N.M. Miabhoy, J.
1. This is a petition under Section 394, read with Section 391, Indian Companies Act, 1956 (No. 1 of 1956), for amalgamating two textile Mills. The petitioner is The Sidhpur Mills Company Limited, having its registered office at Sidhpur, District Mehsana, in the State of Gujarat, (hereinafter referred to as 'the Sidhpur Company'). The petition is opposed by one of the Directors of the Company, two partners of the firm of the Managing Agents and some shareholders of the company.
2. The Sidhpur Company was incorporated in about 1921 and, on the 1st of April 1959, the authorized capital of the company was Rs. 75 lacs divided into 50,000 ordinary shares of Rs. 100/- each and 25,000 preference shares of Rs. 100/- each and its issued, subscribed an paid up capital was Rs. 15,09,000/- divided into 15,096 ordinary shares of Rs. 100/- each. On 1st August, 1959, Messrs. Maganlal Prabhudas and Company were the managing agents of the company. The firm consisted of eight partners, five of whom were Ravindra, Surendra, Bipinchandra, Hareshchandra and Krishnakumar, all sons of one Maganlal, (hereinafter referred to in this judgment as 'the five brothers'). The other three partners were Babulal Chunilal, Dineshchandra Chimanlal and Chandrakant Amrilal. The last three are the cousins of the five brothers. On 1st April 1959, the five brothers held 2086 ordinary shares in the Sidhpur company, which roughly is 13.57 per cent of the total share capital of the company, and the other three partners, who are opposing the present petition, held 2384 shares, which roughly is 15.75 per cent of the total share capital. On 1st April 1959, the Sidhpur company was principally manufacturing cloth and yarn of coarse and medium counts, though recently, machinery for manufacturing fine and superfine goods had come to be installed.
3. The Sidhpur company is to be amalgamated with The Raghuvanshi Mills Ltd., having its head office at Bombay, (hereinafter called 'the Bombay company'). It was incorporated in 1923. The premises of this company were destroyed in a fire in 1944. New machinery was installed thereafter. Thus, the plant and machinery of the Bombay company is more recent and that of the Sidhpur company is, comparatively speaking, older. However, the evidence is that the latter has been kept in a more or less efficient condition. On 1st April 1959, the authorized capital of the Bombay company was Rs. 40 lacs, divided into 40,000 ordinary shares, and the issued, subscribed and paid up capital of the company was also the same. The managing agents of this company, on the aforesaid date, were Ravindra Maganlal and Co., Private Limited. The entire share-holding of his private company is held by the five brothers. On 1st April 1959, the five brothers held 27050 shares in the Bombay company, roughly constituting 67.b3 per cent of its total share capital and the other three partners of Maganlal Prabbudas and Co. held 5934 shares roughly constituting 14.83 per cent of the share capital.
4. On the 1st of April 1959, Shri Ratilal Nathalal was the Chairman of the Sidhpur company. In paragraph 14 of his affidavit, dated 21st June 1960, he has given the background in which the scheme of amalgamation For which sanction is asked for in the present petition was formulated and approved by the directors of the two companies. He deposes that, though the Sidhpur company was in existence for the last 39 years, its working results used to give cause for anxiety to the directors inasmuch as the company was unable to make sufficient profits even to earn its depreciation. He further deposes that a crisis took place In 1953 in the textile industry and, in the wake of that crisis, a radical change took place in the demand of the consuming public. The public demanded yarn and cloth of finer counts, instead of coarse and medium counts. He further deposes that, although this was so, the Sidhpur company was not able to alter its setup by reason of its capital structure and the storage of finances. Mr. Ratilal further deposes that a precipitous fall took place in the price of cotton yarn and cloth, of coarse and medium counts, and that, because of this, it was well-nigh impossible for the directors to run the Sidhpur company economically and profitably; and that, on account of the strain on the financial resources of the company, the directors felt that, if the same state of affairs continued for any further time, a stage might be reached when the directors might be compelled, very reluctantly, to close the Mills altogether on account of its uneconomic working; and that this would' have resulted in unemployment amongst its workers. In paragraph 15, Shri Ratilal further deposes that, in the light of the aforesaid circumstances, he and his co-director Trikamlal Girdharilal made, sometime prior to the month of May 1959, a suggestion for amalgamating the Sidhpur company with the Bombay company. He states that, at the relevant time, the Bombay company was in a more prosperous condition than the Sidhpur company. The Bombay company was engaged in the production of superfine cotton yarn and art silk fabrics which goods were either being sold locally or exported under the Export Promotion Scheme. Shri Ratilal further deposes that he and his co-director felt that, if a scheme was formulated for amalgamating the two companies, it would add to their prosperity and would result in mutual advantages to them. He deposes that, therefore, negotiations were started between the two companies, as a result of which a scheme was formulated by mutual consent. He states that that scheme was formulated after considerable discussion and deliberation and was, ultimately, placed before the Boards of Directors of both the companies and they decided to push forward the scheme.
5. The scheme consists of 19 clauses. Broadly speaking, under the scheme, the Sidhpur company purchases the entire estate, right, title and interest of the Bombay company and takes over all its existing assets, debts and liabilities. The scheme comes into effect from 1st April 1959, (hereinafter referred to as the relevant date). All the actions, suits and proceedings pending at the relevant date by or against the Bombay company are continued by or against the Sidhpur company. Services of the employees of the Bombay company are transferred to the Sidhpur company. The authorized and issued capital of the Sidhpur company is to remain at Rs. 75 lacs but divided into 75,000 ordinary shares of Rs. 100/- each. The Bombay company is dissolved. The Sidhpur company allots to each shareholder of the Bombay company, for every one snare held by him, 1 3/4th ordinary shares from its increased capital. The Sidhpur company terminates the . managing agency of Messrs. Maganlal Prabhudas and Company with effect from the relevant date and appoints Messrs. Ravindra Maganlal and Company, Private Limited, its managing agents, and Messrs. Maganlal Prabhudas and Company shall not be paid any compensation for loss of employment. The scheme gives power to the Board of Directors of both the companies to assent to any variation, alteration or modification of the scheme and/or to any condition that may be imposed and/or any direction that may be given by the Court in respect thereof.
