The judgment gains significance since the minority shareholders of German Remedies had argued that the proposed swap ratio for the merger will result in a substantial and permanent reduction of dividend income on a long-term basis.
In the recent past, minority shareholders have become extremely pro-active in opposing swap ratios proposed by company managements in the court of law. Apart from the Cadila Healthcare-German Remedies merger, the proposed Parke-Davis (India)-Pfizer merger has also been delayed with minority shareholders strongly opposing the swap ratio therein.
In the Cadila Healthcare-GRL merger, it was proposed that shareholders of GRL would be issued seven shares (face value: Rs 5) of Cadila Healthcare for every four shares (face value: Rs 10) held in GRL.
German Remedies had a liberal dividend payout at Rs 8 per share, while Cadila Healthcare paid a dividend of Rs 3.50 per share for the year ended March 31, 2002.
The minority shareholders, led by Mr Janak Mathuradas, had alleged that Cadila Healthcare suppressed vital mandatory information from the court by not submitting the details of the voting pattern in form number 39 as required by the High Court Rule No 78.
Apart from Janak Mathuradas, the other minority shareholders include Arvind Vyas, Shiv Kumar Khera and Aspi Bhesania.
According to a Zydus Cadila release, This puts an end to the three-month- old battle by the four shareholders of GRL, holding not more than 1,000 shares of GRL in aggregate, against the merger scheme approved by the overwhelming majority of shareholders at the court-convened shareholders meeting.
Since two shareholders pertaining to the management group accounted for 99.94 per cent of votes cast value-wise, the management appeared to have created various separate ledger folios by internally transferring an identical holding of five shares each in the names of persons to fulfill the dual majority criteria as required under section 391(2) of the Companies Act, 1956, the minority shareholders had argued.
The shareholders had also requested the court to order an investigation into the creation of ledger folios as to when and how these ledger folios were created, and whether they were a result of a market deal or an internal transfer along with the mode of payment and the consideration for the same.