CITATION: AIR 1997 SC 506, (1997) 1 SCC 579
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.
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.
- The Respondent Company did not disclose the interest of the directors namely, Shri Arvind Mafatlal and Shri Hrishikesh Mafatlal.
- The Scheme as proposed was unfair to the minority shareholders represented by the appellant.
- 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.
- 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.
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.
- 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
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