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INDIAN PETROCHEMICALS CORP.LTD. - High Court of Gujarat

MANU/GJ/7533/2007

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

Company Petition No. 93 of 2007 in Company Application No. 126 of 2007

Decided On: 16.08.2007 In re: Indian Petrochemicals Corporation Limited

Hon'ble Judges:
K.M. Mehta, J.

Counsels:
For Appellant/Petitioner/Plaintiff: S.N. Soparkar, ld. Sr. counsel, Nandish Chudgar, learned Adv., K.S. Nanavati and Mihir Thakore, Advs.
For Official Liquidator: Ami Yagnik, learned Adv.
For Objectors: Girish Patel, learned Sr. counsel and Shalin N. Mehta, ld. Adv.
For Central Government: Harin P. Raval, Adv.
For objector on behalf of Ancillary Industries: P.R. Thakkar, learned Adv.
For objector on behalf of SC/ST employees: Ramnandan Singh, Adv.

JUDGMENT

K.M. Mehta, J.

1. Indian Petrochemicals Corporation Limited (hereinafter referred to as "IPCL"), the petitioner Company (Transferor Company) has filed this Company Petition under Section 391 read with Section 394 of the Companies Act, 1956, with a prayer that this Court may be pleased to sanction the Scheme of Amalgamation being Exh. "G" to the petition so as to be binding with effect from 1.4.2006, the appointed date, on the petitioner Company, the Reliance Industries Limited (hereinafter referred to as RIL), the Transferee Company and all their respective shareholders, creditors and all concerned persons. The said Scheme provides that the entire undertaking of the Transferor Company along with all its assets, debts, liabilities etc., shall stand transferred to the Transferee Company, all legal proceedings pending by or against the Transferor Company shall be continued by or against the Transferee Company, the employees of the Transferor Company shall become the employees of the transferee Company and the Transferor Company shall allot to the shareholders of the Transferor Company shares in the Transferee Company in the proportion mentioned in the Scheme.

INDEX OF JUDGEMENT

Particulars para
Nos.		 page
Nos.
1.    Basic Facts regarding  amalgamation & merger 2 to 5.5H  3 to 41
2.   
Objection by various 
objectors
 6 to 22.13  41 to 187
3.    Submission of Company 23.1 to
regarding objections Observations of the Court 30.13 187 to 242
       
1.    Regarding jurisdiction of Court 31 to 32.3 243 to 285
2.    Finding regarding various objections  33.1 to 45.2 285 to 406
3.    Scheme of Sections to 394 of the Companies Act 391 
45.3 to 45.18		 407 to 422
4.    Final Directions/opera­tive order 47.1 to 49 427 to 438
/445
2. The facts giving rise to this petition are as under: FACTS ABOUT THE TRANSFEROR COMPANY:

2.1  The petitioner Company was incorporated on 22.3.1969 in the State of Gujarat under the Companies Act, 1956 (hereinafter referred to as "the Act"). The petitioner Company has its registered office at P.O. Petrochemicals, Dist. Vadodara, Gujarat.

2.2   The objects for which the petitioner Company has been established are set out in its Memorandum of Association. One of the main objects is to carry on the business of processing, converting, producing, manufacturing, formulating, using, buying, acquiring, importing, storing, packaging, selling, transporting, distributing, exporting and disposing (a) all organic and inorganic chemicals derived from petroleum hydrocarbon elements, chemicals compounds and products of any nature and kind whatsoever including by-products, derivatives and mixtures thereof.

2.3  The authorized issued, subscribed and paid up share capital of the petitioner Company as on 31.3.2007 was as under:
Rs
Rs
Authorised Share Capital
(i) 40,00,00,000 equity shares of Rs. 10/- each
400,00,00,000
(ii) 40,00,00,000 Non-Convertible Redeemable Preference Shares of Rs. 10/-each
400,00,00,000
Total
800,00,00,000
Issued Share Capital
30,30,10,937 Equity Shares of Rs. 10/- each  
Subscribed and paid up share capital
303,01,09,370
30,07,02,798 Equity Shares of Rs. 10/- each 300,70,27,980  
Add : Shares Forfeited 82,72,495  
Total   301,53,00,475

2.4 In showing the profitability of the Company, audited balance sheet of the petitioner Company for the year ended 31.3.2006 is annexed along with the petition. The last unaudited financial accounts of the petitioner Company as on 31.3.2007 are also annexed with the petition.

2.5  The equity shares of the petitioner Company are listed on the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited. The Bombay Stock Exchange Limited vide its letter dated 13.3.2007 and the National Stock Exchange of India Limited vide its letter dated 14.3.2007 have issued their "No Objection" to the Scheme of Amalgamation.

FACTS OF THE TRANSFEREE COMPANY:

3. The Transferee Company was incorporated as Mynylon Limited on 8.5.1973 in the State of Karnataka under the provisions of the Act. The name of the Transferee Company was subsequently changed to Reliance Textile Industries Limited on 11.3.1977. The place of the registered office of the Transferee Company was thereafter changed from the State of Karnataka to the State of Maharashtra on 2.7.1977. The name of the Transferee Company was again changed to Reliance Industries Limited on 27.6.1985. It appears that the address of the registered office of the Transferee Company is : 3rd floor, Maker Chambers IV, 222, Nariman Point, Mumbai 400 021, Maharashtra. The objects for which the Transferee Company has been established are set out in its Memorandum of Association. The main objects are reproduced hereinafter:

3.1   "To carry on the business of manufacturers, dealers, agents, factors, importers, exporters, merchants and financiers of all kinds of man made fibres and man made fibre yarns of all kinds, man made fibre cords of all kinds and man made fibre fabrics of all kinds, mixed with or without mixing, materials like woolen, cotton, metallic or any other fibres of vegetable, mineral or animal origin, manufacturing such man made fibres and man made fibre products of all description and kinds with or without mixing fibres of other origin as described above, by any process using petrochemicals of all description or by using vegetable or mineral oils or products of all description required to produce such man made fibres."

3.2  The authorised, issued, subscribed and paid up share capital of the transferee Company as on 31.3.2007 was as under:
Rs.
Rs.
Authorised Share Capital
250,00,00,000 Equity Shares of Rs. 10 each
2500,00,00,000
50,00,00,000 Preference Shares of Rs. 10 each
500,00,00,000
Total Issued, Subscribed and paid up Share Capital:
3000,00,00,000
139,35,0,041 Equity Shares of Rs. 10/- each 
fully paid up		 1393,50,80,410  
Less: Call in arrears - by others 31,27,380  
Total   1393,19,53,030

3.3 The equity shares of the Transferee Company are listed in Bombay Stock Exchange Limited and the National Stock Exchange of India Limited. The Bombay Stock Exchange Limited vide its letter dated 13.3.2007 and the National Stock Exchange of India Limited vide its letter dated 14.3.2007 have issued their "No Objection" to the Scheme of Amalgamation. The GDRs representing the underlying equity shares of the Transferee Company are listed on Luxembourg Stock Exchange and traded on the PORTAL Market of the United States National Association of Securities Dealers Inc and SEAQ (London Stock Exchange). The non-convertible debentures of the Transferee Company are listed on the Wholesale Debt Market segment of the National Stock Exchange of India Limited.

3.4  The petitioner Transferor Company (IPCL) is a leading Indian integrated manufacturer of petrochemicals products. Its primary products are polymers, fibre intermediates and chemicals. It operates three integrated petrochemicals complexes in India - a naphtha based cracker complex at Vadodara; a gas based cracker complex at Dahej; and a gas based cracker complex at Nagothane. The polymer business of the petitioner Company encompasses commodity plastic raw materials namely Polypropylene (PP), Polyethylene (PE) and Poly Vinyl Chloride (PVC).

3.5  The Transferee Company (RIL) is one of India's largest private Sector Industrial enterprises in terms of net turnover, total assets, net worth and net profit and is a fortune 500 Company. The transferee Company ranks amongst the world's top 10 producers for most of its products. Over the years, the Transferee Company's strategy has been to build leading market share in the domestic market, pursue export opportunities, implement vertical, forward and backward integration and at the same time, to achieve economies of scale, focus on financial management and invest in infrastructure projects.

RE: AMALGAMATION OF TRANSFEROR COMPANY WITH TRANSFEREE COMPANY:

3.6  Both the Transferor Company and the Transferee Company decided upon the Scheme of their Amalgamation. The Board of Directors of the Transferor Company passed a Resolution at its meeting held on 10.3.2007 approved the said Scheme subject to obtaining of all requisite approvals, if any, of the appropriate authorities and subject to the approval of the High Court of Judicature at Bombay and the High Court of Gujarat at Ahmedabad.

3.7 The Board of Directors of the Transferee Company (Reliance Industries Limited) has also passed a similar Resolution at its meeting held on 10.3.2007.

3.8 Accordingly, the Scheme of Amalgamation was prepared. The rationale for the Scheme is stated as under:
The amalgamation of the Transferor Company with the Transferee Company would, inter alia, have the following benefits:
(a) Greater size, scale, integration and greater financial strength and flexibility for the amalgamated entity, which would result in maximising overall shareholder value;

(b)  Strengthening leadership in the industry, not only in terms of the assets base, revenues, product range, production volumes and market share, but also in terms of total shareholder return;

(c)   The synergies that exist between the two entities in terms of the products, processes and resources can be put to the best advantage of all stakeholders;
(d)  The amalgamated entity will have the ability to leverage on its large asset base, diverse range of products and services and vast pool of intellectual capital, to enhance shareholder value;
(e)   The amalgamation will result in increased financial strength and flexibility, and enhance the ability of the amalgamated entity to undertake large projects, thereby contributing to enhancement of future business potential;
(f)  The integration of the manufacturing and other facilities of IPCL and RIL will contribute to enhanced global competitiveness for the amalgamated entity, thereby increasing its ability to compete with its peer group in domestic and international markets;

(g)   The amalgamated entity will benefit from improved organisational capability and leadership, arising from the combination of people from IPCL and RIL who have the diverse skills, talent and vast experience to compete successfully in an increasingly competitive industry; and

(h) Cost savings are expected to flow from more focused operational efforts, rationalisation, standardisation and simplification of business processes, productivity improvements, improved procurement and the elimination of duplication.
3.9  The Transferor Company had filed an application being Company Application No. 126 of 2007 before this Court. This Court (Coram: M.R. Shah, J) passed order dated 16.3.2007 giving directions for convening meetings of the equity shareholders, Secured Creditors, unsecured creditors of the applicant Company (Transferor Company). It was stated that at least 21 clear days before the meetings to be held as aforesaid, notices convening the said meetings, indicating the day, the date, the place and time together with a copy of Scheme of Amalgamation, copy of the Explanatory Statement required to be sent under Section 393 of the Companies Act, 1956 and the prescribed Form of Proxy shall be sent under Certificate of Posting addressed to each of the equity shareholders, secured creditors (including debenture holders) and unsecured creditors of the applicant company at their last known address. It was stated that Mr. Justice S.D. Dave (Retd.) and in his absence Mr. Lalit Bhasin shall be the Chairman of the said meetings. The ancillary and incidental directions relating to the said meetings were also given by the said order.
3.10  The above referred meetings were accordingly held after issuing required notices and voting had taken place on the proposed resolution supporting amalgamation. Scrutineers appointed at the meeting had submitted their reports which are as under:
RE: SHAREHOLDERS' MEETING:
(a) Voted in favour of the resolution:
Number ofNumber of% of the total% of total
Number of members present (in  person or by  proxy) and voting
 Number of votes cast by them % of the total number members present (in person or by  proxy) and voting
 % of total number votes cast by them.
7632 20,37 73,286 9.89
      
(b) Voted against the resolution:
     
Number of
members
present (in
person or by
proxy) and
voting		 Number of
votes cast
by them
 % of the total
number of
members
present (in
person or by
proxy) and
voting		 % of total
number of
votes cast by
them.
233 2,28,705 2.95 0.11%
       
(c) Invalid votes
         
Total number of Total number of votes cast by them members whose votes were declared invalid
54
11,74,879
      
RE: SECURED CREDITORS (INCLUDING DEBENTURE HOLDERS) MEETING: (a) Voted in favour of the resolution:
      
Number of secured creditors (including debenture holders) present (in person or by proxy) and Voting Value of Secured Debt of those present and voting (Rs. in crores) % of the total number of Secured Creditors (including Debenture holders) present (in person or by proxy) and voting % of total value of Secured Debt of those present and voting.
51 355.34 100% 100%
    
(b) Voted against the resolution
Number of secured
creditors (including
debenture
holders)
present (in
person or by
proxy) and
voting		 Value of Secured 
Debt of those
present and
voting (Rs.
in crores)
 % of total
number of Secured
Creditors
(including
Debenture
holders) present
(in person or by
proxy) and
voting.		 % of total 
Value of
Secured Debt
of those
present and
voting.
Nil Nil Nil Nil
                           
    
(c) Invalid votes
    
Total number of
Secured Creditors
whose votes were
declared invalid		 Total
value (Rs. in Crore)
3 0.25
    
RE: UNSERE: SHAREHOLDERS' MEETING:
  (a) Voted in favour of the resolution:
    
Total number of
Secured Creditors
whose votes were
declared invalid



Total
value (Rs.
in Crore)
3   0.25
     
(b) Voted against the resolution:
    
Number of unsecured creditors present (in person or by
proxy) and voting		 Value of Unsecured Debt of
those present and
voting (Rs. in crores)
 % of the total
number of Unsecured Creditors present (in person or by
proxy) and voting.
 % of otal value of
Unsecured Debt of
those present
and voting.
Nil Nil Nil Nil
    
(c) Invalid votes:
     
Total number of Total value (Rs. in crore) unsecured creditors whose votes were
declared invalid______
Nil

3.11  Thus as per the report, the Scheme was approved by an overwhelming majority of secured creditors (including debenture holders), unsecured creditors, equity shareholders and the resolution was passed by members constituting more than a majority in number and representing more than three-fourths in value of the shareholding of the equity shareholders present and voting either in person or by proxy at the meeting.

