Bombay High Court
Dinesh Vrajlal Lakhani vs Parke Davis (India) Ltd. on 23 July, 2003
Equivalent citations: 2004(1)BOMCR120, [2005]124COMPCAS728(BOM), [2003]47SCL80(BOM)
Author: D.Y. Chandrachud
Bench: A.P. Shah, D.Y. Chandrachud
JUDGMENT D.Y. Chandrachud, J.
1. In these proceedings an order passed by Justice O.K. Deshmukh on 7th February, 2003 by which the Learned Judge sanctioned a Scheme of Amalgamation of Parke-Davis (India) Ltd. with Pfizer Limited is called into question- By and as a result of the Scheme of Amalgamation, the undertaking of Parke-Davis (India) Ltd., stands transferred and vested in Pfizer Ltd. pursuant to the provisions of Section 394 of the Companies Act, 1956, as a going concern with effect from 1st December, 2001, the appointed date.
The Transferor & Transferee :
2. Pfizer, the transferee, was incorporated on 21st November, 1950 under the Companies Act, 1913. The authorised capital of the Company is Rs. 40 crorcs, while the issued capital is Rs. 23.44 crores. Pfizer engages in the business of the manufacture and sale of Bulk Drugs, Pharmaceutical formulations, Animal Health Products and Nutritional Supplements. Pfizer was incorporated inter alia with the object of carrying on the business of the manufacture of and of a dealer in pharmaceutical, medical, chemical, industrial, and other preparation and articles. Parke-Davis, the transferor, was incorporated on 18th April, 1958. The authorised share capital of the transferor is Rs. 15 crores while its issued subscribed and paid up share capital is Rs. 12.05 crores. The main objects for which the transferor was incorporated were inter alia to manufacture, refine, import, export, buy, sell and deal in drugs, medicines and chemicals, pharmaceutical, herbal, bacteriological and biological products and the preparation of all kinds of toilet articles and cosmetic articles.
The rationale for the Scheme :
3. The Scheme of Amalgamation was proposed and came to be approved by the Boards of Directors of the transferor and transferee in separate meetings held on 27th June, 2002. Amongst the benefits of the amalgamation that have been cited before the Court are these :
(i) Since both the transferor and transferee are manufacturers of pharmaceutical formations, and of nutritional and supplementary products the amalgamation would provide synergistic linkages and economies in cost by combining the total business functions and related activities;
(ii) As a result of enhanced capabilities and resources, the amalgamated Company will have greater flexibility to market and meet customer needs and will be able to compete more effectively thereby strengthening its market position;
(iii) The amalgamated Company will have the benefit of the combined reserves, manufacturing and other assets, manpower and cash flows of the two companies;
(iv) The Scheme will make available the benefit of financial resources, as well as the managerial, technical, distribution and marketing expertise of each of the Companies;
(v) The amalgamated Company will be able to source and absorb new technology and its capacity to spend on Research and Development will be enhanced;
(vi) A larger and growth oriented company will mean enhanced financial and growth prospects for the people and organisations connected with the Company and will be in public interest; and
(vii) The amalgamated Company will have a balanced portfolio of products, thereby insulating the business from dependence on one or two product areas.
The Essential features :
4. The salient features of the Scheme proposed are thus :
(i) With effect from the Appointed Date, 1st December, 2001 : (a) the undertaking of the transferor shall stand transferred to and vested in the transferee in pursuance of the provisions of Section 394 of the Companies Act, 1956; and (b) all the debts, liabilities, duties and obligations of the transferor shall stand transferred to the transferee;
(ii) From the effective date, the reserves of the transferor will be merged with those of the transferee in the same form as they appear in the financial statements of the transferor;
(iii) The Scheme, though operative from the Appointed Date, shall become effective from the Effective Date, meaning the last of the dates on which the sanctions, approvals or orders specified in Clause 14 of the scheme are obtained;
(iv) All contracts, deeds and agreements to which the transferor is a party and which are subsisting immediately before the Effective Date, shall remain in full force and effect against or in favour of the transferee;
(v) All proceedings by or against the transferor pending on the Appointed Date, can be continued or enforced against the transferee;
(vi) All employees of the transferor in service on the date immediately preceding the Effective date shall become the employees of the transferee on the basis that their services will be continuous and uninterrupted and the conditions of service shall not be less favourable than those applicable prior to the transfer.
The Share Exchange Ratio :
5. The proposed Scheme of Amalgamation provides for a Share exchange ratio in pursuance of which, upon the Scheme becoming effective, the transferee shall issue and allot 4 equity shares of Rs. 10 each to every equity shareholder of the transferor whose name appears in the Register of Members on the record date for every 9 equity shares of Rs. 10 each held in the transferor. The proposed share exchange ratio was worked out by M/s. N.M. Raiji & Co. and M/s. S.B. Billimoria & Co. The Boards of Directors of the transferor and the transferee accepted the suggested ratio.
6. As on 30th November, 2001, the total assets net of current liabilities of the transferor aggregated to Rs. 8312.82 lakhs. The net worth of the transferee on the appointed date will, therefore, stand increased by the aforesaid amount.
7. In the Company Petition before the Learned Company Judge, it has been averred that the unsecured creditors of the transferor are not affected by the proposed Scheme since neither any waiver is called for from them, nor are their rights sought to be modified in any manner. The transferor had no secured creditors as on 30th November, 2001.
