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Benarsi Das Saraf and ors. Vs. Dalmia Dadri Cement Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Original No. 82 of 1957
Judge
Reported inAIR1959P& H232
ActsCompanies Act, 1956 - Sections 155 and 395
AppellantBenarsi Das Saraf and ors.
RespondentDalmia Dadri Cement Ltd. and anr.
Appellant Advocate D.C. Gupta, Adv.
Respondent Advocate Prem Nath Chadhra and; B.R. Tuli, Advs.
DispositionPetition dismissed
Cases ReferredGovernment Telephones Board Ltd. v. Hormusji Manekji Seervai
Excerpt:
.....227 of the constitution. - they complained that the majority had accepted less value and the transferee company was wholly owned by the dalmia group which commanded the majority of 99 per cent. conversely the dissenting shareholders are also entitled to compel the company to acquire their shares as well and on the sameterms. 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 views of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. but if one accepts the principle, one must give some intelligent meaning to it. but the register..........395 of the companies act prescribes the mode and the conditions necessary for acquisition of shares of shareholders dissenting from a scheme or contract approved by majority of nine-tenths in value of the shares whose transfer is involved. it also prescribes the respective periods of limitation for taking specified steps. it also provides a remedy for the dissenting shareholders who can apply to the court within a period of one month from the date of the giving 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.....
Judgment:
ORDER

Tek Chand, J.

1. This is a petition under Section 155 of the Companies Act. 1956, for rectification of the register of members of the Dalmia Dadri Cement Limited, Dalmia Dadri, District Mohindergarh, and for certain other incidental orders and directions on the basis of the following facts and allegations:

2. The petitioners claim themselves to be some of the oldest share-holders of the Company which they said was in a flourishing condition. They alleged that the management of this Company, with a view to prejudice the petitioners and certain other shareholders who were in a minority, manoeuvred to eliminate them by having resort to the provisions under Section 395 of the Companies Act, 1956.

They said that on 6-11-1956, Swadesh Nirman Private Limited was registered with a paid up capital of Rs. 50,000/- only which was subscribed and paid up by two share-holders Shri I. N. Patel and Shri Suraj Bhan Kontu, in the sum of Rs. 25000/- each. On 7-11-1956, 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 12-11-1956, with a forwarding letter to the petitioners and other share-holders, 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 than nine-tenths in value of shares, whose transfer was involved the scheme would be deemed to have been accepted and the consideration payable to the approving shareholders in respect of their shares would be paid to them by the Swadesh. Nirman Private Limited, the transferee Company through the transferor Company against the delivery of the relevant share-scrips along with the transfer forms duly signed in respect thereof.

It was also stated in the scheme that regarding', the dissenting shareholders 'as defined in Section 395 of the Companies Act,' the transferee Company might give notice within two months after the expiration of the aforesaid period of four months in the prescribed manner to any dissenting shareholder for acquiring his shares; and if such notice is given, the transferee Company shall, unless on an application made by it within one month from the date on which notice was given the Court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which under the scheme, the shares of the approving shareholders are to be transferred to the transferee Company.

It was also mentioned in the scheme that where aforesaid notice has been given by the transferee Company, and no orders to the contrary have been passed by the Court on an application made by the dissenting shareholders, the transferee Company shall, on the expiration of one month from the date on which such notice has been given, or it an application by the dissenting shareholders is then pending, after the disposal of that application, transmit a copy of the notice to the transferor Company with an instrument of transfer executed on behalf of the shareholders by any person appointed by the Transferee Company and on its own behalf by the transferee Company, and transmit to the Transferor Company the consideraton in the shape of a Deposit Receipt for the amount calculated at the rate specified in the scheme and the Transferor Company shall thereupon register the transferee-Company or its nominee or nominees as the holder or holders of those shares.

3. Shri Benarsi Das petitioner wrote a letter on 12th/14th January 1957 to the Transferor Company seeking clarification of certain points. The petitioners by their letter dated 6-3-1957, informed the Transferor Company that they did not approve of the scheme. On 14-3-1957, i.e., after 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.