3.12 Thus in view of the report of the Scrutineers, the Chairman, Justice S.D. Dave (Retd.), made a report dated 18.4.2007 which is at page 114 and reported the above results. The Chairman has also filed an affidavit in support of the said report. Shashikala Rao, Company Secretary of the Transferor Company also filed an affidavit verifying the petition.
PRESENT CONTROVERSY:
4.1  In view of the same, the Transferor Company filed Company Petition No. 93 of 2007 before this Court under Sections 391 to 394 of the Act in connection with the Scheme of amalgamation of the Transferor Company (IPCL) and the Transferee Company (RIL).
DETAILS ABOUT THE SCHEME:
4.2  Under the Scheme, the appointed date means 1st April, 2006 which has been mentioned in Part I Definitions and Share capital of the Scheme. Effective date is given in Clause 1.3 which means the last of the dates on which the conditions referred to in Clause 18.1 of the Scheme have been fulfilled. Clause 1.12 defines the term "undertaking". The word "undertaking" shall mean the whole of the undertaking and entire business of the Transferor Company as a going concern, including all the assets and properties.
4.3  It also provides in part II Clause 4 Transfer of undertaking. Clause 4.1 provides general transfer of undertaking; Clause 4.2 provides transfer of assets; Clause 4.3 provides transfer of liabilities. The Scheme also provides when the Transferor Company merges with the Transferee Company, the Transferee Company will issue new equity shares of the Transferee Company to the equity shareholders of the Transferor Company in the ratio of 1 (one) equity share of the face value of Rs. 10/- (Rupees ten only) of the transferee Company with rights attached thereto as mentioned in the Scheme for every 5 (five) equity shares of the face value of Rs. 10/- (Rupees ten only) each credited as fully paid up held by such equity shareholders or their respective heirs, executors or as the case may be, successors in the Transferor Company. The ratio in which equity shares of the Transferee Company are to be issued and allotted to the shareholders of the Transferor Company is hereinafter referred to as the "Share Exchange Ratio"). The Scheme also provides for various other aspects namely new equity shares, obtaining of approvals, fractional entitlement, exemption from registration, scheme conditional upon sanction. In para III of General, Description of Companies, the rationale for the Scheme is given which I have quoted earlier.
4.4 After the aforesaid procedure in connection with convening the aforesaid meetings was complied with, the present petition for amalgamation was filed in April, 2007 seeking directions for publication of public notice of date of hearing. It is stated in the petition that no investigation proceedings have been instituted and/or are pending in relation to the petitioner Company under Sections 235 to 251 of the Act.
4.5  This Court admitted the petition on 23.4.2007 and fixed its hearing on 19.6.2007. Pursuant to that order the petitioner Company has served notice to the Official Liquidator on 30.4.2007 and also to the Regional Director, Department of Company Affairs, Western Region, 5th Floor, "Everest", 100, Netaji Subhash Road, Mumbai and for that purpose affidavit of service has been filed on 4.5.2007. The petitioner Company pursuant to the order of this Court, published the notice in Times of India 21.5.2007 and Gujarat Samachar, Ahmedabad and Vadodara editions, on 21.5.2007. The Company Secretary has also filed affidavit of advertisement dated 9.6.2007. Thus, the requisite affidavits before this Court in compliance with the aforesaid order have been filed.
4.6  Pursuant to the aforesaid order, the Official Liquidator has filed report dated 18.6.2007.
4.6A That in view of the said order, the Official Liquidator had appointed one M/s. Malay J. Dalal, Chartered Accountants, for carrying out the investigation work of the Transferor Company. M/s. Malay J. Dalal, Chartered Accountants, after scrutiny of the books of accounts and affairs of the above Company have submitted their investigation report dated 4.6.2007 which has been annexed with the report of the Official Liquidator at Annexure-A.
4.6B In the meanwhile, the Official Liquidator has also written to the petitioner Company requesting him to furnish certain particulars and information regarding the affairs of the Company. The said Company accordingly has submitted the required details to the Official liquidator which is annexed with the report at Annexure-B.
4.6C The Chartered Accountants (i.e. Shri Malay J. Dalal) have considered Tax Audit, Income-tax, Sales-tax, Excise Duty, Professional Tax, Provident Fund / Superannuation / Gratuity / ESIC, Summarized financial position, year-wise summarized profit and loss account, details of transferee Company, advantages of amalgamation, salient features of the Scheme of Amalgamation. The Chartered Accountants have come to the conclusion that on the basis of their comments in the report and according to the explanations given to them and books of accounts produced before them, they report that the acts and transactions of IPCL were conducted within the objects mentioned in the Memorandum of Association of the Company and that the affairs of the Company have not been conducted in a manner prejudicial to the interest of its members or the public interest.
4.7  Along with the report of the Official Liquidator, details of transferor and transferee Companies were produced and balance sheets of IPCL and RIL for the years 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006 were annexed.
4.8 The Official Liquidator has filed report dated 18.6.2007 before this Court. Along with the report, the Official Liquidator has annexed report of auditor Pricewaterhouse Coopers Private Limited and Ernst & Young Private Limited. Both these Chartered Accountant firms are very reputed and eminent firms. The two Chartered Accountants firms have expressed their opinion as to the fair exchange ratio of equity shares on the proposed amalgamation of IPCL into Reliance Industries Limited on a going concern basis was produced.
REPORT OF THESE TWO AUDITORS (PRICEWATERHOUSE COOPERS PRIVATE LIMITED AND ERNST & YOUNG PRIVATE LIMITED:
4.8A They addressed a letter to both the Companies about the exchange ratio of equity shares. In para 2 of the said letter they have stated the procedures used in the analysis included such substantive steps as are considered necessary under the circumstances, including but not necessarily limited to certain aspects. They have also relied upon the information, data and explanations detailed in paragraph 2 in the said letter for the purpose of determining the exchange ratio of the equity shares of RIL and IPCL in connected with proposed amalgamation. They have also valued the assets and liabilities of RIL and IPCL which were reflected in the balance sheet of the Company. For the purpose of determination of the exchange ratio, they have used financial and other information provided by the management of both the Companies. Along with the said letter they have also annexed Schedule-I which shows factors considered in determining the exchange ratio of the equity shares of both the Companies. In the earlier part they have given information and background of both the Transferor Company and Transferee Company and in paragraph No. 2 they have given what is methodology. They have adopted the method in valuing of the shares. They have considered the method of Net Assets Value, Earnings Value, Market value and thereafter they have determined the value of the shares of both the Companies. They have also indicated that the market value of RIL has been computed by averaging the value and the volume of shares traded for the last three months. They have also stated that the market value of IPCL has been computed by averaging
the value and the volume of shares traded for the last three months. Ultimately, they have given their opinion about exchange ratio.
4.8B Pursuant to the notice issued by this Court to the Regional Director, Shri P.L. Malik, Assistant Registrar of Companies, has filed affidavit dated 1.6.2007 (page 136) where he has stated that he is filing this affidavit as authorized by Regional Director, Western Region, Ministry of Company Affairs, Government of India, Mumbai. In the said affidavit it has been stated that the petitioner may be directed to submit proof of filing of affidavit of publication of notice of final hearing of the petition. He has also annexed original/letter dated 31.5.2007 sent by the Regional Director, Western Region, Mumbai to the Registrar of Companies. This application has been filed in accordance with the directions of the Regional Director, Mumbai. Letter dated 31.5.2007 is produced at page 136C of the petition.
4.8C The petitioner has also filed affidavit dated 18.6.2007 of Shashikala Rao, Company Secretary of the petitioner Company. In the said affidavit it was stated that the petitioner herein has complied with the directions given by this Court. The scheme has been approved by the requisite majority of shareholders and creditors of the petitioner Company. The Regional Director has already given his no objection to the Scheme being sanctioned by this Court. The said affidavit is at pages 137-142.
4.8D As the registered office of the Transferor Company is situated within the State of Gujarat the present petition is filed by the Transferor Company before this Court.
HEARING BEFORE THIS COURT IN THE PRESENT AMALGAMATION PETITION: (Arguments of Mr. K.S. Nanavati, Mr. Mihir Thakore, Mr. S.N. Soparkar, ld. Sr. Counsels)
The Companies Submissions:
5.1  Thereafter, the matter has been placed before this Court for hearing. Mr. K.S. Nanavati, learned senior counsel and Mr. S.N. Soparkar, learned senior counsel with Mr. Nandish Chudgar for the petitioner Company have stated that the present petition is filed by IPCL, Transferor Company seeking sanction to the Scheme of Amalgamation of the petitioner Company to RIL. He further submitted that the procedure under Sections 391 to 394 of the Act has been complied with by IPCL. The Court ordered convening of separate secured creditors (including debenture holders), unsecured creditors. The Scheme of amalgamation of the petitioner Company has been approved by overwhelming majority of the present and voting in person including debenture holders and unsecured creditors. The Regional Director has submitted his report giving "No Objection" to the scheme of amalgamation.
5.2  The Regional Director has submitted his report giving his no-objection to the Scheme inter alia stating that the Scheme is not against the public policy. The Official Liquidator has also filed his report stating that by sanctioning the Scheme, the interest of members and public at large would not be prejudiced. In addition, even Bombay Stock Exchange Limited and National Stock Exchange of India Limited have granted their no-objection to the Scheme as is required under Clause 24(f) of the Listing Agreement. Thus, the fact that these independent bodies, after scrutinizing the Scheme, have granted their no-objection, clearly shows that the Scheme is in compliance with statutory requirements and is NOT opposed to public policy nor is against public interest.
5.3  As regards the Transferee Company, as the registered office of the Transferee Company is situated within the State of Maharashtra, the Transferee Company has filed application before the Bombay High Court. Pursuant to the order of the Bombay High Court dated 16.3.2007 in Company Application No. 283 of 2007 filed by the Transferee Company, the Transferee Company had held separate meetings of Equity Shareholders, the Secured Creditors (including Debenture-holders) and unsecured creditors of the Transferee Company on 21.4.2007. The Chairman of the said meetings has submitted his report before the Bombay High Court. The Transferee Company has also initiated process of filing a petition before the Bombay High Court. It was stated that the Scheme is subject
to sanction of both the High Courts.
5.4  Mr. K.S. Nanavati, learned senior counsel has invited my attention to the fact that pursuant to the aforesaid order in proceedings initiated by the Transferee Company before the Bombay High Court, the Bombay High Court by its order dated 12.6.2007 has sanctioned the Scheme subject to the Scheme also being sanctioned by this Court (page No. 181 of the paper book).
5.5   Pursuant to the aforesaid proceedings particularly advertisement published in newspaper, several objectors have objected to the scheme of amalgamation. The nature of objectors are under:
5.5A Objection-I has been raised by ancillary industries who have established when IPCL was incorporated in the then remote village at Vadodara District as well as Raighad at Maharashtra.
5.5B SC/ST employees who were also employed earlier by IPCL in view of Article 16(4) of the Constitution of India have raised their objection in regard to the amalgamation.
5.5C Three Trade Unions, namely, IPCL Employees' Association, IPCL Employees' Union, and Petrochemical Employees' Union and other Trade Union of Employees of IPCL have objected to the scheme on the ground that before the scheme was finalized, they were not consulted and heard. They were also not taken into confidence before the Scheme of amalgamation was initiated.
5.5D The workers and some employee-shareholders have also raised their objections, namely, the scheme of amalgamation is against the public interest and public policy. The amalgamation scheme ought not to have been sanctioned because there are hidden objects by the transferee Company.
5.5E The objectors have also raised contention that while sanctioning the scheme this Court must lift the corporate veil and look to the realities of the matter.
5.5F The objectors have also objected to the share exchange ratio which has been determined by two Chartered Accountants firms that the same is not fair and proper and therefore the scheme ought not to have been sanctioned. The objector has also raised contention that the Companies have called combined meeting of secured creditors and debenture holders as the interest of debenture holders and secured creditors is different , the Companies ought to have held different meeting between them.
5.5G The objector has also objected that some of the proxies collected from the shareholders or employees are collected under compulsion and coercion and therefore the result in the companies depends upon the shareholders voting is thus vitiated.
5.5H As far as ancillary industries are concerned, the objection has been raised by Mr. P.R. Thakkar who has been ably supported by Mr. Shalin Mehta, learned advocate. As regards SC/ST employees the objection has been raised by Mr. Ramnandan Singh before this Court. As regards workers are concerned, the objection has been raised by Mr. Girish Patel, ld. sr. counsel with Mr. Shalin Mehta and other objections have been raised by Mr. Shalin Mehta, learned advocate.
OBJECTION BY VARIOUS PARTIES: (by Shri P.R. Thakkar and Shri Shalin N. Mehta)
Ancillary Industries: (Argument of Mr. P.R. Thakkar, ld. Advocate supported by Mr. Shalin Mehta, ld. Advocate)
6. It may be noted that when the aforesaid matter was pending before this Court, Company Application No. 255 of 2007 was filed by Schon Plastics Pvt. Ltd., through its advocate Shri P.R. Thakkar with a prayer that this Court may be pleased to allow and admit their application and also order giving protection to the applicants and other ancillary industries to IPCL situated in Nagothane
(Maharashtra) constituted and formed at the instance of IPCL. The applicants further prayed that this Court may not sanction the proposed amalgamation scheme unless IPCL would acknowledge before this Court the contractual liability emerging from the record they have produced and assures to fulfill the same as per the terms of the said contract. Pursuant to the tender notice issued in 1990 and letter of IPCL dated 20.12.1991. The said petition was filed on 6.5.2007. Similarly, Company Application No. 257 of 2007 was filed by Rachana Poly Pack on 10.5.2007 with similar prayer in Company Application No. 255 of 2007 filed by Schon Plastics Ltd., because both are ancillary industries and they have prayed for similar relief.
6.1  In the said applications, the Company has also filed reply on 15.6.2007 as well as also filed reply in the main matter. Similarly in Company Application No. 255 of 2007 the Company has filed reply. In both these applications this Court passed order on 19.6.2007 to the effect that the Company Applications would be disposed of with the observation that the objections which were raised in the applications be treated as objections to the proposed scheme of amalgamation and the same shall be considered at the time of hearing of the main Company Petition.
Rachana Polypack and Schon Plastic Pvt. Ltd. -Objectors (Applicants in Company Application No. 255 of 2007)
Ancillary Industries - Project affected persons (applicants in Company Application No. 257 of 2007).
6.2 The IPCL is basically and originally Government of India undertaking establishing Petrochemical Industries in India.
6.3 The IPCL has plant at Nagothane (Maharashtra) in backward and tribal area.
6.4  The Ministry of Chemical and Fertilizer was managing and superintending the affairs of IPCL, who decided to have such industries in backward and tribal area of the nation, so that people of that area can be offered employment and other industrial benefits can be earned.
6.5 The IPCL at Nagathane, was required to give employment to the project affected person (Tribal one and others). Hence decided to raise Ancillary Industries to be formed within 10 kms. radius. Hence tender notice dated 21/2/1992 inviting application for establishing Ancillary Industry for IPCL (Annexure-A, page-20)
Pre Conditions prescribed in Annexure-A
1.  Entrepreneur should be financially sound and technically competent.
2.  Project affected people as per the IPCL's directives should be employed.
6.6 The applicant no.2 of Company Application No.257 of 2007, the employee of IPCL applied for the same and by duly constituted committee selected to be registered as Ancillary Industries. Hence, the opponent IPCL issued the letter of intent dated 9/10/1992 (Annexure-B, page-25). Thus, the contract was entered into between the applicant and the IPCL, thereby as per Clause 5 of (Annexure-A) tender notice and as per Clause 2 of Annexure-B letter of intent, the IPCL is bound to give the purchase orders to the Ancillary Industries at least to the extent of 50% of the total production of the Ancillary Industries. The letter of intent the IPCL has clearly stated that they are declaring and registering the applicant company as Ancillary Unit to IPCL.
6.7   The Ancillary Industry is defined in Section 3(aa) of the Industries (Development and Regulation) Act, 1951 as under:
Ancillary industrial undertakings means an industrial undertaking, which in accordance
with the proviso to Sub-section (I) of Section 11-B and the requirements specified under that sub-section, is entitled to be registered as an ancillary industrial undertaking for the purpose of this Act.
6.7A The "Industrial Undertaking" is defined under Section 3(d) of the said Act, means any undertaking pertaining to a schedule industry carried on in one or more factories by any person or authority including government. And Schedule Industry means any of the industries specified in first Schedule of the said Act.
6.7B The proviso to Section 11(b) of the said Act provides that,
provided that no industrial undertaking said be regarded as an Ancillary Industrial Undertaking unless it is, or is proposed to be engaged in, rendering of services of supplying or rendering, not more than 50% of its production or its total services, as the case may be, to other units for the production of other articles.
6.7C It is submitted that it is amply clear that to be an Ancillary Industry of opponent IPCL, the IPCL is statutorily bound to purchase the 50% of the production of the Ancillary Industry i.e. applicants.
6.8  The applicants, on the basis of the aforesaid agreement, were induced to invest more than Rs.60 lacs (by Rachana Polypack and huge amount by Schon Plastic Pvt. Ltd.) within six months as per terms of Annexure-A and B and established the Ancillary Industry to IPCL by installing the plant machinery industrial shed etc. It is also pertinent to note that a special valve type bag which is highly technical and peculiar production was agreed to be produced as per the stringent specifications given by IPCL, which is one of the mandatory term of the contract. Therefore, a special type of plant and machinery were installed and the production of Ancillary Industry could not be usable to other customers as it was meet only standard for IPCL.
6.9   The applicant Ancillary Industries and other about four industries have employed project affected people to the tune of about more than 500 employees, which were otherwise the liability of IPCL. It is pertinent to note that by way of such agreement the said liability was shifted over the Ancillary Industries and thereby the IPCL has eaten the fruits of the contract, by conveying to the World Bank, that novel way of providing livelihood to the tribal people (project affected people) by raising the Ancillary Industries to IPCL and thereby the establishment of industry causing the development of economy of nation and thereby ultimately the World Bank had extended its aiding hands to IPCL.
6.10  In June, 2002, the Government of India as a part of dis-investment program, divested 26% of its shares in IPCL in favour of Reliance Petro Investment Ltd. (RPIL). The associated of Reliance Industries Ltd. (RIL). Thereafter, RIL chosen to acquire other 20% shares from market. Shri Mukesh D. Ambani become Chairman of IPCL.
6.11  Thereafter IPCL started to commit breach and stopped to give the purchase orders to Ancillary Industries. Hence initially approached to the Hon'ble Disinvestment Minister, while diverting initial 26% shares, where Shri Mukesh Ambani assured to survive the Ancillary Industries of Nagothane. Still however breach committed.
6.12  Hence writ petition before the Bombay High Court at Annexure-D, order of Bombay High Court at Annexure-E that relief claim can be prayed for either in civil court or by way of conciliation -mediation, arbitration. Thereafter, letter-Annexure-F for resolving dispute by arbitration as suggested by Bombay High Court.
6.13  Rachana Polytech of Company Application No.257 of 2007 has filed Special Civil Sit No. 128 of 2007 (Annexure-J, page-81) against IPCL for specific performance of contract (Annexure-A and B), wherein alternatively prayed for compensation / damages to the tune of Rs.3,41,21,000/-. The
prayer is made in para 26 of the plaint at running page 117.
6.14  The applicant respectfully submits that the IPCL has not at all disclosed anything regarding such contractual liability in the proposed scheme of amalgamation. It is pertinent to note that so far as 500 project affected employees employed by Ancillary Industries are concerned, nothing has been stated in the scheme of amalgamation sought to be sanctioned by this Court. The opponent IPCL, virtually a commanding management of RIL, has chosen to commit the breach of the contract and chosen to destroy the entire Ancillary Industries with an ulterior motive to assign such job of production to their related persons. Thus, the transferee company would not honour the contract with Ancillary Industries in as much as they collusively not all disclosed these facts in the proposed scheme of amalgamation. Not only that but they have not provided any thing in the scheme itself except to have a general statement that legal proceeding against the IPCL would be construed as proceeding against the transferee company. As per Section 394 of the Companies Act, the Court is empowered to make the provision while dealing with the issue of sanction of amalgamation scheme pertaining to the transfer to transferee company of the whole or any part of undertaking, property or liability of the transferor company and can also provide for implementing the order of Bombay High Court in real spirit so as to resolve the dispute either by Arbitration method or otherwise. Therefore, it is quite necessary in the interest of justice to impose the condition while sanctioning the scheme that the any contractual liability of IPCL would be construed as if liability belongs to RIL i.e. transferee company and the suits pending against the IPCL in Vadodara Civil Court as well in Raigadh Civil Court required to be construed as if pending against the transferee company and transferee company is required to be directed to meet with the liability in future if any arise by way of decree to be passed by the concerned courts.
6.15 Attention of this Court is invited to the affidavit in reply filed by IPCL at page 121 in Company Application No.257 of 2007 wherein, in para 7, the opponent IPCL, has to some extent considered the position that the contract would be automatically get transferred to RIL upon the scheme being sanctioned but the opponent IPCL has chosen to deny the existence of the contract with Ancillary Industries. Such denial on affidavit is absolutely false one, in as much as the opponent IPCL has admitted the existence of the contract on affidavit before the Raigadh Civil Court in a suit filed by Schon Plastic Pvt. Ltd. the applicant of Company Application NO.255 of 2007. Copy of the order passed below Exh.5 of Raigadh Civil Court is produced while arguing this Company Application and pointed out by reading para 27 of the said order wherein the learned Judge has found in the following manner.
If written statement Exh.21 is looked into, the defendant admit that on various terms and conditions stated in the letters written by the defendant to the plaintiff, the plaintiff was registered as Ancillary Unit in the year, 1991. However, at no point of time plaintiff was given status of permanent or perpetual unit.
