BROOKE BOND PAKISTAN LIMITED Versus ASLAM BIN IBRAHIM

This petition has been filed under section 284 read with section 287 of the Companies _ Ordinance, 1984, seeking sanction of this Court for merger/amalgamation of petitioner No. l namely Brooke Bond Pakistan Ltd. (hereinafter referred as BBPL) with the petitioner No.2 namely Lever Brothers Pakistan Ltd. (hereinafter referred as LBPL) into a single combined company in furtherance of a scheme proposed and filed as Annexure 'A' with the main petition. Notice of the petition was issued to the Registrar of Companies and was also published in the Gazette of Pakistan on 4‑12‑1996, and the Sindh Government Gazette dated 5‑12.‑1996. It was also given wide publicity through leading daily newspapers such as 'Dawn' Karachi, Business Recorder, Karachi, Jang Karachi and Islamabad, the Nation Lahore, Nawa‑e‑Waqt Lahore and The News, Islamabad.

2. In response to the above notices, Mr. Aslam Bin Ibrahim, an advocate by profession and who is holding one share of the face value Rs.10 in B. B. P. L., has preferred his objections to the proposed scheme of amalgamation/merger. I have heard him at length. I have also heard Mr. Fateh Ali Vellani who has taken me through several documents filed with the petition in order to show that there is no impediment to grant an order of amalgamation/merger of the above two Companies. In support, he has relied upon the following case‑law:‑‑

(i) In re Alabama New Orleans, Texas and Pacific Junetion Railway Company (1891) 1 Ch. 213;

(ii) In re Grierson, Oldham, Adams Ltd. (1968) 1 Ch. 17; (iii) In re Sussex Brick Co. Ltd. (1960) 2 W.L.R. 665;

(iv) Navjivan Mills Co. Ltd., In re Kohinoor Mills Co. Ltd. Bombay (1972) 42 Comp. Cases 265;

(v) In re Star Tile Works Ltd. (P, Appunny v. Star Tile Works Ltd. (1980) 50 Comp. Cases 286;

(vi) In re, Hindustan General Electric Corporation Ltd. (AIR 1959 Calcutta 679);

(vii) In re, Katni Cement and Industrial Co, .td. (AIR 1937 Bombay 423); and

(viii) In re, Sidhpur Mills Co. Ltd. (AIR 1962 Gujarat 305).

3. Prior to filing of the instant petition, Messrs. L.B.P.L. vide its letter, dated 12‑6‑1995 approached the Chairman, Monopoly Control Authority with the proposal of merger of the abovementioned two companies. The said letter was filed, presumably, under section 10(d) of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970, (hereinafter referred to as Monopolies Ordinance, 1970), seeking advice from the Monopoly Control Authority (hereinafter referred as M.C.A.) whether proposal of merger/amalgamation of B.B.P.L. with L.B.P.L. is consistent with the provisions of the Monopolies Ordinance 1970, or any rules or orders made thereunder. However, before a response was received from the M.C.A. Mr. Aslant Bin Ibrahim as President, Small Shareholders Association of B.B.P.L. alongwith. twenty seven persons lodged a complaint under sections 3, 11 and 14(2) of the Monopolies Ordinance 1970 challenging the proposed merger. After brief hearing, on 10‑12‑1995 the M.C.A. issued Show‑Cause Notices under section 11 of the Monopolies Ordinance, 1970 to Messrs B.B.P.L. and L.B.P.L. for violating section 5(1)(b) and for contemplating action under section 12(1)(b)(iv) of the Monopolies Ordinance, 1970. The petitioners filed their respective replies. The M.C.A., which at the relevant time was comprised of Mr. Junejo M. Iqbal as Chairman and Mr. Sahibzada Muhammad Ayaz and Dr. Faizullah Khilji, after hearing all the representatives including those of the present two companies, the present objector and other representatives of Small Shareholders Association of BBPL, representatives of Pakistan Tea Association and Pakistan Agricultural Research Council, allowed the resolution of both the companies for merger, while following the rule laid down in the cases Rafhan Maize Products Co. Ltd. v. Monopoly Control Authority and 9 others (PLD 1986 Lahore 346) and S.M. Ilyas & Sons Ltd. v. Monopoly Control Authority (PLD 1976 Lahore 834) on the following conditions:‑

"On the basis of the foregoing discussion of the issues involved I conclude the matter by ordering the following for disposal of the Show Cause Notice No.92 of 1995‑96 issued to Lever Brothers Pakistan Ltd.:

