Miheer H. Mafatlal Vs. Mafatlal Industries Ltd.

CITATION: AIR 1997 SC 506, (1997) 1 SCC 579

CASE HISTORY

The case came for appeal by way of special leave from Division Bench of High Court of Gujarat. The Division Bench had earlier dismissed the appeal of the appellant and confirmed the order of Single Judge in company petition and sanctioned a Scheme of Amalgamation of two Public Limited companies, namely Mafatlal Industries  Limited  (‘MIL‘)  being  the  transferee-company  with  which  Mafatlal  Fine Spinning  and Manufacturing Company  Limited  (‘MFL‘)  being  the  transferor-company which were to be amalgamated.

FACTS

The transferor-company MFL was proposed to be amalgamated with the respondent-company MIL. The  directors  of  the  respondent-company  MIL  and  transferor-company  MFL  approved  the proposal  for  amalgamation  of  the  MFL  with  MIL  and  pursuant  to  the  respective  Resolutions passed by them and the detailed Scheme of Amalgamation was finalized. The appellant who has objected to the amalgamation before the High Court of Gujarat is himself one of the directors of the transferor-company being MFL.

Transferor-company‘s registered office was located at Bombay. The corresponding application for the scheme of amalgamation was moved to the Bombay High Court.  The appellant at this stage did not object to this very scheme of amalgamation on behalf of the transferor-company of which he was one of the directors and party to the Resolution approving the said amalgamation. Single Judge of  the  Bombay  High  Court  sanctioned  the  said  Scheme  on  behalf  of  transferor-company.

The registered office of the transferee-company was located at Ahmadabad. The respondent transferee-company had approached the High Court of Gujarat for sanctioning this very Scheme of Amalgamation. At this stage the appellant who was one of the shareholders of the transferee-company filed his objection to the Scheme of Amalgamation moved under Section 391 of the Act.

In the meeting of equity shareholders convened pursuant  to  the  order  of  the  High  Court,  overwhelming  majority  of  the  equity  shareholders of the respondent transferee company approved  the  Scheme.

ISSUE: Whether scheme of amalgamation is prejudicial to interests of minority shareholders.

CONTENTIONS

1. The Respondent Company did not disclose the interest of the directors namely, Shri Arvind Mafatlal and Shri Hrishikesh Mafatlal.
2. The Scheme as proposed was unfair to the minority shareholders represented by the appellant.
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 unreasonable and unfair to the shareholders of the transferee-company.
4. 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 and as that has not been done the Scheme is liable to be rejected.

HELD

Contention No.1: If non-disclosure of 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).

Contention No.2: The Scheme of Compromise and Arrangement is neither unfair nor unreasonable to the minority shareholders represented by the appellant.

Contention No.3: 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.

Contention No.4: unless a separate and different type of Scheme of Compromise is offered to a sub-class of a class of creditors or shareholders 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.

CONCLUSION: The appeal failed and was dismissed.

KEY TAKEAWAYS

• The scope of Company Court to sanction scheme of amalgamation is limited and therefore Court can intervene in matter only when it is not just and fair or prejudicial to the interest of share holders. Court can only go through scheme and examine whether it has complied requirements under Section 391 (2) and was passed requisite majority or not.
• Individual personal interest of minority share holders is of no concern unless it is affecting class interest of such equity shareholders.

Author: Vivek Verma

Image from here