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IN THE COURT OF SUPREME COURT OF INDIA
NEW DELHI
(SLP No. 110 of 2012)
And
(SLP No. 130 of 2012)
Shareholders Association &Another…………………………………………………Petitioner
V.
Ruby Limited……………………………………………………………………….Respondent
And
Shareholders Association……………………………………………………………..Petitioner
V.
Solitaire Association……………………………………………………………..…Respondent
STATEMENT OF FACTS
-INSIGHTS INTO BACKGROUND-
Solitaire Limited (Herein after R.2) is a public company into information Technology
services, incorporated under the laws of India. It was listed on BSE on October 9, 1999. Mr.
Zenic Hegal (P.2) is the founder promoter of the Company and holds 7% shares in the
Company. Ruby Limited (herein after R.1), a company incorporated under the laws of
Mauritius, is the promoter of the Company holding 71% of paid-up share capital prior to
delisting. The rest of the shares i.e. 22 % of the total share capital were held by the public
shareholders.
-FACTS OF CONCERN-
RELEVANT FACTS FOR SLP NO.110 OF 2012-
On January 3, 2010 a request letter was sent by R.1 to the board of directors (herein
after ‘Board’) of the company proposing to voluntary delist the company by acquiring
the 19% of the public shareholding, in accordance with the regulation. An ‘attractive’
price of INR 150 PES was quoted by the promoters.
On January 6, 2010 the delisting proposal was approved by the ‘Board’. Thereafter,
various other formalities were fulfilled and the delisting was carried in accordance
with book building process. A floor price of INR 110 PES and a discovered price of
INR 125 PES was found, the discovered price was fixed as exit price by the
promoter. The Solitaire Ltd was successfully delisted from the stock exchange as the
offer was deemed successful, for the promoter had acquired 90 % of the
shareholding.
BSE made an announcement vide notice dated June 9, 2010, communicating that the
trading in shares of Solitaire Ltd would be discontinued w.e.f. June 13, 2010.
Post delisting, the shareholdings of the R.1 and the dissenting shareholders (herein
after P.1) were 90% and 3% of total share capital respectively.
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
The P.1 collectively formed an association and filed a letter dated August 9, 2010
with SEBI alleging that by disclosing the attractive price the promoter had breached
the regulation and it was fraudulent in nature.
Further, P.2 also in a letter dated August 11, 2010 to SEBI alleged that the promoter
did not accept the shares tendered by him in the delisting offer and that the promoter
had mala fide intention.
Through its common order dated December 12, 2010 SEBI dismissed both the
complaints. For which they appealed to SAT. But SAT vide its order dated May 15,
2012 SAT dismissed the appeal. Aggrieved by the same a SLP was filled in the
Supreme Court and the matter is listed for final disposal.
RELEVANT FACTS FOR SLP NO 130 OF 2012-
Thereafter in order to acquire the shareholding of P.1, a special resolution was passed
by the board to extinguish and cancel the share (emphasis supplied) at a price of INR
135 PES.
A company petition was filed with the Hon’ble High Court of Bombay under Section
100 of the Companies Act seeking sanction of the court. The sanction was opposed
by P.1.
Nevertheless, Hon’ble High Court of Bombay vide its order dated April 19, 2012,
sanctioned the reduction. Aggrieved by the same a SLP was filed in Supreme Court,
on May 1, 2012 the Supreme Court Listed the matter for final disposal.
Hence the present matters before this Hon’ble court.
