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PETITIONER: MIHEER H. MAFATLAL

       Vs.

RESPONDENT: MAFATLAL INDUSTRIES LTD.

DATE OF JUDGMENT:       11/09/1996

BENCH: MAJMUDAR S.B. (J) BENCH: MAJMUDAR S.B. (J) SINGH N.P. (J)

CITATION:  JT 1996 (8)   205

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      S.B. Majmudar, J.      Leave granted.      By consent  of learned advocates of parties this appeal was taken  up for  final hearing  We have  heard the learned advocates of  parties. The  appeal is  being disposed  of by this judgment.      This appeal by special leave arises out of the judgment and order  of a  Division Bench  of High Court of Gujarat in Original Jurisdiction  Appeal No. 16 of 1994 decided on 12th July 1996.  The Division Bench by the said impugned judgment dismissed the  appeal of  the appellant  and  confirmed  the order of the learned Single Judge in Company Petition No. 22 of 1994  and sanctioned  a Scheme  of  Amalgamation  of  two Public  Limited   companies,  namely,   Mafatlal  Industries Limited (’MIL’  for short)  being the transferor-company was to  be   amalgamated.  The   learned  Single  Judge  granted requisite sanction  to the  applicant transferee-company MIL to amalgamate in it the transferor-company MFL under Section 391(2) of  the Companies  Act, 1956 (hereinafter referred to as ’the  Act’). In  order to appreciate the grievance of the appellant  who   objected  to   the  Scheme   moved  by  the respondent-company MIL,  as  ventilated  before  us  by  its learned senior  counsel Shri  Shanti  Bhushan,  assisted  by learned counsel  Shri M.J.  Thakore, it will be necessary to glance through a few relevant background facts.      Background Facts      The respondent-company  MIL which  was  the  petitioner before the learned Single Judge has its registered office at Ahmedabad in  Gujarat State.  It was  incorporated  on  20th January 1913  under the  name ’The  New Shorrock  Spinning & Manufacturing Co.  Limited’ and  its name  was  subsequently changed to  ’Mafatlal Industries  Limited’ as  per the fresh Certificates  of   Incorporation  dated  24th  January  1974 consequent  upon  change  of  name,  as  sanctioned  by  the Registrar of  Companies, Gujarat,  Ahmedabad. The objects of

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the  transferee-company   MIL  as   per  its  Memorandum  of Association, inter-alia,  included activity  of carrying  on all or  any of  the businesses  such as  cotton spinners and doublers, wool,  silk  flax,  jute  and  hemp  spinners  and doublers, linen  manufacturers, to work spinning and weaving mills, cotton  mills, jute  mills and  mills  of  any  other description. The  Authorised Share  Capital  of  respondent- company was Rs. 100,00,000/- (Rupees on hundred crores only) divided into  30,05,500 equity  shares of each and 69,94,500 unclassified shares  of Rs. 100/- each. The Subscribed Share Capital of  the respondent-company as on 31st March 1993 was Rs. 26.30 crores (Rupees twenty six crores thirty lacs only) divided into 26,90,000 equity shares of Rs. 100/- each.      The  respondent-company   commenced  the   business  of textiles  and   had  been   carrying  on   the  same   since incorporation. The  respondent-company  is  a  large  multi- Division, multi-locational  company carrying  on diversified activities including  manufacturing and  sale  of  textiles, dyes  intermediates   and  chemicals,   professionals  grade connectors, plastic  processing  machineries  and  promoting various companies through Project Promotion Division.      The MFL  being transferor-company  was incorporated  on 20th April 1931 under the Baroda State Companies Act and had been carrying  on the  business of  manufacture and  sale of textile piece goods and chemicals. Its registered office was situated at  Mafatlal Centre,  Nariman Point, Bombay. It was engaged in the manufacture and sale of textiles and fluorine based chemicals.  There were  three units  of  the  Textiles Division  situated   at  (1)  Vejalpur  Road,  Navsari,  (2) Mazagon, Bombay  and (3) Lower Parel, Bombay and the unit of the Chemicals  Division was  situated at  Bhestan,  District Surat.      The Authorised  Share Capital of the transferor-company as on 31st March 1993 was Rs. 30 crores (Rupees thirty cores only) divided  into 30,00,000  ordinary shares  of Rs. 100/- each. The Subscribed Share Capital of the transferor-company as on  31st March  1993 was Rs. 26,25,77,100/-(Rupees twenty six crores  twenty five  lacs seventy seven thousand and one hundred only)  divided into  26,25771 ordinary shares of Rs. 100/- each.  Subsequent to  31st March  1993 the transferor- company had  allotted further  1,00,000 ordinary  shares  of Rs.100/- each  at a  premium  of  Rs.  200/-  per  share  on conversion of 1,00,000. Partly Convertible Debentures of the face  value   of  Rs.   2,000/-  each  issued  to  Financial Institutions with  effect from  1st  February  1994  by  the transferor-company.      The  transferor-company   MFL   is   proposed   to   be amalgamated  with   the  respondent-company  MFL  under  the following circumstances and for the following reasons. :      (1) The  proposed amalgamation will      pave  the   way  for  better,  more      efficient and economical control in      the running of operations.      (2) Economics in administrative and      management costs  will  improve  in      combined profitability.      (3) The  amalgamated  company  will      have the  benefit of  the  combined      reserves,   manufacturing   assets,      manpower and  cashflows of  the two      companies.       The       combined      technological,    managerial    and      financial resources are expected to      enhance  the   capability  of   the      amalgamated company  to  invest  in

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    larger and  sophisticated  projects      to ensure rapid growth.      (4) The  amalgamated  company  will      have a  strong and  large  resource      base. With  a strong resource base,      the risk  bearing capacity  of  the      amalgamated   company    will    be      substantial. Hitherto, with limited      resources       and       capacity,      opportunities which would otherwise      have been profitable to the group.      (5)"Exports" have been identified a      ’thrust’   area    for   both   the      companies and  response in  time to      customers’ needs s considered to be      critical   in    this    area    of      operations. An  amalgamated company      will be strategically better places      to  reduce   the   response   time.      Customers’  confidence  in  dealing      with such  a mega  company  ensures      timely delivery of large orders.      (6) The amalgamated company will be      able  to   source  and  absorb  new      technology and  spend  on  Research      and  Development,   Market  Surveys      etc. more comprehensively.      (7)  More   particularly   in   the      Textiles Division, with 5 operating      units at  the  company’s  disposal,      the flexibility  in operations will      be  very   much   pronounced.   The      Managers will  not be  inhibited by      capacity constraints  and will have      the  freedom   of   choosing   from      various options.      (8) Both  the companies  have  been      subject to  the  pressures  of  raw      material price  fluctuations and of      adverse market  conditions in their      respective product  mix. Hence, the      amalgamation  will  neutralise  the      adverse   effects    of    contrary      business cycles.  The operations of      one unit  will be  complementary to      the    other     and    a    stable      profitability will be achieved.      The  directors   of  the   respondent-company  MIL  and transferor-company  transferor-company   MFL  approved   the proposal for  amalgamation of  the MFL with MIL and pursuant to the  respective Resolutions  passed by  them the detailed Scheme of  Amalgamation was finalised. The directors of both the companies were of the opinion that such amalgamation was in the interest of both the companies.      It  is  pertinent  to  note  at  this  stage  that  the appellant who  has objected  to the  amalgamation before the High  Court  in  the  present  proceedings  so  far  as  the amalgamation of  the  transferee-company  is  concerned,  is himself one of the directors of the transferor-company being MFL. So  far as  the transferor-company  MFL is concerned as its registered office is located at Bombay the corresponding application  on   behalf  of   the  transferor-company   for satisfaction this  very Scheme  of Amalgamation was moved in the Bombay  High Court.  The appellant at this stage did not object to this very Scheme for amalgamation on behalf of the

