TaxTMI 
TaxTMI 
1963 (4) TMI 83
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....e holdings of the petitioner and of the consenting share-holders constitute more than one-tenth of the issued share capital of the Company. The application is made for the petitioner on behalf of and for the benefit of the consenting shareholders and the petitioner. The authorized capital of the Company is Rs. 1 Crore consisting of shares of Rs. 100,00 each. All the shares are Equity shares. The subscribed capital is 61,000 shares of Rs. 100.0.0 each fully called. Prior to 1954, the Company was exclusively controlled and managed by Sri B. Patnaik (respon-dent-2) and Sri C. S. Loganathan (respondent-4) who between themselves held the majority shares. Sometime in 1954, Dr. H. B. Mohanty, the then Secretary of the industries Department, Government of Orissa, informed the petitioner that the Company was in financial and administrative difficulties and requested him to help the Company by providing finance, arranging loan from Banks and other sources and further by providing necessary administrative guidance. The petitioner agreed to the proposal. The shares in the Company were held originally by Sri Narayan Swami, respondents 2 and 4, Sri J. S. Tarapor-wala and a Company called t....
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....pany. While the Company was a private company, it had made an application to the Government of Orissa for a loan of Rs. 65 lacs and the Orissa Government advised the Company to apply through Industrial Finance Corporation for such loan. As the industrial Finance Corporation gave loans only to public limited companies, it was decided to convert the Company into a public Company to enable it to apply for and obtain loan from the said Corporation. After the Company was converted into a public Company, the Controller of Capital issues on behalf of the Government of India sanctioned issue of 39,000 Ordinary shares on 18th December, 1957. One of the terms of the said sanction was : "Subject to the provisions of Section 81 of the Companies Act 1956 it is a condition of this consent that the new shares should in the first instance be offered to the existing share-holders with the right of renunciation attached." After all the above financial arrangements had been made through the efforts and guarantee of the petitioner, and upon receipt of the aforesaid sanction, respondents 2 to 4 in collusion and conspiracy with each other wrongfully, illegally and surreptitiously hatched a p....
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....on of matters mentioned in the agenda of which the relevant item was "The manner and proportion in which such shares are to be issued." On the date fixed, the meeting was held under the Chairmanship of respondent No. 2. At the said meeting the shareholders controlled by respondents 2 and 4 combined and by preponderance of the voting power of their group passed resolutions completely excluding the existing shareholders from taking fresh issue of shares. The votings were 38,165 in favour and 19,083 against the said resolutions. These resolutions were designed to compel the petitioner ana his group to sell their shares for undervalue or at a very nominal value to respondents 2 and 4 and their groups. It was not genuinely intended to make the Company broad based, otherwise the shares would have been issued to the public in general and would have been Sub-scribed at premium. The resolutions are ultra vires the Companies Act, 1956. Neither the Board of Directors nor the shareholders of the Company by majority resolution can interfere with the pre-emptive rights given to the Equity Shareholders. The resolutions were also not passed in bona fide exercise of their powers and were passed ....
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....f 39,000 Ordinary shares to respondents 6 to 12 was mala fide, illegal, wrongful ana in oppression and fraud of the minority shareholders. Miscellaneous Appeal was filed against the order of the Subordinate Judge vacating the interim injunction which was dismissed by Mr. justice Rao in Misc. Appeal No. 77 of 1958 on 26th September 1958. On 21st September 1960 at 11 O'clock, respondents 2, 4 and their groups convened another Extra-ordinary General Meeting for considering the passing of the following resolution-- "Whereas the Capital of the Company now consists of Rs. 1 Crore divided into 1,00,000 Ordinary or Equity shares of Rs. 100/- each Resolved that the Capital of the Company be increased from Rs. 1 Crore to Rs. 3 Crores by creation of additional 1,00,000 Equity shares of Rs. 100/- each ranking pan pass with the existing shares and 1,00,000 6 1/2 per annum Cumulative Redeemable Income-tax free preference shares of Rs. 100/- each and such preference shares snail confer on their holders the rights and privileges attached thereto by the new Article to be inserted in the Articles of Association and specified in the resolution No. 3 hereinafter mentioned." In the Expl....
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....rsonal to themselves than with the welfare of the Company and are acting unfairly to the petitioner and his group. The facts and circumstances of the case would justify the making of a winding-up order on the ground that it is just and equitable that the company should be wound up. But the winding up of the Company would unfairly prejudice the petitioner and the other members of the minority group, and the matters complained of can be removed by appropriate orders of the Court. The affairs of the Company have been conducted in a manner prejudicial to the inter est of the Company. There has also taken place a material change in the management and control of the Company by alteration in its Board of Directors and by fraudulent changes introduced in the ownership of the Company's shares, and it is likely that the affairs of the Company would continue in a manner prejudicial to the interest of the Company. Appropriate orders should be passed for removing the oppression with a view to bring to an end the matters complained of. (F) A large number of reliefs have been sought. Amongst others, the substantial renets are : (i) Removal of the present Board of Directors cons....