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
INDEX OF AUTHORITIES
CASES
Sandip Sabharwal, CEO,Portfolio Management Services, prabhudhar Lilladhar
Government Telephones Board Ltd. V. Hormusji Manekji Seervai 13 com cas 249
Hoare and Co Ltd, Re, (1933) 150 LT 374: [1933] All ER Rep 105
Bougle Press Ltd, Re, [1960]3 WLR 1956:[1960] 3 All ER 791 CA: 1961 Ch 270
Old Silk Collieries Ltd[1954] Ch 169 [CA]
MMB Catholics V. Mp Athanasius, AIR 1954 SC 526
In re Zee Telefilms ltd, (2005) 124 Comp Cas 102 (Bom)
Punjab Distelliries India Ltd V. CIT (1965) 35 Comp cas 541
Homi Cowasji Bharucha V. Arjun Prasad (1957) 27 Comp Casv6(Pat)
Carrith V. Imperial Chemical Industries Ltd 1937 (2) All ER 422
Re Dexine Packet Packaging and Rubber Co 1903 WN 82
West India and pacific Steamship Co, Re (1868) LR 9 Ch App 11
Pearce Duff & Co ltd Re (1961) 31 Comp Cas 251: 1960 3 All ER 222
Barry Artist Ltd Re 1985 BCLC 283
Khattar Electrical engg and General Supply Co ltd Re (1938) 8 Comp Cas 314(Pesh)
Mc Cleod & Co. V. SK Ganguly, [1975] 45 Comp Cas 563 (Cal)
Borland Trustees V. Steel Brother & Co Ltd [1901] 1 Ch 279
Bowen LJ in Imperial Hydropathic Hotel Co. V.Hampson (1882) 23 Ch D 1,13
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
welton V. Saffery 1897 AC 299, 315:[1895-9] All ER Rep 567
New London & Brazilian Bank V. Brocklebank (1882) 21 Ch D 302, 308
Bradford Banking Co. V. Briggs Sons and Co (1886) 12 App cas 29: 56 LT 62
Gan sin Tuan V. Chew Kian Kor (1957) 24 malyalam LJ 62
Lyle & Scott V. Scotts Trustees 1959 AC 763
Naresh Chandra Sanyal V. The Calcutta Stock Exchange Association Ltd AIR 1971 SC 422:
(1971) 41 Comp Cas 51
Hanuman Prasad Gupta V. Best Vestures trading P Ltd (1970) 40 Comp Cas 1058 (SC): AIR
1971 SC 206: (1970) 2 Comp LJ 195 (SC)
British and American trustees and Finance Corporation Limited V. John Couper, 1894 AC
399
Ramesh B Desai V.Bipin Vadilal Mehta (2006) 5 SCC 638: MANU/SC/8416/2006
Life Insurance Corporation of India Vs. Escorts Ltd 11 (1986) 1 SCC 264
Caldwell V. Caldwell & Co, [1961] SC (HL) 120: (1966) WN 70 Scotland
Miheer mafatlal V. Mafatlal Industries Ltd, AIR 1997 SC 506
Hisdusthan Lever Employees union V. Hindusthan Lever Limited, AIR 1995 SC 470
In re Organon (India) Ltd 2010 (4) bom CR 268, [2010]157 Comp Cas 287(Bom)
Gold coast Selection trust limited V. Humphey, 30 TC 209.
Re Tata Oil Mills Co. Ltd, (1994) 81 Comp Cases 754 (Bom)
Ex Parte Westburn Sugar Refineries Ltd(1951) 1 All ER 881(HL)
North West Transportation Co V. Beatty [1877] 12 App cas 589
Ramesh B. Desai v. Bipin Vadilal Mehta, (2006) 5 SCC 638
Sandvik Asia Ltd V. Bharat Kumar Padamsi(2009) 151 Comp Cas 251: (2009) 111 (4) Bom
LR 1421
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Poole & ors v. National Bank of China Ltd. (1907) A.C. 229 (HL)
Foss V. Harbottle, [1843] 2 hare 461
Burland V.Earle [1902] AC 83
Edward V. Halliwell [1950] 2 All ER 1064
Rajahmundry Electric supply Co. V. Nageshwar Rao AIR 1956 SC 213
Elder and Watson Ltd,
Shanti Prasad Jain V. Kalinga tubes Ltd, (1965) 1 Comp LJ 193(SC):AIR 1965 SC 1535
Scottish Cooperative Wholesale Society V. Meyer (1959) AC 324 at 342
Needle Industries(India) Ltd V. Needle Industries Newey (India) Holdings Ltd, (1982)1
Comp LJ 1(SC): AIR 1981 SC 1298
Vinod Kumar Mittal v. Kaveri Lime Industries Ltd (2000) 2 Comp LJ 354
Sindri Iron Foundry (P) Ltd, Re (1963) 69 CWN 118
Sebastian V. City Hospital (P) Ltd, (1985) 57 Comp Cas 453 Ker
Laxmi Film lab & Studio (P) Ltd (1984) 56 Comp cas 110 Guj
STATUTES
The Companies Act, 1956
SEBI(Delisting of Equity Shares) Regulation,2009
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)
regulations, 2003
TREATISE
Avtar Singh, Company Law, Eastern Book Company, Lucknow, Fifteenth Edition, 2009.
Palmers Company Law, Sweet & Maxwell, W Green, Volume 2, 25th ed, 1992.
VS Datey, Students Guide to Corporate Laws, Taxxmann, 5th ed, 2002
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Gower, principles of Modern Company Law, Sweet & Maxwell, International Students
edition,1992.
Eilis Ferran, Principles of Corporate Finance laws, Oxford University press, Indian Edition,
2009.
