04 May 1950
Supreme Court


Case number: Appeal (civil) 69 of 1949






DATE OF JUDGMENT: 04/05/1950


CITATION:  1950 AIR  172            1950 SCR  391  CITATOR INFO :  R          1964 SC 136  (11)  E&R        1981 SC1298  (64,109,110,111)

ACT: MUKHERJEA and DAs, JJ.] $     Indian    Companies    Act    (VII    of    1913),    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 8. 105-C.

HEADNOTE:     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 share- holders of the company instituted a suit against the company and the directors for the following reliefs: (i) a  declara- tion  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  shares was  not made bona fide or in the interests of  the  company and was therefore illegal; and (iii) to restrain the defend- ants from allotting any shares in pursuance of their offer:     Held  per KANIA CI.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  and 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 shares. 49-A 392    Held also per KANIA C.,J. MAHAJAN, MUKHERJEA and DAS JJ.--that the fact that one of the motives of the direc- tors  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  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. Judgment of the Bombay High Court affirmed.

JUDGMENT:     APPEAL  from  the High Court of  Judicature  at  Bombay: (Civil Appeal No. LXIX of 1949).     This  was an appeal from the judgment and decree of  the High  Court of Bombay dated 11th March, 1949,  (Chagla  C.J. and  Tendolkar  J.) in Appeal No. 85 of 1947,  confirming  a decree  of the said High Court in its Original  Jurisdiction dated  10th November, 1947. The facts of the case and  argu- ments of the counsel arc set out in the judgment.     N.P. Engineer (M.M. Desai and H.J. Umrigar with him) for the appellants.     M.C.  Setalvad  (G. N. Joshi with him)  for  respondents Nos. 1 to 6 and 8 and 9.     1950.  May 4.  The Court delivered the  following  Judg- ments:    KANIA  C.J.--This is an appeal from the decision  of  the High Court of Judicature at Bombay.  The respondent  company was  incorporated in 1908 with an authorised capital of  Rs. 10  lakhs  divided into 10,000 shares of Rs. 100  each.   By 1945, 5,404 shares were subscribed and Rs. 25 per share were called  on  each of them.  Four thousand  five  hundred  and ninetysix shares out of the authorised capital thus remained unissued.  From about July, 1944,  Mr.  Padampat  Singhania, a   businessman  interested   in   many companies, began  to purchase shares of the company from the holders thereof on a large scale. This naturally      393 put  up the price of the shares considerably.  On  the  18th September,  1944,  at a board meeting of the  directors  the chairman  drew attention of his co-directors to the  attempt thus made by an outsider to corner the shares of the  compa- ny.  In pursuance of a resolution passed at the meeting, the chairman  issued  a circular to  the  existing  shareholders acquainting them of the true position and suggesting that if they wanted to part with the shares they might get in  touch with  the chairman.  A circular was accordingly issued  with the  result that two rival groups were thus offering to  buy shares  from  those who were desirous of selling  them.  The shares  on which about Rs. 12 or 14 were paid per  annum  as dividend began to be quoted in the market at about Rs. 2,000 per  share in March, 1945.  Mr. Singhania had not  submitted to  the  company for registration of the  transfers  to  his



name  the shares purchased by him.  In the meantime  on  the 8th  January,   1945, an application was submitted   by  the company to the Examiner of Capital Issues for sanction of  a fresh  issue of capital.  Several reasons were mentioned  in that application to show why the company required additional capital.  Such application had become necessary owing to war regulations.   The  Government granted the sanction  on  the 16th  February, 1945, and the communication was received  by the  company  on  the 20th of February. On the  next  day  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 Rs. 25 per share on them. Pursuant to this resolution a circular was issued to the shareholders on  the same day with copies of the form of application and renunci- ation  referred  to in the resolution and in  the  circular. The  shares  were offered to the shareholders shown  on  the register  of  members  in the ’proportion  of  four  further shares  for every five shares held by them.  The  last  date for  submission  of  the application and  payment  was  10th March, 1945. The directors and their friends in the next few days applied and were allotted 1,648 shares.  By the 6th, of March, 1945, 2,204 shares were allotted to shareholders  who had applied for the same. 394     The  appellants  are two shareholders  of  the  company. They  filed the suit, out of which this present  appeal  has arisen, "for themselves  and all other aggrieved  sharehold- ers  of  the company."  The defendants are the  company  and eight  directors.   It is contended in the plaint  that  the whole issue of these further shares and the idea of increas- ing  the capital of the company was mala fide and  with  the object of retaining the control and management of the compa- ny  in the hands of defendants 2 to 9.  It is  further  con- tended that the resolution of the directors and the offer of shares contained in the circuluar letter were in  contraven- tion  of section 105-C of the Indian Companies  Act.   There were  further prayers restraining the company and  directors from  proceeding with the allotment of shares.  It was  con- tended  that the company was not in need of capital and  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 securing the  second defendant and his friends the control of the first defendant company."     Considerable evidence was led in the trial Court on  the question of bona fides.  The trial Court held that the issue of new shares was bona fide and the appellate Court has also come  to the conclusion that the object of the directors  in issuing  the  new shares was not merely with the  object  of retaining  or  securing  to the  second  defendant  and  his friends  the control of the first defendant  company.   They held  that the company was in need of capital. The suit  was consequently dismissed and that decision was affirmed by the High Court on appeal.     The decision of the appellate Court has been  challenged before  us on both grounds.  The learned  counsel  appearing for the appellants did not contest the concurrent finding of fact of both the lower Courts to the effect that the company was in need of capital. It was however urged on their behalf that as the issue of these shares, although not admitted  in the written    395 statement  but admitted in the course of evidence,  was  for the  purpose of preventing the control of the company  going in  the hands of Mr. Singhania, the directors had not  acted



