HINDUSTAN LEVER EMPLOYEES' UNION v. HINDUSTAN LEVER LIMITED AND ORS.

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A trader or any class of traders;

(ii) a single or isolated action of any person in relation to any trade; 11

Section 10 empowers the Commission to enquire into any restrictive trade practice or any monopolistic trade practice. Section 12A empowers the Commission to issue temporary injunction, if it is proved that 'any undertaking or any person is carrying on, or is about to carry on, any monopolistic or any restrictive, or unfair, trade practice and such monop- olistic or restrictive, or unfair, trade practice is likely to affect prejudicially the public interest or the interest of any trader, class of traders of traders ( generally or of any consumer or consumers generally'. Chapter III of MRTP Act dealt with concentration of economic power. Part-A of this Chapter (Sections 20 to 26 and also Section 28) was deleted by the MRTP Act, 1991 with ~ffect from 27.9.91. Part III-A (Sections 30A and 30G) which dealt with restriction on acquisition and transfer of shares by certain D • body corporates was also deleted from the said date. Section 23 specifically dealt with merger, amalgamation and take over was to the following effect

"23. Merger, amalgamation and take over. - (1) Notwithstanding anything contained elsewhere in this Act or in any other law for E the time being in force.-

(a) no scheme of merger or amalgamation of two or more un- tlertakings, to which this Part applies with any other under- taking; F (b) no scheme of merger or amalgamation of two or more un- dertakings which would have the effect of bringing into exist- ~nce an undertaking to which clause (a) or clause (b) of section 20 would apply;

shall lie sanctioned by any Court or be recognised for any purpose G or be given effect to unless the scheme for such merger or amal- gama\ion has been approved by the Central Government under this section."

The intention behind deletion of Section 23 is obvious : the require- H ment of prior approval of the Central Government before sanctioning a

HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. (SEN, J.] 761 scheme of merger or amalgamation has been done away with. The effect of the deletion of this section cannot be r.ullified by giving an unnatural and artificial interpretation of the words of the statute.

It is being argued that even though Section 23 has been deleted, their are other provisions in the Act under which it is necessary to have prior sanction of the Central Government or MRTP Commission before a Scheme of Amalgamation or merger can be sanctioned. If this argument is to be accepted, then in the first place it has to be held that the provisions of Section 23 were wholly unnecessary and otiose, because even otherwise sanction or clearance of the Central Government was a condition prece- dent for effecting a scheme of amalgamation or merger. Such a construe- C tion must be avoided. The enquiry must be as to what was the mischief 'J which was sought to be cured by the Legislature by the amendment. By deleting Section 23, the Legislature removed the requirement of prior approval of the Central Government to a scheme of merger before the Court could sanction it. D Section 27A and section 27B are the only sanctions in Chapter III of the Act which have been retained by the Legislature. Section. 27 deals with division of undertaking and enables the Commission in the circumstances specified in that section, to pass an order for the division 01 any trade or undertaking or inter-connected undertaking, into such number of under- E taIcings as the circumstances of the case' may justify. Section 27A empowers the Central Government to protect severance of inter-connection between undertakings. Section 27B lays down the manner in which any order passed under Section 27 or Section 27A shall be carried out. The provisions as to restriction on the acquisition and transfer of shares by certain bodies corporate (Section 28 to Section 30G) have been entirely deleted. The intention of the Legislature is clear. A merger or amalgamation is not now subject to the prior approval of the Central Government. But, if the working of the company is found to be ,prejudicial to public interest or has led to the adoption in monopolistic or restrictive trade practice, the Central Government may , after being satisfied as to the requirement of the section or division of the undertaking, act according to law.

We are unable to uphold the contention of Ms. Jaising that MRTP Commission erred in law in not passing an order of injunction under Section 12A of the Act, restraining the implementation of the Scheme of H

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A Amalgamation. We are of the view that it was not necessary to obtain any prior approval from the Central Government or the MRTP Commission before the Scheme could be sanctioned by the Court. This requirement has been specificalfy deleted from the statute.

As a result of the amalgamation, if it is found that the working of the B Company b being conducted in a way which brings it within the mischief of the MRTP Act, it would be open to the authority under the MRTP Act to go into it and decide the controversy as it thinks fit.

