This is an application (C.P.No.123 of 2012) filed under Sections 391 and 394 of the Companies Act, 1956 (for brevity 'the Act') for approval of scheme of amalgamation and arrangement. The petitioner is Satyam Computer Services Limited (SCSL). As per the scheme of amalgamation and arrangement between Venturbay Consultants Private Limited (hereinafter referred to as 'Transferor Company No.1'), Satyam Computer Services Limited (hereinafter referred to as the 'Petitioner Company/Transferor Company No.2), C & S System Technologies Private Limited (hereinafter referred to as 'Transferor Company No.3'), CanvasM Technologies Limited (hereinafter referred to as 'Transferor Company No.4'), Mahindra Logisoft Business Solutions Limited (hereinafter referred to as 'Transferor Company No.5) (The Petitioner Company, Transferor Company No.1, Transferor Company No.3, Transferor Company No.4 and Transferor Company No.5 collectively (hereinafter referred to as the 'Transferor Companies') and Tech Mahindra Limited (hereinafter referred to as 'Transferee Company') wherein it is proposed to merge Venturbay Consultants Private Limited, the Petitioner Company, C & S System Technologies Private Limited, CanvasM Technologies Limited, Mahindra Logisoft Business Solutions Limited with Tech Mahindra Limited and their respective shareholders and creditors.
02. The petitioner is a leading information communications and technology Company has got wide range of expertise and also business nationally and internationally. The other Companies and also the transferee Company Tech Mahindra Limited (TML) also deals with the similar business. The particulars of their investments and the memorandum of articles of association have been detailledly given in the application. The scheme of amalgamation is said to be for the following advantages:-
(A) As a measure of consolidation of the information technology businesses in a single entity which will provide synergy benefits, attain efficiencies and reduce over all cost, the Board of Directors of the Transferor Companies and the Transferee Company have proposed the Scheme. The amalgamation of the Transferor Companies with the Transferee Company would inter alia have the following benefits: Creation of a single ‘go-to-market’ strategy, benefit of scale, enhanced depth and breadth of capabilities, translating into increased business opportunities and reduced expenses;
(B) Greater integration and greater financial strength and flexibility for the amalgamated entity and strengthening position in the industry, in terms of the asset base, revenues, product and service range, production volumes;
(C) Improved organizational capability and leadership, arising from the combination of human capital who collectively have diverse skills, talent and vast experience to compete successfully in an increasingly competitive industry;
(D) The combination of all the businesses would increase the long term value for shareholders and investors; and
(E) Benefits of operational synergies in terms of economies of scale, sourcing benefits, vendor rationalization, more focused operational efforts, rationalization, standardization and simplification of business processes and productivity improvements'.
03. It was felt that the scheme of amalgamation and arrangement would not effect the employees of the either Companies and it is in the interest of both the Companies of their respective share holders. A detailed scheme of amalgamation is also incorporated in the petition. The scheme of amalgamation was approved by the Board of directors on 21-03-2012 and there is no conflict of interest or personal interest of the Directors and in fact the three (3) Directors of the Company are nominees of the transferor Company No.1. These three Directors have abstained from voting at the Board meeting held for approval of the scheme. The Company is a listed Company and BSE and NSE have given no objection for scheme of amalgamation.
04. It was further pleaded that the former Chairman of the petitioner-Company Sri B.Ramalinga Raju, his brother and family members held shares in SSR Holding Private Limited controlled by them and also in the petitioner-Company. They have got about 8.27% of issued capital by 12-12-2008. On 07-01-2009 certain disclosers were made by the then Chairman Sri B.Ramalinga Raju with regard to fudging of the accounts and irregularities in conducting the business and he has stepped down as Chairman. The Company Law Board in C.P.No.1 of 2009 suspended the entire Board with immediate effect. On 09-01-2009 a fresh Board was constituted with some of the nominated members and also Chartered Accountants and Solicitors. Forensic investigation was also directed to be undertaken. The CBI has taken up investigation and Serous Fraud Investigation Office (SFIO) and SEBI have also taken up investigation. The CBI filed a charge sheet against the former promoters. SFIO has also started investigation into seven cases and the petitioner compounded the offences. The petitioner has also settled with the Security Exchanges Commission, USA by paying $ 10 Million dollars.
05. The Board of Directors, who are constituted by the orders of the Company Law Board, intended to bring strategic investor who could bring in funds and managed the affairs of the Company. A competitive global bidding was undertaken under the supervision of Justice S.P.Bharucha, Former Chief Justice of India on 13-04-2009 and the transferor Company which was wholly owned subsidiary of TML became the highest bidder and the necessary shares were allotted and the Company Law Board approved the same. On 21-06-2009 the Company unveiled its new brand identity as Mahindra Satyam for a robust brand, which draws from the core values of Mahindra Group and inherent strength of Satyam brand. The accounts of the petitioner-Company were audited till 31-03-2011 and also till 31-03-2012 and approved by the Board of Directors. A meeting of the share holders was conducted on 08-06-2012, as per the orders of this court in C.A.No.446 of 2012, after due notice to the share holders and also public notice. There are about secured creditors and they have no objection for the scheme. This court has dispensed with the meeting of the secured creditors as they have given No Objection Certificate.
