The judgments are printed in the order in which they are given in the certified copy. - Ed. R. M. SAHAI, J.:- Merger under the Companies Act, 1956 (in brief the Act) of the two big companies - one, Hindustan Lever Limited (HLL), a subsidiary of Uni Lever (UL), London based multi national company, and other Tata Oil Mills Company Ltd. (in brief TOMCO) the first Indian company founded in 1917 and public since 1957 which has been found by the High Court to be still not financially insolvent or sick company was unsuccessfully challenged in the High Court by few rather nominal shareholders of TOMCO, Federation of Employees Union of both the TOMCO and HLL, Consumer Action Group and Consumer Education and Research Centre. The attack varied from statutory violation, procedural irregularities of provision of the Act to ignoring effect of the provisions of Monopolies and Restrictive Trade Practices Act, 1969 under valuation of shares, its preferential allotment on less than the market price to the multi national, failure to protect the interest of employees of both the companies and above all being violative of public interest. The High Court was not satisfied that either the merger was against public interest or that the valuation of the shares was prejudicial to the interest of the shareholders of TOMCO or that the interest of the employees was not adequately protected. It was held that there was no violation of Section 39(1)(a) of the Act and the claim that the disclosures in the explanatory statement were not as required was without basis as it was not establish that the statement did not disclose correct financial position of TOMCO. Nor there was anything to show that the material was not disclosed. The court held that the petitioner failed to establish any fraud or prejudice. On valuation of share for exchange ratio the Court found that a well reputed valuer of a renowned firm of chartered accountants and a director of TOMCO determined the rate by combining three well known methods, namely, the net worth method, the market value method and the earning method. The figure so arrived could not be shown to be vitiated by fraud and mala fide and the mere fact that the determination done by slightly different method might have resulted in different conclusion would not justify interference unless it was found to be unfair. The figure so arrived could not be shown to be vitiated by fraud and mala fide and the mere fact that the determination done by slightly different method might have resulted in different conclusion would not justify interference unless it was found to be unfair. And in that the petitioner failed miserably. The High Court did not agree that the approval to scheme of merger should be withheld till the complaint filed before Monopolies and Restrictive Trade Practices Commission was not finally decided as the jurisdiction exercised by the High Court under the Act and that by the Commission under MRTP Act were entirely different. Nor did it find any merit in the challenge that interest of employees of the two companies was not adequately taken care of. It was held that the service conditions of TOMCO, the transfer company, having been protected it could not claim it to be prejudicial either because they were not assured of same conditions of service as was operation in HLL or that there was no similar provision protecting the interest of HLL employees. The apprehension of the employees against probable retrenchment as the employees of HLL were already surplus was rejected as of no substance since such disputes if necessary could be raised in labour court. On preferential allotment of shares of UL on less than market value the Court held that HLL was holder of 51 share from before any allotment therefore the allotment which placed them at par with same holding was neither illegal nor violative of public interest. 2. Same grievances have been reiterated by the shareholders, the Employees Union and the Consumer Action Group before this Court with fresh dressings and flourish. The sentinel nature of jurisdiction exercised by the High Court in company jurisdiction was emphasised with vehemence. It was urged that the High Court which is expected to act as guardian in company matters failed to exercise its jurisdiction and was swayed by considerations which were neither legal nor relevant. Attempt was made to show that the determination of valuation was vitiated as the chartered accountant to whom the duty was entrusted did not perform its functions objectively and in accordance with settled financial norms and practice and its action was vitiated as he was one of the directors of the TOMCO. Attempt was made to show that the determination of valuation was vitiated as the chartered accountant to whom the duty was entrusted did not perform its functions objectively and in accordance with settled financial norms and practice and its action was vitiated as he was one of the directors of the TOMCO. Comparative figures of the shares of the two companies, their market value, their holding in the market etc. were placed to demonstrate that the calculation was vitiated. 