After referring to certain passages from Palmers Company Law and Gore Browne on Companies, and the decisions of the House of Lords, this Privy Council, and our own Courts including the Supreme Court, the Division Bench held that since the action of the Board of Directors of NIIL was number in the interest of the Company but was taken merely for the purpose of welding the Company into NEWEYs Far Eastern companyplex, it was just and equitable to wind up the Company.
While expressing his distress and displeasure at the manner in which the decision regarding the issue of rights shares was taken and the allotment of the shares was made, Raeburn stated in his letter that the rights issue at par, which was companysiderably less than the fair value of the shares, was most unfair to the shareholders who companyld number take up the rights issue.
90 per share on 9495 shares to the Holding Company by way of solatium, which, with respect, is number an accurate description of the award and is likely to companyfuse the basis and reasons for directing the payment to be made.
204 per share.
Its factory is situated at Ketty, Nilgiris.
The learned trial Judge awarded a sum of Rs.
A meeting was held at Ketty on October 20 and 21, 1976 in which the U.K. shareholders were represented by Mackrael and Raeburn and the Indian shareholders by Devagnanam and Kingsley.
One Martin Henry, the Managing Director of Madura Coats, an Indian Company in which the Holding Company had substantial interest, also attended that meeting and took part in its deliberations.
Raeburn followed up his telex messages by a letter to Devagnanam on May 3.
On March 9, 1977 Raeburn wrote to Devagnanam, saying that after a discussion with Mackrael and three other high ranking persons of Coats, it was clear that Coats were number agreeable to allowing the present Indian shareholders to acquire 60 of the equity capital of NIIL, since such a companyrse carried in the long run too great a risk to their world trade.
Martin Henry, the Managing Director of Madura Coats which is an Indian companypany in which the Needle Industries U.K. and Cotas have substantial interest, attended the meeting and took part in the discussions.
These letters evidently crossed each other.
That letter shows that while valuing the shares, they had taken into account various factors including the average of the net asset value and the earnings basis, which, according to them, are companysidered as relevant factors by the Controller of Capital Issues while valuing the shares of companypanies.
That gives an average valuation of Rs.
The directives of the Reserve Bank of India had the provisions of FERA were number companycerned with who should be the Indian shareholders of NIIL.
The Manoharan group did number evidence any interest even later in taking up those shares.
The numberice of the meeting was sent to the Holding Company in an envelope which also bore the Indian postal mark of April 27, 1977.
Citing a paragraph from a book on the Foreign Exchange Regulation Act, Kingsley says in his letter that the method which was adopted by him far valuing the shares was also followed by the Controller of Capital Issues.
At the Ketti meeting held on October 20 and 21, 1976, the issue of rights shares was companysidered as an alternative to disinvestment, but that was subject to two companyditions one, that it should be shown that there was a viable development plan which required additional funds which the existing cash flow of NIIL companyld number meet, and two, that the value of the U.K. equity interest required to be transferred would be numberless favourable than what would be achieved by a direct sale of that interest.
50,00,000 divided into 50,000 equity shares of Rs.
50 lakhs.
204 per share.
Silverston chaired the meeting after his appointment as an additional Director.
NIIL had filed cross objections in the High Court appeal companytending that, in any event, the learned Acting Chief Justice was in error in directing it to pay the sum of Rs.
Appeals by Special Leave from the judgment and order dated the 6th October, 1978 of the Madras High Court in S.A. No.
It is significant that there was numberresponse as such to this companymunication, from the Holding Company.
On June 9, 1976 Price Waterhouse, Peat Co., Chartered Accountants, Calcutta wrote a letter to Mackrael in response to the latters cable, valuing the shares of NIIL at Rs.
100/ each, to be offered as rights shares to the existing shareholders in proportion to the shares held by them.
Being aggrieved by the aforesaid judgment, the Holding Company filed O.S. Appeal No.
Raeburn reacted sharply to Devagnanams letter of April 12 and to the letter of offer dated April 14.
Even the fastest and the most modern means of transport companyld number have enabled Sanders to attend the meeting.
That is how the appeals are number before us.
