Sesa Goa Limited vs Shailesh Bajaj

V.M. Kanade, J.—Both these petitions and applications taken out therein by the Objector can be disposed of by a common order since the petitioner company in both the petitions and the objector who has taken objection to the scheme of amalgamation are the same. After the company petition was filed, objections were filed by the objector Shailesh H. Bajaj and he also filed three applications in each of the petitions. In Company Petition No. 11 of 2012, he has filed company application No. 2/2013, 3/2013 and 4/2013 and similar applications have been filed by him seeking identical prayers vide Company Applications No. 5/2013, 6/2013 and 7/2013 in Company Petition No. 12/2012. After the applications were heard for sometime, this Court was pleased to direct that both, the applications and the company petitions, should be heard together.

Brief facts are as under:

(I) Company Petition No. 11/2012 was filed in this Court seeking sanction to the scheme of amalgamation (concurrent scheme of Ekaterina Limited (Ekaterina) with Sesa Goa Limited).

(II) Ekaterina Limited is a company based in Mauritius.

(III) Company Petition No. 12/2012 has been filed in this Court, seeking sanction to the Scheme of Amalgamation and Arrangement (Composite Scheme) amongst Sterlite Industries (India) Limited (SIIL), The Madras Aluminium Company Limited (MALCO), Sterlite Energy Limited (SEL), Vedanta Aluminium Limited (VAL) and Sesa Goa Limited which is the petitioner herein. The petitioner Company is a transferee company, which is registered in Goa and as such, the present petition has been filed in this Court. The transferor companies have filed their petitions in the appropriate Courts having jurisdiction over them.

(IV) So far as Ekaterina is concerned, the concurrent scheme has been approved by the Supreme Court of Mauritius by order dated 24th August, 2012.

(V) The company petitions filed by SIIL, MALCO, SEL and VAL for sanction of the Composite Scheme have been heard by High Court of Judicature at Madras and the judgment has been reserved by the Honourable Court on the said Company Petitions. In both the petitions, therefore, it is prayed that the Scheme of Amalgamation referred to in the petitions be sanctioned by this Court, so as to be binding on all the equity shareholders of the petitioner Company and on the petitioner Company and for orders in respect of such incidental, consequential and supplemental matters as are necessary to secure that the scheme is fully and effectively carried out.

Shri Shailesh Bajaj has filed his objections and is representing himself and his family members. He has filed his objections-affidavit dated 21st August, 2012 and reply-affidavits have been filed by the petitioner company. Rejoinder-affidavit also has been filed by the objector. During the pendency of the petition, Shri Shailesh Bajaj (hereinafter, referred to as "the objector") has filed Company Application No. 2/2013 in company Petition No. 11/2012 and a corresponding application in Company Petition No. 12/2012, seeking the following reliefs:

7(a) necessary notices be issued to FII''s such as "Robeco", "City of New York Group Trust", "Eaton Vance" and "Stitching Pensioenfonds" and their respective custodians viz. Deutsche Bank A.G., JP Morgan Chase Bank N.A. directing them to file their individual Affidavits in the present petition stating the stance taken by the each of the aforesaid FII''s on the resolution concerning the present scheme of merger and the instructions given by the said FII''s to their respective custodians in terms of voting on the resolute concerning the approval/disproval of the present scheme and the manner in which the said custodian cast the vote on behalf of the concerned FII;

(b) this Honourable Court may summon the papers concerning the declaration of invalid votes from the Petitioner Company and direct the Official Liquidator/Registrar of Companies, Goa to scrutinize the said votes and file a report in this Honourable Court concerning their validity/ invalidity;

(c) this Honourable Court may decide the issue of authenticity and credibility of the Report submitted by the Chairman of the Petitioner in respect of the results of the Court convened meeting as a preliminary issue before dealing with the other aspects of the present Petition, if found necessary;

(d) any other and further directions that may be issued in view of the facts and circumstances of the present matter by this Honourable Court as deemed fit and proper.

Vide Company Application No. 3/2013 in Company Petition No. 11/2012, along with corresponding application filed in company Petition No. 12/2012, he is seeking the following reliefs:

7(a) necessary direction be issued to the Central Government to produce the papers, files (including the processing note, examination note etc.) and other documents in relation to the actions taken and/or contemplated to be taken by the Ministry of Corporate Affairs in terms of reimbursement of the amount of Rs. 1,000 crores that has been siphoned away from the Petitioner Company as per the findings arrived at by the SFIO in its Report dated 29th April, 2011;

(b) necessary direction be issued to the Central Government to produce the papers, files (including the processing note, examination note etc.) and other documents in relation to the actions taken and/or contemplated to be taken by the Ministry of Corporate Affairs in terms of supersession of the board of directors of the Petitioner Company in view of the findings arrived at by the SFIO in its Report dated 29th April, 2011;

(c) any other and further directions that may be issued in view of the facts and circumstances of the present matter by this Honourable Court as deemed fit and proper.

Similarly, in Company Application No. 4/2013 in Company Petition No. 11/2012 and the corresponding application filed in company Petition No. 12/2012, he has prayed for the following reliefs:

9(a) necessary direction be issued to the Petitioner to produce the Valuation Reports compiled by Grant Thornton LLP and KPMG India Private Limited and the Fairness Opinion Report compiled by Citigroup Global Markets India Private Ltd. in this Honourable Court;

(b) necessary direction be issued to the directors/concerned personnel of Grant Thornton LLP and KPMG India Private Limited and Citigroup Global Markets India Private Ltd. to file their respective affidavits in this Honourable Court stating whether the Petitioner Company had furnished the SFIO Report to them for the purpose of arriving at the exchange/swap ratio in the present proceedings and whether the valuations arrived at by them had taken into consideration the contents of the said SFIO Report;

(c) any other and further directions may be issued in view of the facts and circumstances of the present matter by this Honourable Court as deemed fit and proper.

The petitioner company has annexed the Memorandum and Articles of Association of the SGL and has stated that the petitioner is a producer and exporter of iron ore, pig iron and metallurgical coke and that the equity shares of the petitioner are listed on the BSE Limited and the National Stock Exchange of India Limited. The petitioner has enumerated the objects of the Company which is established to carry on the business in India and abroad. The petitioner then has given the details of Ekaterina (Transferor company) and also the share capital of Ekaterina for the period December 21, 2011 to April 1, 2012. The main objects of Ekaterina, the decision taken by the Board of Directors, along with the resolution approving the scheme have been stated. The particulars of the scheme have been mentioned in the petition regarding transfer and vesting, conduct of businesses till effective date, dissolution of Ekaterina, and consideration. The petitioner Company has annexed all the relevant documents along with the petition, including explanatory statement u/s 393 of the Companies Act, and the judgments.

The objector filed his affidavit and has, inter alia, objected to the scheme of amalgamation on the following grounds in the affidavit in reply:

(A) Non-disclosure of relevant material to this Honourable Court under the provisions of Section 391(2) of the Act;

(B) Non-disclosure of relevant and necessary information to the shareholders of the petitioner Company under the provisions of Section 393 of the Companies Act;

(C) Skewed Exchange/Swap Ratio;

(D) that it is against public policy and public interest;

(E) unconscionable nature of the scheme inasmuch as the interests of the minority shareholders of the petitioner Company have been completely overlooked.