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transferor-company of  which he was one of the directors and party to  the Resolution  approving the  said  amalgamation. Learned Single Judge of the Bombay High Court sanctioned the said Scheme of on behalf of transferor-company. It is not in dispute between  the parties  that  Bombay  High  Court  had already  sanctioned  this  very  Scheme  on  behalf  of  the transferor-company.      As the  registered office  of the transferee-company is located at  Ahemdabad the  respondent transferee-company had approved the High Court of Gujarat for sanctioning this very Scheme of  Amalgamation on  behalf of the transferee-company and that  application was  moved on 8th February 1994. It is at this  stage  that  the  appellant  who  was  one  of  the shareholders of  the transferee-company filed his objections to the Scheme of Amalgamation moved under Section 391 of the Act. Earlier  the learned single Judge directed convening of meeting of equity shareholders of the respondent-company. In the meeting  of the equity shareholders convened pursuant to the order  of the  High Court,  overwhelming majority of the equity shareholders  approved the  Scheme in  the meeting of 22nd January  1994  convened  at  Premabhai  Hall,  Bhandra, Ahmedabad. The  said meeting  was attended  by 5522  members present in  person or  by proxy, holding 20,48513 fully paid equity  shares   of  Rs.   100/-  each  aggregating  to  Rs. 20,48,51,300/-. At  the said  meeting, resolution was passed without modification  by  the  requisite  majority  as  5298 members holding  19,36,964 fully paid equity voted in favour of the  Scheme and  143 members  holding 86,061  fully  paid meeting by  requisite majority  approved the proposed Scheme of Amalgamation  and report of the Chairman was submitted to the High  Court. Thereafter the respondent-company MIL filed Company Petition  No.22 of  1994 under Section 391(2) of the Act. That  application was  ordered to be published in local newspapers as  well as  in the  Bombay edition  of the  said newspaper. Notice  was also issued to the Regional Director, Company Law Board, Western Region, Bombay.      In  response  to  the  notice  issued  to  the  Central Government under  Section 394  A  of  the  Act  the  learned Additional  Central  Government  Standing  Counsel  appeared before the  High Court  and   submitted to the orders of the Court making  it clear that the Capital Government is not to make any  representation in  favour or  against the proposed Scheme.      Pursuant to  the public  advertisement only the present appellant, the  shareholder  of  transferee-company  holders 40,567 shares  in MIL filed affidavit opposing the Scheme of Amalgamation  and   Arrangement   between   the   respondent transferee-company MIL  and transferor-company MFL of which, as noted  earlier, he  himself was  one of the directors and the High  Court of  Bombay which sanctioned this very Scheme on behalf  of  the  transferor-company  had  sanctioned  the Scheme without any objection being taken by the appellant at that stage.      Nine objections  were raised  by the  appellant against the proposed  Scheme of  Amalgamation as  shareholder of the transferee-company. At  this stage  we may  not mention  all these nine objections as ultimately only for objections have survived for  our consideration  in the  present proceedings and to  which we will make a detailed reference hereinafter. Suffice it  to state  at this  stage that  after a prolonged hearing the  learned Single  Judge S.D. Shah, J., over-ruled these objections  and by  a detailed and exhaustive judgment running over  254 pages  covering  various  aspects  of  the matters canvassed  before him  sanctioned  the  said  Scheme moved on behalf of the respondent transferee-company.

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    The Division  Bench of  the High  Court  to  which  the appellant  carried   the  matter  in  appeal  confirmed  the aforesaid decision  of the  learned Single  Judge by  a well considered judgment  which also  ran into 136 pages and that is how  the appellant,  original objector,  is before  us in this appeal.      Family History      In order  to properly  appreciate the  grievance of the appellant against  the proposed  Scheme and  his role  as an objector it  will be necessary to note the family history of the appellant  and tow  of the  directors of  the respondent transferee-company  who  have  a  common  ancestor  Mafatlal Gagalbhai. The  Family of  Mafatlal Gagalbhai  projects  the following picture :              Family Tree of Mafatlal Gagalbhai                   Seth Mafatlal Gagalbhai                     (Died on 19/071994) Navinchandra          Bhaubhai           Prasnasukhlal (Died 31/08/1995)     (Died 30/09/1944)   (Deceased)                                           (No issues) Arvind Yogindra Rasesh                         Hemant                         (Died on 16/08/1971)         Atulya  Pradeep                        Miheer                        (Born on 27/05/1958) Padmanabh Hrishikesh (Died on 29/07/1990)      As the  aforesaid  Family  Tree  shows,  the  appellant Miheer is  the son  of cousin brother of Arvind Navinchandra who is  said to  be at the helm of affairs of the transferee company along  with his  son Hrishikesh.  As seen  from  the Family Tree  the common  ancestor Mafatlal Gagalbhai who was himself a very astute businessman and entrepreneur had three sons Pransukhlal, Navinchandra and Bhagubhai. The eldest son Pransukhlal got  out of  the family  prior to  the death  of Mafatlal Gagalbhai  and he  died without  leaving any issue. Mafatlal  Gagalbhai  expired  on  19th  July  1944  and  was survived by his two sons Navinchandra and Bhagubhai. On 30th September  1944,   the  said   Bhagubhai  died  leaving  him surviving Hemant,  then aged  9 as  his only  male issue. On 31st August  1955, Navinchandra  Mafatlal died  leaving  him surviving the three sons, Arvind Mafatlal, Yogindra Mafatlal and Rajesh Mafatlal as his male issues. On 16th August 1971, said Hemant  expired leaving  behind his  only  male  issue, present objector Miheer, then aged 13.      The said  Mafatlal Gagalbhai started different business undertakings and  with passage  of time,  the family of said Mafatlal consisting  of Navinchandra  and Bhagubhai expanded their  business   undertakings.   The   said   family   held controlling interest  in  different  business  concerns  run through public  limited or private limited companies and the members of  the family  were also  partners  in  partnership firms. The  pattern which was maintained throughout was that the two  sons Navinchandra  and Bhagubhai and their families would respectively have an equal interest in companies or in partnership firms.  At the  time of  the death  of the  said Bhagubhai the  said Hemant  was just  9 years  of  age.  The business of  Mafatlal Group  was therefore for all practical purposes managed  by the  said Navinchandra.  At the time of the death  of Navincandra  the shareholding of the branch of Heman Mafatlal  in Mafatlal Group of Industries was equal to aggregate shareholding of Arvind Mafatlal, Yogindra Mafatlal and Rajesh  Mafatlal. On  the  death  of  Navinchandra,  the

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Mafatlal Group  was managed  by  Arvind  Mafatlal,  Yogindra Mafatlal, Rajesh  Mafatlal and  late Heman  Mafatlal. Arvind Mafatlal was,  however the  eldest male member in the family who was  always looked  upon by  Yogindra, Rajesh  and  late Hemant as an elder in the family and respected.      On 16th  August 1971, Hemant Mafatlal died at the young age of  36 years  leaving behind him his widowed mother, his wife, his  son Miheer  (then aged  13) and his two daughters (then aged  11 and  6). At  that time,  the Mafatlal family, i.e.,  the  families  of  Navinchandra  and  Bhagubhai  were running 3  apex companies  (1) Mafatlal  Gagalbhai & Company Private Limited, (2) Surat cotton Spinning and Weaving Mills Private  Limited  and  (3)  Pransukhlal  &  Company  Private Limited.      It is  the case of Miheer that when his father expired, the New  Shorrock Spinning and Manufacturing Co. Limited was being controlled  and managed  by Mafatlal  Gagalbhai &  Co. Limited in which his father and his family had 46.47% shares vis-a-vis 43.66%  shares held  by the family of Navinchandra Mafatlal. After  the death  of his  father, when  Miheer was minor, it was decided to amalgamate Mafatlal Gagalbhai & Co. Limited on 24th January 1974 and the name of the company was changed to present name i.e. MIL.      According to  the appellant  Miheer in  or around 1979, there were  certain disputes  and differences amongst Arvind Mafatlal, Yogindra  Mafatlal and  Rajesh Mafatlal and it was felt that  some arrangement  should be  worked out,  whereby there would  be a  separation and  division  of  the  family business concerns  amongst the  four  branches  viz.  Miheer Branch known  as MHM  Group, family of Arvind Mafatlal known as ANM  Group, family  of Yogindra  Mafatlal  known  as  RNM Group. It  is this  further case  that Shri  C.C. Chokshi, a reputed chartered  accountant was  requested  to  prepare  a Scheme for  division of  family business concerns. According to the appellant, Shri C.C. Chokshi prepared Note dated 23rd February 1979  making six  suggestions for  the division  of Mafatlal Group  of Industries into four Groups as there were four family  groups. The  appellant contends that as per the aforesaid family  arrangement the  transferee-company,  i.e. MIL was  agreed to  be put  his share  and the  other groups which were  holding shares  in the  said  transferee-company were to  transfer their  share-holdings  in  favour  of  the appellant. The  appellant contends  that however  because of some family  disputes  the appellant  fell from the grace of Shri  Arvind   Mafatlal  who  was  the  eldest  male  member monitoring all  these industries belonging to all the groups of the  same family, and consequently the family arrangement was not  given effect to and that the transferee-company was not handed over in management to the appellant. On the other hand the  case of  the other  group headed  by  Shri  Arvind Mafatlal was  to the  effect the  said family arrangement of 1979 was  given a  go-by and the appellant himself agreed to sell his  share-holding in  the  transferee-company  MIL  in favour of  Arvind Mafatlal’s  Group. Number  of  litigations took place  between the  parties in the second half of 1980. That on  6th April  1987 Arvind Mafatlal filed suit No.10 of 1987 in  the High  Court  of  Judicature  at  Bombay  for  a declaration that  there was  a valid, subsisting and binding contract to  sell shares Rajesh Mafatlal, Yogindra Mafatlal, the appellant herein, groups to Shri Arvind Mafatlal’s group and for  a direction  that they  should sell the shares at a price to  be determined  by the arbitrator. In the said suit the appellant  Miheer filed a counter-claim praying that the family arrangement of 1979 should be enforced and the share- holding of  Shri Arvind Mafatlal’s group and other groups in

