Research › Search › Judgment

Gujarat High Court · body

2005 DIGILAW 310 (GUJ)

ADANI PORT LTD. v. STATE

2005-04-21

K.A.PUJ

body2005
K. A. PUJ, J. ( 1 ) THESE two petitions are filed by the two petitioner Companies for sanction of scheme of amalgamation of Adani Port Limited (the Transferor Company) with Gujarat Adani Port Limited (the Transferee Company) under Section 391 read with section 394 of the Companies Act, 1956. ( 2 ) THE Transferor Company, namely, Adani Port Limited is a public limited Company promoted by Adani group. The prime activities of the Company involves the development of Port Back up facilities in terms of storages and cargo handling equipments for the dry bulk and liquid bulk cargo at the Mundra Port. It has been granted the terminal operating rights with respect to the multi-purpose terminal by Gujarat Adani Port Limited, the Transferee Company. The Transferee Company was promoted as a Joint Sector Company by Govt. of Gujarat and Adani Group. The Company was promoted to undertake the development of Mundra Port located at Navinal island, near village Mundra in the Kutch District pursuant to the Concession Agreement executed between GAPL, Govt. of Gujarat and Gujarat Maritime Board on 17. 02. 2001. ( 3 ) SINCE both the Transferor and the Transferee Companies belong to the same management group and both of them are in the similar line of business, the Board of Directors of these two Companies thought it fit to restructure them through amalgamation for achieving synergic advantages. It was thought fit to combine all the operations under one Company. This would make the administration easy and cost effective. The duplication of the administrative and operative efforts will be eliminated resulting in the saving of the costs. The amalgamation would help to make the management control systems more efficient and effective. The amalgamated Company would be in a position to maximise its profits through optimum utilisation of its resources and minimising the administrative and operative costs. Thus, the amalgamation would be to the mutual advantage of the shareholders and Creditors of both the Transferor and Transferee Company. The amalgamation would help to make the management control systems more efficient and effective. The amalgamated Company would be in a position to maximise its profits through optimum utilisation of its resources and minimising the administrative and operative costs. Thus, the amalgamation would be to the mutual advantage of the shareholders and Creditors of both the Transferor and Transferee Company. Accordingly, the Board of Directors of both the Companies have resolved that subject to such approvals of the shareholders and subject to such sanctions and directions of the Court and subject to such consents and permissions of the Central Government and other authorities as may be necessary, the Scheme of Amalgamation be made between the Transferor Company and the Transferee Company on the broad basis referred to in the Scheme of Amalgamation which is annexed and marked as Exh. C to both the petitions. ( 4 ) SEPARATE meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Transferor Company and the Equity Shareholders of the Transferee Company were directed to be convened and called for considering the scheme and if thought fit, approving the same with or without modifications. The Equity Shareholders, Secured Creditors and Unsecured Creditors of the Transferor Company have unanimously approved the Scheme in the meeting convened on 26. 11. 2003 for the purpose as per the directions issued vide order dated 17. 10. 2003. The meeting of the Equity Shareholders of the Transferee Company was adjourned number of times at the request of the shareholders and was finally convened on 09. 01. 2004. At the said meeting, the proposed scheme was approved by requisite statutory majority of 95. 45% in number and 89. 00% in value. ( 5 ) AFTER the petitions were admitted, the same were duly advertised in the Newspapers (Indian Express and Loksatta-Jansatta - Ahmedabad edition dtd. 14. 02. 2004) and the publication in the Government Gazette was dispensed with as directed in the order dated 04. 02. 2004. Notice of the petition of the Transferor Company was served upon the Official Liquidator attached to this Court. The report dated 11. 03. 2004 was filed by the Official Liquidator confirming that the affairs of the Company have not been conducted in a manner prejudicial to the interest of their members or to the public interest. 02. 2004. Notice of the petition of the Transferor Company was served upon the Official Liquidator attached to this Court. The report dated 11. 03. 2004 was filed by the Official Liquidator confirming that the affairs of the Company have not been conducted in a manner prejudicial to the interest of their members or to the public interest. ( 6 ) NOTICE of the petition has been served upon the Central Government and Shri Jitendra Malkan, learned Asst. Solicitor General has placed on record the letter from the Registrar of Companies along with the letter of the office of the Regional Director, western region dated 11. 