Case: Unit Trust of India &amp; Others Vs. Om Prakash Berlia &amp; Others

These four appeals arise out of a decree in Suit No. 1108 of 1981 of the file of the original side of this court wherein the learned single judge has passed a decree directing that the register of members of defendant No.that is, the National Rayon Corporation Limited, be rectified by deleting therefrom the names of defendants Nos. 1 to 7 as holders of shares as mentioned below :Names of the institutionEquity shares held onnumbersUnit Trust of India(Defendant No.1)31,250500365 to 531614General Insurance Corporation of India (Defendant No. 2)1,250537865 to 539114Oriental Fire and General Insurance Co. Ltd. (Defendant No. 3)1,250541615 to 542864United India Insurance Co. Ltd.(Defendant No.4)1,250542865 to 544114National Insurance Co. Ltd.(Defendant No.5)1,250539115 to 540364New India Assurance Company Limited (Defendant No.6)1,250540365 to 541614Industrial Credit and Invesment Corporation of India(Defendant No.7)6,250531615 to 5378642. Four different appeals have been filed by the defendants. Appeal No. 390 of 1982 is filed by original defendant No. 1, namely, the Unit Trust of India (hereinafter referred to as "UTI"). Appeal No. 391 of 1982 is by defendant No. 7, i.e., The Industrial Credit and Investment Corporation of India (hereinafter referred to as "ICICI"). Appeal no. 392 of 1982 is filed by defendants Nos. 2 to 6, namely, The General Insurance Corporation Of India (hereinafter referred to as "GIC"). The Oriental Fire and General Insurance Co. Ltd. (hereinafter referred to as "OFGI"), The United India Insurance Co. Ltd. (hereinafter referred to as "UI"), The National Insurance Co. Ltd. (hereinafter referred to as "NIC") and The New India Assurance Co. Ltd. (hereinafter referred to as"NIA"). Appeal No. 393 of 1982 is filed by defendant No. 8, i.e., The National Rayon Corporation Ltd. (hereinafter referred to as "NRC"). Whenever defendants Nos. 1 to 7 are to be referred to collectively, they would be referred to as "financial institutions". As the appellant in one appeal is the respondent in the other, it would also be convenient to refer to the parties not as appellants and respondents but as plaintiffs and defendants.3. As observed in the judgement of the learned single judge, the plaint is verbose and argumentative. It runs into 270 pages including the annexures of about 100 pages. The written statements are also equally lengthy. There are separate written statements of defendants Nos. 1,, 7 and 8. In addition defendant Nos. 2 to 6 have also filed another written statement. In substance, the plaintiffs case is that the allotment of shares as mentioned in paragraph 1 above is illegal. Defendants Nos. 1 to 7 have advanced the following loans to defendant No. 8 :Defendant No. 1 250 lakh Defendant No.2 10 lakh Defendant No.3 10 lakh Defendant No.4 10 lakh Defendant No.5 10 lakh Defendant No.6 10 lakh Defendant No.7 50 lakh4. These loans were given on the basis that there would be debentures In respect thereof. A debenture trust deed was executed by the company in favour of the trustee, namely, The Bank of Baroda. 20 per cent. of the debenture loan of each of these defendants was, at the option of the respective financial institutions, convertible into equity shares. Defendants Nos. 1 to 7 were to pay Rs. 160 per share including the premium amount of Rs. 60. It is in this way that the NCR as per the said option has issued shares in favour of the said financial institutions. According to the plaintiffs, the said transactions were not transactions of debentures with an option clause of converting part of the debentures into shares. The plaintiffs contend that the transactions were really that of taking a loan of 80 per cent as loan amount and the issue of shares for the remaining 20 per cent. of the amount. When the plaintiffs purchased shares in the open market, defendant No. 8 refused to register and transfer the shares in the name of the plaintiffs. This was done with a view to deprive or prevent the plaintiffs from acquiring voting strength. The plaintiffs further contend that side by side the financial institutions increased their voting strength on the basis of the impugned conversion of debentures and thus acquired additional voting power to the extent of 51,000 shares. This litigation pertains to 43,750 shares while there is another Suit No. 1110 of 1981 regarding 7,250 shares which is still pending. This later suit is about the issue of shares on the basis of the loan of Rs. 58 lakh by ICICI. The learned single judge negatived practically all the contentions of the plaintiffs. However, the suit was decreed only on one ground. The agreement between the financial institutions and the company was that the financial institutions would give one months notice while exercising the option of converting 20 per cent. of the debentures into shares. The NRC waived this period of notice and allotted the shares. This was done within a few days from the date of notice. The learned single judge came to the conclusion that this waiver of notice on the part of defendant No. 8 was mala fide and as such the consequent allotment of shares in favour of the financial institutions was bad. It is in this way that the suit was decreed and defendants have filed these appeals. The plaintiffs have filed their crossobjections challenging the findings of the learned single judge that are recorded against them.

Court's reasoning:
5. During the course of the hearing, some statements have been made by Mr. Cooper giving up certain points. In addition some other points were not pressed before the learned single judge. Hence, we do not propose to give the detailed and verbose averments in the plaint and consequent detailed denials of these allegations. The appeal memos and theare equally lengthy and contain many grounds. In this background we propose to follow the procedure of referring only to those relevant points that are argued before us and at that time, if necessary, we would give the concerned details of the pleadings.6. Both the plaintiffs had no concern with NRC at any time before April, 1977. It is in this month that plaintiff No. 1 became a holder of 2,736 shares of NRC. It seems that before April, 1977, the affairs of NRC were being conducted in a manner prejudicial to the interest of the company and also of the members. Hence, on 11th July, 1977, the company law board passed an order (Exhibit B, Partpage 1202 of theunder Section 408(1) of the Companies Act, appointing eight directors for a period of three years. Shri R. K. Talwar was named as the chairman. However, as he declined to accept the appointment, Shri B. R. Patel was appointed as the chairman in his place on 5th August, 1977.7. It seems that the company was in financial difficulties and was in need of loans. There is no dispute that loans to the extent of Rs. 408 lakh were advanced by the financial institutions. In this case, we are concerned with the loan of Rs. 350(1) is not relevant for our purpose. It is clear that under(1A) the company can allot shares in favour of anybody provided there is a special resolution to that effect. In the absence of such resolution, there should be an ordinary resolution but in the latter case the Central Government must be satisfied that the proposal is beneficial to the company.