' SYED MANSOOR ALI SHAH, J.---This is a petition under sections 284 to 287 of the Companies Ordinance, 1984 ("Ordinance") seeking sanction of the Scheme of Arrangement ("Scheme") between Messrs Fatima Sugar Mills Limited (interchangely referred to as the "transferor company" or "petitioner No,1" or "FSML") and Reliance Sugar Mills Ltd. (interchangely referred to as the "transferee company" or "petitioner No,2" or "RSML") which has been unanimously approved by the members of the petitioner companies in Extra Ordinary General Meetings of the companies held on 18-2-2012 and 24-2-2012, respectively.
2. The Scheme envisages the transfer of "Sugar Undertaking ' of the transferor company to the transferee company against issuance of shares by the transferee company in favour of the transferor company from the Effective Date i,e,, 1-10-2011. The transferor company shall, however, retain the investment portfolio, etc., referred to as the "Retained Undertaking " under the Scheme.
Both the companies shall be renamed, as discussed hereunder.
STRUCTURE OF THE COMPANIES
3. Transferee company is a wholly owned subsidiary of the transferor company and both the companies are unlisted public companies.
OBJECT OF THE SCHEME
4. The principal object of the Scheme is to provide for the division of transferor company by:--
(i) Separating the Sugar Undertaking from the Retained Undertaking;
(ii) Transferring to, and vesting in RSML, of the Sugar Undertaking against the issuance of ordinary shares of RSML to FSML;
(iii) Retaining only the Retained Undertaking in FSML; and1 2
(iv) Changing/replacing the name of RSML to Messrs Fatima Sugar Mills Limited and of FSML to Messrs Fatima Investment Limited.
TRANSFER OF ASSETS AND LIABILITY
5. As from the Effective Date i,e,, 1-10-2011 the Sugar Undertaking of the transferor company shall be transferred to and vest in the transferee company. All the liabilities of the transferor company which formed part of the Sugar Undertaking on or before the Effective Date, shall be deemed to have been assumed by the transferee company without in any manner adversely affecting the ranking and priority of the same.
6. Transferee company shall be deemed, without any further act, to have created on the Effective Date, all such encumbrances on the assets of the Sugar Undertaking which are transferred to the transferee company from the transferor company. All liabilities of the transferor company which form part of the Sugar Undertaking on or before the Effective Date shall, as from the Effective Date, be deemed to be and assumed by transferee company, as the liabilities of the transferee company without in any manner adversely affecting the ranking or priority of the same.
CONSIDERATION FOR THE SCHEME OF ARRANGEMENT
7. Subject to para 19 hereunder, in consideration for the transfer of Sugar Undertaking from transferor company to transferee company, transferee company shall, as of the Effective Date, issue and allot 210 149 232 fully paid shares of Rs,10 each in favour of the transferor company. The said shares shall rank paripassu with the existing ordinary shares of transferee company.
CHANGE OF NAME OF THE TRANSFEROR AND TRANSFEREE COMPANY
8. The original Scheme as placed on the record provided that on the Effective Date, the name of the transferor company shall change to Messrs Fatima Investment Ltd. While that of the transferee company to Messrs Fatima Sugar Mills Ltd.
9. However, during the course of hearing, the petitioner companies have carried out an amendment in Article 14 of the Scheme, whereby the name of the transferor company is to change to Messrs Fatima Holding Limited instead of Messrs Fatima Investment Limited. Two Certificates, both dated 19-10-2013, signed by the members of the petitioner companies have been submitted by the learned counsel for the petitioners confirming the above amendment, the Certificates have been placed on the record as Mark "A" and "B" and shall be read as an integral part of the Scheme.
PROCESS ADOPTED BY THE COURT
10. Vide order dated 14-3-2012 when the instant petition came up for hearing before this Court, it was pointed out by the learned counsel for the petitioner companies that Scheme of Arrangement has already been approved in the Extra Ordinary General Meetings of the company held on 18-0- 2012(sic.) and 24-2-2012 respectively, hence, holding of meetings by the companies afresh in terms of section 284 of the Companies Ordinance, 1984 would be unnecessary. For this reason the requirement of holding fresh meetings was dispensed with.
