1994 (10) TMI 211 - SC - Companies Law

Amalgamation of companies, Temporary injunction - Power to grant of, Merger, amalgamation and takeover, Public interest - Meaning of

Issues Involved:
1. Violation of Section 393(1)(a) of the Companies Act.
2. Valuation of share exchange ratio.
3. Ignoring the effect of the Monopolies and Restrictive Trade Practices Act (MRTP Act).
4. Protection of employees' interests.
5. Preferential allotment of shares to Unilever at less than market price.
6. Alleged mala fides due to a quid pro quo between Unilever and Tata Sons Ltd.
7. Public interest considerations.

Issue-wise Detailed Analysis:

1. Violation of Section 393(1)(a) of the Companies Act:
The appellants claimed that the explanatory statement did not make the required disclosures under Section 393(1)(a) of the Act. The High Court found no violation of Section 391(1)(a) and held that the disclosures in the explanatory statement were adequate, as it was not established that the statement did not disclose the correct financial position of TOMCO. The Supreme Court concurred, noting that the overwhelming majority of shareholders approved the scheme and that the explanatory statement was settled and approved by the Company Registrar.

2. Valuation of Share Exchange Ratio:
The appellants argued that the share exchange ratio was grossly loaded in favor of HLL. The High Court found that the valuation was conducted by a well-reputed valuer using a combination of three well-known methods: net worth, market value, and earning methods. The Supreme Court upheld this finding, emphasizing that the court's role is to ensure the valuation is fair and not to ascertain mathematical accuracy. The court noted that the valuation was checked and approved by two independent bodies and found to be free from any infirmity.

3. Ignoring the Effect of the Monopolies and Restrictive Trade Practices Act (MRTP Act):
The appellants contended that the merger should not be approved until the MRTP Commission decided on the complaint. The High Court held that the jurisdiction of the Company Court under the Companies Act and the MRTP Commission under the MRTP Act were different. The Supreme Court agreed, noting that the requirement of prior approval from the Central Government for mergers under the MRTP Act had been removed by legislative amendments.

4. Protection of Employees' Interests:
The appellants argued that the interests of the employees were not adequately protected. The High Court found that the service conditions of TOMCO employees were protected under the scheme. The Supreme Court upheld this finding, noting that the scheme provided for the continuous service of TOMCO employees and that any disputes regarding retrenchment could be raised in the labor court.

5. Preferential Allotment of Shares to Unilever at Less than Market Price:
The appellants claimed that the preferential allotment of shares to Unilever at less than market value was not in public interest. The High Court held that HLL was already a holder of 51% shares, and the allotment was neither illegal nor violative of public interest. The Supreme Court noted that the price of Rs. 105 per share was determined based on norms evolved by national-level chambers of commerce and approved by financial institutions. The court also noted that the matter of share price was pending adjudication before the Bombay High Court.

6. Alleged Mala Fides Due to a Quid Pro Quo Between Unilever and Tata Sons Ltd.:
The appellants alleged mala fides due to a quid pro quo arrangement between Unilever and Tata Sons Ltd. The High Court found no merit in this claim, noting that the valuation was determined by authorized valuers. The Supreme Court upheld this finding, emphasizing that the determination of valuation was done by reputed valuers and that the amalgamation could not be faulted for this reason.

7. Public Interest Considerations:
The appellants argued that the merger was contrary to public interest. The High Court found no violation of public interest, noting that the merger was approved by a significant majority of shareholders. The Supreme Court emphasized that the court's obligation is to ensure that the merger is not contrary to public interest. The court noted that the liberalized economic policy aimed to promote economic growth and that the merger was in line with this objective. The court also noted that the MRTP Commission could still examine the working of the merged company if it was found to be prejudicial to public interest.

Conclusion:
The Supreme Court dismissed the appeals and upheld the High Court's judgment, finding no violation of statutory provisions, procedural irregularities, or public interest in the merger of TOMCO and HLL. The court emphasized the importance of fairness in the valuation process and the protection of employees' interests while recognizing the broader economic objectives of the liberalized policy.

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