bonn’  fide  and solely in the interest of the  company.   I have  read the judgment prepared by Das J. and I agree  with his  conclusion  and line of reasoning on this part  of  the case.   In my opinion, the contention of the  appellants  on this point was rightly rejected by both the lower Courts and that contention must fail.     That  leaves  the question whether the  issue  of  these shares  was in contravention of section 105-C of the  Indian Companies Act. That section runs as follows:-     "  Where the  directors  decide to increase the  capital of  the company by the issue of further shares  such  shares shall be offered to the members in proportion to the  exist- ing  shares held by each member (irrespective of class)  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 receipt  of  an  intimation from the member  to  whom,  such notice  is given that he declines to accept the  shares  of- fered, the directors may dispose of the same in such  manner as they think most beneficial to the company."     On behalf of the respondents three answers were  submit- ted.  The first was that the section deals with the case  of increase  of capital by the directors beyond the  authorised limit and as in the present case the new shares were  issued within  the authorized limit of capital, the section has  no application.   The second was that the terms of the  section should  be  construed in a practical way and  there  was  no difference between Regulation 42 in Table A of the Companies Act and section 105-C in respect of the scheme to offer  the proportion  of shares to the existing shareholders.  It  was argued  that  so  long as they were offered  "as  nearly  as circumstances  admit"  the directors had complied  with  the requirements  of the section and therefore their action  was not  illegal.  The third answer was that in fact the  direc- tors had not committed any 50 396 breach of the terms of section 105-C up to now and therefore their  action cannot be held to be illegal.  In view  of  my conclusion  on the third point it is not  necessary  to  ex- press  any  opinion on the first two  answers  submitted  on behalf  of  the respondents.  It seems to  me  that  section 105-C, interpreted strictly as contended by the  appellants, casts on the directors two obligations.  They have to  offer the shares issued to the shareholders on the register of the company and not to anyone else, and secondly, the offer must be in the same proportion to all the shareholders and  there should  be no discrimination amongst them.  It is  not  con- tended that by the offer made by the directors to the share- holders there has been any discrimination amongst the share- holders on the register of the company.  It was contended on behalf  of  the appellant that the directors had  failed  to offer  all the shares resolved to be issued by them  to  the existing shareholders and therefore the requirements of  the section had not been complied with.  It was argued that the directors having resolved to issue 4,596 shares, they had to offer  that  whole lot at once to the  shareholders  on  the register  and  the result of the offer made by them  was  to retain  in their hands 272-4/5 shares.  In my opinion,  this contention  is  unsound.  By their resolution  of  the  21st February, 1945, the directors resolved to issue 4,596 shares out  of  the authorized capital of the  company.  They  have offered  shares to the existing shareholders in the  propor- tion of four new shares to five shares held by them.   Inas-



much  as  the offer does not absorb the whole lot  of  4,596 shares I am unable to construe the offer as an offer of  the whole lot at once to the existing shareholders.  Unless  the whole  lot  of shares in pursuance of the.  offer  could  be accepted  and  taken up I am unable to  consider  the  offer contained  in the circular as an offer of the 4,596  shares. That however does not establish the contention of the appel- lants. I find nothing in the section to justify the  conclu- sion  that the directors must offer all the shares  resolved to be issued in one lot to the shareholders.  I can Conceive of.  numerous cases where a limited company with  a  growing business does not 397 require  its capital to be called up at once. For  instance, soon after a company is formed it may issue shares of, say a lakh  of rupees required for the construction of the  build- ings, and after  a year when it requires further capital for payment  of machinery etc.  it can issue further shares.   I do  not think the section as worded prevents  the  directors from  issuing shares to existing shareholders from  time  to time  in  that  way. As noticed before, the  object  of  the section is to prevent discrimination  amongst   shareholders and  prevent the directors from offering shares to outsiders before  -they are offered to the shareholders.  So  long  as these two requirements  are complied  with,  the  action  of the directors in selecting the time when they will issue the shares as also the proportion in which they should be issued is  a  matter  left to their discretion and it  is  not  the province.of the Court to interfere with the exercise of that discretion.  This is of course subject to the general excep- tion that the directors are not to act against the  interest of the company or mala fide. No such question arises in this case and therefore it is unnecessary to discuss that  aspect of  the  situation. In my opinion therefore  on  this  third ground this contention of the appellants should be rejected.     The appeal therefore fails and is dismissed with costs.     MAHAJAN J.--This is an appeal by special leave from  the judgment  and  decree  of the High Court  of  Judicature  at Bombay  (Chagla  C.J. and Tendolkar J.)  dated  11th  March, 1948,  confirming the judgment of the said  High  Court   in its Original Jurisdiction (Bhagwati J.) dated 10th November, 1947.     The  two  questions canvassed in this  appeal  are:  (1) whether the issue of further shares by the directors was  in contravention  of  the provisions of section  105-C  of  the Indian  Companies  Act, and (2) whether this issue  was  not made  bona  fide.   Both these questions  were  answered  in favour of the respondents by the High Court.     The Bombay Life Assurance Co. Ltd., the first  defendant in the case, was incorporated in the year 398 1908 as a limited company with an authorized capital of  ten lakhs.  Five thousand four hundred and four shares had  been issued  till the year 1945 and they were paid up to  Rs.  25 each.  The second defendant is the chairman of the board  of directors  which  is comprised of defendants 2  to  9.   The company has a life fund of Rs. 230 lakhs.     In the year 1944 Sir Padampat Singhania, an  industrial- ist  of Kanpur, attracted by the soundness of this  concern, began  purchasing the shares of the company with a  view  to acquiring a controlling interest  in its  management.   Soon after competition started for the purchase of the shares  of the  company  between the Singhania group and  the  Maneklal Premchand group who were in management of this company.  The result of this competition was that shares which were  ordi-



narily  quoted at 250 went up as much as to 2,000 in  March, 1945.  A circular was issued by the directors to the  share- holders  apprising them of the activities of  the  Singhania party  and  suggesting that those who wanted to  sell  their shares should sell them in the first instance to the  chair- man.  This circular does not seem to have had much effect as the  shareholders wanted to reap the maximum  benefit  which would come to them as a result of this  competition  between two rich parties.  By the end of December, 1944, the Singha- nia  group had purchased 2,517 shares as against 2,397  held by Maneklal Premchand’s party. The Singhania group had  thus acquired  a  majority of the shares in  the  company  though these  had  not yet been transferred in their name.  On  8th January,  1945, the chairman at his own instance  and  after consulting some of the directors made an application to  the Examiner of Capital Issues for permission for a fresh  issue of  capital.  This was allowed on 20th February,  1945.   As soon  as  sanction  of the Examiner of  Capital  Issues  was obtained for increasing the capital of the company, a  meet- ing of the directors was held on 21st February, 1945, and it adopted the following resolution :--     1.   That the capital of the company be  increased  from Rs. 5,40,400 to Rs. 10,00,000 by the issue of the     399 remaining 4,596 ordinary shares of Rs. lOO each at a premium of Rs. 75 per share.     2.   That as on the existing shares of Rs. 100 each  Rs. 25 is paid up, to call Rs. 22 per, share on these new shares also.     3.   That these new.shares shall rank pari passu in  all respects  with the existing shares of the company, but  they shall  be entitled to rank for dividend as from  1st  April, 1945.     4.  That these new shares shall be offered in the  first instance by a circular to the shareholders of the company as shown on the register of members on 20th February, 1945,  in the proportion of four new shares to every five shares  held by them in the capital of the company on that date.     5.   That  in the case of any shareholder  holding  less than  five  shares or whose holding of shares shall  not  be complete multiples of five shares, then fractional  certifi- cates  shall  be issued to such shareholders in  respect  of their  rights for fraction of a share, each fractional  cer- tificate representing one-fifth of a share.     6.   That  a sum of Rs. 100 per share  (Rs.  25  towards capital and Rs. 75 for premium) shall be payable along  with application for these new shares.     7.  That all applications for shares in accordance  with this  offer (including applications for shares made  in  re- spect  of  and accompanied by  fractional  certificates  and applications for shares accompanied by a renunciation)  must be presented to and payment made at the registered office of the  company  in Bombay on or before the 10th  March,  1945. Any shareholder or person in whose favour a renunciation has been signed not applying on or before the 10th March,, 1945, in  terms of the offer shall be deemed to have  declined  to participate  in this new issue and all  fractional  certifi- cates  not  presented as required on or before 10th  March, 1945, will cease to have any validity and  will not entitle the holder to any rights.     8.  That any balance of the shares remaining out of this issue  not  applied for by the: 10th March, 1945,  shall  be disposed  of by the directors as they may consider  best  in the interests of the company. 400