6.15A Thus, the IPCL have admitted the existence of the contract before the Raigahd Civil Court, while before this Court in affidavit in reply in para 7, the IPCL chosen to deny the existence of the contract (page no. 123, para-7).
6.16  The IPCL has not made any provision either to award retrenchment compensation to the Ancillary Industry for project affected employees, employed by the Ancillary Industries to the tune of about 500 and there is absolute non disclosure of the said in the scheme.
6.17  The learned advocate has invited the attention of this Court that applicant of Company Application No.257 of 2007, the Rachana Ploypack filed suit for specific performance of the contract and for compensation before the Vadodara Civil Court, by applying Section 19 and 20 of Code of Civil Procedure. It is pertinent to note that the applicant has got statutory rights under the said Section of CPC to file a suit against the defendant IPCL at the place, where the principle/registered office of IPCL is situated namely at Vadodara or can file a suit at the place where cause of action has been arisen. In the instant case the applicant has chosen to file a suit at Vadodara Civil Court, as
the Principle/registered office of the IPCL is situated at Vadodara and thereby by considering to explanation to Section-20 the suit is maintainable within the jurisdiction of Civil Court at Vadodara. There are all possibilities that after amalgamation as the existence of the IPCL would be abolish and as the principle office of the transferee company is situated at Bombay, the transferee company may take a contention before the Civil Court, Vadodara that in view of Section 20 of CPC, the Bombay Court would have only the jurisdiction as the registered office is now not situated at Vadodara. Thus, there are all likelihood to pluck away the statutory rights of applicant, namely right to file a suit at a particular place namely at Vadodara against the IPCL, having its principle office at Vadodara. Thus, the scheme of amalgamation, which take away the statutory right of any litigant, cannot be sanctioned or the Court is empowered under the provisions to protect such statutory rights of the applicant.
6.18 Thus, considering the aforesaid submissions, it is submitted to this Court either to reject the scheme of amalgamation or be kind enough to protect the Ancillary Industries from being destroyed by IPCL or RIL and be pleased to make a provision for protecting the contractual interest of the Ancillary Industry and/or the litigation pending between the Ancillary Industry and IPCL and be pleased to provide for protection of 500 project affected employees, employed by Ancillary Industry, which were and are otherwise the liability of IPCL and be pleased to further protect the jurisdiction of Vadodara Civil Court by holding that, if otherwise the Vadodara Civil Court has jurisdiction then the transferee company cannot raise the contention of jurisdiction on the ground that the principle office of RIL i.e. transferee company is at Bombay and not at Vadodara.
OBJECTION ON BEHALF OF SC/ST EMPLOYEES - BY SHRI RAMNANDAN SINGH, LD. ADVOCATE:
7. Mr. Ramnandan Singh, learned advocate, submitted that there are about five members who belonged to SC/ST category who were working in IPCL who have made representation on behalf of all SC/ST employees. He submitted that when IPCL was a Company it was a Government of India undertaking and in view of Article 16(4) of the Constitution of India, IPCL used to make some resolutions of employees in category of Scheduled Castes/Scheduled Tribes. That continued upto 2002 when the Company was working and thereafter due to demerger reliance took over 26% share of the Company. Even thereafter also Resolution in favour of SC/ST was continued.
7.1 However, when they felt that IPCL is going to be merged with Reliance Industries Limited, Transferee Company, they filed Special Civil Application No. 10045 of 2007 and prayed for certain directions. When the matter reached hearing before this Court, this Court passed order in 8th May, 2007 with direction that SC/ST persons should make representation to the Secretary, Ministry of Chemicals & Petrochemicals, New Delhi and the Secretary, Ministry of Finance - Department of Disinvestment. The learned advocate has submitted that accordingly they already made representation dated 5.6.2007 to both these authorities. He has produced some of the documents. The learned advocate has to file a short affidavit putting those facts on this record. He has prayed that some time may be granted. The prayer is granted. He therefore submitted that whatever arrangement and agreement which was entered into between IPCL and SC/ST employees right from 1969 which was continued till today, the same may be continued. He further submitted that whatever order the Central Government passes in the representation which they filed before the Government of India, the said final order will be binding to the Transferee Company.
WORKERS' SUBMISSIONS: [ Submission of Mr. Girish Patel, ld. sr. advocate]
8.1. As regards Company Application No. 260 of 2007, the same is filed by IPCL Employees Association and IPCL Employees Union. All the applicants are Trade Union of Workers working in IPCL with a prayer to direct the Managements of the Transferor Company and the Transferee Company to hold consultations / discussions / negotiations with the applicants on the issues highlighted by the applicants vide their letter dated 10.4.2007. In support of the same affidavit of senior Vice President of the applicant No. 1 Association has been filed. In this matter this Court passed order on 19.6.2007 that the present application be treated as objection to the scheme.
8.2.  The present Company Application (Company Application No. 260 of 2007) involves the question of fate of about 5000 employees / workmen who have served in the IPCL (Transferor Company) for the last 20 to 30 years, facing the sudden disappearance of their Company and their absorption in Reliance Industries Limited (Transferee Company), a new entity under a different master. The central question raised by the applicants is what is the scope for concern for the workers/employees of the Company or Companies in any scheme of arrangement, amalgamation, compromise etc. within the purview of Sections 391 to 394 of the Companies Act, 1956.
8.3.  Company Petition No. 93 of 2007 is filed by the IPCL praying for sanction of the Court for the scheme of amalgamation of the IPCL Company with Reliance Industries Limited. The IPCL is a leading profit making enterprise. Originally, it was Government of India enterprise, a leading public sector undertaking which was acclaimed as one of the Navratnas. However, as a result of the dis­investment of the Company in about June, 2002, the Reliance Petro-Investment Limited (strategic partner), an associate Company of the Reliance Industries Limited has acquired at present shares of 46.57% in the IPCL. It must be noted that IPCL is a profit making enterprise and did not and does not face any financial problems at the time of proposed amalgamation. Similarly, the Reliance Industries Limited is one of the largest private sector industrial enterprise in India and ranks among world's top 10 producers for most of the products. It can be considered as a giant globalised corporation.
8.4.   It is submitted that the basic features of the proposed scheme of amalgamation are enumerated on page 8 of the Company Petition and the Scheme is reproduced on page 49 (Annexure-G of the Company Petition). As per this Scheme, the appointed date is 1.4.2006. Clause 1.12 defines "undertaking" so as to include "all employees engaged in or relating to transferor Company's business and operations". Clause 4.1 provides for transfer of undertaking of the transferor Company as a going concern with all assets, liabilities, obligations and employees. Clause B(a) deals with rationale for the Scheme namely, to achieve more efficiency, economy, benefit of scale, higher productivity, rational allocation and utilisation of the resources, etc. However, Clause B (Government) reads as under:
The amalgamated entity will benefit from improved organisation capability and leadership, arising from the combination of people from IPCL and Reliance Industries Limited who have diverse skills, talent and best experience to compete successfully in an increasingly competitive industry (pages 18 & 19 of the Company Petition). Clause 7.2 imposes restrictions upon IPCL in the meanwhile (page 68). Clause 8 specifically deals with the employees of IPCL (pages 13 & 70 of the Company Petition). Clause 13 provides for dissolution of IPCL without winding up.
8.5.  The question raised by the Unions is whether did the workers stand in the new amalgamated Company as erstwhile workmen of the IPCL (Transferor Company) and as employees absorbed in the Reliance Industries Limited (Transferee Company).
MAIN CONTENTIONS OF THE WORKERS:
9.(1) The workers being a very important part of a going concern, namely, IPCL, have a right to be consulted or to be taken into confidence (evidence) or who have participated in the amalgamation proceedings going on between the two Companies. In the present case, the workers are not involved at all in the proceedings by the IPCL. Not only that but even they were never informed nor given any opportunity nor was there any response to the written grievances given by the workers of IPCL.
9.(2) The Scheme amalgamation in question does not even mention the right or freedom of workers regarding the option whether to join the transferee Company or not. Their main question is if any workman is not interested in joining the Reliance Industries Limited (Transferee Company) what would be the nature of his refusal? Would it be resignation, termination, or retrenchment? The
scheme and the prayer made by the Company before the Court simply provides that the workers of IPCL shall become the workers of the Reliance Industries Limited on the granting of sanction. This amounts to treating the workers as simply chattels who can be shunted from one place to other.
9.(3) Even if the IPCL clarifies that the workers have freedom not to join the Reliance Industries Limited, this option is in fact illusory as the workers have worked with IPCL for the last 20 to 25 years and at this stage, they cannot get out and do not have good prospects for any alternative employment. The plight of the workers at this stage makes it more important and necessary for conclusion with the employees by the IPCL when the scheme of amalgamation is proposed and negotiated.
9.(4) As the workers of IPCL are directly affected by the Scheme of amalgamation and when by virtue of the scheme the employees of IPCL will become the employees of the Reliance Industries Limited and when the prayer of the IPCL before the Court in its Company Petition is for an order of the Court to declare that the employees of IPCL will become the employees of Reliance Industries Limited, in other words when they asked for the order of the Court to this effect, the workers have every right to raise objections and come before the Court and there can be no objection against the right of the workers who appear in the Court and object in any scheme of amalgamation, the workers have a locus standi to object to the scheme either in whole or in part.
9.(5) The existing rights and interests of the employees of IPCL with inbuilt potential development or growth have not been properly considered, discussed and protected. Mere Clause 8 in general terms does not satisfy the grievances of the workers.
9.(6) That part of Clause 8 which is described by the IPCL as only clarificatory is absolutely obnoxious, unjust and confiscatory of the rights of the workers. The IPCL which is the employer of the workmen has no business to tell the workmen that even though he becomes the employee of Reliance Industries Limited, he will not be entitled to any scheme of employment or other benefits available to the employees of Reliance Industries Limited.
9.(7) The workers of IPCL may not perhaps claim that there must be guarantee against future events but have every right to raise questions regarding the immediate impact of the transfer of employees from IPCL to Reliance Industries Limited and they have not been sufficiently taken care.
9.(8) The specific concerns expressed by the workers of IPCL before IPCL and before the Court can be taken of and ought to be taken care of at the very stage of amalgamation and for these grievances, they cannot be compelled to wait for complete amalgamation and avail of alternative remedy like Labour Court etc.
9.(9) If the legitimate rights and interests of the workers of IPCL have not been fairly, reasonably, and justly considered, that part of the Scheme is definitely against the public interest and public policy.
THE LEARNED SR. COUNSEL'S FURTHER SUBMISSION:
10. It is submitted that the principal contentions of the applicants on behalf of the workers of IPCL should be understood and appreciated in the context of the development in the sphere of corporate system, Company Law and World Economic System. It is, therefore, submitted that while dealing with the contentions of the workers, the following aspects are very important.
10.1  One of the central questions of Company Law discussed in the various countries and in India:
10.2  Have workers no place in the affairs of the Company except as sellers of wage labour? Are they considered as dead assets to be treated like machines, goods, buildings, contracts, assets etc. or
are they required to be treated as living human beings who spend large number of years with the Company?
10.3 The important distinction between labour and capital (capital coming from shareholders and creditors) is that in the case of capital, the owner can be separated or delinked from the capital but in the case of labour, their physical and mental labour cannot be separated from human personality. A company is not merely purchasing wage labour but is engaging a total human being.
10.4. It is also recognized that a modern corporation or a company is not a business enterprise working for profits only but is a living social institution and integral part of socio-economic life of the community and therefore its birth, death, success or failure, working methods, operations, and dealings have wild repercussions in the society and are not confined to the economic interest of those who have supplied capital. It is also recognized that a modern corporation has to recognize, respect and promote not only the interest of shareholders or creditors but of different classes of people in the society. The important elements of modern corporation are promoters, shareholders, creditors, directors, manager, workers, consumers, State, society and the world. For example, the Company Law has to tackle the problems of shareholders' genuine democracy and workers' participation in the management.
10.5  In the age of new economic policy viz., liberaliation, privatisation, and globalisation and in the light of the rise of giant model, national and multi-national, the working and dealing of these Corporations cannot be completely left to themselves and cannot be considered as purely internal matters of the Corporation and their Directors and shareholders. These Corporations are in the modern world very important centres of private power - sometimes more powerful than the States themselves. Therefore, the question of social responsibilities of the modern Corporation and the availability of the basic human rights against these Corporations known as non-State actors are the burning problems of new International Law of Human Rights and Constitutions in many countries.
10.6  It is also recognised that a modern enterprise is the result of combined efforts of labour and capital. One cannot work without the other and therefore they are considered as almost partners in the business enterprise. Both equally contribute to the productivity of the company and its development and therefore equal status of both is recognized and must be recognized by the dynamic Company Law. Just as shareholders claim that "X" or "Y" is their Company, the workers also have a legitimate right to claim that "X" is their Company. In fact, the workers are much more important than capital because as living human beings, they spent the most fruitful years of the life with the Company. Their very existence, their life, their identity, their personality and their future are intimately connected with the Company's life. Shareholders ultimately in the modern world are considered as mere passive recipients of dividends and nothing more. While the workers' life and every day of the working years are associated with the working of the Company. It is, therefore, submitted that the very life and death of the company are of great importance to the workers and therefore the workers in a Company Law cannot be totally ignored.
10.7. Even the Constitution of India and the statutory laws of the country have also recognized the rights and interests of the workers in a modern corporation and society.
(a) Art. 43A of the Constitution of India provides "the State shall take steps, by suitable legislation or in other way, to secure the participation of workers in the management of undertakings, establishments or other organisations engaged in any industry". This is one of the Directive Principles of the State Policy and is declared to be a fundamental principle in the governance of the country and is equally of importance to the Courts administering justice.
(b)   The Hon'ble Supreme Court of India has also interpreted Article 21 of the Constitution of India, right to life as right to know merely to existence but right to live with human dignity and has included a number of Directive Principles of State Policy as
the constituent element of right to life. One of these is the empowerment of the workers. How workers are treated by their Company and by the Company Law is certainly a matter of human dignity and no one can be a party to any practice or rules which are derogatory to the dignity of a human being.
(c ) He submitted that Articles 39 of the Constitution of India provides certain Directive Principles of State Policy to be followed by the State, namely that men and women equally have the right to an adequate means of livelihood; that the ownership and control of the material resources of the community are so distributed as best to subserve the common good; that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and others. Article 41 provides right to work, to education and to public assistance in certain cases by the State. Article 42 provides provision for just and humane conditions of work and maternity relief. Article 43 provides living, wage, etc. for workers. Article 46 of the Constitution of India provides promotion of educational and economic interests of Scheduled Castes, Scheduled Tribes and other weaker Sections. All these Articles lay down various essential rights of workers which are considered to be the constituent element of right to live with human dignity in various judgements of the Hon'ble Supreme Court.
(d)  He has also invited the attention of this Court to the provisions of the Industrial Disputes Act, 1947 particularly Section 3A which has been introduced by Gujarat 21 of 1972 with effect from 20.1.1973 which provides Joint Management Council. Section 3B provides functions of the Council. The said amended Section 3A provides for establishing Joint Management Council representing the employer and the workers and has tried to implement Article 43A by way of statutory provisions securing workers' participation in the management.
(e)  Even Chapters 5-A of the I.D. Act provides for lay off and retrenchment and 5-B provides for special provisions relating to lay off, retrenchment and closure in certain establishments. The said Chapters 5A and 5B of the I.D. Act have made specific provisions with respect to the power of the management to effect lay off and to retrench the workers or to close down the industry. These are the co-issues of the traditional right of the management but the Act has also intruded into the realm of managerial prerogative by prescribing the necessity of prior permission before any such actions taken by the management.
10.8  It is, therefore, submitted that while interpreting Sections 391 to 394 of the Companies Act, and particularly the workers concerned in the scheme of amalgamation between two Companies, the Companies themselves and the Court and to take into consideration these latest developments in the world of Company Law particularly towards participatory management on the part of the workers and humanisation of law.
10.9 The learned advocate has relied on the following decisions:
(1)  Municipal Council, Damoh v. Vraj Lal Manilal & Co. reported MANU/SC/0160/1982
(2)   Subhash Chand Jain v. Delhi Electric Supply Undertaking and Ors. reported in MANU/SC/0364/1978
(3)   Gujarat Kamdar Sahakari Mandal and Ors. v. Ramkrishna Mills Ltd. (1998) 92 Company Cases pages 692 & 711.
THE ROLE OF THE COMPANY UNDER SECTIONS 391 TO 394 OF THE COMPANIES ACT:
11.  The different leading judgements of the Hon'ble Supreme Court and the High Courts have specifically dealt with and determined the specific role of the Company Court while granting sanction to any scheme of arrangement, compromise and amalgamation in relation to a company under Sections 391 to 394 of the Companies Act. The basic principles which emerged from these judgements are as under:
11.(1) Under Sections 391-394 of the Companies Act, in the case of arrangement, compromise and amalgamation in relation to a company, the application can be made only by the shareholders or creditors.
11.(2) If in such scheme the sanction of the Company Court is a mandatory requirement.
11.(3) Unlike United Kingdom, the Scheme of amalgamation is not left to the shareholders and creditors but the law recognizes the importance of concerns over and above the interest of shareholders and creditors and their monetary interest.
11.(4) It is also established that the Company Court is not merely a rubber stamp or a registering authority but has an independent supervisory role to ensure that all statutory requirements are complied with, that the scheme is just, fair and reasonable which prudent business management would approve, and the scheme is not opposed to public policy or public interest.
11.(5) Therefore, the Companies Court has a dual role (1) as an umpire to ensure that the claim is fairly played and is not guided merely by the simple majority role, all interests are properly considered and consulted and represented; and (2) as protector of public policy or public interest.
11.(6) Though it is recognized that the Company Court does not have appellate power while sanctioning the amalgamation scheme but only supervisory power, this supervisory power as is pointed out above is not merely power of rubber stamp or registering amalgamation scheme. Supervisory power is itself an important power of the Court.
11.(7) Moreover, this power of the Court is not merely one-time supervision but even continuous supervision to see that the compromise or arrangement is carried out under Section 392, the Court has got power to give directions or make suggestions in the scheme as it may consider necessary for the proper working of the compromise or arrangement. And this power can be exercised by the Company Court not only at the time of sanction but also at any time thereafter.
WORKERS' POSITION AND STATUS IN THE PROPOSED SCHEME OF AMALGAMATION:
12.   It is submitted that the workers of the Company or Companies proposing any scheme of amalgamation and praying for Court's sanction have an important role to play.
12.(1) A scheme of amalgamation is not a unilateral scheme or action by one company only like internal organisation or arrangement but as a result of agreement between the Transferor Company (IPCL) and the Transferee Company (Reliance Industries Limited). It is in fact an agreement between the shareholders and creditors of both Companies and the terms and conditions of the scheme are the subject matter of negotiation between the two Companies and are not dictated by one company alone. Both Companies jointly work out the proposed scheme and then, after securing the consent of necessary parties, approach the Court for sanction. If this is the situation, the workers of the Transferor Company, (IPCL) can become a topic of mutual discussion not merely by Transferor Company but also by Transferee Company. In such mutual agreement of transfer between two companies, the workers of one Company cannot be totally ignored or excluded. And there is no statutory prohibition in the Companies Act excluding the workers completely from participation in the proceedings. The fallacy of the judgements arises from the defective approach to consider the scheme as if it is a unilateral act by the transferor Company.
12.(2) Once the Company presents the scheme of amalgamation before the Company Court and once the Company Court grants sanction, the scheme does not simply remain an agreement binding upon those who agree but becomes binding upon all whether they agree or not. Therefore, while sanctioning the scheme of amalgamation if the Court would perform the role of sanction, the Court can very well consider the concerns interests and rights of the workers of the Company.
12.(3) As a result of the amalgamation, the undertaking of the transferor company is completely transferred to the transferee company and this undertaking will also include all its workmen and secondly the transferor company will be dissolved without being wound up.
12.(4) As a result of amalgamation, the transferor Company will completely cease to exist and its identity is completely lost and after amalgamation, the transferee company becomes a new entity as a result of combination of both the Companies. It will have new identity, new structure, new set up and it will have a clear and large impact upon the workers of the Transferor Company because the employer of the employees goes out and the employees get a new employer under whom they have to work. As they are not merely passive absence recipient of dividends or claims of their credits and interest but they have to work with new company, they are vitally interested in their position in the new set up.
