COSMOSTEELS PRIVATE LTD. versus JAIRAM DAS GUPTA & ORS.

Citation: [1978] 2 S.C.R. 422 · Decided: 16-12-1977 · Supreme Court of India · Bench: M. HAMEEDULLAH BEG · Disposal: Rejected
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Judgment (excerpt)

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422 
COSMOSTEELS PRIVATE LTD. 
v. 
JAIRAM DAS GUPTA & ORS. 
December 16, 1977 
[M. H. BEG, C.J., P. N. BHAGWATI AND D. A. DESAI, JJ.] 
Companies Act. (Act l of 1956), SS. 77, 100-104. 397, 398 & 402-
Dhtinction between the procedures u/s 100-104 and (uls 402-While granting 
relit'f u/s 402, for reduction of share capital protanro, the prvccd11res u.ls J00-
104 are not necessary--Objects behind procedures prt'scribing the Court to give 
notice-Notice uls 400 is not necessary at appellate sta!(e~No injury has been 
caused to the interveners by non-issue of the notice. 
In Appeal No. 1347(N) 1977 by special leave against the mterlucutory 
orders dated 21-4-1977 of the Company Judge of the Calcutta High Court in the 
company petition No. 85/75, filed by the respondents u/ss. 397 /3~8 of the 
Companies Act, 1956, complaining of oppression by majority and praying for 
certain reliefs against the appellants and also the orders dated 25-4-1977 of the 
Division Bench against that order, this Court made an order on 31-5-1977, in 
terms of an agreement reached between the parties. 
By one such 
term 
the 
company was directed to purchase 1300 shares held by the 
respondents-peti-
tioners. The price of the shares was to be detennined by Messrs. 
Price Water 
House and Peet, Chartered Accountants and A11ditors, as on the date of the filing 
of the petition u/ss. 397-398, on the basis of the existing as also contingent and 
anticipated debtsf liabilities, claims, payment'\ and receipts of the compaB.y. The 
Chartered Accountants were to determine the value of the shares after examin-
ing accounts and calling for necessary explanations and after giving opportunity 
to both the groups to be heard in the matter and the determination of the value 
by the Chartered Accountants was to be final and binding and not i.>pen to any 
challenge by either side on any ground whatsoever. After such determination of 
the value the company has to purchase the shares, and, on such purchase, the share 
capital of the company was to stand reduced protanto. The order made it clear 
that if the value of the shares is more than Rs. 65/- per share, the company will 
have to pay the balance, and, if it is less than Rs. 651- per share, the respon-
dents who have to sell the shares, will have to refund the difference between the 
price of the shares calculated at the rate of Rs. 65 J- per share and the rate 
determined by the Chartered Accountants and Auditors within four weeks from 
the date of determination. After the appeal was thus disposed of, the inter-
veners, claiming to be the creditors of the company to the extent of 40 Jakhs, in 
their petition dated 22-8-1977 requested the Court (i) to permit them to be 
heard and (ii) to postpone the purchase of shares by the company until such 
time as the company adopts proceedings in a competent court by following the 
procedure laid down by the Companies Act, 19 56, particularly in Sections 100 
to 104 for reduction of the share capital. In the alternative they prayed for 
safeguarding their interests by modifying the Court's order dated 31~5-1977. 
Rejecting the petition to interfere with its order dated 31-5-1977, the Court, 
after hearing the intervencrs, 
HELD : (i) Section 77 envisages that, on the purcha~e by a company 
of 
its own shares, reduction of its share capital may be effected and sanctioned in 
either of two different modes : ( i) according to the 
trocedure prescribed 
in 
Sections 100 to 104; or (ii) under section 402, depending upon the circ::wm--
tances in which reduction becomes necessary. 
[427E->1 
(ii) Section 77 of the Companies Act, 1956 prohibit• the company from 
buying its own shares unless the consequent reduction of capital is effected. and 
sanctioned in pursuance of Sections 100 to 104 or Sectioi 402. It places an 
embargo on the company purchasing its own shares so as to become its own 
member, but the embrago is lifted, if the company rcduc~ its share capital 
protanto. [427E] 
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COSMOSTEELS LTD. V • .JAIRAM 
423 
(iii) Section 77 leaves no room for doubt that reduction of share capital 
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may have to be brought about in two different situations by two different modes. 
Undoubtedly, where the company has passed a resolution for reduction of its 
share capital and has submitted it to the Court for confirmation, the procedure 
prescribed by Sections 100 to 104 will have to be followed, if they are attracted. 
On the other hand., \\1here the C
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