(F) Stifle further action in terms of the Serious Frauds Investigation Report;

(G) Real reason and rationale behind the proposed Scheme has not been mentioned;

(H) transfer of Vedanta Resources Plc''s holding of 38.80 % in Cairn India Ltd. along with associated debt of $5.9 billion;

(I) the validity of the votes cast in the Court convened meeting and the validity of the Chairman''s Report concerning the same.

The objector has annexed Serious Fraud Investigation Office, Ministry of Corporate Affairs''s report.

Reply affidavit has been filed by the petitioner to the affidavit filed by the objector, explaining the detailed objections which are raised along with the relevant documents.

Regional Director, Western Region, Ministry of Corporate Affairs, Mumbai also has filed a report and has stated that as regards para 6(D)(i) and 6(D)(ii), the objections raised by the petitioner have some force in the eye of law. However, the Regional Director has stated that having participated in the General Body Meeting and having not raised at the appropriate platform, the validity of the objections raised by the objector may be considered by the High Court. He has further stated that so far as para 6(D) (iii) and 6(D)(iv) is concerned, the facts relate to matters considered at the meeting of shareholders and are part of the indoor management of the company and therefore, the Regional Director is not in a position to make any comments and further for the reason that no supporting documents are annexed in support of the allegations. Save and except, as stated in Clause 6(A), (B), (C) and (D), the Regional Director, however, has stated that the scheme is not prejudicial to the interest of shareholders and public.

Similar objections have been taken in Company Petition No. 12/2012 and they have been replied by the petitioner Company and the Regional Director.

The objector who appears in person has, in context of the objections which are raised by him, relied on the prayers made by him in the three company applications and has prayed that before hearing the matters any further, initial order may be passed on the said application. We had made clear that the prayers in the said applications would be considered along with other objections which are raised by the objector.

Mr. Chagla, learned Senior Counsel appearing on behalf of the petitioners placed on record sequence of relevant facts and circumstances, which are as under:

(I) On 25th February, 2012, the Board of Directors of Ekaterina and the Petitioner Company approved the Concurrent Scheme, including the share exchange ratio;

(II) On 25th February, 2012 itself, the Board of Directors of the petitioner Company, SIIL, MALCO, SEL and VAL approved the Composite Scheme and the share exchange ratio(s) after considering the Valuation Report of Grant Thornton India LLP and KPMG India Private Limited, the independent valuers and the fairness opinions of Citi Group Global Markets India Private Limited (to the Board of Directors of the petitioner) and DSP Merrill Lynch Private Limited (to the Board of Directors of SIIL).

(III) On 2nd April, 2012 and 12th April, 2012, the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited, respectively granted their no objection to the Concurrent Scheme.

(IV) On 2nd April, 2012 and 12th April, 2012 itself, the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited, respectively granted their no objection to the Composite Scheme.

(V) On 23rd April, 2012, the Competition Commission of India approved the proposed combination, including the proposed combination including the transaction as proved for in the Concurrent Scheme and the Composite Scheme.

(VI) On 26th April, 2012, the High Court of Judicature at Madras dispensed with the convening of the meeting of the Equity Shareholders of SEL in view of the consent affidavits given by all Equity Shareholders to the Composite Scheme.

(VII) On 26th April, 2012, itself, the High Court of Judicature at Madras dispensed with the convening of the meeting of the Equity Shareholders of VAL in view of the consent affidavits given by all Equity Shareholders and Preference Shareholders to the Composite Scheme.

(VIII) On 19th June, 2012, the Equity Shareholders of the petitioner approved the Composite Scheme at the court convened meeting with the requisite majority as prescribed u/s 391(2) of the Companies Act, 1956.

(IX) On 19th June, 2012 itself, the Equity Shareholders of the petitioner approved the Concurrent Scheme at the court convened meeting with the requisite majority as prescribed u/s 391(2) of the Act.

(X) On 21st June, 2012, the Equity Shareholders of SIIL approved the Composite Scheme at the court convened meeting.

(XI) On 23rd June, 2012, the Equity Shareholders of MALCO approved the Composite Scheme at the court convened meeting.

(xii) On 29th June, 2012, the Foreign Investment Promotion Board of India approved the transaction as proposed in the Concurrent Scheme.

(XIII) On 2nd August, 2012, the advertisement of the petition in accordance with Rule 80 of the Companies (Court) Rules, 1959 with respect of the Company Petition No. 11 of 2012 was published in the Navhind Times and Sunaprant newspapers.

(XIV) On 2nd August, 2012 itself, the advertisement of the petition in accordance with Rule 80 of the Companies (Court) Rules, 1959 with respect of the Company Petition No. 12 of 2012 was published in the Navhind Times and Sunaprant newspapers.

(XV) On 24th August, 2012, the Supreme Court of Mauritius approved the Concurrent Scheme.

Learned Counsel for the petitioner Company then invited our attention to the contours of the jurisdiction of the Company Court while sanctioning the scheme of arrangement, having been laid down by the Supreme Court. He relied on judgments of the Apex Court in Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., and in Hindustan Lever Employees'' Union Vs. Hindustan Lever Limited and others, . He submitted that the petitioners had duly complied with the statutory provisions under the Act and the Rules and the requisite meeting as directed by this Court had been convened and the scheme was approved by the equity shareholders in terms of section 391(2) of the Act. The relevant material u/s 391 of the Act was provided to the equity shareholders and/or made available for inspection. It was submitted that the scheme is not violative of any provision of law and is not contrary to the public policy. He submitted that the scheme is just, fair and it advances the interest of the petitioner and their shareholders. He, therefore, submitted that the scheme may be sanctioned. He has relied on a number of Judgments which I will refer to at later stage.

Shri Bajaj has filed his objections. Firstly, he submitted that the three applications filed in the company petitions should be allowed. It was submitted that so far as Company Application No. 2/2013 in Company Petition No. 11/2012 is concerned, notices be issued to FIIs such as "Robeco", "City of New York Group Trust", "Eaton Vance", etc., and their respective custodians viz. Deutsche Bank A.G., JP Morgan Chase Bank N.A. directing them to file their individual Affidavits stating the stance taken by the each of the aforesaid FIIs on the resolution concerning the present scheme of merger and the instructions given by the said FIIs to their respective custodians. It is further prayed that this Court should summon the papers concerning the declaration of invalid votes and direct the Official Liquidator to scrutinize the said votes. Thirdly, it is contended that the issue of authenticity and credibility of the report submitted by the Chairman of the petitioner in respect of the results of the Court convened meeting, may be decided first. It was contended that though on record it can be seen that FIIs had given specific instructions not to vote in favour of the scheme, a part of the votes have been given against the scheme and, therefore, it was necessary to ask the FIIs and their respective custodians to file affidavits.

In my view, such an exercise cannot be permitted in a petition which is filed u/s 391 of the Act for grant of sanction of the scheme of amalgamation. Secondly, even otherwise, the stand taken by such FIIs and their custodians now after voting is over would be irrelevant and could be an afterthought and would not be germane for the purpose of considering a petition which is filed u/s 391 seeking sanction for the scheme. Similarly, other prayers namely direction to the Official Liquidator to scrutinize the votes, also is an exercise which cannot be carried out after the Chairman of the said meeting who is a Retired Chief Justice of the High Court under whose supervision the said meeting was held. It would only amount to granting permission to carry out the exercise of determining the validity of the votes, after the individual scrutinizers have submitted the report. The same is the case with prayer clause (c). In view of this, it is not possible to consider the reliefs which are claimed by the objector in this application.

