R.M. SAHAI, J. (Agreeing) - (1.) THE Judgments of the court were delivered by.
(2.) . Merger under the Companies Act, 1956 (in brief 'the Act') of the two big companies - one, Hindustan Lever Limited (HLL), a subsidiary of Unilever (UL), London-based multinational company, and other Tata Oil Mills Company Ltd. (in brief 'TOMCO') the first Indian company founded in 1917 and public since 1957 which has been found by the High court to be still "not financially insolvent or sick company" was 505 unsuccessfully challenged in the High court by few rather nominal shareholders of TOMCO, Federation of Employees' Union of both the TOMCO and HLL, Consumer Action Group and Consumer Education and Research Centre. The attacks varied from statutory violation, procedural irregularities of provisions of the Act to ignoring the effect of the provisions of Monopolies and Restrictive Trade Practices Act, 1969, under valuation of shares, its preferential allotment on less than the market price to the multinational, failure to protect the interests of employees of both the companies and above all being relative of public interest. The High court was not satisfied that either the merger was against public interest or that the valuation of the shares was prejudicial to the interest of the shareholders of TOMCO or that the interest of the employees was not adequately protected. It was held that there was no violation of Section 391(l)(a) of the Act and the claim that the disclosures in the explanatory statement were not as required was without basis as it was not established that the statement did not disclose correct financial position of TOMCO. Nor was there anything to show that the material was not disclosed. The court held that the petitioner failed to establish any fraud or prejudice. On valuation of share for exchange ratio the court found that a well-reputed valuer of a renowned firm of chartered accountants and a Director of TOMCO determined the rate by combining three well-known methods, namely, the net worth method, the market value method and the earning method. The figure so arrived at could not be shown to be vitiated by fraud and mala fide and the mere fact that the determination done by slightly different method might have resulted in different conclusion would not justify interference unless it was found to be unfair. And in that the petitioner failed miserably. The High court did not agree that the approval to scheme of merger should be withheld till the complaint filed before Monopolies and Restrictive Trade Practices Commission was not finally decided as the jurisdiction exercised by the High court under the Act and that by the Commission under MRTP Act were entirely different. Nor did it find any merit in the challenge that interest of employees of the two companies was not adequately taken care of. It was held that service conditions of TOMCO, the transferor company, having been protected it could not claim it to be prejudicial either because they were not assured of same conditions of service as was operative in HLL or that there was no similar provision protecting the interest of HLL employees. The apprehension of the employees against probable retrenchment as the employees of HLL were already surplus was rejected as of no substance since such disputes if necessary could be raised in labour court. On preferential allotment of shares to UL on less than market value the court held that HLL was holder of 51% shares prior to any allotment, therefore the allotment which placed them on a par with same holding was neither illegal nor violative of public interest. . Similar grievances have been reiterated by the shareholders, the Employees' Union and the Consumer Action Group before this court with fresh dressings and flourish. The sentinel nature of jurisdiction exercised by the High Court in company jurisdiction was emphasised with vehemence. It was urged that the High court which is expected to act as guardian in company matters failed to exercise its jurisdiction and was swayed by considerations which were neither legal nor relevant. Attempt was made to show that the determination of 506 valuation was vitiated as the chartered accountant to whom the duty was entrusted did not perform his functions objectively and in accordance with settled financial norms and practices and his action was vitiated as he was one of the Directors of TOMCO. Comparative figures of the shares of the two companies, their market value, their holding in the market etc. were placed to demonstrate that the calculation was vitiated. . But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair to the shareholders of the company which was being merged. The court's obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as even though the chartered accountant who performed this function was a Director of TOMCO but he did so as a member of a renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of shareholders of TOMCO by the High court and it has been found that the determination did not suffer from any infirmity. The company court, therefore, did not commit any error in refusing to interfere with it. May be as argued by the learned counsel for the petitioner that if some other method would have been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95% of the shareholders who are the best judges of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by courts as, "certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be subjected to inspection by the court. To do so, is incompetent and improper and, therefore, out of bounds. Nevertheless, the broad parameters of fairness in administration, bona fides in action, and the fundamental rules of reasonable management of public business, if breached, will become justiciable."