The Meeting of Shareholders :
8. By an order dated 4th July, 2002 passed by the Company Judge, the transferor was directed to convene on 21st August, 2002 a meeting of its equity shareholders. Notices of the meeting are stated to have been sent individually to the shareholders of the transferor together with a copy of the Scheme, of the statement required under Section 393 and the form of proxy. The notice of the meeting was also duly advertised in two newspapers.
9. On 21st August, 2002, a meeting of the equity shareholders of the transferor was accordingly convened. The report of the Chairman of the meeting dated 11th September, 2002 has been placed on record. The report of the Chairman sets out that the salient features of the Scheme and of the valuation report were explained to the shareholders and several shareholders spoke on the resolution and raised numerous queries which were replied. Mr. V.N. Deodhar, who is a shareholder of the Company and a practising Company Secretary and Mr. Rajesh Daga, a Manager at Price Waterhouse Coopers were appointed as Scrutineers. The report of the Scrutineers dated 22nd August, 2003 is appended to the report of the Chairman of the meeting. The Scrutineers report is to the effect that a total of 114 members voted in person and/or by proxy at the meeting representing an aggregate of 55,47,032 shares. 53 shareholders representing in the aggregate 55,43,479 shares or 99.94% in terms of the total percentage/value of votes in favour of the resolution, 46 shareholders representing 2872 shares voted against the resolution. There were 15 invalid votes.
The Objectors and the response :
10. When the Scheme for Amalgamation came up for sanction before the Learned Single Judge, amongst the objectors was Mr. Dinesh B. Lakhani who appears in person in the Appeal. In his objection Mr. Lakhani stated that he had in his speech at the meeting requested the Chairman to "amend and improve" the proposed exchange ratio of shares in favour of the shareholders of the transferor company. According to him, he had moved an amendment for modifying the swap ratio by which he proposed that four equity shares of Pfizer Limited should be issued for every six equity shares each of Rs. 10 held in Parke-Davis (India) Ltd. His grievance is that the Chairman refused to allow the amendment and ruled it as not in order. In his objection, Mr. Lakhani also objected to the Valuation report, and the reports of the Chairman and Scrutineers.
11. A reply to the objections of Mr. Lakhani was filed on behalf of the transferor. There is no dispute about the fact that the amendment which was proposed was ruled as not in order by the Chairman of the meeting. According to the reply of the transferor, the Chairman was of the opinion that if the amendments were to be considered by the members and thereafter, put to vote, it would indefinitely delay and in fact derail the meeting. Moreover, since the meeting had been convened on the directions of the Court, it would have to be thereafter, adjourned to some subsequent date which would warrant further applications to the Court for fixing another date of the meeting. However, according to the transferor, though the proposed amendment of Mr. Lakhani was not actually put to vote, it was discussed and debated amongst members present at the meeting and the Scheme with a swap ratio of 4 : 9 as recommended by the expert valuers was thereafter approved by an overwhelming majority of 99.94%.
12. An additional affidavit was then filed by Mr. Lakhani before the Company Judge taking exception to the manner in which the votes have been counted by the Scrutineers. Mr. Lakhani adverts to the fact that according to the Scrutineers, 53 shareholders voted in favour, while 46 voted against the resolution. The gravamen of his allegation is set out in a chart incorporated in his reply dated 18th December, 2002. What he seeks to submit is that certain shareholders were permitted to cast their votes more than once in respect of different folios of their shareholding. This objection is highlighted, by way of illustration, in the case of shareholders by the name of Mr. Herman Patrick Poppen and his wife Ms. Miler H. Poppen. The Scrutineers have responded to this objection on 18th December, 2002. The Scrutineers have stated that when shares are held jointly, either with any one or more of the joint names being different, or the order of the joint names differing, they are given different folio numbers, and treated as different members. Accordingly, all such joint holders (wherein there are different joint names or where the order of the joint named holders is different) have been treated as separate and distinct members for the purpose of computing the number of members present and voting at the meeting. The Scrutineers state that this method has been adopted uniformly, irrespective of the manner in which they voted, whether for or against the Resolution.
The objections before the Company Judge :
13. Before the Learned Company Judge, there were 16 objectors, shareholders of the transferor who opposed the Scheme of Amalgamation. The arguments were advanced by two of them, Mr. Dinesh Lakhani and Mr. Janak Mathuradas. The objections raised by the objectors were thus :
(i) The swap ratio proposed in the Scheme of Amalgamation was unfair to the shareholders and against the interest of a minority of shareholders of the transferor;
(ii) The detailed valuation report of the Chartered Accountant was not made available to the objectors;
(iii) Shri Lakhani had moved a resolution for amendment of the swap ratio but the amendment was rejected by the Chairman without putting it to vote;
(iv) The Chairman had not conducted the proceedings properly; he was the Chairman of the Board of Directors of the transferor and an alternate Director of the transferee, besides being a partner of Crawford Bayley & Co. Solicitors, who are Solicitors of both the transferor and transferee. It was contended that the Chairman had a vested interest in the Scheme of Amalgamation and his acting as Chairman of the meeting was prejudicial to the interest of the members of the Company;
(v) The Chairman had not disclosed in his report to the Court that 18 persons had spoken against the resolution, nor did he mention that the amendment to the resolution had been moved;
(vi) There were discrepancies in the report of the Scrutineers and several votes had been shown as invalid without assigning any reason;
(vii) Several persons have voted more than once in the Meeting which was impermissible under the law;
(viii) Objections had been filed that there are workmen of the transferor whose services had been terminated and on whose behalf proceedings were pending before the Deputy Commissioner of Labour.
