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TMI Blog1981 (5) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... (India) Ltd., and ( ii ) the Needle Industries Newey (Indian Holdings) Ltd. These two companies have often been referred to in the proceedings as the Indian company and the English company, respectively, but it would be convenient for us to refer to the former as "NIIL" and to the latter as "the Holding Company". The Holding Company has been referred to in a part of the proceedings as "NINIH". In Civil Appeal No. 2139 of 1978, which was argued as the main appeal, NIIL is appellant No. 1, while, one T.A. Devagnanam is appellant No. 2. The latter figures very prominently in these proceedings and is indeed one of the moving spirits of this acrimonious litigation. He was appointed as a director of NIIL in 1956, and as its managing director in 1961. He is referred to in the correspondence as "TAD" or "Theo", but we prefer to call him "Devagnanam". The Holding Company is respondent No. 1 to the main appeal, the other respondents being some of the directors and shareholders of NIIL. Civil Appeal No.2483 of 1978 is filed by some of the shareholders of NIIL while Civil Appeal No. 2484 of 1978 is filed by some of its directors and officers. The Holding Company is the contesting respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eving Indianisation of the share capital of foreign companies, three issues of shares were made by NIIL in the years 1968, 1969 and 1971, all at par. There was also an issue of bonus shares in 1971. As a result of these issues, about 40% of the share capital of NIIL came to be held by the Indian employees of the company and their relatives while the balance of about 60% remained in the hands of the Holding Company. In terms of the number of shares, by 1971-72, the Holding Company owned 18,990 shares and the Indian shareholders owned 13,010 shares. Out of the latter block of shares, Devagnanam and his relatives held 9,140 shares while the remaining 3,870 shares were held by other employees and their relatives, amongst whom were N. Manoharan and his group who held 900 shares and D.P. Kingsley and his group who held 530 shares. The total share capital of NIIL thus came to consist of 32,000 equity shares of Rs. 100 each. In or about 1972, a company called Coats Paton Ltd., Glasgow, U.K. (hereinafter called "Coats") became an almost 100% owner of NI-Studley. The position at the beginning of the year 1973 thus was that 60% (to be exact 59.3%) of the share capital of NIIL came to be own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational organization. NEWEY, comparatively, are small fish, though they too had their own independent business interests to protect and foster. NEWEY owned a nourishing business in Malaysia, Hong Kong, Taiwan, Japan and Australia and from 1972 onwards they drew Devagnanam increasingly into the orbit of their Far Eastern interests. In July, 1972, he was offered the office of managing director of a group of four companies in Hong Kong and Taiwan on a five year contract, with an annual salary of six thousand pounds. He had already been appointed to the board of the NEWEY joint venture company in Osaka, Japan, and acted as the liaison director for that company. He had also been asked to co-ordinate sales with NEWEY Brothers, Australia. Willing to accept these manifold responsibilities, Devagnanam became strenuously involved therein. He and his wife began to reside in Hong Kong and he cogitated over resigning from his position in NIIL. Coats, on their part, were clear that Devagnanam should relinquish his responsibilities in NIIL, in view of the time his role in NEWEY's Far Eastern interests was consuming. The question of appointing his successor as managing director in NIIL then bega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions. NIIL's application was late by three days but the delay was evidently ignored or condoned. One of the conditions imposed by the Reserve Bank on NIIL was that it must bring down the non-resident interest from 60% to 40% within one year of the receipt of its letter. That letter having been received by NIIL on May 17, 1976, the dead-line for reducing the non-resident interest to 40% was May 17, 1977. The Holding Company applied to the Reserve Bank for a "holding licence" under section 29(4)( a ) of the FERA, on September 18, 1974. That application which was late by 18 days is, we are informed, still pending with the Reserve Bank. Perhaps, it will be disposed of after the non-resident interest in NIIL is reduced to 40% in terms of section 29(1) of the FERA. Devagnanam was residing in Hong Kong to fulfil his commitment to NEWEY's Far Eastern business interests. The FERA had its implications for him too, especially since he could be regarded as a non-resident and did consider himself as such. He obtained a holding licence dated March 4, 1975, from the Reserve Bank in respect of his shares in NIIL. But, his interest in the affairs of NIIL began to flag for one reason or anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would accrue by the sale of the shares to Khaitan. Devagnanam reiterated his total identification with NEWEY's Far Eastern interests and expressed his anxiety to free himself from all commitments to or involvement with NIIL, as early as possible. On October 22, 1975, an important meeting was held in which Alan Mackrael, a director of the Holding Company, made it clear on behalf of Coats that neither Khaitan nor any other single purchaser would be acceptable to the Holding Company if that meant the acquisition of a 30% share holding. The notes of the meeting record that Devagnanam had confirmed that the offer which he had received from Khaitan was at Rs. 360 per share, out of which a substantial proportion (perhaps 50%) would be payable outside India. Mackrael stated at the meeting that the price in rupees could be matched but not the method of payment which was illegal and reiterated that the Holding Company would prevent any attempt by Devagnanam to sell his holding to Khaitan. The notes of the meeting were signed by Mackrael on October 30, 1975. On the date, Sanders wrote a letter to Manoharan stating that the Holding Company was not prepared for that 30% of the share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. NIIL did not alter the relevant provisions of its articles after it became a public company within the meaning of section 43A. One of the points in controversy between the parties is whether, in the absence of any positive step taken by NIIL for exercising the option to retain its articles relating to matters specified in section 3(1)( iii ) of the Companies Act, it can be held that NIIL had in fact exercised the option, which was available to it under the first proviso to section 43A, to include provisions relating to those matters in its articles. To resume the thread of events, on receipt of the letter of the Reserve Bank dated May 11, 1976, Kingsley, as NIIL's secretary, sent a reply on May 18, 1976, to the bank confirming the acceptance of the various conditions under which permission was granted to NIIL to continue its business. On August 11, 1976, the term of Devagnanam's appointment as the managing director of NIIL came to an end but in the meeting dated October 1, 1976, of NILL's board of directors, that appointment was renewed for a further period of five years. On being informed of the renewal of Devagnanam's appointment, NEWEY's Chairman, C. Raeburn, who used to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucceed. On the conclusion of the Ketty meeting, Silverston wrote a letter to Kingsley conveying his appreciation of the efforts made by Raeburn to bring the parties together and his distress at the attitude of Coats which, according to Silverston, showed that they were trying to circumvent the provisions of the FERA. Raeburn too wrote a letter on October 23, 1976 to Devagnanam saying that Coats were not really interested in any independent Indians taking their excess shareholding. On December 11, 1976, Devagnanam wrote to Raeburn expressing the resentment of himself and his group at the attempts made by Coats to maintain their control over NIIL by indirect means. On December 14, Devagnanam offered a package deal under which the existing Indian shareholders would augment their holding to 60%. Mackrael and Raeburn would be on the board of directors but not Martin Henry, and even B.T. Lee, a senior executive of NI-Studley, could be appointed as a whole time director of NIIL to be in charge of its export programme. On January 20, 1977, the Reserve Bank sent a reminder to NIIL asking it to submit at an early date the progress report regarding the dilution of the nonresident interest. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, with Devagnanam in the chair at the commencement of the proceedings. C. Doraiswamy, solicitor-partner of "King and Partridge", was one of the directors present at the meeting. He had no interest in the proposal of "Indianisation" which the meeting was to discuss and was, therefore, considered to be an independent director. In order to complete the quorum of two independent directors, the other directors apart from C. Doraiswamy being interested in the business of the meeting, Silverston, an ex-partner of C. Doraiswamy's firm of solicitors, was appointed to the board as an additional director under article 97 of the articles of association. Silverston chaired the meeting after his appointment as an additional director. The meeting resolved that the issued capital of NIIL be increased to Rs. 48.00,000 by a new issue of 16,000 equity shares of Rs. 100 each, to be offered as rights shares to the existing shareholders in proportion to the shares held by them. The offer was to be made by a notice specifying the number of shares which each shareholder was entitled to, and in case the offer was not accepted within 16 days from the date on which it was made, it was to be deemed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sent to the Holding Company in an envelope which also bore the Indian postal mark of April 27, 1977. The notice was received by Sanders in England on May 2, 1977, i.e. , on the date when the meeting was due to be held in India. Even the fastest and the most modern means of transport could not have enabled Sanders to attend the meeting. In between, on April 26, 1977, Raeburn had written a letter to Devagnanam at Malacca, following a telex message which said: "HAD HELPFUL DISCUSSIONS COATS YESTERDAY PLEASE MAKE NO DECISIONS RE INDIANISATION PENDING LETTER". By his letter of 26th April, which is said to have been received by Devagnanam on May 4, 1977, Raeburn stated that Coats were still unwilling to grant majority shareholding control to the existing Indian shareholders, but that they were equally not keen to do anything which would be regarded as circumventing the proposal for Indianisation or the law bearing on the subject, since that would undermine the position of the Indian shareholders. A meeting of the board of directors was held on May 2, 1977, as scheduled. The minutes of that meeting show that Kingsley, the secretary of NHL, pointed out in the meeting that app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by a letter to Devagnanam on May 3. While expressing his distress and displeasure at the manner