Gauhati High Court
Page No.# 1/69 vs Union Of India And Anr on 29 October, 2025
Bench: Kalyan Rai Surana, Soumitra Saikia
Page No.# 1/69
GAHC010130912016
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THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : Co.App./4/2016
BURAGOHAIN TEA COMPANY LIMITED and ANR
AN EXISTING COMPANY WITHIN THE MEANING OF THE COMPANIES ACT
1956 HAVING ITS REGISTERED OFFICE AT GOVINDAPUR TEA ESTATE, P.O.
LATEKUJAN, GOLAGHAT 585621 IN THE STATE OF ASSAM.
2: B and A LTD.
AN EXISTING CO. WITHIN THE MEANING OF THE COMPANIES ACT 1956
HAVING ITS REGISTERED OFFICE AT INDU BHAWAN
MAHATMA GANDHI ROAD
JORHAT 785001 IN THE STATE OF ASSAM IN THE STATE OF ASSAM
VERSUS
UNION OF INDIA and ANR
THROUGH THE REGIONAL DIRECTOR, MINISTRY OF CORPORATE
AFFAIRS, NORTH EASTERN REGION, HAVING HIS OFFICE AT MORELO
BUILDING, GROUND FLOOR, SHILLONG 793001 AND SERVICE THROUGH
THE CENTRAL GOVT. ADVOCATE, ASSAM, GUWAHATI.
2:SHARMILA VIJAY SHETTY
W/O VIJAY R SHETTY
RESIDING AT B/32
TURF VIEW
3RD FLOOR
12B HORNBY VELLARD ESTATE
SETH MOTILAL SANGH MARG
NEHRU PLANETORIUM ROAD
WORLI
MUMBAI 40001
Advocate for the Petitioner : MR.A CHETIA, MR.R BANERJEE,MR.A K SAHEWALLA,MR.A
ROY
Advocate for the Respondent : MR.J ROY, MS A M DCOSTA (R-2),MR. S HAZARIKA (R-2),MR B
KAUSHIK (R-2),ASSTT.S.G.I.,FOR CAVEATOR,MS.S KAKATI
Page No.# 2/69
Linked Case : Co.App./3/2016
SHARMILA VIJAY SHETTY
W/O VIJAY SHETTY
RESIDING AT B-32
TURF VIEW
SETH MOTILAL SANGHI MARG
MUMBAI 400018
VERSUS
BURAGOHAIN TEA COMPANY LIMITED and ANR
AN EXISTING CO. WITHIN THE MEANING OF THE COMPANIES ACT
1956 HAVING ITS REGISTERED OFFICE AT GOVINDAPUR TEA ESTATE
P.O. LATEKUJAN
GOLAGHAT 785621 IN THE STATE OF ASSAM WITHIN THE AFORESAID
JURISDICTION
2:B and A LTD.
AND EXISTING CO. WITHING THE MEANING OF THE COMPANIES ACT
1956 HAVING ITS REGISTERED OFFICE AT INDU BHAWAN
MAHATMA GANDHI ROAD
JORHAT-785001 IN THE STATE OF ASSAM WITHIN THE AFORESAID
JURISDICTION
------------
Advocate for : MS.S KAKATI
Advocate for : MR.A CHETIA appearing for BURAGOHAIN TEA COMPANY
LIMITED and ANR
BEFORE
HONOURABLE MR. JUSTICE KALYAN RAI SURANA
HONOURABLE MR. JUSTICE SOUMITRA SAIKIA
Dates of Hearing : 18.02.2020, 01.08.2024, 29.08.2024,
21.10.2024, 03.12.2024, 30.05.2025,
18.02.2025 & 26.06.2025
Date of Judgment and Order : 29.10.2025
JUDGMENT AND ORDER (CAV)
Heard Mr. R. Banerjee, learned Senior Counsel assisted by Mr. D. Sarma
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and Mr. A.K. Sahewalla, learned counsel for the appellant in Co.App./4/2016,
who is respondent No.1 in connected Co.App./3/2016. Also heard Mr. D.
Mazumdar, learned Senior Counsel assisted by Mr. B. Kaushik, learned counsel
for the private respondent in Co.App./4/2016, who is the appellant in
Co.App./3/2016 and Mr. MR Adhikari, learned CGC for the Union of India in
Co.Appl No.4/2016.
2. These company appeals are filed by the parties, who are aggrieved by the
order dated 28.07.2015 passed in Company Petition No.3 of 2013. The facts
leading to the present litigation between the parties arose from an application
under Sections 391(2) and 394 of the Companies Act, 1956, seeking sanction of
the Court to the scheme of amalgamation of the Buragohain Tea Company Ltd.
(the transferor company) with the B & A Ltd. (the transferee company).
3. The company appeal No.4 of 2016 is filed by the transferor company,
namely the Buragohain Tea Company Ltd., whereas the company appeal No.3 of
2015 was filed by shareholder of the transferor company, namely the
Buragohain Tea Company Ltd., who had opposed the scheme of amalgamation
of the transferor company with the transferee company, as is evident from the
pleadings before this Court is that the transferor company was incorporated on
20.05.1927 under the provisions of Indian Companies Act, 1913 and is existing
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company under the Companies Act, 1956. The registered office of the transferor
company is situated at Govindapur Tea Estate, Post Office- Latekujan in the
District of Golaghat. The issued, subscribed and paid up share capital of the
transferor company was Rs.5,30,000.00 divided into 530 equity shares of
Rs.1,000.00 each fully paid. The said company is engaged in the business of
cultivation and sale of tea as on 31st of March, 2012. The value of the assets of
the transferor company is Rs.19,53,87,760.00, whereas the liabilities of the
transferor company stood at Rs.6,26,27,175.00. As such, the value of assets
stood over the liabilities as reflected in the books of accounts maintained by the
transferor company.
4. The transferee company, on the other hand, was incorporated on
01.06.1915 under the provisions of the Indian Companies Act, 1913. The
transferee company was initially incorporated as Barasali Tea Company Pvt. Ltd.
Subsequently, it was known as the B & A Ltd. w.e.f. 06.12.2000 and is an
existing company within the meaning of the Act of 1956. The registered office of
the transferee company is situated at Indu Bhawan, MG Road, Jorhat. The
authorized share capital of the transferee company is Rs. 10,00,00,000.00
divided into 50,00,000 equity shares of Rs.10.00 each and 5,00,000 redeemable
cumulative preference shares of Rs.100.00 each. The issued, subscribed and
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fully paid up of share capital of the transferee company is Rs.3,10,00,000.00
divided into 31,00,000 equity shares of Rs.10.00 each fully subscribed and paid
up. The transferee company is engaged in the business of cultivation,
manufacturing and sale of tea as per the audited books of accounts maintained
by the company as on March 31, 2012. The assets of the transferee company
stood at Rs.1,12,48,96,650.00 and the total liabilities stood at
Rs.62,68,26,053.00. Therefore, as per the books of accounts, the assets stood
over the liabilities at Rs.49,80,70,597.00.
5. The transferee company is also a listed company in the stock exchange.
Both the transferor company and the transferee company have their
memorandums and articles of association.
6. The litigation history between the objector and the companies are extracted
below:-
"1) Smt. Sharmila Vijay Shetty, i.e. the appellant in Co. Appeal No. 3/2016, who is the
respondent no. 2 in Co. Appeal No. 4/2016, has contested the Company Petition No. 3/2013,
by filing her respective affidavit-in-opposition.
2) It may be mentioned that as per the submissions made at the Bar, apart from the
proceedings which has given rise to these two appeals, the following cases and proceedings
are pending amongst the family members and/or legal heirs/ representatives of Late
Hemendra Prasad Barooah, some shareholders of B&A Ltd., some share-holders of
Buragohain Tea Co. Ltd. and Smt. Sharmila Vijay Shetty in connection with Buragohain Tea
Co. Ltd. and B&A Ltd., viz:
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a. National Company Law Board (erstwhile Company Law Board):
I. Proceedings alleging oppression and mismanagement under Section 397 and
398 of the Companies Act, 1956 was initiated by Smt. Smt. Sharmila Vijay
Shetty before the Company Law Board, Kolkata Bench, which was registered
and numbered as C.P. No. 186/2013. The said proceeding was transferred to
the National Company Law Tribunal, Guwahati Bench [hereinafter referred to as
"NCLT-GB" for brevity], where it was re-registered as T.P. No.
13/397/398/GB/2016.
II. In connection with T.P. No. 13/397/398/GB/2016 (formerly C.P. No.
186/2013); there appears to be three connected proceedings, being (i) T.A. No.
7/2016 (formerly C.A. No. 126/2016); (ii) T.A. No. 27/2016 (formerly C.A. No.
460/2014); and (iii) T.A. No. 8/2016 (formerly C.A. No. 123/2014).
II. The said proceedings was dismissed for default by order dated 13.07.2017,
passed by the learned NCLT-GB and the interim order passed therein was
vacated.
IV. The proceedings of T.P. No. 13/397/398/GB/2016 (formerly C.P. No.
186/2013), was dismissed for default by order dated 13.07.2017, passed by the
learned NCLT-GB. Therefore, the appellant in Company Appeal No. 3/2018,
namely, Smt. Sharmila Vijay Shetty had filed an application for restoring the
said application to file. The said restoration application under Rule 48 of the
NCLT Rules, 2016, was registered as Rst. Appl. No. 2/2021. Moreover, as there
was delay in filing of the said restoration application, she had also filed a
separate application under the provisions of Rule 15 of the NCLT Rules, 2016,
praying for condoning the delay of 1332 days beyond the period of limitation in
filing the connected application. The said application was registered as Misc.
Application No. 5/2021. The learned NCLT-GB, by order dated 08.04.2022, did
not find good grounds to condone the delay of 1332 days. Accordingly, prayer
made in Misc. Application No.5/2021 was not accepted. Consequently, the said
Rst. Appl. No. 2/2021 was also dismissed as infructuous by order dated
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05.05.2023.
V. Aggrieved by order dated 13.07.2017, passed by the learned NCLT-GB in (i)
T.A. No. 7/2016, (ii) T.A. No. 27/2016, and (iii) T.A. No. 8/2016, the said Smt.
Sharmila Vijay Shetty, had preferred an appeal before the NCLT-PB, which was
registered as Co. Appeal (AT) No. 110/2022. As there was a delay in filing the
said appeal, a separate application, being I.A. No. 2273/2022 was also filed
under Rule 11 and 31 of the NCLAT Rules, 2016, for condoning delay of three
days. The said application was allowed by a common order dated 20.09.2022,
passed in Co. Appeal No. 110/2022 and I.A. No. 2273/2022. However, by the
said order, the learned counsel for the said Smt. Sharmila Vijay Shetty was
permitted to withdraw the said Co. Appeal No. 110/2022 and all the
interlocutory applications.
VI. The said Smt. Sharmila Vijay Shetty filed another company petition under
Section 245 of the Companies Act, 2013, in respect of the affairs of the
transferee company before the NCLT-GB, being CP No. 10/245/2020, which was
transferred to the NCLT, Principal Bench [hereinafter referred to as "NCLT-PB"
for brevity], and is re-registered as TP 36/PB/2021. The present status of the
said CP No. 10/245/2020 has not been brought on record.
VII. During the lifetime of Late Hemendra Prasad Barooah, he had set-up a
trust in the name of Hemen Barooah Benevolent and Family Trust. He had
proposed to transfer 8,61,916 equity shares held by him as First Holder to the
said trust. Smt. Sharmila Vijay Shetty was the Second Holder of the said
shares. Accordingly, he had filed a petition before the Company Law Board,
which was registered as C.P. No. 923(KB)/2011. However, the Company Law
Board had rejected the said petition on the ground that the said was a dispute
between two parties.
b. Civil Suit:
I. Accordingly, on rejection of C.P. No. 923(KB)/2011, Late Hemendra
Prasad Barooah, had filed T.S. No. 41/2012, before the Court of Civil Judge,
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Jorhat. On his death, one Somnath Chatterjee sought his substitution as
plaintiff on the strength of a purported will dated 21.11.2011, left by Late
Hemendra Prasad Barooah. It appears that the substitution petition was
rejected. Against such rejection order, the said Sri Somnath Chatterjee had
preferred CRP No. 97/2013, before this Court, which was also dismissed by
order dated 13.11.2014.
II. In the meantime, an order of status-quo in respect of those 8,61,916
equity shares was passed by the learned Court of Civil Judge in an misc.
application filed in connection with T.S. No. 41/2012.