(1) Proposed merger between L.B.P.L. and B.B.P.L. may proceed as per existing resolutions of their managements subject to fulfilment of the following conditions:

(i) Management of L.B.P.L.‑B.B.P.L. and the new merged company resulting therefrom, undertake to implement a tea growing development programme in the potential tea growing tract identified 'around N.T.R.S., Shinkiari, District Mansehra, in accordance with the plan explained in the enclosure sent with Mr. I.S. Sangster's Letter No.ISS: rku‑m, dated 8th September, 1996 to the address of Special Secretary, Ministry of Finance, Government of Pakistan, entitled 'Tea Growing in Pakistan', subject to the modification that physical targets for the tea orchards to be grown on the cooperating farmers fields will be increased to 300 hectares for the year 5 and to 600 hectares for the year 7 of the implementation of the tea growing development programme. The undertaking in this behalf shall form part of this order and shall be submitted to the Company, Bench of the High Court of Sindh for their consideration alongwith other requisite papers while applying for approval of the said Court for merger of L.B.P.L. and B.B.P.L. into one company under provisions of the Companies Ordinance, 1984. A copy of this undertaking shall also be supplied to the Authority's office as soon as tendered in the High Court of Sindh.

(ii) All inputs for the tea growing development programme shown in the Table enclosed with Mr. I.S. Sangster's Letter cited in (i) above shall be revised according to the targets set by this order. The Table so revised shall be deposited in the Authority's office within sixty days of issue of this order.

(iii) Monitoring of compliance of the conditions set for allowing merger shall be done by the Authority's Office for which purpose the new merged company shall send annual progress reports about implementation of this programme shall be reckoned from the date of pronouncement of the judgment of Company Bench of the High Court of Sindh approving the proposed merger.

(2) (i) L.B.P.L., B.B.P.L., and the new merged company (when incorporated), shall submit to the Authority information about their tea operations, such as, tea prices, volumes, production, blending and packaging costs, sales etc. on quarterly basis, within fifteen days of end of a calender quarter, on the format as the Authority prescribe for this purpose from time to time.

(ii) Undertakings not respondent to show‑cause notice being disposed of through this order are hereby directed, under the powers vested in the Authority by section 21 of the Ordinance, to submit the information as per requirement of S.No.(i) above.

(iii) The information requisitioned through this order shall be supplied to office of the Authority till such time any of the undertakings concerned'individually, or collectively, have not less than one‑fourth of the market share in packaged tea segment of the tea market. of the country.

(3) Separately an inquiry shall be conducted into affairs of Pakistan Tea Association to ascertain as to whether or not any violation of the Ordinance has been committed by it with particular consideration of the resolution sent to the Authority vide their letter, dated May 10, 1996.

(4) In case the sponsors of the merger of L.B.P.L. and B.B.P.L. into one corporate entity choose not to pursue their proposal/request being disposed of through this order then the Authority shall take up the pending application, dated 23rd January, 1996 of Mr. Aslam Bin Ibrahim, Advocate and the recognized representative of the complainants in the present case, for consideration and disposal under the Ordinance. Therefore, in order to enable the Authority to determine appropriate time for taking up consideration of this pending application, L.B.P.L. shall send quarterly reports on progress of implementation of their proposal about merger of B.B.P.L. with them...."

(Underlining is trine.)

4. Against the above order of M.C.A., the objector filed an appeal before this Court (Misc. Appeal No.46 of 1996) which was dismissed in limine on the ground that the said order of M.C.A. was not appealable. (Reference was made to the case of Habib Bank Ltd. v. The State and 6 others (1993 SCMR 1853). The Hon'ble Supreme Court has granted leave to appeal against the order dated 12‑12‑1996 in Miscellaneous Appeal No.46 of 1996 to consider the questions whether in cases where after issuance of notice under section 11 of the Monopolies Ordinance 1970, the M.C.A. comes to the conclusion that no violation of section 3 was committed and no action is warranted, appeal would lie under section 20 and whether any order passed under sections 11 and 12 is appealable under section 20 of the Monopolies Ordinance, 1970 (C.P. No.455‑K of 1996). However, their Lordships refused to grant stay of the proceedings and‑ ordered early hearing of the appeal within three months. Mr. Aslam Bin'Ibrahim has repeated before me the same arguments as in the above appeals.

