1. This is a petition under the provisions of sections 391 and 394 of the Companies Act, 1956 (1 of 1956) (hereinafter referred to as 'the Companies Act'), for sanctioning of a scheme for the amalgamation of the M.G. Investment & Industrial Company Ltd. (hereinafter called 'the petitioner company') with the New Shorrock Spinning and . (hereinafter referred to as 'the respondent-company'). The object of the petition is to obtain the sanction of this court to a scheme of amalgamation whereby the petitioner-company as transferor is to be amalgamated with the respondent-company as transferee. The respondent-company has its registered office at Ahmedabad. It has filed a petition under the provisions of sections 391 and 394 of the Companies Act, being Petition No. 3 of 1971 in the Gujarat High Court at Ahmedabad 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.
2. 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 resolution, dated 17th April, 1968, its objects clause in the memorandum of association was altered so as to include certain manufacturing, mining, engineering and other commercial activities. With effect from 27th January, 1969, its name was changed to 'M.G. Investment and Industrial Company Ltd.' Up to 31st December, 1965, the petitioner-company, besides being an investment company, carried on business as managing agents of Sassoon Spinning & . From 1st January, 1966, the petitioner-company discontinued the said managing agency business. I may perhaps mention that with effect from 3rd April, 1970, managing agencies have been abolished by section 324A of the Companies Act. The petitioner-company states in the petition that after 1st January, 1966, it has not carried on any business, and it has been looking out for a new business and with a view thereto it has amended the objects clause of the memorandum of association in 1968 and also changed its name. It states that ultimately it has decided upon amalgamation with the respondent-company.
3. The respondent-company was incorporated in 1913. It is carrying on the business of manufacturing cotton textiles and other blended fabrics at Ahmedabad. Its authorised capital is Rs. 5 crores. Its issued and subscribed capital is Rs. 2 1/2 crores. The total assets of the respondent-company as on 31st December, 1969, exceeded Rs. 6,23,00,000.
4. By the scheme of amalgamation, it is provided that the respondent-company will issue 2 fully paid equity shares of Rs. 125 each in lieu of 5 equity shares of the petitioner-company. By an order made by this court on 27th November, 1970, in Company Application No. 1. of 1970, this court gave some preliminary directions for convening meetings of the shareholders of the petitioner-company. Pursuant to the said directions a meeting of the shareholders of the petitioner-company was held on 15th January, 1971. At the said meeting shareholders holding 8,064 shares of the aggregate value of Rs. 8,06,400 unanimously approved of the scheme of amalgamation. The scheme of amalgamation has also been approved by the shareholders of the respondent-company at its meeting pursuant to the directions given by the Gujarat High Court at Ahmedabad.
5. As required by section 394A of the Companies Act, notice of this petition was given to the Central Government. Mr. S. S. Singh, Under Secretary 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 a '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 petitioner-company to 2 shares of the respondent-company is unfair to the shareholders who did not attend the meeting of the petitioner-company held on 15th January, 1971. The Central Government, therefore, contend that the scheme of amalgamation ought not to be sanctioned. The Central Government have appeared though attorneys and counsel and I have taken into consideration the representations made by them before passing these orders.
6. Mr. K. H. Bhabha, on behalf of the Central Government, however, applied at the outset that under the provisions of Order I, rule 10(2), Civil Procedure Code, and rule 9 of the Companies (Court) Rules, 1959, which has preserved the inherent powers of the court, I should permit the Union of India to be joined as a party to this petition. The ground for the application was that important issues were involves and if the Central Government were made party to the petition, they would have a right of appeal against the orders on this petition which, according to Mr. Bhabha, they would not have if the appear merely pursuant to notice under section 394A of the Companies Act. In my opinion, rule 9 of the Companies (Court) Rules, 1959, has no application. The jurisdiction of the court to add parties is limited to the provisions of Order I, rule 10(2), Civil Procedure Code. Under these provisions, the court has the power to order that a person whose presence before the court may be necessary in order to enable the court effectively and completely to adjudicate upon and settle all the questions involved in a proceeding be added. I have no doubt that the presence of the Central Government before the Court is necessary in order to enable the court effectively and completely to adjudicate upon and settle the contentions arising out of the Monopolies Act and some after questions involved in this petition. But the legislature has thought fit under the provisions of section 394A of the Companies Act to secure the presence of the Central Government by notice and not by its being added as a party. The Central Government is present before me. There is no jurisdiction to add a party except for the purpose of effective and complete adjudication upon all questions involved. There is also no jurisdiction to add a party to confer on it a right of appeal. Right of appeal is a statutory right and is not conferred by this court. I therefore rejected this application at the outset. I might perhaps mention that a similar application has 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. 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 objection to the maintainability of the appeals, the point of joinder was not decided but was left open.
