Holding

The scheme of amalgamation is valid and may be sanctioned because the valuation, disclosures, employee safeguards and public‑interest considerations satisfy the requirements of the Companies Act and applicable statutes.

Summary

The Supreme Court considered the sanction of a scheme of amalgamation between Tata Oil Mills Company Ltd. (TOMCO) and Hindustan Lever Ltd. (HLL), a subsidiary of the foreign multinational Unilever. The petitioners – nominal TOMCO shareholders, employee unions and consumer groups – challenged the scheme on six grounds, including alleged non‑disclosure under Section 393, an unfair share‑exchange ratio, violation of the Monopolies and Restrictive Trade Practices Act, inadequate protection of employees, preferential allotment of shares to Unilever at below market price, and alleged quid‑pro‑quo. The Court examined the valuation methodology, the overwhelming shareholder approval, the adequacy of employee safeguards, the relevance of the MRTP Act, and the effect of recent amendments to the Foreign Exchange Regulation Act. It held that the valuation was fair, the disclosures satisfied statutory requirements, the employee provisions were adequate, and the scheme did not contravene public‑interest considerations. Consequently, the Court dismissed the appeals and the special leave petitions, leaving the scheme sanctioned by the High Court in force.

Issues considered

The adequacy of disclosures in the explanatory statement under Section 393(1)(a) of the Companies Act.
Whether the share‑exchange ratio (2 HLL shares for 15 TOMCO shares) was unfair or loaded in favour of HLL.
Whether the scheme violated provisions of the Monopolies and Restrictive Trade Practices Act, 1969.
Whether the interests of employees of both companies were sufficiently protected.
Whether the preferential allotment of shares to Unilever at Rs. 105 per share was against public interest.
Whether the appointment of a director of TOMCO as the joint valuer constituted a conflict of interest or mala‑fides.

Legislation cited

Companies Act, 1956s. 108-1, s. 108-A, s. 226(3), s. 23, s. 27, s. 27A, s. 27B, s. 391, s. 391(7), s. 393(1)(a), s. 394, s. 81(1A), s. 82
Foreign Exchange Regulation Act, 1973s. 11, s. 29, s. 31
Monopolies and Restrictive Trade Practices Act, 1969s. 10, s. 12A, s. 23, s. 2(a), s. 2(e), s. 2(u)
Sale of Goods Act, 1930

Subjects

amalgamationmergershare exchange ratiovaluation methodspublic interestemployee rightsforeign investmentMonopolies and Restrictive Trade Practices ActCompanies ActSection 393 disclosurepreferential allotmentforeign exchange regulationmonopoly

Judgment

HINDUSTAN LEVER EMPLOYEES' UNION A
v.
HINDUSTAN LEVER LIMITED AND ORS.

OCTOBER 24, 1994
B
(A.M. AHMADI, CJ, R.M. SAHAI AND S.C. SEN, JJ.]

Companies Act, 195~Sections 393 and 394-Amalgamation or merger
of two companies-Approval of-Jurisdiction of Court-Expression 'Public
interest'-Scope-Scheme for amalgamation between a subsidiary company C
of a multi-national and an Indian based company-Objective of national
economy-Exchange ratio-Method of determination of

By an order dated 3rd March, 1994, the Court u/s 391/394 of the
· Companies Act sanctioned the Scheme of Amalgamation of the Tata Oil
M_ills Company Limited (TOMCO) with the Hindustan Lever- Limited D
(HLL), a subsidiary of Uni Lever, a London based multi national company.
The Scheme provided for transfer and vesting in HLL of the undertaking
and business of TOMCO together with assets and abilities excluding
certain assets and/or litense right to use certain premises; transfer of
employees of TOMCO to HLL on the basis that their service shall be E
deemed to be continuous and the conditions of service after the transfer
shall not be less favourable; preferential allotment of equity shares to UL
of face value of Rs. 10 each at the price of Rs. 105 per s~are so as to ensure
Its post amalgamation shareholding level at 51 % of the equity capital of
HLL, etc. etc. The Scheme was approved by 99.72% of equity shareholders
In terms of values and 86.72% in terms of numbers. F

Nominal shareholders of TOMCO, Federation of Employees Union
of both the TOMCO and HLL and Consumer Education and Research
Center filed five appeals u/s 391 (7) against the judgment and o.rder of the
High Court sanctioning the Scheme of Amalgamation. The appellants
alleged that the scheme should not be sanctioned for (i) statutory violation G
of Section 393 (l)(b) of the Act in not making required disclosures in the
explanatory statement; (ii) violation of share exchange ratio being grossly
loaded in favour of HLL; (iii) ignoring the effects of provisions of the
Monopolies and Restrictive Trade Practices Act; (iv) interest of employees
of both the companies was not adequately taken care of; (v) preferential H
723
724 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A allotment of shares less than market price to Unilever which was not in
pnblic interest and. (vi) malafides on account of existences of quid pro quo
between Unil~ver and Tata Sons Ltd. All the five appeals were dismissed.
The High Court held that there was no violation of Section 391(1)(a) and
the claim that the disclosure in the explanatory statement were not as
required was 'without basis as it was not established that the statement did
B not disclose correct financial position of TOMCO; that the petitioner
failed to es~blisb any fraud or prejudice; that a well reputed valuer of a
renowned firm of chartered accountants and a Director of TOMCO deter·
mined the exchange ratio by combining all three well known methods,
namely, the net worth method, the market value method and the earning
C method and lb• mere fact that the determination done by slightly different
method might have resultod in different conclusion would not justify
interference unless it was found to be unfair; that the approval to scheme
of merger should not be withheld till the complaint filed before Monopolies
& Restrictive Trade Practices Commission was finally decided; that inter-
D est of emplqyees of the two companies was adequately taken care of as
service conditions of TOMCO, the transferor company, having been
protected it ,could not claim it to be prejudicial either because they were
not assured of same conditions of service as was operative in HLL or that ·
there was n~ similar provision protecting the interest of HLL employees
and the apprehension of the employees against probable retrenchment was
E rejected since such dispute if necessary could be raised in labour court
and that th~ preferential allotment of shares to UL on less than market
value was neither illegal nor violative of public interest. The High Court
having (oun!l that the price of Rs. 105 having been worked out on the basis
of price earning multiple of 15 based on the last published balance sheet
F of· HLL, held it was fair and reasonable. This petition bad been filed
against the Judgment of the High Court.

One of the shareholders of TOMCO questioned the justification of
the ratio of allotment of shares, 2 shares of HLL in exchange of 15 shares
of TOMCO, as entirely unsatisfactory and unfair to the TOMCO
G shareholders. It bad been contended that the Board of Directors of
TOMCO di'1 not explain the Scheme of Amalgamation in the explanatory
statement clrculated among the shareholders, in particular, bow the share
exchange r11tio was arrived at; that the shareholders were not told that the
joint valuet was none other than a Director of TOMCO and a Senior
H Partner of ,Mis S.B. Billimoria and Company; that the reasons for the
-.
HINDUSTAN LEVER EMPLOYEES UNIONv. HINDUSTANLEVERLID. 725

Board accepting certain proposals to make preferential allotment of A
shares at Rs. 105 per share had not been properly explained; that the
valuation report was erroneous as a combination of different methods of
valuation was adopted which was against the law; that the preferential
allotment of shares to Unilever was part of the Scheme of Amalgamation
and the Board should have explained why Rs. 366 was being paid for every B
. HLL share by TOMCO, when Unilever was paying only Rs. 105 per HLL
share.

Dismissing the Appeals, this Court

· HELD: [Per Sen, I. for himself ond Venkatachaliah, Cl.]
c
1.1 The overwhelming majority of the shareholders had approved the
scheme at the meeting called for this purpose and had approved the ex-
change ratio. A proposal for amendment of the exchange ratio 'Y"" also·
rejected by the overwhelming majority of 99% shareholders. There was no
reason to presume that the shareholders did not know what they were doing. D
If the market price of the shares of the two companies as _on 17.7.1993 was
compared, the exchange ratio of2:15 was very fair. [748-D, 750·FJ

1.2 In .case of amalgamation a combination of all or some of the
methods of valuation may be adopted for the piirpose of flXation of the E
exchange ratio of the shares of the two companies. For arriving at the
proper exchange ratio, the usual rule Is that shares of the going concern
must be taken at quoted market Value. The joint valuer adopted a com·
blnation of three well-accepted methods, the field method, the asset value
method and the market value method. After considering all the factors, the
valuer recommended an exchange ratio of 2 equity shares of HLL for every F
15 ordinary shares ofTOMCO. The method adopted was explained to the
Board of Directors. The financial Institution;. who held 41 % of th~ shares
or TOMCO, did not find any fault in the method ofvaluation of the shares:
~-~ The teSt or fairness -of this valuation is not whether the offer is fail- to a
particular shareholder. When the overwhelming majority of the
shareholders had approved of the valuation, the Court should not interfere G
with such valuatio'!. HLL. had no difficulty In accepting the share excliange
ratio fJXed by the joint valuer even though he was a Director of TOMCO.
If there was any _bias, it should ruive been in favo~r of TOMCO and not .
again~t TOMCO. This .exchange ratio was endorsed by two other eminent
firms of Chartered
'
Accountants
' .
and also by ICICI. There
-
was- no
.
violation H
726 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A of Section 2i6 (3) of the Companies Act ·when both the companies going
to be amalgamated; had choosen a Director of TOMCO to ftx the share
exchange ratio. (750-H, 751-A, 752-D-E, 753-C-H)

Commission of Wealth Tax v.Mahadeolalan, (86) ITR 621, relied on;

B Commissioner of Gift Tax, Bombay v. Smt. Kusumben D. Mahad,,.,ia,
(122) ITR 38, distinguished.

Weinberg and Blank, Tiike-Overs and Mergers, referred to•.

, In the facts of this case, considering the overwhelming manner In
C which the share holders, the creditors, the debentnre holders, the financial
Institutions, who had 41% shares in TOMCO, had supported the Scheme
and had not complained abont any lack of notice or lack of understanding
of what the Scheme was about, it will not be right to hold that the
explanatory statement was not proper or was lacking In material par- ·
D ticulars. (757-BJ

Jitendra R. Sukhadia v. Alembic Chemical Works Co. Ltd., (1987) 3
Company Law Journal 141, relied on. .

, ·, 2. Section 393(1) (a) requires particulars to be given of any materia
E Interest of some persons connected with the company, including the direc-
tors and management director. The Interest that is contemplated In Sec-
tion 393 (1) (a) Is interest material for consideration of the scheme by the
shareholders. It had not been shown that the joint valuer had any Interest .
In the scheme. U he had any shares In TOMCO, then his Interest would
be like that of any shareholders. His specialized services were utilized for
F the. purpose of arriving al a fair exchange ratio. Both TOMCO and HLL
reposed faith In his professional skilL Non- diSclosure of the fact that he
was a Director of the Company, had been appointed Valuer, will not
- detract from the Scheme In any way. This will also not to suppression of
any material Interest of a Director In the Scheme. (757-D-EJ
G · Unilever, a foreign Company, held 51% of shares of HLL. The
scheme envisaged that Unilever will continue.to hold 51% of the share; of
HLL even af!er amalgamation. It was decided to make preferential allot-
ment of shares lo Unilever al a price
of RS.105 per share; for the purpose
of maintaining shareholding of 51% even after amalgamation. For this
H ·purpose, two conditions were Imposed: (1) Unilever shall not be able to
HINDUSTANLEVEREMPLOYEESUNIONv. HINDUSTANLEVERLTD. 727

sell the shares allotted to them on preferential basis for a period of 7 A
years, (2) In case Unilever decides to sell these shares after the expiry of
7,years but before 12 years after the date of preferential allotment, they
· shall sell the shares to the Indian shareholders of Unilever at a price of
15 times earning per share calculated on the basis of the last andited
balance sheet. These two conditions were important depreciatory factors
B
in the preferential allotment of shares to Unilever. The shares issued to
Unilever would be franked by restrictive covenants. These shares could not
be compared to the other shares of HLL which could be freely traded in
the market. (754-B-E]

2.2. The shareholder has no interest in the assets of the company C
while the company is in exisience. It is only at the stage of liquidation of
the company that the shareholders become interested in the assets of the
company. The share of any member in a company is movable property and
transferable in the manner provided by the Articles of the company. This ·
is provided by Section 82 of the Companies Act. The definition of 'goods' D
in the Sale of Goods Act, 1930 specifically includes stocks and shares. A
a>
share represents a bundle rights which includes, inter alia, the rights (i)
to elect directors; (ii) to voie on resolutions of meetings of the company;
(iii) to enjoy the profits of the company, if and when dividends is declared
and distributed; and (iv) to share in the surplus, if any, on liquidation. In
any event, whether Unilever was paying the proper price for the share or E
not, was a question which was pending before the Bombay High Court in
a separate proceeding. This question could not be pursued in this proceed-
ing any further. (754-F-G, 756-A]

Bacha F. Gujdar v. C./. T., AIR (1955) SC 74, relied on.
F
3. A merger or amalgamation is not now snbject to the prior ap-
proval of the Central Government. Bnt, if the working of the company is
found to be prejndicial to public interest or bas led to the adoption in
monopolistic or restrictive trade practice, the Central Government may,
after being satisfied as to the requirement of the s_ection of division of the G
' undertaking, act according to· law. (761-G]

As a result of the amalgamation, if it is found that the working of
the Company is being conducted in a way which brings it within the
mischief of the MRTP Act, it would be open to the authority under the
MRTP Act to go iuto it and decide the controversy as it thinks fit. (762-B] H
730 · SUPREMECOURTREPORTS (1994)SUPP.4S.C.R.