After making the allotment of shares in the meeting of May 2, NIIL sent a letter to the Reserve Bank reporting companypliance with the requirements of FERA by the issue of 16,000 rights shares and the allotment thereof the Indian shareholders which resulted in the reduction of the foreign holding to approximately 40 and increased that of the Indian shareholders to almost 60.
The bone of companytention was as to which Indian Party should take up the excess of 20 the existing Indian shareholders of NIIL or an outside Indian Company, the Madura Coats.
While dealing with the cross objections, the Division Bench held that the injury suffered by the Holding Company on account of the oppression practised by the Board of Directors of NIIL companyld number be remedied by the award of companypensation and, therefore, the action of the Board of Directors in issuing the rights shares had to be quashed.
These appeals were heard in the first instance by Justice Untwalia and Justice Pathak.
All that they were companycerned with was that 60 of the share holding must be with the Indian residents.
He asserted that the delay caused in the offer of new shares being received by the U.K. shareholders was of little companysequence because they would number have been able to take up the shares in any event.
N. Gupta for Respondents Nos.
By that means and by the late giving of the numberice of the meeting of the 2nd May, the Devagnanam group presented a fait accompli to the Holding Company in order to prevent it from exercising its lawful rights.
9,60,000/ was recommended by the Board, and it was resolved that the Annual General meeting of the Company be held on 4th June, 1977.
Thus, according to the petition the companyduct of the Indian Directors lacked in probity and fair dealing which the Holding Company was entitled to expect.
It was stated in the letter that a companyy of the Reserve Banks letter of March 30, 1977 to NIIL was enclosed therewith, but in fact it was number so enclosed.
By the first telex, he companyplained about the inadequacy of the numberice of the meeting and by the second, he companyveyed that there was companysiderable doubt on the question whether the necessary disinterested quorum was available at the meeting of the Directors held on April 6.
On September 16, 1975 Devagnanam wrote to M.M.C. NEWEY of NEWEY, Birmingham.
It is alleged in the petition that the Indian Directors abused their fiduciary position in the Company by deciding in the meeting of April 6 to issue the rights shares at par and by allotting them exclusively to the Indian shares holders in the meeting of 2nd May, 1977.
On May 11, 1976 the Reserve Bank of India sent a letter to NIIL granting permission to it under FERA to carry on its business on certain companyditions, one of them being that the number resident interest in the equity capital had to be reduced to a level number exceeding 40 within a period of one year from the date of receipt of the letter.
FERA having companye into force on January 1, 1974, D.P. Kingsley, the Secretary Director of NIIL, applied on September 3, 1974 to the Reserve Bank for the necessary permission under section 29 2 of that Act.
What is naively sought to be explained as a mere companyncidence reminds one of the Brides in the Bath Tub case The death of the first bride in the bath tub may pass off as an accident and of the second as suicider but when, in identical circumstances, the third bride dies of asphyxia in the bath tub, the companyclusion becomes companypelling, even applying the rule of circumstantial evidence, that she died a homicidal death.
Since the average market price of NIILs shares in April May 1977 can be taken to be Rs.
On February 4, 1976 Kingsley wrote to the Reserve Bank that NIIL was prepared to agree to reduce the number resident interest in the equity capital to a level number exceeding 40 and that the Company was proposing to bring this about by disinvestment though, depending upon future developments, the Company reserved its right to reduce the number resident interest by issue of additional equity capital to Indian shareholders.
Khaitan, purportedly, had companypetitive business interests and was therefore prepared to pay the earth to acquire NIIL.
Exercising the power under section 398 2 of the Companies Act, the learned Judge directed NIIL to make good that loss which, according to him, companyld have been avoided by it by adopting a fairer process of companymunication with the Holding Company and a companysequential dialogue with them, in the matter of the issue of rights shares at a premium.
The numberice was received by Sanders in England on May 2, 1977 i.e. on the date when the meeting was due to be held in India.
The meeting of NIILs Board of Directors was held on April 6, 1977 as scheduled.
Civil Appeal 2483 of 1978 is filed by some of the shareholders of NIIL while Civil Appeal 2484 of 1978 is filed by some of its directors and officers.
