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TMI Blog1958 (5) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... rman Private Limited was registered with a paid up capital of Rs. 50,000 only which was subscribed and paid up by two shareholders, Shri I. N. Patel and Shri Suraj Bhan Kontu, in the sum of Rs. 25,000 each. On 7th of November, 1956, i.e., next day after its formation, Swadesh Nirman Private Limited offered a scheme under section 395 of the Companies Act, 1956, for compulsory acquisition of all the shares of the Dalmia Dadri Cement Limited. This concern (respondent No. 1), the transferor company, sent the scheme on 12th of November, 1956, with a forwarHing letter to the petitioners and other shareholders, for their consideration. According to this scheme, Swadesh Nirman Private Limited, respondent No. 2, the transferee company, made an offer under section 395 of the Act, involving transfer to it of shares in the transferor company subject to certain terms and conditions contained in the scheme, reference to which is not material for purposes of this decision. The shareholders were given a choice of certain alternative options and were asked to intimate their approval of the scheme within four months of the date of the offer. In case this scheme was approved by holders of not less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiration of four months, the transferee company sent notices to all the dissenting shareholders including the petitioners by post under certificate of posting on their registered addresses. On 9th of April, 1957, a letter was sent by Shri Benarsi Das, one of the petitioners, to the transferee company making certain inquiries and stating that he was not willing to sell or transfer his shares to that company. On 15th of April, 1957, Swadesh Nirman Private Limited sent a registered letter to Shri Benarsi Das, petitioner, pointing out that the scheme had been accepted by the holders of more than 99 per cent. of the paid up capital of the transferor company, and that a notice dated 14th of March, 1957, intimating their desire to acquire the shares of Shri Benarsi Das under section 395(1) of the Companies Act, 1956, had been already sent to him. He was also told that the transferee company would now proceed under section 395(3) of the Act as regards the dissenting shareholders. It was alleged by the petitioners that no notice in fact was given to Shri Benarsi Das on 14th of March, 1957. It was also stated in the petition that neither in fact nor in law was there any scheme or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such a transfer and acquisition was void and ineffectual against the rights of the petitioners as shareholders of respondent No. 1 company. The respondents in that petition raised two preliminary objections contending that the petition was barred by time, and the petitioners had no locus standi to present the petition. After evidence was recorded on both sides, the counsel for the petitioners desired to withdraw his petition under section 395 and by my order dated 21st of November, 1957, that petition was dismissed as withdrawn. On behalf of both respondents in the present case, apart from objections on the merits, certain preliminary objections were taken as to the maintainability of the petition. It was contended that the names of the petitioners had been removed for sufficient cause as a result of the scheme under section 395 of the Companies Act. As a result of withdrawal of the former petition (CO. 34 of 1957) the scheme had become final and binding on the petitioners and cannot be challenged in proceedings under section 155 of the Act. It was also pleaded that it was not a fit case for summary trial under section 155. The following preliminary issues were framed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving of the notice. Unless the court orders otherwise, the transferee company is not only entitled but is also bound to acquire the shares of the dissenting shareholders on the terms accepted by the approving shareholders. Where not less than nine-tenths of the shareholders in the transferor company approve a scheme, prima facie, the offer is taken by the courts to be a fair one and the courts do not order otherwise. The reasons inducing the court to "order otherwise" have to be furnished by the dissenting shareholders and the onus is on them to satisfy the court that their shares should not be acquired by the transferee company. It has to be affirmatively established by them that notwithstanding the views of a very large majority of the shareholders in this case more than 99 per cent. the scheme was unfair. The principle underlying section 395 is that where a company obtains 90 per cent. of the shares or class of shares under a scheme of arrangement, it can compel the dissentient minority to part with its shares. Conversely the dissenting shareholders are also entitled to compel the company to acquire their shares as well and on the same terms. Section 395 of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to adduce reasons for thinking that the majority of shareholders were wrong. But if one accepts the principle, one must give some intelligent meaning to it. If the court ought in the first instance to assume that the majority of shareholders understand their own business, and were right in accepting the offer, it follows that the court should not take a different view merely because 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 confl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of practical and cautious men. The removal of names of shareholders on compulsory transfer of their shares in accordance with the provisions of section 395 cannot be said to be not for a sufficient cause within the contemplation of section 155 of the Act. The expression "rectification of the register" used in section 155 is significant and purposeful. "Rectification" implies the correctness of an error or removal of defects or imperfections. It implies prior existence of error, mistake or defect, which after rectification is made right, and corrected by removal of the flaws. The register kept by the company has to be shown to be wrong or defective. When the register is amended by operation of law and in accordance with the directions of the court, it cannot be said that it was defective and no question of "rectification" of the register arises. In Ward and Henry's case: In re London, Hamburgh and Continental Exchange Bank [1867] 2 Ch. App. 431, Lord Cairns L.J. at page 441 observed: "In the next place, the act to be done under the powers of that section is the 'rectification' of the register, a term which of itself implies that the register, either in what is, or what is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance has been placed upon a stray sentence occurring in the statement of Shri Vishnu Kumar, Secretary of Dalmia Dadri Cement Limited, in which he said: "The shares of the dissenting shareholders were transferred to Swadesh Nirman Private Limited. No other shares of persons who approved of the scheme were transferred in favour of Swadesh Nirman Private Limited." In reply, Mr. Tuli, on behalf of Swadesh Nirman Private Limited, argued that if the allegations to the above effect had been made in the petition, his clients would have placed on the record the duly signed blank transfer deeds by the approving shareholders. He drew my attention to the statement of Shri Vishnu Kumar in cross-examination, that on all the shares of. the approving shareholders, Swadesh Nirman Private Limited had received the dividend declared on 5th of November, 1957. These shareholders had addressed a mandate to Messrs. Dalmia Dadri Cement Limited, authorising them to pay the dividend on the shares registered in the name of the approving shareholders to Messrs. Swadesh Nirman Private Limited, as the latter were the beneficiaries of the said shares. In view of the above, it is not possible for the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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