IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY SCHEME PETITION NO. 564 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 536 OF 2010 RELIANCE NATURAL RESOURCES LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 565 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 537 OF 2010 RELIANCE POWER LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 502 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 538 OF 2010 ATOS TRADING PRIVATE LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 503 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 539 OF 2010 ATOS MERCANTILE PRIVATE LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 504 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 540 OF 2010 COASTAL ANDHRA POWER INFRASTRUCTURE LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 505 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 541 OF 2010 RELIANCE PRIMA LIMITED …………Petitioner Company AND COMPANY SCHEME PETITION NO. 506 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 542 OF 2010 RELIANCE FUTURA LIMITED …………Petitioner Company In the matter of the Companies Act, 1956 (1 of 1956); AND In the matter of Sections 391 to 394 read with Sections 78, 100 to 103 of the Companies Act, 1956. AND In the matter of Composite Scheme of Arrangement between Reliance Natural Resources Limited and Reliance Power Limited and Atos Trading Private Limited 2 and Atos Mercantile Private Limited and Coastal Andhra Power Infrastructure Limited and Reliance Prima Limited and Reliance Futura Limited and their respective Shareholders and Creditors Mr. Janak Dwarkadas, Senior Counsel with Ms. Alpana Ghone and Mr. Ankit Lohia i/b M/s. Rajesh Shah & Co., for the Petitioner Company in all Petitions. Dr. T. Pandian, Dy. Official Liquidator, present in Company Scheme Petition No. 506 of 2010. Mr. Vishwajeet P. Sawant in Company Scheme Petition Nos. 564 and 565 of 2010 and Mrs. Soma Singh in Company Scheme Petition Nos. 502 to 506 of 2010 i/b S.K. Mohapatra for Regional Director. CORAM: S. J. Kathawalla, J. DATE: 15th October, 2010 PC: 1. Heard learned counsel for the parties. 2. The sanction of the Court is sought under Sections 391 to 394 of the Companies Act, 1956, to the Composite Scheme of Arrangement between Reliance Natural Resources Limited and 3 Reliance Power Limited and Atos Trading Private Limited and Atos Mercantile Private Limited and Coastal Andhra Power Infrastructure Limited and Reliance Prima Limited and Reliance Futura Limited and their respective Shareholders and Creditors. The Scheme comprises of the following arrangements: a. The Demerger of Business Undertaking (as defined in the Scheme) of Reliance Natural Resources Limited into Reliance Power Limited more fully described in Section 2 of the Scheme; b. The Reorganisation of share capital of Reliance Natural Resources Limited more fully described in Section 3 of the Scheme; c. The transfer of Exploration Block undertakings (as defined in the Scheme) from Reliance Power Limited to Exploration SPVs (as defined in the Scheme) more fully described in Section 4 of the Scheme; and d. The merger of Reliance Futura Limited into Reliance Power Limited more fully described in Section 5 of the Scheme. 4 3. Counsel appearing on behalf of the Petitioners has stated that they have complied with all requirements as per directions of this Court and they have filed necessary affidavits of compliance in the Court. Moreover, Petitioner Companies undertake to comply with all statutory requirements, if any, as required under the Companies Act, 1956 and the Rules made thereunder. The said undertaking is accepted. 4. The Regional Director has filed Affidavit stating therein that save and except as stated in paragraphs 6(a) to (c) of the said Affidavit, the scheme does not appear to be prejudicial to the interest of shareholders and public. 5. The Counsel appearing for the Regional Director has drawn my attention to paragraphs 6(a) to (c) of the affidavit of the Regional Director in which it is stated that: “(a) On careful examination of various clauses contained in the scheme more particularly Clause No.1.2, which defines the appointed date, clause No.13.1 which deals with cancellation of shares of RNRL and clause 5 No.13.4 which deals with allotment of further shares to RPower, the advocate for the petitioner company was directed to clarify on the following:- (i) As the appointed date was not specific, they were requested to suggest specific date so that assets and liabilities which are likely to be transferred from demerged company to resulting company namely RNRL to RPower, can be determined/identified properly. (ii) Whether the existing entire paid up capital of the company is proposed to be cancelled before the allotment of share? If so, how the minimum paid up capital of Rs.5 Lacs as required to be maintained by a public company was proposed to be complied with by RNRL? (iii) How the requirement of sec.81(IA) of the Companies Act, 1956, has been complied with, with respect to allotment of fresh shares by RNRL to RPower amounting to Rs.5 Lacs equity capital represented by 1,00,000 equity shares of Rs.5/- each? 6 In this regard, M/s. Rajesh Shah & Co., Advocates for the petitioner companies vide their letter dt.08th October, 2010 which is