III. Late Usha Barooah, the mother of Smt. Sharmila Vijay Shetty had gifted
2,21,230 fully paid-up shares of B&A Ltd. of Rs.10/- each to Smt. Sharmila
Vijay Shetty. The said transfer came to be assailed by Late Hemendra Prasad
Barooah (then alive) and others by filing T.S. No. 47/2012, before the learned
Court of Civil Judge, Jorhat. In connection with the said suit, an application for
ad-interim injunction under Order XXXIX, Rules 1 and 2 of the CPC was also
filed and the said learned Court restrained Smt. Sharmila Vijay Shetty from
selling, dealing with, transferring, alienating, encumbering or exercising right
of voting as holder of said 2,21,230 shares of B&A Ltd., and further restraining
B&A Ltd. and their bank from making payment of dividend to Smt. Sharmila
Vijay Shetty.
IV. Aggrieved by the said order of ad interim injunction, the said Smt.
Sharmila Vijay Shetty had filed an appeal before this Court, which was
registered as F.A.O. No. 19/2012. This Court, by order dated 09.11.2012,
directed the plaintiffs in the said suit to release the dividend for financial year
2011-12 to the Smt. Sharmila Vijay Shetty.
c. Probate Case:
I. In the meanwhile, the said Sri. Somnath Chatterjee had filed a probate
suit before the Calcutta High Court in the year 2016. It was submitted at the Bar that
the said probate proceeding is still pending for disposal before the said Hon'ble Court.
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3) Company:
a. B&A Limited is a company that was incorporated under the Companies Act, 1913.
Thus, it is an existing Public Limited Company under the Companies Act, 1956. It has
its registered office at Jorhat, Assam. The said Company is the owner of 7 (seven) Tea
Estates in Assam and produced "Black Tea". In Company Appeal No. 3/2016, this
Company is arrayed as respondent No.2 and in Company Appeal No. 4/2016, this
Company is arrayed as appellant No.2. In this order, the said B&A Limited is hereinafter
referred to as "the transferee company".
b. Buragohain Tea Company Limited is a company that was incorporated under the
Companies Act, 1913. Thus, it is an existing Public Limited Company under the
Companies Act, 1956. It has its registered office at Golaghat, Assam. The said
Company is also the owner of one Tea Estate. In Company Appeal No. 3/2016, this
Company is arrayed as respondent no.1 and in Company Appeal No. 4/2016, this
Company is arrayed as the appellant no.1. In this order, the said Buragohain Tea Co.
Ltd. is hereinafter referred to as "the transferor company".
c. By virtue of respective resolutions adopted by the Board of Directors of both the
Companies, the "draft scheme of amalgamation" along with the "share exchange ratio"
were approved. Accordingly, as per the requirement of Sections 391(2) and 394 of the
Companies Act, 1956, the "Scheme of Amalgamation" was filed before this Court for
sanction of the said scheme by the Company Judge. The said company application was
registered as Company Petition No. 2/2013.
d. Smt. Sharmila Vijay Shetty is the appellant in Co. Appeal No. 3/2016 and she is
arrayed as respondent no. 2 in Co. Appeal No. 4/2016. She had filed her sole objection
to the scheme of amalgamation before the learned Company Judge.
e. The appellant in Co. Appeal No. 3/2016, namely, Smt. Sharmila Vijay Shetty, is the
daughter of Late Hamendra Prasad Barooah, who had died on 31.07.2013, leaving
behind his legal heirs. Smt. Sharmila Vijay Shetty is arrayed as respondent no. 2 in Co.
Appeal No. 4/2016. By his purported last will and testament, Late Hemendra Prasad
Barooah had not bestowed any part of his estate to his said daughter, namely, Smt.
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Sharmila Vijay Shetty."
7. As per the scheme of amalgamation which is placed before the Court as a
part of the pleadings, the transferor company was proposed to be transferred or
amalgamated into the transferee company. The justification for the proposed
amalgamation was on the ground that the transferor company had a tea garden
namely Govindapur Tea Estate in the District of Golaghat and because of
disputes arising with its workers, the Tea Estate was shut down in the year
2005. A company by the name of Rockland Realty Pvt. Ltd. took over the
management of the transferor company by acquiring the majority shares in May,
2011. A petition for voluntary liquidation of the transferor company was also
filed before the Gauhati High Court which was subsequently permitted to be
withdrawn by the Court on the 07.05.2011. The Rockland Realty Pvt. Ltd.
although a company having separate juristic identity, is, however, managed and
controlled by the management of the transferee company namely the B & A Ltd.
After the majority shares were acquired by the Rockland Realty Pvt. Ltd. in the
transferor company, the estate operated by the transferor company namely
Govindapur Tea Estate was resumed under the new management. The tea
estate was able to achieve a turn around by production of 8.5 lakh kgs of tea in
green leaf form. After revival of the business of the transferor company, it was
found to have good potential and a stable business. However, the transferor
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company does not have a processing or a manufacturing unit of its own and
therefore has to sell the green tea leaf which is produced in the estate. The tea
leaf produced by the tea estate under the transferor company is sold to the
Mokrung Tea Estate which is situated at a distance of 55 km and which tea
estate belongs to the transferee company. The tea purchased from the tea
estate of transferor company is processed in the manufacturing unit to produce
black tea. The Mokrung Tea Estate processing unit has production capacity of 20
lakh kgs of black tea. Under such circumstances, it was felt that amalgamation
of both the companies will benefit the business of both the transferor company
and the transferee company and it can be carried out more conveniently and
advantageously. On one hand, it was felt that the amalgamation will enable the
transferee company to expand its business with an established tea estate and to
utilize its surplus tea processing capacity more productively, in larger quantities
of black tea from its own captive production. On the other hand, the
amalgamation will also benefit the transferor company as it will have direct
access to in house tea processing capacity as well as to the expertise and the
well established management setup, distribution, marketing network and
goodwill of the transferee company which is already an established entity in the
business of manufacturing and sale of black tea. The particulars of the benefits
vis-à-vis the transferor company and the transferee company have been laid out
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in the scheme of amalgamation, which is a part of the pleadings before this
Court. The scheme of amalgamation was to be given effect to from the
appointed date, which was on 01.04.2011, which, however, will be made the
effective date only upon the sanction granted by this Court. Once the sanction is
granted by this Court, with effect from the appointed date, all assets, property
rights, powers, debts, liabilities, duties and obligations of the transferor
company will be transferred to the transferee company. All the employees
serving under the transferor company will become employees of the transferee
company with effect from the appointed date, on such terms and conditions
which, however, would not be less favorable to them than those applicable to
them under the transferor company as on the said date. All the proceedings
pending by or against the transferor company as on the effective date including
contracts would stand transferred to the transferee company and would be
enforceable by or against the transferee company. The most important or rather
controversial clause of the scheme is that on the scheme becoming effective,
the transferee company shall issue allot to the shareholders of the transferor
company 786 equity shares of Rs.10.00 each in the transferee company for
every one equity share of Rs.1,000.00 each in the transferor company. In terms
of the scheme, the transferor company and the transferee company had
approached this Court by filing company petition No.2/2013, whereupon this
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Court by order dated 11.02.2013 directed holding of separate meetings of the
shareholders of both the transferor company and transferee company on
23.03.2013 for the purposes of consideration of the said scheme of
amalgamation. This Court appointed a Chairman of the said meeting also,
notices of the said meeting were sent to the equity shareholders of both
companies by post and were also published in two local newspapers on
27.02.2013, namely "The Assam Tribune" in English and the "Dainik
Janambhumi" in Assamese. The meeting as directed to be held by the Court
was duly held on 23.03.2013. The equity shareholders of both the companies
held two separate meetings and the scheme of amalgamation was thereafter
approved. The proceedings of the said two meetings thereafter were placed
before the Court by the appointed Chairman. It is stated by both the transferor
company and the transferee company that this scheme of amalgamation would
be beneficial to both the companies. The shares of the transferee company for
the shares of the transferor company have been fixed on the basis of the
valuation report of M/s. Ghosal Barnwal & Co., Chartered Accountants. Further,
Microsec Capital Ltd., an independent Merchant Banker Company, has also
confirmed that such ratio vis-a-vis the share exchange ratio arrived at between
the transferor company and the transferee company is fair. The transferee
company being a company listed in the "Bombay Stock Exchange" has also filed
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this scheme of amalgamation with the Stock Exchange whereafter the "Bombay
Stock Exchange" has given its No Objection to the said scheme.
8. Before the learned Single Judge in the proceedings seeking sanction of the
scheme of amalgamation, an affidavit was filed on behalf of Smt. Sharmila Vijay
Shetty, namely the appellant in Company Appeal No.3/2016. In the said
affidavit, it was mentioned that said Smt. Sharmila Vijay Shetty is holding
3,16,200 shares in her own name and is a joint shareholder of another block of
8,61,918 shares along with her father Lt. Hemendra Prasad Barooah. Smt.
Sharmila Vijay Shetty is the daughter of Lt. Hemendra Prasad Barooah who was
the Chairman of the Board of Directors of the transferee company. In the said
affidavit it is stated that with a view to divest the appellant Smt. Sharmila Vijay
Shetty from the same block of shares in the transferee company Title Suit No.
41 of 2012 was filed by Lt. Hemendra Prasad Barooah and it is claimed that
although the block of 8,61,918 shares are in the joint name of the plaintiff,
namely Lt. Hemendra Prasad Barooah and Smt. Sharmila Vijay Shetty but for all
practical purposes the plaintiff, namely Lt. Hemendra Prasad Barooah is the sole
beneficial shareholder and the reason for introducing Smt. Sharmila Vijay Shetty
as the joint owner was only for operational convenience and to ensure that after
the death of the plaintiff the demat account should not be frozen. Accordingly,
the plaintiff sought for a declaration that he is the sole and absolute owner of
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the said block of 8,61,918 shares of the transferee company along with other
incidental reliefs. The learned Civil Judge by order dated 13.08.2012 directed
the parties to maintain status quo in respect of the block of shares lying in the
demat account of the HDFC Bank. Thereafter, another title suit being Title Suit
No.47/2012 was filed by Lt. Hemendra Prasad Barooah against Smt. Sharmila
Vijay Shetty and four others before the Civil Court at Jorhat questioning the
transfer of 2,21,230 shares of Rs.10.00 each of the transferee company by Lt.
Usha Barooah, wife of Lt. Hemendra Prasad Barooah to Smt. Sharmila Vijay
Shetty. An injunction application was also filed in the said title suit. The learned
Civil Judge, Jorhat by order dated 29.08.2012 restrained the defendant, namely
Smt. Sharmila Vijay Shetty from selling, dealing, transferring, alienating,
encumbering or exercising the voting right over the said 2,21,230 shares and
also restrained the transferee company and the concerned bank, namely the
HDFC Bank Ltd. from making payment of any dividend on the said shares to
Smt. Sharmila Vijay Shetty. The order dated 29.08.2012 stood subsequently
modified by order dated 09.11.2012 passed by the Court of Civil Judge, Jorhat
in FAO No.19/2012, whereby the Court directed release of the dividend to Smt.
Sharmila Vijay Shetty for the financial year 2011-2012 without prejudice to the
rights of the plaintiff to claim temporary injunction for release of dividends in
the future. Before the learned Company Judge, it was urged on behalf of Smt.
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Sharmila Vijay Shetty that although the scheme was stated to have been
notified to the "Bombay Stock Exchange" on 25.05.2012, it was actually notified
on 26.09.2012. This scheme was not discussed in the meeting of Board of
Directors of the transferee company on 25.05.2012 but was inserted
subsequently because of certain disputes between the management and the
objector namely Smt. Sharmila Vijay Shetty. It was urged that in order to dilute
the shareholding of the objector Smt. Sharmila Vijay Shetty in the transferee
company and also to cover up the mismanagement and oppression of the
transferee company, the entire scheme to merge the transferor company having
no intrinsic value with the transferee company was concealed. A petition being
Company Petition No.923/2012 was filed by Lt. Hemendra Prasad Barooah
before the Company Law Board, New Delhi Bench under Section 111A of the
Companies Act, to have the name of the objector Smt. Sharmila Vijay Shetty be
deleted as a shareholder in respect of the joint shareholding of 8,61,918 shares.