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.... of all material facts. The Company went into production in April 1955 and made rapid progress in its expansion. The profits made by the Company increased from year to year and the Company paid dividends to the shareholders at the rate of three per cent till 31st March 1958 and at six per cent thereafter. The reserve of the Company also progressively increased, and the Company was on a very sound position and there was scope for further development. The petitioner, who is very rich as compared with tha other share-holders, has all along insisted that the shares be issued to the existing shareholders only knowing it very well that it may not be possible for the other share-holders to acquire those shares with the result that he might be able to acquire absolute majority in the Company and gain absolute control thereof. The oral agreement is ultra vires the memorandum of Articles of Association of the Company and is illegal and opposed to public policy, it was never acted upon. Sri Jain and Sri Sabharwala retired by rotation at the Annual General Meetings. The petitioner did very little to procure finances for the Company Besides introducing the Company to the Chartered Bank. T....
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....he retired at the Annual General meeting held on 30th December 1959. He was not re-elected for similar reasons. On 13th October 1955 the Board of Directors or the Company sanctioned the transfer of Rs. 3,40,000/- to respondents 2 and 4 at the request of Kalinga industrial Development Corporation Limited. The Board resolutions were confirmed by another Board meeting presided over by the petitioner on 12th January 1956. On 31st March 1956 respondents 2 and 4 utilized the said sum of Rs. 3,40,000/-each for obtaining an allotment of new shares issued by the Company. The inspection of accounts was never sought for prior to the filing of the application. 3. Respondents 6 to 12 filed affidavits asserting that they are independent and respectable persons of substantial means, and that they purchased the shares bona fide and are not nominees or Benamdars of respondents 2 and 4 and are not under their control. The purchases were made by way of investment. 4. The petitioner filed another affidavit on the 8th February 1961 further elaborating the case that the Company was agreed to be run on partnership principles as will appear from the tenor of the Agreement and the subsequent conduct ....
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....pany. The resolution relating to 39,000 shares was to injure the minority and for domination of the majority and is not beneficial to the Company. (vi) Injunction order dated 18th April 1958 was not obeyed by the Company and the allotment was rushed through with indecent haste. (vii) Inspections of the applications for allotments or 39,000 shares and the account books of 1958 were nor granted by the majority mala fide. (viii) The attempt to raise capital of the Company from Rs. 1 Crore to 3 Crores was in pursuance of persistent policy to oust the petitioner and his group. 6. The learned Judge accordingly allowed the application under Sections 397 and 398 of the Act. Reliefs granted have been mentioned in paragraph 55 of his judgment. 7. The following issues arise for determination on the arguments of the parties. (I) Is the petition demurrage and liable to dismissal in limine? (II) Is the application not maintainable under Section 399(3) as the consent in writing obtained prior to the transfers is invalid after the transferees were made parties? (III) Is the agreement dated 27th July 1954 in the nature of a partnership bet....
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....n on the basis of the authorities cited. In (1875) 10 Ch. A. 188, In Re, Wear Engine Works Co; their Lordships observed : "We wish it to be understood that a winding-up petition must allege facts which justify a winding-up order. no doubt, if there is any slip in the statement the Court can allow an amendment so that the real point may be tried; but, subject to this power of amendment, it is not enough or a sufficient case to be shown in evidence; a sufficient case must be stated on the petition." In (1875) 19 EQ 416, In Re Steam Stoker Co; their Lordships said : "It is their right to say that the petition affords materials upon which alone the Court is bound to decided Upon the objection, therefore, it is my duty to order that this petition be dismissed. It follows that the affidavits which have been filed in opposition are useless. The objection is in its true sense a demur to the petition. Supposing every line and letter of the petition to be true, it is unsustainable, and one sees at once how serious and evil such a practice as this might become." In (1937) 11 Ch. 392, In Re, Cuthbert Cooper and Sons Ltd., their Lordships said :-- "For the purpo....
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....leading under the Civil Procedure Code which lays down that all material facts but not evidence must be pleaded. In (1950) 2 All ER 408, Re : S. A. Hawken Ltd; which is a case under Section 210. Justice Wynn-Parry observed : "As the allegation in the petition in respect of claim under Section 210 showed that there was acute conflict bet-ween the parties and the petition was granted on an allegation that the affairs of the Company required investigation, the petitioners were justified in supplementing the statutory affidavit by exhibiting documents and by filing affidavits." His Lordship said that he could imagine a few cases of petition presented under Section 210 in which it was wise, or even possible, to rely merely on the statutory affidavit. In Gower's Modern Law, there is a passage that the Court should have power to impose upon parties whatever settlement the Court considers just and equitable. But the result of the procedure of the English High Court was ill adapted for the exercise of inquisitorial and Salvationist role thus imposed upon the Court. Reliance is also placed on AIR 1958 Mad 587, Syed Mohamed AM v. Sundaramoorthy which did not accept the afor....
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....wing members of a Company shall have the right to apply under Sections 397 or 398 :-- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants nave paid all calls and other sums due on their shares. (3) Where any members of a Company are entitled to make an application in virtue of Sub-section (1) any one or more of them having obtained the consent in writing or the rest, may make the application on behalf and for the benefit of all of them." The petitioner obtained consent in writing of members holding not less than one-tenth of the issued share capital of the Company, and initially the application was not open to objection. Bijoy Kumar Mall, K. C. Dalai and the Central Bank of India Ltd., the transferees, were made additional parties subsequent to the filing of the application and no fresh consent was obtained. It is argued that the consenting members have given no consent for getting relief aga....
