ARUN KUMAR AGRAWAL Vs. COFFEE LANDS LIMITED

JUDGEMENT

(1.) THESE petitions concern the proposed amalgamation of three companies by the name of veerarajendra Estates Limited, Charagni Limited, Coffee Lands Limited with Consolidated coffee Limited. The proposed scheme has been submitted to the court for approval or sanction and the reasons for the proposed amalgamation have also been set out. Broadly speaking, it was contended that the nature of the business activities carried on by the three transferor companies and the transferee-company are essentially similar and for the reasons set out in the proposed scheme, the contention is that the proposed amalgamation is in order to bring about a beneficial result by ultimately merging the business activities which would be mutually advantageous. The necessary notice had been issued and the Regional Director has raised certain objections which I shall deal with in the course of the order. There has been a contest of some consequence particularly with regard to one aspect of the case. One of the shareholders of the company, coffee Lands Limited, which happens to be among the transferor-companies by the name of arun Kumar Agrawal has filed Company Application No. 96 of 1999 along with Company application No. 98 of 1999 wherein he has requested that the delay in filing the earlier company application be condoned. Company Application No. 98 of 1999 is allowed and the delay is condoned because the petitioners' learned counsel himself rightly submitted that it would be far more desirable if the court were to consider the objections on merits and deal with them. The substratum of the objections that have been canvassed by Agrawal centres around the proposed allotment of shares by the transferee-company in the ratio of 1 : 1. According to Agrawal, Coffee lands Limited is a relatively smaller company and he seeks to say that both the intrinsic value of the shares as also their potential not to mention the earnings thereon both present and in the projected future have not been properly evaluated and it is his case that assuming the scheme is to be approved, it can only be done provided Agrawal and other similar shareholders of Coffee lands Limited are allotted two shares for every one of the shares held by them. I need to also mention that the applicant has made very sweeping allegations against the two firms of chartered accountants to whom the case was referred for purposes of evaluation and doing the computation regarding the share valuation and the recommendation with regard to the ratio of exchange or reallotment and the applicant has gone to the extent of stating that since these firms/companies are regularly retained to do the audit of the Tata companies to which group Consolidated Coffee belongs, that they have blindly and wrongly recommended the ratio of 1 : 1 only in order to fall in line with whatever their clients wanted to do. There is a subsidiary charge advanced by agrawal wherein he contends that in the overall context, the number of objectors, namely, he and eight other shareholders totally hold a very small percentage of the overall shares that are being considered and he projects the grievance that the rights of that entire class of minority shareholders, according to him, have been virtually brushed aside or bulldozed and he has made a strong plea to the court that this should not be permitted because this court is required to take into consideration the separate interests of all categories of shareholders who are before the court and the relief asked for by him is that the valuation aspect should be referred to an independent authority and that the scheme in its present form should not be sanctioned. The petitioners have seriously disputed the correctness of these charges and they have contended that an independent and correct evaluation has been done by professionals of sufficient standing and experience and that there is absolutely no warrant to uphold the allegations made that the procedure has not been correctly followed or for that matter that any form of injustice or prejudice has been caused to agrawal and the other shareholders whom he defines as minority shareholders. The other limb of the argument that has been put forward in response to the application is that the relief asked for by the applicant, Agrawal, namely, that the case be referred to the Securities and Exchange board of India (SEBI) is unheard of and that such an application is virtually unprecedented. More importantly, relying on the settled legal position, the petitioners' learned counsel has submitted that the applicant has only levelled certain accusations and charges and stopped at that but that he has failed to substantiate those charges and furthermore that it was open to the applicant himself to have satisfied this court from whatever basic material he wanted to rely on to the contrary, assuming he was capable of doing so, that the formula advocated by him is superior or professionally more correct than the one adopted by the petitioner in which case alone, it may have been open to him to ask the court to refuse to rely on the recommendations of the two professional firms of chartered accountants and ANZ Grindlays Investment Division which company in turn has also supported the recommendations from the chartered accountants. The situation that has arisen in this group of petitions is one that could and does arise before the company courts from time to time and even though the various principles of law on the basis of which such situations are required to be dealt with are more or less well crystallised, to my mind, it would be necessary to briefly evaluate the points of dispute and record the findings of this court with regard to the present set of cases as also lay down the broad guidelines that would be applicable in similar situations.

(2.) IT is relevant to point out that the amalgamation scheme totally concerns the merger of four companies with Consolidated Coffee Limited but the registered office of the fourth one being within the jurisdiction of the Andhra Pradesh High Court, that petition is pending before the andhra Pradesh High Court.

(3.) UNDER the scheme of the Companies Act, the basic reason why the sanction and approval of the High Court is necessary even though there are supervisory authorities designated by the government is because the Legislature in its wisdom has prescribed that the High Court should apply its mind to such schemes and grant formal approval after considering the aspects of fairness and appropriateness, There are many aspects including the issue of overriding public interest which sometimes need to be considered and invariably, the court not only hears the petitioners and any other party who may want to oppose or support the scheme and the Regional director of the Company Law Board before according sanction. I need to mention here that as far as the present scheme is concerned, the companies are carrying on more or less similar business activities and it does appear that the managements of the companies and the shareholders who had occasion to consider the terms of the scheme were generally of the view that it would work towards the overall benefit of the companies that are involved and, consequently, the area of dispute as far as this head is concerned is almost non-existent. I have, however, independently appraised the overall merits and the intent of the scheme and to my mind, there is no ground on which this court should withhold sanction as far as the general business areas are concerned.