IN THE MATTER OF M/S. RECKITT BENCKISER (INDIA) LTD. vs. --

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI

+ CO.PET. 228/2010 & CO. APPLS. 1008/2010 AND
2486/2010


IN THE MATTER OF
M/S. RECKITT BENCKISER (INDIA) LTD. ..... Petitioner
Through: Mrs. Pallavi S. Shroff, Advocate with
Mr. Anirudh Das, Advocate for
petitioner-company.
Mr. Chander Bhan Gandhi, Objector in
person.
Mr. Ankit Shah, Advocate.

st
Reserved on : 21 September, 2011.
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% Date of Decision: 3 October, 2011.


CORAM:
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers may be allowed to see the judgment? Yes.
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.


J U D G M E N T
MANMOHAN , J :

1. Present petition has been filed under Sections 100 to 105 of the
Companies Act, 1956 (for short ‘Act’) read with Rule 46 of the
Companies (Court) Rules, 1959 (for short ‘Rules, 1959) for confirming
the reduction of share capital of the petitioner-company.


Co. Pet. 228/2010 Page 1 of 36





th
2. The relevant facts of the present case are that on 5 July, 1951,
the petitioner-company was incorporated as a public limited company
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under the name of M/s. Reckitt & Colman of India Limited. On 18
December, 2000, the name of the petitioner-company was changed to
M/s. Reckitt Benckiser (India) Limited.
th th
3. Between 14 February, 2003 and 19 May, 2005, the equity
shares of petitioner-company were delisted from Bombay, Calcutta and
National Stock Exchanges in accordance with Regulation 21(3)(a) of
Substantial Acquisition of Shares and Takeovers Regulations, 1997. In
fact, in view of the directions received from the said Stock Exchanges,
M/s. Reckitt Benckiser Plc’s subsidiary company, namely, Lancaster
Square Holdings SL made an exit offer to acquire shares in petitioner-
company under the aforesaid Regulations.
4. Post delisting, the petitioner-company filed a petition being CP
No. 206 of 2004 for reduction of its paid up equity share capital from
` 32,91,31,880/- divided into 3,29,13,188 fully paid up equity shares of
` 10/- each to ` 26,27,96,120/- divided into 2,62,79,612 fully paid up
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equity shares of ` 10/- each. This Court vide its order dated 31 May,
2005 approved the said Scheme of Reduction. The relevant portion of


Co. Pet. 228/2010 Page 2 of 36





the said order is reproduced hereinbelow:-
“36. To summarize, when in the instant case 99.97%
shareholders have supported the resolution of reduction
of share capital; the valuation of the share is arrived at
in a reasonable manner and lucrative price for the share
is offered; and above all the petitioner has agreed that
the objectors may retain their shares, I do not find any
legal impediment or any valid reason for not accepting
the proposed scheme of reduction of share capital. It is
allowed accordingly………”

5. Though Mr. Janak Mathuradas, an equity shareholder of
petitioner-company filed an appeal being Co. Appeal No. 105 of 2005
st
against the aforesaid judgment and order dated 31 May, 2005, yet the
same was subsequently withdrawn.
6. A chart indicating the shareholding pattern of petitioner-company
after approval of the first Scheme of Reduction is reproduced
hereinbelow:-

Co. Pet. 228/2010 Page 3 of 36

7. Since in 2010, petitioner-company was of the opinion that its
equity capital was still in excess, it decided to reduce 1.55% of its
issued and paid-up equity share capital by canceling and extinguishing
3,78,614 equity shares held by Lancaster Square Holdings SL
(Lancaster) constituting about 1.44% of the issued and paid-up equity
share capital of the petitioner company and 28,531 equity shares held
by the public constituting about 0.11% of the issued and paid-up equity


Co. Pet. 228/2010 Page 4 of 36





share capital of the petitioner company both aggregating to 4,07,145
equity shares. The petitioner-company appointed M/s. T.R. Chadha &
Co., Chartered Accountants to determine the fair value of its equity
shares.
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8. On 3 March, 2010, the Board of Directors of petitioner-
company approved further reduction in its paid up share capital, subject
to approval of its equity shareholders and confirmation by this Court.
At the said Board Meeting, the Valuation Report of M/s. T.R. Chadha
& Co. was considered and the Board approved the payment of ` 940/-
per equity share as against the value of ` 836/- recommended by the
Valuer, M/s. T.R. Chadha & Co.
th
9. On 26 March, 2010, the largest shareholder of the petitioner-
company, namely, M/s. Reckitt Benckiser Plc wrote to petitioner that it
had no objection to the new Scheme for Reduction of share capital.
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The relevant portion of the said letter dated 26 March, 2010 is
reproduced hereinbelow:-
“…….This is also to confirm that as Promoter
shareholder of your Company, we would like to retain
our shareholding in the Company and in line with the


Co. Pet. 228/2010 Page 5 of 36





„first in and last out‟ principle, we will continue to hold
the capital till the final exit of all other shareholders.”
(emphasis supplied)