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....d be unduly bound by matters of form if we treated either the relations between them as other than that of partners or the litigation as other than an action brought by one for the dissolution of the partnership against the other; but one result which of course follows from the fact that there is this entity called a company is that, in order to obtain what is equivalent to a dissolution 01 partnership, the machinery for winding up has to be resorted to." The view that a Private Limited Company is in substance a partnership has never subsequently been dissented from. In 1924 AC 783, Loch v. John Blackwood Ltd., their Lordships of the Privy Council approved the aforesaid view and observed : "The Board specially refers to the accurate and careful opinion of Warrinaton L. J. in that case." In (1958) 3 All ER 66 their Lordships accepted the aforesaid preposition : "The Company was in substance, though not in law, a partnership consisting of the society and the respondents. Whatever may be the other different legal consequences following on one or other of these forms of combination one result, in my opinion, followed in the present case from the method adopted, ....
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....0,50,000 in Kalinga Tubes Ltd. and the same will be allotted to him and his nominees to the Company as soon as the Authorized Capital of the Company is increased and the requisite sanction of the Controller of Capital Issue, Government of India, is received. (3) All the three parties will thus hold respectively equal number of shares of the face value of Rs. 10,50,000 each registered in their own names or their nominees separately. (4) Each of the three parties will have an equal number of their representatives as Directors on the Board of the Company which for the time being shall be two Directors from each of the three groups-- (5) Ordinary Shares of the face value of Rs. 4 lacs held by the French Company (Rs.3,75,000) and Mr. Rath (Rs.25,000) will continue to be held by them as heretofore, and none of the parties hereto will have any interest so that the shareholding in the Company of all the three parties hereto will remain equal and in the same proportion. (6) The loss of approximately Rs. 7 lacs incurred by Kalinga Tubes Ltd. upto 30th June, 1954 would continue to stand financed free of any interest by Kalinga industrial Development Corp. L....
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....charge on the assets of the Company forming security of the Bank's 1st charge. If so required, the Directors of the 2nd party and 3rd parties hereto in the Kalinga Tubes Ltd. shall also execute their personal guarantee along with the Directors of the First Party in the Kalinga Tubes Ltd. for the aforesaid cash credit arrangement with Banks. (9) Sri S. P. Jain will be the Chairman of the Company and Sri Narayanswami will be the Managing Director. The first party will always have the right to appoint at any time at his option one of the Directors representing his group on the Board of Kalinga Tubes Ltd. as the Join Managing Director of the Company and the person so selected by the 1st Party shall be with the approval of other parties hereto. Certain clauses of the agreement were clearly acted upon. In Clause (9) the stipulation was that Shri S. P. Jam would be the Chairman of the Co. and Sri Narayanswami would be the Managing Director. Soon after the petitioner was elected as the Chairman of the Company. Respondent 2 resigned. The petitioner continued as Chairman from 1954-55 to 1957-58 for a period of 4 years. Sri Narayanswami was appointed as the Managing Director. ....
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.... Association. The Articles of Association were amended on 11th August 1954, a few days after the agreement was executed. There was absolutely no difficulty in incorporating the terms when the Company was a purely private Company. Though the principles governing relationship of partnership would govern their mutual relationship, the question is merely academic in view of the absence of dispute during the period it was a private Company when the three groups were working nar-moniously and substantially in terms of the Agreement. 16. The more important question to be answered is whether the Agreement can be enforced against the public Company in its working. Even though the essential terms of the agreement were followed for some time after the formation of the public company, it was certainly not in pursuance of any contractual obligation. Mr. Mitra contends that even dehors the agreement, on the date of the formation of the Public Company, the position amongst the parties was that there was equality of holdings in the shares and equality of representation in the Board of Directors. Working under this status quo, there was an equilibrium in the relationship of the three groups and ....
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....in the. Articles of Association prohibiting the other two groups not to honour equal shareholdings and equal representation in the Board of Directorate. This is altogether a different matter. The contractual obligation amongst the parties can no longer be worked out with reference to the theory of. partnership. The Articles of Association constitute the contractual obligation amongst the shareholders of the company. The fact that the affairs of the Company were managed with holding of shares in equal proportion amongst the 3 groups for a period of about 4 years by itself cannot create a right in favour of the petitioner and his group to claim that it must continue in the same manner contrary to the terms of the Articles of Association even when the Company becomes public. Such a claim would also be contrary to the provisions of Section 81 of the Act which lays down that General body of the share-holders can direct fresh issue of shares in a different manner. It would also not be compatible with dynamic concept of industrial expansion. for instance, the expansion scheme would require large capital In Crores and any one of the groups may not be in a position to subscribe its propo....
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....ge company and in a very different way when applied for in relation to domestic concerns such as were before the Court in (1916) 2 Ch 426; (1924) AC 783. I also accept it that in the familiar 'deadlock' type of case the partnership and the small company may be virtually indistinguishable and identical principles may fall to be applied to both alike. But this is not to say that we can import the detailed provisions of the Partnership Act into the Companies Act, still less we can ignore the specific requirement of Section 210." In (1937) 1 Ch. 392. Mr. Justice Simonds observed : "Whether it be a matter of articles of association or articles of partnership, the rights of parties are determined by those articles and the question whether it is right for me applying here the principles of partnership to the question of dissolution to wind up this Company or not largely depends on what are the contractual rights of the parties ,as determined by the articles of association in this case." In accordance with the Articles of Association the Directors are to retire by rotation in this case though they are always eligible for re-election. Only if the majority groups be tied down to t....
