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TMI Blog1943 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... in that behalf by the transferee company been approved by the holders of not less than three-fourths in value of the shares affected, the transferee company may, at any time within two months after the expiration of the said four months, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares, and where such a notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on with the notice was given the Court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which under the scheme or contract the shares of the approving shareholders are to be transferred to the transferee company." What the section does is to provide that where there is a contract or scheme for the acquisition by one company of shares in another company, which has been accepted by the statutory majority of shareholders in the latter company, in India three-fourths and in England, under a corresponding section, nine-tenths, the transferee company can acquire compulsorily the shares of the minority, unless the Court orders otherwise. But it is to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of criticisms advanced by the dissentients on the terms of the offer, and based on matters which were before the majority. As the Legislature has not done so, the Court ought not to limit the class of cases in which the Court should take action under section 153B, but one is bound to consider in what type of case the Court would be justified in not accepting the opinion of the majority of shareholders. I should say that instances of such cases would be where there has been misrepresentation which may have influenced the view of the majority of shareholders, or where there is the possibility of some unfair dealing, for example, the directors of the transferor company having some ulterior motive in advising the shareholders to accept the offer; or the majority of shareholders having some interest conflicting with that of the minority, for instance, being interested in the transferee company, and, therefore, willing to accept a less value for their shares than they would have accepted if they had had no such interest. In cases of that sort, the Court would certainly look critically at the opinion of the majority of shareholders; but nothing of that kind is suggested in this case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, a suggestion was made that the Government of India, acting through a company called the Government Telephones Boards Ltd (which is the transferee company) should acquire the shares of the Bombay Telephone Company, and with that object a reconciliation statement was prepared on 1st April 1941 adjusting the figures in the report of the experts down to April 1941 and making them applicable to a purchase of shares instead of assets. On 1st March 1941, an offer was made by the Government Telephones Board Ltd., to acquire the shares of the Bombay Telephone Co., at the figure of Rs. 89-15-0 per share. A copy of that offer was sent to the shareholders by the managing director of the company with a covering letter on 16th April and subsequently meeting of the shareholders was held at which a statement was made by the managing director which had previously been circulated. At that meeting, it was open to the shareholders to ask questions as to the manner in which the figure of Rs. 89-15-0 had been arrived at. Apparently the present petitioners did not ask any question. The offer was subsequently accepted by over 90 per cent. of the shareholders in the Bombay Telephone Company. On 10t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity given to them, and at the hearing they abandoned all the grounds on which they had relied in the petition, except one on which the learned Judge held against them. Bat they took a variety of other grounds which had been suggested to them by a perusal of this confidential report. The abandonment of most of the grounds on which the petition was based does not inspire confidence in the reasonableness of the petitioners in standing out against the majority. Chagla, J., considered that what he had got to do was to consider whether the report of the experts was based on correct principles. Technically that was not the point at all. The report on which the transferee company acted in making the offer was irrelevant. What was really relevant were the reasons, which induced the majority of share-holders to accept the offer, and on which they did accept the offer. But that point is not perhaps more than of technical interest, because the Bombay Telephone Co., Ltd., although it had not actually seen the report of the experts, were apparently informed of the figure at which the experts had valued the assets as in March 1940. The Telephone Company had itself by its own officers made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here had been evidence of that nature, it would have affected our decision, it is not necessary to consider. The learned Judge summed up at the end of his judgment the position in the following words; "The petitioners have clearly established that the board has adopted A wrong basis in valuing assets by taking the costs of reproduction of March 1940 when it should have taken the costs of March 1941, Even with regard to the costs of reproduction of March 1940, it has acted on a wrong basis with regard to land and properties and underground cables. Further it has not valued certain absolute instruments at all although they have become its property. These facts are offset by the advantages that accrued to the shareholders by the offer made by the board. Firstly, they are receiving net profits for the years 1941 and 1942 without any deduction for discount; secondly, they are being saved costs of inventory, valuation and liquidation; and, thirdly, they are obtaining certain advantages by reason of the fact that they are getting the benefit of the provisions of section 25(4) of the Income-tax Act, 1922, and of the rates of income-tax and super-tax in force in August 1939. I am not in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s quite possible that the valuation may be in certain respects open to criticism, but all the grounds of criticism were before the shareholders, when the majority accepted the offer, and I can see no reason why we should conclude that the majority was wrong. On those grounds the appeal must be allowed, and the petition dismissed. Cross-objections dismissed. Kania, J.