12.(5) If the scheme of amalgamation is considered and the Company Petition is looked at, the employees of IPCL will become directly the employees of Reliance Industries Limited and this will be not by virtue of the agreement of the workers but by the scheme of amalgamation undertaken by the two companies and by virtue of the sanction to be given by the Court.
12.(6) It follows that if this is going to be the impact of amalgamation upon the employees of IPCL, they cannot be treated like chattels to be bought and sold at the whim of the employer nor can they be treated like slaves.
12.(7) The scheme of amalgamation is ultimately a scheme of rationalisation of the organisational and operational system of a company and right from the beginning, the matter of rationalisation always involves the conflict between the employer and the workers. While the employers want flexibility, freedom of action, desire for rationalisation and economy, restructuring and reallocation, diversion of resources from one area to another area, mere economic and rational utilisation of resources etc., the workers always are interested and demand reasonable security of service, steady and increasing wages, reasonable protection against insecurity and uncertainty etc. Traditionally, the former is put in the realm of Company Law and the latter is always included in the sphere of Industrial Law, as it is rightly said that managerial prerogatives under the Company Law are tampered with insurgency of the labour.
12(8) It is therefore submitted that the Company Court dealing with any question regarding Company Law and particularly the scheme of amalgamation ought to consider the different laws operating in the field and reconcile the conflicting interest and create a balance, as it is said the law is a science of social engineering.
12.(9) As the Company Court is statutorily concerned with the public interest aspect of the scheme of amalgamation, the workers' interest also must be considered because (1) the interests of the workers constitute a part and parcel of fair, just and reasonable scheme and part of public policy (2) public policy or public interest does also include workers' interest who represent a significant section or segment of the company (3) public policy also includes constitutional policy and while discussing the question of public policy, the Court also has to keep in mind the constitutional policy as declared in the Preamble Part III (fundamental rights) and Part IV (Directive Principles of State Policy and Part-IVA (fundamental duties). Participation of workers in the management, workers' dignity and workers' rights are therefore a part and parcel of constitutional policy and the Company Court, a part of the High Court, cannot ignore this constitutional policy, (4) even a prudent business management test does require serious and sensitive concern for the interest and rights of the
workers because the satisfaction and welfare of the workers is an essential part of sound management policy. Discontent, disgruntle, alienated and segregated work force cannot be considered to be in the interest of enterprise. The scheme of amalgamation between IPCL and Reliance industries Limited has discussed the rationale of amalgamation. Clause B(g) on page 18 of the Company Petition refers to one advantage viz. "The amalgamated entity will benefit from improved organisation capability and leadership, arising from the combination of people from IPCL and Reliance Industries Limited who have diverse skills, talent and best experience to compete successfully in an increasingly competitive industry".
12.(10) The simple question of the workers of IPCL (Transferor Company) is therefore that if the Reliance Industries Limited (Transferee Company) is going to have the benefit of diverse skills, talent and experience of IPCL employees which will be used in the transferee Company, why can their interest (i.e. workers) be not considered at the stage of amalgamation even with regard to the transferee Company. If the Transferee Company, Reliance Industries Limited is going to have the benefit of the employees of the IPCL, it must also be prepared to accept the responsibility towards these workmen and assured in the scheme itself.
12.(11) The relevant judgements covering the interest of workers are:
(1)  Panchmahals Steel Ltd. v. Universal Steel Traders reported in 46 Company Cases 706 (Coram: D.A. Desai, J)
(2)  In re Hathising Manufacturing Company Ltd. (In Liquidation reported in (1976) 46 Company Cases p. 59 - p. 66 (D.A. DESAI, J)
(3)  Mansukhlal v. M.V. Shah, Official Liquidator, Liquidator of Hathising MFG. Co. Ltd., (In Liquidation) and Ors. reported in (1976) 46 Company Cases 279 (D.A. DESAI, J)
(4)   Hindustan Lever Employees Union v. Hindustan Lever Ltd. and Ors. reported in (1995) 83 Company Cases p. 30 - p. 39 (SC)
(5)  GUJARAT NYLONS LTD. reported in 1992(1) GLH p. 637
(6)  In re Narmada Chematur Petrochemicals Ltd. unreported judgement in Company Petition No. 147 of 2006 decided on 9.1.2007 by this Court (Coram: M.R. Shah, J).
(7)  Blue Star Limited (2001) 104 Company Cases p. 371.
12.(12) It is submitted that the first three cases, namely, Panchmahals Steel Ltd. v. Universal Steel Traders (supra); In re Hathising Manufacturing Company Ltd. (In Liquidation) (supra); Mansukhlal v. M.V. Shah, Official Liquidator, Liquidator of Hathising Mfg. Co. Ltd., (In Liquidation) and Ors. (supra) show concern for the workers while the latter cases, namely, Hindustan Lever Employees Union v. Hindustan Lever Ltd. and Ors. (supra); Gujarat Nylons Ltd. (supra); In re Narmada Chematur Petrochemicals Ltd. (supra); Blue Star Limited (supra) deal with the rights and interest of the workers in the transferor Company. It is submitted that these later cases have considered the interest and welfare of the workers as one of the concerns of the Company Judge and in a given case, they have held that the particular clause takes care of the workers' interest but ultimately the Court was concerned with the fair treatment and what is fair treatment or what are the standards of fairness cannot be mechanically laid down and have not been laid down by any of the judgements. If the judgements are read as a whole, the Court's consideration of the clause regarding protection of existing rights and the statements made by the Companies' lawyers regarding assurance to the employees, it might satisfy the requirement of fair treatment in that case.
12.(13) It is submitted that thus while considering the question of fair treatment to the workers,
various aspects have to be considered and fair treatment is not a strait-jacket formula to be applied mechanically. Ultimately, it depends upon the facts and circumstances of the case.
The grievances and demands of IPCL before the IPCL (Transferor Company) and before this Court: EFFECT OF SCHEME ON WORKERS:
13.(1) It is submitted that as the scheme of amalgamation of IPCL with Reliance Industries Limited will have a deep and pervasive impact upon the position and status of employees of IPCL and as the employer of the workers will be changed from IPCL to Reliance Industries Limited, and as by virtue of the scheme itself and the order of the Court, the employees of the IPCL will become the employees of the Reliance Industries Limited, the employees of IPCL have clear legal standing or locus standi to object the scheme of amalgamation. Secondly, the statutory provisions of the Indian Companies Act do not specifically and explicitly or even by necessary implication prohibited the standing of the workers in such proceedings under Sections 391 to 394. It is strange that the transferor and transferee companies pray for forcible transfer of workers of IPCL to Reliance Industries Limited and yet they challenged the very standing of the workers to object the same. This Court's (Coram: M.R. Shah, J) judgement mentioned above specifically recognizes the locus standi of the workers. The Bombay High Court in KAMANI EMPLOYEES UNION case reported in (2000) 1 Company Law Journal p. 351 specifically recognized the right of the workers and locus standi of the workers and various other judgements cited while considering objections of the workers except the standing of the workers.
13.(2) It is further submitted that by virtue of Clause 8 of the Scheme, the employees of the IPCL from effective date shall directly become the employees of Reliance Industries Limited and similarly the Company Petition of IPCL also prays for the order of the Court to make the employees of the IPCL employees of the Reliance Industries Limited. The Scheme does not even whisper about choice of freedom of the workers. It is well recognized (referring to the decision in the case of Nokes and Okes v. Doncaster Amalgamated Colliries 11 Company Cases 83 and Jawaharlal Nehru University v. K.S. Jawatkar reported in MANU/SC/0241/1989 that the workers of one employer company cannot be forcibly transferred to another employer or employee company. This will be nothing but bonded labour or slaves. This also shows the approach of the Companies towards their employees. When the Company is transferring its employees to another employer, the Company does not have even courtesy to ask them whether any of them would like to join the new company or not. It is not a question of only choice but it is a question of dignity of the person himself.
13.(3) As a result of this absence of choice or option, the workers have a legitimate concern viz., if any worker does not want to join a new company, what will be the nature of his refusal or unwillingness? Would it be abandonment of job, resignation, termination or retrenchment, the workers' right depend upon the answer to this question and suppose the workers refuse to join and if it is treated as retrenchment, who will pay the retrenchment compensation, whether IPCL or Reliance Industries Limited.
13.(4) It is submitted that the scheme is totally silent on this aspect and therefore is defective.
13.(5) It is true that even if the scheme provides for option whether to join or not to join the transferee Company viz. Reliance Industries Limited, the option will definitely be illusory for most of the workers because it takes away their very means of livelihood. The employees have worked with IPCL for 20 to 25 years and after such long service and at middle age, it is absolutely unjust and cruel for the Companies not to worry about their future. The workers cannot easily ge out and seek jobs in the economy of unemployment. Therefore, from both the points of view, viz., silence about the scheme of option recognizing in principle the very dignity of the workers and their freedom and the unfortunate reality of unemployment which unwilling workers will have to face, the scheme is unfair, unreasonable and unjust as it fails to take into consideration the serious concerns of what can be described as captive workers. It amounts to nothing less than exploitation of and
j^manupatra*
blackmailing the workers. This inequitable part has to be considered.
13.(6) It is submitted that considering the absence of option offered by the Company on the event of amalgamation and the illusory character of option if given, it follows that the workers of IPCL are entitled to be consulted in the process of negotiations of the amalgamation. In the present case, the workers have never been informed about the proposed scheme of amalgamation, they have never been given any details of the same, they have been kept far away from the negotiation proceedings, they have never been given notice regarding the same nor the opportunity to represent the case and never allowed to participate. The workers' submission is that not only that they have right to come to the Court by raising objection to the scheme after scheme is finalized but they have also right to make representation and to be involved when the scheme itself is considered by both the Companies. This is the very essence of fair treatment. It may be that the workers' demand may not be considered fully or partly but that cannot exclude the workers totally from the negotiating table. The scheme must be fair, just and reasonable and in law and aspect which is more important even then the content of the scheme is the procedural aspect viz., participation of the workers in the process. In other words, the aspect of rational decision making process.
13.(7) This participation of the workers before the stage of amalgamation is required for two reasons - (1) the right of human dignity demands it - what is known as intrinsic value of natural justice in the wider sense of participation and (2) the workers having long experience and skills can definitely contribute more significantly to the nature of the scheme and the advantage of the transferor Company in any scheme of amalgamation and particularly in the bargaining process. And this contribution of the workers who are inside the Company for the last 20 to 25 years will be of greater value when the participation of the exclusive shareholders and dividend seeking creditors.
13.(8) It is submitted that these two contentions of the workers, viz., their demand for being heard by the Court itself and their demand for being consulted by the Company itself are totally different from each other. The first is the question of natural justice before the Court, the second concerns the right of broad participation of the affected persons in the decision making process by the company itself. The present proceedings have denied the workers both the things.
13.(9) It is submitted that as the employees of the IPCL have served the Company for a long period and the IPCL is benefited from their devotion and commitment to work and sincerity and from their experience, skills and knowledge, the successful working of the IPCL and its recognition as one among "Navratna" is certainly attributed to the hard and committed work of the employees. When the transferor Company in its legal form decides to extinguish itself and merge into another company, that transferor company as a model employer having been benefited by the workers has a duty of fair representation of its workers' interest in any bargaining process with the transferor company. The workers of IPCL before amalgamation cannot directly ask for protection of their rights and interest from the transferee company which has still not become their employer but they have a legitimate right to expect and demand their interest and rights as employees of transferor company will be properly represented by their employer IPCL and IPCL who extracts as much advantage for the workers as possible in any bargaining process. In this task, the IPCL has totally failed and it is respectfully submitted that while considering the impact of the scheme upon the workers of IPCL, the Company Court should also consider the failure on the part of the IPCL to act as a real spokesman of the workers (1) workers' existing rights and (2) workers' interest in the Reliance Industries Limited (Transferee Company).
13.(10) As regards the existing rights of the employees of the IPCL, Clause 8 provides four things (1) no break or interruption in service i.e. continuity of service; (2) the terms and conditions shall not be less favourable than those in the transferor company; (3) respecting all settlements, agreements etc., between the employees of the IPCL and IPCL; and (4) Pension fund, Provident Fund shall be transferred to the Reliance Industries Limited.
13.(11) It is submitted that this is a general clause seeking to protect the interests of the workers of
IPCL but the terms and conditions of employment are complex and unless they are analyzed in specific details, a general omnibus clause cannot effectively deal with various rights and interests provided for and protected by the terms and conditions of employment. Moreover, these terms and conditions are not stagnant but there is also inbuilt scope for development.
13.(12) This is reason why the employees of IPCL came to know about the proposed scheme of amalgamation (it must be noted that they were never informed nor were they given any notice nor were they invited for any discussion), they submitted representations to the IPCL regarding their position and wrote a letter dated 10.4.2007 (Annexure-V to the Company Application p. 98) to the IPCL enumerating a number of their concerns, uncertainties apprehensions if the amalgamation scheme goes through.
13.(13) Unfortunately, the transferor Company viz., IPCL even in the early stage of the proceedings of amalgamation, did not even bother to take note of this representation dated 10.4.2007, did not even spare time to give in writing its response, not to say about calling them for discussion. The IPCL therefore seems to have taken view by providing a general phrase or a clause workers will be satisfied.
13.(14) The employees have specifically dealt with each grievance or complaint or concern and during the course of arguments before the Court, they have given a detailed analysis of each of the concerns and demand of the workers. These demands do not pertain to the future demands by the employees after amalgamation but they are the grievances to be responded to and to be dealt with at the very stage of amalgamation, so that the workers may know what their position is from the effective date.
13.(15) It is further submitted that when the IPCL was contemplating and was taking steps for proposing and carrying out a scheme of amalgamation with the Reliance Industries Limited, the IPCL ought to have taken the workers into confidence, called them for discussion and should have tried to settle all rights arising from the existing rights so that the workers can look forward to better prospects in a new company, as it is pointed out about that the rights are not stagnating but they are growing and the workers' grievance was that by simply providing that the workers will continue to be employed on terms and conditions not less favourable will not meet the legitimate grievance of the employees because it would mean that the workers' rights and interests would be stagnated and would be fossilised.
13.(16) It is natural that if IPCL were in real sense an independent entity, it would have perhaps dealt with the workers' grievances, settled the demands before the scheme of amalgamation but in the present case, IPCL itself is controlled by the Reliance Industries Limited, it was not interested in settling the demands of the workers before amalgamation. The embargo upon the IPCL (Transferor Company) against changing the terms and conditions of the employees without explicit consent of the Reliance Industries Limited during the period between the date of filing the application and effective date makes it impossible for IPCL to settle the demands of the workers before amalgamation and the result would be that even the existing terms and conditions will be thrown out to the mercy of the transferee Company.
13.(17) So the grievance of the employees of IPCL regarding their existing position is best summarized as under:
13.(18) As regards the provident funds, pension funds, superannuation funds, etc. the scheme provides for protection of the funds to be utilized for the benefit of the employees of the IPCL but the scheme gives discretion to the Reliance Industries Limited (Transferee Company) to keep these funds of IPCL employees either separately or to mix up with the similar funds of the Reliance Industries Limited. This is not acceptable to the employees of the IPCL because merging of these funds of IPCL at Vadodara with the similar funds of Reliance Industries Limited at Mumbai will create several practical problems for the IPCL employees to whom these funds belong.
13.(19) As regards the IPCL employees' position in the transferee Company on the coming into effect of the scheme, the IPCL employees have strong objection to that part of Clause 8 which reads as under:
13.(20) "It is clarified that the employees of the transferor company who become employees of the transferee Company by virtue of this scheme, shall not be entitled to the employment policies and shall not be entitled to avail of any schemes and benefits that may be applicable and available to any of the employees of the transferee company (including the benefits of or under any Employee Stock Option Schemes applicable to or covering of or any employees of the transferee company), unless otherwise determined by the transferee Company". This provision in Clause 8 is seriously objected to by the employees of the IPCL on the following grounds:
(a)  The first part of Clause 8 declares that the employees of the IPCL will automatically and directly become the employees of the Reliance Industries Limited (Transferee Company) as a result of the Scheme of amalgamation but the second part of the clause says that you will not be eligible or entitled to the benefit of employment policies or other benefits etc., available to the employees of the Reliance Industries Limited. It is submitted that this is a contradictory provision in the same Scheme. By one hand, IPCL employees become the employees of Reliance Industries Limited and by other hand, they are prevented from the benefit of the employees of the Reliance Industries Limited.
(b)   It is expected that IPCL as the employer of the IPCL employees should have considered and given serious thought to the position of its own employees in the transferee company upon amalgamation. Instead, the IPCL (Transferor Company) seeks to protect and look after the interests of the transferee company by preventing its own employees from getting the benefits of Reliance Industries Limited. What business has the IPCL which is going to die to lay down this condition for the employees who are going to be transferred to Reliance Industries Limited?
(c) This part of the clause will block the future claims of the employees of the IPCL when they demand the benefits available to the Reliance Industries Limited employees. The question is not whether the IPCL employees can claim the benefits of Reliance Industries Limited employees in future and will get the same or not is a different question but at the very stage of amalgamation, the workers of IPCL cannot be blocked and prevented from claiming such benefits by a provision in the scheme itself which will be binding upon all persons. It means that in future also when erstwhile employees of IPCL would claim such benefits from Reliance Industries Limited, this clause will be used to prevent the workers from claiming such benefits because this prohibitory clause will be binding upon the employees of IPCL. The right of the IPCL employees to raise demands for equality before Reliance Industries Limited is sought to be taken away permanently at the very outset. This is obnoxious and cannot be permitted.
(d)   On the one hand, it is argued that it is not the function of the scheme of amalgamation at the stage of sanction to provide for your future rights in the transferee Company but at the same time this very scheme of amalgamation in its inception, prevents us from demanding benefits of Reliance Industries Limited employees. If the scheme can provide for such a prohibitory clause, it can very well provide for the permissive clauses and enabling clauses for the IPCL employees to claim such status. It is, therefore, not true to say that considering the rights and interests of the transferor Company as regards the transferee Company after amalgamation cannot be a part of the scheme and would not fall within the company jurisdiction under Sections 391-394 of the Companies Act.
(e) This part of the clause is also unjust and unfair because the transferee Company will enjoy all the benefits of the experience, talent, skills and training of the IPCL employees
after amalgamation but Reliance Industries Limited would not guarantee any rights or interests to the IPCL employees.
(f)   It is the legitimate concern of the IPCL employees which must be taken into consideration viz. how shall the IPCL employees be treated in Reliance Industries Limited after amalgamation? The IPCL employees cannot be segregated as a distinct species to be preserved till extinction. The demand of the IPCL employees is that after the amalgamation, they cannot be treated as second class employees.
(g)  Moreover, it is forgotten that after amalgamation, the IPCL employees are concerned in two different two things: (1) the immediate impact of amalgamation, and (2) their future demands. It may be that the demands which might be made by the employees in future, may be taken care of by approaching appropriate forum, such as demand in rise of wages or better conditions of service but the questions regarding immediate impact are not of this character, such as the benefit of the IPCL employees in the Reliance Industries Limited set up, the question of their seniority, the question of their promotions, the status of the unions and their recognition etc. As they are immediate impact of amalgamation, it has been found that in a large number of statutory organisations or amalgamation, the statute or the subordinate legislation specifically deal with the adjustment of the rights of the different companies or entities to be organized or amalgamated e.g. the nationalisation of Life Insurance Corporation or General Insurance Companies.
Additional submission of learned Counsel Mr.Girish Patel on behalf of workers of four trade Unions after Mr. K.S. Nanavati, ld. sr. counsel's reply to the above submission in rejoinder)
14. The proposed Scheme of amalgamation should not be sanctioned till the following directions are complied with:
14.(1) The issues raised by the applicants are resolved to the satisfaction of the applicants.
