Baboo Lall Jain, J.
1. The petitioners instituted this suit, inter alia, for the following reliefs :
'(a) Declaration that resolution to issue new shares in defendant No. 1 passed in the meeting of the board of directors of defendant No. f on December 30, 1992, and all acts in pursuance thereof are illegal, null and void.
(b) Declaration that the letter of offer dated January 20, 1993, offering issuance of 68,000 equity shares of defendant No. 1 and all steps taken thereunder are illegal, null and void,
(c) Perpetual injunction be issued restraining the defendants from giving any effect or further effect to the purported board resolution dated December 30, 1992, for issue of 68,000 equity shares of defendant No. 1 and from giving or issuing the said 68,000 equity shares or any new shares of defendant No. 1.
(d) Decree directing delivery up of all the letters of offer issued by defendant No. 1 relating to issue of 68,000 equity shares so that the same may be adjudged void and be cancelled.
(e) Injunction be issued restraining the defendants from taking any step or accepting any money or issuing any new share, in pursuance of the said letter of offer or giving any effect thereto in any manner whatsoever.
(f) Declaration that the 22,120 equity shares of defendant No. 1, are standing in the name of Dilip Sen, and have been wrongfully recorded in the name of defendant No. 3 and decree directing ratification of the share register of defendant No. 1 by deleting the name of defendant No. 3 and by substituting the name of Dilip Sen for defendant No. 3 in respect of the said 22,120 equity shares in the register of members of defendant No. 1.
(g) Perpetual injunction restraining defendant No. 3 from exercising any right in respect of or on the strength of the said 22,120 equity shares as purported transferee of Dilip Sen or as holder thereof.
(h) Decree directing defendant No. 3 to deliver up the said share certificates relating to the said 22,120 equity shares to defendant No. 1.
(i) Permanent injunction restraining defendant No. 3 from exercising any right to take new shares on the basis of the said purported letter of offer in respect of the said 22,120 equity shares of defendant No. 1.
(j) Permanent injunction restraining defendants Nos, 2 and 3 by their servants, agents, and/or assigns from interfering or meddling in any way with the affairs and functioning of defendant No. 1 and from representing or holding themselves out in any manner as persons entitled, empowered or authorised to act for or on behalf of defendant No. 1 including operating bank account, collecting monies or otherwise.
(k) Decree for Rs. 18,00,000 as will appear from paragraph 48 and/ or alternatively decree directing defendant No. 3 to render true, faithful and proper accounts of their dealings and transactions with the assets, properties and monies of defendant No. 1 and decree for such sum as may be found due and payable after taking of such accounts.
(l) Enquiry into dealings and transactions mentioned in paragraph 48 and a decree for such sum as may be found due upon such enquiry.'
2. After the institution of the suit an application was moved before this court on March 4, 1993, inter alia, for the following orders :
'(a) A special officer be appointed to take possession of the books of account, assets and records of respondent No. 1 for the purpose of initialling and making inventory thereof.
(b) A special officer be appointed to take charge of the management of respondent No. 1 and its business by superseding and/or suspending the board of directors.
(c) Injunction be issued restraining the respondents from giving any effect or further effect to the purported board resolution dated December 30, 1992, for issue of 68,000 equity shares of defendant No. 1 and from giving or issuing the said 68,000 equity shares or any new shares of defendant No. 1 ;
(d) Injunction be issued restraining the defendants from taking any step or accepting any money or issuing any new shares, in pursuance of the said letter of offer or giving any effect thereto in any manner whatsoever.
(e) Injunction restraining defendant No. 3 from exercising any right in respect of or on the strength of the said 20,120 equity shares as purported transferee of Dilip Sen or as holder thereof.
(f) Injunction restraining defendant No. 3 from exercising any right to take new shares on the basis of the said purported letter of offer in respect of the said 22,120 equity shares of defendant No. 1.