03. 2004 indicating that the Central Government has no objection to the proposed Scheme and has left the matter to be decided by this Court on its merits. ( 7 ) IT is, however, to be noted here that initially, the objections were filed by the Managing Director of Gujarat Ports Infrastructure and Development Company Limited (GPIDCL) and also the Vice Chairman and Chief Executive Officer of Gujarat Maritime Board (GMB) against the grant of sanction to the proposed Scheme by this Court. It is inter alia stated in the said objections that the proposed Scheme is prejudicial to the public interest and it is unfair, unjust and inequitable, as it is patently fraudulent as is intended to eject all the checks and balances available to the Govt. of Gujarat which are necessary for a project of such a strategic nature, that the proposed Scheme is not genuine and lacks bonafide as it aims at diluting and minimising involvement of Govt. and its machinerys participation in an infrastructure project of Port Development which is intended to be executed on a joint participation basis, that the proposed Scheme is malafide and motivated primarily to defeat the interest of the objectors. The violation of the condition imposed by the Govt. of Gujarat reveals the fact that the petitioner Companies have not come to Court with clean hands, that the proposed Scheme cannot be approved as the entire exercise is undertaken to dilute the shareholding of the Govt. The violation of the condition imposed by the Govt. of Gujarat reveals the fact that the petitioner Companies have not come to Court with clean hands, that the proposed Scheme cannot be approved as the entire exercise is undertaken to dilute the shareholding of the Govt. and its arms from GAPL, that if the proposed Scheme is approved, it will result in exclusive control of Adani Group over GAPL and the entire purpose of joint sector participation, as per the Build, Own, Operate and Transfer (BOOT) policy will get frustrated, that the proposed Scheme will have an adverse impact on the shareholding pattern of GAPL and the same would render the Shareholders Agreement infructuous, that the proposed Scheme is contrary to the understanding between GPIDCL and APL and the entire purpose of joint sector participation is intended to be thwarted, that the proposed Scheme seeks to confiscate / commandeer the legitimate rights of the objectors accruing under the Concession Agreement, Shareholders Agreement and Sub-Concession Agreement. ( 8 ) THE State Government has also filed its objections through its Joint Secretary, Port and Fisheries Department, Government of Gujarat, Gandhinagar whereby more or less the same objections were reiterated. It is inter alia stated that Mundra Port being located in the gulf of Kutch is identified as a joint sector port so as to enable the Government to have necessary control over the operation and management of the port, looking to the strategical importance and particularly from the National safety and security angle. Hence, it is extremely essential to maintain the status of Mundra Port as a joint venture port for the purpose of retaining Government control in maintaining the safety and security of the nation. The equity stake of Government through GPIDCL cannot be allowed to be reduced as, by keeping the prevailing equity stake at 11%, the State Government has got a right to appoint secretary, Port Fisheries Department as a Chairman of the Company. By such an arrangement, the Government can exercise required control over the management and obtaining activities of the Company, which can subsequently be appraised to the Government for obtaining directions / instructions as and when necessary. As a Chairman, the Secretary, Port and Fisheries Department, can represent the views of the Government and can ensure compliance thereof. By such an arrangement, the Government can exercise required control over the management and obtaining activities of the Company, which can subsequently be appraised to the Government for obtaining directions / instructions as and when necessary. As a Chairman, the Secretary, Port and Fisheries Department, can represent the views of the Government and can ensure compliance thereof. Such interest of the Government can only be safe guarded provided the equity stake is maintained and is not allowed to be reduced. The proposed Scheme lacks bonafide as it is targeted to reduce to nil the control of the Government and its machinery, which is necessary for a project of such a strategic nature. The proposed Scheme is patently fraudulent as it intended to transform Mundra Port from a joint sector port to a private port. That Mundra is identified as a joint sector port after taking into consideration various aspects including National Security, Defence etc. Therefore, on that ground alone, the proposed Scheme ought to fail and the Court may refuse to put its seal of approval. It is further stated as regards the credibility of Adani Group that after having failed to comply with the express undertaking given to the Government, it can be inferred/deduced that Adani Group is not sincere in adhering to promises given by them. Transfer of 100% equity shares of Adani container (Mundra) terminal Ltd. (ACTL) to Pando ports was approved by the Government and the same was communicated by GMB vide letter dated 10. 