The said petition was dismissed by the Company Law Board on 31.07.2012 and
before the Company Law Board no information with regard to the amalgamation
scheme was ever placed. It was urged before the Company Law Board that the
management fabricated the minutes of the board meeting dated 25.05.2012
and notified the "Bombay Stock Exchange" on 26.09.2012. It was also urged
before the learned Company Judge that Rockland Reality Private Ltd. holds 510
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out of 580 shares of the transferor company which is 87.93% and therefore, the
directors of Rockland Reality Private Ltd. are also the directors and employees of
the transferee company, therefore, all the shareholders of Rockland Reality
Private Ltd. are directors of the transferee company and the sister-concern and
therefore, the deception is apparent. The objector Smt. Sharmila Vijay Shetty
also alleged the non receipt of notice of the meeting of the transferee company
which was held on 23.03.2013. It is alleged that the notice was sent to the
address not currently occupied by the objector and was received after the
meeting. Finally, it was also contended that the amalgamation scheme is devoid
of any justification and the exchange ratio of the shares is wholly prejudicial to
the interest of the transferee company in which the public is interested. The
scheme has not been placed before the Court in terms of the Circular of the
"Security Exchange Board of India" (SEBI) dated 14.02.2013 which lays down
certain steps to be taken prior to submission of the scheme before the High
Court. Therefore, in view of the non compliance of the SEBI circular sanctions
sought for from the learned Company Judge should not be granted. On the
other hand, on behalf of the transferee company in respect of the objections
raised by the objector Smt. Sharmila Vijay Shetty, it was urged that the personal
and private disputes raised by the objector with regard to her late father namely
Lt. Hemendra Prasad Barooah cannot be a ground to reject the sanction sought
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for towards the amalgamation of the companies. It was urged that the objector
Smt. Sharmila Vijay Shetty was appointed as a whole time Director of the
transferee company w.e.f. 01.06.2010. However, she did not devote any time
and attention to the affairs of the company and did not even attend a single
meeting of the Board of Directors. Taking the view that her continuance as a
whole time Director was not in the interest of the company, the Board of
Directors adopted the resolution dated 19.09.2011 by terminating her
appointment as Director of transferee company. It was stated before the learned
Company Judge that due notice of the meeting proposed to be held was
dispatched to the address of the objector Smt. Sharmila Vijay Shetty which is
available in the register of shareholders. The objector however, never attended
any of the annual general meetings of the transferee company in the past.
9. An affidavit was also filed by the Regional Director, Eastern Region,
Ministry of Corporate Affairs, Government of India, Kolkata. In the said affidavit,
it was stated that as per the balance sheet of both companies, they appear to
be secured creditors. However, no meeting of the creditors has been held
and/or consent obtained. Further, the scheme of amalgamation does not
confirm to the requirement of Accounting Standard 14 read with Section 211
(3A) of the Act. The Regional Director further objected that the provision to pay
786 equity shares of Rs.10.00 each of the transferee company against one
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equity share of Rs.1,000.00 of the transferor company is not at all justified.
Further, that the provision to pay 786 equity shares of Rs.10.00 each of the
transferee company against one equity share of the transferor company is not at
all justified considering the status of the two companies. It was stated that the
balance sheet of the transferor company does not portray the correct picture of
the said company having a direct impact on the share exchange ratio of 1:786.
It was therefore stated by the Regional Director in the affidavit that the scheme
appears to be against the interest of the minority shareholders and is meant to
give exclusive benefits to the promoter group. These objections of the Regional
Director have also been questioned by the transferee company stating that the
ratio of shares is fixed on the basis of earning capacity of the transferor
company and not on the basis of its net asset value or net worth as appearing
in the balance sheet as alleged by the Regional Director. The exchange ratio has
been fixed on the basis of profitability and earnings of the transferor company
and not on the basis of the net worth of the two companies.
10. The objector Smt. Sharmila Vijay Shetty, by way of a supplementary
affidavit filed before the learned Company Judge submitted that upon expiry of
her father Lt. Hemendra Prasad Barooah, by operation of law the block of
8,61,918 equity shares has devolved upon her and therefore she represents
27.8% of the issued and paid up capital of the transferee company and along
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with the total amount of shares that she holds in the transferee company it
comes to 38% of the shares of the transferee company.
11. The scheme for which the sanction has been sought to be obtained from
this Court is nothing but a device to deplete the shareholding ratio of the
objector Smt. Sharmila Vijay Shetty from the share held in the transferee
company. It is a ploy to deprive the objector of the legitimate control that she
has over the transferee company by virtue of holding 38% of the shares in the
transferee company. The scheme therefore seeks to materially alter the
shareholding pattern and structure of the transferee company which would be
an act prejudicial to and detrimental to the interest of the objector being the
single largest shareholder of the transferee company.
12. Considering the objections raised before the learned Company Judge and
on the basis of the pleadings and materials placed before the Court and after
referring to the judgments cited before the Court, ultimately came to the
conclusion that the exchange ratio proposed in the scheme appears to be
heavily loaded in favor of the shareholders of the transferor company and is
therefore unrealistic and illogical, if not downright absurd. The learned Company
Judge held that the shares of the Company which was under lockout for a long
period with accumulated losses cannot be valued in the manner projected in the
Page No.# 21/69
scheme that is for every 1,000 value of shares in the transferor company, a
shareholder in the transferor company would get Rs.7860.00 value of shares in
the transferee company. The learned Company Judge did not accept the
explanation. It was held by the learned Company Judge that nothing has been
placed before the Court and no material has been disclosed either in the petition
or in the affidavits as to how the particular exchange ratio has been worked out.
The learned Company Judge was of the view that while from the standpoint of
commercial strength of the two companies the exchange ratio does not appear
to be sound, the same can also be examined in the light of the recent litigation
history of the transferee company vis-a-vis the objector. The learned Company
Judge concluded that although the Court had in principle agreed to sanction the
scheme, but the exchange ratio was found to be unfair and unjust and not
based on the market realities. Accordingly, it appeared to the learned Company
Judge that it would be just and proper if the Registrar of Companies is directed
to examine the matter through experts and determine a fair and just exchange
ratio. The learned Company Judge directed and concluded that the exchange
ratio of 786 fully paid up equity shares of Rs.10.00 each of the transferee
company to be issued and allotted for every 1 equity share of Rs.1,000 in the
transferor company does not appear to be faire and justified and accordingly the
Court directed the Registrar of the Companies, Shillong to work out the
Page No.# 22/69
exchange ratio in a fair manner through independent experts keeping in view
the discussions made above and submit the same to the Court in two months
time and thereafter the Court may sanction the scheme with modifications and
the matter was directed to be listed on 16.11.2015. It is against this order both
the company appeals have been filed questioning the direction of the learned
Company Judge. While the appeal preferred on behalf of the transferee
company has questioned the correctness of the conclusions of the learned
Company Judge in issuing the directions overlooking the commercial wisdom of
the shareholders of both the companies who have accepted and sanctioned the
scheme in the shareholders meetings held and that to pursuant to the directions
issued by this Court and which resolutions have been placed before the Court in
respect of the meetings presided over by the Chairman appointed by the Court
itself. The appellants questioned the direction of the learned Company Judge to
the Registrar of Companies to revisit the share valuation arrived at by the
shareholders in respect of the transferor company vis-a-vis the transferee
company. The basic grievance of the transferee company is that the powers of
the Company Court to sanction an amalgamation scheme is limited to examine
the nature of the scheme and the procedures followed or required to be
followed. The learned Company Judge is not an appellate authority to re-decide
the scheme or the benefits thereof, over and above the resolutions adopted by
Page No.# 23/69
the shareholders of the companies and overlooking the commercial wisdom of
the shareholders of these companies who are better equipped to decide in the
best interests of the company. There was no dispute between the shareholders
of the transferor company and the transferee company in respect of adopting
resolution to pass the scheme of amalgamation. Under such circumstances, it
was not open to the learned Company Judge to decide on the question of share
equation equivalent and to redirect the Registrar of Companies to re-examine
the matter by using independent authorities and to place the same before the
Court.
13. On the other hand, the Objector, Smt. Sharmila Vijay Shetty has assailed
the order of the learned Company Judge on the ground that once the Court
found that the share exchange ratio was not just and proper, the scheme should
have been rejected there, instead of referring the matter back to the Regional
Director, Ministry of Corporate Affairs to revisit the share exchange ratio by
using any independent methods. The Court also did not take into consideration
the fact that the objector was never served with a proper notice to attend the
meeting of shareholders, wherein she could have raised these objections. Under
such circumstances, the company petition seeking sanction of the scheme of
amalgamation ought to have been rejected by the learned Company Judge.
Page No.# 24/69
14. Mr. R. Banerjee, learned Senior Counsel, appearing for the appellant in
Company Appeal No.4 of 2016 and for the transferee company namely B&A
Limited submits that the claim of the objector Smt. Sharmila Vijay Shetty as
regards the share exchange ratio would be restricted only to the extent of her
original shareholding ratio. It is submitted that the Company Court did not have
sufficient grounds or mechanism to find fault with the share exchange ratio.
While the Company Court accepted the amalgamation as based on commercial
considerations, the ultimate direction for re-evaluation of the share exchange
ratio by the Regional Director, Ministry of Corporate Affairs was totally uncalled
for and therefore, the same is bad in law. Learned Senior Counsel for the
appellant further submits that the respondents failed to show as to how the
share exchange ratio was violated or bad, or how the share holding was
affected and in the absence of such specific averments made before the learned
Company Judge, direction should not be issued for re-evaluation of the share
exchange ratio. It is submitted that if the amalgamation in its present form is
allowed, the objector will stand to gain a larger share holding ratio. The learned
Senior Counsel therefore submits that the Regional Director has no locus standi
to object. The shares will ultimately remain in the transferee group of
companies. The minority shareholder, namely the objector, also has no locus
standi to question the share exchange ratio as the company petitions which
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were filed earlier by her stood dismissed. There was no material before the
Court furnished by the objector to show that the scheme in its present form is
opposed to the minority shareholders and which requires re-evaluation or
reconsideration of the share exchange ratio. The learned Senior Counsel
extraneously submits that any dispute with regard to the share exchange ratio
can always be resolved by the shareholders upon such objection being raised
before the Court, the Company Court is required to see whether the scheme
has the approval of the shareholders and that appropriate resolutions have been
adopted by the shareholders of both the transferor and the transferee of the
company in terms of the amalgamation scheme.
15. Unless the Court finds that the scheme is itself opposed to public policy,
there was no occasion for the learned Company Judge not to grant sanctioned
to the resolutions adopted by the shareholders of both the companies to
implement the scheme of amalgamation. The learned Senior Counsel submits
that the conclusions arrived at by the learned Company Judge is itself contrary
inasmuch as while it concludes that it is up to the commercial wisdom of the
shareholders to agree or disagree to the amalgamation scheme, yet the learned
Company Judge proceeded to direct re-evaluation of the shareholding equation
solely relying on the affidavit filed by the Regional Director of Corporate Affairs,
Government of India. It is reiterated that without any specific materials before
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the Regional Director of Corporate Affairs, it has no locus standi to question or
raise objections to the shareholding ratio adopted by the shareholders of both
the Companies in their meetings.
16. The Learned Senior Counsel has pressed into service the judgment of the
Apex Court in Miheer H. Mafatlal vs. Mafatlal Industries Ltd. reported in (1997)
1 SCC 579 to submit that family disputes, litigation between the parties,
financial conditions of the transferor company vis-à-vis the transferee company
are not grounds on which the Company Court can decline to grant sanction to a
scheme of amalgamation which has been passed by proper resolution adopted
by the shareholders of the transferor and the transferee company. Such
resolutions adopted by the shareholders are on the basis of their commercial
wisdom which ordinarily ought not to be questioned by the Company Court
unless there are specific materials to show that the adopted resolutions were
not bona fide in nature or contrary to the procedure and the law prescribed. The
learned Senior Counsel submits that the Objectors Smt. Sharmila Vijay Shetty,
never attended any annual general meetings and also abstain from being
present in the meetings scheduled for the shareholders of the transferor
company, namely, Buragohain Tea Co. Ltd and which meetings were directed to
be conducted in terms of the orders passed by this Court and under the
chairmanship of court-appointed chairpersons. The only ground now urged
Page No.# 27/69
before the Court by the objector is that she was never informed of the meeting.
In terms of the directions of the Company Court, the notice of the meetings
were widely circulated in both English and vernacular newspapers and individual
copies of the notices were sent to the shareholders including to the objectors at
the addresses which are recorded in the register maintained by the company.
Therefore, the objection from the objector that the notices were sent to the
address in which the appellant earlier resided cannot be accepted, as there is no
material before the Company Court brought by the objector to show that the
change of address was duly notified to the company as per the procedure
prescribed. Therefore, the claim of the objector that resolution adopted in the
meeting was without proper notice to the objector cannot be and ought not to
have been accepted as a ground by the Company Court to return a finding for
re-evaluation of the shareholding ratio by the Regional Director of Corporate
Affairs, Government of India.
