H. S. ASSOC. PICNIC - SAGUNA BAUG NERAL

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5 Insurance Policies Everyone Should Have

Protecting your most important assets is an important step in creating a solid personal financial plan. The right insurance policies will go a long way toward helping you safeguard your earning power and your possessions. In this article, we'll show you five policies that you shouldn't do without.

1. Long-Term Disability Insurance
The prospect of long-term disability is so frightening that some people simply choose to ignore it. While we all hope that, "Nothing will happen to me," relying on hope to protect your future earning power is simply not a good idea. Instead, choose a disability policy that provides enough coverage to enable you to continue your current lifestyle even if you can no longer continue working. (In India this type of policies are not issued separately but sold with life insurance as rider to original policy.)(covered under 80C)

2. Life Insurance
Life insurance protects the people that are financially dependent on you. If your parents, spouse, children or other loved ones would face financial hardship if you died, life insurance should be high on your list of required insurance policies. Think about how much you earn each year (and the number of years you plan to remain employed) and purchase a policy that will replace that income in the event of your untimely demise. Factor in the cost of burial too, as the unexpected cost is a burden for many families.(covered under 80C of income tax Act)

3. Health Insurance
The soaring cost of medical care is reason enough to make health insurance a necessity. Even a simple visit to the family doctor can result in a hefty bill. More serious injuries that result in a hospital stay can generate a bill that tops the price of a one-week stay at a luxury resort. Injuries that require surgery can quickly rack up five-figure costs. Although the ever-increasing cost of health insurance is a financial burden for just about everyone, the potential cost of not having coverage is much higher.(covered under Section 80D of the income tax act)

4. Home Insurance
Replacing your home is an expensive proposition. Having the right home insurance can make the process less difficult. When shopping for a policy, look for one that covers replacement of the structure and contents in addition to the cost of living somewhere else while your home is repaired.

Keep in mind that the cost of rebuilding doesn't need to include the cost of the land, since you already own it. Depending on the age of your home and the amenities that it contains, the cost to replace it could be more or less than the price you paid for it. To get an accurate estimate, find out how much local builders charge per square foot and multiply that number by the amount of space you will need to replace. Don't forget to factor in the cost of upgrades and special features. Also, be sure the policy provides adequate coverage for the cost of any liability for injuries that occur on your property.(In India Product is not so popular)

5. Automobile Insurance
Some level of automobile liability insurance is required by law in most localities. Even if you are not required to have it and you are driving an old junker that has been paid off for years, automobile liability insurance is something you shouldn't skip. If you are involved in an accident and someone is injured or their property is damaged, you could be subject to a lawsuit that could cost you everything you own. Accidents happen quickly and the results are often tragic - having no automobile liability insurance or purchasing only the minimum required coverage saves you only a tiny amount of money and puts everything else that you own at risk.


Read more: http://www.simpletaxindia.net/2010/02/5-insurance-policies-everyone-should.html#ixzz2Ep3jNvWb

Core Investment Companies – Overseas Investment (Reserve Bank) Directions, 2012

RBI/2012-13/314
DNBS (PD) CC.No.311/03.10.001/2012-13

December 06 , 2012

All Core Investment Companies

Dear Sirs,

Core Investment  Companies – Overseas Investment (Reserve Bank) Directions, 2012

Please refer to the Non-Banking Financial Companies (Opening of Branch/Subsidiary/Joint Venture/Representative Office or Undertaking Investment Abroad by NBFCs) Directions, 2011 dated June 14, 2011. The Directions have specified general and specific conditions for overseas investment by NBFCs. The applicability of the Directions for Core Investment Companies (CICs) has been examined and in view of their unique nature of business (investment only for holding purpose), certain modifications have been found necessary to be made in the Directions.

2.  Core Investment Companies (CICs) invest primarily in group companies, in different sectors of the economy. Being holding companies they need to invest in both financial and non-financial activities. It has therefore been decided to issue a separate set of Directions to CICs with regard to their overseas investments.

3. All CICs investing in joint ventures/subsidiaries/representative offices overseas in financial sector will require prior approval from the Bank. The approval will be subject to the CIC fulfilling the conditions enumerated in the enclosed Directions issued by Reserve Bank in exercise of powers under Sections 45JA, 45K and 45L of the RBI Act, 1934 vide Notification No.DNBS(PD)252 /CGM(US)/2012 dated  December 6, 2012. The notification is enclosed for meticulous compliance.

