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TMI Blog1971 (4) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... edabad on 25th January, 1971, for sanctioning of the same scheme of amalgamation. The said petition is pending. The respondent-company has appeared before me and supported this petition. It also states that it submits to the orders of the court. Some facts pertaining to the two companies may be briefly stated. The petitioner-company was incorporated on 5th November, 1947, in the then Baroda State under the law then applicable to that State. It is now governed by the Companies Act. Its authorised capital is Rs. 25 lakhs, divided into 25,000 shares of Rs. 100 each. Its issued and subscribed capital is Rs. 10,05,000 divided into 10,050 shares of Rs. 100 each. It is a small company and its assets are of the value of about Rs. 15 lakhs. When the company was formed its main objects were two, firstly, to carry on the business of an investment company and to invest in and acquire and hold shares and securities of companies and bodies carrying on business in India or abroad and, secondly, to take part in the formation, management, supervision or control of the business or operations of any company as managers, etc. Its original name was M. G. Investment Corporation Ltd. By special resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary to the Government of India, Department of Company Law Affairs, has filed an affidavit dated 7th April, 1971 In this affidavit he has contended that the scheme of amalgamation required the approval of the Central Government under section 23 of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the Monopolies Act"), and as such approval has not been obtained, the petition is not maintainable. The Central Government contend that the respondent-company is an "undertaking" within the meaning of section 2( v ) of the Monopolies Act and is in fact registered as such under section 26 of the said Act. It is also contended that the petitioner-company and the transferee-company are controlled by Mafatlal Gagalbhai Co. Pvt. Ltd. The Central Government also contend that the petitioner-company is also an "undertaking" within the meaning of section 2( v ) of the Monopolies Act. It is also contended that even after 1st January, 1966, the petitioner-company has been carrying on business as an investment-company and is engaged in the provision of service available to potential users. The Central Government also contend that the proportion of 5 shares of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application at the outset. I might perhaps mention that a similar application had been made to me on behalf of the Central Government in Company Petitions Nos. 159 and 161 of 1970 in In re Tata Engineering and the Central Bank of India Ltd. I had rejected the said application for the same reasons. The matter went in appeal to a Division Bench of this court in Appeals Nos. 33 and 34 of 1971. Union of India v. Tata Eng. Locomotive Co. Ltd. [1972] 42 Comp. Cas. 72 (Bom.). These appeals were disposed of by a common judgment dated 17th March, 1971, by Mody and S.K. Desai JJ. In the said appeal a grievance was made against the order rejecting the application for joinder. As the respondents in those appeals waived their objections to the maintainability of the appeals, the point of joinder was not decided but was left open. It has been conceded before me by the respondent-company that it is an "undertaking" within the meaning of section 2( v ) of the Monopolies Act, that Part A of Chapter III applies to it under section 20 of the said Act. The petitioner-company, however, contends that it is not engaged in the production, supply, distribution or control of goods of any descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required under section 23(1) of the Monopolies Act only to amalgamation of two undertakings to one (sic) of which Part A of Chapter III applies by virtue of section 20 of the Monopolies Act. He stated that the respondent-company was an "undertaking" and was further an "undertaking" to which, by virtue of section 20, Part A of Chapter III of the Monopolies Act, applied. But he contended that the petitioner-company was not an "undertaking" at all because after 1st January, 1966, it is not engaged in the provision of any service of any description which is made available to potential users. I may perhaps mention that it is not the contention of the Central Government that the petitioner-company is engaged in the production, supply, distribution or control of any goods of any description. Mr. Sorabjee contended that the petitioner company not being an "undertaking" at all, its amalgamation with an "undertaking" did not require the approval of the Central Government under section 23(1). I shall first deal with the contention of the petitioner-company that from 1st January, 1966, it is not engaged in any business at all including the business of an investment company and then decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity shares of Rs. 100 each in National Organic Chemicals Industries Ltd. of the value of Rs. 2,50,000 and that it had a sum of Rs. 20,000 in fixed deposits and also that, during the previous year, it has advanced loans to Sassoon Spinning and Manufacturing Co. Ltd. which varied at different times of the year from Rs. 3,25,730 to Rs. 5,37,166 and that at the end of the preceding year, the loan amounted to a sum of Rs. 2,03,494. The balance-sheet also shows that the petitioner-company had a fixed deposit of Rs. 1,25,000 with "a company" whose name is not mentioned. It will be seen from this that even prior to, 31st December, 1965, the petitioner-company had investments in shares, fixed deposits, loans and deposits with "a company". This, in my opinion, shows that even prior to 31st December, 1965, the petitioner-company was carrying on business of an investment company. It is contended by Mr. Sorabjee that the loans to Sassoon Spinning and Manufacturing Co. Ltd., of which the petitioner-company was managing agent, holding of shares in one