Kay and Que (BD) Ltd. Vs. Registrar, Joint Stock Co., (Muhammad Khurshid Alam Sarkar, J.)

Case No: Cmpany Matter No. 256 of 2018

Judge: Muhammad Khurshid Alam Sarkar, J

Court: High Court Division,

Advocate: Mr. Rafique-ul Huq, Senior Advocate with Mr. Margub Kabir, Advocate,

Citation: 2019(2) LNJ

Case Year: 2019

Appellant: Kay and Que (Bangladesh) Limited

Respondent: The Registrar, Joint Stock Companies and Firms, Dhaka and others

Subject: Company Act

Delivery Date: 2019-12-04

HIGH COURT DIVISION

(STATUTORY ORIGINAL JURISDICTION)

Muhammad Khurshid Alam Sarkar, J

 

Judgment on

11.03.2019

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Kay and Que (Bangladesh) Limited

. . .Transferee-petitioner

MultiSourcing Limited

. . .Transferor-petitioner

-Versus-

The Registrar, Joint Stock Companies and Firms, Dhaka and others

. . .Respondents

Company Act (XVIII of 1994)

Section 228

Any company incorporated under the Companies Act may embody in its object clause the provisions for amalgamation with any other company or body of persons and, in the event that the draftsman of the MoA omits to inscribe the provision, it can be inserted therein with the approval of the Court. If the provision for amalgamation is not contained in the MoA of the company, it cannot take a decision for amalgamation in that, MoA of any incorporated company having the status of law, any act not authorised by the MoA is ultra vires the law.                                                          . . . (33)

Company Act (XVIII of 1994)

Section 228(1)

Legal procedures for amalgamation of the companies:

When two or more companies become desirous to enter into any arrangement of merger with each other towards converting themselves into one single entity, they all, as the petitioners, would make an application to the Court under sub-Section (1) of Section 228 of the Companies Act for directions for convening of the meetings of the members and creditors, if any, for considering the proposed Scheme of Amalgamation, at first. On such an application, the Court would issue directions for convening of separate meetings of the members and/or creditors or different classes of members and/or creditors, as the case may be. In the said meetings of the members and/or creditors, the Scheme of Amalgamation is required to be approved by majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be. After the Scheme is approved by all concerned in their respective meetings, a separate petition then would be presented to the Court for sanctioning of the Scheme of Amalgamation. However, if the prayer for sanctioning of the Scheme of Amalgamation has already been made in the original application, there is no need to file a separate application, but in that event, the fact as to the approval by the three-fourths in value of the members/ creditors should be brought to the notice of this Court by way of filing a supplementary affidavit.           . . . (40)

Company Act (XVIII of 1994)

Section 228(2)

Why the presence of the three-fourths of the shareholders is required:

The decision approving the Scheme of Amalgamation should be passed by majority in number representing three-fourths in value of the members or class of members and/or creditors or class of creditors, as the case may be, in order to make the said decision binding upon all the shareholders, creditors and the company. The aforesaid provision, however, does not specifically state that if the Scheme of Amalgamation is approved by the shareholders/creditors less than “majority in number representing three-fourths in value of members/ creditors”, it would be invalid; it simply says that it shall not be binding upon the members, creditors and the company.  . . . (41)

Company Act (XVIII of 1994)

Section 228(2)

The expression “three-fourths of the shareholders/creditors” of the company in the context of Scheme of Amalgamation:

Three-fourths of the shareholders/creditors means three-fourths of the entire shareholders/creditors; there is no scope for any company to interpret the law that three-fourths of the shareholders/creditors means three-fourths of the presentees in the AGM/EGM. It follows that until and unless the three-fourths of the entire shareholders remains present in the AGM/EGM and approves the Scheme of Amalgamation, the requirements envisaged in Section 228(2) of the Companies Act are not fulfilled. . . . (42)

Company Act (XVIII of 1994)

Section 228(2)

Whether a scheme of amalgamation can be approved by the Court if the three-fourths shareholders/creditors do not turn up in the meeting:

The Scheme shall be binding upon all concerned inspite of the poor turn-over of the shareholders in the AGM/EGM held for approval of the Scheme, if the Court finds that it is not contrary to any provisions of law and it does not violate any public policy and is satisfied that the Scheme is reasonable, just, fair and not prejudicial to the interests of the members or class or members or creditors or a class of creditors, as the case may be. By virtue of the inherent power a Court of law possesses, it is competent to examine the ‘just and fair’ aspect of a remedy sought for by the petitioner in course of dealing with any type of case. When the listed-company would show the Court that despite taking all the steps to ensure sending of notices to all the shareholders through e-Mail, mobile message, registered post in addition to publishing the notice of the AGM/EGM in two widely circulated national newspapers, the turn-up of the general shareholders in the AGM/EGM for approval of the Scheme of Amalgamation was less than three-fourths, in that scenario, the petitioner-companies may legitimately make a prayer before this Court to pass an Order to the effect that the Scheme shall be binding upon all the shareholders and other stakeholders. And if this Court finds the contentions of the petitioner-companies to be reasonable, fair, just and overall in favour of public interest, it may sanction the Scheme. At the time of sanctioning a Scheme of Amalgamation, while this Court is competent to sanction a Scheme despite the same being not approved by “the majority in number representing three-fourths in value of the shareholders and/creditors”, this Court is also empowered to decline sanctioning of a Scheme despite being approved by the three-fourths shareholders and/creditors if it is found to be against public interest. In other words, while this Court should not act merely as a rubber stamp to simply endorse the ipse dixit of the majority of the shareholders or creditors inasmuch it is the solemn duty of this Court to find out whether the big shareholders/creditors have voted for the Scheme for the benefit of the company or only for their personal gain by depriving the 1/4th shareholders/creditors and, at the same time, this Court also should not mechanically refuse the sanctioning of a Scheme merely on the ground of non-approval of the same by the 3/4th of the shareholders and/creditors without delving deep into the matter by carrying out an investigation as to whether the petitioner-companies have put their best effort to ensure the presence of 3/4th shareholders. This Court is under an obligation to take into consideration the public interest upon embarking on the issues as to (i) whether the Scheme of Amalgamation is undertaken by the companies violating any law or public policy, (ii)   whether the interest of all types of shareholders, creditors, employees and public at large are well protected, (iii) whether it is designed to benefit only the directors of the companies and (iv) whether the Scheme has been prepared for the purpose of dodging the Government revenue or with an ill-motive of evading any Government or non-Government dues or depriving any individual/group of individuals.           . . . (43)

How a ‘fair valuation’ of the share of the companies can be made:

If, on the eve of merger/amalgamation, the Net Asset Value (NAV) of any company, be it private or non-listed public or listed-public, can be determined in a fair and transparent way, then there would be no scope for anyone to raise any question about it. This is a relative question as to how a “fair and transparent” valuation can be carried out. When a company shows this Court that it has been preparing its Financial Reports for each financial year regularly for long by ‘A’ category Chartered Accountancy Firms containing (i)  comprehensive income statements, including loss and profit accounts, (ii) balance sheet of assets and liabilities, (iii) statements of changes in equity and (iv) statements of cash flows together with the relevant papers/ documents on the basis of which the Financial Reports have been prepared, such as tax papers of the company as well as that of each of the directors of the company, land valuation certificates from the concerned Sub-Registry Office and trade-mark and copyrights registration certificates of the intangible assets, the Court becomes in a position to arrive at a decision as to the correctness/genuineness of the Financial Reports.      . . .(50)

Company Act (XVIII of 1994)

Section 229(1)

What types of Order/Direction the company Court can pass in an amalgamation/merger application:

When an application for any type of arrangement or compromise, be it for amalgamation or for other purpose, is presented before this Court, the Court, before or after sanctioning the Scheme, may pass any type of incidental, consequential order/s whatever would appear to it to be necessary in order to give full effect to the Scheme; meaning that for the purpose of protecting the interest of all concerned, the Court may pass necessary order/s. Since all the provisions of Section 229(1) are permissive empowering this Court to pass any order for the purpose of protecting the interests of all concerned and, more importantly, there is no prohibitive provision limiting this Court’s power, I am of the view that either in course of hearing the application for sanctioning the Scheme, or at the time of passing the Order of sanctioning the Scheme or after sanctioning the Scheme, this Court is competent to pass necessary order and/or direction upon any person, Government authority and non-Government entity towards ensuring the interest of all concerned.           . . . (53)

Whether there is any separate provisions for dealing with amalgamation application by the listed companies:

Although there is no separate provision in the Companies Act for dealing with the amalgamation-application of the public limited companies, however, for the purpose of protecting the public interest by determining the fair valuation of the assets of the petitioners-companies, this Court is armed with sufficient power to pass orders whatever it may deem fit and proper, which may include (i) directing the companies to submit their previous 5-10 years’ Financial Reports before the Court and, at the same time, directing the directors of the companies to produce their personal income tax returns so that the data and information contained in the Financial Reports can be checked up by the Court, (ii) directing the C/A Firms, who have prepared the Financial Reports, to explain before the Court their basis for valuation of the assets which are alleged to have been overvalued, (iii) directing the relevant Government and non-Government functionaries, namely, Sub-Registrar of the concerned area, Deputy Commissioner of Tax of the concerned zone assigned by the National Board of Revenue (NBR), the FRC, BSEC, RJSC, DSE and CSE to provide necessary information, and (iv) directing the petitioner-companies to do and/or to refrain from doing certain work/s.     . . .(54)

Securities and Exchange Ordinance, 1969

Section 2CC

Duties of the Bangladesh Securities Exchange Commission and the Dhaka Stock Exchange Commission:

The finance and commerce of our country being greatly interlinked with the stock market, the BSEC has been bestowed with the pivotal statutory duty to protect the public interest, not only by enforcing the Acts of Parliament, but, if needed, the power of framing Rules, Regulations and issuance of Orders for the said purpose have also been vested. If the BSEC feels that there is no clear power in the law, they must approach the Government with a request to enact the necessary law in the Parliament. The DSE shall, at its earliest convenience, incorporate the provisions that pursuant to compulsory delisting of a company, the sponsors and directors shall be liable to buy back the shares from the public, who wish to sell the shares within a specified time at a price of “last three years average market price”. However, no share shall be bought in the name of the company, as there is a prohibitory provision in Section 58 of the Companies Act to buy the company’s own share out of the company’s fund. Moreover, the BSEC is competent to impose condition upon the listed companies by virtue of its power under Section 2CC of the Securities and Exchange Ordinance, 1969 that the directors of the company shall not be entitled to any remuneration of any kind and they shall be debarred from using the vehicles of the company, if they fail to pay dividend for consecutive three years and such other provisions with an aim to save the company’s administrative costs and expenses during its recession, for, when the public shareholders would not be able to enjoy fruits from their portions of shares, the shareholders who are at the helm of the affairs of the company should refrain from taking any benefit from the company.                 . . . (60 and 61)

Company Act (XVIII of 1994)

Section 233

Given the lack of knowledge about the legal rights of the public shareholders of the listed-company, the BSEC should approach the Government to incorporate a provision in Section 233 of the Companies Act that, like the 10% shareholders, the BSEC should be eligible to approach the Company Bench for obtaining necessary and appropriate Order/s to run the defaulting-company (a company, which is not declaring dividends for five years or not holding AGMs for three years) by an administrator and, also, seeking any other appropriate relief from the Court. For making out a case to the Legislators in favour of incorporation of the above provisions in the Section 233 of the Companies Act, the BSEC must carry out investigations into the affairs of the companies who are currently under the ‘Z’ category with an aim to find out as to (i) whether the defaulting-company had furnished any false information at the time of obtaining accord from the BSEC for getting enlisted in the stock market, (ii) whether the defaulting-company were preparing its Financial Reports in connivance with its auditor or any other unscrupulous Chartered Accountancy Firm and (iii) whether the AGMs of the defaulting-company were being attended by the genuine shareholders or by the AGM syndicate, group of outsiders hired to show the attendance in the ‘Attendance Register’ and in the ‘Audio Visual Record’. Till the time the Legislature incorporates the aforesaid provision in Section 233 of the Companies Act and till the time the DSE incorporates the provision for buying back the shares by the directors of the defaulting-listed-company from the intending shareholders, if the BSEC can successfully satisfy this Court that despite finding out serious illegalities and anomalies in the affairs of the defaulting-company, it lacks power to appoint administrator or to direct the sponsor-directors to buy back the shares from the public shareholders who intend to sell, in that scenario this Court might be in a position to extend standing of the petitioner of a Section-233-application in favour of the BSEC.           . . . (61)

