WhatsApp Image 2021-11-22 at 11.33.43 (1)




CITATION: AIR 1997 SC 506, (1997) 1 SCC 599



The said case is an enlightenment judgment and a torchlight for all the future cases related to amalgamations, mergers, and acquisitions along with the problems associated with them which guides the court as stare decisis to be looked upon while deciding the fate of future cases. Therefore, in the field of company law, this case is also referred to as” the torchbearer judgement’.

The facts of the case indicate that the transferor company MFL( Mafatlal fine spinning and manufacturing Ltd.) and the transferee company MIL(Mafatlal Industries Limited) have different businesses registered under different states companies act and having different registered offices set themselves out for amalgamation. Due to a shortage of funds and lack of resources, one of the companies had to shut down its operations. The directors of the transferor company , as well as the transferee company, approved the amalgamation and the scheme was finalized.

The petitioner who is one of the directors of the transferor company is also the shareholder in the transferee company who had the objection to the amalgamation. The transferor company being registered at Bombay filed the application for amalgamation in the Bombay high court where the court sanctioned the scheme of amalgamation but it was at this point that the appellant made his contentions regarding the approval of the amalgamation scheme since he was also one of the shareholders in the respondent company and demanded the scheme to be canceled.

The appellant raised nine contentions based on which the court had to decide whether the merger and amalgamation scheme was fit to be pronounced or not. The appeal came as a special leave against the orders passed by the single bench and the division bench of the high court where the high courts based on the contentions raised declared the scheme to be completely full of legal compliances and dismissed the appeal ruling in favor of the respondent company.


As a part of one of the contents raised it is necessary to understand the background and the history of the owners and first directors of the company. The Mafatlal undertakings and group of companies was a part of a family business undertaking which was passed on by the founder of the company one Mr. Gagal Bhai Mafatlal to his successors and after them to their legal heirs. The family arrangement in the business remains the same as different business undertakings which were passed by the legal head continue to be distributed among different family members and their successors.

The respondent company is being headed by Miheer H Mafatlal and the contention which was raised by the appellant was based on some disputes and differences between the family whereby it was sought that the ownerships and arrangements of family undertakings were to be separated. Several petitions were filed before the high court in 1987 whereby the director of the respondent company Mr. Miheer wanted that the family arrangement of 1979 should prevail so that he was not forced to sell his shares of the company Mafatlal Industries Limited(MIL).

However, the owner and the head of the family undertakings at that point of time i.e. Mr. Aravind Mafatlal wanted to separate the business undertakings and also to separate his shares from the respondent company. These disputes and differences among the family members of the respondent company created a feeling of insecurity among the minority shareholders of the company of which the appellant was a part and due to these differences a petition was filed against the order of amalgamation citing it to be against the interest of the shareholders.


Based on the present facts and the available information regarding the company, the appellant filed certain contentions against the amalgamation scheme which were earlier dismissed by the division bench of the High Court of Bombay which were:

  1. One of the major contentions raised by the appellant was that the respondent company was hiding the special interest of its director Mr. Arvind Mafatlal from the shareholders while it was issuing an explanatory statement to support the scheme because of which the voting by the shareholders got affected.
  • Another major contention made by the appellant against the merger order was that the scheme was unfair and unreasonable to the interests of the minority shareholders whom the appellant represented and was part of.
  • The court was also to identify whether the said scheme oppresses the interests of minority shareholders who did not cast their vote or were against the scheme and whether the majority shareholders voted bonafide.
  • Another contention made by the appellant was that it required a special meeting for the class of minority shareholders to know their opinion and views related to the merger scheme.
  • The Supreme Court was also to determine that whether the exchange ratios of the equity shares, i.e. two shares of MIL for five shares of MFL was unfair and unreasonable to the shareholders of MIL and because of which the scheme was to be canceled thereof.

Considering all the above-said issues, it should also be kept in mind that the court has limited powers concerning the mergers and acquisition of the companies and can only order for conducting a meeting of the company with the creditors, shareholders, and other stakeholders and get an approval of a three-fourth majority of the total voting which the respondent company had already fulfilled.


In the light of the above issues raised, the Supreme Court in its decision provided a clear view on every contention raised by the appellant and invoked section 391 and 393 of the Companies Act, 1956 and, laid down the limited scope of the jurisdiction of the court in matters related to acquisitions if all the conditions specified by the Act are fulfilled.

  1. Regarding the special interest of the director, the court redirected to section 393 1 (a) which provided that the special interest of the director must affect the voting of the shareholders if it was communicated to them and it must be different from the interest of the shareholders. The learned counsel for the appellant provided that the special interest that the director holds is the pending litigation between the director of the respondent company and the appellant in the Bombay High court in which the appellant was directed to transfer his shareholding in MIL to the director Mr. Aravind Mafatlal that would ultimately increase his share and position in the company.
  • The court regarding the second contention declared that the said scheme was not at all unfair and unreasonable to the interests of the minority shareholders since it was a decision made by prudent and reasonable businessmen who were indulged in deciding amalgamation keeping in view the commercial aspect involved with the scheme and also acted in a good faith towards the interest of the minority shareholders and claiming benefit for them.
  • The court concerning the oppression of minority shareholders provided the strict rules laid down in the act and limited its scope to the meeting of the shareholders and creditors being conducted by the directors of the respondent company and the shareholders passing a majority vote in favor of the scheme.

The question which was now raised for the court was to decide whether the majority voted bonafidely or not. In this context, the court in its judgment cited the English case Re Hellenic & General Trust Ltd [1976][1] which provided for the rule that lifting the veil off the voting declared that the sanctioning of the scheme by the majority shareholders was bonafide and in the interests of minority shareholders as well

  • In its judgment the court also specified the particular specifications regarding a class of minority shareholders and a class of creditors and whether it was necessary to conduct a special meeting with such a class. Propounding its decision the Court laid stress on the Capital clause of the company which provided that there were only two classes of shareholders, i.e the equity and the preference, and the appellant belonged to the equity shareholder class which was not a minority class and the decision passed in the meeting of shareholders by the majority shareholders was on behalf of the whole class and in the interest of all shareholders. The court in its ruling laid the judgment of the Gujarat High Court in Maneck Chowk and Ahmedabad Mfg. Co. Ltd. In re[2] where it was held that for a group to be classified as a “class” there should be common interest and also homogeneous decision making.
  • The court in its decision regarding whether the exchange ratios were unfair for the shareholders of MIL and whether it could be a ground for canceling the scheme declared that it was a technical and complex problem, therefore reference was made to the decision of Gujarat High Court in case ofRe: Kamala Sugar Mills Ltd[3] where the stress on the valuation of shares was laid and it was held that if there was no mistake in the valuation of shares, the court had no power to substitute the exchange ratios when they have already been accepted by the majority shareholders. Thus, this contention was rejected and the appeal was dismissed.

CONCLUSION: Thus, providing clear contentions on all orders and strictly rejecting the unclear issues with the scheme the court provided enlightenment for the future of cases related to mergers and acquisitions and strictly restricted the scope of the court concerning the provisions specified in the Companies Act and if all the provisions have been duly met and compliances fulfilled, no court can hinder the process of amalgamation.

Tags: No tags

Add a Comment

Your email address will not be published. Required fields are marked *