Balakrishna Ayyar, J.
1. T. Stanes and Company was a private limited company and therefore subject to Section 23-A of the Income-tax Act. This company has been the managing agent of two plantation companies, one of within is called the United Coffee Simply Co. Ltd (U.C.S. for short). T. Stanes and Company was also operating a trading section handling coffee curing, stores, fertilisers and other articles. The U.C.S. has a share capital of Rs. 6,00,000/- divided into 40,000 shares of Rs. 15 each. Of these 40,000 shares T. Stanes and Company Ltd. hold 21,510 shares, that is to say, a little over 51 per cent.
2. On 1-9-1955 T. Stanes and Co Ltd wrote Ex. R. 1 to the Directors of the U.C.S., proposing to acquire the shares held by outsiders in the U.C.S., on certain terms. Since out of 40.000 shares in U.C.S. T. Stanes and Co. Ltd. held 21.510, the shares in the hands of outsiders were only 18490. The letter Ex. R. 1 explained,
'The present ordinary shares of this company are now of the denomination of Rs. 10 each and it is calculated that on the basis of the company's balance sheet as at 30-9-1954 and as increased by the issue of bonus shares in December 1954, each of these shares is worth Rs. 39. The shares of your company according to a similar balance sheet valuation as at 30-6-1954 are worth Rs. 39 per share of Rs. 15 each.'
T Stanes and Co. Ltd. offered one share in their company for every one share in the U.C.S. Ex. R. 1 continued:
'Your share-holders are also offered as an alternative to accepting shares in this company in exchange for their shares, a sum of Rs. 21-8-0 for each of their shares. This cash offer is bared on the market value of the shares as at date, plus an additional premium.'
The directors of the U.C.S. sent a circular letter Ex. R. S to every one of their share-holders. Along with the circular a copy of Ex. R. 1 was also sent. The offer was accepted by all the share-holders except the applicants in Appln. No. 553 of 1956 and Appln. No. 554 of 1956. The total number of shares held by the applicants in these two cases is 759.
3. On 19-9-1955 Mrs. Leela Mahajan, the applicant in Appln. No. 553 of 1936, wrote to T. Stanes and Co, Ltd, expressing her dissent from the proposal to acquire her shares at the rate and on the terms mentioned in Ex. R. 1 and demanding payment at Rs. 39 per share. On 20-9-1955 the U.C.S. acknowledged the receipt of the latter. Subsequently (the date does not appear in Ex. P. 3) Mrs. Mahajan wrote to the U.C.S. asking for payment at Rs, 39 plus 'profits till the date of sale' of her shares. On 30-1-1956 T. Stanes and Co. Ltd, wrote Ex. P. 4 to Mrs. Mahajan telling her that they would exercise their option under Section 153B of the Act unless she obtained from the court an order to the contrary.
Ex. P. 5 is a notice which Mr. Sriniyasa Iyer sent on behalf of Mrs. Mahajan to T. Stanes and Co. Ltd, demanding pavment at Rs. 45 per share. Ex.- P. 6 is the reply of Messrs. King and Partridge to Ex, P. 5 declining to consider the demand.
4. In view of the refusal of Stanes and Co. to accede to the demands made by the dissenting share-holders they have filed these two applications.
5. The question I have to decide is whether the applicants are entitled to an order restraining the transferee company from exercising their right. Under Section 153B of the Indian Companies Act to acquire the shares of the dissenting share-holders. So far as is now material, Section 153B(1) runs as follows:
'Where a scheme or contract involving the transfer of shares....in a company (in this section referred to as 'the transferor company) to another company...... (in this section referred to as the 'transferee company') has within four months after the making of the offer in that behalf by the transferee company been approved by the holders of not less than three fourths in value of the shares affected, the transferee company may, at any time within two months after the expiration of the said four months, give notice In the prescribed manner to any dissenting shareholder that it desires to acquire his shares, and where such a notice is given the transferee company shall unless on an application made by the dissenting share-holder within one month from the date on which the 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 or contract, the shares of the approving share-holders are to be transferred to the transferee company.'