The legal authority of the Company Court for receiving donations from the companies:

For more than hundred year, the Company Bench has been receiving donations from corporate bodies, who obtain favourable Order from the Court. This age-old system has received the recognition of law as a long-practiced custom of the common-law countries and, by now, in most of the countries, the State has incorporated the provision either in any Act of Parliament or in any Rules or Regulations. The donations received by this Court are being spent mainly to help build religious and educational institutions and charitable organizations who apply to this Court praying for such help. The petitioners-companies would be entitled to show in the income tax file of the amalgamated company as the contribution under the Corporate Social Responsibility (CSR).           . . . (72)

Mr. Rafique-ul Huq, Senior Advocate with

Mr. Margub Kabir, Advocate

. . . For the Petitioners

Mr. A.M. Masum with

Mr. Md. Nahiyan-Ibn-Subhan and

Mr. Quazi Maruful Alam, Advocates

. . . For the Respondent No. 2

JUDGMENT

Muhammad Khurshid Alam Sarkar, J. This is an application under Section 228 read with Section 229 of the Companies Act, 1994 (briefly, the  Companies Act) at the instance of Kay and Que (Bangladesh) Limited (hereinafter, referred to either as the petitioner No. 1-company or as the transferee-company) and MultiSourcing Limited (henceforth, to be termed either as the petitioner No. 2-company or as the transferor-company) seeking approval of a ‘Scheme of Amalgamation’ of the above two companies into one going concern, namely, Kay and Que (Bangladesh) Limited, whereby the entire undertaking of the transferor-company, as a going concern together with all assets and liabilities, are proposed to be transferred to and vested in the transferee-company.

Facts of the case:

2.           It is averred in the application that the transferee-company was incorporated as a public company limited by shares under the Companies Act, 1913, with registration no. C-11555 dated 19.01.1984, for the production of “Carbon Rod” for Dry Cell battery, as Unit 1, and “Alkatra”, their by-product, as Unit-2. Later on, it also commenced the business of packaging of Pesticide as Unit-3 and CNG Station as Unit-4. In the Year 2011, the Extruder Machine of Unit-1 collapsed and needed replacement, but due to the manufacturer’s stoppage of production of the machine, the same could not be replaced and, further, due to the decline in the demand of Dry Cell Batteries and Alkatra, and lack of distribution channels, the transferee-company had to shut down the Unit-1, the Unit-2 and the Unit-3. Currently, only the Unit-4 (the CNG Station) of the transferee-company is in operation. The factory of the transferee-company is located in Dhakkinpara, Dhamrai, Dhaka. It was listed with the Dhaka Stock Exchange (DSE) on 09.09.1996 and with the Chittagong Stock Exchange (CSE) on 20.06.1997. As of 14.12.2017, the authorized share capital of the transferee-company is Taka 100,00,00,000/- (Taka one hundred crore) divided into 10,00,00,000 (ten crore) ordinary shares of Taka 10/- (Taka ten) each and the issued, subscribed and paid-up capital of the transferee-company is Taka 4,90,25,300/- (Taka four crore ninety lac twenty five thousand three hundred) only divided into 49,02,530 shares of Taka 10/- each. The pattern of shareholding of the transferee-company is as follows: 

Name of Shareholders

Number of shares held

Mr. Abdul Awal Mintoo

1,84,770

Mr. Tabith M. Awal

98,660

Mr. Tafsir M. Awal

1,01,260

Mrs. Nasreen Fatema Awal

1,88,450

Mr. Tajwar M. Awal

41,500

AKM Rafiqul Islam FCA

1,260

Public Shareholders

42,86,630

Total

49,02,530

3.           It is claimed that although the transferee-company is holding its AGM on regular basis, it could not declare its dividend due to downturn of its business from 2010 to 2017 and, consequently, the transferee-company was downgraded to a ‘Z’ category company by the Bangladesh Securities Exchange Commission (BSEC), DSE and CSE. It is claimed that recently the company has been upgraded to ‘B’ category after it paid off 5% cash dividend to its shareholders for the financial year 2017-2018. It is further stated that on the Appointed Date (01.01.2018) the Net Asset Value (NAV) of each share of the transferee-company was Taka-11.18 (Negative eleven Taka eighteen paisa) and, after revaluation of the asset of the transferee-company on 10.06.2018, the NAV of each share rose to Taka 76.55 and the market price of each share of the transferee-company is Taka 114.51, which is calculated on the basis of average market price of the preceding six months of the Appointed Date. It is also claimed that as per securities and revenue laws, the transferee-company discloses, publishes and files regular audited/unaudited financial statements with the National Board of Revenue (hereinafter referred to as NBR), BSEC, DSE and CSE and also in newspapers, and no objection was ever raised by the BSEC, NBR, DSE or CSE or from any quarter against any of the financial statements disclosed by the transferee-company.

4.           The transferor-company, on the other hand, is a private company limited by shares under the Companies Act bearing registration no. C-67422(4914)/07 dated 25.06.2007 and it carries on the business in relation to information communication technology pertaining to researching, creating, manufacturing and distributing software components, hardware components such as communication equipments, computer equipment, video communication equipment and all other related and ancillary business or trade. The authorised share capital of the transferor-company is Taka 100,00,00,000/- (Taka one hundred crore) only divided into 1,00,00,000 (one crore) ordinary shares of Taka 100/- (Taka one hundred) each. The issued, subscribed and paid-up capital of the transferor-company is Taka 8,21,28,600/- (Taka eight crore twenty one lac twenty eight thousand six hundred) divided into 8,21,286 ordinary shares of Taka 100/- each. It is stated that the shareholders’ positions are as follows:

Name of Shareholders

No. of shares

Amount

Hosne Ara Begum

42,960

42,96,000

Arneeb Mahbub

4,086

4,08,600

Tabith M Awal

1,43,006

1,43,00,600

Tafsir M Awal

2,86,028

2,86,02,800

Tajwar M Awal

1,43,006

1,43,00,600

Zakir Khan

2,02,200

2,02,20,000

Total

8,21,286

8,21,28,600

5.           It is stated that the transferor-company is a healthy and profitable concern and it has got the retained earnings of Taka 10,09,90,693/- (Taka ten crore nine lac ninety thousand six hundred and ninety three) as 31.12.2017. It is further stated that the accounts of the transferor-company are audited in strict compliance with the Bangladesh Accounting Standards and, as per the audit conducted before the Appointed Date, the Net Asset Value of the transferor-company is Taka 19,85,04,321/- and the NAV of each share of the transferor-company is Taka 238.41.

6.           It is stated that considering the downturn of the existing business of the transferee-company, it decided to diversify its business to Information Technology Sector with an aim to make it a profitable concern, as the existing top brasses of the said company have necessary experience and successful track record in the IT sector and, further, the common directors of the transferee-company, having held 52.24% of the share of the transferor-company, have been carrying on IT business vide the transferor-company, which due to its business prospects intends to expand by introducing new IT based services including State of the Art Cloud based Data Centres, Mobile Content Library and Software Development, and, in achieving its target of rapid expansion in the face of steep competition in the IT sector, the transferor-company is in need of, amongst others, vacant land and buildings which the transferee-company can provide. It is claimed that the established successful IT business infrastructure of the transferor-company has the prospect of generating substantial revenue in the future which shall multiply with the long standing business reputation of the transferee-company thereby eventually turning the transferee-company into a profitable business and both the companies shall be substantially benefited if the businesses of these two companies are managed together under one management of a single company, namely, Kay and Que (Bangladesh) Limited and, in particular, the public shareholders of the transferee-company shall be immensely benefitted.

7.           Accordingly, the transferee-company and the transferor-company prepared the Scheme of Amalgamation of MultiSourcing Limited (transferor-company) with Kay and Que (Bangladesh) Limited (transferee-company) whereby the entire undertaking of the transferor-company as a going concern, together with all its assets and liabilities relating thereto, are proposed to be transferred to and vested in the transferee-company. The Board of Directors of the transferee and transferor companies in their respective meetings approved the draft Scheme of Amalgamation and decided to file the instant petition for sanction of the said Scheme of Amalgamation by this Court. Hence, this application.

8.           By filing an affidavit-in-opposition, the BSEC opposes the instant application contending, inter-alia, that the transferee-company was incorporated for production of “Carbon Rod” for Dry Cell Battery, ‘Alkatra’ as their by-products, packaging of pesticides and running CNG Station and the transferor-company was incorporated for carrying on its business in relation to information communication technology; that the proposed Scheme of Amalgamation does not contain the audited financial statements of these two companies, not even as enclosure with the submitted documents; that Malek Siddiqui Wali, a chartered accountant, has prepared the valuation report of shares and determination of share exchange ratio but the detailed valuation report for both the transferee and transferor companies have not been provided with the submitted documents; that it is not clear from the proposed Scheme of Amalgamation how the valuation of shares of the transferee-company stands at Taka 114.51 and the NAV per shares of transferor-company stands at Taka 238.41 since adequate documents are not annexed to the Scheme; that since the transferor-company is a private limited company having Taka 8,21,28,600/- (Taka eight crore twenty one lakh twenty eight thousand six hundred) as paid-up capital which is within the exempted limit for requirements of prior approval of the BSEC regarding raising of paid-up capital, the respondent No.2 has no information about the transferor-company  to assess their NAV per shares unless the personal tax files of the shareholders of the transferor-company are made available for scrutinizing  the claim of paying off money against their shares.

9.           It is stated that if the share capital of the amalgamated-company is reorganized at the determined exchange ratio: 2.08:1, the transferee-company would require to issue approximately 17,08,275 quantity of additional/fresh shares to the directors and shareholders of the transferor-company as consideration towards the settlement of this transaction as per the Scheme. It is apprehended that after amalgamation of these two companies the 76% general shareholders/investors shall lose their money in two phases; firstly, immediately after amalgamation, the prevailing market share price would be diluted significantly and, thereafter, for the second time, the price of each share of the transferee-company in open market would be slumped to a shockingly low price, when the directors-shareholders of these two companies would sell their newly-acquired shares in the market. It is alleged that the transferor-company's shareholders and transferee-company's directors and sponsors being common, the proposed merger is intended to swindle the public shareholder/investor by evading law, policy and guidelines of the BSEC.

Submissions and Arguments of the learned Advocate for the petitioners:

10.           Mr. Margub Kabir, the learned Advocate for the petitioners, takes this Court through the provisions of Sections 228 and 229 of the Companies Act, and submits that the petitioners have prepared the Scheme of Amalgamation in strict compliance with the provisions of Sections 228 and 229 of the Companies Act. In an effort to elaborate his above submission, Mr. Margub Kabir refers to Clause 24 of the ‘Object Clause’ of the transferee-company, and contends that it is authorized to carry on any business, whether manufacturing or otherwise which may seem to the company capable of being conveniently carried on in connection with any of the objects or calculated, directly or indirectly, to enhance the value of or render profitable any of the company’s property or rights. By referring to Clause 33 of the ‘Object Clause’ of the Memorandum of Association of the transferee-company, he contends that the provision authorizes it to amalgamate with any other company of similar objects and, by referring to Clause 31 of the ‘Object Clause’ of the Memorandum of Association of the transferor-company, he submits that the provision also authorizes it to amalgamate with any other company of similar objects and, as such, there is no bar or restriction to the amalgamation of the petitioner nos. 1 and 2 companies.

