9911796707
TMI Blog1956 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... is enough to say that the offer was to allot one fully paid share of 1 each in East India Distilleries for every five ordinary shares of Rs. 2 each in Parry and Co. Ltd. Alternatively for each ordinary share of Rs. 2 in Parry and Co. Ltd. the East India Distilleries offered to pay Rs. 5-8-0 in cash. This offer, however, was subject to one proviso and it was that in the case of individual holdings in excess of 1,00,000 ordinary shares the price paid would be only Rs. 4-8-0 per share. The shareholders of Parry and Co. were also given the option of combining either of these two alternatives. The offer of shares was to be open only until the 20th February, 1956, and the offer of cash until the 25th February, 1956. On 22nd October, 1955, the chairman of the board of directors of Parry and Co. Ltd. communicated copies of the letter that had been received from the East India Distilleries to all its ordinary shareholders. A covering letter was also sent recommending the acceptance of the offer. On 28th January, 1956, the chairman of the board of directors of Parry and Co. Ltd. sent to its ordinary shareholders, at the request of the East India Distilleries a copy of the report and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the restriction it imposes is a reasonable one it must be struck down. He remarked that section 153B of the Companies Act does not say that the claim or contract which involves the transfer of the shares of one company to another must be for the public benefit. As it stands, that section confers on a third person the right to acquire the property of the petitioners regardless of their will so long as the prescribed majority of shareholders agree to that course. The rights of the petitioners are placed at the mercy of a majority without regard to the question whether the proposition on which they express their opinion is for the public good or not. Such a provision, he said, is bad. It seems to me that this reasoning of Mr. Balakrishna Aiyar proceeds on a misconception of the origin, nature and legal incidents of the property we call a share. A share is undoubtedly movable property, but it is not movable property in the same way in which a bolt of cloth or bag of wheat is movable property. Such commodities are not brought into existence by any legislative enactment; in fact, no legislative enactment by itself can call them into being. In origin and in nature they are independe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraction of the property of the company and insist on a dividend being paid. A shareholder will not be heard to say that he holds a specific fraction of the property owned by the company, that the company has made so much profit and that he must be paid so much dividend. The rules lay down that no dividend shall exceed the amount recommended by the directors. Rules 60 to 67 of Table A confer on a shareholder the right to vote in person or by proxy at any meeting of the members of the company. Rule 24 et seq. formulate the circumstances under which shares may be forfeited, I do not think that when the holder of a share has forfeited his share under the circumstances provided for in the Act and the rules, it will avail him to say that it involves an infringement of the fundamental right conferred upon him by article 10,(1)( f ) of the Constitution. Again, under various situations the interest which a person acquires in a company by reason of his holding a share or shares is liable to be altered without his consent in a variety of circumstances. The memorandum of association may be altered under section 12 of the Companies Act to enable the company to sell or dispose of the whole o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to register any transfer of shares, not being fully paid shares, to a person of whom they do not approve. It also gives them a right to decline to register any transfer of shares on which the company has a lien. Here are other limitations on the untrammelled power of transfer which is claimed by Mr. Balakrishna Ayyar. Section 2(13) empowers a private company to restrict the right to transfer its shares. Now, what section 153B does is only to impose another limitation on the untrammelled power of transfer. That section merely provides that under certain circumstances the majority of members of the company shall have the right to insist that the minority shall convey their shares to the persons to whom they have conveyed their own shares. The statute which creates the right of transfer also imposes limitations on the exercise of that right, and, one of those limitations is that laid down in the impugned section. It will have been seen that subject to his right to invoke the assistance of the court and certain authorities created by the Act, the property which a person acquires by purchasing a share in a company is liable to be injured in several ways by the decisions and acts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount. That view seems to me to be supported by the authority of New London and Brazilian Bank v. Brocklebank. 21 Ch. D. 302 " See also Halsbury's Laws of England, Third Edition, Volume 6, page 252 : "The articles of association of a private company within the meaning of the Act restrict the right to transfer its shares, and the articles of most companies contain some restrictions on the right of transfer. A restriction on the right to transfer shares is not repugnant to the absolute ownership of the shares but is one of the original incidents of the shares attached to them by the contract contained in the articles." In Allen v. Gold Reefs of West Africa Ltd. [1900] 1 Ch. 656, facts were as follows : "A limited company by one of its articles provided that it should have a lien for all debts and liabilities of any member to the company 'upon all shares (not being fully paid) held by such member.' The com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re were tendu trees and tendu plants in those fields. The Deputy Commissioner, Raigarh, issued a pamphlet under clause 23(1) of the Central Provinces States Land Tenure Order, 1949, directing the ryots to sell tendu leaves plucked from the trees and plants in their fields to a certain firm and to no one else. The petitioner challenged the legality of that order. The court observed : "The argument then is that clause 23(1) thus infringes the fundamental right of a ryot to dispose of property and that it has therefore become void by the operation of article 31 read with article 19(1)( f ) and ( g ) of the Constitution. This argument assumes that the ryot had an unfettered right which