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Judgment
Mrs. Sujata Manohar, J.—This group of six appeals is filed against an order and judgment of a learned single judge dated January 13, 1988, in Company Petition No. 476 of 1986, as also against an order of the learned single judge dated March 30, 1988, in two Company Applications Nos. 93 of 1988 and 110 of 1988 in Company Petition No. 476 of 1986.
Company Petition No. 476 of 1986 was filed by Shanta Genevieve Pommeret Parulekar and Claude-Lila Parulekar (hereinafter called "the original petitioners") against Sakal Papers Private Limited and various other respondents as set out in that petition praying for the rectification of the register of members of the first respondent company in the following manner :
(i) The names of the original respondents Nos. 5, 6, 8, 11, 12, 13 and 14 (hereinafter referred to as "the purchasers") be removed from the register of members of the first respondent company in respect of the 3,417 shares belonging to the estate of Dr. N. B. Parulekar and 93 shares belonging to the third respondent;
(ii) the names of the respondents Nos. 11, 12, 13, 15 and 16 be removed from the register of members of the first respondent company in respect of 17,666 shares and for other ancillary reliefs.
The learned single judge, who heard the petition by his judgment and order dated January 13, 1988, has allowed the petition. He has however, directed the second petitioner to bring into the court a sum of Rs. 80,73,000 within a period of six weeks. He has clarified that his order shall become operative on this amount being deposited in the court within the stipulated period. If the amount is not deposited, the petition is dismissed. On such amount being deposited, he has directed the first respondent company to comply with the directions under prayers (a) and (b) and he has directed respondents Nos. 5, 6, 8, 11, 12, 13, 14, 15 and 16 to comply with the orders and directions under prayers (c) and (d). He has also directed respondent No. 1 company to pay back to respondents Nos. 11, 12, 13, 15 and 16 a sum of Rs. 17,66,600 in respect of the 17,666 shares returned to the company as per prayer (b) and directed that the 17,666 shares shall remain in the custody of the first respondent company till such time as the board of directors, as reconstituted after rectification, decides the price and the parties to whom these shares should be allotted. He has also given certain other directions. The petitioners did not deposit in the court the said sum of Rs. 80,73,000 within the stipulated period. They applied for extension of time by taking out Company Applications Nos. 93 of 1988 and 110 of 1988. These applications have been rejected by the learned single judge by his judgment and order dated March 30, 1988. The present appeals are filed by various parties in respect of these two judgments and orders of the learned single judge.
Appeal No. 742 of 1988 is an appeal filed by the original petitioners against the judgment of the learned single judge dated January 13, 1988, conditionally allowing the main Company Petition No. 476 of 1986. Appeal No. 655 of 1988 is filed by the executors and trustees of the will of Dr. Parulekar against certain findings given by the learned single judge against them in his judgment and order dated January 13, 1988. Appeal No. 711 of 1988 is filed by the purchasers of the 3,417 shares sold by the executors and trustees under the will of Dr. Parulekar as also of 93 personal shares of some of the executors sold by them, against the findings given by the learned single judge in his judgment and order of January 13, 1988. Appeal No. 710 of 1988 is another appeal filed by these purchasers against certain findings given by the learned single judge in his order dated March 30, 1988, dismissing the company applications for extension of time. Appeal No. 1214 of 1988 is an appeal filed by the first respondent company against the findings given by the learned single judge against it in his judgment dated January 13, 1988, while Appeal No. 1032 of 1988 is another appeal filed by the first respondent company against the findings given by the learned single judge against the company in his judgment rejecting the application for extension of time.
Facts :
In order to appreciate the contentions raised by the parties in these appeals it is necessary to examine the relevant facts. The first petitioner in Company Petition No. 476 of 1986 is the widow of Dr. Parulekar who died on or about January 8, 1973. Dr. Parulekar was the founder of the first respondent company. The first petitioner is a shareholder and a permanent director of the first respondent company. The second petitioner is the daughter of Dr. N. B. Parulekar and the first petitioner. She is also shareholder of the first respondent company. The first respondent company was incorporated in 1948. It carries on the business of publishing a newspaper called Sakal from Pune, Bombay and Kolhapur. Dr. (Mrs.) Banoo J. Coyaji, Jasvantlal Matubhai and Arun Jasvantlal are respondents Nos. 2, 3 and 4. These respondents and the first petitioner are the executors of the last will and testament of Dr. N. B. Parulekar. The original fifth respondent is the managing director of the first respondent company. The other respondents are the current shareholders and/or directors of the first respondent company. The tenth respondent is the chairman of the first respondent company.
The authorised share capital of the first respondent company is Rs. 25 lakhs consisting of 25,000 equity shares of the face value of Rs. 100 each. The issued share capital of the first respondent company, however, was only 7,334 shares of the face value of Rs. 100 each prior to November, 1985. Disputes in Company Petition No. 476 of 1986 relate to the 3,417 shares of the deceased, Dr. Parulekar, which were held in trust by the executors of the will of Dr. Parulekar at the material time and the 93 shares then held by original respondents Nos. 3 and 4 jointly in their own right.
