The Bajaj group obtained transfer of the said 16,230 shares in their names.
The Board declined to register any transfer in respect of the said 3643 shares.
10 per share on a paid up share of Rs.
K. Daphtary, A. K. Sen. L. M. Singhvi, S. Swarup, B. Datta, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the appellant in all the appeals .
S. Nariman, A. B. Diwan, K. J. Merchant and I. N. Shroff, for respondent No.
In the year 1960 the name of Bachhraj Trading Corporation Ltd. was changed to Bajaj Auto Private Ltd. Shares of Bajaj Auto Private Ltd. were offered to shareholders of Bachhraj Trading Corporation in proportion to, their shareholding.
Appeals by special leave from the orders dated March 14, 1970 of the Company Law Board, Department of Company Affairs, Ministry of Industrial Development, Internal Trade Company Affairs, New Delhi in Appeals Nos.
In 1960 when the appellant was companyverted into a public limited companypany and Firodia was appointed as its Chief Executive, the respondent companypany of the Firodia group by themselves, their shareholders and friends subscribed for 37 1/2 of the shares offered to the then existing shareholders of the appellant companypany.
The Directors had a hostile, feeling against Firodia and they had the dominant desire to keep Firodia out of the companypany.
1 in all the appeals .
Firodia was justified in opposing re appointment of the Managing Agents without a specific resolution of the shareholders of the companypany and without a public numberice to the shareholders to represent their views in the matter.
Land was acquired, buildings were companystructed and machinery and equipment worth more than a crore of rupees was purchased and installed.
The Company Law Board by its letter dated 16 January, 1969 asked the appellant to disclose the reasons for refusal to register transfer of shares.
In the month of March,, 1968 Firodia came to know about the said letter and wrote to the Chairman of the Company Law Board that there was neither any resolution of the general meeting of the companypany for such extension number any publication of such appointment.
The Bajaj group purchased shares in the market at a maximum value of Rs.
CI/71 4 The Judgment of the Court.
In the year 1960 there was a Managing Agency agreement between the appellant companypany and Jamnalal Sons Private Ltd. for a period of five years.
Thereafter, in the month of August, 1968 338 appeals were filed before the Company Law Board in respect of refusal of the appellant to transfer 3643 shares.
The real motive of the Bajaj group was revealed first by imposing restrictions in the month of March, 1968 on the powers of Firodia as Chief Executive of the appellant, companypany and secondly by the resolution in the month of May, 1968 to terminate the services of Firodia as Chief Executive.
200 per share.
It may be mentioned here that out of the said 16,230 shares the Bajaj group bought about 4000 shares from the Life Insurance Corporation Ltd. and the Unit Trust of India.
was delivered by Ray, J. These appeals are by special leave against the order dated 14 March, 1970 made by the Company Law Board, Depart ment of Company Affairs, Ministry, of Industrial Development, Internal Trade and Company Affairs, New Delhi, under section 111 3 of the Companies Act, 1956 directing the appellant companypany to register transfer of 3643 shares forming the subject matter of these appeals.
The appellant however behind the back of Firodia wrote to the Company Law Board in the month of December, 1967 and though Firodia was the Chief Executive the letter was signed by the Secretary and kept companycealed from Firodia.
411 per share.
4 to 7 of 1969 etc.
Gradually, the appellant companypany grew into a prosperous and very well developed automobile unit.
for an approximate period of three years.
The appellant companypany entered into an agreement with the Managing Agents on similar terms.
100 the purchase price paid by Firodia group was artificial and companyld only be with a view to try to take companytrol and or obstruct the business and smooth working of the companypany and to injure the existing management.
In 1965 the appellant asked for appointment of the Managing Agents for ten years.
In the month of March, 1968 the Bajaj group bought about 16,230 shares up to the maximum value of Rs.
411 per share.
Firodia was number on the Board of Directors of the appellant companypany.
The appellant companypany gave three reasons for refusal to register transfer of the said 3643 shares.
The appellant will be referred to as the Bajaj group.
When the joint venture was started in the, year 1946 between Bachbraj Trading Corporation Ltd. and the respondent companypany Firodia was in actual charge of the joint venture.
The appellant companypany was companyverted into a public limited companypany in 1960 and the share capital wag increased from Rs.