(3) permits another mode of allotment of shares. This can be done by exercise of the option to convert the debentures into shares. However, the terms providing such option must be approved by the Central Govt. Financial institutions (namely, defendants Nos. 1 to 7) are the specified institutions as contemplated by prov. (4) to(3) and hence there is no need of having any resolution of the company. This prov. (4) has been challenged by the plaintiffs as ultra vires the Constitution. But that aspect can be conveniently kept aside for the present. There is no dispute that if the suit transaction is ere allotment of shares of 20 per cent. of loan, it falls under(1A) and the allotment of shares would be bad because there is no special resolution and there is no ordinary resolution coupled with the approval of the Central Govt. similarly, the allotment of shares in favour of defendants Nos. 1 to 7 would be good if the allotment complies with the provisions of(3). It is in this background that the plaintiffs have contended that the true and real nature of the transactions is straight allotment of shares while the defendants contend that the allotment was in exercise of the option instated earlier, the plaintiffs have given up certain contentions either before the recording of the evidence or at the time of the arguments. The pleading as to the nature of the transaction appears in para.we do not propose to reject the contention of the plaintiffs on this ground alone as the matter has been argued before us at great length on the basis of the documents that are available on record. We think that it will be appropriate to discuss the merits or otherwise of the plaintiffs contentions about the nature of theWe have already observed that UTI has agreed by its letter dated 17th January, 1978, to give financial assistance of Rs. 50 lakh for Nylon Tyre Cord Project. On 6th June, 1978, UTI wrote a letter (Ex.A, page 1604 of the paper book) giving a notice to NRC of the intention of UTI to acquire fully paid up shares in lieu of conversion for the amount of Rs. 10 lakh at the rate of Rs. 100 per share with a premium of Rs. 60 per share. In the letter, it is stated that NRC should get the debenture trust executed for the remaining amount of Rs. 40 lakh. UTI wrote a similar letter dated 8th June, 1978, (Ex.A, page 1612 of the paper book, so far as the acquisition of shares of 60 lakh (from out of the transaction of Rs. 300 lakh). It is not necessary to give the contents of this letter as it is worded practically in terms of the letter dated 6th June, 1978.As already observed, the letter dated 17th January, 1978, completely supports the defendants. By that letter UTI has offered a financial assistance of Rs. 50 lakh. This letter gives the various terms and conditions of the said offer. It is not necessary to reproduce all the various terms. Suffice it so say that the tenor of the letter is to render financial assistance on the basis of the private debentures. Condition No. 4 says that the commitment under the letter shall be deemed to have been fully discharged on the UTI making an application for the debentures of Rs. 50 lakh. There are some terms dealing with the rate of interest and the mode of redemption of the debentures.While under condition No. 17, it is provided that the draft trust deed should be submitted for the approval of the UTI for being finalised, the letter is closed with a statement that the offer by that letter should not be treated as binding unless the debenture trust deed is executed by the company in such form as may be required by the UTI. Thus, the plaintiffs would not be able to make use of any of the contents of this letter in support of theirhave already observed above that Mr. Cooper relies upon condition No. 7. in that letter. The said condition is reproduced in paragraph No. 17. That condition says that the option was to acquire in lieu of conversion equity shares of Rs. 60 lakh inclusive of premium. The term "in lieu of" would normally mean "by substitution of" and it is in this way that Mr. Cooper urged that there was not to be any conversion at all but what was agreed was the allotment of shares in substitution of the conversion clause. It is true that condition No. 7 read by itself would convey this meaning but what is urged by Mr. Nariman is that the rest of the contents of the letter should also be taken into account for the purpose of deciding as to what was the overall intention of the UTI when it wrote the letter. Before mentioning the various conditions, UTI has informed NRC that the financial assistance from the UTI would be in the form of subscription to the privately placed debentures of Rs. 300 lakh. It then states that those debentures will be on the condition that follow. Condition No. 1 states that the offer to subscribe for such debentures will be open during the end of November, 1978, or such extended period. According to condition No. 3, the commitment of UTI shall be deemed to have been discharged as soon as the application for Rs. 300 lakh face value on debentures would be made. As per condition No. 8, it is provided that the NRC should agree to the free transfer of the shares obtained by the trust through conversion. Under condition No. 15, the debenture trust is required to be submitted to the UTI for approval before completing it and any alterations or changes suggested or indicated by UTI required to be incorporated therein. Condition No. 24 provides that the company should obtain the necessary consent, approval, etc., from the Government authorities for the issue of requisite debentures. The letter is wound up by saying the offer will not be binding unless the debenture