11.           Then, Mr. Margub Kabir takes this Court through Clause 14 of the Scheme and contends that the Scheme contains “Share Exchange Ratio” which has been determined on the basis of the six months ‘Day End Average Price’ of the shares of the transferee-company in the DSE till the Appointed Date (31.12.2017). He further contends that the transferor-company’s valuation has been prepared by the ‘A’ category valuer, named, Rahman Mostafa Alam & Co., Chartered Accountants, who has determined the Share Exchange Ratio and, thereafter, it has been vetted and certified by the Independent Chartered Accountant M/s. Malek Siddiqui Wali. Mr. Margub Kabir claims that both the Chartered Accountant Firms, namely, Rahman Mostafa Alam & Co. and M/s. Malek Siddiqui Wali, are BSEC enlisted valuers and the said determination of the Share Exchange Ratio has been determined in full compliance with all the laws of the land and in accordance with the International Valuation Standard and Bangladesh Financial Reporting Standard. In other words, it has been done upon adopting the universally accepted method, Mr. Kabir emphasizes.

12.           In a bid to show the method to be applied for reorganization of the capital of these two companies, he contends that upon the implementation of the Scheme, the transferee-company shall issue and allot the ordinary shares of Taka 10/- in the ratio of 2.08 (two point zero eight) ordinary shares in the transferee-company for every 1 (one) ordinary share of the face value of Taka 100/- (Taka one hundred) held in the transferor-company to the ordinary shareholders of the transferor-company whose names are recorded in the Register of Members, on a date to be fixed by the Board of Directors of the transferee-company, which would be the “Record Date”. To elaborate the aforesaid method of reorganization of these companies’ capital, he further contends that 2.08 ordinary shares of Taka 10/- (Taka ten) of the transferee-company shall be shown to have been issued, allotted and credited as fully paid-up in favour of the ordinary shareholders of the transferor-company. He claims that it is most equitable and beneficial to the shareholders of both the petitioner nos. 1 and 2 companies.

13.           He submits that the method for valuation like Price Earnings Ratio to Price Earnings Ratio or Quoted Price to Quoted Price cannot be used in the instant case, as the transferor-company is an unlisted private company and as such it does not have a market price required to determine Price Earning Ratio and Quoted Price. He submits that the proposed Share Exchange Ratio is completely transparent and highly benefits the shareholders of the transferee-company, inasmuch as if the NAV to NAV was used to determine the Share Exchange Ratio as on the Appointed Date, i.e. 01.01.2018, the Share Exchange Ratio would have been 249.59:1, that is to say, 249.59 shares of the transferee-company would have been issued for each share of the transferor-company, because on the Appointed Date (01.01.2018) the NAV of the transferee-company was Taka-11.18 (negative eleven Taka eighteen paisa) and the NAV of the transferor-company was Taka 238.41 and the shareholders of the transferee-company would be seriously affected. He continues to argue that after revaluation of the assets of the transferee-company which was approved by the Board of Directors on 10.06.2018, i.e. much later than the Appointed Date, the adjusted NAV of the transferee-company rose to Taka 76.55 as per audited Balance Sheet as on 30.06.2018 and, hypothetically, even if the revised NAV of the transferee-company was considered in determining the Share Exchange Ratio instead of the six months average market share price, the Share Exchange Ratio would have been 3.11:1, that is to say, 3.11 shares of the transferee-company would have been issued for each share of the transferor-company and, as a consequence, the public shareholders would lose 33% value of its shares of the transferee-company if the NAV of the transferee-company was used, instead of the method proposed by the petitioner nos. 1 and 2 companies.

14.           By placing Paragraph 60.4 of “the International Valuation Standards IVS 210 on Intangible Assets” before this Court, he submits that the intangible assets of the transferor-company have been rightly considered in determination of the value of the transferor-company in strict compliance with the International Valuation Standards using the Income Approach. He claims that the said method is universally accepted and recognized. In an effort to convince this Court on the issue as to valuation of Intangible Assets, he places the definition of Intangible Assets, as provided in paragraph 9 of Chapter 38 of International Accounting Standards, and submits that the intangible assets of the transferor-company are identifiable, separable, i.e. capable of being separated from the entity sold, transferred, licensed etc and the same comprises software, software development, license agreements with celebrities, actors, sportsmen, artists, bands, telecom operators and various media companies. To buttress up his above submissions, he takes this Court through the Valuation Report of the transferor-company and contends that it expressly includes the details of each of the intangible assets considered in the valuation, which includes Software, Revenue generation from IT Security, Mobile Finance and Digital Marketing and each of the intangible assets has substantial future economic benefit.

15.           Mr. Margub Kabir contends that the accumulated loss of the transferee-company is Taka 10,51,37,742/- (Taka ten crore fifty one lac thirty seven thousand seven hundred and forty two) as on 30.06.2017 whereas the retained earnings of the transferor-company is Taka 10,09,90,693/- (Taka ten crore nine lac ninety thousand six hundred and ninety three) as 31.12.2017 and upon amalgamation, the retained earnings of the transferor-company shall be added to the accumulated loss of the transferee-company, and in doing so, the amalgamated-company shall approximately have accumulated loss of only Taka 41,47,049/-, i.e. the shareholders of the transferee-company shall have the full advantage of the retained earnings of Taka 10,09,90,693/- of the transferor-company and, that is how, the amalgamated-company in the near future shall be able to elevate itself out of the accumulated loss and thereafter eventually turn into an ‘A’ category listed company. It is the firm belief of the learned Advocate for the petitioners that since the accumulated losses of the transferee-company will be substantially reduced and the earning per share shall increase, ultimately, after amalgamation, the shareholders of the transferee-company shall only benefit from the business of the transferee-company. It is claimed by the learned Advocate for the petitioner that the business of the transferee-company as it stands now is minimal in nature and after the amalgamation, if so sanctioned by this Court, the transferee-company shall have the full benefit of the profitable ICT businesses of the transferor-company.

16.           With regard to the query, as to why the common directors of these two companies are not setting up a new company or, in the alternative, why the transferee-company is not raising its capital, he submits that since the transferee-company having accumulated loss of over Taka 10 (ten) crore as on the Appointed Date, it cannot raise any capital by way of issuance of rights shares as per Securities and Exchange Commission (Right Issue) Rules, 2006. Mr. Margub Kabir, the learned Advocate for the petitioners strenuously submits that to keep pace with the present competitive market and to strengthen the position of the companies, now-a-days all the companies emphasize on spending less in all heads with the aim of financial growth of the companies and, taking the above aspect into consideration, the petitioners-companies are planning not only to reduce administrative and overhead expenses by amalgamation of these two companies, but they are also projecting to reduce the costs and expenses for purchasing land & equipment which would be required to set up a separate IT company. 

17.           With regard to the issue of obtaining consent of three-fourths share-holders/creditors in value, he seeks to place an interpretation of the expression “a majority in number representing three-fourths in value of creditors, or of members as the case may be, present either in person or by proxy at the meeting”, as enshrined in Section 228(2) of the Companies Act, that the operative words are that the members who have been present in the meeting, that is to say, the three-fourths of those present have to vote in favour of the Scheme. By taking this Court through Article 88 of the Article of Association (AoA) of the transferee-company and, then, by taking me through the list of share-holders who had attended the EGM of the transferee-company which has been submitted vide letter dated 28.10.2018 to the BSEC, as per requirement under Clause 27 of the Dhaka Stock Exchange Listing Regulations, 2015, he submits  that 153 (one hundred and fifty three) shareholders of the transferee-company  attended the EGM of the transferee-company, although the quorum of general meeting as per the said Article 88 of the transferee-company is only 5 (five) members. In support of his submissions, he refers to an unreported case being Company Matter No. 68 of 2016 wherein it was held that three-fourths majority envisaged under Section 228 of the Companies Act has to be the value of the members present and voting; not the total value of the members.

18.           By taking me through the annexures P, Q, R and S1, the learned Advocate for the petitioner-companies confirms that all the secured creditors have issued ‘No Objection Certificate’ (NOC), and by referring to the annexures Q1 and S2, he submits that all other creditors of these two companies have unanimously consented to the Scheme and, thus, no question of being prejudiced by any third party creditor arises. He further submits that the interest of the shareholders and employees of both the companies remain protected since the transferee-company will takeover not only the assets of the company but also the liabilities of the transferor-company. In summing up his submissions, the learned Advocate for the petitioner-companies submits that the balance of convenience, including balancing factors vis-à-vis counter balancing factors are all in favour of the amalgamation of the said two companies into a single entity, namely, Kay and Que (Bangladesh) Limited and, then, he professed that the proposed amalgamation is truly directed at the well being of all the shareholders, creditors, employees and other contributors of both the companies.

Submissions and Arguments of the learned Advocate for the respondent no. 2 (BSEC):

19.           Per contra, Mr. AM Masum, the learned Advocate for the BSEC, by taking me through the Object Clause of the Memorandum of Association of these two companies, submits that the two companies are of different nature from one another inasmuch as the transferee-company while is engaged in production of (a) “Carbon Rod” for Dry Cell Battery and (b) ‘Alkatra’ as their by product as well as running of CNG station, the transferor-company is carrying on the business of ‘Information Communication Technology’ and, thus, merger of the transferor-company into the transferee-company would be seen by the public shareholders to be for collateral purpose, as the proposed scheme would appear to them as an unusual and mysterious initiative, for, they would obviously take a view that apparently no operational benefit or synergy would be achieved from this merger. By referring to sub-clause 33 of Clause III of the Memorandum of Association of the transferee-company and sub-clause 31 of Clause III of the transferor-company, he submits that the object clauses only allow the aforesaid two companies to amalgamate with any other company having similar objectives and, if these two companies with different objectives are allowed to be merged, it would be ultra vires the object clause of the companies. He opines, in furtherance of the above submissions, that in order to initiate the proposed amalgamation, both the petitioner-companies at first require to amend their object clauses.

20.           He submits that the valuation report and determination of exchange rate do not show true and fair view for settlement of consideration between the transferor and transferee companies inasmuch as the valuation of the listed transferee-company was based on market price of 6 months’ average price of Stock Exchange, whereas the transferor-company's valuation was based on NAV. He contends that the assets of the transferor-company is revalued, whereas the assets of the transferee-company is not revalued, and claims that the proposed Scheme of Amalgamation was prepared taking into account the assets of the transferee-company at cost and the assets of transferor-company at revalued at a particular date, which is totally incongruous with the accounting policy and practice and, on this issue, it is his submission that the proposed Scheme of Amalgamation is inaccurate.

21.           He submits that there are several methods for valuation and determination of exchange ratio like NAV to NAV, PE (Price Earning) to PE, Quoted Price to Quoted Price etc., but in the proposed Scheme of Amalgamation the exchange ratio was prepared taking into account the valuation report of both the transferor and transferee companies using an unusual valuation method i.e. NAV to Quoted Price. He argues that the determination of exchange ratio on the basis of two different methods of valuation for the transferor and transferee-companies does not reflect the proper comparison between the two companies.