The Judgment of the Company Judge :
14. The Learned Company Judge noted that the parameters of the jurisdiction of the Company Court are those which are enunciated in the judgment of the Supreme Court in Hindustan Lever Employees Union v. Hindustan Lever Ltd. [1994] 4 Comp. LJ 267. The Learned Judge held that while considering a Scheme of Amalgamation, the Court does not exercise an appellate jurisdiction, but a jurisdiction founded on fairness. The Court would not interfere with the swap ratio adopted on the advice of an expert unless it was contrary to law. The Learned Judge held that it was not the case before him that the swap ratio was contrary to law or that the experts who submitted the valuation report were not independent. The first two objections were overruled.
15. In so far as the third objection was concerned, the Learned Judge noted that Shri Lakhani who had suggested the amendment, was allowed to speak and others also spoke at the meeting upon which, after a discussion of the entire proposal, the resolution came to be approved by an overwhelming majority. The Court held that the decision of the Chairman ruling the amendment as not in order, could not be faulted having regard to the decision of a Learned Single Judge of this Court and of a Division Bench in Dinesh Lakhani v. Hindustan Ciba Geigy Ltd. [1997] 14 SCL 115. A similar objection had been raised by Shri Lakhani who also was the Appellant before the Court in the earlier case and it had been negatived by the Division Bench. In so far as the conduct of the Chairman was concerned, the Learned Single Judge held that there was no substance in the objection. In so far as the sixth and seventh objections are concerned, the Learned Single Judge noted that in the report of the Scrutineers, it has been pointed out that when shares are held jointly either with any one or more joint names being different or the order of the joint names differing, they are given different folio numbers and are treated as different members. The Court noted that the Scrutineers had admitted, however, that a mistake had occurred in one case. Similarly, one vote had wrongly been treated as an invalid vote. In the circumstances, the total votes cast in favour of the resolution would come down from 53 to 52 while those against the resolution would stand increased from 46 to 47. The Resolution would still be carried by a majority. The Learned Judge has agreed with the submission of the Company that since votes are taken foliowise, it would be permissible to treat different folios where shares are held jointly with different persons or in a different order of names as separate for the purposes of voting. Finally in so far as the 15 invalid votes were concerned, six had voted in favour of the resolutions and nine had voted against the resolution. Even if all the invalid votes were to be taken into account, the resolution would still be passed by a majority. In so far as the objections filed by the workers were concerned, the Learned Judge noted that they were no longer in the employment of the Company and their matters were pending either before the appropriate Court or the Commissioner of Labour. There was an averment in the petition that all pending litigation of the transferor would be contested by the transferee and all liabilities that may be incurred by the transferor would be taken over by the transferee. In that view of the matter, it was held that the interests of these workers were duly protected. Having regard to these facts and circumstances, the Learned Single Judge has allowed the Company Petition and sanctioned the proposed amalgamation.
The submissions in appeal:
16. Of the 16 objectors who filed objections before the Learned Single Judge, only one, Shri Dinesh v. Lakhani has come in appeal. Shri Lakhani, who appears in person has urged the following three submissions for the consideration of the Court:
(i) The resolution which has been passed at the meeting convened of the members of the Company has to be regarded as invalid since the amendment which was proposed by Shri Lakhani for an alteration of the swap ratio was not allowed and was ruled as not in order by the Chairman of the meeting;
(ii) The method by which votes have been counted at the meeting of members does not accord with the provisions of Section 391(2) of the Act. In several cases though one shareholder was present in the meeting, his vote was counted more than once in respect of different folios of shares. This is impermissible since for the purpose of counting the majority of members under Section 391(2), each shareholder would be entitled only to one vote;
(iii) In view of the provisions of Section 391(3), an order made by the Court under Sub-section (2) cannot have effect until a certified copy of the order has been filed with the Registrar. In the present case, there was a clear illegality on the part of the company in acting on the basis of an authenticated copy of the order of the Learned Company Judge.
17. Each of these submissions may now be taken up for consideration. Sub-sections (1) and (2) of Section 391, which have a material bearing on the issues involved in this case, provide thus:
"Power to compromise or make arrangements with Creditors and members.--(1) Where a compromise or arrangement is proposed--
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under Section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company:
Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under Sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditors 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."