06. According to the contents in the petition, there are no un-secured loans except certain outstanding in the nature of trade-creditors. The petitioner has got sufficient funds to meet their liability and also the liability of sundry creditors. The liability as on 31-12-2012 towards these debts is 6980 Millions. Approximately 93.77% of the sundry creditors as on 31-03-2011 have already been paid off except 435 Millions and the liabilities currently under the said head are liabilities contracted after 31-03-2011. Therefore, the consent of any unsecured creditors would have been wholly unnecessary as they have substantially ceased to be the creditors. Further, it was averred in paras.45 and 46 of the petition as under:-
'45. There is an amount of Rs.1230.4 crores which is reflected as 'amounts pending investigation-suspense account' in the Petitioner’s balance sheet. These amounts are under investigation, and the Enforcement Directorate has by its letter dated April 10, 2009 directed the Petitioner Company not to return the amount until further instructions from them. These are highly disputed claims and the source of these monies is being investigated. Accordingly, the Petitioner Company does not recognize any person(s) as creditor(s) with respect to these amounts, for the purposes of these proceedings under Sections 391 to 394 of the Companies Act, 1956.
46. The group companies of the erstwhile promoters had benefited by the inflation of share price which was as a result of inflation of receipts and bank balances. It would appear that SRSR Holdings Private Limited was the principal shareholder in the erstwhile promoter’s group. It is claimed that certain other group companies of the erstwhile promoters had borrowed funds from certain institutions and that the Petitioner Company’s shares held by SRSR Holdings Private Limited were offered as collateral. It is claimed that the group companies of erstwhile promoters advanced the funds so raised in the market to the Petitioner Company. It is also claimed that the shares were sold by Financial Institutions and that the loans have been squared off as between lenders and group companies of erstwhile promoters. Several group companies have filed suits against the Petitioner Company and these are being contested by the Petitioner Company'.
07. It was also pleaded that the transferor-Company has got sound financial capability and potentiality for advancement of the common business effectively. As per the scheme of amalgamation with regard to legal proceedings under Part 'C' with reference to the petitioner-Company under Clause.7.6, it is as follows:-
'7.6'. 'With effect from the Appointed Date, all debts, liabilities, contingent liabilities, duties and obligations of Mahindra Satyam, as on the Appointed Date whether provided for or not in the books of accounts of Mahindra Sayam, and all other liabilities which may accrue or arise after the Appointed Date but which relates to the period on or up to the day of the Appointed Date shall, pursuant to the Orders of the High Courts or such other competent authority as may be applicable under provisions of the Act, without any further act or deed, be transferred or deemed to be transferred to and vested in TML, so as to become as from the Appointed Date the debts, liabilities, contingent liabilities, duties and obligations of TML on the same terms and conditions as were applicable to Mahindra Satyam.
08. Under general terms and conditions as per Part.E Clause.15 is as follows:-
'15. LEGAL PROCEEDINGS:
If any legal proceedings including but not limited to suits, summary suits, class action lawsuits, indigent petitions, appeal, or other proceedings of whatever nature (hereinafter called 'the proceedings') by or against the Transferor Companies in India as well as outside India are pending as on the Effective Date, the same shall not abate or be discontinued or be in any way prejudicially affected by reason of the transfer of the entire businesses and Undertakings of the Transferor Companies or of anything contained in the Scheme, but the proceedings shall be continued, prosecuted and enforced by or against TML in the same manner and to the same extent as they would or might have been continued, prosecuted or enforced by or against the Transferor Companies, if the Scheme had not been made. On and from the Effective Date, TML may initiate any legal proceeding for and on behalf of the Transferor Companies.
09. Therefore, the present application is filed for sanctioning of the scheme as the petitioner-Company is within the jurisdiction of this court and so far as the other Companies are concerned, necessary applications are said to have been filed at Bombay and sanction was obtained from the concerned Court.
10. Objecting the above scheme, about 37 creditors have filed Company Applications complaining about the injustice done to them. One of the creditors, who is the petitioner in C.A.No.862 of 2012, has filed CP No.192 of 2012 for winding-up. According to the petitioner, the petitioner has advanced money to the transferor-Company and it is reflected in the accounts and there is a prima facie establishment of the claim, which is also admitted and the claim of the petitioner is that the creditors are dubious and consequently no need to call for the unsecured creditors’ meeting and the claim for ignoring the debts is not illegal.
11. According to the petitioner in C.A.No.862 of 2012, mere solvency of the petitioner is not sufficient and the refusal to pay and taking shelter under the investigation by the Central Bureau of Investigation or SFIO is not proper. In fact, a civil suit was filed for recovery of a sum of Rs.275 Crores against the petitioner and it is a fit case for admission of the winding-up petition. This claim was objected by the petitioner solely on the ground that the debt is not genuine and also on the ground that it is barred by time and the claim for winding-up is not bona fide and it was only a ruse to pressurise the payment of money even without determining the liability.