As on September 21, 1985, the shareholding of the first respondent company was as follows :
Shares First petitioner 560 Second petitioner 1,172 Second respondent 750 Third respondent 93 Executors of the will of the deceased 3,417 The trustees of Lila Trust 1,317 Image Advertising and Marketing Pvt. Ltd. 25 making a total of 7,334 shares. The two petitioners had thus 23 per cent. of the shares of the first respondent company as of this date.
Under article 57A of the articles of association of the first respondent company, it is provided as follows :
"57A. In the event any member of the company desires to transfer his shares he shall be bound to offer the same either to Dr. N. B. Parulekar or to Madam Shanta Parulekar or such other person or persons as Dr. N. B. Parulekar or Madam Shanta Parulekar may direct or may nominate and in which event the transferee or transferees shall pay such price as may be certified by the auditors of the company."
Article 58 further provides that subject to article 57A no shares shall be transferred so long as any member or any person selected by the directors as one whom it is desirable, in the interest of the company, to admit to membership, is willing to purchase the same at the fair value as mentioned in article 61. Under article 61, in ease any difference arises between the transferor and the purchaser as to the fair value of a share, the auditors of the company shall certify-in writing the sum which, in their opinion, is the fair value and the same shall be binding on the transferor and the purchaser.
Under the terms of the will of Dr. Parulekar, 3,417 shares in the first respondent company which formed a part of Dr. Parulekar''s residuary estate, were directed to be held on trust by the executors/trustees :
"(1) for the spread of education through newspapers, magazines and periodicals;
(2) for effecting improvement of the qualify and standard of journalism and training of personnel in journalism;
(3) for purchase of shares of concerns, firms, companies or from person or persons interested in or concerned with newspapers, magazines, periodicals and otherwise in journalism;
(4) for publication of books and literature for the masses at low and reasonable prices; and
(5) for such other objects and acts that may be necessary to bring about improvement of information amongst the masses ..."
The will directed that the above trust shall be known as the "Sakal Papers Trust".
The executors of the will of Dr. Parulekar gave a notice dated November 18, 1984, of a meeting of the executors to be held on November 27, 1984, for the purpose of passing resolutions to enable the executors holding 3,417 shares of the first respondent company to sell these shares at or for the price of Rs. 2,250 per share (which was the offer then received by the executors) or at such price as may be realised under article 61 of the articles of association of the company. The second resolution which was proposed was to the effect that the executors had given a notice to the first petitioner under article 57A for the sale of these shares. In the event of the first petitioner (being a party named under article 57A) exercising her rights under article 57A, the executors do sell the shares to her at the above mentioned price. The resolution further stated that if the first petitioner exercised her rights under article 57A, but did not agree to the aforesaid price, then the sale should take place at a price to be fixed in accordance with article 61. Lastly, it was proposed that if the first petitioner did not exercise her rights and did not buy the shares at a price fixed under article 61, then the executors shall sell the shares to any other person or persons at or for the price of Rs. 2,250 per share.
A notice of the meeting containing the above agenda was served on all the executors including the first petitioner. Thereupon, the second petitioner wrote a letter dated November 27, 1984, to the third respondent stating that the first petitioner would not be able to attend the meeting convened on November 27, on account of her illness. She asked for a postponement of the meeting by two weeks. This request was considered by the executors who were present at the meeting held on November 27, 1984. They felt that the meeting need not be postponed because the resolutions proposed to be moved regarding the sale of 3,417 shares of the first respondent did not jeopardise the interests of the first petitioner. They proceeded with the meeting. The proposed resolutions were thereafter passed at the meeting.
By notice dated November 29, 1984, addressed to the first petitioner, the executors of the late Dr. Parulekar gave notice to the first petitioner under article 57A of the articles of association. The notice mentioned that the executors desired to transfer the 3,417 shares of the first respondent company at the offered price of Rs. 2,250 or at a fair value that may be determined by the auditors under article 61. The notice further stated that if the petitioner chose not to exercise her rights under article 57A or was not willing to pay the fair price as may be fixed by the auditors, the executors would be free to sell the same to any other person in accordance with the articles.
The first petitioner, by her letter dated December 14, 1984, accepted the offer made on behalf of the executors. She agreed to purchase the 3,417 shares at a price as may be certified by the company''s auditors. She nominated her daughter, the second petitioner, as a nominee under article 57A for the purchase of these shares.
Similarly, a notice dated November 10, 1984, was given to the first petitioner as well as the board of directors of the first respondent company by respondents Nos. 3 and 4 in respect of the 93 shares held by them in the first respondent company, offering to sell these shares to the first petitioner.
Thereupon, the first respondent company gave a notice to all its shareholders to the effect that the said 3,417 shares as also the 93 shares of respondents Nos. 3 and 4 were proposed to be sold by these persons. Under article 57A, an offer had been made to the first petitioner for the purchase of these 3,417 plus 93 shares and the first petitioner had been given time till December 15, 1984, for indicating her intention. The notice further stated that the board of directors had resolved that in the event of the first petitioner not exercising her rights under article 57A, it had been decided to sell the said shares to the existing shareholders of the company. In accordance with the articles of association of the first respondent company, each shareholder was, therefore, asked to send his or her reply to the company by December 28, 1984, as to whether he/she was willing to purchase the said shares in toto in accordance with the articles of association.
