LAXMIDAS N. MADHVANI Vs. MADHVANI PRIVATE LTD

JUDGEMENT

(1.) THIS appeal is directed against the order dated September 24, 1979 passed by a Judge of the City Civil Court at Bombay returning the plaint in Suit No. 6769 of 1978. The suit had been filed by the appellants, hereinafter referred to as the 'plaintiffs'. The first respondent in this appeal was the first defendant in the suit. It is a private limited company of which the plaintiffs are admittedly the shareholders. Authorised capital of the company is Rs. 5 lakhs divided into 5,000 shares of Rs. 100 each. At the relevant time, however, subscribed capital of the company was only Rs. 10,200 consisting of 102 shares of Rs. 100 each. The plaintiffs hold 74 shares while defendants Nos. 2 to 4 together hold the balance of shares.

(2.) ON September 11, 1978, the first defendant issued further 1,020 shares and allotted all of them to defendants Nos. 2 to 4 in equal shares. The plaintiffs say that this action of the first defendant in issuing additional shares to defendants Nos. 2 to 4 is illegal and void as being contrary to Article 35 of the Articles of Association of the first defendant company. Article 35 on which the plaintiffs place reliance is as follows: - 35(1) New shares to he offered to members: When the Directors decide to increase the capital of the Company by the issue of further shares such shares shall be offered to the members in proportion to the existing shares held by each member (irrespective of class) and such offer shall be made by Notice specifying the number of shares to which the member is entitled, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and after the expiration of such time, or on receipt of any intimation from the member to whom such notice is given, that he declined to accept the shares offered, the Directors may dispose of the same when and in such manner as they think most beneficial to the Company. Basing the cause of action upon the alleged contravention of Article 35(1) of the Articles of Association, the plaintiffs filed the suit on December 20, 1973. The plaintiffs pleaded in the suit that the first defendant while issuing additional shares could not allot the same to any other party without complying in the first place with the requirements mentioned in Article 35(1). The plaintiffs have given in the plaint a brief history relating to the holdings of the different shareholders in the share capital of the company. It is, however, not necessary to notice the same except to mention that there was provision in the Articles of Association for retaining the majority holdings by the plaintiffs, if they so desired.

(3.) IN the suit the plaintiffs took out a Notice of Motion bearing No. 114 of 1979 for interim relief of injunction restraining the defendants from holding the annual general meeting of the company which was sought to be held on December 30, 1978 and also restraining the defendants, pending the hearing and final disposal of the suit, from in any manner acting on the basis or implementing the issue of the said 1,020 shares.