# MJHEER H. MAFATLAL v. MAFATLAL INDUSTRIES LTD

- **Citation:** [1996] Supp. 6 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 1996-09-11
- **Case number:** Civil Appeal No. 11879 of 1996
- **Bench:** N.P. Singh, S.B. Majmudar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mjheer-h-mafatlal-v-mafatlal-industries-ltd-15674
- **Pages:** 56

## Headnote

Company Law :
Companies Act, 1956: Sections 391 to 393.
Amalgamation-Scheme of-Sanction-Granting of-Factors to be
considered-By Company Court-Jurisdiction of-Broad contours laid
down--Creditors or. members must anive at inf onned decision based on
relevant material for approving schemc:-Scheme as a whole was to be just,
fair and reasonable to creditors or members without coercing mi1101ity.
A
B
c
D
Amalgamation-Scheme of-Approved by majority shareholde1"j~
Sanction of-By Company Cowt-Alleged bona fide action of maj01ity
shareholders or supression by the minority shareholders-Consideration
for-Held : Bona fides of majolity shareholde1"j' acting as group to be examined-Not bona fides of pe1w11 whose personal interest might be different E
from that of voters as a class-Fwthe1; glievance of bona fides of maj01ity
voiced before General Body meeting itself-In the circumstances of the case,
Scheme of Amalgamation could not be said to be unfair to min01ity
shareholders.
Amalgamation-Scheme of-Mi1101ity equity shareholders-Convening
of separate meeting of-Held : No separate meeting of the sub-class of
min01ity shareholders to be convened unless different type of scheme of
compromise offered to them-If same scheme offered to entire class of equity
shareholders no separate meeting of 111in01ity shareholders required to be
convened.
The respondent transferee-company was a large multi- Division,
multi-locational company carrying on diversified activities including
manufacturing and sale of textiles. The appellant was a director in the
transferor-company which had been carrying on the business of manufacture and sale of textile piece goods and chemicals.
1
F
G
H
2
SUPREME COURT REPORTS (1996] SUPP. 6 S.C.R.
A
The transferee-company moved an application before the High Court
B
for sanctioning lofa scheme of Amalgamation of the transferor-company
with the transferee-company. H was at this sfage that ~he appellant who ·
was one of the shareholders of the transferee-company filed his objections
under Section 391 of the Companies Act, Earlier the High Court directed
convening of a meeting of equity shareholders of the respondent transferee-company. In the meeting an overwhelming majority of equity
shareholders approved the scheme of Amalgamation. Thereafter the
respondent transferee-company filed Company Petition before the High
Court under Section 391(2) of the Act. The Single Judge sanctioned the
said scheme of Amalgamation which was confirmed in appeal by the
C
Division Bench of the High Court. Being aggrieved the appellant preferred
the present appeal.
On behalf of the appellant it was contended that the respondent
transferee-company was guilty of hiding the special interest of its director
D
from the shareholders thereby the voting by the equity shareholders got
vitiated; that the scheme of Amalgamation was unfair, unreasonable and
amounted to supression of minority shareholders represented by the ap·
pellant and hence liable to be rejected; that a separate meeting of minority
shareholders represented by the appellant was required to be convened on
E
the basis that the appeJiant's group represented a special class of equity
shareholders; and that the exchange ratio of equity shares of the transferor
and transferee companies was ex f acie unfair and unreasonable to the
shareholders of the transferee-company.
On behalf of the respondent transferee-company it was contended
F
that the personal disputes between the directors of the transferee and
transferor. eompanies were out of con·sideration of the equity shareholders
and in any case non~disclosure of such disputes had no adverse effect on the
decision ofthe majority shareholders who had approvedthe Scheme with a
thumping majqrity of a about 95% and the appellant who was objecting to
G the Scheme was in microscopic minority of 5% of the total voting strength;
that the appellant never cared even fo be present at the meeting of the equity
shareholders to put forward his objection and he only s

## Text

_Characters 0–39,549 of 135,838. This is a partial read: ask again with offset=39549 for what follows._

MJHEER H. MAFATLAL
v.
MAFATLAL INDUSTRIES LTD.,
SEPTEMBER 11, 1996
[N.P. SINGH AND S.B. MAJMUDAR, JJ.]
Company Law :
Companies Act, 1956: Sections 391 to 393.