Stephen W Mayson, Derek French and Christopher Ryan, Universal Law Publishing, First
Indian Reprint, 2000.
Company Law Digest 1956-2004 Plus (Consolidated) Vol. 1, A. Ramaiya, Vinod Publishing
(P) Ltd., Delhi. 7th Edition 2005
MC Bhandari, Guide to Company Law Procedure, Lexis Nexis Butterworth, Wadhwa,
Nagpur, 22nd Edition, 2010.
AK Majumdar and GK Kapoor, Company Law and Practice, Taxxmanns, 1995
MC Bhandari, Guide to Company Law Procedure, Lexis Nexis Butterworth, Wadhwa,
Nagpur,19th Edition, 2006
Law and Procedure for Mergers/Joint Ventures Amalgamations and Corporate Restructure,
Sampath K.R, Snow-white Publications, Delhi, 4th edition
Company Law as an Instrument for protection of public interest, Dr. Madan Pal Singh,
Allahabad Law Agency, 1st edition, 2010
ARTICLES
Naresh kumar, Prevention of Oppression and Protection of Minority Shareholders’ Rights,
CLA Vol. 12, Ed. B.P Bhargana, RBS Publishing, Palam Road Delhi, 1993.
Arvind P. Dattar, Oppression: Can only Minority Complain, CS, Vol. 14, 1924.
Zafar Eqbal, Oppression and Mismanagement in Companies: Prevention and Remedies, CLJ,
Vol. 1 2010 Jan-Mar.
R N Sahai, Oppression and mismanagement in companies, CLA, Vol. 17, 1995.
Archi Agnihotri and Medha Srivastava, Reduction of capital: Minority shareholders Position,
CLJ, Vol. 4, 2011-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Dr. K R Chadratre, Legality and applicability of SEBI guidelines, CLJ Vol. 2, 1992.
S Venkitaraman, SEBI and the interest of small investors, CS VOL. 31, 2001.
Delep Goswami, Investor protection- How effective is SEBI, CLA Vol. 15, 1994.
Pranjita Barman, Delisting of shares, CLA Vol. 85, 2008
Sambhav Sogani and S. Nagashayana, Ranbaxy becomes the vehicle of Daiichi Sankyo to
acquire Zenotech- An incisive analysis of valuation of shares in indirect acquisitions, CLJ
2010 (2)
Amit Kumar Pathak and Siddharth Singh, Scope of Section 397 and 398 0f Companies Act
1956: A critical analysis. CLJ March 2012, Vol.1.
Sanjiv Aggarwal, Book Building issues: Conceptual framework, CS Vol. 33, Jan-June, 2003
S. Venugopalan, Voluntary delisting of shares, CLA Vol. 39, 2000
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Contention 1: The contention of the petitioners that the respondents have breached the
Delisting regulations by quoting the Attractive price is nothing more than an unfound
allegation and is liable to be set aside.
I
The respondents have not committed breach of any substantive and procedural laws during
the delisting process.
II
The delisting process as, contemplated under the concerned regulations were step by step
followed by the respondents. The compendium of facts clearly indicates that, all the relevant
provisions have been completely complied with by the respondents. The relevant facts along
with the related provisions under the concerned Delisting regulation are produced hereunder:
III
In furtherance of rights given under Regulation 51 of the concerned regulation the
respondents decided to delist the Solitaire Ltd from the Bombay Stock Exchange (herein after
BSE).
IV
As contemplated under Regulation 8 (a)2 the respondents on January 3,2010 through a letter
addressed to the Board of directors of the Company proposed to voluntarily delist the
company. The board by its resolution dated January 6, 2010 approved the Delisting offer.
V
1 Delisting from all recognized stock exchanges-Subject to provisions of these regulations, a company may
delist its equity shares from all the recognized stock exchanges where they are listed or from the only
recognized stock exchange where they are listed:
Provided that all public shareholders holding equity shares of the class which are sought to be delisted are
given an exit opportunity in accordance with Chapter IV.2 Conditions and Procedure for Delisting where exit opportunity is required- (1) Any company desirous of
delisting in equity shares under the provisions of Chapter III shall, except in cases falling under clause (a) of
regulation 6-
(a) Obtain prior approval of the board of directors of the company in its meeting. -SUBMISSIONS ON BEHALF OF THE RESPONDENT-
The provisions of Regulations 8 (b)3 and (c)4 were also duly complied with by the
respondents given the fact that out of 22% public shareholders 19% had agreed to tender their
shares in the Delisting process.