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10. In pursuance to the decision taken by the Board on 3 March,
2010, a Notice along with Explanatory Statement was sent to the equity
shareholders of petitioner-company informing them that an Extra-
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Ordinary General Meeting (for short ‘EOGM’) was to be held on 24
April, 2010 to consider the proposed reduction of share capital of the
petitioner-company. The relevant extract of said Notice as well as
Explanatory Statement is reproduced hereinbelow:-

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a) Notice to the Members dated 27 March, 2010

“Special Business:
To consider and, if thought fit, to pass with or without
modification(s), the following resolution as a special
resolution, referred to as a “resolution for reduction of
share capital”:
“ RESOLVED THAT pursuant to the Articles of
Association of the Company and Section 100 of the
Companies Act, 1956, and subject to confirmation by the
Hon‟ble High Court of Delhi at New Delhi, the issued
and paid up equity capital of the company be reduced
from Rs. 26,27,96,120 (consisting of 2,62,79,612 equity


Co. Pet. 228/2010 Page 6 of 36





shares of Rs.10 each fully paid up) to Rs. 25,87,24,670/-
(consisting of 2,58,72,467 equity shares of Rs.10 each
fully paid up), the amount by which the equity capital is
so reduced being in excess of the requirements of the
Company and that such reduction be effected by
canceling and extinguishing 378,614 equity shares held
by Lancaster Square Holdings SL (“Lancaster”)
constituting about 1.44% of the issued and paid-up equity
share capital of the Company and 28,531 equity shares
held by the public constituting about 0.11% of the issued
and paid-up equity share capital of the Company, both
aggregating to 407,145 equity shares of Rs. 10 each fully
paid up constituting about 1.55% of the issued and paid-
up equity share capital of the Company.”
b) Explanatory Statement
xxx xxx xxx xxx
“The management of your Company has focused on
profitability and its emphasis on financial discipline
including effective management of net working capital
has resulted in the capital requirements of the Company
having appreciably reduced. The Company‟s
concentration on quality and performance as well as
approach to the market has resulted in good growth
numbers. Keeping in view the excess capital available
with the Company the Board has evaluated the various
options available for the utilization of the same.
However, even after taking into account all the capital
expenditures for its future growth plans, upgradation of
existing product lines, investments in research and
development, the Company has more capital resources


Co. Pet. 228/2010 Page 7 of 36





than it can profitably utilize giving rise to the need to
readjust the relation between capital and assets and to
accurately and fairly reflect the liabilities and assets of
the Company in its books of accounts.
After a close examination and analysis of the various
options available to the company and in the absence of
adequately attractive acquisition opportunities, the
restructuring of the Company‟s existing capital structure
becomes imperative. After detailed deliberations, the
Board of Directors of the Company are of the view that
the reduction of the equity share capital in accordance
with Section 100 of the Companies Act, 1956 (the “ Act ”)
is the only practical and economically efficient legal
option available to the Company. As such, the Board
proposes to return capital to identified equity
shareholders in accordance with Section 100 of the Act,
whereby the paid-up equity share capital in excess of its
requirements be reduced and that such reduction be
effected by canceling and extinguishing of 378,614 equity
shares held by Lancaster, constituting about 4% of
Lancaster‟s equity shareholding in the Company, and
28,531 equity shares held by the public, constituting
100% of the equity shareholding of the public in the
Company……….
The Board has recommended that Reckitt Benckiser Plc
being the promoter shareholder should not be returned
any of its equity capital contribution before the public
equity shareholders or Lancaster are returned their
equity capital contribution. Reckitt Benckiser Plc being
the promoter shareholder of your Company has agreed
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vide its letter dated 26 March, 2010 to retain its


Co. Pet. 228/2010 Page 8 of 36





shareholding in the Company as the promoter while
enabling the other equity shareholders to exit from the
Company prior to any impairment of share value.
Pursuant to the reduction of the issued and paid-up
equity share capital of the Company as mentioned above,
the issued and paid-up share capital of the Company
would be held by Reckitt Benckiser Plc and Lancaster or
their nominees. Your Company is engaged in business
industry where there is no sectoral cap and non-resident
shareholders are permitted to hold 100% of the issued
and paid-up equity share capital of the Company in
accordance with applicable laws and regulations……”

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11. On 24 April, 2010, an EOGM of petitioner-company was held
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in accordance with the Notice and Explanatory Statement dated 27
March, 2010. The special resolution proposing the reduction of equity
share capital of petitioner-company was passed by special majority of
equity shareholders holding 2,62,51,081 equity shares of ` 10/- each.
The equity shareholders holding 536 equity shares of ` 10/- each voted
against the resolution. In fact, out of the public shareholders, only one
shareholder, namely, Mr. Chander Bhan Gandhi, holding 536 equity
shares attended and voted against the motion at the EOGM.
12. Initially in this Court, twenty-four shareholders had filed their
objections to the present Scheme of Reduction. However, upon the


Co. Pet. 228/2010 Page 9 of 36





petitioner company offering to pay to the public shareholders an
amount of ` 1500/- per equity share, Mr. Janak Mathuradas and twenty-
two other objectors accepted the offer and unconditionally withdrew
their objections as well as affidavits along with the valuation report of
th
J.C. Desai & Co. filed before this Court. The order dated 16
September, 2011 is reproduced hereinbelow:-
“In the present case, Mr. Janak Mathuradas has
filed objections to the Scheme of Reduction. 22 other
public shareholders have filed one page affidavit
supporting the objection of Mr. Mathuradas.

