NANALAL ZAVER AND ANOTHER v. BOMBAY LIFE ASSURANCE CO. LTD. AND OTHERS.
Citation: [1950] 1 S.C.R. 391; 1950 INSC 7
Court: Supreme Court of India
Bench: HARILAL JEKISUNDAS KANIA , MEHR CHAND MAHAJAN, BIJAN KUMAR MUKHERJEA, SUDHI RANJAN DAS
Judgment date:
Case summary
1950 INSC 7. Supreme Court of India judgment dated 1950-05-04. NANALAL ZAVER AND ANOTHER v. BOMBAY LIFE ASSURANCE CO. LTD. AND OTHERS. Read the judgment and...
Judgment text
S. C. R. . SUPREME COURT REPORTS 391 NANALAL ZAVER AND ANOTHER v. BOMBAY LIFE ASSURANCE CO. LTD. AND OTHERS. [SHRI HARILAL KANIA C. J. , MEHR CHAND MAHAJAN, MuKHERJEA and DAS, JJ. ] Indian Companies Act (VII of 1913), s. _105-C-Company- Outsidet· trying to get control of management by p11rchasing shores -Issue of further shares-Offer of new shares to es;isting shareholders-Validity of resolution and offer-Company in need of funds-Additional motit1e to pret1ent outsidet· getting control-Bona fides of resolution-Scope of s. 105-C. A company was incorporated with a capital divided into 10,000 shares. After 5,404 shares had been subscribed, the directors of the company, finding that a businessman. who had several other businesses and who was likely to use the funds of this company for his own businesses, was trying to get control of this company by purchasing its shares, resolved to issue the remaining 4,596 shares and qffered .
these shares to the existing shareholders in the proportion of four new shares for every five she. res held by them. Two of the shareholders of the company instituted . a suit age. inst the company and the directors for the following reliefs: (i) a. declaration that the resolution of the directors and the offer of shares contravened the provisions of section 105·. c of the Indian Companies Act, 1913, and was therefore ultra vires and illegal; (ii) a. declaration that the. offer of she. res was not made bona fide or in the interests of the company and was therefore illegal ; a. nd (iii) to restre. in the defenda. nts from allotting any shares in pursue. nee of their offer : Held per KANIA C. J. , MAHAJAN, MUKHERJEA and DAB JJ. -that inasmuch as the sh! Lres resolved to be issued were offered to the existing shareholders only, and not to any outsider a. nd these shares were also offered to the existing shareholders in proportion to the she.
res held by each member without making any discrimi-natior. se for which it was not conferred. This argument would have had force if this was the main purpose of the directors in issuing the further shares, but this is not the case here. As found by the High Court, the central fact working in the mind of the directors was the necessity of further funds for the company at the moment they passed the resolution. That being so, it seems to me that the existence of the other motive does not make the action of the directors in respect of the issue of further shares mala fide. Moreover, in the present case it seems to me that the directors were on the defensive. They felt that the attempt of the Singhanias to capture the controlling interest in the company by paying high prices for its shares must have been with a purpose, i. e. , to make use of the funds of the company in their own concerns. Some evidence of this exists on the record.
They thought that it was their duty as directors to protect the company from such an attack and they felt that it was beneficial to the company to protect it from such an attack. They did not keep the matter in secret but informed all the shareholders about it. They first attemptea to enter into the field of competition with the Singhanias but it seems that they were not wholly successful in their objective. They then decided to issue further capital 'by taking into consideration the interest and the needs of the company and its requirements in respect of capital at the moment. They also thought that by this · action they would also be able to keep out the Singhanias from capturing the company. They were under no obligation to Singhanias who had not yet even been entered as shareholders on the register of shareholders. There was no dolus malus in their mind as directors of the company, as affect-ing the company or its shareholders.