So far as Company Application No. 3/2013 is concerned, in the said application it is claimed that directions be given to the Central Government to produce the papers and other documents in respect of the actions taken or contemplated to be taken by the Ministry of Corporate Affairs in terms of reimbursement of the amount of Rs. 1,000 crores that has been siphoned away from the Petitioner Company as per the findings arrived at by the SFIO in its Report dated 29th April, 2011 and seeking further direction to produce the necessary files, etc., in respect of the action taken by the Ministry of Corporate Affairs in terms of the supersession of the Board of Directors in view of the report. In my view, so far as these prayers are concerned, they have nothing to do with the grant of sanction of the scheme which is filed for amalgamation. It is well settled position in law that any pending investigation or proceedings cannot come in the way of the Court considering the grant of sanction u/s 391 of the Act.

In Company Application No. 4/2013, it is prayed that necessary direction be issued to produce the Valuation Reports compiled by Grant Thornton LLP and KPMG India Private Limited and the Fairness Opinion Report compiled by Citigroup Global Markets India Private Ltd. and for a further direction, directing the concerned persons of the said expert to file their respective affidavits stating therein whether the Petitioner Company had furnished the SFIO Report to them. It has been contended that so far as SFIO Report is concerned, though a letter has now been shown which states that SFIO Report was in fact brought to the notice of the valuers, according to the objector, the said letter is fabricated and reality of the said SFIO Report was not placed before the valuers and for that purpose it is necessary to direct the said valuers to file their personal affidavits.

It has been consistently held that a Court cannot question the correctness or otherwise of an opinion given by the experts, since the Court is not equipped either with knowledge or with expertise to consider and give an opinion as to whether the expert opinion is correct or not reliable. In this view of the matter, in an inquiry u/s 391, the question of direction sought by the objector in this application cannot be granted. The experts have stated in their report the basis on which they have given their opinion. It is not now open for the objector to say that in fact a particular document which the valuers claim was shown to them, was in fact not shown. This Court is not expected to go into the disputed questions of fact and hold an inquisitorial inquiry when an application is filed u/s 391 of the Act, seeking sanction of the scheme. Such a power is not given to the Court under the provisions of Section 391 of the Act and the scope of the inquiry, therefore, is to a large extent limited which I shall consider while taking into consideration the powers of this Court which can be exercised when a petition is filed u/s 391 of the Act. It appears that the only intention of the objector is to delay and prolong the proceedings by filing frivolous applications and raising the objections which are based on conjectures and surmises and by creating hypothetical situations which are based on paranoid fears and apprehensions. All these applications, therefore, are dismissed and in my view, it is not necessary to issue the directions which are sought by the objector in these three applications. The three applications filed in Company Petitions No. 11/2012 and 12/2012 are dismissed.

Before taking into consideration the rival submissions made by the learned Senior Counsel appearing on behalf of Petitioners and the Objector who is appearing in person, it would be relevant to take into consideration contours of the jurisdiction of the Company Court as also the ambit and scope of inquiry which is contemplated u/s 391 of the Companies Act while sanctioning the scheme of arrangement/amalgamation. In order to appreciate the nature and scope of the inquiry u/s 391 of the Companies Act, 1956, it would be necessary to firstly have a look at section 391 which reads as under:-

Power to compromise or make arrangements with creditors and members- (i) Where a compromise or arrangement is proposed-

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company, which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed [under the rules made u/s 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: [Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor''s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.]

(3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [one hundred rupees] for each copy in respect of which default is made.

(6) The [Tribunal] may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of.

The Apex Court in its several judgments has, after taking into consideration the said provisions of the Companies Act has summarized and succinctly laid down the scope of inquiry under the said provisions. In Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., the Apex Court has observed in para 29 of its judgment as under:-

29... In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged:

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 meeting 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 the necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings 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 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 of 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 forgetting 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.

The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the Court''s jurisdiction.

Similarly, the Apex Court in Hindustan Lever Employees'' Union Vs. Hindustan Lever Limited and others, has taken into consideration the role of the court while making inquiry u/s 391 of the said Act and has observed in paras 3, 4, and 6 of its judgment as under:-

But what was lost sight of was 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 to 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 a 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 judges 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. 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." Fertilizer Corporation Kamgar Union (Regd.), Sindri and Others Vs. Union of India (UOI) and Others, . See Buckley on Companies Act, 14th Edn., pp. 473 & 474 and Palmer on Company Law, 23rd Edn., 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 transferee company. Clause 11.1 provides that their services shall be deemed to have been continuing and not have been interrupted. Clause 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 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 it may result in many employees of 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 observations 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 methods result 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 as those who are working are protected they are not entitled to hinder 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 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.

6 Section 394 casts an obligation on the court to be satisfied that the scheme of amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle of "prudent business management test" or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure that merger shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalized economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decision Hoare & Co. Ltd. [1933 ALL ER Rep 105, Ch D]and Bugle Press Ltd. [1961 Ch 270: (1960) 1 All ER 678: (1960) 2 WLR 658] that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive.

(emphasis supplied)

The Apex Court in Hindustan Lever and Another Vs. State of Maharashtra and Another, of its judgment has observed as under:-

12 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

2 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.

(Emphasis supplied)

Keeping in view the provisions of section 391 and the law laid down by the Supreme Court in the aforesaid two cases as also the other judgments, it is now quite well settled that, firstly, the Court is not expected to sit in appeal over the commercial wisdom of the majority of shareholders of the Company who have given their seal of approval to the Scheme of amalgamation. The Court is expected to act as an umpire and dispassionately consider whether the procedure which is laid down under the said section has been followed meticulously, fairly and impartially and proper opportunity is given to all the shareholders and the creditors of the Company who has filed the Petition in order to ensure that sanction and approval of the Scheme is not obtained by suppression of material facts or that a decision is contrary to the interest of minority shareholders or creditors. Thirdly, it is not against the public policy or is illegal and contrary to the provisions of any Act or Rules. Once the Court is satisfied that a proper procedure has been followed, there is no suppression of material facts and documents then, in such circumstances, Court is not supposed to make a fishing and roving inquiry in hypothetical, imaginary and fanciful apprehension expressed by the objector of the scheme. The Court is expected to be guided by the experts'' opinion in respect of Fairness Report, Valuation Report and Feasibility Report given by the experts. The Court also is not expected to make a detailed inquiry to see whether the voting made in the meeting which is held is in accordance with law. The Court, therefore, is not expected to sit in appeal over the Report given by the Chairperson of the meeting in which the voting is made.

Keeping in mind the aforesaid principles laid down by the Apex court, I propose to first examine the chronology of dates and events which has not been disputed and which is as under:-

The first objection is regarding the Valuation Report and fairness opinion. It has been submitted that swap/exchange ratio arrived at by valuers should not be accepted. The Objector has filed a detailed written submissions on 18/02/3013 which run into 72 pages. A gist of the objections is as under:-

(i) The SFIO Report was not placed before the Valuers by the Petitioner-Company since no reference has been made by the Valuers about SFIO Report and that the affidavit stating that the said Report was placed is an afterthought.