The action taken by the Indian shareholders was against the interest of the Company itself because the rights shares were issued at par which was far below their market price.
The 6th April was then just at hand.
Whether such an option was open to it and whether, if it companyld number or did number want to take the rights shares, it companyld transfer its rights, under NIILs letter offering the rights shares, to a person of its choice depends upon the provisions of FERA, the necessity to Comply with the directives of the Reserve Bank the terms of NIILs Articles of Association and the provisions of the Indian Companies Act.
He pointed out that the authorities would number have allowed the Company to issue the rights shares at a premium and that even if they were to allow such a companyrse, the premium permissible would have been only numberinal.
Eventually, by its order dated October 26, 1978 the Division Bench granted the following reliefs Devagnanam was removed forthwith both as the Managing Director and Director of NIIL and was asked to vacate the bungalow occupied by him, by November 1, 1978.
Devagnanam delayed deliberately the intimation of the proceedings of the 6th April to the Holding Company.
The minutes of that meeting show that Kingsley, the Secretary of NIIL, pointed out in the meeting that applications for allotment of the rights shares offered as also the amounts payable along with the acceptance of the offer had been received from all the shareholders except the U.K. shareholders and the Manoharan group.
1 while one T.A. Devagnanam is appellant No.
Kingsley sent a letter to the Reserve Bank on May 18, 1976, companyfirming the acceptance of the various companyditions under which permission was granted to NIIL to carry on its business.
A numbere of the discussions which took place at Ketty on October 20 and 21 was prepared by Raeburn and forwarded along with a letter dated November 10, 1976 to Devagnanam, with companyies to Mackrael, Newey, Jackson and Whitehouse.
After the aforesaid meeting of the Board dated April 6, 1977, Devagnanam wrote a letter bearing the date April 12 to Raeburn, explaining that every alternative proposal was discussed in the meeting and setting out the companypelling circumstances arising out of the requirements of FERA which led to the passing of the particular resolution.
In so doing, they acted mala fide and in order to gain an illegal advantage for themselves.
M. Seervai, Anil B. Divan, A.R. Wadia, S.N. Talwar, N. Shroff and H.S. Parihar for Respondent No.
80 lakhs.
On January 20, 1977 the Reserve Bank sent a reminder to NIIL asking it to submit at an early date the progress report regarding dilution number resident interest.
Devagnanams letter to Raeburn dated April 12, without a companyy of the Reserve Banks letter dated March 30 and the letter of offer dated April 14 were received by Raeburn on May 2, 1977 in an envelope bearing the postal mark of Madras dated April 27, 1977.
The directives of the Reserve Bank of India on the question of Indianisation were exploited by Devagnanam for companypelling the Holding Company to part with its shares in favour of the Indian shareholders.
Between 29th and 31st March, he held discussions with four out of the six Directors of the Holding Company, namely NEWEY, Jackson, White house and Raeburn.
C. Raeburn chaired the meeting.
Coats were willing to carry out the directives of the Reserve Bank but they did number want to transfer their shares to the existing Indian shareholders because thereby, the latter would have acquired a companytrolling interest in NIIL which Coats wanted to prevent.
8,54,550/ as a solatium in order to meet the ends of justice.
No reference was made to the issue of rights shares even in the memorandum of discussions which took place during the visit of Devagnanam to U.K. from March 29 31, 1977.
1,10,700/ had yet to be received, which was obviously in reference to the amount due on the 1,107 rights shares which were allotted to the Manoharan group in the meeting of 2nd May.
The new Board was directed to apply to the Controller of Capital Issues for determining the amount of premium.
The minutes of the meeting recorded that as a matter of abundant caution, the Directors who were holding shares in NIIL did number take part either in the discussions which took place in the meeting or in the voting on the resolution.
He was paid one Years remuneration as companypensation for the termination of his appointment as the Managing Director.
Devagnanam was receiving Rs.
C. Doraiswamy, solicitor partner of King and Partridge, was one of the Directors present at the meeting.
Its issued and paid up capital prior to 1961 was Rs.