12. 37 creditors have filed Company Applications objecting the scheme of amalgamation mainly contending inter alia that the mandatory provisions under Sections 391 and 394 of the Act are not complied with as the meeting of the unsecured creditors is not called for. The report of the Official Liquidator and the Regional Director which are to be taken into consideration does not satisfy the mandatory requirement since they have not given any opinion about the amalgamation. Therefore, without convening the meeting of the creditors and hearing their objections, the amalgamation cannot be sanctioned.
13. So also the petitioner in C.P.No192 of 2012 made an application and objected the scheme mainly on the ground that the meeting of the creditors was not held and there is no material to come to a conclusion that the affairs of the Company have not been conducted in the manner prejudicial to the members of the public. The report of the Auditors’ is not placed properly either before the Court or before the shareholders meeting and, therefore, the amalgamation cannot be sanctioned. So also the minority shareholders filed C.A.No.1097 of 2012 and 199 of 2013 questioning the swap ratio, which is to the disadvantage of the shareholders and also the timing of the merger meeting before closing of the accounts by 31-03-2012 and thereby ignoring the subsequent profits is not valid. It was also the contention that the majority of the shareholders is Venturbay Consultants Private Limited (transferor Company No.1), which is evidently the subsidiary of transferee Company and, therefore, the majority vote given by the said shareholders is not binding on the other shareholders. Therefore, they pleaded for rejection of the scheme.
14. Both sides have advanced lengthy arguments and also written arguments with citations.
15. Now the points that arise for consideration are:-
1. Whether the scheme of amalgamation is in accordance with the provisions of Sections 391 and 394 of the Act?
2. Whether the grounds for winding up are made out?
3. Whether non-convening of the meeting of the unsecured creditors is intentional and whether such failure entitles the rejection of the scheme of amalgamation?
4. Whether the rights of the shareholders were not properly taken care of and the view of the majority is not binding on the minority shareholders?
5. Whether the reports of the Official Liquidator and the Regional Director disentitle the scheme of amalgamation?
6. Whether the scheme of amalgamation is fair and in the public interest and if so it has to be sanctioned as pleaded?
16. Before considering the rival contentions, it is necessary to take note of the necessary factors in an application for amalgamation or arrangement. The decision on this aspect is Miheer H.Mafatial Vs. Mafatial Industries (AIR 1997 SC 506), which has been followed consistently in the subsequent decisions relied on by both the parties and consequently the other decisions are not being referred to as they only reiterated the same law. In para.28 the Supreme Court has laid down the following broad principles while considering an application under Section 391 of the Act, which reads as under:-
"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 meeting 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 concerned meetings of the creditors 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 of 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 form 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 requirements 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.
10. 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 courts jurisdiction."
17. The above decision also considered the swap ratio and the basis for consideration in Para No.39, which reads as under:-
'It was submitted that the exchange ratio of equity shareholders so far as the transferee-Company is concerned works very unfairly and unreasonably to them. As per the proposed scheme 5 equity shares of transferor-Company are to be exchanged for 2 equity shares of transferee-Company. So far as this contention is concerned it has to be kept in view-that before formulating the proposed Scheme of Compromise and Amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors appellant himself was a members. M/s. C.C. Choskhi & Co., a reputed firm of Chartered Accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once stated that valuation of shares is a technical and complex problem which can be appropriately left 1 to the consideration of experts in the filed of accountancy'.
18. Therefore, broadly speaking the mandatory provisions, according to the objecting parties, are not followed and, therefore, the application itself is not to be considered. As per the provisions of the Section 391 of the Act, the following steps have to be taken and considered by the court before amalgamation:-
"1. Calling of the meeting of the creditors or class of creditors
2. Furnishing of latest financial position of the Company; the latest Auditors’ report and the accounts of the Company;
3. Pendency of any investigation proceedings in relation to the Company;
4. Receipt of the report from the Company Law Board or the Registrar that the affairs of the Company have not been conducted in a manner prejudicial to the interest of its members or to public interest ( vide proviso to Section 394 of the Act);
5. Further no order of dissolution shall be made unless the Official Liquidator has on scrutiny of the books and papers of the Company made a report to the Court that the affairs of the Company have not been conducted in a manner prejudicial to the interest of its members or to public ( vide 2nd proviso to Section 394 of the Act); and
6. Issue of notice through the Central Government under Section 394-A of the Act."
19. Therefore, broadly speaking, these are the steps-in-aid for the court to arrive at a conclusion whether the scheme of amalgamation or arrangement is real or not and as to whether the interest of any of the creditors or shareholders or the public is defeated. It is ultimately the opinion of the Company Court keeping all the factors in mind to consider the approval of the scheme. It is to be noted that none of the Sections say that the inputs gathered are final and binding on the court and if there is any adverse report or opposition, the court is precluded from considering the scheme. That is the reason as to why it has been held that it is ultimately the opinion of the Company Court as to whether the scheme is really for the public interest or not and the Court has to come to its own conclusion. In this connection the decision reported in Sesa Industries Limited Vs. Krishna H.Bajaj and Others (2011) 3 SCC 218) is to be relied upon. In that case even in spite of the report of the Official Liquidator opposing the amalgamation, it was ignored.
