SIDHPUR MILLS COMPANY LIMITED v. STATE — 1961 DIGILAW 62 (GUJ)

N. M. MIABHOY, J. ( 1 ) THIS is a petition under section 394 read with section 391 Indian Companies Act 1956 (No. 1 of 1956) for amalgamating two textile Mills. The petitioner is The Sidhpur Mills Company Ltd. having its registered office at Sidhpur District Mehsana in the State of Gujarat (hereinafter referred to as `the Sidhpur Company ). The petition is opposed by one of the Directors of the Company the partners of the firm of the Managing Agents and some shareholders of the Company. ( 2 ) THE Sidhpur Company was incorporated in about 1921 and on the 1st of April 1959 the authorised capital of the company was Rs. 75 lacs divided in to 50 0 ordinary shares of Rs. 100/each and 25 0 preference shares of Rs. 100/each and its issued subscribed and paid up capital was Rs. 15 9 0 divided into 15 96 ordinary shares of Rs. 100/each. On 1/08/1959 M/s. Maganlal (hereinafter referred to in this managing agents of the company. The firm consisted of eight partners five of whom were Ravindra Surendra Bipinchandra Hareshchandra and Krishnakumar all sons of one Maganlal (hereinafter referred to in this judgment as `the five brothers ). The other three partners were Babulal Chunilal Dineshchandra Chimanlal and Chandrakant Amratlal. The last three are the cousins of the five brothers. On 1/04/1959 the five brothers held 2 86 ordinary shares in the Sidhpur Company which roughly is 13. 57% of the total share capital of the company and the other three partners who are opposing the present petition held 2 384 shares which roughly is 15. 75% of the total share capital. On 1/04/1959 the Sidhpur Company was principally manufacturing cloth and yarn of coarse and medium counts though recently machinery for manufacturing fine and superfine goods had come to be installed. ( 3 ) THE Sidhpur company is to be amalgamated with The Raghuvanshi Mills Ltd. having its head office at Bombay (hereinafter called `the Bombay company ). It was incorporated in 1923. The premises of this company were destroyed in a fire in 1944. New machinery was installed there after. Thus the plant and machinery of the Bombay company is more recent and that of the Sidhpur company is comparatively speaking older. However the evidence is that the latter has been kept in a more or less efficient condition. The premises of this company were destroyed in a fire in 1944. New machinery was installed there after. Thus the plant and machinery of the Bombay company is more recent and that of the Sidhpur company is comparatively speaking older. However the evidence is that the latter has been kept in a more or less efficient condition. On 1/04/1959 the authorised capital of the Bombay company was Rs. 40 lacs divided into 40 0 ordinary shares and the issued. subscribed and paid up capital of the company was also the same. The managing agents of this company on the aforesaid date were Ravindra Maganlal and Co. Private Limited. The entire shareholding of this private company is held by the five brothers. ( 4 ) ON 1/04/1959 the five brothers held 27 50 shares in the Bombay company roughly constituting 67. 63% of its total share capital and the other three partners of Maganlal Prabhudas and Co. held 5 934 shares roughly constituting 14. 83% of the share capital. On the 1st of April 1959 Shri Ratilal Nathalal was the Chairman of the Sidhpur company. In paragraph 14 of his affidavit dated 21/06/1960 he has given the background in which the scheme of amalgamation for which sanction is asked for in the present petition was formulated and approved by the directors of the two companies. He deposes that though the Sidhpur company was in existence for the last 30 years its working results used to give cause for anxiety to the directions inasmuch as the company was unable to make sufficient profits even to earn its depreciation. He further deposes that a crisis took place in 1953 in the textile industry and in the wake of the crisis a radical change took place in the demand of the consuming public. The public demanded yarn and cloth of finer counts instead of coarse and medium counts. He further deposes that although this was so the Sidhpur company was not able to alter its set-up by reason of its capital structure and the shortage of finances. Mr. The public demanded yarn and cloth of finer counts instead of coarse and medium counts. He further deposes that although this was so the Sidhpur company was not able to alter its set-up by reason of its capital structure and the shortage of finances. Mr. Ratilal further deposes that a precipitous fall took place in the price of cotton yarn and cloth of coarse and medium counts and that because of this it was well-nigh impossible for the directors felt that if the same state economically an profitably; and that on account of the strain on the financial resources of the company the directors felt the if the same state of affairs continued for any further time a stage might be reached when the directors might be compelled very reluctantly to close the Mills altogether on account of its uneconomic working; and that this would have resulted in unemployment amongst its workers. In paragraph 15 Shri Ratilal further deposes that in the light of the aforesaid circumstances he and his co-director Trikamlal Girdharlal made sometimes prior to the month of May 1959 a suggestion for amalgamating the Sidhpur company with Bombay company. He states that at the relevant time the Bombay company was in a more prosperous condition than the Sidhpur company was engaged in the production of superfine cotton yarn and art silks fabrics which goods were either being sold locally or exported under the Export Promotion Scheme. Shri Ratilal further deposes that he and his co-director felt that if a scheme was formulated for amalgamating the two companies it would add to their prosperity and would result in mutual advantages to them. He deposes that therefore negotiations were stated between the two companies as a result of which a scheme was formulated after considerable discussion and deliberation and was ultimately placed before the Boards of Directors of both the companies and they decided to push forward the scheme. ( 5 ) THE scheme consists of 19 clauses. Broadly speaking under the scheme the Sidhpur company purchases the entire estate right title and interest of the Bombay company and takes over all its existing assets debts and liabilities. The scheme comes into effect from 1/04/1959 (hereinafter referred to as `the relevant date) All the actions suits and proceedings pending at the relevant date by or against the Bombay company are continued by or against the Sidhpur company. The scheme comes into effect from 1/04/1959 (hereinafter referred to as `the relevant date) All the actions suits and proceedings pending at the relevant date by or against the Bombay company are continued by or against the Sidhpur company. Services of the employees of the Bombay company are transferred to Sidhpur company. The authorised and issued capital of the Sidhpur company is to remain at Rs. 75 lacs but divided into 75 0 ordinary shares of Rs. 100/each. The Bombay company is dissolved. The Sidhpur company allots to each shareholder of the Bombay company for every one share held by him 1 3 ordinary shares from its increased capital. The Sidhpur company terminates the managing agency of M/s. Maganlal Prabhudas and Co. with effect from the relevant date and appoints M/s. Ravindra Maganlal and Co. Private Limited its managing agents and M/s. Maganlal Prabhudas and Co. shall not be paid any compensation for loss of employment. The scheme gives power to the Board of Directors of both the companies to assent to any variation alteration or modification of the scheme and/or to any condition that may be imposed and/or any direction that may be given by the Court in respect thereof. ( 6 ) THE petitioner contends that by the aforesaid scheme it will be acquiring the good-will of a prosperous textile mill; that both the units will have the benefits arising out of a community of administration; that one unit will be complementary to the other inasmuch as the petitioner is predominantly a manufacturer of coarse and medium products whereas the Bombay company is manufacturer of fine and the superfine goods; that each company will derive the benefits which the other is enjoying in the matter of exports and imports; and that the managerial remuneration payable to one set of managing agents will be far less that that payable to two sets. The main advantage of the scheme for the Sidhpur Company is said to be that whereas there is no reasonable prospect for the shareholders of the Sidhpur company to get ant dividend in near future by reason of the amalgamation of the two companies they will have a reasonable prospect of getting dividends almost immediately although the company had not been able to pay nay dividend for a number of years in the past. ( 7 ) BOTH the Sidhpur and the Bombay companies made petitions under sec. 391 of the Companies Act 1956 to the High Court of Bombay for callings of their respective shareholders for consideration of the aforesaid scheme. The High Court ordered the meetings to be called on 19-2-1960. The petitioner issued a notice to its shareholders calling a meeting on 19 for consideration of the scheme. A statement was annexed to the notice as required by section 393 clause (a) setting forth the terms of the scheme and certain