4. Thus, should CICs currently exempted from registration, desire to make overseas investments in financial sector, they would require a CoR from RBI and shall have to comply with all the regulations applicable to registered CICs. However exempted CICs do not require to be registered with RBI for making investments in non-financial sector.

Yours sincerely,

(Uma Subramaniam)
Chief General Manager-in-Charge

---

RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.

Notification No. DNBS.(PD) 252/ CGM(US)-2012 dated  December 06,  2012

In exercise of the powers conferred by sections 45JA, 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, Reserve Bank of India having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary so to do, gives to every CIC the Directions hereinafter specified.

Short title and commencement of the Directions

1. These Directions shall be known as the Core Investment Companies – Overseas Investment(Reserve Bank) Directions, 2012.
2. These Directions shall come into force with immediate effect.
3. These directions are in addition to those prescribed by Foreign Exchange Department foroverseas investment.

2. Prior Approval of RBI in cases of Overseas investment by CICs

i. These Directions will be applicable to all CICs¹ (whether registered with RBI or exempted from registration) that intend to invest overseas.

ii. Investment in financial sector² overseas:

CICs desirous of making overseas investment in financial sector shall hold a Certificate of Registration (CoR) from Reserve Bank of India (the Bank) and shall comply with all the regulations applicable to registered CICs.  Hence, CICs that are presently exempted from the regulatory framework of the Bank (exempted CICs), would be required to be registered with the Bank and would be regulated like CICs-ND-SI, for the purpose of overseas investment in financial sector.

iii. Investment in non-financial sector:

Exempted CICs making overseas investment in non-financial sector will not require registration from the Reserve Bank and hence, these Directions are not applicable to them. Further, a registered CIC need not obtain prior approval from Department of Non-Banking Supervision (DNBS), RBI, foroverseas investment in non-financial sector. However it should report to the Regional Office of DNBS where it is registered within 30 days of such investment in the stipulated format of quarterly return and also continue to submit the return quarterly;

iv. The eligibility criteria for investments abroad and other conditions prescribed for CICs are given in the following paragraphs:

3. Eligibility Criteria

i. The Adjusted Net Worth (ANW) of the CIC shall not be less than 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items as on the date of the last audited balance sheet as at the end of the financial year. The CIC shall continue to meet the requirement of minimum ANW, post overseas investment. For this purpose, the risk weights are as laid down in the Notification No.219 dated January 05, 2011.

ii. The level of Net Non-Performing Assets of the CIC should not be more than 1% of the net advances as on the date of the last audited balance sheet;

iii. The CIC should generally be earning profit continuously for the last three years and its performance should be satisfactory during the period of its existence.

4. General Conditions

i.  Direct investment in activities prohibited under FEMA will not be permitted;

ii. The total overseas investment should not exceed 400% of the owned funds of the CIC.

iii.  The total overseas investment in financial sector should not exceed 200% of its owned funds;

iv.  Investment in financial sector shall be only in regulated entities abroad.

v. Entities set up abroad or acquired abroad shall be treated as wholly owned subsidiaries (WOS) /joint ventures (JV) abroad³;

vi.  Overseas investments by a CIC in financial /non-financial sector would be restricted to its financial commitment⁴. However with regard to issuing guarantees / Letter of Comfort in this regard the following may be noted:

a. The CIC can issue guarantees / letter of comfort to the overseas subsidiary engaged in non-financial activity;

b. CICs must ensure that investments made overseas do not result in creation of complex structures.  In case the structure overseas requires a Non-Operating Holding Company, there should not be more than two tiers in the structure. CICs having more than one non-operating holding company in existence, in their investment structure, shall report the same to the Reserve Bank for a review.

d. CICs shall comply with the regulations issued under FEMA, 1999 from time to time;

e. An annual certificate from statutory auditors shall be submitted by the CIC to the Regional Office of DNBS where it is registered, certifying that it  has fully complied with all the conditions stipulated under these Guidelines for overseas investment. The certificate as on end March every year shall be submitted by April 30 each year;

f.  A quarterly return in the enclosed format  as given in Annex  shall be submitted by the CIC to the Regional Office of DNBS and also Department of Statistics and Information Management (DSIM), RBI within 15 days of the close of the quarter.

g. If any serious adverse features come to the notice of the Bank, the permission granted shall be withdrawn. All approvals for investment abroad shall be subject to this condition.