3. But what was lost sight of that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company Court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company which was being merged. The Courts obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as even though the Chartered Accountant who performed this function was a director of TOMCO but he did so as a member of renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of shareholders of TOMCO by the High Court and it has been found that the determination did not suffer from any infirmity. The company Court, therefore, did not commit any error in refusing to interfere with it. May be as argued by the learned counsel for the petitioner that if some other method would have been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95 of the shareholders who are the best Judge of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by Courts as, certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. But since admittedly more than 95 of the shareholders who are the best Judge of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by Courts as, certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The Court is least equipped for such oversights. Nor, indeed, is it a function of the Judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be subjected to inspection by the Court. To do so, in incompetent and improper and, therefore, out of bonds. Nevertheless, the broad parameters of fairness in administration, bona fides in action and the fundamental rules of reasonable management of public business, if breached will become justiceable. Fertiliser Corporation Kamgar Union (Regd.) Sindri v. Union of India, (1981) 2 SCR 52 : ( AIR 1981 SC 344 ). ( See Buckley on Companies Act, 14th Ed. Pp.473 & 474 & Palmer on Company Law, 23rd Ed. para 79.16). 4. Nor is there much merit in the claim of the employees that their interest had not been adequately protected. The scheme of amalgamation provides that all the staff, workmen or other employees in the service of the transferor company (TOMCO) immediately preceding the effective date shall become the staff, workmen and employees of the transferor company. Clause 11.1 provides that their services shall be deemed to have been continuing and not have been interrupted. Clauses 11.2 and 11.3 protect the interest by providing that the terms and conditions of such employees shall not be less favourable and all benefits such as PF etc. shall stand transferred to the HLL. The grievance of the employees that no safeguard has been provided for Hindustan Lever Employees Union appears to be off the mark as it is the interest of the employees of TOMCO which had to be protected. Even the submission that merger will create unemployment or that it may result in many employees of the TOMCO being rendered surplus does not carry much weight as these are matters which can be taken care of by the Labour Court if the contingency arises. The learned counsel for the petitioner time and again took strong exception to the observation made by the High Court that any dispute about retrenchment etc. The learned counsel for the petitioner time and again took strong exception to the observation made by the High Court that any dispute about retrenchment etc. could be adjudicated by the Labour Court. He vehemently submitted that the availability of remedy after retrenchment should not have coloured the vision of the Court to adjudicate upon the reasonableness of the scheme. The submission overlooks the primary duties and functions of a company Court in matters of merger. When the Court found that service conditions of the merged company shall not be to their prejudice it was fully justified in rejecting the claim of employees as it was neither unfair nor unreasonable. Further the Court in its anxiety to be fair to the employees recorded the statement of the learned Advocate-General who appeared for HLL that no employee of HLL has been rendered surplus and in such contingency the company has resorted to friendly handshake by either giving lump sum or pension. A scheme of amalgamation cannot be faulted on apprehension and speculation as to what might possibly happen in future. The present is certain and taken care of by Clauses 11.1, 2 and 3 of the scheme. And unfriendly throwing out being amply protected by taking recourse to Labour Court no unfairness arises apparent or inherent. Nor the claim that merger shall result in, synergies can render the scheme bad. Improved technology and scientific method results in better employment prospects. Anxiety should be to protect workers and not to obstruct development and growth. May be that advanced technology may reduce the manpower but so long those who are working are protected they are not entitled to hinder in modernisation or merger under misapprehension that future employment of same number of workers may stand curtailed. The wage differential arising between employees of two companies cannot result in making the merger as unfair since the service conditions of TOMCO workers having been protected they cannot claim that unless they are paid the same emoluments as is being paid by Hindustan Lever the merger was unjust. Various subsidiary submissions that the workers, shareholders were not permitted to attend the meeting or that material facts were concealed from them, does not appear to be correct as when more than 95 of the shareholders have agreed to the valuation determined by the chartered accountant all these procedural irregularities cannot vitiate the determination. 