Ratnamani Engineering Limited v. XYZ — 1998 DIGILAW 616 (GUJ)

JUDGMENT : M.B. Shah, J. Company Petition Nos. 17 and 18 of 1996 are filed by Ratnamani Engg. Ltd. (hereinafter the first transferor-company/REL') and Ratnamani Fine Tubes (P.) Ltd. (hereinafter 'the second transferor-company'/'RFTPL'), respectively, for their amalgamation with Ratnamani Metals & Tubes Ltd. (hereinafter 'the transferee-company/'RMTL') which has filed Company Petition No. 19 of 1996. 2. As per the orders in Company Application Nos. 237, 238 and 239 of 1995 passed by this court (Coram : S.D. Dave, J) on 4th December, 1995, the separate meetings of the shareholders, secured and unsecured creditors of all the three companies were held on 17th January, 1996 for the purpose of considering and if thought fit, approving, with or without modifications, the compromise or arrangement in the nature of amalgamation of the above named two transferor-companies with the transferee-company. The scheme of amalgamation was approved unanimously by the shareholders of the second transferor-company and of the transferee-company. The shareholders of the first transferor-company approved the scheme by an overwhelming majority to the extent of 99.61 per cent of the shareholding. The objections of four shareholders of the first transferor-company are referred to hereinafter. However, at the hearing of these petitions, the said shareholders have withdrawn their objections to the scheme of amalgamation as per the pursis signed by all of them and also by their learned advocate. The scheme of amalgamation was also approved by the secured creditors of the first transferor-company and of the second transferor-company. Similarly, the scheme was also unanimously approved by all the unsecured creditors of the first transferor-company as well as by all the unsecured creditors of the second transferor-company. The transferee-company has no creditor, secured or unsecured. 3. In response to the public notice, only one person, viz., Bhagyam international, a partnership firm claiming to be an unsecured creditor, had lodged its objection, but has withdrawn the same at the hearing of the petitions by a pursis to that effect. 4. The notice of hearing of each of the petitions was served on the Central Government and Mr. Jayant Patel, the learned standing counsel for the Central Government, has submitted that the Central Government has no objection and has produced a copy of the letter addressed by the Registrar of Companies to him stating that the Central Government has decided not to make any representation and the matter may be decided by this court. 5. Jayant Patel, the learned standing counsel for the Central Government, has submitted that the Central Government has no objection and has produced a copy of the letter addressed by the Registrar of Companies to him stating that the Central Government has decided not to make any representation and the matter may be decided by this court. 5. The notice of hearing of each of the two transferor-companies' petitions was also served on the official liquidator who appointed his chartered accountant to submit his reports. The official liquidator has filed his report of December 1996 in Company Petition No. 17 of 1996 alongwith a copy of the report dated 2nd May, 1996 of chartered accountant-Mr. Kaushik K Patel. Similarly, in Company Petition No. 18 of 1996, the official liquidator has filed his report dated 18th December, 1996 alongwith a copy of the report dated 2nd May, 1996 of chartered accountant-Mr. Kaushik K. Patel. The official liquidator, on the basis of the reports dated 2nd May, 1996 of chartered accountant-Mr. Kaushik K. Patel, has raised certain objections and submitted that the affairs of the first transferor-company have been conducted in a manner prejudicial to the public interest. Objections are also raised in respect of the affairs of the second transferor-company but the ultimate conclusion is that the affairs of the said company have not been conducted in a manner prejudicial to the public interest. 6. As far as the objections raised by the shareholders of the first transferor-company are concerned, since the same are already withdrawn as per the pursis dated 21st July, 1998, they are not required to be considered, especially because it is pointed out by the learned counsel for the first transferor-company that the said shareholders, four in number, had filed their objections because of some dispute pending between the abovenamed Bhagyam International and the first transferor-company as to the amount of commission payable to the said Bhagyam International for the services rendered by it. Since the matter has been resolved amicably amongst the parties, those shareholders have withdrawn all their objections. Consequently, as on the date of hearing of these petitions, no creditors or shareholders of any of the companies have raised any objection to the proposed scheme of amalgamation. 7. Since the matter has been resolved amicably amongst the parties, those shareholders have withdrawn all their objections. Consequently, as on the date of hearing of these petitions, no creditors or shareholders of any of the companies have raised any objection to the proposed scheme of amalgamation. 