TMI Blog1996 (4) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares so that the same may be adjudged void and be cancelled. ( e )Injunction be issued restraining the defendants from taking any step or accepting any money or issuing any new share, in pursuance of the said letter of offer or giving any effect thereto in any manner whatsoever. ( f )Declaration that the 22,120 equity shares of defendant No. 1, are standing in the name of Dilip Sen, and have been wrongfully re-corded in the name of defendant No. 3 and decree directing ratifica-tion of the share register of defendant No. 1 by deleting the name of defendant No. 3 and by substituting the name of Dilip Sen for defendant No. 3 in respect of the said 22,120 equity shares in the register of members of defendant No. 1. ( g )Perpetual injunction restraining the defendant No. 3 from exercising any right in respect of or on the strength of the said 22,120 Equity Shares as purported transferee of Dilip Sen or as holder thereof. ( h )Decree directing the defendant No. 3 to deliver up the said share certificates relating to the said 22,120 Equity Shares to the defendant No. 1. ( i )Permanent injunction restraining the defendant No. 3 from exercis-ing any right to take new shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said 22,120 equity shares of defendant No. 1; ( g )Injunction restraining the defendant Nos. 2 and 3 by their servants, agents and/or assigns from interfering or meddling in any way with the affairs and functioning of the defendant No. 1 and from repre-senting or holding themselves out in any manner as persons entitled, empowered or authorised to act for or on behalf of the defendant No. 1 including operating Bank Account, collecting monies or otherwise; ( h ) Ad interim order in terms of prayers above." 3. The case of the petitioners is that in a bid to oust and keep the petitioners from the management and control of the defendant No. 1 and to reduce the petitioners into an insignificant minority the respondents in collusion with each other passed a mala fide Board Resolution dated 30-12-1992 and sought to issue 68,000 Equity Shares in respondent No. 1. 4. It has also been alleged that pursuant to the said resolution and without waiting for confirmation thereof, in a subsequent Board Meeting the board of directors and the defendant No. 1 have caused the letter of offers to be issued to the shareholders. The grounds for challenging the said issue are that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be found in its memorandum and articles; it recognised that there might be cir-cumstances in which the mutual rights of the members were not exhaustively defined in the articles, e.g. where they had entered into membership of the company on the basis of a personal relationship involving mutual confidence or an understanding as to the extent to which each of the members was to participate in the management of the company's business; although the just and equitable provision did not entitle one party to disregard the obligations he had assumed by entering the company, nor entitle the Court to dispense him from them, it did not entitle the Court to subject the exercise of legal rights to equitable considerations, i.e., considerations of a personal charac-ter arising between one individual and another which might make it unjust or inequitable to insist on legal rights or to exercise them in a particular way; thus a director-member might be able to prove some underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continued he should be entitled to management participation, and that the obligation was so basic that, if broken, the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aunt each held 100, and 1,800 ordinary shares of 1 each fully paid, of which the plaintiff held 800 and the aunt 1,000. Under the articles of association members of the company had a right of pre-emption if another member wished to transfer his shares. The aunt was a director of the company but the plaintiff was not. There were four other directors. The total directors' emoluments exceeded that company's net profits before taxation in each of the years 1971 to 1974. The directors proposed to increase the company's share capital from 2,000 to 3,650 by the creating of a further 1650 ordinary shares all of which were to carry voting rights. The directors other than the aunt would receive 200 shares each, and the balance of 850 shares would be placed in trust for long service employees of the company. The Secretary wrote to the plaintiff on 1st November, 1974 setting out the proposals and enclosing notice of an extraordinary general meeting to be held on 27th November to approve the setting up of a trust for the company's employees, to increase the company's capital and to provide for the proposed allotments. Resolutions to the effect were set out in the notice and a draft of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding where it was recognised that there was an equitable supplement to the common rules of the company to be found in its Memorandum and Articles and it was recognised that there might be circumstances in which a mutual right of the members were not exhaus-tively defined in the Articles, namely, they had entered into a membership of the company on the basis of a personal relationship involving mutual confidence for and understanding as to the extent to which each of the members was to participate in the management of the company's busi-ness. In the case of Clemens ( supra ) , there were only two shareholders of one family. The said cases have no application to the facts of the case since no such case has been made out in the petition. Even apart from that the company is a public limited company and its members have free right of transfer of shares and the shareholders consist of persons and/or parties outside the family and even a limited company which is an American company, is a member holding shares to the extent of 25 per cent of the issue capital. 9. So far as the allegations with regard to transfer of shares of Dilip Sen and Ranjit Sen are concerned the same took plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights issue then the same has to be dealt with in accordance with the provisions of the Companies Act. It was also submitted that the company did not need additional capital for the rights issue. This is a question which is primarily decided by the directors of the company and if the directors are of the view that further capital in the form of rights issue is required, the Court will be very slow to disturb with the same unless there are extreme circumstances of mala fides or breach of trust. 13. In this connection, the respondents relied on the judgment of the Supreme Court reported in Needle Industries (India) Ltd. v. Needle Indus-tries Newey (India) Holdings Ltd. AIR 1981 SC 1298. The Supreme Court in the said case held as follows : "107. In Hogg v. Cramphogo Ltd. [1967] 1 Ch 254 it was held that if the power to issue shares was exercised from an improper motive, the issue was liable to be set aside and it was immaterial that the issue was made in a bona fide belief that it was in the interest of the Company. Buckley J. reiterated the principle in Punt [1903] 2 Ch 506 and in Piercy [1920] 1 Ch 77 and observed: 'Unless a majority in a company is actin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole as distinguished (from a purpose for example of maintaining control of the company in the hands of the directors themselves or their friends. An inquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company. (p. 493) ****** '. . . The purpose found by the Judge is simply and solely to dilute the majority voting power held by Ampol and Bulkships so as to enable a then minority of shareholders to sell their shares more advantageously ..' ****** "109 ... 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 in such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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