VI
The exit price of the shares which is the main reason for bringing this SLP before this
Hon’ble court was also arrived at after due compliance with Regulations 13, 14, 15 read with
Schedule II. As such the price of INR 125 (discovered price) fixed by the promoter
respondents as the exit price cannot be from any canon of construction be said to be
unreasonable, unjust and unfair.
VII
Now the likely contention of the petitioners that the impugned exit price did not depict the
true picture as regards the actual price of the shares of Solitaire Ltd, just because the share
price as on January 6, 2010 was INR 145 cannot be considered as a viable argument given the
fact that it is common knowledge that the share prices tend to go up at the bourses when the
news for delisting breaks. This is primarily because the investors smell short term gains in
such investments. The shareholder investors expecting that the Company would give them a
sizeable premium to exit is the main motivation behind the frenzy that a delisting news
creates in the stock market. 5
VIII
3 (b) obtain prior approval of shareholders of the company by special resolution passed through postal ballot,
after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to the
resolution:
Provided that the resolution shall be acted upon if and only if the votes cast by public shareholders in favour of
the proposal amounts to atleast two times the number of votes cast by the public shareholders against it.4 (c) make an application to the concerned stock exchange for in principles approval of the proposed delisting in
the form specified by the recognized stock exchange5 Sandip Sabharwal, CEO,Portfolio Management Services, prabhudhar Lilladhar “ Previous Trading record
suggest that, more often than not this couldbe a winning strategy” c/f infra note 6.-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Attention is drawn to a news article published in The Economic Times6 on December 5,2011
which ran a story on delisting of Patni Computer Systems, the Indian subsidiary of US based
iGate corporation. It noted that the announcement of delisting was followed by a frenzied
activity in the Patni Counter on the Indian Bourses. The stock prices saw a sudden spike,
jumping 22% from the intraday low of INR 372.30 on the date of announcement to a high of
INR 452.80 within two days on the BSE. The investors rushed to buy the stock and the BSE
saw a phenomenal spurt in volumes, from a mere 72500 shares traded a day before the
announcement to 20 lakhs shares after the declaration.
Thus the value of shares on January 6, 2010 cannot be said to be a justified yardstick while
determining whether the prices being tendered to the petitioners is just or not.
X
As is evident from the above paragraphs, the promoter respondents have clearly complied
with all the provisions under the concerned regulation. As such the likely contention of the
petitioners that the respondents have breached the concerned regulation just because they had
quoted the attractive price is an erroneous allegation and cannot be sustained.
XI
The respondents main reason behind quoting the impugned attractive price was to intimate
the shareholders of their intention of not buying the shares if the prices arrived at after the
book building process exceed INR 150. The intention behind quoting the price was to make
things more simple and clear so that none of the parties remain under misconceptions. The
idea was to clear things out and not to play a fraud on the shareholders or to mislead them. To
buttress our contention attention is drawn to the request letter dated January 3,2010. The
relevant excerpts of which are reproduced hereunder:
“the Attractive price should in no way be construed as: (i) a ceiling or maximum price for the
purpose of the book building process under the delisting regulations, and the public
shareholders were free to tender their shares at any price higher than the floor price; or (ii)
a commitment by the promoter to acquire all or any shares tendered in the delisting proposal
by the shareholders if the discovered price arrived at under the Delisting regulations was
6Sanket Dharnorkar, What to do when a stock delists?, The Economic Times,5 Dec.2011,-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
equal to or less than the attractive price; or (iii) a restriction on the board of directors of the
promoter to subsequently approve an acquisition of the shares from the public shareholders
at a price in excess of the attractive price.”
XII
Now this call for (1) clarification from the petitioners as to how something which carries with
it a disclaimer of ‘not to be considered what it is be said to be’ can be deemed to be
misleading for being called something.(2) a further clarification as to how the quoting of the
attractive price can be said to be a violation of the concerned regulation when the concerned
regulations is silent as regards the existence let alone prohibition of the impugned price. The
respondents in all sanity believe there are no reasonable justifications for this.
XIII
Hence, since the facts are res ipsa loquitor7 indicating that all the provisions of law were
complied with and also that there was no mala fide intention of the respondents, as such, the
petitioners in this case should be called for proving it otherwise.8
Contention 2- Reduction of share capital was the need of the hour and was done in
accordance with the relevant laws of the land.