trust is executed by the company in such form as may be required by UTI. UTI asked NRC to confirm the terms and conditions mentioned in the letter for subscription by UTI to the debentures are acceptable. It is thus clear that expect condition No. 7, all the rest of the conditions and other parts of the letter are consistent with the defendants version that what was really contemplated was the convertible debentures and not direct allotment of shares. The offer was to have debentures of Rs. 300 lakh and this connotes that initially the entire loan was of Rs. 300 lakh debentures. Similarly, it was specially provided that the debenture trust has got to be approved by UTI before it was executed by the company. Mr. Cooper is right when he contends that condition No. 7 read by itself may support the plaintiffs case. At the same time Mr. Nariman is also right when he urges that all that the rest of the letter indicates is that the parties wanted to have the usual convertible debentures. As to how such a type of document has to be construed by the Supreme Court in the case of Delhi Development Authority v. Durga Chand Kaushish, AIR 1973 Supreme Court 2609. It was a case dealing with the construction of a document of lease. Through the document intended to create a lease of 90 years, still there were certain clauses which conveyed a meaning that the lease was to be for 20 years. The Supreme Court considered that particular provision, which carried such a meaning, in the background of the rest of the contents of the document and has held that such a clause should not be torn off from thein this letter there is a mention of the GIC letter dated 16th October, 1978, there is also an additional statement that NIA was agreeable to contribute Rs. 10 lakh on the basis of debentures subject to the condition that NIA will have a right to convert 20% of the debentures (i.e., Rs. 2 lakh debentures) into equity shares. Thus, the other financial institutions (participating in the financial assistance in question) namely, ICICI and NIA have written that the transaction would be on the basis of debentures with the usual option. They have not asked for immediate allotment of shares. As against this, the GIC has stated that it would get the shares in lieu of conversion. But it has not asked for allotment of shares immediately. The other subsidiaries of GIC (except NIA) have only stated that they were ready to participate on terms proposed by GIC. As the transaction of Rs. 350 lakh is pleaded by the plaintiffs as one composite transaction, the fact that ICICI and NIA wanted to have a transaction of usual debentures with option to convert a part into shares, will also be relevant J. In this background, it will be very difficult for Mr. Cooper to contend that the letter dated 1st June, 1978, should be interpreted in favour of the plaintiffs for assessing the exact nature of the transaction.31. The three letters dated 1st June, 1978, 6th June, 1978, and 8th June, 1978, were written after the matter was processed by the UTI and IIM. Exhibit 7, partp. 3481 is a note prepared by the secretary of the UTI for the circular resolution to be approved by the executive committee. The note clearly states that the financial assistance would be in the form of privately placed debentures and that the trust would exercise its rights to convert Rs. 60 lakh, (20% of the proposed assistance) into equity shares.All these various recitals in the debenture trust deed show as to how the parties understood the previous correspondence between them and how they treated that transaction as the convertible debentures of Rs. 350 lakh and not that of direct allotment of shares to the tune of Rs. 70 lakh and the debentures of Rs. 280 lakh. The loan agreements mentioned in the debenture trust deed are in fact the correspondence between the parties and this correspondence has been treated by the parties in a particular fashion. It will be very difficult to accept the contention of Mr. Cooper that though the parties intended to construe certain correspondence in a particular manner, still the court should interpret it in another manner. This is more so when the surrounding circumstances including the various actions taken by the parties in further finalisation of the matter are consistent with the transaction being that of convertible debentures.39. On the very day, i.e., 31st May, 1979, the following further events have taken place. It appears that the financial institutions gave letters for subscription of the respective debentures in their favour. The letters of allotment of debentures were issued. This fact is admitted in para. 73(d) of the plaint. Mr. Cooper, learned counsel for the plaintiffs wanted to get over this admission by reference to the recitals at some other place. However, the admission is so clear that it would not be possible to accept the submission. Each of the financial institutions gave a notice exercising the option to convert 20% of its debentures into equity shares. These notices are at (Ex Z1, partpp. 2388 to 2499). The notice are similarly worded and it would be sufficient if we make a mention to the contents of one of those notices. For example, in the notice issued by UTI (Ex.there is a reference to the correspondence dated 31st January and 1st June 1978, and to clause (4)(a) of the debenture trust. The notice then states that in terms thereof, the UTI is entitled to call for an allotment of 31,250 fully paid up shares and that, therefore, the UTI was giving a notice to convert with immediate effect 5000 debentures from "A" series into 31,250 fully paid up equity shares. There is a minor change in other notices so far as the number of shares that were to be demanded on such conversion. On 5th June, 1979, the NRC passed necessary resolution for the allotment of shares on such conversion and this allotment is of 43,750 shares (so far as this litigation is concerned) as detailed in para. 1 above. Section 75 of the Companies Act, 1956, requires filing of the returns with the Registrar of Companies for the allotment of such shares and the said return has been filed on 27th June, 1979 (vide Ex. 17, partp. 