    That  the draft circular to the shareholders  with  the enclosures   (form A being the form of application,  form  B form  of renunciation and form. of  fractional  certificates with  application form)  placed on the table by the  manager and actuary be approved and initialled by the chairman.     10.   That  the  manager and actuary be  and  is  hereby directed  to issue forthwith the necessary circulars to  the shareholders.     11.  That a committee consisting of the chairman and any one  of  the directors or the chairman and any  two  of  the directors  be  and are hereby appointed  to  scrutinise  the application for the new shares which may be received and  to make allotment of these new shares.................."    It  is the validity of this resolution ’that is the  sub- ject matter of the present dispute. The plaintiffs, who  are two  shareholders  of the company owing  allegiance  to  the Singhania  group,  filed the suit out of which  this  appeal arises challenging this issue of further shares, principally on two grounds, viz.  (1) that the new issue contravenes the provisions of section 105-C of the Indian Companies Act, and (2)  that the issue of shareswas not bona fide made  in  the interests or for the benefit of the first defendant company, but was resolved upon merely with the object of retaining or securing to the second defendant and his friends control  of the first defendant company.   As already stated, both these contentions  were negatived by the trial Judge and the  suit was dismissed and this decision was affirmed on appeal.     The answer to the first question depends on the  meaning to be given to the words used in section 105-C of the Indian Companies Act as to its scope. The section was introduced in the  Indian Companies Act in the year 1936.   Antecedent  to this  period  the  question of issue of new  shares  by  the directors  was dealt with by article 42 of the  Articles  of Association  given in the schedule to the  Indian  Companies Act, 1913.  The article was in these terms :--     "Subject to any directions to the contrary that. may  be given by the  resolution  sanctioning the 401 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 notice from the  company  of general  meetings  in proportion, as nearly as  the  circum- stances admit, to the amount of the existing shares to which they are entitled."     As  its language indicates, the article only applied  to cases  where the capital of the company was increased  by  a resolution  of the company.  It had no application to  cases where the directors issued further shares within the  autho- rised  limits.   The new section introduced in  1936  is  in these terms :--     "Where  the directors decide to increase the capital  of the company by the issue of further shares such shares shall be  offered  to the members in proportion  to  the  existing shares held by each member (irrespective of class) 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  re- ceipt  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."     It  qualifies  the discretion of the  directors  in  the matter of issue of capital by enjoining on them that if they decide  to issue further shares, the  existing  shareholders



should be given the first option to buy’ them. The  language employed in the section admits of three possible interpreta- tions: (1) that its scope is limited to cases where there is an  increase in the capital of the company according to  the provisions of section 50; (2) that the section covers within its  ambit  all  issue of further capital  whether  made  by increasing the nominal capital or by issuing further  shares within  the  authorised capital; (3) that  the  section  has application only to cases where the directors issue  further shares within the authorized limit.     The  learned counsel for the respondents contended  that the  Who1e intent an d purpose of ’the section was to  limit the discretion of directors in regard to the issue 402 of  further shares in those cases alone where there  was  an increase  in the nominal capital of the company by  recourse to the provisions of section 50 of the Indian Companies Act. It was argued that the phrase "increase of capital" has been employed  by  the legislature in section 50 and  some  other sections preceding section 105-C with reference only to  the nominal  capital of a company and that this  expression  had not  been  used  with reference to  the  subscribed  capital anywhere in the Act and therefore the scope of section 105-C should be limited to cases where the increase in the capital is. brought about under section 50 of the Act and new shares are  created  and issued by the directors.   In  Sircar  and Sen’s  Indian  Companies  Act, 1937 Edn.  at  page  309  the learned authors observe as follows :--     "The words ’further shares’ must be read in  conjunction with the words ’decide to increase the capital of the compa- ny.’  They must mean shares which are issued for the purpose of Increasing the capital beyond the authorized capital."     Mr.  Ghosh on Indian Company Law, 8th Edn. at  page  263 has stated as follows :--     "The  object of this new section appears to be  to  make the  salient provisions of Regulation 42 in Table A. ,  com- pulsory.  The section as drafted is liable to the  construc- tion  that  whenever the  directors decide to  increase  the capital of the company by the issue of further shares,  even if  it be a part of the authorized capital, the  new  shares must be first offered to theexisting shareholders. But  this section  should  be read in conjunction with clause  (a)  of section 50 under subsection (2) of which the directors  have no  power  to  increase the share capital  of  the  company. Therefore  it  seems that the words  ’further  shares’  mean shares. beyond the authorized capital of the company."     Whatever might be the opinion expressed by these commen- tators, the matter has to be decided on the language of  the Act  itself.  As already pointed out,. the  learned  counsel for the respondents contended that the above was the correct view  as to the scope of the. section.  The learned  counsel for  the appellants however- urged that on a  proper  inter- pretation of the.     403 section  its  scope could not be limited only  to  cases  of issue  of  further shares by creation of new shares  by  in- creasing  the nominal capital of the company, but  that  the language  employed in the section also included  within  its ambit cases where there was a further issue of shares by the directors,  within   the  authorized  capital.  The  learned counsel  laid considerable emphasis on the expression  "fur- ther  shares" used in the section and suggested  that  these words  have  been used advisedly instead of  the  expression "new  shares"  in  order to bring within the  scope  of  the section increases in the capital of a company whether within



