:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO. 953 OF 2007 COMPANY PETITION NO. 953 OF 2007 COMPANY PETITION NO. 953 OF 2007 CONNECTED WITH CONNECTED WITH CONNECTED WITH COMPANY APPLICATION NO. 948 OF 2007 COMPANY APPLICATION NO. 948 OF 2007 COMPANY APPLICATION NO. 948 OF 2007 AND AND AND COMPANY APPLICATION (L) NO. 1101 OF 2007 COMPANY APPLICATION (L) NO. 1101 OF 2007 COMPANY APPLICATION (L) NO. 1101 OF 2007 In the matter of Sections 100 to 104 and 391 to 394 of the Companies Act, 1956; And In the matter of Hoganas India Limited. And In the matter of the Scheme of Arrangement between Hoganas India Limited and its equity shareholders. Hoganas India Limited, ] a company incorporated under ] the Companies Act, 1956 and ] having its registered office at ] Ganga Commerce, 4 North Main ] Road, Koregaon Park, Pune 411001]..Petitioner Mr. Virag Tulzapurkar with Mr. Ashish Kamat i/b. M/s. Crawford Bayley & Co. for the Petitioner. Mr. Birendra Saraf with mr. Mahesh Patil, Mr. Y. N. Adhia and Ms. Shashikala Sharma i/b. M/s. Adhia & Adhia for the Objectors. Mr. C. J. Joy i/b. Mr. S. K. Mohapatra for the Regional Director. CORAM : S. A. BOBDE, J. CORAM : S. A. BOBDE, J. CORAM : S. A. BOBDE, J. DATE : 21ST AUGUST, 2008. DATE : 21ST AUGUST, 2008. DATE : 21ST AUGUST, 2008. ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : . Heard. 2 In the course of these proceedings under :2: Section 391 of the Companies Act, a meeting of the shareholders has been convened. The Resolution has been passed by the majority of 96.15% shareholders. However, there is an objection by 3.85% shareholders. 3. The circumstances in which objections has been raised are as follows: Hoganas India Limited has a shareholding as follows: 96.15% Held by Hoganas AB Sweden 01.82% Held by subsidiary of Hoganas AB Sweden 02.01% Held by other shareholders 4. Apparently, the company was de-listed from the Stock Exchange and therefore its shares could not be treated on the floor of the Stock Exchange. Due to the repeated enquiries from shareholders it decided to grant liquidatory options to all the shareholders except the promoter company i.e. Hoganas A.B. Sweden for consideration. Accordingly :3: it offered three alternatives: (i) The shareholders could sell their shares for a consideration of Rs.177/-; (ii) That the shares could be exchanged for an unsecured fully paid debenture of Rs.177/-. (iii) If the shareholders did not opt for the above two, he would be paid a sum of Rs.177/- in lieu of share, which would then be deemed to have been vested in the Company’s name. In short, under the proposed Scheme of Arrangement, the Company decided to reduce its shareholding of all shares except those held by its holding Company Hoganas. It accordingly made an application to this Court for sanction. 5. By an order dated 31.8.2007 a meeting of all the members other than the promoters, viz. Hoganas A.B. Sweden, all the members of the applicant other than the promoters, viz. Hoganas A.B. Sweden was held on 14.11.2007, and a report has been made to :4: this court. At the meeting : 17 shareholders holding 109086 equity shareholders of Rs.10/- each attended and voted. 14 members holding 100648 equity shares of Rs.10/- voted in favour of the resolution for approval which included Hogana Hogap A.B. subsidiary of Hogana AB Sweden holding 1,00,000 shares of the aggregate value of Rs.10,00,000/- 3 members holding 338 equity shares of Rs.10/- aggregate value of Rs.3,380/- voted against the resolution. These members have filed the present petition. 6. The objection is that the three options are not fair in as much as the last option compels the shareholders to return share for a consideration of Rs.177/-. Secondly, requested majority of 3/4th was achieved by the improper inclusion of Hoganas Hogap AB which held 1,00,000 shares aggregate value of Rs.10,00,000. Inclusion of Hoganas Hogap AB in the same clause of members as the others. :5: 7. The contention of the objectors appears to be well founded. Indeed shareholders have been left with no option but to return their shares to the company. However such a clause if not shown to be contrary to any provision of law and if applied uniformly is within the power of the company, particularly when taken by the majority of the members of the company present for voting as required in law. . Therefore, though apparently unfair its real validity would depend on whether the decision could be said to have been validly taken under Section 391(2) of the Companies Act by the majority of that class of members whose meeting has been convened since it may be safely assumed that the majority knows what is in the best interest of the company. 8. According to the Objectors, the Company ought to have obtained appropriate directions from this Court for convening separate meetings of Hogana Hogaps AB which is a subsidiary of Hoganas AB Sweden, which held 1.82% shares and a separate meeting of other shareholders who held 2.01% shares because according to the petitioners Hoganas Hogap :6: would be inclined to allow its shareholding to be extinguished according to the wishes of the company and therefore constitute a separate class from the other shareholders, who would not have wanted their shareholding to be extinguished. 