P L D 2001 Lahore 230 (PLP)

6. The Chairman after holding a meeting on the 19th of August, 2000 submitted his report alongwith record of the proceedings. He also submitted a copy of the scheme prepared by the petitioner companies setting forth the terms of the scheme alongwith its effect. According to the report of the Chairman the shareholders and the creditors of Dewan Salman and Dhan present and voting in the meeting unanimously approved the scheme. All financial institutions had also issued their no-objection certificates regarding the proposed amalgamation while all members of Dewan Salman present and voting unanimously approved of the scheme. From Dhan Fibres only one member voted against the scheme while all other members representing 206,738,600 shares voted in favour of the scheme. Thus 99.88 per cent. of the votes were cast in favour of the scheme while one vote representing 0.12 per cent. was cast against it. A petition by the objector in opposition to the scheme was brought by sole objector. In addition another petition in opposition to the scheme of amalgamation was filed on behalf of M/s. Nichimen Europe Plc, who is neither a member nor a creditor.

7. According to the scheme prepared by the Board of Directors of the respective companies for amalgamation of Dhan Fibres into Dewan Salman Fibre as the surviving company and unanimously approved by both companies the benefits of the merger and amalgamation, would inter alia include an increase in efficiency by reason of unified control; an increase in profits; an increase in the ability to export and compete internationally; an increase in the capital base of the amalgamated companies and an increase of opportunities. The merger would improve the corporate image of the amalgamated companies and would result in an improvement in the affairs of both the companies.

8. A scheme for the merger and amalgamation was proposed under which the entire undertaking, assets, properties and liabilities of Dhan Fibres will be transferred to Dewan Salman Fibre. As consideration for the said transfers, Dewan Salman shall issue at par and allot to the members of Dhan Fibres one fully paid-up ordinary share of the par value of Rs.10 each in the capital of Dewan Salman for three fully paid-up shares of the par value of Rs.10 each held in the capital of Dhan Fibres. This share exchange ratio was based on certification by a reputed independent firm of Chartered Accountants. In short, according to both the petitioner companies the scheme for amalgamation is fair and just, reasonable and equitable and in the National interest and should, therefore, be approved and ordered by this Court.

9. Conversely Mr. Ejaz Rathore the solitary objector opposed the proposed merger on the ground that there was no provision for a merger in the Memorandum of Association of the Companies and that the ratio of exchange of shares was unjust. During the course of arguments learned counsel for the objector made an offer to the effect that Dewan Salman may purchase all the shares. of Mr: Ejaz Rathore objector at the same price which was paid to M/s. Khawaja Muhammad Nadeem, Khawaja Naveed and Mst. Zubeda Khatoon at the rate of Rs.31,4877. The offer was considered by the learned counsel for the petitioner companies and on instructions the offer was rejected.

10. The principles governing amalgamation and merger of companies are set out in the following cases: (i) Brooke Bond (Pakistan) Limited and another v. Aslam Bin Ibrahim and another (1997 CLC 1873). (ii) Lipton Pakistan Limited and another (1989 CLC 818), and (iii) Aslam Bin Ibrahim v. Monopoly Control Authority and 2 others (PLD 1998 Karachi 295).

11. In the Brooke Bond's case (1997 CLC 1873) it was held that the correct approach is (i) -to ascertain whether the statutory requirements had been complied with, (ii) to determine whether the scheme as a whole has been arrived at by the majority bona fide and in the interest of the whole body of shareholders in whose interest the majority purported to act and (iii) to see whether the scheme is such that a fair and reasonable shareholder will consider it to be for the benefit of the company and for himself. The scheme should not be scrutinised in the way a carping critic, a hair splitting expert, a meticulous accountant 6r a festidious counsel would do it, each trying to find out from his professional point of view what loopholes are present in the scheme, what technical mistakes have been committed, what accounting errors have crept in or what legal rights of one or the other side have or have not been protected. It must be tested from the point of view or an ordinary reasonable shareholder acting in a business like manner. It was further held that if a required majority of the members of both the companies have approved the resolution for merger of both the companies, in such circumstances sanction cannot be withheld unless it is shown that it is unfair, unreasonable or that it is against the national interest. The burden is upon .the person who alleges the scheme to be unfair and against the national interest.