A · no( as better as it would ha~e been if another method would have been
adopted. What is Imperative is that ·such determination should not have
been contrary to law and that it was not unfair for the shareholders of the
company which was being merged. The Court's obligation is to be satisfied
that valuation \vas in accordance with .law and it was carried out by an
B independent b.ody. Even though the Chartered Accountant who performed
· this function was a director of TOMCO but he did so as a member of
. renowned firm or chartered accountants. His determination was further
·got checkfd and approved by two other independent bodies at the instance
of shareholders of TOM CO by the High Court and it had been found that
the determination did not suffer from any infirmity. The company.Court,
C therefore, did not commit any error in refusing to interfere _with it. May
be that if some other method would have been adopted probably the
determination of valuation could have been bit ·more In favour of the
shareholders. But since admittedly more than 95% of the .shareholders who
were the best judge of their interest. and were better conversant with
D market trend agreed to the valuation determined It could not be interfered
by courts as, 'certainly, it Is not part of the judicial process to examine
entrepreneurial activities to ferret out flaws. The court Is least equipped
for such oversights. Nor, indeed, Is it a function of the judges in our
constitutional scheme. The internal management, business activity or in-
. stitutional operation of public bodies cannot be subjected to inspection by
E · the Court. To do so; Is incompetent and improper and, therefore, out of
hounds. Nevertheless, the broad parameters. of fairness In administration,
bona /ides in action and the fundamental rules of reasonable management
of public business, if breached, will become jnsticiable. (734-H, 735-A-G)

F
.
. -- -- - ·---
-
-~c. _·Fertilizer Corporation Kamgar Union (Regd) v. Union of India, (1981)
2 SCR 52, relied on. . ·

Buckley on Companies Act 4th Ed.; Palmer on Company Law, 23rd
Ed., referred to. . ....

G ·2. A scheme of amalgamation cannot be faulted on apprehension and
speculation as to what. might possibly happen In future. The present Is
certain and taken care of by Clauses 11.1, 2 and 3 of the scheme. And
unfriendly throwing out being amply protected· by taking recourse to
labour Court no unfairness arises apparent or Inherent. Nor the claim
H that merger shall result In, •syiiergies' can render the scheme bad. Im-
HINDUSTANLEVEREMPLOYEESUNIONv. HINDUSTANLEVERLTD. 725
Board accepting certain proposals to make preferential allotment of A
shares at Rs. 105 per share bad not been properly explained; that the
valuation report was erroneous as a combination of different methods of
valuation was adopted which was against the law; that the preferential
allotment of shares to Unilever was part of the Scheme of Amalgamation
and the Board should have explained why Rs. 366 was being paid for every B
HLL share by TOMCO, when Unilever was paying only Rs. 105 per HLL
share.

Dismissing the Appeals, this Court

HELD: [Per Sen, J. for himself and Venkatacltaliah, CJ.} c
1.1 The overwhelming majority of the shareholders had approved the
scheme at the meeting called for this purpose and bad approved the ex-
change ratio. A proposal for amendment of the exchange ratio was also·
rejected by the overwhelming majority of 99% shareholders. There was no
reason to presume that the shareholders did not know what they were doing. D
If the market price of the shares of the two companies as on 17.7 .1993 was
compared, the exchange ratio of 2:15 was very fair. [748-D, 750-F]

1.2 In .case of amalgamation a combination of all or some of the
methods of valuation may be adopted for the purpose of fixation of the E
exchange ratio of the shares of the two companies. For arriving at the
proper- exchange ratio, the usual rule is that shares of the going concern
must be taken at quoted market value. The joint valuer adopted a com-
bination of three well-accepted methods, the field method, the asset value
method and the market value method. After considering all the factors, the
valuer recommended an exchange ratio of 2 equity shares of HLL. for every F
15 ordinary shares of TOMCO. The method adopted was explained to the
Board of Directors. The financial institutions who held 41% of the shares
ofTOMCO, did not find any fanlt in the method ofvaluation of the shares.
The test of fairness of this valuation is not whether the offer is fair to a
particular shareholder. When the overwhelming majority of the G
shareholders bad approved of the valuation, the Court should not interfere
with such valuation. HLL bad no difficulty in accepting the share exchange
ratio fixed by the joint valuer even though be was a Director of TOMCO.
If there was any .bias, it should have been in favour of TOMCO and not
against TOMCO. This exchange ratio was endorsed by two other eminent
firms of Chartered Accountants and also by ICICI. There was no violation H
726 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A of Section 226 (3) of the Companies Act when both the companies going
to be amalgamated, had choosen a Director of TOMCO to fix the share
exchange ratio. (750-H, 751-A, 752-D-E, 753-C-H]

Commission of Wealth Tax v. Mahadeo !a/an, (86) ITR 621, relied on.

B Commissioner of Gift Tax, Bombay v. Smt. Kusumben D. Mahadevia,
(122) ITR 38, distingnished.

Weinberg and Blank, Take-Overs and Mergers, referred to.

In the facts of this case, considering the overwhelming manner in
C which the share holders, the creditors, the debentnre holders, the financial
institutions, who had 41% shares in TOMCO, had snpported the Scheme
and had not complained about any lack of notice or lack of understanding
of what the Scheme was about, it will not be right to hold that the
explanatory statement was not proper or was lacking in material par-
D ticulars. (757-B]

Jitendra //.. Sukhadia v. Alembic Chemical Works Co. Ltd., (1987) 3
Company Law Journal 141, relied on.

2. Section 393(1) (a) requires particulars to be given of any materia
E interest of some persons connected with the company, including the direc-
tors and management director. The intel'l'st that is contemplated in Sec-
tion 393 (1) (a) is interest material for consideration of the scheme by the
shareholders. It had not been shown that the joint valuer had any interest
in the scheme. If be bad any shares in TOMCO, then his interest would
be like that of any shareholders. His specialized services were utilized for
F the purpose of arriving at a fair exchange ratio. Both TOMCO and HLL
reposed faith in his professional skill. Non- disclosure of the fact that he
was a Director of the Company, had been appointed Valuer, will not
detract from the Scheme in any way. This will also not to suppression of
any material interest of a Director In the Scheme. (757-D-E]
G Unilever, a foreign Company, held 51 % of shares of HLL. The
scheme envisaged that Unilever will continue to hold 51% of the shares of
HLL even after amalgamation. It was decided to make preferential allot-
ment of shares to Unilever at a price of Rs. 105 per share, for the purpose
of maintaining shareholding of 51 % even after amalgamation. For this
H purpose, two conditions were imposed: (1) Unilever shall not be able to
HINDUSTANLEVEREMPLOYEESUNIONv. HINDUSTANLEVERLTD. 727

sell the shares allotted to them on preferential basis for a period of 7 A
years, (2) In case Unilever decides to sell these shares after the expiry of
7, years bot before 12 years after the date of preferential allotment, they
shall sell the shares to the Indian shareholders of Unilever at a price of
15 times earning per share calculated on the basis of the last audited
balance sheet. These two conditions were important depreciatory factors
B
in the preferential allotment of shares to Unilever. The shares issued to
Unilever would be franked by restrictive covenants. These shares could not
be compared to the other shares of HLL which could be freely traded in
the market. (754-B-E]

2.2. The shareholder has no interest in the assets of the company C
while the company is in existence. It is only at the stage of liquidation of
the company that the shareholders become interested in the assets of the
company. The share of any member in a company is movable property and
transferable in the manner provided by the Articles of the company. This ·
is provided by Section 82 of the Companies Act. The definition of 'goods'
in the Sale of Goods Act, 1930 specifically includes stocks and shares. A D
share represents a bundle qJ rights which includes, inter a/ia, the rights (i)
to elect directors; (ii) to vOte on resolutions of meetings of the company;
(iii) to enjoy the profits of the company, if and when dividends is declared
and distributM; and (iv) to share in the surplus, if any, on liquidation. In
any event, whether Unilever was paying the proper price for the share or E
not, was a question which was pending before the Bombay High Court in
a separate proceeding. This question could not be pursued in this proceed-
ing any further. (754-F-G, 756-A]

Bacha F. Gujdar v. C./. T., AIR (1955) SC 74, relied on.
F
3. A merger or amalgamation is not now subject to the prior ap-
proval of the Central Government. But, if the working of the company Is
found to be prejudicial to public interest or has led to the adoption in
monopolistic or restrictive trade practice, the Central Government may,
after being satisfied as to the requirement of the s_ection of division of the G
undertaking, act according to·law. (761-G)

As a result of the amalgamation, if it is found that the working of
the Company is being conducted in a way which brings it within the
mischief of the MRTP Act, it would be open to the authority under the
MRTP Act to go into it and decide the controversy as it thinks fit. (762-B] H
728 SUPREME COURT REPORTS [1994) SUPP. 4 S.C.R.

A What has been expressly authorized by the statute cannot be struck
down as being agllinst the public policy. A foreign company under the new
economic policy of the Government has been allowed to acquire controlling
share of any Indian company. This has been done by express amendment
of the Foreign E~change Regulation Act. (762-F]

B Merely bec~use a foreign shareholder acquires 51 % shares in an
Indian company,· it cannot be said that this is against public interest or
public policy. Section 11 of Foreign Exchange Regulation Act, 1973 which
had empowered the Reserve Bank to put restriction on transfer of any
asset in India to" person resident outside India or a person intending to
c become resident ~utside India, has now been repealed w.e.f. 8.1.1993 by the
Amending Act 29 of 1993. The entire object is to allow the non resident to
do business in India and to deal with assets in India with greater freedom.
Merely because $1 % of the shares of the HLL is being given to a foreign
company, the Sc~eme cannot be said to be against public interest. The
D Foreign Exchange Regulation Act has been amended specilically to en-
courage foreign participation in business in India. The bar to having more
than 40% shares in an Indian Company by a non-resident has been lifted.
The Amending 4ct 29 of 1973 is not under challenge. In order to give
greater freedom to the companies for doing business in India, the MRTP
Act has been amended. Prior approval of Government of India is not
E necessary for amalgamation of companies any more. In fact, it is in public
interest that TOMCO with its 60,000 shareholders and also a very large
work-force did n~t deteriorate into a sick company. (763-C-G)

4. 'Public interest' which is to be taken into account as an element
against approval of amalgamation would not include a mere future pos-
F sibility of merger resulting in a situation where the interest of the con-
sumer might be ~dversely effected. If, however, in future the working of the
Company turns out to be against the interest of the consumers or the
employees, suitable corrective steps may be taken by appropriate
authorities in accordance with law. (763-H, 764-A-B)
G ,
Merely bec~use the scheme envisaged allotment of 51 % equity shares
to Unilever, the !\cheme could not be held to be against public interest.
[764-C)
FeTtiliur Corporation Kamgar Union v. Union of India, (1981] 2 SCR
H 52, relied on.
HINDUSIANLEVEREMPLOYEESUNJONv. HINDUSIANLEVERLTD. 729

The scheme had fully safeguarded the interest of the employees by A
providing that the terms and conditions of their service will be continuous
and uninterrupted service and their service conditions will not be prejudi-
cially affected by reason of the Scheme. The grievance made, however, was
that there was no job security of the workers, after the amalgamation of
the two Companies. There was no assurance on behalf of the TOMCO that B
the workers will never be retrenched. In fact, the performance of TOMCO
over the last three years was alarming for the workers. It could not be said
that after the amalgamation they will be in a worse position than they were
before the amalgamation. [764-D-F]

The TOMCO employees will continue to remain on the same terms C
and conditions as before. It could not be said that a prejudice had been
caused to HLL employees. They will still be getting what they were getting
earlier. TOMCO employees who were working under better terms and
conditions, will continue to enjoy their old service conditions nuder the
new management. [765-A-B]
D
5. The Court will decline to sanction a scheme of merger, if any tax
fraud or any other illegality is involved. But that was not the case here. A
company, on its own, grow up to capture a large share of the market. But
unless it is shown there is some illegality or fraud involved in the sch<me,
the Court cannot decline to sanction a scheme of amalgamation. In the E
last two years, TOMCO had sold its investments and other properties. If
\ this proposal of amalgamation was not sanctioned, the consequence for
TOMCO might be very serious. The shareholders, the employees, the
creditors would all suffer. [765-G, 766-A]