5. On 10th December, 1996 this Court ordered holding of general meetings of the shareholders of both the companies which were held on 8‑1‑1997. In this respect, reports of both the Chairman and of the Registrar, Joint Stock Companies are on record. During the course of hearing, Mr. Fateh Ali Vellani has filed a detailed statement containing the particulars of the percentages of the members present in the meeting, those who voted or retrained absent and of those who opposed the resolution for merger. Mr. Aslam bin Ibrahim was not able to controvert these figures which, otherwise are in conformity with the two rep6rts as mentioned above. Following is the table of attendance and voting for both the companies:‑ .

Brooke Bond (B.B.P)

"(1) 83.943% of the total voting power was present at the meeting;

0.816 % in persons

83.127 % by proxy

(2) 99.801 % of those present voted that is, 83.775 % of the total voting power voted 0.199 % of those present abstained from voting that is, 0.167 % of the total voting power abstained.

(3) 99.981 % of those present and voting voted in favour of the resolution that is, 83.759 % of the total voting power voted for the resolution, 0.755% in person representing 0.632% of total voting power, 99.226% by proxy representing 83.127 % of total voting power, 99.782 % of those present voted in favour of the resolution.

(4) 0.019 % of those present and voting voted against the resolution that is, 0.016 % of total voting power voted against the resolution.

Lever Brothers (L.B.P.L.)

(1) 78.63% of the total voting power was present at the meeting;

0.103 % in person

78.527 % by proxy

(2) 99.985 % of those present voted that is, 78.618 % of the total voting power voted 0.015 % of those present abstained from voting that is,0.012 % of the total voting power obstained.

(3) 99.997 % of those present and voting voted in favour of the resolution that .is, 78.616% of the total voting power voted for the resolution, 0.113 % in person representing 0.089 % of total voting power 99.884 % by proxy representing 78.527 of total voting power, 99.982% of those present voted in favour of the resolution.

(4) 0.003 % of those present and voting voted against the resolution that is, 0.002 the total power voted against the resolution."

5. Nobody has appeared in the present proceedings to contest this petition except Mr. Aslam Bin Ibrahim, who is the President of Small Shareholders Association who argued the same point which he had taken up before M.C.A. and in the earlier proceedings (Misc. Appeal No.46 of 1996). While arguing his case, the objector missed the point that the instant proceedings are not in the nature of an appeal against the order of M.C.A. but is a petition under section 284/287 of the Companies Ordinance, 1984. He was not able to point out any irregularity or non‑compliance of any provision of the Companies Ordinance, 1984 which may disentitle the petitioners for the relief they are seeking through this petition. Mr. Aslam Bin Ibrahim has strenuously argued, that it would be in the public and national interest that this petition be dismissed and secondly, that the case of the petitioners is not covered by section 5(2) of the Monopolies Ordinance, 1970. He has referred to several paras. in the order dated 16‑9‑1996 passed by M.C.A. to support his contention that the proposed merger/amalgamation would create monopoly in tea trade. In order to understand his arguments, it would be advantageous if relevant provisions of Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 are reproduced:‑

" 2(1)(g) 'monopoly power' means the ability of one or more sellers in a market to set non‑competitive prices or restrict output without losing a substantial share of the market or to exclude others from any part of that market ....

....3. Undue concentration of economic power, etc., prohibited.‑‑There shall be no undue concentration of economic power, unreasonable monopoly power or unreasonably restrictive trade practices ....

....5. Circumstances constituting unreasonable monopoly power.‑‑(1) Unreasonable monopoly power shall be deemed to have been brought about, maintained or continued if‑

(a) there has been created or maintained any such relationship between two or more undertakings as makes them associated undertakings where they are competitors in the same market and together produce, supply, distribute or provide not less than one third of the total goods or services in such market;

(b) there has been any acquisition by one person or undertaking of the stock or assets of any other person or undertaking, or any merger of undertakings, where the effect of the acquisition or merger is likely to create monopoly power or to substantially lessen competition in any market, including any acquisition which creates any such relationship as is referred to in clause (a);

(c) ................

(2) No such relationship, acquisition, merger or loan as is referred to in subsection (1) shall be deemed to have the effect of bringing about, maintaining or continuing unreasonable monopoly power if it is shown:‑

(a) that it contributes substantially to the efficiency of the production of distribution of goods or of the provision of services or to the promotion of technical progress or export of goods;

(b) that such efficiency or promotion could not reasonably have been achieved by means less restrictive of competition; and

(c) that the benefits of such efficiency or competition clearly outweigh the adverse effect of the absence or lessening of competition."