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....its being a public company with dynamic schemes of industrial expansion and statutory provisions giving the General Body of shareholders larger rights incompatible with restrictions embodied in the Agreement. Issue IV (a) 17. The notice is challenged as fraudulent and contrary to the statute. None of the grounds have been pleaded. For the first time this contention appears to have been advanced in course of argument before Mr. Justice Barman. In ncne of the affidavits the petitioner swears that the notice was tricky, misleading or insufficient. The question is one of mixed question of fact and law, and it is not permissible to be taken at the stage of hearing for the first time. Under Section 172(1) of the Act, every notice of a meeting of a company shall specify the place and the day and hour of the meeting and shall contain a statement of the business to be transacted thereat. The relevant business to be transacted was "the manner and proportion in which such shares are to be issued." Under Section 173(2), where any items of business to be transacted in the meeting are deemed to be special, there shall be annexed to the notice of the meeting a statement setting out all mate....
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....s proposed on 1st March 1958 would not have been there, a mere bald statement about the manner and proportion in which shares are to be issued, mighty be somewhat misleading, or, at any rate, not conveying a clear meaning, but in the context of events that the two proposed resolutions definitely referred to two different concepts -- in one case making outsiders as participants in the distribution of shares and in the other completely excluding them, item 2 in the agenda would clearly conceive all possible cases of distribution of shares including the one that the existing shareholders may be completely excluded. That the petitioner understood it that way is manifest from the fact that objection to the notice on this ground was never taken at any stage, and not even in the suit, until argument before the learned Company Judge, and the belated objection was taken about three years after issue of the notice. The learned Attorney-General, suggests a possible reason as to why this objection was taken at a belated stage. The suggestion is that the amendment to Section 81 came into force in December 1960. Under the amended Section 75 percent vote is essential for giving a contrary dire....
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.... correct, please let us know immediately." The letter sufficiently evidences that Bharat Nidhi Limited was apprehensive that by item 2 of the Agenda the existing shareholders may be excluded from allotment of new shares If a direction to the contrary is given in the General Meeting under Section 81 of the Act. No doubt there was a protest that the Explanatory statement was not clear and the agenda suggested in the notice, were likely to affect the rights of the existing shareholders contrary to the consent given by the Controller of Capital Issues ana the terms of the application. The point for determinatic, is not whether certain doubts arose in the minds of Bharat Nidhi Ltd. but whether from existence of doubt it can be concluded that the possibility of the existing shareholders being completely excluded from fresh allotment of snares was not apparent to its mind. 1 have no doubt that the apprehension was clear and it cannot be contended that the notice did not convey the idea of existing shareholders being completely excluded from getting any share by the resolution in the General Meeting. In his reply dated 20th March 1958, respondent 2 said that the notice was not defect....
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....lso authority for the view that those who were present at the meeting and raised no objection cannot object later. The absentee shareholder is protected, because having received the notice and with more or less care looking at, the notice, he conies to the conclusion that on the whole he will not oppose the scheme! but leave it to the majority (Palmers Company Precedents, Vol. I, pp. 483484). I have already held that the notice was clear to the petitioner and he does not assert that it was misleading, tricky or insufficient, me only absentee share-holder, who could have taken objection to the validity of the notice on both the grounds, was the French Company which, according to the common case of the parties, takes no interest in the management of the business affairs of the Company. If the Court was to protect any absentee member, it was the French Company. In re : Union Hill Silver Co; Ltd., (1870) 22 LT (NS) 400 the petitioner himself did not attend the meeting but his solicitor Mr. Pulbrook, who had qualified himself by taking one share was present on his behalf. Some of the shareholders who were residents at New York did not receive notice, It was observed that if the absen....
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....were the first issue of the Company after it became public, it cannot be treated as the first allotment of shares of the public company in the eye of law. So the issue of 39,000 shares. must be treated as shares issued subsequent to the first allotment. 21. Mr. Mitra contends that under Section 105C of the Companies Act, 1913 (hereinafter to be referred to as 1913 Act), where the directors decide to increase the capital of the Company by issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member (irrespective of class). The contention is that this led to unfairness inasmuch as the holders of preference shares automatically obtained privileges where further capital was to issue. By amendment of Section 105-C, the Legislature merely gave powers to the Company in the General meeting to decide that the new issue of shares would be allotted not only to the equity share-holders but to preference share-holders as under the Act only two class of shares -- equity and preference -- have been retained. In this Company there are no preference shares. So the Company is bound : under Section 81 to issue the new shares only ....
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....on, as nearly as circumstances admit, to the capital paid up on those shares at that date;" If Mr. Mitra's contention is correct, the necessary words should have been incorporated in Section 81 to clarify that the wide powers of the Company in general meeting is to be restricted only to a decision as to whether the new shares should be allotted only to the equity shareholders or in between the two classes of shares --equity ana preference. The language of the section is plain and the powers given to the Company in general meeting to give directions to the contrary are wide and unrestricted. It is difficult to accept Mr. Mitra's contention on a plain reading of the section. We arrive at this conclusion independent of any authority as in no decisions cited before us, the Report of the Company Law Committee was taken into consideration. The same view has also been taken in Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation Ltd., AIR 1960 Cal 637 affirming a decision in re : Hindustan General Electric Corporation., Ltd., AIR 1959 Cal 672 and by Mr. Justice Rao in the interim injunction matter. 23. Mr. Justice Burmart further held that the amendment....