6. The petitioner contends that, by the aforesaid scheme, it will be acquiring the good-will of a prosperous textile mill; that both the units will have the benefits arising out of a community of administration; that one unit will be complementary to the other inasmuch as the petitioner is predominantly s manufacturer of coarse and medium products, whereas the Bombay company is a manufacturer of fine and the superfine goods; that each company will derive the benefits which the other is enjoying in the matter of exports and imports; and that the managerial remuneration payable to one set of managing agents will be far less than that payable to two sets. The main advantage of the scheme for the Sidhpur company is said to be that, whereas there is no reasonable prospect for the shareholders of the Sidhpur company to get any dividend in near future, by reason of the amalgamation of the two companies, they will have a reasonable prospect of getting dividends almost immediately, although the company had not Been able to pay any dividend for a number of years in the past.
7. Both the Sidhpur and the Bombay companies made petitions under Section 391 of the Companies Act, 1956, to the High Court of Bombay for calling meetings of their respective shareholders for consideration of the aforesaid scheme. The High Court ordered the meetings to be called on 19-2-1960. The petitioner issued a notice to its shareholders calling a meeting on 19-2-1960 for consideration of the scheme. A statement was annexed to the notice as required by Section 393, Clause (a) setting forth the terms of the scheme and certain other matters, to be presently mentioned. The Sidhpur company also summoned another meeting of its shareholders for the purpose of considering certain resolutions which it thought were required to be passed to carry out the scheme. On 19th February 1960, therefore, two meetings of the shareholders of the Sidhpur company were held. One was the official meeting at which a resolution was moved for approval of -the scheme. The second was an extraordinary general meeting at which some resolutions, one of which is relevant in the present proceedings, were moved and passed. It is not disputed that, at the official meeting, the scheme was passed by a majority of about 85 per cent of the shareholders present and voting, either in person or by proxy. The resolution which was passed at the extraordinary meeting of the company which is material in this petition is resolution No. 11. That resolution stated that, subject to the requisite consent of the Controller of Capital issues under the Capital Issues (Control) Act, 1947, the Board of Directors are empowered to allot such number of shares and/or Fractional Certificates to such persons as may be entitled thereto by virtue of the scheme of amalgamation of the Bombay company with the Sidhpur company when sanctioned by that company and all other interests concerned and sanctioned by the High Court of Judicature at Bombay. The resolution further added that the Board of Directors was thereby authorized
'to do all acts, deeds, matters and things and exercise all such powers and authorities, make all such arrangement of and incidental and in relation to the issue and allotment as aforestated including the terms thereof and waking arrangement for the acceptance, allotment and sale of such shares and/or Fractional Certificates or otherwise in the premises'.
8. After the aforesaid resolutions were passed, but, before a petition under Section 394 of the Indian CompaNIES ACT could 'be filed by the Sidhpur company to the High Court of Bombay, some of the opposing shareholders filed a suit on 27th February 1960 in the City Civil Court at Bombay, in which they obtained a temporary injunction against the Sidhpur company, restraining it from taxing further action in pursuance of the resolution approving the scheme. That temporary injunction, however, was dissolved in an appeal to the High Court of Bombay, and it was thereafter that the present petition was filed on 1st March, 1960.
9. The same procedure which was followed by the Sidhpur company was also followed by the Bombay company for the approval of the scheme. The share-holders of the Bombay company approved the scheme by the requisite majority and, thereafter, the Bombay company filed a petition also under Section 394 of the Indian CompaniesAct in the High Court of Bombay for sanctioning that scheme.
10. After the reorganization, both the aforesaid petitions continued to be pending in the High Court of Maharashtra. However, later on, the opposing shareholders raised a contention before that Court that, after the reorganization, the 'High Court of Maharashtra had no jurisdiction to (SIC) with the petition of the Sidhpur company and that the only Court which had jurisdiction to do so was the High Court of Gujarat. On this contention being raised, the learned Chief Justice of the High Court of Maharashtra, in exercise of the powers conferred upon him by the States Reorganization Act, transferred the present petition to this Court and that is how this petition comes up for hearing in this Court.
11. The petition is opposed by Babulal Chunilal, Chandrakant Amritlal, Dineshchandra Chimanlal and some others. Babulal Chunilal is the director of the Sidhpur company. He, Chandrakant Amratlal and Dineshchandra Chimanlal are partners In the firm of the managing agents of the Sidhpur company. These persons are supported by same shareholders of the company. The total share-holding of these persons is about 899 share. Some of these shareholders were present at the official meeting of the company in person or by proxy and voted in favour of the resolution approving the scheme. The contention of these share-holders is that certain material facts affecting the amalgamation were not brought to their notice and w're not known to them when the official meeting was (SIC) and the resolution was considered. They state that certains important facts have been brought to light which have a hearing on the scheme and, in the light of those benefit facts, they think that the scheme is not for the, benefit of the shareholders of the Sidhpur company. They maintain that if they had known these facts when they gave their proxies or when they voted at the meeting, they would not have voted for the scheme.
12. It is not disputed that, as a result of the amalgamation and the consequent allotment of new shires in the Sidhpur company, the total holding pf the five brothers in the amalgamated company will be 49326 shares, constituting roughly 57.29 per cent of the total share capital of that company as against 13.57 per cent which they have in the Sidhpur company and that the total holding of the opposing partners will be 12769 shares in the amalgamated company, constituting roughly 15 per cent of the same capital as against 15.75 per cent at present held by them in the Sidhpur company.
13. The opponents oppose the scheme on various grounds. Their first contention is that the statutory requirement mentioned in Section 393, Sub-section (1), Clause (a) of the Companies Act, 1956, is not complied with. They contend that two material facts were not communicated to the shareholders of the Sidhpur company in the statement attached to the notice convening the official meeting. The opposing partners of Messrs. Maganlal Prabhudas and Company contend that the five brothers ought to have communicated to the shareholders that they were holding 27050 shares in the Bombay company and explained that the result of the amalgamation would be that they would come to be allotted 47345 shares in the Sidhpur company which together with their existing shareholding would give them 57.29 per cent of the total number of shares of the amalgamated company, thereby giving them a majority vote at any meeting of the amalgamated company. The opposing shareholders contend that it was necessary not only for the aforesaid five brothers, but also for the directors of the company and the other three opposing partners to state that their total holding in the Bombay company amounted to 33304 shares and that, as a result of the amalgamation, the new shares which would come to be allotted to them would be 58,282 shares, which, together with the existing shareholding of the five brothers and the other opposing partners and the directors in the Sidhpur company would make 62,752 shares in a total share capital of 85096 shares, which roughly would constitute about 74 per cent of the total number of shares of the amalgamated company, thus giving them almost 3/4th majority vote at any meeting of the company. The second contention is that the ratio of shares which was given to the Bombay company for transferring its assets and liabilities to the Sidhpur company was unfair and unreasonable and that the directors had not taken into consideration all the relevant circumstances bearing upon that ratio, and that, if all the material facts had bean properly considered and assessed, the ratio would not have been that which was actually agreed to he allotted to the shareholders of the Bombay company. It is, therefore, contended on these and certain other subsidiary points, which will be presently mentioned, that the scheme was unfair and unreasonable, and that, on that ground, the schema ought not to be sanctioned.