14.(2) The Managements of the Transferor Company (IPCL) and the Transferee Company (Reliance Industries Limited) hold discussions/consultations/negotiations with the applicants on the issue highlighted by the applicants vide their letter dated 10.4.2007 (Annexure-III) and other issues that they raise.
14.(3) The workers of the Transferor Company (IPCL) before being automatically transferred, must be given option of retrenchment and/or retirement scheme with all the incidental payments if any of them does not want to join the Reliance Industries Limited and the IPCL and Reliance Industries Limited accept the unwillingness to join the Reliance Industries Limited as retrenchment under the Industrial Disputes Act, 1947, with all legal payments including retrenchment, compensation or he must be offered all benefits of voluntary retirement.
14.(4) Clause 8 of the Scheme must also include the provisions with respect to grievances of the applicants contained in their letter of 10.4.2007 and other issues that the applicants may raise and as agreed upon by the parties.
14.(5) The Provident Funds, Pension Funds, etc. mentioned in Clause 8(b) of the IPCL must be kept separate and should not be merged except with the consent of the applicants.
14.(6) All disputes arising from the present settlements/agreement which the Reliance Industries Limited has agreed to abide by must be resolved before the Scheme is sanctioned.
14.(7) The objectionable part of Clause 8 beginning with "It is clarified" and ending with "Transferee
Company" must be deleted.
14.(8) The Transferor Company (IPCL) and Transferee Company (Reliance Industries Limited) should agree that all questions arising from the immediate impact of the amalgamation such as position of workers in the Reliance Industries Limited set up, seniority, promotion, status of Union etc. should be amicably resolved in consultation with the applicants. The issues are different from the future claims which the employees of IPCL may raise.
14.(9) The IPCL workers represented by the applicants must not be denied the benefits which are given to the Reliance Industries Limited employees or which may be given in future, simply on the ground that they were once employees of IPCL. They should not be denied the benefits of equal treatment with Reliance Industries Limited employees.
14.(10) The first part of Clause 8 regarding the "terms and conditions" should not be understood as keeping them stagnant and fixed for all time to come. The workers of IPCL should have freedom to demand better terms and conditions or to demand full integration with the employees of Reliance Industries Limited as per their choice.
14.(11) The reservation policy applied by the IPCL before disinvestment and assurance of "best efforts" given by Strategic Partner Reliance Petrochemicals and/ disinvestment will be continued after amalgamation by Reliance Industries Limited.
14.(12) The solemn responsibility undertaken by IPCL at Nagothane as regards employment guarantee to the project-affected persons must continue to be the responsibility of RIL after amalgamation.
14.13.  This Court may be pleased to declare that the employees/workmen of IPCL, Transferor Company, have standing to object to the scheme before the Court.
14.14.  This Court may be pleased to declare and hold that the employees/workmen of Transferor Company (IPCL) and transferee Company (Reliance Industries Limited) have a right to participate at all stages of amalgamation as the scheme is not a unilateral action of IPCL, but is a result of agreement i.e. right to be consulted and involved in the proceedings both by the Companies and before the Court.
14.15.  This Court may be pleased to give directions or suggest necessary modifications in the scheme so as to make it workable and which are necessary in public interest.
Final Submissions of Mr.Girish Patel: In Sur-rejoinder:
15. Mr. Patel, ld. Advocate, has made further submissions after he received submissions from the Company and made additional submissions as under:
15.1 It is submitted that the contention of the petitioner regarding the application and effect of Section 25FF of the Industrial Disputes Act, 1947 in the case if IPCL employees is absolutely misconceived in law. The fear of the workers of IPCL have turned out to be true when the IPCL, the petitioner states that under Section 25FF if the employees of the transferor company are continued in the transferee company, they will not be entitled to any retrenchment compensation under Section 25FF and if they refuse to join the transferee company, they will also not be entitled to benefit of retrenchment compensation. This interpretation of the petitioner company is not correct. If the interpretation sought to be made by the petitioner company viz., that once the IPCL employees become the employees of Reliance Industries Limited by virtue of the Scheme and the order of this Court, and if they refuse to join the Reliance Industries Limited, they will not be entitled to any retrenchment compensation, is correct, it clearly brings out the forcible nature of the
transfer of IPCL employees from IPCL to Reliance Industries Limited. As per the interpretation of the petitioner company, the employees of IPCL will have no option to or not to join the Reliance Industries Limited because if they refuse to work under the new employer imposed upon them, the refusal will not be treated as retrenchment and the employees will not be entitled to any retrenchment benefit after long service with IPCL. It means that the IPCL employees have to join the Reliance Industries Limited under a scheme by the IPCL in which the workers have no say and by virtue of the order of this Court.
15.2 This contention of the petitioner company shows two important points. One, if this is the effect of the scheme of amalgamation in the order of the Court, it clearly shows the absolute necessity of consultation by the IPCL with its employees before taking any decision regarding amalgamation so that all the consequences of the amalgamation can be discussed and adequate provisions can be made in the scheme for the protection of the interest of the IPCL workers. The employees could have insisted that the workers must be free to join or not to join the Reliance Industries Limited and if they do not want to join the new company i.e. Transferee company, they would be given the benefits of retrenchment or they will be given the benefit of voluntary retirement scheme. This could not happen because the workers of IPCL were completely excluded from any consultation or dialogue or discussion with the IPCL before amalgamation. Another issue comes out is that if the interpretation put by the petitioner Company upon Section 25FF is correct, the result would be that the workers of the transferor company will be forced to join the transferee company even if the same terms and conditions of employment remain and if they refuse to join, they will be deprived of the benefits of retrenchment. In other words, the workers have to accept the scheme on the point of bayonet viz., the loss of retrenchment compensation. In these circumstances, the employees of IPCL will have no option but to join the Reliance Industries Limited. This forcible transfer of employees from one company to another will be basically inconsistent with the freedom of the workers to work or not to work under a new master, as is laid down by the Hon'ble Supreme Court and the High Court in the cases mentioned above. This interpretation will make Section 25FF Industrial Disputes Act, 1947 vulnerable to the constitutional challenge on the ground of violation of Articles 14, 19(1)(g) and 21 of the Constitution of India.
15.3  It is further submitted that reference made by the petitioner company to the judgment of Hon'ble Supreme Court in the case of Management, Mettur Beardsell Ltd. v. Workmen of Mettur Beardsell Limited and Anr. reported in MANU/SC/8112/2006, para 10 has no relevance to the main contention of the applicant Union because the employees have never intended that for transfer of undertaking or management under Section 25FF, consent of the employees is necessary. The contention of the applicant Union is that the present case is concerned with the scheme of amalgamation under Sections 391 to 394 of the Companies Act, and as the scheme of amalgamation provides for transfer of employees of IPCL to the Reliance Industries Limited and the Company has prayed for such an order from the Court, the employees of IPCL ought to have been taken into confidence by the IPCL when the amalgamation proceedings were going on because unless and until this is done, the interest of the IPCL employees cannot be properly protected. Moreover, this is also absolutely necessary before the Company has sought for an order of the Court for sanctioning the scheme and it has been laid down by the Hon'ble Supreme Court judgments that the Court is concerned also with the public policy and public interest before granting sanction. It is submitted that even though consent of the workers to the transfer may not be a prerequisite for validity of the scheme, that does not mean that the workers cannot have any choice and the workers are not entitled to any participation in the consultation process.
15.4  It is further submitted that requirement of the consent of the workers for a scheme of amalgamation is one thing, while the requirement of consultation with the workers before the scheme is finalized is another thing. The later requirement flows from the duty of the transferor IPCL Company to duly consider and protect the interest of its own employees when they are transferred to a new Company and also from the duty of the Court to consider whether the scheme is in the public interest or is opposed to public policy.
15.5   It is further submitted that for this requirement of consultation, what is required to be
considered is whether the Companies Act explicitly prohibits the consultation with the workers. If there is no such explicit prohibition of such requirement, the provisions of the Companies Act are open to meaningful interpretation when the scheme is before the Court so that the Court can consider the workers' interest and workers' consultation in order to ensure the smooth working of the scheme.
15.6  It is further submitted that para 7 of the reply does not reply the main contention of the IPCL employees regarding immediate impact of the scheme of amalgamation on the existing rights of the workers. This question is completely distinct from the question of future demand of the workers after the amalgamation. The question of immediate impact of amalgamation on the workers' position is a question to be thrashed out at the very stage of amalgamation and the duty lies upon the transferor Company by negotiating the scheme with the transferee company as a guardian of the interest of the workers and the guardian of public interest and public policy. On the other hand, the question regarding the future demands of employees of IPCL after amalgamation is a different question and that can be dealt with by the employees after amalgamation by resorting to appropriate forum.
15.7  It is further submitted that the objection of Clause 8 of the Scheme in fact takes away the rights of the workers to raise demands after the amalgamation. On the one hand, the scheme automatically makes the workers of IPCL as the workers of Reliance Industries Limited and also requests the Court to make such an order only on the basis of the scheme, on the other hand the scheme itself provides that the employees of IPCL will not be eligible for any benefits available to the employees of Reliance Industries Limited by virtue of amalgamation. This is a clear contradiction.
PUBLIC POLICY AND PUBLIC INTEREST: (By Mr. Girish Patel, ld. sr. counsel)
16.(1) One of the most important questions for the Company Court is the question of public policy and public interest. Public policy and public interest are legal standards and not like fixed specific rules. They are, therefore, flexible and dynamic and they cannot be put in a strait-jacket formula to be applied economically. The standards of public policy and public interest may vary depending upon the times and circumstance and the prevailing ideology. Under this formula, the Company Court has dynamic role to play keeping in mind the facts, circumstances and times and place and ideology.
16.(2) There is no specific provision or section in the Companies Act which explicitly and expressly or by necessary implication excludes workers/employees from amalgamation proceedings even at the stage of working out the amalgamation scheme.
16.(3) The various factors which the Court has to consider while sanctioning the scheme have not been exhaustively laid down by the Court but they are illustrative and no general formula is laid down. Therefore, each case ultimately depends upon the facts and circumstances and therefore any one judgement dealing with a specific problem cannot be considered to be concluding the question for all time to come. The approach of the Court is to evolve the law and the legal standards gradually.
16.(4) The relevant judgements are:
(i) MANU/SC/2143/1996 - Miheer Mafatlal (paras 28 onwards and principles laid down -pages 519-529
(ii) (1995) 83 Company Cases 30 - Hindustan Lever Case - page 37 relating to fairness, page 39 (public interest) page 40 (prudent business management test)
(iii) Bank of Baroda Ltd. v. Mahindra Ugine Steel Co. Ltd. (1976) 46 Company Cases 227 - page 232 (3 tests to be considered, pages 240-245 (prudent man of business test)
page 246 - workers' interest as part of public interest.
(iv) (1996) 47 Company Cases page 279 - relevant pages: 287 to 290 and 293
(v) In re Hathising Manufacturing Company (In Liquidation) (1976) 46 Company Cases -pages 59 - Relevant pages are: page 66 (refer to workers' meeting by direction of the Court to consider the scheme) - page 68 (3 tests), page 79 (prudent business management test) and which is a prudent Manager page 82 - Court's continuous supervision, directing the appointment of a representative of Textile Association as one Director to supervise the scheme.
MONOPOLY: (Submission of ld. Advocate Shri Shalin Mehta)
17.(1) Creation of monopoly of amalgamation results in creation of monopoly status with Reliance Industries Limited or in concentration with economic power in the hands of a few individuals. Monopoly status or concentration with economic power in the hands of a few is opposed to Article 39(b) and (c) of the Constitution of India. Article 39 provides that the State shall, in particular, direct its policy towards securing - Clause (a) xxxx, Clause (b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good; Clause (c) that the operation of the economic system does not result in the concentration of weal and means of production to the common detriment. The Directive Principles of State Policy, though not enforceable in Courts of law, are in the governance of the Country and as held by the Hon'ble Supreme Court of India in several cases, a proper balance is required to be struck between the fundamental rights and the Directive Principles of State Policy while construing a statute or any action. Therefore, in the present case, the relevant provisions of the Companies Act, 1956 (Sections 391 and 394) are required to be read and interpreted in conjunction with Article 39 of the Constitution of India.
17.(2) A scheme of amalgamation cannot be de hors public interest and public policy. Acquisition of monopoly status or a controlling market share in the industry is a very important element of public interest and public policy The Company Court exercising equitable jurisdiction in amalgamation proceedings, is the guardian or custodian of public interest and public policy. Therefore, the aspect of public interest and public policy is required to be gone into by the Company Court in amalgamation proceedings when a scheme of amalgamation comes up for sanction. Obviously, public interest scrutiny cannot be left to the petitioner Company or to the rent seekers of capital.
17.(3) Hindustan Lever Employees' Case (1995 Suppl. (1) SCC 499) deals with the public interest element involved in a scheme of amalgamation or merger. Thus, as stated by the Hon'ble Supreme Court, creation of monopoly status and the resultant entity - competitive behaviour may be a ground to reject a proposed scheme of amalgamation.
17.(4) This public interest and public policy element has not been gone into at all by the Union of India or the Registrar of Companies or the Official Liquidator. Neither the report of the Official Liquidator nor the report of the Registrar of Companies reflects that the acquisition of monopoly status or merger or amalgamation was a serious concern to be addressed.
17.(5) The Department of Justice guidelines applicable to mergers and acquisitions taking place within the jurisdiction of the United States of America show the concern of the Government to merger resulting in acquisition of monopoly status or anti-competitive behaviour. The Federal Trade Commission (an agency established to examine in anti-competitive behaviour of firms) and most jurisdictions in the United Stats apply what is known as a "per se" rule to mergers and acquisitions resulting in monopoly status. If a merger or acquisition is found to result in creation of market power or market share exceeding 50%, the merger or acquisition is not allowed. The Department of Justice guidelines only reflect the concern with which big mergers are viewed. These concerns cannot be said to be alien to amalgamations and mergers taking place in India where some of them
would result in creation of a monopoly or in anti-competitive behaviour. HIDDEN OBJECT:
18.(1) There is a hidden object between the proposed scheme of amalgamation. This hidden object is so hideous that the proposed scheme of amalgamation is required to be trashed.
18.(2) As held by the Hon'ble Supreme Court in Miheer Mafatlal's case, "for ascertaining the real purpose underlying the scheme with a view to satisfy on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
18.(3) The real and apparent purpose of the present scheme of amalgamation is that Reliance Industries Limited wants to strip IPCL of its assets for diverting funds to the Special Economic Zones to steal the Crown Jewels of IPCL for its own risky business ventures. Reliance Industries Limited wants to wipe out the reserves of IPCL worth Rs.4500 crores in one stroke. Reliance Industries Limited wants to undertake a systematic liquidation of IPCL assets to fund its ventures. The Company Court ought not to approve of a scheme that has its object a systematic liquidation of the transferor company's assets. In this context, the observations made by Hon'ble Supreme Court in para 28 of Miheer Mafatlal's case are apposite.
18.(4) In the past, IPCL was considering to be a "Navratna". IPCL was classified as a "strategic sector" industry. The "strategic sector" was considered to be so important to India that private ventures were not allowed entry. Under the proposed scheme of amalgamation, Reliance Industries Limited will come to acquire a "strategic sector" industry without any reciprocating social responsibility. Can it be of any public interest to rip off a company and dismantle it without having regard to the various economic and social factors concerning the society. In this context, the Hindustan Lever Employees' decision of Hon'ble Supreme Court makes an observation that "it is not the interest of the shareholders or the employees only but the interest of the society which may have to be examined. And a scheme valid and good may yet be bad if it is against public interest."
18.(5) The burden to prove that the proposed scheme of amalgamation is in the public interest or is not opposed to public interest and public policy lies on the petitioner Company who comes before the Company Court for sanction. Thus burden cannot be shifted upon the objectors by called upon them to show that the proposed scheme of amalgamation is not in public interest. One of the elemental principles of the law of evidence is that the burden to prove a fact would lie on the party ascertaining it. Under Sections 391 to 392 of the Companies Act, the petitioner Company can get sanction of a Scheme of amalgamation from the Company Court only if the scheme is not against public interest and public policy. This means that a heavy burden lies on the petitioner Company to prove affirmatively that the scheme proposed is not opposed to public interest and public policy. There is complete lack of pleadings on this aspect by the petitioner Company. The pleadings of the Company Petition do not show how the proposed scheme of amalgamation is not opposed to public interest and public policy or that the scheme is in public interest. By merely stating in the pleadings that the proposed scheme is not opposed to public interest and public policy cannot satisfy the stringent test of public interest and public policy in amalgamation proceedings. The petitioner Company would have to show to the Court that several economic and social factors affecting society have been taken into account while proposing the scheme of amalgamation. This is totally absent in the present case.
PIERCE THE VEIL:
19. Reasons why the Company Court in the present case, pierce the veil of apparent corporate purpose and judiciously X-ray the present proposed scheme of amalgamation.
19.(1) At no stage of the proposed scheme of amalgamation, the workers and employees of IPCL or
the registered trade unions of IPCL have been consulted.
19.(2) Even the most basic document asked for by the objectors was denied by the petitioner Company. The share valuation report which forms the basis of the scheme was denied to the objectors thought they specifically asked for a copy of the same. Thus, there has been a complete lack of transparency and openness in the proceedings leading up to the present Company Petition.
19.(3) IPCL is an associate Company of Reliance Industries Limited since the year 2002. Reliance Industries Limited holds controlling shares in IPCL. The share holding pattern of IPCL is such that Reliance Industries Limited can write rough shod over the dissenting voice in IPCL. This ought to create enough suspicion in the minds of the Court so as to heighten the level of scrutiny while examining the proposed scheme of amalgamation.
19.(4) The share exchange ratio worked out by the experts suffers from gross and material irregularities. The valuation report submitted to the Company Court does not disclose or divulge any facts and figures in support of the conclusion arrive at by the experts that a fair share exchange ratio would be one fully paid up equity share of Reliance Industries Limited in exchange of five fully paid up equity share of IPCL.
19.(5) The amalgamation or merger would result in creation of monopoly power with Reliance Industries Limited. Acquisition of monopoly power and the resultant anti-competitive behaviour are opposed to public interest and public policy.
19.(6) The proposed scheme of amalgamation completely ignores the interest of the society at large. The proposed scheme does not guarantee creation of more jobs or more competition or availability of products to the consumers at cheaper prices.
19.(7) The conduct of the petitioner Company bars it from claiming any relief in the Company Petition. Before the equity shareholders' meeting on 14.4.2007, certain minority equity shareholders were threatened to sign blank proxy forms in the petitioner Company. This antecedent conduct of the petitioner Company is a relevant factor to be taken into account by the Company Court at the time of sanction.
19.(8) The proposed scheme contains self-contradictory clauses. One of the prayers in the Company Petition is that an order be passed under Section 394 of the Companies Act, 1956, that all permanent employees of the petitioner Company as on the effective date shall become the employees of the transferee Company (Reliance Industries Limited) in accordance with the provisions set out in the scheme. Diametrically opposed to this, Clause 8.1 of the scheme of amalgamation provides that "it is clarified that the employees of the transferor Company (IPCL) who become employees of the transferee Company (Reliance Industries Limited) by virtue of this scheme, shall not be entitled to the employment policies and shall not be entitled to avail of any schemes and benefits that may be applicable and available to any of the employees of the transferee Company (including the benefits of or under Employee Stock Option Scheme applicable to or covering all or any of the employees of the transferee Company) unless otherwise determined by the transferee Company." Thus on the one hand the petitioner Company seeks an order that the employees of IPCL would become the employees of Reliance Industries Limited with effect from 1.4.2006. But on the other hand, the scheme says that the employees of IPCL would not really become the employees of Reliance Industries Limited. This makes the scheme obnoxious, wholly unfair, ex facie unreasonable and patently unjust. The scheme would block the future of the employees of IPCL for an indefinite period.
SHARE EXCHANGE RATIO/SWAP RATIO OF 1:5:
20. Share exchange ratio/swap ratio of 1:5 (one share of Reliance Industries Limited in exchange of 5 shares of IPCL) is unfair, unjust and prejudicial to the whole class of equity shareholders of IPCL.
20.(1) The following are the infirmities and irregularities with regard to the share exchange ratio.
20.(2) Those specifically asked for and demanded at the meeting of the equity shareholders of IPCL held on 14.4.2007, the share valuation report prepared by M/s. Pricewaterhouse Coopers Pvt. Ltd. And Ernst & Young Pvt. Ltd., to arrive at the share exchange ratio was not supplied to the applicants of the Company Application No. 259 of 2007. Thus, the objectors have been denied a fair opportunity to comment on the report.