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.... The disputed 39,000 shares are within the authorized limit of Rs. 1 Crore. in AIR 1950 SC 172, Nanalal v. Bombay Life Assurance Co., it has been authoritatively ruled that Section 105-C becomes applicable only when the directors decide to increase capital within the authorized limit by issue of further shares. Regulation 42 and Section 105-C do not cover the same field. Regulation 42 did not purport to deal with increase of capital which is within the competency of the directors to decide. Regulation 42 covered the field where the authorized capital of the company had to be increased. Mr. Roy Choudhury advanced two-fold contentions. Firstly, that as Regulation 42 of Table A of 1913 Act was made a part of the Articles of Association on 11th August 1954, when the authorized capital was raised from Rs. 25 lacs to Rs. 1 Crore, and by special resolution, the Company in its general meeting did not give a direction to the contrary that those 39,000 shares would not be issued to the existing shareholders but to outsiders, then Section 81 has no further application and the previous decision cannot be altered and the disputed 39,000 shares must be allotted to the existing shareholders. ....
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.... the public. He contends that the existing shareholders with the members of the public exhaust all persons to whom the shares could be issued, and if no shares are issued either to the existing shareholders or to the public, then no allotment can at all be made. am unable to accept this contention. This resolution and the next resolution passed immediately after must be read together. By the other resolution it was resolved that the Directors were expressly authorised, subject to the aforesaid resolution, to issue and allot the said 39,000 ordinary shares privately in the best interest of the Company at the sole direction of the Directors to such persons as may have applied or may hereafter apply. This resolution clearly includes a group of persons who do not come within the purview of the existing share-holders and the public. In Palmer's Company Precedent, Part I, p. 58, the following passage occurs : "Offer to the public -- what is an offer to 'the public' cannot be definitely stated. The Act contains no definition, and an offer 'to the public' is not a technical expression; it should therefore be read in its popular sense. Now, in common parlance, a....
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....ps 21000 shares 84% French Company 3750, 15% Mr. Rath 250, 1% 25,000, 100% (B) Prior to Board Meeting dated 30th July 1958 : Subscribed Capital Rs. 61,00,000/= 61000 shares of Rs. 100/- each. Mr. Jain Group 19088.1/3 shares 31.31% Mr. Patnaik and Mr. Loganathan Group 36166.2/3 62.62% French Company 3750, 6.07% 61,000 100% (C) After the Board meeting dated 30th July 1958 : Subscribed Capital Rs. 10000000= 100000 shares of Rs. 100/- each. Mr. Jain Group 19083.1/3 shares 19.10% Mr. Patnaik and Loganathan Group 36166.2/3 77.15% 39000 French Company 3750 3.79% 100000 100% (D) Position after the proposed meeting dated 21 September 1960 : Subscribed Capital Rs. 20000000/= 200000 shares of Rs. 100/- each. Mr. Jain Group 19083.1/3 shares 9.55% Mr. Patnaik and Mr. Loganathan Group 77166.2/31 88.58% 100000 French Company 3750 1.87% 200000 100% It would appear from an analysis of the chart that prior to the Board meeting dated 30th July 1958, the petitioner's group held 31.31 per cent of shares and, after that Board meeting, 19.10 per cent of shares. After the proposed meeting dated 21st September 1960, the shareholding of the petitione....
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....s support the case of the Company does not in any way advance the petitioner's case. They are bound to support the Company if they are satisfied that it is being properly managed. 29. It is next argued that the 39,000 shares were quickly allotted with 'unseemly and indecent' haste. Though the Company proclaimed that it needed money urgently, the Balance Sheet for the years 1958-59 shows that for 39,000 Equity shares the calls "that remained unpaid on 31st March 1959 were to the extent of Rs. 33 lacs and 15 thousand (Rs.33,15,000/-). The balance sheet for the years 1959-60 shows that Rs. 7,65,000/- was outstanding. It is necessary to mention certain facts to examine if the allotment was made with 'unseemly haste'. The plaint in T. S. 21/1958 was filed on 18th April 1958. On the very day an ex parte order of injunction was obtained by the petitioner on the following terms : "I would direct issue of an interim injunction restraining the defendants from issuing and allotting 39,000 ordinary shares to persons other than the existing shareholders and from giving effect to the resolution of the Extraordinary Gene-ral Meeting of the shareholders on 29-3-1958....
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....f the Company not to allot shares but to wait till the disposal of the litigation. That would indeed be an extraordinary expectation. Jain Group's case for interim injunction did not appeal to the subordinate Judge, who vacated it, and to Mr. Justice Rao, who dismissed the appeal. The course of decisions pertaining to interim injunction indicates that the application for interim injunction, was untenable. In such circumstances, it would be difficult to hold that the conduct of the majority groups in allotting the shares on 30th July 1958, when the injunction was vacated for a short time was mala fide. If they were convinced that their action was legal and justifiable, they were not to wait merely because their action would be construed to have been done in haste. The haste was justified by the subsequent result of the litigation in the injunction matter and cannot be characterised as indecent or unseemly. 31. Admittedly 15 per cent of the value of the shares issued were realized immediately after. The injunction matter was finally disposed of by Mr. Justice Rao in September 1958. Excepting an amount of Rs. 7,65,000/-the balance was realized by August 1959. Rs. 7 lacs and ....