(ii) The share exchange ratio between the Companies which are amalgamated is skewed. In the present case, Valuers have given opinion that a shareholder who has 100 shares in Sesa Goa Ltd. would get 29 shares in the amalgamated Company. Great emphasis has been laid on the fact that this ratio is not in favour of the minority shareholders and is in favour of majority shareholders and promoters of the Company. It has been submitted that the said ratio is arrived at on certain absurd valuations for financially sick companies and is also arithmetically not in compliance. Secondly, it is contended that it is hedged by several qualifications which can be seen from the reply filed by the Petitioner-Company to Company Application No. 4 of 2013. It has been submitted that the valuation which is made in respect of valuation of the shares is not uniform. Reliance has been placed on the judgments of the Apex Court in Hindustan Lever Employees'' Union Vs. Hindustan Lever Limited and others, and this Court in Larsen and Toubro Limited (2004) Com Cases 523 Volume 121 & in T. Mathew vs. Smt. Saroj G. Poddar (1996) 22 CLA 200 (Bom) and also on the judgment of the Calcutta High Court in Modus Analysis & Information P. Ltd. (2008) 142 CompCases 410 It is, therefore, contended that the swap ratio arrived at in the Scheme, apart from being unfair, unjust and predetermined and to the disadvantage of the shareholders of the Petitioner-Company, is a result of incorrect and suppressed financial data being supplied to the Valuers resulting in fallacious exchange ratio being reached by them.

(iii) It has been contended that if this Court is of the opinion that it could not go into the conclusion reached by the expert Valuers then, in that case, this Court may appoint fresh Valuers at the cost of the Objector.

(iv) It has been contended that as a result of the said Scheme, price of the shares of the Petitioner-Company dropped from Rs. 227/- per share in the stock market to Rs. 163/- per share owing to the announcement of the terms of the present amalgamation.

(v) The Objector has given his own opinion as to how the Valuation Report is incorrect in a detailed analysis made by him of various documents, statements, SFIO Report etc.

(vi) In para 3(i) to 3(x) of his written submissions, the Objector has firstly tried to demonstrate as to how the valuation is not correct. Secondly, he has tried to demonstrate as to how the method of valuation which has been chosen by the Valuers is wrong and thirdly he tried to point out as to how the swap ratio even arithmetically is incorrect by giving various details.

On the other hand, the learned Senior Counsel Mr. Chagla appearing on behalf of the Petitioner has submitted that share exchange ratio has been determined by two independent and reputed firms of Valuers viz. Grant Thornton India LLP and KPMG India Private Limited and the fairness of the Valuation Report has been given by Citi Group Global Markets India Private Limited (to the Board of Directors of the Petitioner) and DSP Merrill Lynch Private Limited (to the Board of Directors of SIIL). It has been contended that the Valuers had applied the commonly accepted valuation principles to arrive at the exchange ratio including adoption of the market price approach, discounted cash offer approach, net asset value approach and price of recent investments and transactions. He contended that Concurrent Scheme and Composite Scheme including the share exchange ratio had been approved by the equity shareholders of the Company and the Objector representing himself and his family members who voted against the Concurrent Scheme and Composite Scheme, represents only 0.43% in number and 0.01% in value of the Equity Shareholders present and voting at the court convened meeting held on 19/06/2012. He submitted that the objections raised are mere conjectures and surmises and no resolution was proposed by the Objector at both court convened meetings for amendment of the share exchange ratio nor has he provided any alternative Valuation Report. It has been submitted that subsequent to the filing of the Petitions before this Court, the relatives of the Objector have increased their equity shareholding in the Petitioner-Company.

In my view, submission made by the Objector is without any substance. It is a well settled position in law that the Court, while making inquiry u/s 391, cannot substitute the conclusions which are arrived at by the experts. It is not disputed by the Objector that the said Valuers are experts in the field and no allegations of malafide have been made against the said experts. The detailed objections regarding swap ratio and Valuation Report which the Objector has argued at length before me and further elaborated in the written submissions in para 3. By way of illustration, I would like to point out the submissions which have been made and mentioned in the said para 3. He has stated that the Valuation Report does not take into consideration the findings arrived at by SFIO in its Report dated 28/4/2011. This submission is without any substance. Petitioner-Company has annexed a letter written by the said Valuer in which they have clearly stated that SFIO Report was placed before them by the Petitioner-Company. It has been contended that in the Scheme concerning merger of Ekaterina Ltd., the only methodology that could apply for arriving at the valuation of the said Company as per the Valuation Report submitted by the Valuers was the "Price of Recent Investment" methodology. It has also been submitted that other forms of methodologies that were used to arrive at the exchange/swap ratios in the aforesaid schemes could not be made applicable to Ekaterina Ltd. It has been contended that since Ekaterina Ltd. is an unlisted company the "Market Price Approach" methodology could not have been applied while arriving at its valuations. It has also been contended that the "Discount Cash Flow Approach" and/or the "Net Asset Value Approach" could not have been applied by the Valuers to Ekaterina Ltd.

It has been contended that Valuers in the present Scheme have even arithmetically arrived at some absurd valuations and swap/exchange ratios and, therefore in the written arguments the Objector has proceeded to illustrate in support of the said contention.

In my view, these submissions are nothing but conjectures and surmises and the own opinion of the Objector in respect of Valuation and Fairness Report and his own analysis as to how the swap ratio which is arrived by the Valuers is incorrect. It is an admitted position that the Objector was present at the court convened meeting and, at that time, no amendment was proposed to the swap ratio nor any Valuation Report was submitted by him. In my view, therefore, it is now not open for the Objector to make a submission that this Court should appoint fresh Valuers on the basis of Objector''s own analysis of the Valuation Report and other documents. Admittedly, the Objector is not an expert in the field since he is an engineer by profession as submitted by him during the course of his arguments. There is no material on record to show that minority shareholders would suffer by this ratio whereas promoters and the majority shareholders would stand to gain by this ratio. It is an admitted position that this ratio is applicable to all the equity shareholders without making any exception either in respect of promoter shareholders or any other category of equity shareholders. There cannot be any dispute regarding the ratio of the judgments on which reliance has been placed by the Objector. However, the said observations have been made in the facts of each individual case and, therefore, the said ratio cannot be made applicable to the facts of the present case.

Secondly, it has been submitted by the Objector that the present Scheme violates the proviso appended to sub-section (2) of section 391 of the Companies Act which states that the Court has to be satisfied that the Company has disclosed by affidavit or otherwise all material facts relating to the Company. It has been submitted that the Petitioner-Company has deliberately suppressed the Report compiled by the Serious Fraud Investigation Office (SFIO) after having investigated the Petitioner-Company under the provisions of Section 235 of the Act. It has been submitted that the said SFIO Report contains findings against the Petitioner-Company which apart from having huge effect on the swap/exchange ratio would also reflect the manner in which state of affairs of the Company are being handled by its management and also demonstrates the manner in which issues public policy and public interest has been managed by it. It has been submitted that in para 26 of the Petition (in the case of the Scheme relating to Ekaterina Ltd) and para 44 of the Petition (in the case of the Scheme relating to other companies) it has been stated that there was a "pending investigation before SFIO and the Ministry of Corporate Affairs". It has been submitted that similar averments have been made in para 26 in the Petition concerning Ekaterina Ltd. Reliance has been placed on the judgments of the Supreme Court in Miheer H. Mafatlal (supra), Bedrock Ltd 1998(4) BCR 710 and on the judgment of this Court in T. Mathew vs. Smt. Saroj G. Poddar (1996) 22 CLA 200 (Bom)