17. In addition to the judgment of the Apex court rendered in Miheer H.
Mafatlal (supra), the learned Senior Counsel refers to the judgment of
Maharashtra Apex Corporation Ltd., reported in (2005) 124 Comp 637 Para 48
to submit that absence of a shareholder in spite of the notice in a meeting will
amount to implied consent of the shareholder. Learned Senior counsel submits
that this judgment in Maharashtra Apex Corporation Ltd (supra) was
Page No.# 28/69
subsequently followed in CRB Capital Markets Limited vs. Reserve Bank of India
reported in (2006) 127 DLT 576. It is further submitted that the law laid down
by the Apex Court in Miheer H. Mafatlal (supra) has been consistently followed
in subsequent judgments more particularly in Hindustan Lever Employees' Union
vs. Hindustan Lever Ltd. and Others reported in AR 1995 SC 470 paragraph 3,5,
6, 31 and 58. In Dinesh Vrajlal Lakhani vs. Parke Davis (India) Limited reported
in (2005) 124 Comp Cas 728 paragraph 5, 12 (i), 18, 19 and 40.
18. Learned Senior Counsel also presses into service the judgment of the Apex
Court reported in GL Sultani and Another vs. Securities & Exchange Board of
India and Others reported in (2007) 5 SCC 133 to submit that the learned Single
Judge was swayed by litigation history and the face value of the shares which
was totally uncalled for and unwarranted in the facts of the case. He therefore
submits that the directions of the learned Company Judge remitting the matter
back to the Director of Corporate Affairs, Government of India for pre-evaluation
of the share exchange ratio should be interfered with and set-aside and the
scheme of amalgamation placed before the Court be approved.
19. Mr. D. Mazumdar, learned Senior Counsel assisted by Mr. B. Kaushik,
learned counsel for the respondent no.2 in Co. Appeal No.4 of 2016 and for the
appellants in Co.Appeal No.3 of 2016 and appearing for the objectors Smt.
Page No.# 29/69
Sharmila Vijay Shetty strongly disputes the submission placed by the senior
counsel for the companies in favour of the scheme of amalgamation. He submits
that the scheme of amalgamation is nothing but a ploy to dilute the
shareholding of the objectors and therefore, the same amounts to occasional
mismanagement of the company. It is submitted that the shareholding ratio
being an imperial part of the scheme, the learned Company Judge ought to
have refused the sanction as it was found the share exchange ratio is unfair.
The objector, being aggrieved by this specific direction of the learned Company
Judge, the matter was remanded back to the Regional Director of Corporate
Affairs for re-evaluation of the share exchange ratio. It has been submitted that
there was gross unfairness and illegality in the determination of share exchange
ratio, which is only intended to benefit the promoters of Rockland Pvt. Ltd., who
are the promoters of the transferee company. It was submitted that Rockland
Pvt. Ltd. owns 510 equity shares out of 580 shares in Buragohain Tea Co. Ltd.
and therefore, was a majority.
20. The learned Senior Counsel submits that once the learned Company Judge
finds that the share exchange ratio adopted in the scheme was unfair, the
sanction ought to have been refused and the matter should have been closed
then and there. The further directions to re-evaluate the share exchange ratio
by the Registrar of Companies, Corporate Affairs was totally uncalled for since it
Page No.# 30/69
had already appeared to the learned Company Judge that the share exchange
ratio was unfair in so far as the stake of the objector is concerned. The learned
Senior Counsel submits that under Section 392 of the Companies Act, the
Company Court has the power to modify the scheme only to see that the
scheme has properly worked. No such directions were issued for modifying the
scheme. Therefore, it is submitted that the proper course of action ought to
have been resorted to by the Company Court was to reject the sanction of the
scheme of amalgamation. It is submitted that the direction given by the learned
Company Judge goes beyond the powers specified under the statute itself. It is
submitted that the effect of the learned Company Judge's order is to give
powers to the Regional Director of the ROC for re-evaluation of the share
exchange ratio, which power is not even bestowed on such an authority under
the Companies Act, 1956. Therefore, such directions issued by the learned
Company Judge being beyond the powers bestowed under the statute was
totally uncalled for and the same should therefore be set aside and interfered
with and the sanction for scheme of amalgamation ought not to be granted and
the appeals filed by the Companies should be dismissed. Referring to the
judgment of the Company Court, it is submitted that there are specific findings
on fact that no materials have been placed by the transferee company to show
as to how the share exchange ratio is arrived at although it was the
Page No.# 31/69
responsibility of the transferee company to place these materials. Therefore, in
view of such findings, the learned Company Judge ought to have declined to
grant sanctions to the scheme of amalgamation. Instead the direction was given
to the Regional Director of Corporate Affairs, ROC to re- evaluate the share
exchange ratio. The further contention of the Senior counsel is that the
Buragohain Tea Company Ltd. and its tea estate remained closed for about 6
(six) years due to lock look out. The Rockland Realty Private Limited Company
holds 96% of the shares of the transferor company and the management of the
said Rockland Realty is the same as that of the transferee company namely B&A
Limited. Therefore, the Rockland Realty Private Limited Company had controlled
the affairs of the transferor company, namely, Buragohain Tea Company Ltd.
The entire exercise by the transferee company in working out the share
exchange ratio was with the sole purpose of restraining the objector from
rightfully acquiring her shares to which she is entitled and she was
unceremoniously removed from the Board of Directors of the Buragohain Tea
Company Ltd. It is further submitted that the objector is a joint holder of a block
of 861918 shares along with her late father Hemendra Prasad Barooah. The
learned Senior Counsel submits that these shares jointly held by the objectors
Smt. Sharmila Vijay Shetty have not yet been transferred to her name after the
expiry of the co-joint holder, namely, late Hemendra Prasad Barooah, her father.
Page No.# 32/69
This is contrary to Rule 12.6.1 of the NSDL Rules. In terms of the said rules on
the death of a joint holder, the shares held by depository are to be transferred
to the joint holder. There is no explanation by any of the parties before this
Court as to why these shares have not been transferred in the name of the
objector Smt. Sharmila Vijay Shetty and why the Board of Directors of both the
companies declined to pass appropriate resolutions by transferring these shares
in the name of the surviving holder namely Smt. Sharmila Vijay Shetty. The
learned Senior Counsel submits that shareholding ratio is based on purported
evaluations made by so called experts. However, there is no material placed
before the Company Court as to how the evaluation was worked out in arriving
at the share exchange ratio. Even in the report of the Chartered accountant
enclosed in the pleadings the method of arriving at the share exchange ratio has
not been disclosed.
21. Going by the share exchange ratio arrived at and from the annual accounts
of the company it is clear that there is an abnormal projection of rise and the
value of land. The land value has been shown to increase by 200% in one year,
a projection which is admittedly without any material. The learned Senior
Counsel also refers to the judgment of Miheer H. Mafatlal (supra) to submit that
the parameters of grant of sanction to a scheme of amalgamation by Company
Court is laid down by the Apex Court in the said judgment. Therefore, it is clear
Page No.# 33/69
that the penultimate direction of the Company Board of revaluation of the share
exchange ratio is contrary not only to the statutes but also to the law laid down
by the Apex Court in Miheer H. Mafatlal (supra). He submits that the law laid
down in Miheer H. Mafatlal (supra) is subsequently followed in several other
judgments, namely, Hindustan Lever Employees' Union vs. Hindustan Lever
Limited reported in 1995 Supp (1) SCC 499, Meghal Homes Private Limited vs.
Shree Niwas Girni K.K. Samiti reported in (2007) 7 SCC 753 paragraph 45 and
46 and Chembra Orchard Produce Ltd. v. Regional Director of Company Affairs
reported in (2009) 2 SCC 547 para 13.
22. Mr. D. Mazumder, learned Senior Counsel for Smt. Sharmila Vijay Shetty
therefore submits that no notice of the meeting of the shareholders was served
on the objector namely Srimati Vijay Shetty approving the scheme. The very
scheme of amalgamation is a ploy to dilute the shareholding of the objector
namely Srimati Vijay Shetty who holds about 38% of the shares. The scheme of
amalgamation is contrary to the semi notification regarding the amalgamation
sought to be adopted by the transferor and transferee companies. He submits
that the learned Company Judge returns a finding of mismanagement and
destruction or loss of audited records and therefore, under such circumstances,
there is no basis for coming to the conclusions by the learned Company Judge
that the scheme was in the business interests of both parties. The scheme and
Page No.# 34/69
the share exchange ratio was sought to be prepared by experts, however, the
methodology adopted and the materials on which the scheme was prepared and
placed for approval of the shareholders and the opinion given by the Chartered
accountant as well as by the independent auditors that the scheme of
amalgamation is based in the business interest of both the companies, cannot
be accepted in the absence of any specific materials being placed before this
Court as the same is not even enclosed to the scheme of amalgamation which is
a part of the pleadings in the present proceedings. The net result of the scheme
of amalgamation, if accord a sanction by the Company Board, will amount to
bringing the shareholding ratio of the objector, namely, Smt. Sharmila Vijay
Shetty, to below 5% from the current 38%. Therefore, he submits that the
directions of the Company Court to the Registrar of companies for arriving at a
reevaluation of the shareholding ratio be interfered with and the scheme of
amalgamation ought not to be sanctioned and the petition filed by the
companies seeking sanction for amalgamation should be dismissed and a
further direction be issued to the respective companies to transfer the shares
jointly held by the objector along with her late father to her name in view of the
expiry of the co-joint holder namely, late Hemendra Prasad Barooah.
23. The learned counsel for the parties have been heard. Pleadings available
on records have been carefully perused.
Page No.# 35/69
24. From the facts urged before the Court it appears that there are numerous
litigations between the company and the Objector, namely, Smt. Sharmila Vijay
Shetty as well as between one of the directors B&A Limited. From the pleadings
it appears that there is a family dispute regarding the control of the companies
between late Hemendra Prasad Barooah and his daughter/objector and other
shareholders and management of the company.
25. The question before this Court is whether the company court, while
considering a proceeding for accord a sanction to a scheme of amalgamation
under the Companies Act, can issue the directions as have been done in the
present proceedings which are under appeal. In order to examine this question,
it will be necessary to refer to the relevant sections of the Companies Act, 1956.
The provisions for facilitating reconstruction and amalgamation of companies
are prescribed under Section 394 of the Companies Act 1956. Under Section 394
of the Companies Act, 1956, a notice is to be given to Central Government for
applications under section 391 and 394 of the Act, 1956. Section 395 prescribes
the power and duty to acquire the shares of shareholders dissenting from the
scheme or the contract approved by majority. The relevant Provisions of these
Sections are extracted below:
"394. PROVISIONS FOR FACILITATING RECONSTRUCTION AND AMALGAMATION OF
COMPANIES. -(1) Where an application is made to the [Tribunal] under section 391 for the
sanctioning of a compromise or arrangement proposed between a company and any such persons as
Page No.# 36/69
are mentioned in that section, and it is shown to the [Tribunal] -
(a) that the compromise or arrangement has been proposed for the purposes of, or in
connection with, a scheme for the reconstruction of any company or companies, or the amalgamation
of any two or more companies ; and
(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any
company concerned in the scheme (in this section referred to as a "transferor-company") is to be
transferred to another company (in this section referred to as "the transferee-company");
the [Tribunal] may, either by the order sanctioning the compromise or arrangement or by a subsequent
order, make provision for all or any of the following matters :
(i) the transfer to the transferee-company of the whole or any part of the
undertaking, property or liabilities of any transferor-company ;
(ii) the allotment or appropriation by the transferee-company of any shares,
debentures, policies, or other like interests in that company which, under the
compromise or arrangement, are to be allotted or appropriated by that company to or
for any person ;
(iii) the continuation by or against the transferee-company of any legal proceedings
pending by or against any transferor-company ;
(iv) the dissolution, without winding up, of any transferor-company ;
(v) the provision to be made for any persons who, within such time and in such
manner as the 1 [Tribunal] directs, dissent from the compromise or arrangement ;
and
(vi) such incidental, consequential and supplemental matters as are necessary to
secure that the reconstruction or amalgamation shall be fully and effectively carried
out :
[Provided that no compromise or arrangement proposed for the purposes of, or in connection
with, a scheme for the amalgamation of a company, which is being wound up, with any other company
or companies, shall be sanctioned by the 1 [Tribunal] unless the 1 [Tribunal] has received a report
from 2 [***] the Registrar that the affairs of the company have not been conducted in a manner
prejudicial to the interests of its members or to public interest :
Provided further that no order for the dissolution of any transferor-company under clause (iv)
shall be made by the 1 [Tribunal] unless the Official Liquidator has, on scrutiny of the books and
papers of the company, made a report to the 1 [Tribunal] that the affairs of the company have not been
conducted in a manner prejudicial to the interests of its members or to public interest.