the authorised limit or outside it.     The  third interpretation of the section  finds  support from the language employed by the legislature in the opening part  of the section, wherein it is said: "Where the  direc- tors  decide to increase the capital of the company  by  the issue  of  further shares.......  "The  directors  can  only decide to increase the capital at their own initiative  when they issue further shares out of the authorised capital.  In no other case can the directors themselves decide as to  the increase  in the capital of a company. Under section 50  the capital can only be increased by a resolution of the  compa- ny.   Once  the company has increased the  nominal  capital, then  the directors can issue shares within the  new  limit. Therefore the authority of the directors, strictly speaking, in  respect  to  the increase of capital is  limited  to  an increase within the authorised limit.  They cannot by  their own  decision increase the nominal capital of  the  company. In  view  of this language the third interpretation  of  the section seems more plausible.     The  expression "capital of a company" is  an  ambiguous phrase  and  may mean either issued  capital  or  authorized capital  according  to  the context.  It has  been  used  in different senses in various parts of the Act.  In what sense it  has  been used in this section is by no  means  an  easy matter  to decide, particularly in view Of the fact that  in spite  of  the introduction of this section  in  the  Indian Companies  Act in the year 1936, article42 still remains  as one  of the articles to be adopted by companies if  they  do not choose otherwise 404 and this refers to cases of increase in the nominal  capital of  a company.  In my opinion, for the purpose  of  deciding the  present  case it is not necessary to pronounce  on  the question  as to the precise scope of the section  because  I consider  that on any interpretation of it  the  appellants’ contention  has to be negatived. If the interpretation  sug- gested by the learned counsel for the respondents is accept- ed,  then the plaintiffs’ contention on the  first  question fails, because here there has been no increase in the  capi- tal of the company under section 50.  Conceding however  for the  sake of argument (but not deciding) that the  scope  of the  section is as it has been contended for by Sir  Noshir- wan,  the question still remains "To what extent  has  there been  a contravention of its provisions by the directors  in the  present case."  So far as I have been able to see,  the resolution passed by the directors is in accordance with the provisions  of the section and does not  injuriously  affect the shareholders or the company, and they cannot be said  to have any cause of grievance against it.  In other words,  in my  opinion, the resolution substantially complies with  the provisions  of  section 105-C of the Indian  Companies  Act. The directors offered all the new shares to the shareholders in  the ratio of 4 to 5, as the shares of the  company  were held  in  multiples of five to a larger extent than  in  any other multiple.  The result of fixing this ratio is that 272 shares remain outside the offer.  In whatever other  propor- tion the shares were offered, still a few shares were  bound to  remain unoffered. If a liberal interpretation is  placed on  the section, then it has to be held that the  directors’ resolution  substantially complies with its  provisions.  On the other hand, if a technical and literal interpretation is placed  on  the section, then the directors  were  bound  to offer  the shares in the ratio of 4596/5404 in spite of  the practical  difficulties  that  might result  in  the  actual working  out of such a proportion, and irrespective also  of



whatever absurdities or anomalies might thus result. I am of the  opinion  that the section has to be  given  a  workable construction  and  a construction that  is  businesslike  in preference  to a literal construction which might lead to  a deadlock. In each 405 case  it should be seen whether the directors have  substan- tially complied with the provisions of the section or not.     The  basic idea underlying the section is that  whatever is  given, is given to all the existing shareholders and  is distributed equally and equitably between them.   It  cannot be denied that all the shareholders were offered the further shares  and  that they were offered equally  and  equitably. Whatever  is the balance remains with the company  with  the result that the capital remains unincreased to this  extent. In such a situation it is  difficult to hold that the  reso- lution  passed by the directors has contravened  the  provi- sions  of  section  105-C and has caused  any  detriment  or injury either to the company or to the shareholders. Even if the  resolution  passed by the directors is held  to  be  in technical breach of the section, as it has caused no  injury to anybody, the resolution cannot be held to be void.  Under the  law as it existed prior to 1936, if a company  incorpo- rated in its Articles of Association article 42 mentioned in the  schedule to the Indian Companies Act, then in the  case of  issue of new shares the directors’ discretion  was  cur- tailed inasmuch as they were bound to offer these shares  in the  first instance in proportion as nearly as  the  circum- stances admitted to the amount of the existing shares to the existing  shareholders but in all other cases their  discre- tion  remained unfettered. It was open to a company  not  to adopt  article  42  and thus fetter the  discretion  of  the directors  even  in the case of the issue  of  new  capital. After  1936 it has been made obligatory on the directors  to give the first option to buy further shares to the  existing shareholders  and without any favour to anyone.  That  being the  intent  and purpose of the section, it has  been  fully carried out by the directors in the present instance and has been carried out in a businesslike way because the ratio  in which  they offered the shares is the ratio which  works  to the convenience of the largest number of shareholders as the shares of the company are held mostly in multiples of  five. If  the  shares were issued in any other ratio,  that  would have created some difficulty in the way of shareholders  who held shares in multiples of five and who owned 2,110 406 shares.  They would have been obliged to  collect  fractions before  they  could  claim a whole share and  thus  make  an application within the time allowed to exercise the  option. Where the language of a statute in its Ordinary meaning  and grammatical construction leads     manifest contradiction of the apparent purpose of the enactment, or to some  inconven- ience  or absurdity, hardship or injustice,  presumably  not intended,  a construction may be put upon it which  modifies the  meaning  of the words, and even the  structure  of  the sencence.  In  my opinion, the section when  it  says  "such shares shall be offered to the members" should be  construed liberally and not literally, as such an interpretation would make   the section workable and would not in any way  affect its  intent  and purpose, the phrase "such  shares"  meaning those shares which admit of being so offered in a  business- like way.     It  was  argued  that a liberal  interpretation  of  the section would result in the directors allotting the  balance of  shares remaining out of the further shares unoffered  to