7 means the things speak for itself; or the thing done or the transaction speaks for itself c/f Trayner’s Latin
Maxims, Universal Law Publishing, First Indian Reprint, 1997.¶8 Government Telephones Board Ltd. V. Hormusji Manekji Seervai 13 com cas 249 it was held that“the burden
is upon the dissentients to adduce reasons for thinking that the majority of shareholders were wrong. But if one
accepts that principle, one must give some intelligent meaning to it. If the court ought in the first instance to
assume that the majority of shareholders understand their own business, and were right in accepting the offer, it
follows that the court should not take a different view merely because of criticisms advanced by the dissentient
shareholders on the terms of the offer, and based on matters which were before the majority.ӦHoare and Co
Ltd, Re, (1933) 150 LT 374: [1933] All ER Rep 105¶Bougle Press Ltd, Re, [1960]3 WLR 1956:[1960] 3 All ER
791 CA: 1961 Ch 270 C/f Avtar Singh, Company Law, Eastern Book Company, 15th Edition 2009 n. 634,635.¶
Old Silk Collieries Ltd[1954] Ch 169 [CA]-“Burden of proving unfairness lies on those who oppose the
schemeӦ-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
MMB Catholics V. Mp Athanasius9 and In re Zee Telefilms ltd10
I
It is submitted that the present petition is misconceived because the respondents had
completely followed the procedure as contemplated under Section 100 of the Companies Act,
in a very transparent manner and with good faith. The respondents had placed all the facts
before the court, while, seeking approval and has not contravened any of the provisions of the
Companies Act.
II
The Scheme for reduction of Capital was just and fair and the contention of the dissenting
shareholders that they are being treated indifferently is unconscionable as the act does not
contemplates a separate class meeting of the shareholders proposed to be reduced through
the special resolution.
III
Besides, the respondent promoters are doing a favour to the 3 % shareholders in the light of
the fact that after delisting, the shares of the concerned company are not tradable on any of
the stock exchanges in India. Also, the dissenting shareholders are being given a premium of
INR 10 per equity share as against the other shareholders whose shares were acquired
through the delisting process.
IV
A kind perusal of the court jurisprudence11 indicates that the courts are unanimous as regards
the absoluteness of the statutory law relating to reduction. The companies act deals with
reduction under Section 100-104. A conspectus of these provisions dealing with reduction of
share capital indicates that a company can reduce its shares if, (1) there is a provision in its
Articles of Association permitting it to do so12,(2) If it has passed a special resolution for that 9 AIR 1954 SC 526¶
10 (2005) 124 Comp Cas 102 (Bom)¶
11 Punjab Distelliries India Ltd V. CIT (1965) 35 Comp cas 541¶; Homi Cowasji Bharucha V. Arjun Prasad
(1957) 27 Comp Casv6(Pat)¶12Carrith V. Imperial Chemical Industries Ltd 1937 (2) All ER 422¶ Re Dexine Packet Packaging and Rubber
Co 1903 WN 82¶; West India and pacific Steamship Co, Re (1868) LR 9 Ch App 11¶; Pearce Duff & Co ltd Re
(1961) 31 Comp Cas 251: 1960 3 All ER 222¶ Barry Artist Ltd Re 1985 BCLC 283¶ Khattar Electrical engg
and General Supply Co ltd Re (1938) 8 Comp Cas 314(Pesh)¶-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
purpose13; & (3) If such a resolution is sanctioned by the Court. Nowhere has it been said that
there would be a separate class meeting for the affected class. In fact the court in Mc Cleod &
Co. V. SK Ganguly14 had very succinctly stated as regards the right of preference shareholders
that it could not be said that a court has no jurisdiction to sanction the scheme merely because
a meeting of the ‘to be’ affected preference shareholders was not called and their views on
the scheme were not taken.
V
Also, the impugned scheme of reduction cannot be said to be erroneous because the Articles
of Association is considered as a contract between the shareholders and the company15. If it
embodies interalia a provision for reduction of share capital then not even the courts can
interfere with it.
VI
Moreover, the probability of court interference reduces even further when the company alias
the majority brings about the reduction completely in line with the law. Attention is drawn to
British and American trustees and Finance Corporation Limited V. John Couper16 wherein
13 Re Barry Artist Limited Supra Note 12z c/f Boyle and Birds, Company Law, Universal Law Publication, 3 rd
ed n 225¶14 [1975] 45 Comp Cas 563 (Cal) c/f A Ramaiya, Company law Digest 1956-2004 Plus Consolidated, Vol 1, 7 th
edn,2005, Vinod Publishing house(P) Ltd, Delhi¶15 Borland Trustees V. Steel Brother & Co Ltd [1901] 1 Ch 279¶Bowen LJ in Imperial Hydropathic Hotel Co.