20.(3) As the share valuation report was kept open for inspection on the day of the meeting of equity shareholders of IPCL, a mere inspection of the report would not have amounted to a fair opportunity to comment on the report. The Hon'ble Supreme Court held that share valuation is a technical and complex matter. Laymen like the minority shareholders of IPCL cannot be expected to comment on the spur of the moment on a matter of such expertise and technicality. The petitioner Company would not have suffered any prejudice if one copy of the share valuation report was supplied to the objectors. However, the objectors have suffered a severe prejudice by not being able to comment or even peruse the share valuation report.
20.(4) While determining the fairness, justness and wisdom of the share exchange ratio, the Company Court has to see whether the proper accounting principles are followed, the proper methodology is adopted and relevant factors are taken into account and irrelevant factors are eschewed. This would not mean that the Company Court is not to undertake any inquiry after finding that the share exchange ratio is recommended by experts. In fact, in the case of HINDUSTAN LEVER EMPLOYEES' case reported in 1995 Suppl. (1) SCC 499, the Hon'ble Supreme Court has referred to various factors that may have to be taken into account in determining the final share exchange ratio.
20.(5) The learned advocate has submitted that this view is again reiterated in Miheer Mafatlal's Case MANU/SC/2143/1996. Thus, the Court's supervisory role in amalgamation proceedings will not prevent it from making an inquiry as to whether all relevant factors were taken into account by the experts while arriving the share exchange ratio.
20.(6) Several important factors highlighted by the applicants in Company Application No. 259 of 2007 have not been taken into account by the experts while arriving at the share exchange ratio. Some of these factors are:
20.(7) Fresh valuation of IPCL's assets has not been undertaken since disinvestment in the year 2002. On the other hand the assets of Reliance Industries Limited have been valued on as many as four occasions before the proposal of the present scheme of amalgamation. Thus IPCL has been severely undervalued.
20.(8) The cash reserve ratio of IPCL is more available than the cash reserve ratio of Reliance Industries Limited.
20.(9) The price earning ratio of Reliance Industries Limited is 19 whereas the price earning ratio of IPCL is 6. Thus IPCL is 3 times stronger than Reliance Industries Limited. IPCL has that much more earning capacity.
20.(10) IPCL is an associate company of Reliance Industries Limited since the year 2002. The share holding pattern of IPCL would show that Reliance Industries Limited holds controlling shares in IPCL. On account of this, a heavy burden lies on the petitioner Company to show that there had been arms-length dealing with IPCL and Reliance Industries Limited before adopting the share exchange ratio.
20.(11) A look at the share valuation report also shows that no facts and figures concerning the two companies (Reliance Industries Limited and IPCL) are referred to. Without making any reference to
the facts and figures concerning the two companies, the experts have recommended a share exchange ratio of one fully paid up equity share of Reliance Industries Limited of Rs. 10/- face value for five fully paid up equity shares of IPCL of Rs. 10/- face value without mentioning any facts and figures. It is not unknown that valuation involves statistics, mathematics, and economic models. There is no mathematics or statistics or econometrics preferred in the share valuation report. The conclusion of the experts can be separated only by relying upon facts and figures of the two companies. As the facts and figures of the two companies are totally absent in the share valuation report, it is not even possible for the objectors to comment on the report. The share valuation report must at least show that the relevant factors of the two companies are taken into account for determining the share exchange ratio. Otherwise, the share valuation report becomes a mere ipse dixit of the experts.
20.(12) It is submitted that page 5 of the share valuation report states that the market value of IPCL has been computed by averaging the value and volume of shares traded for the last three months. Similarly the report also mentions that market value of Reliance Industries Limited has been computed by averaging the value and volume traded for the last three months. Clearly, this period of three months is too short to decide fairly the market value of the respective companies. In MIHEER MAFATLAL'S case (supra), the Chartered Accountants M/s. C.C. Choksi & Company had taken into account the market price of equity shares of past 24 months (page 619 para 40). In the present case, the petitioner is seeking sanction for the proposed scheme of amalgamation with effect from 1.4.2006. When the petitioner Company is seeking sanction with effect from 1.4.2006, common sense requires that the market value of the respective Companies ought to be computed by averaging the value and the volume of shares traded for the last 12 months before 1.4.2006. Instead, in the present case, the period from December 2006 to February, 2007 has been taken into account by the experts to work out the market value of the respective Companies. This is patently unfair, ex facie arbitrary and manifestly illegal. Real market value of the respective Companies could not have been arrived at by merely averaging the value and the volume of shares traded for the period from December 2006 to February, 2007, because by then the whole market had known about the proposed scheme of amalgamation between the two Companies. Obviously, speculative element could not have been avoided in ascertaining the market value of the respective Companies because as soon as news of the proposed scheme of amalgamation entered the market, the trading in the shares of the respective Companies would have increased. To arrive at the real market value of the respective Companies, the period of 12 months prior to 1.4.2006 ought to have been taken into account by the experts. As this has not been done in the present case, it can be easily assumed that the share exchange ratio suffers from speculation.
20.(13) In the absence of detailed valuation report, there is a presumption against the petitioner Company of bad faith and ulterior motive. Burden to prove that the Scheme is fair, reasonable and not against public policy / interest is on the petitioner Company, in the absence of which the Company Court can strike down the Scheme under its supervisory jurisdiction.
20.(14) In support of the above objections, the objectors have relied upon:
(i) In Re. Torrent Power AEC Ltd. (2007) 38 Comp. Cases 139 (at pages 160-161) (ii) G.L. Sultania v. SEBI MANU/SC/7659/2007.
ADDITIONAL SUBMISSIONS MADE BY MR. SHALIN MEHTA, LD. ADVOCATE (RE: SHARE EXCHANGE RATION) - IN REJOINDER:
20.(15) The following are the additional infirmities and irregularities with regard to the share exchange ratio:
20.(16) Though it was submitted at the time of oral arguments on behalf of the petitioner Company that the share valuation report is attached with the Official Liquidator's report in the present
proceedings, the said report is not the share valuation report at all. The letter dated 9.3.2007 that is annexed with the Official Liquidator's report cannot be called a share valuation report. It is at the most a letter/certificate issued by the experts conveying that they have recommended a share exchange ratio of one fully paid equity share of Reliance Industries Limited in exchange of five fully paid up equity shares of IPCL. What was kept open for inspection by the petitioner Company at the meeting of the equity shareholders held on 14.4.2007 was not the share valuation report but this letter/certificate dated 9.3.2007 issued by the experts.
20.(17) By not disclosing the share valuation report at the meeting of the equity shareholders of IPCL held on 14.4.2007, though a demand was raised by the objectors, the petitioner Company has not made a true, full and fair disclosure as required under the proviso to Section 391(2) of the Companies Act, 1956. In any scheme of amalgamation, the share exchange ratio is the most basic and fundamental document. Share exchange ratio can be arrived at only from the share valuation report. Therefore, when a specific objection is raised to the share exchange ratio, it is imperative on the part of the petitioner Company to disclose the valuation of the shares by producing the share valuation report at the meeting of the equity shareholders that is convened and proposed to consider the scheme of amalgamation. Even MIHEER MAFATLAL's case (supra) holds that any scheme of amalgamation is bound to fail unless a true, proper and fair disclosure is made as contemplated under proviso to Section 391(2) of the Companies Act, 1956. In the present case, as the share valuation report was not kept open for inspection by the petitioner Company, was not disclosed at the meeting of the equity shareholders of the petitioner Company held on 14.4.2007, and was not supplied to the objectors though a specific demand in this regard was raised by them at the equity shareholders' meeting by objecting to the share exchange ratio, the present scheme of amalgamation is violative of the proviso to Section 391(2) of the Companies Act, 1956.
20.(18) The document dated 9.3.2007 that is attached with the Official Liquidator's report in the present proceedings is not the share valuation report on account of the following:
(a)   No figures/date in support of the valuation arrived at are mentioned from the document.
(b)  The document reveals that the three accounting methods stated to have been used by the experts have given out three different valuations. However, the analysis under each accounting method is not stated in the document.
(c ) The document does not mention the factors that the experts have taken into account while arriving at the share exchange ratio. The factors that would normally go into determination of the share exchange ratio are enumerated in HINDUSTAN LEVER EMPLOYEES's case reported in (1995) Suppl. (1) SCC 499.
(d) The document reveals that the experts have used all the three accounting methods for the purpose of valuation of shares. However, the experts have recommended that higher weightage is required to be given to the value determined under the "income" approach and "market" approach compared to the value determined under the `underlying assets' approach. But the document does not reveal how much higher weightage was given to the first two methods compared to the third method.
20.(19) The jurisdiction of the Company Court with regard to the share exchange ratio is supervisory. Under this supervisory jurisdiction, the Company Court can do the following.
(a) The Court can see whether the experts have taken into account the relevant factors.
(b) The Court can see that the experts have applied the correct accounting principles.
(c) The Court can see that no one factor is given undue emphasize or preference at the
expense of other factors.
(d)  The Court can see that the decision of the experts is not irrational or ex facie unreasonable.
(e) The Court can see that proper procedure is followed by the experts while arriving at the share exchange ratio.
(f)  The Court can see whether the valuation of the shares done by the experts broadly reflects the worth of the Company.
20.(20) This can be achieved only when the share valuation report is placed on record of the amalgamation proceedings for the Company Court's perusal. There is not a single decision either of the Hon'ble Supreme Court or of any High Court that share valuation report in an amalgamation proceeding need not be given to the Company Court or to the objectors who have raised a challenge to the share exchange ratio.
WHOSE BURDEN:
20.(21) The burden to prove that the Scheme of amalgamation is fair, just, reasonable, not unconscionable, not against public interest, not against public policy and not illegal is on the petitioner Company. The scheme is proposed by the petitioner Company. Therefore, it cannot be the burden of the objectors to show otherwise.
20.(22) Very recent amalgamation of 6 sick units, viz. Apollo Fibers Limited, Central India Polyesters Limited, India Polyfibers Limited, Orissa Polyfibers Limited, Recron Synthetics Limited and Silvassa Industries Private Limited into IPCL in the year 2006 has resulted in a reduction of IPCL's profit at least on paper. This aspect ought to have been factored in by the experts while determining the share exchange ratio.
PROXIES:
21. Serious irregularities were committed by the petitioner Company in obtaining proxies from certain minority equity shareholders of IPCL. Certain minorities equity shareholders of IPCL were threatened or coerced into signing blank proxy forms by the Heads of Departments of IPCL before the day of the equity shareholders' meeting. First, the registered trade Unions of IPCL complained about this to the Chairman of IPCL by writing a letter on 10.4.2007. Second, the said complaint was lodged with the Chairman of the equity shareholders' meeting on 14.4.2007. On 17.4.2007, a complaint regarding this was also made to the Chairman to Securities Exchange Board of India.
21.(1) The Chairman's report only mentions that all persons who had given proxy earlier would be allowed to vote if they remained present at the meeting and their proxy given earlier would be treated as cancelled. However, the Chairman's report does not deal with the aspect of the petitioner Company threatening and coercing certain equity shareholders to sign blank proxy forms. Clearly, the petitioner Company was guilty of irresponsible behaviour. The petitioner Company was guilty of overreaching the process of law. Such bad faith-action taken by the petitioner Company against certain equity shareholders of IPCL would be:
21.(2) Violative of Section 166 which provides for holding of Annual General Meeting under the Companies Act, 1956
21.(3) Violative of the Articles of Association of IPCL where the manner and method of giving proxy is laid down.
21.(4) Violative of the High Court's order dated 23.4.2007 passed in Company Petition No. 93 of 2007 in Company Application No. 126 of 2007. In this order, the Court had ordered that voting by proxy is permitted provided that the proxy in the prescribed form and duly signed by the person entitled to attend and vote at the aforesaid meeting, or by his authorized representative. Obviously, therefore if the proxy is obtained in an illegal manner, the same would fall foul of the High Court's order dated 23.4.2007.
SUBMISSIONS: (Re: Joint Meeting of Secured Creditors with Debenture holders)
22. Meeting between debenture holders and secured creditors to be held separately and they are to be treated as debenture holders are separate class by itself:
22.(1) The debenture holders of IPCL formed a class distinct and separate from the secured creditors of IPCL. So the debenture holders could not have been clubbed with the secured creditors. A separate meeting of the debenture holders was required to be called by the petitioner Company.
22.(2) Following are the reasons why the debenture holders of IPCL are required to be treated as a class by themselves and separate and distinct from the secured creditors of IPCL.
22.(3) Commercial law and Common law recognize three broad categories / classes of creditors, viz. Preferential creditors, secured creditors and unsecured creditors. [Palmers Company Law, 21st Edition, page 700: (1970) 40 Company Cases 819 (at page 877) Gujarat; in re Maneckchowk and Ahmedabad Manufacturing Company Limited.
22.(4) The debenture holders of IPCL belong to the category / class of preferential creditors. In the event of liquidation of the petitioner Company, the debenture holders would get paid off first in preference to the secured and unsecured creditors of IPCL.
22.(5) The Companies Act, 1956, has special provisions for protecting the interest of debenture holders. In this connection the learned advocate has referred to Section 117A which provides Debenture Trust, Section 117B provides appointment of Debenture Trustee and duties of Debenture Trustees. Section 117C of the Companies Act provides liability of Company to create security and debenture redemption reason. These Sections have been added subsequently vide the Companies (Amendment) Act, 2000, with effect from 13.12.2000. Thus the intention of the Companies Act is to provide special protection to the class of debenture holders. The Companies Act recognizes the special and unique status enjoyed by the debenture holders. These special provisions are not to apply to the secured and unsecured creditors of the Company. Thus, the Companies Act itself discriminates between the debenture holders and the secured creditors.
22.(6) The Articles of Association of IPCL also provides separately for debentures and debenture holder (pages 45 to 47of the Articles of Association of IPCL). There is no reference in these provisions to the secured creditors of IPCL. Thus, the Articles of Association of IPCL also confers a distinct status on the debenture holders.
22.(7) The balance-sheet of IPCL as on 31.3.2006 also provides separate treatment to debentures and debenture holders. The debentures are not clubbed with other secured term loans and working capital loans.
22.(8) The debenture holders of IPCL and the secured creditors of IPCL have dissimilar charges over the Company's assets. Whereas the non-convertible debentures are secured by way of first equitable mortgage on all those pieces and parcel of land admeasuring 2.04 acres situated at village Angadh, Dist. Vadodara in the State of Gujarat together with all structures thereon and on all plant, machinery and equipments both present and future attached thereto, located at the Vadodara Complex of the Company and the balance debentures by the mortgagees and charges over the properties acquired by the Company pursuant to the scheme, the term loans are secured on land
admeasuring one acre situated at village Angadh, Dist. Vadodara in the State of Gujarat together with all the structures thereon and all plant, machinery and equipments both present and future attached thereto, and the whole of the other fixed assets of Vadodara and Gandhar complexes of the Company except all the pieces and parcels of land of the said complexes and working capital loans from Banks by hypothecation of stocks of raw material, stock-in-process, finished goods, stores, receivables and goods in transit of Vadodara, Gandhar, Nagothane, Allahabad and Silvassa units. Thus, the rights and interest and charges of debenture holders are dissimilar to the rights, interest and charges of the secured creditors. On account of such dissimilarity, the debenture holders cannot be clubbed with the secured creditors.
22.(9) The Chairman's report at page 115 of the Company petition on the meeting of the secured creditors held on 14.4.2007 does not at all reflect the voting pattern between the debenture holders of IPCL and the secured creditors of IPCL. Out of 51 secured creditors (including debenture holders) alleged to have remained present at the meeting, the Chairman's report does not spell out how many of them were debenture holders and how many of them were secured creditors. In response to this specific objection on this aspect taken by the applicants of the Company Application No. 259 of 2007, the petitioner Company has not stated in its pleadings as to how many debenture holders were present at the meeting of the secured creditors held on 14.4.2007. If the Chairman's report does not reflect the voting pattern between debenture holders and secured creditors who are two distinct and separate classes, the proposed scheme of amalgamation cannot be sanctioned. The learned advocate has relied on the decision in the case of Maneckchowk and Ahmedabad Manufacturing Company Limited reported in (1970) 40 Company Cases 819 particularly pages 873 to 878.
22.(10) The learned advocate for the applicants of Company Application No. 259 of 2007 in Company Petition No. 93 of 2007 has relied on the following decisions in support of the proposition that the debenture holders of IPCL form a class distinct and separate from the secured creditors of IPCL:
22.(11) 1995 Suppl. (1) SCC 499 at pages 514-528 - Hindustan Lever Employees' Union v. Hindustan Lever Limited and Ors.
22.(12) (1970) 40 Company Cases 819 at page 877 (Gujarat) in re. Maneckchowk and Ahmedabad Manufacturing Company Limited.
22.(13) (1994) 79 Company Cases 27, at pages 37 to 40 D.A. Swamy and Ors. v. India Meter Limited (Madras).
PETITIONER COMPANY'S SUBMISSIONS ON EACH POINT OF OBJECTIONS RAISED BY THE OBJECTORS:
(A) RE:ANCILLARY INDUSTRIES:
23.1  The Objectors are neither shareholders nor creditors of the Petitioner Company and have, therefore, no locus in the present proceedings.
23.2  Letter of Intent (LOI) is NOT a concluded contract. In terms of LOI, IPCL was to obtain supplies from the Units subject to the Units meeting price and quality specifications as set out in the LOI.
23.3  IPCL, in terms of LOI, was to obtain 50% of the Unit's production and, therefore, the existence of the Units was not fully dependent on IPCL taking the supplies. IPCL obtained supplies from the Units for many years before it stopped placing orders from August, 2003 onwards, as the Units were not able to match the price and quality specifications. Before stoppage of orders, IPCL held discussions with the Raigad District Plastics Producers Association comprising these Units. In any event, IPCL took supplies from the Units in their `development phase for a reasonable period of
time' as mentioned in the LOI.
23.4  Even if the said LOI was a contract, the disputes will be with respect to implementation of the alleged contract between the parties and obligations of IPCL, if any, would be assumed by the Transferee Company post amalgamation. This Court, as a Company Court, is not the forum to entertain these matters and the Objectors may approach an appropriate forum, if they so wish.
23.5  One of the Objectors, viz. Schon Plastics Private Ltd. (`Schon'), had filed a petition in the Bombay High Court seeking directions against IPCL inter alia to comply with the contract. The Bombay High Court while dismissing the petition, observed that the dispute raised therein was contractual in nature and the remedy lies only in the appropriate form or by way of arbitration. Accordingly, the suit being Suit No.32 of 2006 has been filed by Schon in Alibagh Court, which is pending.
23.6  In terms of Clause 6 of the Scheme, upon amalgamation becoming effective, all the suits and legal proceedings pending by or against IPCL would be continued by or against the Transferee Company. It is not even their case that the Transferee Company would be unable to honour their claims.
23.7 As alleged by the Units, 500 workers were employed by the Units. However, the Units have not produced any proof evidencing the so-called PAP employment. Further, this has never been prayed earlier either in the objections filed with this Court or in the civil suit. Moreover, the so-called PAP have never objected nor approached the Petitioner Company with their grievances. As a matter of fact, IPCL itself employed more than 600 PAP at its Nagothane Plant. Hence, the responsibility/liability of the workers employed by the Units themselves will always be on the Units and the same has nothing to do with the present Scheme.
23.8  Upon amalgamation become effective, in terms of Clause 6 of the Scheme, any proceedings pending by or against the Transferor Company shall be continued by or against the Transferee Company. Question therefore of the Objectors of losing the alleged territorial jurisdiction of their suit to be entertained at the District Court, Baroda, on the ground of Scheme being sanctioned does not arise.
(B)  RE. SC/ST RESERVATION:
24.1  At the outset, since the representation made by the Objector pursuant to this Court's order dated May 8, 2007, to the Central Government and the said representation is pending for consideration, the Objector cannot agitate the same matter again before this Court.
24.2  Further, the final outcome of the appropriate/final appellate forum, if any, would, in any event, be binding on IPCL and post amalgamation, the Transferee Company.
24.3  Without prejudice to the above, IPCL had never agreed to incorporate any such clause of reservation of SC/ST employees in the Scheme nor, as a matter of fact, any such provision has been made in the Shareholders Agreement, as alleged by the Objector.
(C)  RE: WORKERS
25.1 Clause 8.1 of the Scheme protects employees' rights in as much as it has fully safeguarded the interest of the employees of the Petitioner Company by providing that the terms and conditions of employment in the Transferee Company will be without any break or interruption and the terms and conditions as to employment and remuneration shall not be less favourable than those on which they are engaged or employed by the Petitioner Company. Further, the Transferee Company undertakes to continue to abide by any agreement/settlement, if any, entered into by the Transferor
Company with any union/employee of the Transferor Company.
25.2  The learned Counsel has relied on the judgement in the case of Hindustan Lever Employees' Union v. Hindustan Levers Ltd. and Ors. (1995) 83 Comp. Case 1 (Bom) : (1994) 4 Comp. LJ 228 (Bom), where the Court has observed as under:
Whenever an undertaking is transferred whether statutorily or by court's order to another employer, it is the usual formula to protect the workers of the transferred company by providing that the service will be continuous and uninterrupted and service conditions will not be prejudicially affected by reasons or transfer. Merger of two companies into one may necessitate adjustments in service conditions in certain areas, but that is a matter for industrial adjudication by appropriate forum. The interest of employees of both companies being adequately taken care of, held, there was no necessity of any change in the scheme of amalgamation.
