John Beaumont, C.J. - (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. For myself I accept the view 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 dissentients on the terms of the offer, and based on matters which were before the majority. As the Legislature has not done so, the Court ought not to limit the class of cases in which the Court should take action under Section 153B, but one is bound to consider in what type of case the Court would be justified in not, accepting the opinion of the majority of shareholders. I should say that instances of such cases would be where there has been misrepresentation which may have influenced the view of the majority of shareholders, or where there is the possibility of some unfair dealing for example, the directors of the transferor company having some ulterior motive in advising the shareholders to accept the offer; or 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 their shares than they would have accepted if they had had 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. But if one starts with the presumption that the majority of shareholders were right, it is no good, as it seems to me, allowing counsel for the dissenting shareholders to indulge in detailed criticisms of the valuation on which the offer was based or accepted, where all the facts on which those criticisms are founded were before the company when the majority of shareholders accepted the offer. We felt bound, therefore, to curtail somewhat Mr. Seervai's eloquent and able criticism of the experts' report. The company in this case whose shares are in question is the Bombay Telephone Co., Ltd., which was carrying on the business of establishing and maintaining telephones and telephone exchanges in the Cities of Bombay, Karachi and Ahmedabad under licenses held from the Government of India under the Indian Telegraph Act, under which licenses the Government of India had the right to acquire the assets in the year 1943. The Government of India had given notice to exercise their option and on such exercises the assets which would be acquired were all lands, buildings, works, materials and plant of the licensees suitable to and used by the licensees for the purpose of the undertaking, and those assets would be acquired at the then value. It appears that in 1939 the Bombay Telephone Co. and also Telephone companies operating in Calcutta and Madras, with which we are not concerned were anxious to get the Government of India to take over the assets before the correct date in 1943, and a meeting of interested parties was held at Simla on August 26, 1939, at which certain principles were agreed to on which the assets of the Telephone companies were to be valued. Thereafter the Government of India appointed two valuers to value the assets of the Telephone companies, and those valuers made a report on April 15, 1940, to the Government of India. The original proposal, as I mentioned, was to acquire the assets of the Telephone companies, but after the report had been made to the Government of India, a suggestion was made that the Government of India, acting through a company called the Government Telephones Board, Ltd., (which is the transferee company) should acquire the shares of the Bombay Telephone Company, and with that object a reconciliation statement was prepared on April 1, 1941, adjusting the figures in the report of the experts down to April, 1941, and making them applicable to a purchase of shares instead of assets.
(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. After the petition first came before the Court, the learned Judge made an order for discovery against the Government Telephones Board, Ltd., directing the Board to give inspection of the valuation report made by the experts to the Government of India on which the offer of such Government was made. I must confess I think it very difficult to justify that order. The report of the experts was made to the Government of India who are not parties to this petition. The document was a confidential document. Even if it had been made to the purchasing company, it is a novelty to me that in cases where the Court is asked to approve a contract the Court can require the purchaser to disclose the basis on which his offer was made. The question is not whether the basis on which the offer was made was a correct basis, but whether the offer was one which ought to have been accepted. But the learned Judge having directed the disclosure of these documents, the dissenting shareholders through their advisers took every advantage of the opportunity given to them, and at the hearing they abandoned all the grounds on which they had relied in the petition, except one on which the learned Judge held against them. But they took a variety of other grounds which had been suggested to them by a perusal of this confidential report. The abandonment of most of the grounds on which the petition was based does not inspire confidence in the reasonableness of the petitioners in standing out against the majority.;