As the first petitioner and/or her nominee agreed to purchase the said shares at a price certified by the auditors of the company, the matter was referred to the company''s auditors, G. M. Oka and Co., for determining the fair value of the shares.
The auditors, by their letter dated January 28, 1985, asked the first petitioner whether she wished to submit any information for the purpose of determining the fair value of these shares. She was requested to make her written submission within seven days. At the request of the first petitioner, this time was extended up to February 20, 1985. On February 20, 1985, however, she wrote to the auditors saying that the auditor''s request to make a written submission was premature. The auditors should have prepared a draft report of the valuation of these shares along with the draft certificate and sent it to her for her submissions. This letter is dated February 20, 1985. It is not clear when this letter was received by the auditors. In any event, the auditors issued a certificate dated February 21, 1985, under article 59A of the articles of association certifying that the price to be paid for the transfer of 93 shares was Rs. 2,10,273 and for 3,417 shares was Rs. 77,25,857. The price was calculated at the rate of Rs. 2,160 per share. The petitioners protested against this valuation contending, inter alia, that an adequate opportunity was not given to them for making submissions and there was denial of natural justice. They also challenged the fair value as fixed by the auditors.
They filed a suit on March 2, 1985, in the court of the Civil Judge, Junior Division, Pune, being Suit No. 624 of 1985 for a permanent injunction restraining the executors, that is to say, respondents Nos. 2, 3 and 4, from selling the said shares to any one other than the petitioners. No interim order, however, was granted in this suit. Thereafter, on September 9, 1985, the executors sold and transferred 3,417 shares to respondents Nos. 8, 11, 12, 13 and 14 for the price of Rs. 78,59,100. The price was arrived at on the basis of each share being valued at Rs. 2,300. The third and the fourth respondents also sold their 93 shares at the same price to respondents Nos. 5 and 6. Thus, the shares actually fetched a higher price than that fixed by the auditors.
On September 20, 1985, the transfer forms in respect of the 3,417 and 93 shares were lodged with the first respondent company. At the meeting of the board of directors of the first respondent company held on November 21, 1985, the transfer of these shares was approved. The board of directors resolved to register these shares in the names of the transferees. At this meeting, respondent No. 3 ceased to be the chairman and director of the company and respondent No. 2 was appointed as chairman of the board in his place. Respondents Nos. 5 and 10 were appointed as additional directors of the first respondent company. Notice of this board meeting was sent to the petitioners. The petitioners attended the board meeting. But they walked out after protesting against the insufficiency of notice of the board meeting. The item relating to the transfer of these shares was not shown on the agenda of the board meeting. This business appears to have been transacted under the heading "any other business".
Prior thereto, at the annual general meeting of the company held on November 16, 1985, a resolution was passed to increase the issued share capital of the company from Rs. 7,33,400 to Rs. 25 lakhs. The resolution also authorised the board of directors to allot and issue 17,160 new shares at par to any person, whether a member of the company or not. Once again the agenda of the annual general meeting did not show that any new shares were proposed to be issued or allotted. Hence, at the annual general meeting it was resolved that in view of the lack of notice for the resolution, the resolution should be ratified at an extraordinary general meeting to be convened for this purpose. This has been done. These resolutions for issuing fresh shares were carried by a majority of votes. 4,260 votes were cast for the resolutions and 3,104 against the resolutions. At the board meeting held immediately after this annual general meeting, the board resolved to issue additional 17,666 shares at par to respondents Nos. 11, 12, 13, 15 and 16.
As a result, the purchasers and/or allottees who are admittedly controlled by respondent No. 5 have now a substantial holding in the first respondent company. They together hold 21,926 shares out of 25,000 shares of the first respondent company.
Thereafter, at a meeting of the board of directors held on February 22, 1986, the fifth respondent was appointed as the joint managing director of the first respondent company. At this meeting it was also proposed to appoint the second petitioner as a joint managing director along with respondent No. 5. The second petitioner declined to accept the offer. The board, however, decided to keep this offer for consideration at the next annual general meeting of the company. Although the petitioner had initially declined to act as joint managing director, she ultimately accepted the arrangement and she was appointed as joint managing director. Although she assumed duties as joint managing director, she has not so far signed the requisite agreement relating to her appointment.
Company petition No. 476 of 1986 :
The petitioners filed the present company petition on August 28, 1986, challenging the transfer of 3,417 shares and the issuance of 17,666 new shares. The petition is filed u/s 155 of the Companies Act. u/s 155, "if the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register is, without sufficient cause, omitted therefrom, ...... the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register." Under sub-section (3), on an application under this section, the court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register. The court also has the power to generally decide any question which it is necessary or expedient to decide in connection with the application for rectification.
