SHANTI PRASAD JAIN VS. KALINGA TUBES LTD.

Facts:1. The Company was floated as a private limited company on 1/12/1950 with
an authorised capital of Rs. 25 lacs. Originally, the shares were held by two
groups of share-holders equally, except a few shares. These groups of shareholders may for our purposes be taken to be represented by Patnaik and
Loganathan.

2. The Company raised a sum of Rs. 36 lacs by the issue of two series of
debentures which were guaranteed by the Government of Orissa between
1952 to 1954. In 1954, the appellant was approached by Dr. Mohanty, then
Secretary to Government of Orissa (Industries Department) which was
naturally interested in the Company having guaranteed debentures to the
tune of Rs. 36 lacs, for helping the Company which was in financial and
administrative difficulties.
3. The appellant was requested to help the Company by providing finance and
by arranging loans from banks and other sources and further by providing
the necessary administrative guidance to which the appellant agreed to do so
and consequently on 27/07/1954, an agreement was entered into between the
appellant, and Patnaik and Loganathan.
4. To this agreement, the Company was not a party. The agreement provided
that the appellant would be allotted shares in the Company equal to those
held by Patnaik and Loganathan after increasing the share capital of the
Company.
5. The Company would have three groups of share-holders represented by the
appellant, Patnaik and Loganathan holding equal number of shares, besides a
French company and one Mr Rath, who between themselves held shares
worth Rs. 4 lacs. These share-holders were not party to the agreement.
6. It was also provided that these three groups of share-holders would have
equal number of representatives on the Board of Directors of the Company,
namely, two each for the time being.
7. The appellant also undertook to arrange for cash credit facilities to the limit
of Rs. 50 lacs on the security of raw materials and finished goods of the
Company.
8. The appellant Jain was to be the chairman of the Company. This agreement
was followed by certain resolutions passed by the Company on 16/08/1954
by which some of the terms of the agreement were substantially carried out,

the authorised capital was increased to rupees one crore (though it was
issued later in instalments), and the appellant was made the chairman of the
Company.
9. The resolutions did not refer to the agreement in terms and no change was
made in the Articles of Association of the Company to bring them in
conformity, with all the terms of the agreement.
10.In April 1955, the Company started production. Sometime thereafter the
share capital was further subscribed up to Rs. 61 lacs and the three groups,
namely, the appellant Jain, Patnaik and Loganathan held one-third of the
shares leaving out shares held by the French company. Mr. Rath had sold his
shares numbering 250 and these shares were equally divided between the
three groups and the one odd share was held by all the three namely Jain,
Patnaik and Loganathan, jointly.
11.In September 1956, a resolution was passed by the Board of Directors
referring the question of conversion of the Company to a public limited
company to a sub-committee consisting of the appellant, Loganathan and
Patnaik. About the same time, an application was made to the Controller of
Capital Issues for the sanction of the issue of further shares to the extent of
Rs. 39 lacs out of the authorised capital of rupees one crore and for the issue
of debentures to the extent of Rs. 64 lacs. In this application it was stated
that the shares were intended to be issued privately to the existing shareholders and/or their nominees.
12.In December 1956 a resolution was passed by the Board of Directors for
converting the Company into a public limited company and for amending
the Articles of Association in consequence at the next annual general
meeting. This was necessary as the Company wanted to borrow from the
Industrial Finance Corporation which however made advances only to public
limited companies.
13.On 11/01/1957,the Company was converted into a public company and the
Articles of Association were amended. Even so, no attempt was made to
incorporate the terms of the agreement dated 27/07/1954 in the Articles of
Association so amended.
14.Articles of Association were further amended in November 1957. At that
time also nothing was put therein on the basis of the agreement dated
27/07/1954.
15.In December 1957, the Controller of Capital Issues sanctioned the issue of
shares of the face value of Rs.39 lacs and debentures of the face value of
Rs.64 lacs subject to the provisions of S. 81 of the Act.

16.Both the parties had a difference in opinion as to who the fresh issue of
shares should go to and as decided they had a vote at the meeting in which
Jains resolution wasnt opted for as they had 2 votes against him.

Issues:1. Whether the acts done here amounts to oppression ?