5. Various subsidiary submissions that the workers, shareholders were not permitted to attend the meeting or that material facts were concealed from them, does not appear to be correct as when more than 95 of the shareholders have agreed to the valuation determined by the chartered accountant all these procedural irregularities cannot vitiate the determination. 5. What requires, however, a thoughtful consideration is whether the company Court has applied its mind to the public interest involved in the merger. In this regard the Indian law is a departure from the English law and it enjoins a duty on the Court to examine objectively and carefully if the merger was not violative of public interest. No such provision exists in the English law. What would be public interest cannot be put in a straight jacket. It is a dynamic concept which keeps on changing. It has been explained in Blacks Law Dictionary as, something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity whereas the interest of the particular locality which may be affected by the letters in question. Interest shared by citizens generally in affairs of local, State or national Government. It is an expression of wide amplitude. It may have different connotation and understanding when used in service law and yet a different meaning in criminal law than civil law and its shade may be entirely different in Company Law. Its perspective may change when merger is of two Indian companies. But when it is with subsidiary of foreign company the consideration may be entirely different. It is not the interest of shareholders or the employees only but the interest of society which may have to be examined. And a scheme valid and good may yet be bad if it is against public interest. 6. Section 394 casts an obligation on the Court to be satisfied that the scheme for amalgamation of merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the Courts have evolved, the principle of, prudent business management test or that the scheme should not be a device to evade law. But when the Court is concerned with a scheme for merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure that merger shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decision for Custina Re Hoare, 1933 All ER (Rep) 105 Ch D and Bugle Press Ltd., 1961 Chancery Division 270 that the power of the Court is to be satisfied only whether the provisions of the Act have been completed with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the Court in this regard is comprehensive. 7. In this case it was specially claimed that the aggregation was contrary to public interest. It was supported by relying on the terms of agreement wherein it is mentioned that immoveable assests of TOMCO, except those which are specially excluded, shall stand, transferred to HLL. It was urged that even though the valuation of such assests was nearly Rs. 800/- crores it was being transferred for Rupees 30 crores only. It was supported by relying on the terms of agreement wherein it is mentioned that immoveable assests of TOMCO, except those which are specially excluded, shall stand, transferred to HLL. It was urged that even though the valuation of such assests was nearly Rs. 800/- crores it was being transferred for Rupees 30 crores only. Another objection violating public interest, according to the learned counsel, was that as a result of merger the share holding of UL from 51 was reduced to approximately 49 but it was being brought on par by transferring 29, 84, 43, 437 equity shares by preferential allotment by reducing the price of shares with the result that the multi-national shall have enormous advantages which is not conducive to the society. The learned counsel submitted that there were only two renowned competing companies who were manufacturing soap and detergent. With the merger of TOMCO with HLL there would be no competition and it would result in creating virtual monopoly in favour of HLL which could result not only in deterioration of quality, but in escalation of price. The learned counsel pointed out that even though HLL was a subsidiary of UL and claims to have the benefit of technical know how etc., yet the quality of soaps produced by TOMCO was much better as compared to HLL. 8. In reply it was urged that the maintenance of 51 of paid-up equity shares of UL was distinctively advantageous to HLL because the UL has become a source of major strength of HLL and has been responsible in several ways for its phenomenal growth and prosperity. This status, it was urged, enabled HLL to have from UL free of cost the benefits of Research and Development technology, knowhow, marketing support, both domestic and international including brand names, management systems, training facilities and other resources in normal course of business. It was further urged that as a result HLL being a subsidiary of UL, HLL is able to utilise international