(g) Injunction restraining defendants Nos. 2 and 3 by their servants, agents and/or assigns from interfering or meddling in any way with the affairs and functioning of defendant No. 1 and from representing or holding themselves out in any manner as persons entitled, empowered or authorised to act for or on behalf of defendant No. 1 including operating bank account, collecting monies or otherwise.
(h) Ad interim order in terms of prayers above.'
3. The case of the petitioners is that in a bid to oust and keep the petitioners from the management and control of defendant No. 1 and to reduce the petitioners into an insignificant minority the respondents in collusion with each other passed a mala fide board resolution dated December 30, 1992, and sought to issue 68,000 equity shares in respondent No. 1.
4. It has also been alleged that pursuant to the said resolution and without waiting for confirmation thereof, in a subsequent board meeting the board of directors and defendant No. 1 have caused the letter of offers to be issued to the shareholders. The grounds for challenging the said issue are that there is no genuine demand for augmenting the working capital of defendant No. 1. The aforesaid stipulation in the letter of offer has been incorporated with the anticipation that the American company holding 25 per cent. paid-up capital of the company would not be applying for the said new shares since defendant No. 1 has been declaring dividend in a very insignificant manner.
5. It has also been alleged that 22,120 equity shares were illegally recorded in the name of respondent No. 3, a transferee of Dilip Sen. It has also been stated that defendant No. 3 is not entitled to exercise any right to take any share out of the new shares belonging to Dilip Sen which were illegally recorded in his name. It has also been alleged that defendants Nos. 2 and 3 have been siphoning off funds belonging to defendant No. 1 by adopting wrongful methods. It is not in dispute that the plaintiff is a public limited company. A public limited company can issue rights shares in accordance with Section 81 of the Companies Act, 1956.
6. Mr. S. B. Mukherjee, learned counsel appearing on behalf of the plaintiffs, submitted that membership of the company was entered into on the basis of personal relationship involving mutual confidence or an understanding was there as to the extent to which each of the members was to participate in the management of the company's business. Legal rights exercisable by the members in defendant No. 1 are subject to equitable considerations, i.e., considerations of a personal character aris-ing between different members which make it unjust or inequitable to insist on legal rights or to exercise them in a particular way.
7. Mr. Mukherjee relied on the judgment in the case of Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL). That was a case in which two partners having equal shares in a business as partners converted the same into a company. The share capital was also equally issued to both the partners. Under the articles, shares could not be transferred without the directors' consent. One son of a partner known as 'G' was appointed as director and each of the two original shareholders transferred to him 100 shares. Ultimately, it was held as follows (page 492) :
'The appeal would be allowed for the following reasons,--
(i) the just and equitable provision in Section 222(f) was an equitable supplement to the 'common law' of the company to be found in its memorandum and articles ; it recognised that there might be circumstances in which the mutual rights of the members were not exhaustively defined in the articles, e.g., where they had entered into membership of the company on the basis of a personal relationship involving mutual confidence or an understanding as to the extent to which each of the members was to participate in the management of the company's business ; although the just and equitable provision did not entitle one party to disregard the obligations he had assumed by entering the company, nor entitle the court to dispense him from them, it did entitle the court to subject the exercise of legal rights to equitable considerations, i.e., considerations of a personal character arising between one individual and another which might make it unjust or inequitable to insist on legal rights or to exercise them in a particular way ; thus a director-member might be able to prove some underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continued he should be entitled to management participation, and that the obligation was so basic that, if broken, the conclusion must be that the association should be dissolved.
(ii) In petitioning for a winding-up on the just and equitable ground a member was not confined to such circumstances as affected him as a shareholder ; he was entitled to rely on any circumstance of justice or equity which affected him in his relations with the company or with the other shareholders.
(iii) There was no obligation on the petitioning member to establish that the steps taken by the other members which were alleged to constitute grounds for winding up under Section 222(f) were not carried out bona fide in the interest of the company ; to confine the just and equitable provision to proved cases of mala fides would be to negative the generality of the words.