also summoned another meeting of its shareholders for the purpose of considering certain resolutions which it thought were required to be passed to carry out the scheme. On 19/02/1960 therefore two meetings of the shareholders of the Sidhpur company were held. One was the official meeting at which a resolution was moved for approval of the scheme. The second was an extraordinary general meeting at which some resolutions; one of which is relevant in the present proceedings were moved and passed. It is not disputed that at the official meeting the scheme was passed by a majority of about 85% of the shareholders present and voting either in person or by proxy. The resolution which was passed at the extraordinary meeting of the company which is material in this petition is resolution No. 11. That resolution stated that subject to the requisite consent of the Controller of Capital Issues under the Capital Issues (Control) Act 1947 the Board of Directors are empowered to allot such number of shares and/or Fractional Certificates to such persons as may be entitled thereto by virtue of the scheme of amalgamation of the Bombay company with the Sidhpur company when sanctioned by that company and all other interests concerned and sanctioned by the High Court of Judicature at Bombay. The resolution further added that the Board of Directors was thereby authorised to do all acts deeds matters and things and exercise all such powers and authorities make all such arrangement of and incidental and in relation to the issue and allotment as afore stated including the terms thereof and making arrangement for the acceptance allotment and sale of such shares and/or Fractional Certificates or otherwise in the premises. ( 8 ) AFTER the aforesaid resolutions were passed but before a petition under sec. ( 8 ) AFTER the aforesaid resolutions were passed but before a petition under sec. 394 of the Indian Companies Act could be filed by the Sidhpur company to the High Court of Bombay some of the opposing shareholders filed a suit on 27/02/1960 in the City Civil Court at Bombay in which they obtained a temporary injunction against the Sidhpur company restraining it from taking further action in pursuance of the resolution approving the scheme. That temporary injunction however was dissolved in an appeal to the High Court of Bombay and it was thereafter that the present petition was filed on 1/03/1960. ( 9 ) THE same procedure which was followed by the Sidhpur company was also followed by the Bombay company for the approval of the scheme. The shareholders of the Bombay company approved the scheme by the requisite majority and thereafter the Bombay company filed a petition also under sec. 394 of the Indian Companies Act in the High Court of Bombay for sanctioning that scheme. ( 10 ) AFTER the reorganization both the aforesaid petitions continued to be pending in the High Court of Maharashtra. However later on the opposing shareholders raised a contention before that Court that after the reorganization the High Court of Maharashtra had no jurisdiction to deal with the petition of the Sidhpur company and that the only Court which had jurisdiction to do so was the High Court of Gujarat. In this contention being raised. the learned Chief Justice of the High Court of Maharashtra in exercise of the powers conferred upon him by the States Reorganization Act transferred the present petition to this Court and that is how this petition comes up for hearing in this Court. ( 11 ) THE petition is opposed by Babulal Chunilal Chandrakant Amratlal Dineshchandra Chimanlal and some others Babulal Chunilal is the director of the Sidhpur company. The Chandrakant Amratlal and Dineshchandra Chimanlal are partners in the firm of the managing agents of the Sidhpur company. These persons are supported by some shareholders of the company. The total share-holding of these persons is about 899 shares. Some of these shareholders were present at the official meeting of the company in person or by proxy and voted in favour of the resolution approving the scheme. These persons are supported by some shareholders of the company. The total share-holding of these persons is about 899 shares. Some of these shareholders were present at the official meeting of the company in person or by proxy and voted in favour of the resolution approving the scheme. The contention of these shareholders is that certain material facts affecting the amalgamation were not brought to their notice and were not known to them when the official meeting was held and the resolution was considered. They state that certain important facts have been brought to light which have a bearing on the scheme and in the light of those important facts they think that the scheme is not for the benefit of the shareholders of the Sidhpur company. They maintain that if they had known these facts when they gave their proxies or when they voted at the meeting they would not have voted for the scheme. ( 12 ) IT is not disputed that as a result of the amalgamation and the consequent allotment of new shares in the Sidhpur company the total holding of the five brothers in the amalgamated company will be 49 326 shares constituting roughly 57. 29% of the total share capital of that company as against 13. 57% which they have in the Sidhpur company and that the total holding of the opposing partners will be 12 769 shares in the amalgamated company constituting roughly 15% of the same capital as against 15. 75% at present held by them in the Sidhpur company. ( 13 ) THE opponents oppose the scheme on various grounds. Their first contention is that the statutory requirement mentioned in sec. 393 sub-sec. (1) clause (a) of the Companies Act 1956 is not complied with. They contend that two material facts were not communicated to the shareholders of the Sidhpur company in the statement attached to the notice convening the official meeting. The opposing partners of M/s. Maganlal Prabhudas and Co. contend that the five brothers ought to have communicated to the shareholders that they were holding 27 50 shares in the Bombay company and explained that the result of the amalgamation would be that they would come to be allotted 47 345 shares in the Sidhpur company which together with their existing share-holding would give them 57. contend that the five brothers ought to have communicated to the shareholders that they were holding 27 50 shares in the Bombay company and explained that the result of the amalgamation would be that they would come to be allotted 47 345 shares in the Sidhpur company which together with their existing share-holding would give them 57. 29% of the total number of shares of the amalgamated company thereby giving them a majority vote at any meeting of the amalgamated company. The opposing shareholders contend that it was necessary not only for the aforesaid five brothers but also for the directors of the company and the other three opposing partners to state that their total holding in the Bombay company amounted to 33 304 shares and that as a result of the amalgamation the new shares which would come to be allotted to them would be 58 282 shares which together with the existing share-holding of the five brothers and the other opposing partners and the directors in the Sidhpur company would make 62 752 shares in a total share capital of 85 96 shares which roughly would constitute about 74% of the total number of shares of the amalgamated company thus giving them almost 3/4th majority vote at any meeting of the company. The second contention is that the ratio of shares which was given to the Bombay company for transferring its assets and liabilities to the Sidhpur company was unfair and unreasonable and that the directors had not taken into consideration all the relevant circumstances bearing upon that ratio and that if all the material facts had been properly considered and assessed the ratio would not have been that which was actually agreed to be allotted to the shareholders of the Bombay company. It is therefore contended on these and certain other subsidiary points which will be presently mentioned that the scheme was unfair and unreasonable and that on that ground the scheme ought not to be sanctioned. ( 14 ) BEFORE I consider the objections of the opponents in detail it will be useful to consider the cases cited at the bar as to what should be the correct approach of the Court in a petition under section 394 of the Indian Companies Act 1956 The main principles were not in dispute. ( 14 ) BEFORE I consider the objections of the opponents in detail it will be useful to consider the cases cited at the bar as to what should be the correct approach of the Court in a petition under section 394 of the Indian Companies Act 1956 The main principles were not in dispute. However there was considerable discussion as to on whom lay the burden of proving that the scheme was fair and reasonable. Both the sides relied upon two English cases. However each one in support of its contention sought to emphasise different judgments delivered in those two cases and different passages therefrom. The learned Solicitor General relied upon the judgment of Vaughan Williams. J. In re English Scottish and Australian Chartered Bank (1893) 3. Chancery Division 385. He specially relied upon that part of the learned Judge in which he had observed that the burden of proof according to the next case to be just mentioned was upon the opponents. At pages 