' MUHAMMAD SAIR ALI, J.---Through C.O. No,4 of 2002 approval of the learned Company Judge of this Court was sought to scheme of merger of the three appellant-companies namely, Kohinoor Raiwind Mills Limited ("KRM"), Kohinoor (Gujar Khan) Mills Limited ("KGM") and Kohinoor Textile Mills ("KTM"). According to the proposed arrangement KRM and KGM, upon merger in KTM, were to stand dissolved without winding-up. Under the scheme of arrangement proposed and approved by the shareholders of the appellant-Companies in the general meetings, the surviving company i,e, KTM was to issue to the shareholders of KRM and KGM fully paid-up ordinary shares of the par value of Rs, 10 each in the capital of KTM at the value to be determined by Messrs Riaz Ahmed & Co. The exchange ratio (referred to as "the swap ratio" in the present case) determined by the named Chartered Accountants was as under: ' A shareholder of KRML was to get 2.326 shares of KTML for every one share held in KRML, while a shareholder of KGML was to get one share of KTML for every 3.422 shares held by him in KGML.
2. Serious objections were filed before the learned Company Judge to the proposed scheme of arrangement at the abovesaid "swa p ratio" by Security and Exchange Commission of Pakistan
(SECP) as per objections received by it from certain shareholders and also by Messrs Asian Securities Limited i,e, a shareholder of KRM. The learned Company Judge accepting the said objections to "swa p ratio", declined through his judgment, dated 18-4-2002 to sanction the proposed arrangement of merger of the appellant-Companies, hence the present Intra-Court Appeal.
3. Notices were issued to SCEP by order, dated 29-5-2002. During the proceedings of this appeal, on 5-6-2002 the learned counsel for the appellants placed on record copy of the letter from Messrs Riaz Ahmed & Co., Chartered Accountants giving "revised swap ratio" of shares of said ,companies.
This letter being significant for appeal's decision. Is reproduced hereunder: G-1-1972 4 June, 2002 Chairman, Kohinoor Textile Mills Limited, 42-Lawrence Road, Lahore-54000.
' Dear Sir, ' In the matter of ICA No,14-L-2002 in the Lahore High Court, Lahore ' This refers to your Letter No,SCS1: RAC:001, dated 4th June, 2002 regarding the ratio for swap of shares of Khonioor Raiwind Mills Limited (KRML) and Kohinoor (Gujar Khan) Mills Limited (KGML) for that of Kohinoor Textile Mills Limited (KTML).
' The comparison of the swa p ratio worked out on the basis contained in the scheme of arrangement with the basis discussed with Securities and Exchange Commission of Pakistan in the meeting of 16th May, 2002 is as under: ' Original ' A shareholder of KRML was to get 2.326 shares of KTML for every one share held in KRML, while a shareholder of KGML was to get one share of KTML for every 3.422 shares held by him in KGML.
' Revised ' A shareholder of KRML will get 3.416 shares of KTML for every one share held in KRML, while a shareholder of KGML will get one share of KTML for every 2.929 shares held by him in KGML.
' The market value of the KRML shares as on 3rd June, 2002 is Rupees 18.90 while the shares to be allotted (that of KTML) are worth Rupees 19.98 as per prevailing market rates ("Business Recorder", dated 4th June, 2002).
' Very truly yours, ' For Riaz Ahmed & Company, ' Sarfraz Mahmood, Senior Partner.
4. The learned counsel for the appellants on the basis of above reproduced "revised swap ratio" as re-determined by the Chartered Accountants seeks in the present appeal acceptance of the proposed scheme of the merger. He argues that the "revised swap ratio" is in consonance with the observations made in para. 32 of the impugned judgment and upon revision of the swap ratio, objections of the SECP and other minority shareholders have also been duly met. And that the same reflects fair and reasonable value of the respective shares.
5. In view thereof on 10-6-2002 notices were ordered to be issued to the minority shareholders as well. The submissions made by the learned counsel for SECP and the learned counsel for minority shareholders is that since a "revised swap ratio" has been proposed changing the basis of the original scheme of arrangement and amalgamation therefore the same requires to be routed anew for consideration by members of all the companies in accordance with the provisions of law.
6. We have attended to the submissions made by the learned counsel for the parties and have also examined the record. The considerations inter alia finding favour with the learned company Judge of this Court in declining to sanction the proposed arrangement were that: ' Fair and reasonable value of shares of the listed companies was ordinarily dependent upon three factors i,e, the break-up value, the dividend earning capacity and the market value of shares.
Objections filed by the SECP, upon analysis of audited financials of the three companies, were reflective of apprehensions of small shareholders of KRM who do not hold shares in KGM or KTM.