9. The learned counsel for the objectors relied on a decision of the learned Single Judge of this court in Sandvik Asia Ltd. [2004(4) Bom. C.R. Sandvik Asia Ltd. [2004(4) Bom. C.R. Sandvik Asia Ltd. [2004(4) Bom. C.R. 287] 287] 287] In that case where the validity of reduction of shareholding under Section 100 of the Companies Act held for consideration. This court observed that there were two distinct groups amongst the paid up equity shareholders, one belonging to the promoters and other of non-promoters and therefore separate meetings ought to have been convened of these two groups. The court observed that since a meeting of both groups was held together, the promoters could virtually bulldoze the minority shareholders and purchase their shares at the price dictated by them. The court found that therefore and also because the minority shareholders were not given any meaningful option, the reduction of share capital was unjust and unfair. 10. There is no doubt that if, amongst the :7: members whose meeting has been convened, it is found that there are two distinct classes with differing rights and interest, it would not be proper to uphold the convening of a meeting of two such classes together. In a given case that would allow the majority having a common interest to ride rough shod over the minority representing a distinct interest but as has been averred, averred, averred, the moot question has always been what constitutes a "class". Buckley on the Companies Act, 13th Edition, page 406 has observed that it is a formidable difficulty to say what constitutes a "class" of creditors. 11. Although in the context of creditors, the Gujarat High Court in Re : Maneckchowk and Re : Maneckchowk and Re : Maneckchowk and Ahmedabad Mfg. Co. Ltd., [1970 Company Cases 819] Ahmedabad Mfg. Co. Ltd., [1970 Company Cases 819] Ahmedabad Mfg. Co. Ltd., [1970 Company Cases 819] while dealing with the same problem posed by this case observed as follows:- "...... Speaking very generally, in order to constitute a class, members belonging to the class must form a homogeneous group with commanlity of interest. If people with heterogeneous interest are combined in a class, naturally the majority having common interest may ride rough shod over the minority representing a distinct interest. One test that can be applied with reasonable certainty is as to the nature of compromise offered to different groups or classes. The company will ordinarily be expected to offer :8: an identical compromise to persons belonging to one class, otherwise it may be discriminatory. At any rate, those who are offered substantially different compromises each will form a different class. Even if there are different groups within a class the interest of which are different from the rest of the class or who are to be treated differently in the scheme, such groups must be treated as separate classes for the purpose of the scheme. Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. This will provide rational indicia for determining the peripheral boundaries of classification. The test as stated earlier would be that a class must be confined to those persons whose rights are not so similar as to make it impossible for them to consult together with a view to their common interest." (emphasis supplied) Therefore, if the court finds that the rights and interest of the creditors or members whose meeting is convened are common, then it must be held that a single meeting of all creditors or members is valid. The ascertainment of what are common rights and interest in a given case must necessarily be made having regard to the object of the meeting, e.g. as observed by the Gujarat High Court creditors who are offered substantially different compromises each will form a different class. :9: 12. The object of the company was to reduce the shareholding of all its members, except its holding company. Having become declared delisted, the company’s shares became incapable of trading. Therefore company has proposed to get back his shares from the shareholders at a certain consideration. The decision is to get back all those shares from all its shareholders who could not trade in its shares except the promoter i.e. Hoganas AB Sweden. Accordingly the meeting that is convened is that of its members and shareholders. 13. Admittedly, the meeting that was called for considering the resolution included all the shareholders i.e. 14 members including Hoganas Hogap a subsidiary of Hoganas AB Sweden and 3 other members. 