Scions Of Family Concerns

Family control of corporate houses is a special feature of business in this country. Pioneers of industry in the last 100 years set up nuclear units and they expanded over the decades. Family ties contributed to their strength and momentum. But in recent times, fissurs have appeared in many such family monoliths.

The Supreme Court, in a judgment delivered last week, dealt with the claim for a special place for family business in the scheme of company law. One of the arguments put forward by one wing of the Mafatlal family was that it should be recognised as a separate class under Section 391(1) of the Companies Act, dealing with compromises and arrangements.

But this argument was rejected, stating that no such class is recognised by the Companies Act. Thus, a family-run company has no special status and it will be treated as any other company (Miheer Mafatlal vs Mafatlal Industries).

Mafatlal Fine Ltd was to be amalgamated with the flagship Mafatlal Industries Ltd. The Bombay high court sanctioned the plan. Later, when the Gujarat high court also approved of the plan, Miheer challenged it in the Supreme Court, raising several arguments on facts. But the contention based on family as a separate class was something novel.

Under Section 391(1), a meeting of the class of members to whom the scheme is offered by the company has to be called. In this case, there was a family arrangement about the assets in 1979 and this had to be approved. The question was whether a family group formed a separate class.

The court ruled that Section 86 recognised only two classes of share capital