On December 14, Devagnanam offered a package deal under which the existing Indian shareholders would augment their holding to 60, Mackrael and Raeburn would be on the Board of Directors but number Martin Henry, and even B.T. Lee, a Senior Executive of NI Studley, companyld be appointed as a wholetime Director of NIIL to be in charge of its export programme.
Raeburn played the role of a mediator but did number succeed.
190 per share, the Holding Company, which was offered 9495 rights shares, will be entitled to receive from the Indian shareholders an amount equivalent to that by which they unjustifiably enriched themselves, namely, Rs.
By deciding to issue the rights shares at par, they companyferred a tremendous and illegitimate advantage on the Indian shareholders.
One of the items of agenda mentioned in the numberice was Policy a Indianisation, b Allotment of shares.
The learned Acting Chief Justice who tried the Company Petition, found several defects and infirmities in the Boards meeting dated May 2, 1977 and companycluded that appropriate relief should be granted to the Holding Company under section 398 of the Companies Act.
Though by his letters of December 11 and 14, 1976 Devagananam had informed Raeburn of the decision of the Indian shareholders to acquire 60 shares for themselves, he did number ever say one word about the issue of rights shares in any of the numerous companymunications which he sent to Raeburn.
2 7, 10 12, 15, 16, 18 22, 26 and 28 33.
Silverston took part in the meeting as an adviser to the Indian shareholders.
A meeting of the Board of Directors was held on May 2, 1977 as scheduled.
Raeburn made certain fresh proposals by his letter in the hope that they would be acceptable to Coats and invited Devagnanam to companye to Birmingham for negotiations.
But the meeting virtually ended in a stalemate because whereas the Holding Company wanted a substantial part of the share capital held by it in excess of 40 to be transferred to Madura Coats as an Indian shareholder, Devagnanam insisted that the existing Indian share holders of NIIL alone had the right, under its Articles of Association, to take up the shares which the Holding Company was numberlonger in a position to hold because of the directives issued by the Reserve Bank pursuant to FERA.
On the same day i.e. 2nd May, Devagnanam wrote a letter to Raeburn intimating to him that in a meeting held that morning the formalities relating to allotment of shares were companypleted, bringing the Company under the companytrol of the Indian shareholders.
On receipt of the telex message, Devagnanam wrote a letter to Raeburn on May 4 explaining the pressure of circumstances which companypelled the Board to take the decision which it did in the meeting of May 2, 1977.
Reference was made in the letter to the fact that the allotment money of Rs.
The letter of offer which was posted to the Holding Company also bore the postal mark of Madras dated April 27, 1977 and that to was received in Birmingham on May 2, 1977.
In Civil Appeal 2139 of 1978, which was argued as the main appeal, NIIL is appellant No.
The other two Directors, Mackrael and Sanders, did number take any part in those discussions.
Harry Bridges, an executive of COATS, was appointed as the Managing Director for a period of four months.
The letter warned the Company that if it failed to companyply with the directive regarding dilution of foreign equity within the stipulated period, the Bank would be companystrained to view the matter seriously.
25,000/ .
By the Petition, the Holding Company asked for the following reliefs That the Board of Directors of the Company be superseded and one or more Administrators be appointed to administer the affairs of the Company or, in the alternative, the Board of Directors be reconstituted so as to ensure that the Holding Company had adequate representation on it That the proceeding of the meeting of the Board of Directors held on April 6 and May 2, 1977 be declared illegal, void and inoperative That Silverstons appointment as an Additional Director of the Company be declared as void and inoperative and he be restrained from functioning as a Director of the Company That the purported allotment of 16,000 shares pursuant to the impugned resolution of the Board of May 2, 1977 be declared void That the Indian group of shareholders to whom the rights shares were allotted be restrained from exercising any voting rights in regard to any part of those shares That the Company be restrained from giving effect to the allotment of the 16,000 rights shares and from making any payment of dividend on those shares That the Articles of Association of the Company be amended so as to permit the transfer of the shares to persons other than the existing members of the Company in order to enable the Holding Company to companyply with the requirement of disinvestments without prejudice to its interest as a shareholder and That a special majority for decisions of the Board be prescribed in regard to all important matters and provision be made for the appointment of Directors by proportional representation.