On the other hand, the learned Senior Counsel Mr. Chagla appearing on behalf of the Petitioner submitted that SFIO Report is not a bar to the sanction of the Scheme. It has been contended that the Petitioner would be subject to consequences that would arise from SFIO Report. It has been contended that the Petitioner is bound by the provisions of law and even after the Scheme is sanctioned, proceedings, if any, initiated by any authority against the Petitioner-Company would continue. Reliance has been placed on the judgment of the Apex Court in Sesa Industries Ltd. Vs. Krishna H. Bajaj and Others, , Hindustan Lever Employees'' Union Vs. Hindustan Lever Limited and others, , Zee Telefilms Limited In re - (Appeal No. 164 of 2003 in C.P. No. 1116 of 2002), Lifeline Drugs and Intermediates Pvt. Ltd. Company Petition No. 220 of 2008, Company Application No. 18 of 2008), Reliance Petroleum Limited In Re: Reliance Petroleum Ltd., and Sesa Industries Limited Vs. Krishna H. Bajaj and Ors (2009) 152 Comp. Cases 16 (Bom). It has been further submitted that sufficient disclosure as required in respect of SFIO Report has been made in explanatory statement dated 19/05/2012. It has been further contended that the Objector had been in possession of the SFIO Report and no other equity shareholder has raised any issue with respect to the alleged non-disclosure of the matters in respect of SFIO Report.

In my view, submissions made by the Objector cannot be accepted. It is a well settled position in law that pending investigation or pending cases cannot come in the way of the Court granting sanction to the Scheme of amalgamation filed by the Company u/s 391. It is further held that even after the Scheme is sanctioned, prosecution, if any, initiated by the Central Government or any other Agency would continue against those Directors or persons responsible for committing the said illegalities and, as such, therefore, merely because Report has been tendered making allegations against the Company would not deter the Court from granting sanction on that ground alone, if it is satisfied that the provisions of section 391 have been complied with by the Company.

The Apex Court in Sesa Industries Ltd. Vs. Krishna H. Bajaj and Others, has observed in paras 28, 43, 44 of its judgment as under:-

The learned counsel then contended that the fact of huge siphoning off the funds from the transferor company (SIL) to the transferee company (SGL) being within the knowledge of the Company court, it should not have sanctioned the scheme, as the distinction between the wrongdoer and the beneficiary gets effaced due to sanctions of law. The learned counsel also argued that under the attending circumstances the swap ratio of 1 share of the transferee company for 5 shares of the transferor company was also unfair, especially when the valuers did not have an opportunity to examine the inspection reports u/s 209-A of the Act.

Having held that the Official Liquidator had failed to discharge the duty cast on him in terms of the second proviso to Section 394(1) of the Act, the next issue that requires consideration is: whether sanction of a scheme of amalgamation can be held up merely because the conduct of an Official Liquidator is found to be blameworthy? We are of the view that it will neither be proper nor feasible to lay down absolute parameters in this behalf. The effect of misdemeanour on the part of the Official Liquidator on the scheme as such would depend on the facts obtaining in each case and ordinarily the Company Judge should be the final arbiter on that issue. In the instant case, indubitably, the findings in the report u/s 209-A of the Act were placed before the Company Judge, and he had considered the same while sanctioning the scheme of amalgamation. Therefore, in the facts and circumstances of the present case, the Company Judge had, before him, all material facts which had a direct bearing on the sanction of the amalgamation scheme, despite the aforesaid lapse on the part of the Official Liquidator. In this view of the matter, we are of the considered opinion that the Company Judge, having examined all material facts, was justified in sanctioning the scheme of amalgamation, particularly when the current investigation u/s 235 of the Act was initiated pursuant to a complaint filed by Respondent 1 subsequent to the order of the Company Judge sanctioning the scheme.

For the foregoing reasons, the appeals are allowed, and the impugned judgment is set aside. Consequently, the order passed by the Company Judge sanctioning the scheme of amalgamation is restored. However, it is made clear that the scheme of amalgamation will not come in the way of any civil or criminal proceedings which may arise pursuant to the action initiated under Sections 209-A or 235 of the Act, or any criminal proceedings filed by Respondent 1.

The Apex Court in Hindustan Lever Employees'' Union Vs. Hindustan Lever Limited and others, has observed in paras 71 and 77 of its judgment as under:-

As a result of the amalgamation, it is found that the working of the Company is being conducted in a way which brings it within the mischief of the MRTP Act, it would be open to the authority under the MRTP Act to go into it and decide the controversy as it thinks fit.

Nor do we think that "public interest" which is to be taken into account as an element against approval of amalgamation would include a mere future possibility of merger resulting in a situation where the interests of the consumer might be adversely affected. If, however, in future the working of the Company turns out to be against the interest of the consumer or the employees, suitable corrective steps may be taken by appropriate authorities in accordance with law. As has been said in the case of Fertilizer Corpn. Kamgar Union v. Union of India: (SCR p. 77: SCC pp. 588-89, para 47)

...it is not a part of the judicial process to examine entrepreneurial activities to ferret out flaws. The Court is least equipped for such oversights. Nor, indeed, it is the function of the judges in our constitutional scheme.

The Apex court in Reliance Petroleum Limited In Re: Reliance Petroleum Ltd., of its judgment has observed as under:-

In view of what is stated hereinbefore the Scheme of Amalgamation as proposed by the petitioner-company at Annexure E to the petition is hereby sanctioned subject to the clarification that this sanction shall not affect any proceedings that may be pending or that may be commenced against the petitioner-company in relation to any of its liabilities arising from past activities.

The submission of the Objector that this Report has been suppressed firstly from the Valuers and secondly from the equity shareholders is also devoid of any substance. In the explanatory statement, reference has been made about pending investigation. In the explanatory statement it is also clearly stated that if any voter wanted to take inspection of the document referred to in explanatory statement, he could do so by visiting Company''s Office. Much emphasis was laid by the Objector on the word "pending" which has been used in the explanatory statement. It has been submitted that SFIO had submitted its Report and investigation was not pending and, therefore, there was suppression of material facts and an attempt was made to mislead the equity shareholders. This submission is also without any substance. It is quite well settled that even if the Report is filed and if any action has to be taken, further investigations have to be done for the purpose of taking recourse to criminal proceedings and report has to be filed in the Court and, as such, it cannot be said that by using the word "pending" in the said explanatory statement, there has been a suppression of material fact by the Petitioner-Company.

