1966 (6) TMI 14 - HC - Companies Law

Summary

Issues Involved:

1. Validity of the circular issued by Munnalal Bhalotia and Company.
2. Appropriate price for the shares to be purchased.
3. Validity of the Managing Agency agreement.
4. Necessity of an inquiry into the affairs of the company.
5. Legality of the annual general meeting held on 30th September, 1965.

Detailed Analysis:

1. Validity of the Circular Issued by Munnalal Bhalotia and Company:

The petitioner contended that the circular issued by Munnalal Bhalotia and Company through Messrs. G.M. Pyne was unauthorized, illegal, inoperative, and void. The court examined whether Section 395 of the Companies Act, 1956 applied to this case. It was determined that Section 395, which deals with schemes or contracts involving the transfer of shares, did not apply because there was no scheme or contract in this case. The offer made in the letter dated 21st February 1966 was deemed a private offer and not within the contemplation of Section 395. Additionally, Munnalal Bhalotia and Company could not be considered a "transferee company" under Section 395 as it was neither formed nor registered under the Companies Act of 1956 or any previous Company Laws.

2. Appropriate Price for the Shares to be Purchased:

The petitioner argued that the price of Rs. 132 per share offered by Munnalal Bhalotia and Company was inadequate and suggested that the shares should be valued at Rs. 870 per share, including the goodwill of the company. However, the court did not delve deeply into this issue as the primary contention of the petitioner was under Section 395, which was found inapplicable.

3. Validity of the Managing Agency Agreement:

The petitioner challenged the validity of the Managing Agency agreement, asserting that the resignation of Duncan Brothers and Co. Ltd. was not accepted by the company, making the agreement with Munnalal Bhalotia and Co. inoperative. The court examined the historical context and found that Duncan Brothers and Co. Ltd. were not managing agents since April 1956 but merely agents. Therefore, the resignation in August 1964 did not violate Sections 342 and 343 of the Companies Act, which pertain to managing agents.

4. Necessity of an Inquiry into the Affairs of the Company:

The petitioner sought an inquiry under Section 237 of the Companies Act, alleging fraudulent and oppressive conduct by the company's management. The court noted that the petition did not explicitly indicate an application under Section 237 and lacked specific notice to the respondents. The court emphasized the need for strong evidence to justify an investigation under Section 237(a)(ii). The court found the petitioner's allegations, such as wrongful transfer of dividends to a Contingencies Reserve Fund and unlawful appointment of additional directors, unsubstantiated. The court also dismissed vague allegations regarding the financial capacity of Munnalal Bhalotia and Co. and the purported involvement of a secret agency.

5. Legality of the Annual General Meeting Held on 30th September, 1965:

The petitioner claimed that the annual general meeting held on 30th September 1965 was unauthorized and contrary to law. However, the court did not find sufficient grounds to substantiate this claim, especially in light of the other findings.

Conclusion:

The court dismissed the application, concluding that Section 395 did not apply to the case and that there was insufficient evidence to order an inquiry under Section 237. The petitioner was ordered to pay costs to the respondents.