MATHURA PRASAD SARAF Vs. COMPANY LAW BOARD

JUDGEMENT

(1.) This rule under Article 226 of the Constitution is directed against the order dated 8th October, 1968, rejecting the application made by the petitioners under Section 372(4) of the Companies Act, 1956, and also against the proceedings started against them under Section 374 of the aforesaid Act.

(2.) The petitioners are directors of Belgachi Tea Co. Ltd. (hereinafter referred to as " the company ") incorporated under the Companies Act, 1956 (hereinfater referred to as "the Act"). The company had made investments in other companies as shareholders of those companies including a company known as -Nera Terai Association Ltd. (hereinafter referred to as "the subsidiary company "). The company had 7,120 ordinary shares of the subsidiary company, nominal value of the said shares being Rs. 71,200. The authorised capital of the subsidiary company was Rs. 8,00,000 out of which share capital was subscribed to the extent of Rs. 7,20,000 which was fully paid up. The subsidiary company has a tea garden known as Panihatta Tea Estate in Tarai, West Bengal. Majority of the shares, i.e., 33,939 ordinary shares of the subsidiary company, belonged to M/s. Macneill & Barry Ltd. and the said M/s. Macneill & Barry Ltd. enjoyed and exercised the management and controlling interest of the subsidiary company.

(3.) In January, 1966, M/s. Macneill & Barry Ltd. proposed to sell the aforesaid 33,939 ordinary shares at Rs. 40 per share. The board of directors of the company were of the opinion that inasmuch as Panihatta Tea Estate was adjacent to the tea estate of the company, it would be in the interest of the company to buy those shares. The said purchase would mean that the effective control of production, staff, labour and other affairs of both the gardens would be secured with comparative lesser costs than before. In the premises, by a resolution dated 5th January, 1968, the board of directors of the company unanimously authorised the petitioner No. 2 to purchase in the name of the company those 33,939 ordinary shares of Rs. 10 each fully paid up at the rate of Rs. 40 per share from M/s. Macneill & Barry Ltd.