Learned counsel for the petitioner submits that
without prejudice to its rights and contentions, petitioner
is willing to pay to the Indian public shareholders an
amount of Rs.1500/- per equity share.

In view of the aforesaid offer, Mr. Ankit Shah,
learned counsel for Mr. Janak Mathuradas and 22 other
objectors, upon instruction of Mr. Janak Mathuradas,
who is personally present in Court, states that he would
like to withdraw the objections filed by Mr. Mathuradas
and 22 other public shareholders. Mr. Shah, learned
counsel further wishes to withdraw the affidavit filed by
Mr. Janak Mathuradas in the month of February, 2011
along with the valuation report of J.C. Desai & Co.

Keeping in view of aforesaid agreement between
the petitioner and all the objectors, except Mr. Chander
Bhan Gandhi, petitioner is directed to pay an amount of
Rs. 1500/- per equity shares to public shareholders of
petitioner-company. The objections filed by Mr. Janak
Mathuradas and 22 other shareholders along with the


Co. Pet. 228/2010 Page 10 of 36





affidavits of Mr. Mathuradas and valuation report of J.C.
Desai & Co. are dismissed as withdrawn.

List the matter for arguments in the objections
filed by Mr. Chander Bhan Gandhi, the only remaining
st
objector, on 21 September, 2011 at 2:15 p.m.”

13. The only remaining objector Mr. Chander Bhan Gandhi submits
that the Government policy of removing sectoral caps in personal care
and health sector is illegal. According to him, the present Scheme of
Reduction is nothing but a product of wrong economic policies being
followed by the Government of India.
14. Mr. Gandhi further submits that the proposed Reduction of Share
capital by the petitioner company amounts to ‘forcible acquisition’ of
shares of public shareholders as only their shares are being
extinguished, whereas the shares of the promoter group remain
unaffected. According to him, the actual intent and reason for
reduction of share capital is only to ‘eliminate’ the minority public
shareholders as members of the company and is thus, wholly unfair,
discriminatory and mala fide . In this connection, he relies upon the
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Explanatory Statement attached to the Notice to Members dated 27
March, 2010 wherein it is stated that Reckitt Benckiser Plc being the


Co. Pet. 228/2010 Page 11 of 36





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promoter shareholder of the company has agreed by its letter dated 26
March, 2010 to retain its shareholding in the company as promoter,
while enabling the other shareholders to exit from the company.
Mr. Gandhi submits that reduction, if any, should be spread equally
over all the different classes of shareholders of petitioner-company.
15. Mr. Gandhi submits that the Scheme of Reduction proposed by
the petitioner-company does not fall within any of the three modes of
reduction of share capital provided for in Section 100(1) of the Act.
According to him, this Court is empowered to look into the petitioner’s
proposal for reduction of share capital and decide whether the same is
legal, fair and equitable. In this connection, he relies upon the
judgments of Supreme Court in Sesa Industries Limited vs. Krishna H.
Bajaj and Others (2011) 3 SCC 218 and Miheer H. Mafatlal vs.
Mafatlal Industries Ltd. (1997) 1 SCC 579 ; and Andhra Pradesh High
Court’s judgments in Aurbindo Pharma Ltd., In re., (2011) 105 SCL
71 (AP) and Chetan G. Cholera and Another vs. Rockwool (India)
Ltd., (2010) 155 Comp Cas 605 (AP) .
16. According to Mr. Gandhi, the petitioner’s shares are invaluable.
He emphasizes that the shares of the petitioner-company are at par with


Co. Pet. 228/2010 Page 12 of 36





a ‘Kohinoor Diamond’. He states that the valuation report of M/s. T.R.
Chadha & Co. is improper and has been filed with an intent to evaluate
the shares at a lower value. In this connection, Mr. Gandhi relies upon
the report of M/s. J.C. Desai & Co. filed by Mr. Janak Mathuradas.
17. He also submits that the petitioner has acted in a mala fide
manner by clubbing the minority shareholders whose rights are being
affected by the proposal to reduce the share capital along with
petitioner’s own subsidiary namely, Lancaster Square holdings SL. He
submits that such artificial classification of the class of shareholders for
holding class meetings of shareholders for reduction of share capital by
the petitioner is absolutely wrong and irrational and it has been made
only with a view to ensure that the special resolution is passed. He
states that had the petitioner company constituted the true minority
shareholders that means, the public shareholders as a separate class of
shareholders, then it would have been impossible for the petitioner
company to pass the special resolution for ‘extinguishing’ their shares.
18. Mr. Gandhi points out that a similar previous attempt by the
petitioner had been given up by the petitioner itself, upon objections
raised by objectors like him, as would be apparent from the judgment


Co. Pet. 228/2010 Page 13 of 36





st
dated 31 May, 2005 passed by this Court in CP No. 206/2004 wherein
the petitioner agreed to let the objectors continue to be shareholders and
it was only thereupon that this Court permitted reduction of petitioner’s
share capital. He submits that res judicata is attracted to the facts of the
present case and, therefore, the petitioner-company should not be
allowed to go back on its statement as recorded in the judgment dated
st st
31 May, 2005. The relevant portion of the judgment dated 31 May,
2005 relied upon by Mr. Gandhi is as under:-
“33. ……However, it is not necessary to deal with this
question any further and record any definite findings in view
of the offer given by learned counsel for the petitioner
during the proceedings namely, allowing the objectors and
others to intervene later on to retain their shares…..”

