TaxTMI 
TaxTMI 
1996 (9) TMI 488
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.... No. 22 of 1994 and sanctioned a Scheme of Amalgamation of two public limited com-panies, namely, Mafatlal Industries Ltd. ("MIL") being the transferee-company with which Mafatlal Fine Spg. & Mfg. Ltd. ('MFL') being the transferor-company was to be amalgamated. The learned Single Judge granted requisite sanction to the applicant transferee-company MIL to amalgamate in it the transferor-company MFL under section 391(2) of the Companies Act, 1956 ('the Act'). In order to appreciate the grievance of the appellant who objected to the Scheme moved by the respondent-company MIL, as ventilated before us by its learned senior counsel Shri Shanti Bhushan, assisted by the learned counsel Shri M.J. Thakore, it will be necessary to glance through a few relevant background facts. Background facts 4. The respondent-company MIL which was the petitioner before the learned Single Judge has its registered office at Ahmedabad in Gujarat State. It was incorporated on 20-1-1913 under the name 'The New Shorrock Spg. & Mfg. Co. Ltd.' and its name was subsequently changed to 'Mafatlal Industries Ltd.' as per the fresh Certificate of Incorporation dated 24-1-1974 conse....
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....he face value of Rs. 2,000 each issued to Financial Institutions with effect from 1-2-1994 by the transferor-company. 7. The transferor-company MFL is proposed to be amalgamated with the respondent-company MIL under the following circumstances and for the following reasons: (1)The proposed amalgamation will pave the way for better, more efficient and economical control in the running of operations. (2)Economies in administrative and management costs will improve in combined profitability. (3)The amalgamated company will have the benefit of the combined reserves, manufacturing assets, manpower and cash flows of the two companies. The combined technological, managerial and financial resources are expected to enhance the capability of the amalgamat- ed company to invest in larger and sophisticated projects to ensure rapid growth. (4)The amalgamated company will have a strong and large resource base. With a strong resource base, the risk bearing capacity of the amalgamated company will be substantial. Hitherto, with limited resources and capacity, either company had to forego business opportunities which would otherwise have been profitable to the group. (5)'Expor....
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....not in dispute between the parties that Bombay High Court had already sanctioned this very Scheme on behalf of the transferor-company. 8. As the registered office of the transferee-company is located at Ahmedabad the respondent transferee-company had approached the High Court of Gujarat for sanctioning this very Scheme of amalgamation on behalf of the transferee-company and that application was moved on 8-2-1994. It is at this stage that the appellant who was one of the sharehold-ers of the transferee-company filed his objections to the Scheme of amalgamation moved under section 391. Earlier, the learned Single Judge directed convening of meeting of equity shareholders of the respondent-company. In the meeting of equity shareholders convened pursuant to the order of the High Court, overwhelming majority of the equity sharehold- ers approved the Scheme in the meeting of 22-1-1994 convened at Premabhai Hall, Bhadra, Ahmedabad. The said meeting was attended by 5,522 members present in person or by proxy, holding 20,48,513 fully paid equity shares of Rs. 100 each aggregating to Rs. 20,48,51,300. At the said meeting, resolution was passed without modification by the requisite majorit....
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....hich also ran into 136 pages and that is how the appellant, original objector, is before us in this appeal. Family history 11. In order to properly appreciate the grievance of the appellant against the proposed Scheme and his role as an objector it will be necessary to note the family history of the appellant and two of the directors of the respondent transferee-company who have a common ancestor Mafatlal Gagalbhai. The Family Tree of Mafatlal Gagalbhai projects the following picture: As the aforesaid Family Tree shows, the appellant Miheer is the son of cousin brother of Arvind Navinchandra who is said to be at the helm of affairs of the transferee-company along with his son Hrishikesh. As seen from the Family Tree the common ancestor Mafatlal Gagalbhai who was himself a very astute businessman and entrepreneur had three sons Pransukhlal, Navinchandra and Bhagubhai. The eldest son Pransukhlal got out of the family prior to the death of Mafatlal Gagalbhai and he died without leaving any issue. Mafatlal Gagalbhai expired on 19-7-1944 and was survived by his two sons Navinchandra and Bhagubhai. On 30-9-1944, the said Bhagubhai died leaving him surviving Hemant, then aged 9 a....