On the other hand, they honestly considered it to be in the best interests of the company to meet such an attack. The result therefore is that it cannot be held that this is one of those unusual cases where this Court should not give weight to the concurrent findings of fact by the Courts below, or that it is a case where it can be held that the High Court in arriving at its findings has committed a breach of any rule of procedure or law and that there is no evidence to support the findings that have been arrived at. The result therefore is that this appeal fails and is dismissed with costs. DAS J. -1 agree that this appeal must be dismissed. As, however, my decision rests on slightly different reasons, I desire to state them in my judgment. For the purpose of appreciating the questions involved in this appeal which has been brought by the plaintiffs it will suffice to set out the following facts. The Bombay Life Assurance Company, Ltd.
(hereinafter referred to as " the company ") was incorporated in 1908 with an authorised capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each. By 1945, 5,404 shares in all were subscribed, and Rs. 25 per share had been paid on them. This left 4,596 shares out of the total authorised capital yet to be issued. The plaintiffs are two of the shareholders of the company. Respondents 2 to 9 are the. directors of the company of whom respondent 2 is the chairman of the board of directors. It appears that ! 950 from July, 1944, shares in the company began to be purchased from the holders thereof by ·or in the Naualal Zat 1£~r interest of SrFPadampat Singhania. This attempt to AIJd An-0tlter buy up the shares on a large scale naturally resulted v. in a sudden rise in the price of tP. e shares. This Bombay Life abnormal rise in the price could not but attract the AsSt11·a1tce C0r. attention of the board of directors.
On September 18, Aud Others 1944, a board meeting was held at which the chairman Das/. drew the attention of his co-directors to the serious implications of the attempt of an outsider group to corner the shares of the company. It was decided at that meeting that a circular should be issued to the · shareholders acquainting them of the tru«;l position and the chairman was authorised to sign the circular. Accordingly, on September 19, 1944, a circular was issued to the shareholders drawing their attention to what was happening and exhorting them, in · case they wanted to dispose of their holdings, to offer them to · the chairman. The result of the chairman and other directors entering the arena was a race for purchase of shares of the company which inevitably led to a pheno- · menarrise in the price of the shares. · The shares which in 1944 were quoted at Rs. 250 per share went up to Rs. 2,000 per share in March, 1945. I.
t may be noted here that the shares purchased by the Singhania group were not submitted for registration of the transfers with the result that their names have not yet been entered on the register of members. In the meantime, on January 8, 1945, an applic;,i. tion was submitted by the company to the Examiner of Capital Issues for sanction for a. fresh issue of capital, setting forth several reasons for whieh such . capital was required by the company. The required sanction dated :February 16, 1945, was received by the company on February 20, 1945, and on the next day (February 21, 1945) a board meeting was held at which the directors decided· to issue the remaining 4,596 shares at a premium of Rs. 75 per share and to call-up Rs. 25 per share on them. The minutes of the board meeting (Ex. 0) are printed at pages 301-2 of the Paper Book. Pursuant to this resolution of the board a circular (Ex.
Q) was issued to the shareholders on the same day with copies of the form of application and form of renunciation referred to in the resolution and in the circular. These further shares, were offered to the shareholders shown on the. register of members in the proportion of four further shares to every five shares then held . by them. The last date for submission of the applications and necessary payments for the shares so offered was fixed for March IO, 1945. It is said that on the very next day after the board meeting 1,648 shares were allotted and that between February 22, and March 6, 1945, 2,204 shares were allotted to the shareholders who had applied for the same. The suit out of which the present appeal has arisen was filed on March 5, 1945. The plaintiffs are two of the members of the company suing " for themselves and all other aggrieved shareholders" of the company. The defendants are the company and the eight directors.
