Smt. Sujata V. Manohar J.
1. This is an application by the transferor-company for sanctioning the scheme of amalgamation with the Mahadevi Investment Co. Ltd. which is the transferee-company. The scheme of amalgamation is at Ex. A to the petition. The transferor-company is a large public limited company having an authorised capital of Rs. 2 crores and a paid up share capital of Rs. 98 Lakhs. It is, however, a very closely held company having only 12 shareholders, although it is a public limited company. The transferee-company is a small company with a paid-up capital of only Rs. 5 lakhs. It is a new company incorporated only in 1978. The shareholders of the transferor-company are also some of the shareholder in the transferee-company. The shares of the transferee-company are, however, distributed among a larger number of shareholders than the transferor-company. The transferee-company's shares are listed on the stock exchange while the transferor-company's shares are not so listed. Under the scheme of amalgamation, 7 shares of the transferee company will be issued for every 4 shares of the transferor-company. The scheme is somewhat unusual because a large and prosperous company is being merged with a small company recently started. What is more interesting, the scheme also provides that after the amalgamation takes place, the name of the transferee-company is to be changed to M/s. Piramal Spinning and Weaving Mills Ltd., which is the name of the transferor company. The scheme of amalgamation was put before the shareholders of both the companies and 100% of the shareholders of both companies have unanimously approved of the scheme of amalgamation.
2. Under s. 394A of the Companies Act, a notice was given to the Central Govt. of this application for amalgamation. Pursuant to the notice, the Regional Director of the Company Law Board, Bombay, has appeared before me. He has filed an affidavit pointed out that the reason set out in the petition for amalgamation are not convincing. Mr. Cooper who appears for the petitioners has frankly stated that the main advantage that the transferor-company would get by the amalgamation is the advantage of having its shares listed on the stock exchange.
3. The Regional Director has next pointed out that the shares of the transferor-company, according to him, have been undervalued for the purpose of determining how many shares of the transferee-company could be given to the shareholders of the transferor-company. According to the Regional Director the ratio of allotment should have been 1 : 2.5 instead of 1 : 1.75. The divergence of opinion in this connection has arisen mainly on account of a certain number of bonus shares which were issued by the transferor-company in the year 1978. Prior to the issue of these bonus shares, the share capital of the transferor-company consisted of 5,60,000 shares of Rs. 10 each. After the issue of bonus shares, the total number of shares became 9,80,000 of Rs. 10 each. According to the Regional Director of the Company Law Board, in order to determine the value of the shares of the transferor-company on the capitalization of yield basis, in each of the previous 5 years, the profits of each year after capitalization should have been divided by the number of shares in that year, because the number of shares has fluctuated over this period. This would give the value of the shares for that year. The average of these yearly values of shares would have given the proper value of the shares of the transferor-company. This method of arriving at the valuation of shares had been strongly disputed by the petitioners. They have relied upon a report of their auditors which is annexed at Ex. C to the affidavit in the rejoinder of Narendra Kumar Jain dated June 13, 1979, which is filed in Company Petition No. 86 of 1979 which is the companion petition of the transferee-company. The auditors have pointed out that the method of valuation adopted by the Regional Director of the Company Law Board violates fundamental principles of valuation of shares for various reasons which they have set out in their report. They have pointed out inter alia that the method of valuation adopted by the Regional Director has completely ignored the impact of reserves on the value of shares. Obviously when bonus shares are issued there is no increase in the capital investment of the company. This aspect is completely ignored in the method of valuation adopted by the Regional Director. Hence to adopt the method of valuation as suggested by the Regional Director would not give a proper valuation of the shares of the transferor-company. There is considerable force in the arguments advanced by the auditors. However, it is not possible for the court to examine to various methods of valuation which are available for valuing the shares of a company. The valuation of shares is a technical matter which requires considerable skill and expertise. There are bound to be differences of opinion as to what the correct value of the shares of any given company is. Simply because it is possible to value the shares in a manner different from the one which has been adopted in a given case, it cannot be said that the valuation which had been agreed upon is unfair. What is important in the present case is that all the shareholders of both the companies have unanimously accepted the valuation which had been arrived at by the auditors of the transferor and transferee companies. Under these circumstances, the application cannot be rejected on the ground that the valuation of shares is unfair to the shareholders of the transferor-company. In fact, none of the shareholders have complained of any such unfairness.
4. In this connection Mr. Cooper, who appears for the transferor-company, has drawn my attention to the case In re Grierson, Oldham & Adams Ltd.  1 Ch 17;  37 Comp Cas 357 . The learned judge in that case has pointed out that the question of valuation is obviously on about which opinions may differ. It is possible in case matters of fairness and unfairness. Unless the person who challenges the valuation satisfies the court that the valuation arrived at is grossly unfair, the court will not disturb the scheme of amalgamation which has been approved by the shareholders of the two companies. The English case dealt with the right of dissident shareholders to challenge the scheme of amalgamation. The observations apply with a greater force to a case where there are no dissident shareholders or where the shareholders have unanimously approved of the scheme of amalgamation. I see no reason why the court at the instance of the Regional Director of the Company Law Board should examine the question of fairness or unfairness of valuation. The main reason why a notice is given to the Regional Director under s. 394A is to ensure that the public interest is safeguarded when companies propound a scheme of amalgamation. Mr. Chinai, who appears for the Regional Director of the Company Law Board, had stated that there is nothing contrary to public interest in the scheme of amalgamation which is before me.
5. What is more important, if the contention of the Regional Director is correct, then the shares of the transferor-company have been undervalued. The transferor-company is a larger company having assets worth about Rs. 2 crores. Its share are very closely held by 12 shareholders only. There is a greater public participation in the shareholding of the transferee-company. It at all there is undervaluation, then, it is to say, the company which has a larger public participation, benefits by reason of this undervaluation, if any. Hence, undervaluation, if any, does not affect any public interest.
6. There are certain other objections which are taken by the Regional Director of the Company Law Board in connection with the valuation of the shares of the transferor-company. These deal with the exclusion of various figures pertaining to donations, contribution to scientific research, etc., in arriving at the valuation of the shares of the transferor-company. I have not examined this aspect of the matter in any detail because admittedly inclusion or exclusion of these figures make only a marginal difference to the valuation of shares. In my view, there is nothing contrary to public interest in the scheme of amalgamation which is presented before me.
7. The official liquidator had made a report under the provisions of s. 394(1) of the Companies Act, which goes to show that the affairs of the transferor-company have not been conducted in a manner prejudicial to the interest of its members or public interest.
8. Under the circumstances, there will be an order in terms of prayers (a), (b), (c), (d), (f), (g), (h) and (i). In prayer (h) the time fixed for delivering a copy of the order will be 30 days from the date of the sealing of the order. Registrar to consolidate the files immediately thereafter.
9. Petitioners to pay the costs of the Regional Director of the Company Law Board fixed at Rs. 300.