The scheme bad been sanctioned almost unanimously by the F
shareholders, debenture holders, secure creditors, unsecured creditors
and preference shareholders of both the Companies. There must exist very
strong reason for withholding sanction to such a scheme. (766-B]

Per (SAHA!, J) (Concurring)
G
1. The jurisdiction of the Court in sanctioning a claim of merger is
not to ascertain with mathematical accuracy if the determination satisfied
the arithmatical test. A company court does not exercise an appellate
jurisdiction. It exercises a jurisdiction founded on fairness. It is not
required to interfere only because the figure arrived at by the valuer was H
730 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A not as better a~ it would have been if another method would have been
adopted. What is imperative is that such determination should not have
been contrary to law and that it was not unfair for the shareholders of the
company which was being merged. The Court's obligation is to be satisfied
that valuation was in accordance with law and it was carried out by an
independent body. Even though the Chartered Accountant who performed
B this function was a director of TOMCO but he did so as a member of
renowned firm pf chartered accountants. His determination was further
got checked an~ approved by two other independent bodies at the instance
of shareholders of TOMCO by the High Court and it had been found that
the determination did not snlier from any infirmity. The company Court,
C therefore, did iiot commit any error in refusing to interfere with it. May
be that if some other method would have been adopted probably the
determination of valuation could have been bit more in favour of the
shareholders. BUt since admittedly more than 95% of the shareholders who
were the best judge of their interest and were better conversant with
D market trend a~ed to the valuation determined it could not be interfered
by courts as, 'certainly, it is not part of the judicial process to examine
entrepreneurial activities to ferret out flaws. The court is least equipped
for snch oversights. Nor, indeed, is it a function of the judges in our
constitutional scheme. The internal management, business activity or in·
stitutional operation of public bodies cannot be subjected to inspection by
E · the Court. To l(o so, is incompetent and improper and, therefore, out of
bounds. Nevertlieless, the broad parameters offairness in administration,
bona fides in action and the fundamental roles of reasonable management
of public business, if breached, will become justiciable. (734-H, 735-A-G]

Fertilizer C01poration Kamgar Union (Regd) v. Union of India, (1981]
F
2 SCR 52, relied on.

Buckley qn Companies Act 4th Ed.; Palmer on Company Law, 23rd
Ed., referred to. ,
G 2. A scheme of amalgamation cannot be faulted on apprehension and
speculation as: to what might possibly happen in future. The present is
certain and taken care of by Clauses 11.1, 2 and 3 of the scheme. And
unfriendly throwing out being amply protected by taking recourse to
Labour Court no unfairness arises apparent or inherent. Nor the claim
H that merger s'1all result In, 'synergies' can render the scheme bad. Im·
HINDUSfANLEVER EMPLOYEES UNIONv. HINDUSfAN LEVER LTD. 731

proved technology and scientific method results in better employment A
prospects. Anxiety should be to protect workers and not to obstruct
development and growth. May be that advanced technology may reduce the
manpower but so long those who are working are protected they are not
entitled to hinder in modernization or merger under misapprehension that
future employment of same number of worker may stand curtailed. The B
wage differential arising between employees of two companies could not
result in making the merger as unfair since the service conditions of
TOMCO workers have been protected they couldnot claim that unless they
were paid the same emoluments as is being paid by Hindustan Lever the
merger was unjust. When more than 95% of the shareholders had agreed
to the valuation determined by the chartered accountant all procedure C
irregularities that the workers, shareholders were not permitted to attend
the meeting or that material facts were concealed from them, could not
vitiate the determination. [736-F·H, 737-A-B)

3.1. Indian Law enjoys a duty on the court to examine objectively and D
carefully if the merger was not violative of public interest. What would be
public interest is a· dynamic concept Which keeps on changing. It is an
expression of wide amplitude. Its perspective may change when merger is
of two Indian companies. But when it is with subsidiary of foreign company
the consideration may be entirely different. It Is not the interest of
shareholders or the employees only but the interest of society which may E
have to be examined and a scheme valid and good may yet be bad if it is
against public interest. [737-D, Fl

3.2 Section 394 casts an obligation ·on the court to be satisfied that
the scheme for amalgamation or merger was not contrary to public Inter· F
est. The basic principle of such satisfaction is none other than the broad
and general principles inherent in any compromise or settlement entered
between parties that it should not be unfair or contrary to public policy
or unconscionable. In amalgamation of companies, the courts have
evolved, the principle of, prudent 'business management test' or that the G
scheme should not be a device to evade law. But when the Court is
concerned with a scheme of merger with a subsidiary of a foreign company
then the test is not only whether the scheme shall result In maximizing
profits of the shareholders or whether the interest of employees was
protected but it has to ensure that merger shall not result in impeding
promotion of industry or shall obstruct growth of national economy. H
732 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A Liberalized ~conomic policy is to achieve this goal. The merger, therefore,
should not be contrary to this objective. (737-H, 738-A-B]

The jutisdiction of the court in this regard is comprehensive.

Custine Re Hoare, (1933) AER Ch. 103; Bugle Press UC, (1961)
B Chancery Di)'ision 270, relied on.

3.3 The legislature itself has amended Foreign Exchange Regulation
Act, 1973 by ~ct 29 of 1993, the Monopolies and Restrictive Trade Practices
Act, 1969 anll Companies Act, 1956 by Act of 58 of 1991. The Scheme of
C amalgamation did not run counter to any legislative provision or policy of
the Govern111ent. The claim that the assets were being transferred for a
very meager sum by itself would not render the agreement bad or against
public policy. Once the FERA was amended and assets of the Indian
company co'lld be transferred to foreign company then the amalgamation
could not be withheld when the shareholders themselves did not raise any
D objection nor was it raised by financial institutions or statutory bodies.
(740-F, 741-G, 742-C]
4. Transfer of share to a foreign company on nnder valuation is a
matter of concern. The transfer of shares by one company to another
company is J!rimarily to be determined by the shareholders and, therefore,
E if the 99% are of the view that the valuation of the shares was reasonable
and fair then the conrt should be slow to interfere with it. But a shareholder
may not be i11terested in the ultimate effect of allotting shares to a multi-
national on a low price valuation, but the court certainly is. That the
valuation was low-priced was found even by the High Court. Therefore, it
was not op*n to the respondents to argue that the valuation of Rs. 105
F having been accepted by majority of almost all the shareholders, no public
interest was involved in it. No further need be said as allotment of shares
to UL at Rs. lOS was not approved by the Reserve Bank oflndia. It bas been
challenged before the High Court and was pending adjndication. [742-D-G)

G CIVII.,APPELLATE JURISDICTION: Special Leave Petition (C)
No. 11006 of 1994 etc. etc.

From the Judgment and Order dated 18.5.94 of the Bombay High
Court in AplJeal No. 224 of 1994.

H S.K Dhoiakia, Rajeev Dhawan and Ms. Indra Jaisingh, Sanjay
I
HINDUSTA-1\ILEVER EMPLOYEES UNION'· HINDUSTAN LEVER LID. [SAHAI,J.J 733

Singhvi, B.M. Singhvi, Brij Bhushan, Arvind Minocha, Ms. Veena Minocha, A
Ms. Aparna Vishwanathan, V.S. Chauhan, R. Santhana Krishnan, Gopal
Singh, Sanjay Parikh and Ms. Aparna Bhat for the Petitioner.

Ashok H. Desai, T.R. Andhyarujina, H.A. Desai, Ashish Wad, Ms.
Tamali Wad, Mrs. J. Wad, Ravinder Narain, Aditya Narain, Mohit Kapoor,
Rajan Narain, D.N. Mishra and Rajeev Kumar Singh for the Respondents. B

P.H. Parekh for the Intervenor.

The Judgment of the Court was delivered by

R.M. SAHAI, J. Merger under the Companies Act, 1956 (in brief 'the C
Act,) of the two big companies-one, Hindustan Lever Limited {HLL), a
snbsidiary of Uni Lever (UL), London based multi national company, and
other Tata Oil Mills Company Ltd. (In brief 'TOMCO') the first Indian
company found in 1917 and public since 1957 which has been found by the
High Court to be still 'not financially insolvent or sick company' was D
unsuccessfully challenged in the High Court by few rather nominal
shareholders of TOMCO, Federation of Employees Union of both the
TOMCO and HLL, Consumer Action Group and Consumer Education
and Research Centre. The attack varied from statutory violation, proce-
dural irregularities of provision of the Act to ignoring effect of the
provisions of Monopolies & Restrictive Trade Practices Act, 1969 under E
valuation of Shares, its preferential allotment on less than the market price
to the multi national, failure to protect the interest of employees of both
the companies and above all being violative of public interest. The High
Court was not satisfied that either the merger was against public interest
or that the valuation of the shares was prejudicial to the interest of the F
shareholders of TOMCO or that the interest of the employees. was not
adequately protected. It was held that there was no violation of Section
391{1){a) of the Act and the claim that the disclosures in the explanatory
statement were not as required was without basis as it was not established
that the statement did not disclose correct financial position of TOMCO. G
• Nor there was anything to show that the material was not disclosed. The
Court held that the petitioner failed to establish any fraud or prejudice.
On valuation of share for exchange ratio the Court found that a well
reputed valuer of a renowned firm of chartered accountants and a director
of TOMCO determined the rate by comhining three well known methods,
namely, the net worth method, the market value method and the earning H
734 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A method. The figure so arrived could not be shown to be vitiated by fraud
and mala fide aod the mere fact that the determination done by slightly
different method might have result in different conclusion would not justify
interference unless it was found to be unfair. And in that the petitioner
failed miserably. The High Court did not agree that the approval to scheme
B of merger should be withheld till the complaint filed before Monopolies &
Restrictive Trade Practices Commission was not finally decided as the
jurisdiction exercised by the High Court under the Act aod that by the
Commission under MRTP Act were entirely different. Nor did it find aoy
merit in the challenge that interest of employees of the two companies was
not adequately taken cate of. It was held that service conditions of
C TOMCO, the traosferor compaoy, having been protected it could not claim
it to be prejudicial either because they were not assured of same conditions
of service as was operative in HLL or that there was no similar provision
protecting the interest of HLL employees. The apprehension of the
employ~es against probable retrenchment as the employees of HLL were
D already surplus was rejected as of no substaoce since such disputes if
necessary could be raised in labour Court. On preferential allotment of
shares lo UL on less thao market value the Court held that HLL was
holder of 51 % share from before aoy allotment therefore the allotment
which placed them at par with same holding was neither illegal nor violative
of public interest.
,E
Same grievaoces have been reiterated by the shareholders, the
Employees Union aod the Consumer Action Group before this Court with
fresh dressings aod flourish. The sentinel nature of jurisdiction exercised
by the High Court in Company jurisdiction was emphasised with
F veheme11ce. It has urged that the High Court which is expected to act as
guardian in compaoy matters failed to exercise its jurisdiction aod was
swayed by considerations which were neither legal nor relevaot. Attempt
was made to show that the determination of valuation was vitiated as the
chartered accountaot to whom the duty was entrusted did not perform its
function• objectively aod in accordaoce with settled finaocial norms aod
G practice aod its action was vitiated as he was one of the directors of the
TOMCO'. Comparative figures of the shares of the two companies their
market value, their holding in the market etc. were placed to demonstrate
that the calculation was vitiated.

H But what was lost sight of that the jurisdiction of the Court in
.
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. (SAHA!, J.) 735
sanctioning a claim of merger is not to ascertain with mathematical ac- A
curacy if the determination satisfied the arithmatical test. A company court
does not exercise an appellate jurisdiction. It exercises a jurisdiction
founded on fairness. It is not required to interfere only because the figure
arrived at by the valuer was not as better as it would have been if another
method would have been adopted. What is imperative is that such deter-
B
mination should not have been contrary to law and that it was not unfair
for the shareholders of the company which was being merged. The Court's
obligation is to be satisfied that vuluation was in accordance with law and
it was carried out by an independent body. The High Court appears to be
correct in its approach that this test was satisfied as even though the
Chartered Accountant who performed this function was a director of C
TOMCO but he did so as a member of renowned firm of chartered
accountants. His determination was further got checked and approved by
two other independent bodies at the instance of shareholders of TOMCO
by the High Court and it has been found that the determination did not
suffer from any infirmity. The company court, therefore, did not commit D
any error in refusing to interfere with it. May be as argued by the learned
counsel for the petitioner that if some other method would have been
adopted probably the determination of valuation could have be~n a bit
more in favour of the shareholders. But since admittedly more than 95%
of the shareholders who are the best judge of their interest and are better
conversant with market trend agreed to the valuation determined it could E
not be interfered by courts as, 'certainly, it is not part of the judicial process
to examine entrepreneurial activities to ferret out flaws. The court is least
equipped for such oversights. Nor, indeed, is it a function of the judges in
our constitutional scheme. We do not think that the internal management,
business activity or institutional operation of public bodies can be subjected p
to inspection by the Court. To do so, is incompetent and improper and,
therefore, out of bounds. Nevertheiess, the broad parameters of fairness
. in administration, bona fides in action and the fundamental rules of
reasonable management of public business, if breached, will become jus-
ticiable.' Fertiliser Corporation Kamgar Union (Regd.), Sindri & Ors. v.
Union of India & Ors., (1981) 2 S.C.R. 52. See Buckley on Companies Ac4 G
14th Ed. P. 473 & 474 & Palmer on Company Law, 23rd Ed. para 79.16.