Mr. Andhyarujina has argued that the concept of applicability of 1 C monopolistic trade practice under Chapter IV or restrictive trade practice or unfair trade practice under Chapter V, necessitates that there must be a 'trade' as defined under Section 2(a) and 'trade practice' as defined < under Section 2(u). He has further contended that a company when it allots shares is not tr~ding in shares. Further under Section 77 of the Companies Act, a company cannot buy its own shares. Therefore, there can no question of a company trading in its own shares or unlawful trade practice at this stage.

This controversy has got another aspect which has been highlighted by Dr. Dhavan and Mr. R.K. Jain. It has been argued that a very large company is coming into existence which will have substantial share of the market. A for~ign company will have controlling interest in HLL after amalgamation. this is against public policy. In my judgment, what has been expressly authorised by the statute cannot be struck down as being against the public policy. A foreign company under the new economic policy of the Governme!ll has been allowed to acquire controlling share of any F Indian company. This has been done by express amendment of the Foreign Exchange Regulation Act.

Under Section 29 of the Foreign Exchange Regulation Act (as it stood originally), a person resident outside India or a company (other than G banking companies) which was not incorporated in India or in which the non-resident interest was more 40%, could not carry on business in India or establish in India a branch office or other place of business. Nor could such a person or company acquire the whole or any part of any undertaking in India of any company carrying on any trade, commerce or industry or purchase the shares in India of any such company. The object of Section, H 29, inter alia was to ensure that a company (other than banking company)

HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN, I.) 763

in which the non-resident interest was more than 40% must reduce in to a A · level not exceeding 40% (Needle Industries (India) Ltd. and Others. v. Needle Industries Newey (India) Holdings Ltd. and others, AIR (1981) SC 1298). But, now this restriction of 40% has been removed by an amend- ment by the Act 29 of 1993. A company in which non-resident interest is more than 40% can carry on business without having to obtain permission B from the Reserve Bank of India. The underlying idea of this liberalisation . is clear, Non-resident persons were being invited to invest in India and/or in Indian companies. If any non-resident invests in Indian company, it is but natural that dividends payable by an Indian company will be enjoyed by the non-resident. All other rights that a shareholder enjoys by virtue of the shareholding will be enjoyed by the non-resident Merely because a C foreign shareholder acquires 51 % shares in an Indian company it cannot be said that this is against public interest or public policy.

In this connection it should also be noticed that Section 11 of Foreign Exchange Regulations Act, 1973 which had empowered the Reserve Bank D to put restrictions on transfer of any asset in India to a person resident outside India or a person intending to become resident outside India, has now been repealed with effect from 8.1.1993 by the Amending Act 29 of · 1993. Here again the intention of the legislature is quite clear. The entire object is to allow the non-residents to do business in India and to deal with assets in India with greater freedom. E

In view of all these, it is difficult for us to uphold the contention that the Scheme of Amalgamation is against public interest. Merely because 51% of the shares of HLL is being given to a foreign company, the Scheme cannot be said to be against public interest. The Foreign Exchange Regnla- F tion Act has been amended specifically to encourage foreign participation in business in India. The bar to having more than 40% shares in an Indian

, Company by a non-resident has been lifted. The Amending Act 29 of 1973 is not under challenge. In onler to give greater freedom to the companies for doing business in India, the MRTP Act has been amended. Prior approval of Government of India is not a necessary for amalgamation of companies any more. In fact, it is in public interest that TOMCO with its G

60,000 shareholders and also a very large work-force does not deteriorate into a sick company.

Nor do we think that 'public interest' which is to be taken into H

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A account as an f;lement against approval of amalgdlllation would include a mere future possibility of merger resulting in a situation where the interests of the consum~r might be adversely effected. If, however, in future the working of the Company turns out to be against the interest of the con- sumers or the employees, suitable corrective steps may be taken by ap- propriate authqrities in accordance with law. As has been said in the case B of Fertilizer Corporation Kamgar Union v. Union of India, [1981) 2 SCR 52 at page 77 : " .......... .it ic. not a part of the judicial process to examine entrepreneurial activities to forret out flows. The Court is least equipped for such oversights. Nor, indeed, it is the function of the judges in our constitutional scheme." Now merely because the scheme envisages allot- C men! of 51 % equity shares to Unilever, the scheme cannot be held to be against public interest.