7. However, since the objections raised by the official liquidator on the basis of the report of the chartered accountant still subsist, it is necessary to deal with the same at some length. REL (First transferor-company) 8. In respect of the first transferor-company, the observations made by the chartered accountant and the reply through the affidavit filed by Mr. Prakash Sanghvi, chairman of REL on different issues and the court's observations/findings thereon are as under : Issue No. 1 - Availability of report of internal auditor. Reply - There, is no adverse comment made by the chartered accountant or the official liquidator. Issue No. 2 - The company has availed more tax deferment than sanctioned amount to the tune of Rs. 2.33 lakh. Reply - The company had made the payment of above amount vide challan No. 33 dated 17th May, 1995. Hence, there is no question of excess availment of sales-tax deferment loan. The Industries Commissioner has also directed Sales-tax Department to grant further sales-tax deferment loan of Rs. 50 lakh with effect from June 1994, the copy of the letter enclosed herewith. Hence, the company is not in default. In view of the aforesaid payment on 17th May, 1995, the objection raised by the chartered accountant prima facie would not survive. It is, however, open to the Sales-tax Department to look into any such issue in appropriate proceedings. The present order shall not prejudice the claim of the Sales-tax Department against the REL. Issue No. 3 - The books of account for the year 1990-91 are not presented for the verification. Reply - On page 6 para 8(1) of this report, it has been confirmed that books for the year 1990-91 have been made available. In view of the above reply, the objection does not survive. Issue No. 4 - Huge cash balance not commensurate with the requirements are being maintained. Reply - Considering the fact that the turnover of the company is in the sum exceeding Rs. 6.5 crore and the net profit of the company exceeds Rs. In view of the above reply, the objection does not survive. Issue No. 4 - Huge cash balance not commensurate with the requirements are being maintained. Reply - Considering the fact that the turnover of the company is in the sum exceeding Rs. 6.5 crore and the net profit of the company exceeds Rs. 20 lakh for the relevant period, cash balance between 3 lakh and 5.34 lakh could not be regarded as unreasonable. In any case, such conduct is not prejudicial to the interest of the company. The objection is not that the cash was unaccounted but that the cash balance was huge and not commensurate with the requirements. As to how much cash balance can be said to be commensurate with the requirements of a particular business is an aspect which may be required to be considered by the appropriate revenue authorities such as the Income-tax Department or the Sales-tax Department. In the facts and circumstances of the present case, it may only be said that looking to the fact that the cash was not unaccounted, the court would not consider this objection as fatal to the transferor-company's prayer for sanctioning the scheme of amalgamation with the transferee-company. It is again clarified that any finding or direction in this order shall not come in the way of the appropriate revenue authorities looking into the aforesaid aspect and taking appropriate action in accordance with law for which the transferee-company shall remain accountable. Issue No. 5 - For unsecured loans/deposits taken from the group company and others and given to the other companies, necessary papers, documents, formalities like resolution, etc., are not presented for verification. Reply - Unsecured loans/deposits were taken in the ordinary course of business. The same did not require execution of any formal document. More so, when the persons giving loans/deposits did not insist for the same. The objections do not disclose the quantum of the deposits/loans. In the facts and circumstances of the case, the objection cannot be treated so substantial as to warrant rejection of the scheme of amalgamation. This observation shall not, however, prejudice the liability of the transferor-company for breach of any statutory provisions for which ultimately the transferee-company shall be liable. Issue No. 6 - In the year 1994-95 more interest rate is given to group companies as compared to the others. Reply - The allegations are without any basis or substance. This observation shall not, however, prejudice the liability of the transferor-company for breach of any statutory provisions for which ultimately the transferee-company shall be liable. Issue No. 6 - In the year 1994-95 more interest rate is given to group companies as compared to the others. Reply - The allegations are without any basis or substance. The rate of interest is not static figure and it depends upon the market forces of demand and supply. In any case, rate of interest at the rate of 21 per cent per annum cannot be regarded as unreasonable or excessive. Looking to the nature of objections, the same cannot be allowed to override the company's scheme for amalgamation. It would again be without prejudice to the liability, if any, of the transferor-company which shall stand transferred to the transferee-company upon amalgamation. Issue No. 7 - The company has not charged/under-charged the interest to the tune of Rs. 4,03,375. Reply - For the period 1992-95 the sum of Rs. 4,03,375 has been worked out towards non-charging/under-charging, the interest is because of various business