397 and 398 the learned Judge has made the following observations : ( 15 ) AT all events be that how it may I am of opinion that I have no choice but to follow the rule that has been laid down by the Court of Appeal in - In re Alabama New Orleans Texas and Pacific Junction Railway Company. I do not now. any more than I did in the course of the argument agree with the suggestion made by Sir Horace Davey as to the meaning of the following words of Lord Justice Lindley (1): The Court must look at the scheme and see whether the Act has been complied with whether the majority are actingand bona fide and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent. Sir Horace Davey suggested that the Courts had no option or discretion but to approve the scheme unless there was evidence which justified them in saying that the majority were not acting bona fide or were coercing the minority in order to promote interests adverse to those of the class whom they purport to represent a passage which Sir Horace Davey seemed to think was practically identical in effect a mere alternative statement-with that immediately preceding whether the majority are acting bona fide. But it seems to me that the words of Lord Justice Lindley which immediately follow those which I have read show that that is not what Lord Justice Lindley meant. He proceeds as follows: And then see whether the scheme is a reasonable one or whether there is any reasonable objection to it or such an objection to it as that any reasonable man might say that he could not approve of it. Then Lord Justice Lindley when he proceeds to deal with Mr. Rigbys argument in details plainly declines to treat the matter as resting upon the mere basis that the resolution of the creditors not having been shown to be mala fide leaves him no discretion. He goes on to deal with the question of whether the scheme is a reasonable scheme or not and says (2) Therefore if you look at it from a commercial point of view and not from a lawyers point of view you are in a decidedly better position by this scheme than you would be if things were left alone. That is the view of the majority. Now can anybody say that this is not a reasonable view for the majority to take? Whether they have other interests on not I think we ought to see whether anything can be said against the reasonableness of the view taken by the majority of the first debenture-holders without reference to whether they are second debenture-holders or whether they are share-holders or not. Can anybody sly that this scheme is not in a commercial sense extremely advantageous to them having regard to their position? ( 16 ) AFTER quoting from the judgment of Lord Lindley as afore-said. Vaughan Williams J. proceeds further and makes the following observations:then Lord Justice Bowen and Lord Justice Fry deal with the matter in much the same way with this exception that it is quite obvious that they think that the onus of showing that the scheme is unreasonable is rather on those that object to the scheme than on the majority of the creditors who have supported it. These two judgments seem to me to hold that the duty of the Court is to approve of the scheme unless there is something before it which shows it either that the scheme was not made in good faith or that it is a scheme that so far from being fair and reasonable is one that an intelligent and honest man acting alone in respect of his interests could not approve of. ( 17 ) MR. Amin did not take any exception to the statement of law as to what is required to be proved in a petition for sanctioning a scheme made by Vaughan Williams J. and which statement was culled out by the learned Judge from the judgment of Lord Justice Lindley. But he strenuously contended that the view which Vaughan Williams J. had taken viz. that the other two Lord Justices Bowen and Fry whilst laying down the same law as to the correct approach in a petition for sanctioning the scheme had further held that the burden of proof was on the opposing creditors or members was not justified by the judgments delivered by those two Lord Justices. For this purpose Mr. Amin read extensively from the judgments of those two Lord Justices in - In re Alabama New Orleans Texas and Pacific Junction Railway Company (1891) I Chancery Division 213 at pages 242 to 248 The judgment of both these learned Lord Justices were read extensively in my Court. I find nothing in any of the two judgments which bears out of the observation of Lord Williams J. that those two learned Judges had laid down that the burden of proof was on the opposing creditors. The learned Solicitor General conceded that there was nothing in any of those two judgments which said in specific terms that the burden of proof was on the opposing creditors or members. But he contended that such a decision was implicit in the judgments delivered by those two Justices. The only passage which he could point out in support of this contention was the following passage in the judgment of Bowen L. J. at page 244:the true conclusion is that mass of first-class debenture-holders take the view that this commercial scheme will work and that it is the best thing that can be done in the interest of themselves as holders of first-class debentures. ( 18 ) I do not agree that the aforesaid passage bears out the contention of the learned Solicitor General. I have no doubt whatsoever that in that passage Bowen L. J. was not at all discussing the question of burden of proof. Some of the passages in the judgment of Lindley L. J. are capable of being read as if the learned Judge intended to throw the burden upon the opposing creditors or members. For example in the following passage where the learned Judge has put a number of questions which require to be answered in a petition of the present kind language is used in such a way that it is open to anyone to contend that the learned Judge intended to throw the burden upon the opposing creditors or members. ( 19 ) THEREFORE if you look at it from a commercial point of view and not from a lawyers point of view you are in a decidedly better position by this scheme than you would be if things were left alone. That is the view of the majority. Now can anybody say that this is not a reasonable view for the majority to take ? Whether they have other interests or not. I think we ought to see whether anything can be said against the reasonableness of the view taken by the majority of the first debenture holders without reference to whether they are second debenture-holders or whether they-are shareholders of not. Can anybody say that this scheme is not in a commercial sense extremely advantageous to them having regard to their position? ( 20 ) HOWEVER I do not think that the learned Lord Justice considered the question of the burden of proof in the aforesaid passage or any other passage of his judgment. In above passage the learned Lord is only pointing out what points were required to be answered without intending to lay down on whom the burden of proof lay. This passage was not read or construed by Vaughan Williams in that sense; nor was it contended by the learned Solicitor General that it should be read or construed in that way. The learned Solicitor General however placed reliance upon the case In Re: Hindustan General Electric Corporation Ltd. reported in A. I. R. 1959 Calcutta 679 in support of his contention. The learned Solicitor General however placed reliance upon the case In Re: Hindustan General Electric Corporation Ltd. reported in A. I. R. 1959 Calcutta 679 in support of his contention. That is a decision of a single Judge of the Calcutta High Court. The learned Judge was considering a petition under sec. 391 sub-sec. (2) of the Companies Act. At page 681 the learned Judge makes the following observations: . ( 21 ) IT has been repeatedly held that the onus of proving unreasonableness or unfairness about the scheme or of want of good faith is on those who object to the sanction of the scheme. It is not necessary to refer to many cases on this point but reference my be made to the decision in (1893) 3 Ch. 385 at 399 (top ). It seems to me that this onus has not been discharged by Mr. Mitras client but only certain vague and general assertions devoid of any particulars have been made in the affidavit in opposition. ( 22 ) THE observations of the learned Judge are entirely based upon his reading of the judgment of Bowen L. 3. As already stated I have gone through the whole of the judgment of that learned Judge and specially that part which is reported at page 399 which is referred to by the learned Judge of the Calcutta High Court. I am unable to discover anything therein which would even remotely show that Lord Bowen laid down or intended to lay down that the burden of proof was on the opponents. In the above passage the learned Judge of the Calcutta High Court has observed that it has been repeatedly held that the onus of proving unreasonableness or unfairness is on those who object to the sanction of the scheme. The learned Judge has however not quoted any authority for this particular proposition. The learned Solicitor General was unable to point out to me even a single authority other than In re: Hindustan General Electric Corporation Ltd. in which such a proposition was laid down. In fact he stated that that was the solitary case reported in India under sec. 392 of the Indian Companies Act which he had been able to discover. In my