Vikramajit Sen, J.
1. The question which calls for determination is whether, in the factual matrix disclosed in the pleadings of the parties to this petition, Section 395 of the Companies Act, 1956 (hereinafter referred to as `the Act') could have been invoked by the Respondents with the intent of compulsorily acquiring the entire shareholding of the Petitioner, namely, AIG (Mauritius) LLC in the erstwhile Respondent No.2, Tata Cellular Limited, Respondent No.1. Tata Televentures (Holdings) Limited, had in terms of its notice dated 24.7.2001, invoking Section 395 of the Act, required the Petitioner to sell its stake in Respondent No.2 at a price of Rs.10/- per share for cash. Counsel for the parties have unanimously contended that I should pronounce on the preliminary issue of whether the said Section has been properly and correctly invoked by Respondent No.1. It is only in the event that this Court comes to the conclusion that Respondent No.1 was authorised, competent and entitled in law to unilaterally purchase or requisition or expropriate the Petitioner's holding in Respondent No.2, would the further question arise of whether the price fixed by Respondent No.1 should be accepted by the Court to be a fair and proper valuation.
2. Respondent No.2 was incorporated in March, 1995 and changed its name to the present one in March, 2000. In June, 1995 Tata Industries Limited, Bell Canada International Inc., Bell Canada International (Mauritius) Inc., and Respondent No.2 entered into a Joint Venture Agreement (JVA) for obtaining a License in respect of cellular services in India. The Petitioner was associated with the JVA from its inception and had acquired the aforementioned shares of Respondent No.2 at the very inception stage. In November, 1995 the Respondent No.2 was awarded a license to establish and provide Cellular Mobile services in Andhra Pradesh. In December 1995, the Petitioner was issued 10 per cent equity shares in Respondent No.2. In September 1998 Respondent No.1 was incorporated, of which 99.99 per cent shares were held by Tata Industries Limited. While these two parties are indubitably separate and distinct legal entities for most purposes, once the corporate veil is lifted it will be evident that they are one and the same. It is only to a marginally lesser extent that the Respondents are commercial alter egos of each other since 91.4% of the equity is held by the Tata group, the remainder being with the Petitioner. These facts shall be of great significance. Thereafter Bell Canada International (Mauritius) Inc., for reasons which need not be dealt with in detail, withdrew from the Joint Venture Agreement, its interests being taken over by Tata Industries Limited, which in turn held 99.99 per cent shares in Respondent No.1. It is the Respondents' say that in December, 1999 the Petitioner made unreasonable demands on Tata Industries Limited which led to the consequence that the latter offered to buy out the Petitioner on the same terms as were applicable to the Bell Canada International Group. In March, 2000 a Memorandum of Understanding (MoU) was entered into between Respondent No.2 and Grasim Limited and AT&T; Wireless Services Inc., for their proposed merger into a company in which each Corporate Group would hold 1/3rd of the equity. The Petitioner, which at that point of time held 10 per cent shares in Respondent No.2, was not included in the proposed reorganisation. In August 2000 the Joint Venture Agreement was terminated and in the following month the Board of Respondent No.2 proposed an amalgamation with Birla AT&T; Communications Limited (BACL). The Petitioner was excluded from this reorganisation in the sense that it was not allotted any separate shares of the new entity, but was still a part thereof by virtue of its holdings in Respondent No.2. In December, 2000 Tata Industries Limited requested Respondent No.2 for issuance of 6,65,30,000 Naked Warrants which were eventually allotted. On 25.1.2001 the Petitioner was informed that it was not entitled to any portion of the Warrants or the Preferential Issue of Equity.
3. On 12th February, 2001 Respondent No.2 filed Company Petition No. 57 of 2001 as a sequel to Company Application No.1564 of 2000 for the sanction of the Amalgamation Scheme between Respondent No. 2 on one side and Birla's and AT&T; who had combined their interests in the form of BACL on the other. Respondent No.1 has averred that a Letter of Offer, seeking to purchase their shares under Section 395 of the Act, was dispatched under U.P.C. to all the shareholders of Respondent No.2 including the Petitioner, but receipt of this communication has been specifically denied by the Petitioner. It will be seen that the identity of Respondent No.1 and Respondent No.2 are almost the same, once the corporate veil is lifted. On such a important matter, it could be expected that the Respondent No.1 would have been prudent to dispatch the Letter of Offer by recorded/registered post so as to set speculation to rest. The Petitioner contends, however, that it came to know of the letter dated 26/4/2001 for the first time on the receipt of the subsequent notice dated 24/7/2001. In this interregnum, the Scheme of the Merger of Respondent No.2 with BACL was sanctioned by this Court on 28/5/2001. It is necessary to underscore that no reference in the Scheme to the Offer dated 26/4/2001 of Respondent No.1 to all the shareholders of Respondent No.2, and also that Respondent No.1 was not a part of the Merger detailed in CP No.57/2001. In this Offer, Respondent No.1 had stated that the current fair value of the shares of Respondent No.2 was between Rs.9/- and Rs.11/- and that they were offering Rs.10/- per share to every shareholder of Respondent No.2. Some of the other salient terms of the Offer are as follows:
' CLAUSE FOUR
TENURE OF OFFER
The Offer will open on the date of issuance of this Letter of Offer to the TCL shareholders. The Offer will close on the occurrence of the earlier of the following two events:
(a) Upon the acceptance of the Offer by all TCL Shareholders; or
(b) On the expiry of one month from the date of Opening of the Offer .
...... CLAUSE SEVEN
MISCELLANEOUS
...... 7.3 Upon acceptance of this Offer by the TCL Shareholder, the Transferee Company will hold in trust, on behalf of the TCL Shareholder, the share certificates of TCL shares (if any), Forms of Acceptance - cum - Acknowledgement fully filled in and the duly executed Transfer Deed/s, till such time as the Cheques/drafts, more particularly described in Clause SIX of this Letter of Offer, are posted.