4. On 9-4-1957. 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 15-4-1957, Swadesh Nirman Private Limited sent a registered letter to Shri Benarsi Das petitioner pointing out that the schema 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 14-3-1957. 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 14-3-1957.

5. It was also stated in the petition that neither in fact nor in law was there any scheme or contract involving the transfer of shares of the Transferor Company; the so-called scheme was no scheme-at all; and that no such scheme or contract involving the transfer of shares was ever formulated or circulated to the members of the Transferor Company or ever got sanctioned by the Board. The Transferee Company could not acquire compulsorily the shares of the petitioners even if they had not moved this Court by a petition.

The petitioners further proceeded to state that the offer of the Transferee Company and its acceptance by the alleged 99 per cent majority was unfair and unreasonable. They complained that the majority had accepted less value and the Transferee Company was wholly owned by the Dalmia Group which commanded the majority of 99 per cent. in the Transferee Company. The scheme its offer and acceptance, the petitioners maintained, was ineffectual and against their rights as members of the Transferor Company.

6. On 19-4-1957. the shares of the petitioners in the Transferor Company were transferred to and registered in the name of the Transferee Company.

7. The petitioners finally contended that the transfer of their shares to respondent No. 2, the Transferee Company, and the registration in their name was fraudulent, mala fide and without sufficient cause, and the petitioners were, therefore, en-titled to have the register of members of the Transferor Company rectified under Section 155 of the Companies Act. They, therefore, prayed that the names of the nominees of respondent No. 2 entered as members of the Company instead of the petitioners be removed and the petitioners' names be continuedas before members of respondent No. 1 company.

8. At this stage it will be proper to refer to anearlier petition made on 29-4-1957, by these very petitioners against respondents Nos. 1 and 2 under Section 395 of the Companies Act on similar allegations as are alleged in the present petition. The petitioners had prayed in their former petition that an injunction restraining respondent No. 1 from transferring, and respondent No. 2 from compulsorily acquiring the shares of the petitioners in respondent No. 1 Company, be passed in favour of the petitioners against the respondents under Section 395 of the Companies Act, and in the alternative, if it be found that the transfer and acquisition had already taken place, it should be declared that such a transfer and acquisition was void and ineffectual against the rights of the petitioners as shareholders of respondent No. 1 Company.

9. 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.

10. 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 21-11-1957, that petition was dismissed as withdrawn.

11. 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 (C. O. 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:

1. Is the present petition not maintainable when the previous petition under Section 395 of the Companies Act, 1956 (C. O. 34 of 1957) was dismissed as withdrawn?

2. Was the alleged scheme a valid scheme?

3. If issue No. 2 is decided in favour of the respondents then is it a fit case for summary trial under Section 155 of the Companies Act?

4. Is the application barred by time?

12. In evidence the petitioners called Shri Vishnu Kumar, Secretary of respondent No. 1 Company as their witness. No evidence was led on behalf of the respondents,

13. Shri Vishnu Kumar stated, that the shares of the dissenting shareholders were transferred to Swadesh Nirman Private Limited. He also said, that no other shares of persons who had approved of the scheme were transferred so far in favour of the Swadesh Nirman Private Limited. In cross-examination, he said, that Dalmia Dadri Cement Limited had declared dividend on 5-11-1957, and that on all the shares of the approving shareholders, Swadesh Nirman Private Limited had received the dividends on mandates, given by the shareholders. These mandates were addressed to Messrs. Dalmia Dadri Cement Limited and were in the following form:

'I/we hereby authorise you to pay the above dividend on the shares of your Company registered in my / our name / names as per detail given here-under to Messrs. Swadesh Nirman Private Limited as the said Messrs. Swadesh Nirman Private Limited are the beneficiaries of the said shares.'

14. The arguments in this case have been directed on two matters, namely, the applicability of Section 155 to the facts of this case after the dismissal of an application under Section 395, and in the alternative, as to the validity of the scheme.