considerations. Looking to the turnover of the company and the amount of interest involved, the objection is not such as to warrant rejection of the prayer for amalgamation. Issue No. 8 - The group company, viz., Ratnamani Finance & Investment (P.) Ltd. has been paid more interest of Rs. 47,257 due to calculation mistake for the year 1994-95. Reply - There is no calculation mistake and interest has been rightly calculated. The point of difference is that whereas the petitioner has calculated interest from the date on which the cheque was released by the lender, the chartered accountant has calculated interest from the date on which the funds have been credited to the account of the petitioner. According to the petitioner, interest is payable from the date on which funds are released by the lender and, therefore, there is no excess payment. In view of the explanation given by the company, the objection does not survive. Issue No. 9 - The fixed assets register is not maintained. Reply - This is factually incorrect. The petitioner has maintained fixed assets register and the same was produced before the chartered accountant. This fact is being also reported by statutory auditors. In view of the above reply, the objection would not survive. Issue No. 9 - The fixed assets register is not maintained. Reply - This is factually incorrect. The petitioner has maintained fixed assets register and the same was produced before the chartered accountant. This fact is being also reported by statutory auditors. In view of the above reply, the objection would not survive. Issue No. 10 - The company entered capital market with the public issue of equity shares of Rs. 10 each at a premium of Rs. 5 per share on 18th April, 1994. However, fair market price of the shares as per the erstwhile CCI formula is not calculated correctly, to that extent the prospectus is not guiding the investing public properly. Reply - It may be stated that in the year 1994 when the public issue was made as per the guidelines of the Securities and Exchange Board of India (hereinafter 'the SEBI'), it was open to the petitioner to charge any premium of its choice. There was no law, rule or regulation prohibiting a company like the petitioner from charging premium of its choice. This issue, therefore, is wholly irrelevant. According to the petitioner, it was justified in maintaining the books of account in the matter in which it has maintained. Therefore, justification of premium was rightly made. This issue is required to be discussed at some length. Hence, it is dealt with hereinafter. Issue No. 11 - Consent letter of the secured creditors is not given to the chartered accountant. Reply - On page 8 para 10 of the official liquidator's report, it has been confirmed that the consent letter of the secured creditors has been submitted. In view of the above reply, the objection does not survive. Issue No. 12 - Fixation of exchange ratio. Reply - Exchange ratio has been worked out by C. C. Choksi & Co., a leading chartered accountant. Their report is on pages 341 to 367 of Company Petition No. 17 of 1996 and their further comments are on pages 384 to 393 of the said proceedings. Issue No. 12 - Fixation of exchange ratio. Reply - Exchange ratio has been worked out by C. C. Choksi & Co., a leading chartered accountant. Their report is on pages 341 to 367 of Company Petition No. 17 of 1996 and their further comments are on pages 384 to 393 of the said proceedings. In view of the fact that the exchange ratio has been worked out by C.C. Choksi & Co., a leading and reputed firm of chartered accountants and in view of the decision of the hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., [1996] 23 CLA 1/[1997] 87 Comp Cas 792 it would appear that the role of the statutory authorities or of this court in examining this question would be very limited. This issue is discussed in detail hereinafter alongwith the same issue in respect of the second transferor-company. Issue No. 13 - Under-utilisation of the capacity. Reply - Under-utilisation of the capacity of the company cannot lead in any way to a conclusion that the affairs of the company have been conducted in a manner prejudicial to the interests of the company. For various commercial reasons, capacity cannot be utilised. It may be important to note that the petitioner-company itself has started commercial production in its saw pipe division in the year 1994. In the initial years, there is bound to be under-utilisation of the capacity. The fact that actual utilisation of the capacity was lower than the projected one only shows that there were technical and commercial problems in reaching the projected figure. Under-utilisation of the company may at the highest indicate inefficiency of the company, unless there are any allegations about unaccounted production. Since there is no such allegation, the inquiry is not required to be pursued any further. Issue No. 14 - Profit on inter-departmental transfer. Reply - The petitioner submits that the method of accounting adopted by the petitioner is the correct method. The petitioner has two independent divisions. Saw pipe division and equipment division. The equipment division has rendered certain technical services to saw pipe division. The mere fact that two divisions belong to one company cannot mean that two divisions should not charge inter se. This becomes obvious because if the