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....n 29th December 1960, the Bank of India and the Central Bank of India were represented by proxy throu'gh respondent No. 4. The same argument applies here also. Issue VI : 33. Section 210 of the English Companies Act, 1948 corresponds to Section 397 of the Act. In England prior to 1948, the law was that if a majority acts in oppression of the minority, the latter were to petition the Court to wind up the company on the ground that it is just and equitable to do so. In many cases, however, it is not in the interest of the oppressed minority to have the Company, wound up. The liquidation of a Company may result in the sale of its assets at break-up value, without fegard to the value of the good-will or 'know-how' of the Company, and the minority shareholder who, urged by the majority shareholder's oppression, petitions for a winding up order, may, in effect, play his opponent's game. In an attempt to meet such cases, the Legislature gave the oppressed minority a remedy alternative to the petition for compulsory winding-up order under the just and equitable clause. Section 433(f) of the Act lays down that a Company should be wound up by the Court if it is of o....
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....land there are very few decisions on the point. The two leading decisions on this topic, which have been relied upon by both sides, are reported in (1958) 3 All ER 66, and (1958) 3 All ER 689. The following essential principle can be extracted from the aforesaid two decisions in the very language of those eminent Judges deciding those cases; (I) Though the section is to be liberally interpreted the new remedy is not likely to be accorded. (II) The section gives no guidance as to the meaning of the word 'oppressive'. The dictionary meaning of the word is "burdensome, harsh and wrongful". (III) The result of an application under Section 210 must depend on the particular facts of each case. The circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision. (IV) Oppression is usually exerted by a person with predominating voting power which is employed for his own advantage to the detriment of the helpless minority. (V) Conduct, which is technically legal and correct, may nevertheless be such as to justify the application of 'just and equitable' jurisdiction, and c....
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.... the Companies Act. It must be dealt with under the terms of Section 210. (XII) There may well be circumstances which would justify winding up as being just and equitable which would not justify an application on the ground of oppression. (XIII) The words 'being conducted' in a manner oppressive invite attention not to events in isolation but to events considered as a part of consecutive story. 34. The exercise of jurisdiction under "the just and equitable clause" in this particular case must be viewed in relation to a large public company. The core of Mr. Mitra's argument that the status quo conceived in the terms of the Oral Agreement should be maintained cannot be taken into consideration in exercise of jurisdiction under Section 397. Non-distribution of one-third shares to the petitioner in proportion to the existing shareholdings had undoubtedly led to lack of confidence and private animosity between the majority group and the minority group in the matter of policy and administration of the Company, but the Directors of the Company concerned with the management of the affairs cannot be charged with fraud, misfeasance or misconduct towards any p....
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.... haste and scramble for a different purpose, I have no doubt that the Court will interfere to prevent so gross a breach of trust. If they were issued with the immediate object of controlling the holders of greater number of shares in the Company and of obtaining the necessary statutory majority for passing a special resolution, then it will not be valid or bona fide exercise of power." The principle enunciated above is unquestionable. In that case, the four allotments of shares were declared invalid as the Company was in need of further capital and the fiduciary power of the directors was exercised merely for the purpose of maintaining their control over the affairs of the Company. The case is distinguishable on facts of this case. This is a case of mere loss of confidence amongst different groups of shareholders and there is no oppression of the minority in the conduct of the affairs of the Company. The petitioner has failed to make out a case u'nder Section 397. ISSUE VII : 35. In paragraph 27 of the petition the allegation is that the affairs of the Company are being conducted by respondents 2 and 4 in a mariner prejudicial to the interests of the Company. Particula....
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....d 4 were debtors to the petitioner. This does not in any way relate to the mismanagement of the affairs of the Company. Soon after withdrawal when the petitioner came to know of this in the Board meeting over which he presided on 12th January 1956, he did not take any objection. Neither he wrote any letter io respondents 2 and 4 for enforcing his claim. It was purely a personal claim against respondents 2 and 4. The petitioner took objection to the withdrawal for the first time on 16th October 1957 long after the withdrawal and only when misunderstanding grew amongst them. On 19th October 1957, he wrote to respondent 2 as follows : "You told me sometime back that a sum of Rs. 3,50,000/-has been taken by you and Rs. 3,50,000 have been taken by Loganathan. I request you and. Mr. loganathan, in terms of that agreement to jointly pay me one third of Rs. 7,00,000/- i.e. Rs. 2,33,333/-. 33nP plus interest from the date the money has been taken from the Company. You told us that half of Rs. 2,33,333.33nP i.e. Rs. 1,16,666.67 will be paid by you and half will be paid by Mr. Loganathan. I, therefore, request you to kindly arrange to pay me your portion of the money with interest an....
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....sequent to the filing of the application must be ruled out of consideration. In the affidavit filed on 8th February 1961, further facts of mismanagement were mentioned in paragraph 11. Many of these allegations are thoroughly irrelevant for the purpose. For instance, the averment is that the Indian Tube Co. (1953) Limited has declared large dividends at 12i per cent and 14 per cent for the years ended 1958 and 1959 respectively and there is no reason why with better management the Company shall not be able to declare dividends at equal rates. It is not known in what circumstances the Indian Tube Company Limited is declaring large dividends and whether the same circumstance prevailed in this Company. Until the necessary date for comparison of both are available, no adverse inference can be drawn against the Company from the fact of mere declaration of smaller dividends. Under the agreement with the Industrial Finance Corporation and the Government of Orissa, the Company cannot declare any dividend higher than 6 per cent until the loans are paid up. Reference has been also made to certain irregularities pointed out by Mr. Agarwalla in the Annual General Meeting of the Company held....