' And that SECP's objections had material that proposed merger was against the interests of the shareholders of KRM as a class because the swap ratio was calculated unfairly to the disadvantage of shareholders of KRM which was a highly profitable company with high earnings per share, declaring dividends of 47.5% to 50%, while KGM was on defaulters' list of Karachi Stock Exchange and KTM had not declared any dividend in last financial year. The shares of KRM have thus been undervalued and the important factor of "dividend earning capacity" had not been accounted for. Had the earning capacity of shares been considered in determining the fair value, the swa p ratio of KRM shares would have changed to the advantage of shareholders of KRM.
' And that fair and reasonable value was to be determined objectively irrespective of the fact that objections were raised by minority shareholders.
' Uniform standards of evaluation of the break-up value of the shares of three companies had not been adopted and the value of shares of KRM had been arrived at on a basis materially different from the method of calculating the value of shares of KTM.
' Because of unequal and inherently unfair difference in accounting policies, adopted for KRM and KTM, the value of shares of KRM had substantially diminished in calculation by the diminution of its investment in Mapel Leaf Cement of Factory Limited ("MLCF") while value of KTM's investment in MLCF had been exaggerated.
' Non-disclosure by the directors of KRM holding shares in KTM of the particular extent of their shareholding/indirect interest in KTM and of interest in KGM and KTM, through statements under section 160(1)(b) of the Companies Ordinance, 1984, amounts to non-disclosure of full facts under law.
7. The learned Company Judge was thus pleased to conclude in paras. 38, 40 and 41 of the judgment that: "38. There is no justification forthcoming from the financial advisor, the directors or auditors of the petitioner-companies to explain the difference in methodology for arriving at the break-up value of shares of KRM and KTM respectively, nor is there any explanation for excluding the "dividend earning capacity" of the petitioner-companies from the valuation of their shares.
40. When the lack of fairness of the swap ratio was demonstrated in Court, learned counsel for the petitioners submitted that the petitioners would be willing to value the investment of KTM in MLCF on the basis of market price as had been done in the case of KRM. This however, cannot be allowed to at this stage. It is obvious on the basis of the above-noted facts, that the scheme as proposed was clearly flawed and worked seriously to disadvantage of the objection shareholders. The net effect of such difference is that the proposed scheme on the face of the record is unconscionable as it is grossly unfair to the objecting shareholders.
41. As a consequence, while the controlling group may loose out in their capacity as shareholders of KRM, they will get a countervailing benefit in their capacity as shareholders in KTM. This situation does not hold true for the objecting shareholders, who will suffer loss as a result of their shares being valued at less than fair value, but will not benefit from any compensating gain on the other side of the swa p because they do not own shares or have any other interest in KTM."
8. In order to meet the lucid and detailed observations made in the impugned judgment, the learned counsel for the appellants stated that the learned Company Judge had himself observed in para.32 thereof that had the investment of KTM in MLCF was valued on the basis of market price as had been done in the case of KRM, the shareholders of KRM would be entitled to receive 3.409 shares of KTM for every share held by them in KRM. And that it was on the basis of these observations that the Chartered Accountants of the companies had proposed a "revised ratio" in above reproduced letter where under "a shareholder of KRM will get 3.416 shares of KTM for every one share held in KRM". The learned counsel thus argued that revision of "swap ratio" so proposed emerged out of the said judgment and be approved in this Appeal.
9. We are afraid that we do not subscribe to the arguments advanced by the learned counsel for the appellants. In para.32 of the impugned judgment, the learned Judge in Chambers had only exemplified the result of unequal and inherently unfair difference of accounting practices and policies adopted by the Accountants of the companies qua the calculative basis of investment in MLCF by KTM and KRM. It was highlighted that difference of accounting policies alone had translated into loss of approximately 35% to the shareholders of KRM, if no other objections were considered. In our opinion the figures given were only illustrative and not determinative. The observations did not amount to determination of share values for prescribing a definite "swap ratio". Had it been so meant, the learned Company Judge would have issued such directions.
Contrary to the arguments of the learned counsel for the appellant, the revision of the investment value of KTM in MLCF on the basis of market price (as was done in the case of KRM was disallowed by the learned Company Judge for the purposes of proceedings in hand. Instead it was observed that "the scheme as proposed was clearly flawed and worked seriously to disadvantage of the shareholders and the scheme on the face of record was unconscionable and grossly unfair to the minority shareholders of KRM".
10. This appeal has not been argued by the appellants with a view to obtain reversal of the impugned judgment. No arguments whatsoever have been advanced against the facts recorded, observations made and the principles adopted in the impugned judgment by the learned Company Judge. Canvassing acceptance of the appeal on the basis of "revised swap ratio" purportedly in term of para. 32 of the impugned judgment, the appellants in fact conceded to the correctness of ratio decidendi of the said judgment. No compelling reasons or arguments have been advanced by the appellants to convince us to adopt a view different from that contained in the impugned judgment. There is thus no rationale or justification for us to reexamine in the present Intra-Court Appeal the reasonability and fairness of the "revised swap ratio" which has not at all been considered by shareholders of the appellant-companies in accordance with law.
' In view thereof we do not find any merit in the present appeal which is accordingly dismissed with no order as to cost.