Transfer of 3,417 shares :
The first challenge of the petitioners relates to the transfer forms which have been signed by the executors respect of 3,417 shares transferred by them. In the share transfer form, the four executors, namely, the first petitioner and respondents Nos. 2, 3 and 4 are shown as transferors. The transfer forms, however, are only signed by three out of four executors, namely, respondents Nos. 2, 3 and 4. The petitioners contend that as the fourth transferor has not signed the transfer forms, these transfers are bad in law and ought not to have been registered. The executors rely upon the fact that under the terms of the will, the executors have the like powers which are contained in the declaration of trust dated June 28, 1972, and the deed of settlement dated July 31, 1972. Under them, the trustees are entitled to act by majority. The petitioners further submit that the executors of the trust have, at their meeting of November 27, 1984, passed a resolution to the effect that any one of the executors may be authorised to implement the resolution and also to take steps to execute the transfer forms and complete the transaction of sale. According to the executors, therefore, three of the executors can sign the transfer forms for the purpose of validly transferring the said shares to the transferees.
Now, it is true that the transfer forms do not have an endorsement to the effect that the three executors have signed on behalf of all the executors. Nor does the transfer form state that the form is signed by the three executors pursuant to the authority given to them under a resolution passed at their meeting held on November 27, 1984. But the fact remains that in new of the terms of the said will, read with the deeds of trust referred to therein, the trustees, for the purpose of selling these shares and for conducting any other business, were entitled to act by a majority. The trustees had, therefore, the power to sell these shares on the basis of a decision taken by the majority of trustees. The trustees have also passed a resolution authorising any one of them to execute the transfer forms for the purpose of implementing their resolution to sell the said shares. It is, therefore, not necessary for all the trustees to sign the transfer forms.
u/s 108 of the Companies Act, a company shall not register a transfer of shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with the certificate relating to the shares. In the present case, the transfer form is signed by three transferors. Under the resolution of the trustees/executors any one of the executors was entitled to sign the transfer forms. Hence, the three executors who have signed the transfer forms have done so as transferors in valid exercise of the power under the said resolution. At the highest, the only defect is that they have not stated that they have signed the transfer forms on behalf of all the executors or in exercise of their authority under the said resolution. This, in our view, is, at the highest, only an irregularity which can be easily corrected by the transferors. In these circumstances, it would be futile to invalidate the registration of transfer of these shares when the transferors can immediately submit fresh transfer forms signed by them on behalf of all the transferors. As set out in the case of Killick Nixon Ltd. v. Dhanraj Mills P. Ltd. [1983] 54 Comp Cas 432 (a judgment to which one of us was a party), the court should not accept any invitation to indulge in a futile exercise u/s 155. The provisions of this section are not meant for correcting procedural errors.
In the case of Bentley-Stevens v. Jones [1974] 2 All ER 653, there were irregularities in convening an extraordinary general meeting of the company at which the plaintiff was removed as a director. The court held that it would not grant an interlocutory injunction in respect of the irregularities which could be cured by going through the proper processes. If, for example, the proceedings that followed the board meeting were invalid because proper notice had not been given, the invalidity could be cured by the giving of a valid notice. The Chancery Court cited with approval the pronouncement of Lindley L.J. in Browne v. La Trinidad [1887] 37 Ch 1 :
"I think it is most important that the court should hold fast to the rule upon which it has always acted, not to interfere for the purpose of forcing companies to conduct their business according to the strictest rules, where the irregularity complained of can be set right at any moment."
Applying the same principles here, the irregularity, if any, in signing transfer forms can be easily set right by the trustees signing the transfer forms under the authority given to them under the resolution passed at the meeting of executors and trustees referred to earlier.
Trustees'' power to act by a majority :
It was submitted, on behalf of the petitioners by Mr. S. J. Shah, that the majority cannot ride roughshod over a minority. Even when the trustees have the authority to act by majority, their decision has to be taken only after discussion with the minority. In support he cited the case of Fakira Krishnaji v. Ganpat Sakharam, AIR 1954 Nag 92. A learned single judge of this court, in that case, observed that the majority decision, in order to be binding on the entire body of the trustees, should have been arrived at after due deliberation by all the trustees. Where it was an act of the majority alone it will not be binding on the minority. The ratio of this judgment does not apply to the present case. Because the notice of the meeting of the executors/trustees was sent to the first petitioner also. The notice clearly set out the purpose for which the meeting had been called. The first petitioner was, therefore, aware of the reason for convening the meeting. She had returned to the house from hospital at the time when the meeting was called. Her stand on the subject under discussion was also familiar to all the trustees. In fact, even now she has not challenged the decision taken by the majority of executors at this meeting to offer the 3,417 shares for sale. Nor has she challenged the consequential decision taken by the majority to offer the shares to her in view of the provisions of article 57A of the articles of association of the company. There is, therefore, no question of the first petitioner contending that the majority decision of the trustees is not binding on her. In fact, she has acted on the decision by accepting the shares offered to her at a valuation to be fixed by the auditors.