in which the decision regarding the issue of rights shares was taken and the allotment of the shares was made, Raeburn stated in his letter that the rights issue at par, which was considerably less than the fair value of the shares, was most unfair to the shareholders who could not take up the rights issue. After making the allotment of shares in the meeting of May 2, NIIL sent a letter to the Reserve Bank reporting compliance with the requirements of the FERA by the issue of 16,000 rights shares and the allotment thereof to the Indian shareholders which resulted in the reduction of the foreign holding to approximately 40% and increased that of the Indian shareholders to almost 60%. Reference was made in the letter to the fact that the allotment money of Rs. 1,10,700 had yet to be received, which was obviously in reference to the amount due on the 1,107 rights shares which were allotted to the Manoharan group in the meeting of 2nd May. The Manoharan group did not evince any interest even later in taking up those shares. Manoharan. it may be stated, who was a director and general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 but was in fact not so sent. On May 17, 1977 Mackrael, acting on behalf of the Holding Company, filed a company petition in the Madras High Court under sections 397 and 398 of the Companies Act, 1956, out of which the present appeals arise. It is alleged in the petition that the Indian directors abused their fiduciary position in the company by deciding in the meeting of April 6, to issue the rights shares at par and by allotting them exclusively to the Indian shareholders in the meeting of 2nd May, 1977. In so doing, they acted mala fide and in order to gain an illegal advantage for themselves. The Indian directors, according to the company petition, either knew or ought to have known that the fair value of the shares of the company was about Rs. 204 per share. By deciding.to issue the rights shares at par, they conferred a tremendous and illegitimate advantage on the Indian shareholders. Devagnanam delayed deliberately the intimation of the proceedings of the 6th April to the Holding Company. By that means and by the late giving of the notice of the meeting of the 2nd May, the Devagnanam group presented a fait accompli to the Holding Company in order to prevent it from ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 495 rights shares to which it was entitled. Exercising the power under section 398(2) of the Companies Act, the learned judge directed NII to make good that loss which, according to him, could have been avoided by it "by adopting a fairer process of communication" with the Holding Company and "a consequential dialogue" with them, in the matter of the issue of rights shares at a premium. The learned judge directed NIIL to pay to the Holding Company the aforesaid sum of Rs. 8,54,550 as a "solatium" in order to meet the ends of justice. Being aggrieved by the aforesaid judgment, the Holding Company filed O.S. Appeal No. 64 of 1978 while NIIL filed cross-objections to the decree. The appeal and cross-objections were argued before the Division Bench of the High Court on the basis of affidavits, the correspondence that had passed between the parties and certain additional documents which were filed before the appellate court by the consent of parties. Though the company petition was filed under section 397 as also under section 398 of the Companies Act and though the trial court had granted partial relief to the Holding Company under section 398, it was stated in the appellate court on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a direct sale of that interest. ( g )Though by his letters of December 11 and 14, 1976, Devagnanam had informed Raeburn of the decision of the Indian shareholders to acquire 60% shares for themselves, he did not ever say one word about the issue of rights shares in any of the numerous communications which he sent to Raeburn. No reference was made to the issue of rights shares even in the memorandum of discussions which took place during the visit of Devagnanam to U.K. from March 29-31, 1977. Thus, the issue of rights shares was sprung as a surprise on the U.K. shareholders. ( h )The notice dated March 18, 1977, for the meeting of the board of directors held on April 6, 1977, referred to the main item on the agenda in ambiguous terms as: "policy Indianisation". In the context of the discussions which had taken place until then between the parties, N.T. Sanders who represented the Holding Company on the board had no means or opportunity of knowing that the particular item on the agenda involved the question of the issue of rights shares. ( i )Since every major decision was taken by the board of directors in consultation with the Holding Company and since there was no agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it because, the letter of offer dated April 14 did not contain a statement regarding renunciation of the right to take shares and also because the letter was not posted in time. As regards the third course, if the Holding Company were given adequate notice of the proposal to issue rights shares, it might have taken appropriate action under section 81(1A) of the Companies Act. ( m )The object of the directors of NIIL in deciding upon the issue of rights shares, and that too in the manner in which they did so, was clearly to obtain control of the company and to eschew and eliminate any controling power which the Holding Company had over NIIL. The conversion of the existing minority of the Indian shareholders into a majority, far from being a matter of statutory compulsion, was an act of self-aggrandisement on the part of the existing Indian shareholders. ( n )The action taken by the Indian shareholders was against the interest of the Company itself because the rights shares were issued at par which was far below their market price. ( o )The true motivation of the various steps taken by the Devagnanam NEWEY Combination was the furtherence of the interest of NEWEY's Far Eastern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with the cross-objections, the Division Bench held that the injury suffered by the Holding Company on account of the oppression practised by the board of directors of NIIL could not be remedied by the award of compensation and, therefore, the action of the board of directors in issuing the rights shares had to be quashed. Having found that the Holding Company was entitled to relief under section 397 of the Companies Act and the award of solatium made by the trial court was not the appropriate relief to grant, the Division Bench allowed the appeal filed by the Holding Company, dismissed the cross-objections in substance and adjourned the appeal for a fortnight for hearing further arguments on the nature of the relief to be granted in the case. Eventually, by its order dated October 26, 1978, the Division Bench granted the following reliefs: ( a )Devagnanam was removed forthwith both as the managing director and director of NIIL and was asked to vacate the bungalow occupied by him, by November 1, 1978. He was paid one year's remuneration as compensation for the termination of his appointment as the managing director. ( b )The board of directors was superseded and an int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the court may, with a view- to bringing to an end the matters complained of, make such order as it thinks fit". Section 398 provides for relief in cases of mismanagement. Section 399(1) restricts the right to apply under sections 397 and 398 to persons mentioned in clauses ( a ) and ( b ) of sub-section (1). It is necessary to refer briefly to the relevant part of the pleadings before examining the charge of oppression made by the Holding Company against a group of the minority shareholders of NIIL. After tracing the history of formation and composition of NIIL, the company petition states that the management of NIIL was in the hands of the board of directors in which the Indian group had a large majority. The Holding Company had implicit trust in them and was content to leave the management in their hands. After referring to the impact of section 43A of the Companies Act, 1956, the company petition says that in the wake of the FERA, discussions and negot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the desired decision. The Reserve Bank, according to the company petition, would not have been so unreasonable as not to extend the time for complying with its directive, especially since the Holding Company had agreed in principle to dilute its holding and the only difference between the parties was as regards the method by which such dilution was to be effected. In para. 27 of the company petition it is stated that the Devagnanam group decided to issue the rights shares with a view to securing an illegal and unjust advantage for itself, for improving its own position in the company and in order to deprive the Holding Company of its lawful rights as majority shareholders. In this behalf, reliance is placed on the following facts and circumstances, inter alia: ( a )The Holding Company was never informed of any specific proposal to make the rights issue. ( b )The notice of the board meeting of April 6, 1977, did not refer to the said proposal. ( c )The notice offering rights shares to the Holding Company was not prepared till April 14, 1977, and was not posted till April 27, 1977. By the time the notice was received by the Holding Company, the board of NIIL had met to allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as on behalf of NIIL. In that counter-affidavit, every one of the material contentions put forward by the Holding Company has been denied or disputed. Devagnanam contends that it was the Holding Company which wanted to retain its control over NIIL contrary to the directive of the Reserve Bank of India, the national policy of the Central Govt. and the provisions of the FERA. According to Devagnanam, every action taken in the board meetings of April 6, 1977, and May 2, 1977, was in accordance with law, that Sanders never used to attend the meetings of the board, being a non-resident he was not entitled to have notice of the board meetings, that there was no violation of section 81 of the Companies Act at all, that section 81( c ) of the Companies Act did not apply to the present case and that, in view of the attitude adopted by Coats, NIIL, in order to comply with the restrictions imposed by the Reserve Bank and to carry out its directive, had no option but to decide upon the issue of rights shares to bring about the reduction in the non-resident shareholding. Devagnanam repudiates emphatically the charge of mala fides or of conduct in breach of the fiduciary duty of NIIL's bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively 40%, 30% and 30% of the shareholding in NIIL. ( h )The question whether Silverston was an "interested" director within the meaning of section 300 of the Companies Act, and ( i )Whether Silverston's appointment as an additional director in the meeting of the board held on April 6, 1977, was, in the circumstances, valid. Coming to the law as to the concept of "oppression" , section 397 of our Companies Act follows closely the language of section 210 of the English Companies Act of 1948. Since the decisions on section 210 have been followed by our court, the English decisions may be considered first. The leading case on "oppression" under section 210 is the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] AC 324; 29 Comp. Cas. 1 (HL). Taking the dictionary meaning of the word "oppression", Viscount Simonds said at page 342 that the appellant-society could justly be described as having behaved towards the minority shareholders in an "oppressive" manner, that is to say, in a manner "burdensome, harsh and wrongful". The learned law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le" principle as a ground for winding up a company. The business of the respondent-company was a very profitable one and profits used to be distributed among the directors in the shape of fees, no dividends being declared. On being removed as a director by the votes of two other directors, the appellant petitioned for an order under section 210. Allowing an appeal from the judgment of the Court of Appeal, it was held by the House of Lords that the words "just and equitable" which occur in section 222( f ) of the English Act, corresponding to our section 433( f ), were not to be construed ejusdem generis with clauses ( a ) to ( e ) of section 222 corresponding to our clauses ( a ) to ( e ) of section 433. Lord Wilberforce observed that the words "just and equitable" are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; and that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure (p. 379 of [1973] AC 360): "The 'just and equitable' provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Loch v. John Blackwood Ltd. [1924] AC 783. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by one of us, Bhagwati J., in a decision of the Gujarat High Court in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton Jute Mills Co. [1964] 34 Comp. Cas. 777 , 830-31, that "a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company. On this question, Lord President Cooper observed in Elder v. Elder Watson [1952] SC 49, 55: "The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding-up, especially where alternative remedies are available. Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment has no place, for, in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 2 SCR 720, 737; AIR 1965 SC 1535; 35 Comp. Cas. 351 , 366, 367. Wanchoo J. accepted the broad and liberal interpretation given to the court's powers in Meyer. In Kalinga Tubes, Wanchoo J. referred to certain decisions under section 210 of the English Companies Act including Meyer and observed (p. 366): "These observations from the four cases referred to above apply to section 397 also which is almost in the same words as section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n St. Turkish Baths [1971] 3 All ER 184; 41 Comp. Cas. 999. We have not adopted that modification in India. Having seen the legal position which obtains in cases where a member or members of a company complain under section 397 of the Companies Act that the affairs of the company are being conducted in a manner oppressive to him or them, we can proceed to consider the catena of facts and circumstances on which reliance is placed by the Holding Company in support of its case that the conduct of the board of directors of NIIL constitutes an act of oppression against it. There is, however, one matter which has to be dealt with before adverting to facts, namely, the provisions of the FERA, their impact on the working of NIIL and on the right of the Holding Company to continue to hold its shares in NIIL. This we consider necessary to discuss before an appraisal of the factual situation, since without a proper understanding of the working of the FERA, it would be impossible to appreciate the turn of intertwined events. It is in the setting of the FERA that the significance of the various happenings can properly be seen. The Foreign Exchange Regulation Act, 46 of 1973, is "An Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provision of this Act or the provisions of the Companies Act, 1956, a person resident outside India (whether a citizen of India or not) or a person who is not a citizen of India but is resident in India, or a company (other than a banking company) which is not incorporated under any law in force in India or in which the non-resident interest is more than forty per cent. or any branch of such company, shall not, except with the general or special permission of the Reserve Bank, ( a )carry on in India, or establish in India a branch, office or other place of business for carrying on any activity of a trading, commercial or industrial nature, other than an activity for the carrying on of which permission of the Reserve Bank has been obtained under section 28, or...... (2)( a )Where any person or company (including its branch) referred to in sub-section (1) carries on any activity referred to in clause ( a ) of that sub-section at the commencement of this Act or has established a branch, office or other place of business for the carrying on of such activity at such commencement, then, such person or company (including its branch) may make an application to the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated May 10, 1976. Under the terms and conditions imposed by the Reserve Bank, the non-resident interest of the Holding Company, which came to about 60%, had to be brought down to 40% within one year of the receipt of the letter dated May 10, 1976, that is to say, before May 17, 1977. By reason of section 29(4) of the FERA, the Holding Company too had to apply for permission to hold its shares in NIIL. It applied to the Reserve Bank for a holding licence on September 18, 1974. The application which was filed late by 18 days is still pending with the Reserve Bank and is likely to be disposed of after the non-resident interest of the Holding Company in NIIL is reduced to 40%. There is a sharp controversy between the parties on the question as to whether May 17, 1977, was a rigid deadline by which the reduction of the non-resident interest had to be achieved or whether NIIL could have applied to the Reserve Bank before that date for extension of time to comply with the bank's directive, in which case, it is urged, no penal consequences would have flowed. We will deal later with this aspect of the matter, including the question of business prudence involved in applying to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal infirmity from which the case of the Holding Company suffers and, therefore, this court ought not to record a finding of mala fides or of abuse of powers, especially when such findings are likely to involve grave consequences, moral and material, to Devagnanam and jeopardise the very functioning of NIIL itself. In support of his submission, Shri Nariman has relied upon many a case to show that issues of mala fides and abuse of fiduciary powers are almost always decided not on the basis of affidavits but on oral evidence. Some of the cases relied upon in this connection are: In re Smith S Fawcett Ltd. [1942] 1 All ER 542, 545 (CA), Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1950] SCR 391, 394; 20 Comp. Cas. 179, Piercy v. S. Mills Co. Ltd. [1920] 1 Ch 77 (Ch D), Hogg v. Cramhorn Ltd. [1967] 1 Ch 254, 260; 37 Comp. Cas. 157 (Ch D), Mills v. Mills [1938] 60 CLR 150, 160, Harlowe's Nominees [1968] 121 CLR 483, 485 and Howard Smith Ltd. v. Ampol Petroleum Ltd. [1974] AC 821, 831 (PC). We appreciate that it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without ask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat oral evidence was led in some cases does not mean that it must be led in all cases or that without it, the matters in issue cannot be found upon. We may mention that in Punt v. Symons Co. [1903] 2 Ch 506 (Ch D), Fraser v. Whalley [1864] 71 ER 361 and Hogg v. Cramphorn Ltd. [1967] 1 Ch 254; 37 Comp. Cas. 157 (Ch D), the breach of fiduciary duty was inferred from affidavit evidence. We have, therefore, no hesitation in rejecting the submission that we ought not to record a finding of mala fides or abuse of fiduciary power on the basis of the affidavits, correspondence and the other documents which are on the record of the case. May it be said that these are on the record by consent of parties. Not merely that, but more and mare documents were placed on the record, mostly by consent of parties, as the case progressed from stage to stage. A very important document, namely, Devag-nanam's telex to Raeburn dated May 25, 1977, was put on the record for the first time before us since Shri Nariman himself desired it to be produced, waiving the protection of the caveat "without prejudice". That shows that the parties adopted willingly a mode of trial which they found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders, including the shares formally offered to the Holding Company which were not allotted to it on the ground of its non-compliance with the letter of offer. ( vi )The agenda of the meetings of April 6 and May 2, 1977, was purposely expressed in vague terms: "Policy Indianisation", in order that the Holding Company should not know that the reduction of the nonresident interest was proposed to be effected by the issue of rights shares. By suppressing from the knowledge of the Holding Company what was its right to know, and what was the duty of the board's secretary to convey to it, Devagnanam succeeded in achieving his purpose on the sly and preempted any action by the Holding Company to restrain the holding of the meeting, the issue of rights shares and the allotment thereof exclusively to the existing shareholders (barring Manoharan). ( vii )Silverston was appointed as an additional director in the meeting of April 6, to make up the quorum of two "disinterested" directors even though he was in the true sense not a disinterested person in the decision taken in that meeting. The appointment of additional directors was not even an item on the agenda of the meeting. ( viii )De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the negotiations which had taken place between the parties, it was clear that what was meant by "policy Indianization" and "allotment of shares" was the allotment of rights shares in order to effectuate the policy of the Reserve Bank that the Indianization of the company should be achieved by the reduction of the non-resident holding to 40%, that Coats refused persistently, both actively and passively, either to disinvest or to consider the only other alternative of the issue of rights shares, and that the impugned decisions were taken by the board of directors objectively in the larger interests of the company. According to Shri Nariman, Coats left no doubt by their attitude that their real interest lay in their worldwide business and that they wanted to bring the working of NIIL to a grinding halt with a view to eliminating an established competitor from their business. It is denied by counsel that important facts or circumstances were deliberately suppressed from the Holding Company or that the letter of offer and the notice of the board's meeting of May 2 were deliberately posted late on April 27. It is contended that neither by the issue of rights shares nor by the failure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and rivalries between Coats and Devagnanam, NEWEY preferring to side with the latter in a silent, unspoken banner. Eventually, after