brand names of UL, such as soaps under the brand names Lux, Lux International, Lifebuoy, Pears, Dove, Surf, Sunlight, etc. It was urged that the price of Rs.105/- per share comprising of Rs10/- towards the capital and Rs. It was further urged that as a result HLL being a subsidiary of UL, HLL is able to utilise international brand names of UL, such as soaps under the brand names Lux, Lux International, Lifebuoy, Pears, Dove, Surf, Sunlight, etc. It was urged that the price of Rs.105/- per share comprising of Rs10/- towards the capital and Rs. 95/- towards premium for preferential allotment to UL was worked on the basis of norms jointly evolved by Apex Chambers of Commerce and Industries operating at the national level, such as ASSOCHAM with Public Financial Institutions which own substantial shareholding in the publicly quoted companies, including HLL. It was further stated that the company had taken advice from the Merchant Banking Division of Industrial Credit and 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 and Investment Corporation 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 offer to do 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 earning multiple of 15 as per the last published accounts of the company available at the time of such disposal. It was 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. The learned counsel urged that in pursuance of the policy, on 29th May, 1992 the Government of India repealed the Capital Issues Control Act, 1947 by Ordinance No. 9 of 1992 with the result that there was no control on the issues of shares. The learned counsel urged that in pursuance of the policy, on 29th May, 1992 the Government of India repealed the Capital Issues Control Act, 1947 by Ordinance No. 9 of 1992 with the result that there was no control on the issues of shares. The determination, it was claimed, was in accordance with the guidelines issued by the SEBI on 11th and 17th June, 1992 which required existing companies wishing to raise foreign equity up to 51 by taking a decision of the shareholders in a special resolution under Section 81(1)(A) of the Act. The learned counsel submitted that even though subsequently the State Bank of India has altered its policy, but that would not affect the determination or valuation done earlier as it was in accordance with the then existing guidelines and was approved by nearly 99 of the shareholders of the company. The learned counsel urged that in these circumstances, the High Court having found that the price of Rs. 105/- having been worked out on the basis of price earning multiple of 15 based on the last published balance sheet of HLL, it was fair and reasonable and it was not liable to interference by this Court. Reliance was placed on Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333 , where this Court approved the principle laid down by Lord Davey in Hilder v. Dexter, 1902 AC 474 at 480 that there was no law which obliged a company to issue its share at par because they were saleable at a premium in the market. It was vehemently argued that since it were the share holders who were primarily concerned with the companys finances and they have decided almost unanimously to allot the share to the parent company at the price of Rs.105/- it cannot be urged that the members of the HLL were not acting in the interest of the company as a whole. 9. Each of these challenges claimed to be violative of public interest have to be examined in the prevailing atmosphere which opted for liberalisation of the Government policies to promote economic growth of the country. What is remarkable is that the Legislature itself has amended Foreign Exchange Regulation Act, 1973 by Act 29 of 1993 (FERA for short), the Monopolies and Restrictive Trade Practices Act, 1969 and Companies Act, 1956 by Act 58 of 1991. What is remarkable is that the Legislature itself has amended Foreign Exchange Regulation Act, 1973 by Act 29 of 1993 (FERA for short), the Monopolies and Restrictive Trade Practices Act, 1969 and Companies Act, 1956 by Act 58 of 1991. The amendment in MRTP Act was effected as : "The basic philosophy behind the MRTP Act was never to inhibit industrial growth in any manner but to ensure that such growth is channelised for the public good and is not instrumental in perpetuating concentration of economic power to the common detriment. With the growing complexity of industrial structure and the need for achieving economies of sale for ensuring higher productivity and competitive advantage in the international market, the thrust of the industrial policy has shifted to controlling and regulating the monopolistic, restrictive and unfair trade practices rather than making it necessary for certain undertakings to obtain prior approval of the Central Government for expansion, establishment of new undertakings, merger, amalgamation, take over and appointment of Directors. It has been the experience of the Government that pre-entry restrictions under the MRTP Act on the investment decision of the corporate sector has outlived its utility and has become a hindrance to the speedy implementation of industrial projects." In pursuance of this objective, Sections 