6. Perusal of abovequoted provisions of Monopolies Ordinance, 1974 reveals that there is prohibition of such trade practices which may result in establishing undue concentration of economic powers, unreasonable monopoly power or unreasonable restrictive trade practices. There is no complete ban or absolute restriction in establishing a monopoly style of business. Restrictions appear to be on unreasonable monopoly power. It was, probably due to this reason that M.C.A. allowed merger/amalgamation of the two companies on conditions mentioned hereinabove e. Besides the cases cited by Mr. Fateh Ali Vellani, there are other reported judgments of our Courts as well as of other High Courts wherein merger/amalgamation was allowed. In the case of Lipton (Pakistan) Ltd. and another (1989 CLC 818), a learned Single Judge of this Court Haider Ali Prizada, J. (as he then was) after reference to the case of Alabama New Orleans, Texas and Pacific Junction Railway Company ((1891) 1Ch. 213) held, inter alia that section 287 of the Companies Ordinance, 1984 provides that before sanction is accorded or merger/amalgamation, the Court should be satisfied in respect of three matters, namely, that the resolutions were passed by the majority in value and in number, secondly, the Court should be satisfied that the members participating in the meeting were real representatives the class and that the minority was not coerced and, lastly, the Court shoulbesatisfied that the background and object of the scheme is a reasonable one. In thematter of Amin Fabrics Limited (1989 MLD 1861), another Single Judge of thisC urt Saeeduzzaman Siddiqui, J. (as his Lordship then was) allowed merger Amin Fabrics Limited and Amin Synthetic Limited. In the case of Southern Gas Limited (1989 CLC 1323), this Court sanctioned a scheme of merger amalgamation of M/s Southern Gas Limited with M/s Sui Southern Gas Co. Ltd. In that case, objections were raised by the Collective Bargaining Agents of both the Companies. Objections of both the workers unions were overruled as this Court came to conclusion that their rights have been duly protected in the scheme of merger. In the case of Atlas Autos Ltd. and another v.Registrar Joint Stock Companies (1991 CLC 523), a Single Judge of this Court Nasir Aslam Zahid, J. (as his Lordship then was) allowed amalgamationofAtlas Autos Ltd. and Panjdarya Limited on the grounds that the requirements ofsections 284 and 287 of the Ordinance, 1984 were fully complied with. In Mehmood Textile Mills Ltd. and others v. Registrar, Joint Stock Companies (NLR 1993 UC (Civil) 49) a learned Single Judge of Lahore High Court sanctioned the scheme for amalgamation of M/s Mehmood Textile Mills Ltd. and M/sy Muhammad Masood Weaving Mills Limited. In an unreported case of Reckitt & Colman Pharmaceuticals (Pvt.) Ltd. (J.M. 204 of 1996), a learned Single Judge of this Court Syed Deedar Hussain Shah, J., while following the rule laid down in the case of Alabama New Orleans, Texas and Pacific Junction Railway Company (supra) granted sanction for the merger of M/s Reckitt & Colman Pharmaceuticals and Reckitt & Colman of Pakistan Ltd.

7. In the present circumstances of this petition the question arises as to how the scheme proposed for merger/amalgamation should be examined by this Court. The required majority of the members of both the Companies have approved the resolution for merger of both the Companies. In such circumstances, sanction cannot be withheld unless if it is shown that it is unfair, unreasonable or that it is against the national interest. The burden is upon the person who alleges that scheme to be unfair and against the national interest. Objectors were not able to bring on record any material in proof of their allegations. All those aspects were considered by the M.C.A. In any event, the view that will be taken by the Hon'ble Supreme Court in the pending appeal shall finally determine the objections of Mr. Aslam Bin Ibrahim as to whether the scheme is hit by the provisions of the Monopolies Ordinance, 1970. While exercising the powers of the Company Judge/, I am required to see whether the scheme is hit by any of the provisions of the Companies Ordinance, 1984 and that whether it is fair, reasonable and not against the public or national interest. As held in the case of Sussex Bricks.Co. Ltd. ((1960) 2 W.L.R. 665) that it must be affirmatively established notwithstanding the view of the majority, that the scheme is unfair, the scheme must be shown affirmatively, competently, obviously and convincingly to be unfair. Here, I would like to quote a para from the case of Sidhpur Mills Company Ltd. (AIR 1962 Gujarat 305) which has in most appropriate manner laid down the requirements for the Court to decide a matter of merger. The said view is fully applicable in the circumstances of the present case:‑