05. 2003. However, the Company has not complied with conditions stipulated in the Government approval letter dated 10. 05. 2003. This implies that the members of the Adani Group are not sincere for the compliance of the conditions, which indicates that the directives given by the Government are not honoured by the Company in right earnest and spirit. The Government of Gujarat had agreed to grant its approval to the transaction of transferring 100% equity shares of ACTL to Pando port and had imposed an express condition that the amount of equivalent Indian Rupees of 60 Million US$ which was to be received by the shareholders of ACTL shall be brought into GAPL, for development of infrastructure projects in Gujarat. However, GAPL has spent Rs. 206 Crores on purchase of APL shares. However, GAPL has spent Rs. 206 Crores on purchase of APL shares. In other words, instead of utilizing the funds for investment in infrastructure, the money was expended towards purchase of equity shares of APL, in order to route the funds into the hands of APL shareholders. This was in clear breach of the express conditions imposed on them. Thus, the Government of Gujarat seriously doubt the credibility of members of Adani Group. It is, therefore, stated that the Scheme is prejudicial to public interest more particularly because if approved, it will result in exclusive control of Adani Group over the port project of a strategic nature and the entire purpose of joint sector participation, as per the BOOT policy gets frustrated. ( 9 ) DESPITE the aforesaid objections filed before this Court against the sanction of the Scheme, it appears that the issue has been sorted out subsequently between the Adani Group and the State Government and as a result thereof, an affidavit is filed before this Court duly signed by the Deputy Secretary (Ports and Fisheries), Vice Chairman and Chief Executive Officer of GMB and the Managing Director of GPIDCL on the one hand and Chairman, Adani Port Ltd. and Managing Director, Gujarat Adani Port Ltd. on the other hand dated 11. 04. 2005. An undertaking is also filed by Shri Gautam S. Adani, Chairman, Adani Port Ltd. and Managing Director, Gujarat Adani Port Ltd. on 11. 04. 2005. ( 10 ) MR. S. N. Shelat, learned Advocate General appearing for the State Government has submitted that GPIDCL is holding 11% shares of Gujarat Adani Ports Ltd. . The proposed merger will reduce the shareholding to 8. 55%. The Managing Director of GAPL and Chairman of APL and its associate companies has addressed a letter to the Chairman - GPIDCL dated 22. 01. 2004 for negotiation with Government and thereafter after further negotiations with the State Government and on behalf of GAPL, APL and its associate companies, Shri Gautam Adani has suggested that the Company is prepared to either purchase the entire shareholding of GPIDCL or in the alternative the Company is also willing to offer shares to GPIDCL to continue to hold and maintain 11% equity stake in GAPL. Mr. Mr. Shelat has further submitted that during the course of negotiations, it was agreed between the parties that the State Government would appoint Valuer to determine the value of shares of GAPL and on such determination, Government of Gujarat through GPIDCL would exercise its option either to sell the shareholding or to purchase the shares to enable GPIDCL to hold and maintain 11% stake in GAPL at the value determined by the Valuer or to retain its shareholding of 8. 55% as the case may be. Mr. Shelat has further submitted that the State Government has agreed to such proposal of the Company and thereupon the Company agreeing and undertaking to this Court to abide by the said agreement, the objections lodged by GPIDCL, GMB and the State of Gujarat shall not be pressed. The parties thereafter agreed that GPIDCL, GMB and the State of Gujarat do not press their objections and grant their consent to the proposed merger. The Government of Gujarat will appoint a Valuer for the determination of the value of the shares of GAPL. On such Valuer being appointed by the Government of Gujarat, the parties would approach the said Valuer and shall place their respective stand before them. The Valuer shall also be requested to evaluate the shares before and after the merger. The valuation so determined shall be binding on both the parties. The parties have also agreed and undertaken to accept the valuation of the shares so determined by the Valuer as per the balance sheet as on 31. 