5. Specific Conditions.

i.  Opening of Branches

As CICs are non-operating entities, they will not, in the normal course, be allowed to open branches overseas.  CICs which have already set up branch(es) abroad for undertaking investment businessshould approach RBI within 3 months from the date of these Directions for a review.

ii.  Opening of WOS/JV Abroad by CICs

In the case of opening of a WOS/JV abroad by a CIC, all the conditions as stipulated above shall be applicable. The NoC to be issued by the Bank is independent of the overseas regulators’ approvalprocess. In addition, the following conditions shall apply to all CICs:

a. The WOS/JV being established abroad should not be a shell company i.e “a company that is incorporated, but has no significant assets or operations.” However companies undertaking activities such as financial consultancy and advisory services shall not be considered as shell companies;

b. The WOS/JV being established abroad by the CIC should not be used as a vehicle for raising resources for creating assets in India for the Indian operations;

c. In order to ensure compliance of the provisions, the parent CIC shall obtain periodical reports/audit reports at least quarterly about the business undertaken by the WOS/JV abroad and shall make them available to the  inspecting officials of the Bank;

d. If the WOS/JV has not undertaken any activity or such reports are not forthcoming, the approvals given for setting up the WOS/JV abroad shall be reviewed;

e. The WOS/JV shall make disclosure in its Balance Sheet the amount of liability of the parent entity towards it and also whether it is limited to equity / loan or if guarantees are given, the nature of such guarantees and the amount involved;

f.  All the operations of the WOS/JV abroad shall be subject to regulatory prescriptions of the host country.

iii.  Opening of Representative Offices Abroad by CICs

CICs will need prior approval from the DNBS, RBI for opening representative offices abroad.The representative offices can be set up abroad for the purpose of liaison work, undertaking market study and research but not for undertaking any activity which involves outlay of funds. The representative offices shall also comply with regulations, if any, in this regard stipulated by a regulator in the host country. As it is not envisaged that such offices would be carrying on any activity other than liaison work, no line of credit should be extended.

The parent CICs shall obtain periodical reports about the business undertaken by the representative offices abroad.  If the representative offices have not undertaken any activity or such reports are not forthcoming, the Bank may advise the CIC to wind up the establishment.

6.  Violation of these directions shall invite penal action under the provisions of Reserve Bank of India Act, 1934.

(Uma Subramaniam)
Chief General Manager-in-Charge

---

¹CICS as defined in para 2(b) of the circular DNBS (PD) CC.No. 206/03.10.001/2010-11 January 5, 2011 titled Regulatory Framework for Core Investment Companies

²Financial sector for this purpose would mean a sector/ service regulated by a Financial Sector Regulator.

³Under FEMA, “Joint Venture” means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian party makes a direct investment.  “WOS” means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country, whose entire capital is held by the Indian party.

⁴Financial commitment” means the amount of direct investment by way of contribution to equity and loan and fifty percent of the amount of guarantees issued by an Indian party to or on behalf of its overseas JV/WOS.

Court should not interfere in decision passed by overwhelming majority of share-holders

In a case of scheme of arrangement pending for approval of the Court under Section 391 Court should act as umpire. It would not be a rubber stamp being a blind folded instrument of putting of seal of approval. It would certainly consider the objections raised by the objectors, to the extent, permissible under the corporate jurisprudence. It would definitely empower the Court to judiciously x-ray the scheme to find out any malicious intent contrary to public policy. To that extent, piercing ofcorporate veil, if required, is justified. In the instant case, the learned Judge rightly held that commercial wisdom could not be called in question. It is true and to some extentjustified, when Mr. Deb would argue unfair dealings at the meeting. It would have been proper if such unpleasant things did not happen at the meeting. The learned Judge rightly held, it did not tilt the balance. The question would still remain, is it a fair scheme? The overwhelming majority of the shareholders approved the same. We are not competent to question such decision. Hence, our scope of enquiry comes in a very narrow campus. The earlier scheme of 2003 would provide discharge of liability through redemption of bonds. If those liabilities would still remain with the transferor as on the date of the sanction by the process and those bonds are transformed into shares in the transferor company the substantial chunk would go to the shareholders of the original transferor company who are common with the promoters of the transferor and transferee company. That would certainly tilt the balance. Can it be avoided? Mr. Banerjee contended, there was sufficient money in the company’s till. Mr. Sarkar would say, the company in their wisdom decided not to use that and plough back the same for the welfare of the company. Such question would certainly not come within our scope for consideration. To that extent, Mr. Sarkar was possibly correct. In the process, if the balance is tilted in favour of the promoter that would be a consequence for which the respondent would have to suffer without a redressal. We are helpless on that count.

HIGH COURT OF CALCUTTA

J.K. Agri Genetics Ltd.

v.