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the transferee-company MIL should be sold by way of specific performance to  the  appellant. The aforesaid suit by Arvind Mafatlal and  the counter-claim by the appellant are pending for adjudication  in the High Court of Judicature at Bombay. It is  in the  background of the aforesaid history of family feud between  these warring groups descended from the common ancestor Shri  Mafatlal Gagalbhai  that the grievance voiced by  the   appellant  in   these  proceedings   has    to  be appreciated.      Rival Contentions      As noted  earlier though  a  battle  royal  was  fought between the  contesting parties  before the  learned  Single Judge wherein  nine objections  were raised for adjudication by the  appellant, at this stage, the dispute centered round a limited number of contentions which were canvassed for our consideration by  learned senior  counsel for the appellant. Four-fold submissions for opposing the Scheme were canvassed on behalf of the appellant before us by Shri Shanti Bhushan, learned senior counsel. In the first place he contended that the respondent-company while putting the scheme for approval of the equity shareholders in their meeting did not disclose the interest of the directors, namely, Shri Arvind  Mafatlal and Shri Hrishikesh Mafatlal belonging to the camp of Arvind Mafatlal in  the explanatory statement supporting the Scheme and consequently  the shareholders were misled and could not come to  an informed  decision regarding the approval of the said Scheme  with  the  result  that  the  approval  by  the majority of  equity shareholders  to the said Scheme was got vitiated (2)  The Scheme  as  proposed  was  unfair  to  the minority  shareholders  represented  by  the  appellant  and consequently it  ought to have been sanctioned by the Court; (3)  The   Scheme  was   otherwise  unfair   to  the  equity shareholders as  the exchange  ratio of equity shares of the transferor   and   transferee   companies   was   ex   facie unreasonable  and   unfair  to   the  shareholders   of  the transferee-company MIL  in so  far as  it provides under the Scheme that two equity shares of the transferee company will be allotted  against five  equity shares  of the transferor- company at  their respective  face value  of Rs.  100/-  per share; and  (4) That  the appellant  represented a  distinct class of  equity  shareholders  so  far  as  the  respondent transferee-company is  concerned and   consequently separate meeting so  far as  his group  is concerned should have been convened by  the Company Court and as that has not been done the Scheme is liable to be rejected.      As a  corollary to  the aforesaid  contention Shri M.J. Thakore, learned  counsel appearing  for  the  appellant  in addition submitted  that voting  pattern as  adopted in  the meeting   of equity   shareholders  which had  approved  the Scheme  by  Majority,  resulted  in  coercing  the  minority represented by  the appellant  and  that  has  rendered  the Scheme  unfair  and  unreasonable  and  consequently  it  is required to be rejected.      On the  other hand learned senior counsel Shri Sorabjee appearing for  the respondent  transferee-company  contended that  there   was  no   illegality  either   procedural   or substantive vitiating  the Scheme  and  that  there  was  no suppression of  relevant material from the shareholders when the Scheme  was put  to vote.  That  the  personal  disputes between the  warring groups  of the  family, namely,  Arvind Mafatlal on  the one  hand   the appellant  on the other and which were  subject matter  of  the  pending  litigation  in Bombay High  Court had  nothing to  do with  the question of sanctioning the  Scheme for  its better  economic  viability with which  the shareholders  were concerned and that as the

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transferor-company and  the transferee-company were juristic persons and corporate bodies, while considering the question of approving  the said Scheme such personal disputes between the directors  of the transferee-company and the director of the transferor-company  were completely  irrelevant and were out of consideration of the equity shareholders who were not at all concerned with this type of internal feuds and in any case non-disclosure  of such  disputes had no adverse effect on  the  decision  of  the  majority  shareholders  who  had approved the  Scheme with  a thumping  majority of about 95% and the  appellant who  was objecting  to the  Scheme was in microscopic minority  of 5% of the total voting strength. It was  also  contended  by  learned  senior  counsel  for  the respondent that  it is  wrong to assume that the transferee- company was  a family  concern and  was managed by families. That Shri  Arvind Mafatlal  and Hrishkesh Mafatlal were only two directors  out  of  thirteen  directors  of  respondent- company. These  eleven  directors  did  not  belong  to  his family. That even shareholding of Arvind Mafatlal’s group in the  respondent-company  was  not  substantial  and  on  the contrary about  40% shares  were held  by outside  financial institutions. Even  otherwise there  was no  question of any unfairness underlying the proposed Scheme or that in any way it was   unfair  to   the appellant who never cared even  to remain present  personally at the time of the meeting of the equity shareholders  to put  forward his  objections and  he only sent proxies who had no right to speak at the meetings. That therefore  all these Court were an afterthought. It was also  contended  that  there  was  nothing  wrong  with  the exchange ratio  as C.C.  Chokshi &  Co., a  firm of  reputed chartered accountants,  had considered all the pros and cons underlying the  Scheme and  had suggested the exchange ratio and such an expert opinion was endorsed by another financial institution ICICI.  That the  appellant had not chosen to in rebuttal by  any other  expert in  the field  who could have suggested  the   exchange  ratio   differently.   That   the appellant’s contention  that exchange ratio should have been one   share of  transferee company against six shares of the transferor company  was in  the realm of mere conjecture and ipse dixit.  It was  not supported  by any  expert  opinion. Consequently the High Court was justified in taking the view both at  the stage  of learned  Single Judge  as well  as in appeal by  the Division Bench that the exchange ration could not be  said to be unfair or unreasonable especially when by an overwhelming  majority the  equity shareholders  approved the said  Scheme along  with said exchange ration and had no objection to  the allotment  of two  equity  shares  of  the transferee-company in  exchange of for five equity shares of transferee-company.     It  was   also  contended  that  the appellant himself  who was  the director  of the transferor- company had  approved the same exchange ratio while he acted on behalf  of the  transferor-company. He  was,   therefore, playing hid  and seek when it came to the enforcement of the very same exchange ratio at the end f the transferee-company wherein he was not a director but only shareholder of merely 5% shares.      It was  next contended  that the  appellant was also an equity  shareholder   and  so   far  as   the  other  equity shareholders were  concerned they constitute the same  class as the  appellant. That  there  was  no  inter  se  conflict between the rest of the equity shareholders representing 95% of the  voting strength  which approved  the Scheme  and the appellant  who   represented   dissenting   5%   votes   and consequently there  was no  appellant  was  concerned.  Even otherwise such  a separate  meeting would  not have made any

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impact  on  the  voting  pattern  projected  by  the  equity shareholders  approving  the  said  Scheme  by  overwhelming majority. Repelling  the additional  contention canvassed by learned counsel  for the  appellant it was submitted by Shri Sorabjee learned  senior counsel  for  the  respondent  that there was  no question  of  coercing  any  minority  by  the majority as  in the  meeting of  the equity shareholders the appellant  had  not  thought  fit  even  to  remain  present personally and  had only  got represented  through proxy for submitting  his  objection  by  voting  against  the  Scheme without having  any right  to address  the meeting. Thus the contention regarding alleged suppression by the majority was purely an  afterthought especially  when in  the meeting the group of  Arvind Mafatlal  had not  represented an  absolute majority and 40% of the voting was by financial institutions who had  no axe  to grind against the appellant  and who had voted by  keeping in  view purely  commercial  and  economic interests of equity shareholders and had approved the Scheme in  that  light,  It  was,  therefore,  submitted  that  the contention raised  on behalf  of the appellant deserve to be rejected and  the appeal  consequently also  deserves to  be dismissed.      In  view   of  the   aforesaid  rival  contentions  the following points arise for our determination : 1.   Whether the respondent-company was guilty of hiding the special interest  of its  director Shri Arvind Mafatlal from the shareholders while circulating the explanatory statement supporting the  Scheme and whether thereby the voting by the equity shareholders got vitiated. 2.   Whether the  Scheme is  unfair and  unreasonable to the minority shareholders represented by the appellant. 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.      However before  we deal  with the  aforesaid points for determination seriatim,  it will  be necessary  in view  the limited scope of the jurisdiction of the Company Court which is called upon to sanction the Scheme of Amalgamation as per the provisions  of Section  391 read with Section 393 of the Act.      Scope of  interference by the Company Court in sanction proceedings 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  the 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

