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Mr. Chander Bhan Gandhi (Appellant) vs. M/s. Reckitt Benckiser (India) Ltd (Respondent) – Decided by High Court of Delhi on 07th March, 2012

May 7, 2012
The Respondent is a Public Limited Company incorporated under the Companies Act, 1956 on 05th July, 1951. The Shareholding pattern of the Respondent Company is reflected below : M/s. Reckitt Benckiser Plc (Holding Company) – 63.87 % , M/s. Lancaster Square Holdings SL – 36.20 % , Public holding including appellant holdings – 0.11%.
  1. Valuation Certificate from Chartered Accountant :
(a) The respondent Company being desirous of reducing its share capital by 1.55% by canceling and extinguishing equity shares held by M/s. Lancaster Square Holdings SL and by the public, appointed Chartered Accountants to determine the fair value of its equity shares and in this regard the valuation price of the Share was recommended as Rs. 836/- per share.
  1. Holding of Board & General Meeting to consider the proposal for Reduction of Share Capital:
The Board of Directors in the meeting held on 3rd March, 2010 while approving such reduction in the share capital, enhanced the payment from Rs. 836/- to Rs. 940/- per share. The Extraordinary General Meeting (EOGM) of the shareholders of the respondent Company held on 24th April, 2010 by a special majority also approved such reduction.
  1. Objections filed by the 24 Shareholder against the scheme reduction u/s. 100 of the Act :
M/s Reckitt Benckiser Plc, being the largest shareholder expressed intent to retain its share holding. The appellant and other 23 Shareholders voted against the said resolution. However upon the respondent Company offering to pay an amount of Rs. 1,500/- per share as against the amount of Rs. 940/- proposed by the Board of Directors  23 of the said objectors accepted the said offer and withdrew their objections leaving only the appellant in the fray.
  1. Objections raised by the appellant and judgment given by the Delhi High Court are as follows:
Query: The proposal for reduction was nothing but a product of wrong economic policies of the Government of India of removing the sectoral caps in personal care and health sector and amounted to “forcible acquisition” ? Reply: The Court could not interfere with the economic policy which was in the domain of the executive, and the reduction in share capital was a commercial and business decision approved by 99.999% of the equity shareholders of the respondent Company and did not require any interference. Query: The reduction if any in the share capital should be spread equally over all the different classes of shareholders and did not fall within any of the three modes of reduction of share capital provided in Section 100(1) of the Act ? Reply: Section 100 of the Act expressly permits a Company if so authorized by its Articles of Association, to reduce its share capital by following the procedure prescribed therein and the Clauses of Section 100(1) of the Act are mere illustrations, and not the only manner in which share capital of a company can be reduced and hence can extend to any possible method of reduction subject to compliance with the applicable provisions. Query: The Court is empowered to look into the proposal for reduction and to decide whether the same is legal, fair and equitable and that his shares were invaluable and the valuation thereof at Rs. 836/- was improper, as also evident from the valuation report ? Reply: The valuation of shares is a technical matter requiring considerable skill and experience and the report of the valuation is not to be interfered with by the Court in the absence of any fraud or illegality even though there were bound to be differences of opinion amongst accountants as to the correct value; further, the price of Rs. 1,500/- per share which had been accepted by all the other shareholders was fair and reasonable. Query: The public shareholders holding 0.11% shares constituted a separate class and had a meeting of the said class only been held, the special resolution for extinguishing the shares would not have succeeded ? Reply: Section 100 of the Act required passing of a Special Resolution by equity shareholders and does not require passing of a separate class resolution and thus the resolution of the majority under Section 100 was of the entire body of shareholders of the company and not minority public shareholders. Query: An earlier attempt by the respondent Company to extinguish the shares of such public shareholders had failed and in the year 2005 the respondent Company had then agreed to let the public shareholders continue; the principle of res judicata was sought to be applied ? Reply: The principles of res judicata were not attracted to the respondent Company on an earlier occasion notwithstanding having proposed reduction, having agreed to allow the public shareholders to continue. Query: The reduction was in effect a buy-back of the shares within the meaning of Section 77A of the Act and thus has to be done on proportionate basis in accordance with Section 77A(5) of the Act ? Reply: Section 77A was a facilitating provision enabling a company to buy-back its shares without approaching the Court and had no application to a proceeding under Section 100. Query: The forms of representation executed by M/s. Reckitt Benckiser Plc and M/s. Lancaster Square Holdings SL for EOGM held on 24th April, 2010 were invalid as the same had not been notarized ? Reply: The objection to the validity of the form of representation was untenable as the principles of notarization as applicable to proxy form were not attracted. Finding no merit, the appeal is dismissed with no order as to costs .
  • By admin  gg 1 Comments   


    Posted by Ramesh on
    • May 8 2012
    Nice explanation.

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