3578). All this is again consistent with the defendants case.40. As stated above on May 31,1979, a number of events have taken place. The debenture trust deed was executed. The financial institutions sent letters of subscription to the privately placed debentures. On the same day, the company issued letters of allotment of debentures. The financial institutions then issued notices of converting 20% of debentures into equity shares. These transactions were preceded by letter dated May 29,1979, from Amarchand Mangaldas, the common attorney of the financial institutions and the company that the transaction has been decided to be completed on May 31, 1979. A note attached to the letter also indicates as to various actions to be taken for completing the transaction and these actions included the execution of the trust deed, applications for debentures, issue of allotment letters and issue of conversion notice. Mr. Cooper contended that the various happenings of May 31,1979, would indicate that the parties had predetermined that on the date of the debenture trust deed itself, the necessary consequential documents including conversion notice should be completed. He also argued that the term "option" contemplates that the concerned party should have a choice and if there is no scope of such a choice account of theof the course of action, the transaction would be not of debentures with a conversion clause. In our opinion, these circumstances would not indicate that the nature of the transaction was that of an allotment of shares. A party which intends to have a conversion clause in the debentures can very well take a prior decision that it would exercise the option of conversion and if such a decision is taken, such a party would necessarily act in the manner in which the financial institutions have acted here. Hence, the fact that various documents came into existence on May 31,1979, cannot be construed in favour of the plaintiffs. The trust deed dated May 31,1979, provides for the exercise of the option within two years from June 15,1978, to June 14,1980. This covers the period even prior to the execution of the trust deed, i.e., a period from June 15,1978, to May 31, 1979. It is true that two years period of option mentioned in the debenture trust deed also covers a part of the period earlier to the execution of the documents. However, Nareshchandra Singhal, who is working with ICICI for a number of years, has made the position clear. The witness wasin order to find out as to whether there were any instances where the documents had provided the period of conversion so as to include some period earlier to the execution of the document. The witness has stated that there were such instances. Mr. Cooper asked the witness to produce certain statements in that respect. Singhal has produced at Ex.part II, p. 3232 onwards, such a statement. It is not necessary to go into the details thereof. Suffice it to say that at serial No. 1 in the statement there is a loan transaction of Rs. 158 lakh which was given to Balarpur Industries Ltd., on June 15,1981. However, the option to convert a part of the loan into equity shares was agreed to be exercised between February 1, 1979, to July 31,1981. This means that the period of conversion had already commenced long before the loan was advanced. Similar is the case of loans to J. K. Synthetics, Rallis India Limited and Raymond Woollen Mills Ltd. The witness was also asked to produce a statement as to whether there have been instances when the option was agreed to be exercised not during the fixed period but at any time during the currency of the loan. Entry at Serial No. 2 of part II of the statement (p. 3234) shows that Rs. 11,00,000 were granted to Nagpal Petrochem on March 4,1980, and the option was to be exercised during the currency of the loan. The option was exercised within about 10 days, i.e., on 14th March, 1980. The more important item is about the loan of Rs. 60 lakh to Motor Industries (serial No. 3, p. 3234). On October 1,1973, Rs. 60 lakh were advanced on debentures. The period of conversion was stipulated to be before 3rd October, 1973, i.e., 2 days from the date of the issue of the loan. A copy of the relevant contract of the allotment of shares in this case is at p. 3237. It shows that the parties had agreed that the conversion should be exercised by giving a fortnights notice in writing. However, the option was exercised on the very day on which the loan was advanced and the shares were also allotted on the same day. It would thus be seen that the exercise of option and the allotment of shares on the day on which the loan was advanced is not the peculiar feature of the suit transaction. Similarly, a provision of prescribing a period of conversion beginning from the date earlier to the grant of loan is not abnormal. Hence these factors are irrelevant to consider the nature of thewould thus be clear that all these documents do not support the plaintiffs case. On the contrary, the tenor of these documents is that the parties intended to have convertible debentures.42. On March 6,1980, the Company Law Board (hereinafter referred to as "the CLB"), approved the election and appointment of plaintiff No. 2 as a director of the NRC. The statements of accounts for the year 1979 and the directors report were placed before the AGM held on May 25,1980. The annual report of 1979 coupled with theand the statements of account, is at pages 207 to 267 of vol. 8. On p. 220 of the directors report, there is a mention of the allotment of shares on conversion. Obviously, this conversion also included the debentures and the conversion in question. On p. 234, the share capital in the yearis mentioned. The capital was increased in 1979 by 51,000 shares. There is also a reference to the premium on shares received in that year. Plaintiff No. 1 was present in the said meeting while the directors report and thehave been prepared by the board of directors, in which plaintiff No. 2 was one of them.43. It would thus be clear that all the correspondence and the documents except a part of the letter dated June 1, 1978, and the two letters dated June 6,1978, and June 8, 1978, consistently speak of the transaction being that of convertible debentures and not of the direct allotment of the shares. We may add that it is material to note that the plaintiffs have not referred to the two letters dated June 6,1978, and June 8,1978, in their plaint. The plaint is silent about these letters. Similarly, the trust deed also does not refer to these two letters. For all these reasons it will not be possible to hold that the parties ever intended a direct allotment of shares as contemplated by Section 81(1A) of the Act. This is more so when we look to certain guidelines issued by the Government as to how the financial institutions should behave while advancing loan to