9911796707
TMI Blog1981 (5) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to these two appeals. We will deal with the main appeal and our judgment therein will dispose of all the three appeals. The NIIL was incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 owned half and half by Coats and NEWEY, the remaining 40% being in the hands of the Indian group. The bulk of this 40% block of shares was held by Devag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 began to be discussed, the Holding Company wanting to have Manoharan as a substitute. Devagnanam carried the feeling that he was already persona non grata wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 another and he started looking out for a purchaser who would buy his shares on convenient and attractive terms. In a note dated April 29, 1975, which he prepared on "further In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should get into the hands of any one person, bearing in mind the problems that had arisen in allowing Devagnanam to acquire a holding of nearly that proportion. On November 7, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 attend to the affairs of the Holding Company, did not object as such to the board's decision ("It may well be that the reappointment in itself is right"), but he demurred to the modalit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress 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 its reply dated February 21, 1977, NIIL confirmed its commitment to achieve the desired Indianisation by the stipulated date, viz., May 17, 1977. On March 9, 1977, Raeburn wrote to Deva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest 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 been declined by the concerned shareholder. The minutes of the meeting recorded that as a matter of abundant caution, the directors who were holding shares in NIIL did not take part either in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 applications for allotment of the rights shares offered as also the amounts payable along with the acceptance of the offer had been received from all the shareholders except the U.K. shareholders and the Mano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manager of NHL, had resigned his post in April, 1976, after serving the company for nearly 17 years. Between the 2nd and 9th May, there was an exchange of cables between Mackrael and Doraiswamy which led to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exercising its lawful rights. Thus, according to the petition, the conduct of the Indian directors lacked in probity and fair dealing which the Holding Company was entitled to expect. By the petition, the Holding Company as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 its behalf that its entire case was based on section 397 and that it did not want to invoke the provisions of section 398. A similar statement was made before us also. On a consideration of the matters and material before it, the Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 agenda for the appointment of an additional director under article 97 of the articles of association of NIIL, the decision taken by the board in its meeting of April 6 on the issue of rights shares and the appointment of Silverston as an additional director constituted a departu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 enterprises, coupled with the personal interest of Devagnanam himself. Devagnanam was receiving Rs. 96,000 per annum in addition to substantial fringe benefits as the managing director of NIIL. He was also getting a large salary from NEWEY which was GBP10,000 in 1975, GBP11,000 in 1976 and GBP12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts 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 interim board consisting of nine directors proposed by the Holding Company was constituted with Shri M. M. Sabharwal as an independent chairman. (c)Harry Bridges, an executive of Coats, was appointed as the managing director for a period of four months. (d)The rights issue made on 6th April, 1977, and the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 negotiations were held between the representatives of the Holding Company and the management of NIIL, amongst themselves, as well as with the Reserve Bank of India, in order to enable NIIL to obtain the requisite permission for carrying on its business. Paragraph 13 of the company petition states that the Reserve Bank of India by its letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 the rights: shares. (d)The time given in the notice was much less than was customary. (e)The notice did not contain a statement relating to the right of the shareholders to renounce the rights shares. (f)The notice of the board meeting of May 2, 1977, although dated 19th April, 1977, was posted to Sanders on 27-4-1977, thereby ensuring that it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RA. 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 board of directors. Having regard to these pleadings, the main question for consideration is whether the decisions taken in the meetings of the board of directors of NIIL on April 6, and May 2, 1977, constitute acts of oppression within the meaning of section 397 of the Companies Act, 1956. The High Court has answered this question in the affirmative and has issued consequential d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losely 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 first hearing of the case to the effect that section 210 "warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view". Dealing with the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way". O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy". Neither the judgment of Bhagwati J. nor the observations in Elder [1952] SC 49, are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency and bullion, for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country". It repealed the earlier Act, namely, the Foreign Exchange Regulation Act, 1947, and came into force on January 1, 1974. "Person resident in India" is defined in clause (p) of section 2 to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding, 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 within a period of six months from such commencement or such further period as the Reserve Bank may allow in this behalf for permission to continue to carry on such activity or to continue the establishment of the branch, office or other place of business for the carrying on of such activity, as the case may be. (b)Every application made under clause (a) shall be in such form and contain such particulars as may be specified by the Reserve Bank. (c)Where any application has been made under clause (a), the Reserve Bank may, after making such inquiry as it may deem fit, either allow the application subject to such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Reserve Bank for such an extension of time. Shri Nariman raised at the outset an objection to a finding of mala fides or abuse of the fiduciary position of directors being recorded on the basis merely of affidavits and the correspondence, against the NIIL's board of directors or against Devagnanam and his group. He contends: Under the company court rules framed by this court, petitions, including petitions under section 397, are to be heard in the open court (rules 11(12) and 12(1)), and the practice and procedure of the court and of the Civil Procedure Code are applicable to such petitions (rule 6). Under O. XIX, rule 2 of the Code, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 asking that person to submit to cross-examination. It is true that men may lie but documents will not and often, documents speak louder than words. But a total reliance on the written word, when probity and fairness of conduct are in issue, involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inferences said to arise from the documents. But then, Shri Nariman's objection seems to us a belated attempt to avoid an inquiry into the conduct and motives of Devagnanam. The company petition was argued both in the trial court and in the appellate court on the basis of affidavits filed by the parties, the correspondence and the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. 