19. Mr. Gandhi submits that the reduction of share capital proposed
by the petitioner is in effect a buy-back of the shares by the petitioner
under Section 77A of the Act. Consequently, he submits that reduction
of share capital has to be done on proportionate basis in accordance
with Section 77A(5) of the Act.
20. Mr. Gandhi also contends that forms of representation executed
by Reckitt Benckiser Plc and Lancaster Square Holdings SL for EOGM
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held on 24 April, 2010 are invalid as the same have not been


Co. Pet. 228/2010 Page 14 of 36





notarised. In this connection, Mr. Gandhi draws attention of this Court
to the letter given by him to the Chairman of the EOGM wherein it is
stated „My joint report of polling today subject to my reservation that
the form of representation executed by the board of directors under seal
of company for appointment of proxy should have or not the seal of
notary public. This may be got verified‟.

21. At the outset, Mrs. Pallavi S. Shroff, learned counsel for the
petitioner-company submits that it is not within the domain of this
Court to inquire as to whether a particular economic policy is wise or
whether a better economic policy can be evolved.
22. Mrs. Shroff further submits that Section 100 of the Act permits a
company to reduce its share capital in any manner. She also submits
that it does not contemplate class meetings. According to her, it only
requires passing of a special resolution by the equity shareholders. She
points out that equity shares of Lancaster Square Holdings SL are also
being reduced and, therefore, they were also entitled to vote at the
EOGM.
23. Mrs. Shroff submits that shares of Reckitt Benckiser (India) Ltd.,
being the promoter, are not being reduced on the principle of „first in


Co. Pet. 228/2010 Page 15 of 36





and last out‟ . Mrs. Shroff also submits that the objections with regard
to ‘forcible acquisition’ and ‘elimination’ are no longer res integra as
identical objections have been rejected in similar cases of reduction by
Bombay High Court in Sandvik Asia Limited vs. Bharat Kumar
Padamsi and Ors. (2009) 92 SCL 272 (Bom) and Organon (India)
Ltd., In Re.(2010) 98 CLA 480 (Bom.) .

24. Mrs. Shroff points out that the valuation with respect to the entire
value of the petitioner’s equity shares has been done by a reputed firm
of Chartered Accountants, i.e., M/s. T.R. Chadha & Co. She states that
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the valuation has been done with reference to the position as on 31
December, 2009 and the Valuer has considered the future stream of
earnings of the petitioner-company. According to her, as the report of
M/s. J.C. Desai & Co. had been filed at the instance of Mr. Janak
Mathuradas who has now withdrawn his objections, the same cannot be
relied upon in the present proceedings. In any event, she points out that
M/s. T.R. Chadha & Co. has used both the income approach and the
market approach for its Valuation, whereas M/s. J.C. Desai & Co. has
used only the market approach.
25. Without prejudice to the aforesaid, Mrs. Shroff states that the


Co. Pet. 228/2010 Page 16 of 36





report of M/s. J.C. Desai & Co. considers datas and transaction that
occurred after the date of M/s. T.R. Chadha & Co. valuation as also
after the passing of the shareholder’s resolution approving the
reduction. Mrs. Shroff points out many irregularities in the valuation
report such as though the equity shares of the petitioner company are
not listed, yet M/s. J.C. Desai & Co. has provided a mobility discount.
According to her, the report of M/s. T.R. Chadha & Co. should not be
lightly interfered with. In this connection, Ms. Shroff relies upon the
judgments of Supreme Court in Miheer H. Mafatlal (supra);
Hindustan Lever Employees' Union v. Hindustan Lever Ltd. & Ors.,
1995 Supp (1) SCC 499 and Gujarat High Court’s judgment in
Reliance Petroleum Ltd., In re., (2010) 96 CLA 305 (Guj.) .
st
26. Mrs. Shroff contends that the judgment and order dated 31 May,
2005 passed by this Court in Company Petition 206/2004 records that
the earlier Scheme for Reduction of share capital of the petitioner
company has been accepted without any modification. She states that
objections raised by the objector in that matter were not considered or
adjudicated upon by this Court in view of the petitioner’s statement
allowing the then objectors to retain their shareholding. Consequently,


Co. Pet. 228/2010 Page 17 of 36





according to her, the concept of res judicata is not attracted to the
present case.
27. Mrs. Shroff submits that Section 77A of Act cannot be read into
Section 100 of the Act. In this connection she relies upon the judgment
of the Bombay High Court in The Securities & Exchange Board of
India vs. Sterlite Industries (India) Ltd. (2003) 113 Com.Cas 273
(Bom).
28. Mrs. Shroff states that the EOGM was conducted in a fair and
transparent manner. According to her, objections of Mr. Gandhi were
duly recorded in the minutes of the EOGM and he was also given an
opportunity to examine the valuation report. Mrs. Shroff points out that
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Reckitt Benckiser Plc. by resolution dated 12 April, 2010 authorised
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the execution of form of representation for meeting of 24 April, 2010.
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She states, similarly Lancaster Square Holdings SL at its meeting on 9
April, 2010 appointed Mr. S.N. Kannan to represent the company at the
EOGM. He submits, there is no requirement in law for an Indian
subsidiary to maintain specimen signatures of Directors of its holding
company.