Nor is there much merit in the claim of the employees that their
interest had not been adequately protected. The scheme of amalgamation
provides that all the staff, workmen or other employees in the service of H
736 SUPREME COURT REPORTS (1994) SUPP. 4 S.C.R.

A the transferor company (TOMCO} immediately preceding the effective
date shall be<;ome the staff, workmen and employees of the transferor
company. Clajlse 11.1 provides that their services shall be deemed to have
been continuing and not have been interrupted. Clauses 11.2 and 11.3
protect the interest by providing that the terms and conditions of such
B employees shiill not be less favourable and all benefits such as PF etc. shall
stand transferred to the HLL. The grievance of the employees that .no
safeguard has been provided for Hindustan Lever Employees Union ap-
pears. to be off the mark as it is the interest of the employees of TOMCO
which had to be protected. Even the submission that merger will create
unemployment or that it may result in many employees of the TOMCO
C being rendered surplus does not carry much weight as these are matters
which can be taken care of by the Labour Court if the contingency arises.
The learned' counsel for the petitioner time and again took strong exception
to the observation made by the High Court that any dispute about retrench-
ment etc. could b~ adjudicated by the Labour Court. He vehemently
D submitted (hat the availability of remedy after retrenchment should not
have coloured the vision of the court to adjudicate upon the reasonableness
of the scheme. The submission overlooks the primary duties and functions
of a comp~ny court in matters of merger. When the court found that service
conditions of the merged company shall not be to their prejudice it was
E fully jnstified in rejecting the claim of employees as it was neither unfair
nor unreasonable. Further the Court in its anxiety to be fair to the
employee$ recorded the statement of the learned Advocate General who
appeared for HLL that no employee of HLL has been rendered surplns
and in such contingency the company has resorted to friendly handshake
by either giving lump sum or pension. A scheme of amalgamation cannot
F be faulted on apprehension and speculation as to what might possibly
happen in future. The present is certain and taken care of by Clauses 11.1,
2 and 3 qf the scheme. And unfriendly throwing out being amply protected
by taking recourse to Labour Court no unfairness arises apparent or
inherent Nor the claim that merger shall result in, 'synergies' can render
G the sch~me bad. Improved technology and scientific method results in
better employment prospects. Anxiety should be to protect workers and
not a obstruct development and growthc May be that advanced technology
.. may reduce the manpower but so long those who are working are protected
they are not entitled to hinder in modernisation or merger under misap-
H prehension that future employment of same number of workers may stand
HINDUSTAN LEVER EMPLOYEES UNION v. HINDUSTAN LEVER LID. [SAHA!, J.) 737

curtailed .. The wage differential arising between employees of two com- A
panies cannot result in making the merger as unfair since the service
conditions of TOMCO workers having been protected they cannot claim
'. that unless they are paid the same emaluments as is being paid by Hindus-
tan Lever the merger was unjust. Various subsidiary submissions that the
workers, shareholders were not permitted to attend the meeting or that
B
material facts were concealed from them, does not appear to be correct as
when more than 95% of the shareholders have agreed to the valuation
determined by the chartered accountant all these procedural irregularities
cannot vitiate the determinations.

What requires, hO\yever, a thoughtful consideration is whether the c
company court has applied its mind to the public interest involved in the
merger. In this regard the Indian law is a departure from the English law
and it enjoins a duty on the court to examine objectively and carefully if
the merger was not violative of public interest. No such provision exists in
the English law. What would be public interest camiot be put in a straight
jacket. It is a dynamic concept which keeps on changing. It has been
D
explained in Black's Law Dictionary as, 'something' in which the public, the
community at large, has some pecuniary interest, or some interest by which
. their legal rights or liabilities are affected. It does not mean anything so
narrow as mere curiosity, whereas the interest of the particular locality
which may be affected by the letters in question. Interest. shared by the E
citizens generally in affairs of local, State or national Government.' It is an
expression of wide amplitude. It may have different connotation and un-
derstanding when used in service law and yet a different meaning in
criminal law than civil law and its shade may be entirely different in
Company Law. Its perspective may change when merger is of two Indian
F
companies. But when it is with subsidiary of foreign company the con-
sideration may be entirely different. It is not the interest of shareholders
or the employees only but the interest of society which may have to be •
examined. And a scheme valid and good may yet be bad if it is against
public interest.
G
Section 394 casts an obligation on the court to be satisfied that the
scheme for amalgamation or merger was not contrary to public interest.
The basic principle of such satisfaction is none other than the broad and
general principles inherent in any compromise or settlement entered be-
tween parties that it should not be unfair or contrary to public policy or H
738 SUPREME COURT REPORTS [1994) SUPP. 4S.C.R.

A unconscionable. In amalgamation of companies, the courts have evolved,
the principle of, 'prudent business management test' or that the scheme
should not be a device to evade law. But when the court is concerned with
a scheme of 11).erger with a subsidiary of a foreign company then the test ' "
is not only wi).ether the scheme shall result in maximising profits of the
B shareholders or whether the interest of employees was protected but it has
to ensure that merger shall not result in impeding promotion of industry
or shall obstrqct growth of national economy. Liberalised economic policy
is to achieve this goitl. The merger, therefore, should not be contrary to
this objective.. Reliance on English decision for Custina Re Hoare, 1933
AER Ch. 105 and Bugle Press UC, 1961 Chancery Division 270 that the
C power of the court is to be satisfied only whether the provisions of the Act
have been COlJlplied w;th or that the class or classes were fully represented
and the arrangement was such as a man of business would reasonably
approve between two private companies may be correct and may normally
be adhered \o but when the merger is with a subsidiary of a foreign
D company then economic interest of the country may have to be given
precedence. 'the jurisdiction of the court in this regard is comprehensive.

In this case it was specifically claimed that the agreement was con-
trary to public interest. It was supported by relying on the terms of
F agreement wjierein it is mentioned that immoveable assets of TOMCO,
except those which are specifically excluded, shall stand, transferred to
HLL. It was 1ll'ged that even though the valuation of such assets was nearly
Rs. 800 crores it was being transferred for Rs. 30 crores only. Another
objection violating public interest, according to the learned counsel, was
that as a resQit of merger the share holding of UL from 51 % was reduced
F
to approximately 49%, but it was being brought on par by transferring
29,84,43,437 equity shares by preferential allotment by reducing the price
of shares with the result that the multi-national shall have enormous
advantages Which is not conducive to the society. The learned counsel
submitted tbi>t there were only two renowned competing companies who
G were manufacturing soap and detergent. With the merger of TOM CO with
HLL there would be no competition and it would result in creating virtual
monopoly in favour of HLL which could result not only in deterioration of
quality, but in escalation of price. The learned counsel pointed out that
even though HLL was a subsidiary of UL and claims to have the benefit
H of technical know-how etc., yet the quality of soaps produced by TOMCO
HINDUSTAN LEVER EMPWYEES UNION'· HINDUSTAN LEVER LTD. [SAllAI,J.J 739

was much better as compared to HLL. A

In reply it was urged that the maintenance of 51 % of paid-up equity
share of UL was distinctively advantageous to HLL because the UL has
become a source of major strength of HLL and has been responsible in
several ways for its phenomenal growth and prosperity. This status, it was B
urged, enable HLL to have from UL free of cost the benefits of Research
and Development technology, know how, marketing support, both domes-
tic and international including brand names, managements systems, train-
ing facilities and other resources in normal course of business. It was
further urged that as a result of HLL being a subsidiary of UL, HLL is
able to utilise international brand names of UL, such as soaps under the c
, brand names Lux, Lux International, Lifebuoy, Pears, Dove, Surf, Sunlight,
etc, It was urged that the price of Rs. 105 per share comprising of Rs. 10
towards the capital and Rs. 95 towardspremium-for preferential allotment
to UL was worked out on the basis of norms jointly evolved by Apex
Chambers of Commerce and Industry operating a( the national leve~ such D
as ASSOCHAM with Public Financial Institutions which own substantial
shareholding in the publicly quoted companies, including HLL. It was
further stated that the company had taken advice from the Merchant
Banking Division of Industrial Credit & Investment Corporation of India
Limited with regard to fair price for the proposed preferential allotment
to UL. The figure arrived at by the HLL was approved, it was stated by E
the Merchant Banking Division of Industrial Credit & Investment Corpora-
tion of India Ud. It was pointed out that not only the figure was found to
be fair and reasonable by the authorities, but it was ensured further that
UL will not transfer the shares for a minimum period of 7 years from the
date of allotment and in the event of UL desiring to sell these shares at F
any time after seven years, but within 12 years from the. date of the
allotment, they would offer do so at the first instance in favour of other
members of the company in fair and suitable mariner at a price worked out
by reference to price earning multiple of 15_ as per the lasi published
accounts of the company available at the time of such disposal. It was also G
urged that the price of Rs. 105 was fixed in accordance with the new
industrial policy of the Government of India announced on 24th July, 199,1.
The learned counsel urged that in pursuance of this policy, on 29th May,
1992 the Government of India repealed the Capital Issues Control Act,
1947 by Ordinance No. 9 of 1992 with the result that there was no control
on the issues of shares. The determination, it was claimed, was in accord- H
740 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A ance with the guidelines issued by the SEBI on 11th and 17th June, 1992
which required existing companies wishing to raise foreign equity upto 51 %
by taking a decision of the shareholders in a special resolution under
Section Sl(l)(A) of the Act. The learned counsel submitted that even
. ~·

though subsequently the State Bank of India has altered its policy, but that
would not affect the determination or valuation done earlier as it was in
B
accordance with the then existing quidelines and was approved by nearly
99% of the shareholders of the company. The learned counsel urged that
in these circumstances, the High Court having found that the price of Rs.
105 having been worked out on the basis of price earning multiple of 15
based on the last published balance sheet of HLL, it was fair and
C reasonable and it was not liable to interference by this Court. Reliance
was placed on N~eiI/e Industries (India) Ltd. & Ors. v. Needle Industries - i

Newey (India) Holding Ltd. & Ors., [1981] 3 SCC 333, where this Court
approved the principle laid down by Lord Davey in Hilder v. Dexter, (1902)
AC 474 at 480 that there was no law which obliged a company to issue its
D share at par because they were saleable at a premium in the Market. It was
vehemently argued that since it were the shareholders who were primarily
concerned with the company's finances and they have decided almost
unanimously to allot the share to the parent company at the price of Rs.
105, it cannot be urged that the members of the HLL were not acting in
the interest of the company as a whole.
E
Each of these challenges claimed to be violative of public interest
have to be examined in the prevailing atmosphere which opted for
liberalisation of the Government policies to promote economic growth of
the country. What is remarkable is that the Legislature itself has amended
Foreign Exchange Regulation Ac~ 1973 by Act 29 of 1993 ('FERA' for
F
short), the Monopolies and Restrictive Trade Practices Act, 1969 and
Companies Act, 1956 by Act of 58 of 1991. The amendment in MRTP Act
was effected as :

"The basic philosophy behind the MRTP Act was never to inhibit
G industrial growth in any manner but to ensure that such growth is
channelised for the public good and is not instrumental in per-
petuating concentration of economic power to the common detri-
ment. With the growing complexity of industrial structure and the
need for achieving economies of scale for ensuring higher produc-
H tivity and competitive advantage in the international market, the
HINDUSTAN LEVER EMPLOYEES UNION v. HINDUSTAN LEVER LTD. (SAHA!, J.] 741

thrust of the industrial policy has shifted to controllinF; and regulat- A
ing the monopolistic, restrictive and unfair trade practices rather
than making it necessary for certain undertakings to obtain prior
approval of the Central Government for expansion, establishment
of new undertakings, merger, amalgamation, take over and ap-
pointment of Directors. It has been t!te experience of the Govern- B
ment that pre-entry restriction under the MRTP Act on the
investment decision of the corporate sector has outlived its utility
and has become a hindrance to the speedy implementation of
industrial projects".