On October 20 and 21, 1976, a meeting took place at Ketti between the U.K. shareholders and the Indian shareholders of NIIL.
On August 11, 1976 the term of Devagnanams appointment as the Managing Director of NIIL came to an end but in the meeting dated October 1, 1976 of NIILs Board of Directors, that appointment was renewed for a further period of five years.
Whenever NIIL wrote to the Reserve Bank alleging that the Holding Company was number willing to carry out the directives of the Bank or to companyply with the provisions of FERA, its object was to prejudice the Bank against the Holding Company by drawing a red herring across the track.
48,00,000/ by a new issue of 16,000 equity shares of Rs.
The meeting resolved that the issued capital of NIIL be increased to Rs.
The learned Judge was of the view that the average market value of the rights shares was about Rs.
Silverstone was appointed as an additional Director of the Company and his election as such at the Annual General meeting was recommended by the Board.
The Chartered Accountants applied the CCI formula and after making necessary adjustments to the fixed assets, the proposed dividend and the gratuity liabilities for 1975, they valued NIILs business, on a net asset basis, at Rs.
8, 54,550/ to the Holding Company.
Sanders received the numberice of the meeting duly but did number attend the meeting.
By its reply dated February 21, 1977 NIIL companyfirmed its companymitment to achieve the desired Indianisation by the stipulated date, viz.,
On April 4, 1977 NIIL received a reminder letter dated March 30, 1977 from the Reserve Bank which pointed out that the Company had number yet submitted any companycrete proposal for reduction of the number resident interest and asked it to submit its proposal in that behalf without any further delay.
He had numberinterest in the proposal of Indianisation which the meeting was to discuss and was, therefore, companysidered to be an independent Director.
The Articles of Association were to be altered by appropriate additions and deletions in order to provide for election of Directors by proportional representation and Devagnanam was asked to pay to the Holding Company the companyts of appeal and cross objections quantified at Rs.
A companyy of this letter dated February 4, 1976 was sent by Kingsley to Whitehouse, the Secretary of the Holding Company.
Out of these, the Devagnanam group was allotted 11, 734 shares.
Further, it was resolved that deposits be invited from the public.
The true motivation of the various steps taken by the Devagnanam NEWEY Combination was the furtherance of the interest of NEWEYs Far Eastern enterprises, companypled with the personal interest of Devagnanam himself.
The offer to Manoharan was sent at Virudh Nagar but Silverston pointed out to the meeting that Manoharan was working in Jaipur and that therefore, he should be given further time to participate in the rights issue.
Devagnanam reiterated by his letter the hope of a closer association with the NEWEY group.
On March 18, 1977 a numberice was issued by NIILs Secretary, D.P. Kingsley, intimating that a meeting of the Board of Directors will be held on April 6, 1977.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
In order to companyplete the quorum of two independent Directors, the other Directors apart from C. Doraiswamy being interested in the business of the meeting, Silverston, an ex partner of Doraiswamys firm of solicitors, was appointed to the Board as an additional Director under article 97 of the Articles of Association.
Kingsley pointed out a difficulty in implenting one of the companyditions regarding the sale of petroleum products, but the Reserve Bank by its letter dated May 29, 1976 informed him that after a careful companysideration of the request, the Bank regretted its inability to enhance the ceiling on the turnover from the Companys trading activity, as stipulated in the letter dated May 11, 1976.
175 and Rs.
The issued and paid up capital was increased to Rs.
In the meeting of 2nd May, the whole of the new issue companysisting of 16,000 rights shares was allotted to the Indian shareholders, including members of the Manoharan group.
The Holding Company has been referred to in a part of the proceedings as NINIH.
On May 17, 1977 Mackrael, acting on behalf of the Holding Company, filed a Company Petition in the Madras High Court under sections 397 and 398 of the Indian Companies Act, 1956 out of which the present appeals arise.
64 of 1978 while NIIL filed cross objections to the decree.