7.4 Notwithstanding that the Offer may not yet have closed in accordance with CLAUSE FOUR of this Letter of Offer, TTVHL hereby expressly retains and desires to exercise all rights available to it under law subsequent to the acceptance of this offer by 90% (Ninety per cent) of the TCL Shareholders, including the right to treat the TCL Shareholders who have not, by then, assented to the Offer as having rejected the Offer and all rights ancillary thereto. For the purposes of this paragraph 7.4 alone, an acceptance that is subject to the approval of RBI/ financial institutions/ lenders/ governmental agencies shall be deemed to be a valid acceptance.'
What is sought to be conveyed by Clause 7.4 to the shareholders of Respondent No.2, which in substance is the Petitioner, since Respondent No.1 and Respondent No.2 are almost completely of common identity? I understand the clause to indicate that the shareholders must accept the offer of Respondent No.1 to purchase their holdings at Rs.10/- per share within thirty days, failing which while they would not be able to enforce the sale thereafter, Respondent No.1 may still do so. I do not for a moment think this to be the intendment of Section 395 of the Act. It matters little what Respondent No.1 intended to convey; even if I have misconstrued the clause, so could the public at large.
4. On 23.5.2001 92 per cent of the shareholders in Respondent No.2 consented to the Amalgamation, as must surely have already been anticipated by all concerned. It has been emphasised on behalf of the Respondents that the Petitioner neither supported nor opposed the Scheme, but it must be kept in perspective that the `expropriation' by Respondent No.1 of the Petitioner's shares in Respondent No.2 was not a part of the proposed Scheme of Amalgamation. So far as the Petitioner was concerned, even if it did not have a direct or distinct role in the new amalgamated company, its participation continued by virtue of its share holding in Respondent No.2. The Scheme of Merger was approved by this Court on 28.5.2001. In the event the Petitioner could legitimately have expected to receive shares in the reduced ratio of 376 for 400 shares as have been given to Respondent No.1, the Company formed pursuant to the amalgamation, namely Idea Cellular, has stayed this exercise awaiting the decision in these proceedings. The notice for the acquisition of the Petitioner's shareholding in Respondent No.2 was issued on 24.7.2001, as has already been mentioned above, leading to the filing of the present petition. Hon'ble Cyriac Joseph, J. while approving the merger had ordered that Respondent No.2 shall stand dissolved without the process of winding-up. However, since the sanction to the Scheme was granted subject to the condition that it will come into effect only on the formal Approval of the Department of Telecommunications, dissolution of Respondent No.2 did not take effect on May 28, 2001. The Respondents have stated that the merger accordingly became effective when this Approval was filed with the Registrar of Companies on October 17, 2002, i.e. the effective date. On that date, thereforee, Respondent No.2 ceased to exist. The Petitioner has not been allotted any shares in Idea Celluar. It would be only fair to record that the Petitioner has not argued that the material placed before it was inadequate for arriving at an informed decision viz a viz the offer of Respondent No.1. The Petitioner's contention that its stake in Respondent No.2 and thereafter in Idea Cellular Ltd. is essentially an investment and that it has no intention of engaging in the administration of the Company has not been challenged. The Petitioner is stated to be in the Insurance business, making it necessary to spread out its investments and capital. thereforee, the argument that the Petitioner has been a stumbling block in the smooth functioning of the other companies, does not arise for consideration. In other cases this may become critical.
5. Chapter V of the Act is a pandect within that statute dealing with Arbitration, Compromises, Arrangements and Reconstructions, in Sections 389 to 396-A. The question that arises in this petition is whether Section 395 of this Chapter is itself a fascicle of this pandect, operating in its own orbit impervious to the gravitation of any of the other provisions grouped in Chapter V. The continuance of the word 'Arbitration' in the Chapter is a misleading anachronism since Section 389, which was concerned with the powers of a company to refer matters to arbitration, has been omitted from the statute by the Companies (Amendment) Act 1960. Its retention in the Act exemplifies the unfortunate reality that when changes are conceived necessary by the Legislature, lack of complete care in effecting the amendments is often evident. This gives rise to avoidable controversy. In contrast to the amendments by our Parliament, with each amendment in English Company Law, minute care has been taken to delete the superfluous, and re-organise the provisions wherever necessary. As will be seen below, the law pertaining to `Takeovers' has been detached from those dealing with Arrangements, Reconstruction and Amalgamation in the English statute of 1985. This is of significance since it has been contended by Shri Chidambaram that Section 395 of the Act should be viewed and applied in a manner distinct to the other provisions of Chapter V. Myriad amendments have also been effected in the remaining sections of the Act. Section 390 of the Act interprets the expressions 'company', 'arrangement'and 'unsecured creditors' for the purposes of Sections 391 and 393 of the Act, thereby showing that the two provisions are bonded to each other. Thereafter Section 394(4)(b) states that 'Transferee Company' does not include any company other than a company within the meaning of the Companies Act; but 'Transferor Company' includes any body corporate. This definition also applies to Section 395, as specifically mentioned in its sub-section (5) (b). This provision had replaced Section 153-B of the Indian Companies Act, 1913 (hereinafter referred to as `the old Act'); and corresponds in substantial measure to Section 209 of the English Companies Act, 1948 and Section 124(1) of the Companies Act, 1934 (Canada); the only difference being sub-section 4-A, which has been introduced into our statute in 1965. Section 153-A & B of the old Act was the compendium of the present provisions of Chapter V of the Act. Interestingly, and in my view, appropriately, the power of the Court to intervene in instances where a company has, in the conduct of its affairs, manifested a prejudicial or oppressive attitude towards a section of its members, was attached to the other provisions as Section 153-C of the old Act. In the English statute of 1948, the incidents of Arrangement and Reconstruction were grouped together as Section 206 to 209, along with the precursor to our Section 395. Problems encountered by, or perceived to be meted out to, minority shareholders was a fascicules on its own. When the English Companies Act, 1985 is perused, the provisions pertaining to 'Takeover Offers' (Sections 428 to 430-F of Part XIII A) are found to have been placed separately from those concerning Arrangements and Reconstruction (Part XIII comprising Sections 425 to 427-A). This shows that the law regarding Takeovers has recognizably developed in leaps and bounds when compared with schemes of Arrangements and Reconstructions, and it was thereforee considered expedient that they should be allowed to operate in their own spheres. Had I to implement the provisions of the English Company Law, the argument of Mr.Chidambaram that Section 395 of the Act is a complete code of its own would quite possibly have been irresistible. Perhaps, a progressive and purposive interpretation of this Section may achieve the same result, but there can be two opinions whether this is permissible, given the format of our statute. With this rider, the extract relied upon by Respondent No.1 from In re National Bank Ltd. (1966) 36 Company Cases 626 at 637 applies in India also:
'Moreover the two sections, sections 206 and 209, involve quite different considerations and approaches. Under Section 206 an arrangement can only be sanctioned if the question of its fairness has to be submitted to the Court. Under Section 209, on the other hand, the matter may never come to the court at all. If it does not come to the Court, then the onus is cast on the dissenting minority to demonstrate the unfairness of the scheme. There are, thereforee, good reasons for requiring a smaller majority in favor of a scheme under Section 206 than the majority required under Section 209 if the minority is to be expropriated.'
