NDLI: Nanalal Zaver and Another Vs. Bombay Life Assurance Co. Ltd. and Others

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Indian Companies Act purchasing shares Validity of resolution and offer
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Indian Companies Act, 1913 (7 of 1913)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Dismissed
Headnote	Indian Companies Act (VII of 1918), s._105-C—Company— Outsider trying to get control of management by purchasing shares —Issue of further shares—Offer of new shares to existing share- holders—Validity of resolution and offer—Company in need of funds— Additional motive to prevent outsider 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 offered these shares to the existing shareholders in the proportion of four new shares for every five shares held by them. Two of the shareholders of the company instituted a suit against 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, 1918, and was therefore ultra vires and illegal; (ii) a declaration that the offer of shares was not made bona fide or in the interests of the company and was therefore illegal; and (iii) to restrain the defendants from allotting any shares in pursuance of their offer :Held per Kania C.J., MAHAJAN, MUKHERJEA and Das JJ.— that inasmuch as the shares resolved to be issued were offered to the existing shareholders only, and not to any outsider and these shares were also offered to the existing shareholders in proportion to the shares held by each member without making any diserimination, between them the two requirements of section 105-C were complied with and the resolution and offer did not contravene that section even though 272 shares remained undistributed as & result of the offer of four new shares for every five shares.Held per KANIA C.J., MAHAJAN, MUKHERJEA and DAS JJ.- that inasmuch as the shares resolved to be issued were offered to the existing shareholders only, and not to any outsider and these shares were also offered to the existing shareholders in proportion to the shares held by each member without making any discrimination between them the two requirements of section 105-C were complied with and the resolution end offer did not contravene that section even though 272 shares remained undistributed as a result of the offer of four new shares for every five sharesHeld also per Kania C.J., MAHAJAN, MUKHERJEA and Das JJ.—that the fact that one of the motives of the directors in issuing further shares was to prevent an outsider who had not yet become a shareholder, from getting control of the company did not render the resolution or the offer illegal inasmuch as such a motive could not in itself be said to be not in the interests of the company and even assuming that such a motive was bad this additional motive could not render the resolution and offer illegal as the company was in fact in need of further funds and it was necessary in the interests of the company to issue further shares.
Judge	Honble Mr. Justice Harilal Jekisundas Kania Honble Mr. Justice Mehr Chand Mahajan Honble Mr. Justice Sudhi Ranjan Das
Neutral Citation	1950 INSC 7
Petitioner	Nanalal Zaver And Another
Respondent	Bombay Life Assurance Co. Ltd. And Others
SCR	[1950] 1 S.C.R. 391
Judgement Date	1950-05-04
Case Number	69

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