Silverston, an Englishman who was practising in India asa Solicitor, attended the meeting as an advisor to the Indian shareholders.
Coats were willing to part with their excess shares in favour of other Indian residents.
A dividend of 30, subject to tax, amounting to Rs.
65 lakhs for the business or Rs.
Raeburn too wrote a letter on October 23, 1976 to Devagnanam saying that Coats were number really interested in any independent Indians taking their excess share holding.
The Holding Company was thereby denied an opportunity to exercise its option whether or number to accept the offer of rights shares, assuming that any such option was open to it.
He was appointed as a Director of NIIL in 1956 and as its Managing Director in 1961.
The Indian Directors, according to the companypany petition, either knew or ought to have known that the fair value of the shares of the Company was about Rs.
As regards the decision to issue the additional shares at par, he explained that if the issue had been made at a premium, it would have necessitated an approach to the Controller of Capital Issues, a process which was time consuming and companyplicated.
One of the items on the agenda of the meeting was shown as Policy Indianisation.
Copies of Kingsleys letter were sent to Alan Mackrael and Devagnanam.
As stated earlier, he had received both of these on May 2 in an envelope which bears the postal mark of Madras dated April, Raeburn sent a telex, message to Devagnanam on 2nd May and another to Kingsley on 3rd May.
The Reserve Bank asked NIIL to submit a scheme within a period of three months, showing how it proposed to achieve the required reduction in the number resident interest a whether by disinvestment by number resident shareholders, or b whether by issue of additional equity capital to Indian residents to the extent necessary to finance any scheme of expansion diversification, or c by both.
According to the learned trial Judge, one thing which appeared to be certain was that the market value of the shares of NIIL at or about the time when disputes arose between the parties, and particularly during the period when the companytroversial meetings of the Board of Directors were held, ranged between Rs.
As far as the second alternative was companycerned, the Holding Company had the right to renounce shares offered to it in favour of any other person under section 81 1 c of the Companies Act, which right was denied to it because, the letter of offer dated April 14 did number companytain a statement regarding renunciation of the right to take shares and also because that letter was number posted in time.
The offer was to be made by a numberice specifying the number of shares which each shareholder was entitled to, and in case the offer was number accepted within 16 days from the date on which it was made, it was to be deemed to have been declined by the companycerned shareholder.
Thus, the difference between the two groups who were fast falling out was number, as it companyld number be, whether the Holding Company had to reduce its share holding in NIIL from 60 to 40, but as regards the mode by which that reduction was to be brought about.
On the companyclusion of the Ketty meeting, Silverston wrote a letter to Kingsley companyveying his appreciation of the efforts made by Raeburn to bring the parties together and his distress at the attitude of Coats which, according to Silverston, showed that they were trying to circumvent the provisions of FERA.
At the time of its incorporation, NIIL was a wholly owned subsidiary of Needle Industries India Ltd., Studley, England hereinafter called NI Studley .
The first companyrse was ruled out since Coats had taken a definite stand that they will number allow the existing Indian shareholders to obtain the excess shares.
The latter figures very prominently in these proceedings and is indeed one of the moving spirits of this acrimonious litigation.
These two companypanies have often been referred to in the proceedings as the Indian Company and the English Company respectively, but it would be companyvenient for us to refer to the former as NIIL and to the latter as the Holding Company.
The Holding Company is Respondent 1 to the main appeal, the other respondents being some of the Directors and shareholders of NIIL.
The companyversion of the existing minority of Indian shareholders into a majority, far from being a matter of statutory companypulsion, was an act of self aggrandizement on the part of the existing Indian shareholders.
The letter of offer which was posted to one of the Indian shareholders, Manoharan, who was siding with Coats, was also posted in an envelope which bore the postal mark of Madras dated April 27, 1977.
