KANTILAL MANILAL Vs. COMMISSIONER OF INCOME TAX BOMBAY NORTH KUTCH AND SAURASHTRA AHMEDABAD
SUPREME COURT OF INDIA (FROM: BOMBAY)
COMMISSIONER OF INCOME TAX,BOMBAY NORTH,KUTCH AND SAURASHTRA,AHMEDABAD
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Shah, J. -
(1.)This is an appeal by seven appellants with leave granted by the High Court of Judicature at Bombay certifying that it involves a question of importance.
(2.)The appellants held 570 out of a total issue of 800 shares of the Navjivan Mills Ltd., Kalol, a public limited company- hereinafter referred to as the Mills. Between the years 1943-47, the Mills purchased 5,000 shares of the Bank of India Ltd. At an extraordinary general meeting of the shareholders of the Bank of India held on May 6, 1948, a resolution was passed increasing the share capital of the Bank and for that purpose offering new shares to the existing share-holders in the proportion of one new share for every three shares held by the shareholders. The face value of the new shares was to be Rs. 50, but the shares were issued at a premium of Rs. 50, The shareholders had to pay Rs. 100 for each new share. The Mills as the holders of 5,000 shares became entitled to receive 1,666 2/3 shares of the Bank of India at the rate of Rs. 100 per share. The Bank of India communicated its resolution by letter dated May 25, 1048 and enclosed therewith three forms, form A for acceptance, form B for renunciation and form C which may compendiously be called a form for allotment to nominees. On receiving the circular letter, the Directors of the Mills passed the following resolution:
"Resolved that the company having a holding of 5,000 ordinary shares in the capital of the Bank of India Ltd. having now received an intimation from the said Bank that this company is entitled to get 1,666 2/3 more ordinary shares on payment of Rs. 50 as capital and Rs. 50 as premium per each share and it is considered proper to invest in the said issue of the said Bank the funds of this company to the extent of 66 shares only and to distribute the right of his company to the remaining 1,600 shares of the said issue amongst the shareholders of this company in the proportion of the shares held by them in this company. IT IS HEREBY RESOLVED that the funds of this company may be invested in the 66 shares out of 1,666 shares offered by the Bank of India Ltd., and the right to the remaining 1,600 shares is hereby distributed among 800 shares of this company in the proportion of right to two shares of the Bank per one ordinary share held in this company.
The Managing Agents may take steps to intimate the shareholders to exercise the right if they like to do so."
(3.)Accordingly, the Mills exercised the right to take over only 66 shares out of the shares offered and resolved that the right to the remaining 1,600 shares be distributed amongst its 800 share holders. The seven appellants as holders of 570 shares of the Mills became entitled to 1,140 shares of the Bank of India. The appellants agreed to the allotment of these shares and ultimately transferred them to a private company - Jesinghbai Investment Co., Ltd.
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