Judicial Exam

CASE LAWS ON FURTHER ISSUE OF SHARES

 

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CASE LAWS ON FURTHER ISSUE OF SHARES.

 

  1. Nanalal Zaver vs. Bombay Life Assurance Co. Ltd[1]: section 81 (corresponding to section 62 of the Companies Act, 2013) is intended to cover cases where the directors decide to increase the capital by issuing further shares within the authorized limit, because precluded from doing that by the Articles of Association of the company. Accordingly, the section becomes applicable only when the directors decide to increase the capital within the authorized limit, by issue of further shares.

 

  1. See Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd[2]: the court pointed out that the directors of a company must exercise their powers for the benefit of the company. The directors are in a fiduciary position and if they does not exercise powers for the benefit of the company but simply and solely for personal aggrandizement and to the detriment of the company, the court will interfere and the prevent the directors from doing so. It was further held that, the powers to issue shares need not be used only when there is a need to raise additional capital. The power can be used to create sufficient number of shareholders to enable a company to exercise statutory powers or to enable it to comply with statutory requirements. The Department of Company Affairs, now Ministry of Corporate Affairs has clarified that ‘one year’ specified in the section is to be counted from the date on which the company has allotted any share for the first time.

 

  1. Balkrishan Gupta vs. Swadeshi Polytex Ltd.[3]: although the term ‘holders of the equity shares’ is used in sub section (1) (a) and ‘members’ in sub section (1A)(b) of section 81 (corresponding to section 62 of the Companies Act, 2013), the two terms are synonymous and mean persons whose names are entered in the register of members.

 

  1. In Worldwide Agencies (P) Ltd. Margaret T. Desor[4]: it was held that persons who have become entitled to the shares of deceased member can exercise all the membership rights of the deceased irrespective of the fact whether their name is in the register of members or not.

 

  1. Mathalone (R) vs. Bombay Life Assurance Co. Ltd.[5]: the court held that the transferor could not be compelled by the transferee to take up on his behalf the rights shares offered to the transferor and all that he could require the transferor to do was to renounce the rights issue in the transferee’s favor.

[1] AIR 1950 SC 172: (1950) 20 Com Cases 179.

[2] (1981) 51 Com Cases 743 at 816, AIR 1981 SC 1298: (1982) 1 Comp LJ1

[3] (1985) 58 Com Cases 563: AIR 1985 SC 520

[4] (1990) 67 Com Cases 607: AIR 1990 SC

[5] AIR 1953 SC 385: (1954) 24 Com Cases 1

by Shajeeda Tajdeen

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