderness, which did not appeal to the majority of his brother
shareholders.
The Division Bench of this Court in Vadlamudi Rama Rao
(supra) followed the ratio in Minheer H.Mafatlal (supra).
Echoing similar views, this Court held that it is not in doubt that
the Court, while granting approval of the scheme of
amalgamation, has to be satisfied that a fair procedure had been
adopted and an honest attempt was made to arrive at a fair and
reasonable Share Exchange Ratio in the interests of the general
body of the shareholders and the creditors, that the Court should
nevertheless refrain from embarking on an exercise of
evaluation on its own to test the correctness of the figures
reached by the experts; that the Court has to take note of the fact
that its role in according approval of the scheme of
amalgamation under Section 394 of the Act is nothing more
than a supervisory role. The Division Bench has compared the
jurisdiction of the Company Court closely with the judicial
review of administrative action, where the constitutional Court
is not concerned so much with the actual decision reached by
the administrative or statutory authority but only with the
manner of reaching such decision. The Bench has referred and
relied upon the judgment of the Apex Court in Fertilizer Corpn.
Kamagar Union Vs. Union of India {AIR 1981 SC 344} and
quoted a passage from the said judgment which is profitable to
be reproduced herein below:
Certainly, it is not part of the judicial process to
examine entrepreneurial activities to ferret out
flaws. The Court is least equipped for such
oversights. Nor, indeed, is it a function of the judges
in our constitutional scheme. We do not think that
the internal management, business activity or
institutional operation of public bodies can be
subjected to inspection by the Court. To do so, is
incompetent and improper and therefore, out of
bounds. Nevertheless, the broad parameters of
fairness in administration, bona fides in action, and
the fundamental rules of reasonable management of
public business, if breached, will become justiciable.
The Bench observed that the role of the Court and the
scope for interference when it is called upon to sanction the
compromise or arrangement, which includes within its sweep a
scheme for arrangement, has been succinctly laid down by the
Supreme Court in Mafatlal Industries (supra).
An identical view was taken by a Division Bench of the
Bombay High Court in Sandvik Asia Ltd (supra). The Bench has
copiously quoted several passages from the judgment in British
and American Trustee & Finance Corpn. Vs. Couper {(1894)
A.C. 399}.
Applying the ratio laid down by the various Courts,
including the Apex Court, discussed above, to the facts of the
present case, this Court does not find any serious anomalies in
the Valuation report.
Perhaps, the objection raised by the objectors that the
Valuer has not taken into consideration the Net Asset Value
approach while valuing the shares, appears on a superficial
consideration, as somewhat serious.
As submitted by learned senior counsel appearing for the
petitioners, the Valuer himself has set out the reason for
omitting the said criterion. At page-32 of the Valuation report, it
is stated as under:
Given the purpose of the Value Analysis we have
not considered the Net Asset Value Approach for
Value analysis. The value under the approach,
particularly when this approximates the realizable
value, is often used as an estimate of break-up
value, and therefore, is particularly relevant in the
event of liquidation. Hence, this value may not be a
good indicator of the realizable value as it merely
reflects historic costs and requires adjustments on
account of estimated disposal costs and possible
shortfall or appreciation in realization of both fixed
assets and net current assets.
In para-6(e) of the counter-affidavit filed on behalf of the
transferee company in Company Application Nos.1574 and
1575 of 2014, its Company Secretary and General Manager
(Legal) has stated the following reasons for not adopting the Net
Asset Value approach by the Valuer while valuing the shares: -
With reference to paras-5 to 7 of the Application,
respondent No.1 Company most respectfully submits
that respondent No.1-Company had appointed an
independent reputed Valuer for the purpose of
determining the fair value of shares. Respondent
No.1-Company wishes to submit that the value of
INR 387 per share was arrived at by the
independent Valuer is not lesser than the
fair/intrinsic value of shares of respondent No.1-
Company and the independent Valuer has adopted
globally acceptable valuation methodologies i.e.,
Income Approach and Market Approach. The
independent Valuer also took cognizance of the fact
that the net asset approach be eliminated while
arriving at the fair value as it would have resulted in
the value being less than the present fair value, i.e.,
INR 387 per share. Respondent No.1-company
wishes to also clarify that a high degree of expertise
was exercised by the independent Valuer while
arriving at the fair value of the equity shares of
respondent No.1-Company. Respondent No.1-
Company would like to reiterate the fact that all the
factors have been considered while arriving at the
valuation and the valuation report shared with the
Applicants, vide e-mail dated December 17, 2014
and by courier on December 18, 2014 has all the
necessary details that the applicants have sought
for.