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    of the  Company or  of any creditor      or member  of   the company,  or in      the case  of to  company  which  is      being wound  up, of the liquidator,      order a  meeting  of  creditors  or      class  of   creditors,  or  of  the      members or  class of  members, 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, 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 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 director,      managing agent,  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

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    the compromise  or arrangement, if,      and   in so far 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   statements      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 or 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 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  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 provision 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  concerned voters so  that the parties concerned before whom the scheme is placed  for voting  can take  an informed  and  objective decision whether  to vote for the scheme or against it. On a conjoint reading  of the relevant provisions of Sections 391 and 393  it becomes  at once  clear that  the Company  Court which is  called upon  to sanction  such a  scheme  has  not merely to  go by  the ipse  dixit of  the  majority  of  the shareholders or  creditors or  their respective  classes who might have  voted in  favour  of  the  scheme  by  requisite majority but  the Court has to consider the pros and cons of the scheme  with a view to finding out whether the scheme is fair, just  and  reasonable  and  is  not  contrary  to  any provisions of law and it does not violate any public policy. This is  implicit in  the  very  concept  of  compromise  or arrangement which is required to receive the 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.

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Consequently it  cannot be  said that a Company Court before whom an  application is  moved for sanctioning such a scheme which might  have got  requisite  majority  support  of  the creditors or  members or  any class  of them  for  whom  the scheme is  mooted by  the concerned  company, has    to  act merely as rubber stamp and must almost automatically put its seal of  approval on  such a  scheme. t 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 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 scheme and to that extent absence  of their  consent will  have to  effect  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.      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 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 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 concerned parties to the  compromise as  the same  would be  in   the realm of corporate and  commercial wisdom  of  the concerned parties. The Court  has neither the expertise nor the jurisdiction to delve   deep into  the commercial  wisdom exercised  by  the creditors and  members of  the company who have ratified the Scheme by  the requisite  majority. Consequently the Company Court’s  jurisdiction  to  that  extent  is  peripheral  and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their according  to the   rules  and  do  not  overstep  the limits. But  subject to  that how  best the  game is  to  be played is  left to  the players  and not  to the umpire. The supervisory jurisdiction  of the  Company Court  can also be called 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,

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    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 or      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, and such an order shall be      deemed to be an order under section      433 of this Act.      (3) The  provisions of  this 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 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  economic interest by majority agree to give 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  material English Company  Law. We  will briefly refer to the relevant decisions on  the point.  But before  we do  so we  may also usefully refer  to the  observations found in the oft-quoted passage in Bucklay on the Companies Act 14th Edition. They are as under :      "In   exercising   its   power   of      sanction the  Court will see, first      that the  provisions of the statute      have been  complied  with,  second,      that   the    class   was    fairly      represented by  those who  attended      the meeting  and that  he statutory      majority are  acting bona  fide and      are not  coercing the  minority  in      order to  promote interest  adverse

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    to those  of the  class  whom  they      purposed to represent, and thirdly,      that the  arrangement  is  such  as      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 is empowered to      bind, or  some blot is found in the      Scheme."      In the  case of  Re. Alabama,  New  Orleans  Texas  and Pacific  Junction  Railway  Company  reported  in  1891  (1) Chancery Division  213 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  stature  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      overdone  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 scheme  laid before them in      the interests  of those  whom  they      represent, take  a view  which  can      reasonably be taken by businessman.      The court  must look at the scheme,      and see  whether the  Act has  been      complied with,  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   on  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 the  Similar effect  were the  observations of  Fry, L.J., which read as under      "The next  enquiry  is  Under  what      circumstances  is   the  court   to

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    sanction  a  resolution  which  has      been   passed    approving   of   a      companies or  arrangement ? I shall      not attempt to define what elements      my 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      proportion was  made in good faith;      and, further,  it must  be  so  far      fair  ad  reasonable,  as  that  an      intelligent and  honest man, who is      a 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. (1992) 2 Ch. 723, Asthury,  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 of      the class   whom  they  purport  to      represent; and,  thirdly, that  the      arrangement is  such as  a  man  of      business would reasonably approve."      Learned Single  Judge of the Calcutta High Court in the case of Re. Mankam Investments Ltd. and others (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 merge  is beneficial or not. The      court is  really not concerned with      the  commercial   decision  of  the      shareholders until  and unless  the      court feels that proposed merger is      manifestly  unfair   or  is   being      proposed unfairly and/or to defraud      the other shareholders. Whether the      merged companies will be ultimately      benefitted  or  of  expenses  is  a      matter  for   the  shareholders  to      consider. If  three there  will  be      some economies  in  the  matter  of      expenses    is  a  matter  for  the      shareholders      to      consider,      certainly,  there   will  be   some      economies   in    the   matter   of

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    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  Hindustan  Lever Employees’ Union  v. Hindustan  Lever Ltd.   and others 1995 Supp. (1)  SCC 499  wherein a  Bench of three learned judges speaking  through   Sen,  J.   on  behalf   of  himself  and Venkatachaliah, CJ.,   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 paras 3 and 6 of the Report :      "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      "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 foreign      company  then   test  is  not  only      whether  the scheme shall result in      maximising    profits     of    the      shareholders   or    whether    the      interest of employees was protected      but it  has to  ensure  the  merger      shall  not   result   in   impeding      promotion of  industry or 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

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    Ch 270  that the power of the court      is to  be satisfied  have  complied      with or that the classes were fully      represented and the arrangement was      such  as   man  of  business  would      reasonably  approve   between   two      private companies  may  be  correct      and may  normally be adhered to but      when   the   merger   is   with   a      subsidiary  of  a  foreign  company      then    economic  interest  of  the      country  may   have  to   be  given      precedence. The jurisdiction of the      court    in    this    regard    is      comprehensive."      Sen, J.  Speaking for  himself and Venkatachaliah, CJ., also towed  the line  indicated  by  Sahai,  J.,  about  the jurisdiction of  the Company  Court  while  sanctioning  the Scheme and  made the  following  pertinent  observations  in paragraph 84 at page 528 of the Report :      "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  s  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      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,      unsecured creditors  and preference      shareholders of both the Companies.      There  must   exist   very   strong      reasons for withholding of sanction      may turn  out to  be disastrous for

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    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  meeting 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 concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to  arrive at an informed decision for approving  the scheme in  question.  That  the  majority  decision  of  the concerned class of voters is just fair to the class as whole so as  to legitimately  blind even the dissenting members of that class. 4.   That all  the 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 provision of  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 of to satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate  purpose underlying  the scheme  and  can judiciously X-ray the same. 7.   That the  Company Court has also to satisfy itself that members or  class  of  members  or  creditors  or  class  of creditors as  the case  may be, were acting bona fide and in good faith  and   were not coercing the minority in order to promote  any   interest  adverse   to  that  of  the  latter comprising  of   the  same  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.      In the light of the aforesaid settled legal position we

