NANALAL ZAVER AND ANOTHER versus BOMBAY LIFE ASSURANCE CO. LTD. AND OTHERS.

Citation: [1950] 1 S.C.R. 391 · Decided: 04-05-1950 · Supreme Court of India · Bench: HARILAL JEKISUNDAS KANIA · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

S.C.R. 
. SUPREME COURT REPORTS 
391 
NANALAL ZAVER AND ANOTHER 
v. 
BOMBAY LIFE ASSURANCE CO. LTD. 
AND OTHERS. 
[SHRI HARILAL KANIA C.J., MEHR CHAND MAHAJAN, 
MuKHERJEA and DAS, JJ.] 
Indian Companies Act (VII of 1913), s. _ 105-C-Company-
Outsidet· trying to get control of management by p11rchasing shores 
-Issue of further shares-Offer of new shares to es;isting share-
holders-Validity of resolution and offer-Company in need of 
funds-Additional motit1e to pret1ent outsidet· getting control-Bona 
fides of resolution-Scope of s. 105-C. 
A company was incorporated with a capital divided into 10,000 
shares. After 5,404 shares had been subscribed, the directors of 
the company, finding that a businessman. who had several other 
businesses and who was likely to use the funds of this company 
for his own businesses, was trying to get control of this company 
by purchasing its shares, resolved to issue the remaining 4,596 
shares and qffered . these shares to the existing shareholders in the 
proportion of four new shares for every five she.res held by them. 
Two of the shareholders of the company instituted .a suit age.inst 
the company and the directors for the following reliefs: (i) a. decla-
ration that the resolution of the directors and the offer of shares 
contravened the provisions of section 105·.c of the Indian Com-
panies Act, 1913, and was therefore ultra vires and illegal; (ii) a. 
declaration that the. offer of she.res was not made bona fide or in 
the interests of the company and was therefore illegal ; a.nd (iii) to 
restre.in the defenda.nts from allotting any shares in pursue.nee of 
their offer : 
Held per KANIA C.J., MAHAJAN, MUKHERJEA and DAB JJ.-
that inasmuch as the sh!Lres resolved to be issued were offered to 
the existing shareholders only, and not to any outsider a.nd these 
shares were also offered to the existing shareholders in proportion 
to the she.res held by each member without making any discrimi-
natior.<,, between them the two requirements of section 105-C were 
complied with and the resolution e.nd offer did not contravene tba.t 
section even though 272 shares remained undistributed as a. result 
of the offer of four new shares for every five shares. 
1950 
May 4. 
1950 
N anal al Zaver 
And A1wther 
v. 
Bo1nba y Life 
Assurance Co, 
A.nd Others 
I<an;a C. J. 
392 
SUPREME COURT REPORTS 
(1950] 
Held also per KANIA C.J., MAHAJAN, Mux1rnRJEA and 
DAS JJ.-that the fact that one of the motives of the directors 
in issuing further shares was to prevent an outsider who ha.d 
not yet become a shareholder, from getting control of the 
company did not render the resolution or the offer illegal inasmuch 
as such a motive could not in itself be said to be not in the 
inherests of the company and even assuming that such a. motive 
was bad this n.dditional 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. 
J.,dgment of th• Bombay High Co!f.rt affirmed. 
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 1 lth 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 arguments of the counsel are set 
out in the judgment. 
N. P. Engineer (M. !JI. Desai and H.]. Umrigar 
with him) for the appellants. -
l\f. C. Setalvad (G. N. Joshi with him) for respond-
ents Nos. 1 to 6 and 8 and 9. 
1950. May 4. 
The Court delivered the following 
Judgments: 
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. IO 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 • 
S.C.R. 
SUPREME COURT REPORTS 
393 
put up the price of the shares considerably. On the 
18th September, 1944, at a board meeting of the direc-
tors

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