others.Clause 3(A) provides that the convertibility clause should conform to the provisions of Section 81(3) of the Companies Act. Clause 6 deals with mechanics of conversion and it provides that the concerned financial institutions should in consultation with the Industrial Development Bank determine the maximum amount of loan which can be converted into equity capital. Under clause 8, it was decided that separate guidelines would be issued for the exercise or waiver of the option clause and that pending such guidelines, the financial institutions may take a decision in consultation with the Industrial Development Bank. It is these guidelines that were available when IIM was held on 31st May, 1978. There are further guidelines dated 17th November, 1978, dealing with the extent of option and as to how the option is to be exercised. They state that in the case of existing companies not doing very well, the period for exercising the option should be fixed after the scheme for which the financial assistance is to be extended is completed and the company is in a position to pay a reasonable dividend. The grievance of Mr. Cooper is that these guidelines of November 17,1978, have not been properly followed as the financial institutions were allowed to exercise the option within two years, i.e., even before the modernisation programme was completed. It is this modernisation programme for which a major part of the financial assistance of Rs. 350 lakh was sanctioned. It is very material to note that the said guidelines appear to have been framed by the financial institutions including the Industrial Development Bank. The IIM dated May 31,1978, was attended by all the financial institutions as also by the Industrial Development Bank and it is in this meeting that the period of conversion is determined as between June 15,1978, to June 14,1980. In this background it will not be possible to accept the contention of Mr. Cooper that it was necessary to have a further decision about the period of conversion. Apart from that, Mr. Cooper did not contend that such alleged breach would itself make the transaction as that of direct allotment ofare not able to accept this contention. Thus, here is a case where the government guidelines specifically provide that any assistance exceeding Rs. 50 lakh must contain a convertibility clause. These financial institutions, viz., defendants 1 to 7, are expected to follow these guidelines and their contention is that they have actually followed the guidelines by entering into a transaction which contained a convertibility clause. The existence of the guidelines which makes imperative to have such a convertibility clause goes against the plaintiffs case and it will not be possible to hold that in spite of such a clause, the parties intended to have an agreement of the direct allotment of shares when issuing the debentures in question.45. Certain arguments were advanced before us by Mr. Cooper as to how the NRC and the financial institutions hurriedly processed the matter of the additional loan of Rs. 300 lakh. We have already mentioned that when the NRC informed the UTI that the NRC intended to have a loan Rs. 1 crore from the consortium of banks, the UTI voluntarily agreed to render this assistance on the ground that the banks assistance would be costly from the interest point of view. It was urged that UTI had no business to make such a voluntary offer. It is common ground that the UTI and certain other financial institutions were holding a number of shares in the NRC. The company was in doldrums and hence the Government has appointed its own directors in 1977. In this background, the move by the UTI to offer the loan which would be more beneficial as compared to the loan from the bank is understandable and there is nothing sinister in it. It was then urged that the matter was processed in an undue haste. On May 29,1978, the NRC wrote to the UTI about the need of an additional assistance of Rs. 408 lakh for the modernisation programme. A tentative note about this programme was attached to this letter and the letter states that the figures were tentative. Witness, Atmaramani, who is the Joint General Manager (Investment) of the UTI immediately prepared the note about this request of the NRC and the said note was placed before IIM held on May 31,1979. A great deal ofof Mr. Atmaramani deals with this aspect. Certain suggestions were made that the letter dated May 29,1978 was not in fact received on that day from the NRC but it was received later on. The inward register of the UTI shows that the letter was inward on 4th JUNE, 1978, which was a Sunday. But it appears that there were also other entries in the register of that day. A comment was also made that this inward entry is not in the usual inward registers of letters but is in the inward register of documents. It is, however, material to note that this letter dated May 29,1978, from the NRC has been referred in the report of Mr. Atmaramani. Not only that there is a reference to this letter in the subsequent correspondence between the NRC and the UTI dated June 1, 1978 (p. 1588) and dated June 2,1978 (p. 1603). A copy of the letter was forwarded to the CLB by the NRC itself on July 6,1978. This can be seen from p. 1714. The usual practise of sanctioning the loan by the financial institutions is to have a detailed prior appraisal of the proposal made by the applicant company. In the present case, the IIM sanctioned the loan without such an appraisal and the argument of Mr. Cooper is that this hurry would indicate that the transaction of allotment of shares in that of direct allotment of the shares. The IIM resolution specifies that the sanction is subject to the detailed appraisal. Mr. Atmaramani has given an explanation as to why the detailed appraisal was postponed to a later date. He has stated that he had discussions with Trivedi of NRC and, at that time, Mr. Atmaramani was informed that a decision about the sanction was urgently necessary so that the company could pass a resolution under Section 293 at its AGM scheduled in June, 1978. Mr. Atmaramani has also deposed that Trivedi told him that the company intended to take in hand modernisation programme immediately. Another reason for the urgency was that IIM was to be held within a couple of days and it was felt that the matter should be placed before IIM on that day. The detailed appraisal of the proposal was made in November, 1978. Mr. Cooper hasMr. Atmaramani as regards the difference in the