Court approves amalgamation scheme with modifications safeguarding stakeholders; appeals disposed of, no costs awarded.

Hindustan Lever Employees' Union Versus Hindustan Lever Ltd.

Hindustan Lever Employees' Union Versus Hindustan Lever Ltd. - [1994] 2 SCL 13 (BOM) Issues Involved:
1. Violation of Section 393(1)(a) of the Companies Act, 1956
2. Valuation of Share Exchange Ratio
3. Ignoring the Effect of Provisions of the MRTP Act
4. Interest of Employees of Both Companies
5. Preferential Allotment of Shares to Unilever PLC (UL)
6. Allegations of Mala Fides and Quid Pro Quo

Detailed Analysis:

Ground (A): Violation of Section 393(1)(a) of the Act in not making required disclosures in the explanatory statement.
The appellants contended that the explanatory statement failed to disclose essential information, including TOMCO's financial status, reasons for business losses, and the material interests of directors. The court found no significant non-disclosure, noting that TOMCO's financial position and business losses were adequately explained, and the properties mentioned in Clause 1.7(d) were correctly identified as non-transferable. The court held that there was substantial compliance with the provisions, and no fraud or prejudice was demonstrated.

Ground (B): Valuation of Share Exchange Ratio is grossly loaded in favour of HLL.
The valuation was conducted by Mr. Y.H. Malegam using a combination of net worth, market value, and earning methods. The court emphasized that valuation is a technical process involving professional judgment. The valuation was reviewed and confirmed by independent firms A.F. Ferguson & Co. and N.M. Raiji & Co., and was approved by the shareholders. The court found no evidence of fraud or mala fide intent and upheld the valuation.

Ground (C): Ignoring the Effect of Provisions of the MRTP Act.
The appellants argued that the scheme should not be sanctioned until the MRTP Commission reviews it. The court noted that the relevant provisions of the MRTP Act concerning mergers and amalgamations were repealed in 1991. The MRTP Commission's role is now advisory, and there is no legal requirement to await its decision before sanctioning the scheme. The court rejected the appellants' contention, emphasizing the need for timely resolution.

Ground (D): Interest of Employees of Both Companies is not adequately taken care of.
The court examined objections from various employee unions. Clause 11 of the scheme ensured that TOMCO employees' service conditions would not be adversely affected by the merger. The court found no basis for the fear of retrenchment and noted that HLL had a history of offering voluntary retirement schemes rather than retrenchment. The court also addressed concerns of ex-workers from TOMCO's Calcutta factory, ensuring that their rights under a previous settlement would be protected.

Ground (E): Preferential Allotment of Shares less than market price to UL which is not in public interest.
The court detailed the rationale behind the preferential allotment of shares to UL at Rs. 105, noting that it was based on a price-earning multiple and was approved by financial institutions. The court emphasized that the shareholders had the discretion to determine the price, and the decision was nearly unanimous. The court found no evidence of coercion or mala fide intent and upheld the allotment.

Ground (F): Mala fides on account of existence of quid pro quo between UL and Tata Sons Ltd.
The appellants alleged that the scheme was based on a quid pro quo between UL and Tata Sons Ltd. The court found no evidence to support these allegations. It noted that the properties mentioned in Clause 1.7(d) were used by TOMCO as a gratuitous licensee and were not considered assets. The court upheld the scheme, finding no basis for the allegations of mala fides.

Conclusion:
The court approved the scheme of amalgamation with modifications, ensuring that the interests of all stakeholders, including employees and consumers, were adequately protected. The appeals were disposed of with no order as to costs.