6. The Companies Act, 1956, prescribes varying requirements for decisions to attain binding force on the Company and with sound and profound reasons. As is evident from a reading of Sections 189 and 190 of the Act, some decisions are efficacious on receiving the assent of a simple majority whilst others require that there must be not less than three times the number of votes cast in favor of a Resolution than those opposed to it. Section 391 of the Act, which deals with compromises and arrangements, contemplates the consent of three-fourths in value of the affected persons for the decision to be binding on the remainder. Chapter VI, comprising Sections 397 to 409 of the Act, protects the rights of persons constituting a minority, holding not less than ten per cent of the members. Section 395 of the Act is logically at the end of this spectrum, and envisages and permits, within a defined arena, the drastic dilution of the rights of a class consisting of members constituting less than ten per cent. Although this dilution has been seen and termed even as an 'expropriation', jural interference was nonetheless found to be unnecessary only on this ground (see In re National Bank Ltd. (supra) at pages 637-638 and In re Sussex Brick Co. Ltd. [1960] 2 W.L.R. 665: [1960] 1 All E.R. 772. The question that arises is whether there is any rationale in the prescribed percentages, dependent upon the gravity of the measures to be effected. In my opinion, it is not legally odious to expect a minuscule group to fall in line with the dictates of an overwhelming majority comprising ninety per cent of the group. Usually, there is wisdom in the strength of members. There is every possibility that where nine persons are willing to accept a particular offer, the remaining single person may be standing apart from the others for motives which are not mercantile or commercial. While considering provisions analogous to Section 395 of the Act, Maugham, J. had expressed the following opinion which has stood the test of time, in In Re Hoare and Company Limited, (1934) 150 L.T. 374-thus
'I think, however, the view of the Legislature is that where not less than nine-tenths of the shareholders in the transferor company approve the scheme or accept the offer prima facie, at any rate, the offer must be taken to be a proper one, and in default of an application by the dissenting shareholders, which includes those who do not assent, the shares of the dissentients may be acquired on the original terms by the transferee company. Accordingly, I think it is manifest 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.
One conclusion which I draw from that fact is that the mere circumstance that the sale or exchange is compulsory is one which ought not to influence the court. It has been called an expropriation, but I do not regard that phrase as being very apt in the circumstances of the case. The other conclusion I draw is this, that again prima facie the court ought to regard the scheme as a fair one inasmuch as it seems to me impossible to suppose that the court, in the absence of very strong grounds, is to be entitled to set up its own view of the fairness of the scheme in opposition to so very large a majority of the shareholders who are concerned. Accordingly, without expressing a final opinion on the matter, because there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that, notwithstanding the views of a very large majority of shareholders the scheme is unfair.'
7. While assenting with this view, Tek Chand, J. has in Benarsi Das Saraf v. Dalmia Dadri Cement Ltd. [Vol.Xxviii] 1958 C C 435 opined that the 'principle underlying section 395 is that where a company obtains 90 per cent of the shares or class of shares under a scheme of arrangement, it can compel the dissentient minority to part with its shares. Conversely the dissenting shareholders are also entitled to compel the company to acquire their shares as well and on the same terms. Section 395 of the Companies Act, 1956, corresponds to section 209 of the English Companies Act, 1948, which reproduces with amendments section 155 of the English Act of 1929.' A similar interpretation was also imparted to these provisions by Balakrishna Ayyar, J. in the case entitled S.Viswanathan and Anr. v. East India Distilleries and Sugar Factories Ltd. and Anr. [Vol.XXVII] 1957 Company Cases 177. The learned Judge conceived that 'situations may well arise when the majority consider that the minority is standing in the way of what it considers to be an advantageous arrangement and there must be some provision to resolve the deadlock that would otherwise arise and section 153B seems to be designed for that purpose. It may be that the persons who are in a minority are wiser and more farsighted, but, if they cannot convert the majority to their point of view and the deadlock persists, a way out must be provided and that is what section 153B of the old Act seeks to do. If it were to be ruled that the section is invalid and ultra virus it may not be long before the machinery of joint stock enterprise is slowed down till it completely stops. That being so, I would be prepared to say, were it necessary to do so, that the limitation imposed by section 153B of the Act is a reasonable one and also in the public interest. to hold otherwise would be, it seems to me, to reverse the process of economic growth.'
8. In Navjivan Mills Company Limited , Kalol, In re Kohinoor Mills Co. Limited, Bombay, 1972 42 C C 265,a Single Judge of the Gujarat High Court had to pronounce upon the legal propriety of a scheme under Section 391 of the Act. The complaint was, inter alia, that the Company had not complied with the requirements of Sections 372, 395, 391 to 394 and 393(1) of the Act. Although it was not a case under Section 395 alone, the observations extracted below are apposite and instructive. This decision was relied upon by Mr. Chidambaram in respect of the obiter observations, with which I respectfully concur, to the effect that the transferee company is not expected to seek jural approval under Section 395 of the Act.
