9911796707
TMI Blog2000 (1) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ual general meeting and that the minutes of the annual general meeting did not reflect the correct proceedings of the annual general meeting. 2. The facts leading to this petition could be summarised as follows : The company had a non-ceramic passive components manufacturing unit at Pune (component unit). The company entered into an agreement with one M/s. B. C. Components India Private Ltd., a subsidiary of M/s. B. C. Components International, B. V., the Netherlands, for sale of this unit. It also appointed M/s. KPMG India Ltd. to value the unit. M/s. KPMG India Ltd. valued the business value of the unit in the range of ₹ 24.3 crores and ₹ 28.4 crores. In the annual general meeting of the company held on May 28, 1999, the approval of the general body was sought in terms of Section 293(1) of the Act to sell this unit for a sum of ₹ 32.5 crores to M/s. B. C. Components of India Pvt. Ltd. This item of business was to be a special business and in terms of Section 175(2), an explanatory statement was annexed to the notice for the meeting. In the annual general meeting held on May 28, 1999, the resolution to sell the components unit to M/s. B. C. Components India Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. C. Components India Pvt. Ltd. are the employees of the company and the registered office of the company is the office of the valuer. Therefore, he expressed his apprehension that there could have been a nexus between the company, the valuer and M/s. B. C. Components India Pvt. Ltd. Going through the agreement, a copy of which was sent to the shareholders at annexure A-14, he pointed out that from this agreement it is very difficult to find out as to what are the assets of the components unit that were being sold to M/s. B. C. Components India Pvt. Ltd. According to him, the value of the land on which the unit is functioning would alone cost more than ₹ 100 crores. He also pointed out that from a reading of this agreement, one cannot ascertain as to whether the entire unit is being sold or only a part of it. 4. He further argued to state that if all these aspects are taken into account, then, it will be clear that the explanatory statement did not conform to the requirements of Section 173(2) of the Act. In other words, according to him, the approval of the general body had been sought without furnishing full and complete details of the proposed sale and as such the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiving technical support from the holding company, namely, KPENV, the Netherlands which was also in the business of manufacturing components. Since the holding company had decided to hive off the components business, the company would not be receiving any further technical support from the parent company especially when such support is necessary due to vast changing technology. Since the components business of the parent company had been transferred to B. C. Components International BV, it evinced interest in taking over the components division of the company through a subsidiary to be established in India. Accordingly, in the interests of the company, it was decided to sell this unit to M/s. B. C. Components India Pvt. Ltd., which is a subsidiary of the foreign company which had taken over the components business of the parent company. Originally, M/s. KPMG were appointed to value this unit and they valued the unit in the range of ₹ 24.3 crbres to ₹ 28.4 crores. Later, at the instance of the LIC, the value was reassessed by M/s. B. S. Billimoria and Co. which valued the components unit in the range of ₹ 28 crores to ₹ 30 crores. The second valuation was do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal minority to hold the overwhelming majority to ransom. For the same proposition he relied on Daniels v. Daniels [1978] Ch. D. 406. He therefore submitted that the petitioners holding a minimal 0.02 per cent. shares cannot question the wisdom of those who have voted in favour of the resolution by a majority of over 99 per cent. Therefore, he submitted that the general body approval cannot be impugned on the ground of insufficiency of material facts in the explanatory statement. 7. Regarding furnishing a copy of the valuation reports, he submitted that it is wrong on the part of counsel for the petitioners to have submitted that the valuation report in respect of the Salt Lake unit was placed before the Calcutta High Court. He pointed out that in respect of the Salt Lake unit, there was no valuation report arid it was only an agreement between the company and M/s. Videocon Ltd. for a consideration of ₹ 9 crores. In the absence of the valuation report, the question of furnishing a copy of the same does not arise. As far as the present case, is concerned, he submitted that the valuation reports contain certain sensitive information which would not be in the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petition on various grounds. According to him only one solitary allegation of sale of the components unit has been argued. To file a Section 397/398 petition, there should be continuous acts of oppression and mismanagement and a single solitary incident cannot give cause of action to file such a petition. Further, this allegation alone cannot justify winding up of the company on the just and equitable ground, which is a prerequisite in a Section 397/398 petition. This solitary allegation cannot be considered to be either oppressive or mismanagement. Thus, he submitted that not only is the petition not maintainable but even on the merits, the petitioners have not been able to establish that there is any oppression or mismanagement in the affairs of the company and as such prayed for dismissal of the petition. 10. Shri Lahiri, counsel for the 11th respondent submitted that his client is a bona fide purchaser for appropriate consideration. He submitted that his client is a subsidiary of M/s. B. C. Components International BV which had taken over the components business of KPENV all over the world. His client was incorporated as a private limited company to take over the compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gue on the other allegations which was objected to by counsel for the respondents and as such no arguments on other allegations took place. Therefore, in this order, we are confining ourselves only to the allegation relating to the sale of the components unit, on which arguments were advanced. 12. The complaints of the petitioners in relation to the sale of the components division could be summarised as non-disclosure of full and complete particulars in the explanatory statements, non-supply of the valuation reports to the petitioners, inadequate consideration, the sale of this unit is against the interest of the company/shareholders and consumers. 