their own friends and relations and it would operate to  the detriment  of  the other shareholders.  In  this  connection reference  was made to para 8 of the resolution  above  men- tioned.  In my opinion this paragraph does not bear out  the contention  of the appellants because it has reference  only to shares not applied for, obviously shares not offered  and which could not be taken up by the shareholders cannot  fall under that description. That paragraph applies only to cases where  the shares could be applied for and then no  applica- tion was made in respect of them.  It was not disputed  that the directors in the present case had not sold these  shares to  any one and that these have remained unissued.   It  was urged  strongly  by the learned counsel for  the  appellants that  the  section being imperative and its  language  being unambiguous,  the Court was bound to place a literal  inter- pretation  on it and the argument of hardship  or  inconven- ience  should  not weigh with it. It was  further  suggested that  the directors could always give effect to  the  provi- sions  of the section by increasing the capital in a  manner and to the extent that the further shares 407 could  be offered to the shareholders in such  a  proportion that all the shares offered could be taken up them. In other words,  it was contended that the section not  only  fetters the powers of the directors in the matter of sale of  shares but  it  also restricts their discretion in  the  matter  of increase of capital and as to the number of further  shares. This  contention, if accepted, would mean that the  legisla- ture  by enacting section 105-C indirectly enjoined  on  the directors  that whenever they decide to increase capital  by issue  of further shares they should make the increase  only to such an extent and in a manner as to enable the  existing shareholders  to  take  the whole of it.  If  that  was  the intention  of the section, there was nothing easier for  the legislature  to  say so.  The section, on  the  other  hand, recognizes  that  the  directors have a  discretion  in  the matter  of the increase of capital when it says,  "when  the directors  decide to increase the capital of a company."  It means  that it is within their absolute discretion  to  take the decision whether to increase the capital or not.  It  is also  within  their discretion to say to what limit  and  to what  extent they will increase the capital. It is also  for them  to decide how many shares and of what value they  will issue.  Once they have taken their decision, it is then  and then only that section 105-C comes into operation.  At  that stage they have to offer the new shares to the  shareholders and  at   that stage they can offer them in  a  businesslike manner  to all of them equitably and equally and if  out  of the shares offered some cannot be taken up by the sharehold- ers  as they do not fit in the ratio in which the offer  has been  made,  the  only result is that  those  shares  remain unoffered and thus unissued.  I am therefore of the  opinion that  the learned Judges of the Court of appeal  were  right when  they held that under section 105-C the shares have  to be  offered  to the existing shareholders as nearly  as  the circumstances  would  admit and that the section has  to  be given  a businesslike construction and should  be  construed liberally  and that the charge of contravention  of  section 105-C  cannot be levelled against the directors so  long  as they have not disposed of the unoffered balance contrary to 408 the provisions of the section.  The result is that the first contention of the learned counsel stands negatived.     The next question whether the action of the directors in passing  the resolution was not bona fide seems to  be  con-



cluded by concurrent findings of fact of the Courts below to the effect that the resolution was passed because the compa- ny needed additional funds at the moment when the new  issue was  decided upon and that the issue of shares was  not  due solely  to the desire on the part of the directors  to  keep themselves in the saddle.     It  is  not  the practice of this  Court  ordinarily  to interfere  with concurrent conclusions on questions of  fact reached  in the Courts below unless those  conclusions  have been  reached on extraneous considerations or  by  violating rules  of  procedure  or by committing any  breach  of  some provision  of  law:  vide Srimati Bibhabati  Devi  v.  Kumar Ramendra Narayan Roy (1) The learned counsel for the  appel- lants while conceding. that it was not open to him to  chal- lenge concurrent findings of fact of the Courts below, urged that  the  whole  case has been looked at by  them  from  an erroneous angle.  It was contended that the Courts below had misdirected themselves in their approach to the decision  of the  issue of bona fides.  In this connection  emphasis  was laid  on the following observations in the judgment  of  the learned Chief Justice and on similar observations  occurring elsewhere :--     "In  this  particular case it is urged  and  urged  with considerable  force  that  the reason  which  actuated  the’ directors on the 21st February, 1945, in resolving to  issue new  shares  was the fear that the  Singhsnia  group,  would capture  the  company and oust the  present  directors  from their vantage point and take control of the company  itself. It  may  be that one of the factors that  weighed  with  the directors  was that consideration.  It may even be  that  it weighed  with  them a great deal. It may also  be  that  the directors selected this particular time viz. the 21st Febru- ary,  1945,  for the issue of’ these shares because  of  the impending danger of the--’ 73 I.A-. 246. 409 majority  of  shares going into the hands of  the  Singhania group  with the necessary consequences.  If, with all  that, it is established before the Court that in fact on the  21st February,  1945, the company was in need of funds, that  the funds were required for the working of the company, then the Court  will not interfere with the discretion  exercised  by the directors, because the principle is obvious that if  the new shares have been issued because the company needs funds, then  it  cannot be said that the discretion vested  in  the directors  has  been exercised not in the interests  of  the company or for the purpose of the company.  It is only  when that discretion is exercised solely for the personal ends of directors,  for their personal aggrandisement,  for  keeping themselves in power, then undoubtedly that discretion cannot be said to have been exercised for the purpose of or in  the interests of the company."     Reference  was also made to the concluding part  of  the same judgment which runs thus :--     "Undoubtedly this is a case of high finance and we  have been  given a glimpse of what high finance can be and  there is  great justification in what Mr. Amin has said as to  the manner in which some of the things were done with regard  to the  affairs  of this company. But ultimately we  must  come down  to the one short and simple question, was the  company in need of funds at the time when the directors decided upon the  issue of new shares, and in my opinion there can be  no doubt on the evidence led this case that the answer to  that question  must be in the affirmative.  If that be the  posi- tion all other considerations can be of no avail or of  very



little  avail as against this central fact in this case  and as I am satisfied as to the central fact, I would agree with the  learned  Judge who took the same view and came  to  the conclusion that the plaintiffs have 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 of and for the benefit of the company."     It was argued that the learned Judges were not right  in thinking that all other considerations were of 410 no avail and should be practically kept out of consideration once  it was established that the company needed funds.   It was  said that it having been found that at the time of  the aforesaid resolution the directors were considerably  influ- enced  by  the consideration of keeping  out  the  Singhania group  from capturing the company, and by the  consideration of  keeping  themselves in the saddle, it should  have  been held that they were acting with an ulterior motive, and that their  decision  as to the need of the company  for  further funds was vitiated by reason of the ulterior motive.     It  is convenient here to state what the  true  approach should  be to a question of this nature when it arises in  a case.   It is well settled that in exercising  their  powers whether general or special, the directors, must always  bear in  mind that they hold a fiduciary position and must  exer- cise  their  powers for the benefit of the company  and  for that  alone and that the Court can intervene to prevent  the abuse of a power whenever such abuse is held proved, but  it is  equally settled that where directors have  a  discretion and  are bona fide acting in the exercise of it, it  is  not the  habit  of the Court to interfere with them.   When  the company is in no need of further capital, directors are  not entitled to use their power of issuing shares merely for the purpose  of  maintaining  themselves and  their  friends  in management  over the affairs of the company, or  merely  for the purpose of defeating the wishes of the existing majority of shareholders.     It  appears to me that the learned Judges in  the  Court below approached the decision of this question in the  light of  the  principles stated above and the contention  of  the learned  counsel therefore does not seem right.   Where  the directors  are not chargeablefor breach of trust so  far  as the  company is concerned and where their action is for  the benefit of the company, then merely because in promoting the interests of the company they also promote their own  inter- ests. it cannot be held that they have not acted bona )fide. As  it  has been said in Hirsche v. Sims (1),  if  the  true effect of the whole evidence is that the defendants truly’ (1) (1894) A.C. 654.     411 and  reasonably believed at the time that what they did  was for  the  interest of the company, they are  not  chargeable with  dolus malus or breach of trust merely because in  pro- moting the interest of the company they were also  promoting their own, or because they afterwards sold shares at  prices which gave them large profits.  Both  the  Courts below have as fact that    to  a  certain extent in resolving to issue new shares the   directors were actuated by a fear that the Singhania   group would  capture the  company  and oust the present    directors  from  their vantage point and take control   of the company itself.   It was argued that this   motive was an ulterior motive and the exercise of   power by the directors to achieve this  objec- tive  by  the   issue of further shares was an  exercise  of power for   the purpose 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  inter- est  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  sharehold- ers  about  it.  They first   attempted 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 53 412 interest  and the needs of the company and ifs  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  en- tered as shareholders on the register of shareholders. There was no dolus malus in their mind as directors of the  compa- ny,  as affecting 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  re- sult-  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.--I 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 413 from July, 1944, shares in the company began to be purchased from  the  holders   thereof by or in the  interest  of  Sri