judgment Mr. In fact he stated that that was the solitary case reported in India under sec. 392 of the Indian Companies Act which he had been able to discover. In my judgment Mr. Amin is right that in Re Alabamas case it has not been decided that the burden of proof is on the opposing creditors or members. Having regard to the above considerations in my judgment it is no. possible to say that there is authority for the proposition that the burden is on the opponents to show that the scheme is not a fair and proper one. In my judgment having regard to the fact that the petitioner company seeks sanction for the scheme and that it is the duty of this Court to see that the scheme is a fair and reasonable one the initial burden is on the petitioner to show that prima facie the scheme is fair and reasonable as a prudent and reasonable shareholder would approve of and not object to. This was the only point in dispute regarding the approach to the case. Otherwise both the sides relied upon the judgment delivered by Lord Lindley J. as to the correct approach to a case of the present type. The function of the Court in a case of the present type is twofold. The first function is to determine whether the statutory requirements as laid down in sec. 392 of the Companies Act have been complied with. The requirements which have been laid down in sec. 391 are the sino quo non for sanctioning the scheme. Those requirements must be complied with by the company concerned and if it has failed to do so then no further question arises in the matter. However even if the statutory requirements have been complied with that does not mean that the Court must sanction the scheme as a matter of course. The Legislature has purposely left discretion with the Court in this respect. Inspite of the fact that a majority of 3/4ths has sanctioned a scheme the Court is not bound to sanction it on the ground that the majority has accepted it. If this were the law then a petition to the Court would be a superfluous thing. The Legislature has purposely left discretion with the Court in this respect. Inspite of the fact that a majority of 3/4ths has sanctioned a scheme the Court is not bound to sanction it on the ground that the majority has accepted it. If this were the law then a petition to the Court would be a superfluous thing. The very fact that the Legislature has said that even after the requisite majority has sanctioned a schemes the Court must be approached and sanction obtained itself indicates that the Court should apply its judicial mind to the scheme and reach a conclusion of its own. Probably this has been so done because the effect of a scheme which is not unanimously passed is likely to effect the interests of the dissentients and even if the scheme is unanimously passed it is likely in some cases to affect the interests of those who may not have voted or failed to vote or even may not in law have had a right to vote. The discretion has been deliberately given by the Legislature to the Court so that the interests are of those who do not see eye to eye with the majority or of those whose interests are affected by the scheme may be protected. In a case where a scheme is voted by a majority two conflicting claims are to be adjusted. If on the one hand a minority were to take up an unreasonable altitude in the matter of the scheme then the interests of the majority will suffer if the scheme cannot be pushed through-a scheme which the majority considers to be reasonable and in the interest of the company and the class of persons whom it represents. In that case the majority will suffer on account of the intransigence of the minority. On the other hand if the majority has interests adverse to the minority or where a majority has been rigged up the minority is bound to suffer or to be tyrannized by sheer strength of numbers. Therefore the Legislature has provided that if a meeting has taken a certain decision then the Court must apply its mind and consider whether it is in the interest of the company as a whole and of the class of persons for whom the majority acts and whether the scheme is such that it must be pushed through. Therefore the Legislature has provided that if a meeting has taken a certain decision then the Court must apply its mind and consider whether it is in the interest of the company as a whole and of the class of persons for whom the majority acts and whether the scheme is such that it must be pushed through. Therefore the correct approach to a case of the present kind is to bear in mind that the Court is neither called upon merely to register a decision of the majority nor is it called upon to act in such a manner that the minority will create a stalemate and thereby retard the progress which the majority has legitimately and reasonably a right to expect and make. It is for the latter reason that the judgments in Alabamas case point out that due weight must be accorded to the fact that the majority has recorded a decision in favour of the scheme and the Court must not lightly ignore or set aside that decision. But that is not the only thing which the Court is required to do. Whilst bearing that fact in mind the Court must decide whether the scheme is on the whole one which deserves to be sanctioned and in doing so the Court must test the scheme not from the point of view of a lawyer or an accountant or an expert but it must look at it from the point of view of a reasonable and a fair-minded person. The test in all such cases is to determine how a reasonable person endowed with ordinary commonsense and acting honestly will view the scheme having regard to all the circumstances bearing reasonably and properly on it. When we are dealing with a company which is dealing in commerce or industry or with similar activities then the scheme has got necessarily to be looked at from the point of view of a prudent commercial man. Viewing the scheme in this way if the Court comes to the conclusion that it is one which a fair and reasonable person viewing from a commercial point of view can approve then the Court should not subject to some other considerations interfere with the scheme. But in every case the Court must be satisfied that the majority is acting in a bonafide manner. But in every case the Court must be satisfied that the majority is acting in a bonafide manner. It is only if the majority is acting honestly and with due care and caution that the decision will be binding upon the minority. If the Court finds that the majority is acting in a mala fide manner then it is the duty of the Court to protect the minority from the tyranny of the majority. From this angle the Court may have to consider whether the minority is or is not being overridden by a majority having interests of its own clashing with those of the minority. In all such cases the majority must act in the interest of the class whom it represents. If the majority has other interests in the matter then the Court must be satisfied that the majority in taking its decision is not influenced by the effect which the scheme is going to have on those other interests. The decision of the majority can be respected only in so oar as the Court is satisfied that the majority is acting honestly for and on behalf of the interests which it seeks to represent and if in any case the Court finds that the majority is acting de hors the interests of the class whom it seeks to represent then the decision will not have that sanctity which it otherwise will possess. In considering this question the Court must also bear this point in mini that after all it is dealing with a compromise and that on the same subject honest people are likely to entertain different opinions. The Court will not view the scheme with a view to find out whether it is an ideal scheme. The Court will consider it bearing in mind the fact that commercial people when they have got to deal with a number of points some of them difficult to decide are likely to emphasize some points on some occasions or in some situations and to minimise or ignore them on some other occasions or situations. Therefore the scheme has not got to be scrutinized by the Court with that much care with which an expert will scrutinize it; nor will it approach it in a carping spirit with a view to pick holes in it. Therefore the scheme has not got to be scrutinized by the Court with that much care with which an expert will scrutinize it; nor will it approach it in a carping spirit with a view to pick holes in it. If the majority is acting in a bona fide and honest manner and in the interests of the class that it purports to represents then if the scheme is such as a fair-minded person reasonably acquainted with the facts of the case as prevailing at the time when the scheme was sponsored and approved can regard it as beneficial for those whom the majority seeks to represent then unless there are some strong and cogent grounds to show that the scheme was conceived designed or calculated to cause injury to others the Court will ordinarily sanction it rather than reject it. In this connection one of the points which was brought out in the judgment of Bowen L. J. has a relevance and needs to be mentioned. That point must equally be borne in mind. This is what Bowen L. J. said: ( 23 ) NOW I have no doubt at all that it would be improper for the Court to allow an arrangement to be forced on any class of creditors if the arrangement cannot reasonably be supposed by