(iv) In the circumstances it was apparent that a potential basis for a winding-up order on the just and equitable ground existed since, after a long association in partnership, during which he had an equal share in the management, the appellant had joined in the formation of the company ; the inference was indisputable that he and N had done so on the basis that the character of the association would, as a matter of personal faith, remain the same ; the appellant had established that N and G were not entitled, in justice and equity, to make use of their legal powers of expulsion ; that was supported (a) by the fact that N had, by making clear that he did not regard the appellant as a partner, thereby, in effect, repudiated the relationship between them, and (b) by the fact that, by ceasing to be a director, the appellant had lost his right to a share in the profits through directors' remuneration, retaining only a chance of receiving dividends ; furthermore, he was unable to dispose of his interest in the company without the consent of N and G ; all those matters led tothe conclusion that the right course was to dissolve the association by winding-up.'
8. The next case relied on by Mr. Mukherjee was the case of Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268 (Ch D). The facts of the said case are summarised as follows (headnote) :
'The plaintiff held 45 per cent., and her aunt 55 per cent. of the issued share capital of a family company. The company had been incorporated in 1913 and carried on a highly successful business in the building trade. The capital of the company consisted of 200 preference shares, of which the plaintiff and the aunt each held 100, and 1,800 ordinary shares of 1 each fully paid, of which the plaintiff held 800 and the aunt 1,000. Under the articles of association members of the company had a right of pre-emption if another member wished to transfer his shares. The aunt was a director of the company but the plaintiff was not. There were four other directors. The total directors' emoluments exceeded the company's net profits before taxation in each of the years 1971 to 1974. The directors proposed to increase the company's share capital from 2,000 to 3,650 by the creating of a further 1,650 ordinary shares all of which were to carry voting rights. The directors other than the aunt would receive 200 shares each, and the balance of 850 shares would be placed in trust for long service employees of the company. The secretary wrote to the plaintiff on November 1, 1974, setting out the proposals and enclosing notice of an extraordinary general meeting to be held on November 27, to approve the setting up of a trust for the company's employees, to increase the company's capital and to provide for the proposed allotments. Resolutions to the effect were set out in the notice and a draft of the proposed trust deed was enclosed. On November 22, the plaintiff's solicitor wrote a letter to the aunt pointing out that the scheme would reduce the plaintiff's shareholding to under 25 per cent. and stating that the plaintiff was opposed to it. The aunt replied that she was fully aware of the implications of the changes in the company's structure but intended to support the scheme. The plaintiff's solicitor attended the meeting on November 27, as her proxy and proposed an adjournment. The aunt voted against the adjournment, and the three resolutions were then passed. The plaintiff brought an action against the company and the aunt, seeking a declaration that the resolutions were oppressive of the plaintiff and an order setting them aside. The defendant contended that, if two shareholders both honestly held differing opinions, the view of the majority should prevail, and that shareholders in general meeting were entitled to consider their own interests and to vote in any way they honestly believed proper in the interests of the company.'
9. In the said case, the Chancery Division held to the following effect (headnote) :
'The aunt was not entitled as of right to exercise her majority votes as an ordinary shareholder in any way she pleased ; her right was subject to equitable considerations which make it unjust to exercise it in a particular way. Although it could not be disputed that she would like to see the other directors have shares in the company and a trust set up for long service employees, the inference was irresistible that the resolutions had been framed in order to put complete control of the company into the hands of the aunt and her fellow directors, to deprive the plaintiff of her existing rights as a shareholder with more than 25 per cent. of the votes and to ensure that she would never get control of the company. Those considerations were sufficient in equity to prevent the aunt using her votes as she had, and the resolutions would accordingly be set aside.'