The reliefs prayed for are as follows, inter alia : (a) That it may be declared that the resolution of the directors and the offer referred to in para 6 hereof contravenes the provisions of section 105-C of Indian Companies Act and was and is ultra vires, and illegal ; (b) That it may be declared that the said offer of shares referred to in para 6 hereof is not bona fide or in the interest of the defendant company and is ultra vires and illegal ; (c) That the defendants 2 to 9 may be restrain-ed by an injunction from allotting any shares or doing any further act in pursuance of the said offer. " It will be noticed that none of the shareholders other than the directors to whom further shares had been allotted before the filing of the suit has been made a party to the suit.
Further, even as against the defendants 2 to 9 the consequential relief by way of cancellation of the allotments of further shares to them and the rectification of the register in respect thereof has not been prayed for by the plaintiffs. The contentions of the plaintiffs as set forth in the plaint on which the above prayers were founded may be summarised shortly as follows : (i) the company was not in need of capital, (ii) 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 secqring to the second defendant and his friends the control of the first defendant company," and (iii) the issue and · offer of farther shares are illegal and void for contravention of the provisions of section 105-C of the Indian Companies Act. It is necessary to examine each of these contentions and to ascertain their effect. - Re (i): Both the Courts below.
have found it as a fact that at the time the directors resolved upon the issue of further shares the company was in need of capital for the purposes mentioned in the company's application to the Examiner of Capital Issues referred to above. This concurrent finding of fact has not been contested before us and the next contention of the appellants will have to be examined in that light. Re (ii) : It is not disputed that the company's need for funds standing by itself will afford a good motive to the directors to issue further shares. The contention, however, is that if that motive was not the sole motive but was mixed up with any other motive, it was an abuse of the powers of the directors to issue further shares. This plea is clearly a departure from the case made in the plaint. There the case was that there was no need for funds at all and the sole motive of the directors was merely to retain their own control over the affairs of the company.
It will, however, be a hypertechnicality to shut out this piea altogether. The plea of mixed motive raises three questions, namely- (a) whether apart from the motive of finding further capital for the company, there was any, and, if so, what_ other motive, (b) was that other motive vitiated by bad faith, and - (c) if it was so vitiated, whether the presence of it nullified the good motive and rendered the issue of further shares illegal and void. The contention of the plaintiffs before Bhagwati J. as before us, was that the company was not in need of any further capital in February, 1945, and that the directors of the company decided to issue the further capital merely with a view to retain control of the management of the company in their hands. On the evidence before him, Bhagwati J. found that the motive of the directors was rather to keep the Singhania group out of the control of the company than to retain their own control.
The race for the purpose of purchasing the shares was not merely for the purpose of increasing their holdings for holdings' sake but was really with a view to prevent the Singhania group from obtainirig a majority of shares which would give them the control of the management of the company and enable them to utilise the life funds of the company for the purposes of the various industrial concerns of the Singhania group. The result of keeping out the Singhania group might well be_ to strengthen the position of the directors and to keep them in the saddle, but the proximate motive was to exclude the Singhanias. The distinction is real and quite understandable. The appeal Court does not appear to have dissented from this view of the matter . and I do not see any reason to take a different view.
It follows, therefore, that apart from the rrtotive of raising fresh capital for the purposes and benefit of the company, the directors also had another motive, namely, to prevent the Singhania group, who are strangers to the company, from intruding into its affaii:s so as to be able to assume a controlling hand in its management for their own purposes rather than for the benefit of the company. On the evidence on · record the existence of this motive side by side with the motive of raising further capital cannot be denied. The question then arises whether in acting up to it the directors were actuated by bad faith. In com-ing to a conclusion on this point it has to be borne in mind_ that the Singhania group had only purchased some shares from various existing shareholders but did not submit the transfers of registration so q.
s to get their names put upon the register of members: It is· clear that until the Singhania group get their names entered in the register of members, they are not shareholders but are complete strangers to the company. Nana/al 1 It has been held in Percival v. Wright( ) that ordinarily the directors are not trustees for individual shareholders. Even if the· directors owe some duty to the existing shareholders on the footing of there being some fiduciary relationship between them as stated in some cases [see for example In re Greshain Life Assur- 2 ance Society] ( ), I see no cogent reason for extend-ing this principle and imputing any kind of fiduciary relationship between the directors and persons who are complete strangers to the company. In my judgment, therefore, the conduct of the respondents 2 to 9 cannot be judged on the basis of any assumed fiduciary relationship existing between them and the Singhania group.