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 be most convenient and satisfactory. That takes us to the question as to whether, on the basis of the material which is on the record of the case, it can be said that the decision taken by NIIL's board of directors in their meetings of April 6, and May 2, 1977, constitute acts of oppression as against the Holding Company. The case of the Holding Company as put forward by Shri Seervai is like this: (i)Devagnanam kept Raeburn and Coats under the impression that negotiations were still going on and were not to be treated as concluded while, in reality, he had made up his mind to treat the matter as at an end. (ii)He kept the Holding Company in total ignorance of the steps which he was taking on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)Devagnanam was emboldened to take this course because he believed that no matter how wrongful his conduct, he could count upon the support of NEWEY to see that he was not brought to book in a court of justice for his wrongful conduct. He even attempted to thwart the company petition and render it infructuous by persuading NEWEY to withdraw the power-of-attorney executed by them, authorizing the filing of the petition. (ix)In these machinations, Devagnanam was actuated by the sole desire to acquire the control of NIIL for his personal benefit, by ousting the Holding Company from its control over the affairs of NIIL. (x)In fact, the rights shares were issued at par, though their market value was far greater, as a measure of personal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to give the right of renunciation to the Holding Company was any injury caused to its proprietary rights as a shareholder in NIIL. As a result of the operation of the FERA, the directives issued by the Reserve Bank thereunder and because of the fact that NIIL had retained its old articles after becoming a public company under section 43A of the Companies Act, the Holding Company could neither have participated in the issue of rights shares nor could it have renounced the rights shares offered to it in favour of an outsider, not even in favour of a resident Indian company like Madura Coats. It is denied that Silverston was not a disinterested director or that his appointment as an additional director was otherwise invalid. Counsel sums up his ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 contravention of the foreign exchange regulations and the tax laws of India by receiving money outside India, Devagnanam proposed to take away from Ketty its "select key personnel and technicians" to Malacca and to manufacture competitively, products which were then manufactured by Needle Industries, U. K. The footnote to the letter to Shread asked him to keep these matters secret from Coats till the shares had been sold, and till the deed had been done. There is another aspect of Devagnanam's conduct to which reference must be made. The statement made by him in para. 15 of his reply affidavit, denying that he was a non-resident, is not entirely true because at least between August 26, 1974, and June 9, 1976, he was a non-resident within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 terms the proposition is that Alan Mackrael, Martin Henry and myself should meet with you in Malacca during September to discuss arrangements whereby an Indian gentleman known to Coats would purchase both your shares and our own share of the NINH holding in the manner which I outlined to you on the telephone. In order to provide a base for the calculations, Kingsley is to be asked to obtain government approved price but, of course, the basis of our discussions has been that the actual payment will be higher than this". In the same letter, Jackson, after warning that Coats/Needle Industries (U. K.) are "certainly not going to relinquish control of Ketty without a major struggle", proceeds to describe the helpless condition of NEWEY by saying that in the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Indian shareholders will involve a long and costly legal battle. Raeburn proceeds to say: "We, as Neweys, have neither the will nor the means to participate in that battle, nor do we think it right to do so bearing in mind the legal position regarding Indianisation, the provision in the articles and the fact that substantially the modern business of N.I.I.L. has been built up by the efforts of the present Indian shareholders". In para. 5 of the aforesaid; letter, Raeburn clarifies the attitude of NEWEY by saying that if Coats were unable to agree to the arrangement suggested by NEWEY, then, NEWEY will be compelled to notify to those concerned in India that they can no longer be parties to the power-of-attorney granted by the Holding Company to Mackra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livered 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. 102987 was filed in Thailand on behalf of the Needle Industries, U.K. as owners of the trade-mark "Pony" which is clear from the trade-mark attorney's letter dated January 22, 1979. In October, 1978, Coats Patons, Hong Kong, got the Indian company's trademark "Pony" registered. In November, 1978, the trade-mark agents and solicitors of NIIL in Hong Kong had to give a notice to Coats Patons, Hong Kong, that the latter had registered the "Pony" trade-mark in Hong Kong with the full knowledge that NIIL was the legal owner of that trademark and threatening legal action. As a result of that notice, the Indian company's trade-mark "Pony" which was registered by Coats Patons in Hong Kong as their own trade-mark, was assigned to the Indian company on December 21, 1978, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 him perform his functions as a managing director in the meeting of November 2, 1978. But it is surprising that, in addition to the documents which Bridges returned on November 8, he had taken with him several other documents which he returned when pressed to do so. He took away with him, (1) design drawing, (2) statistical returns, (3) the master budget summary, 1978, (4) cash forecast for 1978-79, (5) detailed project report with cash flow forecast, (6) details of project investment, and (7) note on activity up to October, 1978, and one or two other documents. These were eventually returned by the Holding Company's advocate, Shri Raghavan. When NIIL wrote on November 21, 1978, to Shri Raghavan asking him to call upon Bridges to confirm that he had not retained co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 secretary-director of NIIL, applied on September 3, 1974, to the Reserve Bank for the necessary permission under section 29(2) of that Act. The Reserve Bank intimated to NIIL by its letter dated