1970 (11) TMI 108 - HC - Indian Laws

Summary

Issues Involved:
1. Ownership of shares and benami transactions.
2. Validity of notices and meetings.
3. Validity of the appointment of directors.
4. Validity of the arrangement for the exchange of shares.
5. Prohibition of transfer of shares by a partner.
6. Validity and legality of transfers, allotments, and exchanges of shares.
7. Agreement with Industrial Finance Corporation of India.
8. Transfer of manufacturing license and sale of cylinders.
9. Claim for damages.
10. Maintainability of the suit and res judicata.
11. Jurisdiction and limitation.

Issue-wise Detailed Analysis:

1. Ownership of Shares and Benami Transactions:
The court found no evidence to support the claim that the shares held by the original defendants were actually owned by Surajmull Nagarmull and that the defendants were merely benamdars. The testimony of the plaintiffs' witness, Chamaria, was deemed unreliable and inadmissible. The balance-sheets and other documentary evidence established that the shares were the property of the companies in whose names they were registered.

2. Validity of Notices and Meetings:
The court held that the notices for the meetings held on December 21, 1959, May 31, 1961, and September 27, 1962, were short by one day, but this did not invalidate the meetings or their proceedings. The notices were found to have been duly issued and served, and the meetings were held and resolutions passed. The court emphasized that the statutory requirements for notice are directory, not mandatory, and can be waived by the shareholders.

3. Validity of the Appointment of Directors:
The court found that the appointments of S.B. Jalan and S.S. Jalan as directors were valid. The special resolution giving consent to Gopalkrishna Jalan holding an office of profit was also upheld. The court rejected the argument that the directors had vacated their offices due to the provisions of Section 314 of the Companies Act, 1956.

4. Validity of the Arrangement for the Exchange of Shares:
The court found no evidence to support the claim that the arrangement for the exchange of shares was invalid, illegal, or fraudulent. The arrangement had been announced in the newspaper and the company's prospectus, and no objections were raised by the shareholders. The exchange ratio was found to be fair and approved by the government.

5. Prohibition of Transfer of Shares by a Partner:
The court found no evidence of any prohibition by D.N. Jalan on the transfer of shares. The letter of May 25, 1962, did not contain any such prohibition. Even if there had been a prohibition, it would not have been valid or binding on the other partners or the defendants.

6. Validity and Legality of Transfers, Allotments, and Exchanges of Shares:
The transfers, allotments, and exchanges of shares were found to be valid and legal. The allegations of collusion and conspiracy were not substantiated. The court held that the plaintiffs were estopped from challenging the transactions as they had received and retained the benefits of the exchanges.

7. Agreement with Industrial Finance Corporation of India:
The agreement between the company and the Industrial Finance Corporation of India was found to be valid and approved by the board of directors and ratified by the shareholders. The plaintiffs were estopped from challenging the legality and validity of the agreement.

8. Transfer of Manufacturing License and Sale of Cylinders:
The transfer of the manufacturing license and the sale of cylinders to the defendant company were found to be bona fide transactions in the best interest of the company. The transactions were approved by the government and ratified by the shareholders. The plaintiffs were estopped from challenging these transactions.

9. Claim for Damages:
The court found no evidence of any loss or damage suffered by the company. The plaintiffs were not entitled to any damages as they had not established any cause of action.

10. Maintainability of the Suit and Res Judicata:
The court did not find it necessary to decide on the maintainability of the suit and the issue of res judicata as the other issues were decided against the plaintiffs.

11. Jurisdiction and Limitation:
These issues were not pressed by the parties and were not decided by the court.

Conclusion:
The suit was dismissed, and the plaintiff D.N. Jalan was ordered to pay half of the taxed costs to the appearing defendants. The court certified the case for two counsel.