company and fixed deposits with banks and other companies woufd not amount to carrying on business as an investment company. I am afraid, I am unab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide on this point, because this acquisition is not in isolation and we have to see the cumulative effect of the various transactions of the petitioner-company. The 21st annual report for the year 1968-69 shows that by an order of this court dated 19th November, 1968, one more company, Messrs. Navinchandra Purshottamdas Co. Ltd., had been amalgamated with the petitioner-company with effect from 1st April, 1968. This raised the investment of the petitioner-company in National Organic Chemical Industries Ltd. to 9,000 shares of Rs. 9 lakhs. The investment in Tak Machinery Ltd., Hind Auto Industries Ltd. and Polyolefins Industries Ltd. continued. Fixed deposits with banks rose to Rs. 3,75,000. The income of the petitioner-company in this year was exclusively from its investments in shares and fixed deposits. Hind Auto Industries Ltd. in which the petitioner-company held 5,000 shares had during this year amalgamated with the Automobile Products of India Ltd., with effect from 1st April, 1968, and the petitioner-company had elected to take 3,000 equity shares in the Automobile Products-of India Ltd. although they were not bound to do so. May be they thought it profitable to do so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special resolution was passed at the said general meeting, the petitioner company filed Company Petition No. 69 of 1968, for approving the said alteration. In the petition the petitioner company repeated the statement that "the company at present carried on mainly the business of financiers". These admissions amount to the fifth factor in determining whether the petitioner company was or was not engaged in carrying on business. In my opinion, the cumulative effect of all the five factors indicated above is that prior to 31st December, 1965, the petitioner company was carrying on business as an investment company along with its business of managing agency and, after that date, it continued to carry on business and in any event carried on the business of an investment company and I so hold. Now, we come to the question as to whether the business of an investment company is or is not "service" within the meaning of section 2( r ) of the Monopolies Act. The literal meaning of the word "service" is work done to meet some general need ; an act of helpful activity; the supplying of utilities as water, electricity, gas required by the public ; supply or repair service ; supplying of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds in the shares and securities of other companies for the purpose of capital appreciation, income, preservation or safety of capital or for a combination of such purposes. An investment company sells its own shares to the public and then reinvests the proceeds in a portfolio of securities, which it manages on a continuous and full-time basis. An investment company normally invests for yield or for appreciation. American Jurisprudence, 2nd edition (1969), volume 45, foot-note 2, at page 898, states : "The term 'investment company' is a word of art and refers to companies whose business it is to make profit by investing in other companies...The shareholder has two inducements to invest in investment securities: (1) thereby he can obtain a diversification of investment not otherwise available; and (2) he may expect to obtain a more expert management of his savings than he could otherwise command." Unit trusts in England, like the Unit Trust of India, offer to the public an investment practically indistinguishable from shares in a limited company. In the U.S.A. there are a number of mutual funds which instead of issuing units issue their own shares. This is possible because i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquires the shares, the services are available to him. According to Mr. Bhabha, the remuneration for the services is the cost of management of an investment company. I am not at all impressed by this argument. The service rendered by the board of directors or by the managerial staff is to the company which is a distinct person in law. The remuneration is charged to the company. It makes no difference that the dividend payable to shareholders is declared after providing for the cost of management. If an expert body of directors and managers render service to the shareholders in an investment company, so does the expert body of directors and managers render service to the shareholders in every company, even if it be a manufacturing company. It is benefiting the shareholders by its specialised knowledge of management and business acumen. That, in my opinion, is not a service to the shareholders. The shareholder may be induced to buy shares or make investment in a company because of its good management, but there is no direct service rendered to him, much less for remuneration. The shareholder feels that by buying shares he is buying an income. He does not feel that he is engaging in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineer Co. There is no dispute about the fact that these are Teputable firms of chartered accountants of long standing. Their report is exhibit B to the petition. They say that they have examined and audited the statement of accounts and annual reports of the two companies and have made a detailed study of working and the financial position of these companies. They have considered the book value, the net intrinsic value and the market value of the shares of the two companies. They have set out the exact values in their report and have come to the conclusion that the ratio of 5 : 2 is fair and equitable. Maugham J. has said in In re Hoare Co. Ltd. [1933] 150 LT 374: "One conclusion which I draw is that the mere circumstance that the sale or exchange is compulsory is one which ought not to influence the court. It has been 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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