I. Re: The proposed amendment to the share exchange ratio:
18. Where a compromise or arrangement is proposed between a Company and its creditors or a Company and its members or any class of them, the Court is empowered by Section 391(1) to order a meeting of the creditors or of the members to be called, held and conducted in such manner as the Court directs. The Companies Court Rules, 1959, prescribe the procedural requirements for convening and holding such a meeting. Rule 67 provides that an application under Section 391(1) for an order convening a meeting of creditors, members or any class of them shall be by a Judge's summons supported by an affidavit. A copy of the proposed compromise or arrangement has to be annexed to the affidavit which is required to be furnished together with the summons. Under Rule 69, upon hearing the summons, the Company Judge is empowered to issue directions in regard to (i) determining the class or classes of creditors or members whose meeting or meetings have to be held "for considering the proposed compromise or arrangement"; (ii) fixing the time and place of the meeting, appointing a Chairman and fixing the quorum and the procedure to be followed at the meeting; (iii) determining the values of the creditors and/or the members whose meetings have to be held; and (iv) furnishing of notice and the time within which the chairman of the meeting is to report to the Court. Rule 73 provides the manner in which a notice of the meeting has to be given to the creditors and members. In so far as the dispute in this case is concerned, what is relevant is that the notice of the meeting has to be accompanied by a copy of the proposed compromise or arrangement and of the statement required to be furnished under Section 393. The Chairman appointed for the meeting has to file an affidavit under Rule 76 showing that the directions regarding the issuance of notices and the advertisement have been duly complied with at least seven days before the date fixed for the holding of the meeting. The Chairman of the meeting files a report under Rule 78 of the result thereof before the Court. Section 394(1) provides that where the application that is made under Section 391 involves a scheme for the Amalgamation of any two or more Companies under which any part of the undertaking, property or liability of the Company is to be transferred to another company, the Court is empowered while sanctioning the compromise or arrangement or subsequently, to make provision for various matters. Amongst these, under Clause (ii) is the allotment by the transferee-company of any shares in that company which under the compromise or arrangement are to be allotted to or for any person.
19. The meeting which is convened by the Court under Section 391(1) is for a specific purpose. The purpose of the meeting is to consider a compromise or arrangement and, where it involves a Scheme of Amalgamation of two or more Companies, the meeting is to consider whether the proposed Scheme of Amalgamation should be accepted. The proposal for amalgamation which is placed before the Court for its sanction is one that has been agreed upon by the Boards of Directors of the transferor and transferee, The share exchange ratio or swap ratio as it is called is an integral part of the proposed amalgamation. The meeting which is convened by the Court is for considering whether the proposed compromise or arrangement should or should not be accepted by the creditors or, as the case may be, by the members of the company. The procedural provisions embodied in the Companies Court Rules, 1959 give effect to the basic purpose and object which is to secure the views of the creditors and members as to whether the proposed compromise or arrangement should be accepted. The notice of the meeting which is forwarded to the creditors and members is accompanied by a copy of the proposed compromise or arrangement. Creditors and members are, therefore, put on notice that it is this compromise or arrangement which is reflected in the notice that will be the subject-matter of consideration. The swap ratio or exchange ratio that forms the basis of the compromise or arrangement is a matter of expert determination. The judgments of the Supreme Court in Hindustan Lever Employees Union's case (supra) and in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 792, 10 SCL 70 hold that the swap ratio is an expert determination, often made by Chartered Accountants of repute by which the valuation which is adopted is reflected in the exchange ratio.
20. At the meeting which is convened by the Court of the members of the Company, it is entirely for the members in their commercial wisdom to determine whether the Scheme of Amalgamation as proposed should be accepted or rejected. The members are entitled to determine as to whether the swap or exchange ratio ought to be accepted or rejected The members have to decide whether the exchange ratio which forms the basis of the Scheme of Amalgamation is or is not in their interest. That is a matter of their commercial wisdom. However, at the meeting which is convened by the Court for considering whether the proposed amalgamation is acceptable to the members, there cannot obviously be an amendment of the swap ratio. The swap or exchange ratio constitutes a determination of valuers who, as in the present case, are Chartered Accountant of repute. The swap ratio is a matter not only of acceptance for the transferor and its members but for the transferee and its members as well. The transferee has to allot shares upon amalgamation to the shareholders of the transferor. Obviously even if the shareholders of the transferor consider that a more favourable swap ratio should have been adopted, that cannot be foisted on the transferee since the terms of the proposed compromise are matters of mutual acceptance between the transferor and transferee. The swap ratio is an integral part of the proposal which is before the meeting and an amendment to the swap ratio will operate to nullify the basis of the Scheme of Amalgamation. Whether the Scheme of Amalgamation should or should not be accepted is for the members of the Company to decide but, there can be no gainsaying that an amendment to the swap ratio would nullify basis and foundation of the Scheme of Amalgamation. Consequently, the Chairman of the meeting was justified in his ruling that the amendment to the swap ratio that was proposed by Shri Lakhani had to be ruled as not in order.
21. In any case, apart from this, it has been stated before the Court that all the members who desired to speak, including Shri Lakhani, were allowed to speak after which the resolution came to be passed with an overwhelming majority of 99.94 per cent shareholders in support. Therefore, in any event of the matter, we do not find any infirmity or ground for interference.
22. Two judgments have been relied upon by the Appellant, one a judgment of a Learned Single Judge of this Court in T.H. Vakil v. Bombay Presidency Radio Club Ltd. AIR 1945 Bom. 475 and Anr. of the Court of Appeal in England in Henderson v.Bank of Australasia [1890] 45 Ch.D. 330. Blagden, J., speaking for this Court in T.H. Vakil's case (supra) held that in the case of a general meeting, a refusal by the Chairman to put an amendment to the meeting would invalidate the proceedings. The Learned Judge held that the reason why this was so was because the members who were present at the meeting could have expressed their opinion on the substantive motion without having had an opportunity to express their opinion on the amendment and as a result of that it may well be that the real sense of the meeting has not yet been ascertained. In so far as T.H. Vakil's case (supra) is concerned, it would be important to note that this was one where an amendment was sought to a resolution at a general meeting of the Company. Moreover and it is of some significance, the Chairman's resolution was eventually put to the meeting and lost. The Learned Single Judge therefore, held that this would seem to indicate that the majority of the members was dissatisfied with the accounts and presumably would have voted in favour of the amendment had it been allowed to be put to the meeting. In Henderson's case (supra), the Chairman of the meeting asked who would second it and then after it was seconded, he refused to put it to the meeting stating that he was advised that no amendment at all could be proposed and that the meeting must take the resolutions which had been placed before it en bloc, or reject them altogether. Cotton, L.J. speaking for the Court of Appeal held that the Chairman was entirely wrong in refusing to put the amendment because he was under a mistaken idea as to what the law was which ought to have regulated his conduct. The Chairman, it was held, prevented a material question from being brought before the meeting.