(2) Where an order under this section provides for the transfer of any property or liabilities,
then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall
be transferred to and become the liabilities of, the transferee-company ; and in the case of any
Page No.# 37/69
property, if the order so directs, freed from any charge which is, by virtue of the compromise or
arrangement, to cease to have effect.
(3) Within thirty days after the making of an order under this section, every company in relation
to which the order is made shall cause a certified copy thereof to be filed with the Registrar for
registration. If default is made in complying with this sub-section, the company, and every officer of the
company who is in default, shall be punishable with fine which may extend to 3 [five hundred] rupees.
(4) In this section -
(a) "property" includes property rights and powers of every description ; and
"liabilities" includes duties of every description ; and
(b) "transferee-company" does not include any company other than a company within
the meaning of this Act ; but "transferor-company" includes any body corporate,
whether a company within the meaning of this Act or not.
395. POWER AND DUTY TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM
SCHEME OR CONTRACT APPROVED BY MAJORITY -(1) Where a scheme or contract involving the
transfer of shares or any class of shares in a company (in this section referred to as "the transferor-
company") to another company (in this section referred to as "the transferee-company"), has, within
four months after the making of the offer in that behalf by the transferee-company, been approved by
the holders of not less than nine-tenths in value of the shares whose transfer is involved (other than
shares already held at the date of the offer by, or by a nominee for, the transferee-company or its
subsidiary), the transferee-company may, at any time within two months after the expiry of the said
four months, give notice in the prescribed manner to any dissenting shareholder, that it desires to
acquire his shares ; and when such a notice is given, the transferee company, shall, unless, on an
application made by the dissenting shareholder within one month from the date on which the notice
was given, the 1 [Tribunal] thinks fit to order otherwise, be entitled and bound to acquire those shares
on the terms on which, under the scheme or contract, the shares of the approving shareholders are to
be transferred to the transferee-company :
Provided that where shares in the transferor-company of the same class as the shares whose
transfer is involved are already held as aforesaid to a value greater than one-tenth of the aggregate of
the values of all the shares in the company of such class, the foregoing provisions of this sub-section
shall not apply, unless -
(a) the transferee-company offers the same terms to all holders of the shares of that
class (other than those already held as aforesaid) whose transfer is involved ; and
(b) the holders who approve the scheme or contract, besides holding not less than
nine-tenths in value of the shares (other than those already held as aforesaid) whose
transfer is involved, are not less than three-fourths in number of the holders of those
shares.
(2) Where, in pursuance of any such scheme or contract as aforesaid, shares, or shares of any
class, in a company are transferred to another company or its nominee, and those shares together with
Page No.# 38/69
any other shares or any other shares of the same class, as the case may be, in the first-mentioned
company held at the date of the transfer by, or by a nominee for, the transferee-company or its
subsidiary comprise nine-tenths in value of the shares, or the shares of that class, as the case may be,
in the first-mentioned company, then, - (
a) the transferee-company shall, within one month from the date of the transfer
(unless on a previous transfer in pursuance of the scheme or contract it has already
complied with this requirement), give notice of that fact in the prescribed manner to
the holders of the remaining shares or of the remaining shares of that class, as the
case may be, who have not assented to the scheme or contract; and
(b) any such holder may, within three months from the giving of the notice to him,
require the transferee-company to acquire the shares in question ;
and where a shareholder gives notice under clause (b) with respect to any shares, the transferee-
company shall be entitled and bound to acquire those shares on the terms on which, under the scheme
or contract, the shares of the approving shareholders were transferred to it, or on such other terms as
may be agreed, or as the 1 [Tribunal] on the application of either the transferee-company or the
shareholder thinks fit to order.
(3) Where a notice has been given by the transferee-company under sub-section (1) and the 1
[Tribunal] has not, on an application made by the dissenting shareholder, made an order to the
contrary, the transferee-company shall, on the expiry of one month from the date on which the notice
has been given, or, if an application to the 1 [Tribunal] by the dissenting shareholder is then pending,
after that application has been disposed of, transmit a copy of the notice to the transferor-company
together with an instrument of transfer executed on behalf of the shareholder by any person appointed
by the transferee-company and on its own behalf by the transferee-company, and pay or transfer to the
transferor-company the amount or other consideration representing the price payable by the
transferee-company for the shares which, by virtue of this section, that company is entitled to acquire ;
and the transferor-company shall -
(a) thereupon register the transferee-company as the holder of those shares, and
(b) within one month of the date of such registration, inform the dissenting
shareholders of the fact of such registration and of the receipt of the amount or other
consideration representing the price payable to them by the transferee company :
Provided that an instrument of transfer shall not be required for any share for which a share
warrant is for the time being outstanding.
(4) Any sums received by the transferor-company under this section shall be paid into a
separate bank account, and any such sums and any other consideration so received shall be held by
that company in trust for the several persons entitled to the shares in respect of which the said sums or
other consideration were respectively received.
(4A) (a) The following provisions shall apply in relation to every offer of a scheme or contract
involving the transfer of shares or any class of shares in the transferor-company to the transferee-
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company, namely :
(i) every such offer or every circular containing such offer or every recommendation
to the members of the transferor company by its directors to accept such offer shall be
accompanied by such information as may be prescribed ;
(ii) every such offer shall contain a statement by or on behalf of the transferee-
company, disclosing the steps it has taken to ensure that necessary cash will be
available ;
(iii) every circular containing, or recommending acceptance of, such offer shall be
presented to the Registrar for registration and no such circular shall be issued until it
is so registered ;
(iv) the Registrar may refuse to register any such circular which does not contain the
information required to be given under sub- clause (i) or which sets out such
information in a manner likely to give a false impression ; and
(v) an appeal shall lie to the 1 [Tribunal] against an order of the Registrar refusing to
register any such circular.
(b) Whoever issues a circular referred to in sub-clause (iii) of clause (a), which has not been
registered, shall be punishable with fine which may extend to 2 [five thousand] rupees.
(5) In this section -
(a) "dissenting shareholder" includes a shareholder who has not assented to the
scheme or contract and any shareholder who has failed or refused to transfer his
shares to the transferee-company in accordance with the scheme or contract ;
(b) "transferor-company" and "transferee-company" shall have the same meaning as
in section 394.
(6) In relation to an offer made by the transferee-company to share- holders of the transferor-
company before the commencement of this Act, this section shall have effect -
(a) with the substitution, in sub-section (1), for the words "the shares whose transfer
is involved (other than shares already held at the date of the offer by, or by a nominee
for, the transferee-company or its subsidiary)," of the words "the shares affected" and
with the omission of the proviso to that sub-section ;
(b) with the omission of sub-section (2) ;
(c) with the omission in sub-section (3) of the words "together with an instrument of
transfer executed on behalf of the shareholder by any person appointed by the
transferee-company and on its own behalf by the transferee-company" and of the
proviso to that sub-section ; and
(d) with the omission of clause (b) of sub-section (5)."
26. There is no dispute that an application made before this Court for
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proceeding with the scheme of amalgamation, the Court directed the transferor
and the transferee company to hold its meeting with the shareholders under the
chairmanship of four appointed chairpersons. Both the companies accordingly
held its meetings and had approved the scheme of amalgamation and the same
by way of proper application is placed before the Court for seeking approval/
sanction to the scheme already approved by the shareholders of the respective
companies. The dispute raised to the scheme of amalgamation is on account of
non receipt of notice by the Objector, namely, Smt. Sharmila Vijay Shetty who
claims to be a share holder of Buragohain Tea Estate which is the transferor
company. According to the objector, the notice was required to be served on the
objector was never served and consequently, she was unaware of the meeting
of shareholders held between the parties and therefore she was deprived of her
opportunity to raise objections in the meeting that was concluded purportedly
without issuance of notice to the objector. As have been discussed, the basic
nuance of the objector is that she was deprived of the right of hearing with the
shareholders meeting as she holds a sizeable percentage of shares. This
contention of the objector is disputed by the learned Senior Counsel
representing the Companies that the objector never attended any Annual
General Meeting and the notice was served on the address which was available
in the register maintained by the Companies of the members/ shareholders. The
Page No.# 41/69
claim of the objector is that the address to which the notice was sent was her
earlier address and the notice ought to have been sent to her present address is
also disputed on the ground that the objector being a shareholder is aware of
the procedure required to be maintained and any change in the notice ought to
have been brought to the notice of the companies so that the necessary
changes would have been effected to the address maintained in the registers by
the Company. Therefore, such recourse which ought to have been taken by the
objector not having been resorted to, there is no fault on the part of the
company and the meeting was held in terms of the liberty granted by the Court
under the chairmanship of the Court appointed Chairperson. That apart, it was
widely circulated in both English and vernacular newspapers. Therefore, the
claim of the objector that she was unaware of the meeting cannot be accepted.
27. The learned Company Judge elaborately examined the litigation history and
the share holding pattern urged before the Court. The Company Court upon
examination of all the material before the Court and upon consideration of the
submissions rendered by the Counsel by the parties in principle upheld a
scheme of amalgamation initiated by the Companies. The Companies however,
found that the shareholding ratio was the Company. The Company, however,
was not convinced that the shareholding ratio adopted was in the best interest
of the shareholders in the absence of the methodology resorted to by the
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Company or by their financial experts in arriving at the shareholding ratio. In
the absence of such material being placed before the Court, the learned
Company Judge directed the Registrar of Companies to examine the matter and
give a detailed report as to the bona fide of the shareholding ratio projected or
adopted by the Companies. It is this direction that is being received before this
Court both on behalf of the Companies as well as by the objector. In the appeals
filed on behalf of the Companies, the grievance is that the learned Company
Judge found that having accepted the amalgamation scheme in principle, there
was no occasion for the learned Company Judge to issue the further direction to
the Registrar of Companies to re-evaluate the share exchange ratio and submit
a report. The objector, on the other hand, has filed the appeal questioning the
penultimate direction passed by the learned Company Judge on the ground that
the learned Company Judge opined that the share exchange ratio arrived was
not proper and it required re-evaluation. Accordingly, it is submitted that the
scheme for amalgamation ought to have been rejected without any further
direction as had been issued.
28. According to the objector the further direction was totally uncalled for and
it has the effect of directing the Registrar of Companies to act beyond the
powers prescribed under the statute itself. Therefore, to that extent the orders
on the directions passed by the learned Company Judge are required
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interference and the scheme ought to be rejected on that count only. It will be
apposite here to refer to the judgment of Miheer H. Mafatlal (supra) which was
referred to and relied upon by the learned Company Judge and which has also
been pressed into service by Mr. Banerjee, learned Senior Counsel as well as by
Mr. R. Mazumdar, learned Senior Counsel. In Miheer H. Mafatlal (supra), the
Apex Court was considering the order passed by Division Bench of the High
Court of Gujarat, whereby the Appeal of the appellant therein was dismissed
confirming the order of the learned Single Judge who had sanctioned the
scheme of amalgamation of two public limited companies, namely, Mafatlal
Industries Limited being the transferee company with which Mafatlal Fine
Spinning and Manufacturing Company Limited being the transferor company
was to be amalgamated. The Single judge therein granted the sanction to the
transferee company to amalgamate it in the transferor company under Section
391(2) under the Companies Act of 1956. This order was assailed before the
Division Bench which came to be dismissed and consequently, the matter
traveled in the Supreme Court.
29. The Court after consideration of the facts and circumstances of the case,
formulated some questions in paragraph-26 of the said judgment. Those
questions are quoted herein below:
1. "Whether the respondent-Company was guilty of hiding the special interest of its
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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 by the appellate.
3. Whether the proposed Scheme of Amalgamation was unfair and amounted to
suppression of minority shareholders represented by the appellant and hence liable
to be rejected.
4. Whether separate meeting of minority shareholders represented by the appellant
was required to be convened on the basis that the appellant's group represented a
special class of equity shareholders.