14. According to the objectors, Hogana Hogap AB, but for whose votes resolution would not have been passed by 3/4th majority, could not have been included in the same class of members as others because they were a subsidiary of the holding company and were liable to be treated as promoters and in fact have been indirectly referred to as :10: promoters in the Advocates’ letter. They could therefore not have been called to vote along with other members who belong to a different class and who had no interest in the holding company. The objection is that promoters could not have been called to vote along with the non-promoters. 15. As observed earlier, what would be relevant is the determination of what constitutes a "class" which must be determined with reference to the object of the resolution to be passed at the meeting. The award object of the company was to reduce the shareholding of all the shareholders since the shares became incapable of trading. It therefore decided to do so in respect of all its shares except those which were held by the holding company i.e. Hoganas AB Sweden whose interest may not have been in the trading of shares. Now, ordinarily a company would be expected to offer identical terms to all shareholders otherwise the action could be vitiated as being discriminatory. It is therefore obvious that all those shareholders who were offered the same terms would have to be treated as one class. If different terms would have been offered to different groups of shareholders, they would have to be treated as a different class, :11: which is not the case here. In the company the number of shareholders were 17 that included Hoganas Hogap AB, which held 1.82% of the shares and other members of the public who held 2.01%. All these shareholders were to be relieved of their shareholdings on the same terms. It was incumbent on the company therefore to treat all the shareholders as a one class. As observed by Gujarat High Court in Maneckchowk case the group styled as a class should ordinarily be homogeneous and must have commanlity of interests and the compromise offered to them must be identical. It is clear that the shareholders formed a group which was homogenous and had a commanlity of interest and the compromised offered to them was identical. I am therefore of view that it cannot be said that two separate meetings ought to have been called one of Hoganas Hogap AB and another of other members of the public merely because Hoganas Hogap was a subsidiary of the holding Hoganas AB Sweden. Having regard to the purpose of the resolution. The resolutions of the meeting do not bear out the contention on behalf of the objectors that Hoganas AB Sweden ought to have been treated as a separate class and the separate meeting out to have been held for them because they were interested in supporting the interest of :12: Swedish holding company and permitting their shares to be reduced. Then nothing on record to indicate that the reduction of the shares of its subsidiary was objective of the holding company. Moreover, if one looks at the percentage of the shareholders who voted in favour of the resolution, excluding Hoganas Hogap AB, the percentage is as high as 65.72% since 13 shareholders in the category of the members of the public voted for reduction of the shares by accepting payment. 16. In Miheer H. Mafatlal vs. Mafatlal Miheer H. Mafatlal vs. Mafatlal Miheer H. Mafatlal vs. Mafatlal Industries [(1997)1 Supreme Court cases 579)], Industries [(1997)1 Supreme Court cases 579)], Industries [(1997)1 Supreme Court cases 579)], the Supreme Court relied on the following observations of the Calcutta High Court in the case of Mankam Investments Ltd., [(1995)4 Company LJ 330 (Cal): ".....It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefited or will be able to economise in the matter of expenses is a matter for the shareholders to consider. If three companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However, the court is really not concerned with the exact details of the :13: matter and if the shareholders approved the scheme by the requisite majority, then the court only looks into the scheme as to find out that it is not manifestly unfair and /or is not intended to defraud or do injustice to the other shareholders." Having regard to the facts of the present case, it does not appear that the proposed action is manifestly unfair or is being proposed to defraud other shareholders. The decision to reduce the shareholding of the company since shares became untradeable in the market and the corresponding decision of the shareholders to accept payment in such shares and relinquish their shareholding could be well said to be commercially correct and acceptable decision. In that case the Supreme Court settled the broad contours of the jurisdiction of the Company Courts as follows:- ".... In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged: 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite :14: majority vote as required by Section 391 sub-section (2). 3. That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4. That all necessary material indicated by Section 393(1)(a) is placed before the voters at the meetings concerned as contemplated by Section 391 sub-section (1). 