saw pipe division were to take services from an outsider, it would have charged appropriate amount from the outsider. The equipment division has rendered certain technical services to saw pipe division. The mere fact that two divisions belong to one company cannot mean that two divisions should not charge inter se. This becomes obvious because if the saw pipe division were to take services from an outsider, it would have charged appropriate amount from the outsider. In order to show a relative profitability of the two departments, it is must to make necessary accounting entries. The nature of service rendered by the equipment division was in its normal course of business and, therefore, amount of Rs. 65 lakh charged was taken to profit and loss account. If at all the objection is tenable, it would be for the Income-tax Department and/or the Sales-tax Department to look into this aspect. Hence, sanction of the scheme for amalgamation would not come in the way of the concerned authority looking into this aspect and the liability, if any, of this transferor-company would obviously be fastened upon the transferee-company. Issue No. 15 - Pending litigation for payment of dividend in transferor-company and issue of bonus shares excluding the shareholder of the transferor-company. Reply - Pending litigation for the payment of dividend does not have bearing on the present amalgamation. It is further submitted that as the exchange ratio certificate prepared by C.C. Choksi & Co., chartered accountants, takes into consideration issuance of bonus shares post-appointed date, no adjustment is called for on account of issuance of bonus shares. Section 81 of the Companies Act, 1956 (hereinafter 'the Act') has no bearing and hence, there is no breach thereof. Since all the shareholders of the two transferor-companies as well as the transferee-company have considered the scheme and there is no objection from any of the shareholders or any of the creditors and in view of the discussion in para 11 hereinafter, the objection is not sustained. RFTPL (Second transferor-company) 9. As far as Company Petition No. 18 of 1996 (RFTPL.) is concerned, the objections raised by the chartered accountant, as reflected in the official liquidator's report, and the reply of the company thereto and the court's observations/findings on the respective objections are as under : Issue No. 1 - The company have availed more sales-tax deferment loan by Rs. 18,000. Reply - The company was sanctioned sales-tax deferment loan of Rs. 6,59,780. 18,000. Reply - The company was sanctioned sales-tax deferment loan of Rs. 6,59,780. Company availed this loan as under : 31st March, 1994 3,66,948.08 31st October, 1994 5,09,842.08 30th April, 1994 3,81,746.08 30th November, 1994 5,39,974.08 31st May, 1994 13540.08 31st December, 1994 5,67,687.08 30th June, 1994 4,16,819.08 31st January, 1995 5,92,362.08 31st July, 1994 4,30,019.08 28th February, 1995 6,04,487.08 31st August, 1994 4,73,551.08 31st March, 1995 6,77,814.08 30th September 1994 4,76,489.08 The company was granted the loan on ad hoc basis and company applied for the final approval of sales-tax loan. Hence, the company did not pay the excess collection. The company is likely to get the additional sales-tax loan of Rs. 12 lakh approximately. Further, looking to the company's sales, profit and net worth the excess collected amount is insignificant. Looking to the reply, it appears that it would be a dispute between the Sales-tax Department and the second transferor-company. Therefore, the sanction of the scheme for amalgamation would not wipe out the liability, if any, because upon amalgamation the liability of the second transferor-company is to be taken over by the transferee-company. Issue No. 2 - The company has availed more subsidy than sanctioned amount of Rs. 5.79 lakh. Reply - The petitioner-company has not availed of any excess subsidy. It is not conceivable to think that the Government would release subsidy greater than what a party would be entitled to. The petitioner was entitled to two different subsidies. One sanction letter was readily available and, therefore, the same was produced and the second sanction letter could not be produced as it was not immediately traceable. Here again, if at all there is any substance in this objection, it would be for the Industries Department of the State Government to look into the matter and the amalgamation would not dilute the liability, if any, which would be fastened upon the transferee-company upon amalgamation. Issue No. 3 - The books of account for the years 1990-91 and 1991-92 are not presented for the verification. Reply - The same has been presented for verification as confirmed on page 5 para 7(1) of their report. In view of the above reply, the objection does not survive. Issue No. 4 - For unsecured loans/deposits taken from the group company and other necessary papers, documents, formalities, like resolutions, etc., are not presented for verification. Reply - The same has been presented for verification as confirmed on page 5 para 7(1) of their report. In view of the above reply, the objection does not survive. Issue No. 4 - For unsecured loans/deposits taken from the group company and other necessary papers, documents, formalities, like resolutions, etc., are not presented for verification. Also the acceptance of loans has not been reported in the statutory