November 5, 1975, that permission would be accorded to NIIL under section 29(2)(a) read with section 29(2)(c) of the FERA to carry on its activities in India subject to the conditions enumerated in para. 2 of the letter. One of the conditions mentioned in the aforesaid paragraph was that the non-resident interest in the equity capital must be reduced to a level not exceeding 40%, within a period of one year from the date of receipt of the letter. The Reserve Bank asked NIIL to submit a scheme within a period of three months, showing how it proposed to achieve the required reduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2½ years. A period of one year and eight months had gone by since the filing by NIIL of the application for dilution of the non-resident interest. Over and above that, the Reserve Bank had granted a long period of one year for bringing about the dilution of the non-resident interest. It is true that public authorities are hot generally averse, in the proper exercise of their discretion, to extending the time limit fixed by them, as and when necessary. But an elementary sense of business prudence would dictate that the time schedule fixed by the Reserve Bank had to be complied with. The firm tone of the Reserve Bank's letter conveyed that it would not be easy to obtain an extension of time for complying with its directive, while the stringent conditions imposed by it, particularly in regard to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation 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 holding by Madura Coats of 15% of NIIL shares would be unlikely, because by that method Coats would, indirectly and effectively with NEWEY, hold over 40%, approximately 46%, share in NIIL. It is apparent that this would have been a clear violation of the FERA. (2)To allay the concern of U.K. shareholders when they became in minority, by the Indian shareholders coming to hold 60%, some safe guards were suggested which, amongst others, were: (i) the articles of the company could be altered only by a special resolution which requires a 75% majority of the members voting in person or by proxy. Thus, either group of the shareholders could prevent the sale of shares to any one not approved; (ii) the board could be reconstructed as mentioned in para. 4.3 of the note to give the U.K. sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mself, 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 appear from Devagnanam's letter of October 21, 1976, to Jackson that Coats were intending to start an Engineering Division at Bangalore for the manufacture of Dynecast and Prym products with an investment to the tune of Rs. 3,00,00,000 (rupees three crores). Compared with that, the interest of Coats in NIIL was just about Rs. 10 lakhs even if the shares of NIIL were to be valued at Rs. 190 per share. Devagnanam wrote a letter dated December 11, 1976, to Raeburn, informing him that they had just closed the board's meeting in which the principal subject of discussion was "Indianization". Devagnanam expressed resentment of himself and his colleagues that after they had faithfully served the Holding Company for almost the whole of their working lives, the Holding Company should be unwilling to accept them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters 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 detriment, without making some attempt towards bringing the issues between the parties to a fair conclusion". Raeburn wrote to Kingsley on January 14, 1977, stating that he had a discussion with Silverston a couple of days back, during which Silverston had stated clearly the legal position and given his advice upon it. In the last para, of this letter, Raeburn said: "We have now put our views quite clearly to Mr. Mackrael and we are awaiting the reaction of Needle Industries and Coats. Therefore, I am hoping, but I cannot be sure of this, to be able to let you know fairly soon what the formal decision of the U.K. shareholders is". It needs to be emphasised, especially since its importance was not fully appreciated by the appellate bench of the High Court, that the Indian point of view was communicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Stated briefly, the proposal annexed by Raeburn to his letter aforesaid involved: (i) the existing Indian shareholders holding 49% of the shares, (ii) new Indian independent institutional shareholders holding 11% of the shares, and (iii) the existing U.K. shareholders either directly or indirectly, holding 40% of the shares. The proposed board of directors was to consist of representatives of the shareholders appointed by them thus: "Existing Indian shareholders 3, New independent Indian shareholders 1, existing U.K. shareholders 2, and an independent Indian Chairman acceptable to all parties". It is contended by Shri Seervai that these proposals are crucial for more than one reason, since, in the first place the proposal to increase the holding of the existing Indian shareholders to 49% and the offer of 11% t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in that letter is that "certain proposals" were being considered and would be submitted "shortly" before the authorities. No such proposals were ever made by the solicitors or their client to anyone. These letters and events leave no doubt in our mind that the negotiations between the parties were at an end and that there were no concrete proposals by or on behalf of Coats which remained outstanding, to be discussed by the Indian shareholders. To repeat, Devagnanam declared his hand in his letter of December 14, 1976, by reiterating beyond any manner of doubt, that nothing less than 60% share in the equity capital of NIIL would be acceptable to the Indian shareholders. Coats never replied to that letter nor indeed did they convey their reaction to it in any other form or manner at any time. In fact, it would be more true t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, 1977, two important events happened. Firstly, Devagnanam went to Birmingham, where discussions were held from March 29-31, 1977, in which Indianisation of NIIL was discussed, as shown by the minutes of that discussion. NEWEY were willing to accept Indianisation, by the existing Indian shareholders acquiring a 60% interest in the share capital of NIIL while "COATS were adamantly opposed" to that view. It is surprising that during the time that Devagnanam was in Birmingham, Sanders did not meet him to seek an explanation of what the particular item on the agenda of the meeting of April 6 meant. Sanders had received the notice of March 18, before the Birmingham discussions took place, and significantly, he has made no affi-davit at all on the question as to why he did not meet Devagnanam in Birmingham, or why he did not attend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shareholder concerned. The aforesaid resolution of the board raises three important questions, inter alia, which have been pressed upon us by Shri Seervai on behalf of the Holding Company: (1) Whether the directors of NIIL, in issuing the rights shares, abused the fiduciary power which they possessed as directors to issue shares; (2) Whether Silverston was a "disinterested director"; and (3) Whether Silverston's appointment was otherwise invalid, since there was no item on the agenda of the meeting for the appointment of an additional director. If Silverston's appointment as an additional director is bad, either because he was not a distinterested