Judgment :- The Order of the Court was as follows : The scheme of amalgamation of M/s. Electronic Broking Services Limited, which has its Registered Office in the State of Maharashtra with M/s. Nods Worldwide Limited, which has its Registered Office in the State of Tamil Nadu, had been proposed by the respective Board of Directors. The scheme was considered in a meeting of the shareholders of the transferee-company/Nods Worldwide Ltd., which meeting was convened and held pursuant to the directions of this Court. That meeting was attended by 66 of 3000 shareholders of the transferee-company and the resolution approving the scheme was passed unanimously. The members who attended the meeting held 46.21% of the share capital of the company. Notice of this petition was duly advertised and notice also was served on the Central Government. No one has come forward to oppose the scheme in response to the publication of the notice in the newspapers. The Central Government, through its Regional Director, Department of Company Affairs, has brought to the notice of the Court the fact that the exchange ratio of 159 shares of the transferee-company for every single share of the transferor-company, is on the face of it, disproportionately high, as that would result in the allotment of 1, 60, 11, 300 shares of Rs. 10/- each of the transferee-company, with a face value of Rs. 16, 01, 13, 000/- and, therefore, this aspect of the scheme requires the consideration of the Court. On behalf of the Company, affidavits have been field along with the report given by the Valuer, a firm of Chartered Accountants of Mumbai, namely, Dalal and Shah, which sets out the basis on which the exchange ratio has been worked out. It must be mentioned at this stage that the transferor-company/Electronic Broking Services Ltd., has 20 members and it is in the business of creating multimarket platform using a Universal Auction Engine for trading stocks on the internet. The target market for the platform so created by the transferor-company includes all the stock exchanges in phases. The service that it is to provide would optimise both the channel and the content, which cannot be done conveniently by any alternative method.The basis and process of valuation has been set out by the Valuers in the report. The target market for the platform so created by the transferor-company includes all the stock exchanges in phases. The service that it is to provide would optimise both the channel and the content, which cannot be done conveniently by any alternative method.The basis and process of valuation has been set out by the Valuers in the report. They have stated that they have computed the valuation on different basis utilising the factors enumerated from items 1 to 8 in paragraph 6(b) of their report. The factors so enumerated include the profit trends and the cash flows of the companies, past and projected, asset base, the market price quotations of the shares where it is quoted, the expected comparative yield, the expected revenue generation through targeted markets, assuming normal tax liability at the marginal rate, and after determining the contingent liabilities based on the discussion with the managements of the two companies, and to the values so arrived at, weightage has been given on the basis of the break-up or net asset value method, the yield or earning capacity method, the market quotations method and the discounted cash flow method to the extent applicable. The valuation approach has been described by the Valuers, thus : "In Net based companies such as EBS it should be remembered that there is no time-tested metrics for evaluating such companies. Valuers are constantly trying to find real tools and real metrics to evaluate this entirely new way of doing business. With a traditional non-internet company the valuation metrics are in place. However, with internet campanies, which are at cross-roads in the evolution of industry, new ways of evaluating these companies by a new lexicon and new set of metrics are evolving. This is the reason why we Valuers have to rely upon, references for comparables and peers, revenues as much as earnings, relative discounting basis, growth potentials, enterprise value, cash flow multiples and other such measures, rather than just the age old primary methods of earning multiples and net assets."" Recent hard data reveals that values of a Net start up companies have risen dramatically and in some instances, projected returns have spiked the values of Net companies to peak levels. It was recently published that B2B companies are expected to hog the headlines and e-market and e-commerce is set to quadruple in the near future. It was recently published that B2B companies are expected to hog the headlines and e-market and e-commerce is set to quadruple in the near future. This unprecedented expectation of growth is what separates "Net Stocks" from the "Rest Stocks"." In view of this scenario and accepting the fact that it is not an easy task to value Internet stocks which have prices going through the roof since that is the way the Net Stock markets work in this regard, we have proceeded to evaluate EBS." " Since the earning potential of the ongoing business is considered to be prime importance, we have given a weightage of 2' to PECV basis of valuation and weightage of 1' to the assumed market basis of valuation. We have further compared the value so arrived with the valuation scenario resulting out of discounting free cash flows, and have considered that in the case of Net based companies, both these values become equally relevant. "Having regard to the fact that the transferor-company has created a multimarket platform using a Universal Auction Engine for use in the internet trading on-line, the size of the capital market, the extent of the business that is likely to be carried on through the net, and the market share that the merged company can expect to acquire, as also the profits it is expected to realise, the assumption made is that," On a conservative basis the present average daily transaction values (NSE + BSE) is Rs. 10000 crs. we have assumed a nominal 10% shift of traffic through net trading thus resulting in a transaction value of Rs. 1000 crores per day through the net. Our market is assumed at 25% of the total size of market. The Brokerage is reckoned at .01% at the pessimistic level which is increased to 0.015% and 0.020% at the Reality and Optimist level respectively. These assumptions hold for the first year.The rate of Brokerage has been kept constant for the year II and III