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will  now   proceed  to   deal  with  the  main  points  for determination indicated hereinabove.      Point No. 1      So far  as this  point is  concerned it  was vehemently contended by learned senior counsel Shri Shanti Bhushan that the explanatory  statement placed  for consideration  of the meeting of  equity shareholders was not a complete statement and  relevant   material  indicating  the  interest  of  the director of  MIL Shri  Arvind Mafatlal was not placed before the voters with the result that the majority vote supporting the scheme  got vitiated.  The explanatory  statement  which came to be circulated to the voters, namely, the equity shareholders of the transferee-company MIL alleged as under      "It is  proposed to  amalgamate  MF      with  MIL   so  as  to  enable  the      carrying   on   of   the   combined      business more economically and more      economically  and   advantageously.      Amalgamation of  both the companies      would    lead     to    substantial      operations.  The   amalgamation  of      both  the   companies  would   give      improved  capital  structure  which      would lend  better  flexibility  in      capital gearing  which would enable      the amalgamated  company  to  raise      required finance at better terms. A      larger   company   would   generate      terms, confidence  in the investors      and with  persons dealing  with the      company and  will afford  access to      resources easily  and at  with  MIL      will pave  the way for better, more      efficient and  economic control  in      economy in  the administrative  and      management   cost    resulting   in      improving    profitability.     The      amalgamated  company  will  have  a      strong and  large  resource  funds.      The     combined      technological      Managerial and  financial resources      would enhance the capability of the      amalgamated company  to  invest  in      larger and  sophisticated  projects      to   ensure   rapid   growth.   The      amalgamated   company’s    Textiles      Division with  five operative units      at   its    disposal   will    have      flexibility in its operations."      So  far  as  the  aforesaid  explanatory  statement  is concerned  it  gives  sufficient  indication  regarding  the pliability  and   usefulness  of   the  proposed  Scheme  of Amalgamation of  transferor-company MFL with the transferee- company MIL.  However the special grievance of the appellant voiced by his learned counsel is to the effect that the real interest underlying  the scheme  of merger  was that  of the director Shri Arvind Mafatlal and his group who were at this helm of  affairs of  the transferee-company.  Learned senior counsel Shri  Shanti Bhushan  in this  connection  submitted that under  Section 393(1)  (a) of  the Act  the company  is enjoined to  mention in  the statement  material interest of the director  Shri Arvind Mafatlal in the Scheme which is of a special  nature as  compared  to  the  interest  of  other shareholders compromise  and  arrangement  on  such  special interest of  Shri  Arvind  Mafatlal  and  as  that  was  not

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mentioned in  the explanatory statement along with which the copy of  the  Scheme  was  circulated  to  the  members  the majority vote  became vitiated.  New a  mere look at Section 393(1)(a) shows  that the  special interest  of the director which is  required t  be brought  home to  the  voters  must satisfy the  following requirements of the Section before it can treated  to be relevant special interest of the director which is required to be communicated to the voters : 1     The  director’s interest  must be  a special  interest different from  the interest  of other  members who  are the voters at the meeting. 2.   The compromise or arrangement which is put to vote must have an effect on such special interest of the director. 3.   Such effect  must  be  different  from  the  effect  of compromise and  arrangement on  similar  interest  of  other persons who are called upon to vote at the meeting.      When  we  enquired  of  Shri  Bhushan,  learned  senior counsel for  the appellant  as to  which  special  interest, according to  him, of  director Arvind Mafatlal was required to be  communicated to  the voters as per Section 393(1)(a), he stated  that there  was a  pending litigation between the appellant on  the one  hand and  Shri Arvind Mafatlal on the other in  Bombay High  Court. That  Shri Arvind Mafatlal had sought a declaration in a pending suit against the appellant that the latter was required to sell of his share-holding in the transferee-company  MIL to the plaintiff Arvind Mafatlal who was director of MIL. In this very suit the appellant had filed  a  counter-claim  to  the  effect  that  Shri  Arvind Mafatlal and his group was required to transfer their share- holding in the transferee-company in favour of the appellant as per  the Family  Arrangement of 1979. Shri Shanti Bhushan in this  connection submitted that though the learned Single Judge had  taken the view that this type of special interest of director  Arvind Mafatlal was not relevant and germane to the requirement  of Section 393(1)(a), the Division Bench in appeal had  taken a  contrary view  and  held  that  such  a special interest  was required  to be  communicated  to  the equity  shareholders  in  their  meeting  as  per  the  said provision. In  this connection  our attention was invited by Shri Shanti Bhushan to the observation of the Division Bench of the  High Court at page 325 of the paper book wherein the Division Bench observed as under :      "Mihir  H.   Mafatlal  was  to  get      exclusive control  to  MIL  to  the      exclusion of Arvind N. Mafatlal and      his   two   brothers.   Under   the      proposed family arrangement M. Fine      was to  be hived  off from  MIL and      the control  and management  of the      M. Fine was to be held by Arvind N.      Mafatlal and  that of MIL was to be      handed over  to objector  Mihir  H.      Mafatlal. This  family  arrangement      has suffered  rough  weather.  Suit      No.  1010  of  1987  was  filed  by      Arvind N. Mafatlal against Mihir H.      Mafatlal  and   others  before  the      Bombay  high  Court  alleging  that      another agreement subsequent to the      said family  arrangement  has  come      into existence under which Mihir H.      Mafatlal  and   other  brothers  of      Arvind had  agreed to  transfer all      their  holdings   in  MIL  to  A.N.      Mafatlal, drawing  a curtain on the

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    family  arrangement  of  1979.  The      said  dispute   and    the  outcome      thereof will  have direct effect on      the  respective  interests  of  the      shares held by A.N. Mafatlal, Mihir      H. Mafatlal  and other  members  of      the  Mafatlal  family,  and  trusts      under them."      He also invited our attention to the observation of the Division Bench  at page  328 of the paper book to the effect that having  considered the  rival contentions  and  closely examined the  scheme of  Section 393,  they were  unable  to sustain the  conclusion that  the facts  about the interests under the  alleged family  arrangements and  the  effect  of proposed arrangement for amalgamation on such interests were not required to be disclosed under section 393(1)(a).      In our  view the aforesaid observations of the Division Bench are  not quite  apposite in  the light of the proposed Scheme of  Compromise and Arrangement which was sought to be got sanctioned  by the  Court. On the other hand the learned Single Judge  was quite  justified in  taking the  view that this type  of interest  which was  personal nature so far as director Arvind  Mafatlal on  the one  hand and appellant on the other  hand were concerned was not at all germane to the question relating to sanctioning of the Scheme of Compromise and Arrangement  with which  the Court  was concerned. It is obvious that  when a  Scheme of  Compromise and  Arrangement which involves two companies, namely, the transferor-company and  the   transferor-company  and  their  shareholders  and creditors is on the anvil of scrutiny before the sanctioning Court, the  Court has  to see that the interest of the class of creditors  or shareholders  to whom the Scheme is offered for approval  is any  way  likely  to  be  affected  by  the suppression  of   special  interest   of  the   director  in connection with  such a  scheme which  is on  the anvil. Two independent  bodies   which   are   represented   by   their shareholders or  creditors as  a class,  as the  case may be have to  take commercial  decisions strictly  with a view to seeing  that   the  concerned   Scheme  of   Compromise   or Arrangement is  beneficial to  the shareholders or creditors as a class vis-a-vis the company which is a corporate entity in so  far as  the company’s  relations with  these class of creditors and  shareholders are  concerned. If  the  special interest which  the director  has is in any way likely to be affected by  the Scheme  and if  non-disclosure of  such  an interest is likely to affect the voting pattern of the class of creditors  or shareholders who are called upon to vote on the scheme,  then only such special interest of the director is required  to be communicated to the voters as per Section 393(1)(a). We  fail to  appreciate how  the personal  family dispute between  the appellant  on the  one hand  and Arvind Mafatlal, director  of the  transferee-company  MIL  on  the other regarding  the right to hold shares in the company can have any linkage or nexus with the Scheme of Amalgamation of these two  companies which was put to vote before the equity shareholders. It is easy to visualize that if the suit filed by Arvind  Mafatlal against  the  appellant  succeeds  would happen is  that the  appellant will  have to sell his share- holding which  is only  5% in  the transferee-company to the plaintiff Arvind  Mafatlal. That  has nothing to do with the equity shareholders  as a  class which  was called  upon  to decide whether the  scheme of merging the transferor-company MFL with  the scheme  of merging  the transferor-company MFL with the  transferee-company was  for  the  benefit  of  the shareholders as  a class.  The equity  shareholders  of  the