original tentative proposal and the final proposal which was appraised in detail. There is also certainsuggestion that Mr. Atmaramani had no concern with this proposal. It seems that some time after completing the transaction the NRC wanted to alter the mode of expenditure of loanin this para. No. 73(e), the plaintiffs have alleged that the NRC was not at all in need of money so as to enter into a transaction of loan and debentures and that the suit transaction was a mala fide one. When Issue No. 20 pertaining to these allegations has not been pressed at the time of the argument in the court, we are not able to see as to how all the aboveof Mr. Atmaramani is relevant for deciding the nature of the transaction. It is for this reason that we do not propose to discuss in detail the various submissions made by Mr. Cooper that the company was not in any urgent need of the finances. As a matter of fact, we would like to state that at one stage of the argument Mr. Cooper did not challenge the financial need of the company. His grievance is that there was no urgent need. But this grievance falls in the background once the plaintiffs have given up their contentions in para. 73(e) of the plaint. At any rate this aspect has no bearing while considering the question as to whether the nature of the transaction is of direct allotment of shares to the extent of 20% of thedo not propose to go into this controversy as the said notes have no direct bearing when we have to consider the nature of the transaction in question and hence we are deciding the controversy without taking into account the said notes. It is not, therefore, necessary to discuss in detail the evidence of Singhal about the proof of these documents, Exs. 2 and 3.48. Thus all the evidence and the circumstances discussed above do not find favour with the plaintiffsevents are two fold, viz., (i) refusal by the NRC to register the shares purchased by Berlias, and (ii) the freezing order issued under Section 108D of the Companies Act.Plaintiff No. 1 became a shareholder of the NRC some time in April, 1977, and by that time he was holding about 2,736 shares. Thereafter, the plaintiffs acquired some more shares and they applied for registration of the transferred shares in their name. It appears that the NRC did not take an immediate action in that respect. Both the plaintiffs, therefore, filed Civil Suit No. 6691 of 1977 against the NRC and its directors for an order of the transfer of the shares in their favour. A similar Suit No. 6692 of 1977 was filed by the plaintiff No. 2 and Gurudayal Berlia with respect to certain other shares. These two suits covered 27,183 shares and 2,450 shares respectively.It is true that a link in a chain of correspondence would be relevant while considering the authorship but the Supreme Court has observed that in case of such links, the recipient of the document is able to speak about the authorship with the help of that link. In the present case, the plaintiffs have not led any evidence of the recipient of the letters. Similarly, the plaintiffs themselves have not entered the witness box to speak anything about the link of these documents forming a chain of correspondence. It is true that Mr. Cooper relied upon some other letters for the purpose of contending that the authorship of theletters should be held proved. But in our opinion, the procedure sought to be adopted by Mr. Cooper is too risky and flimsy to prove the authorship, particularly on account of the absence of the evidence of the recipient of the letters. It would not, therefore, be possible for Mr. Cooper to contend that the above letters should be admitted in evidence. However, the plaintiffs are relieved of the responsibility in this respect, so far as the letter markedfor identification which is similar to the letter, Ex.is concerned. Duringthe course of his argument, Mr. Nariman made a concession that this letter may be admitted inevidence. Accordingly, the said letter is marked as Ex.but the other two letters, namely, Exs.8, cannot be admitted in evidence. The admission or otherwise of these two letters as evidence would not make any serious difference when the letter, Ex.4. It is thus clear that the NRC had taken certain decisions not to transfer the shares in favour of Berlias. Mr. Cooper urged that this attitude was a purposeful one inasmuch as the then board of directors wanted to harass Berlias. It is true that the company was avoiding to transfer shares in favour of Berlias. However, theletter itself shows as to how the initial decision was taken not to transfer shares of anyone and how it was later on modified from time to time. The latter also indicates that the NRC agreed to transfer shares in favour of Berlias on account of the advice given by the advocates. We are not therefore, able to hold that the NRC was acting in any mala fide manner. It appears that the company entertained certain apprehensions against Kapadias and Berlias and hence initially it took a decision not to sanction the transfer of shares in favour of Berlias. The conduct of the NRC in applying for an appointment of an inspector and the fact that such an inspector was appointed is relevant. Taking into account all these factors, we do not think that this letter can be interpreted to mean that the NRC has taken any mala find decision to withhold transfers in favour of Berlias. All this, however, is about the transfer application made by Berlias inthese documents do show that the NRC refused to accept the transfer of certain shares in favour of Berlias and that in some cases, agreed to effect the transfer when proceedings were filed in court while in other matters, the court granted relief to Berlias by delivering judgement in their favour. Mr. Cooper is right when he contends that the NRC was avoiding the transfer of shares in favour of Berlias. However, the settlement of 1977 had given an option to NRC to consider new transfer applications on their merits. There is nothing on record to show the reasons for which the NRC had rejected the transfer application. But the absence of such reasons would not necessarily mean that the NRC wanted to act maliciously against Berlias particularly when the company had certain apprehensions as discussed above. The result therefore, is that thought the NRC had refused to transfer certain shares in favour of Berlias still that fact would not be a circumstance to suggest that the NRC in conjunction with the financial institutions decided to outvote Berlias by entering