In pursuance of this objective, Sections 20 to 26 were repealed. Section 23 C
' . · of it which empowered the Commission to. examine the scheme of amal-
gamation or merger is no more on the statute book. The argument of the
Petitioners that the Commission being court of primary jurisdiction the.
Company Court should have stayed its hands and awaited the decision of
the Commission does not appear after amendment to be sound. Effect of D
the merger resulting in monopoly is already pending before the Commis-
sion. Therefore, no further comment is called for.

hi FEM there was a restriction on holding of assets by non-
residents under Section 11 of the Act. Section 29 prohibited a company
which was not incorporated in India or in which the non-resident interest E
was more than 40% from establishing in India a branch, office or any part
of the undertaking without permission from the Reserve Bank of India.
Section 31 prolubited any company in which non-resident Indian had more
than 40% share from acquiring or holding any immovable property in
India. By Act 29 of 1993 Section 11 has been repealed and Sections 29 and F
31 have been amended and there is no restriction now on a non-resident
company holding in excess of 40% share. In Companies Act, Section 108-A
to 108-1 have been added.

The scheme of amalgamation does not run counter to any legislative G
provision of policy of the Government. The claim of the Petitioners that
the transfer for a paltry sum of Rs. 30 crores was mala fide as it was a quid
pro quo arrangement between UL and Tata Sons Limited by which the
immovable assets of TOMCO were virtually given to Tata Sons Limited
and in lieu of UL has been allotted 2984347 equity shares of the face value
of Rs. 10 each at the price of Rs. 100 per share so as to ensure that the H
742 SUPREME COURT REPORTS [1994) SUPP. 4S.C.R.

A share of UL wlj.ich stood diluted continued to remain at 51 % was not found
to have any merit as the valuation was determined by renowned and
authorised valuers. It was held that sale by open public auction or inviting
tenders fwm general public may have fetched more price due to competi-
tion, but that C<lmld not result in vitiating the determination of the valuation.
B The amalgamation cannot be faulted for this reason.

Even assuming that the assets are being transferred for a very
meagre sum but that by itself would not render the agreement bad or
against public policy. Once the FERA was amended and assets of the
Indian company could be transferred to foreign company then the amal-
C gamation cannot be withheld when the shareholders themselves did not
raise any obje~tion nor was it raised by financial institutions or statutory • 1

bodies. The cl).allenge, therefore, founded on transfer of assets at lower
price cannot be upheld as violative of public interest.

D Transfer of share to a foreign company on under valuation is of
course a matter of concern. It is true that the transfer of shares by one
company to another company is primarily to be determined by the
shareholders and, therefore, if the 99% are of the view that the valuation
of the shares was reasonable and fair then the court should be slow to
interfere with! it. But what is necessary to be emphasised is that a
E shareholder may not be interested in the ultimate effect of allotting shares
to a multi-national on a low price valuation, but the court certainly is. For
instance, if the value of the share which has been determined at Rs. 105
for allotment tp HLL is hypothetically determined, say at Rs. 210, then the
result would be that the UL will have to pay more in lieu of getting the
F shares and that could definitely bring more foreign exchange to the national
stream. It is just one illustration to demonstrate that how low pricing of the
valuation of sijare effects the public interest. That the valuation ·was low-
priced was fotind even by the High Court. Therefore, it is not open to the
respondents to argue that the valuation of Rs. 105 having been accepted
by majority of almost all the shareholders, no public interest is involved in
G it. No further p.eed be said as allotment of shares to UL at Rs. 105 is not
approved by ti).e Reserve Bank of India. It was been challenged before the
High Court and is pending adjudication.

Even though I have agreed with Brother Sen, J. that the appeals and
H petitions are ~able to be dismissed, but I have added a few words to
HINDUSTAN LEVER EMPWYEl'S UNION'· HINDUSTAN LEVER LID. (SEN,J.J 743

highlight the expansive power of the court in public interest while approv- A
ing the scheme for amalgamation between a subsidiary company of a
multi-national and an Indian company in the liberalised economic policy.

SEN, J, A Scheme of Amalgamation of two Companies - Tata Oil
Mills Company Limited and Hindustan Lever Limited - is the subject
matter of dispute in this case. B
By an order dated 3rd March, 1994, the Court under Section 391/394
of the Companies Act sanctioned the Scheme of Amalgamation of the Tata
Oil Mills Company Limited (TOMCO), the transferor, with the Hindustan
Lever Limited (HLL), the transferee. C
.. Aggrieved by the said Judgment and order dated 3.3.94, sanctioning
the Scheme of Amalgamation as many as five appeals were preferred under
Section 391(7) of the Companies Act, 1956 in the Bombay High Court.

Appeal No. 244 of 1994 was filed by the Federation of Tata Oil Mills D
and Allied Companies' Employee's Unions in Company Petition No. 332
of 1993 connected with Company Application No. 250 of 1993. Appeal No.
298 of 1994 was filed by Mr. Rabindra Hazari a shareholder of TOMCO
in Company Petition No. 332 of 1993 connected with Company Application
No. 250 of 1993. Appeal No. 224 of 1994 was filed by the Hindustan Lever E
Employees' Union in Company Petition No. 333 of 1993 connected with
Company Application No. 251 of 1993. Appeal No. 301 was filed by
Consumer Action Group and other similar Organisations, in Company
Petition No. 333 of 1993 connected with Company Application No. 251 of
1993. Appeal No. 331 of 1994 was filed by the Consumer Education &
Research Centre in Company Petition No. 333 of 1993 connected with F
Company Petition No. 251 of 1993.

The Appeal Court dismissed all the five appeals. The appellants have
now come before this Court against the judgment of the Appeal Court
dated 18th May, 1994. G
According to the appellants, the scheme should not be sanctioned
for the following reasons :

(A) Violation of Section 393(1) (a) of the Act in not making required
disclosures in the explanatory statement. H
744 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A (B) Valuation of share exchange ratio is grossly loaded in favour of
HLL.

(C) Ignoring the effect of provisions of the Monopolies and Restric- "~-
live Trade Practices Act (the MRTP Act).

B (D) ,Interest of employees of both the Companies was not adequately
taken care of.

(E) ,Preferential allotment of shares less than market price to
Unilever which is not in public interest.

c (F) Mala fides on aceount of existence of quid pro quo between
Unilever and Tata Sons Ltd. .'
TOMCO manufactures and sells products like soaps, detergents,
toiletries and animal feeds. HLL also manufactures and sells similar
products. Both the Companies have their registered office at Bombay.
D TOMCO has more than 60,000 shareholders with the following break-up:

42% Tata Group

41 % Financial Institutions (FI)

E ~7% General Public

HJ;L has nearly 1,30,000 shareholders with the following break-up:

51% Unilever PLC (UL) - a Company incorporated
under the English Companies Act, having its
F registered office at London.

~6% FI

33% General Public

G Onginally, Unilever - the parent Company of HLL - had 100%
shareholding in HLL.

The declined in the business of TOMCO began in 1990-91. During
1991-92, TOMCO incurred loss of Rs. 13 crores. In the next six months the
loss increased to over Rs. 16 crores. The Board of Directors of TOMCO
H consideled various alternatives for TOMCO including its association with
HINDUSTAN LEVER EMPLOYEES UNION v. HINDUSTAN LEVER LID. (SEN, I.] 745

HLL wl)ich was a more prosperous and-a larger Company operating in the A
same field of activities. Accordingly, the l!oard of Directors of TOMCO
put up a proposal before the Board of Directors of HLL. Both availed of
. I'~ the professional service of Mr. Y.H. Malegam, Senior Partner of Mis. S.B .
Billimoria and Company, Chartered Accountants, former President of
Institute of Chartered Accountants and the Director of Reserve Bank of B
India, for the purposes of evaluation of the share-price of two Companies
in order to arrive at a fair share exchange ratio. On 19th March, 1993, Mr.
Malegam gave valuation report and recommended an exchange ratio of two
equity shares of HLL for every fifteen ordinary shares of TOMCO. The
Board of Directors of both the Companies at their separate and inde-

,. pendent meetings accepted the recommendation and approved the Scheme
of Amalgamation.
C

The Scheme, inter a/ia, provides for transfer and vesting in HLL of
the Undertaking and business of TOMCO together with assets and
liabilities excluding certain assets and/or licence rights to use certain D
premises. Salient features of the Scheme are to be found in Clauses 1,7(d),
4, 5, 11 and 13. Clause 1.7(d) sets out the details of excluded properties in
which TOMCO has no more than licensees rights. Clause 4 _provides for
transfer of 5 assets (immovable property) to be transferred to companic:S
nominated by Tata Sons Ltd. at fair market value as will be independently
assessed. Clause 5 provides that TOMCO shall (before or after the effec- E
tive date) transfer to Tata Sons Ltd. or its nominee certain invest-
ments/shares owned by TOMCO at the then prevailing market value and
in the case of unlisted shares at a value to be determined by Mr. Y.H.
Malegam. Clause 11 provides for transfer of employees of TOMCO to
HLL on the basis that their service shall be deemed to be continuous and F
the conditions of service after the transfer shall not be less favourable.
Clause 13 refers to preferential allotment of equity shares to UL of face
value of Rs. 10 each at the price of Rs. 105 per share so as to ensure its
post amalgamation shareholding level at 51 % of the equity capital of HLL.
G
It may be mentioned that (i) investments/shares specified in Clause
5 have been realized and (ii) Clause 4 has been modified by the Company
Court (a) by providing for transfer to Companies nominated by the Direc-
tors ofTOMCO in place of Tata Sons Ltd. and (b) by naming well reputed
'Chartered Accountants/Government Valuers. H
746 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A In Company Application No. 250 of 1993 filed by TOMCO the Court
passed an order of 29th April, 1993 directing to call the meetings of the
debenture holders, creditors, ordinary shareholders arid preference
shareholders on 29th and 30th June, 1993, naming the Chairman of the
meetings and calling upon him to submit the report within 21 days after
B conclusion of the meeting. TOMCO filed the Notices and explanatory
statements under Section 393(1)(a) of the Act along with a proxy form
before the Company ~egistrar, who after considering all objections settled
the explanatory statements and approved the disclosures made therein.
Individual notices of the said meetings together with a copy of the Scheme
C of Amalgamation, the statement as settled by the Company Registrar and
as require<) under Section 393(l)(a) and a proxy form were sent to
concerned members as required by law. On 21st June, 1993 a joint com-
..,
munication to shareholders of TOMCO and HLL was also sent. Public
notices of the meetings were also issued through the print media. The
meeting of the ordinary shareholders was held on 29th June, 1993 and was
D attended by 1,294 members holding 85,85,009 ordinary shares and by 1,652
members holding 55,18,251 ordinary shares through proxies. In the said
meeting an1endment was proposed to the effect that the exchange ratio
should be 5:15 shares in place of 2:15 shares as envisaged in the Scheme.
99.64% of 'Ordinary shareholders voted against amendment and 99.72%
E voted in favour of the Scheme as proposed. Debenture holders voted 99%, -'
secured creditors voted 100%, unsecured creditors voted 84.30% and
preference shareholders voted 100% in favour of the Scheme. The Scheme
as proposec:I was thus approved in all the five meetings by 99.72% of equity
shareholdets in terms of values and 86. 72% in terms of number.
F
In Company Application No. 251 of 1993 filed by HLL also similar
direction for convening meeting of the equity shareholders and creditors
were issued by the Court on 29th April for convening the meeting on 30th
June, 1993. Similar procedure was followed in this also. On 30th June, 1993
shareholders of HLL at their Extraordinary General Meeting approved by
G the requisite majority the proposed issue of shares to UL pursuant to
Section 81(1A) of the Act. The meeting of the creditors was held on 2nd
July, 1993 lu)der the chairmanship of Chairman of HLL, Mr. S.M. Datta,
as directed by the Court. The meeting of equity shareholders was attended
by 2,528 members including proxies holding 9,59,27,477 equity shares. In
H all 13 amendments were proposed but more than %% voted against the
•
HINDUSTAN LEVER EMPWYEES UNION v. HINDUSTAN LEVER LID. (SEN, I.) 747

amendments. The creditors also voted for the Scheme. A
On 2nd August, 1993 Judges summons was taken out by Mr. M.C.
Jajoo, praying inter alia for direction to M/s. A.F. Ferguson and M/s. N.M.
Raiji & Co., Chartered Acccillltants, to give their opinion on the valuation
report of Mr. Malegam. The Regional Director and the Official Liquidator
were given notices of the petitions. In pursuance thereof the Regional B
Director submitted his report on 9th December, 1993 and Official liquida-
tor submitted his report for winding up without dissolution under Section
394 of the Act. On 6th January, 1994 M/s. Ferguson and M/s. N.M. Raiji
by their joint letter with copy to Mr. Jajoo confirmed that the share
exchange ratio determined by Mr. Malegam was proper. C
The facts stated above were noted in the judgment under appeal and
are not in dispute. But a large number of legal issues have been raised in .
this Court, questioning the Scheme of Amalgamation.