Union of India

A.P. O. NO. 249 OF 2010

C.P. NO. 361 OF 2006

SEPTEMBER 10, 2012

JUDGMENT

Backdrop

Ashim Kumar Banerjee. J. – This appeal would involve Scheme of Arrangement between J.K. Agri Genetics Limited and Florence Alumina Limited, sanction of which was refused by the learned company Judge vide judgment and order dated May 20, 2010 in C.P. No.361 of 2006, that gave rise to the present appeal. The application was opposed by two shareholders namely, Shri Krishnagopal Motilal Chandak, the respondent no.3 and Ramesh Kumar R. Fofalia being respondent no.4. They represented about two per cent of the shareholding in J.K. Agri Genetics. They however claimed, they did hold proxies, that were wrongfully rejected at the meeting of the shareholders. Even if the proxies were taken into account that would not have any remarkable increase in the shareholding pattern as we find from the record. As per the Scheme of Arrangement J.K. Genetics and Florence Alumina agreed to have re-alignment of business operation through demerger. The transferor company was listed at the Bombay Stock Exchange as we find from the record. J.K. Genetics was incorporated on May 25, 1993 whereas Florence Alumina was set up in March 2000. The transferor company claimed, they wanted to create focussed entity on the core business of “Seed Undertaking” and proposed re-alignment of business operation by transferring the “Seed Undertaking” of J.K. Genetics to Florence Alumina in exchange of share premium. They claimed that it would have a larger interest of both the companies and their shareholders. As per the scheme, “Seed Undertaking” was defined as all assets pertaining to research and development production marketing of hybrid seeds. The meeting passed the resolution in favour of the scheme by overwhelming majority save and except objection raised from shareholders having insignificant holding. The petition for sanction came up after advertisement. Central Government did not raise any objection to the said scheme being sanctioned. Chandak and R. Fofalia however objected to the said scheme as according to them, the share of Florence Alumina that was being offered in exchange of transfer of undertaking was grossly undervalued. The Central Government filed affidavit through the Regional Director. They objected to a portion of the scheme as pointed out in the said affidavit. According to them, the scheme would attract appropriate registration fee and stamp duty. It would also require compliance of Sections 16 and 94 of the Companies Act 1956. The shareholding could only be increased as per the appropriate provisions of law and not as suggested in the scheme and the Clause pertaining thereto should be deleted. They stated, unless there was appropriate increase of authorized capital in Florence Alumina it would not be in a position to allot appropriate shares to J.K. Agri Genetics Ltd and its shareholders in respect of the “Seed Undertaking” that was being transferred to it. The Central Government also objected to the free reserve as also change of name of the company after its demerger. The Central Government also objected, unless there was appropriate increase of subscribed capital as per the provisions of Section 81 of the said Act of 1946 and such increase was approved by a special resolution by the shareholders the scheme could not be implemented.

2. Chandak also filed affidavit. According to Chandak, the re-structure by way of demerger would have achieved the growth of the company. It would affect the interest of the minority shareholders of J.K. Genetics and would make them hopeless insignificant minority. The sole intention was to undervalue the shares. He also elaborated how the promoters of J.K. would gain control of the shareholding having a controlling block of shares to the exclusion of the minority. He also objected the conversion of redeemable preference shares and the non-convertible bonds, the way it was suggested in the scheme. Chandak also objected to the manner of holding of the meeting of the shareholders including objection raised with regard to rejection of proxies. He claimed to have filed affidavit on his behalf as well as other ninety nine shareholders.

3. R. Fofalia also filed affidavit as would appear from Page 618-645 of the paper book (Volume-III). He also raised similar objections like Chandak. He elaborated how illegalities were committed in holding of the meeting only to support the interest of the controlling block of shares.

4. The company filed affidavit in reply dealing with the objections raised by respondent no.2. Separate affidavit was filed dealing with objection of respondent no.3 and respondent no.4 respectively. Altogether three affidavits were filed in reply.

Judgment and Order Impugned

5. Upon hearing the rival contentions the learned single Judge dismissed the application. The basis of the judgment as we find on perusal was on two counts -

(i)  The petitioners did not comply with the provisions of Section 81(1A) of the said Act of 1956.

(ii)  The learned Judge dealt with the issue of irregularity committed in the meeting and held that even if sixteen proxies, that were rejected, were validly cast and forty one ballots relating to the missing attendance slips were credited to the lot of objector, he could not have defeated the scheme as it would be below the 3/4th majority present and voting in number and value. Thus, the objection on that count was rejected.