20. It is to be considered as to what are the defects with regard to the procedure and as to whether the court has to reject the scheme for the several contentions raised by the objectors.
21. Evidently, in this case, the meeting of the unsecured creditors was not called for on the ground that so-called debts are not real and binding on the Company and they are said to be tainted. The contention of the objecting petitioners is that the petitioner cannot individually decide about the nature of the debts. The purpose of calling for amalgamation meeting of the creditors is to ascertain their views and mostly it is the interest of the creditors to be safeguarded. Under Section 391(2) of the Act, the opinion of majority of 3/4th of the creditors will be binding on the others. In this case, except 37 Companies who filed the objections petitions, there is no other unsecured creditor opposing the petition and on the other hand the secured creditors have accepted for the scheme. It is also not in dispute that though the meeting was not called earlier, it can be called by the court subsequently. The object of calling such a meeting is only to obtain the views of the creditors. Now those creditors themselves have come up before the Court and raised the objections which are to be answered by the Court. Therefore, I feel the failure to call a meeting of the unsecured creditors even assuming for a moment that the debts are genuine is not fatal and is no ground to refuse the scheme of amalgamation. The court has to now consider as to whether the objections are valid. On this aspect, it is to be noted that the creditors are not opposing the scheme of amalgamation as being against the public interest but they are only canvassing for repayment of their amounts from the available money before amalgamation. It is a case where they are pleading for a clearance of the debts before amalgamation and whereas the petitioner disputes the binding nature of the debts. Therefore, even if the meeting is not called for, the genuineness of the debts is a matter for consideration and the court has to answer as to whether their interest is protected or defeated or they have been prejudiced by not calling the meeting or by scheme.
22. Keeping in view the above decision, it has to be now considered as to whether 37 persons who filed the objection petitions are real creditors and the debts are binding on the Petitioner-Company. The strong contention of the creditors is that their debts are admitted by the Chairman and even if they are not shown in the books of account, still the payments were made by way of drafts and cheques and even if any of the Companies is owned by the relatives of the Ex-Chairman Sri B.Ramalinga Raju, the debts cannot be tainted as false. According to the objecting creditors, even if the transactions are not authorised by the resolutions of the Board, since SCSL has received the benefit of those amounts, they cannot be retained even under Section 65 of the Indian Contract Act. Reliance is placed on the decision reported in Tarsem Singh Vs. Sukhminder Singh (1998) 3 SCC 471) .It is also the contention the word 'creditor' as defined under the Act includes unsecured creditors who may have filed suits or obtained decrees as those of the same class of other unsecured creditors. According to the learned counsel for the objecting creditors that even a contingent creditor or prospective creditor can be brought within the meaning of the word 'Creditor'. Reliance is placed on the decision reported in Krishna Kilaru and Another Vs. Maytas Proiperties Limited, Rep. by its Managing Director, Hyderabad (2013) 176 Company Cases 483 (AP). Reliance is also placed on the other decisions reported in In Re M/s. Northgate Technologies Limited (2012) 172 Company Cases 438 (AP) and in G.V.Films Limited Vs. Metage Special Emerging Market Fund Limited and Others (2010) 154 Company Cases 252 ( Mad) to contend that the meeting of the creditors cannot be dispensed with and it is mandatory. This objection has already been answered earlier. Since the claim of the creditors is being considered based on the material, there is no prejudice for not calling the meeting.
23. Before considering the merits of all these applications, a few facts have to be noted. The petitioner-Company was in high reputation and globally recognized with respect and nobody has lifted the veil of secrecy of the affairs of the Company till 07-01-2009 when the confessional statement of the Ex-Chairman Sri B.Ramalinga Raju was addressed to the Board of Directors about the affairs of the Company, which, for the purpose of convenience, reads as under:-
'The Balance Sheet carries as of September 30, 2008.
a. Inflated (non-existent) cash and bank balances of Rs.5,040 crore (as against Rs.5361 crore reflected in the books)
b. An accrued interest of Rs.376 crore which is non-existent
c. An understated liability of Rs.1,230 crore on account of funds arranged by me
An over stated debtors position of Rs.490 crore (as against Rs.2651 reflected in the books)
That in the last two years a net amount of Rs.1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers'.
Thereafter, at the instance of Government of India, the Company Law Board passed an order in C.P.No.1 of 2009 on 09-01-2009 whereunder finding that the manner in which the affairs of the Company have been conducted has shaken the confidence of the public and also took notice of the fact that the share price has plummeted from Rs.188/- to Rs.38-40 paise after the alleged confessional statement on 07-01-2009 and consequently the Board was suspended and thereafter nominees were appointed. Later an application i.e., C.A.No.179 of 2009 was preferred and the Company Law Board by its order dated 16-04-2009 has considered the fact that M/s. Venturbay Consultants Private Limited, who is the transferor Company No.1, was taken as a strategic investor and the allotment of the shares to it has been accepted. Further, the amounts were attached by Enforcement Directorate (ED) and by its letter dated 10-04-2009 restrained the payment of money. It is further to be noted that it was on 08-01-2009 all the 37 creditors have said to have issued notices claiming the refund of the money.