Mr. Dholakia, learned Counsel appearing for Mr. Jajoo, one of the D
shareholders of TOMCO, has questioned the justification of the ratio of
allotment of shares, 2 shares of HLL in exchange of 15 shares of TOMCO.
According to Mr. Dholakia, this ratio is entirely unsatisfactory and unfair
to the TOMCO shareholders. It has been contended that he Board of
Directors of TOMCO did not explain the Scheme of Amalgamation in the
E
explanatory statement circulated among the shareholders. In particular,
how the share exchange ratio - 15 TOMCO shares to 2 HLL shares - was
arrived at, was not stated in the explanatory statement. Instead of circulat-
ing the valuation reports, TOMCO informed the shareholders that the
reports were available for inspection at the registered office of the Com-
pany between 11.00 A.M. to 1.00 P.M. on 14 working days. The F
shareholders were not told that the joint valuer was none other than Mr.
Malegam, a Senior Partner of M/s. S.B. Billimoria and Company, and also
a Director of TOMCO. Mr. Malegam could not be appointed auditor of
TOMCO under Section 226(3) of the Companies Act, 1956. In that view
of the matter, Mr. Malegam should not have been appointed Valuer under G
the Indian Companies Act, 1956.

It was next contended that the reasons for the Board accepting
certain proposals .to make preferential allotment of shares at Rs. 105 per
share has not been properly explained. ICICI had given a valuation report
stating that this report was only on the basis of the material supplied by H
748 SUPREME COURT REPORTS (1994) SUPP. 4 S.C.R.

A HLL and not on the basis of any independeut verification. It is also
significant that Mr. Malegam was a Director of ICICI. It was also con-
tended that tlje valuation report was erroneous. A combination of different
methods of valuation was adopted, which was clearly against the law laid
down by the Supreme Court in the case of Commissioner of Gift Tax,
Bombay v. Smt. Kusumben Mahadevia, 122 !TR 38. If the valuation was
B
done by the net asset method, the exchange ratio should have been 1:2 in
favour of TQMCO. Moreover, market value of the shares of the two
Companies was taken at a point of time when the price of TOM CO shares
was the lowe~t for a period of 27 months. Lastly, it was contended that the
preferential allotment of shares to Unilever was part of the Scheme of
C Amalgamation. The Board should have explained why Rs. 366 was being
paid for every HLL share by TOMCO, when Unilever was paying only Rs.
105 per HLL share.
..
We are unable to uphold any of the above contentions raised by Mr.
D Dholakia. The overwhelming majority of the shareholders had approved
the Scheme at the meeting called for this purpose and had approved the
exchange ratio. In fact, a proposal for amendment of the exchange ratio
was also rejected by the overwhelming majority of 99% shareholders. There
is no reason to presume that the shareholders did not know what they were
doing.
E .,
Being dissatisfied with the valuation made by Mr. Malegam, Mr.
Jajoo had insisted for independent valuation and that was done. Two
independent valuers -A.F. Ferguson and N.M. Raiji & Co. - had valued
the shares and came to the conclusion that exchange ratio of 15:2 was
p correctly de\ermined by Mr. Malegam.

Faced,with this situation, Mr. Dholakia sought to produce a valnation
report made by another valuer, G. Rai & Co., Chartered Accountants.
According tb this report, book value of equity share of TOMCO as on 31
3.1992 based on audited and printed balance sheet of the Company )Vas
' I
G Rs. 57. 58 per share; whereas book value of equity share of HLL as on
31.12.1992 based on its audited and printed balance sheet was only Rs.
28.84 per slJare. This, according to Mr. Dholakia, demonstrated the absnr-
dity of the valuation that had been made of the shares of the two Com-
panies The exchange ratio was obviously unfair to the shareholders of
H TOMCO. 1:his report is produced before this Court for the first time.
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN,J.J 749

There was no dispute as to what should be the book value of A
TOMCO shares as on 31.3.93. The following share charts of the two
Companies were enclosed with .the circular letter dated June 21, 1993
addressed to the shareholders of TOMCO and HLL by the Chairmen of
two companies :

HINDUSTAN LEVER LTD. B

EQUITY SHARE DATA

The Market Price as on 17.6.1993 was Rs. 375

As at 31.12.92 31.12.91 31.12.90 c
Face Value (Rs.) 10.00 10.00 10.00
Book Value per Share (Rs.) 23.80 20.75 27.36
Dividend ( % ) 42.00 38.50% 42.00%
Earning per share (Rs.) 7.03 5.73 6.29 D

*On enlarged capital after the issue of bonus shares in the ratio of 1:2.

THE TATA OIL MILLS COMPANY LTD.
E
EQUITY SHARE DATA

The Market price as on 17.6.1993 was Rs. 52.50

As at 31.3.93 31.3.92 313.91
Face Value (Rs.) 10.00 10.00 10.00 F
Book Value per Share (Rs.) 29.75 29.45 36.17
Dividend (%) - 12.50% 20.00%
Earning per share (Rs.) 0.30 0.50 5.19

The Profit & Loss Accounts of the two Companies for the last three
G
years were also annexed. It appears that TOMCO made profit of Rs.5.64
crores in 1990-91. It came down to Rs. 1.13 crores in 1991-92 and ultimately
to Rs. 0.65 crores in 1992-93; whereas HLL's profit in 1990 was Rs. 58.74
crores and it went up to Rs. 98.48 crores in 1992. The Market price of
TOMCO share truly reflected the bleak outlook of the Company. It has H
750 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A been stated that in the financial year 1992-93 TOMCO had shown a gross
profit of Rs. 27.18 crores only after taking credit of Rs. 36.69 crores on sale
of investments and Rs. 18.04 crores on account of refund of Excise Duty
pertaining to prior periods. In fact, in the Directors' Report of the year
1992-93, lt was stated that the Company had suffered severe set back
...
resulting ln operating loss. The position got worse in the year 1993-94. The
B Company,suffered operating loss in the region of Rs. 16 crores and had to
sell not oQly investments, but also fixed assets of the Company.

In the background of these facts, it cannot be said that the market
price as on 17.6.93 did not reflect the true picture of the value of the
c Company's shares. If the market price of the shares of the two Companies
as on 17.6;93 is compared, the quoted price of HLL was Rs. 375 per share;
whereas the quoted price of TOMCO was Rs. 52.50 per share. The earning
per TOMCO share had come down from Rs. 5.19 on 31.3.91 to Rs. 0.50
on 31.3.92 and Rs.0.30 on 31.3.93. As against this, dividend paid on HLL
shares was 42% in the years ending on 31.12.90 38.50% (on enlarged
D capital after the issue of bonus shares in the ratio of 1:2 in the year ending
on 31.12.91 and 42.00% again in the year ending on 31.12.92. It is true that
book value per share of TOMCO was higher than that of HLL. But, even
without any bonus issue, the book value of TOM CO shares had come down
from Rs. 36.17 per share on 31.3.91 to Rs. 29.75 per share .on 31.3.1993.
~

E
What emerges from all these figures is that on the market price basis
as on 17.6.93 (the last price available before the circular letter dated 21.6.93
issued to the shareholders of the two Companies) the exchange ratio of
2:15 was very fair. If the yield method is adopted, the ratio would be
astronomically high in favour of HLL. But, if the book value is taken per
F share, then TOMCO shares would be of higher value than HLL shares.

The .question is what method should be adopted for arriVing at a
proper exchange ratio. The usual rule is that shares of the going concern
must be taken at quoted market value. This principle was also recognised
< '
by this Court in the ease of Commissioner of Wealth Tax v. Mahadeo Ja]Qn,
G
86 !TR 621,

In th1s case, Mr. Malegam adopted a combination of three well-
accepted methods to arrive at the fair value of the shares. The methods
are: (I) the yield method; (II) the asset value method; and (III) the market
H value method. After considering all the relevant factors, the valuer recom-
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN, J.] 751

mended in exchange ratio of 2 equity shares of HLL for every 15 ordinary A
shares of TOMCO.

Mr. Dholakia has contended that a combination of two methods of
valuation was condemned by this Court in the case of Commissioner of Gift
Tax, Bombay v. Smt. Kusumben D. Mahadevia, 122 ITR 38. The valuation
of the shares done by Mr. Malegam was clearly erroneous and contrary to B
the principles laid down by this Court in that case.

The observations made by this Court in Smt. Kusumben D.
Mahadevia's case were in connection with the valuation of shares of a going
concern under the provisions of Wealth Tax and Gift tax Acts and the rules C
framed thereunder. Under those two Acts, at the material time, valuation
had to be done on the basis of the price which, in the opinion of the
assessing officer, the shares would fetch if sold in the open market. Both
Section 6 of the Gift Tax Act and Section 7 of the Wealth Tax Act had
adopted the same principle of valuation. If that method of valnation is
adopted, then the exchange ratio fixed in this case cannot be described as D
unfair to the Company's shareholders in any way. If profits earning method
had been adopted, the ratio would have been very much worse for
TOMCO shareholders.

This problem of valuation in the case of amalgamation of two Com-
.• parries has been dealt with by Weinberg and Blank in the book "TAKE- E
OVERS AND MERGERS', in which it has been stated that some of all
of the following factors will have to be taken into account in determining
the final share exchange ratio :

(1) The Stock Exchange prices of the 'hares of the two companies F
before the commencement of negotiations or the an-
nonncement of the bid.

(2) The dividends presently paid on the shares of the two com-

.. panies. It is often difficult to induce a shareholder, particular-
ly an institution, to agree to a merger or a share-for- share
bid if it involves a reduction in his dividend income.
G

(3) The relative growth prospects of the two companies.

(4) The cover (ratio of after-tax earnings to dividends paid during
the year) for the present dividends of the two companies. The H
752 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A fact that the dividend of one company is better covered than
that of the other is a factor which will have to be compensated
for at least to some extent.

(5) In the case of equity shares, the relative gearing of the shares
of the two companies. The 'gearing' of an ordinary share is
B the ratio of borrowings to the equity capital.

(6) The values of the net assets of the two companies. Where the
transaction is a thorough-going merger, this may be mere of
a talking-point-thvn a matter of substance, since what is relevant
is the relative values of the two undertakings as going concemes.
c
(7) The voting strength in the merged enterprise of the <
sharehulders of the two companies.

(8) The past history of the prices of the shares of the two
companies.
D
It will, therefore, appear that in case of amalgamation a combination
of all or some of the methods of valuation may be adopted for the purpose
of fixation qf the exchange ratio of the shares of the two companies. It is
to be noted 'that even in such a situation, the book value method has been
E described as 'more of talking-point than a matter of substance'. ..
Mr. Malegam adopted the combination of three well-known methods
of valuation of shares to arrive at the exchange ratio of the two Companies.
In fact, th<;. tp.ethod adopted was explained to the Board of Directors by a
letter dated ,19th March, 1993 written by S.B. Bellimoria & Co. :-
F
"Foi the above purpose we have considered the 'yield valne', the
'asset ·value' and the 'market value' of the shares of the two
companies and have given appropriate weightages to each of the
above values. Both companies are in similar businesses. Therefore

G
a uniform basis of capitalisation of profits has been ad9pted in
determining the 'yield value'. However, while HL has shown a
consistent growth in its profitability, TOMCO's performance has
. '

been more erratic. It has made substantial operating losses in the
year ended 31st March, 1992 and in the six months ended 30th
September, 1992 for which unaudited figures have been published
H and its losses during the six months ending 31st March, 1993 are
HINDUSTAN LEVER EMPLOYEES UNION•· HINDUSTAN LEVER LID. (SEN, J.] 753
expected to be even larger. Moreover its profits during the years A
ended 31st March, 1990 and 31st March, 1991 have been sig-
nificantly due to exports to the former USSR which exports have
now dried up. Taking all these factors into account, for working
out the 'yield value' of the TOM CO share we have assumed a figure
of future maintainable profits based on its operating results for the
B
years 1981-82 to 1988-89."