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.... was decided to amalgamate Mafatlal Gagalbhai & Co. (P.) Ltd. with the New Shorrock Spg. & Mfg. Co. Ltd. on 24-1-1974 and the name of the company was changed to present name, i.e., MIL. 14. According to the appellant Miheer in or around 1979, there were certain disputes and differences amongst Arvind Mafatlal, Yogindra Mafatlal and Rasesh Mafatlal and it was felt that some arrangement should be worked out, whereby there would be a separation and division of the family business concerns amongst the four branches, viz., Miheer branch known as MHM Group, family of Arvind Mafatlal known as ANM Group, family of Yogindra Mafatlal known as YNM Group and family of Rasesh Mafatlal known as RNM Group. It is his further case that Shri C.C. Chokshi, a reputed Chartered Accountant was requested to prepare a Scheme for division of family business concerns. According to the appel-lant Shri C.C. Chokshi prepared Note dated 23-2-1979 making six sug-gestions for the division of Mafatlal Group of Industries into four groups as there were four family groups. The appellant contends that as per the aforesaid family arrangement the transferee-company, i.e., MIL was agreed to be put to his share and th....
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....ns for opposing the Scheme were canvassed on behalf of the appellant before us by Shri Shanti Bhushan, the learned senior counsel. In the first place he contended that the respondent- company while putting the Scheme for approval of the equity sharehold- ers in their meeting did not disclose the interest of the directors, namely, Shri Arvind Mafatlal and Shri Hrishikesh Mafatlal belonging to the camp of Arvind Mafatlal in the explanatory statement supporting the Scheme and, consequently, the shareholders were misled and could not come to an informed decision regarding the approval of the said Scheme with the result that the approval by the majority of equity shareholders to the said Scheme has got vitiated; (2) the Scheme as proposed was unfair to the minority shareholders represented by the appellant and consequently, it ought not to have been sanctioned by the Court; (3) the Scheme was otherwise unfair to the equity shareholders as the exchange ratio of equity shares of the transferor and transferee-companies was ex facie unreason-able and unfair to the shareholders of the transferee-company MIL insofar as it provides under the Scheme that two equity shares of the transferee-comp....
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....-company was a family concern and was managed by families. That Shri Arvind Mafatlal and Hrishikesh Mafatlal were only two directors out of thirteen directors of respondent-company. These eleven directors did not belong to his family. That even shareholding of Arvind Mafatlal's group in the respondent-company was not substantial and on the contrary about 40 per cent shares were held by outside financial institutions. Even otherwise there was no question of any unfairness underlying the proposed Scheme or that in any way it was unfair to the appellant who never cared even to remain present personally at the time of the meeting of the equity shareholders to put forward his objections and he only sent proxies who had no right to speak at the meeting. That, therefore, all these objections which he ultimately raised before the High Court were an afterthought. It was also contended that there was nothing wrong with the exchange ratio as C.C. Chokshi & Co., a firm of reputed Chartered Accountants, had considered all the pros and cons underlying the Scheme and had suggested the exchange ratio and such an expert opinion was endorsed by another financial institution ICICI. That the appel....
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.... through proxy for submitting his objection by voting against the Scheme without having any right to address the meeting. Thus, the contention regarding alleged suppression by the majority was purely an afterthought especially when in the meeting the group of Arvind Mafatlal had not represented an absolute majority and 40 per cent of the voting was by financial institutions who had no axe to grind against the appellant and who had voted by keeping in view purely commercial and economic interests of equity shareholders and had approved the Scheme in that light. It was, therefore, submitted that the contention raised on behalf of the appellant deserve to be rejected and the appeal consequently, also deserves to be dismissed. 19.1n view of the aforesaid rival contentions the following points arise for our determination: 1.Whether the respondent-company was guilty of hiding the special interest of its director Shri Arvind Mafatlal from the shareholders while circulating the explanatory statement supporting the Scheme and whether thereby the voting by the equity shareholders got vitiated? 2.Whether the Scheme is unfair and unreasonable to the minority shareholders represented b....
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....ll the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. 393. Information as to compromises or arrangements with creditors and members.-(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391,- (a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any ....