24. Further, the facts that are to be noted are the investigation done by the C.B.I and para Nos.75 to 77 of the Charge-sheet are relevant to be mentioned hereunder:-
75. Shri B. Ramalinga Raju (A-1) in his letter of confession dated 07.01.09 has also mentioned that the Company had an understated liability of Rs.1,230 Crores and that the same was not reflected in the Books of Accounts. Along with this letter he enclosed the details regarding the loans received from 37 companies and details about return of part of the amount to 15 companies. This clearly establishes that Shri B. Ramalinga Raju (A-1) was aware of these financial transactions between M/s SCSL and the companies and also that the other Board of Directors of M/s SCSL were kept in the dark with regard to these borrowals and the resultant liability on M/s SCSL. The accused persons fraudulently and dishonestly suppressed the liability on M/s SCSL on account of these borrowals to the investors also.
76. After the said letter of confession dt. 7.1.09 of Sri B.Ramalinga Raju(A-1), letters were issued to M/s SCSL by 37 companies who had advanced loans to M/s SCSL, the next day i.e. 8.1.09 demanding repayment of the outstanding amounts. These letters were issued by the Directors of these companies at the behest of Sri B.Ramalinga Raju(A-1) and Sri B.Suryanarayana Raju(A-6) as revealed during the investigation. These borrowed amounts were not reflected in the Books of accounts or in the annual financial statements of M/s SCSL published from time to time. There is no documentary evidence to that effect. As these loans were raised by the Companies floated by Sri B.Ramalinga Raju (A-1), B.Rama Raju (A2) and their near relatives, apprehending changes in the Management and Constitution of the Company and in view of the non-reflection of the liabilities in the books of accounts of the Company, the accused got the letters issued from the Directors of the lending companies demanding repayment of loans on 8.1.2009. The above letters got issued by the accused persons in order to create a record with regard to the liability which is otherwise owed to them by M/s SCSL indirectly as an after thought.
77. It is further revealed that the above mentioned companies have rotated the monies amongst themselves and the 37 companies mentioned earlier have given an amount of Rs.1425 crores as loan to M/s SCSL and out of which an amount of Rs.194.6 Crores was returned to 15 out of these 37 companies. However these transactions were not reflected in the financial statements of the Company which were prepared from the Oracle financials and the Board was never informed about these transactions. Instead, these amounts were got camouflaged by the accused with dishonest intention by showing fictitious entries in the Bank Statements as if the same were received through sale proceeds.
25. Further, as per the orders of this Court, an audit is directed to be conducted by the Official Liquidator as to the accounting of the money by the petitioner and it is relevant to mention the report of the Auditor hereunder:-
a. Any Company while accepting unsecured loans had to pass a resolution by its Board of Directors duly placing before the Board documents evidencing the terms and conditions, such as rate of interest, terms of repayment etc., on which such loan(s) is (are) to be obtained. In the case of these advances received from 37 companies neither the resolution of Board of Directors nor any document evidencing such receipt of loan are made available to us.
b. Had the earlier management requested the 37 companies (from whom money was received) for the unsecured loans, (as claimed by them) earlier management should have accounted for the same in the accounts.
c. In the absence of Board Resolutions, documents evidencing acceptance of unsecured loans by erstwhile management of M/s.Satyam Computer Services Limited, the new management is justified in not crediting the amounts received from 37 companies in their names and not showing of them as creditors in Company’s books and further reflecting such amount as 'Amounts received pending investigation suspense account (net)'. In the circumstances explained above, since no creditor is identified, disclosure requirement under AS 18 as to ‘Related party’ does not arise.
d. EkdantaGreenfields Private Limited claimed that in spite of receipt of funds by Mahindra Satyam it was not recognized as a Creditor. In this regard Ekdanta Greenfields Private Limited submitted their statement of account maintained with Axis Bank, F.No.201, H.No.1-11-192, Kamala Arcade, sham Lal Building, Begumpet, Hyderabad – 500016. The bank statement clearly states that from 31st July, 2008 to 22nd September, 2008 Rs.36.50 Crores have been paid to 'Satyam Computer Services Ltd through 7 cheques bearing Nos.2201 to 2207.
In this regard we would like to bring to your attention that the bank statement submitted by Ekdanta Greenfields Private Limited is not in the name of Ekdanta Greenfields Pvt. Ltd, but it is in the name of 'Ekdanta Greenlands Pvt.Ltd'.(Annexure).
In this connection it is relevant to note that the Directors of Satyam Computer Services Ltd in their report under the head 'Management Discussion and Analysis' which is part of annual reports for financial years 2008-09 & 2009-10 and Auditors in their report stated as under on Rs.1,230.40 crores under the head ‘Amounts Pending Investigation Suspense Account (Net) as under:
Amounts Pending Investigation Suspense Account (Net)
The erstwhile Chairman in his letter dated January 7, 2009, stated that the Balance Sheet as of September 30, 2008 carried an understated liability of Rs.12,304 Million on account of funds arranged by him.
On January 8, 2009, the Company received letters from thirty seven companies requesting confirmation by way of acknowledgement of the alleged amounts referred to as ‘alleged advances’. The Company has replied to the legal notices stating that the claims are legally untenable.