The next objection is regarding voting which has taken place at the court convened meeting of the equity shareholders on 19/06/2012. It has been contended that atleast one of the votes of Bimal S. Gandhi has been shown to be cast in favour of the Scheme is an illegal vote since the said Bimal S. Gandhi expired almost a decayed ago and could not have cast his vote in the said meeting and, as such, he contended that counting of such vote is in violation of provisions of section 391(2) of the Act. It has been then contended that there was no true and correct representation of the shareholders of the Petitioner-Company in the court convened meeting since votes of deceased persons had been counted in the process of arriving at the result of the court convened meeting. Reliance has been placed on the judgment in T. Mathew vs. Smt. Saroj G. Poddar (1996) 22 CLA 200 (Bom). It has been then submitted that majority votes of the promoters of the Petitioner-Company comprises of 55.13% and if the said votes are excluded from the counting of the votes of persons who had allegedly voted in favour of the Scheme then both the Schemes had miserably failed to garner support of the minority shareholders of the Petitioner-Company. Reliance has been placed on the judgment in Hellenic and General Trust Ltd. (1975) 3 ALL ER 382 which has been followed by the Apex Court in Miheer H. Mafatlal (supra) and this Court in Bedrock (supra). It has been submitted that separate meetings for promoters and minority shareholders ought to have been held in the facts of the present proceedings since the terms offered to both the set of shareholders were the same. It has been contended that the terms offered to the minority shareholders and the promoters of Vedanta group were not the same. It has been submitted that the majority shareholders in the Petitioner-Company who had voted were subsidiaries of ultimate parent company itself. It has been then contended that most FIIS had voted against the scheme of merger. It has been contended that since most of the FIIS had overwhelmingly voted against the scheme that itself is a ground for not granting sanction to the scheme. During the course of arguments the Objector contended that the Chairperson of the court convened meeting and the scrutinizers who had scrutinized valid and invalid votes had committed grave irregularity in not doing their duty as required under the law. The Objector has taken me through various charts which showed who has voted in favour of the scheme and who has voted against. It has been contended that it is inconceivable that FIIs who had voted by proxy could not have given two different votes; one in favour and the one against.. It has been contended that this also showed that there was material irregularity in respect of valid and invalid votes. It has been contended that scrutinizers had erred in discarding number of votes as invalid votes. It has been contended that even if these votes had been treated as valid votes, the Scheme could not have been sanctioned by 3/4th majority. It has been contended that the fact that the Scheme was approved by a very slender margin itself indicated that this was a fit case where direction should be given by this Court to convene a meeting again and order re-voting. Again, reliance has been placed on number of judgments which have been referred to in the written submissions.

It has been contended by Mr. Chagla, the learned Senior Counsel appearing on behalf of the Petitioner that Chairperson (Justice Gurudas D. Kamat (Retired)) in the court convened meeting of the equity shareholders appointed scrutinizers to scrutinize the ballot papers and the persons so appointed were acceptable to all the shareholders including the Objector and it has been submitted that report of the meetings has been filed by the Chairperson before this Court. It has been contended that under the law and under the Act equity shareholder is entitled to vote on a poll differently on a resolution with respect to the said shareholder''s holding in a company. It has been submitted that this exercise of discretion by a shareholder could not be objected to or questioned by the Objector in view of provisions of Section 183 of the Act. It has been submitted that the Objector could not be permitted in the present proceedings to go behind the Chairperson''s report and embark on fishing and roving inquiry with the exercise of discretion of the equity shareholder. It has been then submitted that invalid votes are not considered for the purpose of counting and determining the majority by which a resolution is passed. It has been submitted that result of the meetings was duly reported to the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited and also had been posted on the website of the Petitioner. However, no shareholder or FN had, pursuant to the declaration of results, objected to the voting on the concurrent Scheme and the Composite Scheme or to the Reports. So far as the case of Bimal S. Gandhi is concerned, it has been submitted that the shares held by the said individual were under transmission pursuasnt to the request made by Ms. Ramila Gandhi who had sought issuance of duplicate certificates and Ms. Ramila Gandhi executed a proxy to vote at the court convened meeting and the shares of Bimal S. Gandhi have been thereafter transmitted in favour of Ms. Ramila Gandhi. So far as the submission of the Objector that the minority shareholders constituted a separate class is concerned, it has been submitted that since the same compromise or arrangement was applicable to all its equity shareholders, one last meeting of equity shareholders was convened. It has been submitted that only when a separate or different scheme is offered to a sub-class of shareholders, a separate meeting could be called within the same class.

In my view, the submissions made by the Objector regarding irregularity in voting are required to be stated to be rejected. It has to be remembered that meeting was convened by the Chairperson who was a retired judge of this Court and who retired as a Chief Justice of Gujarat High court. He had appointed scrutinizers who scrutinized the said votes. No objection was raised regarding appointment of the said scrutinizers either by the Objector or any other equity shareholders. None of the FIIs had raised any objection regarding voting after the results were declared and made available to the shareholders by publishing it on the website of the Petitioner-Company and before Bombay Stock Exchange and National Stock Exchange. Section 183 of the Act provides for right of a member to use votes differently which reads as under:-

Right of member to use his votes differently. On a poll taken at a meeting of a company, a member entitled to more than one vote, or his proxy, or other person entitled to vote for him as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses.

Merely because different votes have been given by some FIIs, no objection can be raised on that ground since it is legally permissible. Even if the said vote of Bimal S. Gandhi is not taken into consideration even then the said Scheme had been sanctioned by 3/4th majority of the shareholders.

The next objection taken by the Objector is that the Scheme proposed by the Petitioner-Company has been modified before seeking approval from the shareholders of the Petitioner-Company and also after seeking approval from the shareholders in the said meeting. Firstly, it is contended that the Valuers have also considered the valuation in terms of transfer of 38.8% stake in the Company known as Cairn India Ltd. (CIL) into one of the 100% subsidiaries of Petitioner-Company alongwith associated debt of $ 5924 million into the same from one of the subsidiaries of Vedanta Resources Plc. viz. Twin Star Energy Holdings Ltd. ("THEL"). He invited my attention to paragraphs on pages 44, 46 and 47 and also the Fairness Opinion Report of Citibank at pages 41 and 42 of the reply filed by the Petitioner-Company in Company Application No. 4 of 2013. He has also submitted that even if the statement made by ultimate promoter company of the Vedanta group viz. Vedanta Resources Plc to the London Exchange shows the inclusion of Cairn India Ltd. and its associated debt in valuations arrived at by the Valuers. Reliance has been placed on the extract of the statement at page 927 of the Company Petition No. 11 of 2012. It has been submitted that the Scheme as presented before the shareholders and as filed before this Court do not refer to transfer of the stake in Cairn India Ltd. and the resultant debt associated with. Secondly, it is submitted that so far as Petition No. 12 of 2012 is concerned, as per clause 3.3 of Chapter 6 of the said scheme ''Residual VAL'' was supposed to take care of its own liabilities and the Petitioner-Company was not required to honor any liabilities of Residual VAL. It has been submitted that despite the said submission made in clause 3.3, in the affidavit dated 2/10/2012 filed by the Petitioner-Company in the Madras High Court, in para 3 it has been stated that all contractual/legal remedies including appellate remedies by Residual VAL shall be discharged by the amalgamated Company to the extent that Residual VAL is unable to discharge the same. With reference to both these instances, it has been submitted that the Petitioner-Company has modified terms of the Scheme of amalgamation after having sought the approval from the shareholders of the Petitioner-Company. Reliance has been placed on two judgments; one in Meghal Homes Pvt. Ltd. Vs. Shree Niwas Girni K.K. Samiti and Others, and the other in Bengal Bank Ltd. Vs. Suresh Chakravartty and Others, .