the filing of the company petition, Coats bought over NEWEY's interest in NIIL sometime in July, 1977. The picture which Devagnanam has drawn of himself as a person deeply committed to Ketty, and as having built up the business with scrupulous regard to the observance of foreign exchange regulations and Indian laws in contradistinction to Coats who, he alleged, wanted to contravene the foreign exchange regulations of our country is not borne out by the correspondence. In fact, the letter which he wrote to Shread of Newey-Goodman Ltd. on August 11, 1973, (which was filed by consent in the appeal court) shows that he wanted to dispose of his shares at a large premium by officially receiving the par value in rupees in India and obtaining the balance in foreign currency outside India. Nevertheless, he stated on oath in para. 13 of his rejoinder affidavit that "it is not true that in selling my shares, I wanted a part of the consideration in foreign exchange". The said letter discloses that over and above proposing to make a large profit in contraven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai attacked that of Devagnanam, though in terms of a saying in a local language we may say that "a brick is softer than a stone", Coats being the brick. Coats, as will presently appear, are not to be outdone by Devagnanam in the matter of lack of business ethics. But that is no wonder, because when the dominant motivation is to acquire control of a company, the sparring groups of shareholders try to grab the maximum benefit for themselves. If one decides to stay on in a company, one must capture its control. If one decides to quit, one must obtain the best price for one's holding, under and over the table, partly in rupees and partly in foreign exchange. Then, the tax laws and the foreign exchange regulations look on helplessly, because law cannot operate in a vacuum and it is notorious that in such cases evidence is not easy to obtain. Alan Mackrael says in para. 20 of his reply affidavit in the company petition that it was made clear to Devagnanam that neither Coats nor the Needle Industries (U. K.) would ever be a party to any transaction which was illegal under the Indian law. In a letter dated May 24, 1976, to Devagnanam, A. D. Jackson of NEWEY has this to say: "In broad t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s since "they want to achieve not only that the present Indian shareholders hold a minority but that they (Coats) hold and influence a substantial block, thereby hoping to influence NEWEY, to their views". Thus, there is a wide difference between what Coats practised earlier and pleaded later. Towards the end of para. 21, Mackrael asserts that the shareholders of the Holding Company, namely, Coats and NEWEY, were unanimous in the filing of the company petition and the prosecution of the proceedings following upon it, which is said to be clear from the fact that two powers of attorney were attested by the directors of the Holding Company, both of whom were directors of NEWEY also. The fact that Coats and NEWEY were not of one mind is writ large on the face of these proceedings and, in fact, the charge against NEWEY is that because of their Far-Eastern interests in which Devagnanam was a great asset to them, they were supporting Devagnanam. We may in this connection draw attention to a letter dated June 8, 1977, by Raeburn to Mackrael, saying that the insistence of Coats ("Glasgow") to hold on to the 60% shareholding in NIIL or at least to ensure that 60% did not get into the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that it was not until quite late that Coats realised that they had to plead all ignorance of the discussions which were held in U.K. towards the end of March, 1977, between Devagnanam and the representatives of the Holding Company. We will now shift our attention to another scene in order to show how unethical the Coats are. Coats' subsidiary called the Central Agency Ltd., who were sole selling agents of NIIL's products in various markets in the world, ceased to be so after NIIL put an end to the agreement with them. The Central Agency never applied during the time that they were sole selling agents of NIIL's products, for the registration of the Indian company's trade-marks as a protective measure. The learned trial judge, Ratnaprasada Rao, Acting C.J., delivered the judgment in the company's petition on May 17, 1978. Immediately, thereafter, Application No. 34991 of 1978 was filed by the Japanese trade-marks agents of Needle Industries, U.K., for registration of the trade-marks "Pony" and "Rathna", which were the registered Indian trade-marks of NIIL. That application was made under the authority of a power-of-attorney signed by Alan Mackrael. In June, 1978, Application No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, on inspection of the registers, that certain applications made by Needle Industries, U.K., claiming the same mark as their own, were pending consideration. The decision, in appeal, of the High Court appointing Harry Bridges as a managing director for 4 months was pronounced on October 26, 1978. As a managing director appointed by the court, Bridges called a board meeting of the other members of the board appointed by the appellate court, for November 2, 1978. Bridges took away many files, documents and statements from the NIIL's factory at Ketty on October 28, 1978, his explanation being that he wanted to carry these documents to Madras where the board meeting was to be held. A little before Bridges left Ketty for Madras, he was informed that this court had passed an interim order on November 1, 1978. Consequently, the meeting of the 2nd November did not take place. Bridges says that when it became clear that he was no longer required to act as a managing director of NIIL, he took the earliest opportunity of returning the documents which he had taken from the office of the factory at Ketty. It is understandable that Bridges wanted to take with him certain documents to help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there is support forthcoming to it from other circumstances on the record. We feel the same about Coats. It would be equally unsafe to accept their word unless it finds support from the other facts and circumstances on the record of the case. It is true that in saying this, we have partly taken into account facts which came into existence after the company petition was filed. But those facts do not reflect a new trend or a new thinking on the part of Coats, generated by success in the litigation. Finding that they had succeeded in the High Court, Coats took courage to pursue relentlessly their old attitude with the added vigour which success brings. On the question of oppression, there is a large mass of correspondence and other documentary evidence on the record before us. We shall have to concentrate on the essentials by separating the chaff from the grain. In the earlier part of this judgment we have already referred to the course of events generally, which culminated in the meetings of NIIL's board of directors, held on April 6, and May 2, 1977. We propose now to refer to these events selectively. The FERA having come into force on January 1, 1974, D. P. Kingsley, the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... til such time as the non-resident interest was not reduced to 40%, the manufacturing activity of the company shall not exceed such capacity as was validly approved or recognised by the appropriate authority on December 31, 1973, and that the company shall not expand its manufacturing activities beyond the level so approved or recognised. It is clear from this letter that all developmental activities of NIIL stood frozen as of the date December 31, 1973, until the non-resident interest was reduced to 40%. The Reserve Bank stated further in the letter that NIIL should submit quarterly reports to it indicating the progress made in implementing the reduction of the non-resident interest and that the transfer of shares from non-residents to Indian residents would be required to be confirmed by the Reserve Bank under section 19(5) of the FERA. The letter of the Reserve Bank was received by NIIL on May 17, 1976, which meant that the reduction of the non-resident interest had to be achieved by May 17, 1977. It shall have been seen that by the time the permission was granted by the Reserve Bank to NIIL in May 1976, the FERA had been in force for a period of about 2 years. A period of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the meeting and took part in the discussions. A note of the discussions which took place at Ketty on October 20 and 21 was prepared by Raeburn and forwarded along with a letter dated November 10, 1976, to Devagnanam, with copies to Mackrael, Newey, Jackson and Whitehouse. Paragraph 2 of this note, which is important, says: "It was agreed that Indianization should be brought about by May, 1977, as requested by Government, so as to achieve a 40% U.K. and 60% Indian shareholding". The main features of the discussions which took place in the Ketty meeting are these: (1)Mackrael and Martin Henry suggested acceptability of Madura Coats as holding part of the 60% of the equity to be held by Indian share-holders. The latter "saw no reason to give up the right which the Indianization legislation, combined with the company's articles, conferred upon them and, therefore, they insisted on taking up the whole of their entitlement to 60% of the equity". Silverston, who. was an Englishman by nationality and a solicitor by profession in India and was acting as an adviser to the Indian shareholders in the Ketty meeting, plainly and rightly pointed out that the Government's approval of a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to play the role of a mediator but failed. In this situation, the parties decided to give further consideration to the matter and to adhere to the following time-table: " Mid-December TAD (Devagnanam) to submit to the U.K. shareholders the decision reached by the Indian shareholders both as regards the 60% and the case, if any, for a rights issue. Mid-January U.K. shareholders to decide on their reaction to the Indian shareholders' decision". Silverston conveyed to Kingsley his regret that the Ketty meeting could produce no outcome because of the attitude of Coats who wanted to put pressure on the directors of NIIL by giving 15% of the shareholding to Madura Coats and thereby avoiding the provisions of the FERA. This reaction of Silverston finds support in the reaction of Raeburn himself, which he described in his letter dated October 23, 1976, to Devagnanam. Raeburn says in that letter that he had learnt from Martin Henry that Coats were keen to introduce Prym technology in India in their Madura Coats factory. It may be mentioned that the Prym technology when introduced in Madura Coats would have created a direct competition between it and NIIL. It would also appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become the owners of 60% of the equity capital of NIIL. A simple method of bringing this about was the transfer by the Holding Company of 20% of its shareholding to the existing Indian shareholders. It was only when this plain method of bringing about a reduction in the equity holding failed and the deadline fixed by the Reserve Bank was drawing