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TMI Blog1965 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacture of spiral welded pipes in collaboration with an American/German group for which a manufacturing licence had been obtained and it was proposed to effect substantial expansion of the company's existing undertakings, for which negotiations were under way for a technical-cum-financial participation in the equity capital of the company with the same group. At the annual general meeting held on 23rd September, 1964 this increase was effected as follows: By an unanimous resolution the share capital of the company was reduced from ₹ 1,00,00,000/- to ₹ 84,83,000/-by the cancellation of 15170 unissued redeemable preference shares of ₹ 100/- each By a further resolution, also unanimously passed at the said meeting, the authorised share capital of the company was raised from ₹ 84 83,000/-to ₹ 3,00,00,000/- by creating 2151700 equity shares of ₹ 10/- each. The respondent company's authorised capital was thus divided into 29,51,700 equity shares of ₹ 10/- each and 4,830 redeemable preference shares of ₹ 100/-each. The company increased the number of equity shares to 29,61,700 and it was made clear in the explanatory statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erman Collaborators' means Messrs. Handles Union AG. and Messrs. Phoenix Rheinrohar A. G. Corporations duly organised under the laws of the Federal Republic of Germany with principal offices at Koanigsalle 51 and in August Thyssen Stresses 1 respectively in Dusseldorf West Germany. Article 89 (B) the and is hereby deleted, and the following new Article be inserted therefore bearing the same number. So long as the American and German collaborators hold between 47 to 25 per cent of the issued and paid up Equity Capital for the time being, they shall be entitled to appoint as Directors of the Company from time to time, 3 persons on behalf of American collaborators and 1 person on behalf of the German collaborators. Such Director/Directors will hold office at the pleasure of the respective collaborators, who shall have full power to remove, the Director/Directors so appointed by them under this Article and appoint any other or others in his or their place as and when they shall deem it necessary. Such appointment or removal shall be by notice in writing to the company, provided however, if the share holding of the collaborators falls be-low 25 per cent then the number of Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominate on the Board of Directors three members and the German participators will be entitled to nominate one member as long as the total holdings in the Equity capital of the Company of the Participators is 25 per cent or above. In case the holdings fall below 25 per cent the number of Directors so appointed by the participators will be diminished proportionately. These Directors will hold office at the pleasure of the participators (and will be subject to retirement by rotation.) 3. To finance the Rupee Capital expenditure in India a loan of ₹ 21.4 Million will have to be obtained from Cooley Amendment PL 480 Funds. Necessary applications have been made to the Government of India as also to the Agency for International Developments, Washington. While the approval of the Government of India is awaited, the sanction of the AID, Washington has been received. It is understood that the issue of Equity shares to the Foreign participators will only be made on sanction of Cooley loan by Government of India." 4. The notice and the Explanatory statement is dated 26th August, 1964 and the extraordinary general meeting of the shareholders was called on the 30th September, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the 11th September, 1964. Section 171 of the Companies Act, 1956, (hereinafter referred to as the 'said Act') provides inter alia that not less than 21 days, notice in writing must be given of a general meeting. Section 53 of the said Act provides that a document may be served by a company on any member thereof either personally, or by sending it by post to him to his registered address, and where a document is sent by post, service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document. Such service shall be deemed to have been effected, in the case of a notice of a meeting, at the expiration of forty-eight hours after the letter containing the same has been posted. It is stated on behalf of the company that the notice and explanatory statement dated 26th August 1964 had been duly posted and duly received by the appellant, 21 clear days before the date of the meeting. It was stated by the appellant in the court below that he had received the notice on the 11th September, 1964 and there was thus a delay of 3 days in the service of the notice. The learned Judge rightly pointed out that if the appellant inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articularly useful where pipes are required to be laid on a curved surface. In any event, when the company is entitled to carry on business as general manufacturers, there seems to be no impediment in the way of manufacturing spiral welded pipes. So far as cranes are concerned, they directly come under Sub-clause (ii) read with sub-clause (vi). I now come to the point No. 2 which is really the point of substance which has been argued in the court below and also before us. It arises as follows :-- Sub-section (2) of Section 173 of the said Act runs as follows :-- " (2). Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business, including in particular the nature of the concern or interest, if any, therein, of every director, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any. " 7. In the instant case, notice was given of a special resolution together with an Explanatory Statement, the relevant part of which has been set out above. The point to be decided is as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was a 'tricky' notice, as was said in Kaye v. Croydon Tramways Co. (1898) 1 Ch. 358, and in Baillie's case (1915) 1 Ch. 503. In this case there is no dispute that there was a partnership between defendant No. 5 and the two Nepalese gentlemen. There is no dispute further that they acquired a very large number of shares in the defendant company. There is no dispute that the partners have acquired and now control the majority of the shares in the two Companies, namely, the Indian Textile Syndicate Ltd., and the Cotton Textile Corporation Ltd., one of which companies has been appointed the Selling Agent of the defendant company. It is quite clear therefore, that the three partners through the said two Companies have acquired a preponderance of voting power in the defendant Company and is in a position to divide practically the entire profit of the Company amongst themselves. On these facts we are of opinion that it was necessary for the defendant company to disclose to the share holders the controlling interest of the partners in the two Companies. But that was not done. An argument is quite plausible that the notice deliberately withheld material facts from the knowle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised capital of the company had already been increased from Rs, 1,00,00,000 to ₹ 3,00,00,000 and new shares were to be issued. In the Explanatory Statement appended to the notice of that annual general meeting, it had been clearly stated that the company had undertaken a new project for the manufacture of spiral welded pipes in collaboration with an American/German group, (for which a manufacturing license had already been obtained) and also to effect substantial expansion of the existing undertakings. It was also stated that negotiations had been under way for a technical-cum-financial participation in the Equity capital of the company with the same group. It was stated therein that it was in view of these developments that the Directors of the Company considered it necessary to increase the authorised capital of the company to ₹ 3 crores by the creation of new Equity Shares, so that upon the finalisation of the collaboration arrangement and confirmation of all the formalities further Equity Share capital could be issued to the foreign collaborators and/or shareholders. It is clear therefore, that the shareholders were not in ignorance of the proposal for foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing of the third (special) resolution, particularly the amendments effected thereby in Article 1 and Article 89 (B) of the Articles of Association. In the relevant Explanatory Statement, we find that the reasons are given for inviting foreign collaboration. It is mentioned therein that the foreign collaborators would give financial help, as also furnish the technical know-how. It has been explained there that the Foreign Exchange portion of the cost of the project was proposed to be financed by participation in cash in the Equity capital by the foreign collaborators. In other words, it has been made clear that by allotting the shares to the foreign collaborators, the company would get the necessary foreign exchange needed for the expansion of the project It has been clearly mentioned as to what commission would be paid for such collaboration. All necessary particulars of the financial participation agreement have been set out and inspection has been offered of the original agreement at the registered office of the company In my opinion, all the material facts necessary for the purpose of the proposed special resolution has been given in the Explanatory Statement. It is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in their correspondence for inspection of the financial participation agreement but never of the technical collaboration agreements. It took inspection of the financial agreement. 12. Briefly speaking, the matter stands as follows : The shareholders have clearly been apprised of the fact that the company intended to extend its activities and inter alia proposed to manufacture spiral welded pipes. For this purpose they were seeking for foreign collaboration with an American/German group. A manufacturing license had been obtained. It was made clear at the time when the resolution at the annual general meeting dated 23rd September, 1963, was passed for the purpose of increasing the authorised share capital, that the increase was necessary because of the foreign collaboration and Equity shares would be allotted to foreign collaborators In the Explanatory Statement, the details were given, namely, the names of the foreign collaborators, the amounts involved in the financial agreement the commission to be paid to the foreign collaborators and what was expected of them. The resolution was carrying out the objects with which the authorised share capital had already been increased at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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