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transferee-company had  to decide in their commercial wisdom whether  it   is  worthwhile   to  have  a  larger  body  of shareholders on account of the merger so that apart from the share-holding of  the transferee-company  its objects  would also get  diversified and  its field  of operation  would be enlarged with the prospect of hike in the dividend available to these  shareholders after  the  economic  and  industrial activities of  both the  companies so  amalgamated would get elongated and  whether the  value of  their shares  in  such consolidated companies  were likely  to get  a boost  in the stock market.  This was  the commercial  decision which  the equity shareholders  of the  transferee-company had to take. For taking  this informed decision they were least concerned whether  5%   share-holding  of  appellant  in  the  company remained or  did not remain with him in future. Consequently f Arvind  Mafatlal’s suit  ultimately succeeded  before  the Bombay High  Court and  the appellant  lost in  his counter- claim that  would have  no effect whatsoever on the informed decision which  the equity  shareholders were called upon to take while approving the scheme in question.      Conversely if  the appellant  succeeded in his counter- claim and director Arvind Mafatlal lost in his suit then all that would  happen is  that Arvind  Mafatlal  will  have  to transfer his share-holding and share-holding of his group in favour of  appellant so  far as  the  transferee-company  is concerned. That  future possibility  would have no impact on the decision  making process  which had to undertake at this stage while  approving  the  Scheme.  Consequently  such  an eventuality was  totally irrelevant for being brought to the notice of the equity shareholders before whom the scheme was put  to  vote.  While  deciding  whether  transferor-company should  be   merged  with  the  transferee-company  and  the transferee-company’s economic and industrial activity should be permitted  to be  enlarged as a result of such merger the equity  shareholders   were  least   concerned  whether  the appellant would  purchase in future the share of the present director Arvind  Mafatlal or  vice versa.  That was entirely their personal  dispute which was still not adjudicated upon and its  decision one  way or the other had no impact on the pattern  of   voting  of  the  equity  shareholders  of  the respondent-company as  a class  of prudent  businessmen  and investors so  far as the Scheme was concerned. The Scheme of Compromise and Arrangement which was put to vote was of such a nature   that  it had  no impact or effect on the personal interest of  the director Arvind Mafatlal in connection with his  present   share-holding  in   the   transferee-company. Consequently it  must be  held that  mention about  such  an interest was  outside the  statutory requirements of Section 393(1)(a) as  rightly held by the learned Singly Judge whose view was erroneously upset by the Division Bench. However in any case  we are  in entire  agreement with  the  subsequent reasoning of  the Division  Bench for approving the decision of the  learned Single  Judge on  this aspect,  namely, that such non-disclosure  of interest had no impact on the voting pattern adopted  at the  meeting by  the equity shareholders who are  called upon  to approve  the scheme. It may also be noted in  this connection  that the resolution of the equity shareholders approving the Scheme of Amalgamation was passed with overwhelming  majority  by  members  including  through proxies, present  and voting.  It  projected  the  following picture :                   In favour     Against    Total (i) No.of Members  5,298         143      5,441 (ii) No of valid   19,36,964     86061    20,23,025      votes

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    From the  pattern of voting it became apparent that out of 100%  of the  Share  capital  75.75  per  cent  in  value participated of  which 95.75 per cent voted in favour of the proposed Scheme.  Out of  95.75 per  cent of  the  votes  in value, a  paltry 8.43  per cent votes had been attributed to Arvind Mafatlal  group consisting  of individuals and trust. 39.45 per  cent were  the votes  attributable  to  financial institutions which  can be  said to  have no  interest other than their  own interests  as men of business in considering the proposed  Scheme. Over  23  per  cent  votes  have  been attributed to  public limited  companies or  private limited companies which  held the  shares of MIL and in which Arvind Mafatlal was  also alleged  to  have  interests.  Thus  non- mentioning of  the private  dispute between  Arvind Mafatlal and objector in connection with the holding of shares in the transferee-company had  in fact  no  impact  on  the  voting pattern  of  equity  shareholders  including  the  financial institutions which had nothing to do with this personal feud between the  warring groups. Consequently the non-mentioning of the pending dispute between the appellant on the one hand and  Arvind   Mafatlal  on   the  other  which  was  pending adjudication in  the Bombay High Court had in fact no impact whatsoever on  the result  of the  voting undertaken  by the equity  shareholders   in  their  class  meeting.  Thus  the requisite statutory  majority of  votes approving the scheme could not have been adversely affected by the non-mentioning of this  pending litigation  in the  explanatory  note  even assuming that  the Division  Bench was right in holding that it was  required to  be informed  to the  voters as  per the requirements of  Section 393(1)(a).  In either  view of  the matter,  therefore,   the  non-mentioning   of  the  pending litigation between  the director  of the  transferee-company Arvind Mafatlal  on the  one hand  and the  appellant on the other, had  no vitiating  effect on the majority decision of the   equity   shareholders   who   approved   Scheme   with overwhelming majority  of 95.75  per cent  of votes and when the dissenting  vote on  behalf of the appellant’s group was in  microscopic  minority  of  less  than  5%.  It  is  also pertinent to  note in this connection that the appellant who being a party to the civil litigation before the Bombay High Court and  who was  very much keen to get more share-holding in transferee-company and who had already filed his counter- claim for  enforcing the family arrangement of 1979, had not thought it  fit to  remain present  in the meeting of equity shareholders and  on the contrary he got himself represented through proxy  who had  no right to speak. Thus in substance the appellant  himself never  though that  information about the pendency  of the  litigation  between  Arvind  Mafatlal, director  of  the  respondent-company  and  himself  was  so important that  it was  required to be brought to the voters notice even  though he had opportunity to do so by remaining personally present   in  the meeting  for that  purpose. It, therefore, clearly appears to be an afterthought when he put forward such  an objection for the sake of it at the time of opposing the Scheme which was put for sanction of the Court.      It may  also be  kept  in  view  that  the  explanatory statement no way emphasised that it is the management of the transferee-company by Shri Arvind Mafatlal which is going to be better  monitored and  managed by him after the merger in question. In other words management of the company is not at all a  germane consideration  for the  Scheme.  Consequently whether the  management remains  with Arvind  Mafatlal or in future may  get changed and go in the hands of the appellant is not  a consideration  which has any linkage or nexus with Scheme. Consequently  the interest of Arvind Mafatlal in the

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share-holding  or   likely  future  impact  thereon  by  the litigation was  de hors  the Scheme  in question and was not required to be placed before the voters. The first point for determination is, therefore, answered in the negative.      Point No. 2      So far  as this  point is concerned Shri Shanti Bhusan, learned senior  counsel for the appellant, submitted that in modern days  corporate bodies  even  though  public  limited companies are  mostly controlled  by  big,  influential  and economically  powerful   families   which   have   inherited entrepreneurial skill and expertise from earlier generations which had  controlled such  enterprise in  past. That in the present case  also the director the  respondent-company Shri Arvind Mafatlal,  the eldest  male member of the family, had descended from  the common  ancestor Mafatlal  Gagalbhai who had established  this empire  and  which  has  further grown with passage  of years.  That when  such a powerful director who is  the eldest  male member of the family is at the helm of affairs  the minority  interest  of  the  appellant  who, accordant to  him was  entitled to  50% share  in the family concerns as  per the 1979 family settlement was likely to be voted out  and cornered  by the influence of such a towering personality as  Arvind Mafatlal  in the  meeting  of  equity shareholders. Therefore  unfairness of  the Scheme has to be judged also  from the  point of  view of  its impact  on the minority shareholder  who has  a  common  ancestor  Mafatlal Gagalbhai and  who is  sought to be cornered and deprived of his just share in the family concerns by the machinations of Shri Arvind  Mafatlal. The  Court  has,  therefore,  to  see whether the Scheme of Amalgamation which is sought to be put through at  the behest of the director of respondent-company is fair  to the  minority group of  the appellant who claims 50% share in the family concerns against the director of the respondent-company Shri  Arvind Mafatlal  and his  group. So far as  this submission  is concerned Shri Sorabjee, learned senior counsel  for respondent  joined issues  and submitted that factually  there is  no basis  for such a contention as respondent-company is not controlled by Shri Arvind Mafatlal who is  one of  the directors  along with his son Hrishikesh but there are eleven outside directors and the share-holding of Arvind  Mafatlal and  his group  is  not  even  50%  even including the share-holding of other subsidiary companies in which  also   Arvind  Mafatlal   and  his   group   may   be shareholders. We  find considerable  force in  the aforesaid contention of learned senior counsel for the respondent. The evidence produced  in the  case  shows  that  out  of  total majority vote  of 95.75  per cent which supported the Scheme at the  meeting of equity shareholders even according to the pattern disclosed by the appellant  himself individual trust controlled  by   Arvind  Mafatlal   and  private   companies accounted to  only 16%  of the shares voted in the  meeting, about 44%  of the   shares  were  represented  by  financial institutions, employees  and public  taken together  and two companies stated  to be   from  Mafatlal group  had only 15% shares. Consequently  it is  too much  to contend  that  the voting pattern  was dominated by the share-holding of Arvind Mafatlal and his group when about 40% of the shares are held by financial  institutions which  had nothing to do with the internal feuds  of director  Arvind Mafatlal on the one hand and the  appellant-objector on  the other.  It could  not be said that the scheme as put to vote was in any way unfair to appellant or  that the  majority shareholders  acting   as a class had  not behaved  in a bona fide manner for protecting the interest  of the  class as  whole and  were  n  any  way inimical to the appellant. While considering the question of