nearer, that the Board of NIIL decided upon the issue of rights shares, which was the only other alternative that could be conceived of for reducing the non-resident interest. The issuance of rights shares, after all, was not like a bolt from the blue. In any event, it was mentioned in the Ketty meeting. On December 20, 1976, Silverston wrote a letter to Raeburn saying that he would be proceeding to the U.K. early in January in connection with his personal matters and that he would then visit Raeburn also. Silverston stated candidly in the letter that the situation which was developing between the U.K. and the Indian shareholders, if allowed to continue, could do much damage to the British interest and "as one who is still concerned with the interests of British industry, I feel I cannot sit by and allow matters to deteriorate to their d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Devagnanam before the Indian shareholders, and the U.K. shareholders apprised whether or not the proposals were acceptable. Shri Seervai relies strongly on a letter dated March 9, 1977, written by Raeburn to Devagnanam. After saying that on the Friday preceding the 9th March, he had discussions with Mackrael and three high-ranking personnel of Coats, Raeburn says in that letter that Coats had refused to agree that the Indian shareholders should acquire a 60% shareholding in NIIL, that this had created a new situation and that he was appending to the letter an outline of what he believed, but could not be sure, would be agreeable to Coats/Needle Industries. Raeburn stated further in that letter: "I know that all this will be difficult for you and your fellow Indian shareholders, but I urge you to support this view and get their acceptance, and to come here to be able to negotiate. If these or similar principles can be agreed during your visit, I have no doubt that the detailed method can be quickly arranged". Raeburn stated that the proposal annexed to the letter had not been agreed with Coats but he, on his own part, believed that Coats could be persuaded to agree to it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y thereafter". We are unable to agree that the proposal annexed to Raeburn's letter of March 9, 1977, was either a proposal by or on behalf of Coats or one made with their knowledge and approval. Were it so, it is difficult to understand how Raeburn could write to Mackrael on June 8, 1977, that Coats were still insistent on the entire 20% of the excess equity holding not going to the existing Indian shareholders. There is also no explanation as to why, if the proposal annexed to Raeburn's letter of March 9, was a proposal by or on behalf of Coats, Raeburn said at the U.K. meeting of March 29-31, 1977, that it was better to "let Coats declare their hand". It is indeed impossible to understand why Coats, on their own part, did not at any time communicate any compromise proposal of theirs to the Indian shareholders directly. They now seem to take shelter behind the proposal made by Raeburn in his letter of March 9, adopting it as their own. Even in the letter which Crawford Bayley Co., wrote on June 21, 1977, on behalf of Sanders to the Reserve Bank of India, no reference was at all made to any proposal by or on behalf of Coats to the Indian shareholders. The vague statement made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an group insisting that they will have nothing less than a 60% share in the equity capital of NIIL and the U.K. shareholders insisting with equal determination that they will not allow the existing Indian shareholders to have anything more than 49%. In pursuance of a resolution passed by the board, a letter had already been written to the Reserve Bank confirming the commitment of NIIL to achieve the required Indianisation by May 17, 1977. A copy of NIIL's letter to the Reserve Bank was sent to Sanders and Whitehouse. In view of the fact that to the common knowledge of the two sides there were only two methods by which the desired Indianisation could be achieved, namely, either disinvestment by the Holding Company in favour of the existing Indian shareholders or a rights issue, the particular item on the agenda should have left no doubt in the mind of the U.K. shareholders as to what the board was likely to discuss and decide in the meeting of the 6th. Disinvestment stood ruled out of consideration, a fact which was within the special knowledge of the Holding Company, since whether to disinvest or not was a matter of their volition. After the dispatch of the notice dated March 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian shareholders had not yet conveyed their response to the "Coats' compromise formula". Nor did he communicate to the Board his views on "policy Indianisation", whatever it may have meant to him. Seven directors were present in the meeting, with Devagnanam in the chair at the commencement of the meeting. C. Doraiswamy, a solicitor by profession and, admittedly, an independent director, was amongst the seven. In order to complete the quorum of two "independent" directors, other directors being interested in the issue of the rights shares, Silverston was appointed to the board as an additional director under article 97 of NIIL's articles of association. Silverston then chaired the meeting, which resolved that the issued capital of the company be increased to Rs. 48,00,000 by the issue of 16,000 equity shares of Rs. 100 each to be offered as rights shares to the existing shareholders in proportion to the shares held by them. The offer was decided to be made by a notice specifying the number of shares which each shareholder was entitled to, and in case, the offer was not accepted within 16 days from the date of the offer, it was to be deemed to have been declined by the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punt [1903] 2 Ch 506 (Ch D), Piercy [1920] 1 Ch 77 (Ch D) and Hogg [l967] 1 Ch 254; 37 Comp. Cas. 157 (Ch D). In Punt v. Symons [1903] 2 Ch 506 (Ch D), which applied the principle of Fraser v. Whalley, it was held that: "Where shares had been issued by the directors, not for the general benefit of the company, but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power they ought to be restrained from holding the meeting at which the votes of the new shareholders were to have been used". But Byrne J. stated: "There may be occasions when directors may fairly and properly issue shares in the case of a company constituted like the present for other reasons. For instance it would not be at all an unreasonable thing to create a sufficient number of shareholders to enable statutory powers to be exercised". In the instant case, the issue of rights shares was made by the directors for the purpose of complying with the requirements of the FERA and the directives issued by the Reserve Bank under that Act. The Reserve Bank had fixed a deadline and NIIL had committed itself to complying with the bank's directive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... else to submit to the issue of rights shares in order to comply with the statutory requirements of the FERA and the Reserve Bank's directives. Having chosen not to disinvest, an option which was open to them, they did not any longer possess the legal right to insist that the directors shall not issue the rights shares. What the directors did was clearly in the larger interests of the company and in obedience to their duty to comply with the law of the land. The fact that while discharging that duty they incidentally trenched upon the interests of the majority cannot invalidate their action. The conversion of the existing majority into a minority was a consequence of what the directors were obliged lawfully to do. Such conversion was not the motive force of their action. Before we advert to the decision of the Privy Council in Howard Smith Ltd. v. Ampol Petroleum Ltd. [1974] AC 821 (PC), we would like to refer to the decision of the High Court of Australia in Harlowe's Nominees Pvt. Ltd. v. Woodside ( Lakes Entrance ) Oil Company No Liability [1968] 121 CLR 483 and to the Canadian decision of Berger J. of the Supreme Court of British Columbia, in the case of Teck Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of management, within the proper sphere of the directors. The purpose found by the judge is simply and solely to dilute the majority voting power held by Ampol and Bulkships so as to enable a then minority of shareholders to sell their shares more advantageously. So far as authority goes, an issue of shares purely for the purpose of creating voting power has repeatedly been condemned". The dictum of Byrne J. in Punt [1903] 2 Ch 506 (Ch D) that "there may be reasons other than to raise capital for which shares may be issued" was approved at p. 836 and it was observed at p. 837: "Just as it is established that directors, within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office ( Automatic Self-Cleansing Filter Syndicate Co. Ltd. v. Cuningham [1906] 2 Ch 34 (CA)), so it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist. To do so is to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiduciary duty, to them. But we are unable to agree with the contention that the observations extracted above from the judgment of Das J. are obiter. The learned judge has set forth the plaintiffs' contentions under three sub-heads at p. 415 of 1950 SCR. At the bottom of p. 419, he finished the discussion of the 2nd sub-head and said: "This leads me to a consideration of the third sub-head on the assumption that...the additional motive was a bad motive". The question was thus argued before the court and was squarely dealt with. Before we leave this topic, we would like to mention that the mere circumstance that the directors derive benefit as shareholders by reason of the exercise of their fiduciary power to issue shares, will not vitiate the exercise of that power. As observed by Gower in Principles of Modern Company Law, 4th Edn., p. 578 : "As it was happily put in an Australian case they are 'not required by the law to live in an unreal region of detached altruism and to act in a vague mood of ideal abstraction from obvious facts which must be present to the mind of any honest and intelligent man when he exercises his powers as a director'". The Australian case refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions were invalid: firstly, on the ground, that they were passed by a vote of an interested director without which there would be no quorum and, secondly, because, Silvers-ton's appointment as an additional director was for the purpose of enabling the said resolution to be passed for the benefit of the interested directors. Relying upon a decision of the Bombay High Court in Firestone Tyre Rubber Co. v. Synthetics Chemicals Ltd. [1971] 41 Comp. Cas. 377, Shri Seervai contends that section 300 of the Companies Act embodies the general rule of equity that no person who has to discharge duties on behalf of a corporate body shall be allowed to enter into engagements in which he has a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect. The reason why it is said that Silverston was interested in or concerned with the allotment of the rights shares to the existing shareholders is, firstly, because at the Ketty meeting held in October, 1976, he had acted as an "adviser to the Indian