The Directorate of Enforcement(ED) is investigating the matter under the Prevention of Money Laundering Act, 2002 and directed the Company to furnish details with regard to the alleged advances and has further directed the Company not to return the alleged advances until further instructions from the ED. As of March 31, 2009, the amount of alleged advances has been presented separately under ‘Amounts Pending Investigation Suspense Account (Net)’. (Also refer to Note 6.1 of Schedule 18 to the Standalone Financial Statements.)'
The same was brought to the notice of the shareholders by the Statutory Auditors in their report as:
'As stated in Note 6.1 of Schedule 18, the alleged advances amounting to Rs.12,304 Million (net) has been presented separately under ‘Amounts Pending Investigation Suspense Account (Net)’ in the Balance Sheet. In this regard, there are certain claims by thirty seven companies seeking repayment of the amounts allegedly paid by them to the Company as temporary advances which were earlier not recorded in the books of account of the Company. These companies have also claimed damages/compensation/interest on these amounts. Further, these companies have also filed recovery suits/petitions against the Company. The details of these claims are more fully described in the said Note. The Company has not acknowledged any liability to any of the thirty seven companies and has replied to the legal notices stating that the claims are legally untenable.
The Directorate of Enforcement ('ED'), Government of India, is conducting an investigation under the Prevention of Money Laundering Act, 2002 on the amounts allegedly advanced by the aforesaid parties and has directed the Company not to return the amounts until further instructions from the ED.
The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings initiated by these thirty seven companies.
In view of the above, we are unable to determine whether any adjustments/disclosers will be required in respect of the aforesaid alleged advances amounting to Rs.12,304 Million (net) and in respect of the
non-accounting of any damages/compensation/ interest in these financial statements.'
We are therefore of the opinion that the accounting system adopted by M/s.Satyam Computer Services Limited., in accounting for Rs.1,230.40 crores for the years ended 31-03-2009 and 31-03-2010 is justified.
26. The cumulative effect of all the above facts clearly goes to show that though the Ex-Chairman claims to have received these monies they were not accounted for and they are suspected transactions. The alleged borrowings from the 37 Companies is said to be without proper authority from the Board of Directors. Therefore, it is now to be considered as to whether the objectors are bona fide creditors of the Company or not and if their debt prima facie binds the Company.
27. There is no dispute about the fact that part of the money was said to have been received by Ex-Chairman Sri B.Ramalinga Raju. The question yet to be decided is as to whether it is for the benefit of the Company or whether for any other clandestine deals the borrowings were made and not shown as to whether all are in fact cash deals.
28. The thrust of the argument on behalf of the objecting creditors and also the petitioner in C.A.No.862 of 2012 is that the debts having been admitted and even if some of the Companies are owned by the family of Sri B.Ramalinga Raju, all of them are not his projections and in fact Ekadanta is owned by IL&FS and not by Sri B.Ramalinga Raju’s family. According to them, keeping those amounts in suspense account and branding them as tainted transactions is not warranted. The learned counsel for the petitioner in CA No.862 of 2012 contends that in fact the Company Law Board has passed an order relating to Maytas for refund of the money provided to SCSL by Maytas and consequentially the same relief has to be granted in this case also. Evidently, the both Companies are different and the said order cannot be imported for a decision in this case. Further-more, the advancement of the money for the petitioner is also found to be under cloud by the investigation done by the Central Bureau of Investigation. The contention that the petitioner is retaining the money of the creditors and not paying the same does not appear to be valid. The dispute has to be viewed with the back ground of the statement of the former Chairman, who has unequivocally gave an indication that all these debts and particularly of these petitioners are tainted with secrecy and behind the back of the Board of Directors. That being the case, it cannot be said that the petitioners have proved prima facie case of valid debts binding on the petitioner. In fact, the genuineness of these transactions are not raised by the transferee-Company but even before the Board of Directors were appointed, the disclosure was made by the Chairman and, therefore, they continued to be under cloud. Any right for the objecting creditors can be considered only if in the particular circumstances of this case, the genuineness of the debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors.
29. Added to the above circumstances, the payments by the 37 Companies were alleged to have been made from 2006 to 2008, which are not supported by any corporate document or resolutions. Though the repayment was made by SCSL to Ekadanta, it was also not reflected. It can only be taken as an internal understanding lacking genuineness of the transaction. Even after a period of four years except filing of the suits by a few companies, the others have not filed any suits and a relevant consideration arises as to whether they are barred by time except the claim of Ekadanta who has filed a suit for recovery of the amount. The bona fides of the petitioner also cannot be doubted for the reason that all these debts are shown as 'suspense debts' and an unequivocal promise to satisfy those debts if they are found to be true and binding on the petitioner. This clearly goes to show that the denial of the liability by the petitioner is not mala fide and in fact it is based on several events and from the own statement of the former Chairman Sri B.Ramalinga Raju to whom these monies are said to have lent. Therefore, it has to be held that the claim of the objecting creditors cannot be taken as a bona fide and binding on the petitioner-Company so as to oppose the claim of amalgamation. In fact, unless the creditors establish that the claim was intended to defeat their genuine rights or the debts, it cannot be a ground to object the scheme. In this case, when once under the scheme of amalgamation an undertaking was given to satisfy genuine debts, the creditors cannot oppose the scheme of amalgamation, which otherwise is proved to be beneficial to the public and also approved by the majority of the share holders.