The Firodia group, on the other hand, from the month of April, 1968 onwards lodged in different lots 3643 shares of the appellant companypany for being transferred to their names.
First, that Jaya Hind Industries Private Ltd. was a beneficiary to the extent of 1/4 share in the Managing Agency remuneration receivable by Jamnalal Sons Private Ltd. from Bajaj Auto Ltd. and yet N. K. Firodia chose to write to the Company Law Board against.,
The respondents in these appeals are Jaya Hind Industries Ltd. N. K. Firodia and other persons who will be referred to as the Firodia group.
In 1958 Bajaj Tempo Private Ltd. was formed to manufacture tempo three wheeler vehicles and N. K. Firodia was appointed the Managing Director of the same.
In the month of February and March, 1967 the capital of the appellant companypany was increased by issue of right shares.
The second reason given by the appellant companypany was that the Firodia group acquired the shares with a design of acquiring interest in the companypany which was likely to result in a threat to the smooth functioning of the management of the companypany and to vote down the passing of the special resolution.
The Company Law Board approved of the appointment upto 31 March, 1968.
546, 547 and 692 to 1031 of 1970.
The Firodia group lodged in different lots 3643 shares of the appellant for being transferred to different names.
The holding of the Bajaj group prior to the acquisition of the said 16230 shares was 28600 shares or according to the Bajaj group 31,500 shares.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
The Company Law Board, however, approved of the extension of the Managing Agency for a period of two years from 31 March, 1970.
Transferring further shares to the names of Firodia group would obstruct the business of the appellant companypany in the passing of special resolution which was required in the day to day business of the companypany.
70,00,000.
In the month of August, 1967 when Kamalnayan Bajaj of the Bajaj group proposed an extension of the term of the Managing Agents Firodia represented to the Board that Firodia was opposed to the same.
4,36,000 to the appellant companypany in its former name.
The Bajaj group however alleged that in February, 1968 they held 31500 shares and the Firodia group had 21735 shares.
100 each.
In the year 1957 Bachhraj Trading Corporation Ltd. was granted the manufacturing licence of tempo three wheelers.
The Bajaj group by the acquisition of 16230 shares would have a numerical strength of 44830 shares whereas the Firodia group would be having 26863 shares if the proposed transfers were allowed by the Directors.
There was personal animosity between Johnson, the Managing Director of the Muir Mills and McRobert.
By the end of February, 1968 out of the issued share capital of 1,04,250 shares the Bajaj group held about 28,600 shares the Firodia group 23,400 shares and the general public about 52,250 shares.
9,90,000 to Rs.
The letter written by the appellant to the Company Law Board was number circulated to the shareholders.
Jaya Hind Industries Private Ltd. applied for transfer of 1500 shares in their names.
Firodia also pointed out that the appellant suggested that its progress was because of the Bajaj group and made numberreference to Firodia who was the Chief Executive of the appellant.
36/8/per share which together with 50 shares held by N. K. Firodia equalled 3/8ths of the share capital.
The Bajaj group acted behind the back of Firodia and wanted to steal a march.
The appellant companymunicated the said refusal to transfer the shares in the month of June, 1968.
Thirdly, the purchase of shares by Jaya Hind Industries Private Ltd. was number with a view to bona fide investment but was with a mala fide purpose and evil design.
In the year 1959 Bachhraj Trading Corporation Ltd. was granted licence to manufacture scooters and auto rickshaws.
The Bajaj group obtained transfer of 16230 shares in their favour in the month of March, 1968.
The refusal to register the transfers was at the meetings of the Board held in the months of May and June, 1968.
An agreement was entered into between Jamnalal Sons Private Ltd. Managing Agents of the appellant companypany and the respondent Jaya Hind Industries Private Ltd. on 15 August, 1960 by which the Managing Agents agreed to pay 25 of the remuneration of the Managing Agency to the respondent companypany in companysideration of services rendered to the appel lant companypany.
The Bajaj group paid Rs.
Firodia applied for transfer of 30 shares in his name.
It was said that the issued share capital of the companypany was 1,04,250 shares of Rs.
411 per share.