shareholders", and, secondly, because on October 25, 1976, he had written a letter to Kingsley purporting to convey his advice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement entered into or to be entered into by or on behalf of the company. The interest or concern spoken of by sections 299(1) and 300(1) cannot be a merely sentimental interest of ideological concern. Therefore, a relationship of friendliness with the directors who are interested in the contract or arrangement or even the mere fact of a lawyer-client relationship with such directors will not disqualify a person from acting as a director on the ground of his being, under section 300(1), an "interested" director. Thus, howsoever, one may stretch the language of section 300(1) in the interest of purity of company administration, it is next to impossible to bring Silverston's appointment within the framework of that provision. In the Firestone [1971] 41 Comp. Cas. 377 (Bom.), the solicitor-director was held to be concerned or interested in the agreement for the appointment of Kilachands as selling agents as he had a substantial shareholding in a private limited company of Kilachands. Besides, he was also a shareholder-director in various other concerns of Kilachands. We must, accordingly, reject the argument that Silverston was an interested director, that, therefore, his appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares can be used only if there is need to raise additional capital. It is true that the power to issue shares is given primarily to enable capital to be raised when it is required for the purposes of the company but that power is not conditioned by such need. That power can be used for other reasons as, for example, to create a sufficient number of shareholders to enable the company to exercise statutory powers [See Punt v. Symons Co. [1903] 2 Ch 506 (Ch.D), or to enable it to comply with legal requirements as in the instant case. In Hogg v. Cramphorn [1967] 37 Comp. Cas. 157 (Ch D), Buckley J. (p. 267) agreed with the statement of law by Byrne J. in Punt. And so did Lord Wilberforce (p. 835) in Howard Smith [1974] AC 821 (PC) where he said : "...it is, in their Lordships' opinion, too narrow an approach to say that the only valid purpose for which shares may be issued is to raise capital for the company. The discretion is not in terms limited in this way: the law should not impose such a limitation on directors' powers. To define in advance exact limits beyond which directors must not pass is, in their Lordships' view, impossible. This clearly cannot be done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is not conditioned by the need for additional capital. We are not suggesting that the Reserve Bank, in the exercise of its statutory functions, cannot ever impose such conditions as it deems appropriate, subject to which alone a new issue may be made. But, neither the wording of the bank's letter nor the true legal position justifies the stand of the Holding Company. The minutes of the Ketty meeting of October 20-21, 1976, saying that it was agreed that the rights issue, with the Indian shareholders taking up the U.K. members' rights, would be considered provided it was demonstrated by NIIL that "there is a viable development plan requiring funds that the expected NIIL cash flow cannot meet", cannot also justify the argument that the power of the company to issue rights shares was, by agreement, conditioned by the need to raise additional capital for a development plan. In fact, the occasion for consideration by the Holding Company of NIIL's proposal to issue rights shares did not arise, since the Holding Company virtually boycotted the meeting of April 6. Assuming for the sake of argument that there was any such understanding between the parties, the minutes of the meeting of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionably was a disinterested director. The latter has been referred to in the company petition, Mackrael's reply affidavit and in the Holding Company's memorandum of appeal in the High Court as "uninterested", "disinterested" and "independent". At a crucial time, when Devagnanam was proposing to dispose of his shares to Khaitan, Sanders asked for Doraiswamy's advice by his letter dated August 6, 1975, in which he expressed "complete confidence" in Doraiswamy in the knowledge that the Holding Company could count on his guidance. Disinvestment by the Holding Company, as one of the two courses which could be adopted for reducing the non-resident interest in NIIL to 40% stood ruled out, on account of the rigid attitude of Coats who, during the period between the Ketty meeting of October 20-21, 1976, and the Birmingham discussions of March 29-31, 1977, clung to their self-interest, regardless of the pressure of the FERA, the directive of the Reserve Bank of India and their transparent impact on the future of NIIL. Devagnanam and the disinterested directors, having acted out of legal compulsion precipitated by the obstructive attitude of Coats and their action being in the larger inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imultaneously for their respective destinations. The affidavit of Selvaraj, NIIL's senior clerk in the despatch department, and the relevant entry in the outward register are quite difficult to accept on this point since they do not accord with the ordinary course of human affairs. Not only the three letters of offer abovesaid, but even the notice dated April 19, of the board meeting for May 2, was received by Sanders at Birmingham in an envelope bearing the Madras postal mark of April 27. Selvaraj's affidavit, apparently, supported by an entry in the outward register, that the envelope addressed to Sanders containing the notice of 19th April was posted on the 22nd is also difficult to accept. It takes all kinds to make the world and we do not know whether the NIIL's staff was advised astrologically that 27th April was an auspicious date for posting letters. But if only they had sought a little legal advice which, at least from Doraiswamy and Silverston, was readily available to them, they would have seen the folly of indulging in such behaviour. Add to that the circumstance that Devagnanam's letter to Raeburn dated April 12 was put in the same envelope in which the letter of offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate Bench of the High Court. The fact that Devagnanam stood to gain by the machination is a relevant factor to be taken into account but even that is not the whole truth: NIIL, not Devagnanam was the real beneficiary, a thesis which we have expounded over the last many pages. And the involvement of the other directors by calling them Devagnanam's colleagues is less than just to them. There is not a shred of evidence to justify the grave charge that they were willing tools in Devagnanam's hands and lent their help to concoct evidence. We clear their conduct, expressly and categorically. In so far as Devagnanam himself is concerned, there is room enough to suspect that he was the part-author of the late postings of important documents, especially since he was the prime actor in the play of NIIL's Indianisation. But even in regard to him, it is difficult to carry the case beyond the realm of suspicion and "room enough" is not the same thing as "reason enough". Section 15 of the Evidence Act which carries the famous illustration of a person obtaining insurance money on his houses which caught fire successively, the question being whether the fire was accidental or intentiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of offer, mentions, inter alia , that it was resolved in the meeting of April 6, to increase the issued capital of the company from 32,000 shares of Rs. 100 each to 48,000 shares of Rs. 100 each by issuing rights shares to the existing shareholders on the five conditions mentioned in the letter. The second condition reads thus: "If the offer is not accepted within 16 days from the date of offer, it shall be deemed to have been declined by the shareholder". The Holding Company was informed by the last para. of the letter of offer that in respect of its holding of 18,990 shares, it was entitled to 9,495 rights shares and that its acceptance of the offer together with the application money (at Rs. 50 per share) should be forwarded so as to reach the registered office of NIIL on or before April 30, 1977. A postal communication by air between the U.K. and Madras, which is the normal mode of communication, generally takes five days to reach its destination. If the letter of offer were to be posted on the 14th itself in Madras, it would have reached the Holding Company in Birmingham, say, on the 19th. Even assuming that the 16 days' period allowed for communicating the acceptance of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal circumstances, affect the legal rights of the Holding Company or create any legal obligations against it. The next question, and a very important one at that, on which there is a sharp controversy between the parties, is as to what is the consequence of the finding, which we have recorded, that the objection arising out of the late posting of the notice of the meeting for 2nd May goes to the root of the matter. The answer to this question depends upon whether the Holding Company could have accepted the offer of rights shares and if, either for reasons of volition or of legal compulsion, it could not have accepted the offer, whether it could have at least renounced its right under the offer to a resident Indian, other than the existing Indian shareholders. The decision of this question depends upon the true construction of the provisions of the FERA and of sections 43A and 81 of the Companies Act, 1956. We have already reproduced the relevant provisions of the FERA, namely, section 2( p ). ( q ) and ( u ); section 19(1)( a ), ( b ) and ( d ); section 29(1)( a );section 29(2)( a ), ( b ) and ( c ); and section 29(4)( a ) and ( b ). Section 29(1) provides thus: "...n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only power given to the Reserve Bank where a condition imposed under section 29(2) is breached. We are unable to accept these contentions. The Reserve Bank granted permission to NIIL to carry on its business, "subject to the conditions" mentioned in the letter of May 11, 1976. It may be that each of those conditions is not of the same rigour or importance as, e. g., the condition regarding the submission of quarterly reports indicating the progress made in implementing the other conditions, which could reasonably be relaxed by condonation of the late filing of any particular quarterly report. But the dilution of the non-resident interest in the equity capital of the company to a level not exceeding 40% "within a period of 1 (one) year from the date of the receipt of" the letter was of the very essence of the matter. A permission granted subject to the condition that such dilution shall be effected would cease automatically on the non-compliance with the condition at the end of the stipulated period or the extended period, as the case may be. The argument of the Holding Company would make the granting of a conditional permission an empty ritual since, whether or not the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed NIIL to carry on its business subject to the express condition that