Mount Everest Mineral Water Limited vs Tata Global Beverages Limited

Rajiv Sharma, J.—This petition is instituted under sections 391 and 394 of the Companies Act, 1956 between petitioner company/transferor company and transferee company. Mount Everest Mineral Water Limited was incorporated on 20.12.1991 as Private Limited Company by shares. It was converted into Public Limited Company with effect from 13.4.1994. Its authorized share capital is 35,00,00,000/- divided into 3,50,00,000/- equity share of 10/- each. The main objective of memorandum of article of association is to carry on business of manufacture and trade of mineral water, import and export of mineral and aerated water. Sub-clause (b) of Clause 8 of the memorandum of article of the transferor company authorizes the transferor company to amalgamate with any company. Petitioner company has also placed on record balance sheet and profit and loss accounts as on 31.3.2014. Transferor company has no secured creditors and it has 25 unsecured creditors. All the unsecured creditors of the transferor company have given their "no objection" to the scheme of amalgamation and also consent to dispensation of the meeting under Section 391 (i) of the Companies Act. The Court dispensed with the holding of meeting of unsecured creditors of the Transferor Company vide order dated 24.4.2014. Petitioner-transferor company has authorized the scheme of amalgamation of transferor company with transferee company. The Board has approved the scheme of amalgamation. The rationale and advantages of scheme of amalgamation have been placed on record vide Annexure P-1. In company petition No. 6 of 2010, the Court had directed holding of meeting of equity share holders of the transferor company on 14.6.2014 at 12 noon in the registered office of the transferor company at village Dhaulakuan District Sirmour. The Chairman of the meeting of equity share holders of the transferor company has filed his affidavit. The Court on 28.7.2014 directed the issuance of notice of petition to be published on 22.8.2014 in the daily English Edition of the Tribune, published from Chandigarh, Amar Ujala, Hindi Edition, published from Chandigarh and Economics Times, published from Delhi and E-Gazette. This order was complied with by the transferor company. The reports of the official liquidator and Regional Director are on record. The Transferor company has placed on record the affidavit dated 14.3.2015.

The Transferee company was incorporated on 18.10.1962 and subsequently became a public company. Its authorized share capital is Rs. 75,00,00,000 divided into 75,00,00,000/- equity share of Rs. 1 each. The paid up share capital is Rs. 61,83,98,570 divided into 61,83,98,570/- equity shares of Rs. 1 each. Memorandum of Article of association provides for power to transferee company to amalgamate with any other company. The object of the transferee company is to carry on the business of manufacture, exporter and importer and deal in all kinds of tea, coffee, cocoa etc. Balance sheet and profit and loss accounts as on 31.3.2014 have been placed on record. The Board of the transferee company has approved the scheme of amalgamation between the transferor company with the transferee company. The advantages of the scheme of the amalgamation have been placed on record, as noticed hereinabove. The transferee company had filed a petition for the amalgamation before the Hon''ble Calcutta High Court. The Hon''ble Calcutta High Court, vide its order dated 16.2.2015 has allowed this petition.

I have gone through the pleadings carefully. The official liquidator and Regional Director have filed their reports. They have no objection in case the transferor company is merged with the transferee company. There is no legal hindrance in approving the scheme. The scheme does not defeat the provisions of law or it is prejudicial to the interest of the creditors or share holders of the company and is not against public policy. The scheme appears to be bona fide and genuine.

Their Lordships of the Hon''ble Supreme Court in Hindustan Lever Employees'' Union versus Hindustan Lever Limited and others, 1995 (1) SCC 499 have held that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. Their Lordships have held as under:

"3. But what was lost sight of that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company Court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company which was being merged. The Court''s obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as even though the Chartered Accountant who performed this function was a director of TOMCO but he did so as a member of renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of shareholders of TOMCO by the High Court and it has been found that the determination did not suffer from any infirmity. The company Court, therefore, did not commit any error in refusing to interfere with it. May be as argued by the learned counsel for the petitioner that if some other method would have been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95% of the shareholders who are the best Judge of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by Courts as, 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, in incompetent and improper and, therefore, out of bonds. 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 justiceable. Fertilizer Corporation Kamgar Union (Regd.), Sindri and Others Vs. Union of India (UOI) and Others, AIR 1981 SC 844 : (1981) 42 FLR 192 : (1980) LabIC 1367 : (1981) 1 LLJ 193 : (1981) 1 SCC 568 : (1981) 2 SCR 52 . (See Buckley on Companies Act, 14th Ed. Pp. 473 and 474 and Palmer on Company Law, 23rd Ed. para 79.16).