25.3  There is no requirement of holding any separate meeting or discussion by the Petitioner Company with workmen/workmen's association.
25.4  The learned Counsel for the petitioner relies on the decision in the case of Hindustan Lever Employees' Union v. Hindustan Levers Ltd. and Ors. (1995) 83 Comp. Cases 30 : (1994) 2 SCL 157 : (1994) 4 Comp. U 228, Supp.1 SCC 499 (SC), page 38, para G and page 65 para C, "A scheme of amalgamation cannot be faulted on apprehension and speculation as to what might possibly happen in future. The present is certain and taken care of. No one can envisage what will happen in the long run. But on this hypothetical question, the scheme cannot be rejected. As of now, it has not been shown how the workers are prejudiced by the scheme".
25.5  On one side, the Objectors are seeking job security and on other side they are alleging forceful continuance out of economic and legal compulsion. The objections are baseless. Workmen can continue with the Transferee Company post amalgamation with their existing rights protected under the Scheme.
25.6 The rights of employees are well protected under the Scheme. Further, all service conditions in respect of workmen shall be guided by the applicable law in future.
25.7   The Petitioner Company relies upon the following authorities in support of the above submissions -
(a)  Gujarat Nylons Ltd. v. Gujarat State Fertilizers Ltd. 1992(1) GLH 637, para 36. (C.K.Thakker, J.) (as he was then)
(b)  Re: Hindustan Lever Ltd. (1995) 83 Comp. Cases 39, page 64, para D onwards to page 65 para C.
(c)  In Re: Narmada Chematur Petrochemicals Ltd., (Re: Company Petition No. 147 of 2006 & other matters, Unreported judgment dated 9.1.2007, delivered by Hon'ble Mr.Justice M.R.Shah, page 23, para 27 and 28.
(d) In Re: Blue Star Ltd. (2001) 104 Comp. Cases 371, page 381, 389 and 395. Additional submission on behalf of the Company regarding workers:
25.8  Dealing with the grievances as summarized in para 9 of the written submissions, it has been clarified in the course of submission that there is no compulsion under the Scheme on the workers to join the new employment. It has been pointed out that relief in para 28(3) of the petition is
intended to ensure that there is a continuity of service. Existing employees have an option not to join the service of the transferee Company and leave the service. Therefore, the provision that if the relief as prayed for in para 28(e) is granted, the existing workforce will forcibly have to join the service of the transferee company is misplaced. A similar provision in the Scheme has been considered by this Court in the matter of Gujarat Nylon Limited reported in 1992(1) GLH 637 (particularly para 24) and in the matter of Narmada Chematur Petrochemicals Ltd., unreported judgement dated 9.1.2007, Company Petition No. 147 of 2006 (particularly paragraph No. 27 of the unreported judgement). Similarly worded relief has been construed that there is no compulsion on the employees to join the transferee company that the provision has been made to ensure continuity of service and it is open to the workmen not to join the service of the transferee Company [Ref: (a) 1992(1) GLH 637 in the matter of Gujarat Nylons Limited, paragraph Nos. 24, 25, 29, 30 and 36; (b) unreported judgement dated 9.1.2007 in the matter of Narmade Chematur Petrochemicals Ltd., paras 27 and 28; [c] Hindustan Lever Limited reported in 1995 (83) Company Cases page 30 para B to G, pg. 64, para D onwards to page 65 para-C]
25.9  Regarding the grievance that they were not consulted in the process of negotiations and their consent was not taken to the Scheme of Amalgamation, reference may be made to the decision of the Hon'ble Supreme Court in the case of Management, Mettur Beardsell Ltd. v. Workmen of Mettur Beardsell Ltd. and Anr. Reported MANU/SC/8112/2006.
25.10  Consent of workers of the transferor Company to the Scheme of merger therefore is not necessary.
25.11  Section 25FF of the Industrial Disputes Act provides for rights of the workers of the transferor company. Their consent to the transfer is not necessary. They have even no right to demand their absorption in the transferee company. If the new employer is not prepared to protect the existing service conditions and continuity of service, only right of the employees of the transferor company is as specified in Section 25FF(1) of the Industrial Disputes Act. Indisputably, in Clause 8 of the Scheme, a provision has been made for protection of the service conditions and continuity of service, and therefore, there is no "deemed retrenchment" of the workmen. Section 25FF of the Industrial Disputes Act, which provides for transfer of ownership or management of an undertaking does not provide that even in case where transferee employer protects the service conditions and continuity of service and a workman still desires not to join the service of the transferee employer, such workmen should be entitled to anything more than what an employee gets on voluntary relinquishment of his service.
25.12  It is also held that Sections 391 to 394 Companies Act is a complete code. These provisions do not provide for consultation with the workers in case of merger or amalgamation. Meetings only of the members of the company and creditors have been provided. No statutory provision or legal principle have been pointed out by the union which make it a condition of a valid scheme that in the course of negotiation, the workers should have been consulted or failure on the part of the management to consult the workers before formulating the Scheme of merger would invalidate the Scheme.
25.13  It needs to be noted that no statutory provisions is cited by the Unions nor any binding precedent referred to in support of this contention that either the workers should have been consulted at the time of preparation of the Scheme or during negotiations or when a decision to merge IPCL with RIL was taken. In absence of such provision, it cannot be said that the Scheme is against law.
25.14   The Hon'ble Supreme Court has in the case of Hindustan Lever Limited v. State of Maharashtra reported in MANU/SC/0934/2003 observed, particularly, paragraph Nos. 10 and 11.
25.15  The objections that the workers have the right to be heard at the time of the hearing of the petition need not be considered, since they have been already heard and no objection has been
taken to the locus of workmen to object to the Scheme.
25.16 So far as the rights of the workers subsequent to amalgamation is concerned, it is well settled that it always open to the workers to be employees of the transferee company, to raise such demand, to claim such benefit and raise such disputes as may be permissible under the Industrial Law.
25.17  Clause 8 of the Scheme does not foreclose this right of the workmen in any manner. What Clause 8 of the Scheme provides is that "by virtue" of the Scheme, the employees of the transferor company shall not be entitled to the employment policies or any schemes or benefits that may be applicable and available to the employees of the Transferee Company. This does not obviously take away the rights of the employees on becoming the employees of the transferee company to raise such demands or disputes or claim benefits on whatever ground that may be permissible under the law, as the employees of the Transferee Company. Such demands if raised, would be adjudicated by the authorities under the Industrial Law subject to the contentions of the transferee company. The present scheme does not and cannot take away the statutory rights of the workmen under the Industrial Law.
25.18   Employees' right to seniority and promotion as of existing employees of the transferee company constitute to the extend that they are part of the existing conditions of service, which are protected by Clause 8 of the Scheme and post-merger would be governed by the provisions of the Industrial Disputes Act and in particular Section 9(a) of the Industrial Disputes Act. The Company also relied upon the judgement of the S.C. In Mettur Beardsell v. its Workmen MANU/SC/8112/2006 particularly.
(D) PUBLIC INTEREST AND PUBLIC POLICY:
26.(1) In terms of the Scheme, all the assets as well as liabilities of the Transferor Company would be transferred to the Transferee Company. Any particular item of assets / liabilities cannot be looked at separately. The question of IPCL reserves getting misused or wiped out is baseless and without any substance. The allegation that the Transferee Company wants to misutilize the assets of the Transferor Company is also baseless and without any substance. The whole of the undertakings of the Transferor Company would be amalgamated with the Transferee Company for the reasons set out in the Scheme as also in the Explanatory Statement of the Scheme.
26.(2) In Re. HCL Infosystems Limited, HCL Infinet Limtied and HCL Technologies Limited (2004) Comp. Case 861 (Del), the scheme of arrangement was challenged on the ground that the company is siphoning the profitable business. The objector referred to a TV interview in this regard. It was held (para 31) that, "....Since in the present case the overwhelming majority of the shareholders has approved the scheme, the same cannot override the opinion of the intervener. The allegation of the objector that there is an effort to siphoning of the profitable business of the company in which case the minority shareholders would be deprived of the benefit is also considered by me giving due weightage thereto. No basis is provided in support of the aforesaid allegation. Therefore, the aforesaid contention is also without any merit".
26.(3) The third objection indirectly challenges the Government decision of disinvestment. Such type of frivolous objection cannot be dealt with in the amalgamation proceedings and should not be considered at all by this Court while sanctioning the Scheme.
26.(4) The Scheme complies with all the procedural formalities. All the desired disclosures have been made in the Scheme. The rationale benefits of the Scheme have been dealt with in the Scheme itself. There is no substance in the Objectors' allegation to pierce the veil. Further, the Petitioner Company has already presented the Scheme with requisite details. Making the Petitioner Company to further demonstrate that the Scheme is beneficial to the community at large is uncalled for, unwarranted and not a requirement under law. The law, as settled by the Hon'ble Supreme
Court is that the Scheme should not be opposed to public policy or against public interest. The burden is on the Objectors to show that the Scheme is opposed to public policy or public interest. They have miserably failed to do so.
26.(5) The learned Counsel for the petitioner relies on the decision in the case of Balco Employees Union (Regd.) v. Union of India (2002) 108 Comp. Cases 193 (SC), page 236 the Hon'ble Supreme Court has observed as under:
Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. IT is not for the Court to consider relative merits of different economic policies and consider whether a wiser or a better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the Courts. In the matter of policy decision of economic matters, the Courts should be very circumspect in conducting any enquiry or investigation and must be reluctant to impugn the judgments of the experts who may have arrived at a conclusion unless the Court is satisfied that there is illegality in the decision itself. The existence of rights of protection under Articles 14 and 16 of the Constitution cannot possibly have the effect of vetoing the Government's right to disinvest. Nor can the employees claim a right of continuous consultation at different stages of the disinvestment process. If the disinvestment process is gone through without contravening any law, then the normal consequences as a result of disinvestment must follow.
(E) MONOPOLY STATUS:
26.(6) There is no question of any monopoly status being created pursuant to amalgamation. The objectors have failed to show as to how by merging IPCL with RIL, monopoly status would be created for RIL.
26.(7) IPCL is already an associate company of RIL post disinvestment of IPCL's shares by the Union Government in favour of RIL. This relationship has been disclosed in the annual reports of RIL and IPCL.
26.(8) The US Guidelines of Department of Justice, as relied upon by the Objectors' Advocates are not relevant in the present amalgamation proceedings. There is no statutory requirement restricting amalgamation of associate company with the parent company under anti-trust laws in India.
26.(9) It is, therefore, submitted that there is no question of any monopoly status being created in favour of RIL, as alleged by the Objectors. The Regional Director and the Official Liquidator, being statutory authorities, after examining this Scheme and all relevant correspondence and documents called for by them from the Petitioner Company, were fully satisfied with the Scheme and certified to the Court that the Scheme was not against the public policy and that the affairs of the Petitioner Company have not been conducted in a manner prejudicial to interest of the members or to public interest. In addition, both Bombay Stock Exchange Limited and National Stock Exchange of India Limited had also approved the Scheme under Clause 24(f) of the Listing Agreement.
26.(10) The learned Counsel submits that the decision of the Gujarat High Court in Reliance Petroleum Limited v. Union of India (2002) (O) GLHEL 210579, para 17 (Company Petition No. 75/2002 decided on 13.9.2002), "One more objection is to the effect that the Court should refuse to grant its approval to the Scheme on the ground of public interest as the amalgamation will result in creation of monopoly in relation to production and marketing of goos. Nothing has been shown under any Act, Rule or Regulation or any other law under which the Company Court cannot exercise jurisdiction to sanction a Scheme in the event of a possibility or likelihood of monopoly resulting on the Scheme being sanctioned. The Apex Court has stated time and again that it is for the shareholders to decide what is in the best interest of the Company and if the shareholders have
arrived at such a decision by applying approach of a prudent businessmen, it is not for Court to sit in judgment. Furthermore, nothing has been brought on record to show that even if a monopoly results, it would affect the public interest or the economic interest of the country adversely, which may be a factor having relevant bearing."
26.(11) The Petitioner Company relies upon the following authorities in support of the above submissions -
(a) In Re: Hindustan Lever Ltd. (1995) 83 Comp. Cases 30, page 65 para F to G.
(b) In Re: Reliance Petroleum Ltd. 2002(O) GLHEL 210579 page 4, para 17.
(F)  HIDDEN OBJECT AND PIERCING VEIL:
26.(12) As regards hidden aspect, both the companies have shown that balance sheet, public notice has been issued. Official liquidator has also filed report. The Regional Director has also filed report. Considering all these aspects, the hidden objects which are being contended is not right.
(G)  PIERCING VEIL:
26.(13) As regards Piercing Veil, there are several decisions of the Hon'ble Supreme Court. In this behalf I refer to Ramaiah's Company Act where the learned author has discussed the point of piercing veil. If the Company wants to evade tax and if there is any ulterior motive for amalgamation then one can lift the veil. Here there is no whisper about the same and there is no question of lifting veil. This contention is not well founded.
(H) RE. SHARE EXCHANGE RATIO
27.1  There is no statutory requirement of carrying out valuation by independent valuers to arrive at share exchange ratio preferably under Sections 391-394 of the Companies Act. It is only for the guidance and assistance of the Board of Directors of companies to propose a share exchange ratio.
27.2  Further, the Share Exchange Ratio has been calculated by the recognized valuers i.e. two eminent Chartered Accountants Firms and once the same has been decided by the valuers the Court may not go into the technicalities of the case and adjudicate the share exchange ratio as an appellate Court.
27.3 The petitioner Company relies upon the decision in the case of Hindustan Lever's case reported in (1995) 83 Comp. Cases 30 (SC), at page 37, para B and C, "...the jurisdiction of the court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A Company Court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figures arrived at by the valuer was not as good as it would have been if another method had been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company which was being merged. The Court's obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body".
27.4  The equity shareholders of the Petitioner Company have approved the Scheme incorporating the share exchange ratio by an overwhelming majority.
27.5 The petitioner Company relied upon the decision of the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (supra), para 40, referred to by the Gujarat High Court in Reliance Petroleum Ltd. v. Union of India (2002) (0) GLHEL, 210579, (Coram: D.A. Mehta, J) [Company
Petition No. 75 of 2002 decided on 13.9.2002] where at para 23 the Court observed that "....It has also to be kept in view that which exchange ratio is better is in the realm of commercial decision of well informed equity shareholders. It is not for the Court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the entire scheme."
27.6  Valuation Report was kept open for inspection for all shareholders before the meeting. Notice convening the meeting of shareholders clearly stated that the report of the valuers was available for inspection at least for 21 days (page 292 of the Company Petition 93 of 2007). In spite of this, none of the Objectors availed of the opportunity to inspect the same or objected for such inspection, asking for a copy of the report.
27.7 There is no statutory requirement of circulation of valuation report to shareholders nor is there any statutory requirement of filing a valuation report with the Court. In any case, the valuation report is part of the record of proceedings, in as much as it is annexed with the Official Liquidator's report submitted to this Court.
27.8  The allegation that the valuation report was not submitted even to the Court is also baseless and factually incorrect, in as much as the Official Liquidator has annexed the said valuation report along with his report filed in the present proceedings. In any event, the Regional Director and the Official Liquidator, being statutory authorities, had examined the valuation report and submitted their no-objection to this Court.
27.9  For arriving at the share exchange ratio, the valuers have adopted the well known methods of (i) net assets value, (ii) earnings value method and (iii) market value method. These methods have been approved by the Hon'ble Supreme Court in the cases of Hindustan Lever Ltd and Mafatlal Industries Ltd.
27.10 The allegation that six polyester companies are amalgamated with IPCL in 2006 for reducing profitability of IPCL is both, factually and legally in correct. As a matter of fact, post amalgamation turn over and profit of IPCL have gone up. The said amalgamation is concluded and cannot be indirectly challenged in this proceeding.
FURTHER SUBMISSIONS: SHARE EXCHANGE RATIO
28.1. It is reiterated that there is no statutory requirement of carrying out valuation exercise. It is merely a tool to assist and guide the Board of Directors to propose a share exchange ratio for consideration of the shareholders. Further, Section 391 does not require detailed workings to be shown to shareholders/court. The Sultania's case relied upon by the Objectors is not relevant in the instant case, because that case was pertaining to SEBI Takeover Regulations, which specifies principles of valuation in case the shares are infrequently traded. Such specifications are not at all relevant in the scheme of amalgamation under Section 391-394 of the Act. (p. 57)
It is reiterated that in Hindustan Lever Employees Union v. Hindustan Lever Ltd. and Ors. (1995) 83 Comp. Cases 30 (SC), at page 57, the Supreme Court has approved the view expressed by the Gujarat High Court. It was held that "A similar question came up for consideration before a Division Bench of this Court in the case of Jitendra R. Sukhadia v. Alembic Chemical Works Co. Ltd. (1987) 3 Comp U 141 : (1988) 64 Comp. Cases 206. That was also a case of amalgamation. In the case, it was held that the exchange ratio of the share of the two companies, which were being amalgamated, had to be stated alongwith the notice of the meeting. How this exchange ratio was worked out, however, was not required to be stated in the statement contemplated under Section 393(1)(a).
VALUATION NOT AS PER MIHEER MAFATLAL CASE:
28.2  The petitioner Company submits that the contours laid down in the Miheer Mafatlal case have not been adhered to in the instant case. Further, nowhere in the said case, the Supreme Court has observed that details of the working for arriving at the share exchange ratio have to be covered in the valuation report. Therefore the allegation of the Objectors that the valuation is not as per the Proviso to Section 391(2) of the Act and the guidelines set out in the case of Miheer Mafatlal is baseless and without any merit.
VALUATION NOT AS PER HLL/TOMCO CASE:
28.3 The contention and allegation of the Objectors that all the 8 factors specified by ` Weinberg and Blank' in the book `Takeovers and Mergers' as referred to in HLL/TOMCO case have not been taken into account while arriving at the share exchange ratio in the instant case is false and baseless. In fact, the Supreme Court has not mandated adherence to any one or more of the 8 factors dealt with by Weinberg and Blank and the said factors are merely recommendatory in nature. [Please refer page 53, paras D & E of HLL's judgment reported in (1995) 83 Comp. Case 30]. The petitioner Company submits that there is no merit in examining whether any one or more or all of these factors have actually been taken into account while arriving at the share exchange ratio in the instant case. In any event, admittedly, in the instant case, the valuers have taken into account the relevant factors and methods as set out in the valuation report to arrive at the share exchange ratio.
VALUATION NOT AS PER FEMA REGULATIONS/CGI GUIDELINES:
28.4  The Objectors' contention that valuation is not as per the FEMA regulations/Controller of Capital Issues ("CCI") guidelines is lacking in merit. The Objectors have failed to show as to which FEMA regulations are applicable for arriving at share exchange ratio in relation of amalgamation under Sections 391-394 of the Act. Further, CCI guidelines have been repealed way back in the year 1992.
28.5 The overall allegation of the Objectors that the Valuation Report is not proper and the Scheme is not fair and reasonable : In re. Reliance Petroleum Ltd. 2002(O) GLHEL 210579, (supra) this Court (Coram: D.A. Mehta, J) dealt with identical issues and held as under in para 27:
27. Thus, by an overwhelming majority, those present have voted in favour of the resolution i.e. in favour of approving the Scheme as per share exchange ratio proposed on the basis of the valuation report dated 3.3.2002. In these circumstances, it is not open to the Court to hold that there was any impropriety in the valuation of the shares. In fact, the valuation report has stated that it has based its conclusion of value on the figures of assets and liabilities of both RPL and RIL reflected in the Balance Sheet as on 31.3.2001 along with the audited financial statement for the year ended on 31.3.1999 and 31.3.2000. The valuation report has also taken into consideration extracts of unaudited financial statements for the 9 months period ended on 31.12.2001. This is over and above the discussions with the management of both RPL and RIL, other informations, explanations and representations as were required and provided by the respective managements along with such other analysis, reviews and inquiries as were found necessary. The valuation report further states that the valuers have not made any independent investigation and assume no responsibilities for the various informations, details, explanations and representations placed before the valuers. It was vehemently urged during the course of hearing that this sort of disclaimer would virtually amount to the valuers denying any responsibility as regards the validity or genuineness of the share exchange ratio. It is necessary to note that the figure of exchange ratio arrived at by the valuers could not be shown to be vitiated by fraud and/or mala fide. It is settled legal position that merely because the determination is done by a slightly different
method which might result in a different conclusion would not justify interference unless it was found to be unfair. There is nothing on record to hold that the exchange ratio, brought on record by the aforesaid valuation report, is in any manner unjust or unfair. At the cost of repetition, it requires to be stated that 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 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.
28.6  Therefore, the allegations of the Objectors, inter alia, that no due diligence was carried out in determining the share exchange ratio, the valuers assumed no responsibility for valuation and they relied on the information supplied by the management, unaudited figures were considered by the valuers etc., have all been addressed by this Court in the above case, in particular paras 18 to 28 thereof.
28.7   The Petitioner Company relies upon the following authorities in support of the above submissions -
(a)  Hindustan Lever Employees Union v. Hindustan Lever Ltd. and Ors. (1995) 83 Comp. Case 30(SC), at page 37, para B to H, page 54, para C&D.
(b)  Reliance Petroleum Ltd. v. Union of India (2002) (O) GLHEL, 210579, para 18 to 28.
(c)  Miheer Mafatlal v. Mafatlal Indus tires Ltd. MANU/SC/2143/1996.
(d)  HCL Infosystems Ltd. (2004) 121 Comp. Case 561 (Del), para 26 to 29.