V.Hampson (1882) 23 Ch D 1,13 said that the members are “bound by the provisions of the articles just as much
as if they had put there seals to it”¶ welton V. Saffery 1897 AC 299, 315:[1895-9] All ER Rep 567 ¶New
London & Brazilian Bank V. Brocklebank (1882) 21 Ch D 302, 308¶ Bradford Banking Co. V. Briggs Sons and
Co (1886) 12 App cas 29: 56 LT 62¶ Gan sin Tuan V. Chew Kian Kor (1957) 24 malyalam LJ 62¶ Lyle &
Scott V. Scotts Trustees 1959 AC 763 c/f Avtar Singh, Company law, Eastern book Company, Fourteenth
Edition 2005 n.77¶Naresh Chandra Sanyal V. The Calcutta Stock Exchange Association Ltd AIR 1971 SC
4221971) 41 Comp Cas 51 C/f Company Law, The Institute of Company Secretaries of India,(intermediate
course study material n.125.¶ Hanuman Prasad Gupta V. Best Vestures trading P Ltd (1970) 40 Comp Cas 1058
(SC): AIR 1971 SC 206: (1970) 2 Comp LJ 195 (SC) C/f CR Datta, the company Law, Lexis Nexis
Butterworths Wadhwa, Nagpur, 6th edn,2008,n 527¶16 1894 AC 399¶ Ramesh B Desai V.Bipin Vadilal Mehta (2006) 5 SCC 638: MANU/SC/8416/2006¶ Life
Insurance Corporation of India Vs. Escorts Ltd 11 (1986) 1 SCC 264 held that “the functioning of a company -SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Lord Herschell LC had opined that it was the policy of the Legislature to entrust the
prescribed majority of the shareholders with the decision whether there should be a reduction
of share capital, and if so, how it should be carried into effect.
VII
In Caldwell V. Caldwell & Co17 the court had opined that “Although the court must see that
the interests of the minority have been protected and there is no unfairness shown to them,
but in doing so the court shall keep in view the consideration that the decision has been
arrived at by businessmen who are fully cognizant of their necessities and are the best
custodians of their interest and should therefore be slow to interfere”
VIII
In the instant case it is clearly evident from the factual matrix, that the respondents had
followed the procedure for reduction of share capital in toto and nowhere had they fallen
short from meeting substantive and procedural requirements as envisaged in the Law. No
canon of construction can be adopted that could compel the respondents to do what even the
law does not contemplates them to do.
IX
In Miheer mafatlal V. Mafatlal Industries Ltd18 it was held that “the courts act like an empire
in the game of cricket, who has to see that both teams play their game according to the rules
and do not overstep the limits. But subject to that how best the game is to be played is left to
the players and not to the empire”
was akin to that of a parliamentary democracy wherein the overall control is exercised by the majority of the
shareholdersӦ
17 [1961] SC (HL) 120: (1966) WN 70 Scotland C/f BO Rourke, Reduction of Share Capital- The reassertionm
of Discretionary Power, (1970) 87 SALJ 16118 AIR 1997 SC 506¶
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
X
As regards the likely contention of the petitioner that the price being offered is not justified is
completely baseless. The petitioners are being given a premium of INR 35 as against the
other shareholders who were given a premium of INR 25 in the delisting process. Besides the
Price being tendered to the dissenting petitioners is a lot more than the share valuation (INR
110) that was done by an individual assessor at the time of delisting. In Hisdusthan Lever
Employees union V. Hindusthan Lever Limited19; the Hon’ble apex court rejected the
argument of the petitioner therein that if some other method was adopted probably the
determination of valuation would have been more in favour of the shareholders. Merely
because some other method of valuation could be resorted which would possibly be more
favourable that alone cannot militate against granting approval to the scheme propounded by
the company. The courts obligation is to be satisfied that the valuation was done in
accordance with law.
XI
Finally attention is drawn to the landmark case of Gold coast Selection trust limited V.
Humphey20 where the court had said that “valuation is an art not an exact science.
Mathematical certainty is not demanded nor indeed is it possible.”
XII
Also, the fact that maximum shareholders had tendered their shares in the bidding process at
INR 125 per equity shares clearly indicates that the price of INR 135 per equity share being
given to the dissenting shareholders is more than just. In the case of Re Tata Oil Mills Co.
Ltd21, the Court observed thus: "...the exchange ratio arrived at………. has received the
approval of shareholders holding more than 99 percent (in number and value) shares at the
meetings. No one except the shareholders holding the minimum percentage of shares has
complained before me. It would be extremely difficult to hold that it is unfair. In any case, it
has been approved by an overwhelming majority of persons affected and there is no basis to
doubt their judgment."