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....that the requisite information as contemplated by the said provision is also required to be placed for consideration of the concerned voters so that the parties concerned before whom the scheme is placed for voting can take an informed and objective decision whether to vote for the scheme or against it. On a conjoint reading of the relevant provisions of sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimature of a Court of law. No Court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that ....
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....y vote that has to be kept in view by the Court. The Court certainly would not act as a Court of Appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and comer- cial wisdom of the concerned parties. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently, the Company Court's jurisdiction, to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The supervisory jurisdiction of the Compa- ny Court can also be culled out from the provisions of section 392 which reads as under: "Power of High Court to enforce compromises and arrangements. - (1) Where a High Court makes an order under section 391 sanctioning a compromis....
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....es under pari materia English Company Law. We will briefly refer to the relevant decisions on the point. But before we do so we may also usefully refer to the observations found in the oft-quoted passage in Bucklay on the Companies Act, 14th edition. They are as under: "In exercising its power of sanction the Court will see, first that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the Court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which it is empowered t....
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....glo-Continental Supply Co. Ltd, In re [1992] 2 Chd. 723, Ashtury, J., a century later reiterated the very same propositions as under: "Before giving its sanction to a scheme of arrangement the court will see firstly that the provisions of the statute have been complied with; secondly that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and, thirdly, that the arrangement is such as a man of business would reasonably approve." The learned Single Judge of the Calcutta High Court in the case of Mankam Investments Ltd, In re [1995] 4 Comp. LJ. 330 relying on a catena of decisions of the English Courts and Indian High Courts observed as under on the power and jurisdiction of the Company Court which is called upon to sanction a scheme of merger and amalgamation of companies: "It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless....
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....hall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance of English Decisions Hoare & Co. Ltd., In re. 1933 All ER Rep. 105, Ch. D and Bugle Press Ltd., In re 1961 Ch. 270 that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive." Sen, J., speaking for himself and Venkatachaliah, CJ., also towed the line indicated by Sahai, J., about the jurisdiction of the Company Court while sanctioning the scheme and made the following pertinent observations in paragraph 84: "An argument was also made that as a result of the amalgamation, a large share of the market will ....
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....ss of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4.That all necessary material indicated by section 393(1)(a ) is placed before the voters at the concerned meetings as contemplated by section 391(1). 5.That all the requisite material contemplated by the proviso of sub section (2) of section 391 is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same. 6.That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7.That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same ....
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....which would enable the amalgamated company to raise required finance at better terms. A larger company would generate more confidence in the investors and with the persons dealing with the company and will afford access the resources easily and at lower cost. The amalgamation of MF with MIL will pave the way for better, more efficient and economic control in the running operations and would lead to economy in the administrative and management cost, resulting in improving profitability. The amalgamated company will have a strong and large resource funds. The combined technological Managerial and financial resources would enhance the capability of the amalgamated company to invest in large and sophisticated projects to ensure rapid growth. The amalgamated company's Textiles Division with five operative units at its disposal will have flexibility in its operations." So far as the aforesaid explanatory statement is concerned it gives sufficient indication regarding the pliability and usefulness of the pro- posed Scheme of Amalgamation of transferor-company MFL with the transferee-company MIL. However, the special grievance of the appellant voiced by his learned counsel is to the....
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....i Bhusan in this connection submitted that though the learned Single Judge had taken the view that this type of special interest of director Arvind Mafatlal was not relevant and germane to the requirement of section 393(1)(a), the Division Bench in appeal had taken a contrary view and held that such a special interest was required to be communicated to the equity shareholders in their meeting as per the said provision. In this connection our attention was invited by Shri Shanti Bhusan to the observation of the Division Bench of the High Court at page 325 of the paper book wherein the Division Bench observed as under: "Mihir H. Mafatlal was to get exclusive control to MIL to the exclusion of Arvind N. Mafatlal and his two brothers. Under the proposed family arrangement M. Fine was to be hived off from MIL and the control and management of the M. Fine was to be held by Arvind N. Mafatlal and that of MIL was to be handed over to objector Mihir H. Mafatlal. This family arrangement has suffered rough weather. Suit No. 1010 of 1987 was filed by Arvind N. Mafatlal against Mihir H. Mafatlal and others before the Bombay High Court alleging that another agreement subsequent to the said fa....