director or because there was no item on the agenda under which his appointment could be made, the resolution for the issue of rights shares which was passed in the board's, meeting of April 6 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers 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 before that deadline. Peterson J. applied the principle enunciated in Fraser [1864] 71 ER 361 and in Punt [1903] 2 Ch 506 (Ch D) in the case of Piercy v. S. Mills & Company Ltd. [1920] 1 Ch 77 (Ch D). The learned judge observed at page 84: "The basis of both cases is, as I understand, that directors are not entitled to use their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs 6f the company, or merely for the purpose of defeating the wishes of the existing majority of shareholders". The fact that by the issue of shares the directors succeed, also or incidentally, in maintaining their control over the company or in newly acquiring it, does not amount to an abuse of their fiduciary power. What is considered objectionable is the use of such powers merely for an extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Corporation Ltd. v. Millar [1972] 33 DLR (3d) 288, both of which were considered by Lord Wilber-force in Howard Smith [1974] AC 821 (PC). On a consideration of the English decisions, including those in Punt [1903] 2 Ch 506 (Ch D) and Piercy [1920] 1 Ch 77 (Ch D), Barwick C. J. said in Harlowe's Nominees (p. 493 of 121 CLR): "The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so rang as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. An inquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 interfere with that element of the company's constitution which is separate from and set against their powers. If there is added, moreover, to this immediate purpose, an ulterior purpose to enable an offer for shares to proceed, which the existing majority was in a position to block, the departure from the legitimate use of the fiduciary power becomes hot less, but all the greater. The right to dispose of shares at a given price is essentially an individual right to be exercised on individual decision and on which a majority, in the absence of oppression or similar impropriety, is entitled to prevail". In our judgment, the decision of the Privy Council in Howard Smith [1974] AC 821 (PC), instead of helping the Holding Company, goes a long way in favour of the appellants. The directors in the instant case did not exercise their fiduciary powers over the shares merely or solely for the purpose of destroying an existing majority or for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached 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 referred to above by the learned author is Mills v. Mills [1938] 60 CLR 150, which was specifically approved by Lord Wilber-force in Howard Smith [1974] AC 821 (PC). In Nanalal Zaver [1950] SCR 391 20 Comp. Cas. 179 too, Das J. stated at p. 425, that the true principle was laid down by the Judicial Committee of the Privy Council in Hirsche v. Sims [1894] AC 654, 660-661 thus (p. 207 of 20 Comp. Cas.): " 'If the true effect of the whole evidence is, that the defendants truly and reasonably believed at the time that what they did was for the interest of the company, they are not chargeable with dolus malus or breach of trust merely because in promoting the interest of the company they were also promoting their own, or because they afterwards sold shares at prices which gave them large profits' ". Whether one looks at the matter from the point of view expressed by this court in Nanalal Zaver [1950] 20 Comp. Cas. 179 (SC), or from the point of view expressed by the Privy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the board of directors. That letter contains allegations against the directors of Needle Industries, U.K. and of Coats. In other words, it is contended, Silverston was hostile to Needle Industries, U.K., and to Coats, and no person in his position could possibly bring to bear an unbiassed or disinterested judgment on the question which arose between the Holding Company and the Indian shareholders as regards the issue of rights shares. It is also said that certain other aspects of Silverston's conduct, including his attitude in the meeting of the 6th April, show that he was an interested director. We are unable to accept the contention that Silverston is an "interested" director within the meaning of section 300 of the Companies Act. In the first place, it is wrong to attribute any bias to Silverston for having acted as an adviser to the Indian shareholders in the Ketty meeting. Silverston is by profession a solicitor and we suppose that legal advisers do not necessarily have a biassed attitude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 appointment as an additional director was invalid and that, consequently, the resolution for the issue of rights shares was passed without the necessary quorum of two disinterested directors. We have already held that the resolution was not passed for the benefit of the directors. There is, therefore, no question of Silverston's appointment having been made for the purpose of enabling such a resolution to be passed. The third contention, arising out of the proceedings of the meeting of 6th April, to the effect that Silverston's appointment as an additional director was invalid since there was no item on the agenda of the meeting for the appointment of an additional director is equally without substance. Section 260 of the Companies Act preserves the power of the board of directors to appoint additional directors if such a power is conferred on the board by the articles of association of the company. We are not concerned with the other conditions laid down in the section, to which the appointment is subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enumeration, since the variety of situations facing directors of different types of company in different situations cannot be anticipated". The Australian decision in Harlowe Nominees [1968] 121 CLR 483, 493 took the same view of the directors' power to issue shares. It was said therein: "The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends". We have already expressed our view that the rights shares were issued in the instant case in order to comply with the legal requirements, which, apart from being obligatory as the only viable course open to the directors, was for the benefit of the company since, otherwise, its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 April 6 show that the company needed additional capital for its expansion. The minutes say: "As per the final budget for the year 1977, the working capital requirements amounted to nearly Rs. 100 lakhs and even after tapping the facilities that we will be entitled to obtain from the banking sector, we will be left with a gap of about Rs. 25 lakhs which can be met by only increasing equity capital and attracting deposits from public". There is no reason to believe that this statement does not accord with the economic realities of the situation as assessed by the directors of the company. Finally, it is also not true to say, as a statement of law, that the directors have no power to issue shares at par, if their market price is above par. These are primarily matters of policy for the directors to decide in the exercise of their discretion and no hard and fast rule can be, laid down to fetter that discretion. As observed by Lord Davey in Hilder v. Dexter [1902] AC 474, 480 (HL): "I am not aware of any law which obliges a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested directors, having acted out of legal compulsion precipitated by the obstructive attitude of Coats and their action being in the larger interest of the company, it is impossible to hold that the resolution passed in the meeting of April 6 for the issue of rights shares at par to the existing shareholders of the NIIL constituted an act of oppression against the Holding Company. That cannot, however, mark the end of the case because 2nd May has still to come and Shri Seervai's argument is that the true question before the court is whether the offer of rights shares to all existing shareholders of NIIL but the issue of rights shares to existing Indian shareholders only, constitutes oppression of the Holding Company. That takes us to the significant, and if we may so call them, sordid happenings between April 6 and May 2, 1977. Devagnanam wrote a letter to Raeburn on April 12, 1977, stating that a copy of the Reserve Bank's letter dated March 30, 1977, was enclosed therewith. It was in fact not enclosed. Pursuant to the decision taken in the board's meeting of April 6, a letter of offer dated April 14 was prepared by NIIL. Devagnanam's letter to Raeburn dated April 12, (without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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 dated April 14 was enclosed and the envelope containing these two important documents bore the postal mark of Madras dated 27th April. These coincidences are too tell-tale to admit of any doubt that someone or the other, not necessarily Devagnanam, unduly solicitous of the interest of NIIL and of the Indian shareholders manipulated to delay the posting of the letters of offer and the notice of the board meeting for 2nd May, until the 27th April. What is naively sought to be explained as a mere coincidence reminds one of the "Brides in the Bath Tub" case: The death of the first bride in the bath tub may pass off as an accident and of the second as suicide but when, in identical circumstances, the third bride dies of asphyxia in the bath tub, the conclusion becomes compelling, even applying the rule of circumstantial evidence, that she died a homicidal death. The purpose behind the planned delay in posting the letters of offer to Raeburn and to the Holding Company, and in posting the notice of the board's meeting for May 2 to Sanders, was palpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining insurance money on his houses which caught fire successively, the question being whether the fire was accidental or intentional or whether the act was done with a particular knowledge or intention, will not help to fasten the blame on Devagnanam because it is not shown that he was instrumental or concerned in any of the late postings complained of. Were his complicity shown in any of these, it would have been easy to implicate him in all of them. On the contrary, there is an admitted act, described as a lapse, on Devagnanam's part which shows that he failed to do what was to his advantage to do. It may be recalled that in his letter dated April 12 to Raeburn, Devagnanam had stated that he was enclosing therewith a copy of the Reserve Bank's letter dated March 30, 1977, but that copy was not enclosed. Nothing was to be gained by suppressing the Reserve Bank's letter from Raeburn who was always sympathetic to the Indian shareholders. If anything, there was something to gain by apprising Raeburn of the urgency of the matter in view of the Reserve Bank's letter. The strongest point in favour of the Indian shareholders was the last para. of the Reserve Bank's letter which they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Company in Birmingham, say, on the 19th. Even assuming that the 16 days' period allowed for communicating the acceptance of offer is to be counted from the 14th and not from the 19th, it would expire on 30th April. To that has to be added the period of five days which the Holding Company's letter would take to reach Madras. That means that the Holding Company would be within its rights if its acceptance reached NIIL on or before May 5, 1977. The board of directors had, however, met in Madras three days before that and had allotted the entire issue of the rights shares to the Indian shareholders, on the ground that the Holding Company had not applied for the allotment of the shares due to it. In these circumstances, it is quite clear that the rights shares offerred to the Holding company could not have been allotted to any one in the meeting of May 2, for the supposed failure of the Holding Company to communicate its acceptance before April 30. The meeting of May 2, of which the main purpose was to consider "allotment" of the rights shares must, therefore, be held to be abortive which could produce no tangible result. The matter would be worse if April 27 and much worse if May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a);section 29(2)(a), (b ) and (c); and section 29(4)( a) and (b). Section 29(1) provides thus: "...notwithstanding anything contained the provisions of the Companies Act, 1956 .a 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 shall not, except with the general or special permission of the Reserve Bank carry on in India any trading, commercial or industrial...other than an activity for the carrying on of which permission of the Reserve Bank has been obtained under section 28;.".. The other provisions are of an ancillary and consequential nature, following upon the main provision summarised above. NIIL had applied for the necessary permission, since the non-resident interest therein was more than 40%, the Holding Company owning nearly 60% of its share capital. That permission was accorded by the Reserve Bank on certain conditions which, inter alia, stipulated that the reduction in the non-resident holding must be brought down to 40% within one year of the receipt of its letter, that is, before May 17, 1977, and that until then, the manufacturing and business activities of the company shall not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the granting of a conditional permission an empty ritual since, whether or not the company performs the conditions, it would be free to carry on its business, the only sanction available to the bank being, as argued, that it can compel or cause the sale of the excess non-resident interest in the equity holding of the company, under section 29(4)(c) of the FERA. This particular provision, in our opinion, is not a sanction for the enforcement of conditions imposed on a company under clause (c) of section 29(2). Section 29(4)(c) provides for a situation in which an application for holding shares in a company is not made or is rejected. The sanction for the enforcement of a conditional permission to carry on business, where the conditions are breached, is the cessation, ipso facto, of the permission itself on the non-performance of the conditions at the time appointed or agreed. This involves no element of surprise or of unjustness because permission is granted, as was done here, only after the applicant agrees to perform the conditions within the stipulated period. When NIIL wrote to the bank on February 4, 1976, binding itself to the performance of certain conditions, it could not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding Company of 60% of the equity capital pf NIIL. We are not suggesting that the offer of rights shares need not have