Appellants Contentions:1. The appellant proposed to the Board of Directors that the new shares should
be issued to the existing share-holders as provided in S. 81 of the Act.
2. The appellant's resolution proposed that the new shares should be offered to
the existing share-holders of the Company in the proportion of their shareholdings and the offer should remain open for a period of fifteen days with
the right to accept or renounce the whole or part of the offer in their names
or in the names of their nominee or nominees and if a share-holder did not
accept within that period the offer should be deemed to have been declined.
3. Patnaik's resolution was passed and the appellant's proposal was outvoted
for the obvious reason that the Patnaik and Loganathan groups held the
majority of shares. In consequence a general meeting of shoreholders was
called for the purpose of 29/03/1958.
4. In that meeting there was a complete breach between the three groups. This
was followed on 18/04/1958, by a suit by the appellant and some other
share-holders of his group for a declaration that the resolutions dated
29/03/1958 were ultra vires, illegal, void and not binding on the appellant,
the Company and its share-holders with a prayer for permanent injunction
restraining the defendants in the suit (namely, the other two groups) and their
servants and agents from giving effect to or acting in any way in pursuance
of the said resolutions and further restraining each of the defendants, their
servants and agents from issuing and allotting the new shares in terms of the
impugned resolutions.

Respondents Contentions:1. Patnaik on the other hand proposed that a general meeting should be called
for the purpose of passing a resolution for the issue of new shares and for the
manner and proportion in which shares were to be offered privately to the
share-holders and other persons and for such other incidental matters as
provided in the Section.
2. It is apparent from this conflict between the appellant group and Patnaik and
Loganathan groups in this meeting that the groups of Patnaik and

Loganathan did not want the appellant's group to age roughly one-third of
the new shares.
3. The fear of Patnaik in this connection was that if shares were offered
privatley to the existing shareholders, the appellant might get all of them, for
the groups of Patnaik and Loganathan did not have the money to subscribe
to the new shares if offered in the first instance to the existing share-holders.
4. Thus if the appellant got all the new shares, his group would become the
majority share-holder and would thus get control of the Company.
Consequently, Patnaik put forward the resolution already referred to at the
meeting of the Board of Directors on 1/03/1958 which provided for calling
general meeting for directions as to the issue of new shares, which directions
it was hoped would override the provisions of S. 81 of the Act.
5. The second resolution on behalf of the Patnaik and Logonathan groups
proposed that the new share should not be offered or allotted to the existing
shareholders or to the public and that they should be allotted privately in the
best interest of the Company at the sole discretion of the directors to such
persons as might have applied or thereafter apply on the condition that at
least 5 per centum of the face value of shares applied for was paid as
application money and 10 per centum of the face value was paid on
allotment and the balance paid as and when called upon in accordance with
the Articles of Association of the Company.

Judgment:The suit was filed in the Court of the Subordinate Judge, Cuttack.An ex parte
interim injunction was obtained on the same day restraining the Company and
other defendants from issuing and allotting the new shares to persons other than the
existing share-holders and giving effect to the resolutions in that regard passed at
the meeting held on 29/03/1958. The Company then made an application for
setting aside the ex parte interim injunction. This matter came up before the Court
on 15/05/1958. At that time an offer was made on behalf of the Company that in
view of the urgent necessity for funds, the Company might be permitted to issue
two-thirds of the shares, keeping back one-third which would have gone to the
appellant if the shares had been offered to the existing share-holders; but this was
not accepted on behalf of the appellant. The hearing of the injunction matter was
postponed on several dates and it appears that the Patnaik and Loganathan groups
continued to call meetings of the Board of Directors on the dates fixed in the suit,
and the agenda always provided for the allotment of the new shares. Eventually on
30/07/1958 the Subordinate Judge delivered judgment and vacated the injunction

at about 11 a.m. A meeting of the Board of Directors was being held on the same
day from 10.30 a.m. and as soon as a message was received that the injunction had
been vacated the new shares were allotted to seven persons who had applied for the
same along with the application money. This happened about midday and the
return as required by the Act was duly filed with the Registrar of Companies at
12.40 p.m. The same day, an application was made at 12.40 p.m. on behalf of the
appellant before the Subordinate Judge praying that the order vacating the
injunction be stayed till the appellant obtained orders from the High Court where
he wished to appeal. The company's lawyer, however, intimated to the Court that
the shares had already bean allotted. Even so, the Court passed an order staying the
operation of its judgment order delivered earlier for two days. The matter was then
taken in appeal to the High Court by the appellant. The appeal was dismissed in
September 1958. There was a letters patent appeal following the dismissal but that
was not pressed and was eventually dismissed in November, 1960.
The court held that there was merely an Agreement to Equilibruim
between the parties but the Company was not a party to the aforementioned
agreement hence it was not binding. And as for the continuance of the agreement
even after the change of type of company, it is not mandatory just because they are
continuing it. Such steps are needed for the growth of the company to be dynamic
in nature.

COMPANY LAW ASSIGNMENT

Submitted by:
Nikhita Celine Cordeiro
11FLUHH010211