11. Notices were issued to Securities and Exchange Commission of Pakistan ("SECP"), Competition Commission of Pakistan ("CCP") and the Creditors of the petitioner companies through courier service, as well as, proclamation in the newspaper namely daily "DAWN" and daily "JANG" under Rule 61 of the Companies (Court) Rules, 1997.
12. Despite notice, no one tendered appearance except SECP and Soneri Bank Ltd. Therefore, vide order dated 21-11-2012 remaining creditors, as well as, CCP were proceeded ex parte. Record reveals that once again fresh notice was issued to CCP vide order 23-1-2013, inspite of the same, no one has come forward on behalf of the CCP today. Hence, CCP is proceeded ex parte.
13. Learned counsel for Soneri Bank has no objection to the sanction of the instant merger. NOCs on behalf of the creditor banks have already been placed on the record.
OBJECTIONS OF THE SECP
14. SECP has come forward to raise certain objections to the Scheme. Learned counsel for the SECP submits that there is no objection regarding the change of names of the petitioner companies to Messrs Fatima Holding Ltd. And Messrs Fatima Sugar Mills Ltd respectively and that the said names are also currently available. He, however, submits that the said change can only be effected after following the procedure provided under Companies Ordinance, 1984. He submits that SECP undertakes to decide this matter regarding the name of the transferor company expeditiously in accordance with law, once the Scheme is sanctioned by this Court.
15. Learned counsel for the petitioners submits that he disagrees that in the presence of the sanction order, SECP has to apply the procedure under the Ordinance for the change of name.
However, in order to expeditiously conclude this matter, he has no objection if after the sanctioning of the Scheme, process for the change of name is independently processed by the SECP under the Ordinance within a prescribed time frame fixed by the Court.
16. SECP is, therefore, directed to process the change of name of the petitioner companies as envisaged above within a week from receipt of this order. In case of any un-necessary delay by SECP, the petitioners can approach this Court for appropriate order.
17. The next objection raised by the SECP is that Rule 8 of the Companies (Issue of Capital) Rules, 1996 ("Rules") has not been complied with by the petitioners. Learned counsel for the petitioner has referred to the Certificate issued by Messrs Hameed Chaudhri and Co., Chartered Accountants dated 4-3-2013 (placed on the record as Mark "C") in compliance of Rule 8(iv) of the Rules aid submits that in presence of the said Certificate, Rule 8 stands complied with.
18. The contention of learned counsel for the petitioners carries weight in the presence of the Certificate issued by a practicing firm of Chartered Accountants certifying that conditions Nos. (i) to (iii) of Rule 8 of the Rules stand complied with. In the absence of any doubt cast on the veracity and credibility of the Certificate, this Court need not independently verify compliance of Rule 8.
Hence, this objection is overruled.
19. The next objection of the SECP is that Rule 8(iii) of the Rules is not being complied with and shares are being issued against intangible assets (e.g. Software). Learned counsel for the petitioners have conceded to this objection and submit that shares will not be issued in violation of Rule 8(iii). The Scheme of Arrangement is accordingly modified to this extent.
20. Learned counsel for SECP further submits that valuation in this case was done on 26-4-2010 while the Effective Date is 1-10-2011, hence, assets have to be devalued. It is also submitted that the valuation has been one regarding freehold land, buildings on freehold land and slant and machinery, however, several other items including tocks have not been valued and, therefore, the present valuation provided in the Scheme does not reflect the correct position of the assets. In order to adjudicate upon this objection, it is important to consider the scope of powers enjoyed by the Court while considering the an action of a proposed Scheme of compromise/arrangement/construction: NATURE AND SCOPE OF POWERS OF THE COURT UNDER SECTIONS 284 AND 287 OF THE ORDINANCE
21. Under sections 284 and 287 of the Ordinance the Court has to only ensure that the Scheme is made in good faith, is fair and reasonable, has commercial viability and is of adverse to the interest of the creditors or members or in any manner against the public interest. The Court is not to substitute its judgment over the collective commercial wisdom of the members or the creditors but is to actually supervise the Scheme in general so that it doesn't offend the parameters prescribed above. It is the commercial wisdom of the parties to the Scheme who have taken an informed decision about the usefulness and propriety of the Scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a Court of Appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the3 concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. If the Scheme as a whole is fair and reasonable, it is the duty of the Court not to launch an investigation upon the commercial merits or demerits of the case which is function of those who are interested in the arrangement (Scheme).