Co. Pet. 228/2010 Page 18 of 36





29. Having heard the parties at length, this Court is of the view that it
is first essential to analyze Section 100 of the Act. Section 100 of the
Act reads as under:-

“ 100. Special resolution for reduction of share capital.—
(1) Subject to confirmation by the [Tribunal], a company
limited by shares or a company limited by guarantee and
having a share capital, may, if so authorised by its articles,
by especial resolution, reduce its share capital in any way;
and in particular and without prejudice to the generality of
the foregoing power, may—

(a) extinguish or reduce the liability on any of its shares
in respect of share capital not paid up;

(b) either with or without extinguishing or reducing
liability on any of its shares cancel any paid-up share
capital which is lost, or unrepresented by available
assets; or

(c) either with or without extinguishing or reducing
liability on any of its shares, pay off any paid-up
share capital which is in excess of the wants of the
company,

and may, if and so far as is necessary, alter its
memorandum by reducing the amount of its share capital
and of its shares accordingly.

(2) A special resolution under this section is in this Act
referred to as “a resolution for reducing share capital”.



Co. Pet. 228/2010 Page 19 of 36





30. From the aforesaid, it is apparent that Section 100 of the Act
expressly permits a company, if so authorised by its articles of
association, to reduce its share capital provided it has passed a special
resolution for that purpose and the said resolution has been sanctioned
by the Court.
31. Clauses (a), (b) and (c) of Section 100(1) of the Act are mere
illustrations and are not the only manner in which share capital of a
company can be reduced. In fact, the power of reduction of capital is
general and extends to any possible method of reduction subject to
compliance with the applicable provisions. In Bhimbhai & Ors. vs.
IshwarDa’s JugjiwanDa’s & Anr., (1894) ILR 18 Bom 152 , the Court
has held that any arrangement concerning the company’s capital which
has the effect of reducing it is within the purview of this Section.
Consequently, in the opinion of this Court, Section 100 of the Act
enables a company to reduce its capital in any manner it deems proper.
32. Mr. Gandhi’s reliance on Aurbindo Pharma Ltd. (supra) is
misplaced on facts. The said case relates to a Scheme of Arrangement
under Section 391 wherein as a part of the Scheme, the Company
proposed to utilize the capital redemption reserve towards expenses and


Co. Pet. 228/2010 Page 20 of 36





redemption of preference shares. The Court held that if the capital
reserve account is used in any manner, it results in reduction of share
capital which requires permission of the Court. It further held that
certain adjustments in the Scheme were not permissible under law and,
thus, the Scheme under Section 391 could not be sanctioned.
33. The other judgments relied upon by Mr. Gandhi, namely, Sesa
Industries Limited (supra) and Miheer H. Mafatlal (supra) deal with a
Scheme of Arrangement under Section 391 of the Act and not with
regard to reduction of share capital under Section 100 of the Act. In
fact, when direct judgments are available on reduction of share capital,
this Court is of the view that reliance upon judgments under Section
391 of the Act is not apposite.

34. Moreover, in the present case, the proposed reduction in the paid-
up equity share capital of the company is duly authorised by Article 54
of its Articles of Association. The said Article states, “The Company
may from time to time by Special Resolution, reduce its capital and any
Capital Redemption Reserve Account or Share Premium Account in any
manner and with and subject to any incident authorised and consent


Co. Pet. 228/2010 Page 21 of 36





required by law”. It is settled law that Articles of Association constitute
a contract between the shareholders and its company.
35. Section 85 of the Act specifies that there are only two kinds of
share capital i.e. Preference and Equity share capital. In the present
case, the petitioner company has only one class of share capital.
Further, in the opinion of this Court, Section 100 of the Act read with
Rule 47 of the Rules, 1959, does not envisage class meetings. Section
100 of the Act requires passing of a special resolution by equity
shareholders and does not require passing of a separate class resolution.
36. It is only Section 391 of the Act read with Rule 61 of the Rules,
1959 which deals with Scheme of Arrangement, recognizes that class
meetings can be directed to be held. In the opinion of this Court, Rule
67 of the Rules, 1959 cannot be read with Section 100 of the Act. In
fact, Rule 67 of the Rules, 1959, has been inserted as under a Scheme
of Arrangement, similarly placed shareholders or creditors may be
treated differently and this is the concept recognized in the judgment of
Miheer H. Mafatlal. (supra). Accordingly, the prescribed majority
under Section 100 of the Act is a majority of the entire body of
shareholders of the company and not minority public shareholders as