10. It does not appear from the petition that any case has been made out in the petition which can bring the instant case within the facts of the cases relied on by Mr. Mukherjee, namely, Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL) and the case of Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268 (Ch D). The said two cases are cases where there were private limited companies with restrictions on transfer of shares and with a very limited shareholding where it was recognised that there was an equitable supplement to the common rules of the company to be found in its memorandum and articles and it was recognised that there might be circumstances in which mutual rights of the members were not exhaustively defined in the articles, namely, they had entered into a membership of the company on the basis of personal relationship involving mutual confidence for and understanding as to the extent to which each of the members was to participate in the management of the company's business. In the case of Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268 (Ch D), there were only two shareholders of one family. The said cases have no application to the facts of the case since no such case has been made out in the petition. Even apart from that the company is a public limited company and its members have a free right of transfer of shares and the shareholders consist of persons and/or parties outside the family and even a limited company which is an American company, is a member holding shares to the extent of 25 per cent. of the issued capital.
11. So far as the allegations with regard to transfer of shares of Dilip Sen and Ranjit Sen are concerned the same took place in 1983 and the instant suit was filed in 1993, Even apart from that the respondent has stated that Milan Sen one of the plaintiffs was personally present in the board meeting in which the transfer was accepted and the board resolution was passed unanimously in 1983. Even without taking any other points into account the very fact that this suit has been filed ten years after the actual transfer and the actual transfer having been made with the consent of one of the plaintiffs it is hardly a case for any interim order to be made. For about ten years prior to the institution of the suit the shares are held in the name of Ranjit Sen and he has been receiving all dividends on the said shares without any objections whatsoever. The plaintiffs had no interest in the said shares and furthermore, the suit on that account may even be held to be barred by limitation.
12. One of the allegations of the plaintiffs-petitioners is that Flexaire, a partnership firm of Mrs. Rita Sen, wife of Ranjit Sen, has been given some benefits. Such facilities to use the office against payment of rental was granted in 1976 as is being alleged by the respondent. A board resolution was also passed and it has been stated that Kalyan Sen did not participate in the said resolution. It has also been alleged by the respondents that Flexaire was paying rent to the company until the period when all machinery of Flexaire had been purchased by the company and Flexaire is no more enjoying any of their space since quite some time.
13. Milan Sen himself gave a guarantee to the United Industrial Bank Limited for the loan taken by Flexaire. The said United Industrial Bank Ltd. is now been merged and is part of Allahabad Bank.
14. It was also submitted on behalf of the petitioner that an American company is holding 25 per cent. shareholding of respondent No. 1. Offer has already been made to the American company for subscribing to the rights issue. Because of the order of injunction and the pendency of the application, no steps could be taken on that score. According to the petitioner, if the American company does not participate in taking the rights issue then the shares may be taken by the others of the group of Kalyan Sen. These are really mere apprehensions and it is up to the American company to decide its course of action. If at all the American company chooses not to subscribe for the rights issue then the same has to be dealt with in accordance with the provisions of the Companies Act.
15. It was also submitted that the company did not need additional capital for the rights issue. This is a question which is primarily decided by the directors of the company and if the directors are of the view that further capital in the form of a rights issue is required, the court will be very slow to disturb the same unless there are extreme circumstances of mala fides or breach of trust.
16. In this connection, the respondents relied on the judgment of the Supreme Court reported in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., : [1981]3SCR698 . The Supreme Court in the said case held as follows (page 809) :
'In Hogg v. Cramphorn Ltd. [1967] 37 Comp Cas 157 (Ch D), it was held that if the power to issue shares was exercised from an improper motive, the issue was liable to be set aside and it was immaterial that the issue was' made in a bona fide belief that it was in the interest of the company. Buckley f. reiterated the principle in Punt v. Symons and Co. [1903] 2 Ch 506 and in Piercy v. S. Mills and Company Ltd. [1920] 1 Ch 77 and observed (page 167 of 37 Comp Cas) :
'Unless a majority in a company is acting oppressively towards the minority, this court should not and will not itself interfere with the exercise by the majority of its constitutional rights or embark upon an inquiry into the respective merits of the views held or policies favoured by the majority and the minority. Nor will this court permit directors to exercise powers, which have been delegated to them by the company in circumstances which put the directors in a fiduciary position when exercising those powers, in such a way as to interfere with the exercise by the majority of its constitutional rights ; and in a case of this kind also, in my judgment, the court should not investigate the rival merits of the views or policies of the parties' :
Applying this principle, it seems to us difficult to hold that by the issue of rights shares the directors of NI1I, interfered in any manner with the legal rights of the majority. The majority had to disinvest or else to submit to the issue of rights shares in order to comply with the statutory requirements of the FERA and the Reserve Bank's directives. Having chosen not to disinvest, an option which was open to them, they did not any longer possess the legal right to insist that the directors shall not issue the rights shares. What the directors did was clearly in the larger interests of the company and in obedience to their duty to comply with the law of the land. The fact that while discharging that duty they incidentally trenched upon me interests ot the majority cannot invalidate their action. The conversion of the existing majority into a minority was a consequence of what the directors were obliged lawfully to do. Such conversion was not the motive force of their action.