Amalgamation-Scheme of-Sanction-Granting of-Factors to be
considered-By Company Court-Jurisdiction of-Broad contours laid
down--Creditors or. members must anive at inf onned decision based on
relevant material for approving schemc:-Scheme as a whole was to be just,
fair and reasonable to creditors or members without coercing mi1101ity.
A
B
c
D
Amalgamation-Scheme of-Approved by majority shareholde1"j~
Sanction of-By Company Cowt-Alleged bona fide action of maj01ity
shareholders or supression by the minority shareholders-Consideration
for-Held : Bona fides of majolity shareholde1"j' acting as group to be examined-Not bona fides of pe1w11 whose personal interest might be different E
from that of voters as a class-Fwthe1; glievance of bona fides of maj01ity
voiced before General Body meeting itself-In the circumstances of the case,
Scheme of Amalgamation could not be said to be unfair to min01ity
shareholders.
Amalgamation-Scheme of-Mi1101ity equity shareholders-Convening
of separate meeting of-Held : No separate meeting of the sub-class of
min01ity shareholders to be convened unless different type of scheme of
compromise offered to them-If same scheme offered to entire class of equity
shareholders no separate meeting of 111in01ity shareholders required to be
convened.
The respondent transferee-company was a large multi- Division,
multi-locational company carrying on diversified activities including
manufacturing and sale of textiles. The appellant was a director in the
transferor-company which had been carrying on the business of manufacture and sale of textile piece goods and chemicals.
1
F
G
H
2
SUPREME COURT REPORTS (1996] SUPP. 6 S.C.R.
A
The transferee-company moved an application before the High Court
B
for sanctioning lofa scheme of Amalgamation of the transferor-company
with the transferee-company. H was at this sfage that ~he appellant who ·
was one of the shareholders of the transferee-company filed his objections
under Section 391 of the Companies Act, Earlier the High Court directed
convening of a meeting of equity shareholders of the respondent transferee-company. In the meeting an overwhelming majority of equity
shareholders approved the scheme of Amalgamation. Thereafter the
respondent transferee-company filed Company Petition before the High
Court under Section 391(2) of the Act. The Single Judge sanctioned the
said scheme of Amalgamation which was confirmed in appeal by the
C
Division Bench of the High Court. Being aggrieved the appellant preferred
the present appeal.
On behalf of the appellant it was contended that the respondent
transferee-company was guilty of hiding the special interest of its director
D
from the shareholders thereby the voting by the equity shareholders got
vitiated; that the scheme of Amalgamation was unfair, unreasonable and
amounted to supression of minority shareholders represented by the ap·
pellant and hence liable to be rejected; that a separate meeting of minority
shareholders represented by the appellant was required to be convened on
E
the basis that the appeJiant's group represented a special class of equity
shareholders; and that the exchange ratio of equity shares of the transferor
and transferee companies was ex f acie unfair and unreasonable to the
shareholders of the transferee-company.
On behalf of the respondent transferee-company it was contended
F
that the personal disputes between the directors of the transferee and
transferor. eompanies were out of con·sideration of the equity shareholders
and in any case non~disclosure of such disputes had no adverse effect on the
decision ofthe majority shareholders who had approvedthe Scheme with a
thumping majqrity of a about 95% and the appellant who was objecting to
G the Scheme was in microscopic minority of 5% of the total voting strength;
that the appellant never cared even fo be present at the meeting of the equity
shareholders to put forward his objection and he only sent proxies who had
no right to speak at the meeting; that the exchange ratio was suggested by
experts and approved by an overwhelming majority of the equity
shareholders; and that the appellant himself who was the director of the
H
transferor-company had approved the scheme of Amalgamation.
--
MIHEERH.MAFATIAL v. MAFATLALINDS.LTD.
3
Dismissing the appeal, this Court
HELD: 1.1. The provisions of Sections 391and393 of the Companies
).,
Act, 1956 show that compromise Qr arrangement can be proposed between
a company and its creditors or any class of them or between a company and
its members or any class of them. Such a compromise would also take in
its sweep any scheme of amalgamation/merger of one company with
another. When such a scheme is put fonvard by a company for the sanction
of the Court in the first instance the Court has to direct holding of meeting
of creditors of class of creditors or members or class of members who are
concerned with such a scheme to accord their approval. 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. A
Company Court before whom an application is moved for sanctioning such
A
B
c
a scheme which might have got the requisite majority support of the
creditors or members or any class of them for whom the scheme is mooted D
,.. .
by the concerned company, cannot act merely as a rubber stamp and
automatically put its seal of approval on such a scheme. [24-A-G; 25-B]
1.2. The following broad contours of the jurisdiction of the Company
Court in granting sanction to the scheme have emerged :
1. The sanctioning court has to see to it that all the requisite
statutory procedure for supporting such a scheme has been complied with
and that the requisite meetings as contemplated by Section 391(1)(a) have
been held. [31-H; 32-A]
2. That the scheme put up for sanction of .the Court is backed up by
the requisite majority vote as required by Section 391 (2). [32-B]
E
F
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 G
decision of the concerned class of voters is just and fair to the class as a
whole so as to legitimately bind even the dissenting members of that class.