On the other hand, Mr. Chagla, the learned Senior Counsel appearing on behalf of the Petitioner-Company has submitted that transfer of shareholding of 38.8% of Vedanta Resources Plc in Cairn India Limited was not being implemented as a part of either the Concurrent Scheme or the Composite Scheme. It has been contended that the same was a part of the larger transaction and combination which was clear from the communication of the Competition Commission of India. My attention was invited to pages 576 to 581 of Company Petition No. 11 of 2012 and pages 1402 to 1407 of Company Petition No. 12 of 2012. It has been then submitted that value of the shareholding of Vedanta Resources Plc in Cairn Inida Limited is not the subject matter of the Valuation Report as prepared by Valuers and this has been mentioned in the Valuation Report. Secondly, it has been contended that transfer of VAL''s shares from the Twinstar Holdings Limited (wholly owned subsidiary of Vendanta Resources Plc) and Welter Trading Limited (wholly owned subsidiary of Vedanta Resources Plc) to Ekaterina (wholly owned subsidiary of Vedanta Resources Plc) being a transfer among the holding company and subsidiary company is not required to be at fair values. Whereas the fair value of VAL''s shares was rightly considered by the Valuers for determining the share exchange ratio which was based on factors as stated in the Valuation Report. So far as the liabilities of Residual VAL is concerned, it has been submitted that in terms of the Composite Scheme, it was proposed that Aluminium Business Undertaking of VAL would be demerged and transferred into the Petitioner and Residual VAL would operate the Power Business Undertaking and on the effectiveness of the Concurrent Scheme and the merger of the SIIL into the Petitioner becoming effective, VAL would become a wholly owned subsidiary of the Petitioner. So far as the transfer of debt of Residual VAL is concerned, it has been submitted that this submission was made in the affidavit dated 2/10/2012 in the proceedings pending before the Madras High Court and this was merely an undertaking given to the Madras High Court in the form of a comfort for the benefit of the Unsecured Creditors of Residual Val and would become effective only upon effectiveness of the Composite Scheme. It has been submitted that therefore this is independent of and not a part of the Scheme and the said affidavit is not an amendment of or modification to the Composite Scheme.

The submission made by the Objector is without any substance. Perusal of the Valuation Reports clearly discloses that the Valuers had clearly stated that they had carried out relative valuation of the equity shares of SGL, SIIL, MALCO and Ekaterina Ltd. with a view to arrive at fair share exchange ratio of equity shares of SIIL, MALCO and Ekaterina Ltd. and for equity shares of SGL and, therefore, in my view, shareholding of Vedanta Resources Plc in Cairn India Ltd. is not the subject matter of Valuation Report. Similarly, the objection which has been taken regarding affidavit filed before the Madras High Court also has to be taken into consideration in the context and circumstances under which the said affidavit has been filed. Perusal of the affidavit discloses that in order to give comfort to the Residual VAL which would become subsidiary of the amalgamated Company, it was stated that after the Scheme was sanctioned if the Residual VAL was not in a position to repay the debts of its creditors, in that event the said debts would be paid by the amalgamated Company. It is obvious that the said affidavit has been filed in order to give assurance to the creditors of Residual VAL that they would be taken care of and it cannot be said that it amounts to modification of the Scheme. In my view, judgment of the Apex Court in Meghal Homes Private Limited (supra) was in the context of the Scheme which proposed revival of the Company and the Apex Court was concerned with the fact as to whether the Scheme was a genuine attempt to revive the Company and not a mere ruse to dispose of the assets of the Company. These facts are distinguishable from the present case which, in fact, proposes consolidation of business interest of the Vedanta Group Companies in one entity i.e. the Petitioner. In Meghal Home Private Limited (supra), a clear modification of the Scheme was sought to be made and, therefore, the Supreme Court held that the approval of the shareholders was required to the modification. The ratio of the judgment in Meghal Homes Private Limited (supra) is not applicable to the facts of the present case nor is the ratio of the judgment of the Calcutta High Court in Bengal Bank Ltd. (supra).

It has been then submitted that the Objector was shocked to discover on the perusal of contents of the Valuation Report and Fairness Opinion Reports when they were produced in Court that a draft Scheme of amalgamation between the transferor companies herein along with Cairn India Ltd. and the Petitioner/transferee Company was already prepared and was ready on 22/02/2012 i.e. even before the swap/exchange ratio arrived at by the Valuers was known to anybody. It has been contended that the Valuers in the present Scheme had in fact filed their Valuation Report on 24/02/2012. It has been contended that both, DSP Merrill Lynch and Citibank in their Fairness Opinion Reports have stated that the final terms of the scheme of merger ought not to materially vary from those set forth in the draft or else the opinion report given by them would not stand good. It has been contended that the Petitioner-Company and the transferor companies knew about swap/exchange ratios that would be arrived at by the Valuers in the present Scheme atleast two days in advance. It has been submitted that ultimate promoters of the Petitioner-Company also knew the swap/exchange ratio atleast a day in advance i.e. on 23/02/2012 since while making the representation at London Stock Exchange, the ultimate promoting company of the group viz. Vedanta Resources Plc happened to provide the swap/exchange ratios to the London Stock Exchange whilst categorically stating that the information contained in the said representation was as on 23/02/2012. It has been submitted that this fact indicated that the said ratios were pre-decided/pre-determined and the valuations were sought to be done in a manner so that the pre-determined results would be ultimately arrived at by the said Valuers.

Mr. Chagla, the learned Senior Counsel appearing on behalf of the Petitioner-Company has submitted that the Schemes including share exchange ratio recommended by the Valuers were approved by the Board of Directors of the Petitioner on 25/02/2012. The presentation to the outside world and business community was submitted to RIS for release to the London Stock Exchange on 25/02/2012, after the Board approval was given. It has been submitted that the announcement was also made available on the website of the respective companies being parties to the Composite Scheme from 25/02/2012 and on the London Stock Exchange website from 27/02/2012 and not on 23/02/2012 as contended by the Objector.

In my view, the explanation given by the learned Senior Counsel appearing on behalf of the Petitioner is plausible. Firstly, this objection has been taken by the Objector during the course of his submissions. The said objection has not been taken in his reply and on that ground alone the said objection really needs to be rejected. It is necessary to keep in mind that the Scheme and the share exchange ratio recommended by the Valuers were approved by the Board of Directors on 25/02/2012. The information was released to the outside world and submitted to the London Stock Exchange on 25/02/2012 after the Board''s approval was given. The information was made available on the Website of the respective companies from 25/02/2012 and on the London Stock exchange on 27/02/2012. In my view, merely because the date "23/02/2012" has appeared in one of the documents, on the basis of that date it is not possible to arrive at the conclusion that prior to the approval given by the Board of Directors, swap ratio was already known on 23/02/2012.

The next objection to the Scheme is that it is against the public policy and against the public interest. It has been submitted by the Objector that the Report issued by the SFIO clearly indicates that the Petitioner-Company having siphoned away atleast Rs. 1002 crores as and by way of under invoicing of iron ore exports which is not only against the principles of public policy but also causing great harm to the interests of general public of our country. Secondly, it has been contended that both Vedanta Aluminium Ltd. and Sterlite Energy Ltd. are making huge losses in their respective operations over the last few years. It has been contended that different appointed dates have been given for each of the amalgamated companies and this was for the purpose of avoiding income tax. It has been contended that such a Scheme was nothing else but colourable device by virtue of which refunds of tax amounts were being indirectly claimed by the amalgamating companies. Reliance has been placed on the Judgment of the Apex Court in McDowell and Co. Ltd. Vs. Commercial Tax Officer, which approves the judgment of Gujarat High Court in In Re: Wood Polymer Limited, . Reliance has been placed on paras 17, 45 and 46 of the said judgment. It has been contended that this judgment was approved by the Apex Court in Vodafone International Holdings B.V. Vs. Union of India (UOI) and Another, . Reliance has also been placed on paras 68, 69 and 70 of the said judgment. Reliance has also been placed on the judgment in Wood Polymers Ltd. (supra). The Objector, therefore, contended that the Scheme deserves to be dismissed on the said aspect of violation of principles of public policy.