' ... In the case before me, the scheme is between Navjivan and its shareholders and creditors, sponsored by Kohinoor and the scheme if sanctioned would have the effect of making Navjivan a wholly-owned subsidiary company of the Kohinoor. The question in terms raised is: can such a thing be said to be a scheme of arrangement between Navjivan and its creditors and shareholders? and, secondly, whether it can be sanctioned under section 391? Second question raised by Mr. Shah will also stand answered by this decision that such a scheme would be covered by section 395 and the procedure contemplated therein should have been carried out. When the scheme in the National Bank case was being considered in the Chancery Division, a contention was in terms raised that the scheme was not one under section 206 (section 395 of our Companies Act). Both the contentions are answered in favor of the company proposing the scheme. Such a scheme can be said to be a scheme of arrangement between the company whose shares are being taken over and its creditors and shareholders and that such a scheme can be sanctioned under section 391 and it is not obligatory to carry out the procedure prescribed under section 395. The scheme has in fact been sanctioned. It, thereforee, appears both on principle as well as on authority well settled that where by a scheme partially of compromise and partially of arrangement the shares of one company are being taken over by another company converting the first mentioned company into a wholly-owned subsidiary company of the second mentioned company, it can none-the-less be a scheme of compromise and arrangement which if found to be just, fair, legal and workable and if properly approved can be sanctioned under section 391. Even if the effect of sanctioning the scheme is take-over of the first company by the second company, it would be no answer to say that it can only be done under section 395.
In the aforementioned case, the contention raised was that where arrangement under section 206 is in essence a scheme or contract for the purchase by an outsider of all the issued shares of the company, the court should not approve the arrangement unless both (1) the petitioner proves on full disclosure that the price is fair, and (2) the arrangement is approved by the 90 per cent majority referred to in section 209. It was urged that arrangement brought before the court was one of section 209 character and was not approved by the appropriate majority. Repelling this contention, it was observed as under:
'As regards Mr. Suenson-Taylor's second objection, namely, that the scheme really ought to be treated as a section 209 case needing a 90 per cent majority. I cannot accede to that proposition. In the first place, it seems to me to involve imposing a limitation or qualification either on the generality of the word `arrangement' in section 206 or else on the discretion of the court under that section. The legislature has not seen fit to impose any such limitation in terms and I see no reason for implying any. Moreover, the two sections, sections 206 and 209, involve quite different considerations and different approaches. Under section 206 an arrangement can only be sanctioned if the question of its fairness has first of all been submitted to the court. Under section 209, on the other hand, the matter may never come to the court at all. If it does come to the court, then the onus is cast on the dissenting minority to demonstrate the unfairness of the scheme. There are, thereforee, good reasons for requiring a smaller majority in favor of a scheme under section 206 than the majority which is required under section 209 if the minority is to be expropriated.' It would thus appear that even if the scheme of compromise and arrangement in essence involves acquisition by one company of the whole of the share capital of another company notwithstanding the fact that 90 per cent of the shareholders do not agree as envisaged by section 395, the same can still be sanctioned under section 391 and it is no answer to the problem that such a scheme can only be considered under section 395.
At this stage, one submission of Mr. Shah may be noticed. It was urged that section 209 of the English Companies Act differs in one respect from section 395 of our Companies Act inasmuch as there is no provision analogous to sub-section (4A) of section 395 in section 209 of the English Companies Act. That hardly makes any difference. Sub-section (4A) was introduced to protect the interests of the shareholders. If, thereforee, anyone takes resort to section 395, he is bound to carry out the procedure prescribed under sub-section (4A). If the scheme is in terms a scheme under section 391, it could not be rejected on the ground that the procedure prescribed in sub-section (4) of section 395 is not carried out. In fact the consenting majority required in section 391 is adversely kept lower than the consenting majority require under section 395. When a scheme under section 391 is sponsored, at the outset, it must come before the court and the court has supervision over it at every stage. When it is proposed, the court can prima facie examine it while giving directions under section 391(1) for convening meetings and the scheme cannot finally go through unless sanctioned under section 391(2) and the court, apart from various legal technicalities, can refuse to exercise discretion in favor of the scheme if it is shown to be oppressive to the dissenting members or if it is shown that the majority has almost imposed itself upon the minority. The scheme or contract of transfer of shares as contemplated in section 395 of the Act may not even come to the court. It can only come to the court if the dissenting minority challenges the proposed offer as unfair and the burden will be on them to show that the proposed offer is unfair. In a scheme under section 391 the fact that the scheme is fair and reasonable and is such that honest men guided by best of commercial instincts would approve, has to be established by the sponsors and the dissenting minority has only to show that the court should not exercise discretion in favor of such a scheme. But in a scheme under section 395, it can only come to the court at the instance of dissenting minority and burden will be on them to show that the price offered is unfair. This is clearly a distinguishable feature between the scheme under sections 391 and 395; and in my opinion both operate in different fields and one has no impact on the other even though the ultimate result that may be achieved by the one or the other scheme may be the same. The present scheme in my opinion being one under section 391(1) it is immaterial and irrelevant whether any procedure prescribed in section 395 has or has not been carried out.'