--The question for consideration in this appeal relates to the construction of section 153B of the Indian Companies Act which is recited in extenso in the judgment of the learned Chief Justice. The terms of that section, in my opinion, clearly show that unless the dissenting shareholders obtained an order preventing the transferee company from getting their shares, as a matter of right, the transferee company would be entitled and bound to receive the shares at the price which the company had offered to the requisite majority of the shareholders. The wording of the section clearly shows that if neither side led evidence after a petition was filed, the petition must fail and the petitioners will not get any relief. It is therefore clear that the burden of proof for obtaining the order is wholly on the dissenting shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the matter proceeded seriously before Chagla, J., except the valuation in respect of the magneto plant, all other grounds put forward in the petition were abandoned or not pressed. This is material in view of what their Lordships of the Privy Council have stated in Hem Chand v. Peary Lal [1942] LR 69 IA 137. Their Lordships there observed that it is an irregular procedure to allow parties to adduce evidence on points not raised in the pleadings or issues without amending the pleadings and raising the necessary issues. The importance of those observations will be apparent when one proceeds to deal with the points urged in the arguments before us and which were advanced before Chagla, J., also. In this case no ground of fraud or misrepresentation is urged. After obtaining an order for discovery from Chagla, J., the petitioners came to know of the different valuation reports made by the purchasing company and the Bombay Telephone Co. The petitioners had not made any inquiries before filing the petition in respect of the valuation reports or the facts on which the chairman of the company strongly recommended the shareholders to accept the offer. If that had been done, what is now ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, which can only be made on the ground that the offer was not fair and reasonable. As regards the valuations made by the purchasing company and the Telephone Company, it was agreed that it was not possible to make an inventory and value the assets on those lines. It was considered reasonable to take the books of the company and ascertain the value of the assets from the books. It appears also that there were meetings between the representatives of the company and the purchasing company to fix the lines on which valuations should be made. In the petition it is not suggested that there was anything wrong with the agreed lines on which the valuation proceeded. In the course of argument before the lower court or here it was not contended that in reaching those agreements there was any improper motive or conduct on the part of the Telephone Company or the purchasing company. The agreed lines must therefore be considered fair and reasonable to, commence the valuation. It is only in respect of the valuation made on those agreed lines that the discussion should be limited. In the course of his argument Mr. Seervai has not challenged the agreed lines of valuation. The principal grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had discharged the burden of proof. In my opinion, that is not correct. The petitioners have started to prove that the offer made was not fair and reasonable. That conclusion could be arrived at, not merely by proving the adoption of a wrong basis in respect of a particular item, but by a further proof that by adopting that wrong basis in respect of that particular item the valuation was materially low so as to affect the reasonableness of the offer. In valuing concerns of this type, where the assets are admittedly worth over two crores of Rupees, a difference in value of a few thousands or even a lack or two on one item can hardly justify the Court in interfering, because another expert might urge that on another item there was an over-valuation. I am not concerned here with the question of shifting of the burden of proof in matters of this kind when petitioners have proved that certain items in fact were undervalued, because in this case I do not find that the petitioners have established by evidence that in respect of any particular item there was gross undervaluation. Unless that is established, I do not see how the purchasing company can be called upon to enter on their defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to justify the Court's interference in favour of the petitioners. That being the test as the result of a reading of section 153B, the petition must fail. The learned Judge, as stated towards the close of his judgment, himself felt difficulty in coming to a definite conclusion and has summarised the various grounds which were of advantage to the shareholders against what he thought were the disadvantages. Even after a sympathetic Consideration of the contentions of the petitioners the learned Judge Could not come to a conclusion that the balance was definitely in favour of the petitioners. Unless such a conclusion was clearly and unequivocally reached, I do not think the Court's interference would be justified. The result is that the petition fails and the appeal must be allowed. Pee Curiam.--With regard to costs, we see no reason, generally speaking, why in a petition under section 15 3B costs should not follow the event in the normal course. But we take into consideration the fact that this is the first case under the section, and that in the only reported case in Re Hoare & Co. Ltd. [1933] 110 LT 374 petitioners' costs were allowed. In this case the petitioners undoubtedl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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