Offer to other shareholders :
It has also been contended that the offer made to all the other share-holders of the company in the event of the petitioners not exercising their right under article 7A, is defective. This contention also cannot be accepted. The company did inform all its shareholders that the trustees were proposing to sell the shares in question and that, in the event of the petitioners not exercising their right under article 57A, the shares would be available for punch see by the other shareholders. None of the other shareholders showed any interest in purchasing these shares. It was submitted before us that the second petitioner beings a shareholder, could have purchased these shares in her own right even if she had declined to purchase these shares as a nominee of the first petitioner under article 57A. There is, however, no material before us which would indicate that she had, at any time, informed the company that she proposed to exercise her rights as a shareholder to purchase these shares. Throughout, even in various litigations which are pending, her claim has been to enforce her rights under article 57A as a nominee of the first petitioner. There is, therefore, no basis for the submission that the second petitioner had exercised her rights as an ordinary shareholder to purchase these shares.
Valuation by the auditors
It is contended by Mr. S. J. Shah, learned counsel for the petitioners, that the petitioners were not bound by the valuation of these shares made by the auditors because the valuation was not fair. Under article 61 of the articles of association the auditors are required to certify in writing what, in their opinion, is the fair value of the shares in case there is any difference between the transferor and the purchaser as to the fair value of a share. The article further provides that in fixing this fair value the auditors shall be considered as acting as an expert. As observed in Penning ton''s Company Law fifth edition, at page 817 :
"If the pre-emption clause requires the shares to be offered to the other members at a fair value certified by the directors of the company''s auditor, the court cannot enquire into the correctness of the valuation, unless there is evidence that it was not honestly made, or unless the person who made it set out the reasons for his valuation, and those reasons show that he did not apply the proper principles ... and in that situation the transferor''s only remedy is to sue the person who made the valuation for the difference between the valuation and the real value of the shares as damages in an action for negligence."
In the case of Baber v. Kenwood Manufacturing Co. Ltd. and Whinney Murray and Co. [1978] 1 LLR 175 , it is held :
"If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. If there were fraud or collusion, of course, it would be very different. Fraud or collusion unravels every-thing."
The petitioners were, therefore, bound by the valuation made by the auditors unless they can establish fraud or collusion. Otherwise, the auditor''s certificate is final and one cannot go into the question whether the valuation is fair or proper or not.
In the first place, there is no material before us which would indicate that the valuation made by the auditors was not fair. On the contrary, while the auditors valued the shares at Rs. 2,160 each, at the actual sale to the fifth respondent and the companies controlled by him, the shares fetched a higher price of Rs. 2,300 per share. We have also to bear in mind that the 3,417 shares held by the trustees as also the 93 shares held personally by some of the trustees, were sold as a controlling block of shares in the first respondent company. They would, therefore, fetch a higher price. The trustees were also duty-bound to obtain the best possible price for the shares because the sale proceeds were impressed with the public trust created by the settlor. They were, therefore, entitled to sell these shares as a controlling block of shares in the first respondent company. As a consequence they seem to have fetched a good price of Rs. 2,300. The valuation made by the auditors, therefore, in this context cannot be considered as unfair.
The petitioners have not relied upon the balance-sheets of the company or any other financial data of the company to establish that the valuation made by the auditors was unfair. The petitioners, however, contend that at a subsequent date, after having obtained control of the first respondent company, the board of directors issued an additional 17,666 shares at par. This, according to the petitioners, would indicate that the valuation made by the auditors of the company was unfair. We do not see how a fresh issue of shares at a subsequent date at par can, in any manner, affect the valuation, earlier made by the auditors of the company, of shares which were then available for sale. The board of directors are within their rights in issuing fresh shares at par. They could have even issued bonus shares. This does not mean that the earlier share valuation which was made by the auditors in respect of the shares which were sold by one group of shareholders to another was unfair. In fact we have not been shown even the balance-sheets of the company for the relevant dates in order to establish the petitioner''s claim that the valuation made by the company''s auditors was unfair. The petitioners rely upon the fact that they have made a complaint to the institution of auditors in respect of the conduct of the auditors of this company. That by itself cannot establish that the valuation was unfair.
Collusion :
The auditors, according to the petitioners, have acted in collusion with the other executors and the intending purchasers in order to deprive the petitioners of their right to purchase these shares. No particulars of such collusion and/or fraud are set out in the petition. In the absence of any particulars, this plea cannot be accepted. The petitioners seem to suggest that by valuing the shares at higher figures, the petitioners were deprived of their right to purchase these shares. Presumably, therefore, the petitioners did not exercise their right under article 57A because they did not have enough funds to purchase these shares at Rs. 2,160 per share. We do not have any necessary material to indicate what were the funds available with the petitioners, what, according to the petitioners, was the fair value of the shares and whether the funds with the petitioners were adequate for the purchase of these shares at the "fair value" as claimed by the petitioners. The entire argument is, therefore, purely hypothetical. In fact, in this situation, there appears to be a clear conflict of interests and duties as far as the petitioners are concerned. The first petitioner, as an executor/trustee under the will of her husband was duty-bound to realise the maximum possible price for the shares held by her along with the other executors so that maximum possible amount can be made available for purposes of the trust created by her deceased husband. On the other hand, as a person who was entitled to purchase these shares in exercise of her right of pre-emption under article 57A of the articles of association, she was interested in obtaining these shares at as low a price as possible. The second petitioner was only her nominee for the purpose of purchase of these shares. Both were, therefore, equally interested in purchasing these shares at as low a price as possible. The entire challenge to the valuation made by the auditors of the company indicates the interest of the petitioners in obtaining these shares at as low a price as possible. Looking at this clear conflict of interests and duties, it is doubtful, whether the petitioners, so long as the first petitioner remained an executor/trustee, could have at all purchased these shares in exercise of their rights under article 57A. In any case we have no material to arrive at any finding of fraud or collusion on the part of the auditors, or even any deliberate overvaluation.
