Miheer H. Mafatlal v. Mafatlal Industries Ltd

Miheer H. Mafatlal vs. Mafatlal Industries Ltd. Supreme Court 

Citation: JT 1996 (8) 205

Facts: This appeal arised out of the judgment and order of a Division Bench of High Court of Gujarat. The Division Bench sanctioned a Scheme of Amalgamation of two Public Limited companies, namely, Mafatlal Industries Limited (‘MIL’ for short) being the transferor-company was to be amalgamated. It upheld the decision of single judge who had granted requisite sanction to the applicant transferee-company MIL to amalgamate in it the transferor-company MFL under Section 391(2) of the Companies Act, 1956.

Issues: 

1. Issue regarding the bonafides of the majority was raised.
2. Whether the Court has jurisdiction to minutely scrutinise the scheme when the majority of the creditors or members or their respective classes have approved the scheme?

Judgement: The Supreme court held that bona fide of person can only be relevant if it can be established with reasonable certainty that he represents majority or is controller of majority.

It also held that the Court cannot undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial economic interest by majority agree to give green signal to such a compromise or arrangement.

SC further held that as per Section 86 the share capital of a company shall be of two kinds only, namely, equity share capital and preferences share capital. So far as the Articles of Association of respondent company are concerned they also contemplate two classes of shareholders. No separate class of equity shareholders is contemplated either by the Act or by the Articles of Association of respondent-company. Appellant is admittedly an equity shareholder. Therefore, he would fall within the same class of equity shareholders whose meeting was convened by the orders of the Company Court.

Broad parameters about the requirements of a scheme were also outlined. The court held that once these parameters 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.