B.S.V. Prakash Kumar, Member - (1.) This applicant, holding 7.12% of share capital of the Petitioner company (Transferor Company) raises objection to the Scheme of Demerger of the two wheeler business of the petitioner to merge with the Petitioner's holding company Mahindra & Mahindra Ltd.
(2.) The applicant says the petitioner company is a step-down subsidiary of the resulting company (Mahindra & Mahindra Ltd). The majority stake in the petitioner company is owned by Mahindra Vehicle Manufacturers Ltd. which holds 92.25% of the shareholding of the petitioner company. The applicant company first invested a sum of USD 46 million in the petitioner company in February, 2014 by purchasing 1,10,95,640 equity shares aggregating to 10.29% of the paid up share capital of the petitioner company in pursuance of it on 20.2.2014, a Shareholders Agreement was executed between the petitioner company, the applicant company and the resulting company. Thereafter, the shareholding has come down to 7.12%.
(3.) The applicant initially came to know the petitioner's intention to merge two wheelers undertaking into Mahindra & Mahindra Ltd. in the month of July, 2016, ever since, this applicant had expressed serious reservations on multiple occasions regarding the valuation at which proposed transfer of the two wheelers business of the petitioner into its parent company, i.e. resulting company. In the discussion between the petitioner officers and the applicant, the applicant realised that the valuation method proposed to be adopted by the petitioner would result in 80% drop in the valuation of the petitioner company and below the face value of the shares resulting huge impairment to the applicant's investment. In view of the same, the applicant highlighted to the petitioner that it is incorrect to value the two wheeler business as a slump sale rather than as a going concern. The applicant said that it has to be valued basing on revenue multiples, as it is the basis on which such businesses are valued. The same has been put to the petitioner by email dated 26.10.2016 but whereas the petitioner in its reply dated 29.10.2016 did not specifically comment upon the applicant's concern regarding valuation of the petitioner business and the rationale behind the proposed merger. While it was going so, on 25.11.2016, the applicant received notice-cum-agenda for the proposed Board Meeting of the petitioner to be held on 3.12.2016 at the petitioner's office at Worli, Mumbai with one of the business items for approval of the proposed scheme of demerger. To that meeting, since the investor (Mr. Shirish Saraf) was unable to participate, one Sheetal Gupta attended as an observer on the applicant behalf. The applicant says that this petitioner did not disclose this valuation report dated 3.12.2016 in the board meeting except presenting a PowerPoint in the Board Meeting but the same had not been sent to the applicant director at any point of time. When the representative of the Applicant Director tried to engage in the discussion on valuation report, the representative was asked to step out of the meeting. On the same date i.e. 3.12.2016, applicant director addressed an email to Mr. Anand Mahindra forwarding the comments of the applicant's nominee on the conduct in the said board meeting. The applicant replied to the petitioner on 4.12.2016 reiterating its concerns with respect to the valuation in the proposed Scheme. Since the petitioner failed to address the concerns of the applicant, it was compelled to again address a letter on 23.1.2017 recording its objections with respect to the valuation as well as the process leading to the approval of the valuation in the board meeting dated 3.12.2016. Of course, to which the reply came from the petitioner trying to justify the valuation report ignoring the concerns the applicant raised in respect to the valuation report. Like this, while there was back and forth correspondence between the petitioner and the applicant, the petitioner and the resulting company submitted the draft scheme of the arrangement before this Tribunal and obtained orders on 5.4.2017 for conducting shareholders meeting. Accordingly, on 13.6.2017, shareholders meeting was held, wherein it has voted in favour of the scheme purely in view of the expressed obligation on the applicant under Clause 5.1.2.1 of the Shareholders Agreement by giving a clarification that the applicant would continue to have serious reservation with respect to the Scheme approved in the meeting.;