Case Summary: MIHEER H MAFATLAL V. MAFATLAL INDUSTRIES LIMITED (AIR 1997 SC 506)

by Sonika Bisht

IDENTIFICATION OF PARTIES

Appellant: Miheer H Mafatlal

Respondent: Mafatlal Industries Limited

Decided on: 11.09.1996

Bench: Supreme Court of India: S.B. Majumdar J

SUMMARY OF FACT

MFL the transferor-company was suggested to be integrated with the respondent-company MIL. The directors of the respondent-company MIL as well as transferor-company MFL approved the proposal for amalgamation of the MFL with MIL and agreeable to the respective resolutions passed by them and the comprehensive scheme of amalgamation was finalized. The appellant who has objected to the amalgamation before Gujarat High Court is himself one of the directors of the transferor-company being MFL. The registered office of transferor-company was located at Bombay. For scheme of the amalgamation the corresponding application was moved to High Court of Bombay. The appellant didn’t object to this very scheme of amalgamation at this stage on behalf of the transferor-company of which he was one of the directors. And then the scheme was being said by single judge of the Bombay High Court on behalf of transferor-company.

[i]At Ahmadabad, the registered office of the transferee-company was located. Gujarat High Court was being approached by the respondent transferee-company for sanctioning this scheme of amalgamation. The appellant at this stage filed his objection to the scheme of amalgamation moved under section 391 of the act.

ISSUES BEFORE THE COURT

• Whether scheme of amalgamation is prejudicial to interests of minority shareholders.
• Whether the respondent-company was guilty of hiding the special interest of its director Shri Arvind Mafatlal from the shareholders while circulating the explanatory statement supporting the Scheme and whether thereby the voting by the equity shareholders got vitiated.
• Whether the Scheme is unfair and unreasonable to the minority shareholders represented by the appellant.
• Whether the proposed Scheme of Amalgamation was unfair and amounted to suppression of minority shareholders represented by the appellant and hence liable to be rejected.
• Whether separate meeting of minority shareholders represented by the appellant was required to be convened on the basis that the appellant’s group represented a special class of equity shareholders.
• [ii]Whether the exchange ratio of two equity shares of MIL for five equity shares of MFL was ex facie unfair and unreasonable to the equity shareholders of MIL and consequently the Scheme of Amalgamation on that account was liable to be rejected.

PRINCIPLES LAID DOWN IN THE CASE

• The sanctioning court has to see to it that all the requisite statutory plan of action for supporting such a scheme has been observed with and that the requisite meetings as contemplated by Section 391(1)(a) have been held.
• The scheme put up for sanction of the Court is backed up by the requisite majority vote as needed by Section 391 Sub-Section (2).
• The concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to appear at an informed resolution for accepting the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
• All necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391 Sub-section (1)
• All the requisite material contemplated by the proviso of Sub-section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
• The proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same.
• The Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
• The scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
• Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction

JUDGEMENT

Leave was granted.

This appeal was taken up for final hearing by consent of the learned advocates of parties. By this judgment the appeal is being disposed. Out of the judgment and order of a Division Bench of the Gujarat High Court this appeal by special leave arises in Original Jurisdiction Appeal No. 16 of 1994 decided on 12-7-1996. The Division Bench by the said impugned judgment confirmed the order of the learned single judge in company petition number 22 of 1994 by dismissing the appeal of the appellant and sanctioned a scheme of Amalgamation of two public limited companies, Mafatlal Industries Limited (‘MIL’) being the transferee-Company with which Mafatlal Fine Spinning and Manufacturing Company Limited (‘MFL) being the transferor-Company was to be amalgamated. The learned Single Judge granted requisite sanction to the applicant transferee-Company MIL to amalgamate in it the transferor-Company MFL under Section 391(2) of the Companies Act, 1956 (hereinafter referred to as ‘the Act’). In order to appreciate the grievance of the appellant who objected to the Scheme moved by the respondent Company MIL, as ventilated before us by its learned Senior Counsel Shri Shanti Bhushan, assisted by the learned counsel Shri M. J. Thakore.

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[i] Miheer H. Mafatlal Vs. Mafatlal Industries Ltd, AIR 1997 SC 506, (1997) 1 SCC 579, https://indiancaselaw.in/miheer-h-mafatlal-vs-mafatlal-industries-ltd/.

[ii] Miheer H Mafatlal Vs Mafatlal Industries Limited – Case study, AIR 1997 SC 506, (1997) 1 SCC 579, http://corporatelawreporter.com/2016/07/10/miheer-h-mafatlal-vs-mafatlal-industries-limited-case-study/.

[iii] Picture: Indian Legal

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