sensible business people to be for the benefit of that class as such otherwise the sanction of the Court would be a sanction to what would be a scheme of confiscation. The object of this section is not confiscation. It is not that one person should be a victim and that the rest of the body should feast upon his rights. Its object is to enable compromises to be made which are for the common benefit of the creditors as creditors or for the common benefit of some class of creditors as such. It is not that one person should be a victim and that the rest of the body should feast upon his rights. Its object is to enable compromises to be made which are for the common benefit of the creditors as creditors or for the common benefit of some class of creditors as such. Now it is very important to observe that creditors of the company may have other interests besides those of creditors and that there may be a class of creditors composed of many individuals- some of whom have only interests as members of that class but others of whom may have interests of a predominant kind which they hold not as members of that class but because they belong also to some other class of creditors or because they also belong to the body of shareholders of the company. Therefore although in a meeting which is to be held under this section it is perfectly fair for every man to do that which is best for himself yet the Court which has to see what is reasonable and just as regards the interests of the whole class would certainly be very much influenced ill its decision if it turned out that the majority was composed of persons who had not really the interests of that class at stake. ( 24 ) THEREFORE in my judgment the correct approach to the present case is (i) to ascertain whether the statutory requirements have been complied with and (ii) to determine whether the scheme as a whole has been arrived at by the majority bona fide and in the interests of the whole body of shareholders in whose interests the majority purported to act and (iii) to see whether the scheme is such that a fair and reasonable shareholder will consider it to be for the benefit of the Company and for himself. The scheme should not be scrutinized in the way a carping critic a hair-splitting expert a meticulous accountant or a fastidious counsel would do it each trying to find out from his professional point of view what loopholes are present in the scheme what technical mistakes have been committed what accounting errors have crept in or what legal rights of one or the other sides have or have not been protected. It must be tested from the point of view of an ordinary reasonable shareholder acting in a businesslike manner taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. I am emphasizing the last point because an argument was made by Mr. Amin that certain circumstances or events which took place after the scheme had been considered should he taken into account. I do not wish to be understood to say that in no case post facto circumstances or events cannot be taken into account but on the whole I have come to the conclusion that whilst in some rare and exceptional cases the Court may take into consideration subsequent events to protect the interests of the company or the shareholders as a general rule the Court should consider the resolution on the footing Of the circumstances which were in existence at the time when the scheme as formulated deliberated upon and approved. If any other approach were to be made then in that case there would be no sanctify about business contracts. In fact such an approach may induce interested persons to shape future events and circumstances in such a way as to convert a reasonable scheme into an unreasonable one. ( 25 ) HAVING considered the principles governing the correct approach I propose to consider in detail the arguments urged by the counsel on both the sides. ( 26 ) AS I have already stated the first contention of the opponents is that the statutory requirements laid down clause (2) of sub-sec. (1) of sec. 393 were not complied with. Before I state the objections raised by Mr. Amin it will be proper to read and quote the section itself as a whole. It is necessary to quote the whole of the section because the learned Solicitor General contends that for the purpose of construing clause (a) I must bear in mind not only the provisions of that clause but also the other provisions of the section. Amin it will be proper to read and quote the section itself as a whole. It is necessary to quote the whole of the section because the learned Solicitor General contends that for the purpose of construing clause (a) I must bear in mind not only the provisions of that clause but also the other provisions of the section. Sec. 393 is as follows:393 Information as to compromises or arrangements with creditors and members (1) Where a meeting of creditors or any class of creditors or of members or any class of members is called under section 391 (a) with every notice calling the meeting which is sent to a creditor or member there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining 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 members or creditors of the company or otherwise and the effect on those interests of the compromise or arrangement if and in so far as it is different from the effect on the like interests of other persons; and (b) in every notice calling the meeting which is given by advertisement there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid. (2) Where the compromise or arrangement affects the rights of debenture holders of the company the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the companys directors. (3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting every creditor or member so entitled shall on making an application in the manner indicated by the notice be furnished by the company free of charge with a copy of the statement. (4) Where default is made in complying with any of the requirements of this section the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company: provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person being a director managing director managing agent secretaries and treasurers manager or trustee for debenture holders to supply the necessary particulars as to his material interests. (5) Every director managing director managing agent secretaries and treasurers or manager of the company and every trustee for debenture holders of the company; shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so he shall be punishable with fine which may extend to five hundred rupees. ( 27 ) THE clause (a) may be divided into two principal limbs Each limb will contain two. The first limb gives a direction that the notice calling the meeting must contain two things: (i) a statement setting forth the terms of the compromise or arrangement and (ii) explaining its effects. The second limb directs that the statement shall contain (i) 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 members or creditors of the company or otherwise and (ii) the effect on those interests of the compromise or arrangement if and in so far as it is different from the effect on the like interest of other persons. There is no dispute that the first part of the first limb of the clause has been complied with namely that along with the notice a statement setting forth the terms of the scheme were sent. Mr. Amins contention however is that the second part of the first limb of the clause has not been complied with namely that which directs that the effect of the scheme must also be explained in the statement. Mr. Mr. Amins contention however is that the second part of the first limb of the clause has not been complied with namely that which directs that the effect of the scheme must also be explained in the statement. Mr. Amins contention is that two things should have been mentioned in the statement and that as this is not done the effect of the scheme has not come to be explained to the shareholders. Mr. Amin contends that the details of the processes by which the ratio of 1 3/4 shares had been arrived at should have been mentioned in the statement accompanying the notice and secondly that the statement should have mentioned to the shareholders that the benefit which was to accrue to the amalgamated company on account of the carry forward losses representing the unabsorbed depreciation was subject to the sanction which was to be accorded by the Controller of Capital Issues. As regards the second limb of clause (a) the contention of Mr. Amin is that it was necessary that the shareholding of the five brothers in the Bombay Company should have been mentioned in the statement. The contention is that the statement should have mentioned that the five brothers held between them 27 57 shares in the Bombay company and that as a result of the amalgamation they would get 1 3/4 shares in the Sidhpur Company for each of those shares. It also contends that the shareholding of the relatives and the supporters of the five brothers in the Bombay company also should have been mentioned in the statement. Secondly he contends that it was also necessary that the statement should have mentioned that the result of the aforesaid amalgamation would be that the relatives and supporters of the five brothers would get 1 3/4 shares in the Sidhpur company for each share of the Bombay company held by them. He also contends that it was also necessary to mention in the statement that as a result of the allotment of new shares in the Sidhpur Company the five brothers would come to hold in the amalgamated company 49 326 shares and that that share-holding represented 57. 