been made to the Holding Company at all. But the question is, whether the offer, when made, could have been accepted by it. Since the answer to this question has to be in the negative, no grievance can be made by the Holding Company that, since it did not receive the offer in time, it was deprived of an opportunity to accept it. We see no substance in Shri Nariman's contention that the letter of offer could not have been sent to the Holding Company without first obtaining the RBI's approval under section 19 of the FERA. Counsel contends that under section 19(1)(b), notwithstanding anything contained in section 81 of the Companies Act, no person can, except with the general or special permission of the Reserve Bank, create "any interest in a security" in favour of a person resident outside India. The word "security" is defined by section 2(u) to mean shares, stocks, bonds, etc. We are unable to appreciate how an offer of shares by itself creates any interest in the shares in favour of the person to whom the offer is made. An offer of shares undoubtedly creates "f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. Section 81 of the Companies Act reads thus: "81. (1) Where......it is proposed to increase the subscribed capital of the company by allotment of further shares, then,- (a)such further shares, shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date; (b)the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined; (c)unless the articles of the company 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 other person; and the notice referred to in clause (b ) shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other person entitled to transfer to any member selected by the transferor; but, save as aforesaid, no share shall be transferred to a person who is not a member so long as any member is willing to purchase the same at the fair value. Such value to be ascertained in manner hereinafter mentioned". Article 38 "The directors may refuse to register any transfer of a share, ( a) where the company has a lien on the share, or (b) in case of shares not fully paid-up, where it is not proved to their satisfaction that the proposed transferee is a responsible person, or (c) where the directors are of opinion that the proposed transferee (not being already a member) is not a desirable person to admit to membership, or (d) where the result of such registration would be to make the number of members exceed the above-mentioned limit. But clauses (b) and (c) of this article shall not apply where the proposed transferee is already a member". Article 50 "When the directors decide to increase the capital of the company by the issue of new shares such shares shall be offered to the shareholders in proportion to the existing shares to which they are entitled. The offer shall be made by notice sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel, no third category of companies recognised by the Companies Act, like the "proviso company". Shri Seervai further contends: (a)The right of renunciation is not a "transfer" and, therefore, the directors' power to refuse to register the shares under the articles does not extend to a renunciation. (b)Before considering section 43A, which was inserted for the first time in the Act of 1956 by the Amending Act of 1960, it should be noted that section 81 as enacted in the Act of 1956 contained three sub-sections (1), (2) and (3), and sub-section (3) provided that "nothing in this section shall apply to a private company". The opening words of section 81, as they now stand, were substituted by the Amending Act of 1960, and sub-section (1A) was inserted by the said Amendment Act, and sub-section (3) was substituted by the Amendment Act of 1963. But sub-section 3( a) reproduced sub-section (3) of the Act of 1956, namely, "nothing in this section shall apply to a private company". It is clear, therefore, that the rights conferred by section 81(1) and (2) do not apply to a private company, and this provision in the Act of 1956 was not connected with the insertion of section 43A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany which has become such by virtue of section 43A can delete all the matters referred to in section 3(1)(iii) or may delete one or two of them or may include (or retain) all the three matters referred to in section 3(1)(iii). The retention of the three matters mentioned in section 3(1)(iii) does not in any way affect the constitution of the company because it has become and continues to be a public company. (g)Section 81 when enacted in 1956 consisted of 3 sub-sections. The need to exempt private companies arose from section 81(1)(c), for the right to renounce in favour of any person might (not must), conflict with the limitation on the number of members to 50 and since that was one of the matters which went to the constitution of a company as a private company, private companies were expressly exempted. No such exemption was necessary in the case of a "proviso company" which retains in its articles all the three matters referred to in section 3(1)(iii ), because an increase in the number of its members above 50 will not affect the constitution of the company which remains that of a public company. (h)Section 81, as enacted in 1956, did not contain sub-section (1A) which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribing to the shares offered does not affect the question of the legal right. Besides, it was one thing to refuse to subscribe to the shares offered; it was another thing to accept the renunciation of merely 6,190 shares which would have given the Manoharans a substantial stake in the affairs of the company. Shri Seervai relies upon many a text and authority in support of the proposition that the classification of companies into private and public is mutually exclusive and collectively exhaustive. He relies upon a decision in Park v. Royalty Syndicates Ltd. [1912] 1 KB 330 (KB) in which Hamilton J. (Later Lord Sumner) observed that a public company is simply one which is not a private company and that there is no "intermediate state or tertium quid" . In support of the proposition that the right to renunciation of shares is not a transfer, counsel relies upon a decision in Pool Shipping Co. Ltd., In re [1920] 1 Ch 251 (Ch D). Reliance is also placed in this behalf on the statement of law in Halsbury (Vol. 7, 4th Edn., p. 218), Palmer's Company Law (Vol. 1, 22nd Edn., p. 393), Palmer's Company Precedents (Part 1, 17th Edn., p. 688), Gore-Brown on Companies (43rd Edn., para. 16.3) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include in its articles, as part of its structure, provisions relating to restrictions on transfer of shares, limiting the number of its members to 50, and prohibiting an invitation to the public to subscribe for shares, which are the typical characteristics of a private company. A public company cannot possibly do so because, by the very definition, it is that which is not a private company, that is to say, which is not a company which by its articles contains the restrictions mentioned in section 3(1)(iii). Therefore, the expression "public company" in section 3(1)(iv) cannot be equated with a "private company which has become a public company by virtue of section 43A". Secondly, the number of members of a public company cannot fall below 7 without attracting the serious consequences provided for by section 45 (personal liability of members for the company's debts) an section 433(d) (winding