1960 (11) TMI 46 - DSC - Companies Law

Improper Acquisition Attempt Under Companies Act: Shareholder Protected from Unfair Scheme

The court held that the transferee company's attempt to acquire the minority shareholder's shares under section 209 of the Companies Act, 1948, was ... Shares of shareholders dissenting from scheme or contract approved by majority – Power and duty to acquire Issues Involved:1. Validity of the compulsory acquisition under section 209 of the Companies Act, 1948.2. Fairness of the price offered for the minority shareholder's shares.3. The legitimacy of the scheme or contract dated July 14, 1959.4. The propriety of the transferee company's actions and intentions.Detailed Analysis:1. Validity of the compulsory acquisition under section 209 of the Companies Act, 1948:The transferee company, Jackson and Shaw (Holdings) Ltd., sought to exercise its statutory rights of compulsory acquisition under section 209. The minority shareholder challenged this, and the court had to determine whether the transferee company was entitled to acquire the shares. The court noted that the mechanism of section 209 had been invoked by forming the holding company specifically to enable the majority shareholders to expropriate the minority shareholder's shares. The court concluded that such a use of section 209 was contrary to the fundamental principle of law that a shareholder cannot be forced to sell their shares without just cause.2. Fairness of the price offered for the minority shareholder's shares:The court examined whether the price offered to the minority shareholder was fair. The transferee company argued that the onus was on the minority shareholder to show that the price was unfair. However, the court found that the burden was on the transferee company to prove that the price was fair, especially given the unusual nature of the case where the majority shareholders were essentially the same as the transferee company. The court noted that the minority shareholder had shown that the offer was not fair, as evidenced by higher offers made earlier and the company's profit-earning potential.3. The legitimacy of the scheme or contract dated July 14, 1959:The court scrutinized the legitimacy of the purported scheme or contract dated July 14, 1959. It was argued that there was no actual scheme or contract as required by the section. The court observed that the so-called scheme was a sham, created by the majority shareholders themselves, and did not constitute a genuine scheme or contract. The court highlighted that the minority shareholder could have ignored the notice altogether, as there was no real scheme or contract in place.4. The propriety of the transferee company's actions and intentions:The court assessed the propriety of the actions and intentions of the transferee company. It was evident that the transferee company was formed solely to facilitate the expropriation of the minority shareholder's shares. The court found this to be a barefaced attempt to circumvent the fundamental rule of company law that forbids the majority from expropriating the minority without proper provision in the articles. The court noted that the transferee company did not even comply with the procedural requirements of the section, such as the length of delay and notice. The court concluded that the actions of the transferee company were improper and dismissed the appeal.Conclusion:The court upheld the decision of Buckley J., concluding that the transferee company was not entitled to acquire the minority shareholder's shares under the purported scheme. The court emphasized that the mechanism of section 209 could not be used to enable majority shareholders to expropriate the minority without a genuine scheme or contract and a fair price. The appeal was dismissed, and the minority shareholder was not compelled to sell his shares at the proposed price.