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TMI Blog1937 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... nce share-holders were entitled to a fixed cumulative preferential dividend at the rate of 7 per cent per annum of the capital for the time being paid up thereon free of income-tax and the right in a winding up to payment of capital after payment to the holders of the first preferential shares. The holders of ordinary shares, under clause VII (b) of the memorandum of association of the company, were entitled to a non-cumulative dividend at the rate of 8 per cent. per annum on the capital for the time being paid up thereon. The deferred share-holders under clause VII (c) of the memorandum of association of the company, were entitled to a non-cumulative dividend at the rate of 25 per cent. per annum on the capital for the time being paid up thereon. Then it was provided by clause VII (e) of the memorandum of association that any further profits which it might be determined to be distributed by way of dividends should be divided between the holders of ordinary and deferred shares,-fifty per cent. to the former and fifty per cent to the latter. By. clause VII (g) of the memorandum of association it was provided that, subject to the rights of the holders of 1st preference shares and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the members companies. This led to considerable co-operation as regards the manufacture and sale of cement throughout the country resulting in increased consumption. It was, however, found that even this arrangement was capable of being improved upon. There were several difficulties which required serious consideration of those who were interested in the cement industry in this country. Not only the demand for cement increased in 1930, but the rated capacity, which was taken as the basis for alloting quotas to the members of the Cement Marketing Co., was found to be inadequate, and it was felt that the industry was capable of expansion and it was possible to have new factories erected in different places where there was greater demand than the companies were able to cope with, so as to reduce the cost of transport and in the result to reduce the selling price of the commodity. It was considered desirable that there should be a merger of all these companies so as to consolidate the whole business of the various companies manufacturing cement, not only as regards the manufacture and selling prices, but also in regard to the erection of more factories wherever it was considered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was one of the companies which had refused to join, at the nominal fully paid price of the shares. The result of the scheme was practically to bring the working of that company under the control of the members of the Associated Cement Companies Ltd. There were various other terms of the proposed agreement, to which it is not necessary to refer. The question, then which arose before the directors of the petitioning company was, whether they should join the merger ; and as they say in their petition they naturally anticipated that after the sale of the undertaking of the company, although it was not essential to and was not part of the scheme, it was probable that the company would be wound up to facilitate a distribution amongst shareholders of the assets of the company which were far in excess of the capital of the company, and that upon such winding up the amount payable by way of return of capital to the first and second preference shareholders in terms of the memorandum and articles of association of the company would be far below the market value of such shares, and if invested by these shareholders would not produce the same income to them that they were entitled to ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... ₹ 138-12-0 2nd Preference ... ₹ 146-14-0 Ordinary ... ₹ 366-4-0 Deferred ... ₹ 2440-0-0 These meetings were held, and each class of shareholders appointed four representatives to meet the directors and consider in greater detail whether the proposed amalgamation would be beneficial to the company as a whole, and, if so, whether there should be a re-organisation of the rights of the different classes of shareholders. Ten meetings were held by the directors of the company with these representatives. Further informal meetings of all classes of shareholders were held, and it seems clear to me that the scheme was approved by the bulk of the shareholders of the several classes present at such meetings. Another circular letter was issued on June 17, 1936, all the shareholders of company giving more information with regard to the scheme of amalgamation and the benefits expected to be derived therefrom. I am satisfied from the affidavits that the shareholders were taken into complete confidence by the directors ; the scheme was very carefully submitted to them in considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first meeting, that is to say, the meeting of the shareholders of the first preference shares, was attended personally or by proxy by 177 shareholders holding a total first preference shares of ₹ 100 each, and the scheme was by all the shareholders present, excepting one who held ten first preference shares. That exactly was the position with regard to the meeting of the holders of the 2nd preference shares. There alson the same gentleman dissented ; all the others voted for the scheme. The meeting was attended by 203 shareholders holding a total of 5843 2nd preference shares of ₹ 100 each. As regards the ordinary shareholders, the meeting was attended by 272 shareholders holding a total of 5533 shares, and excepting the same dissentient all the others present approved of the scheme and agreed to it. The meeting of the holders of the deferred shares was held on August 29, 1936, and was attended personally or by proxy by 223 shareholders holding a total of 913 deferred shares valued at ₹ 40 each. The resolution, which was read and explained by the chairman to the meeting, was accepted by all the shareholders with the exception of 29 dissentients holding an aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this nature. The next ground is that the meeting was not fair as the shareholders were prevented from attending it because an influential director of the company or a bullion broker represented that the company promised a benefit to the shareholders who did not oppose the