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TMI Blog1961 (5) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... own way, they have improperly and illegally issued shares to their friends and relatives without offering them to the existing members. It is said that this allotment was irregular and illegal having been made solely with a view to injure the company and to secure a permanent majority. Out of the 18 respondents impleaded by the petitioners, the application is contested by 16 who have filed a single written statement. These respondents are 1 to 9 and 11 to 17. They include the persons to whom the new shares had been allotted. It is stated that out of the seven directors, three directors were in minority, namely, Lachhmi Narain, Jagdish Rai and Chhabil Das, who are creating impediments in the way of smooth and efficient working of the company. It was denied that the new shareholders were friends and relatives of the four directors alone as they were also related to some of the petitioners. The charge of an irregularity and illegality was also denied. It was stated that the company required funds to extend its business and the allotment of new shares was necessary. Applications for new shares were being received from time to time and almost every year fresh allotments were being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present at the directors' meeting of 3rd November, 1959 when 61 shares were allotted and that he objected to the allotment of these shares on the ground that the new members were not trading members and the new shares were being allotted with a view to create a further majority in favour of the party of the chairman. He said that the object of getting a majority for the chairman's party was to afford accommodation to those who were on friendly terms with him. The contesting respondents produced Ratti Ram, the chairman of the company as R.W. 1. He deposed that the meeting of the directors held on 3rd of November, 1959, was attended by all the seven directors when the new shares in question were allotted and this was done as the company needed capital. He further stated that all the applications had been considered in the meeting. He admitted that out of the new shareholders, two persons Rameshwardas and Chhana Mal were distantly related to him. In the cross-examination, Ratti Ram stated that the company was engaged in commission agency business and did not invest any money or did any business of its own. Exhibit P.W. 1/1 is a copy of the resolution passed at the meeting of the boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be restrained from holding the meeting at which the votes of the new shareholders were to have been used. Byrne J. said that on the evidence, he was clear that the said shares were not issued bona fide for the general advantage of the company but that they were issued with the immediate object of controlling the holders of the greater number of shares in the company, and of obtaining the necessary statutory majority for passing a special resolution while, at the same time, not conferring upon the minority the power to demand a poll. While granting an injunction restraining the defendant from holding the confirmatory meeting, he said, " If I find as I do that shares have been issued under the general and fiduciary power of the directors for the express purpose of acquiring an unfair majority for the purpose of altering the rights of parties under the articles, I think I ought to interfere." The third decision to which my attention was drawn is Piercy v. S. Mills Company, Limited [1940] 1 Ch. D. 77 . In this case, the principle of the two cases referred to above was applied and it was held that a power to issue shares in a limited company given to directors for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t charge a majority in the company with wrong in adding to the voting power of the directors. So far as I know there is no inherent wrong in that. A majority can increase its own majority, generally speaking, unless there be an element of expropriation or coercion." The above observations applied with force to this case. The decision of the Supreme Court in Nanalal Zaver v. Bombay Life Assurance Company, Limited [1950] 20 Comp. Cas. 179 (SC) was also cited. The trial court had held in that case that the issue of new shares was bona fide and the appellate court had also come to the conclusion that the object of the directors in issuing the new shares was not merely with the object of retaining or securing to the second defendant and his friends the control of the first defendant company, and both the courts held that the company was in need of capital. Mahajan J. cited with approval the following observations of the learned Chief Justice from the judgment under appeal [1950] 20 Comp. Cas. 179 , 194 (SC) : "If, with all that, it is established before the court that in fact on the 21st February, 1945, the company was in need of funds, that the funds were required for the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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