14. Before I consider the objections of the opponentsIn detail, it will be useful to consider the cases citedat the bar as to what should be the correct approach otthe Court in a petition under Section 394 of the IndianCompanies Act, 1956. The main principles were not indispute. However, there was considerable discussion asto on whom lay the burden of proving that the schemewas fair and reasonable. Both the sides relied upon twoEnglish cases. However, each one, in support of its contention, sought to emphasise different judgments delivered In those two cases and different passages therefrom. The learned Solicitor General relied upon the judgment of Vaughan Williams, J. in re English, Scottish and Australian chartered Bank, (1893) 3 Ch. 385. He specially relied upon that part of the judgment of the learned Judge in Which he had observed that the burden of proof, according to the next case to be just mentioned, was upon theopponents. At pp. 397 and 398, the learned Judge has made the following observations:
'At all events, be that how it may, I am of opinion that I have no choice but to follow the rule that has been laid down by the Court of Appeal in fn re Alabama, new Orleans, Texas and Pacific Junction Rly. Co., (1891) 1 Ch 213. I do not now, any more than' I did in the course of the argument, agree with the suggestion made by Sir Horace Davey as to the meaning of the following words of Lord Justice Lindley (1) : 'The Court must look at the scheme, and see whether the Act has been compiled with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent'. Sir Horace Davey suggested that the Courts had no option or discretion but to approve the scheme, unless there was evidence which justified them in saying that the majority were not acting bona fide, or were 'coercing the minority in order to promote interests adverse to those of the class whom they purport to represent' -- a passage which Sir Horace Davey seemed to think was practically identical in effect -- a mere alternative statement --with immediately preceding, 'whether the majority are acting bona fide'. But it seems to me that the words of lord Justice Lindley, which immediately follow those which I have read, shew that that is not what Lord Justice Lindley meant. He proceeds as follows: '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'. Then Lord justice Lindley, when he proceeds ft deal with Mr. Rigby's argument in details, plainly declines to treat the matter as resting upon the mere basis that the resolution of the creditors, not having been shewn to be mala tide, leaves him no discretion. He goes on to deal with the question of whether the scheme is a reasonable scheme or not, and says (2) 'Therefore, if you hah at it from a commercial point of view, and not from a lawyer's point of view, you are in a decidedly better position by this scheme than you would be if things were felt alone. That is the view of the majority. Now can anybody say that this is not a reasonable view for the majority to take? Whether they have other interests or not, I think we ought to see whether anything can be said against the reasonableness of the view taken by the majority of the first debenture-holders, without reference to whether they are second debenture-holders, or whether they are shareholders or not. Can anybody say that this Scheme is not in a commercial sense extremely advantageous to them, having regard to their position?'
After quoting from the judgment of Lord Lindley as aforesaid, Vaughan Williams, J. proceeds further and makes the Allowing observations:
'Then Lord Justice Bowen and Lord Justice Fry deaf with the matter in much the same way, with this exception, that it is quite obvious that they think that the onus of shewing that the scheme is unreasonable is rather on those that object to the scheme than on the majority of the creditors who have supported it. These two judgments seem to me to hold that the duty of the Court is to approve of the scheme, unless there is something before it which shews it either that the scheme was not made in good faith, or that it is a scheme that, so far from being fair and reasonable, is one that an intelligent and honest man, acting alone in respect of his interests, could act approve of.'
Mr. Amin did not take any exception to the statement of law as to what is required to be proved in a petition for sanctioning a scheme made by Vaughan Williams, J. and which statement was culled out by the learned Judge from the judgment of Lord Justice Lindley. But, he strenu(SIC) contended that the view which Vaughan Williams, J. had taken, viz. that the other two Lord Justices Bowen and Fry, whilst laying down the same law as to the comet approach in a petition for sanctioning the scheme, bad further held that the burden of proof was on the opposing creditors or members, was not justified by the judgments delivered by those two Lord justices. For this purpose, Mr. Amin read extensively from the judgments of those two Lord Justices in (1891) 1 Ch 213, at pp. 242 to 248. The judgments of both these learned Lord Justices were read extensively In my Court. I find nothing in any of the two judgments which bears out the observation at Lord Williams, J. that those two learned Judges had said down that the burden of proof was on the opposing erectors. The learned Solicitor General conceded that there was nothing in any of those two judgments which said in specific terms that the burden of proof was on the opposing creditors or members. But, he contended that such a decision was implicit in the judgments delivered by thosa two Justices. The only passage which he could point out in support of this contenlion was the following passsage is the judgment of Bowen, L.J. at p. 244:
'The true conclusion is that the mass of first-class debenture-holders take the view that this commercial scheme will work, and that it is the best thing that can be dono In the interest of themselves as holders, of first class debentures'.
I do not agree that the aforesaid passage bears out the contention of the learned Solicitor General. I have no doubt whatsoever that, in that passage, Bowen, L J. was not at all discussing the question of burden of proof. Some of the passages in the judgment of Lindley, L.J. are capable of being read as if the learned Judge inteaded to threw the burden upon the opposing creditors or members. For example, in the following passage, where the learned fudge has put a number of questions which require to be answered in a petition of the present kind, language is used in such a way that it is open to anyone to contend that the learned Judge intended to them the burden upon the opposing creditors or members.
'Therefore, if you look at It from a commerce) point of view, and not from a lawyer's point of view, yea are in a decidedly better position by this schema than you would be if things were left alone. That is the view of the majority. Now, can anybody say that this is not a reasonable view for the majority to take? Whether they have other interests or not, I think we ought to see whether anything can be said against the reasonableness of the view taken by the majority of the first debunture-holders, without reference to whether they are second debenture-holders, or whether they are shareholders or not. Can anybody say that this scheme is not in a commercial sense extremely advantageous to them, having regard to their position?'
However, t do not think that the learned Lord Justice considered the question of the burden of proof to the aforesaid passage or any other passage of his judgment.