report as per the requirement of the Act. Reply - Unsecured loans/deposits were taken in the ordinary course of business. The same did not require execution of any formal document. More so, when the persons giving loans/deposits did not insist for the same. The objections do not disclose the quantum of the deposits/loans. In the facts and circumstances of the case, the objection cannot be treated so substantial as to warrant rejection of the scheme of amalgamation. This observation shall not, however, prejudice the liability of the transferor-company for breach of any statutory provisions, for which ultimately the transferee-company shall be liable. Issue No. 5 - In the year 1994-95 more interest rate is given to group company as compared to the others. Reply - The allegations are without any basis or substance. The rate of interest is not static figure and it depends upon the market forces of demand and supply. In any case, rate of interest at the rate of 21 per cent per annum cannot be regarded as unreasonable or excessive. Looking to the nature of the objection, the same cannot be allowed to override the company's scheme for amalgamation. It would again be without prejudice to the liability of this transferor-company, which shall stand transferred to the transferee-company upon amalgamation. Issue No. 6 - The fixed assets register is not maintained. Reply - This is factually incorrect. The petitioner has been maintaining fixed assets register and the same was produced before the chartered accountant. This fact is being also reported by statutory auditors. In view of the above reply, the objection does not survive. Issue No. 7 - The consent letter of the secured creditors are not given to the chartered accountant. Reply - Secured creditors have granted the consent and copy of the same has been produced by the official liquidator. In view of the reply, the objection does not survive. Issue No. 8 - Fixation of exchange ratio. Issue No. 7 - The consent letter of the secured creditors are not given to the chartered accountant. Reply - Secured creditors have granted the consent and copy of the same has been produced by the official liquidator. In view of the reply, the objection does not survive. Issue No. 8 - Fixation of exchange ratio. Reply - Exchange ratio has been worked out by C. C. Choksi & Co., a leading chartered accountant. Their report is on pages 341 to 367 of Company Petition No. 17 of 1996 and their further comments are on pages 384 to 393 of the said proceedings. In view of the fact that the exchange ratio has been worked out by C. C. Choksi & Co., a leading and reputed firm of chartered accountants and in view of the decision of the hon'ble Supreme Court in the case of Miheer H. Mafatlal (supra), it would appear that the role of the statutory authorities or of this court in examining this question would be very limited. This issue is discussed in detail hereinafter alongwith the same issue in respect of the first transferor-company. Issue No. 9 - There is a heavy under-utilisation of installed capacity of saw pipe division of the company. Reply - Firstly, there is no saw pipe division in this company. Therefore, there is a factual error on the part of the official liquidator. In the initial period, there is bound to be under-utilisation of capacity for various commercial reasons. Under-utilisation of the company would at the highest indicate inefficiency of the company, unless there are any allegation about unaccounted production. Since there is no such allegation, the enquiry is not required to be pursued. Objection regarding statements in prospectus for public issue of REL. 10. The objection pertains to the premium of Rs. 5 charged by the first transferor-company. This objection is raised by the official liquidator, on the basis of the report of Mr. Kaushik K. Patel, on the ground that the prospectus did not correctly mention the value of the assets of the company as per the erstwhile CCI formula so as to enable the investors to make a reasonable judgment of the value of the equity shares of the REL by the investing public. Kaushik K. Patel, on the ground that the prospectus did not correctly mention the value of the assets of the company as per the erstwhile CCI formula so as to enable the investors to make a reasonable judgment of the value of the equity shares of the REL by the investing public. The case against the REL is that it resorted to window dressing of its accounts to inflate the profits by including the inter-department service charges of Rs. 40 lakh in the accounts for the period upto 30th September, 1993 alongwith the other entry of Rs. 25 passed after 30th September, 1993. After coming out with the public issue in April 1994, however, in its income-tax returns for the relevant assessment year 1994-95, the REL excluded the inter-department service charge of Rs. 65 from the income on the following contentions : (a) This being Inter-Department entries and as such there being no realisation, is not at all the real income, of the assessee. (b) No person can realise profit from himself. 10.1. While arriving at the fair value of the share as per erstwhile CCI formula, if the company had complied with the CCI guidelines against window dressing of the accounts and against showing reserves not credited out of the genuine profits or out of cash, the fair value of the equity shares of the company would have been - Rs. 7.06 (considering only the fact value of the fresh capital issue) Rs. 8.79 (considering the issue price of the fresh capital issue). 