(3.) . Nor is there much merit in the claim of the employees that their interest had not been adequately protected. The scheme of amalgamation provides that all the staff, workmen or other employees in the service of the transferor company (TOMCO) immediately preceding the effective date shall become the staff, workmen and employees of the transferee company. Clause 11.1 provides that their services shall be deemed to have been continuing and not have been interrupted. Clauses 11.2 and 11.3 protect the interest by providing that the 507 terms and conditions of such employees shall not be less favourable and all benefits such as PF etc. shall stand transferred to HLL. The grievance of the employees that no safeguard has been provided for Hindustan Lever Employees' Union appears to be off the mark as it is the interest of the employees of TOMCO which had to be protected. Even the submission that merger will create unemployment or that it may result in many employees of TOMCO being rendered surplus does not carry much weight as these are matters which can be taken care of by the labour court if the contingency arises. The learned counsel for the petitioner time and again took strong exception to the observation made by the High court that any dispute about retrenchment etc. could be adjudicated by the labour court. He vehemently submitted that the availability of remedy after retrenchment should not have coloured the vision of the court to adjudicate upon the reasonableness of the scheme. The submission overlooks the primary duties and functions of a company court in matters of merger. When the court found that service conditions of the merged company shall not be to their prejudice it was fully justified in rejecting the claim of employees as it was neither unfair nor unreasonable. Further the court in its anxiety to be fair to the employees recorded the statement of the learned Advocate General who appeared for HLL that no employee of HLL has been rendered surplus and in such contingency the company has resorted to friendly handshake by either giving lump sum or pension. A scheme of amalgamation cannot be faulted on apprehension and speculation as to what might possibly happen in future. The present is certain and taken care of by clauses 11.1,2 and 3 of the Scheme. And unfriendly throwing out being amply protected by taking recourse to labour court no unfairness arises, apparent or inherent. Nor the claim that merger shall result in 'synergies' can render the scheme bad. Improved technology and scientific methods result in better employment prospects. Anxiety should be to protect workers and not to obstruct development and growth. May be that advanced technology may reduce the manpower but so long as those who are working are protected they are not entitled to hinder modernisation or merger under misapprehension that future employment of same number of workers may stand curtailed. The wage differential arising between employees of two companies cannot result in making the merger unfair since the service conditions of TOMCO workers having been protected they cannot claim that unless they are paid the same emoluments as is being paid by Hindustan Lever the merger was unjust. Various subsidiary submissions that the workers, shareholders were not permitted to attend the meeting or that material facts were concealed from them, does not appear to be correct as when more than 95% of the shareholders have agreed to the valuation determined by the Chartered Accountant all these procedural irregularities cannot vitiate the determination. . What requires, however, a thoughtful consideration is whether the company court has applied its mind to the public interest involved in the merger. In this regard the Indian law is a departure from the English law and it enjoins a duty on the court to examine objectively and carefully if the merger was not violative of public interest. No such provision exists in the English law. What would be public interest cannot be put in a strait-jacket. It is a dynamic concept which keeps on changing. It has been explained in Black's Law Dictionary as: 508 "Something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, or as the interests of the particular locality which may be affected by the matters in question. Interest shared by citizens generally in affairs of local. State or national government." It is an expression of wide amplitude. It may have different connotation and understanding when used in service law and a yet different meaning in criminal law than civil law and its shade may be entirely different in company law. Its perspective may change when merger is of two Indian companies. But when it is with subsidiary of foreign company the consideration may be entirely different. It is not the interest of shareholders or the employees only but the interest of society which may have to be examined. And a scheme valid and good may yet be bad if it is against public interest.;