29% of the total share capital of the amalgamated company. He also contends that it was also necessary to mention in the statement that as a result of the allotment of new shares in the Sidhpur Company the five brothers would come to hold in the amalgamated company 49 326 shares and that that share-holding represented 57. 29% of the total share capital of the amalgamated company. He further maintains that they should have also mentioned in the statement the number of new shares which would come to be allotted to their supporters and relatives and the total percentage of shares which all these persons combined together would come to hold. On the same lines Mr. S. K. Desai the learned counsel for the opposing shareholders contends that the total share-holding of all the directors and all partners of the managing agents should have been mentioned and it should have also been further mentioned that the result of the allotment of the shares in the new amalgamated company would be that the directors and managing agents would between them come to hold about 74% of the total number of shares of the amalgamated company. ( 28 ) BEFORE I deal with the contentions which were urged by the learned Solicitor General which related to the construction of section 393 Indian Companies Act I propose to dispose off the contention of Mr. Amin that under the aforesaid clause it was necessary for the Sidhpur company to mention the share-holding of the friends and relatives of the five brothers and the directors of the Sidhpur company in the Bombay company. The latter part of the clause (a) deals with the material interests of only the persons mentioned therein. The persons mentioned are directors managing director managing agent secretaries and treasurers or manager of the company. The clause does not state that the interests of the friends or supporters or relatives of any of the aforesaid persons should be mentioned in the statement. Therefore in my judgment it was not necessary to mention in the statement the share-holding of the relatives or the friends or the supporters of the directors and the managing agents. ( 29 ) I may also dispose off another contention of Mr. Amin viz. Therefore in my judgment it was not necessary to mention in the statement the share-holding of the relatives or the friends or the supporters of the directors and the managing agents. ( 29 ) I may also dispose off another contention of Mr. Amin viz. that the details as to how the ratio had been arrived at and the fact that the benefit which was likely to accrue to the amalgamated company on account of the unabsorbed depreciation was subject to the sanction of the Controller of Capital Issues should have been mentioned in the statement. Mr. Amin contends that these two things were necessary to be mentioned for the purpose of explaining the effect of the scheme. I cannot agree with this contention. It is true that the first part of clause (a) requires not only that the terms of the scheme must be stated but it further requires that the effect of the scheme must be explained. Therefore the statement must contain not only the terms of the scheme but must also further explain as to what its effect would be. The clause does not state in terms as to the effect on what has got to be mentioned in the statement. Broadly speaking however it is quite clear that what has got to be explained are not the details of the scheme but the effect which the scheme will have obviously on such matters as the welfare of the company and the welfare of its shareholders or creditors with whose interests the scheme purports to deal. Effect means a consequence a condition which arises as a result of a certain course of action. If there is anything in the scheme compromise or arrangement which is not quite obvious to a person reasonably acquainted with the facts of a case by merely reading the terms of the scheme then a duty is cast upon the persons concerned to mention what the consequence will be if the scheme is approved of. In other words it is only the consequence or the result which has got to be explained which would arise on account of the approval of the scheme. If something is implied in the scheme which is not obvious the same must be brought to the notice Of the shareholders. However the statement does make a specific mention about one of the above two things. If something is implied in the scheme which is not obvious the same must be brought to the notice Of the shareholders. However the statement does make a specific mention about one of the above two things. The statement does mention that the shareholders of the Bombay company will be given 1 3/4 shares in the Sidhpur company for each share held in the Bombay company. That matter is self-evident and will be known to anyone who cares to read the statement. No further explanation on that particular point is called for. The details as to the way in which the ratio was arrived at is not a matter relating to the effect of the scheme. That is a matter of detail and pertains to things required to be considered for fixing the ratio. Similarly as regards the second matter it is quite obvious that the benefit which the directors expected to receive for the amalgamated company on account of the existence of a large unabsorbed depreciation was one of several matters which induced them to sponsor the scheme but it cannot be said that this was the consequence or the result of the scheme. Under the circumstances I cannot agree with the submission of Mr. Amin that the above two facts should have been mentioned in the statement accompanying the notice. ( 30 ) BEFORE I deal with the further submissions of Mr. Amin it is necessary to dispose off questions raised by the learned Solicitor General relating to the construction of sec. 393 (1) clause (a) in so fir as the second part of that clause is concerned. I may again mention that that part of the clause requires two things to be mentioned in the statement viz (i) the material interests of several persons and (ii) the effect of the scheme on those interests if and in so far as it is different from the effect on the like interests of other persons. There is no dispute that every kind of interests is not to be mentioned. Only material interests are to be so done. The question as to what is material interest or not may not be considered at this stage. But the poser which the learned Solicitor General raises regarding this part of the clause is as to what interests are covered by this part of the clause. Only material interests are to be so done. The question as to what is material interest or not may not be considered at this stage. But the poser which the learned Solicitor General raises regarding this part of the clause is as to what interests are covered by this part of the clause. He contends that interests of the concerned persons in the company alone are to be mentioned and not interests in anything de hors the company. The effect of the construction which the learned Solicitor General seeks to place upon this part of the clause will be that only interests in the Sidhpur company should have been mentioned and not those in the Bombay company. Thus the contention of the learned Solicitor General is that interests which are to be mentioned are those which directors managing director managing agent secretaries and treasurers or manager of the company (hereafter called the persons concerned) hold in a company in relation to which they hold such positions and not in relation to some other company. The learned Solicitor General contends that the aforesaid submission is reinforced by the last part of the clause which enacts that the effect on those interests is required to be mentioned only if and in so far as that effect is different from the effect on the like interests of other persons. The contention is that the like interests mentioned in the last part of the clause means material interest spoken of in the first part of the clause. Therefore the submission is that in applying the section the Court must have regard only two interests which the persons concerned have in the company of which they are holding the positions as mentioned in the section and not interests in any other company corporation or body. The learned Solicitor General prefaced his submission on this point by drawing my attention to the fact that a breach of any of the conditions of the clause is made penal by sub-sec. (4 ). Therefore the argument is that clause (a) must be construed strictly and in such a manner as to ensure that person does not come to be punished for something which on a bare reading of the clause he will not be in a position to find with reasonable certainty. (4 ). Therefore the argument is that clause (a) must be construed strictly and in such a manner as to ensure that person does not come to be punished for something which on a bare reading of the clause he will not be in a position to find with reasonable certainty. ( 31 ) NOW I find great difficulty in construing the first part of the second limb of clause (a) as being confined only to the interests of the concerned persons in the company in respect of which the scheme is being propounded. I find it difficult to do so for