22. It is, however, emphasized that the supervising power of the Court is not cosmetic or mechanical and the Court is not bound to accept the Scheme as a fait accompli. In exercising its powers under sections 284 and 287 of the Ordinance, the Court does not function as a mere rubber stamp or post office and it is incumbent upon the Court to be satisfied prima facie that the scheme is genuine, bona fide and in the interests of the creditors and the company. Its function is to see that a Scheme as a whole is a reasonable one and if the Court so finds, it is not for the Court to interfere with the collective wisdom of the shareholders of the Company. It is only when the Court on its own motion or on the application moved by an objector is of the view that Scheme is against any law or unfair or fraudulent or disadvantageous to the minority shareholders or to the other key stakeholders falling outside the Scheme e.g., the Government or any other public authority e.g., Tax Department or the Utility Authorities that the Court refuses sanction or directs amendments before the sanction of the Scheme.
' Under its supervising eye, if the Court is satisfied that the Scheme is fair, viable and is not adverse to the interest of the key stakeholders, the Court need not to scrutinize the Scheme "in the way a carping critic, a hairsplitting expert, a meticulous accountant or a fastidious counsel would do... But, it must be tested from the point of view of an ordinary reasonable shareholder, acting in a businessm an-like manner, taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. It is also pointed out that, before the scheme is sanctioned, it would be the duty of the Court to see that the proposed scheme is a fair and reasonable one, but the initial burden in this respect would be on the petitioner to show that, prima facie, the scheme is a fair and reasonable one, such as a prudent and reasonable shareholder would approve of and not object to". The Court is really not concerned with the C finer details of the architecture of the Scheme as long as the Scheme passes the broad test of fairness under the law and has received the assent of the majority shareholders. A Scheme may be open to criticism, but unless it is affirmatively shown to be unfair, the Court will not interfere. The Court cannot, therefore, undertake the exercise of scrutinizing the Scheme placed for its sanction with a view to finding out whether a better Scheme in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial and economic interest by majority agree to give green signal to a compromise or arrangement.
24. The jurisdiction of the Company Court while considering the Scheme does not extend to, ascertaining with mathematical accuracy if the determination of valuation of shares of the transferor and transferee companies by the value satisfies the arithmetical test. When the statutory formalities have been complied with and the scheme is fair and reasonable and there is no fraud involved, the Court must proceed to give effect to the business of the shareholders of the company.
25. In the present case, this Scheme of Arrangement has already been approved by the members of the two companies. The transferee company is a wholly owned subsidiary of the transferor company. In shareholders Scheme of Arrangement the interest of the members is primary and as4 5 6 7 8 9 10 a next step the interest of the creditors and general public interest ought to be safeguarded. The objection of the SECP regarding fresh valuation does not render the Scheme unfair or adverse to the interest of any party including the members of the companies. Even otherwise, none of the members or creditors or the public including government authorities have raised any objection to the sanction of the Scheme of Arrangement. The details of the valuation of assets (in terms of time and in terms of certain items which according to the SECP have not been factored in) other than the legal' requirement given in Rule 8 can best be left to the discretion of the shareholders. The Court need not to look into the adequacy of the consideration based on the valuation of assets as it would amount to intruding into the collective commercial wisdom of the shareholders. In this case the commercial decision of the members remains within the confines of the two companies causing no loss to anyone.
26. It is important to draw a parallel between a Scheme of Arrangement or compromise and an ordinary compromise entered between the parties to a suit. The contents of the compromise are not minutely examined by the Court as they reflect the consent and mutual understanding of the parties and which ordinarily does not concern the Court. The Court simply ensures that the compromise should not be against public interest or against law or against any third party. It is not the function of the Court to dot the i's and cross the t's of the compromise and same is the case with the Scheme of Arrangement. Technical details regarding quantification of valuation should best be left to the discretion of the parties. Of course, the case would have been different had the minority shareholders raised an objection regarding valuation of assets, which is not the case here.
27. Even otherwise, at best, fresh valuation can only affect the amount of stamp duty (if any) to be paid on the transfer of assets. This financial liability, if any, has been secured by the undertaking given by the learned counsel for the petitioner companies on the instruction of the petitioner companies and discussed later in the order. Therefore, the objection raised by the learned counsel for SECP vis-a-vis valuation of assets does not fall within the broad ambit of supervisory jurisdiction of this Court exercised while sanctioning a Scheme of Arrangement. The matter of details should best be left to the commercial wisdom of the Companies unless they adversely impinge on the interest of the parties.