20 to 26 were repealed. Section 23 of it which empowered the Commission to examine the scheme of amalgamation or merger is no more on the statute book. The argument of the petitioners that the Commission being Court of primary jurisdiction the Company Court should have stayed its hands and awaited the decision of the Commission does not appear after amendment to be sound. Effect of the merger resulting in monopoly is already pending before the Commission. Therefore, no further comment is called for. 10. In FERA there was a restriction in holding of assests by non-residents under Section 11 of the Act. Section 29 prohibited a company which was not incorporated in India or in which the non-resident interest was more than 40 from establishing in India a branch, office or any part of the undertaking without permission from the Reserve Bank of India. Section 31 prohibited any company in which non-resident Indian had more than 40 share from acquiring or holding any immoveable property in India. Section 31 prohibited any company in which non-resident Indian had more than 40 share from acquiring or holding any immoveable property in India. By Act 29 of 1993 Section 11 has been repealed and Sections 29 and 31 have been amended and there is no restriction now on a non-resident company holding in excess of 40 share. In Companies Act, Sections 108-A to 108-I have been added. 11. The scheme of amalgamation does not run counter to any legislative provision or policy of the Government. The claim of the petitioners that the transfer for a paltry sum of Rs. 30 crores was mala fide as it was a quid pro quo arrangement between UL and Tata Sons Limited by which the immoveable assests of TOMCO were virtually given to Tata Sons Limited and in lieu of UL has been allotted 2984347 equity shares of the face value of Rs10/- each at the price of Rs.100/- per share so as to ensure that the share of UL which stood diluted continued to remain at 51 was not found to have any merit as the valuation was determined by renowned and authorised valuers. It was held that sale by open public auction or inviting tenders from general public may have fetched more price due to competition, but that could not result in vitiating the determination of the valuation. The amalgamation cannot be faulted for this reason. 12. Even assuming that the assests are being transferred for a very meagre sum but that by itself would not render the aggreement bad or against public policy. Once the FERA was amended and assets of the Indian company could be transferred to foreign company then the amalgamation cannot be withheld when the shareholders themselves did not raise any objection nor was it raised by financial institutions or statutory bodies. The challenge, therefore, founded on transfer of assests at lower price cannot be upheld as violative of public interest. 13. Transfer of share to a foreign company on under valuation is of course a matter of concern. It is true that the transfer of shares by one company to another company is primarily to be determined by the shareholders and therefore, if the 99 are of the view that the valuation of the shares was reasonable and fair then the Court should be slow to interfere with it. It is true that the transfer of shares by one company to another company is primarily to be determined by the shareholders and therefore, if the 99 are of the view that the valuation of the shares was reasonable and fair then the Court should be slow to interfere with it. But what is necessary to be emphasised is that a shareholder may not be interested in the ultimate effect of allotting shares to a multi-national on a low price valuation, but the Court certainly is. For instance, if the value of the share which has been determined at Rs.105/- for allotment to HLL is hypothetically determined, say at Rs. 210/-, then the result would be that the UL will have to pay more in lieu of getting the shares and that could definitely bring more foreign exchange to the national stream. It is just one illustration to demonstrate that how low pricing of the valuation of share effects the public interest. That the valuation was low-priced was found even by the High Court. Therefore, it is not open to the respondents to argue that the valuation of Rs. 105/- having been accepted by majority of almost all the shareholders, no public interest is involved in it. No further need be said as allotment of shares to UL at Rs. 105/- is not approved by the Reserve Bank of India. It has been challenged before the High Court and is pending adjudication. 14. Even though I have agreed with Brother Sen, J. that the appeals and petitions are liable to be dismissed, but I have added a few words to highlight the expansive power of the Court in public interest while approving the scheme for amalgamation between a subsidiary company of a multi-national and an Indian based company in the liberalised economic policy. SEN, J.:- (For Self and C.J.I.) 15. A Scheme of Amalgamation of two Companies - Tata Oil Mills Company Limited and Hindustan Lever Limited - is the subject matter of dispute in this case. 16. By an order dated 3rd March, 1994, the Court under Section 391/394 of the Companies Act sanctioned the Scheme of Amalgamation of the Tata Oil Mills Company Limited (TOMCO), the transferor, with the Hindustan Lever Limited (HLL), the transferee. 