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Withhold the Amalgamation of Companies as it Would Violate the Interest of the Public was found Malafied
Introduction:
This case was between HINDUSTAN LEVER EMPLOYEES’ UNION v HINDUSTAN LEVER LIMITED AND ORS. There were 5 appeals made in various courts before the case was undertaken to the Supreme court. The Supreme Court on 24/10/1994 passed the judgement.
Facts of the case:
There are two big companies present in this case one is Hindustan unilever limited along with its subsidiary company and the other is Tata oil Mills company ltd. In 1917 this was the first Indian company as found who is not financially insolvent nor a sick company.
In the High Court the Federation of employee’s union of both TOMCO and HUl along with the few nominal shareholders challenged in the High Court. According to them there are certain statutory violations and some procedural irregularities found in the provision of the act Monopolies & Restrictive Trade Practices Act 1969. This took place which led to the undervaluation of their shares.
The preferential allotment was less than the market price. Due to which it failed to protect the interest of the employees as well as the companies. IT also violated the interest of the public.
The High Court found this fact as suspicious that there couldn’t be both either the merger which took place was against the interest of the public elsewise the valuation of the shares was prejudicial to the interest of the shareholders of TOMCO or that the interest of the employees was not adequately protected.
The High Court stated that there is no violation was found under section 391(l) (a) of the Act. The court contented that the petitioner failed to establish any fraud or violence or prejudice. When court valued the share exchange ratio, it was found that valuation was done with the renowned firm of chartered accounts. There were 3 well known methods used to determine its rate.
The complaint was filed before Monopolies & Restrictive Trade Practices Commission. But the jurisdiction of the HC an MRTP Act is totally different. The complaint as regarding withheld the approval of scheme of merger. It was held that the retrenchment as the employees of HUL were rejected and there was no point to take this case in the labour court.
As the preferential allotment was held less than the market price the court stated that HLL was the holder of 51% of its shares. This was before any allotment of hares made. The allotment was made at par which was considered fair and not violate.
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 arid general principles inherent in any compromise or settlement entered between parties that it should not be unfair of contrary to public policy or 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.
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 the Merchant Banking Division of Industrial Credit & Investment Corpora-ton of India Ltd.
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 any time after seven years, but within 12 years from the date of the allotment.
They would do offer so at the first instance in favour of other members of the company in fair and suitable manner at a price worked out by reference to price earnings multiple of 15 as per the last published accounts of the company available at the time of such disposal. It was also 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, 1991.
Courts observation and judgement:
After being aggrieved by the decision of the other courts, on 18th may 1994 the appellant filed the case in the Supreme Court.
The Supreme Court considered all the 5 appeals which were earlier filed and they were dismissed. The courts also considered the above facts along with the financial statements made and valuation done so far. It also considered the point where the amalgamation of the two companies need to be withheld as it would violate the public interest.
Now the legal issues have been raised with the scheme of Amalgamation. The valuation report was also presented in this court for the first time along with the charts of both the companies were also presented. From all the figures it was found out that the exchange ratio was very fair.
The court observed that the valuation done and along with the rules frame as per the Act.
The Supreme Court was of the opinion that it could not find the valid reason behind the amalgamation of both the companies could harm the employees of these companies. Therefore, there was no substance of contention and the employees would continue to remain on same terms and conditions as before. This amalgamation will not prejudice not even harm public interest. At last the vague allegation is malafied.
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