In my opinion, the respondents 2 to 9 owed no duty to the Singhania group and, therefore, the motive to exclude them cannot be said to be 1nala fide . per se. In North-West Transportation Company, Ltd. 3 v. Beatty ( ) the Judicial Committee observed at p. 601: " But the constitution of the company enabled the defendant J. H. Beatty to acquire this voting power; there was no limit upon the number of shares which a shareholder might hold, and for every share so held he was entitled to vote, tbe charter itself recognised the defendant as a holder of 200 shares, one-third of the aggregate number; he had a perfect right to acquire further shares, and to exercise his voting power in such . a manner as to secure the election of directors whose views upon policy agreed with his own, and to support those views at any shareholders' meeting. " Beatty referred to in the above passage was a director.
It follows therefore, that the fact of the directors entering into a competition with the Singhania group in purchasing the shares of the company was quite legitimate and was not mala fide. It was urged, however, that the issuing of further shares, although the company required further capital, was, in the circumstances, evidence of bad faith. Bhagwati J. dealt (I) L. R. (1902) 2 Ch. ,21. · (2) L. R. S Ch. App. 4'6 at p. ~~9. (3) L. R. 12 A. O. 589. with the various acts of the directors relied upon by the plaintiffs as indicating bad faith on the part of the directors and on a consideration of all of them was " unable to come to the conclusion that the issue of · new shares was decided upon by the directors not bona fide in the interests of the company and merely with a view to keep the control of the affairs of the company in their hands.
" The learned Judge, therefore, came to the conclusion that the :issue of further shares and the offer thereof made on the 21st February, 1945, was. not ultra vires and illegal. Some of these facts on which the charge of mala fide was sought to be founded were urged before the appeal Court by learned counsel for the appellants. The learned Chief Justice discussed the matters and concluded by saying that he agreed with the trial Judge that the plaintiffs had failed to discharge the burden which lay upon them of establishing that the issue of new shares was not bona fide and not in the interests, and for the benefit, of the company_ I do not see any cogent reason for taking a different view on the facts. The position, shortly put, was that the Singhania group, who were outsiders and to whom the directors owed no duty, were out to corner the· shares of the company for their own ends.
To thwart that object of the Singhania group by making it more and more difficult for them to acquire more shares the directors took advantage of the existing needs of the company for further capital and decided μpon to issue further shares. The issue of further shares served tw<> purposes, namely, the purpose of finding the necessary finance, and to exclude the interlopers, both of which purposes, according to the directors, were for the benefit of the company. Rightly or wrongly, the directors felt that it was not in the interests of the company t<> allow the Singhania group a controlling hand in the management of the affairs of the company. Their ap-prehension evidently was that the Singhania group, ~f and when they became shareholders, would use their voting power in their own interests and to the detriment of the company by utilising the life fund of the company for the purposes of their various other industrial concerns.
I find nothing in the evidence on record to doubt the honesty of the directors in holding this view and, that being so, I see nothing improper if the directors in the interests of the company and the existing shareholders tried to prevent what, according to them, would be a catastrophe. Indeed, if the directors honestly held that view-and as already stated I have no reason to think that they did not-·they would, in my opinion, have been guilty of dereliction of duty to the company and to the existing shareholders if they did not exert themselves to prevent such evil. In my judgment the motive to prevent the Singhania group, who \Vere outsiders, from acquiring a control over the company cannot, as between the directors and the company and the existing shareholders, be stigmatised as mala fide. .