17. 16. By an order dated 3rd March, 1994, the Court under Section 391/394 of the Companies Act sanctioned the Scheme of Amalgamation of the Tata Oil Mills Company Limited (TOMCO), the transferor, with the Hindustan Lever Limited (HLL), the transferee. 17. Aggrieved by the said judgment and order dated 3-3-94, sanctioning the Scheme of Amalgamation as many as five appeals were preferred under Section 391(7) of the Companies Act, 1956 in the Bombay High Court. 18. Appeal No. 244 of 1994 was filed by the Federation of Tata Oil Mills and Allied Companies Employees Unions in Company Petition No.332 of 1993, connected with Company Application No. 250 of 1993. Appeal No. 298 of 1994 was filed by Mr. Rabindra Hazari - a shareholder of TOMCO in Company Petition No. 332 of 1993 connected with Company Application No. 250 of 1993. Appeal No. 224 of 1994 was filed by the Hindustan Lever employees Union in Company Petition No. 333 of 1993 connected with Company Application No. 251 of 1993. Appeal No.301 was filed by Consumer Action Group and other similar Organisations, in Company Petition No.333 of 1993 connected with Company Application No. 251 of 1993. Appeal No. 331 of 1994 was filed by the Consumer Education and Research Centre in Company Petition No. 333 of 1993 connected with Company Petition No. 251 of 1993. 19. The Appeal Court dismissed all the five appeals. The appellants have now come before this Court against the judgment of the Appeal Court dated 18th May, 1994. 20. According to the appellants, the scheme should not be sanctioned for the following reasons :- (A) Violation of Section 393(1)(a) of the Act in not making required disclosures in the explanatory statement. (B) Valuation of share exchange ratio is grossly loaded in favour of HLL. (C) Ignoring the effect of provisions of the Monopolies and Restrictive Trade Practices Act (the MRTP Act). (D) Interest of employees of both the Companies was not adequately taken care of. (E) Preferential allotment of shares less than market price to Unilever which is not in public interest. (F) Mala fides on account of existence of quid por quo between Unilever and Tata Sons Ltd. 21. TOMCO manufactures and sells products like soaps, detergents, toiletries and animal feeds. HLL also manufactures and sells similar products. Both the Companies have their registered office at Bombay. (F) Mala fides on account of existence of quid por quo between Unilever and Tata Sons Ltd. 21. TOMCO manufactures and sells products like soaps, detergents, toiletries and animal feeds. HLL also manufactures and sells similar products. Both the Companies have their registered office at Bombay. TOMCO has more than 60,000 shareholders with the following break-up:- 22 : Tata Group 41 : Financial Institutions (FI) 37 : General Public HLL has nearly 1,30,000 shareholders with the following break-up:- 51 : Unilever PLC (UL) - a Company incorporated under the English Companies Act, having its registered office at London. 16 : FI 33 : General Public Originally, Unilever - the parent Company of HLL - had 100 shareholders in HLL. 22. The decline in the business of TOMCO began in 1990-91. During 1991-92, TOMCO incurred loss of Rs. 13 crores. In the next six months the loss increased to over Rs. 16 crores. The Board of directors of TOMCO considered various alternatives for TOMCO including its association with HLL which was a more prosperous and a larger Company operating in the same fields of activities. Accordingly, the Board of Directors of TOMCO put up a proposal before the Board of Directors of HLL. Both availed of the professional service of Mr. Y. H. Malegam, Senior Partner of M/s. S.B. Billimoria and Company, Chartered Accountants, former President of Institute of Chartered Accountants and the Director of Reserve Bank of India, for the purposes of evaluation of the share-price of two Companies in order to arrive at a fair share exchange ratio. On 19th March, 1993, Mr. Malegam gave a valuation report and recommend an exchange ratio of two equity shares of HLL for every fifteen ordinary shares of TOMCO. The Board of Directors of both the Companies at their separate and independent meetings accepted the recommendation and approved the Scheme of Amalgamation. 23. The Scheme, inter alia, provides for transfer and vesting in HLL of the under taking and business of TOMCO together with assets and liabilities excluding certain assets and / or licence rights to use certain premises. Salient features of the Scheme are to be found in Clauses 1.7(d), 4.5, 11 and 13. Clause 1.7(d) sets out the details of excluded properties in which TOMCO has no more than licensees rights. Salient features of the Scheme are to be found in Clauses 1.7(d), 4.5, 11 and 13. Clause 1.7(d) sets out the details of excluded properties in which TOMCO has no more than licensees rights. Clause 4 provides for transfer of assets (immovable property) to be transferred to companies nominated by Tata Sons Ltd. at fair market value as will be independently assessed. Clause 5 provides that TOMCO shall (before