5. Whether the exchange ratio of two equity shares of MIL for five equity shares of
MFL was ex facie unfair and unreasonable to the equity shareholders of MIL and
consequently the Scheme of Amalgamation on that account was liable to be
rejected. "
30. All the above mentioned questions were answered in negative by the Apex
Court. However for the purposes of this Court, question nos. 4 and 5 will be
relevant. The paragraphs no.39, 40, 41 and 42 in the judgment dealing with
these questions are also are extracted below :
"Point 4
39. So far as this point is concerned the relevant provisions of the Companies 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 Companies Act deals with "Share Capital and Debentures". Section 82 provides that
"the shares or other interest of any member in a company shall be moveable 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 the 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 the respondent-Company. The appellant is admittedly an
equity shareholder. Therefore, he would fall within the same class of equity shareholders
whose meeting was convened by the orders of the Company Court. However it is vehemently
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contended by the learned counsel for the appellant that because of the family arrangement of
1979 on which he relies he was a special class of minority equity shareholder who had
separate rights against the director of the company and whose special interest because of the
pending litigation between him and the Director Shri Arvind Mafatlal was likely to be
adversely affected by the Scheme. Therefore, a separate meeting had to be convened as he
represented a class within the class of equity shareholders. It is difficult to agree with this
contention. Even though the Companies Act or the Articles of Association do not provide for
such a class within the class of equity shareholders, in a given contingency it may be
contended by a group of shareholders that because of their separate and conflicting interests
vis-à-vis other equity shareholders with whom they formed a wider class, a separate meeting
of such separately interested shareholders should have been convened. But such is not the
case of the appellant. It is not his case that his interest as an equity shareholder in the
respondent-Company is in any way conflicting with the general interest of the equity
shareholders as a class. Consequently it could not be urged by him with any emphasis that
the General Body of equity shareholders acting as a class while considering the question of
approval of the Scheme was likely to take a decision which would adversely affect the
commercial interest of the appellant as an equity shareholder. His personal conflict of
interests with the director was totally foreign to the scope of class meeting which was
convened to consider the Scheme in question as we have seen earlier while considering the
earlier points for determination. It is also to be kept in view that the appellant would have
urged with some justification his contention for convening a separate meeting representing
for him and his group of dissenting equity shareholders if it was his case that the scheme of
compromise and arrangement as offered to him and his group was in any way different from
the scheme of compromise and arrangement offered to other equity shareholders who also
belonged to the same class in the wider sense of the term. On 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 presupposes 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% 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% dissent would get registered by the 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 shareholders he would have a
common cause with them either to accept or to reject the Scheme from commercial point of
view. Consequently there was no occasion for convening a separate class meeting of the
minority equity shareholders represented by the appellant and his group as tried to be
suggested. It is also to be kept in view that it is not the case of the appellant that any different
terms of compromise were offered to persons holding equity shares who were covered by the
family arrangement of 1979 or otherwise. In fact the entire proposal of the scheme of
arrangement was one affecting equally and in the like manner all the existing equity
shareholders of the respondent-Company. In this connection it is profitable to refer to what
the learned author Palmer in his Treatise Company Law, 24th Edn., has to say:
"What constitutes a class:
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The Court does not itself consider at this point what classes of creditors or members should
be made parties to the scheme. This is for the Company to decide, in accordance with what
the scheme purports to achieve. The application for an order for meetings is a preliminary
step, the applicant taking the risk that the classes which are fixed by the Judge, unusually on
the applicant's request, are sufficient for the ultimate purpose of the section, the risk being
that if in the result, and we emphasise the words 'in the result' they reveal inadequacies, the
scheme will not be approved. If e.g. rights of ordinary shareholders are to be altered, but
those of preference shares are not touched, a meeting of ordinary shareholders will be
necessary but not of preference shareholders. If there are different groups within a class the
interests of which are different from the rest of the class, or which are to be treated differently
under the scheme, such groups must be treated as separate class for the purpose of the
scheme. Moreover, when the Company has decided what classes are necessary parties to the
scheme, it may happen that one class will consist of a small number of persons who will all
be willing to be bound by the scheme. In that case it is not the practice to hold a meeting of
that class, but to make the class a party to the scheme and to obtain the consent of all its
members to be bound. It is however, necessary for at least one class meeting to be held in
order to give the Court jurisdiction under the section."
It is, therefore, obvious that 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. 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 determination, therefore, is answered in the
negative. That takes us to the consideration of the last point for determination placed for our
consideration by the learned Senior Counsel for the appellant.
Point 5
40. It was submitted that the exchange ratio of equity shareholders so far as the transferee-
Company is concerned works very unfairly and unreasonably to them. As per the proposed
Scheme 5 equity shares of the transferor-Company are to be exchanged for 2 equity shares of
the 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-Company as well as the transferor-Company, namely, MFL
on whose Board of Directors the appellant himself was a member. M/s C.C. Chokshi & Co., a
reputed firm of chartered accountants, having considered all the relevant aspects suggested
the aforesaid exchange ratio keeping in view the valuation of shares of respective companies.
It must at once be stated that valuation of shares is a technical and complex problem which
can be appropriately left to the consideration of experts in the field of accountancy.
Pennington in his Principles of Company Law mentions four factors which had to be kept in
mind in the valuation of shares:
"(1) Capital Cover,
(2) Yield,
(3) Earning Capacity, and
(4) Marketability.
For arriving at the fair value of share, three well-known methods are applied:
(1) The manageable profit-basis method (the Earning Per Share Method)
Page No.# 47/69
(2) The networth method or the break value method, and
(3) The market value method."
So many imponderables enter the exercise of valuation of shares. M/s C.C. Chokshi & Co.
considering all the relevant aspects and obviously keeping in view the accounting principles
underlying the valuation of shares suggested the said ratio which was found acceptable both
by the Board of Directors of the respondent-Company as well as the Board of Directors of
the transferor-Company. That the appellant himself as a director of the transferor-Company
gave green signal to the Scheme and to this very ratio of exchange of shares. But Shri M.J.
Thakore, appearing for the appellant, submitted that from the point of view of the transferor-
Company it was very profitable to have two shares of the transferee-Company against five
shares of the transferor-Company. But the difficulty arises only from the point of view of the
transferee-Company shareholders. According to Shri Thakore the proper exchange ratio
would be one share of the transferee-Company to six shares of the transferor-Company. It is
difficult to appreciate this contention of the appellant. It has to be kept in view that the
appellant never bothered to personally remain present in the meeting of equity shareholders
for pointing out the unfairness of this exchange ratio to his brother equity shareholders who
were likely to be affected by the very same ratio as the appellant. His interest at least to that
extent was entirely common and parallel to that of other equity shareholders. But he had no
time to remain personally present. He sent his proxy only to record his dissent vote which
was in microscopic minority of 5% as compared to 95% 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, 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 the 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 Division Bench disposed of the appeal. For all these years neither before the
learned Single Judge nor before the High Court in appeal the appellant thought it fit to
request the Court to either call for the report of any other expert on valuation of shares nor
did he himself get such report for placing for consideration of the Court in support of his
supposed better ratio. It has also to be kept in view that which exchange ratio is better is in
the realm of commercial decision of well-informed equity shareholders. It is not for the Court
to sit in appeal over this value judgment of equity shareholders who are supposed to be men
of the world and reasonable persons who know their own benefit and interest underlying any
proposed scheme. With open eyes they have okayed this ratio and the entire Scheme. 40% of
the majority shareholders were financial institutions who were supposed to be well versed on
the aspect of valuation of shares. They had no objection to the exchange of 2 shares of the
transferee-Company for 5 shares of the transferor-Company. As stated earlier it was a sort of
a package duly considering all imponderables and implicit factors which the shareholders
had to keep in view for deciding whether to approve the Scheme of Amalgamation or not. The
exchange ratio was only one of the items. They thought it fit in their commercial wisdom to
accept the Scheme as a whole along with the exchange ratio presumably in expectation of
better profits in years to come when the amalgamated companies would operate and when
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there would be, according to the shareholders, better prospects of earning greater dividends.
They willingly agreed to give in exchange two shares of the transferee-Company for five
shares of the transferor-Company and made them available to the shareholders of the
transferor-Company. The appellant was representing only 5% dissenting shareholders and
his objection was almost a voice in the wilderness, which did not appeal to the majority of
his brother shareholders. Shri Shanti Bhushan, learned Senior Counsel for the appellant, in
this connection invited our attention to the observation of the Division Bench in its judgment
at page 375 wherein it has been observed that "if one were to examine the exactitude of
exchange ratio that may be offered fairly on the arithmetic scale by taking into consideration
various details, there is some force in 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 the 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 other exchange ratio can be suggested to be a 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 Maugham, J., in Hoare & Co. (No. 2) Re,
case [1933 All ER Rep 105, Ch D] 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 the following pertinent observations were made by the
learned Judge:
"The other conclusion I draw is this ... the court ought to regard the scheme as a fair one
inasmuch as it seems to me impossible to suppose that the court, in the absence of very
strong grounds, is to be entitled to set up its own view of the fairness of the scheme in
opposition to so very large a majority of the shareholders who are concerned. Accordingly,
without expressing a final opinion on the matter, because there may be special circumstances
in special cases, I am unable to see that I have any right to order otherwise in such a case as
I have before me, unless it is affirmatively established that, notwithstanding the views of a
very large majority of shareholders, the scheme is unfair."
We may also refer to a decision of the Gujarat High Court in Kamala Sugar Mills Ltd.,
Re [(1984) 55 Comp Cas 308 (Mad)] dealing with an identical objection about the exchange
ratio adopted in the scheme of compromise and arrangement. The Court observed as under:
"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 recognised 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
detrimental to their interest."
These observations in our view represent the correct legal position on this aspect. We may
also keep in view that in the present case not only expert like M/s C.C. Chokshi & Co. had
suggested the ratio but another independent body ICICI Security & Finance Company
Limited reached the same conclusion which was conveyed by its letter dated 10-11-1993 to
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the company approving of the entire Scheme along with suggested ratio. A mere look at the
report of the Chartered Accountants M/s C.C. Chokshi & Co. shows that various factors
underlying the scheme of compromise and arrangement were taken into consideration while
suggesting the exchange ratio by the said reputed firm of chartered accountants. The said
opinion had taken into account the fact that on amalgamation shares 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 the 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 expenditure 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 into consideration
multifarious considerations detailed in the report, note was also taken of the fact that MIL
held substantial shares of MFL, which shall have to be cancelled on merger of MFL with
MIL. Two fully paid-up equity shares of MIL of Rs 100 each for every five equity shares of Rs
100 each of MFL, was considered to be a fair exchange ratio to be offered as term of
amalgamation. It was clarified that,
"in absolute terms it would mean that the MIL is keeping consideration of
equity capital of par value of Rs 7.77 crores which at the last issue price of share
amounts about to Rs 38.84 crores and which at the current market price amounts to
Rs 57.4 crores. At the stage of dividend declared for 1992-93, it will result in a cost
in terms of distributable profits of Rs 2.72 crores. For an undertaking in a diversified
business activity of textile and chemicals with the total infrastructure, know-how,
technology tie-up and range of established products and capacities and potential the
aforesaid cost to MIL can be regarded as fair and reasonable".
41. The aforesaid report of the chartered accountants heavily weighed with the
transferor-Company's Board of Directors which comprised, amongst others, the appellant
himself but also the Board of Directors of the transferee-Company and also weighed with the
General Body of equity shareholders who approved the Scheme and the ratio with
overwhelming majority. No grievance, therefore, can be made by the appellant at the stage of
company petition proceedings for demonstrating the ratio to be ex facie unfair and
unacceptable as the appellant would like to have it.
42. Undeterred by this position Shri Thakore, learned counsel for the appellant in
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support of his contention that the exchange ratio was ex facie unfair to the shareholders of
the transferee-Company, invited our attention to the statement showing the working results of
both the transferor and transferee companies as found at Annexures M and N of Vol. II of the
Paper-Book at pages 534 and 535. He submitted that these statements showing the working
results of the company for the last five years ended 31-3-1993 showed that the earning per
equity share after depreciation and tax so far as the respondent-Company was concerned
was Rs 30 while earning of transferor-Company Mafatlal Fine Spinning and Manufacturing
Company Limited was only Rs 7 for the relevant five years. 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 the respondent-Company was concerned. Annexure 'Q' at page 538 showed
value per equity share of Rs 100 each at Rs 1515 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 undertaken by expert body of chartered accountants like M/s 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 Employees' Union [1995 Supp (1) SCC
499] . In paragraph 41 of the Report 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-overs and Mergers in which it is stated that some or all of the 8 listed factors will
have to be taken into account in determining the final share exchange ratio. The Court has
also approved the fixation of exchange ratio of the shares of the companies on the basis of
adoption of combination of two or more well-known methods of valuation of shares out of
many such methods. In para 37 of the Report it has been observed that the question is what
method should be adopted for arriving at a proper exchange ratio. The usual rule is that
shares of the going concern must be taken at quoted market value. This principle was also
recognised by this Court in the case of CWT v. Mahadeo Jalan [(1973) 3 SCC 157 : 1973
SCC (Tax) 103] . It is not the case of the appellant that M/s C.C. Chokshi & Co. had not
taken into consideration the quoted market value of shares of both the companies which were
going concerns and which were subjected to the Scheme of Amalgamation in question. For
Page No.# 51/69
all these reasons, therefore, there is no substance in this contention canvassed on behalf of
the appellant that the exchange ratio was ex facie unfair to the equity shareholders of the
transferee-Company. The fifth point for determination is also, therefore, answered in the
negative."
