1956 (10) TMI 24 - HC - Companies Law

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

Summary

Issues Involved:
1. Constitutionality of Section 153B of the Indian Companies Act, 1913.
2. Bona fides of the transaction for the acquisition of shares.
3. Fairness of the offered price for the shares.
4. Public purpose of the transaction.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 153B of the Indian Companies Act, 1913:

The petitioners argued that Section 153B of the Indian Companies Act, 1913, which allows a majority of shareholders to compel a minority to sell their shares, is ultra vires the Constitution, specifically infringing Article 19(1)(f), which guarantees the right to acquire, hold, and dispose of property. They contended that unless it can be shown that Section 153B is in the public interest and imposes reasonable restrictions, it must be struck down. The court rejected this argument, explaining that a share is a statutory creation, and the rights and limitations attached to it are defined by the statute. The court emphasized that a person cannot claim a statutory right and simultaneously insist on exercising it free from statutory limitations. The court cited several precedents, including Borland's Trustee's case, which held that restrictions on the transfer of shares are not repugnant to absolute ownership but are inherent incidents of the shares.

2. Bona fides of the transaction for the acquisition of shares:

The petitioners contended that the transaction was not bona fide, alleging that the directors of Parry and Co. Ltd. obtained a large benefit by repatriating Rs. 37,50,000 to England. The court found no illegality in this operation as the money was lawfully obtained from the sale of shares and was not a secret profit. The court also addressed the concern about the directors purchasing shares in East India Distilleries, explaining that this was done transparently and in accordance with the scheme outlined in the letter from East India Distilleries dated 18th October 1955.

3. Fairness of the offered price for the shares:

The petitioners argued that the offered price of Rs. 5-8-0 per share did not account for the goodwill and other intangible assets of Parry and Co. Ltd. The court noted that the market price of the shares at the relevant time was Rs. 4-8-0, and the offer from East India Distilleries was one rupee above the market rate. The court cited Wynn-Parry J.'s view that the final test of the value of a thing is what it will fetch if sold, and concluded that the price offered was fair.

4. Public purpose of the transaction:

The petitioners argued that no public purpose was served by the transaction, claiming that it benefited East India Distilleries at the expense of Parry and Co. Ltd. The court clarified that Section 153B does not require the transaction to be in the public interest; it is sufficient if the prescribed majority of shareholders agree. The court emphasized that it is for the shareholders to decide what is beneficial for them, not the court.

Conclusion:

The court dismissed the application, holding that Section 153B of the Indian Companies Act, 1913, is constitutional and does not infringe Article 19(1)(f) of the Constitution. The court found no evidence of bad faith or unfairness in the transaction and ruled that the offered price was fair. The court also stated that the transaction did not need to serve a public purpose as long as the majority of shareholders agreed. The application was dismissed with costs, and an advocate's fee of Rs. 350 was awarded.