I have underlined certain words which are now material, viz. 'the court thinks fit to order otherwise' in order to emphasise the fact that my discretion is limited as regards the nature of the Order I can make. As I read the section, I can make only one of two orders. I may dismiss the application of the applicants in which case the transferee company will be entitled and also bound, to acquire the shares of the applicants in accordance with the terms pf their offer. Alternatively I can allow the application of the applicants in which case the transferee company will not be entitled to acquire the shares of the dissenting share-holders.
There the discretion given to me by the statute stops. I cannot go further and say for instance that I find the fair value of the shares of the dissenting shareholders to be so much and direct the transferee company to acquire the shares of the dissenting shareholders at that value.
6. There is direct authority for this position in Govt. Telephones Board Ltd. v. Hormusji Manekji AIR 1943 Bom 325 (A). 1 quote from page 327 :
'In my opinion, the powers of the court under Section 153B are limited in the way which I have mentioned. It can direct, that the transferee company is not to exercise the powers of compulsory purchase given by the section over the shares of the dissenting members, but, in my opinion, the court has no power to direct .the transferee company to pay the dissenting members something which they have not offered to pay. That would be makine a contract for the parties which they have not made for themselves, and the section does not authorise that.'
In considering whether I should allow the applications or not, there are certain matters I must bear in mind. Some of these are set out in Re Hoare & Co. Ltd, (1933) 150 LT 374 (B). Maugham J. observed:
'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 circumstances 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 n:e impossible to suppose that the court, in the absence of very strong grounds, is to be entitled to set up its own view Of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned.
Accordingly, without expressing a final opinion on the matter, because there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that, notwithstanding the views of a very large majority of shareholders the scheme is unfair. There may be other grounds, but I see no other grounds available in the present case for the interference of the court.'
7. Certain observations which appear in AIR 1943 Bom 325 (A), from which I have already quoted, are of help. Beaumont C. J. observed,
'For myself I accept the view that the burdenis upon the dissentients to adduce reasons forthinking that the majority of share-holderswere wrong.............. I should say that instances of such cases would be where therehas been misrepresentation which may have influenced the view of the majority of shareholders, orwhere there is the possibility of some unfair dealing, for example, the directors of the transferorcompany having some ulterior motive in advisingthe shareholders to accept the offer, of 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 theirshares than they would have accepted if they hadhad 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...... What was really relevant were the reasons, which induced the majority of shareholders to accept the offer, and on which they did accept the offer,' Again.'the burden was upon the petitioners to show why the offer accepted by the majority should not be forced upon the minority.'
Similar views were expressed by Kanla J.:
'I must point out that in this case there is no grievance that there was misrepresentation to any Individual shareholder. The argument is in respect of all shareholders generally. I can visualize cases where individual dissenting shareholders may be able to succeed in obtaining an order against their individual holding being acquired.
Apart from general grounds of misrepresentations, or majority of shareholders being Interested in the purchasing company, or the directors being themselves interested in the new company, or getting some advantage for there serves apart from their character as shareholders, there may be cases where individual dissenting share-holders having obtained information establish that the offer was not fair.
There may be also cases where on facts being established by evidence led by the petitioners the court comes to the conclusion that certain assets were grossly undervalued or that certain assets, proved by evidence to be valuable, were omitted to be taken into consideration altogether and the result was that the offer made by the purchasing company was at a gross undervalue. The court's jurisdiction to intervene in such cases is obvious on the wording of the section.
I do not think it is only limited to cases of misrepresentation and fraud.... The fairness or otherwise of the offer has to be judged by what value is put by the sellers on their own concern and assets.... The question before the court, as I have stated in the beginning, is whether the dissenting shareholders are entitled to obtain from the court an order preventing the purchasing company from obtaining their shares, which can only be made on the ground that the offer was not fair and reasonable.'