up in case the number of its members falls below 7). A section 43A-company can still maintain its separate corporate identity qua debts even if the number of its members is reduced below seven and is not liable to be wound up for that reason. Thirdly, a section 43A-company can never be inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions, which under section 3(1)(iii ), are required to be included in the articles in order to constitute it a private company, the company "shall as on the date of the alteration cease to be a private company". Neither of the expressions, namely. "This Act shall apply to the company as if it were not a private company" (section 43) or that the company "shall......cease to be a private company" (section 44) is used in section 43A. If a section 43A-company were to be equated in all respects with a public company, that is a company which does not have the characteristics of a private company, Parliament would have used language similar to the one in section 43 or section 44, between which two sections, section 43A was inserted. If the intention was that the rest of the Act was to apply to a section 43A-company "as if it were not a private company", nothing would have been easier than to adopt that language in section 43A, and if the intention was that a section 43A-company would for all purposes "cease to be a private company", nothing would have been easier than to adopt that language in section 43A. Sixthly, the fact that a private company which becomes a public company by vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies are subjected severely to the discipline of the Act. Companies of the third kind like NIIL, which become public companies but which continue to include in their articles the three matters mentioned in clauses (a) to (c) of section 3(1)( iii) are also, broadly and generally, subjected to the rigorous discipline of the Act. They cannot claim the privileges and exemptions to which private companies which are outside section 43A are entitled. And yet, there are certain provisions of the Act which would apply to public companies but not to section 43A-companies. Is section 81 of the Companies Act one such provision? and if so, does the whole of it not apply to a section 43A company or only to some particular part of it? These are the questions which we have now to consider. On these two questions, both the learned counsel have taken up extreme positions which, if accepted, may create confusion and avoidable inconvenience in the administration of section 43A-companies like NIIL. Shri Nariman contends that a section 43A-company becomes a public company qua the outside world, as, e.g., in matters of remuneration of directors, disclosure, commencement of business, information to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 81 is not applicable to a "private company" but NIIL is not a "private company" since it became a public company by virtue of section 43A; and that, therefore, the offer of rights shares made by NIIL can be renounced by the offerees in favour of any other person. Neither of the two extreme positions for which the counsel contend commends itself to us. The acceptance of Shri Nariman's argument involves tinkering with clause (a) of section 81(3), which shall have to be read as saying that "Nothing in section 81 shall apply to a 'private company' and to a company which becomes a public company by virtue of section 43A and whose articles of association include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3". Section 81(1) does not contain a non obstante clause. But, if Shri Nariman is right, there would be no alternative save to exclude the applicability of all of its provisions to a company like NIIL, by reading into it an overriding provision which alone can achieve such a result. On the other hand, to accept wholesale the argument of Shri Seervai would render the first proviso to section 43A(1) nugatory. The right to retain in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the number of shares offered by the company to him. The right to renounce the shares in favour of any other person is also bound to result in the infringement of the article relating to the matter specified in section 3(1)(iii)( c), because an offer which gives to the offeree the right to renounce the shares in favour of a non-member is, in truth and substance, an invitation to the public to subscribe for the shares in the company. As stated in Palmer's Company Law (22nd Edn., Vol. I, para. 21-18, p. 182): "Where the company issues renounceable letters of allotment the circle of original allottees can easily be broken by renunciation of those rights and complete strangers may become the allottees; here the offer will normally be held to be made to the public". There is a statement to the same effect in Gower's Company Law (4th Edn., p. 351): "It is therefore, clear that an invitation by or on behalf of a private company to a few of the promoter's friends and relations will not be deemed to be an offer to the public. Nor, generally, will an offer which can only be accepted by the shareholders of a particular company. On the other hand it is equally clear that an offer of secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tics mentioned in section 3(1)(iii). When section 43A was introduced by Act 65 of 1960, the Legislature apparently overlooked the need to exempt companies falling under it, read with its first proviso, from the operation of clause (c) of section 81(1). That the Legislature has overlooked such a need in regard to other matters, in respect of which there can be no controversy, is clear from the provisions of sections 45 and 433(d) of the Companies Act. Under section 45, if at any time the number of members of a company is reduced, in the case of a public company below seven, or in the case of a private company below two, every member of the company becomes severally liable, under the stated circumstances, for the payment of the whole debt of the company and can be severally sued therefor. No exception has yet been provided for in section 45 in favour of the section 43A-proviso-companies, with the result that a private company having say, three members which becomes a public company under section 43A and continues to function with the same number of members, will attract the rigour of section 45. Similarly, under section 433(d), such a company would automatically incur the liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is willing to purchase the same at a fair value. Article 38 confers upon the directors the power to refuse to register the transfer of a share for four reasons, the last of which is that the transfer will make the number of members exceed the limit of 50. Article 50, which also is important, provides that the offer of new shares shall be made by a notice specifying the number of shares offered and limiting the time within which the offer, if not accepted, will be deemed to have been declined. If the offer is declined or is not accepted before the expiration of the time fixed for its acceptance, the directors have the power to dispose of the shares in such manner as they think most beneficial to the company. It is urged by Shri Seervai that none of the articles of the company provides otherwise than what is provided in clause (c) of section 81(1) and, therefore, clause (c) must have its full play in the case of NIIL. On the other hand, it is contended by Shri Nariman that the opening words of clause (c ) do not require or postulate that the articles of the company must contain an "express" provision, contrary to what is contained in clause (c). The contention, in other words, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, in which a private company becomes a public company under section 43A and by reason of the option available to it under the proviso, the word "provide" must be understood to mean "provide expressly or by necessary implication". The necessary implication of a provision has the same effect and relevance in law as an express provision has, unless the relevance of what is necessarily implied is excluded by the use of clear words. Considering the matter from all reasonable points of view, particularly the genesis of section 43A-proviso-companies, we are of the opinion that in order to attract the opening words of clause (c) of section 81(1), it is not necessary that the articles of the company must contain an express provision otherwise than what is contained in clause (c). We do not think it necessary to consider the decision of the Privy Council in Shanmugham v. Commissioner for Registration [1962] AC 515 (PC), cited by Shri Nariman, which says that to be an "express provision" with regard to something it is not necessary that the thing should be specially mentioned; it is sufficient that it is directly covered by the language, however broad the language may be which covers it, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the right of renunciation, properly so called. In fact, learned counsel for the Holding Company has cited the decision in Re Pool Skipping Co. Ltd. [1920] 1 Ch 251 (Ch D), in which it was held that the right of renunciation is not the same as the right of transfer of shares. Coming to sub-section (1A) of section 81, it provides, stated briefly, that notwithstanding anything contained in sub-section (1), the further shares may be offered to any persons in any manner whatsoever, whether or not those persons include a person referred to in clause (a ) of sub-section (1). That can be done under clause (a) of sub-section (1A) by passing a special resolution in the general meeting of the company or under clause (b), where no such special resolution is passed, if the votes cast in favour of the proposal exceed the votes cast against it and the Central Govt. is satisfied that the proposal is most beneficial to the company. For reasons similar to those for which we have come to the conclusion that clause (c) of section 81 cannot apply to a section 43A-proviso-company, we must hold that sub-section (1A) can also have no application to such companies. To permit the further shares to be of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated. It must follow that the decision taken by the board of directors in that meeting could not, in the normal circumstances, create mutual rights and obligations between the parties. But we will not treat that decision as non est because a point of preponderating importance is that the issue of rights shares to existing Indian shareholders only and the non-allotment thereof to the Holding Company did not cause any injury to the proprietary rights of the Holding Company as shareholders, for the simple reason that they could not have possibly accepted the offer of rights shares because of the provisions of the FERA and the conditions imposed by the Reserve Bank in its letter dated May 11, 1976, nor indeed could they have renounced the shares offered to them in favour of any other person at all because section 81(1)(c) has no application to companies like NIIL which were once private companies but which become public companies by virtue of section 43A and retain in their articles the three matters referred to in section 3(1)(iii) of the Act. It was neither fair nor proper on the part of the NIIL's officers not to ensure the timely posting of the notice of the meeting for 2nd May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Holding Company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd May were held in accordance with law. The notice of the meeting was received by Sanders in U.K. on the 2nd May, when everything was over, bar the post-meeting recriminations which eventually led to this expensive litigation. If the notice of the meeting had reached the Holding Company in time, it is reasonable to suppose that they would have attended the meeting, since one of the items on the agenda was "Policy-(a) Indianisation, (b) allotment of shares". Devagnanam and his group were always ready and willing to buy the excess shares of the Holding Company at a fair price, as is clear from the correspondence to which our attention has been drawn. In the affidavit dated May 25, 1977, Devagnanam stated categorically that the Indian shareholders were always ready and willing to purchase one-third of the shareholding of the non-resident shareholders, at a price to be fixed in accordance with the articles of association by the Reserve B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terhouse, Peat & Co., Chartered Accountants, Calcutta, wrote a letter to Mackrael in response to the letter's cable, valuing the shares of NIIL at Rs. 204 per share. That letter shows that while valuing the shares, they had taken into account various factors including "the average of the net asset value and the earnings basis", which, according to them, are considered as relevant factors by the Controller of Capital Issues while valuing the shares of companies. The chartered accountants applied "the CCI formula" and after making necessary adjustments to the fixed assets, the proposed dividend and the gratuity liabilities for 1975, they valued NIIL's business, on a net asset basis, at Rs. 50 lakhs. On an earnings basis, the valuation of the company based on the past three years' net profits, capitalized at 15%, was Rs. 80 lakhs. That gives an average valuation of Rs. 65 lakhs for the business or Rs. 204 per share. The purported offer to Devagnanam by Khaitan "a sewing needle competitor to Ketti", at 3.6 times par, cannot afford any criterion for valuing NIIL's shares. Khaitan, purportedly, had competitive business interests and was, therefore, prepared to "pay the earth to acquire N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights shares offered to them because, by a letter dated May 11, 1977, to NIIL's secretary, N. Manoharan had declined the offer on the ground that he was "not in a position to take those shares". Finally, in order to ensure the smooth functioning of NIIL and with a view to ensuring that our directions are complied with expeditiously, we direct that Shri M. M. Sabharwal, who was appointed as a director and chairman of the board of directors under the orders of this court dated November 6,1978, will continue to function as such until December 31, 1982. The company will take all effective steps to obtain the sanction or permission of the Reserve Bank of India or the Controller of Capital Issues, as the case may be, if it is necessary to obtain such sanction or permission for giving effect to the directions given by us in this judgment. In the result, the appeals are allowed with the directions above mentioned and the judgments of the learned single judge and of the Division Bench of the High Court are set aside. We make no order as to costs since both the sides are, more or less, equally to blame, one for creating an impasse and the other for its unjust enrichment. All parties ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