It is also to be noted that the financial institutions who held 41 % of
the shares of TOMCO, did not find any fault in the method of valuation
of the shares.
c
Mr. Ashok Desai, appearing on behalf of TOMCO, bas argued that
the evaluation of shares had to be done according to well-known methods
of accounting principles. The valuation of shares is a technical matter. It
requires considerable skill and experience. There are bound to be dif-
ference opinion among Accountants as to what is the correct value of the D
shares of a company. It was emphasised that more than 99% of the
shareholders had approved the valuation. The test of fairness of this
valuation is not whether the offer is fair to a particular shareholder. Mr.
Jajoo may have reasons of his own for not agreeing to the valuation of the
shares, but the overwhehning majority of the shareholders have approved
of the valuation. The Court should not interfere with such valuation. E

It is also difficult to follow the argument that Mr. Malegam's report
is not acceptable to the TOMCO shareholders, because he was a Director
of TOMCO, HLL had no difficulty in accepting the share exchange ratio
fixed by Mr. Malegam, even though he was a Director ofTOMCO. If there F
was any bias, it should have been in favour of TOMCO and not against
TOMCO. This exchange ratio was endorsed by two other eminent firms of
Chartered Accountants and also by ICICI. We are unable to uphold the
•• contention that there was any impropriety in the valuation of the shares .
The argument based on Section 226(3) of the Companies Act is misleading. G
An officer or an employee of the company may not be appointed as an
auditor. An auditor must be independent of the Board of Directors of the
company..He is expected to play the role of a watch-dog on b~half of the
shareholders of the company. But, in this case the two Companies are going
to be amalgamated, both the Companies have chosen Mr. Malegam, Direc-
tor of TOMCO to fix the share exchange ratio. If HLL agreed to accept H
754 SUPREME COURT REPORTS [1994] SUPP. 4S.C.R.

A Mr. Malegpm as the Valuer and there was no objection from TOMCO, we
fail to see ~ow TOMCO shareholders have been prejudiced.

On the question of valuation on shares, another issue has been raised.
It was argued that Unilever, a foreign Company, held 51 % of shares of
HLL. The Scheme envisaged that Unilever will continue to hold 51 % of
B the shares of HLL even after amalgamation. It was decided to make
preferential allotment of shares to Unilever at a price of Rs. 105 per share,
for the putpose of maintaining shareholding of 51 % even after amalgama-
tion. For this purpose, two conditions were imposed :

(1) Unilever shall not be able to sell the shares allotted to them on
c preferential basis for a period of 7 years. (2) In case Unilever decides to <
sell these ~hares after the expiry of 7 years but before 12 years after the
date of pteferential allotment, they shall sell the shares to the Indian
shareholders of Unilever at a price 15 times earning per share calculated
on the basis of the last audited balance sheet.
D
It was contended by Mr. Andhyarujina, and in our opinion rightly,
that these two conditions are important depreciatory factors in the
preferentiitl allotment of shares to Unilever. The shares issued to Unilever
would be ,franked by restrictive covenants. These shares cannot be com-
E pared to lhe other shares of HLL which could be freely traded in the
market.

It was contended by Mr. Dholakia that a foreign company was being
given a large interest in the assets of TOM CO at a gross undervalue. We
are unabl¢ to uphold this argument. The shareholder has no interest in the
F assets of lhe company while the company is an existence. It is only at the
stage of Jlquidation of the company that the shareholders become inter-
ested in the assets of the company. The share of any member in a company
is movable property and transferable in the manner provided by the
Articles of the company. This is provided by Section 82 of the Companies
G Act. The definition of 'goods' in the Sale of Goods Act, 1930 specifically
includes ~tocks and shares. A share represents a bundle of rights which
include, iflter alia, the rights (i) to elect directors; (ii) to vote on resolutions
at meetings of the company; (iii) to enjoy the profits of the company, if and
when dividends is declared and distributed; and (iv) to share in the surplus,
if any, on liquidation. In the case of Bacha F. Guzdar v. C.l. T., AIR (1955)
H SC 74, the position of a shareholder was explained thus :
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LID. (SEN,J.] 755

"There is nothing in the Indian Law to warrant the assumption that A
a shareholder who buys shares, buys any interest in the property
of the company which is juristic person entirely distinct from the
shareholders. The true position of a shareholder is that on buying
shares he becomes entitled to participate in the profits of the
company in which he holds the shares, if and when the company B
declares, subject to the Article of Association, that the profits or
any portion thereof should be distributed by way of dividends
among the shareholders. He has undoubtedly a further right to
participate in the assets of the company which would be left over
after winding up."
c
In any event, whether Unilever was paying the proper price for the
shares or not, is a question which is now before the Bombay High Court
in a separate proceeding Hindustan Lever Ltd. & Ors. v. Reserve Bank of
India & Ors., Writ petition No. 1666 of 1994.
D
It appears that the Reserve Bank of India has not granted approval
to the proposal of alloting 29,84,347 equity shares of Rs. 10 fully paid up
at a premium of Rs. 95 per share. According to the guidelines set by the
Reserve Banls: of India, a premium of Rs. 346 will have to be paid per share.
In a writ application before the Bombay High Court, HLL has prayed for,
inter a/ia, following orders: E

(i) Petitioner No. 1 shall allot 29,84,347 equity shares of Rs. 10
each fully paid up at a premium of Rs. 95 per share to
Unilever and appropriate an amount of Rs. 28,35,12,965 ac-
cordingly. F

(ii) The difference between Rs. 346 being the premium per share
as per the revised guidelines and Rs. 95 being the premium
per share approved by the shareholders and the approved
Scheme of Amalgamation shall be kept in separate 'Share G
Premium Suspense Account' by the Company till the final
disposal of the Writ Petition.

(iii) The. said Share Premium Suspense Account will be dealt with
in accordance with the final judgment of the Court in the Writ
Petition. H .-
756 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A Since the entire question is now pending before the Bombay High
Court in another independent proceeding, questioning the price indicated
by the Re&erve Bank of India, this question cannot be pursued in this _.,.
proceeding' any further.

The uext point urged by Mr. Dholakia is that proper disclosure of
B all material facts was not made in the explanatory statement, accompanying
the proposal to amalgamate TOMCO with HLL. Their shareholders were
not given full particulars on the basis of whic;h they could act.

Section 393(1)(a) reads as under:

c "(li) Where a meeting of creditors or any class of creditors, or of (
member>, or any class of members, is called under section 391 -

(aj With every notice calling the meeting which is sent to a
creditor member there shall be sent also a statement setting
forth the terms of the compromise or arrangement and ex-
D
plaining its effect; and in particular, stating any material
interests of the directors, managing director, managing agent,
secretaries and treasurers or manager of the company,
whether in their capacity as such or as member or creditors
of the company or otherwise, and the effect on those interests,
E of the compromise or arrangement, if, and in so far as, it is
different, from the effect on the like interests of other per-
sons; and .... "

The grievance voiced by Mr. Jajoo is not shared be more than 99%
of the shar¢holders. An explanatory statement had been sent on the basis
F of which Mr. Jajoo had taken inspection of all relevant documents.

Notic;: must be taken of the fact that even after these points were
raised in the meeting, the overwhelming majority of shareholders voters for
the Scheme. That the explanatory statement was approved by the Registrar,
G is itself a relevant factor.

A similar question came up for consideration before a Division
Bench of Gujarat High Court in the case of Jitendra R. Sukhadia v. Alembic
Chemical Works Co. Ltd., (1987) 3 Company Law Journal 141. That was
also a case of amalgamation. In that case, it was held that the exchange
H ratio of the shares of the two companies, which were being amalgamated,
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. (SEN, J.J 757
had to be stated alongwith the notice of the meeting. Ho·¥ever this ex- A
change ratio was worked out, however, was not required to be stated in
the statement contemplated under Section 393(1)(a).

In the facts of this case, considering the overwhelming manner in
which the shareholders, the creditors, the debenture holders, the financial
institutions, who had 41 % shares in TOMCO, have supported the Scheme B
and have not complained about any lack of notice or lack of understanding
of what the Scheme was about, we. are of the view, it will not be right to
hold that the explanatory statement was not proper or was lacking in
material particulars.
';
There is another aspect of this case. Should the fact that Mr.
c
Malegam was a Director of a Company have been disclosed? Section 393
(l)(a) requires particulars to be given of any material interests of some
persons connected with the company, including the directors and managing
director. The interest that is contemplated in Section 393(1)(a) is interest
material for consideration of the scheme by the shareholders. It has not D
been shown that Mr. Malegam had any interest in the scheme. If he had
any shares in TOMCO, then his interest would be like that of any other
shareholder. His specialised services were utilised for the purpose of
arriving at a fair exchange ratio. Both TOMCO and HLL reposed faith in
his professional skill. We are of the view that non-disclosure of the fact E
that Mr. Malegam, a Director of the Company, had been appointed Valuer,
will not detract from the Scheme in any way. This will also not amount to
suppression of any material interest of a Director in the Scheiµe.

The next question relates to the provisions of Monopolies and
Restrictive Trade Practices Act (MRTP Act). An argument has been F
made that the MRTP Commission is seized of the matter and until the
MRTP Commission decides, it will be proper to sanction the Scheme.

Ms. Indira J aising, appearing on behalf of Consumer Action Group,
has argued that the Monopolies and Restrictive Trade Practices Act, 1969 G
is a special enactment. The question of merger of HLL and TOMCO has
to be considered in the background of the provisions of the said Act. Since
this very issue is under consideration by the MRTP Commission, the Court
exercising company jurisdiction should not pass any order which may
prejudice the proceedings before the MRTP Commission. Alternatively, it
has been argued that assuming that the jurisdiction of the Company Court H
758 SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A is not barred but it is parallel, then as a matter of propriety the Company
Court shoulcl await the decision of the MRTP Commission with regard to
the issues involved. The allegation before the MRTP Commission is that
the proposed merger was in violation of the provisions of MRTP Act. The
decisive question whether the issues arising before the MRTP .Commission
are the same as are now before this Court.
B
It was further argued that even if the proposed amalgamation is
sanctioned by this Court, it must be made subject to the fmal outcome of
the proceedings pending before the MRTP Commission. The MRTP Com-
mission gravely erred in rejecting the application for interim order under
C Section 12A (if the MRTP Act. It was submitted that the Commission has (
erred in refusing to pass an interim order on the ground that any interim
order passed will take away the jurisdiction of the Company Court. The
Commission 1ias jurisdiction, even after deletion of Section 23, to inquire
into monopolies and restrictive trade practices. The Commission has over-
D looked the fact that the allegations made by the aggrieved parties before
it, were not based on 'assumption' but on hard facts.

Our atttntion was invited to the Directive Principles of State Policy
in Part-IV of the Constitution and it was urged that the economic system
should not be operated in a way that results in the concentration of wealth <
E and means of production to the common detriment. In particular, it was
emphasised that issuance of preferential shares at a very favourable price
to Unilever will come within the definition of Section 2(e) and will amount
to restrictive trade practice.

F This argllment of Ms. Jaising was supported by Dr. Dhavan, appear-
ing on behalf of the Federation of Tata Oil Mills and Allied Companies
Employees Union. It was argued that the Scheme will attract anti-merger
jurisdiction of ~e MRTP Commission straightway. The two big Companies
in the same field of consumer articles are merging to ensure that there was
G no inter se co111petition. Under the MRTP Act, injunction can be granted
under Section 12A during an enquiry even where the impugned trade
practice was likely to affect prejudicially the public interest or the interest
of the consum~rs generally. The Commission may, for preventing such a
situation from developing, restrain the undertaking involved from carrying
or any monopolistic or restrictive unfair trade practice until the enquiry is
H concluded. It was argued that judgment under appeal has severely cur-
HINDUSfANLEVEREMPWYEESUNJON,.HINDUSfANLEVERLID.(SEN,J.( 759

tailed the jurisdiction of the MRTP Commission. Last'y, it was contended A
that preferential allotment of a large number of shares to Unilever at a
throw away price is a part of the Scheme of Amalgamation and it will result
in Unilever's acquisition of 51 % shares in the enlarged Company and
thereby Unilever will be able to control the market more effectively.

In order to appreciate this argument, it is necessary to refer to the B
various provisions of the Monopolies and Restrictive Trade Practices Act,
1969. This Act in consonance with the new economic policy of the Govern-
ment has undergone drastic amendment with effect from 27 .9 .91. The
relevant provisions for the purpose of this case are as under :

''2. In this Act, unless the context otherwise requires,·
c

(o) "restrictive trade practice" means a trade practice which has,
or may have, the effect of preventing, distorting or restricting
D ..
competition in any manner and iii particular

(i) which tends to obstruct the flow of capital or resources

.'> into the stream of production, or

(ii) which tends to bring about manipulation of prices, or
E
conditions of delivery or to affect the flow of supplies
in the market relating to goods or services in such
manner as to impose on the consumers unjustified costs
or restrictions;

F
(s) "trade" means any trade, business, industry profession or
occupation, relating to the production, supply, distribution or
control of goods and includes the provision of any services;

G
(u) "trade practice" means any practice relating to the carrying
on of any trade, and includes ·

(i) anything done by any person which controls or affects
the price charged by, or the method of trading of, any H
760 SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A trader or any class of traders;

(ii) a single or isolated action of any person in relation to
any trade; 11

Section 10 empowers the Commission to enquire into any restrictive
B trade practice or any monopolistic trade practice. Section 12A empowers
the Commission to issue temporary injunction, if it is proved that 'any
undertaking or any person is carrying on, or is about to carry on, any
monopolistic or any restrictive, or unfair, trade practice and such monop-
olistic or restrictive, or unfair, trade practice is likely to affect prejudicially
C the public interest or the interest of any trader, class of traders of traders (
generally or of any consumer or consumers generally'. Chapter III of
MRTP Act dealt with concentration of economic power. Part-A of this
Chapter (Sections 20 to 26 and also Section 28) was deleted by the MRTP
Act, 1991 with ~ffect from 27.9.91. Part III-A (Sections 30A and 30G)
which dealt with restriction on acquisition and transfer of shares by certain
D
•
body corporates was also deleted from the said date. Section 23 specifically
dealt with merger, amalgamation and take over was to the following effect

"23. Merger, amalgamation and take over. - (1) Notwithstanding
anything contained elsewhere in this Act or in any other law for
E the time being in force.-

(a) no scheme of merger or amalgamation of two or more un-
tlertakings, to which this Part applies with any other under-
taking;
F (b) no scheme of merger or amalgamation of two or more un-
dertakings which would have the effect of bringing into exist-
~nce an undertaking to which clause (a) or clause (b) of
section 20 would apply;

shall lie sanctioned by any Court or be recognised for any purpose
G
or be given effect to unless the scheme for such merger or amal-
gama\ion has been approved by the Central Government under
this section."