28. For the above reasons, objections raised by the SECP are overruled. However, submission of the SECP to the extent of change of name is allowed in the above terms.
STAMP DUTY ISSUE
29. During the course of proceedings objection was raised by the Government of Punjab through the office of Advocate-General, Punjab that the transfer of Sugar Undertaking from the transferor company to the transferee company attracts imposition of stamp duty under the Stamp Act, 1899.
Prima facie, there appears to be merit in the argument of the learned law officer. This aspect of the matter requires further deliberation and will be taken up separately. Learned counsel for the petitioner companies undertake that in case the issue of stamp duty is decided against the petitioner companies, they will un-conditionally pay stamp duty as assessed on the Effective Date i,e,, 1-10-2011 subject to the petitioners first exhausting their lawful remedies before higher forum against any such order passed by this Court.
SANCTION OF SCHEME OF ARRANGEMENT
30. Subject to the issue of stamp duty, which will be taken up later and subject to the modification in the Scheme allowed in para 19 above, the Scheme of Arrangement is not prejudicial to the interest of the members and creditors of the Companies. I am satisfied with the merits of the Scheme, which is placed on the record by the petitioners as Annex "D" and has now been duly stamped and signed by the Court Associate of this Court along with Marks "A" and "B". The Scheme is, therefore, sanctioned w,e,f, 1-10-2011 and shall come into effect according on the passing of this order irrespective of the fact that issue of stamp duty is pending adjudication before this Court.
31. Subject to above, it is further ordered:--
(i) That the "Sugar Undertaking" of the transferor company shall stand transferred to the transferee company as provided under the Scheme and "Retained Undertaking" shall remain with the transferor company;
(ii) Transferee company shall allot shares according to the Scheme to the transferor company;
(iii) The legal proceedings pending by or against the transferor company to the extent of Sugar Undertaking Shall be continued by or against the transferee company;
32. Petitioners are directed to submit certified copy of this Order with the SECP within 30 days in terms of section 284(3) of the Companies Ordinance, 1984.
33. This Scheme of Arrangement is duly sanctioned w,e,f, 1-10-2011 for the above reasons.
34. To come up for arguments on the issue of stamp duty II on 29-1-2014. According to the Scheme "Sugar Undertaking" means: "all Assets (with all existing Encumbrances thereon) and Liabilities of FSML, except for those forming part of the Retained Undertaking, immediately preceding the Effective Date, including but not limited to the Plant" (Article 1 of the Scheme)
2 According to the Scheme "Retained Undertaking" means "all Assets and Liabilities of FSML, immediately preceding the Effective Date that shall not be transferred to or vest in RSML pursuant to this Scheme, and are specifically limited to the items listed in ScheduleA" (Article 1 of the Scheme). (Ref: A Ramaiya, Company Law Digest, Fifth Edition 1995, page 1493). Miheer H. Mafatlal v. Mafatlal Industries Ltd. (AIR 1997 SC 506) and Gujrat Ambuja Exports Ltd. Re, (2004) 118 Com Cases 265. (Ref: A Ramaiya, Guide to the Companies Act, 17th Edition, 2010" pages 4070-4071). X Alabama, New Orleans, Texas and Pacific Junction Railway Co., (1891) 1 Ch. 213 (Ref: A Ramaiya, Company Law Digest, Fifth. Edition 1995, page 1502) Gaya Sugar Mills Ltd. v. Nand Kishore Bajoria (AIR 1955 SC 441) (Ref: A Ramaiya, Guide to the Companies Act, 17th Edition, 2010, page 4051). Sidhpur Mills Co. Ltd., In Re, (AIR 1962 Guj 305) followed in Navjivan Mills Ltd., Re, (1972) 42 Corn Cases 265 (Ref: A Ramaiya, Guide to the Companies Act, 17th Edition, 2010, page 4067).
Hoare and Co. Ltd. (1933) 150 LT 374) (Ref: A Ramaiya, Guide to the Companies Act, 17th Edition, 2010, page 4067). Miheer H. Mafatlal v. Mafatlal Industries Ltd. (AIR 1997 SC 506) (1994) 4 Comp. L.J. 267