At two places in his judgment the learned Acting Chief Justice expressed the view that if it were established before the Court that the company needed further capital, all other considerations could be of no avail or of very little avail as against that central fact. Tendolkar J. did not consider it necessary to deal with tht various acts of the directors relied upon as evidence of their mala fules, because he was of the view that assuming that the directors did all those acts with the object of keeping the Singhania group out of control of the company, the moment it was established that the company was in need of further capital for legitimate purposes, the fact that the directors uti-lised such need for the purpose of establishing themselves more firmly in the saddle did not render the issue of further capital either ultra vires or invalid.
Learned counsel for the plaintiffs contends that the learned Judges in the Courts below entirely overlooked the point that the presence of such bad motive would nullify the good motive of finding capital necessary for the company and this mixture of motives would render the issue of further shares illegal and void. This leads me to a consideration of the third sub-head on the assumption that what I have called the additional motive was a bad motive. It is well established that directors of a company are in a fiduciary pJsition vis-a-vis the company and must exercise their power for the benefit of the company. If the power to issue further shares is exercised by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the Court ·will interfere and prevent the directors from doing so.
The very basis of the Court's interference in such a case is the existence of the relationship of a trustee and of ces(ui que trust as between the directors and the company. The first case to be referred to is that of Fraser v. Whalley('). In that case a new company was incorporated in 1859 by an Act of Parliament. By that Act also certain existing railway companies were authorised "to acquire, take and hold shares in the undertaking of the company, and for such purpose to create new shares in their undertakings. " The exist-iQg companies in 1861 passed resolutions authorising their directors to exercise this power. The resolutions were, however, not acted upon and the existing companies did not iEsue n ~w shares in their undertakings for the purpose of taking up any share in the new company and all the shares of the new company were issued to persons other than the existing companies.
In short, the shares which it was contemplated would be taken up by the existing companies were no longer available. Subsequently, in 1862, another Act of Parliament was passed authorising the new company to make a branch line and for that purpose to raise fresh capital by the creation and issue of new shares. But this new Act gave no fresh power to the existing companies to toke up any of these new shares to be issued by the new company. One Savin held the majority of shares in the existing companies and there was dispute between him and the directors. The general meeting of the company was shortly going to be held and the directors knew that at the ensuing general meeting their policy would be repudiated by the majority of shareholders and they would be turned out. from their office. It was in these circumstances thaf the directors purporting to act on the resolutiens of (1) (186l) 2 H. & M. 10. -. 1861, resolved to issue new shares.
Suit was filed on 1950 behalf of the shareholders to restrain the directors from Na11a/al Zav dispose of in such manner as they think fit. Learned Attorney-General appearing for the company sub-mits: (a) That section 105-C should be construed in the light of Regulation 42 in Table A of the Indian Companies Act, 1913 ; (b) That in order to prevent absurdity and to give business efficacy to the section, the words " as nearly as circumstances admit " should be read into the section ; and ( c) That in any event the directors have not contravened the provisions of the section even if the same be literally construed. Each of these points requires serious consideration. As to the first point it should be remembered that section 105-C was introduced in thi: . Act only in 1936. There is no counterpart of it in the English Act even now.
Prior to 1936 there was no check on the powers of the directors to issue blocks of shares, within the authorised limit, to themselves or to their nominees, unless their powers were circumscribed by the Articles of Association. One of the mischiefs of the managing agency system which prevails in this country was that the managing agents, who usually dominated the board of directors, could, to secure their own position, induce the board to issue blocks of preference shares to the managing agents or their nominees. To check this mischief section 105-C was introduced in the Indian Act in 1936. As regards the increase of capital beyond the authorised limit it could only be done by the coμJ. pa. ri. y. The shareholders could, while sanctioning such increase, protect themselves · by giving special directions to the directors as to the mode of disposal of the new shares.