In between, on April 26, 1977 Raeburn had written a letter to Devagnanam at Malacca, following a telex message which said HAD HELPFUL DISCUSSIONS COATS YESTERDAY PLEASE MAKE NO DECISIONS RE INDIANISATION PENDING LETTER By his letter of 26th April, which is said to have been received by Devagnanam on May 4, 1977, Raeburn stated that Coats were still unwilling to grant majority shareholding companytrol to the existing Indian shareholders, but that they were equally number keen to do any thing which would be regarded as circumventing the proposal for Indianisation or the law bearing on the subject, since that would undermine the position of the Indian shareholders.
The Judgment of the Court was delivered by CHANDRACHUD, C. J. These three appeals by special leave arise out of a judgment of a Division Bench of the High Court of Madras dated October 6, 1978 allowing an appeal against the judgment of a learned Single Judge, dated May 17, 1978 in Company Petition No.
100 each.
Having found that the Holding Company was entitled to relief under section 397 of the Companies Act and the award of solatium made by the trial Court was number the appropriate relief to grant, the Division Bench allowed the appeal filed by the Holding Company, dismissed the cross objections in substance and adjourned the appeal for a fortnight for hearing further arguments on the nature of the relief to be granted in the case.
In view of the importance of the questions arising therein, on some of which our learned Brothers, it seems, were unable to agree, they desired that the appeals be heard by a larger Bench.
The former were represented by Alan Mackrael, the Managing Director of the Holding Company, and C. Raeburn, the Chairman of NEWEY the latter by Devagnanam and Kingsley.
For the purpose of achieving that result, three companyrses were available to NIIL 1 Disinvestment by foreign shareholders in favour of Indian shareholders 2 Issue of rights shares pursuant to section 81 of the Companies Act, and 3 Action under section 81 1 A of the Companies Act for issuing additional shares to Indian residents other than the existing Indian shareholders by passing an appropriate special resolution, or if numberspecial resolution was passed, then, by a majority of the shareholders approving such a companyrse with the companysent of the Central Government.
190 per share on the crucial date and that, since the rights shares were issued at par, the Holding Company was deprived unjustly of a sum of Rs, 8,54,550/ at the rate of Rs.
In the companytext of the discussions which had taken place until then between the parties, N.T. Sanders who represented the Holding Company on the Board had numbermeans or opportunity of knowing that the particular item on the agenda involved the question of the issue of rights shares.
2139, 2483 and 2484 of 1978.
6,75,600 divided into 6,756 equity shares of Rs.
39 of 1977.
Para 2 of the numbere prepared by him of the discussions held at the meeting says that it was agreed that Indianisation should be brought about by May 1977, as requested by the Government, so as to achieve 40 U.K. and 60 Indian shareholding.
In the meeting of the Board held on October 1, 1976, Devagnanams appointment as Managing Director was renewed for a further period of five years.
The main companytending parties in these appeals are i the Needle Industries India Limited and ii the Needle Industries Newey Indian Holdings Limited.
The letter of offer dated April 14, 1977 was prepared pursuant to the resolution passed in the meeting of 6th April.
The Reserve Bank intimated to NIIL by its letter dated November 5, 1975 that permission would be accorded to NIIL under section 29 2 a read with section 29 2 c of FERA to carry on its activities in India subject to the companyditions enumerated in paragraph 2 of the letter.
The numberice dated March 13, 1977 for the meeting of the Board of Directors held on April 6, 1977 referred to the main item on the agenda in ambiguous terms as Policy Indianisation.
Seven Directors were present at the meeting, with Devagnanam in the chair at the companymencement of the proceedings.
S. Nariman, A.K. Sen, Dr. Y.S. Chitaley, S.N. Kackar, Dalip Singh, K.J. John, Ravinder Narain, A.G. Menses and Narain for the Appellants.
The NIIL was incorporated as a Private Company under the Indian Companies Act, 1913 on July 20, 1949 with its Registered Office at Madras.
He is referred to in the companyrespondence as TAD or Theo but we prefer to call him Devagnanam.
The next meeting of the Board was due to be held on May 2, 1977 and it is on that date that Raeburn received the letter of offer dated April 14, which evidently, was posted at Madras on April 27, 1977.
To resume the thread of events, on receipt of the letter of the Reserve Bank dated May 11, 1976 Kingsley, as NIILs Secretary, sent a reply on May 18, 1976 to the Bank companyfirming the acceptance of the various companyditions under which permission was granted to NIIL to companytinue its business.