more than one reason. In the first instance the second limb of the clause appears to be a species of that which is provided for in the first limb of the clause. The main provision of the clause is to be found in the first limb and the second limb is only a particular illustration of that which is required by the first limb. The first limb requires that the terms of the scheme must be sent to the shareholders and its effect explained. The second limb specifies the particulars of the scheme which must be brought to the notice of the share holders. It is to emphasise this aspect that the second limb of clause (a) begins with the phrase in particular. In other words the second limb mentions some of the particulars all of which the first limb requires to be mentioned. From this it must follow that as the first limb deals with the terms of a scheme the second limb also must necessarily deal with the same topic viz. the terms of the scheme. If the Legislature after having spoken in the first limb about the terms of the scheme intended suddenly to switch off to some other topic then probably the Legislature would have used appropriate language to convey the idea that the interests which it had in mind were interests which related to something else. Secondly the provisions of clause (b) and subsec. (3) show that the two limbs of clause (a) deal with one and the same topic viz. the compromise arrangement or scheme. In clause (b) of subsec. Secondly the provisions of clause (b) and subsec. (3) show that the two limbs of clause (a) deal with one and the same topic viz. the compromise arrangement or scheme. In clause (b) of subsec. (1) it is laid down that if the notice calling the meeting does not include the statement in clause (a) a notification of the place at which and the manner in which the shareholders may obtain `the copies of such statement should be published. Sub-sec. (3) casts a duty upon the company to furnish free of charge to the shareholder a copy of `the statement if an application happens to be made for the purpose by the shareholders. There cannot be any doubt that the term `statement used in both clause (b) and sub-sec. (3) refer to a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect. The first part of subsec. (3) says so in express terms. In my judgment both in clause (b) and sub-sec. (3) the expression `statement covers not only the first but also the second limb of clause (a ). It will be unreasonable to hold that under sub-sec. (3) the Legislature requires a copy of the particulars referred to in the first limb of clause (a) to be furnished and not a copy of the particulars referred to in the second limb. Though this is quite clear it is significant to notice that the Legislature has not referred to the second limb of clause (b) and sub-sec. (3) in express terms. In my judgment the Legislature has not done this because in its view the second limb of clause (a) deals with only some of the particulars of the matters to be mentioned under the first limb thereof. In other words in enacting clause (a) the Legislature has envisaged the statement referred to therein as one whole statement and this is a clear indication of the fact that the interests mentioned in the second limb deal with the interests in the scheme referred to in the first limb of clause (a ). ( 32 ) MOREOVER the expression whether in their capacity as such or as members or creditors of the company or otherwise does not fit in with the contention of the learned Solicitor General. ( 32 ) MOREOVER the expression whether in their capacity as such or as members or creditors of the company or otherwise does not fit in with the contention of the learned Solicitor General. That expression makes it clear that the interests which are particularly to be mentioned by the concerned persons are not interests which they hold or possess as such concerned persons in the company but also or otherwise. This is a clear indication of the mind of the Legislature that the interests which a director etc. has to mention in the statement is not only the interests which he holds or possesses as such director but all the interests which he holds or possesses in any other capacity. In my judgment the section is cast in the widest possible terms. It states in express terms that the interests which the director possesses not only as a member or a creditor but any other interests which he possesses in any other capacity has got to be mentioned in the statement under clause (a ). In other words if the director possesses any interest of whatever kind in the scheme then that interest must be stated in the statement accompanying the scheme. ( 33 ) IT would follow from this that the effect on that interest of the scheme must also be mentioned in the statement if and in so far as that effect is different from the material interests which any other person interested in the scheme may have. The learned Solicitor General contends that the last part of the second limb which requires the effect of material interests to be stated supports his submission. His contention is that the expression like interests of other persons refers to the interests of those persons in the company itself and has no relation to the scheme referred to in clause (a ). This argument is untenable. The latter part of the clause says that what is to be mentioned is the effect of the scheme. In other words the effect which has got to be explained is the effect on those interests meaning the interests of the director etc. whether in the company or de hors the company. The effect which is to be explained is the effect of compromise or arrangement. In other words the effect which has got to be explained is the effect on those interests meaning the interests of the director etc. whether in the company or de hors the company. The effect which is to be explained is the effect of compromise or arrangement. Such an explanation is to be given only if and in so far as the effect on those interests is different from the effect on the like interests of other persons. The expression the like interests of other persons obviously has reference to material interest of persons other than those mentioned as concerned persons in clause (a ). The comparison which is to be effected is between the material interests of the concerned persons and the material interests of the non concerned persons. The argument of the learned Solicitor General is based upon the submission that the expression like interests in the last part of clause (a) refers to the interests in the company and to no other interests. In other words according to him the interests of the other persons which require to be compared are the interests in the company itself and in not anything else including the scheme. I cannot agree with this contention. In my judgment the learned Solicitor Generals contention can be correct only if the expression like is equated with the expression the same and I see no reason whatsoever for interpreting the word like in that part of the clause as meaning the same. In my judgment like interests means the interests spoken of in the earlier part of clause (a) and that earlier part refers to material interests. Therefore the comparison which is to be effected as between the effect on the material interests of the concerned persons and the material interests of the non-concerned persons and in every case the interests which are to be compared are the interests in the scheme and not merely the interests in the company alone. Thus in my judgment the meaning of the latter part of the clause is exactly quite the opposite of that which the learned Solicitor General contends for. Thus in my judgment the meaning of the latter part of the clause is exactly quite the opposite of that which the learned Solicitor General contends for. ( 34 ) FOR the aforesaid reasons in my judgment the second limb of clause (A) requires that the statement after mentioning the material interests of the concerned persons must compare those material interests with the material interests of the non-concerned persons and if a comparison of the two sets of interests reveals that the effect of the scheme on the concerned persons is different from its effect on the non-concerned persons then that effect must also be mentioned in the statement. ( 35 ) THE learned Solicitor General contends that even if I do not agree with his submission regarding the construction of clause (a) there is one more question which requires to be considered. He contends that the true construction of clause (a) aforesaid is that each concerned person is required to mention his own interest and nothing more. In other words each concerned person is not required to mention the interests of the other concerned persons. He contends that this construction follows from sub-section (4) of section 393. He argues that if the law were that every concerned person is required to mention not only his own material interests but also those of every other person concerned then it will lead to a situation where a person will come to be punished for a fault committed by someone else. He argues that one concerned person may not be in possession of all the facts relating to the material interests of the other concerned persons and it is highly improbable that the Legislature can have intended to punish a person for a default committed by another person. He argues that therefore sub-section (4) must be so construed that it