Co. Pet. 228/2010 Page 22 of 36





canvassed by Mr. Gandhi.
37. The principle of “first in last out” in cases of reduction is a well
established one and has been accepted by the Bombay High Court in
the case of Organon (India) Ltd. (supra), wherein it held “In response
to this objection, the petitioner-company has submitted that the
principle of 'first in last out' referred to by the petitioner-company
implies that the promoter shareholders being the initial shareholders of
the petitioner-company would exit last. Admittedly, the petitioner-
company became a shareholder prior to Mr. Lakhani and, therefore,
should exit later than him. Subsequent acquisition of shares by the
promoter shareholders would not affect the status of the promoter
shareholders being the initial shareholders. Moreover, the petitioner-
company submits that section 100 of the Act does not prohibit the
classification of shares for the purpose of effecting the reduction of
capital. A special resolution to the effect of proposed reduction of the
equity share capital need not affect the shares held by the promoter
shareholders. Therefore, the said objection of Mr. Lakhani is
untenable. On a reading of section 100, I find that the submission of the
petitioner-company is correct and this objection of Mr. Lakhani, raised


Co. Pet. 228/2010 Page 23 of 36





on the principle of 'first in last out' is, therefore, rejected.” (emphasis
supplied).
38. The fact that minority shareholders are Indian and the majority
promoter shareholders are foreigners is of no relevance as long as the
mandate of law is complied with. This Court is of the opinion that there
is nothing in the Act which requires that the reduction should be spread
either equally or rateably over all the shareholders of the company.
39. The House of Lords in British and American Trustee and
Finance Corporation vs. Couper, (1891-4) All E.R. 667 , upheld a
Scheme of Reduction by which an English company cancelled only the
shares held by its American shareholders. The House of Lords held
“…..the question whether each member shall have his share
proportionately reduced, or whether some members shall retain the
shares unreduced, the shares of others being extinguished upon their
receiving a just equivalent, is a purely domestic matter (page 672) …......
It is for the company, and for the company alone, to judge of the
prudence of the course proposed. The objects of the company are wide
enough to swallow up the wealth of Lombard Street, or of the city of
London. But again it is for the company to determine, subject of course


Co. Pet. 228/2010 Page 24 of 36





to the statutory provisions for the protection of creditors, whether its
capital, under the circumstances, and in view of the policy approved by
the shareholders, is or is not in excess of its present wants (page
675) ...........it follows as a self-evident proposition that the interests of
the shareholders in respect of their shares as regards dividend and
everything else must be equal. In the result, therefore, I am of opinion
that the objection on the part of the respondent is not well founded. I
think that the proposed reduction is within the power conferred by the
Act of 1867….…” (page 677) (emphasis supplied).
40. In fact a Division Bench of the Bombay High Court in Sandvik
Asia Limited (supra) following the aforesaid House of Lords decision
held “ In our opinion, the above quoted observation of the House of
Lords from its judgment in the case of Poole & ors, referred to above,
squarely apply to the present case. In our opinion, once it is established
that non-promoter shareholders are being paid fair value of their
shares, at no point of time it is even suggested by them that the amount
that is being paid is any way less and that even overwhelming majority
of the non-promoters shareholders having voted in favour of the
resolution shows that the court will not be justified in withholding its


Co. Pet. 228/2010 Page 25 of 36





sanction to the resolution. As the Supreme Court has recognised that
the judgment of the House of Lords in the case of British & American
Trustee and Finance Corporation Ltd. is a leading judgment on the
subject, we are justified in considering ourselves bound by the law laid
down in that judgment. As we find that there is similarity in the facts in
which the observations were made in the judgment in the case of British
& American Trustee and Finance Corporation, we will be well advised
to follow the law laid down in that case. In our opinion, therefore, the
learned single Judge was in error in declining to grant sanction to the
special resolution.” (emphasis supplied).

41. In Organon (India) Ltd. (supra) another Single Judge of Bombay
High Court specifically rejected the argument of forcible acquisition of
public shareholders in context of a Scheme of Reduction. In the said
judgment, it held as under:-
“13. Mr. Lakhani has first submitted that such
reduction of the share capital proposed by the petitioner-
company, by paying off the public holders of equity
shares, other than the promoter shareholders and given
them certain compensation, amounts to a forceful
acquisition of the shares held by them. He states that
such action on the part of the petitioner-company is
against the principles of natural justice, corporate


Co. Pet. 228/2010 Page 26 of 36





democracy and corporate governance. He states that
such reduction tantamount to a sophisticated corporate
mafiaism.
xxx xxx xxx xxx
19. This Court is, however, bound by the decision of
the Division Bench of this Court, reported in Sandvik
Asia Ltd. v. Bharat Kumar Padamsi [2009] 91 CLA 247
[2009] 111 (4) Bom. LR 1421, concerning the reduction
of capital of Sandvik Asia Ltd. The learned Single Judge
of this court, had refused confirmation of the proposal
for reduction of Sandvik Asia Ltd. on the ground that the
promoters group could virtually bulldoze the minority
shareholders and purchase their shares at the price
dictated by them. The learned Single Judge found that
the minority shareholders were not given any option
under the proposal. Hence, the learned Single Judge
concluded that such schemes for reduction of capital
were totally unfair and unjust. In appeal, the Hon‟ble
Division Bench held that they were bound by the law laid
down by the Hon‟ble Apex Court in Ramesh B Desai v.
Bipin Vadilal Mehta [2006] 73 CLA 357/[2006] 5 SCC
638 (SC) where the Apex Court recognised the judgment
of the House of Lords in the case of British & American
Trustee & Finance Corporation (supra). The Learned
Bench also referred to the judgment in Poole v. National
Bank of China Ltd. [1907] AC 229 (HL), the relevant
portion of which is as follows:
“The dissenting shareholders do not demand, and
never have demanded, better pecuniary terms, but
they insist on retaining their holdings which in all
reasonable probability can never bring profit to any
of them and may be detrimental to the company.”
20. The learned Bench granted sanction to the
reduction of capital, overruling the order of the learned