30. The contention of the creditors that the money was lent to the petitioner-Company and after the merger they have to approach the transferee-Company and the creditors cannot be directed to choose a different person does not stand to reason. The creditor is interested in security of his debts and the recovery of the same. Evidently, after 07-01-2009 the shares of the petitioner-Company have fallen and subsequently there was an increase in the share value in the market. It is only because of the efforts made by the constituted board of Directors and also the strategic investor-the transferor Company No.1 who has poured in sufficient money though it may be a subsidiary of the transferee-Company. This clearly goes to show that the transferee-Company has got every interest to promote the identity, business and value of the petitioner-Company and it does not want to gain anything individually. As per the scheme, it is quite clear both the Companies are benefited. The apprehension is as to whether what will happen if the transferee-Company is unable to pay the debts subsequently. The same reason also applies to the same situation if the petitioner-Company is also unable to pay the amounts in future even if it is to be continued individually without amalgamation. The solvency of both the Companies and the potentiality after the merger is clearly disclosed in the financial statements and in fact it is not seriously disputed by any person about the competency of the transferee-Company or the beneficial advantage to the petitioner by scheme of amalgamation. The transferee-Company and the petitioner-Company as on date are sufficiently solvent to meet the demand of the creditors provided the binding nature of the debts on the petitioner-Company is established by the objecting creditors.
31. Ignoring the basic truth, a Court cannot base findings on imaginations or surmises. The arguments of the objectors is more personalised in their own interest for money rather than the duty of the court which has to consider several circumstances about the validity of scheme of amalgamation and also the beneficial interest to the public or the majority of the shareholders. Therefore, I find that the debts claimed by the objecting creditors and the petitioner for winding up are found to be under a cloud of suspicion and about the binding nature of the same on the petitioner. Therefore, it cannot be said that there is a prima facie case for the above creditors. That being so, non-calling of the creditors’ meeting is not violative of any provisions of law. Even otherwise, the court which has got power to call the meeting has considered their objections and found to be not sustainable. Further, it cannot be said that the denial of the liability by the petitioner is mala fide. The petitioner is acting with all fairness and concern and the interest of the objecting creditors is also taken care with an understanding of repayment after the binding nature and the genuineness of the creditors is established.
32. The opposition of the claim by the creditors is definitely not in public interest and it is for their personal interest. The defence of the petitioner for non-consideration of those debts and dispensing with the unsecured creditors’ meeting is bona fide. In view of the above factual situation, the several decisions touching on the law of winding up and the rights of the creditors is not referred to.
33. The other objection raised by some of the petitioners who are minority shareholders is that the opinion is tinkered by virtue of the first petitioner being a major shareholder. It was their contention that the scheme was to take effect from 01-04-2011; whereas by 31-03-2011 the auditors’ report shows that the Company is having good profits and in order to cause loss to the shareholders, the merger meeting was held on 21-03-2012 and, therefore, the shareholders are put to loss. Even otherwise, there was significant gain by 31-03-2012 and all these things cumulatively shows that the interest of the shareholders is not protected and there is a fraud.
34. There is also a contention that the swap ratio given to the shareholders is very less compared to the profits and also the arrangement with the foreign Company.
35. In fact, it is to be noted that apart from the first transferor- Company, several other reputed Companies, viz., LIC, Birla Sunlife Mutual Fund, Reliance Funds etc., have also favoured the amalgamation. In fact, much comment against the holding of major share by Venturbay Consultants is not fair. At a stage when the scam has broken up and when the share value has fallen and after the intervention of the Company Law Board, as a strategic investor global tenders were called and the meeting was presided by Justice S.P.Bharucha, Former Chief Justice of India, and the bid of the Venturbay Consultants has been accepted and lot of money has been supplied and, therefore, the transactions as to how Venturbay Consultants became an investor with the petitioner-Company is not behind the scenes and it is open. Further-more, merely because it happens to be a subsidiary of the transferee-Company, no fraud or undue advantage can be attributed to the transferee-Company or to Venturbay Consultants. The Court cannot ignore the fact that the investment made by Venturbay Consultants was at a time when the share value has collapsed. Merely because, with the further investments and with the effort of the newly constituted Board at the instance of the Company Law Board, the petitioner could post some profits on higher side, it cannot be said that all the dealings are not fair. In fact, the Company nominees and the shareholders participated in the meeting and majority of the shareholders have approved the scheme of amalgamation. It is evidently the commercial wisdom that has to prevail and more than 3/4th of the shareholders have adopted the amalgamation and the said decision is binding on the minority shareholders also. Further-more, the Directors who are common on the Board did not participate in the shareholders’ meeting and, therefore, there is no violation of propriety. The statements of account were furnished to the shareholders and also the latest statements are also furnished to this court. The fixing of the swap ratio is based on the report of the auditors, which is accepted by the majority of the shareholders, and, therefore, it cannot be said that the scheme is disadvantageous to the shareholders. Therefore, I find that the objections raised by the minority shareholders are also not tenable and there is no violation of any of the mandates under Section 391 or 394 of the Act while dealing with the meeting of the shareholders.