19 AIR 1995 SC 470 C/f In re Organon (India) Ltd 2010 (4) bom CR 268, [2010]157 Comp Cas 287(Bom)¶
20 30 TC 209 C/f Supra Note 15¶
21 (1994) 81 Comp Cases 754 (Bom) C/f Supra note 15¶-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
Thus it can rightly said that the price being tendered to the petitioners is justified and
reasonable and the present petition was uncalled for.
XIII
For the purpose of argument the learned petitioners might pursue that the respondents
intentions were malafide. It is humbly submitted that when exercising its discretion the courts
are just concerned to see that the reduction is fair and equitable. But they are not concerned
with the motive of the reduction.22 So the fact that the respondent promoters are doing
reduction to get a sway over the company or to get more operational flexibility cannot be
challenged in the court of law.
XIV
The cardinal principle of company law is that the resolution of a majority of shareholders
passed at a general meeting that has been properly convened and held upon, any question
with which the company is legally competent to deal, is binding upon the minority and
consequently upon the company. 23
XV
Nevertheless, It is humbly submitted that the respondents that the main intent of the
respondents behind reducing the share capital of the dissenting shareholders was to make it
there WOS but that is not it.(emphasis supplied) The respondents intended to kill two birds
with one stone. While on one hand they had their own vested interest in reducing the share
capital but at the same time they wanted to give an easy exit opportunity to the dissenting
shareholders whose shares had been rendered illiquid after the delisting process.
XVI
The respondents understood that subsequent to the delisting of the Equity Shares of the
Company, there is no market to buy and sell the Equity Shares held by the public
shareholders. The investments made by these shareholders would be locked up and it would
become very difficult for them to dispose off their shareholding. This would put the holders
of the Equity Shares (other than the Promoters) in a lot of hardships and inconvenience as
22 British and American Trustees an Finance Corpn V. Couper(Supra)¶ Ex Parte Westburn Sugar Refineries
Ltd(1951) 1 All ER 881(HL)¶ 23 North West Transportation Co V. Beatty [1877] 12 App cas 589¶
-SUBMISSIONS ON BEHALF OF THE RESPONDENT-
there would be no liquidity /tradability of their shareholding and they wouldn’t be able to
realise the optimal value and returns on their investment in the company. The Hon’ble
Division Bench of the Apex court in Ramesh B. Desai v. Bipin Vadilal Mehta24 while
recognising the judgment of the House of Lords in British and American Trustee and Finance
Corporation and Poole & ors v. National Bank of China Ltd.25opined that “retaining the
holdings would in all reasonable probability never bring profit to any of them and may be
detrimental to the company." Thus keeping all this in mind and also to comply with the
mandate given under Regulation 21 the promoter respondents had decided to reduce the share
capital of the petitioner at a premium of INR 35 per equity share.
XVI
Certain principles have been posited by the Hon’ble apex court as regards factors that are to
be considered by the court while determining whether a resolution is to be sanctioned or not.
In the landmark case of Miheer Mafatlal V. Mafatlal Industries Ltd26,the court said that it has
to kept in view that the questions of bonafides of the majority shareholders or the alleged
suppression by them of the minority shareholders or their attempt to suffocate their interest
has to be judged from the point of view of the class as a whole. The question is whether the
majority equity shareholders while acting on behalf of the class as a whole had exhibited any
adverse interest against the appellant minority shareholders also having similar interest as
members of the same class, while approving the scheme or had acted with any oblique motive
to whittle down such a class interest of the minority.
XVII
The instant case does not falls within the ambit of the aforesaid test, given the fact the
promoter respondents were ready to give the dissenting public shareholders a further
premium of INR 10 per equity shares, even when they were not expected to do the same
under the provisions of law (see regulation 2127)24 (2006) 5 SCC 638¶Sandvik Asia Ltd V. Bharat Kumar Padamsi(2009) 151 Comp Cas 251: (2009) 111 (4)
Bom LR 1421¶25 (1907) A.C. 229 (HL)¶
26 (1996) 87 Comp Cas 792 C/f In re Organon (India) Ltd 2010(4) Bom CR 268: [2010] 157 Comp Cas
287(Bom)¶27 Right of remaining shareholders to tender equity shares-(1) Where, pursuant to acceptance of equity shares
tendered in terms of these regulations, the equity shares are delisted, any remaining public shareholder holding
such equity shares may tender his shares to the promoter upto a period of at least one year from the date of -SUBMISSIONS ON BEHALF OF THE RESPONDENT-
XVIII
Hence it is evident that in the long run the incessant measures being taken by the respondents
shareholders would not only have benefitted the respondents but instead they would have
helped (if not benefit) the petitioners as well.