31. The Apex Court in the said judgment interpreted the scope of judicial
review a Company Court in a proceeding for sanction as per provisions. Relevant
paragraphs i.e. paragraph nos. 28 & 29 are extracted below:
"28. The relevant provisions of the Companies Act, 1956 are found in Chapter V of Part VI
dealing with "Arbitration, Compromises, Arrangements and Reconstructions". In the present
proceedings we will be concerned with Sections 391 and 393 of the Act. The relevant
provisions thereof read as under:
"391. (1) Where a compromise or arrangement is proposed--
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the Court may, on the application of the company or of any creditor or member of the
company, or in the case of a company which is being wound up, of the liquidator, order a
meeting of the creditors or class of creditors, or of the members or class of members, as
the case may be, to be called, held and conducted in such manner as the Court directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of
creditors, or members, or class of members as the case may be, present and voting either
in person or, where proxies are allowed under the rules made under Section 643, by
proxy, at the meeting, agree to any compromise or arrangement, the compromise or
arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the
creditors of the class, all 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. (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
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shall be sent also a statement setting forth the terms of the compromise or
arrangement and explaining its effect, and in particular, stating any material interests
of the directors, managing directors, managing agents, secretaries and treasurers or
manager of the company, whether in their capacity as such or as members or creditors
of the company or otherwise, and the effect on those interests, of the compromise or
arrangement, if, and insofar as, it is different from the effect on the like interests of
other persons; and
(b) in every notice calling the meeting which is given by advertisement, there shall be
included either such a statement as aforesaid or a notification of the place at which
and the manner in which creditors or members entitled to attend the meeting may
obtain copies of such a statement as aforesaid."
The aforesaid provisions of the Act show that compromise or arrangement can be proposed
between a company and its creditors or any class of them or between a company and its
members or any class of them. Such a compromise would also take in its sweep any scheme
of amalgamation/merger of one company with another. When such a scheme is put forward
by a company for the sanction of the Court in the first instance the Court has to direct
holding of meetings of creditors or class of creditors or members or class of members who
are concerned with such a scheme and once the majority in number representing three-
fourths in value of creditors or class of creditors or members or class of members, as the
case may be, present or voting either in person or by proxy at such a meeting accord their
approval to any compromise or arrangement thus put to vote, and once such compromise is
sanctioned by the Court, it would be binding to all creditors or class of creditors or members
or class of members, as the case may be, which would also necessarily mean that even to
dissenting creditors or class of creditors or dissenting members or class of members such
sanctioned scheme would remain binding. Before sanctioning such a scheme even though
approved by a majority of the concerned creditors or members the Court has to be satisfied
that the company or any other person moving such an application for sanction under sub-
section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to
sub-section (2) of that section. So far as the meetings of the creditors or members, or their
respective classes for whom the Scheme is proposed are concerned, it is enjoined by Section
391(1)(a) that the requisite information as contemplated by the said provision is also
required to be placed for consideration of the voters concerned 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
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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 imprimatur 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 it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to
the class of shareholders or creditors for whom it is meant. Consequently it cannot be said
that a Company Court before whom an application is moved for sanctioning such a scheme
which might have got the requisite majority support of the creditors or members or any class
of them for whom the scheme is mooted by the company concerned, has to act merely as a
rubber stamp and must almost automatically put its seal of approval on such a scheme. It is
trite to say that once the scheme gets sanctioned by the Court it would bind even the
dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them
also has to be kept in view by the Company Court while putting its seal of approval on the
scheme concerned placed for its sanction. It is, of course, true that so far as the Company
Court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the
question of voidability of the scheme will have to be judged subject to the rider that a
scheme sanctioned by majority will remain binding to a dissenting minority of creditors or
members, as the case may be, even though they have not consented to such a scheme and
to that extent absence of their consent will have no effect on the scheme. It can be
postulated that even in case of such a scheme of compromise and arrangement put up for
sanction of a Company Court it will have to be seen whether the proposed scheme is lawful
and just and fair to the whole class of creditors or members including the dissenting minority
to whom it is offered for approval and which has been approved by such class of persons
with requisite majority vote.
29. However further question remains whether the Court has jurisdiction like an appellate
authority to minutely scrutinise the scheme and to arrive at an independent conclusion
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whether the scheme should be permitted to go through or not when the majority of the
creditors or members or their respective classes have approved the scheme as required by
Section 391 sub-section (2). On this aspect the nature of compromise or arrangement
between the company and the creditors and members has to be kept in view. 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 parties concerned to the
compromise as the same would be in the realm of corporate and commercial wisdom of the
parties concerned. 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 Company Court
can also be culled out from the provisions of Section 392 of the Act which reads as under:
"392. (1) Where a High Court makes an order under Section 391 sanctioning a
compromise or an arrangement in respect of a company, it--
(a) shall have power to supervise the carrying out of the compromise or
arrangement; and
(b) may, at the time of making such order or at any time thereafter, give such
directions in regard to any matter or make such modifications in the compromise or
arrangement as it may consider necessary for the proper working of the
compromise or arrangement.
(2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under
Section 391 cannot be worked satisfactorily with or without modifications, it may, either
on its own motion or on the application of any person interested in the affairs of the
company, make an order winding up the company, and such an order shall be deemed to
be an order made under Section 433 of this Act.
(3) The provisions of this section shall, so far as may be, also apply to a company in
respect of which an order has been made before the commencement of this Act under
Section 153 of the Indian Companies Act, 1913 (7 of 1913), sanctioning a compromise or
an arrangement."
Of course this section deals with post-sanction supervision. But the said provision itself clearly
earmarks the field in which the sanction of the Court operates. It is obvious that the
supervisor cannot ever be treated as the author or a policy-maker. Consequently the
propriety and the merits of the compromise or arrangement have to be judged by the parties
who as sui juris with their open eyes and fully informed about the pros and cons of the
scheme arrive at their own reasoned judgment and agree to be bound by such compromise
or arrangement. The Court cannot, therefore, undertake the exercise of scrutinising the
scheme placed for its sanction with a view to finding out whether a better scheme could have
been adopted by the parties. This exercise remains only for the parties and is in the realm of
commercial democracy permeating the activities of the concerned creditors and members of
the company who in their best commercial and economic interest by majority agree to give
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green signal to such a compromise or arrangement. The aforesaid statutory scheme which is
clearly discernible from the relevant provisions of the Act, as seen above, has been subjected
to a series of decisions of different High Courts and this Court as well as by the courts in
England which had also occasion to consider schemes 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 Buckley on the
Companies Act, 14th Edn. 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 to bind, or some blot is found in the scheme."
In the case of Alabama, New Orleans, Texas and Pacific Junction Rly. Co., Re [(1891) 1 Ch
213 : (1886-90) All ER Rep Ext 1143] the relevant observations regarding the power and
jurisdiction of the Company Court which is called upon to sanction a scheme of arrangement
or compromise between the company and its creditors or shareholders were made by Lindley,
L.J. as under:
"What the court has to do is to see, first of all, that the provisions of that statute have
been complied with; and, secondly, that the minority has been acting bona fide. The court
also has to see that the minority is not being overriden by a majority having interests of
its own clashing with those of the minority whom they seek to coerce. Further than that,
the court has to look at the scheme and see whether it is one as to which persons acting
honestly, and viewing the scheme laid before them in the interests of those whom they
represent, take a view which can reasonably be taken by businessmen. The court must
look at the scheme, and see whether the Act has been complied with, whether the
majority are acting bona fide, and whether they are coercing the minority in order to
promote interests adverse to those of the class whom they purport to represent; and then
see whether the scheme is a reasonable one or whether there is any reasonable objection
to it, or such an objection to it as that any reasonable man might say that he could not
approve it."
To a similar effect were the observations of Fry, L.J., which read as under:
"The next enquiry is: Under what circumstances is the court to sanction a resolution
which has been passed approving of a compromise or arrangement? I shall not attempt to
define what elements may enter into the consideration of the court beyond this, that I do
not doubt for a moment that the court is bound to ascertain that all the conditions
required by the statute have been complied with; it is bound to be satisfied that the
proposition was made in good faith; and, further, it must be satisfied that the proposal
was at least so far fair and reasonable, as that an intelligent and honest man, who is a
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member of that class, and acting alone in respect of his interest as such a member, might
approve of it. What other circumstances the court may take into consideration I will not
attempt to forecast."
In Anglo-Continental Supply Co. Ltd., Re [(1922) 2 Ch 723 : 91 LJ Ch 658] 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.,
Re [(1995) 4 Comp LJ 330 (Cal)] 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 the court feels that the proposed merger is manifestly
unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether
the merged companies will be ultimately benefited or will be able to economise in the
matter of expenses is a matter for the shareholders to consider. If three companies are
amalgamated, certainly, there will be some economies in the matter of maintaining
accounts, filing of returns and various other matters. However, the court is really not
concerned with the exact details of the matter and if the shareholders approved the
scheme by the requisite majority, then the court only looks into the scheme as to find out
that it is not manifestly unfair and/or is not intended to defraud or do injustice to the
other shareholders."
We may also in this connection profitably refer to the judgment of this Court in the case
of Employees' Union v. Hindustan Lever Ltd. [1995 Supp (1) SCC 499] wherein a Bench of
three learned Judges speaking through Sen, J. on behalf of himself and Venkatachaliah, C.J.,
and with which decision Sahai, J., concurred, Sahai, J., in his concurring judgment in the
aforesaid case has made the following pertinent observations in this connection in the
Report: (SCC pp. 506-08, paras 3-6)
"But what was lost sight of was that the jurisdiction of the court in sanctioning a claim of
merger is not to ascertain with mathematical accuracy if the determination satisfied the
arithmetical test. A company court does not exercise an appellate jurisdiction.
***
Section 394 casts an obligation on the court to be satisfied that the scheme for
amalgamation or merger was not contrary to public interest. The basic principle of such
satisfaction is none other than the broad and general principles inherent in any
compromise or settlement entered between parties that it should not be unfair or contrary
to public policy or unconscionable. In amalgamation of companies, the courts have
evolved, the principle of 'prudent business management test' or that the scheme should
not be a device to evade law. But when the court is concerned with a scheme of merger
with a subsidiary of a foreign company then the test is not only whether the scheme shall
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result in maximising profits of the shareholders or whether the interest of employees was
protected but it has to ensure that merger shall not result in impeding promotion of
industry or shall obstruct growth of national economy. Liberalised economic policy is to
achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance
on English decisions Hoare & Co. Ltd., Re [1933 All ER Rep 105, Ch D] and Bugle Press
Ltd., Re [1961 Ch 270 : (1960) 1 All ER 768 : (1960) 2 WLR 658] 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, C.J., 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: (SCC p. 528, para 84)
"An argument was also made that as a result of the amalgamation, a large share of the
market will be captured by HLL. But there is nothing unlawful or illegal about this. The
Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is
involved. But that is not the case here. A company may, on its own, grow up to capture a
large share of the market. But unless it is shown that there is some illegality or fraud
involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation.
It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline
in the business of TOMCO. Dr Dhavan has argued that TOMCO is not yet a sick Company.
That may be right, but TOMCO at this rate will become a sick Company, unless something
can be done to improve its performance. In the last two years, it has sold its investments
and other properties. If this proposal of amalgamation is not sanctioned, the consequence
for TOMCO may be very serious. The shareholders, the employees, the creditors will all
suffer. The argument that the Company has large assets is really meaningless. Very many
cotton mills and jute mills in India have become sick and are on the verge of liquidation,
even though they have large assets. The Scheme has been sanctioned almost
unanimously by the shareholders, debenture-holders, secured creditors, unsecured
creditors and preference shareholders of both the Companies. There must exist very
strong reasons for withholding sanction to such a scheme. Withholding of sanction may
turn out to be disastrous for 60,000 shareholders of TOMCO and also a large number of
its employees."