Co. Pet. 228/2010 Page 27 of 36





Single Judge in Sandvik Asia Ltd. (supra), and posited as
follows:
“Once it is established that non-promoter
shareholders are being paid the fair value of their
shares, at no point of time it is even suggested by
them that the amount that is being paid is way less
and even the overwhelming majority of non-
promoter shareholders having voted in favour of the
resolution shows that the court will not be justified in
withholding its sanction to the resolution.” [para 9]
21. An SLP [Petition for Special Leave to Appeal
(Civil) No. 12418/2009] filed therefrom, was dismissed
th
by the Hon‟ble Apex Court, by its order dated 13 July,
2009. Thus, this Court is bound by the decision of the
learned Division Bench and cannot withhold sanction to
the special resolution for reduction of capital, unless
there is some patent unfairness regarding the fair value
of the shares or there is lack of an overwhelming
majority of non-promoter shareholders who vote in
favour of the resolution.”
(emphasis supplied)

42. In view of the aforesaid judgments, Mr. Gandhi’s submission
with regard to the ‘forcible acquisition’, ‘elimination’ and challenge to
‘first in last out’ are untenable in law.
43. This Court is of the opinion that the observations of the Andhra
Pradesh High Court in Chetan G. Cholera and Another (supra) are
obiter dicta inasmuch as in the said case the Court was dealing with an


Co. Pet. 228/2010 Page 28 of 36





application for recall of an order sanctioning a Scheme for Reduction of
share capital. It is pertinent to mention that the said recall application
was ultimately dismissed by the said decision.
44. It is also settled law that a valuer’s report is not to be interfered
with by a Court in the absence of any fraud or illegality – which
allegation is missing in the present petition. In fact, Supreme Court in
Hindustan Lever Employees' Union v. Hindustan Lever Ltd., 1995
Supp (1) SCC 499 has held “ Mr. Ashok Desai, appearing on behalf of
TOMCO, has argued that the valuation 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 differences of opinion among
accountants as to what is the correct value of the 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 overwhelming majority of the shareholders have approved of
the valuation. The Court should not interfere with such


Co. Pet. 228/2010 Page 29 of 36





valuation.” (emphasis supplied).
45. Moreover, the valuation report of M/s. J.C. Desai & Co. cannot
be relied upon in the present proceedings as it had not been placed
before the EOGM by any of the objectors and further as it has been
withdrawn by Mr. Janak Mathuradas at whose instance it had been
furnished. In any event, the price of ` 1500/- per share, now being
offered by the petitioner-company to its public shareholders, has been
accepted by all its shareholders except Mr. Gandhi. Consequently, this
Court is of the view that the price of ` 1500/- is fair and reasonable.
st
46. This Court is further of the opinion that the judgment dated 31
May, 2005 in Co. Pet. 206/2004 does not raise or create any bar on the
petitioner from presenting another Scheme of Reduction. The
statement recorded in the aforesaid judgment is in the context of the
first Scheme of Reduction and not the present one. Consequently, the
statement made in Co. Pet. 206/2004 cannot bind the petitioner
company for perpetuity.
47. Moreover, to attract the concept of res judicata amongst other
conditions precedent, there has to be final determination/decision of the
same issue by a Court of law. Since this essential ingredient and


Co. Pet. 228/2010 Page 30 of 36





condition precedent is missing, this Court is of the view that the plea of
res judicata in the present proceedings is untenable.
48. Mr. Gandhi’s challenge to the validity of form of representation
is also untenable in law as it is not a proxy form, but a form of
representation as contemplated under Section 187 of the Act. The
relevant portion of the said Section reads as under :-
“187. Representation of corporations at meetings of
companies and of creditors.— A body corporate
(whether a company within the meaning of this Act or
not) may—

(a) if it is a member of a company within the meaning of
his Act, by resolution of its Board of directors or other
governing body, authorise such person as it thinks fit to
act as its representative at any meeting of the company,
or at any meeting of any class of members of the
company;………..”