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....is-a-vis the company which is a corporate entity insofar as company's relations with these class of creditors and sharehold-ers are concerned. If the special interest which the director has is in any way likely to be affected by the Scheme and if non-disclosure of such an interest is likely to affect the voting pattern of the class of creditors or shareholders who are called upon to vote on the scheme, then only such special interest of the director is required to be communicated to the voters as per section 393(1)(a). We fail to appreciate how the personal family dispute between the appellant on the one hand and Arvind Mafatlal, director of the transferee-company MIL on the other, regarding the right to hold shares in the company can have any linkage or nexus with the Scheme of Amalgamation of these two companies which was put to vote before the equity shareholders. It is easy to visualize that if the suit filed by Arvind Mafatlal against the appellant succeeds and the appellant's counter-claim fails then all that would happen is that the appellant will have to sell his shareholding which is only 5 per cent in the transferee-company to the plaintiff Arvind Mafatlal. That h....
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....d Maf atlal or vice versa. That was entirely their personal dispute which was still not adjudicated upon and its decision one way or the other had no impact on the pattern of voting of the equity shareholders of the respondent- company as a class of prudent businessmen and investors so far as the Scheme was concerned. The Scheme of Compromise and Arrangement which was put to vote was of such a nature that it had no impact or effect on the personal interest of the director Arvind Mafatlal in connection with his present shareholding in the transferee-company. Consequently, it must be held that mention about such an interest was outside the statutory requirements of section 393(1)(a) as rightly held by the learned Single Judge whose view was erroneously upset by the Division Bench. However, in any case we are in entire agreement with the subsequent reasoning of the Division Bench for approving the decision of the learned Single Judge on this aspect, namely, that such non-disclosure of interest had no impact on the voting pattern adopted at the meeting by equity shareholders who are called upon to approve the scheme. It may also be noted in this connection that the resolution of the eq....
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....f votes and when the dissenting vote on behalf of the appellant's group was in microscopic minority of less than 5 per cent. It is also pertinent to note in this connection that the appellant who being a party to the civil litigation before the Bombay High Court and who was very much keen to get more shareholding in transferee-company and who had already filed his counter-claim for enforcing the family arrangement of 1979, had not thought it fit to remain present in the meeting of equity shareholders and on the contrary he got himself represented through proxy who had no right to speak. Thus, in substance, the appellant himself never thought that information about the pendency of the litigation between Arvind Mafatlal, director of the respondent-company and him- self was so important that it was required to be brought to the voters' notice even though he had opportunity to do so by remaining personally present in the meeting for that purpose. It therefore, clearly appears to be an afterthought when he put forward such an objection for the sake of it at the time of opposing the Scheme which was put for sanction of the Court. 27. It may also be kept in view that the explan....
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.... the family concerns against the director of the respondent-company Shri Arvind Mafatlal and his group. So far as this submission is concerned, Shri Sorabjee, the learned senior counsel for the respondent joined issues and submitted that factually there is no basis for such a contention as respondent-company is not controlled by Shri Arvind Mafatlal who is one of the directors along with his son Hrishikesh but there are eleven outside directors and the share-holding of Arvind Mafatlal and his group is not even 50 per cent even including the shareholding of other subsidiary companies in which also Arvind Mafatlal and his group may be shareholders. We find considerable force in the aforesaid contention of the learned senior counsel for the respondent. The evidence produced in the case shows that out of total majority vote of 95.75 per cent which supported the Scheme at the meeting of equity shareholders even according to the pattern disclosed by the appellant himself individual trust controlled by Arvind Mafatlal and private companies accounted to only 16 per cent of the shares voted in the meeting, about 44 per cent of the shares were represented by financial institutions, employees....
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....ass and not of one single person. It is, therefore, not possible to agree with the contention of learned senior counsel for the appellant that the majority had acted unfairly to the appellant and had not protected his interest when what was to be protected was the class interest of minority shareholders falling in the same class along with the majority. It is not the contention of the appellant that while voting by majority in favour of the Scheme the majority had acted with any oblique motive to fructify any adverse commercial interest quahim and his group when it consisted of outsiders like financial institutions or that there was any possibility of their surren-dering their economic interest in the Scheme at the dictates of sharehold- er-director Arvind Mafatlal and his group. It is also to be kept in view that the board of directors of the respective companies, namely, the transferor-company as well as the transferee-company had approved the Scheme of Amalgamation before it was put to vote. The appellant was himself one of the directors of the transferor-company who had no objection to the Scheme of Amalgamation from the point of view of the transferor-company. So far as the tr....