or after the effective date) transfer to Tata Sons Ltd. or its nominee certain investments / shares owned by TOMCO at the then prevailing market value and in the case of the unlisted shares at a value to be determined by Mr. Y.H. Malegam. Clause 11 provides for transfer of employees of TOMCO to HLL on the basis that their services shall be deemed to be continuous and the conditions of service after the transfer shall not be less favourable. Clause 13 refers to preferential allotment of equity shares to UL of face value of Rs. 10/- each at the price of Rs. 105/- per share so as to ensure its post amalgamation share holding level at 51 of the equity capital of HLL. 24. It may be mentioned that (i) investment / shares specified in Clause 5 have been realized and (ii) Clause 4 has been modified by the Company Court (a) by providing for transfer to Companies nominated by the Directors of TOMCO in place of Tata Sons Ltd. and (b) by naming well reputed Chartered Accountants / Government Valuers. 25. In Company Application No. 250 of 1993 filed by TOMCO the Court passed an order of 29th April, 1993 directing to call the meetings of the debenture holders, creditors, ordinary shareholders and preference shareholders on 29th and 30th June, 1993, naming the Chairman of the meetings and calling upon him to submit the report within 21 days after conclusion of the meeting. TOMCO filed the Notices and explanatory statements under Section 39(1)(a) of the Act along with a proxy form before the Company Registrar, who after considering all objections settled the explanatory statements and approved the disclosures made therein. Individual notices of the said meetings together with a copy of the Scheme of Amalgamation, the statement as settled by the Company Registrar and as required under Section 393(1)(a) and a proxy form were sent to concerned members as required by law. On 21st June. Individual notices of the said meetings together with a copy of the Scheme of Amalgamation, the statement as settled by the Company Registrar and as required under Section 393(1)(a) and a proxy form were sent to concerned members as required by law. On 21st June. 1993 a joint communication to shareholders of TOMCO and HLL was also sent. Public notices of the meetings were also issued through the print media. The meeting of the ordinary shareholders was held on 29th June, 1993 and was attended by 1,294 members holding 85,85,009 ordinary shares and by 1,652 members holding 55,18,251 ordinary shares through proxies. In the said meeting amendment was proposed to the effect that the exchange ratio should be 5:15 shares in place of 2:15 shares as envisaged in the Scheme. 99.64 of ordinary shareholders voted against amendment and 99.72 voted in favour of the Scheme as proposed. Debenture holders voted 99 , secured creditors voted 100 unsecured creditors voted 84.30 and preference shareholders voted 100 in favour of the Scheme. The Scheme as proposed was thus approved in all the five meetings by 99.72 of equity shareholders in terms of values and 86.72 in terms of number. 26. In Company Application No. 251 of 1993 filed by HLL also similar direction for convening meeting of the equity shareholders and creditors were issued by the Court on 29th April for convening the meeting on 30th June, 1993. Similar procedure was followed in this also. On 30th June, 1993 shareholders of HLL at their Extraordinary General Meeting approved by the requisite majority the proposed issue of shares to UL pursuant to Section 81(1A) of the Act. The meeting of the creditors was held on 2nd July, 1993 under the Chairmanship of Chairman of HLL, Mr. S.M. Datta, as directed by the Court. The meeting of equity shareholders was attended by 2,528 members including proxies holding 9,59,27,477 equity shares. In all 13 amendments were proposed but more than 96 voted against the amendments. The creditors also voted for the Scheme. 27. On 2nd August, 1993 Judges Summons was taken out by Mr. M.C. Jajoo, praying inter alia for direction to M/s. A.F. Ferguson and M/s. N. M. Raiji & Co., Chartered Accountants, to give their opinion on the valuation report of Mr. Malegam. The Regional Director and the Official Liquidator were given notices of the petitions. 27. On 2nd August, 1993 Judges Summons was taken out by Mr. M.C. Jajoo, praying inter alia for direction to M/s. A.F. Ferguson and M/s. N. M. Raiji & Co., Chartered Accountants, to give their opinion on the valuation report of Mr. Malegam. The Regional Director and the Official Liquidator were given notices of the petitions. In pursuance thereof the Regional Director submitted his report on 9th December, 1993 and Official Liquidator submitted his report for winding up without dissolution under Section 394 of the Act. On 6th January, 1994 M/s. Ferguson and M/s. N.M. Raiji by their joint letter with copy of Mr. Jajoo confirmed that the share exchange ratio determined by Mr. Malegam was proper. 28. The facts stated above were noted in the judgment under appeal and are not in dispute. But a large number of legal issues have been raised in this Court, questioning the Scheme of Amalgamation. 