9. Although it is possible to argue that the Learned Judge had opined that the two Sections 391 and 395 were distinct to each other, it is my understanding that he had intended to emphasise that situations could well occur where the expropriation of the shares of the minority possessing less than ten per cent of the stock was pursuant either to a Scheme of reconstruction or arrangement, or an expropriate offer at any other time. The present case presents both scenarios in that a Scheme had been presented to and approved by the Court under Section 391 by Respondent No.2, and parallel thereto, Respondent No.1 had made an offer or demand for the purchase of the shareholding of the Petitioner. I need not unravel whether this was intentionally separated in time, possibly with a view to remove the latter event from the Court's scrutiny and approval, since this point has not been directly argued by Mr. Vellapally. His contention was that having failed to bring these facts to the Court's notice, and obtain approval for it, post the sanction of the Scheme, the concerned party was precluded from raising it. Mr. Vellapally has justifiably emphasised the inconsistency between the pleadings in paragraph 4(ii) viz. 'that the promoters of Birla AT&T; Communications Limited had indicated to the Tata Group that they were not inclined to participation of the Petitioner in the Merged Entity to be a three way venture .....'. Two aspects must be underscored forthwith. Firstly, that there was perceived to be a Tata Group, thus negating the rationale behind the 90 per cent stipulation in the said Section. Secondly, that the Scheme of Amalgamation/ Reconstruction could have, and should have, contemplated the ouster of the Petitioner at that very stage.
10. In Re, Patrakola Tea Co. Limited, : AIR1967Cal406 one of the issues which had arisen was whether Section 395 of the Act could have been invoked in the circumstances of that case. The facts were that the Petitioner, who was a shareholder of the Company, had received an offer for the purchase of his holding. The Learned Single Judge observed that there was no Scheme or Contract, and the purchase offer was a private one. In holding this view, the Learned Judge obviously saw Chapter V of the Act as an integrated one thereby making it inapplicable where the other Provisions such as Section 391 and Section 392 had not been simultaneously invoked.
11. Counsel for the parties are agreed that the only reported case on the construction of provisions analogous to Section 395 of the Act is In re Bugle Press Limited, Vol. XXXI 1961 Company Cases 369 : [1960] 3 W.L.R. 956 : [1960] 3 All ER 791, decided by the Court of Appeals comprising Lord Evershed, M.R., Harman and Donovan, L.JJ. Of the share capital of that Company, 45 per cent each was held by two persons, and the remaining 10 per cent by a third person (who shall be referred to as the minority shareholder). The two majority shareholders promoted a new company (hereinafter called the transferee company) in which they had equal stake. Even though the transferee company did not carry on business, it offered to purchase the holding of all the three shareholders of Bugle Press for 10 Pounds per share, based on the valuation of an independent valuer. Upon the minority shareholder declining this offer the transferee company sought to invoke Section 209 (which is in pari materia with our Section 395). The parties were at issue on the valuation of the share, but I am not concerned at the present juncture with that controversy. Shri Chidambaram, with his usual eloquence and clarity, has enumerated several features which in his opinion demarcate the differences between that case and the present one. Firstly, that it was the majority shareholders who had promoted the transferee company; secondly, the minority had successfully shown that the offer was undervalued; thirdly that the transferee company had not preferred proof in support of its valuation; fourthly that though the transferee company was in law distinct from its only two shareholders, in actual fact it was the same as the majority shareholders of Bugle Press; and fifthly, that it appears to have been conceded before the Court of Appeal that the transferee company was promoted in order to invoke the powers contained in the said Section. In the Bugle Press case (supra) the Court of Appeals unanimously struck-down the intended compulsory purchase offer and dismissed the Appeal. Lord Evershed M.R. concurred with the lower Courts view that the unusual feature was that the 90 per cent majority shareholders in fact constituted the transferee company. In his opinion it ought to ' be borne in mind that In re Hoare, followed in this respect by In re Press Caps Limited, was a case in which the 90 per cent, of the shareholders who had accepted the offer were persons wholly independent of the offeror or transferee company. Maugham J. (and I will not make further detailed reference to the decision of In re Hoare), after pointing out that the section gave no guide whatever as to the basis upon which the apparently unlimited discretion is to be exercised, stated that where one has in a case of that kind (which would be the ordinary case) 90 per cent, of the shareholders saying: 'This is, we think, a good offer or satisfactory offer,' the court will not, in the absence of very strong evidence to show there is something wrong with the offer, substitute its own view of what a fair offer would be and by that means enable, as Vaisey J, picturesquely said In Re Sussex Brick Co. Ltd., the one soldier in the regiment who was out of step to defeat what all the other shareholders had thought was a perfectly proper and fair scheme. As I have said, the section itself gives no guidance and imposes no limit as regards the grounds on which the discretion is to be exercised, and in the ordinary case of a scheme whereby an outside party seeks to acquire the shares of a company, and is not itself interested as a shareholder already, or to the extent that it is not so interested, the principle will be that stated by Maugham J. ..... But it is I think relevant to note that by the terms of the section itself one must have regard to what lies behind the invocation of the section. It presupposes the existence of a scheme or contract involving a transfer of shares, and that supposition is expressed when one looks not only at the minority shareholder's application but at Buckley J's order. One adds, I think, to that, by way of background to the necessary approach, the words in the parenthesis following the reference to the nine-tenths fraction 'other than shares already held at the date of the offer by, or by a nominee for, the transferee company,' etc. Mr. Instone has pointed out, with justice in my judgment, that although Mr. Shaw and Mr. Jackson are for all practical purposes the same as Jackson & Shaw (Holdings) Ltd., nevertheless it is not true to say on the evidence that at the date of the offer any shares were held either by the transferee company or by a nominee for the transferee company. Nevertheless when regard is had to the opening words and to the parenthesis, it seems to me plain that what the section is directed to is a case where there is a scheme or contract for the acquisition of a company, its amalgamation, re-organisation or the like, and where the offerer is independent of the shareholders in the transferor company or at least independent of that part or fraction of them from which the 90 per cent, is to be derived. Even, thereforee, though the present case does fall strictly within the terms of section 209, the fact that the offerer, the transferee company, is for all practical purposes entirely equivalent to the nine-tenths of the shareholders who have accepted the offer, makes it in my judgment a case in which, for the purposes of exercising the court's discretion, the circumstances are special - a case, thereforee, of a kind contemplated by Maugham J. to which his general rule would not be applicable. Harman L.J. viewed the transaction as 'a barefaced attempt to evade that fundamental rule of company law which forbids the majority of shareholders, unless the articles so provide, to expropriate a minority. .... I am surprised that it was thought that so elementary a device would receive the Court's approval.' The ratio in Bugle Press (supra) is that a perfunctory compliance of the ninety per cent shareholding does not per se empower the majority to expropriate the rights of the minority and that the price of the shares should be reasonably close to their actual value. If resort to the provisions is a subterfuge or scheme in the derogatory sense to acquire the shares of the minority at an unfair price, the Court would decline its imprimatur to the offer.