Padampat Singhania.  This attempt to buy up the shares on  a large scale naturally resulted in a sudden rise in the price of  the shares.  This abnormal rise in the price  could  not but  attract  the attention of the board of  directors.   On September  18, 1944, a board meeting was held at  which  the chairman  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 true 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  phenomenal rise  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.  It 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, 19,15, an  application  was submitted  by the company to the Examiner of Capital  Issues for  sanction  for a fresh issue of capital,  setting  forth several  reasons for which 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. O)  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 414 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  regis- ter  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 10, 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 contra- venes  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 restrained 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  allot- ments 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 summa- rised shortly as follows: 415 (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 securing  to  the  second defendant and his friends the control of the first defendant company," and (iii) the issue and offer of further 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  concur- rent  finding of fact has not been contested before  us  and the next contention of the appellants will have to be  exam- ined 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 plea  alto- gether.  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. 116 The  contention  of  the plaintiffs before  Bhagwati  J.  as before  us,  was that the company was not  in  need      any further capital in February, 1945, and that the directors of the company decided to issue the further capitalmerely  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 obtaining  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  sad- dle, 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 motive 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 affairs so as  to  be able  to  assume a controlling hand in  its  management  for their own purposes rather than for the benefit of the compa- ny.   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 coming to a  con- clusion  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 as to get their names put upon the  register of members.  It is clear that until the Singhania group  get their names.      417 entered  in the register of members, they are not  share  :- 1950-9501 holders but are complete strangers to the  company ,. It  has been held in Percival v. Wright(1)  that  ordinarily the  directors  are  not trustees for  individual  share  ;- holders.  Even if the directors owe some duty to the  exist- ing shareholders on the footing of there being  some fiduci- ary  relationship  between them as stated  in    some  cases [see for example In re Gresham Life Assurance Society] (,2), I  see  no cogent reason for extending 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  dnty to the Singhania group and,  therefore,  the motive  to exclude them cannot be said to be mala  fide  per se. In North-West Transportation Company, Ltd. v. Beatty (3) the Judicial Committee  observed atp. 601:    "But the constitution of the company enabled the  defend- ant  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, the  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  capi- tal,  was,  in  the circumstances, evidence  of  bad  faith. Bhagwati  J. dealt (1) L.R. (1902) 2 Ch. 421.    (2) L.R.  8



Oh. App. 446 at 0. 449.                (3) L.R. 12 A.C. 589. 418 with  the various acts of the directors relied upon  by  the plaintiffs as indicating bad faith on the part of the direc- tors  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, wasnot 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  ’or  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 estab- lishing  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  direc- tors  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 upon to issue further shares.  The issue of  further shares  served two 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  to allow the Singhania group a controlling hand in the  manage- ment  of  the affairs of the  company.   Their  apprehension evidently  was  that the Singhania group, if and  when  they became  shareholders, would use their voting power in  their own interests and to the detrimcnt of the company by utilis- ing  the life fund of the company for the purposes of  their various  other in-dustrial concerns.  I find nothing in  the evidence on 419 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 were outsiders, from acquiring a  con- trol 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 the various acts  of the directors relied upon as evidence of their mnala  fides, 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 or legitimate purposes, the fact that the directors utilised 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  mo- tives  would render the issue of further shares illegal  and void.  Tiffs leads me to a consideration of the  third  sub- head on the assumption that what I have called the addition- al motive was a bad motive.     It  is well established that directors of a company  are in a fiduciary position vis-a-vis the company and 53 420 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  detri- ment of the company, the Court will interere and prevent the directors  from  doing  so. The very basis  of  the  Court’s interference  in such a case is the existence of  the  rela- tionship  of a trustee and of cestui que trust   as  between the directors and the company.     The  first case to be referred to is that of  Fraser  v. Whalley(1).  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 existing companies in 1861 passed resolutions  authoris- ing their directors to exercise this power.  The resolutions were, however, not acted upon and the existing companies did not issue 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  con- templated  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 take 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 gener- al  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 that the directors purporting to act on the resolutions of (1) (1864)2 H. & M. 10.     421 1861,  resolved  to  issue new shares.  Suit  was  filed  on behalf  of the shareholders to restrain the  directors  from issuing  any  new shares.  On a motion for  injunction  Wood V.C. granted an interlocutory injunction.  In course of  his judgment the learned Judge observed:     "The  directors  are informed that at the  next  general meeting  they are likely to be removed, and,  therefore,  on the  very verge of a general meeting, they,  without  giving