annexed hereto and marked as Exhibit ‘E’, have clarified on the above issues raised by the deponent. It has been clarified that the appointed date may be read as 15th October, 2010. In respect of Clause No.13.1 and 13.4 of the scheme, the company has clarified that Clause No.13.4 of the scheme may be read as follows:- “Upon the scheme becoming effective, RNRL shall without RPower being required to carry out any act or deed allot to RPower and its nominees, 1,00,000 equity shares of Rs.5/- each at par of RNRL by utilization of above deposit so that on such allotment RNRL will become a wholly owned subsidiary of RPower. Such shares shall be deemed to be issued for cash and shall recorded as such by RNRL. It is clarified that no resolutions under section 81(1A) of the Act shall be required for such allotment and approval to the scheme by the shareholders shall be deemed to be approval for such allotment under section 81(1A) of the Act”. From the above, it is clear that the approval of the scheme by the shareholders would be deemed to be an approval u/s 81(1A) in so far as the allotment of further shares by RNRL to RPower. Further, in this regard, the deponent respectfully submits that Clause No.13.4 may be given effect to at the first instance and simultaneously, thereafter Clause No.13.1 can 7 be given effect to in the books of accounts of RNRL. RNRL may be directed to give an undertaking to this effect. (b) A Writ Petition has been filed by one Mr. A. Kesavan in Madurai Bench of High Court of Madras on the issue of share exchange ratio between RNRL and RPower in respect of present scheme of arrangement and it has been heard by the said Hon’ble High Court on 07h October, 2010 and the order on the same has been reserved by the said Honourable court. (c) This deponent is in receipt of complaint from one Mr. Bibihishan Pandey of Bihar specifically on the issue of swap ratio proposed in the present scheme of arrangement. Similar complaints have been received from various other stake holders. The issue pertaining to swap ratio is a technical assessment of a qualified valuer with which the deponent is not in a position to interfere with. In this case scheme has been approved by overwhelming majority of shareholders of RNRL and RPower and hence this Hon’ble High Court may consider the same on merits.” 6. In response to the concern raised by the Regional Director in his Affidavit,the Counsel for the Petitioners tendered two affidavits of (1) Reliance Natural Resources Limited, Petitioner in Company 8 Scheme Petition No. 564 of 2010 and (2) Reliance Power Limited, Petitioner in Company Scheme Petition No. 565 of 2010. 7. So far as paragraph 6(a) of the Affidavit of Regional Director is concerned, the counsel for Petitioners submits that the Petitioners have dealt with all the concerns raised by the Regional Director in their respective reply Affidavits. The Counsel further seeks leave of this Court to modify Clauses 1.2 and 13.4 of the Scheme in terms of the Schedule handed in which is taken on record and is marked 'X' for identification. Leave to amend is granted. Amendment to be carried out within two weeks from today. 8. The Counsel for the Petitioners in Company Scheme Petition Nos. 564 of 2010 and 565 of 2010 further submits that the Petitioners in their respective affidavits have undertaken to give effect to the Clause 13.4 at the first instance and simultaneously, thereafter to give effect to the Clause 13.1 of the Scheme in its books of accounts. The said undertaking is accepted. 9. In response to the concern raised by the Regional Director in paragraph 6(b) of his affidavit, the counsel for the Petitioners states that the gravamen of the writ petition filed by one Mr. A. Kesavan 9 with the Madurai bench of Madras High Court is to direct the Ministry of Corporate Affairs and Securities and Exchange Board of India to conduct an enquiry into the share exchange ratio forming part of the proposed Composite Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956. The said matter has been heard and the order on the same has been reserved. Sections 391 to 394 of the Companies Act are a complete code by themselves, wherein the Company Court having jurisdiction over the Registered Office of the Company considers any proposal for arrangement and reconstruction between companies and their shareholders / creditors. In the instant case, this Court is the jurisdictional High Court concerned with the proposed Scheme. The Madras High Court would have no jurisdiction to the Scheme or any matter concerning the Scheme including the Share Exchange Ratio. Further, the said Mr. A. Kesavan is neither a shareholder nor a creditor of the Company and has no locus standi in respect of the proposed Scheme. It is further pertinent to note that the following interim relief was prayed in the writ petition: “In the circumstances, it is humbly prayed that this Honorable Court may be pleased to direct the 1st Respondent and 2nd Respondent to take action against 10 the 3rd, 4th and 5th Respondents not to pursue with the merger of RNRL and RPower as decided in the Joint Board of Directors meeting convened by the 3rd Respondent on 4-7-2010 pending disposal of this writ petition and thus render justice” Although, the above interim relief was prayed