Mr. Chagla, the learned Senior Counsel appearing on behalf of the Petitioner-Company, on the other hand, submitted that the Composite Scheme complies with the requirements of the provisions of the Income Tax Act, 1961 including Sections 2(1B), 2(19AA) and 72A. It has been submitted that Section 72A expressly permits/provides for carry forward of unutilised business losses of the transferor company to the transferee company in case of merger/demerger. It has been submitted that this is the policy of law and there can be nothing objectionable to the sanctioning of the Scheme, if the law itself permits these consequences. It has been submitted that implementation of the Scheme would be the subject matter of the scrutiny of the Income Tax authorities and it shall not defeat the right of the Income Tax authorities to scrutinize returns to be filed by the Petitioner. Reliance has been placed on the judgments in In Re: AVM Capital Services Private Limited and Others, , Union of India (UOI) and Another Vs. Azadi Bachao Andolan and Another, and Vodafone International Holdings B.V. Vs. Union of India (UOI) and Another, .

It is surprising that the Objector, who has admittedly purchased the shares of Petitioner-Company after the Scheme of amalgamation was announced, now seeks to challenge the Scheme of amalgamation on the ground that it is against the public policy and only for avoidance of income tax. Be that as it may. Without going into the reason as to why the Objector purchased the shares after the Scheme was announced, the legal position is quite clear. The provisions of the Income Tax Act contemplates a situation whereby section 72A provides for carry forward of unutilised business losses of the transferor company to the transferee company in case of merger/demerger. Even after the Scheme is sanctioned, it is always open for the Income Tax authorities to scrutinize the returns and issue notices.

Apart from that in Azadi Bachao Andolan (supra), the Supreme Court has explained the scheme in McDowell & Co. Ltd.''s case (supra) Paragraphs 147 to 149 are relevant and are reproduced hereunder:-

We may in this connection usefully refer to the judgment of the Madras High Court in M.V. Vallippan v. ITO which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though, the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corpn. Ltd. and did not have the benefit of the House of Lord''s pronouncement in Craven the view taken by the Madras High Court appears to be correct and we are inclined to agree with it.

WE may also refer to the judgment of the Gujarat High Court in Banyan and Berry v. CIT where referring to McDowell, the Court observed: (ITR p. 850 E-H).

The Court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the Act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell case. The ratio of any decision has to be understood in the context it has been made. The facts and circumstances which lead to McDowell decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity.

This accords with our own view of the matter.

From the aforesaid paragraphs it can be clearly seen that, according to the Apex Court, decision in Mcdowell & Co. Ltd.''s case (supra) cannot be said to lay down that every attempt at tax planning is illegitimate or that every transaction which is otherwise permissible under law but has the effect of reducing tax burden of the assessee must be looked upon with disfavor. The Apex Court, therefore, in para 166 of its judgment in Azadi Bachao Andolan (supra) has held as under:-

We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents.

In Vodafone International Holdings BV (supra), it was contended on behalf of the revenue that decision in Azadi Bachao Andolan (supra) has to be overruled since it departs from decision of McDowell & Co. Ltd. (supra).

The Apex Court in para 64 of its judgment in Vodafone International Holdings BV (supra) observed that there was no conflict between its judgments in McDowell & Co. Ltd. (supra) and Azadi Bachao Andolan (supra). Para 64 of the said judgment reads as under:-

The majority judgment in McDowell & Co. Ltd. (supra) held that "tax planning may be legitimate provided it is within the framework of law" (para 45). In the latter part of para 45, it held that "colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinnappa Reddy, J. has proposed a separate opinion with which we agree". The words "this aspect" express the majority''s agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17 and 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance-these are clearly only in the context of artificial colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal.

In my view, therefore, judgment of Gujarat High Court in Wood Polymers Ltd 1977 (47) CompCases 597 and that of the Calcutta High Court in Bengal Bank Ltd. Vs. Suresh Chakravartty and Others, . is no longer good law.

The Apex Court in Vodafone International Holdings BV (supra) in paras 68, 69 and 70 has, in terms, approved the judgment of the Apex Court in Union of India (UOI) and Another Vs. Azadi Bachao Andolan and Another, and, as such, the said issue is no longer res integra. It cannot be said, therefore, that the said Scheme is against the public policy.

It has been then contended that the present Scheme of amalgamation is unconscionable in nature as the interest of minority shareholders has been completely overlooked. It has been contended that balance sheets of Ekaterina Ltd., Vedanta Aluminium Ltd. and Sterlite Energy Ltd. do not exhibit any sort of a confidence that can be reposed in their financial status. It has been contended that if the Scheme is sanctioned then the Petitioner-Company would be saddled with enormous amount of debts concerning the transferor companies that would need to be serviced and which in turn would convert the Petitioner-Company into loss making concern and thus the interest of shareholders would be affected. It has been submitted that interest of the promoters was to somehow load the Petitioner-Company with the liabilities of the transferor companies such as Vedanta Aluminium Ltd. and Sterlite Energy Ltd. It has been contended that there was no rationale at all behind proposing the present Scheme of amalgamation by the Petitioner-Company.

On the other hand, Mr. Chagla, the learned Senior Counsel appearing on behalf of the Petitioner-Company submitted that there was no provision in the said Act which prevented amalgamation of profit making Company and loss making Company. It is open for majority shareholders to take a decision and the commercial wisdom of such decision is not open for scrutiny by the Court.

The Objector has invited my attention to the losses which are incurred by Vedanta Aluminium Ltd. It has also been urged that the position of Vedanta Aluminium Ltd. over a period of one year has deteriorated further and liabilities have been increased. It has also been contended that position of Sesa Goa Ltd. has deteriorated in the last one year since mining operations have been stopped in view of the orders passed by the Apex Court and since May 2012 mining operations have been stopped completely. In this context, financial position of all the Companies as per their audited accounts as of September, 2012 needs to be taken into consideration. It is submitted that from the said figures, it can be seen that, after amalgamation, position of the Petitioner-Company would dramatically increase even after absorbing the so-called loss making companies. It has to be remembered that when entrepreneurs take commercial decisions, it is not open for the Court to judge their commercial wisdom. Whenever entrepreneurs take a commercial decision, there is always an element of risk involved and businessmen take such calculated risk after taking into consideration various facts and circumstances and pros and cons of all situations. It has been consistently held that the Court is not expected to dissect and conduct a postmortem of such decisions which are based on business experience and commercial wisdom. The Court has to examine the Scheme on well settled parameters. The Court is expected to be an impartial umpire and is not expected to enter the arena and examine the Scheme under a microscope. Whenever decisions are taken there is bound to be some kind of variation in the situation in respect of functioning of both companies. This should not deter the Court from granting sanction to the Scheme. It has to be remembered that after advent of globalisation, it has become necessary for all companies all over the world to find out ways and means to survive in the market. The initial impact of globalisation was that large number of Indian Companies became bankrupt and had to be closed down. This was initially restricted to small-scale industries. However, soon, even the large companies were affected and they had to find out innovative means to survive in the global market. While taking decision, commercial wisdom of entrepreneurs on this post-globalisation scenario has also to be kept in mind and, as such, the need for amalgamation and consolidation of competing companies in one agglomeration sometimes becomes necessary, not for the purpose of creating monopoly but for the purpose of survival in the global market. In these circumstances, merely because one of the companies is a loss making company, that should not deter the Court from sanctioning the Scheme if the net result is going to increase the assets of the amalgamated company. In my view, the said objections cannot be accepted. Both these Petitions are allowed in terms of prayer clauses (a) and (b). However, Company Applications taken out therein by the Objector are dismissed.