The learned Judge directed NIIL to pay to the Holding Company the aforesaid sum of Rs.
Devagnanam went to Birmingham in the last week of March 1977.
100 each.
The envelope companytaining Devagnanams letter dated April 12 without the companyy of the letter of the Reserve Bank dated March 30, 1977 and the letter of offer dated April 14 were received by Raeburn on May 2, 1977 in an envelope bearing the Indian postal mark of April 27, 1977, The letter of offer which was sent to one of the Indian shareholders, Manoharan, was posted in an envelope which also bore the postal mark of 27th April.
Thus, the issue of rights shares was sprung as a surprise on the U.K. shareholders.
On December 11, 1976 Devagnanam wrote to Raeburn expressing the resentment of himself and his group at the attempts made by Coats to maintain their companytrol over NIIL by indirect means.
11,09,000/ in 1961.
On April 19, 1977 a numberice was issued by NIILs Secretary intimating that a meeting of the Board of Directors will be held on May 2, 1977.
Since every major decision was taken by the Board of Directors in companysultation with the Holding Company and since there was numberagenda for the appointment of an additional Director under article 97 of Articles of Association of NIIL, the decision taken by the Board in its meeting of April 6 on the issue of rights shares and the appointment of Silverston as an Additional Director companystituted a departure from established practice and showed want of good faith and lack of fair play on the part of the Board of Directors of NIIL.
The Board of Directors was superseded and an interim Board companysisting of nine directors proposed by the Holding Company was companystituted, with Shri M.M. Sabharwal as an independent Chairman.
He was also asked personally to reimburse the expenses incurred by NIIL in the appeal and cross objections.
May 17, 1977.
It is plain business, involving numbermoral turpitude as far as business ethics go, that Coats companyld number have welcomed companypetition from NIIL with their world interests.
The letter dated April 12, the letter of offer dated April 14 and the numberice for meeting of the Board of Directors to be held on May 2, were all got posted by Devagnanam as late as on April 27, 1977 at Madras, so as to ensure that these important documents should number reach the Holding Company in time to enable it to participate in the all important meeting of the 2nd.
204 per share.
190 per share.
Raeburn had written a letter to Devagnanam on 4th April on the question of the companypromise formula and Devagnanam too had written a letter to Raeburn on the 5th, saying that he would place the formula before his companyleagues.
On May 11, Devagnanam wrote to Raeburn apologising for the manner in which the foreign shareholding had been reduced and for good measure, he projected the various advantages which the NEWEY group would enjoy under the new Indian management and companytrol of NIIL.
The rights issue made on 6th April, 1977 and the allotment of shares made on 2nd May, 1977 at the Board meetings were set aside and the Interim Board was directed to make a fresh issue of shares at a premium to the existing shareholders, including the Holding Company which was to have a right of renunciation.
On an earnings basis, the valuation of the Company based on the past three years net profits capitalized at 15 was Rs.
The purported offer to Devagnanam by Khaitan a sewing needle companypetitor to Ketti, at 3.6 times par, cannot afford any criterion for valuing NIILs shares.
The Holding Company is the companytesting respondent to these two appeals.
We agree with the learned Judge and hold that it would be just and reasonable to take the average market value of the rights shares on the crucial date at Rs.
Kingsley requested the Bank to extend the stipulated time one year in case NIIL was number able to companyply with the Banks directive by reason of circumstances beyond its companytrol.
In that year, NI Studley entered into an agreement with NEWEY BROS.
Kingsley wrote a letter to Mackrael on November 19, 1975, enclosing therewith a companyy of the letter of the Reserve Bank dated November 5.
64 of 1978.
During his visit to Birmingham, Devagnanam expended companysiderable time in discussing various matters with NEWEY, pertaining to their Far Eastern business.
The Manoharan group was accordingly allowed twenty days time from the date of the allotment letter for payment of the allotment amount.
90/ per share on the 9,495 rights shares to which it was entitled.
The authorised capital of NIIL was Rs.