into a transaction of allotment of shares in the garb of debentures with a conversion option. Before closing this discussion, we may also observe that in all these proceedings there is no allegation that the financial institutions were behind the back of the NRC In Refusing the transfer of shares. In fact, the plaintiffs solicitor Mr. D. k. Pandya, has admitted that Berlias did not have any complaint against defendants Nos. 1 to 7 (financial institutions) In regard to the affairs of the NRC. Hence, this circumstance would not have much bearing while deciding the nature of theis not necessary to reproduce that order in detail. Suffice it to say that the Central Government directed the NRC not to give effect to any transfer of shares in favour of Berlias.The obvious result of the said order would have been that Berlias Group would not have been able to exercise their voting power on the basis of the additional shares purchased by them from time to time or on the basis of the proxies collected by them. We have already mentioned as to how Berlias filed Writ Petition No. 994 of 1978, and how certain conditional orders of injunction were passed under which Berlias undertook to vote the amended resolution to cover the additional loan amount of Rs. 300is true that immediately after this letter a formal freezing order dated June 17, 1978, was issued. However, it has to be borne in mind that the Government of India, i.e., its Department of Company Affairs and the Department of Economic Affairs, had already taken a decision on June 26, 1978, that necessary action under Section 108 should be taken. In the present litigation, we are not concerned much with the correctness or otherwise of that order but we have to see as to whether that order is on account of any joint efforts of the NRC and the financial institutions. The request of the NRC for such an order was already rejected in February, 1978. Thereafter, the two concerned Departments of the Govt. of India held a meeting and took certain decisions. There is nothing on record to show that either the NRC or the financial institutions have persuaded the Govt. of India to take any particular decision in the meeting. Under these circumstances, though a freezing order just prior to the AGM of 1978 was issued, still it will be very difficult for the plaintiffs to contend that such an order was a result of any move of the NRC and the financial institutions. At any rate, even if it is assumed that the said order was at the instance of the financial institutions, still it will not be possible to connect that order with the suit transaction for the purpose of deciding the nature of the suit transaction.61. These are the submissions that have been made by Mr. Cooper and Mr. Nariman as regards the nature of the transaction and we think that the learned single judge is right in holding that the transaction was not of any direct allotment of shares so as to contravene the provisions of Section 81(1)(a) or Section 81(1A) of the Companies Act. The nature of the transaction is thus that of debentures with an option to convert 20% of them into equityned clauses, we may also state that the debenture trust has defined the term "debenture" to mean the debenture issued and allotted to various financial institutions and the term "holder of the debenture" means the holders for the time being as entered in the register of debentures.In the present case, only letters of allotment have been issued to the financial institutions and the debentures proper have not been issued. Thus, there were no debentures so issued and consequently no entry in the register ofour opinion, all the above mentioned requirements did not constitute a condition precedent for exercising the option. All these provisions are meant to avoid any difficulty or problem as to who are the debenture holders and which debentures are to be converted into equityis true that the cases where such observations have been made arose when the company has neglected to issueour opinion, the issue of debentures though desirable, would not always be mandatory. Omission in this respect would be immaterial and innocuous particularly when the parties who are entitled to the debentures are not prejudicial affected. In the present case, the financial institutions as well as the NRC have acted in terms of the debenture trust deed. There is no grievance on the part of the financial institutions about theof the debentures. We have already observed that the letters of allotment have been issued by the NRC. Obviously, those letters make it clear as to in whose favour the debentures were to be issued. The actual issue of debentures would thus be a procedural aspect and an omission thereof would not vitiate the issue of shares onit is material to note that the financial institutions by their notice have exercised their option up to the maximum limits, viz., 20% of the total debentures. In that background, prior earmarking or appropriation of particular debentures for conversion was not at all necessary or mandatory. The parties contemplated that there should be one months notice for conversion. The notice given by the financial institutions is not such a type of notice. However, the case of the defendants is that the notice has been waived. Giving of one months notice is after all a contractual provision and the company would have a right to waiveour opinion, the omission of issuing separate debentures with the option clause does not make any difference inasmuch as the document provided conversion of 20% of the total debentures of Rs. 350 lakh. Thus, the object and meaning contemplated by the order of the Controller of Capital Issues has been achieved and conveyed by using different words. Consequently, there is no substance in the contention of Mr. Cooper that the debentures are not issued in terms of the approval of the saiddo not think that such a restricted meaning to the word "otherwise" should be given. If the debentures are within the powers of the board of directors, the term of option being a part of such debentures would also be within that very power. It will not, therefore, be possible for Mr. Cooper to contend that the option clause is bad in the absence of the resolution of the general body.70. The net result of the above discussion is that the transaction in question is not liable to be challenged on any of the grounds mentioned above.71. Before going to certain other points raised by the plaintiffs as well as by the defendants, we would like to