it shall reduce its nonresident holding to a level not exceeding 40%. The offer of rights shares was made to the existing shareholders, including the Holding Company, in proportion to the shares held by them. Since the issued capital of the company which consisted of 32,000 shares was increased by the issue of 16,000 rights shares, the Holding Company which held 18,990 shares, was offered 9,495 shares. The acceptance of the offer of rights shares by the Holding Company would have resulted in a violation of the provisions of the FERA and the directive of the Reserve Bank. Were the Holding Company to accept the offer of rights shares, it would have continued to hold 60% share capital in NIIL and the Indian shareholders would have continued to hold their 40% share capital in the company. It would indeed be ironical that the measure which was taken by NIIL's board of directors for the purpose of reducing the non-resident holding to a level not exceeding 40%, should itself become an instrument of perpetuating the ownership by the Holding Company of 60% of the equity capital pf NIIL. We are not suggesting that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act, which was inserted by Act 65 of 1960, reads thus: "43A. (1) Save as otherwise provided in this section, where not less than twenty-five per cent. of the paid-up share capital of a private company having a share capital, is held by one or more bodies corporate the private company shall......become by virtue of this section a public company: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause ( iii ) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven:... (2) Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word 'private' before the word 'Limited' in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association...... (4) A private company which has become a publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of NIIL, especially since section 81(1)( c ) of that Act, which is extracted above, is subject to the qualification: "Unless the articles of the company otherwise provide". The relevant articles are arts. 11, 32, 38 and 50 and they read thus: Article 11 "In order that the company may be a private company within the meaning of the Indian Companies Act, 1913, the following provisions shall have effect, namely: ( i )No invitation shall be issued to the public to subscribe for any shares, debentures, or debenture stock of the company. ( ii )The number of the members of the company (exclusive of persons in the employment of the company) shall be limited to fifty, provided that for the purposes of this article where two or more persons hold one or more shares in the company jointly, they shall be treated as a single member. ( iii )The right to transfer shares of the company is restricted in the manner hereinafter provided. ( iv )If there shall be any inconsistency between the provisions of this article and the provisions of any other article the provisions of this article shall prevail". Article 32 "A share may, subject to article 38, be transferred by a mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Nariman, section 81(1A) can have no application to a "section 43A(1) proviso company" (for short, the "proviso company") because, it contemplates issue of shares to the public and to persons other than members of the company, which cannot be done in the case of a company which falls under the proviso to section 43A(1). Section 81(1A), it is urged, is complementary to section 81 and since the latter cannot apply to the "proviso company", the former too cannot apply to it. In any event, according to counsel, section 81(1)( c ) cannot apply in the instant case, since the articles of NIIL provide by necessary implication at any rate, that the members of the company shall have no right to renounce the shares in favour of "any" other person, because such a right would include the right to renounce in favour of persons who are not members of the company, and NIIL had retained its articles under which shares could not be transferred or renounced in favour of outsiders. Shri Seervai has refuted these contentions, his main argument being that the definitions of "public company" and "private company" are mutually exclusive and, between them, are exhaustive of all categories of companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 3(1)( iii ) serious consequences follow under section 44. In short, the inclusion, or retention, of all the matters referred to in section 3(1)( iii ) has a radically different part or function in a private company which becomes a public company by virtue of section 43A from that which it has in a private company. More particularly the non-compliance with the three requirements of section 3(1)( iii ) included, or retained, in the articles of a private company which has become a public company by virtue of section 43A, involves no statutory consequences or disabilities, since such a company is a public company and section 43 is not attracted. ( e )It is wrong to contend that the whole of section 81(1) does not apply to a "proviso company" because it is a private company entitled to the protection of sub-section 3( a ). Section 81(3)( a ) applies to a private company; a "proviso company" is one which has become, and continues to remain a public company. ( f )Section 81(1)( c ) applies to all companies other than private companies. The articles of a public company may include all of the matters referred to in section 3(1)( iii ), or may include one or two of the matters re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be a provision in the articles which says that an offer of shares to the existing members does not entitle them to renounce the shares in favour of any person. Article 11 of NIIL merely states the matters necessary to constitute a company, a private company. Such companies are exempt from section 81 and so, the question of "otherwise providing" does not arise. Article 50 refers to the rights shares but it makes no other provision with regard to the right of renunciation than is made in section 81(1)( c ). Unless such other provision is made, the opening words of section 81(1)( c ) are not attracted. Secondly, section 81(1)( c ) provides that unless the articles otherwise provide "the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any person". The right conferred by the deeming clause can be taken away only by making a provision in the articles to prevent the deeming provision from taking effect. The deeming provision cannot be avoided by implication; and ( k )The Holding Company could have renounced the rights shares offered to it at least in favour of the Manoharan group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " are mutually exclusive and collectively exhaustive of all categories of companies, that is to say, that there is no third kind of company recognised by the Companies Act, 1956. The argument merits close examination since it finds support, to an appreciable extent, from the very text of the Companies Act. The definition of "private company" and the manner in which a "public company" is defined ("public company means a company which is not a private company") bear out the argument that these two categories of companies are mutually exclusive. If it is this, it cannot be that and if it is that it cannot be this. But, it is not true to say that between them, they exhaust the universe of companies. A private company which has become a public company by reason of section 43A may include, that is to say, may continue to retain in its articles, matters which are specified in section 3(1)( ii ), and the number of its members may be or may at any time be reduced below 7. This provision itself highlights the basic distinction between, on one hand, a company which is incorporated as a public company or a private company which is converted into a public company under section 44, and on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly indicates that although the private company has become a public company by virtue of that section, it is permitted to retain the structural characteristics of its origin, its birth marks, so to say. Any provision of the Companies Act which would endanger the corporate shell of a "proviso company" cannot be applied to it because, that would constitute an infraction of one or more of the characteristics of the "proviso company" which are statutorily allowed to be preserved and retained under each of the three provisos to the three sub-sections of section 43A A right of renunciation in favour of any other person, as a statutory term of an offer of rights shares, would be repugnant to the integrity of the company and the continued retention by it of the basic characteristics under section 3(1)( iii ). Fifthly, section 43A, when introduced by Act 65 of 1960, did not adopt the language either of section 43 or of section 44. Under section 43 where default is made in complying with the provisions of section (3)(1)( iii ), a private company "shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act, and this Act shall apply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 252 of the Companies Act which deal respectively with quorum for meetings and minimum number of directors, recognise expressly, by their paranthetical clauses, the separate existence of public companies which have become such by virtue of section 43A. We may also mention that while making an amendment in sub-clause ( ix ) of rule 2 of the Companies (Acceptance of Deposits) Rules, 1975, the Amendment Rules, 1978, added the expression: "Any amount received by a private company which has become a public company under section 43A of the Act and continues to include in its articles of association provisions relating to the matters specified in clause ( iii ) of sub-section (1) of section 3 of the Act", in order to bring deposits received by such companies within the Rules. The various points discussed above will facilitate a clearer perception of the position that under the Companies Act, there are three kinds of companies whose rights and obligations fall for consideration, namely, private companies, public companies and private companies which have become public companies under section 43A(1) but which retain, under the first proviso to that section, the three characteristics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and neither is subordinate to the other; in fact section 43 A was introduced later in 1960. and ( b ) An offer of rights shares to a member in a section 43A-proviso-company cannot include a right to renounce the shares in favour of any other person, because such a right would be inconsistent with the article of the company limiting the number of its members to 50 and with the article prohibiting invitation to the public to subscribe for shares in the company. The fact that the statute overrides the articles is not a sufficient ground for rendering the provisions of section 81 applicable to a section 43A(1) proviso company since the right to continue to include provisions in its articles specified in section 3(1)( iii ) is itself a statutory right. Counsel says that in these circumstances and this is without taking the assistance of the words "unless the articles of the company otherwise provide" in section 81(1)( c ) the provision regarding the right of renunciation