1994 Supreme(Bom) 210

IN THE HIGH COURT OF BOMBAY
(O.O.C.J)
V.A. Mohta D.K. Trivedi, JJ.
Hindustan Lever Employees Union .... Appellant.
Versus
Hindustan Lever Ltd. and others.... Respondents.
Appeal Nos. 224, 301 331 of 1994 in C.P. No. 333 of 1993 with Com. App. No. 251 of 1993 and Appeal Nos. 244 298 of 1994 in C.P. No. 332 with Conn Appln. No. 250 of 1993, decided on 18-5-1994.
Advocates appeared :
K.K. Singhvi with Sanjay Singhvi R.A. Shaikh, for appellant, in A. No. 224.
T.R. Andhrarujina, Advocate General with Virendra Tulzapurkar, R.D. Dhanuka, Mustfa Doctor i/by/ M/s. Crawford Balyey Co., for respondent No.1, in A. No. 224.
Ashok Desai with V.R, Manohar, S.J. Kathawalla, Haresh Desai, Purnima Kantharia, Ms. Madhavi Tavandi i/by M/s. Crawford Bayley Co., for respondent No. 3 in A. No. 224 of 1994, C. P. No. 33 of 1993 and C.A. No. 251 of 1993 and A. No. 244 of 1993, C.P. No. 332 of 1993 C.A. No. 250 of 1993.
Anand Gover with N.M. Ganguli, for respondents Nos, 5, 6 7.
Madan Phadnis with R.M. Nakhwa and L.T. Satelkar, for respondent No. 4 in Appeal No. 224 of 1994, C. P. No. 33 of 1993 and C.A. No. 251 of 1993 and Appeal No. 244 of 1993, C.P. No. 332 of 1993 C.A. No. 250 of 1993.
K.P.V. Menon with Ms. Pushpa Menon, for respondent No. 8.
Rajan Iyer Bhushan Oza, for Rabindra Hazari one fo the shareholders, for appellant, in A. No. 298 of 1994.
Madan Gopal Jajoo, for respondent No. 6 in person, in A. No. 298 if 1994.

Headnote:Sections 81 (1), 391 and 393-Shares-Valuation of-Effect of preferential allotment to UL, parent Co. of HLL at much lower rate than market value.

       Held, Law does not cast any obligation to allot shares only at the premium or at the market value. The price factor is left to the decision of the director/shareholders of the Company. In fact legal position is that the directors have the discretion to offer the shares to the existing shareholders even at par. There is no doubt that exercise has to be in a good faith and best interest of the Company.

       It is pertinent to notice that the price of Rs. 105/- has been offered by majority of 99.97% in terms of value. After all the members of the Company are its owners and they knew their business interest best.

       Sections 81 (1), 391 and 393-Shares allotment of.

       In case of allotment of additional shares to UL parent Co. of HLL preferential allotment can be given to UL for maintaining its equity at 51 per cent.

       Section 391-Industrial Disputes Act, 1947, Sections 25-FF and 25-NCompanies HLL and TOMCO-Merger of--Worker interest whether taken care of ?

       Held, there are two depreciatory factors in shares allotted to UL.

       They seem to self imposed and are to the effect that (i) the new equity shares to be allotted to UL are not transferable for a period of 7 years from the date of allotment, and (ii) in the event of UL deciding to diversity, those shares thereafter within 12 years it will in the first instance after the share in favour of the members of HLL on a fair and equitable basis at a price worked out by reference to the same formula of PIE multiple of 15 based on the latest audited accounts of the Company at the time of the sale. The objectors contend that the restrictions are merely illusory and are a virtue out of necessity because HLL would normally not be interested in transferring these shares. This controversy need not detain in the High Court in view of what is held above.

       Sections 391 and 393-Effect of non-disclosure-Business losses-Company financially sound yet incur loses due to variety of reasons.

       Alleged non disclosures pertain to (i) correct financial position of TOMCO, (ii) reasons behind the operating business losses, (iii) names of owners of the three properties mentioned in Clause 1.7 (d), (iv) The Chairman of HLL being responsible for the interest of UL in India. The grievance is altruistic. We do not notice any non disclosure about correct financial position of TOMCO. No material is suppressed. There is nothing conflicting Company can be financially sound and yet may incur business losses. This exactly was and is the position of TOMCO. There were and can be verities of reasons behind operating business losses, competition by more efficient and prosperous Company being one of them.

       Sections 391 and 393 - Financial position-Disclosure of - Fraudulent or prejudicial to decision making process non-disclosure of minute details fatal.

       Analysis of the above provisions would reveal that the statement is required to state clearly: (i) the compromise or arrangement and its effect, (ii) the manner in which the material interests, if any, of specified categories of persons in any capacity are likely to be affected by the scheme, in case the effect is different from the effect on the like interest or non specified categories of persons. The purpose of such disclosure is to enable the shareholders to make their objections because once they have approved the scheme there is no chance of questioning its arithmetic subsequently. The question is thus not purely and every non-disclosure cannot be fatal unless it is fraudulent and has prejudicially affected the decision making process of the member.

       Sections 391 and 393-HLL and TOMCO Companies-Merger of.

       Dispute regarding ratio of 2.15 fixed for transfer of TOMCO shares - It is held by Court that valuation a technical job and opinion of expert cannot be set aside unless there is fraud or mala fide.

       Sections 391 and 393-Shares- Valuation of.

       Where nothing objectionable about valuation specially when same measure of valuation applied to both Companies merged.

       Sections 391 (1), 393 and 173 - Accounts-Statement of-Distinction between statement of accounts under Sections 173 and 393.

       Nature of disclosures required to be made by Section 393 (1) (a) in the explanatory statement is quite different from the nature of disclosures required in the notice of the special general meeting of the Company under Section 173 under which a statement setting out all material facts concerning each item of business including in particular the nature of concern or interest, if any therein of every director, managing agent, and other specified office bearers have to be stated. Even under Section 173 too rigid interpretations which would hamper the conduct of the business cannot be adopted. After all the explanatory statement is a business document intended to give clear idea of the nature of business to be conducted and must be used in a common sense business way. Minor insignificant matters do not render the proceedings null and void.

       Section 27 - Companies Act, 1956, Sections 391, 393, 2 (x) and 2 (4)- Companies merger or-Its effect-Provisions of MRTP Act has no application to merger or HLL & TOMCO.

       As a result of the new economic policy nearly whole of Chapter III including Section 23 has been repealed by amending Act, 1991. The only part of Chapter III which has remained is Section 27 under which opinion in the matter of division of an undertaking can be taken on the aspect of public interest. Under Section 27 as amended, Commission can even suo motu make enquiry, though nature of its jurisdiction is still advisory.

       Thus Commission has no part to play in the case of amalgamation. In this background the controversy as to whether issuance of Companys own share amounts to "trade" or "trade practice" as defined under Section 2 (s) and 2 (u) of the said Act need not detain the High Court.