In the model Regulations set forth in Table A of the 1882 Act under the heading '' Increase of Capital" are grouped three Regulations 26 to 28. Regulation 27 was in. the following terms : "(27) Subject to any directions to the contrary that may be given by the meeting that sanctions the increase of capital, all new shares shall be offered to the members in proportion to the existing shares held by them, 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 the receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company.
" In Table A of our present Act under the heading "Alteration of Capital " are to be found three corres-ponding Regulations 41 to 43. Regulation 42 is as follows:- " (42) Subject to any direction to the contrary that may be given by the resolution sanctioning the increase of share capital, all new shares shall, before issue, be offered to such persons as at the date of the offer are entitled to receive notices from the company of general meetings in proportion, as nearly as the circu. mstances admit, to the amount of the existing shares tO Wpich they are entitled.
The offer shall be made by n0tice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and after the expiration of that time, or on the receipt of an intimation from the person to }Vhom the offer is made that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company. The directors may likewise so Znt•. :r dispose of any new shares which (by reason of the ratio Aiiotl1cr which the new shares bear to shares held by persons Life entitled to an offer of new shares) cannot, in the opinion Co. of the directors, be conveniently offered under this article. " The words underlined are new and are not to be found in Regulation 27 of Table A of the 1882 Act.
The scheme of the 1882 Act, as of our present Act, and the language used in the two regulations quoted above clearly indicate, to my mind, that they deal with that kind of increase of share capital which involves an alteration of the conditions of the memorandum which the company alone can do by issuing new shares. These Regulations do not purport to deal with increase of capital which is within the competency of the directors to decide upon. In that kind of increase of capital beyond the authorised limits these regulations give the directors certain latitude, subject, of course, to any directions to the contrary that may be given by the resolution of the shareholders in general meeting sanctioning such increase.
The only difference between Regulation 27 of 1882 and Regulation 42 of our present Act is that under the last mentioned Regulation, in the absence of any direction to the contrary, the discretion of the directors has been widened by the introduction of the words underlined above. This company was incorporated in 1908 under the Act of 1882. It did not adopt the Regulations of Table A of the 1882 Act but article 45 of" its Articles of Association proceeds more or less on the lines of Regulation 27 of Table A of the 1882 Act. The discretion given to the directors under article 45 is, therefore, obviously narrower than that left to the directors under Regulation 42 of Table A of the present Act. Then came section 105-C in 1936. As already pointed out, that section deals with . increase of capital within the authorised limit · which the directors can decide upon without reference to the . shareholders in a general meeting of the company. :;i.
:he legislature had before it both Regulation 27 of Table A of 1882 and Regulation 42 of Table A of the Act of 1913. It chose to adopt the language of Regulation 27 in preference to that of Regulation 42. The absence in section 105-C of the words I have underlined in Regulation 42 cannot but be regarded as deliberate. And I can conceive of very good reasons for this departure. In the case of increase beyond the authorised limit, that can be done only by the company in general meeting and the shareholders can protect themselves by giving directions to the contrary and, therefore, subject to such directions a wider latitude may safely be given to the directors. But in the case of increase of capital within the authorised limit which the directors may do without reference to the shareholders the legislature did not think it safe to leave an uncontrolled discretion to the directors. The mischief sought to be remedied required this curtailing of the directors' discretion.
In my judgment it is impossible to construe section 105-C / in the light of Regulation 42 for several reasons. Regulation 42 and section 105-C do not cover the same field and cannot be said to be in pari materia. The omission of the underlined words was obviQusly deliberate. The difference in the language of the two provisions in the same statute cannot be overlooked as merely accidental. And lastly the reading of these words of Regulation 42 in section 105-C will frustrate what I conceive to be the undertying reason for the introduction of the section. In my judgment the first point urged by the learned Attorney-General which found favour with the Courts below cannot be accepted. The second point urged by the learned Attorney- ·General is founded on the supposed necessity of introducing the words "as nearly as the circumstances admit" to avoid the absurdity which may flow from a literal construction of section 105-C.