13. To examine the allegation that the explanatory statement did not contain full and complete particulars regarding the sale of the components unit, it is appropriate to reproduce the explanatory statement as well as the resolutions proposed in the 69th annual general meeting. Item No. 7 : The company has been carrying on the business, inter alia, of manufacturing and selling non-ceramic passive components since 1959 at its components undertaking located at Loni-Kalbhor-412 201 (near Pune Central Railway). In respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate and any other adjustment as mutually agreed will be given effect to suitably in the agreed consideration of ₹ 325 million. Since B, C. Components International BV will be engaged in this business activity on a global basis and will have effective research and development facilities, BCCI will be the most suitable buyer. The shareholders may recall that at the extraordinary general meeting (EGM) held on December 4, 1998, the resolution relating to the proposal to sell or otherwise dispose of the said components undertaking was withdrawn as, on the date of EGM, the final details of the sale/transfer were not finalised. The proposed sale of the said components undertaking is also subject to the approval of the financial institutions, debenture trustees and such other approvals, sanctions and permissions as may be necessary. The company will take steps to obtain such approvals at the relevant time. In the opinion of the directors the aforesaid offer is fair and reasonable and it would be in the interest of the company and its shareholders to accept the said offer. The members are aware that under Section 293(1)(a) of the Companies Act, the consent of the company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items of business to be transacted at the meeting or deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business including in particular the nature of the concern or interest, if any, therein, of every director, and the manager, if any. From a reading of this section it is clear that what is needed to be disclosed in the explanatory statement are the material facts , the idea being that the shareholders should be in a position to form an independent opinion on the basis of the facts placed before them to take an appropriate decision. It is difficult, if not impossible to lay down any standard/guideline as to what would constitute material facts as the same would vary from case to case depending on the proposal under consideration. From the very fact that the section uses the words material facts , it is clear that facts which are not material need not be furnished. As long as the explanatory statement is fair and gives, as far as possible, all information reasonably necessary for the shareholders to understand and appraise the proposal, such a statement would satisfy the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to non-furnishing of the information on the second valuation by M/s. B. S. Billimoria and Co., Shri Sarkar explained that it was done subsequent to the date of the notice and as such the omission of the same in the explanatory note cannot be considered to be a deliberate omission. Accordingly, we hold that there is no substance in the allegation of the petitioners that the explanatory statement does not contain all material facts. While coming to this conclusion, we also note that other than the petitioners, some of whom had reportedly raised certain issues relating to the explanatory statement before the general body, no other shareholder has complained about the insufficiency of information in the explanatory statement as is evident from the fact that more than 99 per cent. of the votes polled had been in favour of the resolution. 17. In regard to the adequacy of the consideration, other than alleging that the consideration is not adequate, the petitioners have not furnished any details to support this allegation. Even on their contention that the land on which the unit is located would be of about ₹ 100 crores, no details to substantiate the same have been furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation was done for the purpose of purchasing the shares of the petitioner by the respondents. While determining the value, the chartered accountant did not disclose certain documents furnished to him by the respondents, to the petitioner. When the petitioner challenged the valuation on the ground of non-disclosure of documents having a bearing on the valuation, the court set aside the valuation. In that case, the petitioner was vitally affected as his shares were to be sold. Therefore, we find that the facts of that case are not applicable to the present case before us. The stand taken by the company before us is that the valuation reports contain certain sensitive information which would not be in the interest of the company to disclose. As per the provisions of the Companies Act, while the shareholders have a right to inspect certain statutory records of the company, yet such a right does not extend to inspection of all the documents that they desire. We find that the company was fair enough to furnish a copy of the sale agreement to a shareholder when he sought for the same. Once the company claims confidentiality, then, a judicial authority cannot force supply of a cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the sale of the unit. A commercial/business decision taken by the board and approved by the majority shareholders cannot be impugned by shareholders holding minimal shares in the company as held in Gopal Das Gujarati v. Titagarh Paper Mills Co. Ltd. [1986] 60 Comp Cas 920 (Cal) with which we fully agree. 20. In view of our findings that the explanatory statement did not suffer from any infirmities and that the petitioners have not established with full particulars that the consideration for the unit was inadequate and that the consideration received for the unit is more than the assessment made by two independent expert valuers and that non-supply of the valuation reports does not give a right to the petitioners to challenge the sale and that a commercial/business decision taken by the board consisting of independent directors and overwhelmingly approved by the shareholders cannot be challenged by shareholders holding minimal shares, we dismiss this petition. In view of the petition having been dismissed on the merits, we are not dealing with the other submission made by Sri Sarkar on the maintainability of the petition. 21. Petition is dismissed. No order as to cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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