Compulsory acquisition of dissenting shares turns on proof that the majority-approved offer was materially unfair or unreasonable.
Under section 153B of the Indian Companies Act, 1913, compulsory acquisition of dissenting shares is supported once the statutory majority has accepted the offer, unless dissentients show grounds for court intervention. The burden lies on the dissenting shareholders to displace the presumption that the majority acted reasonably. Judicial interference is warranted only where there is misrepresentation, unfair dealing, conflicting interests, or a materially wrong valuation basis. Mere criticism of valuation is insufficient unless it shows that the offer was substantially undervalued. On the facts discussed, the shareholders failed to prove unfairness or unreasonableness, so the majority-approved offer was upheld.
Issues: (i) Whether, under section 153B of the Indian Companies Act, 1913, the burden lay on dissenting shareholders to show why the transferee company should not compulsorily acquire their shares. (ii) Whether the dissenting shareholders established that the offer accepted by the requisite majority was unfair or unreasonable so as to justify judicial intervention.
Issue (i): Whether, under section 153B of the Indian Companies Act, 1913, the burden lay on dissenting shareholders to show why the transferee company should not compulsorily acquire their shares.
Analysis: The provision permits compulsory acquisition of dissentients' shares once the statutory majority has accepted the offer, unless the Court orders otherwise. The statutory scheme assumes prima facie that the majority acted reasonably, and the dissentients must supply reasons showing why their shares should not be taken. Judicial intervention is warranted only where circumstances such as misrepresentation, unfair dealing, conflicting interests, or a materially wrong basis of valuation are shown.
Conclusion: The burden rested on the dissenting shareholders to displace the presumption in favour of the majority acceptance.
Issue (ii): Whether the dissenting shareholders established that the offer accepted by the requisite majority was unfair or unreasonable so as to justify judicial intervention.
Analysis: The challenge was directed mainly to the valuation basis. The Court held that criticism of the valuation was insufficient unless it was shown that the alleged errors made the offer materially too low. No reliable evidence showed gross undervaluation, omission of valuable assets, or any basis for concluding that the offer was substantially unfair. The shareholders had before them the relevant facts and valuation material, and the offer also carried substantial advantages such as intervening profits and other commercial benefits. On the materials placed, the petitioners failed to prove that the majority acceptance was wrong.
Conclusion: The dissenting shareholders did not establish unfairness or unreasonableness sufficient to resist compulsory acquisition.
Final Conclusion: The statutory majority's acceptance of the offer was upheld, the dissenting shareholders' petition was rejected, and the transferee company's right to acquire the shares was restored.
Ratio Decidendi: Under section 153B of the Indian Companies Act, 1913, the Court will interfere only if dissenting shareholders prove that the majority-approved offer was materially unfair or unreasonable; mere criticism of valuation without proof of substantial undervaluation is insufficient.
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