10.2. The detailed calculation of the same can be found in annexures A and B, respectively, to the report of Mr. Kaushik Patel as against Rs. 13.25 as disclosed by the company in the prospectus. To that extent, it can be said that the prospectus is not guiding the investing public properly. 11. Prima facie, the company does not seem to have attempted to give reply to the aforesaid specific objection and has contended that it was open to the petitioner to charge any premium of its choice as there was no law, rule or regulation prohibiting the company from charging premium of its choice. Its case before the chartered accountant-Mr. Kaushik K. Patel was also that the prospectus did refer to the inter-departmental service charges. 12. While appreciating that the objection raised by chartered accountant-Mr. Its case before the chartered accountant-Mr. Kaushik K. Patel was also that the prospectus did refer to the inter-departmental service charges. 12. While appreciating that the objection raised by chartered accountant-Mr. Kaushik K. Patel cannot be said, be irrelevant or unfounded, especially in view of the low level of financial awareness of general investing public, and without shutting the door against any inquiry by the SEBI in this regard, it is only on account of the following redeeming features that the court would not go to the length of holding that the affairs of the first transferor-company were conducted in a manner prejudicial to the interest of its members or public interest : 12.1 The promoters were issued the equity shares in October 1992 at the premium of Rs. 4 per equity share and subsequently, at the time of public issue, the promoters had also subscribed at the premium of Rs. 5 per share. 12.2. C. C. Choksi & Co. have mentioned in para 17.2 of their report that in the Bombay Stock Exchange, where the equity shares of REL were regularly traded, though not in high quantum, the market quotations of REL fluctuated between a high of Rs. 65 and a low of Rs. 22.50 during the period between July 1994 to March 1995. It went down to Rs. 15.62 in June 1995, but it started looking up from July 1995 presumably after it was conveyed to the shareholders that it was considered to merge all the group companies in a single entity and, therefore, the price went up to Rs. 18.50 and then hovered around Rs. 17 in August/September 1995 and came down to Rs. 15 in October 1995. The market price of the share at the stock exchange, therefore, did not go below Rs. 15 for at least a year and a half after the public issue, but remained higher than the premium charged for a considerable period. 13. It is necessary to say a few words on the issue of exchange ratio in respect of which the chartered accountant has raised his objection. The exchange ratio is provided in para 10(f)(A) of the scheme in the following proportion : (i) One fully paid-up equity share of Rs. 10 each of the transferee-company (RMTL) shall be issued for every three fully paid-up equity shares of Rs. The exchange ratio is provided in para 10(f)(A) of the scheme in the following proportion : (i) One fully paid-up equity share of Rs. 10 each of the transferee-company (RMTL) shall be issued for every three fully paid-up equity shares of Rs. 10 each held by the members of the first transferor-company (REL) .... (ii) Six fully paid-up equity shares of Rs. 10 each of the transferee shall be issued for every one fully paid-up equity share of Rs. 100 each held by the members of the second transferor-company (RFTPL) ... The new equity shares of the transferee-company to be allotted to the members of the transferor-companies shall rank for dividend, voting rights and in all other respect pari passu with the existing equity shares of the transferee-company. However, it is clarified that the shareholders of both the transferor-companies shall not be entitled to the issue of bonus shares to be issued by RMTL in the month of December 1995 pursuant to the resolution passed by its shareholders in the annual general meeting held on 20th September, 1995." 13.1 The objection raised by the official liquidator on the basis of the report of Mr. Kaushik K. Patel is that though the effective date of amalgamation is 1st April, 1995, the shareholders of the transferor-companies (REL and RFTPL) will not be entitled for the bonus shares issued by the transferee-company, as per resolution dated 20th September, 1995 in the ratio of one equity share for two equity shares held. The company's reply to the above objection is that the exchange ratio is worked out as per the report of C. Choksi & Co., a leading and reputed firm of chartered accountants. It is, therefore, necessary to refer to the value of the shares of the transferor-companies and the transferee-company under different method as computed by C. C. Choksi & Co. in their report dated 16th November, 1995 : Value per share of As on 31st March 1995 Rs. 100 Rs. 10 RFTPL REL RMTL (a) Net asset value on the basis of book value 186 15 41 (b) Net asset value after considering the market value fixed assets 353 16 137 (c) Earning capacity method (yield method) previous three years 132 6 79 (d) Yield method on the basis of projected profit after tax 820 13 13 Recommended exchange ratio, 3 shares in REL ( Rs. 10 each) = 1 share in RMTL of Rs. 10 each 1 share in RFTPL ( Rs. 100 each) = 6 shares in RMTL of Rs. 10 each. 13.2 C. C. Choksi & Co. also noted in their report that the average market value of the shares in the Bombay Stock Exchange, where the shares of the REL and RMTL were mainly traded, though at low quantum, were as under : Rs. per of REL Rs. per of RMTL Face value 10,00 10 August , 1995 17.25 56.5 September , 1995 17.37 61.5 October , 1995 15.17 59.5 Moreover, C.C. Choksi & Co. themselves noted in their report that the shareholders of RFTPL and the REL will not be entitled to the bonus shares issued by RMTL by virtue of a resolution passed by the shareholders of the RMTL 20th September, 1995. 