LexNEEDLE INDUSTRIES (INDIA) LTD., & ORS. versus NEEDLE INDUSTRIES NEWEY (INDIA) HOLDING LTD. & ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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NEEDLE INDUSTRIES (INDIA) LTD.,
& ORS.
v.
NEEDLE INDUSTRIES NEWEY (INDIA)
HOLDING LTD. & ORS.
May 7, 1981
[ Y.V. CHANDRACHUD, C. J., P.N. BHAGWATI AND
E.S. VENKATARAMIAH, JJ. ]
Companies Act 1956, Ss. 3(1) (iii), 43A, 45, 81, 299(1), 300(1), 397 and
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398and Foreign Exchange Regulation Act 1973, Ss. 29(1), (2) and4(a)-Scope
and effect of
Private company becoming a public company by S. 43A-Reserve Bank direc-
tive that holding of the foreign company should be reduced-Reduction effected by
issue of new rights shares-Such shares to be offered to all shareholders Indian as
well as the holding company-Shares however allotted to on~v Indian sharehol-
ders-Notice of meeting 'at which allotment made not properly given to holding
company-Ho/ding company whether could renounce the offer in favour of the
person of its choice-Allotment to Indian shareholder-Whether amounts to
oppression.
'Directly or indirectly, concerned in the contract or arrangement'-Effect of-
Relationship of friendliness with Director-Lawyer-client relationship with
Director-Whether will disqualify a person from acting as Director.
Public company-Private company-What are-When does a private company
become a public company-No exception provided in S. 45 in favour of S. 43A pro-
viso companies-Need for legislative amendment.
Practice and Procedure-Allegation of a mafaji.ie-Examination of-Whether
can be on the basis of affidavits and correspondence only.
M/s. Needle Industries (fndia) Ltd. (NHL), the appellant was incorporated
under the Indian Companies Act 1913 as a Private Company on 20.7.1949 with
its Registered office at Madras and at the time of its incorporation it was a
wholly owned subsidiary of Needle Industries {India) Ltd., Studley, England
{NI-Studley). In 1961, NI-Studley entered into an agreement with Newey Bros.
Ltd., Birmingham, England (Newey) to invest in the Indian Company. In 1963,
NI-Studley and Newey combined to form the Holding Company in England
M/s Needle Industries-Newey (India) Holding Ltd., the respondent. The entire
share capital of NHL held by NI Studley and Newey was transferred to the
Holding Company in which NI-Studley and Newey became equal shares.
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N.I.l.L. V. N.I.N.H.L.
699
As a result of this arrangement, the Holding Company came to acquire
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99.95 per cent of the issued and paid up capital of NIIL. The balance of
0.05 cent, which consisted of six share& being the original nominal shares, was
held by Devagnanam the managing director of NHL.
By virtue of the introduction of section 43A in the Companies Act in 1961,
NHL became a public company, since not less than twenty-five per cent of its
paid-up share capital was held by a body corporate, the Holding Company.
However, under the first proviso to section 43(1) it had the option to retain its
articles relating to matters specified in section 3(1)(iii) of the Companies Act.
NIIL did not alter the relevant provisions of its articles after it became
a public company within the meaning of section 43A. By 1971 about 40 per
cent of the share capital of NHL came to be held by the Indian employees of
the company and their relatives and the balance of about 60 per cent remained
in the hands of the Holding Company NINIH Ltd.
In 1972 Coats Paton Ltd. became an almost 100% owner of NI-Studley.
The position at the beginning of the year 1973 was that 60% (to be exact
59.3%) of the share capital of NHL came to be owned half and half by Coats
and NEWEY, the remaining 40% being in the hands of the Indian Group of
which 28.5% was held by the Devagnanam's group.
Though NHL was at one time wholly owned by NI-Studley and later by
NI Studley and Newey, the affairs were managed ever since 1956 by an entirely
Indian Management with Devagnanam as its Chief Executive and Managing
Director with effect from the year 1961. The Holding Company which was
fomied in 1963 had only one representative on the Board of Directors of
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NHL. He was N.T. Sanders, who resided in England and hardly ever attended
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the Board Meetings.
The holding company reposed great confidence in the
Indian management which was under the direction and control of Devagnanam.
In July 1972 Mr. Devagnanam was offered by the office of Managing
Director of group of four companies in Hong Kong and Taiwan and his
family began to reside in Hong Kong and he cogitated over resigning
from his position in NIIL. Coats, on their part Excerpt shown. Read the full judgment & AI analysis in Lexace.