The petitioners next contend that the other executors, namely, respondents Nos. 3 and 4, were also interested in selling their personal holding of 93 shares at a high price. Hence, they were interested in getting the auditors to make a high valuation. As earlier stated, there is no material which would indicate that the executors asked the auditors to overvalue the shares. In fact, the shares when sold fetched a higher price than that fixed by the auditors. Moreover, in the case of respondents Nos. 3 and 4, their personal interest does not conflict with their interest as trustees and executors. Both were equally interested in getting as good a price as possible for the shares. They are, therefore, not in the same position as the petitioners.
Natural justice :
The petitioners have also challenged the valuation made by the auditors on the ground that there was a denial of natural justice in determining to is valuation. According to the petitioners, the auditors should have first prepared a draft valuation giving their reasons and submitted a copy of it to the petitioners for their comment. After the petitioners were heard on this draft valuation the auditors should have finalised their valuation. In not doing so they have violated the principles of natural justice.
The entire argument is misconceived. The auditors were acting as experts, relying on their own skill and judgment in giving their valuation of shares. The question of applying the principles of natural justice in such a case does not arise. In any case they were not bound to follow the procedure as suggested by the petitioners. Moreover, before giving their valuation certificate, the auditors did ask the petitioners whether they would like to make any submissions or produce any material regarding the valuation of shares. They extended the time for this purpose at the request of the petitioners. The petitioners, however, did not avail of this opportunity and on the last day of the extended time, claimed that natural justice was denied to them because the draft valuation, etc., were not sent to them for comment. Hence, this contention of the petitioners has no merit.
Readiness an willingness of the petitioners to purchase :
It was next contended by the petitioners that the respondents have acted illegally in selling these shares to a third party when the petitioners were ready and willing to exercise their right of pre-emption under article 57A. Undoubtedly, the petitioners accepted the offer made to them under article 57A to purchase these shares. The offer was to sell these shares at a price of Rs. 2,250 per share which was the offer then received by the executors from a third party, or at a price to be determined by the auditors under article 57A. The petitioners agreed to purchase these shares at a price to be determined by the auditors. The price so fixed by the auditors was binding on the petitioners. Nevertheless, when the auditors determined the price, the petitioners challenged the price and did not agree to purchase these shares at the price fixed by the auditors. In these circumstances, the executors were free to offer the shares for sale elsewhere in accordance with the articles of the company. There is no breach of any contract on the part of the executors.
After these shares were sold by the executors to the fifth respondent and the companies controlled by him to the knowledge of the petitioners, the petitioners wrote a letter accepting the valuation made by the auditors and offered to purchase the shares at the valuation made by the auditors. This belated acceptance at a time when the petitioners were fully aware that the shares were already sold, does not appear to be genuine.
Validity of the board, meeting of November 21, 1985 :
It was next contended by the petitioners that the agenda of the meeting of the board of directors at which the transfer of these shares was accepted by the board, did not contain this item relating to the transfer of these snares. Hence, according to the petitioners, the board meeting was invalid. The petitioners, after objecting to the manner of convening the board meeting, had left the meeting. The subject-matter of transfer of shares was taken up, after the petitioners had left, under the heading "to consider any other matter with the permission of the chairman". In this connection, our attention was drawn to section 286 of the Companies Act which deals with the meetings of the board of directors. This section does not say that every item which is discussed at the board meeting must be specified on the agenda of the board meeting. In fact, the section does not refer to any agenda. The Punjab and Haryana High Court in the case of Suresh Chandra Marwaha v. Lauls Pvt. Ltd. [1978] 48 Com Cas 110 dealing with a similar situation where, at the meeting of the board of directors, some shares were transferred about which there was no mention in the agenda of the meeting, said (at page 119) : "No provision of law or the articles of association of the company has been brought to our notice obliging the board of directors to only transact that business for which agenda is issued. It is well-known that every agenda of a meeting has a residuary clause to consider any other matter with the permission of the chairman''. The matter with regard to the transfer of shares was considered in the meeting of the board of directors ... with the permission of the chairman. No illegality was committed thereby." Similar observations are made by the Delhi High Court in the case of Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Com Cas 390. The Delhi High Court also said that the law does not require an agenda for a meeting of the board of directors and any business whatsoever can be transacted at the board meeting. In any case, this is, at the highest, only an irregularity and it would not vitiate the transfer or shares.