22.           He contends that the acceptability of the audit report is also questionable given the fact that the income statement, statements of changes in equity and cash flow of audited financial statements of the transferor-company does not contain any comparative figure, which is not in line with Bangladesh Accounting Standard. He further contends that as the valuation report for determination of exchange ratio has been prepared based on the aforesaid audited financial statements, the auditor has not expressed any qualified opinion in this regard. He draws this Court’s notice to ‘Note 20’ of the Financial Statements of the transferor-company for the year ended on 31 December 2017 under related party transaction, and contends that only net basis of related party transaction has been cited, but total transaction of related party has not been disclosed. He claims that the amount of transaction with related parties could not be ascertained from its Financial Statements. He draws notice of this Court to the “Statement of Comprehensive Income” of the Financial Statements wherein an amount of Taka 69,300/- is shown to have been paid for tax for six months and also ‘Note 14’ of the Financial Statements, wherein an amount of Taka 2,00,000/- is shown to be payable for AIT and another amount of Taka 1,28,772/- is shown to be payable for tax and submits that if the amount paid off for tax for the preceding six months is compared to the next quarter months, it reveals that the earnings of transferor-company has been overstated. Mr. Masum points to the fact that in the “Statements of Comprehensive Income” more than Taka one crore has been recorded as the profit of the transferor-company for the period of six months ending on the Appointed Date, but no papers have been produced before this Court to substantiate the aforesaid profit of one crore in six months. He draws my attention to the fact that this Court had verbally suggested the learned Advocate for the petitioner to show the “Statement of Comprehensive Income” of last ten years, but he did not do it. He contends that had the valuation of the transferor-company been based on true information, the directors of these two companies would have furnished the Financial Reports of the previous ten years when this Court had wanted to see the same during the course of hearing this matter. He shows this Court the subscription page of the Memorandum of Association of the transferor-company and, side by side, ‘Note 11’ of Financial Report of the transferee-company and points out to the facts that at the time of incorporation of the company the number of paid-up shares was 5,000 (five thousand) and in the Financial Report the number of paid-up shares is shown to be 8,21,286 and submits that no evidence from the tax file of the directors of the transferee-company and RJSC’s record has been submitted before this Court in support of the claim of the such huge number of paid up shares.

23.           He takes me through the valuation report of the transferor-company and submits that the valuation report of the transferor-company has considered an amount of Taka 7,83,80,361/- as intangible assets while calculating the total assets of the transferor-company and the value was ascertained relying on the income. He argues that rights on intangible asset of a company should be identifiable and separable having a sale/resale value but since the transferor-company does not have any trademark or registration for patent of their software (intangible assets) as per their report, the value shown under intangible asset has no resale value or recoverable value, Mr. Masum argues. He alleges that an irrational and unacceptable valuation of the assets and property of the transferor-company has been done by the auditor at the behest of the common directors of these two companies with an ill motive of grabbing a huge number of transferee-company’s shares so that the common directors may get the maximum portion of the valuable landed property of the transferee-company in the event of its dissolution. He points out the fact that the share exchange ratio should not be accepted only on the plea that it has been vetted and certified by Independent Chartered Accountants, as there is a disclaimer in the valuation report issued by the Independent Chartered Accountant stating that the entire valuation, provided in the report, was based on the documents provided by the management of the transferor-company and they had also disclaimed the accuracy and reliability of such information.

24.           He takes me through the provisions of Section 228 of the Companies Act and submits that the law requires presence of the three-fourths shareholders in value of a company for the purpose of arranging a Scheme of Amalgamation. Then, by taking me through the attendance sheet of the EGM of the transferee-company (Kay & Que Limited) held on 17 October 2018 for final consideration and approval of said Scheme of Amalgamation, he contends that there are only 25 shareholders' signatures out of 258 registered shareholders as per the Record Date and argues that, it cannot be said that three-fourths of the shareholders in value have conveyed their consent to the proposed Scheme of Amalgamation. He submits that although there is a legal requirement to submit an Audio Visual Recording of the EGM to the BSEC and DSE, yet the transferee-company has not submitted it to the regulatory authority.

25.           He next submits that the determination of the transfer price is disproportionate and abstract inasmuch as the share exchange ratio of 2.08 shares in the transferee-company of face value of Taka 10/-(ten) each for every 1 share of Taka 100/- held by the members of the transferor-company was approved in the Scheme of Amalgamation and, thus, as per the exchange ratio, the eligible number of shares to be issued by the transferee-company to the shareholders of the transferor-company worked out to be approximately 17,08,275 shares and, as per the market value of the shares of the transferee-company on 09.12.2018, the total value of the shares to be issued to the shareholders of the transferor-company worked out to be Taka 31,51,76,737.50, whereas, the Net Asset Value of the transferor-company is only Taka 19,85,04,321/- as per the submitted valuation report. He alleges that the entire Scheme of Amalgamation was designed in a manner only to extend financial benefit of Taka 31,51,76,737.50 to the common directors of the both the companies, as the directors of the transferee-company held 99% of the shareholding of the transferor-company, either directly or indirectly.

26.           He places the preamble of the Securities and Exchange Ordinance, 1969 and, also, the preamble together with the provisions of Section 8 of the Bangladesh Securities and Exchange Commission Act, 1993 before this Court and submits that the scheme of enactment of the aforesaid laws are (a) protection of investors (b) regulations of capital markets and issue and (c) dealing in securities and, accordingly, the BSEC has been bestowed with the responsibilities of ensuring proper issuance of securities, interest of investors in securities and regulation in the capital market. He submits that since this case is regarding amalgamation of a listed company, the petitioners ought to have taken permission from the BSEC inasmuch as the BSEC has enough expertise to examine a Scheme towards ensuring whether the Scheme is fair and just to all shareholders. He submits that when a listed company approaches this Court for amalgamation, it becomes incumbent upon this Court to examine as to whether the general shareholders’ rights are being protected or jeopardized. He further submits that if the provisions of the Companies Act and other laws do not provide sufficient procedures or appropriate method in protecting the rights of the general shareholders, this Court should invoke its inherent and discretionary power to pass necessary directions to protect the public interest. By referring to a catena of cases of our jurisdiction and foreign jurisdictions, he submits that it has now become a mandatory requirement for the Company Bench to look into the public interest aspect in any application for amalgamation/merger.

27.           By taking me through Section 2A(2) of the Securities and Exchange Ordinance, 1969, Mr. Masum submits that issuance of a huge amount of further shares, in favour of the shareholders of the transferor-company at the determined exchange ratio: 2.08:1, without any further application, act, instrument or deed, as proposed in clause 14 of the Scheme, would be an absolute violation of the provisions of Section 2A(2) of the Securities and Exchange Ordinance, 1969, inasmuch as no company without the consent of the Bangladesh Securities and Exchange Commission is competent to make an issue of capital in Bangladesh. He seeks to draw notice of this Court to the fact that, in India, in order to safeguard the rights of the investors, it has been made mandatory for the listed-companies to obtain ‘No Objection Certificate’ (NOC) to the Scheme of Amalgamation from the regulatory body prior to filing it before the High Court.

28.           Then, Mr. Masum takes me through the Bangladesh Security Exchange Commission's Notification No. SEC/CMRRCD/2009-193/119/ Admin/34 dated November 22, 2011 and, side by side, the monthly shareholding report of the transferee-company and submits that the transferee-company is an unrelenting violator of the law of the land inasmuch as the law requires that all the sponsors/promoters and directors of a company listed with any stock exchange shall at all times jointly hold minimum 30% shares of the paid-up capital of the company, whereas the sponsors and the directors of the transferee-company hold only 24% of the paid-up capital of the company. He prays to this Court to record an observation for the BSEC as to whether they are legally empowered to compel the directors of the defaulter listed-companies to purchase the required number of shares from the market towards jointly holding 30% of the paid-up capital and if the directors fail to jointly hold 30% of the paid-up shares within a certain period of time, there should be an observation from the Court that either the company shall be delisted compulsorily by the BSEC with a direction upon the directors to buy back all the shares from the market or, in the alternative, the directors should be directed to resign from the post of directors and thereby vacate their posts and, then, make an arrangement to run the company by the Independent Directors. In an effort to bolster his above prayer, he places the relevant provisions of the Indian Companies Act and submits that until our Legislature enacts such provisions, this Court should lay out some guidelines for the BSEC in line with the Indian Law.

29.           Mr. Masum submits that the Scheme of Amalgamation is neither reasonable nor fair and there is lack of good faith on the part of the petitioners. He further submits that in the present scenario, it appears to the BSEC that the proposed Scheme of Amalgamation would be unfairly beneficial to a particular class of persons and thus the BSEC strongly opposes the proposed Scheme of Amalgamation to uphold the public interest. He strenuously submits that this petition has been filed for the personal gain of the directors-shareholders of these two companies through the financial loss of majority shareholders and as such for the ends of justice and to secure the public policy and public interest, this Court should not allow the Scheme of Amalgamation.

30.           By putting forward the above submissions, the learned Advocate for the BSEC submits that the petition is liable to be rejected.

Issues to be adjudicated upon by this Court:

31.       After hearing the learned Advocate for the petitioners and the learned Advocate for the BSEC and upon perusal of the petition and affidavit-in-opposition together with their annexures, I find that the BSEC’s main ground for opposing the petitioners’ Scheme of Amalgamation is the worry about the general investors’ interest; and the reasons behind the BSEC’s aforesaid anxiety are two-fold, namely, either the shareholder-directors of these two companies are contriving to grab about 17 (seventeen) lacs (1.7 millions) additional shares of Taka 10/- (ten) each of the listed transferee-company by overstating the valuation of the transferor-company out of greed of swindling crores of Taka by selling the same at its present market rate (which is currently more or less Taka 200/- per share) in the stock market upon making the 76% general share-holders of the listed company the victims of market maneuvering/manipulation and, or in the alternative, the shareholder-directors of these two companies are strategizing with an ill motive of being financially gained over by winding up the company by virtue of holding shares of around 43% of the total shares, upon increasing their present portions from 24%.

32.       I have taken the BSEC’s above anxieties into my consideration and, in an endeavour to relieve the BSEC of the above anxieties, I have minutely examined the facts placed before me and, simultaneously, I have thoroughly searched for the remedy for the BSEC in the relevant laws of the land, and I am of the view that if the legal and factual issues, framed hereinafter, are adjudicated upon by this Court, then, the concern of the BSEC would be mitigated. The issues are; (i) whether a company is competent to undertake a Scheme of Amalgamation/Merger if its  Memorandum of Association (MoA) does not contain any provision for amalgamation/merger and whether the MoA of these petitioner-companies authorizes for amalgamation, (ii) whether these petitioners have complied with the requirements of Sections 228 of the Companies Act, (iii) whether this Court is obligated to take into consideration the public interest at the time of sanctioning any ‘Scheme of Amalgamation’ taken by the companies and, for that purpose, whether this Court is required to investigate into the bona fides of this Scheme and (iv) whether the Court can modify the Scheme and/or pass any other Order/s or Direction/s.

Findings of the Court on the Issue no. 1:

33.       First issue is whether a company is competent to undertake a Scheme of Amalgamation/Merger if its  Memorandum of Association (MoA) does not contain any provision for amalgamation/merger and whether the MoA of these petitioner-companies authorizes amalgamation. From a conjoint reading of Sections 6(a)(iii) and 12(1)(g) of the Companies Act, it appears to me that any company incorporated under the Companies Act may embody in its object clause the provisions for amalgamation with any other company or body of persons and, in the event that the draftsman of the MoA omits to inscribe the provision, it can be  inserted therein with the approval of the Court. If the provision for amalgamation is not contained in the MoA of the company, it cannot take a decision for amalgamation in that, MoA of any incorporated company having the status of law, any act not authorised by the MoA is ultra vires the law. The doctrine of ultra vires was propounded, to be in a first company-case, in the landmark case of Ashbury Railway Carriage and Iron Co Vs. Riche (1875) LR 7HL 653. The principle which has been laid down in the above celebrated case is that MoA is the charter of any company and, therefore, a company’s activities are circumscribed by its object clause and it has no power to act or contract beyond the objects incorporated therein.