(e) In Re: Arcoy Overseas Pvt. Ltd. Manu/GJ/0716/2005, para 7 and 8.
(f)  HCL Infosystem Ltd. (2004) 121 Comp. Case 561(Del).
(g)  (2001) 107 Comp. Case 232, page 235 to 238. (h) (2000) 99 Comp. Case 276.
(i) In Re: Alfa Quartz Ltd. (2001) 104 Comp. Case 71 (Guj).
(j) In Re: Gujarat Ambuja Cotspin Ltd., In Re: Gujarat Ambuja Protein Ltd., In Re: Gujarat Ambuja Exports Ltd (2001) 104 Comp. Case 397 (Guj).
(k) In Re: H.K. Dave P. Ltd., In Re: H.K. Gas Co. P. Ltd. (2001) 104 Comp Case 650 (Guj).
(I) RE: PROXIES:
29. It is a false, baseless and bald allegation that any coercive method or force was applied for signing Proxy forms.
29.1  Not a single person has addressed any letter to the Chairman of the Court convened meetings or the Company for withdrawal of his proxy.
29.2   Even otherwise, during the meeting, the Chairman had assured that even if any of the
employee shareholders had given a proxy form earlier, but if they were present at the meeting, then they would be entitled to participate in the voting and the proxy forms given earlier would be held invalid, while their votes would be considered. Chairman had also instructed scrutineers accordingly. This is also stated in the Chairman's Report submitted to this Court. Thus, there is no violation of the provisions of the Companies Act as also of the order of this Court dated 16.3.2007 in Company Application No. 126 of 2007 as alleged.
29.3 Signing of blank proxy form is not an illegality as has been held by Delhi High Court in the matter of Swadeshi Polytex Ltd., reported in 1988 (63) Comp. Cases 709 (pages 716 to 718).
(J) RE. DEBENTURE HOLDER.
30.1   The debenture holders do NOT constitute a separate class. They are either secured or unsecured creditors, as the case may be. In the present case, the debenture holders of the Petitioner Company are secured creditors.
30.2  The concept of `preferential creditors' is not relevant in the context of amalgamation. Section 530 of the Companies Act lists out different categories of preferential creditors such as Government revenues, wages of workmen, provident fund, pension fund, gratuity fund and so on. Debenture holders are NOT one among them. Like any other secured creditors, debenture holders are entitled to lay their hands on the assets secured in their favour for recovery of their dues. They are placed on the same footing as other secured creditors. The sub-classes of creditors may be relevant ONLY if different treatment is given/offered in the scheme. If the same treatment is given to all secured creditors including debenture holders in the Scheme, then there is no requirement of classifying the debenture holders as a separate class.
30.3  The petitioner Company relies on the decision of this Court in Miheer Mafatlal Industries case decided by the Division Bench of Gujarat High Court (Coram: C.K. Thakkar (as he ws then & R. Balia, JJ)) (upheld by the Supreme Court), reported in (1996) 87 Comp. Cases 705(Guj), at page 733, para B and H, "In our opinion, a plain reading of the section does not leave any doubt that only where separate terms are offered to separate classes of shareholders or creditors under the proposed compromise or arrangement, separate meetings are required to be held in respect of each class of creditors or shareholders for whom separate compromise or arrangement has been offered. The classification of members or creditors will be founded on the basis of difference in terms offered under the Scheme. The difference in terms of the Scheme can be the only criterion for identifying the separate class for the purpose of convening a separate meeting for such class".
30.4  Referring to various pronouncements including the above, this High Court held in In re. Arvind Mills Ltd. (2002) 111 Comp. Cases 118 (Guj.) that, "....The classification of members or creditors can be founded on the basis of difference in the terms offered under the scheme. The difference in terms of the scheme can be the only criterion for identifying separate class for the purpose of convening a separate meeting for such class".
30.5  The petitioner Company relies on the decision of this Court in Miheer H. Mafatlal v. Mafatlal Industries Limited (1996) 87 Comp. Cases 792 (SC) referred to in Re. Spartek Ceramics India Limited Manu/AP/0991/2005 (Del), at para 13 of the judgment "It is, therefore, obvious that unless a separate and different type of scheme of compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class, no separate class of sub­class of the main class of members or creditors is required to be convened."
30.6  The petitioner submitted that as consistently, held by the Courts that the classification of creditors should be based on the treatment which is being offered to them under the scheme of arrangement. Merely because debenture holders have first charge does not make them a separate class distinct from other secured creditors.
30.7  Merely because the Companies Act provides for provisions like creation of security, debenture redemption reserve etc., under Sections 117A - 117C, debenture holders will not constitute as a separate class from among the secured creditors. In Re: Siel Ltd. 2004 (122) Com. Cases 536 (Del) : Manu/DE/0666/2003, pages 13, 14, 16 and In Re: Spartek Ceramics Ltd. Manu/AP/0991/2005 para 13.
30.8  Disclosures in balance sheet are as per the statutory requirements of Schedule VI to the Companies Act and the applicable accounting standards. Further, mere disclosures cannot make debenture holders a separate class of stakeholders. On the contrary, in a balance sheet of a company drawn up in the form given in Schedule VI, debenture holders are classified under "Secured Creditors".
30.9    It was held in National Rayon Corporation Ltd. v. Commissioner of Income Tax MANU/SC/0862/1997, that "...debentures were nothing but the secured loans. Merely because the debentures were not redeemable during the accounting period, the liability to redeem the debentures did not cease to exist. It was redeemable or repayable at a future date. But it was a known liability. In the form of balance sheet prescribed by the Act in Schedule VI, the secured loans have to be shown under the heading `liabilities'. Secured loans include (i) debentures, (ii) loans and advances from banks, (iii) loans and advances from subsidiaries, and (iv) other loans and advances. The secured loans might not be immediately repayable, but the liability to repay these loans was an existing liability and has to be shown in the company's balance sheet for the relevant year of accounts as a liability...."
30.10 Articles of Association of IPCL contains the standard provisions based on the provisions of the Companies Act read with Table - A. There is no specific provision treating debenture holders as a class separate from the other secured creditors.
30.11  Further, the petitioner Company submits that the Objectors' contention that the Chairman's Report ought to have specified the voting pattern of secured creditors and debenture holders separately, is again without any substance and statutory backing.
30.12 The petitioner Company relies upon the following authorities in support of this finding:
(a)  National Rayon corporation Ltd. v. CIT MANU/SC/0862/1997.
(b)  In Re: Siel Ltd. (2004) 122 Company Case 536 (Del), Manu/DE/0666/20034, page 13, 14, 16.
(c) In Re: Spartek Ceramics Ltd. Manu/AP/0991/2005, para 13.
(d)  Miheer Mafatlal v. Mafatlal Industries Ltd. MANU/SC/2143/1996.
(e)  Mafatlal Industries Re (1996) 87 Comp. Case 705 (Guj.), page 731, para G to page 736, para H.
(f) Arvind Mills Ltd (2002) 111 Comp Case 118 (Guj.), para 12 to 14.
(g)  Mafatlal Industries Re (1996) 87 Comp. Case 705, page 733.
(h) In Re: Core Health Care Ltd (2007) 138 Comp. Cases 204, page 248, 253, 260, 291, 292, 296, 306, 325, 326.
(i) (2002) 112 Comp. Case 674 (Bom)
(j) Administrator of the Specified Undertakings of the UTI v. Ashima Dyecot Ltd. (Misc. Civil Application No.239 of 2006 in Company Petition No. 105 of 2006 in Company Application No.243 of 2006 decided on 10.11.2006).
30.12  The Petitioner Company humbly submits that the objections raised against the Scheme are baseless and without any substance. Moreover, almost all the similar objections have been discarded by various courts including the Hon'ble Supreme Court and this Court in a number of cases.
30.13  Therefore, the petitioner company submits before this Court that the prayers (a) to (h) sought in the petition be allowed and that the scheme be sanctioned.
OBSERVATIONS AND CONCLUSIONS: (Regarding Jurisdiction of the Court)`
31. This Court has considered the facts of the case, objections raised by several objectors and also Company's reply to the objections. Before this Court considers the objections raised against the proposed scheme of amalgamation, this Court considers: (1) the parameters of the Court's jurisdiction regarding legality and validity of the scheme; (2) objections raised by several objectors and (3) Scheme of Sections 391 to 394 and the relevant aspects about the same.
RE: PARAMETERS OF COURT'S JURISDICTION:
31.1  In this regard I first rely upon the judgement of the Hon'ble Supreme Court in the case of Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and Ors. reported in 83 Company Cases 30. The said judgement has been delivered by 3 Judges Bench (Coram: M.N. Venkatachaliah, C.J.I., R.M. Sahai and S.C. Sen, JJ). In this judgement Hon'ble Mr. Justice M.N. Venkatachaliah, CJI and Hon'ble Mr. Justice S.C. Sen, have given one judgement (majority judgement) whereas Hon'ble Mr. Justice R.M. Sahai has given separate but concurring judgement.
31.2  As regards Court's jurisdiction I first rely on the judgement of Hon'ble Mr. Justice R.M. Sahai on page Nos. 37-38 which reads as under:
31.2A But what was lost sight of is that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as good as it would have been if another method had been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company which was being merged. The court's obligation is to be satisfied that valuation which was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as, even though the chartered accountant who performed this function was a director of TOMCO, he did so as a member of a renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of the shareholders of TOMCO by the High Court and it has been found that the determination did not suffer from any infirmity. The company court, therefore, did not commit any error in refusing to interfere with it. May be, as argued by learned Counsel for the petitioner, if some other method had been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95 per cent of the shareholders who are the best judge of their interest and are better conversant with market trends agreed to the valuation determined it could not be interfered by courts as "certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be subjected to inspection by the court. To do so, is incompetent and improper and, therefore, out of bounds. Nevertheless, the broad parameters of
fairness in administration, bona fides in action and the fundamental rules of reasonable management of public business, if breached, will become justiciable" [Fertilizer Corporation Kamgar Union V. Union of India MANU/SC/0010/1980 (See: Buckley on the Companies Acts, fourteenth edition, pages 473 and 474 and Palmer on Company Law, twenty-third edition, para 79.16]
(Emphasis added)
31.3  In the same judgement the Hon'ble Supreme Court (i.e. same learned Judge) further observed at pages 39-40 as under:
Section 394 casts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered into between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the Courts have evolved, the principle of "prudent business management test" or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising the profits of the shareholders or whether the interest of employees was protected but it has to ensure that the merger shall not result in impeding promotion of industry or obstruct the growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on the English decision for Hoare, In re (1933) All ER 105 (Ch D) and Bugle Press Ltd., In re (1961) Ch 270 that the power of the Court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive.
(Emphasis added)
31.4 The majority judgement starts from pages 65-66 of the said judgement which reads as under:
An argument was also made that as a result of the amalgamation a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr. Dhavan has argued that TOMCO is not yet a sick company. That may be right, but TOMCO at this rate will become a sick company, unless something can be done to improve its performance. In the last two years, it has sold its investments and other properties. If this proposal of amalgamation is not sanctioned, the consequence for TOMCO may be very serious. The shareholders, the employees, the creditors will all suffer. The argument that the company has large assets is really meaningless. Very many cotton mills and jute mills in India have become sick and are on the verge of liquidation, even though they have large assets. The scheme has been sanctioned almost unanimously by the shareholders, debenture holders, secured creditors, unsecured creditors and preference shareholders of both the companies. There must exist very strong reasons for withholding sanction to such a scheme. Withholding of sanction may turn out to be disastrous for the 60,000 shareholders of TOMCO and also a large number of its employees.
(Emphasis added)
31.4A. Further reliance is placed on the decision of the Hon'ble Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. reported in MANU/SC/2143/1996. In the aforesaid matter at paragraph No. 28 the Hon'ble Supreme Court has considered scope of interference by the Company Court in sanction proceedings. The Court has relied on Sections 391 to 394 of the Companies Act and thereafter relied on the passage of Buckley on the Companies Act, 14th Edition (page 473-474), then the judgements in the case of Alabama, New Orleans, Texas and Pacific junction Rly. Co. [Re 1 (1891) 1 Ch. 213 : (1886-90) All ER Rep. Ext. 1143]; Anglo Continental Supply Co. Ltd. [Re (1922) 2 Ch 723 : 91 U Ch 658]; Employees' Union v. Hindustan Lever Ltd. 1995 Supp (1) SCC 499 and ultimately on pages 601-602 the Hon'ble Supreme Court has observed as under: (per S.B. Majmudar, J)
31.4B In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged:
1.  The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held.
2.  That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 Sub-section (2).
3.  That the meetings concerned of the creditor or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
4.  That all necessary material indicated by Section 393 (1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391, Sub-section (1).
5.  That all the requisite material contemplated by the proviso to Sub-section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
6.   That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
7.  That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8.  That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
9.  Once the aforesaid broad parameters about the requirement 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.
The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction.
(Emphasis added)
31.5   Reliance is further placed on the decision of the Hon'ble Supreme Court in the case of Hindustan Lever and Anr. v. State of Maharashtra and Anr. reported in MANU/SC/0934/2003, particularly paragraph No. 12 on page 449 which reads as follows:
para 12 - Two broad principles underlying a scheme of amalgamation which have been brought out in this judgement are:
1.  That the order passed by the Court amalgamating the company is based on a compromise or arrangement arrived at between the parties; and
2.  that the jurisdiction of the Company Court while sanctioning the scheme is supervisory only i.e. to observe that the procedure set out in the Act is met and complied with and that the proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. The court is not to exercise the appellate jurisdiction and examine the commercial wisdom of the compromise or arrangement arrived at between the parties. The role of the court is that of an umpire in a game, to see that the teams play their role as per rules and do not overstep the limits. Subject to that how best the game is to be played is left to the players and not to the umpire.
Both these principles indicate that there is no adjudication by the court on the merits as such.
31.6  In paragraph No. 32 on page 457 of the said judgement the Hon'ble Supreme Court has further observed thus:
para 32 - In view of the aforesaid discussion, we hold that the order passed by the Court under Section 394 of the Companies Act is based upon the compromise between two or more companies. Function of the court while sanctioning the compromise or arrangement is limited to oversee that the company were not conducted in a manner prejudicial to the interest of its members or to public interest, that is to say, it should not be unfair or contrary to public policy or unconscionable. Once these things are satisfied the scheme has to be sanctioned as per the compromise arrived at between the parties.
(Emphasis added)
31.7  I also rely on Palmer's Company Law 25th Edition (1992) page 12035 where the learned author has discussed the scheme, "Exercise of the Court's discretion" at paragarph No. 12.026 to 12.030 where the learned author has stated that before the Court sanctions a scheme it will
normally need to be satisfied on four matters: (1) The statutory provisions must have been complied with; (2)The class must have been fairly represented; (3) The arrangement must be such as a man of business would reasonably approve; and (4) The arrangement must be compatible with Section 428.
31.8  Similarly Buckley on the Companies Act, (2001 Edition) under the heading "Function of the Court" at para 425.53 is relied on where it is stated as under:
Once the meetings have approved the scheme, the sanction of the Court must be sought. The sanction of the Court is not a formality. The Court has an unfettered discretion as to whether or not to sanction the scheme, but it is likely to do so, so long as: (1) the provisions of the statute have been complied with, (2) the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and (3) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.
31.9  Further reliance is placed on Halsbury's Laws of England, 4th Edition, Vol. 7(2), pages 1092-1093 where under the heading "The Making of Schemes" at para 1447 Sanctioning compromise or arrangement it is stated as follows:
If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting either in person or by proxy at the meeting agree to any compromise or arrangement, the compromise or arrangement, if sanctioned by the Court, is binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the Company.
The compromise proposed must be within the power of the company to effect, and, if not, its memorandum of association must be altered before the compromise will be approved.
The interests of creditors must always be safeguarded; but in the case of a scheme which involves the application of the provisions of the Companies Act, 1985 for facilitating such reconstruction or amalgamations, the protection of the creditors is to be left to the procedure in relation to such provisions.
GUJARAT HIGH COURT DECISIONS:
31.10  As regards this High Court, I rely on the decision of this Court in the case of In re Sidhpur Mills Co. Ltd. reported in MANU/GJ/0076/1962, the judgement was delivered by the Court (Coram: N.M. Miabhoy, J as he was then). The learned Judge has discussed various English cases at pages 308 to 311 in para 14 and in para 15 on page 311 the learned Judge has laid down the following principles:
Para 15 - Therefore, in my judgement, the correct approach to the present case is (i) to ascertain whether the statutory requirements have been complied with, and (ii) to determine whether the scheme as a whole has been arrived at by the majority bona fide and in the interests of the whole body of shareholders in whose interests the majority purported to act, and (iii) to see whether the scheme is such that a fair and reasonable shareholder will consider it to be for the benefit of the Company and for himself. The scheme should not be scrutinized in the way of carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel would do it, each trying to find out from
his professional point of view what loopholes are present in the scheme, what technical mistakes have been committed, what accounting errors have crept in or what legal rights of one or the other sides have or have not been protected. It must be tested from the point of view of an ordinary reasonable shareholder, acting in a business-like manner, taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. I am emphasizing the last point because an argument was made by Mr. Amin that certain circumstances or events which took place after the scheme had been considered should be taken into account. I do not wish to be understood to say that, in no case post facto circumstances or events cannot be taken into account, but, on the whole I have come to the conclusion that, whilst, in some rare and exceptional cases, the Court may take into consideration subsequent events to protect the interests of the Company or the shareholders, as a general rule, the Court should consider the resolution on the footing of the circumstances which were in existence at the time when the scheme was formulated, deliberated upon and approved. If any other approach were to be made, then, in that case, there would be no sanctity about business contracts. In fact, such an approach may include interested persons to shape future events and circumstances in such a way as to convert a reasonable scheme into an unreasonable one.
(Emphasis added)
31.11  Another judgement of this Court is In re Maneckchowk and Ahmedabad Manufacturing Co. Ltd. reported (1970) 40 Company Cases 819, (D.A. Desai, J (as he was then) relevant pages 901-902 where the learned Judge has referred to para 15 of the aforesaid judgement (In re Sidhpur Mills Co. Ltd.) and ultimately held as under:
This must be the approach of the court while examining the scheme and the court should, keeping in view all the aspects of the matter, prefer a living scheme to compulsory liquidation bringing about an end to a company. Reference may be made to Lawrence Dawson v. J. Hormasji reported in AIR 1932 Rang. 154, 162. Cunliffe J, has observed as under:
The Court is of course not a mere machine for registration. It will look into the proposed scheme much as a court of appeal will canvass, if asked to do so, the decision of a jury, to ascertain if there was reasonable evidence to support their verdict; but it will, I think, always also prefer a living scheme to a compulsory liquidation bringing about an end to a company, and usually without any hope of payment in full.
The Court in exercising its discretion under Section 391(2) must treat it as cardinal that its function does not extend to usurping the view of the members or creditors. It must look at the scheme to see that it is a reasonable one and while so doing, the court will be strongly influenced by a big majority vote and the reasons which actuated the contesting creditors in opposing the scheme. None the less it is essential that the scheme must be a fair and equitable one though it is none of the business of the court to judge upon the commercial merits which in fact is the function of the creditors and members.
(Emphasis added)
31.12  I also rely upon the judgement of this Court in the case of Bhavnagar Vegetable Products Ltd., In re reported in 55 Company Cases 107. First I rely on the judgement of the learned Single Judge (Ahmadi, J (as he was then)). The learned Judge has referred to the judgement of this Court in Sidhpur Mills Co. Ltd.'s case (supra) in para 59 and in paragraph 60 the learned Judge has also
referred to the judgement of this Court in In re Maneckchowk & Ahmedabad Mfg. Co. Ltd. [1970] 40 Comp. Cas. 819 (Guj). Paragraph No. 15 in Sidhpur Mill's case and paragraph 16 in Maneckchowk & Ahmedabad Mfg. Co. Ltd.'s case (supra) have been referred and ultimately in paragraph Nos. 63-64, this Court laid down the principle regarding sanctioning of the Scheme. Against the said judgement, appeal was filed and the Division Bench of this Court (Coram: M.P. Thakkar (as he then was) & R.C. Mankad, JJ) dismissed the appeal and approved the judgement of the learned Single Judge of this Court. Thus, the judgement in the case of Sidhpur Mill (supra) has been followed by this Court, learned Single Judge as well as the Division Bench.
31.13 I also refer to the Division Bench judgement of this Court (Coram: R.C. Mankad and P.M. Chauhan, JJ) in the case of Jitendra R. Sukhadia v. Alembic Chemical Works Company Ltd. reported in 64 Company Cases 206, particularly relevant pages 215-216 where the Court has observed as under:
With respect, we are in full agreement with the view of N.M. Miabhoy J (as he then was). (Re: Sidhpur Mills Co. Ltd. which I earlier referred to). xxxxxxxxxx It is only the resultant effect of the scheme which is required to be stated. As observed in Sidhpur Mills Co. Ltd., In re MANU/GJ/0076/1962, if there is anything in the scheme of compromise or arrangement which is not quite obvious to a person reasonably acquainted with the facts of the case by merely reading the terms of the scheme, then a duty is cast upon the persons concerned to mention what the consequence will be if the scheme is approved of. If something is implied in the scheme which is not obvious, it must be brought to the notice of the creditors and shareholders. In the instant case, the share exchange ratio is clearly mentioned in the scheme. In other words, it is made clear that in case the amalgamation of Neomer with the respondent company is approved, the shareholders of Neomer would be entitled to one share of the respondent company in exchange for 40 shares of Neomer. In what manner this exchange ratio was