Next it was argued on behalf of the employees of TOMCO that the Scheme will adversely affect them. This argument is not understandable. D The Scheme has fully safeguarded the interest of the employees by provid- ing that the terms and conditions of their service will be continuous and uninterrupted service and thei: service conditions will not be prejudicially affected by re,ason of the Scheme. The grievance made, however, is that there is no job security of the workers, after the amalgamation of the two Companies. It has been argued that there should have been a clause in the E Scheme ensuring that no retrenchment will be effected after the amalgama- tion of the two Companies. There was no assurance on behalf of the TOMCO that the workers will never be retrenched. In fact, the perfor- mance of TOMCO over the last three years was alarming for the workers. It cannot be said that after the amalgamation they will be in a worse position than they were before the amalgamation.

We do 'not find that the amalgamation has caused any prejudice to the workers ol TOMCO. The stand of the employees of HLL is eqnally incomprehensible. It has been stated that if the TOMCO employees con- tinue to enjoy the terms and conditions of their service as before, then two classes of e'l'ployees will come into exi~tence. Terms and conditions of HLL employees were much worse than thlit of TOMCO employees. U there are two sets of terms and conditions under the same company, then a case of discrimination will arise against the HLL employees.

H We do not find any substance in this contention. The TOMCO

HINDUSTAN LEVER EMPLOYEES UNION'· HINDUSTAN LEVER LTD. [SEN, J.] 765

employees will continue to remain on the same terms and conditions as A before. Because of this arrangement, it cannot be said that a prejudice has been caused to HLL employees. They will still be getting what they were getting earlier. TOMCO employees who were working under better terms and conditions, will continue to enjoy their old service conditions under the new management. B Fear has been expressed both by TOMCO employees as well as HLL employees that the results of the amalgamation would necessitate stream- lining of the operations of the enlarged Company and the workers will be prejudiced by it.

No one can envisage what will happen in the long run. But on this c hypothetical question, the Scheme cannot be rejected. As of now, it has notbeen shown how the workers are prejudiced by the Scheme.

Lastly, there was a vague allegation of ma/a fide, because of some trade arrangement between Unilever and Tata Sons Limited. It appears that three properties belonging to Tata Sons Limited, were being used by TOMCO as licensee with no enforceable rights. Occupation was purely permissive. TOMCO never considered these properties or rights relating to thes.e properties as their assets. They were never shown in the balan- 'cesheet of the Company. Tata Sons could get back possession of these properties by revoking the licence. It was not necessary for Tata Sons to obtain the help of HLL or Unilever for getting back the possession. Under the Scheme, the properties are to be transferred at market rate, which has to be independently assessed. The determination of the market price has been entrusted by the Court to a reputed valuer. There is no reason to doubt their competence. No case of mala fide has been established. F An argument was also made that as a result of the amalgamation, a large share of the market will be captured by the HLL. But there is nothing unlawful for illegal about this. The Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But this is not G the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgama- tion arose out of a sharp decline in the business of TOMCO. Dr. Dhavan has argued that TOMCO is not yet a sick Company. That may be right, H

76(, SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R. , A but TOMCO at this rate will become a sick Company, UJ!less something can be done to improve its performance. In the last two years, it has sold its investments and other properties. If this proposal of amalgamation is not san!'lioned, the consequence for TOMCO may be very serious. The shareholders, the employees, the creditors will all suffer. The argument that the Company has large assets is really meaningless. Very many cotton mills and jute mills in India have become sick and are on the verge of liquidation, even though they have large assets. The Scheme has been sanctioned almost unanimously by the shareholders, debenture holders, secured creditor~, unsecured creditors and preference shareholders of both the Companies. There must exist very strong reasons for withholding sanction to such a scheme. Withholding of sanction may turn out to be disastorous for 60,dOO shareholders of TOMCO and also a large number of its employees.

In view of the aforesaid, the Appeals are dismissed. The Special Leave Petitions are also dismissed. There will be no order as to costs. D ORDER

In view of the separate but concurring judgments, the appeals and petitio~ are dismissed. But the parties are left to bear their own costs.

RA. Appeal and petitions dismissed.