Nor is there much merit in the claim of the employees that their interest had not been adequately protected. The scheme of amalgamation provides that all the staff, workmen or other employees in the service of the transferor company (TOMCO) immediately preceding the effective date shall become the staff, workmen and employees of the transferor company. Clause 11.1 provides that their services shall be deemed to have been continuing and not have been interrupted. Clauses 11.2 and 11.3 protect the interest by providing that the terms and conditions of such employees shall not be less favourable and all benefits such as PF etc. shall stand transferred to the HLL. The grievance of the employees that no safeguard has been provided for Hindustan Lever Employees Union appears to be off the mark as it is the interest of the employees of TOMCO which had to be protected. Even the submission that merger will create unemployment or that it may result in many employees of the TOMCO being rendered surplus does not carry much weight as these are matters which can be taken care of by the Labour Court if the contingency arises. The learned counsel for the petitioner time and again took strong exception to the observation made by the High Court that any dispute about retrenchment etc. could be adjudicated by the Labour Court. He vehemently submitted that the availability of remedy after retrenchment should not have coloured the vision of the Court to adjudicate upon the reasonableness of the scheme. The submission overlooks the primary duties and functions of a company Court in matters of merger. When the Court found that service conditions of the merged company shall not be to their prejudice it was fully justified in rejecting the claim of employees as it was neither unfair nor unreasonable. Further the Court in its anxiety to be fair to the employees recorded the statement of the learned Advocate-General who appeared for HLL that no employee of HLL has been rendered surplus and in such contingency the company has resorted to friendly handshake by either giving lump sum or pension. A scheme of amalgamation cannot be faulted on apprehension and speculation as to what might possibly happen in future. The present is certain and taken care of by Clauses 11.1, 2 and 3 of the scheme. And unfriendly throwing out being amply protected by taking recourse to Labour Court no unfairness arises apparent or inherent. Nor the claim that merger shall result in, ''synergies'' can render the scheme bad. Improved technology and scientific method results in better employment prospects. Anxiety should be to protect workers and not to obstruct development and growth. May be that advanced technology may reduce the manpower but so long those who are working are protected they are not entitled to hinder in modernisation or merger under misapprehension that future employment of same number of workers may stand curtailed. The wage differential arising between employees of two companies cannot result in making the merger as unfair since the service conditions of TOMCO workers having been protected they cannot claim that unless they are paid the same emoluments as is being paid by Hindustan Lever the merger was unjust. Various subsidiary submissions that the workers, shareholders were not permitted to attend the meeting or that material facts were concealed from them, does not appear to be correct as when more than 95% of the shareholders have agreed to the valuation determined by the chartered accountant all these procedural irregularities cannot vitiate the determination."

Their Lordships of the Hon''ble Supreme Court in Hindustan Lever and Another Vs. State of Maharashtra and Another, AIR 2004 SC 326 : (2003) 117 CompCas 758 : (2004) 1 CompLJ 148 : (2003) 9 JT 67 : (2004) 9 SCC 438 : (2003) 5 SCR 685 Supp : (2004) 1 UJ 725 : (2003) AIRSCW 6238 : (2003) 8 Supreme 937 have held that while exercising its power in sanctioning a scheme of agreement, the court has to examine as to whether the provisions of the statute have been complied with. Once the court finds that the parameters set out in section 394 of the Companies Act have been met then the court would have no further jurisdiction to sit in appeal over the commercial wisdom of the class of persons who with their eyes open give their approval, even if, in the view of the court better scheme could have been framed. Their Lordships have held as under:

"11. While exercising its power in sanctioning a scheme of agreement, the Court has to examine as to whether the provisions of the statute have been complied with. Once the Court finds that the parameters set out in Section 394 of the Companies Act have been met then the Court would have no further jurisdiction to sit in appeal over the commercial wisdom of the class of persons who with their eyes open give their approval, even if, in the view of the Court better scheme could have been framed. This aspect was examined in detail by this Court in Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., (1996) 7 AD 260 : AIR 1997 SC 506 : (1996) 87 CompCas 792 : (1996) 8 JT 205 : (1996) 6 SCALE 595 : (1997) 1 SCC 579 : (1996) 6 SCR 1 Supp : (1996) AIRSCW 3897 : (1996) 8 Supreme 700 . The Court laid down the following broad contours of the jurisdiction of the company court in granting sanction to the scheme as follows:-

The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held.