notice  to  anyone, with this indecent  haste  and  scramble which is shewn by the times at which the meetings were held, resolve that shares are, on the faith of this obsolete power entrusted to them for a different purpose, to be issued  for the very purpose of controlling the ensuing general meeting.     I have no doubt that the Court will interfere to prevent so  gross a breach of trust.  I say nothing on the  question whether the policy advocated by the directors, or that which I  am  told is to be pursued by Savin, is the more  for  the interest  of  the company. That is a matter wholly  for  the shareholders.  I fully concur in the principle laid down  in Foss  v.  Harbortie  (2 Hare, 461) as to that,  but  if  the directors  can  clandestinely and at the last moment  use  a stale  resolution for the express purpose of preventing  the free  action of the shareholders, this Court will take  care that,  when the company cannot interfere, the Court will  do so."     It will be noticed that this decision proceeds  entirely on  the  grounds that the resolutions of 1861 on  which  the directors  purported to act were obsolete, for they had  not so long been acted upon and also because the shares  contem- plated by that resolution were not available, and that  even if  the resolutions were still effective and gave  authority to  the directors to issue new shares, the  directors  could only  do so for the purpose of acquiring shares in  the  new company  and not for the purpose of controlling the  ensuing general meeting and preventing the free action of the share- holders.   There was no evidence whatever in that case  that the issue of shares was at all for the benefit of the compa- ny.   The issue of shares in that case was not for the  pur- pose  of taking up shares in the new company for which  pur- pose alone the power could be exercised, 422 but that it was being exercised, wholly and solely for quite a  different purpose, namely, of maintaining  themselves  in office.     Punt  v.  Symons & Co. Limited (1) was a motion  for  an interim  injunction to restrain the holding of a meeting  of the  defendant  company for confirming  the  resolution  for issue  of shares.  On the evidence it was quite clear  "that these  shares  were  not issued bona fide  for  the  general advantage of the company, but that they were issued with the immediate  object of controlling the holders of the  greater number of shares in the company, and of obtaining the neces- sary  statutory  majority for passing a  special  resolution while,  at the same time, not conferring upon  the  minority the power to demand a poll." Byrne J. granted an  injunction restraining  the  defendant from  holding  the  confirmatory meeting and observed:     "1  am  quite satisfied that the  meaning,  object,  and intention  of  the issue of these shares was to  enable  the shareholders holding the smaller amount of shares to control the holders of a very considerable majority. A power of  the kind  exercised by the directors in this case, is one  which must be exercised for the benefit of the company;  primarily it  is given them for the purpose of enabling them to  raise capital  when  required  for the purposes  of  the  company. There  may  be occasions when the directors may  fairly  and properly  issue shares in the case of a company  constituted like the present for other reasons.  For instance, it  would not  be at all an unreasonable thing to create a  sufficient number  of  shareholders to enable statutory  powers  to  be exercised,  but  when I find a limited issue  of  shares  to persons  who are obviously meant and intended to secure  the necessary statutory majority in a particular interest, I  do



not  think  that  is a fair and bona fide  exercise  of  the power."     The  learned Judge concluded with the  following  words: "If  I find as I do that shares have been issued  under  the general and fiduciary power of the directors for the express purpose  of acquiring an unfair majority (1) L.R.  [1903]  2 Ch. 506. 423 for the purpose of altering the rights of parties under  the articles, I think I ought to interfere."     Piercy  v. S. Mi1Is & Co. Ltd. (1) was a witness  action before  Peterson  J.   It was indeed a gross  case.  On  the evidence  Peterson J. found that it was manifest  "that  the shares  were allotted simply and solely for the  purpose  of retaining  control in the hands of the existing  directors." After stating the facts, the learned Judge said:     "The question is whether the directors were justified in acting as they did, or whether their conduct was a breach of the  fiduciary powers which they possessed under  the  arti- cles.   What they did in fact was to-override the wishes  of the holders of the majority of the shares of the company for the  time being by the issue of fresh shares  issued  solely for that purpose."     Then  after  referring  to Fraser v.  Whalley  and  Punt v.Symons & Co. Ltd. (supra),  the learned Judge concluded:     "The  basis  of  both cases is, as  I  understand,  that directors  are not entitled to use their powers  of  issuing shares merely’ for the purpose of maintaining their  control or  the  control of themselves and their  friends  over  the affairs  of  the  company, or merely  for  the  purpose   of defeating   the   wishes of the existing        majority  of shareholders.  That is however, exactly what has happened in the present case.  With the merits of the dispute as between the directors and the plaintiff I have no concern  whatever. The plaintiff and his friends held a majority of the  shares of  the  company, and they were entitled,  so long  as  that majority remained, to have their views prevail in accordance with  the regulations of the company, and it was not, in  my opinion, open to the directors, for the purpose of  convert- ing  a minority into a majority, and solely for the  purpose of  defeating the wishes of the existing majority, to  issue the shares which are in dispute in the present action."     In  the  result, the shares allotted to  the  defendants were declared void. (1) L.R. [1920] 1 Ch. 77. 424     It  will be noticed that in each of the three cases  the act  of the directors was not only not of advantage  to  the company  but was in essence to its detriment in that it  was calculated to reduce the existing majority into minority and to  prevent the majority of the existing  shareholders  from exercising  their discretion with respect to what they  con- ceived  to  be in the best interests of the  company.  Those cases  were  not cases of mixed motives at  all.   The  only motive  operating in those cases in the minds of the  direc- tors was detrimental to the interests of existing sharehold- ers and, therefore, to the company itself. Our attention was drawn  to Palmer’s Company Law, 18th Edition, p. 183,  where it  is  stated  that "in exercising  their  powers,  whether general or special, directors must always bear in mind  that they  are in a fiduciary position, and must  exercise  their powers for the benefit of the company, and for that  alone." Relying on the words "and for that alone," it is urged  that the  power  to  issue shares must be  exercised  wholly  and solely  for the benefit of the company, that there must  not



be  any  other motive whether or not that  other  motive  is injurious to the company and that if that power is exercised for that purpose and also for some other purpose then  irre- spective  of the nature of that other purpose the  directors would  be guilty of an abuse of their power.  I am not  pre- pared to read the passage in the way urged by learned  coun- sel  for  the plaintiffs.  None of the cases cited  on  that point  in  Palmer’s  Company Law was  concerned  with  mixed motives at all.  In none of them was there any motive  bene- ficial  to the company or to the existing shareholders.   In my  view what that passage means is that the power  must  be exercised for the benefit of the company and that as between the directors and the company there must be no other  motive which  may operate to the detriment of the company.  If  the directors exercise the power for the benefit of the  company and at the same time they have a subsidiary motive which  in no way affects the company or its interests or the  existing shareholders  then  the very basis of  interference  of  the Court  is absent, for, as I have pointed out, the  Court  of equity only intervenes in order     425 to  prevent a breach of trust on the part of  the  directors and to protect the cestui que trust, namely the company  and possibly  the  existing  shareholders.  If  as  between  the directors  and  the  company and the  existing  shareholders there  is  no breach of trust or bad faith there can  be  no occasion  for the exercise of the equitable jurisdiction  of the  Court.   I find support for my views in  the  following observations of their Lordships of the Judicial Committee in Hirsche v. Sims(1):     "If  the true effect of the whole evidence is, that  the defendants  truly and reasonably believed at the  time  that what they did was for the interest of the company, they  are not chargeable with dolus malus or breach  of  trust  merely because  in promoting the interest of the company they  were also  promoting their own, or because they  afterwards  sold shares at prices which gave them large profits."     On the facts of this case the concurrent finding is that the  company was in need of funds and, therefore, the  issue of further shares was clearly necessary and is referable  to such need.  The further motive of keeping out the  Singhania group, who are not yet shareholders but are strangers,  does not prejudicially affect the company or the existing  share- holders  and  the  presence of such  further  motive  cannot vitiate  the good motive of finding the necessary funds  for the  company.  In my judgment it is impossible to hold  that the issue of fresh shares was, in the circumstances, illegal or void.     Re  (iii):--Learned   counsel    for   the    plaintiffs contends that both the Courts below were in error in holding that  there has been no contravention of the  provisions  of section 105-C of the Indian Companies Act.  That section  is in the following terms :--     "Where  the directors decide to increase the capital  of the company by the issue of further shares such shares shall be  offered  to the members in proportion  to  the  existing shares held by each member (irrespective of class) 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 (1) [1894] A.C. 654, at pp. 660-661. 426 not  accepted, will be deemed to be declined; and after  the expiration  of  such  time, or on receipt of  an  intimation from  the  member to whom such notice is given that  he  de-