[32-C]
4. That all necessary material indicated by Section 393(l)(a) is
placed before the voters at the concerned meetings as contemplates by H
4
SUPREME COURT REPORTS [1996) SUPP. 6 S.C.R.
A
Section 391(1). [32-C-D]
B
c
5. That all the requisite material contemplated by the proviso to
Section 391(2) 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. [32-D]
6. That the proposed Scheme of compromise and arrangement is not
found to be violative of any provision of law and is not contrary to public
policy. For ascertaining the real purpose underlying the Scheme with a
view to be satisfied on this aspect, the Court, if necessary, can pierce the
veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. [32-E]
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
D
in order to promote any interest adverse to that of the latter comprising
of the same class whom they purported to represent. [32-F]
E
8. That the scheme as a whole is also found to be just, fair and
reasonable from the point of vies of prudent men of business taking a
commercial decision beneficial to the class represented by them for whom
the scheme is meant. [32-G]
9. Once the aforesaid board parameters about. the requirements of
the scheme for getting sanction of the Court are found to have been met,
the Court will ha•e no further jurisdiction to sit in appeal over the
F
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
G the Court exercising appellant jurisdiction over the scheme rather than its
supervisory jurisdiction. [32-H; 33-A-B]
1.3. 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
H in view by the Court. The Court certainly would not act as a court of appeal
-
1
..
MIHEER H. MAFATIAL v. MAFATLAL INDS. LID.
5
and sit in judgment over the informed view of the concerned parties to the A
compromise as the same would be in the realm of corporate and commercial wisdom of the con~erned 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 game according to the rules and do not overstep the limits. But
subject to that how best the game is to be played is left to the players and
not to the umprie. The supervisory jurisdiction of the Company Court can
B
also be culled out from the provisions, of Section 392 of the Act. Of course C
this Section deals with post- sanction supervision. But the said provisions
itself clearly earmarks the field in which the sanction of the Court operates.
The supervisor cannot ever treated as the author or a policy maker. Consequently the propriety and the merits of the Compromise or arrangement
have to be judged by the parties who as sui juris their open eyes and fully
informed about the pros and cons of the Scheme arrive at their own D
reasoned judgment and agree to be bound by such compromise or arrangement. 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.
[25-H; 26-A·C; 27-A-B]
Alabama New Orleans Texas and Pacific Junction Railway Company,
Re, (1891) 1 Chancery Division 213 andAnglo- Continental Supply Co. Ltd.,
Re, (1992) 2 Ch. 723, referred to.
Mankam Investments Ltd. and Others, Re., (1995) 4 Comp. W 330
(cal.), approved.
Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and Other,
[1995] Supp. 1 SCC 499, relied on.
E
F
G
_..
Hoare & Co. Ltd., Re, (1933) All ER Rep. 105, Ch. D and Bugle Press
Ltd., Re, (1961) Ch. 270, cited.
Bucklay on the Companies Act, 14th Edition, referred to.
2.1. Section 393(1)(a) of the Act shows that the special interest of H
•
6
SUPREME COURT REPORTS [1996] SUPP. 6 S.C.R.
--· A
director which is required -to be brought home to the voters m~st satisfy
the following requirements of the Section before it can be treated to be a
relevant special interest of the director which.is required to be.communicated to the voters : [34-E-F]
·
B
___ c
1. The director's interest 1_!1.Ustbe a special interest different frQm the
interest of other members who are the voters at the meeting. [34-E-F-GJ
2. The compromise or arrangement which is put to vote must have
an effect on such special interest of the director. [34-G]
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. [~4-F-H]
2.2. When a scheme of Compromise and Arrangement which involves
two companies, namely, the transferor-company and the transferee-comD pany 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 offe17ed for approval
is any way likely to be affected by the suppression of special interest of t6'~
director in connection with such a scheme which is on the anvil. Two
E
F
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 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) of
G the Act. [36-E-GJ
2.3. The personal family dispute between the appellant on the one
hand and his uncle, director or the transferee-company on the other
regarding the right to hold shares in the company cannot have any linkage
or nexus with the Scheme of Amalgamation of these two companies which
H was put to vote before the equity shareholders. The equity shareholders of
-
...