14. Mr. Kaushik K. Patel has further raised some objection about the valuation of the fixed assets which the reply of the petitioners is that the assets of the company were got valued by a Government approved valuer. 15. Regarding this objection, it is required to be noted that even as per the rejoinder dated 25th October, 1996 of Mr. Kaushik K Patel, the difference in the value of the fixed assets of all the three companies as considered by C. C. Choksi & Co. and as reported by the valuer Dixit Consultants was as under : Sl. No. Name of the company ( Rs. in lakh) Value as per (C.C. Choksi and Co. Value as per Dixit Consultants ( Rs. in lakh) Difference ( Rs. in lakh) ( Rs. in lakh) ( Rs. in lakh) 1 RMTL 4000 4168.16 168.16 2 REL 820 835 15.63 3 RFTPL 80 81.2 1.2 15.1 It appears to the court from the aforesaid figures that while there is some variation between the valuations, the variation is not so substantial as to knock the bottom out of the exchange ratio fixed under the scheme. 16. The real question which arises for consideration of the court is whether the court is required to go into the merits of the objection raised by the official liquidator against the exchange ratio. As already stated above, almost all the shareholders and all the creditors of all three companies have to approve the scheme of amalgamation. 16. The real question which arises for consideration of the court is whether the court is required to go into the merits of the objection raised by the official liquidator against the exchange ratio. As already stated above, almost all the shareholders and all the creditors of all three companies have to approve the scheme of amalgamation. In the case of Employees Union v. Hindustan Lever Ltd., AIR 1995 SC 470 the Supreme Court has laid down eight broad parameters for granting sanction under sections 391 and 394 of the Act. Most of the parameters provide for compliance with the requisite statutory procedures including approval by the requisite majority of the members and creditors of the companies in question and also for ensuring that the members and creditors act bona fide and are not coercing the minority. Parameter No. 5 requires that the requisite material contemplated by the proviso to section 391(2) should be placed before the court to the satisfaction of the court. Parameter No. 6 is formulated as under : "That the proposed scheme of compromise and arrangement is not found to be violative of any provisions 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 judicially X-ray the same." 16.1 After laying down the aforesaid broad parameters, the Apex Court laid down the following principle : "Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground, as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." 16.2. The hon'ble Supreme Court has further amplified the above principle in the case of Miheer H. Mafatlal (supra) as under : "... 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." 16.2. The hon'ble Supreme Court has further amplified the above principle in the case of Miheer H. Mafatlal (supra) as under : "... It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the court .... The court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently, the company court's jurisdiction to that extent is peripheral and supervisory and not appellate. The court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire ..." 16.3 In view of the aforesaid settled legal position, the merits of the objections raised by the chartered accountant and reflected in the official liquidator's reports about exchange ratio are not required to be gone into, more particularly when the exchange ratio has been worked out by a leading and reputed firm of chartered accountants C. C. Choksi & Co., and they have given the justification for the same which cannot be said to be such as no reasonable person would have arrived at. General discussion and clarifications 17. The scheme has detailed the benefits which it will bring to all the three companies under the same management group on account of amalgamation of the three companies including the minimisation of administration, marketing and operative costs which would increase the profitability of the company and which would also result into economies of scale and integrated operations, resulting in efficiencies in production and marketing and also result into neutralisation of cyclical adverse fluctuations to any segment of business by a better condition for any other segment of the business. Almost all the shareholders as well as all the creditors of the three companies have approved the scheme of amalgamation and there is no objection from any of the shareholders or any of the creditors to the scheme of amalgamation despite advertisement of the public notices of these petitions in two daily newspapers, viz., Times of India and Gujarat Samachar, which have the largest circulation in the state. The objections raised by chartered accountant-Mr. Kaushik K. Patel have already been considered hereinabove. There is no reason for disapproving the scheme of amalgamation on account of those objections. The scheme of amalgamation does not appear to be contrary to law or contrary to public interest. Hence, there does not appear to be any impediment to granting sanction to the scheme of amalgamation as proposed at annexure C in each of these petitions. 