5. That all the requisite material contemplated by the proviso of sub section (2) of Section 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. :15: 9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." Having regard to the aforesaid parameters, it appears that the proposed arrangement is not violative of any provisions of law nor it is contrary to public policy. It cannot be said that the members or the class of members who voted in favour of the decision coerced the minority to promote any interest adverse to them. In fact 99.66% voted in favour of the Scheme and .34% against the Scheme. 17. As stated earlier, even if the vote of Hoganas Hogap AB is excluded, the number of persons who voted in favour of the Scheme comes to 65.72% and the number of persons who voted against the Scheme comes to 34.28%. There is thus no merit in the contention of the objectors. :16: 18. Mr. Saraf, the learned counsel for the objectors relied on a decision of the English Court English Court English Court Re Hellenic & General Trust Ltd. [(1975) 3 ALL ER Re Hellenic & General Trust Ltd. [(1975) 3 ALL ER Re Hellenic & General Trust Ltd. [(1975) 3 ALL ER 382. 382. 382. However, the circumstances of that case were different. The court found that one company which held shares i.e. MIT which was a wholly owned subsidiary of Bank Hambros and not to have been allowed participated in the voting because under the proposed Scheme the ordinary shares of the company were to be cancelled and new ordinary shares were to be issued to Hambros with the result that the company would become a wholly owned company of Hambros. 19. Similarly, reliance on the decision in Sandvik Asia Ltd., is not appropriate because that was a case of reduction of share capital under Section 100 of the Companies Act and there were clearly demarcated groups of promoters and non-promoters. In the circumstances, the court held that the company ought to have gone by way of Scheme under Section 391 of the Companies Act and not by way of Section 100. 20. The Regional Director has examined the Scheme and has deposed in the Affidavit dated :17: 30.1.2008 that the Scheme is not prejudicial to the interest of creditors, shareholders and the public except that the petitioner company has not passed a special resolution as required by Section 100 of the Companies Act, 1956. Section 100 requires a special resolution for reducing share capital. Section 189 of the Companies Act, 1956, contemplates two kinds of resolution. Sub section (1) contemplates an ordinary resolution which requires a simple majority of the members from amongst those who are present for the meeting and who vote. When a resolution is passed at a meeting where the number of votes cast in favour of the resolution exceeds the number of votes cast against it, it is known as ordinary resolution. A resolution for reduction of share capital requires a special resolution. A special resolution is defined by sub section (2) as one which is passed by a majority of not less than 3/4th of such members as being enttiled so to do, vote in person or by proxy at a general meeting of which a notice specifying the intention to pass a special resolution has been duly given. There is no doubt that the resolution in question has been passed as a special resolution which has been passed by 75% of those voting. Characteristics of the special resolution are as follows: :18: (i) It must be passed by a special majority. (ii) The form in which it is to be passed should be set out in the notice. (iii) The notice must specify the intention to propose the resolution as a special resolution. (iv) There should have been a due notice of a general meeting; (v) Votes cast in favour of the resolution should not be less than three times the number of votes, if any cast against the resolution by members present in voting vide a Section 189(2) of the Companies Act. The resolution in question contains the aforesaid characteristics. It was however contended that since what was achieved was a reduction in the share capital. It was necessary for the company to have separately passed a resolution under Section 100 of the Companies Act. However, this objection cannot be sustained in view of the decision of this Court :19: in PMP Auto Industries Ltd. [1994 Vol 80 Company PMP Auto Industries Ltd. [1994 Vol 80 Company PMP Auto Industries Ltd. [1994 Vol 80 Company Cases page 289] Cases page 289] Cases page 289], where this court observed as under: "....Not only is section 391 a complete "....Not only is section 391 a complete "....Not only is section 391 a complete code, but it is intended to be in the nature code, but it is intended to be in the nature code, but it is intended to be in the nature of a "single window clearance" system to of a "single window clearance" system to of a "single window clearance" system to ensure that the parties are not put to ensure that the parties are not put to ensure that the parties are not put to avoidable, unnecessary and cumbersome avoidable, unnecessary and cumbersome avoidable, unnecessary and cumbersome procedure of