In above passage, the learned Lord is only pointing out what points were required to be answered without intending to lay down on whom the burden of proof lay. This passage was not read or construed by Vaughan Williams in that sense; nor was it contended by the learned Solicitor General that it should be read or construed in that way. The learned Solicitor General, however, placed reliance upon 'the case In re, Hindusthan General Electric Corporation Ltd., reported in AIR 1959 Cal 679, in support of his contention. That is a decision of a single Judge of the Calcutta High Court. The learned Judge was considering a petition under Section 391, Sub-section (2) of the Companies Act. At page 681, the learned Judge makes the following observations:
'It has been repeatedly held that the onus of proving unreasonableness or unfairness about the scheme or of want of good faith is on those who object to the sanction of the scheme. It is not necessary to refer to many cases on this point but reference may be made to the decision ip (1893) 3 Ch 385 at p. 399 (top), It seems to me that this onus has not been discharged by Mr. Mitra's client but only certain vague and general assertions devoid of any particulars have been made in the affidavit in opposition.'
The observations of the learned Judge are entirely based upon his reading of the judgment of Bowen, L.J. As already stated, I have gone through the whole of the judgment of that learned Judge and specially that part which is reported at p. 399 which is referred to by the learned Judge of the Calcutta High Court. I am unable to discover anything therein which would even remotely show that Lord Bowen laid down or intended to lay down that the burden of proof was on the opponents. In the above passage, the learned Judge of the Calcutta High Court has observed that it has been repeatedly held that the onus of proving unreasonableness or unfairness is on those who object in the sanction of the scheme. The learned Judge has, however, not quoted any authority for this particular proposition. The learned Solicitor General was unable to point, out to me even a single authority other than AIR 1959 Cat 679, in which such a proposition was laid down. In fact, he stated that that was the solitary case reported In India under Section 391 of The Indian companies Act which he had been able to discover. In my judgment, Mr. Amin is right that, in Re Alabama's case, (1891) 1 Ch 213, it has not been decided that the burden of proof is on the opposing creditors or members. Having regard to the above considerations, in my judgment, it is not possible to say that there is authority for the proposition that the burden is on the opponents to show that the scheme is not a fair and proper one. In my judgment, having regard to the fact that the petitioner company seeks sanction for the scheme and that it is the duty of this Court to see that the scheme is a fair and reasonable one, the initial burden is on the petitioner to show that, prima facie, the scheme is fair and reasonable - such as a prudent and reasonable shareholder would approve of and not object to. This was the only point in dispute regarding the approach to the case. Otherwise, both the sides relied upon the judgment delivered by Lord Lindley, J. as to the correct approach to a case of the present type. The function of the Court in a case of the present type is two-fold. The first function is to determine whether the statutory requirements as laid down in Section 391 of the Companies Act have been complied with. The requirements which have been laid down in Section 391 are the sine quo non for sanctioning the scheme. Those requirements must be complied with by the company concerned and, if it has failed to do so, then, no further question arises in the matter. However, even if the statutory requirements have been complied with, that does not mean that the Court must sanction the scheme as a matter of course. The Legislature has purposely left discretion with the Court in this respect. In spite of the fact that a majority of 3/4ths has sanctioned a scheme, the Court is not bound to sanction it on the ground that the majority has accepted it If this were the law, then, a petition to the Court would be a superfluous thing. The very fact that the Legislature has said that, even after the requisite majority has sanctioned a scheme, the Court must be approached and sanction obtained, itself, indicates that the Court should apply its judicial mind to the scheme and reach a conclusion of its own. Probably, this has been so done because the effect of a scheme which is not unanimously passed is likely to affect the interests of the dissentients and, even if the scheme is unanimously passed, it is likely in some cases to affect the interests of those who may not have voted or failed to vote or even may not in law have had a right to vote. The discretion has been deliberately given by the Legislature to the Court so that the interests of those who do not see eye to eye with the majority or of those whose interests are affected by the scheme may be protected. In a case where a scheme is voted by a majority, two conflicting claims are to be adjusted. If, on the one hand, a minority were to take up an unreasonable attitude in the matter of the scheme, then, the interests of the majority will suffer if the scheme cannot be pushed through -- a scheme which the majority considers to be reasonable and in the interest of the company and the class of persons whom it represents. In that case, the majority will suffer on account of the intransigence of the minority. On the other hand, if the majority has interests adverse to the minority or where a majority has been rigged up, the minority is bound to suffer or to be tyrannised by sheer strength of numbers. Therefore, the legislature has provided that if a meeting has taken a certain decision, then, the Court must apply its mind and consider whether it is in the interest of the company as a whole and of the class of persons for whom the majority acts and whether the scheme is such that it must be pushed through. Therefore, the correct approach to a case of the present kind is to bear in mind that the Court is neither called upon merely to register a decision of the majority, nor is it called upon to act in such a manner that the minority will create a statemate and thereby retard the progress which the majority has legitimately and reasonably a right to expect and make. It is for the latter reason that the Judgments in Alabama's case, (1891) 1 Ch 213, point out that due weight must be accorded to the fact that the majority has recorded a decision in favour of the scheme and the Court must not lightly ignore or set aside that decision. But, that is not the only thing which the Court is required to do. Whilst bearing that fact in mind, the Court must decide whether the scheme is, on the whole, one which deserves to be sanctioned, and, in doing so, the Court must test the scheme not. from the point of view of a lawyer or an accountant or an expert, but, if must look at it from the point of view of a reasonable and a fair-minded person. The test in all such cases is to determine how a reasonable person, endowed with ordinary commonsense and acting honestly; will view the scheme having regard to all the circumstances' bearing reasonably and properly on it. When we are dealing with a company which is dealing in commerce or industry or with similar activities, then, the scheme has got necessarily to be looked at from the point of view of a prudent commercial man. Viewing the scheme in this way, if the Court comes to the conclusion that it is one which a fair and reasonable person viewing from a commercial .point of view can approve, then, the Court should not, subject to some other considerations, interfere with the scheme, But, in every case, the Court must be satisfied that the majority is acting in a bona fide manner. It is only if the majority is acting honestly and with due care and caution that the decision will be binding upon the minority. If the Court finds that the majority is acting in a mala fide manner, then, it is the duty of the Court to protect the minority from the tyranny of the majority.