7. 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 description or in the provision of any 'service' of any kind within the meaning of section 2(v) and (r). Its contention is that after 31st December, 1965, it has not been engaged in any business at all, much less in the business of providing any service of any kind. It therefore contends that it is not an 'undertaking' at all. It concedes that, if it has been an 'undertaking', by virtue of section 20(b)(ii), Part A of Chapter III of the Monopolies Act would apply to it and, in that event, approval of the Central Government would be necessary before the Scheme is sanctioned by this court.
8. For the appreciation of the contentions arising from section 23(1) of the Monopolies Act, reference to a few provisions of the said Act is necessary :
9. Section 2(v) :
''Undertaking' means an undertaking which is engaged in the production, supply, distribution or control of goods of any description or the provision of service of any kind.'
10. Section 2(r) :
''Service' means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, insurance, transport, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.'
11. Section 20(b)(ii) :
'Where it consists of more than one undertaking, the sum total of the value of the assets of all the inter-connected undertaking constituting the dominant undertaking,
is not less than one crore of rupees.'
12. Section 23(1) :
'Notwithstanding anything contained in any other law for the time being in force, -
(a) no scheme of merger or amalgamation of an undertaking to which this Part applies with any other undertaking,
(b) no scheme of merger or amalgamation of two more undertakings which would have the effect of bringing into existence an undertaking to which clause (a) or clause (b) of section 20 would apply, shall be sanctioned by any court or be recognised for any purpose or be given effect to unless the scheme for such merger or amalgamation has been approved by the Central Government under this Act.'
13. The contention of Mr. Sorabjee on behalf of the petitioner company is that approval of the Central Government 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 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).
14. I shall first deal with the contention 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 whether the business of an investment company is a 'service' within the meaning of section 2(r) of the Monopolies Act.
15. The petitioner-company was incorporated in 1947 with the name 'M.G. Investment Corporation Ltd.' Even after its name was changed in 1969 to 'M.G. Investment and Industrial Company Ltd.', the words 'Investment Company' continued to be a part of its name. The name of a company is not conclusive as to its actual business, but it indicates the intention of the promoters and is, in my opinion, an important factor in determining the nature of the business of a company. This is therefore the first factor indicating the nature of the business of the petitioner-company. The original objects clauses 3(a), (b), (f), (i) and (l) indicate that the objects for which the company was established were to carry on the business of an investment company and to invest money in shares and securities of companies and bodies, to underwrite subscription of shares and securities, to give any guarantee in relation to any payment of interest on shares and securities and generally to carry on business as financiers. The objects clause 3(c) indicates that the company was also established to carry on managing agency business. It is clear that the main objects of the petitioner-company on its formation were to carry on the business of an investment company and that of managing agents. This is the second factor in determining the nature of the business of the petitioner-company. Prior to 31st December, 1965, the petitioner-company was the managing agent of Sassoon Spinning and . The petitioner-company voluntarily relinquished the managing agency business with effect from 1st January, 1966. It is true that thereafter the petitioner-company has not carried on the business of managing agency. The petitioner-company has not placed before the court any material to show whether prior to 1st January, 1966, it did or did not carry on the business of an investment company. It has made a bald statement that it did not carry on such business. The past business of the petitioner-company being within its own knowledge it was not possible for the Central Government to contradict this bald statement. But in the 18th annual report of the petitioner company and its balance-sheets for the year ending 31st December, 1965, it is shown that it held 2,500 equity 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 Rs. 20,000 in fixed deposits and also that, during the previous year, it had advanced loans to Sassoon Spinning and . 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 preceeding 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 so Sassoon Spinning and ., of which the petitioner-company was managing agent, holding of shares in one company and fixed deposits with banks and other companies would not amount to carrying on business as an investment company. I am afraid, I am unable to accept this contention. The fact that the petitioner-company was carrying on the business of an investment company prior to 31st December, 1965, is the third factor in deciding whether the petitioner-company is or is not engaged in carrying on any business.