23. The judgment in Henderson 's case (supra) has been considered in a subsequent judgment of Justice Slade in Moorgate Holdings Ltd., In re [1980] 1 W.L.R. 227. Moorgate dealt with the case of a Special Resolution under Section 141(2) of the Companies Act, 1948. Henderson's case (supra) was distinguished on the ground that no statutory provisions were under consideration before the Court of Appeal in that case and everything turn on the provisions of the relevant deed of settlement, the forum of the relevant notices and the course of the relevant meeting; in other words, it was a decision entirely on its special facts. Slade, J. held that the principles relating to a notice of and the subsequent amendment of, special resolutions are these:
(i) A valid notice of an intention to propose a special resolution, must identify the intended resolution by specifying either the text or the entire substance of the resolution which it is intended to propose;
(ii) If a special resolution is to be validly passed, the resolution as passed must be the same resolution as that identified in the preceding notice;
(iii) The resolution may correct a grammatical or clerical error or reduce it into the form of a new text, so long as there was no departure from the substance;
(iv) In deciding whether there is complete identity between the substance of a resolution as passed and the substance of an intended resolution as notified, there is no room for the Court to apply a "limit of tolerance". The substance must be identical or else the requirement that a notice has been given specifying the intention to propose the resolution as a special resolution is not satisfied;
(v) An amendment to the previously circulated text of a special resolution can properly be put to and voted on at a meeting if, but only if, the amendment involves no departure from the substance of the circulated text.
24. The judgment of Slade, J. in Moorgate Holdings Ltd. 's case (supra) deals with the passing of a Special Resolution. The considerations which weighed with the Learned Judge in requiring that the resolution which is passed must conform to the notice of the proposed resolution and must not involve any departure of substance must equally apply to a resolution which is proposed at a meeting convened of the members of a company for considering a proposed Scheme of Amalgamation. The meeting, as already noted, is to consider a proposal, and a specified proposal at that, which includes a specified swap ratio which forms the basis of the Scheme of Amalgamation. An amendment to the swap ratio cannot possibly be in contemplation because it would nullify the basis of the Scheme of Amalgamation. Slade, J. in Moorgate Holdings Ltd's case (supra) held that "each shareholder should now have clear and precise advance notice of the substance of any special resolution which it is intended to propose, so that he may decide whether he should attend the meeting or is content to absent himself and leave the decision to those who do;". The provisions of the statute must be intended "as much for the protection of the members who in the event decide to absent themselves as of those who decide to attend". There would, ruled the Learned Judge, be a risk of unfair prejudice to those members who, after due consideration, had deliberately absented themselves, if it were open to the members who did attend to propose and vote on a special resolution differing in substance from the resolution of which notice had been given. These considerations must, in our view, apply with equal force to a proposed Scheme of Amalgamation.
25. In Hindustan Ciba Geigy Ltd. 's case (supra), a Learned Single Judge of this Court, K.K. Baam, J., dealt with a similar objection which was raised by the very objector who is in appeal before us in this case. The Learned Single Judge rejected the contention holding that a change in the ratio of allotment of the shares "would tantamount to overhauling the entire scheme of arrangement". Moreover, this formed the basis of the report of the Chartered Accountant which was a part of the Scheme submitted before the Court and which was to be placed before the meeting of the shareholders. In the absence of mala fides, fraud or illegality the Court would not rule in favour of the objector particularly having regard to the overwhelming support which the Scheme of Amalgamation had received on the part of the members of the Company. The judgment of the Learned Single Judge was carried in appeal and was sustained by a Division Bench of this Court on 27th August, 1997. The Division Bench distinguished both Henderson's case (supra) as well as the judgment of the Learned Single Judge of this Court in T.H. Vakil's case (supra). The Division Bench held that where the swap ratio has been discussed and the scheme was approved with the overwhelming support of the shareholders, the Court ought not to disturb the commercial decision of the shareholders.