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....r is going to be totally negative so far as the existence of the transferor-company or otherwise is concerned. We find considerable force in the contention of the learned counsel for the respondent. It is also pertinent to note that if the appellant felt that the Scheme was unfair inasmuch as he was likely to lose his future interest, if any, and control, if any, in the transferor-company by its merger and loss of identity on account of the Scheme it passes one's comprehension how he as sitting director of the transferor-company approved of the Scheme, did not object to the Scheme and on the contrary was a party to the resolution of the board of directors of transferor-company to propose the Scheme of its amalgamation with the transferee-company. Not only that but even when that Scheme was put for sanction before the Bombay High Court on behalf of the transferor-company the appellant did not object meaning thereby appellant had no objection to the transferor-company losing its identity and getting merged in the transferee-company pursuant to the proposed Scheme. The appellant's own conduct, therefore, belies his apprehension that the Scheme as proposed was in any way unfair....
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....ut of consideration when such class meeting acting for the benefit to the whole class of equity shareholders take up the consideration of the Scheme for its approval. Consequently, it could not be said that the majority shareholders had sacrificed the class interest of appellant minority shareholders when they voted with overwhelming majority in favour of the Scheme. Point No. 2 is accordingly answered in the negative. That takes us to the consideration of Point No. 3 for determination. Point No. 3 31 In a way the answer to Point No. 2 necessarily results in negativing this point also. Even that apart we fail to appreciate how the Scheme of Amalgamation can be said to be unfair and amounting to suppression of minority shareholders represented by the appellant. It has to be kept in view that by this proposed Scheme of Amalgamation the transferor-company was getting merged in the transferee-company. Now, even if it is held that the appellant succeeds in his counter-claim in the suit pending in the Bombay High Court and if he is to get the shareholding of Arvind Mafatlal and his group transferred to him so far as transferee-company is concerned, the transferee-company because of....
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....ncerned the relevant provisions of the Act to which we have made a reference earlier indicate that the Court has to order under section 391(1) a meeting of creditors or class of creditors or members or class of members to whom the Scheme of Compromise or Arrangement is offered by the company. The present controversy centres round a meeting of members. Members of the company are shareholders. Part IV of the Act deals with 'Share Capital and Debentures'. Section 82 provides that 'the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company'. As per section 86 the share capital of a company limited by shares formed after the commencement of this Act, or issued after such commencement, shall be of two kinds only, namely, equity share capital and preference share capital. So far as the articles of association of respondent-company are concerned they also contemplate two classes of shareholders, namely, equity and preference shareholders. No separate class of equity shareholders is contemplated either by the Act or by the articles of association of respondent-company. Appellant is adm....
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....n the express language of section 391(1) it becomes clear that where a compromise or arrangement is proposed between a company and its members or any class of them a meeting of such members or class of them has to be convened. This clearly pre-supposes that if the Scheme of Arrangement or Compromise is offered to the members as a class and no separate Scheme is offered to any sub-class of members which has a separate interest and a separate Scheme to consider, no question of holding a separate meeting of such a sub-class would at all survive. Even otherwise it becomes obvious that as minority shareholder if the appellant had to dissent from the Scheme his dissent representing 5 per cent equity shareholding would have been visible both in a separate meeting, if any, of his sub-class or in the composite meeting where also his 5 per cent dissent would get registered by appellant either remaining present in person or through proxy. Consequently, when one and the same Scheme is offered to the entire class of equity shareholders for their consideration and when commercial interest of the appellant so far as the Scheme is concerned is in common with other equity sharehold-ers he would hav....