From this angle, the Court may have to consider whether the minority is or is not being over-ridden by a majority having interests of its own, clashing with those of the minority. In all such cases, the majority must act in the interests of the class whom it represents. If the majorityhas other interests in the matter, then, the Court mustbe satisfied that the majority in taking its decision isnot influenced by the effect which the scheme is going to have on those other interests. The decision of the majority can be respected only in so far as the Court is satisfied that the majority is acting honestly for and on behalf of the interests which it seeks to represent and,if, in any case, the Court finds that the majority is acting dehors the interests of the class whom it seeks torepresent, then, the decision will not have that sanctity which it otherwise will possess. In considering this question, the Court must also bear this point in mind that, after all, it is dealing with a compromise, and that, on the same subject, honest people are likely to entertaindifferent opinions. The Court will not view the Scheme with a view to find out whether it is an ideal scheme. The Court will consider it bearing in mind the fact that commercial people, when they have got to deal with a number of points, some of them difficult to decide, are likely to emphasize some points on some occasions or in some' situations and to minimise or ignore them on some pother occasions or situations. Therefore, the scheme has not got to be scrutinized by the Court with that much care with which an expert will scrutinize it; nor will it approach it in a carping spirit with a view to pick holes, in it. If the majority is acting In a bona fide and honestmanner and in the interests of the class that it purports to represent, then, if the scheme is such as a fair-mindedperson, reasonably acquainted with the facts of the case, as prevailing at the time when the scheme was sponsored.and approved, can regard it as beneficial for those whom the majority seeks to represent, then, unless there aresome strong and cogent grounds to show that the scheme was conceived, designed or calculated to cause injury to others, the Court will ordinarily sanction it, rather than reject it. In this connection, one of the points which was brought out in the judgment of Bowen, L.J. has a relevance and needs to be mentioned. That point must equally be borne in mind. This is what Bowen, L. J. said:
'Now, I have no doubt at all that it would be improper for the Court to allow an arrangement to be forced on any class of creditors, if the arrangement cannot reasonably be supposed by sensible business people to be for the benefit of that class as such, otherwise the sanction of the Court would be a sanction to what would be a scheme of confiscation. The object of this section is not confiscation. It is not that one person should be a victim, and that the rest of the body should feast upon his rights. Its object is to enable compromises to be made which ate for the common benefit of the creditors as creditors, or.for the common benefit of some class of creditors as such.
Now, it is very important to observe that creditors of the company may have other interests besides those of creditors, and that there may be a class of creditors composed of many individuals -- some of whom have only interests as members of that class but others of whom may have interests of a predominant kind which they hold, not as members of that class, but because they belong also to some other class of creditors, or because they also belong to the body of shareholders of the company. Therefore, although in a meeting which is to be held under this section it is perfectly fair for every man to do that which is best for himself, yet the Court, which has to see what is reasonable and just as regards the interests of the whole class, would certainly be very much Influenced in its decision, if it turned out that the majority was composed of persons who had not really the interests of that class at stake.'
15. Therefore, in my judgment, the correct approach to the present case is (i) to ascertain whether the statutory requirements have been complied with, and (ii) to determine whether the scheme as a whole has been arrived at by the majority bona fide and in the interests of the whole body of shareholders in whose interests the majority purported to act, and (iii) to see whether the scheme is such that a fair and reasonable shareholder will consider it to be for the benefit of the Company and for himself. The scheme should not be scrutinized in the way a carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel would do it, each trying to find out from his professional point of view what loopholes are present in the scheme, what technical mistakes have been committed, what accounting errors have crept in or what legal rights of one or the other sides have or have not been protected. It must be tested from the point of view of an ordinary reasonable shareholder, acting in a businesslike manner, taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. I am emphasizing the last point because an argument was made by Mr. Amin that certain circumstances or events which took place after the scheme had been considered should be taken into account. I do not wish, to be understood to say that, in no case post facto circumstances or events cannot be taken into account, but, on the whole, I have come to the conclusion that, whilst, In some rare and exceptional cases, the Court may take into consideration subsequent events to protect the interests of the company or the shareholders, as a general rule, the Court should consider the resolution on the footing of the circumstances which were in existence at the time when the scheme was formulated, deliberated upon and approved. If any other approach were to be made, then, in that case, there would be no sanctity about business contracts. In fact, such an approach may induce interested persons to shape future events and circumstances in such a way as to convert a reasonable scheme into an unreasonable one.
16. Having considered the principles governing the correct approach, I propose to consider in detail the arguments urged by the counsel on both the sides.
17. As I have already slated, the first contention of the opponents is that the statutory requirements laid down in Clause (a) of Sub-section (1) of Section 393, were not complied with. Before I state the objections raised by Mr. Amin, it will be proper to read and quote the section itself as a whole. It is necessary to quote the whole of the section because the learned Solicitor General contends that, for the purpose of construing Clause (a), I must bear in mind, not only the provisions of that clause, but also the other provisions of the section. Section 393 is as follows:
'393. information as to compromises or arrangements with creditors and members -
(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under Section 391,--
(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement selling forth the terms of the compromise or arrangement and explaining its effect; and, in particular, stating any material interests of the directors, managing director, managing agent, secretaries and treasurers or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and in so far as, it is different from the effect on the like interests of other persons; and
(b) id every notice calling the meeting which is given by advertisement, there shall be included either such a Statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.
(2) Where the compromise or arrangement affects the rights of debenture holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors.
(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.