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bona fides  of the  majority voters  and whether  they  were unfair to  the appellant it has to be kept in view that bona fides of  the majority  acting as a group has to be examined vis-a-vis the  Scheme in  question and not the bona fides of the person  whose personal  interest might be different from the interests  of the voters as a class. Bona fide of person can  only   be  relevant  if  it  can  be  established  with reasonable certainty  that  he  represents  majority  or  is controller of  majority. Arvind  Mafatlal cannot  be visited with such a charge. In this connection we may usefully refer to a  decision of  English Court in the case of Hellenic and general Trust  Limited reported in 1976 (1) WLR 123. In that case the  court was  concerned with  a Scheme of Arrangement whereunder all the ordinary shares of the company were to be cancelled and  new shares were to be issued to Hambros which would  make  the  company  as  wholly  owned  subsidiary  of Hambros. Holders of such cancelled shares were to be paid by Hambros at  48 pennies.  In short  it was an arrangement for taking over  of the  company by  Hambros. 53%  shares of the Hellenic Company  were held  by  another  company  MIT.  MIT itself was  a wholly  owned subsidiary  company of  Hambros. This situation led the court to conclude that the subsidiary company of  Hambros which  was holding  such large number of shares placed  itself vis-a-vis  Hambros in  the position of vendor and  the lifted  vail of  transaction showed it to be one of  acquisition than  of transaction showed it to be one of acquisition  than of amalgamation. The aforesaid decision is a  pointer to  the fact  that what  was  required  to  be considered while  sanctioning the  scheme was  bona fides of the majority acting as a class and not of one single person. It is, therefore,  not possible to agree with the contention of  learned  senior  counsel  for  the  appellant  that  the majority had  acted unfairly  to the  appellant and  had not protected his  interest of  minority shareholders falling in the same class along with the majority. It is not contention in favour  of the  Scheme the  majority had  acted with  any favour of the Scheme the majority had acted with any oblique motive to  fructify any  adverse commercial interest qua him and his  group when it consisted of outsiders like financial institutions or  that there  was any  possibility  of  their surrendering their  economic interest  in the  Scheme at the dictates of  shareholder-director Arvind  Mafatlal  and  his group. It  is also  to be  kept in  view that  the Board  of Directors  of   the  respective   companies,   namely,   the transferor-company as  well as  the  transferee-company  had approved the  Scheme of  Amalgamation before  it was  put to vote. The  appellant was himself was one of the directors of the transferor-company who had no objection to the Scheme of Amalgamation from  the point  of  view  of  the  transferor- company. So  far  as  the  transferee-company  is  concerned though appellant  was not  a director  he was 5% shareholder who did  not think  fit to  personally remain present at the time of  voting and  simply relied  upon proxy.  If  he  was feeling that the Scheme was unfair to  him  or was not going to protect  his interest  as shareholder  in the respondent- company nothing  prevented him  from remaining  present  and voicing his  grievance before the General Body of the equity shareholders and  to apprise  them of the alleged pernicious effect of  the Scheme. It is, therefore, too late in the day for him  to contend  that the  Scheme was  unfair to him and that the family of Arvind Mafatlal has tried to dominate and engineer any  adverse pattern  of voting  at the  meeting of the equity shareholders.      In this  connection we  tried to  know from Shri Shanti Bhushan, learned  senior counsel for the appellant as to how

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the appellant  felt that  the Scheme  was unfair  to him. He submitted that  under the  Scheme the transferor-company was losing its identity an was getting merged in the transferee- company. That in the pending litigation  between the parties in the  Bombay High  Court if the appellant succeeded in his counter-claim he  was likely  to get larger share-holding in the transferee-company and if that was not possible he could have got  the complete  of the transferor-company as per the family arrangement.  Now once  the transferor-company  loses its  identify  then  his  counter-claim  was  likely  to  be infructuous as  the subject-matter of the counter-claim will stand withdrawn from the possible operation of the decree if at all  granted in  his favour  in the  counter-claim.  This submission was  countered by  learned senior counsel for the respondent by  pointing out  that it  had no  factual basis. That as  earlier noted  in the  suit pending  in Bombay High Court if  Arvind Mafatlal succeeded then appellant will have to  transfer   his  even   remaining  5%   share-holding  in transferee-company in  favour of  Arvind Mafatlal. If on the other hand the appellant succeeded in this counter-claim and Arvind Mafatlal’s  suit was dismissed then the appellant may get the  shares which are at present held by Arvind Mafatlal and his  group in  the transferee-company.  But there  is no question appellant  getting any  exclusive  control  of  the transferor-company. Therefore, impact of that litigation one way or  the other  is going to be totally negative so far as the existence  of the  transferor-company  or  otherwise  is concerned. We  find considerable force in the contention  of learned counsel  for the respondent. It is also pertinent to note that  if the  appellant felt that the Scheme was unfair inasmuch as  he was  likely to  lose his future interest, if any, and  control, if  any, in the transferor-company by its merger and  loss of  identify on  account of  the Scheme  it passes one’s comprehension how he as sitting director of the transferor-company approved  of the Scheme did not object to the Scheme and on the contrary was a party to the resolution of the  Board of  Directors of transferor-company to propose the Scheme  of its amalgamation with the transferee company. Not only that but even when that Scheme was put for sanction before the  Bombay High  Court on  behalf of the transferor- company  the   appellant  did  not  object  meaning  thereby appellant had  no objection to the transferor-company losing its identity  and getting  merged in  the transferee-company pursuant  to   the  proposed  Scheme.  the  appellant’s  own conduct, therefore,  belief his apprehension that the Scheme as proposed  was in any way unfair to him or that there were any mala  fide behind  the Scheme  attribute to  Shri Arvind Mafatlal who  is the director of the transferee-company. The second point  for determination, therefore, also is found to be factually  not sustainable.  It is,  therefore, held that the Scheme  of Compromise  and Arrangement is neither unfair nor unreasonable to the minority shareholders represented by the appellant.      Before parting  with the discussion on this point it is also worthwhile  to note  that apart  from  the  pattern  of voting at  the meeting  of the equity shareholders, even the share-holding pattern  of the  respondent-company belies the submission put  forward on  behalf  of  the  appellant  that Arvind Mafatlal’s  group dominated  the constitution  of the company and could control the decisions of the shareholders. The evidence  on record  shows  that  the  share-holding  of financial institutions  and MHM  group in MIL would work out to 39.03%.  Hence it  cannot be said that Arvind Mafatlal is at the  helm of  affairs of the respondent-company or in the driver’s seat  or that  his family  is the virtual master of

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respondent-company. This is not a case where it can be urged with any  emphasis that  the respondent-company  is an alter ego of  Arvind Mafatlal  who is  one of the directors of the company and  that he could create a show of the Scheme being apparently be beneficial to the shareholders but was in fact concealing any  convert and hidden device  of augmenting his personal interest  and interest  of  his  family  which  was adverse to  the interest  of innocent  investors  and  other equity shareholders  including the  appellant.  It  is  also pertinent to  note that financial institutions and statutory corporations  held   substantive  percentage  of  shares  in respondent-company.  This  class  of  shareholders  who  are naturally well  informed about the business requirements and economic needs  and the  requirements of  corporate  finance wholly approved  the  Scheme  if  it  was  contrary  to  the interest  of  shareholders  as  class.  Individual  personal interest of  a minority  shareholder like  the appellant  is absolutely to  of  consideration  when  such  class  meeting acting  for  the  benefit  to  the  whole  class  of  equity shareholders take up the consideration of the Scheme for its approval Consequently it could not be said that the majority shareholders had  sacrificed the class interest of appellant minority shareholders  when  they  voted  with  overwhelming majority in  favour of the Scheme. Point No.2 is accordingly answered in the negative. That takes us to the consideration of Point No.3 for determination.      Point No.3      In a  way the  answer to point no.2 necessarily results in negativing  this point  also. Even  that apart we fail to appreciate how  the Scheme of Amalgamation can be said to be unfair and amounting to suppression of minority shareholders represented by  the appellant.  it has to be kept in view by the proposed  Scheme of  Amalgamation the transferor-company was getting merged in the transferee-company. Now even if it is held  that the appellant succeeds in his counter-claim in the suit  pending in  Bombay High  Court and if he is to get the  share-holding   of  Arvind   Mafatlal  and   his  group transferred  to   him  so   far  as   transferee-company  is concerned,   the    transferee-company   because    of   the amalgamation will then be having more diversified activities and if  at all  according to  the appellant  because of this future success,  if any, in the counter-claim he is going to replace Arvind  Mafatlal and  his group in the management of the respondent-company he would have larger field to operate and larger company to mange. We fail to appreciate as to how such  a  scheme  from  any  point  of  view  can  amount  to suppression of  appellant’s minority  interest in the share- holding of  the company. This interest is not going to be in any way  adversely affected. If at all, his share-holding is going to  increase in the respondent-company is his counter- claim succeeds.  If his  counter-claim fails he will have to get out  lock, stock  and barrel from the respondent-company and he  will have  to wash his hands off the same. In either case the  Scheme of Amalgamation will have no adverse impact on the  appellant’s interest  in the  respondent-company. On the other  hand the Scheme of Amalgamation is likely to have a more beneficial effect on the appellant’s share-holding in the   respondent-company if he succeeds in his counter-claim in Bombay  High Court.  It has  to be  kept in vies that the question of  bona fide  of the  majority shareholders or the alleged suppression  by them of the minority shareholders or their attempt  to suffocate  their interest has to be judged from the  point of  vie of  the  class  s  whole.  Questions whether the  majority equity  shareholders while  acting  on behalf of  the class  as a  whole had  exhibited any adverse