15. It has been noticed by me above, that the first petition (C. O. 34 of 1957) under Section 395 was withdrawn by the petitioners and was, therefore, dismissed. In both the petitions the allega-tions were identical, though the form of relief sought was different

16. Section 395 of the Companies Act prescribes the mode and the conditions necessary for acquisition of shares of shareholders dissenting from a scheme or contract approved by majority of nine-tenths in value of the shares whose transfer is involved. It also prescribes the respective periods of limitation for taking specified steps. It also provides a remedy for the dissenting shareholders who can apply to the Court within a period of one month from the date of the giving 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 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 schema was unfair.

17. 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 sameterms. Section 395 of the Companies Act, 1956, corresponds to Section 205 of the English Companies Act, 1948 which reproduces with amendments Section 155 of the English Act of 1929.

18. Maugham J. in Re. Hoare and Co. Ltd. (1934) 150 L. T. 374, said:

'I have some hesitation in expressing my view as to when the court should think fit to order otherwise. I think, however, the view of the Legislature is that where not less than nine-tenths of the shareholders in the transferor company approve the scheme or accept the offer prima facie, at any rate, the offer must be taken to be a proper one, and in default of an application by the dissenting share holders, which includes those who do not assent, the shares of the dissentients may be acquired on the original terms by the transferee company. Accordingly, I think it is manifest that the reasons for inducing the court to 'order otherwise' are reasons which must be supplied by the dissentients who take the step of making an application to the court, and that the onus is on them of giving a reason why their shares should not be acquired by the transferee Company.

One conclusion which I draw from that fact is that the mere circumstance that the sale or exchange is compulsory is one which ought not to influence the court. It has been called 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 views of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. Accordingly, without expressing 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.'

19. The above view of the law has been followed by a Division Bench of the Bombay High Court in Government Telephones Board Ltd. v. Hormusji Manekji Seervai, 45 Bom LR 633: (AIR 1943 Bom 325), Beaumont C. J. at p. 648 (of Bom LR): (at p. 326 of AIR), observed:

'For myself I accept the view that the burden is upon the dissentient 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 153-B, 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 conflicting with that of the minority, for instance, being interested in the transferee company, and, therefore, willing to accept a less value for their share than they would have accepted if they had had no such interest. In cases of that sort the Court would certainly look critically at the opinion of the majority of shareholders; but nothing of that kind is suggested in this case. Another ground on which the Court might 'order otherwise', and that is the ground relied upon by the petitioners in this case, would be if it were proved that the acceptance of the offer was based on a wrong principle of valuing the company's assets, and that as a result of the adoption of that wrong principle the offer for the shares was substantially less than it ought to have been.'

20. The petitioners had had recourse to the remedies under Section 395 and then asked to withdraw their petition which was dismissed by me on 21-11-1957. Now the same matter is being agitated by a petition under Section 155 of the Companies Act, 1956. Inter alia the Court has tine power to rectify the register of members

'if the name of any person is, without sufficient cause, entered in or omitted from the register of members of a Company.'

21. In this case the names of the petitioners were removed from the register of the members of the Company in accordance with the provisions of Section 395 of the Act and that to my mind cannot be said to be 'without sufficient cause'. The remedy against proposed approval under Section 395 is provided by that section and it has to be invoked within the period of limitation specified therein.

If a remedy under Section 395 has not been availed of, or, the petitioners have by their own act of negligence or inactivity deprived themselves of that remedy, they cannot turn round and then claim to seek relief under Section 155 of the Companies Act on the ground that the omission of their names from the register of members of the Company was 'without sufficient cause.' The expression 'sufficient cause' implies the presence of legal and adequate reason.

22. The word 'sufficient' means 'adequate', 'enough', 'as much as may be necessary to answer the purpose intended.' It embraces no more than, that which provides a plenitude which, when done, suffices to accomplish the purpose intended in the light of existing circumstances and when viewed from reasonable standard of practical and cautious men.