The petitioners have alleged that at the very same meeting of the board of directors, respondent No. 5 was brought on the board of directors as an additional director. There was, therefore, a conspiracy between the other directors of the first respondent company and the purchasers of the transferred shares to oust the petitioners. In this context, it is necessary to bear in mind that respondent No. 5 and the companies controlled by him had, by paying the price of Rs. 2,300 per share, acquired the controlling block of shares in the first respondent company. All the directors of the first respondent company were aware of this fact. In these circumstances, if respondent No. 5 desired to be on the board of directors of the first respondent company, there was nothing underhand about it. This cannot be considered as a conspiracy against the petitioners. The petitioners had the first option to purchase this group of shares. The challenge, therefore, to the transfer of 3,417 plus 93 shares of the first respondent company fails. The question of rectification of the register of members in this connection does not arise.
Fresh issue of 17,666 shares :
The next ground of challenge is to the fresh issue of 17,666 shares to respondent No. 5 and his group of companies at par. This was done at the annual general meeting of the company held on November 16, 1985. At the relevant date the authorised capital of the first respondent company was Rs. 25 lakhs divided into 25,000 shares of Rs. 100 each. The issued capital was Rs. 7,33,400 (7,334 shares). At this annual general meeting, it was decided to issue the balance authorised shares, that is to say, 17,666 shares of Rs. 100 each so as to increase the issued share capital to Rs. 25 lakhs. The agenda of the annual general meeting did not show this item of fresh issue of 17,666 shares at par. The respondents claim that there was urgent financial necessity to obtain additional share capital for the purposes of this company. They rely upon the need to purchase certain machinery and so on. We are not very impressed with this so-called financial necessity.
The board meeting which immediately followed the annual general meeting decided to allot these shares at par to respondent No. 5 and certain other companies under his control. This clearly indicates that respondent No. 5 and his group of shareholders, who were in control of the respondent company, had decided to make a fresh issue of share capital to themselves at par so is to strengthen their control over the company. For this purpose they brought in certain additional funds, being the price of these shares which they purchased at par.
Can this action be challenged ? Let us first examine the legal effect of the agenda of the annual general meeting not showing this item on the agenda. Section 172 of the Companies Act, which deals with the meetings of the company, requires that the notice of the meeting shall specify the place, the day, and the hour of the meeting and shall contain a statement of the business in be transacted at the meeting. Section 172 also requires an explanatory statement to be annexed to such notice as set out in that section. The respondents certainly committed an irregularity in not mentioning this item on the agenda of the annual general meeting. But this irregularity does not, in our new, vitiate the decision which was taken. As set out earlier, the court will not interfere in the case of irregularities which can be cured. In the present case, even without these additional shares which were issued, respondent No. 5 and his group of shareholders had a majority control over the company. This is clear from the votes which were cast at the annual general meeting in favour of and against this fresh issue of shares. 4,260 votes were cast in favour of this resolution while 3,049 votes were cast against the resolution. Hence, they were and are in a position to get the fresh issue sanctioned at the meeting of the company after notice. Moreover, at the same annual general meeting, it was decided that an extraordinary general meeting of the company would be called after proper notice to ratify this fresh issue of 17,666 shares at par. Such an extraordinary general meeting was held after notice on January 31, 1986, when the issue of these shares at par was ratified. According to the petitioners, this ratification is invalid as the shareholders of the newly issued 17,666 shares also voted at this extraordinary general meeting in favour of the resolution. But quite clearly, even if we ignore the 17,666 additional votes which were cast in favour of the resolution, the remaining votes in favour, which are 4,260, far exceed 3,049 votes cast against the resolution. The ratification is valid. We do not see any reason to invalidate this issue.
As observed by Mellish L.J. in the case of MacDougall v. Gardiner [1875] 1 Ch 13 , "If the thing complained of is a thing which in substance the majority of the company are entitled to do or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes". (see also in this connection Shri Parmeshwari Prasad Gupta Vs. The Union of India (UOI), .
Pro-rata distribution of the fresh issue :
Under section 81(1) of the Companies Act where there is a further issue of capital such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company in proportion, as far as possible, to the capital paid up on the shares at that date. Section 81(3), however, provides that section 81 does not apply to a private limited company. A private limited company, therefore, is entitled to offer such further issue of shares in such manner as it may determine, subject of course to its articles of association. The articles of association of the first respondent company do not require such further issue of shares to be allotted in any particular manner to the existing shareholders. The allocation of further issue of shares, therefore, to respondent No. 5 and his group of companies, is not illegal or contrary to law. Moreover, the respondents have, at the hearing of the petition, made a "with prejudice" offer to distribute these 17,666 shares at par pro rata to the petitioners so that the petitioners may continue to have their 41 per cent. holding of shares in the first respondent company. This "with prejudice" offer has been made again at the hearing of these appeals before us also. But this offer has not been accepted by the petitioners. We do not see how this issue of 17,666 shares at par can be invalidated, although undoubtedly, it has caused prejudice to the petitioners by strengthening the control of respondent No. 5 and his group over the first respondent company. If any other remedy at law is available to the petitioners in this connection, they are free to avail of it. But we fail to see how the register of members can be rectified u/s 155 of the Companies Act in respect of these shares when the respondents were within their, rights in issuing these shares at par.