03. 2004. The valuation shall be determined as per the Shareholders Agreement or any other method to be adopted by the Valuer. On such determination of the value of the Shares by the said Valuer, the Government of Gujarat through GPIDCL has right to exercise its option either to sell the shareholdings of GAPL or to buy further shares of GAPL at the value so determined by the Valuer to enable GPIDCL to maintain 11% equity stake in GAPL or to maintain its holding at 8. 55% as the case may be. The Board of GPIDCL and GAPL have passed the resolution to the above arrangement and copies of the said Resolution are placed on record. 55% as the case may be. The Board of GPIDCL and GAPL have passed the resolution to the above arrangement and copies of the said Resolution are placed on record. On the exercise of option by the Government through GPIDCL, GAPL shall take all necessary and timely actions for facilitating the implementation and execution of the option so exercised by the GPIDCL and the same shall be as per the Shareholders agreement. Both the parties have agreed and undertaken before this Court that they shall abide by the terms of settlement arrived at between them. ( 11 ) MR. Shelat has also referred to the undertaking filed by Shri Gautam Adani wherein it is stated that the Board of Directors of GAPL and APL have passed resolution on 11. 04. 2005 authorising him to file an undertaking before this Court in the proceedings initiated for the merger of Adani Port Limited with Gujarat Adani Port Ltd. It is further stated that GAPL, APL and its associate Companies agreed and undertook that GAPL, APL and its associate Companies shall abide by the Agreement arrived at between GPIDCL, GMB and the State Government with the GAPL, APL and its associate Companies in the aforesaid petitions. He has further undertaken that the valuation fixed by the Valuer, appointed by the Government of Gujarat for valuation of the shares of the Gujarat Adani Port Limited based on the audited Balance Sheet as at 31. 03. 2004 approved in the annual general meeting held on 22. 11. 2004 shall be binding on GAPL and APL and its associate Companies. GAPL, APL and its associate Companies shall take all necessary and timely actions to facilitate the implementation and execution of the option so exercised by the Government of Gujarat through GPIDCL either to sell the shareholdings in GAPL or to purchase shares of GAPL to maintain 11% stake in GAPL at the valuation so determined. In the event of the option being exercised for the sale of shares of GAPL, the said sale can be in favour of any of their nominees. In the event of the option being exercised for the sale of shares of GAPL, the said sale can be in favour of any of their nominees. GAPL, APL and its associate Companies will undertake to take all necessary steps to fulfill all obligations/undertakings given by GAPL/apl and its associate Companies in the past and they also agree and undertake to transfer to GPIDCL zero percent debt instrument or preference shares or any other instrument as may be agreed and approved by the Government of Gujarat, for the amount calculated @ 11% or equivalent Indian Rupees of US $ 60 Million brought into GAPL. ( 12 ) IN view of the aforesaid undertaking and the agreement arrived at between the parties, Mr. Shelat has submitted that the objections raised by the State Government do not survive and the Scheme may be sanctioned by this Court. ( 13 ) THOUGH the agreement was arrived at by and between the State Government and the Adani Group, initially the objections were raised on the ground that the Scheme was contrary to the public policy and hence, the Court has asked Mr. S. N. Soparkar, learned Senior Counsel appearing for the petitioners that the Court cannot ignore these objections simply because an agreement was arrived at between the parties and hence, he has to satisfy the Court that the Scheme is not contrary to the public policy. In this regard, he has invited the Courts attention to the affidavit-in-rejoinder filed before this Court to both the affidavits-in-reply filed on behalf of the State Government. He has submitted that GAPL was incorporated for the purpose of development of a multipurpose commercial port. However, APL continues to do its business around the same premises. The activities of APL and GAPL are not only complementary, in a given case they may overlap. If a full fledged commercial port is to be developed, all the complementary activities should be carried out under one umbrella and if a part of the activities are being carried out by another entity, there would always be confusion and/or chances of inappropriate revenue sharing. The Shareholders Agreement itself envisages that at some point of time GAPL may go in for a public issue. With this end in view the Adani Group made informal inquiries with the persons associated with the stock market to explore the possibility of making a Public Issue of GAPL. The Shareholders