MIHEER H. MAFATLAL v. MAFA'ILALINDS. LTD.
7
the transferee-company had to decide in their commercial wisdom whether A
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
B
the stock market. 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 least concerned whether the C
appellant would purchase in future the share of his uncle, t!le present
director 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 D
the Scheme was concerned. Consequently, it must be held that mention
about the personal interest was outside the statutory requirements of
Section 393(1)(a) of the Act. [36-H; 37-A; C; H; 38-A-B; CJ
3.1. While considering the question of 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. The director of the transferee-company cannot
E
F
be visited with such a charge. 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 pc,int of view of the class as a whole. Question is whether the G
majority equity shareholders while acting on behalf of the class as a
whole had exhibited any adverse interest against the appellant's minority
shareholders also having similar interest as members of the same clas's,
while approving the Scheme or had acted with any oblique motive to
whittle down such a class interest of the minority. [41-E-F]
H
.A
B
c
8
SUPREME COURT REPORTS (1996) SUPP. 6 S.C.R.
Hellenic and General Tmst Limited, Re, (1976) 1 WLR 123, referred
to.
3.2. In the instant case it cannot be said that the voting pattern was
dominated by the share-holding of the director of the transferee-company
and his group. Nor could it 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 a whole and were in any way inimical to the appellant. It was
not the contention of the appellant that while voting by majority in 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 of the transferee-company and his group. The Board
of DirectfJrs of the respective companies, namely, the transferor-company
as well as the transferee-company had approved that Scheme of AmalD gamation before it was imt to vote. The appellant was himself one of the
directors of the transferee-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 it fit to personally remain present
E
F
at the time of voting and simply relied upon proxy~ If the appellant was
feeling that the Scheme was unfair ~o 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 the director of
transferee-company had tried to dominate and engineer any adverse pat·
tern of voting at the meeting of the equity shareholders. Apart from the
· pattern of voting at the meeting of the equity shareholders, even the shareholding pattern of the respondent-company belies the submission put for·
G ward on behalf of the appellant that the group of the transferee-company's
director dominated the constitution of the company and could control the
decisions of the shareholders. The scheme of the Amalgamation cannot be
said to be unfair and, amounting to suppression of minority shareholders
represented by the appellant. [41-D; 42-C-F; 43-G]
H
4. Even though the Companies Act or the Article of Association do
_..(
<::.
'6
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MIHEER H. MAFATLAL v. MAFATLAL INDS. LTD.
9
not provided for such a class within the class of equity shareholders, in a 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. On
the express language of Section 391(1) it becomes clear that where a
B
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- clause of members which lms a
separate Scheme to consider, no question of holding a separate meeting of
such a sub-class would at all survive. In the instant case when one the same
c
Scheme is offered to the entire class of e(1uity shareholders for their
consideration :md when commercial interest of the appellant so far as the
Scheme is concerned is common with other equity shareholders he would
have a common cause \\1th them either to accept or to reject the Scheme D
from c;Jmmercial 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. [46-G-H; 47-E; G-H]
Palmer 011 Company Law 24th Edition, referred to.
S. Valuation of shares is a technical and. complex problem which can
be appropriately left to the consideration of experts in the filed of accountancy. Many imponderables enter the exercise of valuation of shares. Which
exchange ratio is better is in the realm of commercial decision of well
informed equity shareholders. It is not for the Court to sit in appeal over
this value judgment of equity shareholders who are supposed to be men of
the world and reasonable persons who know their own benefit and interest
underlying any proposed scheme and who with open eyes have okayed this
ratio and the entire Scheme. [49-D; SO-A; 51-B]
Kamala Sugar Mills Ltd. 55 Company Cases, 308 (Guj), approved.
CWT. v. Mahadeo Jalan, [1973] 3 SCC 157, relied on.
Penington : Plinciples of Company Law, referred to.
E
F
G
H
10
SUPREMECqURTREPORTS [1996) SUPP. 6S.C.R.
A
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11879 of
1996 .
. From the Judgment and Order dated 12.7.96 of the Gujarat High
Court in O.J.A. No. 16 of 1994.