23. 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 contemplation of Section 155 of the Act

24. 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 ot 'rectification' of the register arises. In Ward and Henry's case, in re-London, Hamburgh, and Continental Exchange Bank, (1867) 2 Ch. A. 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 not upon it, is wrong; but the register cannot be wrong unlessthere has been a failure on the part of the company to comply with the directions in the Act as to the kind of register to be kept: for if the Act has been complied with, the register must be right and not wrong.'

25. I do not think that according to the scheme of the Act, Section 155 was intended to provide relief where a remedy specifically provided under Section 395 had not been availed of or relief, if sought could not be given because of non-compliance with the provisions. Relief under Section 155 is not in the nature of an additional or alternative remedy. It is true that the jurisdiction conferred on the Court under Section 155 is very wide. It is almost unlimited but there is a discretion in the Court to grant or refuse the reliefs sought in the circumstances of each case and the applicant is not entitled to an order ex debito justitiae,

26. In this case I am of the view that reliet under Section 155 cannot be granted to the petitioners when a distinct and separate remedy was provided tinder Section 395 and it had been sought but later on given up when the objections raised by the opposite party were realised to be fatal.

27. Mr. Dalip Chand, learned counsel for thepetitioners, also tried to show that Section 395 was notapplicable to the facts of this case as there wasno proper scheme within the ambit of Section 395. Healso contended that omission on the part of thepetitioners to avail themselves of the benefits of Section 395, where the scheme was legally defective wasnot decisive.

In the circumstances alleged, he argued, that the omission of the names of the petitioners from the register of the Company was without sufficient cause. To my mind, this contention of the learned counsel for the petitioners is also without force. I have gone through the scheme and it suffers from no flaw, and is in accordance with Section 395. The scheme has also been approved by a majority of 99 per cent.

28. On behalf of the petitioners it was also urged that the scheme had not been shown to have been approved by holders of nine-tenths in value of the snares whose transfer was involved. The last argument is in the nature of an afterthought. There is no allegation in the petition that nine-tenths majority did not approve of the scheme and there is no allegation either, that shares had not been transferred. Reliance has been placed upon a stray sentence occurring in the statement of Shri Vishnu Kumar, Secretary of Dalrnia 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,'

29. 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 5-11-1957.

These share-holders 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 learned counsel for the petitioners to successfully maintain his contention, that the offer of the Transferee-Company had not been shown to have been accepted by the requisite majority. On the other hand, the petitioners' own case, according to the petition, assumed the acceptance of the offer of the Transferee Company by 99 per cent, majority. What was complained of was, that such an acceptance for various reasons, among others, sufficiency of material for evaluation of shares, and the high market value of its assets, being ten times the face value, was unfair and unreasonable.

The acceptance by the requisite majority was hot questioned, but what was alleged was that they had accepted less value as they did not stand to lose anything, being interested in the Transferee Company. It was admitted that 'the Transferee Company is wholly owned by the Dalmia Group which commands the majority of 99 per cent, in the Transferee Company.'

30. From the above averments contained in the petition (para 17) I am satisfied, that the petitioners argument to the effect, that acceptance of the scheme by the requisite majority had not been approved, cannot stand. On the other hand, the approval by the statutory majority had been admitted in clear language. I am of the considered view; that there was a valid scheme according to which the offer made by Swadesh Nirman Private Limited had been accepted by the requisite majority of the shareholders and the transfer of the shares of the petitioners had been effected in accordance with law. Apart from that, in this case, no relief can be granted to the petitioners, as their names were not omitted without sufficient cause, from the register of members of Dalmia Dadri Cement Limited, and therefore, the provisions of Section 155(1)(a) were not contravened.

31. The petition also deserves to fail, because the previous petition under Section 395 by petitioners was not pursued and was allowed to be dismissed as withdrawn, and Section 155(1)(a) cannot be stretched, so as to cover these cases where a separate and specific remedy is provided under Section 395.

32. The petition thus is without mearit and is,therefore, dismissed with costs.


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