Subsequent events :
We would also like to refer to some subsequent events which also make it difficult to set the clock back, so to speak. In the first place, by selling the 3,417 shares the executors received a sum of about Rs. 80 lakhs. After discharging the liabilities under the will of the deceased, Dr. Parulekar, the net sale proceeds amounting to about Rs. 60 lakhs have been used to create a public charitable trust for the purposes set out by the settlor in his will. The fund is now impressed with a public charitable trust. Secondly, the fund which was brought into the company by respondent No. 5 and his controlling group of companies by purchasing the fresh issue of 17,666 shares, has also been utilised by the company for its expansion, for investments and for the purchase of machinery. This fund also is not now available for being released to the original buyers.
In these circumstances, the learned single judge, while allowing the petition, had directed the petitioners to bring in a sum of Rs. 80,73,000 within the time stipulated by him under his order. The petitioners, however, failed to deposit this amount or any part thereof in the court within the stipulated period. Their application for extension of time was also rejected by the learned single judge for reasons which are set out by him in his order of March 30, 1988. In these circumstances and looking to the fact that the petitioners have not been able to raise the funds within the period given to them by the learned single judge for acquiring a controlling interest in the first respondent company, we do not see how any relief can be granted to the petitioners. The direction of the learned single judge relating to the retention of 17,666 shares with the company until they are reallotted by the directors also, in our view, is a relief which is not within the ambit of section 185 of the Companies Act. Be that as it may, looking to these circumstances, it is difficult to grant any relief to the petitioners u/s 155. They have been unable to avail of their rights under article 57A to acquire a controlling interest in the first respondent company. For various reasons, with which we are not concerned, either they do not have the requisite funds, or for reasons best known to them, they have not availed of their rights as required by law. We may also mention in this connection the fact that even initially, the suit which they filed in the Poona court was not a suit for specific performance of their rights under article 57A, but only a suit to restrain the executors from selling the shares to anyone other than the petitioners. Only in August, 1986, they filed the present company petition which again is for a limited relief u/s 155 of the Companies Act and not a petition u/s 397 or 398 of the Companies Act. It was only after the judgment was delivered by the learned single judge in this company petition that they have now filed two suits in March, 1988, for specific performance. Section 155 is a discretionary remedy which is not normally resorted to when there are allegations of fraud. We need not, however, go into this aspect of the matter because, in any event, for reasons which are set out by us in our order, the petitioners are not entitled to any relief as prayed for by them in the petition.
The judgment of March 30, 1988 :
The appeals before us from the judgment of the learned judge dated March 31, 1988, declining to grant any extension of time, are all filed by either the trustees, the purchasers from the trustees or by the company in respect of certain observations made in that judgment and order. The petitioners have not filed any appeal before us challenging the order refusing to extend the time for the deposit of Rs. 80,73,000. The impugned observations are in respect of the readiness and willingness of the petitioners to purchase the shares in question. The learned judge has observed that on account of the failure of the petitioners to deposit Rs. 80,73,000 within the stipulated period the petition stands dismissed. But the observations made in his judgment Would continue to bind the parties. In view of the fact that the appeals from the main judgment are now allowed, the appellants, from this part of the order, can have no grievance now.
In his judgment of March 30, 1988, the learned single judge has also observed that in the suit for specific performance it would be open to the petitioners to show their capacity and to convince the court that they are in a position to really purchase these shares and to enforce specific performance of the contract. These observations should not be interpreted to mean that the readiness and willingness of the petitioners will have to be judged only at the paint of time when the suits for specific performance are decided. The learned judge has merely referred to the fact that the question of readiness and willingness of the petitioners, throughout the material period, to purchase these shares will have to be decided by the court which tries those suits on the basis of the evidence which is available before the court. These observations cannot be read to mean that, if the law requires the petitioners to prove their readiness and willingness throughout the material period, the requirements of law have, in any manner, been modified by the learned single judge or by us.
In the premises, Appeal No. 711 of 1988 and Appeal No. 1214 of 1988 are allowed. Appeal No. 742 of 1988 which is the petitioners'' appeal against the conditional order is dismissed. Appeals Nos. 655 of 1988, 710 of 1988 and 1032 of 1988 are dismissed with the clarifications we have already made in respect of the order of the learned single judge dated March 30, 1988.
Appeals are disposed of accordingly. Looking to the circumstances of the present case there will be no order as to costs.
Mr. S. M. Shah, learned counsel for the petitioners, applies for the continuation of order dated December 21, 1989, in Notice of Motion No. 3109 of 1989, taken out in Appeal No. 742 of 1988. This notice of motion was, inter alia, to restrain the respondents from amending the articles of association of the respondent company as set out therein. In that motion an order was passed whereby, pending disposal of the appeal, the appellants'' right of pre-emption under article 57A was not to be disturbed and respondent No. 1 company was directed not to issue or invite any fresh capital till the disposal of the appeal. Certain other directions were also given as set out therein. This order shall remain in force for a period of eight weeks from today and no further.
The petitioners apply for leave to appeal to the Supreme Court. No substantial question of law of public importance arises in this appeal, and hence the leave is refused.