That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 sub-section (2).

That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.

That all necessary material indicated by Section 393(1)(a) is placed before the voters at the meetings concerned as contemplated by Section 391 sub-section (1).

That all the requisite material contemplated by the proviso of sub-section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same.

That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not unconscionable, nor contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.

That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent.

That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.

Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. 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. 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. Consequently the Company Court''s jurisdiction to that extent is peripheral and supervisory and not appellate. 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. But subject to that how best the game is to be played is left to the players and not to the umpire. The supervisory jurisdiction of the Company Court can also be culled out from the provisions of Section 392. Of course this section deals with post-sanction supervision. But the said provision itself clearly earmarks the field in which the sanction of the Court operates. The supervisor cannot ever be treated as the author or a policy-maker. Consequently the propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement.

Two broad principles underlying a scheme of amalgamation which have been brought out in this judgment are:

That the order passed by the Court amalgamating the company is based on a compromise or arrangement arrived at between the parties; and

That the jurisdiction of the company court while sanctioning the scheme is supervisory only, i.e., to observe that the procedure set out in the Act is met and complied with and that the proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. The Court is not to exercise the appellate jurisdiction and examine the commercial wisdom of the compromise or arrangement arrived at between the parties. The role of the court is that of an umpire in a game to see that the teams play their role as per rules and do not overstep the limits. Subject to that how best the game is to be played is left to the players and not to the umpire. Both these principles indicate that there is no adjudication by the court on the merits as such."

Their Lordships of the Hon''ble Supreme Court in Sesa Industries Ltd. Vs. Krishna H. Bajaj and Others, AIR 2011 SC 1070 : (2011) 101 CLA 1 : (2011) 162 CompCas 119 : (2011) 2 JT 266 : (2011) 2 SCALE 248 : (2011) 3 SCC 218 : (2011) 106 SCL 239 : (2011) 3 SCR 317 : (2011) AIRSCW 1255 : (2011) 1 Supreme 705 have held that before according its sanction to a scheme of amalgamation, the court has to see that the provisions of the Act have been duly complied with, the statutory majority has been acting bona fide and in good faith. Their Lordships have held as under:

"38. It is manifest that before according its sanction to a scheme of amalgamation, the Court has to see that the provisions of the Act have been duly complied with; the statutory majority has been acting bona fide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purport to represent and the scheme as a whole is just, fair and reasonable from the point of view of a prudent and reasonable businessman taking a commercial decision."

Accordingly, in view of above position, the petition is allowed. The scheme of amalgamation of transferor companies with transferee company is sanctioned. It is directed that all the properties, assets and liabilities of the transferor company mentioned in the scheme of amalgamation without any further act or deed shall transfer and vest in the transferee company. Normally, the date of merger for companies would have been given specifically by this Court, but taking into consideration that the Hon''ble Calcutta High Court has already allowed the merger and in order to avoid implications, the merger in this case would also relate back when the merger was sanctioned by the Hon''ble Calcutta High Court, i.e. 16.2.2015. The transferee company is directed to comply with all statutory requirements in accordance with law. This judgment shall not exempt the payment of stamp duty or tax or any charges, if payable, in accordance with law nor this judgment shall exempt any permission/compliance or any other requirement which may be specifically required under law. The scheme of amalgamation shall be binding on the transferor companies and transferee company, their shareholders, creditors and all concerned. The parties to the scheme of amalgamation, other persons interested shall be at liberty to apply to this Court for directions that may be necessary in regard to the working of the scheme of amalgamation. The certified copy of this judgment shall be filed with the Registrar of companies within four weeks from the date of judgment.