Citation: AIR 1997 SC 506, (1997) 1 SCC 579
Bench: Supreme Court of India :
S.B.Majumdar J
Introduction:
- A
Scheme of Amalgamation of M/s. Mafatlal Industries Limited [MIL] being
the Transferee Company and Mafatlal Fine Spinning and Manufacturing
Company Limited [MFL] being
the Transferor Company was proposed
- The
Learned Single Judge of Gujarat High Court had sanctioned the said scheme
in Company Petition No. 22 of 1994.
- Appeal
was filed against the impugned Judgment before the Division
Bench of High Court of Gujarat in Appeal No. 16 of 1994 and the said
Appeal was also dismissed.
- Aggrieved
by the Judgment of the Division Bench, the Appellant filed an Appeal by
Special Leave before the Supreme Court.
Background Facts of the case:
1. Transferor Company: [MFL]:
MFL was incorporated on
20th April 1931 under the Baroda State Companies Act and had been carrying
on the business of manufacture and sale of textile piece goods and chemicals.
Its registered office was situated at Mafatlal Centre, Nariman Point, Bombay.
It was engaged in the manufacture and sale of textiles and fluorine based
chemicals.
2.
Transferee Company: [MIL]:
MIL was incorporated on
20th January 1913 under the name 'The New Shorrock Spinning & Manufacturing
Co. Limited' and its name was subsequently changed to 'Mafatlal Industries
Limited' as per the fresh Certificates of Incorporation dated 24th January
1974. Its registered office was situated at Ahmedabad, Gujarat. The
objects of MIL includes carrying on all or any of the businesses such as cotton
spinners and doublers, wool, silk flax, jute and hemp spinners and doublers
etc,.
3.
Appellant:
The appellant who has
objected to the amalgamation before the High Court of Gujarat is one of the
directors of MFL.
4.
Amalgamation:
Meeting of shareholders
of the Company were convened and the Scheme was approved by the overwhelming
majority of shareholders.
Grounds of appeal:
The following four
important considerations were raised by the Appellant in the present case.
1. Non -Disclosure of
Interest of Directors :MIL while
placing the scheme before the equity shareholders meeting did not disclose the
interest of the directors, namely, Shri Arvind Mafatlal and Shri Hrishikesh
Mafatlal in the explanatory statement supporting the Scheme and hence the
shareholders were misled and could not come to an informed decision.
2. The Scheme is unfair to the
minority shareholders
3. The appellant
represented a distinct class of equity shareholders so far as the
respondent transferee -company is concerned and consequently separate meeting
so far as his group is concerned should have been convened by the Company
Court.
4. Share exchange Ratio was unreasonable: As it provides under the Scheme that two equity
shares of the transferee company will be allotted against five equity shares of
the transferor- company at their respective face value of Rs. 100/- per share
Points
of Law discussed:
Scope
and Ambit of Jurisdiction of Company Court:
Broad principles
concerned with the Jurisdiction of the Company Court were laid down. While considering
and sanctioning the scheme of Amalgamation, the Court has
to see,
1. That the requisite statutory procedure for
supporting such a scheme has been complied with and that the requisite
meeting as contemplated by Section 391(1) (a) have been held.
2. That the scheme is backed up by the
requisite majority vote as required by Section 391(2).
3. That the concerned meetings of the creditors or members
or any class of them had the relevant material to enable the voters
to arrive at an informed decision for approving the scheme in
question.
4. That all the necessary material indicated
by Section 393(1) (a) is placed before the voters at the concerned
meetings.
5. That all the requisite material
contemplated by Section 391(2) of the Act is placed before the
Court by the Applicant
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
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 class whom they purported to
represent.
8. That the scheme as a whole is also found to
be just, fair and reasonable from the point of view of prudent men of
business taking a commercial decision beneficial to the class represented by
them for whom the scheme is meant.
Once the aforesaid broad parameters about the
requirements of a scheme for getting sanction of the Court are found to have
been met, the Court will have no further jurisdiction to sit in appeal over
Concept
of commercial wisdom: Jurisdiction of Company Court:
- The question whether the Company Court has jurisdiction like an appellate authority to minutely scrutinize the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the same is approved by majority of the creditors or members of the company was answered by the Court in negative.
- The following lines are quoted in this regard:
“It is the
commercial wisdom of the parties to the scheme who have taken an informed
decision about the usefulness and propriety of the scheme by supporting it by
the requisite majority 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 commercial 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 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.”
On
issues raised:
1. On
Non – Disclosure of interest of a director:
- This issue was dismissed and the following observations
were made in this regard.
· "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)."
- Consequently the interest of Arvind
Mafatlal in the share-holding or likely future impact thereon by the
litigation was de hors the Scheme in question and was not required to be
placed before the voters. Therefore the same is not valid ground of
objection.
2. On
the Scheme being unfair and unreasonable.
- The Supreme Court declared that the Scheme of Compromise and Arrangement is neither unfair nor unreasonable to the minority shareholders represented by the appellant as the scheme was approved by the overwhelming majority of the shareholders of the Company and it is not proved that the interest of the minority is prejudiced by the scheme.
- It was stated that the financial institutions and
statutory corporations held substantive percentage of shares in
respondent-company. This class of shareholders who are naturally well
informed about the business requirements and economic needs and the
requirements of corporate finance wholly approved the Scheme if it was
contrary to the interest of shareholders as class. The following lines are
quoted in this regard:
“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.”
3. On Appellant’s plea to be treated as a separate
class of shareholders:
Quoting Palmer in this
Treatise Company Law 24th Edition, it was held that unless a separate and
different type of Scheme of Compromise is offered to a sub- class of a class of
creditors or shareholders no separate meeting of such sub-class of the main class
of members or creditors is required to be convened
4. On Valuation of shares:
- In this regard, reference was made to a decision of the Gujarat High Court in Kamala Sugar Mills Limited [55 Company Cases P.308] which dealt with an identical objection about the exchange ratio adopted in the Scheme.
"Once
the exchange ratio of the shares of the transferee-company to be allotted to
the
shareholders of the transferor-company has been worked out by a recognized
firm of
chartered accountants who are experts in the field of valuation and if
no mistake can be
pointed out in the said valuation, it is not for the court to substitute
its exchange ratio,
especially when the same has been accepted without demur by the
overwhelming majority of the
shareholders of the two companies or to say that the shareholders in their
collective wisdom should
not have accepted the said exchange ratio on the ground that it will be
determined to their interest."
Therefore share exchange ratio fixed by experts who
are certified professionals will not be
disturbed unless the same is contrary to the
provisions of law