6. On merits of the scheme, His Lordship observed that share exchange ratio could not be faulted as no better ratio was produced. The method adopted in arriving at such ratio was not under challenge. His Lordship also held in favour of the applicant on the question of retention of liability holding it as commercial wisdom of the management. His Lordship however termed the scheme as unfair and declined to sanction the same principally on the ground that the scheme would increase the promoters’ share that would not benefit the other shareholders except the promoters. According to His Lordship, “the conversion contemplated will benefit the promoters and none else”. His Lordship also held, if bonds were to be redeemed in instalments the present discounted value ought to have been considered. According to His Lordship, no prudent businessman would suggest such scheme without considering the discounting aspect. Dealing with the “no objection” received from SEBI, His Lordship observed, the said approval was subject to certain relaxation granted by SEBI. Coming back to the issue of conversion, His Lordship observed, the reason for conversion was insufficient in cash flow, however, that was far from truth.

7. His Lordship relied on the decision in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd.[1996] 87 Comp. Cas. 792/10 SCL 70 (SC) and Bedrock Ltd., In re [2000] 101 Comp. Cas. 343/[1998] 17 SCL 385 (Mum.) to support her view that the Court was competent to judiciously x-ray the same and would not function as a rubber stamp or post office. His Lordship also relied upon the English decision in the case of Sussex Brick Co. Ltd., In re [1960] 30 Comp. Cas. 536 (CD) to support her view that the conversion was intended to promote the interest on JKIL being a separate class and a meeting of such class ought to have been held. His Lordship rejected the Scheme of Arrangement and Demerger. Hence, this appeal.

Rival Contentions

8. Mr. Sudipto Sarkar, learned senior counsel appearing for the appellant contended, Section 81(1A) would not apply in the given facts and circumstances as it would be superfluous. Once the creditors sanctioned the scheme with 3/4th majority the requirement of Section 81(1A) would be superfluous as it would require support of a special resolution to offer further shares to the persons named under Sub-section 1 of Section 81 and when no resolution was passed if the members cast vote by show of hands or ballot in favour of the proposal exceed the vote cast against and the Central Government was satisfied on the application of the Board of Directors that the proposal was beneficial to the company. Section 189 would provide that a special resolution would require 3/4th majority of the members present and voted. Section 189(2)(C) would prescribe a special resolution to have votes in favour to the extent of not less than three times the number of the votes cast against the resolution by the members so present and voting. He referred to the Bombay Stock Exchange “no objection” as well as the approval of SEBI. According to Mr. Sarkar, neither the ratio decided in the case ofMiheer H. Mafatlal (supra) nor Bedrock Ltd. (supra) would apply in the instant case as erroneously relied on by His Lordship.

9. Resuming argument on behalf of the appellant on the next day, Ms. Mousumi Bhattacharya took us to the decision in the case of Miheer H. Mafatlal (supra) particularly, paragraph 29 and 40 to contend, the commercial wisdom of the parties’ concerned in corporate field would be of paramount consideration of the Court. The Court did not have expertise to examine the commercial wisdom. It would act as an umpire in a game of cricket and not to critically examine the acts of the parties.

10. Taking over from Ms. Mousumi Bhattacharya, Mr. Debangsu Basak, learned counsel also appearing for the appellant wound up the argument by referring it to paragraphs 6.4, 6.12 and 6.13 of the judgment to show apparent inconsistency. Mr. Basak lastly contended that the commercial wisdom of the shareholders would reflect from the voting pattern that would overwhelmingly approve the scheme. Hence, the learned Judge was not correct to decline sanction on the pretext that it would not help the minority shareholders or that the scheme was to benefit only the promoters and none else.

11. Per contra, Mr. Ranjan Deb, learned senior counsel supported the judgment by contending that the learned Judge was right in holding that the scheme was unfair to the general body of the shareholders. He made critical comments on the holding of the shareholders’ meeting. He contended, the entire process was vitiated by illegality and unfair dealings that would only benefit the promoters and promoters only. He lastly questioned the validity of the said scheme that would propose demerger of the “Seed Undertaking” from the transferor company to a company which was nothing but a paper company on the day when it was picked up by the promoter to achieve their purpose.

