2003 (2) TMI 337 - HC - Companies Law

Summary

Issues Involved:
1. Invocation of Section 395 of the Companies Act, 1956.
2. Validity of the notice for compulsory acquisition of shares.
3. Compliance with procedural requirements under Section 395.
4. Fair valuation of shares.
5. Constitutional validity of Section 395.

Detailed Analysis:

1. Invocation of Section 395 of the Companies Act, 1956:
The primary issue was whether Section 395 of the Companies Act, 1956 could be invoked by the respondents to compulsorily acquire the petitioner's shares. The court examined the factual matrix and concluded that the invocation of Section 395 was not legitimate. The court emphasized that the majority (90%) required under Section 395 must be independent and distinct from the offeror. In this case, the Tata Group, which held a significant majority, was essentially the same entity as the offeror, Tata Televentures (Holdings) Limited, making the invocation of Section 395 inappropriate.

2. Validity of the Notice for Compulsory Acquisition of Shares:
The court scrutinized the notice dated 26-4-2001 and concluded that it did not comply with the statutory requirements. The notice was not sent by recorded/registered post, which would have ensured its receipt by the petitioner. The petitioner specifically denied receipt of this communication. The court held that in cases of compulsory acquisition, every action must be imbued with fair play, and the failure to ensure receipt of the notice invalidated the process.

3. Compliance with Procedural Requirements under Section 395:
The court found that the procedural requirements under Section 395, particularly the transmission of information as mandated by sub-section (4A), were not met. The respondents failed to produce any circular containing all the necessary information. Additionally, the court noted that the offer was open for acceptance for only one month, whereas Section 395 envisages a four-month period for acceptance. This premature closure of the offer period was another ground for invalidating the notice.

4. Fair Valuation of Shares:
Although the court did not proceed to determine the fair valuation of the shares due to the preliminary issue being decided in favor of the petitioner, it mentioned that the price of Rs. 10 per share offered by the respondents was contested. The court noted that the valuation should be reasonably close to the actual value of the shares, and any scheme to acquire shares at an unfair price would not receive the court's approval.

5. Constitutional Validity of Section 395:
The court upheld the constitutional validity of Section 395, referencing previous judgments that had withstood constitutional challenges. However, it emphasized that the section must be applied in a manner that ensures fair play and does not violate Article 19 of the Constitution. The court concluded that the misuse of Section 395 in this case would render it unconstitutional.

Conclusion:
The court ruled in favor of the petitioner, holding that the provisions of Section 395 of the Companies Act, 1956 did not apply to the facts of this case and that the respondents' reliance on it was contrary to law. The petition was allowed with costs of Rs. 25,000 payable to the petitioner by respondent No. 1. All pending applications were disposed of accordingly.