XIX
The principle of non interference of courts to protect the minority against the consequences of
the resolution passed at a duly convened and constituted meeting was laid down in the
leading case of Foss V. Harbottle28 and has ever since been followed by a number of courts.
In the light of the ratio laid down in these cases the present case is bound to be dismissed, not
only because the respondents have fulfilled all the statutory obligations but also because their
intentions were not mala fide.
XX
Again, For the sake of argument the petitioners might pursue that the act of the respondents
were oppressive. But it is humbly submitted that the respondents are very far from being the
oppressor rather they are the ones who are being oppressed.29 Attention is drawn to the
meaning of the term oppression as explained by Lord Cooper in the Scottish case of Elder
delisting and, in such a case, the promoter shall accept the shares tendered at the same final price at which the
earlier acceptance of shares was made28 [1843] 2 hare 461¶Lord Davey in Burland V.Earle [1902] AC 83 “It is an elementary principle of company
law relating to joint stock companies that the court will not interfere with the internal management of the
companies acting within their powers and in fact has no jurisdiction to do soӦJenkins LJ in Edward V.
Halliwell [1950] 2 All ER 1064 “a transaction which might be made binding on the company or association and
on all its members by simple majority of the members no individual member of the company is allowed to
maintain an action in respect of the matter for the simple reason that if a mere majority of the members of the
company or association is in favour of what has been done then it cannot be qusestioned.ӦRajahmundry
Electric supply Co. V. Nageshwar Rao AIR 1956 SC 213 “the courts will not in general, intervene at the
instance of shareholders in matters of internal administration, and will not interfere with the management of the
company by its directors so long as they are acting within the powers conferred on them under the articlesof the
company. Moreover, if the directors are supported by the majority shareholders in what they do, the minority
shareholders can in general do nothing about it”c/f AK Majumdars and GK kapoor, Company Law and
Practice, Taxmann’s, 1995 ¶29 Eilis Ferran in his Book ‘Principles of Corporate Finance Law’, Oxford University Press, 2009 on n. 130 stated that in responding to majority/ minority concerns, the law needs to be careful not to overprotect minorities by giving them powers that in effect, allow them to hold the majority to ranson.
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and Watson Ltd which was cited with approval by Wanchoo J of the Supreme Court of India,
in Shanti Prasad Jain V. Kalinga tubes Ltd30 that the conduct complained of should at the
lowest involve a visible departure from the standards of fair dealing, and a violation of the
conditions of fair play on which every shareholder who entrust his money to the company is
entitled to rely. The complaining shareholder must be under a burden which is unjust or harsh
or tyrannical.31
XXI
In Needle Industries(India) Ltd V. Needle Industries Newey (India) Holdings Ltd32, the
Hon’ble Supreme Court has held that the person complaining of oppression must show that
he has been constrained to submit to a conduct which lacks in probity, conduct which is
unfair to him and which causes prejudice to him in the exercise of his legal and proprietary
rights as a shareholder.”
XXII
Thus, in the light of the above mentioned cases it is clear that in the instant case the
objections raised by Petitioners, therefore, completely lack bona fide. Infact the petitioners by
creating unnecessary bottlenecks in the path of the respondents are trying to oppress the
majority33 and thus are trying to prevent them from exercising rights which are rightfully
theirs.
30 (1965) 1 Comp LJ 193(SC):AIR 1965 SC 1535¶
31 Scottish Cooperative Wholesale Society V. Meyer (1959) AC 324 at 342
32 (1982)1 Comp LJ 1(SC): AIR 1981 SC 1298¶ Vinod Kumar Mittal v. Kaveri Lime Industries Ltd (2000) 2
Comp LJ 354-The real test is whether the majority shareholders have acted prejudicially or in a wrong,
burdensome and harsh manner. There should be an element of lack of probity or fair dealing in relation to the
interest of minority shareholder¶33 Sindri Iron Foundry (P) Ltd, Re (1963) 69 CWN 118- the Calcutta High Court in this case had opined that
even the Mjnority shareholders are capable of being oppressed.¶ Sebastian V. City Hospital (P) Ltd, (1985) 57
Comp Cas 453 Ker¶ Laxmi Film lab & Studio (P) Ltd (1984) 56 Comp cas 110 Guj¶C/f Avtar Singh Supra Note
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Contention 4-
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