12. Elaborating his argument, Mr. Deb took us to page 136 of the paper book to show that the public holding in the transferor company would get reduced if scheme was approved. As per the shareholding at page 136 the public shareholding was 25.74% that would get reduced to 13.37%. Hence, the public holding by itself was sufficient to block the special resolution that would get reduced in case of demerger being sanctioned. He contended, the transferor company was a paper company having an insignificant capital. It did not have any business at all. The promoters acquired the shareholding and then increased it to fifteen lacs and, by such process, it became a wholly owned subsidiary of the promoters group having 100% holding. No plausible cause was assigned to have this demerger. He also contended that in 2003 the transferor company got the “Seed Undertaking” from another company through a scheme of arrangement that would obligate the transferor company to pay off the preference bonds by redeeming the same in phases. Such liability would continue till the date of proposal of the subsequent demerger. However, by the proposed demerger the transferee company would have the “Seed Undertaking” without liability of the transferor company to redeem the preference bonds. Such process was had without any reference being made to the Company Court that sanctioned the 2003 scheme. Hence, it was illegal and would violate the terms of the sanction granted earlier. Mr. Deb demonstrated that its shareholding along with the proxies, he held on the date of the meeting, would constitute 13.41% including personal holding for 7.2%. His personal holding to the extent of 7.2% would get reduced to insignificant minority to the extent of 3.75% in the transferor company and 2.73% in the transferee company.

13. Mr. Deb was critical about the holding of the meeting. He referred to the minutes of the meeting prepared by the Court appointed Chairman who recorded the objection raised by Chandak in the meeting. However, when their records were produced the ballot papers by which Chandak exercised his vote could not be found. In the supplementary affidavit the company contended that Chandak was busy to take instruction from someone on mobile and abruptly left the meeting without casting his vote. According to Mr. Deb, such statement was blatantly incorrect as would appear from the averment of the company petition before the Company Law Board when they approached the Board under Section111(A), inter alia, praying for an order of restraint from considering the votes cast by Chandak. He contended that all his proxies and ballot papers were removed from the record that would itself prove the illegal conduct of the company only to benefit the promoters and none else. On the issue of conversion, Mr. Deb contended that company had sufficient means to discharge the liability. The plea of conversion was taken only to benefit the promoters as would be appearing from the observations of Ernst & Young, the surveyor who was appointed to give certificate as to the fairness of the fixation of the share exchange ratio. Mr. Deb took us to various pages of the supplementary paper book to show that the company did not act upon the advice of Bombay Stock Exchange or Ernst & Young. Both the organizations categorically pointed out that the scheme was unfair to the general shareholders. He lastly contended, even if the demerger would get the seal of approval of this Court that must be having prospective effect having conversion being effective as on the date of sanction of the scheme or the effective date that could not be made retrospectively.

14. Appearing for Fofalia, Mr. S. Banerjee learned counsel adopted the submissions made by Mr. Deb. In addition, Mr. Banerjee contended that the “Seed Division” was the only effective business that the transferor company would be having. Hence, the demerger would effectively make the transferor company crippled. He would refer to page 895 of the paper book to show that the cash flow which was posed as the main cause of demerger, would be proved wrong. If we refer to page 365 of the paper book we would find, the transferor company was itself sufficient to take load of the liability of the “Seed Undertaking”. In this regard, he would rely upon the English decision in the case of Hellenic & General Trust Ltd., In re [1975] 3 ALL ER 382 particularly page 385 and 386 thereof, to support his contention that there should be separate meeting for separate classes that was not held in the instant case.

15. Per contra, Mr. Sudipta Sarkar, learned senior counsel appearing for the appellant while giving reply contended that commercial wisdom of the shareholders must be preserved and the Court should not venture to find out reason behind the decision of the shareholders. On merits, Mr. Sarkar contended that merely because the company was having excess of income over expenditure it would not be sufficient to judge the need of the cash flow by converting the bonds into shares. It would depend upon various commercial aspects that could only be judged by the body of shareholders and the Court must preserve the same considering its sanctity. He contended, Order 41 Rule 33 of the Code of Civil Procedure would not allow the respondent to raise issues that was not the subject matter of the appeal. They would only be entitled to support the judgment and would not be authorized to question any of the findings of the learned Judge without preferring any appeal or a cross-objection against the same.

16. Dealing with the argument on Section 81(1A), Mr. Sarkar contended, no inward cash flow by the process of increase of capital would occur in the instant case. It was nothing but an adjustment of liability against allotment of shares that would not attract the mischief of Section 81(1A). He distinguished the decision in the case of Hellenic & General Trust Ltd. (supra), and also Bedrock Ltd.’s case (supra). He contended, Bedrock Ltd.’s case (supra) was a decision on a meeting of the creditors whereas the present scheme would involve an issue of demerger. He also distinguished the decision in the case of Maneckchowk & Ahmedabad Mfg. Co. Ltd., In re [1970] 40 Comp. Cas. 819 (Guj.) relied upon by the leaned Single Judge. He drew our attention to page 858 wherein it was held that Sub-section 1(A) would permit issue of further shares to persons other than the existing ordinary shareholders of the company. The issue of further shares to the persons other than the existing shareholders could not be said to be wholly barred. It would require special resolution. In the instant case, the process of demerger would require allotment of shares to the transferor company that was sanctioned by the shareholders of both the companies through overwhelming majority. Hence, this decision would be of no assistance to the respondents. He lastly contended that preferential allotment of shares to a particular class or a conversion that would otherwise benefit a particular class, could not be said to be impermissible under the corporate law even if such process would ultimately result in reduction of the shareholding percentage of a particular class of shareholding that would, per se, not be termed as illegal.