was taken away by clause 23(1). The right to collect and appropriate tendu leaves was first conferred on a ryot by the Land Tenure Order. We have, therefore, to ascertain the nature and extent of the right upon consideration of the relevant portions of the Land Tenure Order. These provisions are clauses 22 and 23(1) of the Land Tenure Order. We are clear that reading these clauses together it is apparent that the right intended to be conferred was not an unqualified one but a qualified one. The effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who are in a minority are wiser and more farsighted, but, if they cannot convert the majority to their point of view and the deadlock persists, a way out must be provided and that is what section 153B of the Act seeks to do, If it were to be ruled that the section is invalid and ultra vires it may not be long before the machinery of joint stock enterprise is slowed down till it completely stops. That being so, I would be prepared to say, were it necessary to do so, that the limitation imposed by section 153B of the Act is a reasonable one and also in the public interest. To hold otherwise would be, it seems to me, to reverse the process of economic growth. Nor can I see anything unjust in the provision. A person who subscribes for or buys shares in a company can by making reasonable enquiries know what exactly he is going in for, what rights he would be getting and how they are hedged in. If with full awareness he buys a particular set of rights how can he be heard to complain that it is not larger than what he bargained for ? I must overrule the contention of Mr. Balakrishna Aiyar that section 153B is ultra vires the Constitution. The next question is, are the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the dissenting shareholders, which includes those who do not assent, the shares of the dissentients may be acquired on the original terms by the transferee company. Accordingly I think it is manifest that the reasons for inducing the court to 'order otherwise' are reasons which must be supplied by the dissentients who take the step of making an application to the court, and that the onus is on them of giving a reason why their shares should not be acquired by the transferee company. One conclusion which I draw from that fact is ,that the mere circumstance that the sale or exchange is compulsory is one which ought not to influence the court. It has been called an expropriation, but I do not regard that phrase as being very apt in the circumstances of the case. The other conclusion I draw is this, that again prima facie the court ought to regard the scheme as a fair one inasmuch as it seems to me impossible to suppose that the court, in the absence of very strong grounds, is to be entitled to set up its own view of the fairness of the scheme in opposition to so very large majority of the shareholders who are concerned. Accordingly, without expressing a final opinion on the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be able to arrange for the purchase of these shares in such a manner as to ensure continuity of interest in the management of the Parry group of companies." A copy of this letter was sent to every shareholder of Parry and Co. and the purchase was reported to all the ordinary shareholders of Parry and Co. Vide Exhibit R. 9, dated 28th January, 1956. In paragraph 1 of Exhibit B. 9, it is stated : "We have to advise that we have now arranged (subject to the conditions set out in paragraph 3 below) for Mr. H.I. Wonfor to purchase, or to procure the purchase of, the shares in the East India Distilleries and Sugar Factories Ltd., now held by this company." And, in paragraph 4 of that letter it is explained why this is done : "This sale has been made in order to comply with the request contained in paragraph 4 of the letter of offer from the East India Distilleries and Sugar Factories Ltd., dated 18th October, 1955, that the directors of this company should make arrangements for the purchase of these shares in such a manner as to ensure continuity of interest in the management of the Parry group of companies." Even supposing that there was something improper about this sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature being what it is, such an offer would not have been made by the Coromandel Investment Trust unless it was for their advantage. Normally no doubt a person does not part with property for nothing, but Mr. Nambiar explained why such an offer came to be made. In the letter dated 18th October, 1955, which the East India Distilleries wrote to Parry and Co. it was clearly stated: "The new 'B' shares now being offered in exchange for ordinary shares in your company will rank for any dividend which may be declared on the 'B' shares after the date of issue of the new shares and will rank in all other respects pari passu with the existing 'B' shares. In this respect, we undertake not to declare any further dividend on our 'B' share capital until after the date of issue of the new 'B' shares, referred to in this offer." The share capital of the East India Distilleries consisted of a certain number of "A" shares of the nominal value of 16 sh. each and a certain number of "B" shares of the nominal value of 20 sh. each. With a view to make all the shares uniform the East India Distilleries proposed to capitalise a portion of its reserves amounting to 20,000 and to utilise the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I had occasion to go into a similar question in Applications (Nos. 553 and 554 of 1956. Leela Mahajan v. T. Stanes and Co. Ltd. [1956] 26 Comp. Cas. 366) . There I agreed with the view expressed by Wynn-Parry J. in In re Press Caps Ltd. [1949] Ch. 434; 19 Comp. Cas. 327 : "A valuation is only an expression of opinion but the final test of what is the value of a thing is what it will fetch if sold." Mr. Balakrishna Aiyar next said that if the directors of Parry and Co. had tried to sell the whole block of holdings which they held they would not have got even Rs. 4-8-0. That may be so, but then, it does not show that the price offered to the petitioners is unfair. Mr. Balakrishna Aiyar finally stated that no public purpose is served by pushing through this scheme or contract. His complaint was that if this is allowed to go through, "the East India Distilleries will control Parrys and not vice versa, whereas up to now Parrys have been the managing agents for East India Distilleries. The advantages of the scheme are all for the East India Distilleries and what it gains must naturally be lost to the second respondent." On this argument it is sufficient to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