29. Mr. Dholakia, learned counsel appearing for Mr. Jajoo, one of the shareholders of TOMCO, has questioned the justification of the ratio of allotment of shares, 2 shares of HLL in exchange of 15 shares of TOMCO. According to Mr. Dholakia, this ratio is entirely unsafactory and unfair to the TOMCO shareholders. It has been contended that the Board of Directors of TOMCO did not explain the Scheme of Amalgamation in the explanatory statement circulated among the shareholders. In particular, how the share exchange ratio - 15 TOMCO shares to 2 HLL shares - was arrived at, was not stated in the explanatory statement. Instead of circulating the valuation reports, TOMCO informed the shareholders that the reports were available for inspection at the registered office of the Company between 11.00 a.m.to 1.00 p.m. on 14th working days. The shareholders were not told that the joint valuer was none other than Mr. Malegam a Senior Partner of M/s. S.B. Billimoria and Company, and also a Director of TOMCO. Mr. Malegam could not be appointed auditor of TOMCO under Section 226(3) of the Companies Act, 1956. In that view of the matter, Mr. Malegam should not have been appointed Valuer under the Indian Companies Act, 1956. 30. It was next contended that the reasons for the Board accepting certain proposals to make preferential allotment of shares at Rs.105/- per share has not been properly explained. In that view of the matter, Mr. Malegam should not have been appointed Valuer under the Indian Companies Act, 1956. 30. It was next contended that the reasons for the Board accepting certain proposals to make preferential allotment of shares at Rs.105/- per share has not been properly explained. ICICI had given a valuation report stating that this report was only on the basis of the material supplied by HLL and not on the basis of any independent verification. It is also significant that Mr. Malegam was a Director of ICICI. It was also contended that the valuation report was erroneous. A combination of different methods of valuation was adopted, which was clearly against the law laid down by the SC in the case of Commr. of Gift Tax, Bombay v. Smt. Kusumben Mahadevia, 122 ITR 38: ( AIR 1980 SC 769 ). If the valuation was done by the net asset method, the exchange ratio should have been 1:2 in favour of TOMCO. Moreover, market value of the shares of the two Companies was taken at a point of time when the price of TOMCO shares was the lowest for a period of 27 months. Lastly, it was contended that the preferential allotment of shares to Unilever was a part of the Scheme of Amalgamation. The Board should have explained why Rs. 366/- was being paid for every HLL share by TOMCO, when Unilever was paying Rs. 105/- per HLL share. 31. We are unable to uphold any of the above contentions raised by Mr. Dholakia. The overwhelming majority of the shareholders had approved the Scheme at the meeting called for this purpose and had approved the exchange ratio. In fact, a proposal for amendment of the exchange ratio was also rejected by the overwhelming majority of 99 shareholders. There is no reason to presume that the shareholders did not know what they were doing. 32. Being dissatisfied with the valuation made by Mr. Malegam, Mr. Jajoo had insisted for independent valuation and that was done. Two independent valuers - A.F. Ferguson and N.M. Raiji and Co. - had valued the shares and came to the conclusion that exchange ratio of 15:2 was correctly determined by Mr. Malegam. 33. Faced with this situation, Mr. Dholakia sought to produce a valuation report made by another valuer, G. Rai and Co., Chartered Accountants. Two independent valuers - A.F. Ferguson and N.M. Raiji and Co. - had valued the shares and came to the conclusion that exchange ratio of 15:2 was correctly determined by Mr. Malegam. 33. Faced with this situation, Mr. Dholakia sought to produce a valuation report made by another valuer, G. Rai and Co., Chartered Accountants. According to this report, book value of equity share of TOMCO as on 31-3-1992 based on audited and printed balance sheet of the Company was Rs. 57.58 per share whereas book value of equity share of HLL as on 31-12-1992 based on its audited printed balance sheet was only Rs. 28.84 per share. This according to Mr. Dholakia, demonstrated the absurdity of the valuation that had been made of the shares of the two Companies. The exchange ratio was obviously unfair to the shareholders of TOMCO. This report is produced before this Court for the first time. 34. There was no dispute as to what should be the book value of TOMCO share as on 31-3-93. The following share charts of the two Companies were enclosed with the circular letter dated June 21, 1993 addressed to the shareholders of TOMCO and HLL by the Chairman of the two Companies:- HINDUSTAN LEVER LTD. EQUITY SHARE DATA The Market Price as on 17-6-1993 was Rs. 375/- As at 31-12-92 31-12-91 31-12-90 Face value (Rs.) 10.00 10.00 10.00 Book Value per share (Rs.) 23.80 20.75 27.36 Dividend ( ) 42.00 38.50 * 42.00 Earning per share (Rs.) 7.03 5.73 6.29 * On enlarged capital after the issue of bonus shares in the ratio of 1:2. THE TATA OIL MILLS COMPANY LTD. EQUITY SHARE DATA The Market Price as on 17-6-1993 was Rs. 52.50/- As at 31-3-93 31-3-92 31-3-91