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interest against  the appellant’s minority shareholders also having similar  interest as members of the same class, while approving the Scheme or had acted with any oblique motive to whittle down  such a  class  interest of the minority. As we have seen earlier no such situation ever existed both at the time when  the Scheme  of  Compromise  and  Arrangement  was cleared and  proposed by the Board of Directors of  both the transferor and  transferee companies  and also  at the stage when the Scheme was put to vote before the meeting of equity shareholders forming common class of which the appellant was also a  member though  a minority member. Consequently point no.3 will  also have  to be  answered in the negative on the same lines  and for  the same  reasons on the basis of which point no.2 is answered.      Point No.4      So far  as this  point is  concerned the relevant provi sions 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 or  class of members to whom the creditors or members  or class  of  members  to  whom  the  Scheme  of Compromise or  Arrangement is  offered by  the company.  The present controversy  centers 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  ’shares or  other interest of any member in  a company shall be movable property, transferable in the  manner provided  by the articles of the company’. As per Section  86 the  share capital  of a  company limited by shares formed  after the commencement of this Act, or issued after such commencement, shall be of two kinds only, namely, equity share  capital and  preferences share capital. So far as the  Articles of  Association of  respondent-company  are concerned     they   also   contemplate   two   classes   of shareholders. No  separate class  of equity  shareholders is contemplated either  by  the  Act  or  by  the  Articles  of Association of  respondent-company. 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 contended by  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-a-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 respondent-company is in  any way  conflicting with the general interest of the equity shareholder  in  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

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question of  approval of  the  Scheme  was  likely  to  take 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  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  Companies 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 f 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 meeting  of such  a sub-class would at all survive. Even  otherwise   it  becomes  obvious  that    as  minority shareholders if the appellant has to dissent from the Scheme his dissent  representing 5% equity share-holding 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 appellant either remaining present n person 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  vies that  it is  not he 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 connection it  is profitable  to refer  to what  the learned author Palmer  in this Treatise Company Law 24th Edition, he say :      "What constitutes a class :      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 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  emphasis  the      words ’in  the result’  they reveal

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    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 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 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 appellant.      Point No.5      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  transferor-company. So far a this contention is concerned it has to be kept in view that before  formulating the  proposed Scheme  of Compromise and Amalgamation  and expert  opinion was  obtained  by  the respondent-company  as   well  as   the  transferor-company, namely, MFL  on whose  Board of  Directors 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 ration 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  the Company Law’ mentions  four factors  which had to be kept in mind in the evaluation of shares :      "(1) Capital Cover,       (2) Yield       (3) Earning Capacity, and

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     (4) Marketability      For arriving  at the fair of share,      three  well   known   methods   are      applied :      (1)  The  manageable  profit  basis      method  (the   Earnings  Per  Share      Method)      (2) The  net worth  method  or  the      beak 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 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 transferee-company  against five  shares  of  transferor- company. But  the difficulty  arises only  from the point of view of  transferor-company shareholders.  According to Shri Thakore the  proper exchange  ratio would  be  one  share  f transferee-company to  six shares  of transferor-company. It is difficult to appreciate this contention of the appellant. It has  to be  kept in view that 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 share 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 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  learned   Single  Judge.   The proceedings were pending before the High Court for more than two years  from 8th  February 1994  till 12th July 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 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   ration  is  better  is  in  the  realm  of commercial decision of well informed equity shareholders. It

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is not  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 transferor-company for  5 shares  of transferor  company. As stated earlier it was a sort of 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 whole along with the exchange ratio presumably  in expectation  of better profits in years to come  when the  amalgamated companies  would operate  and when the  amalgamated companies would operate and when there would be, according to the shareholders, better prospects of earning greater  dividends. They willingly agreed to give in exchange two shares of transferor-company for five shares of 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 judgement 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 those findings we are concerned, it will not be  permissible for us in law to undertake this exercise in the facts and circumstances of present case in absence of bona fides".  We fail to appreciate how this observation can be of  any avail to learned senior counsel for the appellant as all  that Court  wanted to suggest was that even assuming that some  another exchange  of ratio can be suggested to be better one,  it was  for the  equity shareholders  who acted bona fide  in the  interest of  their class  as a  whole  to accept  even  a  less  favourable  ratio  considering  other benefits that  may offset such less favourable ratio once an amalgamation goes  through. We wholly concur with this view. In this  connection we  may also  refer  to  a  decision  of Moughm, J.  in Re  Hoare & Co. (No.2) case (1933) ALL ER 105 wherein it  was laid down that where statutory majority  had accepted the  offer the  onus must rest on the applicants to satisfy the  court that the price offered is unfair. In this connection following pertinent observations were made by the learned Judge:      "The other  conclusion  I  draw  is      this X  X X X X  the court ought to      regard the  scheme as a fair one as      much as  it seems  me impossible to      suppose  that  the  court,  in  the      absence of  any strong  grounds, is      to be  entitled to  set up  its own      view of  fairness of  the scheme in      opposition  to   so  very  large  a      majority of  shareholders  who  are      concerned.   Accordingly,   without

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    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 t      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 Limited 55 Company Cases P.308 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 determined 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  10th November 1993  to the company approving of the entire Scheme along with the 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  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 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 result  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

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months, declared  dividend by the two companies, the overall effect of  security scan  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 the merger of MFL with MIL.  Two fully paid up equity shares of MIL of Rs. 100 each for every five unfair and unacceptable as the appellant would like to have it.      Undeterred  by  this  position  Shri  Thakore,  learned counsel for  the appellant in 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 31st March 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  Spg.  & Mfg. 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  31st March  1993 so  far  as  respondent-company  was concerned. Annexure  ’Q’ at page 538 showed value per equity share of  Rs. 100/-  each at Rs. 1,515/- while so far as the transferor-company was  concerned   the break-up  value  per equity share was Rs. 259/-. That may be so. But as a package deal when  the Scheme  as whole  is examined and found to be advantageous to  the economic  and  commercial  interest  of shareholders as a class only one or two item simpliciter 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 discussion on this point it  would be apposite to refer to the decision of this Court  in  Hindustan  Lever  Employees’  Union  (supra).  In paragraph 41  of the  Report of  Justice  Sen  speaking  for himself and  Venkatachaliah,  CJ,  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 only on  27th August  1996. Therefore,  ex facie his written submissions are  not required  to be  considered. However in order to see that the appellant may not suffer on account of non-consideration of  these written submissions we have gone through them  and have  considered them  in the  interest of justice. But  having  repetition  of  the  main  contentions canvassed before  us during  oral arguments by their learned senior counsel  Shri Shanti  Bhushan and   by  their counsel Shri M.J.  Thakore. Some  additional points  also appear  to have been  raised in  the written  submissions pertaining to additional objections  which were  not pressed  before us at the time  of oral  hearing and,  therefore,  they  obviously cannot be  considered in support of the contentions on which

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the appeal was pressed before us. The written submissions in connection with the points which were already pressed before us are  already dealt  with by us while considering the main points  for  determination  in  the  earlier  part  of  this judgment and,  therefore, it  is not  necessary to deal with the same once again.      These were the only contentions canvassed in support of the points for determination which have all been answered in the negative. The inevitable result is that the appeal fails and is  dismissed. In  the facts  and circumstances  of  the case, however, there will be no order as to costs.