It must be remembered that the cardinal rule of interpretation of statutes is to construe its provisions literally and gram-matically giving the words their ordinary and natural meaning. It is only when such a construction leads to an obvious absurdity which the legislature cannot be supposed to have intended that the Court in [1950) interpreting the section may introduce words to give effect to what it conceives to be the true intention of the 'legislature. It ·is not any and every inconvenience that justifies adoption of this extreme rule of construction. The section literally construed is quite intelli-gible and may easily be applied to many cases where the further shares issued bear a uniform and round proportion. Merely because a literal construction of the section leads to inconvenient result in a particular case cannot, in my opinion, justify the application of such a drastic rule of construction as is urged by the Attorney-General.
Even in this case there would have been no inconvenience if the directors decided for the issue of 4,053 shares which could have been offered in the proportion of three shares to every four shares held by each shareholder. It is true that ordinarily it is for the directors to judge as to the exact amount of capital needed by the company but in arriving at their decision they cannot overlook the limitations put upon their power by the section with respect to the proportion in which the further shares are to be offered by them to the shareholders. Further, the supposed inconvenience can be easily avoided by a reference to the shareholders in a general meeting by asking them to increase the share capital beyond the authorised limit to such an amount as would permit proportionate disposal of the further and new shares.
In my opinion there is not sufficient force in the contention which should induce the Court to depart from the ordinary and golden rule of interpretation I have mentioned above. The last point urged by the Jearned Attorney- General appears to me to be of substance. On a strictly literal construction of the section the directors must perforce offer all the further shares to the shareholder& in proportion to their respective holdings. Section 105-C comes into operation after the directors have decided to issue further shares. The section does not in terms provide that such offer must be made all at once or at any particular point of time and I see no reason to import any such requirement in . the section. S. C. R. SUPH. EME COURT REPORTS 433 The underlying object of the section is to effect equitable distribution of the further shares. Here the shares have been offered in the proportion of four shares to every five shares. There can be no suggestion of favouritism in this offer.
Every shareholder will get his proportion if he so desires. The majority will ren. ain the majority if every one takes up the shares offered to him. It is true that 272-4/5 shares remain in hand. At best although issued they have not been offered to anyone. I do not agree that under clause 8 of the directors' resolution the directors can dispose of those 272-4/5 shares i. n any manner they please before offering them proportionately to the existing shareholders. That clause, on a true construction of the resolution as a whole, covers only those shares which have been actually issued but have not been applied for. In point of fact the directors have not yet allotted any of these 272-4/5 shares. If and when the directors allot these shares otherwise than in due course of law, i. e. , without offering them to the shareholders, the shareholders will then have cause for complaint and may then come to Court for redress. It is said that 272-4/5 shares cannot in.
future be offered to so many shareholders in a reasonable proportion. If it cannot be done, these odd shares will remain in hand until the company at a general meeting decides to increase the share capital by issuing new shares and then these odd shares together with new shares will be easily capable of being offered to the shareholders proportionately. These special considerations which arise in the case of this company by reason of its own peculiar -circumstances cannot, in my opinion, affect or alter the meaning and effect of the section. From all that I can see, up to the present time, there has been no contravention of the provisions of section 105-C. In my view the directors have substantially complied with the requirements of the section and the plaintiffs can have no grievance. They rushed to Court prema-turely.
For the reasons stated above, I am clearly of -0pinion that the conclusions of the Courts below were 1950 i:ight and no ground has been made out for interfering with the same. The result, therefore, is that this N anal al Z avct' appeal is dismissed with costs. And Anotl1cr v. Bonibay Life MuKHERJEA J. -. I agree that this appeal should be Assurance Co. dismissed and I concur substantially in the reasons And Others which have been given by my learned brother Mr. Justice Das in his judgment. Muklierjca J, Appeal dismissed. Agent for the Appellants: 5. P. Varma. Agent for the Respondents: Rajinder Narain.
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