16. The petitioner-company declared its last dividend in the year ending 31st December, 1966. Thereafter, it has not declared any dividend. It has however, earned interest and incurred loss on sale of shares. The fact that no dividend has been declared thereafter is not, in my opinion, indicative of the fact that the petitioner-company has not done any business. Business can result in loss, in which case there will be no dividend. In that year, the petitioner-company continued to hold the shares of National Organic Chemical Industries Ltd. Its investment in fixed deposits increased to Rs. 1,68,000. Its fixed deposit of Rs. 1,25,000 with 'a company' continued. During the year 1967 the petitioner-company changed its financial year ending 31st December of that year to 31st March, 1968. The 20th annual report is for the year ending 31st March, 1968. During that year, Mafatlal Chandulal & Company (Bombay) Ltd. and Mafatlal Chandulal & Company Ltd. Ahmedabad, were amalgamated with the petitioner-company with effect from 1st January, 1967. As the managing agency business of the petitioner-company had come to an end, the directors state in their annual report that they were exploring ways and means of carrying on another business in its place and were therefor seeking to amend the objects clauses in the memorandum. As a result of the two amalgamations the investment of the petitioner-company in shares of National Organic Chemical Industries Ltd. rose from 2,500 shares to 8,500 shares of Rs. 8,50,000. It acquired 500 equity shares of Hind Auto Industries Ltd. of the value of Rs. 50,000, 2,5000 equity shares of Polyolefins Industries Ltd. of the value of Rs. 2,50,000. Its investment in fixed deposits in banks increases to Rs. 2,40,000. The deposit of Rs. 1,25,000 with 'a company' does not appear in this balance-sheet. Mr. Bhabha contended that even acquisition of shares by amalgamation is a business and that amalgamation is only another mode of transfer. There is considerable force in this argument. It is, however, not necessary for me to 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.
17. 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 Purshottamadas & Co. Ltd., has 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.
18. In the 22nd annual report for the year 1969-70 we find that the directors were still exploring ways and means of other business activities. In this year, the petitioner-company invested a sum of Rs. 1,25,000 in the purchase of 250 rights equity shares of Rs. 100 each in Polyolefins Industries Ltd. In this year, the petitioner-company also sold 3,000 equity shares of Automobile products of India Ltd. for Rs. 34,500. It cannot be said that the acquisition of shares of Automobile Products of India Ltd. and their sale was not business. Application for rights shares is also business. The petitioner company undoubtedly thought it profitable to apply for these rights shares. Nonetheless, it was business of an investment company. During this year also the petitioner company earned dividend and interest on its investment.
19. Although the petitioner company altered its objects clauses in 1967, and included several manufacturing and other business, in fact, it has not carried on any business it was authorised to do other than that of an investment company. Mr. Bhabha has taken the contention that by the said alteration in the memorandum of association, the company had shown its intention to carry on another business and had become capable of carrying on these businesses and this made it an 'undertaking'. These were the contentions taken in the case of Central Bank of India Ltd. and Tata Engineering and Locomotive Co. Ltd. and have been negatived by me in that case as well as by the Division Bench in appeal. In view of this, Mr. Bhabha did not elaborate this contention. In my opinion, the business carried on by the petitioner company as shown in its balance-sheets from the years 1966 to 1969 is the fourth factor indicating that the petitioner company carried on business of an investment company during that period.