12. Predictably, the legal position in Australia is similar to that prevailing in England and India, as can be gathered from the very recent decision in Capricorn Diamonds Investments Pty. Ltd. vs. Catto and Others, 2002 VSC 105, although 'securities' and not shares were the subject of concern. The decision, however, does not have a direct bearing on the legal conundrum that has engaged my attention in the case at hand but the Court had rejected the arguments that the compulsory acquisition provisions offended the Constitution and that the 'fair value' should include a compensatory 'premium for forcible takeover.'
13. Section 395 of the Act is an extremely lengthy provision; it would be of advantage to fragment it into some of its constituent parts in order to ascertain its applicability. The Section operates in respect of:--
(a) a scheme of contract involving;
(b) the transfer of shares or any class of shares of the transferor company;
(c) the approval of nine-tenths in value of the shares whose transfer is involved should be attained within four months of the offer being floated;
(d) the transferee company must give notice to the dissenting shareholders for acquisition of their shares;
(e) the dissentients must, within one month of the notice, obtain Court Orders interdicting the purchase, or be bound by the offer. The proviso to sub-section(1) and the other provision, except 4A need not engage our attention in the matrix of the present case.
(f) sub-section 4A, which was introduced into the statute with effect from 15.10.1965, mandates the transmission of sundry information calculated to assist the shareholders in arriving at an informed and commercially pragmatic decision.
14. It is possible that Section 395 of the Act is invoked in a scheme of merger or reorganisation of a company between several transferor companies with the Transferee Company. This Scheme may envisage the purchase of the entire shareholding of one or more of the transferor companies. In an altogether different scenario Section 395 may also be invoked in a 'takeover situation' where company A offers to buy out all the shares of all the shareholders of company B. In this event Company A would make an offer for the purchase of the shares at a certain price and if ninety per cent of the shareholders of company B agree to sell their shares at the said price a contract would come into existence which neither party could resile from. By the operation of Section 395, this contract would be enforceable not only for the ninety per cent shareholders but also for the dissentient shareholders if the transferee company voices and expresses its intent to do so by giving a notice to the dissenting ten per cent within two months of the expiry of the four months period. Once the notice is issued, the transferee company would not be empowered to withdraw this offer. The transferee company may not issue the notice with the result that that the dissentients would retain their shares. In the present case it is the second stage that has transpired, since Respondent No.1 has exercised the option to buy out the dissentient Petitioner, by the issuance of the notice dated 24.07.2001.
15. Section 395 has already withstood a constitutional assault and has been held not to impinge upon the rights recognised in Article 19 of the Constitution (See S. Viswanathan & Anr. v. East India Distilleries and Sugar Factories Ltd. & Anr., : AIR1957Mad341 ). In my view it is extremely important that the 90 per cent majority should comprise of different and distinct persons since this would then fall in line with the rationale of the section and justify overriding the rights and interests of the dissentients. It is also imperative that this majority should not be same as the party seeking to acquire the shares. The offerer must be substantially different to the majority. It is this very mischief that had propelled and convinced the Court of Appeal to hold that Section 209 of the English Act, which is analogous to Section 395 of the Companies Act, 1956 could not have been invoked by the majority in the Bugle Press case (supra). It is for this very reason that Section 395 of the Act itself stipulates that those who approve the scheme or contract besides holding not less than 9/10th of the value of the shares whose transfer is involved, are not less than 3/4th in number of the holders of those shares. As has already been mentioned above, so far as Respondent No.2 is concerned Tata Industries held over 81.23 per cent together with other Tata concerns who held 11.5 per cent of the equity, the remaining 7.27 per cent being held by the Petitioner. 99.993 per cent of Respondent No.1, Tata Televentures (Holdings) Limited is held by Tata Industries which, as has already been stated, independently holds 81.23 per cent of Respondent No.2. Quite appropriately, the phrase `Tata Group' has been ubiquitously used by the Respondents themselves. In the entire transaction I can see only two faces, one of the dissentient Petitioner and the other of the Tata Group. It is one Tata Company which is buying up the shares of another Tata Company. The consequence is that not only is there no independent determination of the value of the shares, but more importantly the wisdom behind stipulating and prescribing the majority to be not less than ninety per cent, is rendered wholly illusory. By way of illustration, let us substitute Respondent No.1 with the Birla Group or AT&T.; In such an event, if 90 per cent of shareholders of Respondent No.2, namely the Tata Group, had agreed to sell their shareholding to AT&T;, the purpose and intendment behind Section 395 of the Act would have been fulfillled. It would be inconceivable that Tata would agree to sell their ninety per cent holding at an unrealistic price. It is this dialectic that has primarily persuaded me to conclude that Section 395 could not have been legitimately invoked in the circumstances of this case. The situation is on all fours with that prevailing in the Bugle Press case (supra), where the purchasers were the same as the sellers. The scenario does not change merely because Respondent No.1 has not been incorporated to take over the holding of the Petitioner, as appears to have been the intention in Bugle Press (supra). While that case may not be binding on me, it has certainly assisted me in arriving at the conclusion expressed herein. I would be loath to treat the path of the single judge in Re Western . Miles v. Adamant Engineering Co. (Luton), Ltd., [1955] 3 All ER 733, and for recondite reasons not follow the unanimous view of seven Learned Judges of the Supreme Court of Canada in Rathie vs. Montreal Trust Company [1953] 2 S.C.R. 204 : 4 D.L.R. 289.