34.       Having said as above on the issue no.1, let me see whether these two companies’ Memoranda of Association embody the provisions for amalgamation.

35.       It appears from annexure-BI that sub-clause 33 of the clause III of the Memorandum of Association of Kay and Que (Bangladesh) Limited (transferee-company) provides the provisions for amalgamation, which runs as follows:

“33. To amalgamate, consolidate, or mortgage with a view to affecting a union of interest, either in whole or in part, with or into other companies, associations firms or persons carrying on a trade or business of a similar nature or to that which this Company is authorized to carry on.”

36.       From annexure-C, which is the Memorandum of Association of MultiSourcing Limited (transferor-company), it appears that a similar provision is embodied in sub-clause 31, which reads as under:

“31. To amalgamate, consolidate, or mortgage with a view to affecting a union of interest, either in whole or in part, with or into other companies, associations firms or persons carrying on a trade or business of a similar nature or to that which this Company is authorized to carry on.”

37.       Since it is evident from the Memoranda of Association of both the companies that the petitioner-companies are authorised to be amalgamated with any other companies, associations, firms and persons, I find no difficulty to resolve the issue No. 1 in favour of the petitioners.

Findings of the Court on the Issue nos. (ii) and (iii):

38.       For the purpose of dealing with the issue nos. (ii) and (iii), namely, whether these petitioners have complied with the requirements of Sections 228 of the Companies Act and whether this Court is obligated to take into consideration the public interest at the time of sanctioning any ‘Scheme of Amalgamation’ taken by the companies, I should know (1) what are the step/s required to be taken under Section 228 of the Companies Act for approaching this Court and (2) what has the Legislature meant by the expression “if a majority in number representing three-fourths in value of creditors/members ………….agree to any compromise/ arrangement ……..”, as incorporated in Section 228(2) of the Companies Act. In order to deal with the above issues, I need to be familiar with the provisions of Section 228 of the Companies Act, which are quoted below:

Power to compromise with creditors and members:-

228 (1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the Court may, on the application in summary way of the company or of any creditor or member of the company or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or the members of the company or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs. 

228(2) If a majority in number representing three-fourths in value of creditors, or of members as the case may be, present either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall if sanctioned by the Court be binding on all the creditors or the class of creditors, on or all the members or class of members, as the case may be, and also on the company, in the case of a company in the course of being wound up, on the liquidator and contributories of the company. (underlined by me)

228(3)………………………………..

228(4)………………………………..

228(5)………………………………..

228(6)………………………………..

228(7)………………………………..

39.       At the very outset, it is worthwhile to record here that though the provisions of Section 228 deal with all sorts of “compromise and arrangement”, interpretation of any law and all discussions and observations thereto in this Judgment would be meant for and aimed at only one class of specific arrangement, namely, “arrangement of amalgamation/merger”. 

40.       From a plain reading of sub-Sections (1) and (2) of Section 228 of the Companies Act, it appears to me that when two or more companies become desirous to enter into any arrangement of merger with each other towards converting themselves into one single entity, they all, as the petitioners, would make an application to the Court under sub-Section (1) of Section 228 of the Companies Act for directions for convening of the meetings of the members and creditors, if any, for considering the proposed Scheme of Amalgamation, at first. On such an application, the Court would issue directions for convening of separate meetings of the members and/or creditors or different classes of members and/or creditors, as the case may be. In the said meetings of the members and/or creditors, the Scheme of Amalgamation is required to be approved by majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be. After the Scheme is approved by all concerned in their respective meetings, a separate petition then would be presented to the Court for sanctioning of the Scheme of Amalgamation. However, if the prayer for sanctioning of the Scheme of Amalgamation has already been made in the original application, there is no need to file a separate application, but in that event, the fact as to the approval by the three-fourths in value of the members/creditors should be brought to the notice of this Court by way of filing a supplementary affidavit.

41.       Sub-Section (2) of the Section 228 of the Companies Act is about making the decision of amalgamation binding upon the all concerned. The Section warrants that the decision approving the Scheme of Amalgamation should be passed by majority in number representing three-fourths in value of the members or class of members and/or creditors or class of creditors, as the case may be, in order to make the said decision binding upon all the shareholders, creditors and the company. The aforesaid provision, however, does not specifically state that if the Scheme of Amalgamation is approved by the shareholders/creditors less than “majority in number representing three-fourths in value of members/creditors”, it would be invalid; it simply says that it shall not be binding upon the members, creditors and the company. Here, the Legislature has put two concurrent conditions; one is majority in number and the second condition is that the value of shares/credits of the said majority in number should be three-fourths. The Legislature’s intention for, and the purpose behind, imposing the condition of majority in number representing three-fourths in value  is to ensure the fairness and transparency in dealing with the merger of companies by the directors. Because, it is the Board of Directors which initiates the process of merger and it is not unlikely that they may design it for their ulterior purpose.

42.       The plain meaning and scheme of Section 228(2) of the Companies Act, as can be gathered from the Bengali text of this piece of legislation, which is written in a clearer version without keeping any ambiguity in understanding the same, is that three-fourths of the shareholders/creditors means three-fourths of the entire shareholders/creditors; there is no scope for any company to interpret the law that three-fourths of the shareholders/creditors means three-fourths of the presentees in the AGM/EGM. It follows that until and unless the three-fourths of the entire shareholders remains present in the AGM/EGM and approves the Scheme of Amalgamation, the requirements envisaged in Section 228(2) of the Companies Act are not fulfilled. An argument is advanced before this Court that since the shareholders of the listed-company are trading their shares every day in the stock market, it is an impossible task for the listed-company to ensure the presence of the three-fourths shareholders in number in the AGM/EGM to be held for approval of the Scheme of Amalgamation. Since the stock market is now digitized and the CDBL keeps the record of the latest transferees of the shares of the listed-companies, it is not a difficult task for the listed-companies to notify their general shareholders by sending notice through e-Mails, message or registered post. In any event, no provision of law can be interpreted taking into consideration the convenience or inconvenience of the stakeholders of the said law. In other words, any arrangement (be it merger or something else) must be approved by the three-fourths number of the shareholders/creditors and, at the same time, it should also be at least three-fourths from the perspective of value of the company’s shares/credits. Therefore, any Scheme would not be approved by the Court, if the resolution granting approval to the Scheme of arrangement is passed by more than three-fourths in value of the shareholders/creditors but, is not carried by the majority in number of the creditors and/or members. Similarly, no Scheme would be approved by this Court when a resolution is passed by the majority in number of shareholders and/or creditors, for example, more than 75% of the entire shareholders/creditors in number favoured the Scheme, but the value of the 75% shares/credits is less than three-fourths of the entire shares/credits. While the purpose of providing majority in number of the creditors and members in the Section is to safeguard the interests of the large number of small creditors and/or shareholders whose voice is often lost amongst small number of big shareholders/  creditors, the reason behind putting the condition of three-fourths in value is that a company should not bow down to any unlawful, unethical and unfair demand by the majority in number at the cost of jeopardizing the interest of the shareholders/creditors who possess three-fourths in value of the shares/ credits in the company. Thus, the conditions of approval by the majority in number and three-fourths in value of share/credit are cumulative.

43.       However, this Court by exercising its discretionary power may pass a direction that the Scheme shall be binding upon all concerned inspite of the poor turn-over of the shareholders in the AGM/EGM held for approval of the Scheme, if the Court finds that it is not contrary to any provisions of law and it does not violate any public policy and is satisfied that the Scheme is reasonable, just, fair and not prejudicial to the interests of the members or class or members or creditors or a class of creditors, as the case may be. By virtue of the inherent power a Court of law possesses, it is competent to examine the ‘just and fair’ aspect of a remedy sought for by the petitioner in course of dealing with any type of case. This Court, therefore, is required to consider the pros and cons of the Scheme to see whether the Scheme is in favour of public interest. When the listed-company would show the Court that despite taking all the steps to ensure sending of notices to all the shareholders through e-Mail, mobile message, registered post in addition to publishing the notice of the AGM/EGM in two widely circulated national newspapers, the turn-up of the general shareholders in the AGM/EGM for approval of the Scheme of Amalgamation was less than three-fourths, in that scenario, the petitioner-companies may legitimately make a prayer before this Court to pass an Order to the effect that the Scheme shall be binding upon all the shareholders and other stakeholders. And if this Court finds the contentions of the petitioner-companies to be reasonable, fair, just and overall in favour of public interest, it may sanction the Scheme. Therefore, it is my considered view that at the time of sanctioning a Scheme of Amalgamation, while this Court is competent to sanction a Scheme despite the same being not approved by “the majority in number representing three-fourths in value of the shareholders and/creditors”, this Court is also empowered to decline sanctioning of a Scheme despite being approved by the three-fourths shareholders and/creditors if it is found to be against public interest. In other words, while this Court should not act merely as a rubber stamp to simply endorse the ipse dixit of the majority of the shareholders or creditors inasmuch it is the solemn duty of this Court to find out whether the big shareholders/creditors have voted for the Scheme for the benefit of the company or only for their personal gain by depriving the 1/4th shareholders/creditors and, at the same time, this Court also should not mechanically refuse the sanctioning of a Scheme merely on the ground of non-approval of the same by the 3/4th of the shareholders and/creditors without delving deep into the matter by carrying out an investigation as to whether the petitioner-companies have put their best effort to ensure the presence of 3/4th shareholders. In both the situations, this Court is under an obligation to take into consideration the public interest upon embarking on the issues as to (i) whether the Scheme of Amalgamation is undertaken by the companies violating any law or public policy, (ii)   whether the interest of all types of shareholders, creditors, employees and public at large are well protected, (iii) whether it is designed to benefit only the directors of the companies and (iv) whether the Scheme has been prepared for the purpose of dodging the Government revenue or with an ill-motive of evading any Government or non-Government dues or depriving any individual/group of individuals.

44.       Let me now carry out a scrutiny as to whether these petitioner-companies have complied with the procedures laid down in Section 228 of the Companies Act.

45.       Upon admission of the matter on 12.08.2018, this Court directed the transferee-company and the transferor-company to call and hold meetings with their respective shareholders and creditors separately. It transpires from the annexed papers that in compliance with the said directions passed by this Court on 12.08.2018, the petitioner-companies carried out the following: (i) the usual notices were published in two newspapers namely, The Daily Kaler Kontho and The Daily New Nation on 24.09.2018 calling the shareholders and creditors to attend the Extraordinary General Meetings to be held for consideration and approval of the Scheme of Amalgamation, (ii) the meeting of the creditors of the transferee-company was held on 17.10.2018 at 10:30am where the creditors unanimously approved the Scheme of Amalgamation, without any modification, as evident form Annexure-Q, (iii) the respondent No. 3 being a creditor of the transferee-company has issued its No Objection Certificate (NOC) being ref: SIBL/PPB/ INV/2018/1683 dated 16.10.2018 to the Scheme of Amalgamation, as evident form Annexure-Q(1), (iv) the EGM of the shareholders of the transferee-company was held on 17.10.2018 at 11:30 am and the shareholders unanimously approved the Scheme of Amalgamation, without any modification, as evident from Annexure-R, (v) 153 (one hundred and fifty three) shareholders of the transferee-company attended the EGM, the list of which has been provided to BSEC as per requirement of law, as evident from Annexure-B, (vi) the meeting of the creditors of the transferor-company was held on 17.10.2018 at 04:00 pm and all the three creditors, namely, Meridian Finance & Investment Limited, National Credit and Commerce Bank Limited and M/s. Spice Digital Limited issued NOC to the Scheme of Amalgamation, as evident from Annexure-P, S, S(1) & S(2) and (vi) the EGM of the shareholders of the transferor-company was held on 17.10.2018 at 04:30pm where all the shareholders unanimously approved the Scheme of Amalgamation, without any modification, as evident from Annexure-T.