Agreement itself envisages that at some point of time GAPL may go in for a public issue. With this end in view the Adani Group made informal inquiries with the persons associated with the stock market to explore the possibility of making a Public Issue of GAPL. At that time the Adani Group was advised that the split entity of APL and GAPL is likely to create unnecessary suspicion in the minds of investors and hence, considering the synergy of activities carried out by two entities, according to the advice received by Adani Group, it is in the fitness of things to merge the two entities. Even the lenders of the respective entities at times during the personal discussion showed reservation about split of the port activities into two different companies i. e. GAPL and APL. Even from the point of view of shareholders such split entities would create an unsatisfying position inasmuch as the true worth of one entity being dependant upon the worth of the other entity would always be a subject matter of doubt. It was with this end in view that the decision was taken to merge the two entities. He has further submitted that even bonafides of the petitioners as to the decision of merger cannot be doubted as APL is substantially owned by Adani Group. The Government of Gujarat, directly or indirectly does not hold a single share in APL. The profits thereof would, therefore, be enjoyed by Adani Group. As opposed to that GPIDCL holds 11% shares of GAPL and by merging APL into GAPL not only GPIDCL would be entitled to share the profits which, till now, are earned by APL and enjoyed only by Adani Group, it would also increase the value of its investments. He has further submitted that there is no substance in the argument that by reducing the percentage of interest/shareholding of Government of Gujarat in GAPL (and thereby in Mundra Port) below 10%, there is going to be serious problem and that the same would be contrary to public interest. This argument is developed on an underlying assumption that Government of Gujarat must necessarily retain more than 10% in a Port project. There is no policy decision or Govt. Resolution which mandates that government must necessarily have not less than 10% interest in a Port Project. This argument is developed on an underlying assumption that Government of Gujarat must necessarily retain more than 10% in a Port project. There is no policy decision or Govt. Resolution which mandates that government must necessarily have not less than 10% interest in a Port Project. As a matter of fact one Gujarat Pipavav Ports Ltd. a private entity exclusively owns a port. At one point of time, Government of Gujarat held 51% shares of the said Company and 49% shares were held by private parties. Later on, Government of Gujarat has disinvested entire holdings in the said Company and as on today, Government of Gujarat has no stake whatsoever in the said Company. In other words, Pipavav Port works as a private entity. If this is true for Pipavav, the same is equally true for Mundra Port and there is no logic for Government of Gujarat to argue that fall in its percentage holding below 10% is going to have disastrous results or it is against the Government Policy. ( 14 ) WITH regard to the objection raised by the State Government about the non-utilisation of funds realised as a result of transfer of the entire equity holding in Adani Container Terminal for investment for infrastructure of GAPL and instead of that the money being expended towards the purchase of financial instruments, viz. equity shares of APL in order to route the funds into the hands of APL shareholders, and thereby caused an erosion of funds in the hands of GAPL, Mr. Soparkar has submitted that the said objection has no bearing whatsoever to the present proceedings. The same pertain to one Adani Container Terminal Limited and transfer of shareholding in the said Company by Adani Group in favour of a third party. In any case, the same has been done in accordance with law and after obtaining the approval of the Government and other necessary authorities. GAPL acquired shares of APL because it was a good investment decision. As a matter of fact, GAPL has, with the help of the funds so received, liquidated its substantial liabilities. The fact of investment made by GAPL into APL was duly discussed in the meting of the Board of Directors of GAPL held on 08. 07. 2003 which meeting was chaired by nominee of Government of Gujarat and also had an observer from the investor UTI. The fact of investment made by GAPL into APL was duly discussed in the meting of the Board of Directors of GAPL held on 08. 07. 