Sinha, J. - (1.) This is an application in an appeal against an order made by S.P. Mitra. J., dated 2nd February, 1965. The facts are briefly as follows: Raymon Engineering Works Ltd., the respondent company (hereinafter referred to as the 'company') is a private limited company incorporated in 1954 under the Indian Companies Act, 1913 with an authorised capital of Rupees 1,00,00,000/- divided into 8,00,000 ordinary shares of Rs. 10/- each and 20,000 redeemable preference shares of Rs. 100/- each. The appellant is a share-holder of the respondent company in respect of 125 equity shares By a resolution adopted at the company's annual general meeting held on 23rd September 1968 the capital was increased to Rs. 3,00,00,000/-. One of the reasons for this increase, as stated in the Explanatory Statement was that the company had undertaken a new project for the manufacture of spiral welded pipes in collaboration with an American/German group for which a manufacturing licence had been obtained and it was proposed to effect substantial expansion of the company's existing undertakings, for which negotiations were under way for a technical-cum-financial participation in the equity capital of the company with the same group. At the annual general meeting held on 23rd September, 1964 this increase was effected as follows: By an unanimous resolution the share capital of the company was reduced from Rs. 1,00,00,000/- to Rs. 84,83,000/-by the cancellation of 15170 unissued redeemable preference shares of Rs. 100/- each By a further resolution, also unanimously passed at the said meeting, the authorised share capital of the company was raised from Rs. 84 83,000/-to Rs. 3,00,00,000/- by creating 2151700 equity shares of Rs. 10/- each. The respondent company's authorised capital was thus divided into 29,51,700 equity shares of Rs. 10/- each and 4,830 redeemable preference shares of Rs. 100/-each. The company increased the number of equity shares to 29,61,700 and it was made clear in the explanatory statement that equity share capital would be issued to foreign collaborators and/or share-holders with a view to substantially expanding its business by undertaking a new project for the manufacture of spiral welded pipes in collaboration with American German groups. The respondent company thereafter issued a notice for an extraordinary general meeting of the shareholders to be held on the 30th September, 1964 According to the said notice, the company proposed to pass two special resolutions and one ordinary resolution. The first special resolution proposed to be passed was as follows: "Resolved that subject to the sanction of the Controller of Capital Issues and approval of the Government of India to the foreign Financial participation in the Equity Capital, and Cooley Loan Arrangements and subject to repayment of outstanding loan to Industrial Finance Corporation of India, Equity Shares of nominal value of Rs. 10 each be issued to the following parties as set out against their names: "(1) M/s. Garvey Grains Inc. Wichita, Kansas, U.S.A. 4,75,000 Equity Shares of Rs. 10/- each for cash. 29,700 Equity Shares of Rs. 10/- each for consideration other than cash. (2) M/s. Phoenix-Rhein- rohar Dusseldorf, West Germany. 59,400 Equity Shares of Rs. 10/- each for cash. (3) M/s. Handels Union AG. Dusseldorf, West Germany 59,400 Equity Shares of Rs. 10/- each for cash. without offering these shares to the existing shareholders, as provided in Section 81(1) of the Companies Act, 1956."
(2.) It is this special resolution which is the subject matter of this application The extraordinary general meeting has subsequently been held on the 30th January 1964 and this special resolution was passed by a majority of votes, the only dissenting party being the appellant who voted against it. It is, however, material to note here that notice was given of another special resolution by which it was proposed to alter and amend Article 1 and Article 89(B) of the Articles of Association as follows: "In Article 1: The word "Corporation" and definition thereof be deleted and the following be added at the end thereof : 'American Collaborators' means Messrs. Garvey Grains Inc., a corporation duly organised under the law of Kansas, U.S.A., with the principal office at 352 North Broadway, Wichita, Kansas, U.S.A. and their Assigns, 'German Collaborators' means Messrs. Handles Union AG. and Messrs. Phoenix Rheinrohar A. G. Corporations duly organised under the laws of the Federal Republic of Germany with principal offices at Koanigsalle 51 and in August Thyssen Stresse 1 respectively in Dusseldorf West Germany. Article 89 (B) the and is hereby deleted, and the following new Article be inserted therefor bearing the same number. So long as the American and German collaborators hold between 47 to 25 per cent of the issued and paid up Equity Capital for the time being, they shall be entitled to appoint as Directors of the Company from time to time, 3 persons on behalf of American collaborators and 1 person on behalf of the German collaborators. Such Director/Directors will hold office at the pleasure of the respective collaborators, who shall have full power to remove, the Director/Directors so appointed by them under this Article and appoint any other or others in his or their place as and when they shall deem it necessary. Such appointment or removal shall be by notice in writing to the company, provided however, if the share holding of the collaborators falls be-low 25 per cent then the number of Directors to he appointed by them shall be proportionately diminished."
(3.) The appellant did not object to these amendments which were unanimously passed. As is necessary under Section 178(2) of the Companies Act, 1956, an Explanatory Statement was annexed to the notice. The relevant Explanatory Statement so far as resolution No. 1 is concerned, runs as follows: "You are aware that your company has undertaken a new project for the manufacture of spiral welded pipes, Crains and also pro-poses to effect substantial expansion of the existing units of the Company's factory at Santragachi, in Technical collaboration with Messrs. Rheinrohr AG and C. H. Jucho of West Germany. One of the conditions in the Industrial licence was that the cost of equipment to be imported was to be financed through foreign capital. Accordingly, the Foreign Exchange portion of the cost of this project is proposed to be financed by participation in cash in the Equity Capital of the Company by Messrs. Garvey Grains Inc. Kansas, U.S.A. to the extent of 1 Million or Rs. 47,50,000/- and by Messrs. Handels Union AG and Phoenix Rheinrohar AG of West Germany to the extent of $125.000 of Rs. 594,000 each. This participation in the Capital as also the Technical Collaboration Agreements have been approved by the Government of India in principle. Messrs. Germany Inc. who negotiated all the collaboration agreements and who will also negotiate the purchase of the equipment will he paid 5 p.c. of 1 1/4 Million Dollars for their services, in the form of fully paid up Equity shares of the Company. Necessary applications to the Controller of Capital issues as well as to the Reserve Bank of India have been made and their approval is awaited. In view of this, your Directors recommend that the resolution under reference may be passed and shares as indicated in the Notice be allotted in favour of the Financial participators, by waiving the rights of the members to be offered first the aforesaid shares. The Financial participation Agreement is available for inspection in the Registered office of the Company during office hours (except on Saturdays). The material terms of financial participation agreements are as follows: 1. The American and German Participants will subscribe up to 47 p.c. of the issued and paid up Capital of the Company. 2. The American participators will be entitled to nominate on the Board of Directors three members and the German participators will be entitled to nominate one member as long as the total holdings in the Equity capital of the Company of the Participators is 25 per cent or above. In case the holdings fall below 25 per cent the number of Directors so appointed by the participators will be diminished proportionately. These Directors will hold office at the pleasure of the participators (and will be subject to retirement by rotation.) 3. To finance the Rupee Capital expenditure in India a loan of Rs. 21.4 Million will have to be obtained from Cooley Amendment PL 480 Funds. Necessary applications have been made to the Government of India as also to the Agency for International Developments, Washington. While the approval of the Government of India is awaited, the sanction of the AID, Washington has been received. It is understood that the issue of Equity shares to the Foreign participators will only be made on sanction of Cooley loan by Government of India.";