"(15) Therefore, in my judgment, the correct approach to the present I 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 p 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 business like 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 be 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 was formulated, deliberated upon and approved. If any other approach were to be made, then, in that case, there would be no sanctity about business contracts. In fact, such an approach may induce interested persons to shape further events and circumstances in such a way as to convert a reasonable scheme into an unreasonable one. ",

The above view was followed by another learned Single Judge of the same High Court in the case of Navjivan Mills Co. Ltd. ((1972) 42 Comp. Cases 265).

8. I have gone through the proposed scheme annexed as Annexure 'A' to the main petition. Members of both the companies have overwhelmingly supported the resolution for merger. The Corporate Law Authority have also extended their no objection and have declared the petition to be in accordance with law. Except the objectors, none of the employees of both the companies or their creditors have raised any objection. Both the companies have also disclosed their latest financial position which has not been disputed. I have, perused the contents of the main petition, the proposed scheme of merger, the reports of E Chairman, M.C.A. and of the Registrar, Joint Stock Companies. Nothing in the scheme runs contrary to the Companies Ordinance, 1984. I am also of the view that the minority shareholders of both the companies are not being oppressed by the majority nor such minority shareholders were coerced. In my considered view this r/amalgamation would be in the interest of shareholders of both the companies. There is no material on record to suggest that the merger would be against national or public interest. I, therefore, accord sanction to the scheme of arrangement for merger of petitioner No.l namely brooke Bond Pakistan Limited with M/s Lever Brothers Pakistan Limited (petitioner No.2) subject to the strict compliance of the conditions imposed by Monopoly Control Authority vide para. 23 of their decision dated 16‑9‑1996 (reproduced in the earlier part of E this order).

9. As a result of the above discussion, I pass the following order as provided under section 287 of the Companies Ordinance, 1984 so as to take effect at the same time as this order sanctioning the scheme of arrangement takes effect in accordance with section 284(3) of the Ordinance, 1984:‑

(1) The whole undertaking of the Petitioner No. l together with all its properties, assets, rights, liabilities and obligations of every description, including those described in Paragraph 2 of the Scheme of Arrangement, as setforth in Annexure 'A' to the petition, shall stand transferred and vest in the petitioner No.2.

(ii) The petioner No.2 is hereby directed to allot 1 (one) ordinary share ofthe nominal value of Rs.50 credited as fully paid‑up in the petitioner No.2 for every 4.3 ordinary share of the nominal value of Rs.10 each credited as fully paid‑up in the Petitioner No.l to the Registered Share holders of those shares in the Petitioner No.l. The determination of the registered shareholders of shares in Petitioner No.l and the respective entitlement to such ordinary shares of Petitioner No.2, the treatment of fractional entitlements and the allotment of such shares and delivery of share certificates by the Petitioner No.2 shall be in accordance with paragraphs 5 and 6 of the Scheme of Arrangement as set forth in Annexure 'A' to the Petition and that for this purpose the Register of Members of the Petitioner No. l shall be closed for a perioof (seven) 7 days prior to an inclusive of the date fixed by the directors of Petitioner No.2 byreference to which the RegisteredShareholders of the ordinary shards of the Petitioner No.1 are to be etermined for entitlement to ordinary shares of the Petitioner No.2 and thanotice of such closure to be published not less than 7 (seven) days prior to the date of ch closurein at least one issue each of a daily newspaper in the English language and a daily newspaper in the Ur nguage having circulation in the Provinces of Sindh and the Punjaband in Islamabad.

All legal proceedings instituted by or against the Petitioner No. l which may be pending, shall be continued by or against the Petitioner No

(V) The Petitioner No.1 shall stand dissolved, without winding‑up, on th date on which the ordinary shares of Petitioner No.2 are allotted to the holders of the ordinary shares of Petitioner No. l in accordance with the Scheme of Arrangement as set forth in Annexure ' A' to the Petition.

As a result of above discussion, al the four applications Civil

Miscellaneous Applications Nos. 586 of 1997, 587/97, 448 of 1997 and 1965 of 1996 stand disposed of

M.B.A./B‑22/K Order accordingly