12. In the present case the objector has failed to discharge this burden.

13. In the Lipton's case (1989 CLC 818) the Court after discussing various principles applicable to cases of merger approvingly referred to the statement of law made by Lord Lindley L.J.S. in the case of Alabama New Orleans, Texas and Pacific Junction Railway Company (1891) 1 Ch. 213 what the Court has to do is to see, first of all, that the provisions of the Statute have been complied with and, secondly that the majority has been acting bona fide. The Court also has to see that the minority is, not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that the Court has to look at the scheme and see whether it is one as to which persons acting honestly and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by. businessmen. 13-A. In the case of Aslam Bin Ibrahim v. Monopoly Control Authority and 2 others (PLD 1998 Karachi 295) a Division Bench of the Sindh High Court was pleased to observe that the Court has to see-whether the resolution has been passed by requisite majority. It must be ensured that the members participating in the meeting were real representatives of the class to which they belonged. Equally important would be the determination that the majority, which came to register itself, acted bona fide and in the interest of the general body of shareholders and that the minority was neither coerced nor victimized. As to victimization, the Court would cautiously address the question whether the merger was not calculated to neutralized and render toothless an effective minority. The Court should be satisfied that the scheme was not only fair but also reasonable from the point of view of neutral observer.

14. In the present case, the overwhelming majority of the shareholders in the two petitioner companies having subscribed to the merger and all legal requirements having been complied with, the amalgamation could not be questioned on any genuine ground. The powers under section 284 of the Companies Ordinance of 1984 for allowing amalgamations are broad and subject to restrictions under the law and Constitution. All such powers and constraints must be governed by the ground realities.

15. Although the Court does not act as a rubber stamp and does not automatically put its seal of approval on all schemes for merger and amalgamation but at the same time the Court does not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to a compromise because the same would be in realm of corporate and commercial wisdom of the concerned parties for which the Court does not have the necessary expertise. In short, the Court must act as an umpire.

16. As regards the objection that in the absence of a specific power to merge in the Memorandum of Association of the petitioner companies, in the judgment rendered in the case of Associated Services Ltd. reported in PLD 1984 Kar. 225 it was held that a company may amalgamate with another despite absence of any particular power in the objects clause of Memorandum of Association. In a Division Bench judgment of the Calcutta High Court in the matter of EITA India Limited reported in AIR 1997 Calcutta 208, it was held that the power to amalgamate is a statutory power and this power may be exercised notwithstanding the fact that the Memorandum of Association of a particular company may not contain express power to amalgamate with another company.

17. As regards the question of the ratio of exchange of shares and the methods of valuation, it would be useful to refer to the Lipton case in which the Court approvingly quoted Lord Lindley's observation that the task of the auditor was to act as an expert and not as an arbitrator; and, as an expert, he was to certify what, in his opinion, was the fair value of the shares.

18. Shareholders are the best judges of their interests and are better informed with the market trends than the Court which is least equipped in the valuation of such trends.

19. As regards the objection that there is no power of amalgamation in the objects clause of the Memorandum of Association of Dhan Fibres, it is not necessary that such a power must be available in the objects clause before a company can be allowed to merge with another company. The entire' exercise of a merger is subject to the statutory jurisdiction of the High Court and no merger can take place without scrutiny by the High Court.

20. As regards Nichimen, suffice it to say that it is a total stranger to these proceedings. Besides, having already filed a civil suit for recovery against Chakwal Cement as well as insolvency petition it would be best that the disputed questions of law and facts are tried before the Courts whose jurisdiction has already been invoked by Nichimen. This Court in exercise of its jurisdiction under the Companies Ordinance cannot stay its proceedings to await decisions of Courts subordinate to it or to recover any security from Dewan Salman in disputed matters. The objection of Nichimen is, therefore,

21. Resultantly this joint petition by Dewan Salman Fibre Limited and Dhan Fibres Limited is accepted and it is ordered that the scheme of arrangement detailed in Annex. "E" to this petition is approved and sanctioned so as to be binding on all members and Creditors of petitioner companies, that all the properties; rights and powers of Dhan Fibres Limited stand transferred without further act or deed to Dewan Salman Fibre Limited and shall vest in the transferee company, that all proceedings pending by or against Dhan Fibres shall continue by or against Dewan Salman Fibre Limited and that Dhan Fibres Limited shall stand dissolved without winding up. Q.W.H./M.A.K./D-18/L Petition allowed.