26. In so far as this Court is concerned, the question is not res integra and it has been considered in a judgment of the Division Bench in P.D. Shamdasani v. Tata Industrial Bank Ltd. AIR 1925 Bom. 49. The appeal before the Division Bench arose out of a suit instituted by the Appellant for a declaration that the proceedings of a meeting of the Tata Bank in which the amalgamation of that Bank with the Central Bank was determined upon, were null and void. At the meeting of the shareholders, an amendment to the resolution which was proposed by the Appellant was disallowed by the Chairman and the Learned Single Judge held inter alia that having regard to the nature of the amendment, it was practically a negative of the resolution and was properly disallowed. The Division Bench held that the question as to whether the amendment could be or should be allowed must necessarily depend upon the nature of the resolution and the nature of the amendment. The Division Bench noticed that the subject-matter of the consideration before the meeting was whether a particular offer made by the Central Bank on the conditions contained in the agreement was to be accepted by the Tata Bank or not and the shareholders could either accept that offer or reject it. The amendment proposed, however, asked the shareholders to consider that the proposed amalgamation may be modified so as to require that the entire value of the properties and of the assets, capital and liabilities of the Company as determined as of a particular date by the Managers and the Auditors of the Company and the Central Bank for the purposes of amalgamation be credited to the capital of the Central Bank without any deduction and that nothing of the said values be allowed to be carried by way of premium or otherwise to the reserve fund of the Central Bank. Holding that the decision of the Chairman to disallow the amendment was in order, the Division Bench of this Court held that "the amendment though in form an amendment was really a counter-proposal of a different nature and in effect it involved either the adjournment of the consideration of the resolution or the rejection of the resolution proposed before the meeting". The Court held, adverting to the judgment of Henderson's case (supra) that it is true that a proper amendment which is moved by any member at a meeting should be put to the meeting for consideration and if the Chairman ruled out any such amendment, the resolution is liable to be set aside. In the case at hand, however, the amendment "went so far beyond the scope of the subject-matter of the resolution before the meeting, that it was clearly open to the Chairman to rule it out of order". We are in respectful agreement with the principle which has been enunciated by the Division Bench over three quarters of a century ago. The judgment of the Division Bench clearly concludes the issue against the appellant.
27. There is no substance in the first objection.
Re: Counting of Votes:
28. On the question as to manner in which the votes were counted, it would at the outset be necessary to appreciate that under the provisions of Section 391(2) of the Companies Act, 1956, the requirement is that the compromise or arrangement must be agreed upon by "a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed, by proxy at the meeting". The contention of the Appellant is that Section 391(2) postulates two requirements. The first is that there must be a majority of creditors or members, as the case may be, present and voting and the second that this majority must reflect three-fourths in value of the creditors or members. Now, there is no dispute about the fact that the requirement that the compromise or arrangement be agreed upon by three-fourths in value of the members of the Company has been duly fulfilled. The dispute centres around whether a majority in number of the members present and voting either in person or by proxies had agreed to the compromise or arrangement.
29. The expression "member" is defined in Section 41 of the Act. Sub-section (1) of Section 41 provides that the Subscribers of the Memorandum of a company shall be deemed to have agreed to become members of the company and upon its registration, are entered as members in the register of members. Sub-section (2) of the Section then provides that every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. Clause (iii) of Sub-section (1) of Section 3 defines the expression "private company", while Clause (iv) defines the expression "public company". In the case of a private company, the number of members is limited to fifty. The proviso to Clause (iii) specifies that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of the definition be treated as a single member. This proviso is conspicuous by its absence in the definition of the expression "public company". Chief Justice Chagla, speaking for a Division Bench of this Court in Narandas Munmohandas Ramji v. Indian Mfg. Co. Ltd. [1953] 23 Comp. Cas. 335 noted this distinction between the definition of a "private company" and a "public company" in the relevant provisions of the Indian Companies Act, 1913 which came up for consideration. The Learned Chief Justice held that, therefore, "only in the case of a private company by a legal fiction under Section 2(13) of the Indian Companies Act, joint shareholders are not to be considered as members but to be treated as a single member". On the other hand, ruled the Court, in the case of a public company "every joint shareholder is a member". The Court held that in the case of public company "when three or four persons agree to accept the shares of the Company, they do not constitute a single member as in the case of a private company, but as many members as there arc applicants".
30. Section 87(1) of the Companies Act, 1956 makes a provision in relation to voting rights and provides that every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company. Furthermore, the Section provides that his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company. Before considering the Articles of Association of Parke-Davis (India) Limited in the present case, it would be instructive to refer to Table-A of Schedulc-I of the Act which provides model Regulations for the management of a Company limited by shares. Article 56 provides that subject to any rights or restrictions for the time being attached to any class or classes of shares (a) on a show of hands, every member present in person shall have one vote and (b) on a poll, the voting rights of members shall be as laid down in Section 87. Then Article 57 provides that in the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members.
31. In the present case, Articles 102, 103 and 105 of the Articles of Association of Parke-Davis (India) Ltd. provide for the voting rights of the members. Article 102 is as follows:
"Subject to the provision of these Articles and without prejudice to any special privileges or restrictions as to voting for the time being attached to any class of shares for the time being forming part of the capital of the Company, every Member, not disqualified by the last preceding Articles shall be entitled to be present, and to speak and vote at such meeting, and on a show of hands every Member present in person shall have one vote and upon a pott the voting right of every Member present in person or by proxy shall be in proportion to his share of the paid-up equity share capital of the Company. Provided however, if any preference shareholder be present at any meeting of the Company, save as provided in Clause (b) of Sub-section (2) of Section 87, he shall have a right to vote only on resolutions placed before the meeting which directly affect the rights attached to his preference shares."