8. Now, the first observation that I would make in respect of the transaction before me is that there is no allegation of any fraud or misrepresentation in placing the scheme before the shareholders. It has not been shown either that any material fact was withheld or not disclosed. In Ex. R.1 it is very plainly stated.
'The object of this offer is to make your company a wholly owned subsidiary of this company and a similar offer is being made to the shareholders of Stanes Motors (South India). Ltd.'
It also specifically states that unless nine-tenths of the shareholders of both companies signify their willingness to accept the offer made on or before the 25th September 1955. the offer must be treated as being withdrawn. It must also be noted that in Ex. R. 1 it is very plainly stated that the value of the shares of the U.C.S. according to the balance sheet valuation as on 30-6-1954 was Rs. 39 per share. The shareholders must have known that the market value as quoted on the stock exchange was well below that figure.
Nor is it possible to say in this case that the majority acted in any unfair or oppressive manner. More than 95 per cent voted for the proposal and this 95 per cent, be it remarked, does not include the 51 per cent shares held by the T. Stanes and Co. Ltd. Those who favoured the proposal constituted 95 per cent of the 'outside' shareholders.
9. Learned counsel for the applicants saidthat bv this acquisition T. Stanes and Co, obtained substantial advantages; they would be able toget relief from income-tax and also to get theirshares quoted on the stock exchange. It may bethat they would obtain these advantages, but theseare not illegal or improper advantages. And inany case the fact that Stanes and Co. would getthese benefits will not make the transaction unfair so far as the shareholders in the U.C.S. areconcerned.
It will be noticed that the shareholders inthe U.C.S. were given one of two choices. Theywere told that for every one share which they heldthey could take one share in T. Stanes and Co.Ltd. Now, though the nominal paid up valueof one share in Stanes and Co, was only Rs. 10,still, according to the balance Sheet valuation thevalue was Rs. 39, which is exactly the value ofone share in the U.C.S. computed on the sameprinciples. Therefore it is not at all possible tosay that this branch of the offer was in any wayunfair.
In respect of those who preferred to take cash, they were offered a sum of Rs. 21-8-0 per share. It is not disputed that this figure is well above the price then quoted on the stock exchange. That being so, it is difficult to make any legitimate complaint about the choices offered to the applicants.
10. Learned counsel for the applicants argued that the assets of the U.C.S. were really worth more than the prices of the shares on the stock exchange indicated, and that if the principle of Section 208-C were applied his clients would be entitled to a larger payment. But I do not see how I can apply the principle of that section here. Section 208-C occurs in Part V of the Act which relates to winding up and just now the U.C.S. is not being wound up. Moreover, Section 208-C (3) makes provisions for arbitration if the parties cannot agree on the price.
There is no such provision in Section 153B. It is common knowledge that very often there is no correspondence between the value of the assets held by a company and the price at which its shares are quoted on the exchange. By following a very conservative policy and declaring only modest dividends a company may have built very large resources and accumulated assets of far more value than the prices quoted on the stock exchange reflect. But when you try to sell your shares you can get only the price ruling on the stock exchange. In In re Press Caps Ltd., 1949 Ch. 434 (C) Wynn-Parry J. observed:
'A valuation is only an expression of opinion. It may be made on one of a number of bases, but the final test of what is the value of a thing is what it will fetch if sold. In some cases a Bale has to be made, as one knows who exercises the administrative jurisdiction of the Chancery division, but if there exists a market, as, for instance, the Stock Exchange in the case of shares, in respect of which there is a quotation or in respect of which there is permission to deal, there may be no need to sell, and prima facie, the Stock Exchange markings can be taken as a satisfactory indication of the value of the shares in question.'
11. Looking at all the circumstances placedbefore me. I am not prepared to say that the offerwas unfair or unconscionable or that the presentis a case in which the dissenting shareholders areentitled to the intervention of the court underSection 153B of the Act. The applications are dismissed with costs. Advocate's fee Rs. 73, one set.