The intention behind deletion of Section 23 is obvious : the require-
H ment of prior approval of the Central Government before sanctioning a
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. (SEN, J.] 761
scheme of merger or amalgamation has been done away with. The effect A
of the deletion of this section cannot be r.ullified by giving an unnatural
and artificial interpretation of the words of the statute.

It is being argued that even though Section 23 has been deleted, their
are other provisions in the Act under which it is necessary to have prior B
sanction of the Central Government or MRTP Commission before a
Scheme of Amalgamation or merger can be sanctioned. If this argument is
to be accepted, then in the first place it has to be held that the provisions
of Section 23 were wholly unnecessary and otiose, because even otherwise
sanction or clearance of the Central Government was a condition prece-
dent for effecting a scheme of amalgamation or merger. Such a construe- C
tion must be avoided. The enquiry must be as to what was the mischief
'J which was sought to be cured by the Legislature by the amendment. By
deleting Section 23, the Legislature removed the requirement of prior
approval of the Central Government to a scheme of merger before the
Court could sanction it.
D
Section 27A and section 27B are the only sanctions in Chapter III of
the Act which have been retained by the Legislature. Section. 27 deals with
division of undertaking and enables the Commission in the circumstances
specified in that section, to pass an order for the division 01 any trade or
undertaking or inter-connected undertaking, into such number of under- E
taIcings as the circumstances of the case' may justify. Section 27A empowers
the Central Government to protect severance of inter-connection between
undertakings. Section 27B lays down the manner in which any order passed
under Section 27 or Section 27A shall be carried out. The provisions as to
restriction on the acquisition and transfer of shares by certain bodies F
corporate (Section 28 to Section 30G) have been entirely deleted. The
intention of the Legislature is clear. A merger or amalgamation is not now
subject to the prior approval of the Central Government. But, if the
working of the company is found to be ,prejudicial to public interest or has
led to the adoption in monopolistic or restrictive trade practice, the Central
Government may , after being satisfied as to the requirement of the section G
or division of the undertaking, act according to law.

We are unable to uphold the contention of Ms. Jaising that MRTP
Commission erred in law in not passing an order of injunction under
Section 12A of the Act, restraining the implementation of the Scheme of H
762 SUPREME COURT REPORTS [1994] SUPP.4S.CR.

A Amalgamation. We are of the view that it was not necessary to obtain any
prior approval from the Central Government or the MRTP Commission
before the Scheme could be sanctioned by the Court. This requirement has
been specificalfy deleted from the statute.

As a result of the amalgamation, if it is found that the working of the
B Company b being conducted in a way which brings it within the mischief
of the MRTP Act, it would be open to the authority under the MRTP Act
to go into it and decide the controversy as it thinks fit.

Mr. Andhyarujina has argued that the concept of applicability of 1
C monopolistic trade practice under Chapter IV or restrictive trade practice
or unfair trade practice under Chapter V, necessitates that there must be
a 'trade' as defined under Section 2(a) and 'trade practice' as defined <
under Section 2(u). He has further contended that a company when it allots
shares is not tr~ding in shares. Further under Section 77 of the Companies
Act, a company cannot buy its own shares. Therefore, there can no
D question of a company trading in its own shares or unlawful trade practice
at this stage.

This controversy has got another aspect which has been highlighted
by Dr. Dhavan and Mr. R.K. Jain. It has been argued that a very large
E company is coming into existence which will have substantial share of the
market. A for~ign company will have controlling interest in HLL after
amalgamation. this is against public policy. In my judgment, what has been
expressly authorised by the statute cannot be struck down as being against
the public policy. A foreign company under the new economic policy of
the Governme!ll has been allowed to acquire controlling share of any
F Indian company. This has been done by express amendment of the Foreign
Exchange Regulation Act.

Under Section 29 of the Foreign Exchange Regulation Act (as it
stood originally), a person resident outside India or a company (other than
G banking companies) which was not incorporated in India or in which the
non-resident interest was more 40%, could not carry on business in India
or establish in India a branch office or other place of business. Nor could
such a person or company acquire the whole or any part of any undertaking
in India of any company carrying on any trade, commerce or industry or
purchase the shares in India of any such company. The object of Section,
H 29, inter alia was to ensure that a company (other than banking company)
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN, I.) 763

in which the non-resident interest was more than 40% must reduce in to a A ·
level not exceeding 40% (Needle Industries (India) Ltd. and Others. v.
Needle Industries Newey (India) Holdings Ltd. and others, AIR (1981) SC
1298). But, now this restriction of 40% has been removed by an amend-
ment by the Act 29 of 1993. A company in which non-resident interest is
more than 40% can carry on business without having to obtain permission B
from the Reserve Bank of India. The underlying idea of this liberalisation
. is clear, Non-resident persons were being invited to invest in India and/or
in Indian companies. If any non-resident invests in Indian company, it is
but natural that dividends payable by an Indian company will be enjoyed
by the non-resident. All other rights that a shareholder enjoys by virtue of
the shareholding will be enjoyed by the non-resident Merely because a C
foreign shareholder acquires 51 % shares in an Indian company it cannot
be said that this is against public interest or public policy.

In this connection it should also be noticed that Section 11 of Foreign
Exchange Regulations Act, 1973 which had empowered the Reserve Bank D
to put restrictions on transfer of any asset in India to a person resident
outside India or a person intending to become resident outside India, has
now been repealed with effect from 8.1.1993 by the Amending Act 29 of
· 1993. Here again the intention of the legislature is quite clear. The entire
object is to allow the non-residents to do business in India and to deal with
assets in India with greater freedom. E

In view of all these, it is difficult for us to uphold the contention that
the Scheme of Amalgamation is against public interest. Merely because
51% of the shares of HLL is being given to a foreign company, the Scheme
cannot be said to be against public interest. The Foreign Exchange Regnla- F
tion Act has been amended specifically to encourage foreign participation
in business in India. The bar to having more than 40% shares in an Indian

, Company by a non-resident has been lifted. The Amending Act 29 of 1973
is not under challenge. In onler to give greater freedom to the companies
for doing business in India, the MRTP Act has been amended. Prior
approval of Government of India is not a necessary for amalgamation of
companies any more. In fact, it is in public interest that TOMCO with its
G

60,000 shareholders and also a very large work-force does not deteriorate
into a sick company.

Nor do we think that 'public interest' which is to be taken into H
764 SUPREME COURT REPORTS [1994) SUPP. 4 S.C.R.

A account as an f;lement against approval of amalgdlllation would include a
mere future possibility of merger resulting in a situation where the interests
of the consum~r might be adversely effected. If, however, in future the
working of the Company turns out to be against the interest of the con-
sumers or the employees, suitable corrective steps may be taken by ap-
propriate authqrities in accordance with law. As has been said in the case
B
of Fertilizer Corporation Kamgar Union v. Union of India, [1981) 2 SCR 52
at page 77 : " .......... .it ic. not a part of the judicial process to examine
entrepreneurial activities to forret out flows. The Court is least equipped
for such oversights. Nor, indeed, it is the function of the judges in our
constitutional scheme." Now merely because the scheme envisages allot-
C men! of 51 % equity shares to Unilever, the scheme cannot be held to be
against public interest.

Next it was argued on behalf of the employees of TOMCO that the
Scheme will adversely affect them. This argument is not understandable.
D The Scheme has fully safeguarded the interest of the employees by provid-
ing that the terms and conditions of their service will be continuous and
uninterrupted service and thei: service conditions will not be prejudicially
affected by re,ason of the Scheme. The grievance made, however, is that
there is no job security of the workers, after the amalgamation of the two
Companies. It has been argued that there should have been a clause in the
E Scheme ensuring that no retrenchment will be effected after the amalgama-
tion of the two Companies. There was no assurance on behalf of the
TOMCO that the workers will never be retrenched. In fact, the perfor-
mance of TOMCO over the last three years was alarming for the workers.
It cannot be said that after the amalgamation they will be in a worse
F position than they were before the amalgamation.

We do 'not find that the amalgamation has caused any prejudice to
the workers ol TOMCO. The stand of the employees of HLL is eqnally
incomprehensible. It has been stated that if the TOMCO employees con-
tinue to enjoy the terms and conditions of their service as before, then two
G classes of e'l'ployees will come into exi~tence. Terms and conditions of
HLL employees were much worse than thlit of TOMCO employees. U
there are two sets of terms and conditions under the same company, then
a case of discrimination will arise against the HLL employees.

H We do not find any substance in this contention. The TOMCO
HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN, J.] 765

employees will continue to remain on the same terms and conditions as A
before. Because of this arrangement, it cannot be said that a prejudice has
been caused to HLL employees. They will still be getting what they were
getting earlier. TOMCO employees who were working under better terms
and conditions, will continue to enjoy their old service conditions under
the new management.
B
Fear has been expressed both by TOMCO employees as well as HLL
employees that the results of the amalgamation would necessitate stream-
lining of the operations of the enlarged Company and the workers will be
prejudiced by it.

No one can envisage what will happen in the long run. But on this
c
hypothetical question, the Scheme cannot be rejected. As of now, it has
notbeen shown how the workers are prejudiced by the Scheme.

Lastly, there was a vague allegation of ma/a fide, because of some
trade arrangement between Unilever and Tata Sons Limited. It appears D
that three properties belonging to Tata Sons Limited, were being used by
TOMCO as licensee with no enforceable rights. Occupation was purely
permissive. TOMCO never considered these properties or rights relating
to thes.e properties as their assets. They were never shown in the balan-
'cesheet of the Company. Tata Sons could get back possession of these E
properties by revoking the licence. It was not necessary for Tata Sons to
obtain the help of HLL or Unilever for getting back the possession. Under
the Scheme, the properties are to be transferred at market rate, which has
to be independently assessed. The determination of the market price has
been entrusted by the Court to a reputed valuer. There is no reason to
doubt their competence. No case of mala fide has been established. F
An argument was also made that as a result of the amalgamation, a
large share of the market will be captured by the HLL. But there is nothing
unlawful for illegal about this. The Court will decline to sanction a scheme
of merger, if any tax fraud or any other illegality is involved. But this is not G
the case here. A company may, on its own, grow up to capture a large share
of the market. But unless it is shown there is some illegality or fraud
involved in the scheme, the Court cannot decline to sanction a scheme of
amalgamation. It has to be borne in mind that this proposal of amalgama-
tion arose out of a sharp decline in the business of TOMCO. Dr. Dhavan
has argued that TOMCO is not yet a sick Company. That may be right, H
76(, SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.
,
A but TOMCO at this rate will become a sick Company, UJ!less something
can be done to improve its performance. In the last two years, it has sold
its investments and other properties. If this proposal of amalgamation is
not san!'lioned, the consequence for TOMCO may be very serious. The
shareholders, the employees, the creditors will all suffer. The argument that
B the Company has large assets is really meaningless. Very many cotton mills
and jute mills in India have become sick and are on the verge of liquidation,
even though they have large assets. The Scheme has been sanctioned
almost unanimously by the shareholders, debenture holders, secured
creditor~, unsecured creditors and preference shareholders of both the
Companies. There must exist very strong reasons for withholding sanction
C to such a scheme. Withholding of sanction may turn out to be disastorous
for 60,dOO shareholders of TOMCO and also a large number of its
employees.

In view of the aforesaid, the Appeals are dismissed. The Special
Leave Petitions are also dismissed. There will be no order as to costs.
D
ORDER

In view of the separate but concurring judgments, the appeals and
petitio~ are dismissed. But the parties are left to bear their own costs.

RA. Appeal and petitions dismissed.