Article 102 applies to a general meeting, a meeting of a class of shareholders or upon a poll, these being specified in the previous article, Article 101. Article 102 makes it abundantly clear that every member who is not disqualified, is entitled to be present and to speak and vote at the meeting. On a show of hands, every member present has one vote. Upon a poll, the voting right of every member present in person or by proxy has to be in proportion of his share of the paid-up equity share capital of the Company. When a meeting of the members or creditors of a Company is convened in pursuance of the directions of the Court under Section 391 of the Companies Act, 1956, the result of the meeting is to be decided by a poll. The Companies Court Rules, 1959, provide so expressly in Rule 77 in which it is stipulated that the decision of the meeting or meetings held in pursuance of the order of the Court made under Rule 69 on all resolutions' shall be ascertained only by taking a poll; Therefore, on a poll taken to determine the outcome of a meeting convened in pursuance of the directions of the Court on a proposed scheme of arrangement or compromise under Section 391, every member present in person or by proxy is entitled to voting rights in proportion to his share of the paid-up equity share capital.
32. On a poll being taken, a member is not bound to use all his votes or cast all the votes which he used in the same way. Article 103 of the Articles of Association provides as follows:
"On a poll taken at a meeting of the Company a member entitled to more than one vote, or his proxy or other person entitled to vote for him, as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses."
Article 105 provides for the manner in which the votes of joint members are to be cast and is as follows:
"If there be joint registered holders of any shares, any one of the such persons may vote at any meetingor may appoint another person (whether a Member or not) as his proxy in respect of such shares, as if he were solely entitled thereto, and the proxy so appointed shall not have the right to speak at the meeting and if more than one of such joint holders be present at any meeting, that one of the said persons so present, whose name stands higher on the Register, shall be alone entitled to speak and to vote in respect of such shares, but the other or others of the joint-holders shall be entitled to be present at the meeting. Several executors or administrators of a deceased Member, in whose name shares stand, shall, for the purpose of these Articles be deemed joint-holders thereof."
When there are joint registered holders of shares, any one of such persons can vote at the meeting or appoint another person whether a member or not as his proxy. If more than one joint-holder is present at the meeting, then the person whose name stands higher on the register is alone entitled to speak and vote at the meeting. The name of an individual may appear in different folios with different joint names or in a different order of names. Article 105 provides for such eventualities.
33. At a meeting convened on the directions of the Court under Section 391 to consider a compromise or arrangement, a poll has to be taken to determine the outcome of the meeting. The outcome of the poll is not determined by a head count of the shareholders who vote. Contrary to what the Appellant asserts, Section 391(2) does not adopt the principle of one person, one vote nor does it warrant a recourse to a head count for determining whether a majority as mandated exists. It obviously does not, in so far as the requirement relating to three-fourths in value of the members or creditors is concerned. Similarly, in so far as the question of majority in number is concerned, it is not possible to accept the submission of the appellant that the words "present and voting either in person or .. by proxy" incorporate the principle that for computing the majority in number of the creditors or members present and voting, a head count of the members or creditors must be the basis of computing the majority. That is not the principle adopted by the Companies Act. There is also intrinsic material in the regulations specified in Table-A to hold that this is not so. The articles of association of the Company place the matter beyond doubt.
34. Learned Counsel appearing on behalf of the First Respondent has also adverted to the practice which has been followed other Companies. Counsel has drawn the attention of the Court to the fact that at a meeting of the shareholders of a Company by the name of Twentieth Century Fox where Mr. Lakhani himself was a Scrutineer, votes have been recorded separately in the same manner as in the present case where in respect of different folios, the names of shareholders appeared either with different sets of joint-holders or in different orders. Counsel has also relied upon the practice of Hindustan Lever Ltd. in support of the practice which has been adopted by the Company in the present case. Therefore, from the practice or usage which has been adverted to by Counsel for the Respondents it does appear that the procedure followed by the Scrutineers has precedent in Company practice. As we have already noted earlier, it is valid as a matter of principle. Be that as it may, the Court cannot be unmindful of the overwhelming support for the Resolution. This is not a case where the Company acted mala fide or where the majority has sought to stifle the voice or interests of the minority. We are of the view that there was no illegality on the part of the Scrutineers in the counting of votes.
Re: The Authenticated Copy:
35. The third submission urged on behalf of the Appellant is that under the provisions of Section 391(3), an order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. In the present case, it was urged that all steps which were taken after the order of the Learned Company Judge dated 7th February, 2003 and until the ad interim order of the Division Bench dated 30th March, 2003 restraining the Respondents from taking further steps based on the order of the Learned Single Judge were without the authority of law and must be disregarded.
36. We do not find it possible to accept this submission. The Learned Company Judge had directed in his order dated 7th February, 2003 that parties shall act on a copy of the order duly authenticated by the Company Registrar/Personal Secretary as true copy. The Division Bench, which initially considered the appeal filed by the Appellant on 13th March, 2003 directed the Respondents and all other authorities not to act upon the impugned order of the Company Judge. On 30th April, 2003, the ad interim order was confirmed and was directed to continue in operation during the pendency of the appeal. The appeal was directed to be listed immediately after the reopening of the Court on 4th June, 2003. Special Leave Petitions were filed before the Supreme Court against the order of the Division Bench and the grievance of the petitioners before the Supreme Court was that the order of the Division Bench had the effect of undoing what was done between 7th February, 2003 and 13th March, 2003 by the Company and all concerned, acting on an authenticated copy of the order issued as directed by the Learned Company Judge. The Supreme Court granted leave and while disposing of the appeal on 9th May, 2003 found substance in the submission urged before it. Accordingly, the Supreme Court held thus:
"We clarify that the orders dated 13-3-2003 and 30-4-2003 passed by the Division Bench shall have the effect of staying the operation of the order dated 7-2-2003 with effect from 13-3-2003 but shall not have the effect of undoing what was done between 7-2-2003 and 13-3-2003. To this extent the order made by the High Court stands clarified and modified. We request the High Court to take up the appeal for hearing soon after the opening of the court after summer vacation so that the controversy is settled and the rights of all concerned are protected."