46.       The reports of the Chairman of the meeting of the creditors of the transferee-company and transferor-company are evident from Annexure-U and U(1) and the reports of the Chairman of the EGMs of the shareholders of these two companies are evident from Annexure-V and V(1). From these reports, it transpires that the Scheme of Amalgamation has been placed before the shareholders, creditors and directors and the said Share Exchange Ratio has been unanimously approved by the shareholders, creditors and the directors of both the transferor and transferee-companies in the respective meetings.

47.       Now, the question that crops up for consideration of this Court as to whether the aforesaid “unanimous approval” was done by “the majority in number representing three-fourths in value”. Since the transferor-company’s 100% shareholders as well as the 100% creditors have extended their support towards the Scheme, it has evidently fulfilled the above condition. I am, therefore, only required to examine the above legal requirement for the transferee-company. None of the creditors of the transferee-company has raised any objection to the Scheme and, hence, there is no point is examining the issue whether the ‘majority in number representing three-fourths in value’ of the creditors of the transferee-company voted for the Scheme. Now, remains only the shareholders of the transferee-company.

48.       Although no shareholder has come forward to oppose this application, but the BSEC, as the regulator of the Securities, is claiming to be the representative of the general shareholders, meaning thereby the shareholders who are not in the Board of Directors (BoD) of the transferee-company. It is contended by the BSEC that in the AGM or EGM of the listed-companies, the BoD of a listed-company usually hires a group of persons to show the attendance in the AGM/EGM in the attendance-sheet as well as in the recorded video and, therefore, it is their claim that although 76% of the general shares of this transferee-company are being held by the people in the open stock market, they are not aware of this Scheme. In an effort to controvert the above allegation, the transferee-company produced the voluminous attendance-sheet of the general shareholders in the form of a bound book before this Court and claimed that a copy of the same together with the audio-visual recording of the EGM have been filed with the BSEC. From the above-mentioned attendance-sheet, it transpires that 158 (one hundred and fifty eight) general shareholders are present and there is hardly any scope for this Court to know whether the attendance-sheet is a manufactured one, and unless the BSEC carries out any investigation thereto, this Court would not be in a position to embark upon examination of the fact as to whether the attendance-sheet is genuine or fake. Given the fact that the BSEC has not done any investigation as to the authenticity of the attendance-sheet, it cannot dispute its veracity. Moreover, the BSEC also did not show this Court as to what was the quantity/number of shareholders of the transferee-company on the date of holding the EGM on 17.10.2018, as per the record of the Central Depository Bangladesh Limited (CDBL). Also, the value of the shares held by the general shareholders who attended the EGM of the transferee-company could not be ascertained by this Court due to non-submission of any report from the CDBL. Under the circumstances, this Court assumes that three-fourths of the shareholders of the transferee-company, value of which is also three-fourths of the transferee-company’s entire share, were present in the EGM and none of them opposed the Scheme. Accordingly, I hold that the petitioner-companies have substantially met the legal requirements enshrined in Section 228 of the Companies Act.

        Findings of the Court on Issue No. (iv):

49.       Issue no. (iv) is whether this Court is obligated to take into consideration the public interest at the time of sanctioning any ‘Scheme of Amalgamation’ and, thereby, examine whether the arrangement is bona fide; meaning thereby whether the Scheme is in favour of the public interest and whether the Court is empowered to modify the Scheme and pass necessary directions upon the petitioner-companies for the purpose of protecting the public interest. In order to examine the public interest aspect, I would prefer to dwell on the following issues; (i) whether any special method is to be applied or procedures to be followed by this Court for valuation of shares of the petitioner-companies, in view of the fact that in this case, a private company is intending to get merged into a listed-public company, (ii) whether the valuation of the transferor-company has been done at an inflated rate, (iii) whether non-submission of the previous years’ Financial Reports of the transferor-company before this Court to substantiate its profit shown in the audit report and, also, non-submission of the tax-papers showing the paid up capital of the shareholders of the transferor-company would make the valuation report of the transferor-company unacceptable/invalid, (iv) whether this Court should direct the petitioner-companies to determine valuation of the shares by conducting audit through a reputed Chartered Accountancy Firm, (v) whether, before sanctioning the Scheme or after sanctioning the Scheme, the National Board of Revenue should be directed to investigate into the tax file of the directors of the transferor-company for the purpose of tallying the amount of money shown to have been paid off against their respective shares, (vi) whether the amalgamated-company’s sponsors/directors should be compelled to jointly hold 30% shares before sanctioning the Scheme or after sanctioning the Scheme and (vii) whether the directors-shareholders of the transferor-company and the transferee-company should be inhibited to sell their respective shares, which would be allotted in their favour in the amalgamated-company on top of the shares they are currently holding, for a limited period after amalgamation. For the sake of presentation of the public interest aspect in a simpler style, all the aforesaid issues would now be taken up together.

50.       If, on the eve of merger/amalgamation, the Net Asset Value (NAV) of any company, be it private or non-listed public or listed-public, can be determined in a fair and transparent way, then there would be no scope for anyone to raise any question about it. This is a relative question as to how a “fair and transparent” valuation can be carried out. When a company shows this Court that it has been preparing its Financial Reports for each financial year regularly for long by ‘A’ category Chartered Accountancy Firms containing (i)  comprehensive income statements, including loss and profit accounts, (ii) balance sheet of assets and liabilities, (iii) statements of changes in equity and (iv) statements of cash flows together with the relevant papers/documents on the basis of which the Financial Reports have been prepared, such as tax papers of the company as well as that of each of the directors of the company, land valuation certificates from the concerned Sub-Registry Office and trade-mark and copyrights registration certificates of the intangible assets, the Court becomes in a position to arrive at a decision as to the correctness/genuineness of the Financial Reports.

51.       Given the serious objection raised by the BSEC as to the over valuation of the transferor-company’s assets for grabbing more shares in the transferee-company by the directors of these two companies, this Court had to exhaustively examine all the audit reports and financial reports of the transferor-company. It transpires that apparently there are some plausible reasons for bringing the allegation of over-pricing the assets of the transferor-company, for, (i) the Financial Reports of previous 5 (five) years of the transferor-company were not made available to this Court to examine as to how such a significant amount of profit was made in the business, (ii) the personal tax returns of the directors of the transferor-company were not produced before this Court to prove that although at the time of incorporation of the company the directors paid only Taka 5,00,000/- (Five Lacs) against their shares, however, subsequently over the years Taka 8,21,28,600/-has been paid-up against the number of shares they currently hold and the same has been shown in their personal income tax files, (iii) trade-mark license, copyright license and any other corroborative document in substantiating the valuation of the intangible assets worth Taka 7,83,80,361/- have not been submitted before this Court and (iv) the office and production factories of these two companies being situated in different places and, also, the nature of the business of these two companies being different, no credible explanations as to achieving synergy or operational benefit therefrom have been furnished before this Court.

52.       Be that as it may, when it is evident that the disputed valuation has been done by the ‘A’ category Chartered Accountancy Firm which is an enlisted C/A Firm with the BSEC and, thereafter, the said valuation has been again vetted by another BSEC-listed ‘A’ category Accountancy Firm, to alleviate the said allegation, the options available for this Court are either (a) to appoint a new C/A Firm of this Court’s choice to carry out a fresh audit or (b) to direct the aforesaid C/A Firms to satisfy this Court about the basis of their valuation or (c) to direct the Financial Reporting Council (FRC) established under Section 3 of the Financial Reporting Act, 2015 (hereinafter referred to as the FR Act) to investigate into the allegation of overstatements of the transferor-company’s assets. Because, when this Court doubts about the valuation of the assets of any company presented before it, the Court may consider it to be proper to ascertain the real value of the assets of the transferee-company and/or transferor-company for the purpose of protecting the interests of the ordinary shareholders or of any particular class of shareholders and/or of the creditors towards upholding the overall public interest by appointing either a reputed C/A Firm of its choice with direction to carry out certain specific works, such as, finding out the present market price of the landed property, current value of the intangible assets if any, the resale value of the machineries and other movable properties or, in the alternative, the Court may ask the concerned Sub-Registry Office to submit a valuation report of  the landed property of the company, appoint any qualified person to assess the value of the intangible assets and direct the concerned manufacturers of the machines and other equipments, including different tools, computer, electronic goods, vehicles, etc. to submit report of the present market price wherefrom the resale value of the aforesaid movable properties could be assessed. Section 229 of the Companies Act empowers this Court to pass any type of incidental, consequential and supplemental orders/directions upon the petitioner-companies. To this end, I find it useful to quote the provisions of Section 229 of the Companies Act which reads as follows:

229(1) Where an application is made to the Court under Section 228 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that Section, and it is shown to the Court that the compromise or arrangement has been proposed for the purposes of, or in connection with, a  scheme for the reconstruction of any company or companies to the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking and the property of any company concerned in the scheme, in this Section referred to as a transferor company, is to be transferred to another company in this section referred to as the transferee company, the Court may, either by the order sanctioning the compromise or arrangement or by any subsequent order, make provision for all or any of the following matters :-

(a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;

(b) the allotting or appropriation by the transferee company of shares, debentures, policies, or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person;

(c) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

(d) the dissolution, without winding up, of any transferor company; 

(e) the provision to be made for any person who, within such time and in such manner as the Court directs, dissents from the compromise or arrangement;

(f) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

229(2) Where an order under this Section provides for the transfer of property or liabilities, that property shall by virtue of the order be transferred to and vest in, and those liabilities shall by virtue of the order be transferred to and become the liabilities of the transferee company, and in the case of any property, if the order so directs, it shall be freed from any charge which is, by virtue of the compromise or arrangement cease to have effect. (underlined by me)

229(3) ……………………….

229(4) ……………………….

229(5) ……………………….

53.           From a plain reading of the above provisions, any one with ordinary prudence can understand that when an application for any type of arrangement or compromise,  be it for amalgamation or for other purpose, is presented before this Court, the Court, before or after sanctioning the Scheme, may pass any type of incidental, consequential order/s whatever would appear to it to be necessary in order to give full effect to the Scheme; meaning that for the purpose of protecting the interest of all concerned, the Court may pass necessary order/s. Since all the provisions of Section 229(1) are permissive empowering this Court to pass any order for the purpose of protecting the interests of all concerned and, more importantly, there is no prohibitive provision limiting this Court’s power, I am of the view that either in course of hearing the application for sanctioning the Scheme, or at the time of passing the Order of sanctioning the Scheme or after sanctioning the Scheme, this Court is competent to pass necessary order and/or direction upon any person, Government authority and non-Government entity towards ensuring the interest of all concerned. 

54.           It follows that although there is no separate provision in the Companies Act for dealing with the amalgamation-application of the public limited companies, however, for the purpose of protecting the public interest by determining the fair valuation of the assets of the petitioners-companies, this Court is armed with sufficient power to pass orders whatever it may deem fit and proper, which may include (i) directing the companies to submit their previous 5-10 years’ Financial Reports before the Court and, at the same time, directing the directors of the companies to produce their personal income tax returns so that the data and information contained in the Financial Reports can be checked up by the Court, (ii) directing the C/A Firms, who have prepared the Financial Reports, to explain before the Court their basis for valuation of the assets which are alleged to have been overvalued, (iii) directing the relevant Government and non-Government functionaries, namely, Sub-Registrar of the concerned area, Deputy Commissioner of Tax of the concerned zone assigned by the National Board of Revenue (NBR), the FRC, BSEC, RJSC, DSE and CSE to provide necessary information, and (iv) directing the petitioner-companies to do and/or to refrain from doing certain work/s.  