20. At the 20th annual general meeting held on 17th June, 1968, the board of directors proposed a special resolution for alteration of its objects clauses in the memorandum so as to include several new businesses within its scope. In the explanatory statement required by section 173(2) of the Companies Act, the board of directors stated that they were exploring ways and means to enlarge the business activities of the petitioner company and that 'the company at present carries on business mainly as financiers'. After the said 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.
21. 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.
22. 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.
23. 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 public communications or public transport. Section 2(r) of the Monopolies Act defines 'service' as service of any description which is made available to potential users, but does not include the rendering of any service free of charge or under a contract of personal service. The definition also states that the word 'service' includes the provision of facilities in connection with banking, insurance, transport, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information. The use of the expression 'made available to potential users' in the definition would indicate that the service must be made available to all potential users who are willing to pay for the service. The use of the expression 'but does not include rendering of any service free of charge' indicates that the service must be rendered for remuneration and, consequently, it must be a direct service rendered by an undertaking to all potential users. Facilities in connection with banking, insurance, public transport, supply of electrical or other energy, board or lodging, entertainment, amusement or the purveying of news or other information are specifically named in the definition as 'service'. It would appear from the definition that amusement and recreational services, repair workshops, hotels, rooming house, medical and health services, legal services, motion pictures, and non-profit members' organisations, architectural accounting, auditing and book-keeping services, research and development laboratories would be covered by the definition. I must, however, make it clear that I am not called upon to decide whether these are services and I do not propose to do so. I am giving these by way of illustration that these would be services made available to potential users for remuneration. We have to consider whether an investment company is engaged in the provision of a 'service'. The objects clauses of the petitioner company make it clear that it was 'to be carry on the business of an investment company make it clear that it was 'to carry on the business of an investment company and to invest in and acquire and hold shares .... and securities issued or guaranteed by any company .... and to acquire any such shares .... or securities'.
24. From the name of the petitioner company and its objects clause it would appear that the petitioner company was a company whose business was to consist of investing its 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.'
25. Unit trusts in England, like the Unit Trust of India, offer to 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 in the American Law, there is no restriction on the company buying its own shares. This is not possible in India or in England. Grower on the Principles of Modern Company Law, 3rd edition, page 226, states :
'In the U.S.A., from which our modern unit trusts sprang, it is now unusual to operate through the device of a trust. The American company can but its own shares and accordingly it is possible to achieve the same and as that of a unit trust by an open-ended investment trust company or 'mutual fund.' If a similar arrangement were permitted in the United Kingdom it would lead to a considerable simplification and some saving of expenses, and would help to obviate the confusion between the fiduciary duties of the managers and their position as principals.'
26. The distinction between an open-ended investment company and a close-ended investment company is that in an open-ended investment company the company can go on issuing shares as when applied for within the limits of its authorised capital which is always large, whereas in a close-ended investment company the entire issued capital is sold out and the only way to acquire share is on the stock-exchange or by a purchase from a shareholder. In my opinion, an investment company in India like the petitioner company is a close-ended investment company. Further, in my opinion, an investment company, whether it be close-ended or open-ended, does not render any service for remuneration to any potential use and even to its own shareholder. My view about a unit trust is the same, but it is unnecessary for me to decide as to whether a unit trust provides service or not.
27. Mr. Bhabha contended that an investment company like a mutual fund in the U.S.A. and a unit trust in England and India renders a service to its shareholder. He contended that an ordinary shareholder has no expert knowledge of investment in joint stock companies. The board of directors of an investment company and its managerial staff usually consists of financial experts whose services are utilised by the shareholders or unit holders in investing money for capital appreciation, diversification and profit. The unit holder or shareholder is a potential user. In the case of a close-ended investment company like the petitioner-company it may be that a potential use has to acquire shares on the stock exchange but that makes no difference. After he acquires 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 manager 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 goods 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 business and in fact he does not engage himself in business in which he would need the service in shape of advice for investing his money.