In view of the aforesaid settled legal position, therefore, the scope and ambit of the
jurisdiction of the Company Court has clearly got earmarked. The following broad contours of
such jurisdiction have emerged:
1. The sanctioning court has to see to it that all the requisite statutory procedure for
supporting such a scheme has been complied with and that the requisite meetings as
contemplated by Section 391(1)(a) have been held.
2. That the scheme put up for sanction of the Court is backed up by the requisite majority
vote as required by Section 391 sub-section (2).
3. That the meetings concerned 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
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scheme in question. That the majority decision of the concerned class 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 meetings concerned as contemplated by Section 391 sub-section (1).
5. That all the requisite material contemplated by the proviso of sub-section (2) of Section
391 of the Act is placed before the Court by the applicant concerned 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 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.
9. 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 the commercial wisdom of the majority of the class of
persons who with their open eyes have given their approval to the scheme even if in the
view of the Court there would be a better scheme for the company and its members or
creditors for whom the scheme is framed. The Court cannot refuse to sanction such a
scheme on that ground as it would otherwise amount to the Court exercising appellate
jurisdiction over the scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court
which is called upon to sanction a scheme of compromise and arrangement are not
exhaustive but only broadly illustrative of the contours of the Court's jurisdiction.
32. The Apex Court upon due consideration of the matter has summarized the
scope and admit the jurisdiction of the Company Court while sanctioning a
scheme of amalgamation/merger as under. These are enumerated as below:
"1. The sanctioning Court has to see to it that all the requisite statutory procedure for
supporting such a scheme has been complied with and that the requisite meetings as
contemplated by Section 391 (1) (0) have been held.
2. That the scheme put up for sanction of the Court is backed up by the requisite majority
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vote as required by Section 391, sub-section (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 anive at an informed decision for approving the
scheme in question. That the majority decision of the concerned class 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, sub-section (1).
5. That all the requisite material contemplated by the proviso to sub-section (2) of Section
391 of the Act 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 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 of 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 majority 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.
9. Once the aforesaid broad parameters about the requirement 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 the commercial wisdom of the majority of the class of persons who with
their open eyes have given their approval to the scheme even if in the view of the Court
there would be a better scheme for the company and its members or creditors for whom the
scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it
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would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather
than its supervisory jurisdiction."
33. In Hindustan Labour Employees (supra), the Apex Court concluded that
there are three well-accepted methods to arrive at the fair value of shares,
namely:
1. Yield Method
2. Asset Value Method
3. Market Value Method
34. The Apex Court held that the Company Court will decline to sanction a
scheme of merger if any fraud or illegality is found to be involved. There is no
quarrel with the proposition of law which has been laid down by the Apex Court
in the judgments relied upon at the bar before this Court. The judgments being
elaborately discussed in the judgment under the Appeal of the Company Court,
the same are not referred to here again. It is also seen from the judgment of
the Company Court that the scheme in principle appears to be based on
business/commercial consideration conditions of the two companies. The
Company Court therefore saw no hindrance or impediment in the sanction of
the scheme. The only hindrance noticed by the Company Court is the allotment
of issue or shares by the transferring company as per the shares exchange ratio
in absence of any materials being placed into the Company Court, the Company
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court returned the finding that the share exchange ratio appears to be heavily
loaded in favour of the shareholders of the transferor company and it appears to
be unrealistic and illogical, if not downright absurd. The basis for this conclusion
is the fact that the transferor company was under lockout for a long period and
had accumulated losses and had also filed a petition before the High Court for
voluntary liquidation which although was subsequently withdrawn. Before the
Company Court it was urged that as per the share exchange ratio projected in
the scheme for every 1000 value of shares of the transferee company a
shareholder in the transferor company will get Rs. 7860/- value of shares in the
transferee company and that this exchange ratio has been fixed on the basis of
the earning capacity of transferor company and not on the basis of net asset
value or net worth as appearing from the balance sheet. Such explanation did
not inspire confidence of the learned Company Judge to sanction the said
scheme as no materials have been disclosed in the petition or in the pleadings
as to how the particular share exchange ratio is worked-out. The learned
Company Judge had concluded from the standpoint of commercial strength of
the two companies that the share exchange ratio did not appear to be sound
and that the same is also required to be examined in the light of the litigation
history of the transferee company and the following consequential directions
were issued:
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i) Court has no objection to sanction the scheme for
amalgamation of Buragohain Tea Company (Transferor Company)
with B&A Ltd. (Transferee Company).
ii) However, having regard to the litigation history in the
Transferee Company involving the Objector and other related
developments and also having regard to the financial status of
the Transferor Company as discussed above, objection raised by
the Objector and by the Central Govt through the Regional
Director regarding the exchange ratio of shares between the two
companies cannot be brushed aside.
iii) The exchange ratio of 786 fully paid up equity share of
Rs.10.00 each of the Transferee Company to be issued and
allotted for every one enquiry share of Rs.1,000.00 held in the
Transferor Company does nto appear to be fair and justified.
iv) Accordingly, Court directs the Registrar of Companies, Shillong
to work out the exchange ratio in a fair manner through
independent experts keeping in view the discussions made above
and submit the same to the Court in two months time.
35. A careful perusal of the penultimate directions reveal that at direction No.i,
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the learned Company Judge clearly ordered " Court has no objection to sanction
the scheme for amalgamation of Buragohain Tea Company (Transferor
Company) with B&A Ltd. (Transferee Company) ". This direction therefore makes
it apparent that the Court was inclined to grant sanction in favour of the
amalgamation coupled with the observation made in the said order that the
Court finds this scheme to be acceptable in principle. However, the scheme was
no sanctioned for the reasons reflected in the directions at serial No.ii, iii & iv of
the judgment.
36. In so far as the direction No.ii is concerned, the same is based on the
objections raised by the Regional Director. However, the affidavit filed by the
Regional Director raising objections to the share exchange ratio, however, is also
not found to be supported by any material and justification as to why the
objection was raised by the Regional Director and whether such objection has
been raised on the basis of due examination of the audited accounts and the
mechanism adopted by the financial experts/ advisors of the companies while
working out the share exchange ratio and/or whether such share exchange ratio
is otherwise contrary to the procedure prescribed or to the statute itself.
Consequently, the directions contained at serial no.iii also does not appear to be
based on any materials available before the Company Court and which
ultimately resulted in the directions at serial No.iv. This Court is of the view that
Page No.# 64/69
ordinarily under these facts and circumstances, this Court would have been
inclined to interfere with the directions from No. ii, iii and iv in view of the clear
direction at serial No.i. However, the Court cannot be oblivious of the fact that
the proposed appointed date as per the scheme of amalgamation was
01.04.2011 and the order was passed by the learned Company Judge in
Company Petition no. 3 of 2013 filed by Buragohain Tea Co. Ltd., namely, the
transferor company on 28.07.2015. It is not in dispute that the scheme of
amalgamation adopted by the shareholders and members of the transferor
company and the transferee company was based on the commercial wisdom of
the shareholders and the advisories issued by the financial advisors or auditors
in these companies. It will therefore not be a prudent to accept that business
and commercial decisions were taken in the meetings held in the year 2013
when the shareholders agreed to the appointed date of the scheme to be
01.04.2011 subject to sanction being granted by the High Court, the business
dynamics and the commercial equations between the companies have continued
to remain static for more than a decade and the grant of sanction at this stage
by the Company Court will be in the best interest of the companies concern.
37. The judgments which are referred to by the parties and which still governs
the field clearly reveals that the Company Court does not sit as an appellate
authority over the scheme of amalgamation placed before the Court and will not
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review the matter by substituting the decision or the conclusion arrived at by
the shareholders/members with the views of the Company Court. The law as it
stands today also makes it very clear that there is ample power bestowed on
the Company Court that while examining a scheme of amalgamation for grant of
sanction, the Company Court will not accord sanction to any or all schemes
placed before it. The law laid down by the Apex Court makes it emphatically
clear that Company Court can lift the veil to look into the true nature and the
interest of the shareholders and the bona-fides of the resolutions adopted vis-a-
vis the scheme of amalgamation and if it is found that there is any illegality or
fraud or that the scheme is against a public policy, the Company Court is within
its power refuse to grant sanction to such schemes of amalgamation with or
without modifications. Therefore, merely because the learned Company Judge
had issued directions which has been sought to be questioned in these appeals,
it cannot be said that the learned Company Court exceeded its jurisdiction under
the prescribed provisions of the statute while examining the scope of grant of
sanction of scheme of amalgamation. As such it cannot be said that the
directions issued by the learned Company Judge are perverse and/or it contrary
to the statute and that it requires interference.
38. Having said that there is another aspect which has not been urged before
the Court which nevertheless, will have to be addressed by the Court. The
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impugned order dated 28.07.2015 which is challenged before this Appellate
Court is an order passed with interim directions by the learned Company Judge.
By order dated 28.07.2015 passed in Company Petition No. 3 of 2013, which has
been assailed in the present proceedings, the learned Company Judge did not
dispose of the said petition, rather the Registrar of Companies was directed to
re-evaluate the share exchange ratio and thereafter, submit the same to the
Court within two months and it was left open by the Court to consider the
scheme for sanction with modifications, if required. Thereafter, in view of the
appeals being filed and orders being passed by the Court, the Company Petition
No. 3 of 2013 could not be disposed of.
39. Under such circumstances, this appeal assailing the order dated
28.07.2015 passed by the learned Company Judge is essentially an Intra Court
appeal against an interim order. Ordinarily in an Intra Court appeal unless the
directions issued by the Court are found to be perverse or contrary to the
findings of the statutes or the law laid down by the Apex Court, an Appellate
Court will not ordinarily interfere in such Intra Court Appeal. Reference at this
stage is required to be made to the judgment of the Apex Court rendered in
Management of Narendran and Company Private Limited vs. Workmen of
Narendra and Company reported in (2016) 3 SCC 340, where the Apex Court
declined to interfere with the orders passed in an Intra Court appeal unless the
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same is found to be perverse or contrary to law. In Management of Narendran
and Company Private Limited (supra), the Apex Court held that in an Intra Court
Appeal on a finding of fact unless the Appellate Bench concludes that the
findings of the learned Single Judge are perverse, it will not disturb the same,
merely because another or a better view is possible, the order of the learned
Single Judge should not be interfered with unless both sides agree for a fairer
approach on the review. Similar view is also reiterated in N. Ramachandra
Reddy vs. State of Telangana and others reported in (2020) 16 SCC 478 as well
as in Airports for Authority of India vs. Pradip Kumar Banerjee reported in
(2025) 4 SCC 111. It was held by the Apex Court that the Appellate Court must
restrain itself and interference into a judgment passed by the learned Single
Judge is permissible only, if the judgment of the learned Single Judge is
perverse or suffers from an error apparent in law. Unless such a finding is
recorded, a Division Bench ordinarily ought not to interfere with the findings of
the learned Single Judge in an Intra Court Appeal.
40. Having considered the law laid down by Apex Court in this aspect, it must
be stated that this principle must be strictly followed when examining an Intra
Court Appeal, considering that the order assailed in these appeals is an interim
order and this order did not conclude the proceedings pending before the
Company Court.
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41. Under such circumstances, this Court is of the considered view that taking
into consideration the fact that both the parties before the Court are agreed that
consequential directions for re-evaluation of share exchange ratio were not
called for, this Court considers it appropriate to dispose of these appeals
remitting the matters back to the learned Company Judge to conclude the
proceedings, as expeditiously as possible, without being influenced by the
penultimate directions issued by the learned Company Judge on 28.07.2015. It
will be open for the learned Company Judge to re-evaluate the matter and pass
appropriate orders as to whether the sanction sought for the scheme of
amalgamation ought to be granted with or without modifications. The learned
Company Judge will also be at liberty to call for all the records from either or
both the Companies or from the Registrar of Companies, if the need so arises to
satisfy itself in respect of the share exchange ratio as projected in the scheme
of amalgamation. After evaluating such materials as considered necessary, the
learned Company Judge will dispose of the petition after passing appropriate
order.
42. Till such orders are passed by the learned Company Judge, the directions
contained in the order dated 28.07.2015 passed in Company Petition No.3 of
2015 from serial Nos. i to iv will not be applicable and will not influence the
further proceedings before the learned Company Judge.
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43. Accordingly, the Company Appeals stand disposed of in terms of the above.
44. Registry to list this Company Petition No.3/2013 before the appropriate
Bench as early as possible.
45. Interlocutory applications, if any filed in the connected Company Appeals
are also stand disposed of.
JUDGE JUDGE
Comparing Assistant