for in the writ petition, no application was ever moved before the High Court of Madras to direct the Ministry of Corporate Affairs and Securities and Exchange Board of India to restrain the Respondent Nos. 4 and 5 in Writ Petition (i.e. Petitioners in present Company Scheme Petition Nos 564 of 2010 and 565 of 2010 filed before this Court) from pursuing the Scheme as decided by the Board of Directors of Petitioners in Company Scheme Petition Nos 564 of 2010 and 565 of 2010 filed before this Court. Consequently, no interim order preventing the Board of Directors or the Company or the shareholders of the Companies from pursuing the Scheme or holding of shareholders' meeting is operating today. In fact, the said Writ Petition filed before the Madras High Court and the prayer for interim relief have been rendered infructuous, since the Petitioners in Company Scheme Petition Nos. 564 of 2010 and 565 of 2010 filed before this Court 11 have not only pursued the Scheme but also the meetings of shareholders of the respective companies have been held and the Scheme has been duly approved with requisite majority. Further, there is no prayer in the Writ Petition calling for any interference in the Share Exchange Ratio. In the circumstances, the pendency of the said Writ Petition before the Madras High Court ought not to stand in the way of sanction of the Scheme by this Court. 10. In response to the concern raised by the Regional Director in paragraph 6(c) of his affidavit, the Petitioners state that the Share Exchange Ratio is based on valuation done by renowned valuers viz.M/s. KPMG India Private Limited, applying the generally accepted valuation methodologies. None of the Complainants have filed any objection to the Scheme in this Court nor has any complainant shown any flaws or mistakes in the methodologies used for the valuation. Further, the shareholders of Reliance Natural Resources Limited and Reliance Power Limited in their collective wisdom have approved the Scheme with overwhelming majority. In respect of their submissions, the counsel for the Petitioners relies upon the decision of the Apex Court in the decision of Mafatlal Industries 12 Ltd [(1996) 87 Com Case 792] wherein it has been observed that: “We may also refer to a decision of the Gujarat High Court in Kamala Sugar Mills Limited 55 Company Cases p. 308 dealing with an identical objection about the exchange ratio adopted in the Scheme of Compromise and Arrangement. The Court observed as under: Once the exchange ratio of the shares of the transferee- company to be allotted to the shareholders of the transferor-company has been worked out by recognized firm of chartered accountants who are experts in the field of valuation and if no mistake can be pointed out in the said valuation, it is not for the court to substitute its exchange ratio, especially when the same has been accepted without demur by the overwhelming majority of the shareholders of the two companies or to say that the shareholders in their collective wisdom should not have accepted the said exchange ratio on the ground that it will be detrimental to their interest”. These observations in our view represent the correct legal position on this aspect.” It is well settled that once the Share Exchange Ratio has been worked out by experts in the field of valuation, the same ought not to be questioned especially when the same has been accepted without demur by the overwhelming majority of the shareholders of the companies. As submitted by the Petitioners, the Share Exchange Ratio is fair and not in any case prejudicial 13 to the interest of the shareholders. It is submitted by the Petitioners that this Court ought not to take into account the objections and ought to approve the present scheme. The submissions made by the Petitioners are accepted. 11. The Official Liquidator has filed his report in Company Scheme Petition No. 506 of 2010 stating therein that the affairs of Reliance Futura Limited have been conducted in a proper manner and that Reliance Futura Limited may be ordered to be dissolved. 12. From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy. None of the parties concerned has come forward to oppose the Scheme. 13. Since all the requisite statutory compliances have been fulfilled, Company Scheme Petition Nos. 564 of 2010 and 506 of 2010 are made absolute in terms of prayer clauses (a) to (d) and Company Scheme Petition Nos. 565 of 2010 and 502 of 2010 to 505 of 2010 are made absolute in terms of prayer clauses (a) to (c). 14 14. The Petitioner Companies to lodge a copy of this order and the Scheme, duly authenticated by the Company Registrar, High Court, Bombay, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of the Order. 15. The Petitioners in all the Company Scheme Petitions to pay costs of Rs.10,000/- each to the Regional Director, Western Region, Mumbai, and the Petitioner in the Company Scheme Petition No. 506 of 2010 to pay costs of Rs.10,000/- to the Official Liquidator, High Court, Bombay. Costs to be paid within four weeks from today. 16. Filing and issuance of the drawn up order is dispensed with. 17. All concerned authorities to act on a copy of this order along with Scheme duly authenticated by the Company Registrar, High Court, Bombay. (S. J. Kathawalla, J.) 15