1956 (4) TMI 23 - HC - Companies Law

Shares of shareholders dissenting from scheme or contract approved by majority Power and duty to acquire

Issues Involved:
1. Entitlement of applicants to an order restraining the transferee company from exercising their right under section 153B of the Indian Companies Act to acquire the shares of dissenting shareholders.
2. Fairness and reasonableness of the offer made by the transferee company to the shareholders of the transferor company.

Issue-wise Detailed Analysis:

1. Entitlement of Applicants to an Order Restraining the Transferee Company:
The core issue was whether the applicants could restrain the transferee company, T. Stanes and Company Ltd., from exercising its right under section 153B of the Indian Companies Act to acquire the shares of dissenting shareholders. According to section 153B(1), when a scheme or contract involving the transfer of shares is approved by holders of not less than three-fourths in value of the shares, the transferee company may, within two months after the expiration of four months, give notice to any dissenting shareholder that it desires to acquire his shares. The court's discretion is limited to either dismissing the application, thereby allowing the transferee company to acquire the shares as per the original terms, or allowing the application and preventing the acquisition.

2. Fairness and Reasonableness of the Offer:
The applicants argued that the offer made by T. Stanes and Company Ltd. was not fair and reasonable. The offer included an exchange of one share in T. Stanes and Co. Ltd. for every share in the United Coffee Supply Co. Ltd. (U.C.S.) or an alternative cash payment of Rs. 21-8-0 per share. The applicants contended that the shares were worth Rs. 39 per share based on the balance sheet valuation and demanded payment at this rate.

The court considered several factors to determine the fairness of the offer:
- Majority Approval: Over 95% of the shareholders, excluding the 51% held by T. Stanes and Co. Ltd., approved the offer, indicating a strong majority support.
- No Allegation of Fraud or Misrepresentation: There was no evidence of fraud or misrepresentation in the scheme presented to the shareholders. The offer and its terms were clearly stated in Exhibit R. 1.
- Market Value and Balance Sheet Valuation: The offer provided a choice between shares valued at Rs. 39 each (based on balance sheet valuation) and a cash payment above the market price quoted on the stock exchange.
- No Unfair or Oppressive Conduct: The court found no evidence of unfair or oppressive conduct by the majority shareholders or any material fact being withheld.

The court referenced several precedents, including Government Telephones Board v. Hormusji and In re Hoare and Co. Ltd., which emphasized that the burden of proof lies on the dissenting shareholders to show that the majority's decision was wrong or the offer was unfair. The court concluded that the applicants failed to provide sufficient reasons to prove the offer was unfair or unreasonable.

Conclusion:
The court dismissed the applications, stating that the offer made by T. Stanes and Co. Ltd. was neither unfair nor unconscionable. The applicants were not entitled to an order restraining the transferee company from acquiring their shares under section 153B of the Indian Companies Act. The applications were dismissed with costs, and an advocate's fee of Rs. 75 was awarded.

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