16. Ordinarily, notices sent under postal certificate may be presumed to have been waived. In normal circumstances, it would be unreasonable to reject the argument of Respondent No.1 that since the Petitioner does not have an address in India it need not have issued any notice to the Petitioner in Mauritius. The fact remains that the 'First step' Notice dated 26.4.2001 under Section 395 is stated to have been sent to the Petitioner on 30.4.2001. Had it been sent by recorded/registered acknowledgement due post, speculation as to whether this Notice was served or not may have been put to rest. I am presently not dealing with an objection raised by one out of thousands, holding a minuscule share, objecting to the non-receipt of the notice, whilst most of the others have not remonstrated on this score. As has already been observed the Petitioner is the only outsider in the erstwhile Respondent No.2. In cases where Section 395 of the Act is sought to be invoked, an extraordinary situation comes into existence, making it essential for the party relying on the section to dispel each and every doubt about its bona fides, and to establish that its every action was imbued with fair play. Such a party should also be in a position to show that its decision was not motivated for stealing a financial coup-de-tat but was predicated on the obstructionist conduct of the minority holding less than ten per cent of the equity. An obviously onerous obligation is placed on the Respondent once the minority assails the proposal before the Company Judge, but this is exactly what should transpire keeping the expropriatory if not confiscatory character of the transaction in perspective. I cannot also lose sight of the fact that approval to the merger was granted by this Court on 28.5.2001 and there is no material to show that at the shareholders meeting, issuance of the Offer dated 26.4.2001 had been discussed or even made known to the Petitioner. If this were so the alleged non-receipt of the Notice would have paled into insignificance. Where the property of a person is to be compulsorily acquired the Court should be left in no doubt whatsoever that fair play pervades every action. This jural duty is indeed a burdensome one, and if not so viewed and implemented, the provisions of Section 395 of the Act would violate Article 19 of the Constitution. thereforee, where there is no extraneous evidence to prove the receipt of the Notice issued on 30.4.2001, the legal requirements have not been met and Section 395 is of no avail to Respondent No.1.
17. The Respondents have not even attempted to show that the intention to `expropriate' the shareholding of the Petitioner had been even faintly outlined or articulated before the Gujarat High Court while obtaining its approval and sanction on 19.2.2001 for the merger of Birla AT&T; and Respondent No.2. Section 395 of the Act can be invoked and employed by a party only where it succeeds in dispelling every doubt that it has acted without deceit and mala fides. So far as the Scheme of Amalgamation/Merger is concerned the fact remains that the Petitioner was part and parcel of the merged entity BATATA (now Idea Cellular) by virtue of holding shares in Tata Cellulars, albeit that in place of every 400 shares each shareholder of the erstwhile Respondent No.2 was allotted 327 shares. Keeping in mind the near total identity of Respondent No.1 and the erstwhile Respondent No.2 it would have been reasonable for the Tata group to insist that the Petitioner should not be allotted any shares in the BATATA in the Scheme placed for its imprimatur before the Company Judge. If this stand had been taken, my learned Brother Cyriac Joseph, J., who was then ruling the roster of the Company Judge, may well have considered the equities involved prior to sanctioning the Scheme of Merger on 28.5.2001. It may be useful to reiterate that had the offerers (i.e. Respondent No.1) been an independent third party these doubts would not have arisen at all.
18. Some of the salient features of Respondent No.1's Offer dated 24.5.2001 have been reproduced above. Inter alia, Respondent No.1 was to purchase the shares of Respondent No.2 including those of the Petitioner at a value of Rs.10 per share. This offer was specifically stated to be available for acceptance for a period of one month only. Section 395 of the Act contemplates two stages - firstly, four months within which at least 9/10th of the shareholders must consent to sell, and secondly, two months from the expiry of the four months within which the offerer must express his intent to buy out the dissentient shareholders. The phrase 'within four months' can quite possibly indicate the outer limit and not necessarily the entire period within which approval is to be available. If this construction finds favor the stipulation in Clause 4(b) of the Offer that it would remain open till the expiry of one month from the date of the opening of offer may be legally possible, although it is not acceptable to me. Nevertheless, assuming this interpretation to be correct, Respondent No.1's offer is illegal since the `second stage' notice issued on 24.7.2001 having ben issued before the expiry of four months of the first notice, offends Section 395. Reliance of learned Senior counsel for Respondent No.1 on Miss Avi J. Cama v. Banwarilal Aggarwal and others AIR 1953 Nag 81, would be of no assistance at all. This is also what appears to be expressed in Clause 7.4 of the Offer. Section 395, however, envisages that the second action must be taken at any time within two months after the expiry of the said four months. In my understanding, what is contemplated is that the Offer must remain open for acceptance for a period of four months. If everyone consents then Clause 4(a) of the Offer would come into effect. It is conceivable, however, that a lesser percentage than nine out of ten may agree to sell their shares at the offered price. A contract for the purpose of the shares comes into existence. The `taking-over' company, however, cannot then compel the dissentient holding more than ten per cent of the equity to sell their shares. In my view the period of four months stipulated in Section 395 of the Act has been deliberately made so as to permit democracy to reign in the company, enabling an exchange of information and views, and discussion between the shareholders. Even if on the expiry of the period of four months a person holding less than ten per cent of the shares resolutely refuses to sell its shares, it is not incumbent or mandatory on the 'taking-over' company to purchase these shares. If it intends to do so then the `taking-over' company/transferee company must record and articulate its intention to purchase the dissentients share by giving a notice in the manner prescribed in the section to the dissentient shareholders within two months of the expiry of four months. It would be of advantage to refer to Patiala Biscuit Manufacturer Limited v. Yaddevindra, AIR 1956 Pep 86, which appears to have escaped the research of Counsel for the parties. If this construction is not correct, and the transferee company is free to restrict its offer for a shorter period than four months, a hiatus would exist between the first stage and the second stage of Section 395. In the present case since the Offer was open only for a period of one month it would result in a state of limbo and inertia prevailing for a period of three months. Section 395 could quite easily have ordained that the notice for compulsory acquisition could be issued within two months of the expiry of the period indicated in the Offer which period should not exceed four months. thereforee, assuming that the notice dated 26.4.2001 was duly and validly issued, I am of the opinion that it violates the provisions of Section 395. Powers contained therein are draconian, and of far reaching and adverse consequences so far as dissentient shareholders are concerned. This cannot be flippantly achieved.