(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company:
Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, managing agent, secretaries and treasurers, manager or trustee for debenture holders, to supply the necessary particulars as to his material Interests. (5) Every director, managing director, managing agent, secretaries and treasurers or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to five hundred rupees'. The Clause (a) may be divided into two principal limbs. Each limb will contain two parts. The first limb gives a direction that the notice calling the meeting must contain two things; (i) a statement setting forth the terms of the compromise or arrangement, and (ii) explaining its effects. The second limb directs that the statement shall contain (i) material, interests of the directors, managing director, managing agent, secretaries and treasurers or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and (ii) the effect on those interests, of the compromise or arrangement, if, and in so far as, it is different, from the effect on the like interests of other persons.. There is no dispute that the first part of the first limb-.f the clause has been complied with, namely, that, along, with the notice, a statement, setting forth the terms of the scheme, were sent. Mr. Amin's contention, however, is that the second part of the first limb of the clause has not been complied with, namely, that which directs that the effect of the scheme must also be explained in the statement. Mr. Amin's contention is that two things should have been mentioned in the statement and that, as this. is not done, the effect of the scheme has not come to be explained to the shareholders. Mr. Amin contends that the details of the processes by which the ratio of 1 3/4th shares had been arrived at should have been mentioned, in the statement accompanying the notice and, secondly, that the statement should have mentioned to the shareholders that the benefit which was to accrue to the amalgamated company on account of the carry forward losses representing the unabsorbed depreciation was subject to the sanction which was to be accorded by the Controller of Capital Issues. As regards the second limb of Clause (a), the contention of Mr. Amin is that it was necessary that the shareholding of the five brothers In the Bombay company should have been mentioned in the statement. The: contention is that the statement should have mentioned that the five brothers held between them 27057 shares in the Bombay company, and that, as a result of the amalgamation, they would get 13/4 shares in the Sidhpur company for each of those shares. He also contends that the shareholding of the relatives and the supporters of the five brothers in the Bombay company also should have been mentioned in the statement. Secondly, he contends that it was also necessary that the statement should have mentioned that the result of the aforesaid amalgamation would be that the relatives and supporters of the five brothers-would get 13/4 shares in the Sidhpur company for each share of the Bombay company held by them. He also contends that it was also necessary to mention in the statement that, as a result of the allotment of new shares in the Sidhpur company, the five brothers would come to hold in the amalgamated company 49326 shares, and that, that share-holding represented 57.29% of the total share-capital of the amalgamated company. He further maintains that they should have also mentioned in the statement the number of new shares which would come to be allotted to their supporters and relatives and the total percentage or shares which all these persons combined together would come to hold. On the same lines, Mr. S.K. Desai, the learned counsel for the opposing shareholders, contends that the total share-holding of all the directors and all partners of the managing agents should have been mentioned and it should have also been further mentioned that the result of the allotment of the shares in the new amalgamated company would be that the directors and managing agents would between them come to hold about 74% of the total number of shares of the amalgamated company.
18. Before I deal with the contentions which were urged by the learned Solicitor General which related to the construction of Section 393, Indian Companies Act, I propose to dispose of the contention of Mr. Amin that, under the aforesaid clause, it was necessary for the Sidhpur company to mention the share-holding of the friends and relatires, of the five, brothers and the directors the Sidhpur company in the Bombay company. The latter part of the Clause (a) deals with the material interests or only the persons mentioned therein. The persons mentioned are directors, managing director, managing agent, secretaries and treasurers or manager of the company. The clause does not state that the interests of the friends or supporters or relatives of any of the aforesaid persons should be mentioned in the statement. Therefore, in my judgment. It was not necessary to mention in the statement the share-holding of the relatives or the friends or the supporters of the directors and the managing agents.
19. I may also dispose of another contention of Mr. Amin viz. that the details as to how the ratio Had been arrived at and the fact that the benefit which was likely to accrue to the amalgamated company on account of the unabsorbed depreciation was subject to the sanction of the Controller of Capital issues, should have been mentioned in the statement. Mr. Amin contends that these two things Were necessary to be mentioned for the purpose of explaining the effect of the scheme, I cannot agree with this contention. It is true that the first part of Clause (a) requires not only that the terms of the scheme must be stated, but, it further requires that the effect of the scheme must be explained. Therefore, the statement must contain not only the terms of the scheme, but must also further explain as to what its effect would be. The clause does not state in terms as to the effect on what has got to be mentioned in the statement Broadly speaking, however, it is quite clear that what has got to be explained are not the details of the scheme, but, the effect which the scheme will have obviously on such matters as the welfare of the company and the welfare of its shareholders or creditors, with whose interests the scheme purports to deal. 'Effect' means consequence, a condition which arises as a result of a certain course of action. If there is anything in the scheme, compromise or arrangement, which is not quite obvious to a person, reasonably acquainted with the facts of a case, by merely reading the terms of the scheme, then, a duty is cast upon the persons concerned to mention what the consequence will be if the scheme is approved of. In other Words, it is only the consequence or the result Which has gat to be explained which would arise on account of the approval of the scheme. If something is implied in the scheme, which is not obvious, the same must be brought to the notice of the shareholders. However, the statement does make a specific mention about one of the above two things. The statement does mention that the shareholders of the Bombay company will be given 13/4 shares in the Sidhpur company for each share held in the Bombay company. That matter is self-evident and will be known to anyone who cares to read the statement. No further explanation on that particular point is called for. The details as to the way in which the ratio was arrived at is not a matter relating to the effect of the scheme. That is a matter of detail and pertains to things required to be considered for fixing the ratio. Similarly, as regards the second matter, it is quite obvious that the benefit which the directors expected to receive far the amalgamated company on account of the existence of a large unabsorbed depreciation was one of several matters which induced them to sponsor the scheme, but, it cannot be said that this was the consequence or the result of the scheme. Under the circumstances, I cannot agree with the submission of Mr. Amin that the above two facts should have been mentioned in the statement accompanying the notice.
20. Before I deal with the further submissions of Mr. Amin, it is necessary to dispose of questions raised by, the learned. Solicitor General, relating to the construction of Section 393(1), Clause (a) in so far as the second part of that clause is concerned. I may again mention that that part of the clause requires two things to be mentioned in the statement, viz. (i) the material interests of several persons, and (ii) the effect of the scheme on those interests, if, and in so far as, it is different from the effect on the like interests of other persons. There is no dispute that every kind of interest is not to be mentioned. Only material: interests are to be so done. The question as to what isj material interest or not, may not be considered at this. stage. But, the poser which the learned Solicitor General raises regarding this part of the clause is as to what 'interests' are covered by this part of the clause. He contends that interests of the concerned persons in the company atone are to be mentioned and not interests in anything' dehors the company. The effect of the construction which the learned Solicitor General seeks to place upon this part, of the clause will be that only Interests in the Sidhpur company should have been mentioned and not those in the Bombay company. Thus, the contention of the learned Solicitor General is that interests which are to be mentioned are those which directors, managing director, managing agent, secretaries and treasurers or manager of the company (hereafter called the persons concerned) hold in a company in relation to which they hold such positions and not in relation to some other company. The learned Solicitor General contends that the aforesaid submission is reinforced by the last part of the clause which enacts that the effect on those interests is required to be mentioned only if, and in so far as, that effect is different from the effect on the like interests of other persons. The contention is that the like interests mentioned In the last part of the clause means material interests spoken of in the first part of the clause. Therefore, the submission is that, in applying the section, the Court must have regard only to interests which the persons concerned have in the company of which they are holding the positions as mentioned in the section and not interests In any other company, corporation or body. The learned Solicitor General prefaced his submission on this point by drawing my attention to the fact that a breach of any of the conditions of the clause is made penal by Subsection (4). Therefore, the argument is that Clause (a) must be construed strictly and in such a manner as to ensure that a person does not come to be punished for something which, on a bare reading of the clause, he will not be in a position to find with reasonable certainty.