36. The other objection that is sought to be raised is the Official Liquidator or the Regional Director have not given consent for the amalgamation and their opinion is not there to the effect that the business of the petitioner-Company is conducted without any prejudicial interest to the public. Evidently, some of the facts cannot be ignored by anybody. The fact is that the mismanagement of funds is admitted by the Chairman himself. Therefore, the question is even if in spite of such a situation, the Court will be inclined to grant the scheme. Evidently, merely because some criminal proceedings are pending, the refusal of the scheme or d
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elaying the same will cause more prejudice to the interest of the public or the shareholders. In fact, the Official Liquidator or the Regional Director did not oppose the scheme as being against the public interest. As per the report of the Official Liquidator, the accounts have been audited by the Brahmaiah and Company and, therefore, there is no lacuna on this count. The Official Liquidator evidently cannot personally audit the accounts and he shall get them audited by a competent person and in fact it was done so by the Official Liquidator as per the orders of this court. 37. So far as the report of the Regional Director is concerned, the objections are relating to the fraud prior to 07-01-2009 and the consequences of pending prosecution, attachments and the required information to be furnished by the petitioner. In fact, the petitioner has accepted all the requirements of the Regional Director with regard to furnishing of the information or with regard to the prosecution and the liability undertaken by the transferee-Company. Therefore, the report of the Official Liquidator or the Regional Director cannot be taken advantage by objecting creditors and on the other hand they do certify the beneficial interest of amalgamation. I, therefore, find that there is also no violation of the requirement from calling information from the Official Liquidator or the Regional Director. It has been already observed that the reports of the Official Liquidator or the Regional Director are not final and it is ultimately for the Court to consider the effectiveness of those reports. In this case, the court was inclined to accept the conditions that are to be imposed for amalgamation as suggested by the Regional Director. 38. Therefore, on a comprehensive assessment of the claims, this court feels that the scheme of amalgamation is in the interest of the public and the shareholders and the interest of the workmen is also protected. There is no attempt to defeat any provision of law with regard to pending of future prosecutions or liabilities. There is also no escaping of the liability with regard to disputed creditors in case they are found to be true. I, therefore, feel that this court by applying the provisions under Section 391 and 394 of the Act satisfactorily finds that the scheme of amalgamation is bona fide and has to be allowed by imposing certain conditions. 39. Accordingly, C.P.No.123 of 2012 is allowed as prayed for while approving the scheme of amalgamation and arrangement with effect from 01-04-2011 subject to the following conditions:- (a) The pending prosecutions and investigations against the former Chairman and others shall continue; (b) If any future prosecutions and investigations are to be laid against the petitioner-Company, the transferee-Company is liable; (c) The transferee-Company shall furnish all the information which is required by the Serous Fraud Investigation Office (SFIO); (d) The attachments ordered by the Enforcement Directorate (ED) and other institutions shall continue till they are varied or vacated by the competent authority; (e) With effect from the appointed date, all debts, liabilities, contingent liabilities, duties and obligations of Mahindra Satyam, as on the appointed date whether provided for or not in the books of accounts of Mahindra Satyam, and all other liabilities which may accrue or arise after the appointed date, but which relates to the period on or up to the day of the appointed date shall, pursuant to the Orders of the High Courts or such other competent authority as may be applicable under provisions of the Act, without any further act or deed, be transferred or deemed to be transferred to and vested in TML, so as to become as from the appointed date the debts, liabilities, contingent liabilities, duties and obligations of TML on the same terms and conditions as were applicable to Mahindra Satyam. (f) If any legal proceedings including but not limited to suits, summary suits, class action lawsuits, indigent petitions, appeal, or other proceedings of whatever nature by or against the transferor-Companies in India as well as outside India are pending as on the effective date, the same shall not abate or be discontinued or be in any way prejudicially affected by reason of the transfer of the entire businesses and undertakings of the transferor-Companies or of anything contained in the Scheme, but the proceedings shall be continued, prosecuted and enforced by or against TML in the same manner and to the same extent as they would or might have been continued, prosecuted or enforced by or against the transferor- Companies, if the Scheme had not been made. On and from the effective date, TML may initiate any legal proceeding for and on behalf of the transferor-Companies; and (g) The approved scheme will not have any baring on the C.P.No.1 of 2009 pending before the Company Law Board against the petitioner. A copy of this Order and scheme shall be furnished to the Companies Registrar within a period of thirty (30) days by following all the necessary requirements. Further, the petitioner shall pay a sum of Rs.25,000/- (Rupees Twenty Five Thousand only) each to the Regional Director and also to the Official Liquidator, High Court of Andhra Pradesh, Hyderabad within four(4) weeks. Accordingly, C.P.No.192 of 2012 and all the other applications filed by the objecting creditors and shareholders stands dismissed. Accordingly, C.P.No.123 of 2012 is allowed as prayed for with the conditions mentioned above.