17. We heard this matter on the above mentioned dates. We are told, Central Government appeared before the learned Judge however, no such noting would appear from the judgment. However, no one appeared before us. Hence, we were compelled to close the hearing in their absence.

Our View

18. Miheer H. Mafatlal and Bedrock, Ltd.’s case (supra) if read together, would determine the scope and extent of judicial scrutiny in a case of scheme of arrangement pending for approval of the Court under Section 391. It would say, the Court should act as umpire. It would not be a rubber stamp being a blind folded instrument of putting of seal of approval. It would certainly consider the objections raised by the objectors, to the extent, permissible under the corporate jurisprudence. It would definitely empower the Court to judiciously x-ray the scheme to find out any malicious intent contrary to public policy. To that extent, piercing of corporate veil, if required, is justified. In the instant case, the learned Judge rightly held that commercial wisdom could not be called in question. It is true and to some extent justified, when Mr. Deb would argue unfair dealings at the meeting. It would have been proper if such unpleasant things did not happen at the meeting. The learned Judge rightly held, it did not tilt the balance. The question would still remain, is it a fair scheme? The overwhelming majority of the shareholders approved the same. We are not competent to question such decision. Hence, our scope of enquiry comes in a very narrow campus. The earlier scheme of 2003 would provide discharge of liability through redemption of bonds. If those liabilities would still remain with the transferor as on the date of the sanction by the process and those bonds are transformed into shares in the transferor company the substantial chunk would go to the shareholders of the original transferor company who are common with the promoters of the transferor and transferee company. That would certainly tilt the balance. Can it be avoided? Mr. Banerjee contended, there was sufficient money in the company’s till. Mr. Sarkar would say, the company in their wisdom decided not to use that and plough back the same for the welfare of the company. Such question would certainly not come within our scope for consideration. To that extent, Mr. Sarkar was possibly correct. In the process, if the balance is tilted in favour of the promoter that would be a consequence for which the respondent would have to suffer without a redressal. We are helpless on that count.

19. The only issue which really impressed us was the argument of Mr. Deb on the effective date of conversion. He took us to the reports of the surveyor Ernst and Young appearing at the supplementary paper book where we find that the surveyor also commented that the effective date of conversion should be the date of merger meaning thereby, it would be a post-merger issue and not pre-merger as suggested in the scheme. Mr. Sarkar strenuously contended, that would have no significant relevance. It might be so. He might be correct at the end of the day. We, however, feel, no reasonable plea was placed before us to ignore the opinion of the expert on that count. In our view, the opinion of the surveyor, having the competent expertise, must prevail, particularly, when the company relied on the same at the meeting of the shareholders as contended by Mr. Deb and not confronted by Mr. Sarkar. This is the only small arena where we feel, the scheme would need little re-touch from our end.

This would take us to the last issue of discounting. The learned Judge found, there was some impropriety on this issue. Paragraphs 6.12 and 6.13 being relevant herein are quoted below :

“6.12 By virtue of the conversion the said Bonds and Preference Shares are being redeemed much before the time specified and the present day discounted value ought to have been considered. This has also not been done.

6.13 This is relevant as no prudent businessman while considering the commercial aspect of the Scheme in his wisdom would have proposed a Scheme without considering the discounting aspect. Furthermore, such a Scheme could also not have been approved by a prudent businessman cloaked with commercial wisdom unless such men approving were nothing by “yes-men” of the Transferor Company, Transferee Company and Promoter Company.”

20. Mr. Sarkar, in his usual fairness would concede to the issue. He contended, if this Court would be of the view that a particular date should be fixed for discounting the company should not have any objection. In fact, he placed a chart before us giving different valuation on the discounting on various relevant dates. In our view, the company must adopt the best one that would help the minority shareholders including Chandak and Fofalia. This scheme should stand modified to such extent.

