REGE,J. - (1.) This is a petition by certain shareholders of the National Rayon Corporation Limited (respondent No. 7) for a writ of mandamus for withdrawing or cancelling the order dated June 25, 1973 made by the Company Law Board (respondent No. 2) appointing respondents Nos. 5 and 6 as Government Directors for one year from June 30, 1973 on the Board of Directors of respondent No. 7 company and for declaring the same to be void and inoperative. They have also asked for a further writ in the nature of certiorari for quashing the said impugned order and also for a declaration that certain directors mentioned in prayer (c) had been duly elected at the annual general meeting of respondent No. 7 company held on May 11, 1973 and that they were entitled to act as Directors of respondent No. 7 company.
(2.) THE short facts leading to this petition may be stated as follows: Respondent No. 7 company, namely, the National Rayon Corporation Ltd., was incorporated in 1946. The present subscribed share capital of respondent No. 7 company consists of 3,20,000 ordinary shares of Rs. 100 each and 1,75,000 Preference shares of Rs. 100 each. Both the categories of shares carry equal voting rights. Respondent No. 7 company is engaged in the manufacture of Rayon Yarn and other allied products. It was promoted by Chinais in association with Tatas and Messrs Chinai and Company Private Limited were appointed as Managing Agents from its very inception. At the relevant time, the company built up assets of an order of Rs. 5,00,00,000. In 1969.1970 the Board of Directors of the company consisted of eleven Directors, including KasturbhaiLalbhai, Arvind Mafatlal, K.M.D. Thackersey, Mathuradas Mangaldas Parekh and Naval Tata. Apart from the qualification shares, none of the Directors had any significant shareholding of the company. Some time in April 1956, L.C. Kapadia and N.C. Kapadia, who were the nominees of Kapadia Brothers, obtained substantial shareholding in the said company, some of them being from the Chinais and the Life Insurance Corporation of India. On April 8, 1969 L.C. Kapadia wrote a letter to Rasiklal Chinai stating that he would like to assure him on behalf of his family and himself that none of them had any intention whatsoever of interfering with the management of the company, whether it be through the existing system of managing agency or in the event of its cessation through any other stewardship under the control of Rasiklal Chinai. The Managing Agency held by the Chinais came to an end on December 31, 1969. Before that time they had disposed of a part of their share holdings in the Company mainly in favour of the Kapadias and their share holdings in September 1970 were about 7 per cent, of the total shareholding. It appears that in the meantime the Kapadias had increased their shareholding by purchasing shares in the open market as well as through the Life Insurance Corporation on behalf of the companies held or controlled by them or through their own relations, nominees, agents or brokers. The shareholding in the company in the names of themselves as well as in the name of companies owned or controlled by them in 1970 was 4,405 Ordinary shares and 45,960 Preference shares. They had also another block of 50,000 Ordinary shares and 32,000 Preference shares held by them through their Benamidars, nominees and brokers on payment of margins. The position of the Chinais and the Kapadias in 1969 relatively was that the Chinais had management and control of the company with a very small shareholdings, while the Kapadias had large shareholdings with no actual control of the company, with the result that there was a struggle for control between the two.
(3.) IN order to forestall any attempt on the part of Kapadias to get the control of the management of the company (i.e. the seventh respondent) the Board of Directors, dominated by the Chinais, on the expiry of the Chinais Managing Agency by the end of 1969, attempted to move a resolution at the annual general meeting held in June 1969 for appointment of Jivanlal C. Chinai and his son, Rasiklal J. Chinai, as Managing Directors for a period of five years on remuneration of Rs. 15,000 per month plus one per cent, commission and various other perquisites. The said resolution was opposed by the Kapadias and was therefore not moved.;