21. Now, I find great difficulty in construing the first part of the second limb of Clause (a) as being confined only to the interests of the concerned persons in the company in respect of which the scheme is being propounded. I find it difficult to do so for more than one reason. In the first instance, the second limb of the clause appears to be a species of that which is provided for In the first limb of the clause. The main provision of the clause is to be found in the first limb and the second limb is only a particular illustration of that which is required by the first limb. The first limb requires that the terms or the scheme must be sent to the shareholders and its effect-explained. The second limb specifies the particulars of the scheme which must be brought to the notice of the shareholders. It is to emphasise this aspect that the second limb of Clause (a) begins with the phrase 'in particular'. In-other words, the second limb mentions some of the particulars, all of which the first limb requires to be mentioned. From this, it must follow that, as the first limb deals with the terms of a scheme, the second limb also must necessarily deal with the same topic, viz. the terms of the scheme. If the Legislature, after-having spoken in the first limb about the terms of the scheme, intended suddenly to switch off to some other topic, then, probably, the Legislature would have used appropriate language to convey the idea that the interests which it had in mind were interests which related to something else. Secondly, the provisions of Clause (b) and sub-section (3) show that the two limbs of Clause (a) deal with one and the same topic, viz. the compromise, arrangement or scheme. In Clause (b) of Sub-section (1), it is laid down that If the notice calling the meeting does not include 'the statement' in Clause (a) a notification of the place at which and the manner in which the shareholders may obtain 'the copies of such statement' should be published. Sub-section (3) easts a duty upon the company to furnish free of charge to the shareholder a copy of 'the statement' if an application happens to be made for the purpose by the shareholder. There cannot be any doubt that the term 'statement' used in both Clause (b) and Sub-section (3) refer to 'a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect.' The first part of Sub-section (3) says so in express terms. In my judgment, both in Clause (b) and Sub-section (3), the expression 'statement'covers not only the first but also the second limb ofClause (a). It will be unreasonable to hold that, under Subsection (3), the Legislature requires a copy of the particulars.referred to in the first limb of Clause (a) to be furnished and not a copy of the particulars referred to in the second limb. Though this is quite clear, it is significant to notice that the Legislature has not referred to the second limb of Clause (b) and Sub-section (3) in express terms. In my judgment, the Legislature has not done this because, inits view, the second limb of Clause (a) deals with only some of the particulars of the matters to be mentioned under the first limb thereof. In other words, in enactingClause (a), the Legislature has envisaged the statement referred to therein as one whole statement and this is a clear indication of the fact that the interests mentioned in the second limb deal with the interests in the scheme referred to in the first limb of Clause (a).
22. Moreover, the expression 'whether in their capacity as such or as members or creditors of the company or otherwise' does not fit in with the contention of the learned Solicitor General. That expression makes it clear that the interests which are particularly to be mentioned by the concerned persons are not interests which they hold or possess as such concerned persons in the company, but also 'or otherwise'. This is a clear indication of the mind of the Legislature that the interests which a director etc. has to mention in the statement is not only the interests which he holds or possesses as such director, but all the interests which he holds or possesses in any other capacity. In my judgment, the section is cast in the widest possible terms. It states in express terms that the interests which the director possesses not only as a member or a creditor but any other interests which he possesses in any other capacity has got to be mentioned in the statement under Clause (a). In other words, if the director possesses any interest of whatever kind in the scheme, then, that interest must be staled in the statement accompanying the scheme.
23. It would follow from this that the effect on that interest of the scheme must also be mentioned in the statement if and In so far as that effect is different from the material interests which any other person interested In the scheme may have. The learned Solicitor General contends that the last part of the second limb which requires the effect of material interests to be stated supports hissubmission. His contention is that the expression 'likeInterests of other persons' refers to the interests of those persons in the company itself and has no relation to the scheme referred to in Clause (a). This argument is untenable. The latter part of the clause says that what is to be mentioned is the effect of the scheme. In other words, the effect which has got to be explained is the effect on 'those' interests, meaning the interests of the director, etc., whether in the company or dehors the company. The effect which is to be explained is the effect of 'compromise or arrangement'. Such an explanation is to be given only if and in so far as the effect on those interests is different from the effect on 'the like interests of other persons'. The expression 'the like interests of other persons' obviously has reference to material interests of persons other than those mentioned as concerned persons in Clause (a) The comparison which is to be effected is between the material interests of the concerned persons and the material interests of the non-concerned persons. The argument of the learned Solicitor General is based upon the submission that the expression 'like interests' in the last part of Clause (a) refers to the interests in the company and to no other interests. In other words, according to him, the interests of the other persons which require to be compared are the interests in the company itself and in not anything else including the scheme. I cannot agree with this contention. In my judgment, the learned Solicitor General's contention can be correct only if the expression 'like' is equated with the expression 'the same' and I see no reason whatsoever for interpreting the word 'like' in that part of the clause as meaning 'the same'. In my judgment, 'like interests' means the interests spoken of in the earlier part of Clause (a) and that earlier part refers to material interests. Therefore, the comparison which is to be effected is between the effect on the material interests of the concerned persons and the material interests of the non-concerned persons and in every case the interests which are to be compared are the interests in the scheme and not merely the interests in the company alone. Thus, in my judgment, the meaning of the latter part of the clause is exactly quite the opposite of that which the learned Solicitor General contends for.
24. For the aforesaid reasons, in my judgment, the second limb of Clause (a) requries that the statement after mentioning the material interests of the concerned persons must compare those material interests with the material interests of the non-concerned persons and if a comparison of the two sets of Interests reveals that the effect of the scheme on the concerned persons is different from its effect on the non-concerned persons, then, that effect must also be mentioned in the statement.
