S. P. JAIN versus KALINGA TUBES LTD.

Citation: [1965] 2 S.C.R. 720 · Decided: 14-01-1965 · Supreme Court of India · Bench: P.B. GAJENDRAGADKAR · Disposal: Dismissed

Cited by 5 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

720 
S. P. JAIN 
v. 
KALINGA TUBES LTD. 
lanllary 14, 1965 
A 
[1>. B. GAJENDkAGADKAR, C.J., K. N. WANCHOO AND 
B 
S. M. SIKru, JJ.] 
Companies A.ct (A.ct 1 of 1956), :rs. 397 and 398-Scope of. 
In July 1954, two groups of shareholders led by P and L, who, to-
gether held an equal number of shares· of the value of Rs. 21 lakbs out 
of a total share capital of Rs. 25 lakbs in the respondent company (then 
a private companJC), entered into a private agreement with the Appellant, 
whereby, (i) the share capital of the company was to be increased by 
Rs. 10! lakhs and shares of this value allotted to the appellant so that 
the total shares held by him would be equal to the holding of each of 
the other two groups; (ii) each of these three groups of shareholders 
would have an equal number of representatives on the Board of'Directors; 
(iii) the appellant undertook to arrange certain credit facilities for the 
company; and (iv) the appellant was to be the Chairman of the Board. In 
accordance with this agreement, the appellant was made the Chairman 
and though various resolutions were passed by the company to implement 
the agreement, these resolutions did not in terms refer to the agreement, 
and no change was made in the Articles of Aasoclation of the company 
so as to embody the terms of the agreement. Some time later, the subs-
cribed capital of the company was increased to Rs. 61 lakbs and the 
new shares were so allotted as to maintain the parity in the shareholdings 
of the three groups. 
When one of the two minority shareholders sold 
250 shares, these were equally divided between the three groups and one 
odd share was held by P, L and the Appellant jointly. 
In 1956-57, the company desired to raise a·toan from the Industrial 
Finance Corporation and as this Corporation made advances only to 
1>Ublic limited companies, in January 1957 the company was converted 
mto a public company. 
Appropriate amendments were made 
in 
its 
· Articles of Association, but ·even on this occasion, no attempt was made 
to incorporate into the Articles tlie terms of the Agreement of July 1954. 
After sanction had been obtained of the Controller of Capital Issues 
for the issue of additional share capital, 
the appellant suggested at a 
meeting of the board of directors in March 1958 that the new shares 
should be issued 
proportionately to the existing shareholders in 
accordance with the provisions of Section 81 of the Companies Act, 
1956. 
On the other hand, those representing the P and L groups pro-
posed that the new shares should be offered privately in the best inte-
rests of the company at the sole discretion of the directors; this proposal 
was made because these two groups did not have money to subscribe for 
the new capital and they feared that if shares were offered in the first 
instance to existing shareholders, the appellant could get all of them 
and thus acquire control of the company. 
In view of the majority of 
the P and L groups in the .Board, their proposal was adopted and subse-
quently a resOlution to that effect was also accepted at a General Meeting 
of the shareholders held. in March 29, 1958. 
The appellant thereafter 
instituted a suit to have the resolution declared illegal and 
void 
and 
obtained an ex parte injunction against the coml?anY from allotting sliares 
pursuant to thjs resolution. 
On July 13, 1958, the appellant's suit was 
dismissed by the Subordinate Judge and the injunction vacated by him 
c 
D 
E 
I' 
G 
H 
s. P.' JAIN 11. KALINGA TUBES (Wanchoo, J.) 
721 
A 
at 11 A.M. 
The Board of Directors at a meeting held on that date, 
immediately on reoeiving the news that the injunction had been vacated, 
allotted the new shares to seven persons who had previously applied 
for them. 
On the same day, the appellant filed an appeal and applied 
for an~ obtained an order staying the operation of the order of tbe 
Subordinate Judge. 
Eventually these appeals were also dismissed and 
the stay vacated. 
B 
In September 1960 another General meeting of the company was 
called to approve a proposal to increase the share capital of the company 
from Rs. 1 crore to Rs. 3 crores. It was also intended that these new 
shares should be offered to outsiders with a view to making the company 
more broad-based. 
At that stage the appellant filed a petition in the High Court under 
Section 397 and 398 of the Companies Act, 1956, complaining ;,.!er 
C 
alia, that the issue of new shares was in furtherance of a co

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