will punish only those who actually fail to communicate their own interests and of none else. Thus the learned Solicitor General contends that the interests which each of the five brothers possesses cannot be said to be a material interest. He contends that this will be so only if the interests of all the five brothers are combined together. Thus the learned Solicitor General contends that the interests which each of the five brothers possesses cannot be said to be a material interest. He contends that this will be so only if the interests of all the five brothers are combined together. Therefore his contention is that as there is no obligation on the five brothers to mention the interests of all of them combined together and the re is only an individual obligation on each of them under clause (a) aforesaid there is no obligation to mention the interests of any of the brothers as the interests of none of them was singly a material interest. I am unable to agree with any of these submissions. A plain reading of sub-section (4) makes it quite clear that that sub-section makes the company and every officer of the company criminally responsible for every default under the section. That sub-section punishes every default which arises out of non-compliance with the requirements of any part of section 393. That sub-section casts a duty not only on persons who hold material interests to comply with the requirements of the sub-section but casts that duty also on the company and every officer of the company. The latter two cannot be said to be persons who are interested in the interests of the concerned persons. If the contention of the learned Solicitor General is upheld then the company and the officers of the company cannot be held responsible under sub-section (4) under any circumstance and the provision in respect of these persons in that respect will be infructuous. In my judgment the true legal position is that it is the duty of every officer of the company and the company to acquaint himself or itself with the material interests of every other concerned person such as the director. managing partner or manager of the company and to mention that interest and to explain its effect in the statement. That is the primary duty which has been cast upon the concerned person. If they fail in this duty then they are responsible for the breach of that duty and will be liable to be punished under sub-section (4 ). But the duty which is cast on these persons is not an absolute one. The duty which is cast on them is to make a reasonable enquiry in the matter of the material interests of others. But the duty which is cast on these persons is not an absolute one. The duty which is cast on them is to make a reasonable enquiry in the matter of the material interests of others. If they discharge this duty then they are safe but if they fail in this primary duty then they will be responsible under sub-section (4 ). In order that the concerned parsons may not come to be punished if they discharge the aforesaid duty and default comes to be made on account of the default or negligence or perversity of some other person the proviso to sub-section (4) seems to have been enacted. That proviso enacts in specific terms that a person shall not be punishable under sub-section (4) if he shows that default was due to the refusal of any other person being a director managing director managing agent secretaries and treasurers manager or trustee for debenture holders to supply the necessary particulars as to his material interests. In other words if sub-section (4) is read together with the proviso the effect is that every concerned person who makes an honest attempt to acquaint himself with the material interests of all the concerned persons but is unable to furnish information on account of the refusal of those other concerned persons then he will not be criminally responsible. That the aforesaid construction is the correct construction also follows from the provisions contained in sub-section (5 ). If any concerned person has interest in the company or the scheme which is material within the meaning of clause (a) it is necessary that he should furnish that information to the company and the other concerned persons and if he fails to do so then he renders himself liable to be punished under sub-section (5 ). This is an additional criminal liability of a kind other than the one imposed by sub-section (4) which is cast on all the concerned persons. This is an additional criminal liability of a kind other than the one imposed by sub-section (4) which is cast on all the concerned persons. Therefore the scheme of the penal provisions in section 393 appears to be that it is the duty of every concerned person to bring to the notice of the company and other concerned persons his own material interests and that it is the duty of every concerned person and the officers of the company to make an honest attempt to acquaint himself with the material interests of all other concerned persons If there is any breach of any of these two duties then the person renders himself criminality responsible. ( 36 ) IN my judgment therefore the true construction of clause (a) to section 393 of the Indian Companies Act is that it requires the material interests which every person concerned possesses not only in the company but also in the scheme to be Stated by all the other persons concerned and if the latter part of clause (a) applies then the effect thereof must also be mentioned. Under the circumstances in my judgment the directors and the managing agents of the Sidhpur company should have mentioned in the statement all the interests which each one of them possessed in the scheme and if the effect of the scheme on those interests was different from the material interests of other persons interested in the same scheme the same should have been mentioned and explained to the shareholders. I have no doubt whatsoever that both the facts on which Mr. Amin relies are material interests and they should have been mentioned in the statement. If the scheme is to be approved then every shareholder of the Bombay company will get for every share held by him therein 1 3/4 shares in the Sidhpur company. That is an interest which the shareholder of the Bombay company has in the scheme itself. Under the scheme he is to get 3/4ths share more than the shareholder of the Sidhpur company. Therefore the interest which the shareholder of the Bombay company will be acquiring in the Sidhpur company will be a material interest. That is an interest which the shareholder of the Bombay company has in the scheme itself. Under the scheme he is to get 3/4ths share more than the shareholder of the Sidhpur company. Therefore the interest which the shareholder of the Bombay company will be acquiring in the Sidhpur company will be a material interest. Though the directors and the managing agents of the Sidhpur company are not interested in this mater as such directors and managing agents but they are interested therein only as shareholders of the Bombay company even then under clause (a) it was necessary for the directors and the managing agents to mention their above interests in the statement under clause (a ). ( 37 ) IT is quite obvious that the effect on the shareholders of the Bombay company of this interest in the scheme is different from the like interest of the shareholders of the Sidhpur company in the same scheme. The effect of the allotment of shares to the shareholders of the Bombay company to the directors and the managing partners will be that they will have a majority of 57% and thus they will have a dominant voice in the management of the company. From the point of view of the opposing shareholders who do not happen to he directors or partners in the managing agency it is quite obvious that the effect of the allotment of the shares to the directors and the partners in the managing agency will be to give the latter such a dominant voice that if they happen to act together they will be in a position to get even a special resolution passed by securing only 1 % vote from the balance of shareholders. Therefore it is quite clear that the interests which the directors and partners in the managing agency will be acquiring under the scheme will be material interests and the effect which the scheme will have on the interests of the directors and partners in the managing agency will be materially different from the effect which the scheme will have on the material interests of the Sidhpur shareholders. Whereas the Sidhpur company at present is a public limited company in which the public has a dominant voice and whereas the managing agents and the directors even if they were to combine together will not have more than 29 to 30 % voice in the administration of the company the result of the present amalgamation from the point of view of the Sidhpur shareholders will be that one section will have definitely a voice to the extent of 57 % and all the office-bearers of the Sidhpur company combined together will have such a dominant voice that they will be able to command a majority of 74 %. In my judgment this aspect of the scheme is an important and a material aspect and it should have been brought to the notice of the Sidhpur shareholders. Inasmuch as the same has not been done in my judgment a breach of clause (a) to section 393 has been committed. [ The rest of the judgment is not material for the report ] .