25. The learned Solicitor General contends that even if I do not agree with his submission regarding the construction of Clause (a), there is one more question which requires to be considered. He contends that the true construction of Clause (a) aforesaid is that each concerned person is required to mention his own interest and nothing more. In other words, each concerned person is not required to mention the interests of the other concerned persons. He contends that this construction follows from Subsection (4) of Section 393. He argues that if She law were that every concerned person is required to mention not only his own material Interests, but also those of every other person concerned, then, it will lead to a situation where a person will come to be punished for a fault committed by someone else. He argues that one concerned person may not be in possession of all the facts relating to the material interests of the other concerned persons and it is highly Improbable that the Legislature can have intended to punish a person for a default committed by another person. He argues that, therefore, Sub-section (4) must be so construed that it will punish only those who actually fail to communicate their own interests and of none else. Thus, the learned Solicitor General contends that the interests which each of the five brothers possesses cannot be said to be a material interest. He contends that this will be so only if the interests of all the five brothers are combined together. Therefore, his contention is that, as there is no obligation on the five brothers to mention the interests of all of them combined together and there is only an individual obligation on each of them, under Clause (a) aforesaid, there is no obligation to mention the interests of any of the brothers as the interests of none of them was singly a material interest. I am unable to agree with any of these submissions. A plain reading of Sub-section (4) makes it quite clear that that sub-section makes the company and every officer of the company criminally responsible for every default under the section. That sub-section punishes every default which arises out of non-compliance with the requirements of any part of Section 393. That sub-section casts a duty not only on persons who hold material interests to comply with the requirements of the sub-section, but, casts that duty also on the company and every officer of the company. The latter two cannot be said to be persons who are interested in the interests of the concerned persons. If the contention of the learned Solicitor General is upheld, then, the company and the officers of the company cannot be held responsible under Sub-section (4) under any circumstance and the provision in respect of these persons in that respect will be in-fructuous. In my judgment, the true legal position is that it is the duty of every officer of the company and the company to acquaint himself or itself with the material interests of every other concerned person, such as the director, managing partner or manager of the company, and to mention that interest and to explain its effect in the statement. That is thf primary duty which has been cast upon the concerned persons. If they fail in this duty, then, they are responsible for the breach of that duty and will be liable to be punished under Sub-section (4). But, the duty which is cast on these persons is not an absolute one. The duty which is cast on them is to make a reasonable enquiry in the matter of the material interests of others. If they discharge this duty, then, they are safe, but, if they tail in this primary dirty, then, they will be responsible under Sub-section (4). In order that the concerned persons may not come to be punished if they discharge the aforesaid duly and default comes to be made on account of the default or negligence or perversity of some other person, the proviso to Sub-section (4) seems to have been enacted. That proviso enacts in specific terms that a person shall not be punishable under Sub-section (4) if he shows that default was due to the refusal of any other person being a direcfor, managing director, managing agent, secretaries and treasurers, manager or trustee for debenture holders, to supply the necessary particulars as to his material interests. In other words, if Sub-section (4) is read together with the proviso, the effect is that every concerned person who makes an honest attempt to acquaint himself with the material interests of all the concerned persons, but, is unable to furnish information on account of the refusal of those other concerned persons, then, he will not be criminally responsible. That the aforesaid construction is the correct construction also follows from the provisions contained in Sub-section (5). If any concerned person has interest in the company or the scheme which is material within the meaning of Clause (a), it is necessary that ha should furnish that information to the company and the other concerned persons and if he fails to do so, then, he renders himself liable to be punished under Sub-section (5). This is an additional criminal liability of a Kind other than the one imposed by Sub-section (4) which is cast on all the concerned persons. Therefore, the scheme of the penal provisions in Section 393 appears to be that it is the duty of every concerned person to bring to the notice of the company and other concerned persons his own material interests, and that, it is the duty of every concerned person and the officers of the company to make an honest attempt to acquaint himself with the material Interests of all other concerned persons. If there is any breach of any of these two duties, then, the person renders himself criminally responsible.
26. In my judgment, therefore, the true construction of Clause (a) to Section 393 of the Indian Companies Act is that it requires the material interests which every person concerned possesses, not only in the company, but also in the scheme, to be stated by all the other persons concerned and if the latter part of Clause (a) applies, then, the effect thereof must also be mentioned. Under the circumstances, in my judgment, the directors and the managing agents of the Sidhpur company should have mentioned in the statement all the interests which each one of them possessed in the scheme and if the effect of the scheme on those interests was different from the material interests of other persons interested in the same scheme, the same should have been mentioned and explained to the share-holders.
27. I have no doubt whatsoever that both the facts on which Mr. Amin relies are material interests and they should have been mentioned in the statement. If the scheme is to be approved, then, every shareholder of the Bombay company will get for every share held by him therein 13/4 shares in the Sidhpur company, That is an interest which the shareholder of the Bombay company has in the scheme itself. Under the scheme, he is to get 3/4ths shares more than the shareholder of the Sidhpur company. Therefore, the interest which the shareholder of the Bombay company will be acquiring in the Sidhpur company will be a material interest. Though the directors and the managing agents of the Sidhpur company are not interested in this matter as such directors and managing agents, but, they are interested therein only as shareholders of the Bombay company, even then, under Clause (a), it was necessary for the directors and the managing agents to mention their above interests in the statement under Clause (a). It is quite obvious that the effect on the shareholders ot the Bombay company of this interest in the scheme is different from the like interest of the shareholders of the Sidhpur com' pany in the same scheme. The effect of the allotment ot snares to the shareholders of the Bombay company, to the directors and the managing partners will be that they will have a majority of 57% and thus they will have a dominant voice in the management of the company. From the point of view of the opposing shareholders, who do not happen to be directors or partners in the managing agency, it is quite obvious that the effect of the allotment of the shares to the directors and the partners -- in the managing agency will be to give the latter such a dominant voice that, if they happen to act together, they will be in a position to get even a special resolution passed by securing only 1% vote from the balance of shareholders. Therefore, it is quite clear that the interests, which ths directors and partners in the managing agency will be acquiring under the scheme, will be material interests and the effect which the scheme will have on the interests of the directors and thepartners in the managing agency will be materially differentfrom the effect which the scheme will have on the materialInterests of the Sidhpur shareholders. Whereas the Sidhpurcompany at present is a public limited company in whichthe public has a dominant voice and whereas the managingagents and the directors even if they were to combine together will not have more than 29 to 30 per cent voiceIn the administration of the company, the result of thepresent amalgamation, from the point of view of the Sidhpur shareholders, will be that one section will have definitely a voice to the extent of 57 per cent and all theoffice-bearers of the Sidhpur company, combined together,will have such a dominant voice that they will be ableto command a majority of 74 per cent. In my judgment,this aspect of the scheme is an important and a material aspect and It should have been brought to the noticeof the Sidhpur shareholders. Inasmuch as the same hasnot been done, in my judgment, a breach of Clause (a) toSection 393 has been committed.