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....affairs of the Company were being conducted in a manner prejudicial to its interests. Admittedly the Company has expanded its business and sale; and is making considerable profits. Though a material change has taken place in the management or control of the Company by an alteration in its Board of Directors inasmuch as the petitioner and his group are no longer in the Board of Directors, and in the ownership of the Company's shares also, there are no materials that by reason of such change it is likely that the affairs of the Company would be conducted in a manner prejudicial to its interests. That being the position, the question of interference by the Court with a view to bringing to an end or preventing the matters complained of does not arise. 40. There is no provision in the English Act, 1948 corresponding to Section 398 of the Act. The Company Law Committee, 1952, in its recommendation, suggested the incorporation of this section. A passage in para 198 at p. 149 of the said Report may be quoted -- "We have carefully examined the scope of this Section (Section 210 of the English Act) and consider that not only can it be suitably adapted to the circumstances of ....
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....ention certain facts. A petition was filed by the petitioner on 5th April, 1961 asking for production of certain documents as mentioned in paragraph 5 of the petition. The Company was directed by the Court on 7th April 1961 to produce these documents by 10th April 1961. On 9th April 1961 Mr. Roy Choudhury for the petitioner prayed for inspection of the minutes of Board Meeting of the Com pany for the period in which the petitioner was one of the Directors. Mr. R. Choudhury, counsel for the Company, objected to the inspection and asked for specific dates of the minutes of the Board Meeting. The Court was of opinion that the petitioner was entitled to inspect the minutes of the Board which were in the possession of the Company at least for the periods when the petitioner was one of the Directors. The Company filed an application on 14th April 1961. Para 3 may be quoted -- "The said books, documents and papers are being produced and kept in the court-room every day since 10th April, 1961. On the 10th April 1961 an oral application was made to his Lordship Mr. Justice Burman on behalf of the petitioner for an order directing the Company to allow inspection to his representa....
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.... 43. The application is not maintainable under Section 397 and Section 398 of the Act. The petitioner is not therefore entitled to any relief. 44. The identical points arise in all the other appeals and need not be further discussed. 45. In the result, the application dated 14th September 1960 fails and is dismissed. The Judgment of the learned Company Judge dated 20th November 1961 is set aside and the appeals are accordingly allowed. 46. Parties to bear their own costs. Das, J. 47. I entirely agree with my learned brother that the appeal should be allowed, but as I do not feel inclined to accept the grounds on which Mr. Justice Barman rejected the notice dated 1-3-1958 for the general meeting of 29-3-1958 as misleading and insufficient, I think it is proper to state briefly my own views on the subject. The relevant facts have already been stated in the judgment of my learned brother, but at the cost of repetition at some points, I would like to indicate briefly the facts and the circumstances that led to the Issue of the said notice for the meeting on 29-8-1958. 48. The appellant Kalinga Tubes Limited, hereinafter des-cribed as 'the Company' was incor....
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....adras Group) shall always remain equal, with proportional representation in the Board of Directors. Since the entire authorised capital of 25 lakhs had already been issued and it was not possible to issue 10,500 shares to the Jain Group without increasing the authorised capital, it was agreed that the capital should be increased. 51. By a special resolution passed in an extra-ordinary General Meeting held on 11-8-1954, the authorised capital was increased from 25 lakhs to one crore by creation of seventy-five thousand more shares of the value of Rs. 100/-each. On 12-8-1954 a meeting of the Board of Directors was held wherein Mr. Jain was co-opted as an additional Director of the company and was elected Chairman of the Board of Directors in place of Mr. B. Patnaik. As sanction of the Controller of Capital Issues was necessary under Act 29 of 1947, Capital Issues (Control) Act, before issue of the share capital, applications were made from time to time to the said Controller and necessary sanctions were obtained until share capital to the extent of 61,000 was issued. The French Company was not interested in further acquisition of any share. In the meantime Sri N. Rath transferred ....
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....naik was of the opinion that in view of some of the provisions of the Companies Act and in view of the condition imposed by the Controller of Capital Issues that the fresh shares shall be issued subject to the provision of Section 81 of the Companies Act, the matter could be decided only by a General Body Meeting, and for that purpose, an extraordinary General Meeting should be called. Mr, Patnaik therefore, proposed the following resolution in the aforesaid meeting of the Board of Directors : "Resolved that an extraordinary General Meeting of the Company be convened on Saturday the 29th March 1958 for the purpose of considering and if thought fit to pass necessary resolution for the issue of 39,000 ordinary shares and the 'manner and proportion in which the shares are to be offered 'privately' to the share-holders and 'other persons' and for other incidental matters subject to the provisions of the Companies Act." Mr. Jain, however, proposed amendment to the said resolution which was to the following effect : "Resolved that an Extraordinary General Meeting of the Company be convened on Saturday the 29th March 1958, for the purpose of consid....