As noted above, learned senior counsel for the petitioners
has orally submitted that if the Net Asset Value approach is
taken into consideration, each share value would have come
down to Rs.135/- which will be detrimental to the non-
promoter shareholders.
As held by the Apex Court, this Court has no expertise in
judging whether the Valuation report is correct or not. So long
as the Court is satisfied that the prescribed parameters for
valuation are taken into consideration, it will not undertake a
roving enquiry or venture into fishing expedition with a view to
finding out the defects or lacunae, if any, in the Valuation
report.. The Valuer as well as the transferee company have given
reasons for adopting the criteria of Income approach and
Market approach. Except pointing out that the third criterion
referred to above has not been applied, learned counsel for the
objectors failed to further demonstrate as to whether the same
has resulted in any prejudice being caused to his clients. The
Valuer, being an expert in the field, is the best judge to adopt
such criteria as he deems fit and proper for valuing the shares
and it is no part of the duty of this Court to make a deep probe
into the methodology adopted by the Valuer.
Coming to the submission of learned counsel for the
objectors that there is variation in the approach between the
Directors on one side and the Valuer on the other while valuing
the shares, on a careful consideration of this submission, I do not
find any merit whatsoever in the same.
In the Directors report pertaining to the financial
performance of the transferee company for the financial year
ended March 31st 2014, it is stated as under: -
Your Company posted yet another impressive year
of performance. During the year under review, the
turnover, on a standalone basis, increased by
29.20%, while on a consolidated basis, the sales
increased by 24.07% over the previous year. The
increase in sales was mainly due to the increase in
the sales of Active Pharmaceutical Ingredients (APIs)
and Finished Dosage Forum (FDF) products and also
due to amalgamation of Agila Specialties Private
Limited (ASPL) and its subsidiary with your
company with effect from December 6, 2013. The
net profit for the year also showed an impressive
growth of 62.63% on a standalone basis, while on a
consolidated basis, the increase was 130.17% over
the previous year.
During the year, as part of group
restructuring exercise, your Company has sold
Matrix Laboratories (Singapore) Pte Limited along
with its subsidiaries for a consideration of
Rs.3,495.29 million (EUR 40.9 million) to a fellow
subsidiary. Consequent to the sale, the earlier
provision made for diminution in the value of
investment has been written back and profit of sale
of Rs.2,983.77 million and Rs.5,615.15 million has
been recognized in standalone financials and in
consolidated financials respectively.
In the valuation report, it is stated as under:
We understand from the Management that the
revenues from Mylan group are ascertained based
internal pricing studies done by the Management.
We understand from the Management that the
growth in the contract manufacturing revenues is
largely dependant on the Mylan group strategy to
scale-up/utilize the contract manufacturing
activities of the Company, as determined by the
global production planning team (which is in-turn
based on market dynamics and availability of
suitable production capacities).
As per Management, ramp-up in the
production of Gx FDFs has been scaled down in CY
2014, owing to slow down in the global/US markets,
accordingly the observed growth trend in contract
manufacturing revenues witnessed slow down in
3M 2014.
I fail to understand as to how these two documents
contradict each other. While in the Directors report increase in
turn-over over the previous year was mentioned, in the
Valuation report, scaling down of production of one particular
product, viz., Gx FDFs in the financial year 2014 was
mentioned.
Be that as it may, it is not the pleaded case of the objectors
that the transferee Company has manipulated the turn over
figures or profit figures in order to down play the performance
of the company with a view to fix lower value for the shares of
the minority shareholders. This Court cannot presume any
such conduct on the part of the transferee company unless a
strong case in this regard is made out.
As rightly submitted by learned senior counsel for the
petitioners the objectors have failed to file the opinion of an
independent expert with reference to the Valuation report of
Price Waterhouse & Co., LLP. The objectors have only tried to
fish out the so-called deficiencies from the Valuation report. No
convincing reason has been put forth by learned counsel for the
objectors for not obtaining an independent experts opinion
regarding the correctness or otherwise of the Valuation report
submitted by Price Waterhouse & Co. LLP. Therefore, this Court
cannot be persuaded to accept the plea of the objectors,
unsupported by any material, which would impeach the
soundness and correctness of the valuation report, merely based
on presumptions and conjectures.