55.           Having jotted down and learnt about the power of this Court, now I need to consider the time/stage to apply the above powers. In other words, whether this Court should issue the directions, which are enumerated hereinabove in nos. (i) to (iv), in course of hearing the application for sanctioning the Scheme or at the time of passing the Order of sanctioning the Scheme or at a phase subsequent to amalgamation. In the case in hand, if this Court would have directed a C/A Firm of its choice to conduct an independent audit on the financial position of the transferor-company, there was no guarantee that the valuation would have been lesser than the one presented by the transferor-company. On the other hand, if this Court would have directed the C/A Firms who have worked for the transferor-company in preparing the present financial reports, it was highly likely that they would have come up with some explanations suited to the displayed circumstances of the companies and, in the event that this Court would have disagreed with their explanations and had any anomalies been pointed out by this Court in preparation of these financial reports, this Court would have referred the matter to the FRC established under the FR Act for investigating into the apparent malpractice of these C/A Firms. It means that this Court’s aforesaid steps/actions would not have been useful for expeditious adjudication of this case.

56.           Therefore, in my view, given the peculiar facts of this case, if this Court, instead of emphasizing upon the valuation of the transferor-company’s assets, issues certain incidental directions upon the directors of the amalgamated-company with an aim to protect the interests of the 76% general shareholders of the transferee-company, then, there would be an effective and fair adjudication of this case. In my opinion, the first direction shall be upon the amalgamated-company’s directors (all the directors of the transferor-company and the transferee-company) to inhibit them from selling/transferring their shares they would hold in the amalgamated-company for, at least, one year so that they cannot manipulate the stock market immediately after getting allotment of these huge number of shares and, after the said period, further restrictions on the sale-price of their shares for a fixed period shall be imposed upon them so that the concern of the BSEC, that there is a hidden agenda of the directors of these two companies to swindle money by selling their huge number of shares at a hiked price by maneuvering the stock market, is alleviated. They shall be further directed to retain 30% of the shares in the amalgamated-company for all the time in order to compel them to abide by the law. Finally, in order to give effect to the above directions, the BSEC, the RJSC, the CDBL, the DSE and the CSE shall also be directed to ensure compliance with this Court’s Order/Directions.

57.           Given that inspite of the apparent over-pricing of the shares of the transferor-company, the Share Exchange Ratio is conceded by this Court, the directors would not be prejudiced if, for two years after the expiry of one year lock-in-period, their share-price is fixed at the NAV per share in the event that they wish to sell their shares within the aforesaid two years. In fact, this Court is assuming that the directors of these two companies shall not sell their shares in near future in the backdrop of their bold contentions made before this Court that the purpose of this amalgamation is to make the company an A-category company. And, if that is their true intention, no sensible director would opt to sell their shares when they would get a 10%-dividend each year. Moreover, had the directors of the amalgamated-company gone for issuance of capital upon setting up a new listed-company, there would have been a lock-in-period for 3 (three) years on the sale of their shares under Rule 6A of the Securities and Exchange Commission (Issue of Capital) Rules, 2001, or had the transferee-company been a solvent one and would have opted for raising capital by allotment of new shares (rights shares) under Rule 14 of the Securities and Exchange Commission (Rights Issue) Rules, 2006, there would have been a lock-in-period of 3 (three) years, or had the transferee-company, after making itself a profitable one, decided to issue shares through public offer, under Rule 10 of the Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015, the shareholder-directors would not have been allowed to sell their shares for three years.

58.           Therefore, compared to the above legal restrictions, this Court’s opinion as to keeping provisions for lock-in-period on the sale of shares of the directors for one year and, thereafter, fixation of price for selling their shares for two years are very reasonable and rational. While this Court had ample power to decline granting sanction for the Scheme on the ground of not being satisfied about the conduct of the company as well as the fairness of the Scheme, sanctioning the Scheme with some conditions towards protecting the fate of the public shareholders should be taken gladly by the petitioner-companies.

Observations on the duties & responsibilities of the BSEC, DSE and CSE:

59.           After dealing with all the issues framed by me for adjudication upon this case, it is now incumbent upon me to deal with the prayer of the learned Advocate for the BSEC to record appropriate observations as to whether the BSEC, DSE and CSE are competent to delist the incorrigible companies.

60.           From a minute reading of the Preambles and all other Sections of Securities and Exchange Ordinance, 1969 and Security and Exchange Commission Act, 1993, it is plainly understandable that the Legislature’s intention is to allow the BSEC to perform its functions as to regulating the Stock Exchanges, Stock Brokers/Dealers/Jobbers, Portfolio Managers, Merchant Bankers, Issue Manager and CDBL uninterruptedly for the protection of public interest. To construe the expression ‘public interest’, one should not only consider the interest of promoters, directors and general investors of the incorporated companies, but also the interest of the Banks and Financial Institutions who extend loan facilities to the companies and other numerous bodies interconnected with the stock market. In fact, the finance and commerce of our country being greatly interlinked with the stock market, the BSEC has been bestowed with the pivotal statutory duty to protect the public interest, not only by enforcing the Acts of Parliament, but, if needed, the power of framing Rules, Regulations and issuance of Orders for the said purpose have also been vested. If the BSEC feels that there is no clear power in the law, they must approach the Government with a request to enact the necessary law in the Parliament.

61.           The learned Advocate for the BSEC pointed out the fact that although the Dhaka Stock Exchange (Listing) Regulations, 2015 (DSE Regulations) contain provisions for delisting the companies on the ground of non-payment of dividends for five years or for not holding AGMs for consecutive three years, but there is no provisions for the directors in the said Regulations that they shall be bound to buy back the shares from the market by their personal money. Because of absence of such provision in the DSE Regulations, when the company would be delisted, although the public shareholders shall be financially loser, the directors of the company will be happier inasmuch as they shall not have any legal obligation to comply with the statutory Rules and Regulations with regard to their stocks. It is, therefore, the opinion of this Court that the DSE shall, at its earliest convenience, incorporate the provisions that pursuant to compulsory delisting of a company, the sponsors and directors shall be liable to buy back the shares from the public, who wish to sell the shares within a specified time at a price of “last three years average market price”. However, no share shall be bought in the name of the company, as there is a prohibitory provision in Section 58 of the Companies Act to buy the company’s own share out of the company’s fund. Moreover, the BSEC is competent to impose condition upon the listed companies by virtue of its power under Section 2CC of the Securities and Exchange Ordinance, 1969 that the directors of the company shall not be entitled to any remuneration of any kind and they shall be debarred from using the vehicles of the company, if they fail to pay dividend for consecutive three years and such other provisions with an aim to save the company’s administrative costs and expenses during its recession, for, when the public shareholders would not be able to enjoy fruits from their portions of shares, the shareholders who are at the helm of the affairs of the company should refrain from taking any benefit from the company. Usually, this Court appoints an administrator to run a company when this Court, at the instance of 10% shareholders, finds the directors of the company to be extravagant at the cost of deprivation of dividend to the majority shareholders. Given the lack of knowledge about the legal rights of the public shareholders of the listed-company, the BSEC should approach the Government to incorporate a provision in Section 233 of the Companies Act that, like the 10% shareholders, the BSEC should be eligible to approach the Company Bench for obtaining necessary and appropriate Order/s to run the defaulting-company (a company, which is not declaring dividends for five years or not holding AGMs for three years) by an administrator and, also, seeking any other appropriate relief from the Court. For making out a case to the Legislators in favour of incorporation of the above provisions in the Section 233 of the Companies Act, the BSEC must carry out investigations into the affairs of the companies who are currently under the ‘Z’ category with an aim to find out as to (i) whether the defaulting-company had furnished any false information at the time of obtaining accord from the BSEC for getting enlisted in the stock market, (ii) whether the defaulting-company were preparing its Financial Reports in connivance with its auditor or any other unscrupulous Chartered Accountancy Firm and (iii) whether the AGMs of the defaulting-company were being attended by the genuine shareholders or by the AGM syndicate, group of outsiders hired to show the attendance in the ‘Attendance Register’ and in the ‘Audio Visual Record’. Till the time the Legislature incorporates the aforesaid provision in Section 233 of the Companies Act and till the time the DSE incorporates the provision for buying back the shares by the directors of the defaulting-listed-company from the intending shareholders, if the BSEC can successfully satisfy this Court that despite finding out serious illegalities and anomalies in the affairs of the defaulting-company, it lacks power to appoint administrator or to direct the sponsor-directors to buy back the shares from the public shareholders who intend to sell, in that scenario this Court might be in a position to extend standing of the petitioner of a Section-233-application in favour of the BSEC.

62.           In this case, it has come to the notice of this Court that BSEC did not issue a single notice to the transferee-company which was not paying dividend since the year 2010. Only the DSE issued a letter at a belated stage on 07.08.2018 during pendency of this case.  In this case it was the duty of the BSEC to carry out the above investigation into the affairs of the transferee-company in the year 2015 when it was in the record of the BSEC that the transferee-company was persistently failing to announce dividend for consecutive five years since 2010. Further, the BSEC should have taken an initiative to send a representative from the BSEC to remain present in all the AGMs of the transferee-company to share and disclose the ins and outs of the transferee-company to the public-shareholders and warn them not to trade the shares over the value of NAV per share reminding them that if the transferee-company is dissolved for its non-operation or on the ground of being unable to pay its debt, the shareholders may not get from the asset of the transferee-company of the worth more than the NAV per share. Also, the BSEC ought to have carried out investigation against this company as to whether the presentees in the AGMs shown to have attended by the shareholders are genuine or were attended by the AGM Syndicate by tallying the signatures of the presentees with the signatures of the B/O Account holders and also by matching the faces of presentees with the photos of shareholders kept by the Stock Brokers’ Offices. Had the AGMs been attended by the genuine shareholders and had the representative of the BSEC disclosed the findings of the investigation (if any) carried out by them, there was hardly any reason for trading the share of the transferee-company at a price more than the NAV per share. I was informed on the date of pronouncement of this Judgment that the market price of the said day was around Taka 200/- per share although the NAV per share was Taka -11.98 on the Appointed Date and rose upto Taka 76.55 on 10.06.2018 after carrying out the revaluation of the assets of the transferee-company, which the company conducted during hearing of this matter for the reasons best known to them.

Conclusions arrived at by the Court:

63.           Although the Share Exchange Ratio might seem to be enigmatical, but finding no other better device to determine a more acceptable Share Exchange Ratio, this Court arrives at the conclusion that the Scheme of Amalgamation shall not be prejudicial to the shareholders, creditors, employees and the public at large, if the Scheme is sanctioned with certain conditions. Rather, if the assertions made by the learned Advocate for the petitioner-companies turn out to be true, then, it would be beneficial to all the concerns of the transferee and transferor companies to some extent, if not to a great extent, inasmuch as since the transferee-company, which was a Z-category company since 2010 and after paying off 5% cash dividend to its shareholders, has already been upgraded to B-category and, eventually, it may elevate itself to the status of A-category company if the directors put their best efforts in true sense. This Court, thus, expects that the proposed Scheme of Amalgamation would strengthen the financial standing of the amalgamated-company by generating revenue and reducing overhead expenses. It is further expected by this Court that by efficient and more productive utilization of employees and other resources, the business of the transferee and transferor companies would be carried out more economically and profitably. This Court is also hopeful that the Scheme of Amalgamation would enable the said two companies to rationalize and streamline their finance and management and would equip them to face the increasing competition in the market and, consequently, may increase possibilities for deeper product diversity, where needed.

64.           Since, throughout the hearing of this case, it is persistently professed by the learned Advocate for the petitioners-companies  that the sole purpose of the Scheme is to make the transferee-company a profitable company for the benefit of all, including the shareholders, creditors and employees after the amalgamation and, also, since no legal impediment is found against the sanctioning of the Scheme and, in the light of the fact that, upon meticulously examining the aspect of this merger, some conditions are going to be imposed upon the directors of the transferor and transferee companies towards ensuring the rights and interests of the public investors, I am satisfied that the Scheme of amalgamation proposed by the petitioner-companies would serve the interest of the share-holders, creditors, workmen and general public. Accordingly, I hereby accord sanction to the Scheme of Amalgamation.