2003 which meeting was chaired by nominee of Government of Gujarat and also had an observer from the investor UTI. Even in the undertaking filed by Shri Gautam Adani, Chairman, Adani Port Ltd. and Managing Director, Gujarat Adani Port Ltd. has undertaken and assured that GAPL, APL and its associate Companies will undertake to take all necessary steps to fulfill all obligations/undertakings given by GAPL/apl and its associate Companies in the past and they also agree and undertake to transfer to GPIDCL zero percent debt instrument or preference shares or any other instrument as may be agreed and approved by the Government of Gujarat, for the amount calculated @ 11% or equivalent Indian Rupees of US $ 60 Million brought into GAPL. He has, therefore, submitted that in view of the above factual position as well as this undertaking, the objection raised by the State Government is not sustainable. ( 15 ) AFTER having heard Mr. S. N. Soparkar, learned Senior Counsel with learned advocate Mrs. Swati Soparkar for the petitioners, Mr. S. N. Shelat, learned Advocate General with learned advocate Ms. Shruti D. Trivedi for the State Government and GMB and after having considered the report of the Official Liquidator as well as the report of the Regional Director and after having gone through the petitions, submissions, objections and their replies and after having considered the affidavit jointly filed by the respective parties as well as the undertaking given by Shri Gautam Adani, the Court is of the view that the amalgamation would be in the interest of the Companies and their members as well as Creditors. ( 16 ) EVEN after raising various objections against the Scheme, the State Government has settled the disputes with the Adani Group in terms of the joint affidavit filed before this Court. The core issue of objection is the reduction of the holding of GPIDCL in GAPL from 11% to 8. 55% after the proposed merger of APL with GAPL. Now, this has been amicably resolved by and between the parties. Not only this, they have already started action on it. The core issue of objection is the reduction of the holding of GPIDCL in GAPL from 11% to 8. 55% after the proposed merger of APL with GAPL. Now, this has been amicably resolved by and between the parties. Not only this, they have already started action on it. The Government of Gujarat has appointed Shri V. K. Shrunglu, former Comptroller and Auditor General, Government of India, as the Valuer to determine the value of shares of Gujarat Adani Port Ltd. , as on date 31. 03. 2004 and all parties shall be given an opportunity, through their authorised representatives to represent their respective case and furnish evidence for the determination of the value of the shares of GAPL. The Court is also informed that the Valuer will be requested to give a reasoned decision on the subject within a period of one month after all the parties file their submissions before him. ( 17 ) IN view of this subsequent development, the objections raised by the State Government pale into insignificance. The Court is also convinced that the proposed Scheme of merger of APL with GAPL is in no way contrary to the public policy. It is true that the Mundra Port Project was initially started as joint sector project under the Port Policy and as per the shareholders agreement dated 13. 08. 1998, the originally contemplated equity participation of the State Government through GPIDCL was 26%. However, the State Government itself vide its letter dated 08. 09. 2000, decided to reduce the equity stake of GPIDCL in GAPL from 26% to 11%. Now, even after proposed merger of APL with GAPL, if the equity participation of GPIDCL may be reduced from 11% to 8. 55%, the same may not be treated as the violative of public policy as there is no such governmental policy pointed out to the Court that the government must necessarily have not less than 10%, interest in Port Project. On the contrary, Gujarat Pipavav Ports Ltd. , the State Government held 51% shares of the said Company which were, later on disinvested and as on today, the State Government has no stake whatsoever in the said Company. The proposed Scheme is, therefore, not against the public policy. On the contrary, Gujarat Pipavav Ports Ltd. , the State Government held 51% shares of the said Company which were, later on disinvested and as on today, the State Government has no stake whatsoever in the said Company. The proposed Scheme is, therefore, not against the public policy. Even otherwise, simply because, the present Scheme is sanctioned by this Court, the other group companies will not be absolved from their liabilities if they have committed any breach of their undertakings or assurances and the concerned authorities are not restrained from taking any action against them in accordance with law. ( 18 ) IN the above view of the matter, Prayers in terms of paragraph 21 (a) of Company Petition No. 14 of 2004 and paragraph 19 (a) of Company Petition No. 15 of 2004 are hereby granted. ( 19 ) BOTH the petitions are disposed of accordingly. The petitioners are also directed to abide by their undertaking given to this Court. So far as the costs to be paid to the learned Asst. Solicitor General is concerned, the same is quantified at Rs. 3,500/- per petition and the same may be paid to Shri Jitendra Malkan directly. .