2000 (1) TMI 1018 - Board - Companies Law

Court dismisses petition challenging sale due to lack of evidence and inability of minority shareholders to challenge board-approved decisions.

B.A. Mendonca And Ors. Versus Philips India Ltd. And Ors.

The court dismissed the petition, finding no infirmities in the explanatory statement, lack of evidence for inadequate consideration, and no right for ... - Issues Involved:1. Allegations of oppression and mismanagement.2. False statements in the annual report.3. Discrepancies in annual reports sent to Indian and foreign shareholders.4. Concealment of vital information in the explanatory statement.5. Irregularities in the conduct of the 69th annual general meeting (AGM).6. Inadequate consideration for the sale of the Pune unit.7. Non-supply of the valuation report to shareholders.8. Nexus between the company, the valuer, and the buyer.9. Wisdom of the management in selling the unit.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The petitioners, who collectively hold 0.02% shares in the company, filed under Sections 397/398/402/403 of the Companies Act, 1956, alleging acts of oppression and mismanagement. They contended that the sale of the Pune unit was mala fide and against the interests of the company.2. False Statements in the Annual Report:The petitioners alleged that the annual report for 1998-99 contained false statements, but this issue was not substantively argued during the hearing.3. Discrepancies in Annual Reports Sent to Indian and Foreign Shareholders:The petitioners claimed discrepancies in the annual reports sent to Indian and foreign shareholders. However, this issue was also not substantively argued during the hearing.4. Concealment of Vital Information in the Explanatory Statement:The petitioners argued that the explanatory statement lacked vital information, particularly regarding the method and manner of valuation of the Pune unit. They claimed that the explanatory statement did not conform to Section 173(2) of the Act. However, the court found that the explanatory statement contained all material facts necessary for shareholders to make an informed decision, including the reasons for the sale, the name of the buyer, the valuation method, and the fact that none of the directors were interested in the resolution.5. Irregularities in the Conduct of the 69th AGM:The petitioners alleged irregularities in the conduct of the 69th AGM and claimed that the minutes did not reflect the correct proceedings. However, this issue was not substantively argued during the hearing.6. Inadequate Consideration for the Sale of the Pune Unit:The petitioners contended that the consideration for the sale of the Pune unit was inadequate. They argued that the land alone was worth more than Rs. 100 crores. However, the court noted that the business value of the unit had been assessed by two independent valuers, M/s. KPMG and M/s. B. S. Billimoria, and the sale price of Rs. 35.39 crores was higher than the valuations provided by both valuers. The court found no evidence to support the petitioners' claim of inadequate consideration.7. Non-Supply of the Valuation Report to Shareholders:The petitioners demanded a copy of the valuation reports. The court held that shareholders do not have an automatic right to access all company documents and that the valuation reports contained sensitive information. The court decided not to request the valuation reports for its own perusal, as the petitioners had not provided any substantial evidence to support their claim of inadequate consideration.8. Nexus Between the Company, the Valuer, and the Buyer:The petitioners expressed apprehension about a possible nexus between the company, the valuer, and the buyer, as the registered office of M/s. B. C. Components India Pvt. Ltd. was located in the office of one of the valuers. However, the court dismissed this allegation as unfounded, noting that no such allegation was found in the pleadings and that the other valuer had provided a similar valuation.9. Wisdom of the Management in Selling the Unit:The petitioners questioned the wisdom of the management in selling the unit, arguing that the company would have to purchase components at exorbitant prices post-sale. The court found that the turnover from the unit was only about 5% of the company's total turnover and that the sale was a strategic decision due to the lack of future technical support from the parent company. The court emphasized that commercial decisions taken by the board and approved by the majority shareholders cannot be impugned by shareholders holding minimal shares.Conclusion:The court dismissed the petition, holding that the explanatory statement did not suffer from any infirmities, the petitioners failed to establish that the consideration was inadequate, and the non-supply of the valuation reports did not give the petitioners the right to challenge the sale. The court also noted that a commercial decision taken by the board and overwhelmingly approved by the shareholders cannot be challenged by shareholders holding minimal shares. The petition was dismissed with no order as to costs.