clines  to  accept  the shares offered,  the  directors  may dispose of the same in such manner as they think most  bene- ficial to the company."     This  section was added to the Indian  Companies Act  in 1936.     The  first question is whether the section  contemplates increase  of  capital above the authorised  limit,  or  only below the authorised limit. Learned Attorney General appear- ing for the company urges that the words     further  shares"  must be read in conjunction  with  the words  "decide to increase the capital of the company"  and, so  read, must mean shares which are issued for the  purpose of  increasing  the capital beyond the  authorised  capital. He  contends that section 105-C has no application  to  this case. Section 50 deals with, among other things,  alteration of  the conditions of the Memorandum of Association  of  the company by increasing its share capital by the issue of  new shares. The very idea of alteration of the memorandum by the issue  of new shares clearly indicates that it  contemplates an increase of the share capital above the authorised  capi- tal  with  which the company got  itself  registered.   This increase can only be done by the company in a general  meet- ing  as  provided in sub-section (2) of section  50.    This increase above’ the authorised limit cannot possibly be done by  the  directors on their  own  responsibility.    Section 105-C,  however, speaks of increase of capital by the  issue of further shares. The words used are capital and not  share capital and further shares and not new shares.  It speaks of increase  by  the directors.  Therefore,  the  section  only contemplates  such  increase  of capital as  is  within  the competence  of  the directors to decide  upon.   It  clearly follows  from this that the section is intended to  cover  a case where the directors decide to  increase the capital  by issuing  further shares within the authorised limit, for  it is  only within that limit that the directors can decide  to issue  further shares, unless they are precluded from  doing even that by the regulations of     427 the company.  It is said that section 105-C becomes applica- ble after the company in a general meeting has decided  upon altering   its memorandum  by  increasing its share  capital by  issuing new shares. If the company at a general  meeting has  decided upon  the  increase  of its share  capital   by the issue of new shares, then it is wholly inappropriate  to talk   of  the  directors  deciding  to   increase  capital, because   the  increase has  already  been decided  upon  by the  company  itself.  Further, after the company has  at  a general meeting decided to increase its share capital by the issue  of  new  shares, the increased  capital  becomes  its authorised  capital and then ii the directors under  section 105-C decide to increase the capital by the issue of further shares,  then this decision is nothing more than a  decision to raise capital  within the  newly authorised limit. Final- ly, if section 105-C were to be held applicable to the  case of  an increase of capital above the authorised  limit  then such  construction will lead to anomalous results so far  as the companies which have adopted Table A, for the section is not  consonant with Regulation 42 of Table A which, as  will be  shown hereafter, applies to increase of  capital  beyond the  authorised  limit.  If the  Legislature  intended  that section 105-C should apply to all companies in the matter of increase  of  capital above the authorised limit,  then  the simplest  thing  would  have been to make  Regulation  42  a compulsory  regulation,  instead of  introducing  a  section which  in  its terms differs from Regulation  42  and  which



therefore makes the position of companies which have adopted Table A anomalous.  It appears to me, therefore, for reasons stated  above,  that section 105-C becomes  applicable  only when  the  directors decide to increase capital  within  the authorised  limit  by the issue of further shares.  In  this view of the matter that section is clearly applicable to the facts of this case.     The next question is whether the directors have, in  the matter of issuing and offering further shares in the present case, been guilty of any contravention of the provisions  of this section.  Learned counsel for 54 428 the  plaintiffs contends that they have, because  they  have not  offered the whole lot of shares to the shareholders  in proportion  to  the  existing shares held by  them.   It  is pointed  out  that although the directors decided  to  issue 4,596  further shares they have only offered four shares  to every  five shares held by the shareholders which works  out at  4,323 1/5 shares which leaves  272 4/5  shares   in  the hands  of the directors which they have reserved power  unto themselves  to dispose of in such manner as they think  fit. Learned  Attorney-General appearing  for  the  company  sub- mits:      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 the 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 429 the  authorised limit it could only be done by the  company. 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 98. 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 proprtion  to  the existing shares held by  them,  and  such offer  shall  be  made by notice specilying  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  of- fered, 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 "Altera- tion of Capital" are to be found three corresponding Regula- tions 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 circmustances admit,.  to  the amount  of the existing shares to which they  are  entitled. The  offer shall be made by notice 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 intima- tion  from  the  person to whom the offer is  made  that  he declines  to  acccpt the shares offered, the  directors  may dispose 430 of the same in such manner as they think most beneficial  to the  company.  The directors may likewise so dispose of  any new  shares  which  (by reason of the ratio  which  the  new shares  bear to shares held by persons entitled to an  offer of new shares) cannot, in the opinion 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  in- crease  of  capital which is within the  competency  of  the directors to decide upon. In that kind of increase of  capi- tal 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  resolu- tion 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 105C 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. The legislature had before it both Regulation 27 of Table 431 A  of 1882 and Regulation 42 of Table A of the Act of  1913. It  chose to adopt the language of Regulation 27 in  prefer- ence 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  them- selves 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 obviously 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  con- ceive  to be the underlying 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 grammatically 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 432 interpreting the section may introduce words to give  effect to what it conceives to be the true intention of the  legis- lature.   It is not any and every inconvenience that  justi- fies  adoption  of this extreme rule of  construction.   The section  literally  construed is quite inteligible  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  autho- rised 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 ]earned  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 shareholders in  propor- tion 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. 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 remain 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 in any manner they please before offer- ing 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., with.out offering them to  the   share- holders, 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 share- holders  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 contra- vention 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 prematurely.     For  the reasons stated above, I am clearly  of  opinion that the conclusions of the Courts below were 434 right  and no ground has been made out for interfering  with the  same.   The result, therefore, is that this  appeal  is dismissed with costs.     MUKHERJEA  J.--I agree that this appeal should  be  dis- missed and I concur substantially in the reasons which  have been  given  by my learned brother Mr. Justice  Das  in  his judgment. Appear dismissed. Agent for the Appellants: S.P. Varma. Agent for the Respondents: Rajinder Narain.     435