final memo-respondent (1).docx

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.


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


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


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


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


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.”¶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 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

scheme”¶-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

shareholders”¶

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¶


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¶


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 so”¶Jenkins 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.”¶Rajahmundry

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.


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

15¶-SUBMISSIONS ON BEHALF OF THE RESPONDENT-

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