49. During the hearing, no provision was shown which would
indicate that notarisation of form of representation is mandatory.
Accordingly, the objection with regard to validity of EOGM is sans
merit .
50. This Court is also of the opinion that Mrs. Shroff is correct in her
submission that Section 77A of the Act is a facilitating provision which
enables a company to buy- back its shares without approaching the


Co. Pet. 228/2010 Page 31 of 36





Court under Sections 100 to 105 of the Act. In fact, the provisions of
Sections 77A and 100 of the Act operate in different fields. The
Bombay High Court in The Securities & Exchange Board of India vs.
Sterlite Industries (supra) has held “ The submission of the appellants
that the non-obstante clause in Section 77A gives precedence to that
section over the provisions of Sections 100-104. Section 391 is
misconceived. The non-obstante clause in Section 77A namely
"notwithstanding anything contained in this Act..." only mean that
notwithstanding the provisions of Section 77 and Sections 100-104, the
company can buy back its shares subject to compliance with the
conditions mentioned in that section without approaching the court
under Sections 100-104 or Section 391. There is nothing in the
provision of Section 77A to indicate that the jurisdiction of the court
under Section 391 or 394 has been taken away or substituted. It is well
settled that the exclusion of the jurisdiction of the Court should not
readily be inferred, such exclusion should be explicitly or clearly
implied. There is nothing in the language of Section 77 that gives rise to
such an inference. We are, therefore, inclined to hold that Section 77A
is merely an enabling provision and Court's powers under Sections


Co. Pet. 228/2010 Page 32 of 36





100-104 and Section 391 are not in any way affected. The conditions
provided in Section 77A are applicable only to buy-back of shares
under Section 77A. The conditions applicable to Sections 100-104 and
Section 391 cannot be imported into or made applicable to a buy-back
under Section 77A. Similarly, the conditions for a buy-back under
Section 77A cannot be applied to a scheme under Sections 100-104 and
Section 391 The two operate in independent fields. (emphasis supplied).

51. The Andhra Pradesh High Court in In Re: T.C.I. Industries Ltd.
(2004) 188 Co.Case 373 (AP) has also held as under:-
“14. Be it noted that Sections 391 and 77A of the Act are
independent of each other. Section 77A of the Act, which
was incorporated by reason of the Companies (Amendment)
Act, 1999, and which came into effect from January 31,
1999, was not given any overriding effect over the
provisions of Sections 391 and 394 of the Act. The said
provision is merely an enabling provision, providing for
alternative mode by which the company can buy back its
shares up to a certain percentage………

xxx xxx xxx xxx

19. In the instant case, as already noted supra, the
proposed scheme of arrangement, was unanimously
approved by 100 per cent, vote, and there was not even a
single vote, which was polled against the proposed scheme
of arrangement. This apart, the petitioner had made
provision for depositing a sum of Rs.45 lakhs and


Co. Pet. 228/2010 Page 33 of 36





earmarked a sum of Rs.6.50 crores, for meeting the payment
needs of the shares, which may be cancelled. When the
shareholders, in their wisdom, thought that the proposed
scheme of arrangement, is fair and reasonable for them and
that it had safeguarded their interest, it is not for this Court
to go into the pros and cons thereof and balance them.
Suffice it to say that the proposed scheme of arrangement,
having been approved by 100 per cent, vote and there being
no resistance from any of the shareholders or persons
interested in the affairs of the company, this court has no
other alternative except to approve the proposed scheme of
arrangement, as approved by the shareholders of the
company.

(emphasis supplied)

52. In view of the aforesaid, it is apparent that the conditions
precedent in Section 77A (5) of the Act are applicable only to buy-back
of shares under Section 77A of the Act. Consequently, Section 77A(5)
of the Act does not apply to a Scheme of Reduction under Section 100
of the Act, as the two operate in entirely different fields.
53. As far as challenge to economic policy is concerned, it is well
settled that Courts do not interfere with an economic policy which is in
the domain of the executive unless the same is capricious, arbitrary,
illegal or uninformed. Also, it is not the function of a Court to sit in
judgment over matters of economic policy which must be necessarily
left to expert bodies. In fact, a Court does not supplant the view of an


Co. Pet. 228/2010 Page 34 of 36





expert with its own. [ See Balco Employees Union vs. Union of India
(2002) 2 SCC 333 ] . Accordingly, it is not open for this Court to strike
down the Government policy of removing sectoral caps in personal care
and health sector.
54. Consequently, keeping in view the aforesaid as well as the fact
that reduction of share capital is a commercial and business decision,
which has been approved by 99.999% of equity shareholders of
petitioner-company and only 0.0020% of shareholders are opposing the
new purchase price of ` 1500/- per share, this Court is of the opinion
that there is no valid reason for not accepting the proposed scheme of
reduction of share capital. It is, accordingly, allowed. The Resolution
th
dated 24 April, 2010 and the Form of Minutes proposed at ‘Annexure
O’ to be registered under Section 103(1)(b) of the Act for reduction of
paid up equity share capital of the petitioner-company are approved. A
copy of the approved minutes be filed with the Registrar of Companies
within six weeks. Notice of registration of this order and the minutes
approved by the Registrar of Companies be published by the petitioner-
company in newspapers, namely, ‘Times of India’ (English edition) and
‘Jansatta’ (Hindi edition).


Co. Pet. 228/2010 Page 35 of 36





55. With the aforesaid directions, the petition and pending
applications stand disposed of.

MANMOHAN, J.
OCTOBER 03, 2011
rn/js


Co. Pet. 228/2010 Page 36 of 36