21. The appeal would thus succeed in part and is allowed. The effective date of conversion should be the date being the effective date being the scheme being approved. The effect of conversion must not be “pre-merger”. It should be “post-merger”. We also hold, discounted value must be the best possible one, beneficial to the minority shareholders including Chandak and Fofalia and such date must be fixed by the company accordingly from the chart handed over in Court by Mr. Sarkar. We make it clear for removal of doubts, the conversion must take effect after the merger and not anterior to it.

22. With these modifications the scheme is sanctioned. The application for sanction of the scheme is allowed with consequential reliefs.

23. The appeal is disposed of accordingly without any order as to costs.

Before we Part With

24. After our judgment was made ready, Mr. Sarkar mentioned the matter on August 30, 2012 and requested us to hold it for some time and direct the matter as ‘To Be Mentioned’. On his request we directed the matter as ‘to be mentioned’ on September 5, 2012. On the appointed date when the matter appeared, Mr. Sarkar on instruction informed this Court that the appellant would be agreeable to shift the date of conversion to be made effective on and from April 1, 2010. According to him, that would take care of the principal grievance of the respondent. Mr. Deb however contended, unless and until facts and figures showing the resultant effect of such change was put forward to the Court upon notice to the respondent, he would not be in a position to react the same. Mr. Suddhasatya Banerjee, learned counsel appearing for the respondent No. 4 adopted such submission of Mr. Deb.

25. The main plunk of the argument of Mr. Deb centered around the time for giving effect to the conversion. He referred to the report of the Ernst & Young wherein they opined that conversion should take effect once the scheme was sanctioned. Conversion prior to the merger, was rather discouraged by them. It is true, the concession made by Mr. Sarkar, would dispel the agony. At the same time we are not sure which date would be beneficial to the shareholders, particularly the minorities. Would it be April 1, 2005 as mentioned in the scheme or April 1, 2010 as suggested by Mr. Sarkar? We agree with Mr. Deb, it would require deep scrutiny of a comparative study of the relevant particulars. In absence of the same, we feel it safe to take the date mentioned in the scheme instead of the one as suggested.

Shukla Kabir (Sinha), J. – I agree.

Source - http://taxguru.in/company-law/court-interfere-decision-passed-overwhelming-majority-shareholders.html

Delay in filing appeal condoned as director was abroad at the time of receipt of Order

Appellant’s signatory director of the applicant company was abroad during the time when the orders were received from the superintendent, and when the orders were served on the consultant. It is the submission of the ld. Counsel that the appellant company or the director was not aware of the receipt of the passing of the order. In support of that, he files a notarized affidavit of Shri Amar Doshi appellant signatory of the applicant company which is notarised in America.

 On perusal of the said affidavit we find that the applicant has made out case for condoning the delay. Accordingly, application for the condonation of delay in filing the appeal before the Tribunal is allowed and registry is directed to take on record the stay petition and appeal.

CESTAT, AHMEDABAD BENCH

Ved Pharmaceuticals (P.) Ltd.

v.

Commissioner of Central Excise

Order Nos. S/1213/WZB/AHD. of 2012

& M/1250/WZB/AHD. of 2012

Application No. ST/COD/638 of 2011

ST/S/581 of 2011

Appeal No. ST/ 290 of 2011

June 28, 2012

ORDER

M.V. Ravindran, Judicial Member - This application for condonation of delay is for condoning the delay of 29 days in filing the appeal belatedly before the Tribunal.

2. After hearing both sides and perusal of the records, we find that the appellant’s signatory director of the applicant company was abroad during the time when the orders were received from thesuperintendent, and when the orders were served on the consultant. It is the submission of the ld. Counsel that the appellant company or the director was not aware of the receipt of the passing of the order. In support of that, he files a notarized affidavit of Shri Amar Doshi appellant signatory of the applicant company which is notarised in America.

3. On perusal of the said affidavit we find that the applicant has made out case for condoning the delay. Accordingly, application for the condonation of delay in filing the appeal before the Tribunal is allowed and registry is directed to take on record the stay petition and appeal.

4. At this juncture, ld. counsel submits that the stay petition may be disposed of as they have already deposited the entire amount of the service tax liability along with interest.

5. Ld. SDR submits that the appellant has paid of the entire amount of the service tax liability alongwith interest.

6. On perusal of the records, we find that the issue involved in this case is regarding the commission paid to the foreign agents prior to 18.04.06 and also post 18.4.06. Since the appellanthas paid entire amount of the service tax liability along with the interest, we allow the application for the waiver of the pre-deposit of the balance amounts involved and stay the recovery thereof till the disposal of appeal