The other transfers were in the names of associates, numberinees and friends of the Firodia group.
the extension of the Managing Agency of Jamnalal Sons Private Ltd. The companypany further said that N. K. Firodia, according to the appellant companypany, was their representative and when N. K. Firodia acted in such a treacherous fashion and against the interest of the companypany and behind the back of the Board of Directors it became evident that Firodias design was to create mischief.
In the year 1947 a joint venture business was entered into between Jaya Hind Industries Ltd. and Bachhraj Trading Cor poration Ltd. In the month of March, 1950, Bachhraj Trading Corporation suffered heavy losses and the joint venture was transferred to Bajaj Factories Ltd. with the companysent of Jaya Hind Industries Ltd. In the year 1952 N. K. Firodia became a Director of Bachhraj Trading Corporation Ltd. In the month of April, 1954 Jaya Hind Industries Ltd. acquired 1800 shares of the face value of Rs.
1,80,000 of Bachhraj Trading Corporation Ltd. at Rs.
In the month of December, 1967 the appellant applied to the Company Law Board for extension of the term of Managing Agency of Jamnalal Sons Private Ltd. for a period of 7 years so that the Managing Agents would have a term of 10 years companymencing 16 August, 1965.
In the month of August, 1967 Kamalnayan Bajaj of the Bajaj group proposed at the Board meeting of the appellant that an application should be made to extend the term of the Managing Agency.
In 1952 Firodia became a Director of Bachhraj Trading Corporation Ltd. Firodia thereafter submitted a scheme for the manufacture of scooters and auto rickshaws and obtained a licence for Bachhraj Trading Cor poration Ltd. in that behalf.
The Board of the appellant refused to register transfer of the said shares at the Board meetings held on 23 May, 1968 in respect of 2532 shares and on 24 June, 1968 in respect of 1111 shares.
The Government sanctioned the term for about three years which was to expire on 31 March, 1968.
It is also necessary to know about the antecedents and activities of Firodia in relation to the affairs of the appellant companypany.
The appellant companypany companycluded by saying that the Board of Directors came to the companyclusion that it was in the interest of the companypany to refuse the said transfers.
Firodia group was holding 21,500 shares.
In the month of May, 1954, Bachhraj Trading Corporation Ltd. again took over the business of the joint venture from Bajaj Factories Ltd. In the year 1955 N. K. Firodia as a Director of Bachhraj Trading Corporation Ltd. applied to the Central Government for the manufacturing licence of scooters, auto rickshaws and tempo three wheeler vehicles.
Firodias allegations were against the Managing Agents.
No application for extension of the term of Managing Agents was made at that time.
It was also said that from the investment point of view with a dividend of Rs.
In order to appreciate whether the Directors used the discretion in proper exercise of their fiduciary power and the reasons were bona fide and legitimate in the interest of the companypany as a whole, it is necessary to refer to certain features of the case.
This was the position in the month of February, 1968.
The Central Government on 1 1 August, 1965 sanctioned the said re appointment of Managing Agents for the period companymencing 16 August, 1965 and ending 31 March, 1968, viz.,
The manufacturing activity of the appellant companypany made good progress and 90 of the companyponents of scooters and auto rickshaws were capable of being manufactured indigenously.
Firodia said that the appellant companypany companytravened, in particular, the provisions companytained in sections 326 and 640B of the Companies Act, 1956.
The Bajaj group and their friends were the Directors.
Firodia of the respondent companypany group opposed any such extension.
The letter of the appellant companypany was signed by the Secretary.
The Firodia group paid roughly about Rs.
Firodia came to know of the letter, in the month of March, 1968 and he wrote to the Company Law Board that the companypany had made false statement in the application for extension of the term, namely, that the appellant companypany gave a wrong, impression that it had received permission to increase its production to 60,000 scooters per year whereas in fact numbersuch permission had been granted.
In the year 1950 Firodia went to Germany and obtained representation from Vidal and Sohn Tempo Works Hamburg, Germany in companynection with the manufacture of tempo three wheeler vehicles.
On this evidence it is apparent that Firodia wrote to the Company Law Board in the larger interest of the companypany.
In the month of June, 1965 the appellant companypany applied to the Central Government for re appointment of Jamnalal Sons Private Ltd. as Managing Agents of the appellant companypany for a period of IO years.
The Directors did number act in the interest of the companypany and their discretion was tainted by unfair companyduct and unjustifiable attitude against Firodia.