scheme. Lastly, it is contended that the scheme on its merits is not fair and reasonable, and there is no real majority in favour of it, and that the scheme is not fair as it seeks to enrich preference and ordinary shareholders at the cost of the deferred shareholders. The petition, as stated, is presented under section 153, which is in these terms: (1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the Court may, on the application in a summary way of the company or of any creditor or member of the company or, in the case of a company being woud up, of the liquidator, order a meeting of the creditors or class of creditor, or of the members of the company or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs. (2) If a majority in numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the different classes of members of the transferor company in manner or proportions provided by the arrangement. In such a case the Court may, but does not necessarily, insist upon dissentient members being given protection similar to that provided by Sec. 234 in the case of a transfer under that section without the sanction of the Court. If, however, the so-called arrangement is really a transfer under Sec. 234 simpliciter, but without giving dissentients the protection provided by that section, quaere whether the transfer can be sanctioned as an arrangement under this section. On a careful consideration of the cases referred to by Buckley as authorities for the statement of the law and practice in the above passage, and others cited at the bar, it seems to be well established in England that (see Palace Hoted Ltd., In re; Schweppes, Ltd., In re; and J.A. Nordberg Ltd., In re)the Court can under this section sanction a scheme, even though it involves acts which, apart from such provisions, would be ultra vires the company ; but this rule is subject to the limitation that if the Companies Act contains express provision enabling the doing of any act in a particular way, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere a scheme is exactly within section 192 the provisions of that section cannot be evaded by calling it a scheme under section 120: In re General Motor Cab Co. 1913, 1 Ch. 377 ; In re Guardian Assurance Co. 2. Where the scheme is only partly within section 192 the Court has full jurisdiction to sanction it under section 120 alone, and no resolution under section 192 is necessary. It has merely to see that the scheme is fair. If as a matter of fairness it thinks that dissentients should have the protection of section 192, it can make that protection a condition of its sanction: See the Canning Jarrah Case [1900] 1 Ch. 708, and the Sandwell Park Case, [1915] 1 Ch. 689. But that protection is not a matter of right: In re Standard Exploration Co., [1902] Times, March 21, p. 13c, referred to in Palmer, nth Ed., p. 978; In re Tea Corporation, [1904] 1 Ch. 12. 3. If, as in the present case, the scheme is altogether outside Sec. 192, proposition 2 applies a fortiori : see Palmer, pt. ii, 12th ed. pp. 1009, 1015. In my opinion, the decision in Anglo-Continental Supply Co., In re, to which Mr. Setalvad has referred, amounts to this that the Court has a discretion to sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t' includes 'a re-organisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both methods' ; these words are taken from Sec. 45 of the English Act of 1908 (Sec. 54, Indian Act), which is not re-enacted in the Act of 1929. Such re-organisation can now be effected as 'arrangements' with members under Sec. 153 of the English Act, 1929: Buckley nth ed., p. 324). It is clear, therefore, that under the Act of 1929 in England a re-organisation like the one which the company seeks in the present case can be effected without any objection. I see no principle or no ground why I should not follow the same principle. Mr. Setalvad relies on the case of General Motor Cab Co., Ltd., In re, which is also explained in Anglo-Continental Supply Co., In re. Apart from that, as observed by Stiebel in his Company Law, 3rd ed. at p. 720, foot-note (d), the truth is that General Motor Cab Co. has always been regarded as a very doubtful case and Sec. 154 of the present Act certainly seems to contemplate the Court sanctioning such a scheme as the one in that case. It is pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly . . . take a view which can be reasonably taken by businessmen. The Court must look at the scheme and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order the promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it. It is said that the scheme is not reasonable. It is clear that unless the resolution in question is sanctioned, the scheme of the merger cannot be put through. If the merger fails, I do not think that this Company would be able to carry on by itself in the light of its previous experience, and in the face of competition which it will have to face, if the other proposed partners in the Associated Cement Companies Ltd., combine. The object of the scheme is really to reduce competition and to buy out the competition of the different compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find on the affidavits made by these people any ground for thinking that there has been any oppression, or that the majority are not acting bona fide. As matter of fact, the affidavits, consist of nothing but sheer arguments and matters of law. No facts are put before me which would enable me to say that the scheme is unreasonable from the business point of view, and that the interests of the deferred shareholders are being sacrificed in order to benefit the other three classes of shareholders. Then, the only question which remains is whether I should impose any condition upon the company before sanctioning the scheme; in other words, whether I should ask the company to make some provision for the dissentients. As the authorities, to which I have referred, show, the Court does not necessarily make any provision in favour of the dissentients, if the Court is satisfied that the scheme is reasonable and fair and in the interests of the general body of the shareholders. In any case, under the modern practice, such a provision is not a sin qua non to sanctioning the scheme if it is reasonable and fair. The question, therefore, is, whether there is any special case made out in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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