NANALAL ZAVER Vs. BOMBAY LIFE ASSURANCE CO LIMITED

JUDGEMENT

(1.) This is an appeal from the decision of the High Court of Judicature at Bombay. The respondent company was incorporate in 1908 with an authorised capital of Rs.10. lakhs divided into 10,000 shares of Rs. 100/- each By 1945. 5, 404 shares were subscribed and Rs. 25/-. per share were called on each of them. Four thousand five hundred and ninety-six shares out of the authorised capital thus remained unissued. From about July 1944, Mr. Padampat Singhania a businessman interested in many companies began to purchase shares of the company from the holders thereof on a large scale. This naturally put an the price of the shares considerably. On 18th September 1944, at a Board meeting of the directors the Chairman drew attention of his co-directors to the attempt thus made by an outsider to corner the shares of the company. In pursuance of a resolution passed at the meeting, the chairman issued a circular to the existing shareholders acquainting them of the true position and suggesting that if they wanted to part with the shares they might get in touch with the chairman. A circular was accordingly issued with the result that two rival groups were thus offering to buy shares from those who were desirous of selling them. The shares on which about Rs.12/-or 14 /were paid per annum is dividend began to be quoted in the market at about Rs. 2000/- per share in March 1945. Mr. Singhania had not submitted to the company for registration of the transfers to his name the shares purchased by him. In the meantime on 8th January 1945 an application was submitted by the company to the Examiner of Capital. Issues for sanction of a fresh issue of capital. Several reasons were mentioned in that application to show why the company required additional capital. Such application had become necessary owing to war regulations. The Government granted the sanction on 16th February 1345 and the communication was received by the company on 20th February. On the next day a Board meeting was held at which the directors decided to issue the remaining 4596 shares at a premium of Rs. 75/- per share and to call Rs. 25/- per share on them. Pursuant to this resolution a circular was issued to the shareholders on the same day with copies of the form of application and renunciation referred to in the resolution and in the circular. The shares were offered to the shareholders shown on the register of members in the proportion of four further shares for every five shares held by them. The last date for submission of the application and payment was 10th March 1945. The directors and their friends in the next few days applied and were allotted 1, 648 shares. By 6th March 1945, 2204 shares were allotted to shareholders who had applied for the same.

(2.) The appellants are two shareholders of the company. They filed the suit out of which this present appeal has arisen. 'for themselves and all other aggrieved shareholders of the company.' The defendants are the company and eight directors. It is contended in the plaint that the whole issue of these further shares and the idea of increasing the capital of the company was, mala fide and with the object of retaining the control and management of the company in the hands of defendants 2 to 9. It is further contended that the resolution of the directors and the offer of shares contained in the circular letter were in contravention of S. 105 c, Companies Act. There were further prayers restraining the company and direction from proceeding with the allotment of shares. It was contended that the company was not in need of capital and the issue of further shares was not made bona fide for the benefit or in the interest of the company but had been made "merely with the object of retaining or securing to defendant 2 and his friends the control of defendant 1 company".

(3.) Considerable evidence was led in the trial Court on the question of bona fides. The trial Court held that the issue of new shares was bona fide and the appellate Court has also come to the conclusion that the object of the directors in issuing the new shares was not merely with the object of retaining or securing to defendant 2 and his friends the control of defendant 1 company. They held that the company was in need of capital. The suit was consequently dismissed and that decision was affirmed by the High Court on appeal.