18. The court would also like to make clear that some of the objections raised by chartered accountant-Mr. Kaushik K. Patel pertain to matters in respect of which no inquiry or proceedings are reported to have been initiated nor any adverse finding appears to have been given by any statutory authority so far, but which can be looked into by the various statutory authorities including SEBI and the authorities under the Income-tax Act, 1961, and the Sales-tax Act. By passing this order, the court has not shut out any inquiry or any proceedings under the relevant statute(s). The court has examined those aspects only from the limited angle as to whether the objections are such that the scheme of amalgamation of the two transferor-companies with the transferee-company is required to be disapproved by giving a finding that the affairs of the transferor-companies have not been conducted in a manner prejudicial to its members or to public interest. The court has found that the objections are not such as to warrant disapproval of the scheme of amalgamation. 19. In response to a query from the court, Mr. The court has found that the objections are not such as to warrant disapproval of the scheme of amalgamation. 19. In response to a query from the court, Mr. Soparkar, the learned counsel for the transferee-company, has made it clear that all the existing employees of both the transferor-companies are going to be absorbed in the service of the transferee-company and that, therefore, upon amalgamation, the transferee-company will have not only the record of the transferor-companies, but also the officers and employees conversant with the affairs of both the transferor-companies and, therefore, if any of the statutory authorities have any doubt on any of the affairs of either or both the transferor-companies, even after amalgamation the transferee-company would be in a position to attend to all the queries which may be raised or inquiry which may be initiated by any such authority. Hence, any inquiry or investigation which may be pending or initiated against any of the transferor-companies will not be prejudiced by amalgamation of the transferor-companies with the transferee-company. 20. In view of the above discussion, the scheme of amalgamation at annexure C to each of Company Petition Nos. 17, 18 and 19 of 1996 is hereby sanctioned so as to be binding on all the equity shareholders of all the three companies and also on all the secured and unsecured creditors of the three companies. It is accordingly ordered that the entire undertakings and all the properties ' rights and powers of both the transferor-companies be transferred to and vest in the transferee-company pursuant to section 394(2), subject to all charges affecting the same and that all the debts, liabilities, dues and obligations of the transferor-companies be transferred to and become the debts, liabilities, dues and obligations of the transferee-company with effect from 1st April, 1995. All the proceedings pending by or against the transferor-companies shall be continued by or against the transferee-company. 21. The present order of amalgamation will not absolve any of the transferor-companies or its directors or employees from the liability, if any, for breach of any law which might have been committed before this order of amalgamation nor will this order absolve the transferee-company from the liability to pay stamp duty in accordance with law. 22. 21. The present order of amalgamation will not absolve any of the transferor-companies or its directors or employees from the liability, if any, for breach of any law which might have been committed before this order of amalgamation nor will this order absolve the transferee-company from the liability to pay stamp duty in accordance with law. 22. A certified copy of this order shall be delivered to the Registrar of Companies within 30 days from the date of this order by each of the two transferor-companies and on such copy being so delivered, the transferor-companies shall stand dissolved and the Registrar of Companies shall place all documents relating to the transferor-companies and registered with him' on the file kept by him in relation to the transferee-company and the files relating to the said three companies shall be consolidated accordingly. 23. Liberty to apply to any person interested for directions in the matter, if necessary. 24. The fees of Mr. Jayant Patel, the learned standing counsel for the Central Government, are quantified at Rs. 2,500 in each of these company petitions and the same shall be paid by the transferee-company within two weeks from today. 25. These three petitions are accordingly allowed in the aforesaid terms.