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.... for the purpose of expansion of its business." 54. On receipt of the said notice Messers Bharat Nidhi Ltd., one of the share-holders of the Company belonging to Jain Group sent a letter on 12th March 1958 to the Managing Director of the Company complaining that the issue of new shares should be offered to the existing share-holders in proportion to their, holding and not to any outsiders. They also pointed out that in the Explanatory Statement to the said notice there was no indication as to any other manner in which the shares were proposed to be issued and that a copy of the draft resolution to be placed in the General Meeting should have accompanied the notice itself. In reply to the above letter Mr. Patnaik as Managing Director of the Company sent a communication on 20-3-58 informing the Bharat Nidhi Ltd., that the notice was drafted by the solicitor of the Company and had received the approval of the Board of Directors including its Chairman, Mr. Jain and in any case it was open to the parties to put forward any resolution in the General Meeting as they liked. 55. In the usual course, the extraordinary General Meeting was held on 29-3-1958 and in the absence of Mr. Jain....
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....able to take into consideration the question of allotment of the fresh 39,000 shares. On 30-7-58 the day fixed for the meeting of the Board of Directors the Subordinate Judge vacated the interim injunction passed on 18-4-58. Immediately after the said injunction was vacated, the Board of Directors proceeded to allot all the 39,000 shares to persons other than the existing share-holders. Mr. Jain and others carried an appeal to the High Court against the aforesaid order of the Subordinate Judge and Mr. Justice Rao in Misc. Case No. 77/58 dismissed the appeal. Against his decision, an appeal was preferred before a Division Bench of this Court which however was not pressed and was dismissed on 28-11-60. 56. In the meanwhile, the Company proposed to convene another Extra-ordinary General Meeting on 21-9-60 with a view to increase its share capital from one Crore to three Crores. Mr. Jain filed an application under Sees. 397 and 398 of the Companies Act (Company Act case No. 10/60) on 14-9-60 alleging acts of oppression and mismanagement and praying inter alia for a declaration that the resolution regarding the allotment of 39,000 ordinary sltares passed in the meeting of the Board o....
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....to deal with this point at some length. 59. It was contended by the learned counsel for the respondent No. 1 that the notice for the General Meeting of 29-3-58 was an invalid one as it was not in accordance with Section 173 of the Companies Act. That section requires that for a meeting where some special business was to be carried on, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business. There cannot be any dispute that the further issu'e of capital that was scheduled to be decided on 29-3-58 was a special business within the meaning of Section 173 and as such an explanatory statement setting out all material facts concerning each item of business ought to accompany the notice. As seen above, there was, however, one explanatory statement relating to the further issue ot 39,000 ordinary shares by the Company. It was urged that the said explanatory note related only to item No, 1 of the agenda and not to item 2. This contention appears to be somewhat erroneous. Items Nos. 1 and 2 were manifestly co-related and dealt with one and the same subject-matter, namely, the issue of further shares. No doubt, ....
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....and was the Chairman of the said meeting. The question regarding the manner and proportion of the further issue of shares was also raised there. Out Mr. Patnaik moved a resolution to the effect that an extraordinary general meeting be called for 29-3-1958 to decide the 'manner and proportion' in which the further issue of 39,000 ordinary shares was to be made privately to the share-holders and 'other persons subject' to the provision of the Companies Act. To the said resolution, Mr. Jain himself moved an amendment. He had raised no objection to the convening of an extraordinary general meeting. But all that he wanted was that such issues should be confined only to the existing share-holders as per the provisions of the Companies Act. Thus, both the parties wanted that the matter should be decided in an extraordinary general meeting in accordance with the" provisions of the Companies Act, the only difference between them being if the issue of shares was to be confined to the existing shareholders or not. No doubt, such new shares shall have to be offered to the persons who at that date of the offer are holders of the equity shares of the Company in proportion a....
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....h March 1958, the Bharat Nidhi Limited, a company with which Mr. Jain is associated, to the Managing Director of the Company It appears that the said Company was fully conscious of the powers of the general meeting, but all that was contended that the new shares should at the first instance have been offered in accordance with the provisions of Section 81(1)(a) and as envisaged in the application to the Controller. It may be mentioned here that the application to the Controller of Capital Issues was made at a time when the Company was still a private limited company and thus the above section had no application to it, whereas by the time the sanction was given by the Controller the Company bad already been converted to a public one and thus attracting the provisions of Section 81. One of the grievances pointed out in that letter was that the explanatory note to the notice did not give any indication of the proposed issue in any other manner. In what other manner the proposed shares were to be issued, as I have said above, could not possibly be exhaustively given in any explanatory note as the final say rested with the General meeting. Mr. Patnaik the Managing Director in his rep....
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....tated, Mr. Patnaik was voted to the Chair on the proposal of Mr. D. R. Sabharwalla, a member cf the Jain Group. In the usual course, one would expect that any irregularity or invalidity in the notice should have been brought to the notice of the Chairman before proceeding on the business on tjje agenda, but no such thing was done. If any such objection would have been taken to the notice, the Chairman might have accepted the same and taken steps to call a fresh meeting in accordance with the provisions of law, but instead the meeting was allowed to proceed. I have already indicated how on the resolution of Mrs. Gyan Patnaik, an amendment was moved on behalf of the Jain group which was lost. Thus not only Mr. Jain's group were fully aware of the implication of the notice, but they also fully participated in the proceedings and put forth their own view point before the general meeting which, however, refused to accept the same. 63. It is well settled that where a share-holder by his conduct shows that he knew the real effect of work to be transacted at a meeting he cannot complain of the notice on the ground of its insufficiency, AIR 1928 PC 180, Parashuram Dataram v. Tata ....