As regards the objection that the Valuer is not an
independent Valuer, the objector in Company Application
No.115 of 2014 has raised the following pleading:
The applicant further submits that the PwC has not
disclosed any conflict of interest that it has in respect
of the valuation carried out by it. The applicant, with
great responsibility submits that PwC has been a tax
consultant and has represented the Mylan
Luxembourg S.a.r.I, one of the majority shareholders
of the present respondent No.1 Company. The
applicant responsibly submits that the value has been
involved with the respondent Transferee Company
and MP Laboratories (Mauritius) Limited in respect of
their approval of FDI before the Foreign Investment
Promotion Board.
In the counter-affidavit filed on behalf of the petitioners
in Company Application No.115 of 2014, it is stated as under:
With reference to the contents in paragraphs-11(f)
and 11(g) of the application, respondent
No.1/Transferee company submits that the
independent Valuer i.e., Price Waterhouse & Co.
LLP., Gurgaon is not related to respondent
No.1/Transferee Company nor to Astrix Laboratories
Limited (Transferor Company). Furthermore,
respondent No.1/Trasnsferee Company also clarifies
that Price Waterhouse & Co. LLP., Gurgaon is neither
the Statutory Auditor/Tax Auditor/Tax Consultant of
respondent No.1/Transferee Company/Mylan
Luxembourg S.a.r.I/MP Laboratories Mauritius
Limited and as such the applicant cannot state that
the valuation was not independent or not at an
arms length. Respondent No.1/Trasnferee Company
also clarifies that the value arrived at by the
independent Valuer was based on the
information/assumptions/future prospects of
respondent No.1/ Transferee Company and based on
their evaluation of the same. Therefore, respondent
No.1/Transferee Company hereby refutes such
erroneous claims made against the valuation as
carried out.
I have no reason to reject the plea of the petitioners to the
effect that the Valuer, viz., Price Waterhouse & Co., LLP is
neither related to the transferee company nor the transferor
company nor the same is the statutory auditor/tax auditor/tax
consultant of the transferee company or its major shareholders-
Mylan Mauritius and Mylan Luxembourg
Assuming that the Valuer has any connection with the
transferee company or its major shareholders, whether the same
by itself throws any cloud on the Valuation report is the next
question to be considered.
When a similar objection was raised before the Division
Bench of this Court in Vadlamudi Rama Rao (supra), the Bench
has unhesitatingly repelled the same. In that case, it was pointed
out that M.N.Raiji & Co. are the statutory auditors of the
Consolidated Coffee Limited (transferee Company) and
A.F.Ferguson & Co. are the statutory auditors of their associated
Companies by name TISCO and ANZ Bank Ltd, which has
approved the valuation done by the aforesaid Chartered
Accountants.
While agreeing with the view of the learned single Judge,
the Division Bench held that the mere fact that one of the
Chartered Accountants/Valuers is a statutory auditor of the
transferee company does not lead to a reasonable inference that
the choice of such Valuer was stage-managed by Tata Tea Ltd
and a statutory auditor has an independent role to play if he has
to effectively perform his part. That the imputations of bias
cannot lightly be made against a professional Chartered
Accountant who is expected to discharge the duties according to
the obligations cast on him by the Statute and the well-
established principles of professional conduct and etiquette.
The above judgment will put at rest the controversy
sought to be stirred up by the objectors that the Valuer being
associated with the transferee Company, its Valuation report
cannot be accepted.
On a careful consideration of the Valuation report,
pleadings and submissions of learned counsel for all the parties,
I am of the opinion that no interference with the Valuation
report is warranted and there is no need for appointing an
independent Valuer, as requested by the objectors.
For all the above-mentioned reasons, I do not find any
merit in the objections raised by the objectors and the same are,
accordingly, rejected.
In the light of the above noted facts and having regard to
the reports submitted by the Regional Director, South Eastern
Region, Ministry of Corporate Affairs, Hyderabad and the
Official Liquidator, this Court is of the opinion that the proposed
scheme of amalgamation is in conformity with the provisions of
the Act and the same does not in any manner affect the interests
of any of the stake holders including the public. Therefore, the
proposed scheme of amalgamation is approved and the
petitioners shall, within 30 days from the date of receipt of a
copy of this order, cause a certified copy of this order to be
delivered to the Registrar of Companies, Telangana and Andhra
Pradesh, Hyderabad for registration and take all other
consequential actions in pursuance of the approval of the
scheme of amalgamation.
The Company Petitions are, accordingly, allowed.
____________________________
JUSTICE C.V.NAGARJUNA REDDY
02nd March, 2015
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