17. Before we advert to the decision of the Privy Council in Howard Smith Ltd. v. Ampol Petroleum Ltd. [1974] AC 821, we would like to refer to the decision of the High Court of Australia in Marlowe's Nominees (P.) Ltd. v. Woodside (Lakes Entrance) Oil Co. No Liability [1968] 121 CLR 483 and to the Canadian decision of Berger f. of the Supreme Court of British Columbia, in the case of Teck Corjioration Ltd. v. Millar [1972] 33 DLR (3d) 288 both of which were considered by Lord Wilberforce in Howard Smith [1974] AC 821 (PC), On a consideration of the English decisions, including those in Punt [1903] 2 Ch 506 (Ch D) and Piercy [1920] 1 Ch 77 (Ch D), Barwick C. J. said in Marlowe's Nominees (P.) Ltd. v. Woodside (Lakes Entrance) Oil Co. No Liability [1968] 121 CLR 483, 493 :
The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends. An inquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends ; but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company' . . .
'The purpose found by the judge is simply and solely to dilute the majority voting power held by Ampol and Bulkships so as to enable a then minority of shareholders to sell their shares more advantageously
If the power to issue further shares is exercised by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the court will interfere ... in such a case is the existence of the relationship of a trustee and of cestui que trust as between the directors and the company . . .'
18. The Supreme Court in the said case ultimately held that the test is the same, namely, whether the issue of shares is simply or solely for the benefit of directors. If the shares are issued in the larger interest of the company, the decision to issue shares cannot be struck down on the ground that ii has incidentally benefited the directors in their capacity as shareholders. In the instant case, I am not prima facie satisfied that the rights issue of shares is for any personal aggrandisement or to the detriment to the company. I am also not satisfied that the said issue is simply or solely for the benefit of the directors. The petitioner is at liberty to subscribe to the rights issue and maintain its percentage of shareholding. This sort of incidence is always there in rights issues and I am not satisfied prima facie that the rights issue is not in the larger interests of the company.
19. I am not satisfied that any case has been made out for issue of any interim injunction in this case either in respect of the rights issue of shares or in respect of the transfer made in 1983 or in respect of the benefits for use of land given to Flexaire in 1976. I am not satisfied that any prima facie case has been made out for issue of any interim injunction, on any other grounds as alleged or as argued or at all.
20. The application is, therefore, dismissed and all interim orders made in this application are vacated. Respondent No. 1-company will be entitled to proceed with the issue of the rights shares. If, however, any existing shareholder does not offer or subscribe to the rights issues, his shares may be offered to all the existing shareholders proportionately within a fortnight from the expiry of the last date of the non-receipt of offer in accordance with the provisions of the Companies Act. The time during which the order of injunction was in force will not be taken into account in giving effect to the impugned resolution.
21. This judgment and order disposes of the application made by the plaintiffs and verified by the affidavit of Milan Sen on May 3, 1993, and the connected notice of motion in relation thereto.
22. Stay of operation of this order is asked for and is declined.
23. Parties will be at liberty to obtain the signed copy of the operative portion of this judgment and order on the usual undertaking.