In view of the order of the Supreme Court dated 9th May, 2003, it is impossible for this Court to accept the contention of the Appellant that the steps which were taken between 7th February, 2003 and 13th March, 2003 must be disregarded. Besides, even otherwise, there is no substance in the contention of the appellant. The learned Company Judge permitted parties to act on a copy of the order duly authenticated by the Company Registrar/Personal Secretary as a true copy. The procedure for the issuance of authenticated copies of orders passed by the Court has been laid down in the office orders dated 7th February, 1996 and 29th February, 1996 issued by the Prothonotary and Senior Master of this Court on the Original Side. An authenticated copy of the order of the Court is an authentic version of the order of the Court. There is, therefore, due compliance with the provisions of law.
37. The Scheme of Amalgamation has been substantially implemented after the judgment and order of the Learned Company Judge sanctioning the Scheme under Section 391. The effect of the order of sanction is that from 1st December, 2001, the entire business of the transferor company has been vested in the transferee as a going concern. The share capital and reserves of the transferor became those of the transferee and all the assets, properties and liabilities of the transferor stood transferred to the Transferee. All contracts and legal proceedings to which the transferor was a party stood transferred to the transferee. On 10th February, 2003, an authenticated copy of the order dated 7th February, 2003 was filed with the Registrar of Companies whereupon the transferor stood disallowed. The Stock Exchange, Bombay, the National Stock Exchange and the Hyderabad Stock Exchange were informed on 10th February, 2003 about the fixation of the Record date as March 14,2003. The Record date was finalised in consultation with the Stock Exchanges for the determination of the entitlement for the issue of equity shares of the transferee to the shareholders of the transferor-company. The Stock Exchanges fixed 5th March, 2003 as the date for stoppage of trading in the shares of the transferor to enable purchasers of the shares of the transferor who lodged the shares for getting them transferred in their name. The Board of Directors of the transferee approved the statement of accounts of the transferee which consolidated therein the operations of the transferor. A dividend of 75 per cent has been recommended on the equity shares of the transferee which is also payable to the erstwhile shareholders of the transferor to whom shares of the transferee are to be allotted after the Record date. The Court has been informed that though all requisite steps have been taken, only the formal issue of shares to the shareholders of the transferor has remained. This would cause serious prejudice to the 45,000 shareholders of the transferor. The objection to the Scheme of Amalgamation has been preferred by shareholders who between them hold 2872 shares or 0.06 per cent of the paid-up capital, Besides these consequences, products which were earlier manufactured and sold by the transferor are now dealt with by the transferee. The licences required for the manufacture of these products are in the process of being amended to reflect changes consequent on the amalgamation.
38. The Scheme of Amalgamation has received an overwhelming support of 99.94 per cent of the shareholders. The shareholders in their commercial wisdom have thought it fit that the Scheme should be approved. Consistent with the well-settled principle of law, this Court would be slow to interfere with the decision of the shareholders. The jurisdiction of the Court in such matters is not appellate in nature, but is founded on fairness. The Court will not for instance interfere only because the valuation adopted by the valuer may have been improved upon had another method been adopted. The Court is neither a valuer nor an appellate forum to reappreciate the merits of the valuation. What the Court has to ensure is that the determination should not be contrary to law or unfair to the shareholders of the Company which has been merged. InHindustan Lever Employees Union s case (supra), the Supreme Court held that it is not a part of the judicial process in such a matter "to examine entrepreneurial activities to ferret out flaws". The Supreme Court held, in paragraph 4 of the judgment of Mr. Justice R.M. Sahai, that where more than 95 per cent of the shareholders had agreed to the valuation determined by the chartered accountant, the procedural irregularities which were present in it could not vitiate the determination. These principles have been reiterated in the judgment of the Supreme Court in Miheer H. Mafatlal's case (supra). The Supreme Court has laid down that the sanctioning court has to consider whether (i) the requisite statutory procedure has been complied with; (ii) the scheme is backed up by the requisite majority; (iii) the creditors or members had the relevant material to enable the voters to arrive at an informed decision; (iv) the requisite material is placed before the Court by the applicant seeking sanction; (v) the proposed scheme is violative of law and contrary to public policy; and (vi) the majority of creditors or members is acting hona fide and in good faith and is not coercing the minority in order to promote any interest adverse to the latter. Once the requirements of law are fulfilled, the Court has no further jurisdiction to sit in appeal over the commercial wisdom of the creditors or as the case may be the members of the Company. In view of these settled principles, the Learned Company Judge was correct in sanctioning the Scheme of Amalgamation. There is no merit in the objections raised by the Appellant. On the request of the Counsel for the Company, time to hold the Annual General Meeting is extended till 30th September, 2003. Since the delay which has occurred is due to the pendency of this litigation, we have considered it appropriate to grant the extension.
39. The Appeal is dismissed. No order as to costs.
40. At the request of the Appellant who is appearing in person, interim order which was modified by further order of the Supreme Court to continue upto 12th August, 2003.