cannot apply to a section 43A-proviso-company. The answer of Shri Seervai to this contention flows from what truly is the sheet anchor of his argument, namely, that the definitions of "public company" and "private c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, if not accepted, will be deemed to have been declined. The real difficulty arises when one reaches clause ( c ) according to which, the offer shall be deemed to include the right of renunciation of shares or any of of them in favour of any other person. We will keep aside for the time being the opening words of clause ( c ): "unless the articles of the company otherwise provide". Clause ( c ) further requires that the notice referred to in clause ( b ) must contain a statement as to the right of renunciation provided for by clause ( c ). Having given to the matter our most anxious consideration, we are of the opinion that clause ( c ) of section 81(1) cannot apply to the erstwhile private companies which have become public companies under section 43A and which include, that is to say which retain or continue to include, in their articles of association the matters specified in section 3(1)( iii ) of the Act, as specified in the first proviso to section 43A. If clause ( c ) were to apply to the section 43A-proviso-companies, it would be open to the offerees to renounce the shares offered to them in favour of any other person or persons. That may result directly in the infring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued, the company may be regarded as having made an offer to the public. We cannot construe the provision contained in clause ( c ) in a manner which will lead to the negation of the option exercised by the company to retain in its articles the three matters referred to in section 3(1)( iii ). Both these are statutory provisions and they are contained in the same statute. We must harmonise them, unless the words of the statute are so plain and unambiguous and the policy of statute so clear that to harmonise will be doing violence to those words and to that policy. Words of the statute, we have dealt with. Its policy, if anything, points in the direction that the integrity and structure of the section 43A-proviso-com-panies should, as far as possible, not be broken up. The exemption in favour of private companies would appear to have been inserted in section 81(3)( a ) because of the right of renunciation conferred by section 81(1)( c ). Section 105C of the Indian Companies Act, 1913, which contained substantially all the provisions that are to be found in section 81(1)( a ), ( b ) and ( d ) applied to all companies. The right of renunciation in favour of any other person was conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause ( c ): "Unless the articles of the company otherwise provide". The effect of these words is to subordinate the provisions of clause ( c ) to the provisions of the articles of association of the company. In other words, the provision that the offer of further shares shall be deemed to include the right of renunciation in favour of any other person will not apply if the articles of the company "otherwise provide". Similarly, the requirement that the notice of offer must contain a statement of the right of renunciation will not apply if the articles of the company otherwise provide. The question which we have to consider under this head is whether the articles of association of NIIL provide otherwise than what is provided by clause ( c ) of section 81(1). We have already extracted the relevant articles, namely, arts. 11, 32, 38 and 50. To recapitulate, article 11, which has an important bearing on the subject now under discussion, provides that in order that the company may be a private company, ( i ) no invitation shall be issued to the public to subscribe for any shares, debentures, etc; ( ii ) the number of members of the company shall be limited to 50; and ( iii ) the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace, while construing the opening words of section 81(1)( c ), it has to be remembered that section 43A-companies are entitled under the proviso to that section to include provisions in their articles relating to matters specified in section 3(1)( iii ). The right of renunciation in favour of any other person is wholly inconsistent with the articles of a private company. If a private company becomes a public company by virtue of section 43A and retains or continues to include in its articles matters referred to in section 3(1)( iii ), it is difficult to say that the articles do not provide something which is otherwise than what is provided in clause ( c ). The right of renunciation in favour of any other person is of the essence of clause ( c ). On the other hand, the absence of that right is of the essence of the structure of a private company. It must follow, that in all cases in which erstwhile private companies become public companies by virtue of section 43A and retain their old articles, there would of necessity be a provision in their articles which is otherwise than what is contained in clause ( c ). Considered from this point of view, the argument as to whether the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, can have no application to private companies which have become public companies by virtue of section 43A and which retain in their articles the three matters referred to in section 3(1)( iii ) of the Act. In so far as the opening words of clause ( c ) are concerned, we are of the opinion that they do not require an express provision in the articles of the company which is otherwise than what is provided for in clause ( c ). It is enough, in order to comply with the opening words of clause ( c ), that the articles of the company contain by necessary implication a provision which is otherwise than what is provided in clause ( c ). Articles 11 and 50 of NIIL's articles of association negate the right of renunciation. The question immediately arises, which is of great practical importance in this case, as to whether the members of a section 43A-proviso-company have a limited right of renunciation, under which they can renounce the shares offered to them in favour of any other member or members of the company. Consistently with the view which we have taken of clause ( c ) of section 81(1), our answer to this question has to be in the negative. The right to renounce shares in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of section 43A. To this limited extent only, but not beyond it, the provisions of sub-section (1A) of section 81 can apply to such companies. The following propositions emerge out of the discussion of the provisions of the FERA, sections 43A and 81 of the Companies Act and of the articles of association of NIIL: (1)The Holding Company had to part with 20% out of the 60% equity capital held by it in NIIL. (2)The offer of rights shares made to the Holding Company as a result of the decision taken by the board of directors in their meeting of April 6, 1977, could not have been accepted by the Holding Company. (3)The Holding Company had no right to renounce the rights shares offered to it in favour of any other person, member or non-member, and (4)Since the offer of rights shares could not have been either accepted or renounced by the Holding Company, the former for one reason and the latter for another, the shares offered to it could, under article 50 of the articles of association, be disposed of by the directors, consistently with the articles of NIIL, particularly article 11, in such manner as they thought most beneficial to the company. These propositions af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nariman that Coats and NEWEY, who were two of the three main partners, were not of one mind and that NEWEY never complained of oppression. They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by section 397 of the Companies Act. Shri Seervai drew our attention to the decision in Blissett v. Daniel [1853] 68 ER 1022, 10 Hare 493, the facts of which, as they appear at pp. 1036-37, bear, according to him, great resemblance to the facts before us. The following observations in that case are of striking relevance (at p. 1040 of 68 ER; 536 of 10 Hare): "As has been well observed during the course of the argument, the view taken by this court with regard to morality of conduct amongst all parties most especially amongst those who are bound by the ties of partnership is one of the highest degree. The standard by which parties are tried here, either as trustees or as co-partners, or in various other relations which may be suggested, is a standard, I am thankful to say so, far higher than the standard of the world; and, tried by that standard, I hold it to be impossible to sanction the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The willingness of the Indian shareholders to pay a premium on the excess holding or the rights shares is a factor which, to some extent, has gone in their favour on the question of oppression. Having had the benefit of that stance, they must now make it good. Besides, it is only meet and just that the Indian shareholders, who took the rights shares at par, when the value of those shares was much above par, should be asked to pay the difference in order to nullify their unjust and unjustifiable enrichment at the cost of the Holding Company. We must make it clear that we are not asking the Indian shareholders to pay the premium as a price of oppression. We have rejected the plea of oppression and the course which we are now adopting is intended primarily to set right the course of justice, in so far as we may. The question then is as to what should be taken to be the reasonable value of the shares which were offered to the Holding Company but taken over by the bulk of the Indian shareholders. In his letter dated December 17, 1975, to M.M.C. Newey, D. P. Kingsley, the secretary of NIIL, had assessed the value of NIIL's shares at Rs. 175 per share. That value was arrived at by ave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the average market price of NIIL's shares in April-May 1977, can be taken to be Rs. 190 per share, the Holding Company which was offered 9,495 rights shares, will be entitled to receive from the Indian shareholders an amount equivalent to that by which they unjustifiably enriched themselves, namely, Rs. 90 X 9,495 which comes to Rs. 8,54,550. We direct that Devagnanam, his group and the other Indian shareholders, who took the rights shares offered to the Holding Company, shall pay, pro rata, the sum of Rs. 8,54,550 to the Holding Company. The amount shall be paid by them to the Holding Company from their own funds and not from the funds or assets of NIIL. As a further measure of neutralisation of the benefit which the Indian shareholders received in the meeting of 2nd May, 1977, we direct that the 16,000 rights shares which were allotted in that meeting to the Indian shareholders will be treated as not qualifying for the payment of dividend for a period of one year commencing from January 1, 1977, the company's year being the calendar year. The interim dividend or any further dividend received by the Indian shareholders on the 16,000 rights shares for the year ending December ..... X X X X Extracts X X X X X X X X Extracts X X X X
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