19. Furthermore, where a statute sets down the manner in which a certain action is to be taken it must be taken in that manner or not at all. The Privy Council had pronounced that 'it would be an unnatural construction to hold that any other procedure was permitted than that which is laid down with such minute particularity in the sections', in Nazir Ahmad v. King Emperor . This approach has been favored by the Apex Court in State of Uttar Pradesh v. Singhara Singh & Ors., : [1964]4SCR485 and Gujarat Electricity Board v. Girdhrlal Motilal and Anr., : [1969]1SCR589 .
20. The phrase `within four months' which also occurs in Section 124(1) of the Companies Act, 1934, (Canada) came for consideration before the Supreme Court of Canada in Rathie vs. Montreal Trust Company [1953] 2 S.C.R. 204 : 4 D.L.R. 289. Locke J. in a judgment delivered on behalf of himself and four other members of the Court opined thus -
'The trust company's offer was open for acceptance for a period of two weeks only; for the remainder of the four months period after the making of the offer the company might at its option, decline to purchase the shares of any of those who had not accepted on or before Dec. 15, 1950. In my opinion, the language of sub-s. (1), `where any contract involving the transfer of shares or any class of shares in a company ... to any other 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 nine-tenths of the shares affected ...' contemplates that the offer shall be open for acceptance for the period of four months by those to whom it has been made. The procedure authorised by the first paragraph of sub-s.(1) enables the transferee company, if the offer is not accepted, to apply to the court for an order that the dissenting shareholders transfer the shares on the terms of the offer. The intention of parliament in providing that such an application could not be made until four months after the making of the offer was, in my opinion, to enable the shareholders to make such investigation as they might think advisable to enable them to determine whether the offer was fair and one that they wished to accept. I cannot think that it was contemplated that the offeror might limit the period within which the offeree might make these inquiries in such manner as might suit his own, convenience. If the time for acceptance might be limited to two weeks, it might, of course, be limited to a much shorter period and afford the shareholders a wholly inadequate opportunity to make such inquiries as they saw fit to make before deciding upon the acceptance or rejection of the offer. As, in my opinion, the offer made did not comply with the terms of the sub-section, the respondents were not entitled to invoke the assistance of the court to compel the dissentients to transfer their shares.'
21. In the concurring Judgment of Rand J. on behalf of himself and Tascheran, it was observed that the offer/proposal should 'remain open for approval by any shareholder for the four months mentioned, otherwise the postponement of the rights to proceed by notice against the dissenting shareholder until after the expiration of that period would scarcely make sense.' The contrary view of a Single Judge of the Chancery Division in England in the original action in Re Western . Miles v. Adamant Engineering Co. (Luton), Ltd. [1955] 3 All ER 733 appears to me to be somewhat obscure and unpursuasive. As in Re. Evertite Locknuts Ltd. [1945] All ER 403 and in Re Hoare & Co. Ltd. (supra) the need to place sufficient material before every shareholder was found to be per se sufficient cause to decline the approval of the Court to the scheme. It is, to my mind, equally imperative that sufficient time should also be given to every shareholder to arrive at a carefully considered decision before an appropriation of his shareholding takes place. Four months has been considered an appropriate period by the Legislature, and I see no reason to construe the provisions in a manner as would curtail or diminish it.
22. It is easy to get lost in the labyrinth of the Tata Group of Companies. Simply stated, the Tata Industries held 81.23% and other Tata Companies (namely, Tata Iron & Steel Co. Limited, Tata Chemical Limited, and Tata Engineering & Locomotive Co. Ltd.) held 11.5% in Tata Cellular Limited (Respondent No.2) the remainder 7.27% being with the Petitioner. Tata Televentures (Holdings) Limited [Respondent No.1] is in essence and reality the same as Tata Industries since the latter holds 99.993% of the formers equity. thereforee, I find it of little significance that Respondent No.1 had issued a letter dated 26-4-2001/30-4-2001 to all the shareholders of Respondent No.2 for purchase of their shareholding in Respondent No.2. The only actually affected party, the only outsider, is the Petitioner. It is the Respondent's case in the Written Submissions that Respondent No.1, the Transferee Company, is a third party and that it is akin to a takeover by an outsider. This premise is very doubtful. The party which is to gain from the takeover bid is one and the same i.e the Tata group. The rationale behind Section 395 of the Act is totally negated by virtue of what I see as incestuous transactions between the two Tata siblings, nay clones. If, by such machinations, the Petitioner's rights are to be annihilated, the section would violate Article 19 of the Constitution. The purchaser and the seller cannot be the same, if the section is sought to be pressed into use.
23. Mr. Vellapally has also contended that the mandatory requirement of pre-registration under Section 395(4A)(a)(ii) have not been complied with. In my view this objection must be sustained, since the Respondents have failed to produce any circular containing all the requirements spelt out in this provision. The prescribed procedure having not been adhered to, Section 395 is not attracted. The preliminary objection must be decided in favor of the Petitioner on this short ground also.
24. In this analysis I hold in favor of the Petitioner and against Respondent No.1 on the preliminary issue that the provisions of Section 395 of the Companies Act, 1956 do not apply to the facts of this case and the Respondents reliance thereon is contrary to law. For this reason it is not necessary to proceed any further in the matter and to determine whether Respondent No.1 has fixed a fair value of the shares of the Petitioner.
25. The petition is allowed, with costs of Rs.25,000/- payable to the Petitioner by Respondent No.1. All the pending applications also stand disposed of accordingly.