28. Another argument of Mr. Bhabha on the question of service is that investing money in a fixed deposit in a bank is rendering service to the bank and remuneration is interest paid by the bank. I am not impressed by this argument also. The definition of the word 'service' in the Monopolies Act is that banking by itself is a service. By accepting the deposit from a constituent, it is the bank that is rendering service to the constituent and not the constituent who is rendering service to the bank. The petitioner-company, therefore, rendered no service to the bank by keeping money in fixed deposit with banks. Except one isolated instance of a deposit of Rs. 1,25,000 with 'a company', the purpose of which deposit is not known, there is no evidence of the petitioner-company carrying on money-lending business. Even money-lender does not provide any service to the borrower. In my opinion, he hires out his money to the borrower and the interest is the hire.
29. In view of the above discussion, I hold that an investment company which invests its share capital in the business of making profit by investment in other companies by earning capital appreciation or dividends is not engaged in providing any service to potential users or to its shareholders for remuneration or otherwise. I also hold that the petitioner-company is not engaged in the provision of 'service' of any kind within the meaning of section 2(r) of the Monopolies Act. It is, therefore, not an 'undertaking' within the meaning of section 2(v) of the said Act. Part A of Chapter III, therefore, does not apply to it, and its amalgamation with the respondent-company does not require the approval of the Central Government under section 23(1) of the said Act.
30. The Central Government have raised on more contention that the ratio of 5 shares of the petitioner-company to 2 shares of the respondent-company provided for in the scheme of amalgamation 'does not appear to be reasonable and fair to the shareholders of the petitioner-company'. In this connection I might mention that before finalising the scheme of amalgamation the petitioner-company and the respondent-company referred the matter to two firms of chartered accountants, namely, C.C. Choksi & Co., and K.S. Engineer & Co. There is no dispute about the fact that these are reputable 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 ration of 5 : 2 is fair and equitable.
31. Maugham J. has said in In re Hoare & Co. Ltd. :
32. 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 of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. Accordingly, without expressing a final opinion on the matter, because there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that notwithstanding the views of a very large majority of shareholders, the scheme is unfair ...'
33. The above case was followed by Vaisey J. in In re Sussex Brick Co. Ltd. The learned judge in that case held that the scheme was open to criticism, but he also held that that was not enough and that unless it was affirmatively shown that the scheme was unfair, he would not interfere. In this case also, Mr. Bhabha has not affirmatively shown that the scheme is unfair. I know I am not dealing with the actual figures in the report of the chartered accountants, but I might content myself by expressing what Vaisey J. expressed in the above case :
'This is a difficult case, and if it goes to a higher court I would like to express my apologies for having dealt with it on somewhat vague and not very detailed lines; but, after all, if it has to be affirmatively established that the scheme is unfair, it is largely a matter of the onus of proof and whether the evidence has satisfied me.
I am not satisfied that this scheme is unfair in the sense in which Maugham J. used the words and the application ought not to succeed.'
34. The petition has been widely advertised. The scheme of amalgamation has been unanimously approved by the meetings of shareholders of the two companies and no objection at all has been filed by any of the shareholders or creditors.
35. For the above reasons and also on a perusal of the report of the two chartered accountants, I regard the scheme and valuation of share proposed in the said report as fair for all concerned. No allegation of fraud and undue influence has been made. There is no reason to doubt the bona fide recommendations made by the board of directors of the two companies as well as by the two firms of chartered accountants. There is no allegation that the books of account of the companies are unreliable. The Central Government has not affirmatively established that the valuation is unfair or inequitable. In view of this, I see no reason to uphold this contention.
36. The official liquidator has made a report under the second proviso to section 394(1) of the Companies Act in which he states that he had obtained a report from M/s. Kalyaniwalla & Mistry, chartered accountants, and on the basis of the said report he was of the opinion that the affairs of the petitioner-company have not been conducted in a manner prejudicial to the interests of its members or public interest.
37. In the result, I grant the petition in terms of prayers (a) to (i).
38. The petition has been opposed only by the Central Government on a notice issued to them under section 394A of the Companies Act. I have taken into consideration the representations made by the Central Government and I have ultimately granted the petition. The Central Government are not a party to these proceedings. There will, therefore, be no order as to costs in their favour or against them.
39. The costs of the official liquidator and of the petitioner-company will come out of the assets of the companies which have been ordered to be amalgamated.