LAWS(BOM)-1943-3-11

GOVERNMENT TELEPHONES BOARD LTD Vs. HORMUSJI MANEKJI SEERVAL

Decided On March 30, 1943
GOVERNMENT TELEPHONES BOARD LTD. Appellant
V/S
HORMUSJI MANEKJI SEERVAL Respondents

JUDGEMENT

(1.) THIS is an appeal from a decision of Mr. Justice Chagla making an order on a petition under Section 153B of the Indian Companies Act, 1913, directing that the purchasing company should not be at liberty to acquire the shares of the minority shareholders in the transferor company. That section is a new section, and is in these terms : 153B(1). Where a scheme or contract involving the transfer of shares or any class of shares in a company (in this section referred to as ' the transferor company') to another company, whether a company within the meaning of this Act or not (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 share-holder 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 : What the section does is to provide that where there is a contract or scheme for the acquisition by one company of shares in another company, which has been accepted by the statutory majority of shareholders in the latter company, in India three-fourths and in England, under a corresponding section, nine-tenths, the transferee company can acquire compulsorily the shares of the minority, unless the Court orders otherwise. But it is to be noticed that that is all the section does. It does not confer any right on the Court to consider the merits of the contract so far as concerns the majority of share-holders who have accepted it. In their case the matter is complete; the contract has gone through. The only question is whether the minority share-holders are to be left in possession of their shares, or whether they can be compelled to sell their shares on the same terms as those which the other shareholders have accepted. The section seems to be based on the view that prima facie the minority are acting unreasonably in refusing to come into line with the majority, and ought to be forced into line, unless the Court orders otherwise. The Court, as it seems to me, must consider whether the attitude of the minority was reasonable.

(2.) THE only reported case on this section is one which came before Lord Maugham (then Mr. Justice Maugham) in England, Re Hoare and Company Limited (1933) 150 L.T. 374. THE learned Judge in that case pointed out that the Legislature had not seen fit to indicate in any way the grounds on which the Court ought to order otherwise, and that prima facie the Court ought to assume that the majority of shareholders who have accepted the offer know their own business, and that the Court ought not lightly to differ from the view accepted by the majority of shareholders, so 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. Mr. Justice Chagla in the Court below accepted that principle, and held that the burden was upon the dissentients to show why the Court should order otherwise. But I think the criticism which can be made upon his judgment is that he held that that burden was discharged too lightly. I will deal with that point presently.

(3.) ON March 1, 1941, an offer was made by the Government Telephones Board, Ltd., to acquire the shares of the Bombay Telephone Co. at the figure of Rs. 89-15-0 per share. A copy of that offer was sent to the shareholders by the Managing Director of the company with a covering letter on April 16, and subsequently a meeting of the shareholders was held at which a statement was made by the Managing Director which had previously been circulated. At that meeting, it was open to the shareholders to ask questions as to the manner in which the figure of Rs. 89-15-0 had been arrived at. Apparently the present petitioners did not ask any question. The offer was subsequently accepted by over ninety per cent of the shareholders in the Bombay Telephone Company. ON October 10, 1941, notices were given under Section 153B by the Government Telephones Board, Ltd., to acquire the dissentients' shares at Rs. 89-15-0 per share, and it is not questioned that the terms of Section 153B have been complied with. ON November 8, 1941, this petition was presented by the dissenting shareholders asking the Court to order otherwise. The petition went further than that, because it asked that the Government Telephones Board, Ltd., should be directed to pay to the petitioners Rs. 134 per share or such other sum as the Court thought reasonable. 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 making a contract for the parties which they have not made for themselves, and the section does not authorise that. Mr. Justice Chagla held that the shares of the petitioners ought not to be acquired on the terms accepted by the majority of shareholders, but that he could not direct the transferee company to acquire the shares of dissenting shareholders on any other terms.