and only the daily values have been increased by 50% and 75% respectively keeping year one as the base. "Though at the time the scheme was proposed, the capital base of the transferor-company was relatively small, the capital basis has since expanded. As on 30th June, 2000, the paid-up share capital of the transferor-company is Rs. 11, 39, 630/-. Its Reserves and Surplus is Rs. 1370, 07, 651/-. "Though at the time the scheme was proposed, the capital base of the transferor-company was relatively small, the capital basis has since expanded. As on 30th June, 2000, the paid-up share capital of the transferor-company is Rs. 11, 39, 630/-. Its Reserves and Surplus is Rs. 1370, 07, 651/-. It has investments of Rs. 450, 00, 000/-. Its cash and bank balances aggregate to Rs. 902, 94, 238/-. All these investments and cash and bank balances naturally will become part of the assets of the transferee-company on the merger taking effect. The Supreme Court, in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd., emphasised the complicated nature of that valuation process when the value has to be assigned to the shares of transferor-company for the purpose of allotment of shares in transferee-company. The Court observed interalia (para 39) :" So many imponderables enter the exercise of valuation of shares." " It must at once be stated that valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy." The valuation that has been proposed in the scheme is the value which is based upon an exercise carried out by persons having knowledge of the relevant methods of valuation, being professional Chartered Accountants. The methods adopted by them for arriving at the values have been set out in the report, relevant parts of which have already been extracted above. It is evident therefrom that the valuation arrived at was after due care and consideration, taking note of the fact that the company is an internet company, and that traditional methods of valuation do not provide adequate guidance for valuing the internet stocks, as it is largely based upon the future performance in a new medium. The factors taken note of are factors which have to be recognised and duly given effect to while evaluating the shares of an internet company. The factors taken note of are factors which have to be recognised and duly given effect to while evaluating the shares of an internet company. The guidance available for the valuation of shares of the companies with which the traditional business is familiar, namely, manufacturing concerns or trading concerns, does not always provide the answers for the valuation of stocks of internet business, as what is being valued there is not the value of the fixed assets possessed by it or the earnings per share at the time of the amalgamation, but the future potential of that company in terms of the new market which it may itself help to create, in the market share that it may gain, and the earnings that it may secure by reason of the extent of demand that it can hope to generate for the product put-out by it on the internet.The opinion given by the Valuers, therefore, must in the absence of any other compelling circumstance, be accepted as affording a reasonable and proper basis for the valuation of the shares and the number of shares in the capital of the transferee-company to be allotted to the shareholders of the transferor-company. The fact that the transferor-company now has assets of an order of Rs. 13 crores, is also a factor which needs to be taken note of. The point raised by the Regional Director regarding the apparent generosity in the matter of allotment of shares to the shareholders of the transferor-company, is therefore, in no way a vitiating circumstance, which would come in the way of sanction being accorded to the scheme. Moreover, the matters relating to the terms on which the two companies are to amalgamate are largely for the shareholders of the two companies to decide, so long as they make a full and true disclosure of all relevant facts to the Court and comply with every requirement of the law. Though the transferee-company has 3, 000 shareholders, despite the notice of the meeting specially convened after obtaining directions from the Court for considering the scheme, having been advertised and individual notices also having been given to the shareholders, only 66 shareholders chose to attend the meeting. While notice of the meeting can be given, shareholders cannot be compelled to attend the meeting. Attending or not attending is a matter of their individual volition. While notice of the meeting can be given, shareholders cannot be compelled to attend the meeting. Attending or not attending is a matter of their individual volition. Those who attended the meeting, controlled 46.21% of the paid-up capital of the transferee-company and were almost unanimous in according approval of the scheme. Requirement of Section 391 of the Companies Act regarding the need for a majority in number and the need for 75% of the value of the shares held by those attending the meeting, has therefore been satisfied.Even after the meeting was held, notice of this petition was duly advertised and that again has not elicited any objection from anyone to any of the provisions of the scheme. The inference can, therefore, be drawn that the shareholders of the transferee-company who did not attend the meeting do not have any objection to the allotment of the shares to the shareholders of the transferor-company in the ratio set out in the scheme. The scheme provides for transfer of all the assets and liabilities to the transferor-company, to the transferee-company, together with the services of the employees, without prejudice to the conditions of their service. The transferee-company has increased its authorised share capital to Rs. 25 crores, which was done on 6-4-2000. The Memorandum and Articles of Association of the company have also been suitably amended pursuant to the resolutions passed at the extraordinary general meeting of the shareholders held on that date. The necessary forms and also the fee for the increase of the share capital, as it is submitted by learned counsel at the bar have been paid to the Registrar. Therefore, the acts require to be performed by the transferee-company in terms of paragraph 10.1 of the scheme have already been performed. There is no objectionable feature in the scheme. The scheme of amalgamation is sanctioned. As the transferor-company is in the State of Maharashtra, it is not necessary to give any direction as regards the dissolution of that company.