Order:

65.           It is, thus, ordered that the Scheme of Amalgamation (Annexure-A to this petition), as approved at the respective EGM of Kay and Que (Bangladesh) Limited, and Multisourcing Limited, held on 17.10.2018, as set out in annexures-V & V-1, respectively, is sanctioned by this Court subject to compliance with the Orders and Directions recorded hereinbelow and, resultantly, the transferor-company and the transferee-company be amalgamated in terms of the Scheme of Amalgamation, annexed as Annexure-A, which shall form part of this Judgment and Order.

66.           Consequential and Supplemental Orders:

(1)               It is further ordered that all the pending suits and proceedings of the transferor-company, if any, henceforth shall be commenced and be continued by or against the transferee-company, as the case may be, as if the same is to be or has been filed by or against the transferee-company.

(2)               It is also ordered that the whole undertaking, properties and liabilities of the transferor-company shall be vested in and transferred to the transferee-company, subject to the compliance with the terms and conditions of the said Scheme of Amalgamation.

(3)               It is also ordered that all the shares, debenture, policies, license and other like interest in the said transferor-company be transferred to and vested in, appropriated and allotted to the transferee-company in terms of the said Scheme of Amalgamation.

(4)               It is also ordered that all mortgages, charges, undertakings, assurances, obligations, liabilities, if any, of the said transferor-company shall be transferred to and vested in, be taken by and be enforceable by or against the transferee-company in the same manner and to the same extent as if all of these acts, deeds and things have been done by the transferee-company.

(5)               Upon this amalgamation coming into effect, the transferor-company shall stand dissolved without winding up, and the Registrar of Joint Stock Companies and Firms is hereby directed not to register any company in the name and style of the aforesaid transferor-company.

(6)               Since, by virtue of this Judgment and Order, all the assets and liabilities of the transferor-company have been transferred to and vested in the transferee-company, so all the liabilities of the said transferor-company (if any) shall become the liabilities of the transferee-company and if the properties of the transferor-company are encumbered, in any manner, the same shall continue and the properties of the transferor-company shall be transferred to and be vested in the transferee-company subject to such encumbrance and charges, if any, to the transferee-company.

(7)               Upon amalgamation, the accounts of these companies be finalized and circulated to/amongst the members of the said transferor-company and the transferee-company.

(8)               This Judgment and Order shall not affect the personal guarantee or similar other obligations, if any, of the directors, shareholders and third-party guarantors of the transferor- company.

67.           Directions upon the Directors of the transferor and transferee companies:

(1)                The persons (both natural & juristic) who were/are the directors plus shareholders of these two companies from the Appointed Date to the date of passing this Judgment and, now, pursuant to this Judgment and Order would be the shareholders of the amalgamated-company are restrained from selling their respective shares for one calendar year (365 days) from today. In other words, only the public shareholders of the amalgamated-company shall be free to sell/transfer their shares at the market price for all the time, but the shares already held by the transferee-company’s directors and the shares to be allocated to the share-holders of the transferor-company shall not be transferred/sold for one year from the date of obtaining the certified copy of this Judgment and Order. And after the expiry of the lock-in-period of one year for sale of their shares although they will be competent to sell their additional shares (i.e. the shares which will remain at their disposal as additional to 30% permanently locked-in-shares), there shall be a further lock-in-period of two years on the sale-price of the shares held by the directors. It means that if the directors want to sell their shares in the stock market after one year, for a period of next two years they shall be entitled to sell the same only at the Net Asset Value (NAV) per share to be assessed at that relevant point of time. That is to say, they shall not be competent to claim the sale-price of their shares more than the NAV per share for two years after the expiry of the lock-in-period of one year for sale of their shares.

68.       Directions upon the amalgamated-company:

(1)       It is ordered that transferee-company shall cause certified copy of this Judgment and Order to be delivered to the Registrar of Joint Stock Companies and Firms (RJSC), for registration within 14 days as required by sub-Section (3) of Section 229 of the Companies Act, from the date of receiving the certified copy of this Judgment and Order.

(2)       The Judgment and Order shall take effect after filing of the certified copy of the same to the BSEC, FRC, RJSC, CDBL, DSE and the CSE by the transferee-company and subject to annexing a copy of this Judgment and Order to every Memorandum of the transferee-company issued after this Order is made. However, the countdown of the lock-in-period of one year shall be commenced from the date of receiving the certified copy of this Judgment.

(3)       The entire costs in respect of the Scheme of Amalgamation shall be borne out by the transferee-company, namely, Kay and Que (Bangladesh) Limited.

69.       Directions upon the State-functionaries, Government and non-Government bodies: 

(1)           It is further directed that all the regulatory bodies and the Government authorities, including the BSEC, FRC, NBR, RJSC, CDBL, DSE, CSE, Titas Gas Transmission & Distribution Company Ltd, Sub-Registrar of the concerned area as well as lending institutions, including Banks and Leasing companies, shall give effect to this Scheme of Amalgamation without any further act, petition or order whatsoever. Further, all the Registrations, Certificates, Agreements and/or Deeds including Property Deeds shall be deemed to have been transferred from the said transferor-company, namely, MultiSourcing Limited to the transferee-company, namely, Kay and Que (Bangladesh) Limited from the effective date. 

(2)           The Chairman of the NBR is directed to inquire into the claim of the directors of the MultiSourcing Ltd (transferor-company) as to whether the amount of money shown to have been paid-up by them against their respective shares (as catalogued at page 5 of this Judgment and also available in the Financial Statements of the MultiSourcing Limited)  has been disclosed in their respective personal tax files and, then, file an affidavit of compliance within 1 (one) month of receiving this Judgment and Order.

(3)           The Chairman, Bangladesh Securities & Exchange Commission, (2) the CEO of Central Depository Bangladesh Limited, (3) the CEO of Dhaka Stock Exchange Limited, (4) the CEO of Chittagong Stock Exchange Limited are directed to file an affidavit-in-compliance, within 1 (one) months from the date of receipt of this Judgment and Order, confirming that they shall ensure that the shares of the directors of the transferor and transferee-companies in the amalgamated-company are not sold/transferred to anyone within one year. They shall also ensure that, after the expiry of one year, the shares of the directors of the amalgamated-company are not sold for two years above the rate and value of the NAV per share prevailing at the relevant point of time. They are further directed to confirm before this Court that after expiry of one year lock-in-period, the directors shall jointly hold a minimum of 30% shares of the amalgamated-company all the time.

(4)           Since there is a serious allegation of overvaluation of the assets of the transferor-company (Multi Sourcing Ltd), which seemed to this Court to have some basis, the Chairman of the FRC is directed to investigate as to whether A Wahab & Co., Rahman Mostafa & Co. and Malek Siddiqui Wali & Co. (Chartered Accountancy Firms) followed the professional Rules, norms and ethics in working for the transferor-company (MultiSourcing Ltd) (i) in preparation of the Auditors Report and Statements of Accounts for the period of 1st July, 2017 to 31st December, 2017, (ii) in making the valuation report and (iii) in carrying out independent vetting of the valuation of shares and determination of the Share Exchange Ratio, respectively, (copies of all these three services to be provided by the Office of the Court at the time of communicating this Order) and submit a report before this Court within 1 (one) month of the receipt of this Judgment and Order. However, the FRC’s above investigation shall not halt the amalgamation process in any manner, nor its output shall change the Share Exchange Ratio.

70.       Directions upon the Office of this Court:

(1)           Office is directed to send a copy of this Judgment and Order, by a special messenger at the costs of the petitioners, to (1) the Chairman, National Board of Revenue, Rajswa Bhaban, Segunbagicha, Dhaka-1000, (2) the Chairman, Bangladesh Securities Exchange Commission, Jiban Bima Tower, 10 Dilkusha C/A, Dhaka, (3) the Chairman, Financial Reporting Council, House No. 40/A, Road No. 20, Mohakhali JOHS, Dhaka-1206, (4) the CEO of Central Depository Bangladesh Limited, BDBL Bhaban (18th Floor), 12 Karwan Bazar, Dhaka-1215, (5) the CEO of Dhaka Stock Exchange Limited, Stock Exchange Building 9/F, Motijheel C/A, Dhaka-1000, (6) the CEO of Chittagong Stock Exchange Limited 52-53, Dilkusha C/A (level-15), Dhaka-1000 and (7) the Registrar of Joint Stock Companies and Firms, TCB Bhaban, 6th Floor, 1Karwan Bazar, Dhaka-1215.

(2)           Office is directed to report to this Court on 16.05.2019 as to whether the NBR, BSEC, FRC, CDBL, DSE & CSE have filed their respective affidavits-in-compliance.

71.       Remarks on the performance of the learned Advocates:

        Before being stopped to pen this Judgment, it would be unfair if I do not indite the assistance rendered by Mr. Margub Kabir (the learned Advocate for the petitioners) and Mr. AM Masum (the learned Advocate for the respondent no. 2), the two promising Advocates of this Court. The pleadings drafted and the arguments advanced by both of them were highly impressive having demonstrated that they possess commendable knowledge on the laws of securities. While most of the Legal Advisors/Panel Lawyers tend to serve the statutory bodies and the State-owned companies/corporations averagely, Mr. AM Masum gave his best shot to uphold and protect the rights of the commoners with a patriotic zeal.

72.       Compliance as to Corporate Social Responsibility (CSR):

        For more than hundred years, the Company Bench has been receiving donations from corporate bodies, who obtain favourable Order from the Court. This age-old system has received the recognition of law as a long-practiced custom of the common-law countries and, by now, in most of the countries, the State has incorporated the provision either in any Act of Parliament or in any Rules or Regulations. The donations received by this Court are being spent mainly to help build religious and educational institutions and charitable organizations who apply to this Court praying for such help. The petitioners-companies of this case have come forward to make such a donation of an amount of Taka 10,00,000/- (Ten Lacs). The petitioners-companies would be entitled to show in the income tax file of the amalgamated company as the contribution under the Corporate Social Responsibility (CSR). 

73.         This Judgment and Order shall be effective subject to compliance with the directions given hereinafter as regards payment of the donation, as promised by the petitioners, to be given to the religious institutions and charitable organizations listed hereinafter. The transferee-company will donate Taka 10,00,000/- (Ten Lac) only, out of which (1) Taka 3,00,000/- (Three Lacs) to Anujani Jame Masjid and pathager, Chatak, Sunamjonj (2) Taka 2,50,000/- (Two Lac Fifty Thousand) to Baitul Aman Jame Masjid, Demra, Dhaka, A/C No. 404513100000005, Shahjalal Islami Bank, Sharulia, Demra, Dhaka, (3) Taka 2,50,000/- (Two Lac Fifty thousand) to Chalua Bazar Jame Masjid, Kalirbazar, Fulchari, Gaibandha, Bank Account No. 09591021014241, Janata Bank, Kalirbazar Branch (Code No. 0959), Fulchari, Gaibandha (Contact number of Branch-01718-618879, 0542256109) e-mail- jb0959@janatabank-bd.com. (4) Taka 1,00,000/- (One Lac) to Baitul Jannah Masjid, Bazitpur, Kishoregonj, (5) Taka 1,00,000/- (One Lac) to Bangladesh Protibandi Foundation (BPF), 6 Borobag, Mirpur-2, Dhaka. On furnishing receipt of depositing costs for the special messenger and payment of donation, this Order may be drawn up, if so prayed for. 

Ed.



Cmpany Matter No. 256 of 2018