B
Shanti Bhusan, Miheer Thakur, Darshan Parekh, Jay Salve, and J.K.
c
Das for the Appellant.
Soli J. Sorabjee, S.B. Vakil, S. Ganesh, P.N. Kapadia, U.A. Rana and
Rajiv Tyagi for Gagrat & Co. for the Respondent.
The Judgment of the Court was delivered by
S.B. MAJMUDAR, J. Leave granted.
By consent of learned advocate of parties this appeal was taken up
for final hearing. We have heard the learned advocates of parties. The
D
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 12 July 1996. The Division Bench by the said
E
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 s_anctioned a Scheme of Amalgamation of two Public Limited _com- .
panies, namely Mafatlal Industries Limited ('MIL' for short) being the
transferee-company with which Mafatlal Fine Spinning and Manufacturing
Company Limited ('MFL' for short) being the transferor-company was to
F
be amalgamated. The iearned Single Judge granted requisite sanction to
the applicant transferee-company MIL to amalgamate in it the transferorcompan y 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 respondentG company MIL, as ventilated before us by its learned senior counsel Shri
Shanti Bhusan, assisted by learned counsel Shri M.J. Thakore, it will be
necessary to glance through a few relevant background facts.
Background Facts
H
The respondent-company MIL which was the petitioner before the
...
MIHEER H. M.Af<ATLAL v. MAI'A11.AL INDS. LTD. [S.B. MAJMUDAR, J.] 11
learned Single Judge has its registered office at Ahmedabad in Gujarat A
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 Certificate of Incorporation dated 24 January 1974 consequent upon change of
name, as sanctioned by the Registrar of Companies, Gujarat, Ahmedabad. B
The objects of the transferee-company MIL as per its Memorandum of
Association, inter a/ia, 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 manufactures, to work spinning and
weaving mills, cotton mills, jute mills and mills of any other description.
The Authorised Share Capital of the respondent-company was Rs.
100,00,00,000 (Rupees one hundred crores only) divided into 30,05,500
equity shares of Rs. 100 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
c
D
had been carrying on the same since incorporation. The respondent-company is a large multi-Division, Multi-locational company carryiny on diversified activities including manufacturing and sale textiles, dyes
intermediates and chemicals, professional grade connectors, plastic E
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 F
busines.s 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 fluorines 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, G
District Surat.
The Authorised Share Capital of the transferor-company as on 31st
March 1993 was Rs. 30 crores (Rupees thirty crores only) divided into
30,00,000 ordinary shares of Rs. 100 each. The Subscribed Share Capital H
12
SUPREME COURT REPORTS [1996} SUPP. 6 S.C.R.
A
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 26,25,771 ordinary shares of Rs. 100 each.
Subsequent to 31st March 1993 the the transferor-company had allotted
382 ordinary sh:ires of Rs. 100 each. The transferor-company had also
B issued and 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
C
the respondent-company MIL under the following circumstances and for
the following reasons :
D
E
F
G
H
(1)
(2)
(3)
The proposed amalgamation will pave the way for batter,
more efficient and economical control in the running of
operation.
Economies in administrative and management costs will improve in combined profitability.
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 larger
and sophisticated projects to ensure rapid growth.
( 4) The amalgamated company will have a strong and large re
source base. With a strong resource base, the risk bearing
capacity of the amalgamated Company will be substantial.
Hitherto, with limited resources and capacity, either company
had to forego business 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 is considered to be critical in this area of 'operations. An amalgamated company will be strategically better placed to reduce
the response time. Customers' confidence in dealing with such
1~-
MIHEERH.MAfi\TLAL v. MAf"ATLALINDS. LID. [S.B.MAfMUDAR,J.j 13
a mega company ensures timely delivery of large orders.
A
(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 director of the respondent-company MIL and transferor- company MFL approved the proposal for amalgamation of the MFL with MIL
and pursuant to the respective Resolutions passed by them the detailed
Scheme of Amalgamation was finalised. The directors of both the companies of the opinion that such amalgamation was in the interest do both
the companies.
B
c
D
E
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
F
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 sanctioning 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 transferor- G
company of which he was one of the directors and party to the Resolution
approving the said am;:tlgamation. Learned Single Judge of the Bombay
High Court sanctioned the said Scheme 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. H
A
B
c
14
SUPREME COURT REPORTS (1996] SUPP. 6 S.C.R.