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....herefore, obvious that unless a separate and different type of Scheme of Compromise is offered to a sub-class of a class of creditors or sharehold-ers otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. On the facts of the present case the appellant has not been able to make out a case for holding a separate meeting of dissenting minority equity shareholders represented by him. The fourth point for determina- tion therefore, is answered in the negative. That takes us to the consider-ation of the last point for determination placed for our consideration by the learned senior counsel for appellant. Point No. 5 33. It was submitted that the exchange ratio of equity shareholders so far as the transferee-company is concerned works very unfairly and unrea-sonably to them. As per the proposed Scheme 5 equity shares of transferor-company are to be exchanged for 2 equity shares of transferee-company. So far as this contention is concerned it has to be kept in view that before formulating the proposed Scheme of Compromise and Amalgamation an expert opinion was obtained by the respondent....
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....e to remain personally present. He sent his proxy only to record his dissent vote which was in microscopic minority of 5 per cent as compared to 95 per cent majority vote. Not only that even before the Court he did not submit any contrary expert opinion regarding the valuation of shares of transferor and transferee-companies for supporting his ipse dixit that the correct ratio would be 6:1 so far as transferor and transferee-companies were concerned. Shri Shanti Bhushan, the learned senior counsel for the appellant having realised this difficulty submitted that at least these proceedings are continuation of proceedings before the High Court, therefore, this Court may now in order to satisfy itself send for the opinion of an expert. It is difficult to agree. The appellant who was propounding this theory of correct exchange ratio had nothing to offer in support of his contention both before the learned Single Judge as well as before the High Court. It has to be kept in view that the matter was fiercely contested on all permissible points before learned Single Judge. The proceedings were pending before the High Court for more than two years from 8-2-1994 till 12-7-1996 when the Divisi....
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....what were suggested by Mr. B.R. Shah on behalf of the appellant. However, keeping in view the scope of enquiry which the Court is required to undertake and with whose findings we are concerned, it will not be permissible for us in law to undertake this exercise in the facts and circumstances of present case in absence of bona fides". We fail to appreciate how this observation can be of any avail to the learned senior counsel for the appellant as all that the Court wanted to suggest was that even assuming that some another exchange ratio can be suggested to be better one, it was for the equity shareholders who acted bona fide in the interest of their class as a whole to accept even a less favourable ratio considering other benefits that may offset such less favourable ratio once an amalgamation goes through. We wholly concur with this view. In this connection we may also refer to a decision of Maughm, J., in Hoare & Co. (No. 2), In re [1933] All ER 105 wherein it was laid down that where statutory majority had accepted the offer the onus must rest on the applicants to satisfy the Court that the price offered is unfair. In this connection following pertinent observations were made by....
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....have to be cancelled. Increase in share premium account in equity capital of the MIL will also have to be taken into account as a result of final call made in respect of Bond 1992 issue. It has also taken into account significant increase in the paid-up equity of MIL as a result of issue of its Bond in the international market. It has undertaken exercise in calculating net-worth of two companies. It has also referred to the method of valuation of exchange ratio on the basis of earning per share of the two companies by taking into account five years' working results of the two companies making certain adjustments. Apart from taking into consideration the past results of the two companies, the chartered accountants have taken into account the potentiality of the two companies to earn profit in future, considering existing expansion and modernisation of projected and planned expendi-ture by the MIL as well as subsidiary and sister concern in hand. It has also taken into account the market price of equity shares of past 24 months, declared dividend by the two companies, the overall effect of security scam in the market price, realisable investment and their market value. Taking int....
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....ars. He also invited our attention to the break-up value of the shares of company on the basis of the balance sheet as on 31-3-1993 so far as respondent-company was concerned. Annexure 'Q' at page 538 showed value per equity share of Rs. 100 each at Rs. 1,515 while so far as the transferor-company was concerned the break-up value per equity share was Rs. 259. That may be so. But as a package deal when the Scheme as a whole is examined and found to be advantageous to the economic and commercial interest of shareholders as a class only one or two item simplicitor for deciding the exchange ratio cannot tilt the balance as so many factors and aspects would enter that exercise. It was undertak- en by expert body of chartered accountants like C.C. Chokshi & Co. Before parting with the discussion on this point it would be apposite to refer to the decision of this Court in Hindustan Lever Employee's Union's case (supra). In paragraph 41 Justice Sen speaking for himself and Venkatachaliah, C.J. and to which Sahai, J. concurred has observed that the problem of valuation in the case of amalgamation of two companies has been dealt with by Weinberg and Blank in the book Take-ove....