As the registered office of the transferee-company is located at
Ahmedabad the respondent transferee-company had approached 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 objection 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 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, Bhadra, Ahmedabad. The said meeting was
attended by 5522 members present in person or by proxy, holding 20, 48,
513 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
shares vokd in favour of the Scheme and 143 members holding 86, 061
D fully paid equity shares voted against the Scheme. In short, the said 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
E
local newspapers as well as in the Bombay edition ofthe said newspaper.
Notice was also issued to Regional Director, Company Law Board,
Western Region, Bombay.
In response to the notice issued to the Central Government under
Section 394A of the Act the learned Additional Central Government
F
Standing Counsel appeared before the High Court and submitted to the
orders of the Court making it clear that the Central Government is not to
make any representation in favour or against the proposed Scheme.
Pursuant to the public advertisement only the present appellant, the
G shareholder of transferee-company holding 40, 567 share 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
H being taken by the appellant at that stage.
_ __..
;
...
a
<
<~
MlHEERH.MAFATLAL v. MAFATLALINDS.LTD.(S.B.MAJMUDAR,J.] 15
Nine objections were raised by the appellant against the proposed A
Scheme of Amalgamation as shareholder of the transferee-company. At
this stage we may not mention all these nine objections as ultimately only
four 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 B
S.D. Shah, J., over-ruled these objections and by a detailed as 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 .
The Division Bench of the High Court to which the appellant carried C
the matter in appeal confirmed the aforesaid decision of the learned Single
Judge by well considered Judgment which also ran into 136 pages and that
is how the appellant, original objector, is before us in this appeal.
Family Hist01y
D
In order to properly appreciate the grievance of the appellant against
the proposed Scheme and his roie as an objector it will be necessary to
note the family history of the appellant and two of the directors of the
respondent transferee-company who have a comm~n ancestor Mafatlal
Gagalbhai. The Family Tree of Mafatlal Gagalbhai projects the following E
picture:
Family Tree of Maf at/al Gagalblzai
Seth Mafatlal Gagalbhai
(Died on 19.07.1944)
Navinchandra
Bhagubhai
(Died 31.08.1955)
(Died
30.09.1944)
Arvind
Yogindra Rasesh
Hemant
Padmanabh
(Died on
(Died on
Hrishikesh Atulya
Pradeep 16.08.1971)
29.07.1990)
Miheer
(Born on
27.05.1958)
F
Pransukhlal
(Deceased)
(No issues)
G
H
·~
16
SUPREME COURT REPORTS [1996] SUPP. 6 S.C.R.
A
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 PranB
c
sukhlal. 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. Y ogindra Mafatlal
and Rasesh mafatlal as his male issues. On 16th August 1971, said Hemant
expired leaving behind him only male issue, present objector Miheer, them
aged 13.
D
The said Mafatlal Gagalbhai started different business undertakings
and with passage of time, the family of said Mafatlal consisting to
Navinchandra and Bhagubhai expanded their business undertakings. The
said family held controlli!lg interest in 'different business concerns run
throug~ public limited_ or private limited companies and the members of
the family were also partners in partnership firms. The pattern which was
E
maintained throughout was thatthe 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
F
the time to the death of _Navinchandra the shareholding of.the branch of
Hemant Mafatlal in Mafatlal Group of Industries was equal to aggregate
shareholding of Arvind Mafatlal, Y ogindra Mafatlal and Rasesh Mafatlal.
On the death of Navinchandra, the Mafatlal Group was managed by Arvind
Mafatlal, Yogindra Mafatlal, Rasesh Mafatlal and late Hemant Mafatlal.
Arvind Mafatlal was, however the eldest male member in the family who
G was always looked upon by Yogindra, Rasesh 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
H (then aged 13) and his two daughters (then aged 11 and 6). At that time,
MIHEERH.MAFATLAL v. MAFATLALINDS.LTD.[S.B.MAIMUDAR,J.] 17
the Mafatlal family, i.e., the families of Navinchandra and Bhagubhai were A·
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 B
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. Pvt.
Limited with the New Shorrock Spinning & Manufacturing Co. Limited on C
24th January 1974 January 1974 :.i.nd 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 difference amongst Arvind Mafatlal, Yogindra MafatIal and Rasesh Mafatlal and it was felt that some arrangement should be
worked put, 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
Y ogindra Mafatlal known as YNM Group and family of Rasesh Mafatlal
known as RNM Group. It is his 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
D
E
F
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
to 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.