dispose of the contention of the plaintiffs about the constitutional invalidity of Section 81(3) of the Companies Act. In a nutshell thatconfers powers on the Central Government to specify certain institutions. The effect of this specification is that in the case of debentures (with option to convert into equity shares a part of the debentures) to these institutions, it is not necessary that the proposal about the debentures is to be got approved by a special resolution of the company. In the present case, defendants Nos. 2 to 7 have been accordingly specified by the Government. The argument of Mr. Cooper is that the provision in Section 81(3) which enables the government to specify such institutions, grants wide untrammelled and unguided discretion to the government and that such a power without any guidelines would be bad as being violative of articles 14 and 19. With this submission Mr. Cooper wants to contend that if the power under Section 81(3) of specifying institution is bad, consequently, the specification of defendants Nos. 2 to 7 as the institutions under Section 81(3) would be bad. He further argued that in this background the grant of debentures with an option of conversion is itself bad. He also submitted that if the debentures are bad the conversion of a part of the debentures into shares would also be illegal. In our opinion, all these submissions are not tenable for two reasons. Mr. Cooper has made a statement during the course of the trial that the plaintiffs would not be challenging the debenture trust deed. It includes a conversion clause. the learned single judge has held that, after making such a statement, the plaintiffs cannot be allowed to impeach the validity of any part of the debenture trust deed by challenging the above provision of Section 81(3). We do not find anything wrong in this approach.72. Secondly, the very purpose of attacking the above mentioned provisions of Section 81(3) is to challenge the legality of an order of the Central Govt. by which defendants Nos. 2 to 7 have been specified as the institutions. It will not be possible for the plaintiffs to urge that they only want quashing of the above mentioned part of Section 81(3) without actually praying that the notifications issued under the impugned part of Section 81(3) should be quashed. The notification has been issued by the Central Govt. and the Central Govt. would be interested to defend the validity of the notification by contending that no part of Section 81(3) is unconstitutional. In that suit, the Union of India is not made ais true that a notice to the Attorney General is so provided. But if any notification is issued on the basis of the powers under a section which is challenged as unconstitutional, the authority which has issued the notification has every right to urge the validity of the notification on all the counts including the validity of the concerned section. It is for this reason that we told Mr. Cooper that we would not allow him to agitate this constitutional point when the Union of India is not a party to this litigation.73. The learned single judge has decreed the suit on the ground that waiver of one mouths notice was mala fide and that the issue of shares after such mala fide waiver was bad. This finding is challenged by Mr. Nariman, while Mr. Cooper argued that the said finding is correct. There were certain arguments advanced before us that the plaint did not contain the plea of mala fides. However, averments in para. 73D show that there is an averment that one months notice was mandatory and that such a notice cannot be waived.Thus, at the time when the parties led evidence there was a mere statement about the mistake but the plaint was not actually amended. There is, however, much substance in that contention of the defendants that the plaint is silent as to what was likely to happen in the intervening period of one month from 31st May, 1979, and how the financial institutions wanted to utilise the additional voting strength. It was rightly urged by Mr. Nariman that there should have been a specific pleading of particulars of mala fides. The absence of such a pleading is very much relevant. This is more so when Mr. Cooper submitted that an adverse inference should be drawn against the defendants as none of the directors have entered the witness box to depose as to why the notice was waived. In the first place, the plaint, as it stood at the time of evidence, did not specifically allege that the additional voting strength was to be utilised for the meeting of 1979. As stated earlier, the unamended portion of the plaint gave an indication that this additional voting strength was to be for the purpose of passing resolutions in the 1978 meeting. It is needless to state that in fact no controversial or debatable resolution was moved in the said meeting. To a certain extent the defendants can contend that they were taken by surprise by the above amendment of the plaint after the evidence was over. However, we cannot attach too much importance to this. But the other objections of Mr. Nariman is more relevant. The plaint did not contain any particulars of mala fides by alleging that any debatable or controversial topics or resolutions were intended to be brought before the meeting of 1979 either by Berlias or by anybody else.No specific case has been put to this witness in thethat there was particular hurry in 1978 and that the notice was waived in order to complete the transaction, maliciously and in a hurried manner. Similarly, no questions were put to Atmaramani inthat the financial institutions were in need of getting additional voting strength for the meeting ofwe are not able to accept the contention of Mr. Cooper that Atmaramani has not deposed anything about the happenings of 1979. At Ex.part II, p. 1925, of the paper book, there is a note dated April, 7,1979, prepared by the common advocates of the defendants as to how the transaction was to be finalised. It is made on the basis of the discussions that have taken place between the advocates and the representatives of the company as also of the financial institutions. The note shows that Atmaramani was present on behalf of UTI and the note states that the financial institutions indicated that the transaction should be completed by the end of May, 1979. The note also shows as to what steps were expected to be taken for the preparation of the draft debenture trust deed and the execution thereof. Certain other facts are also included in the note. Atmaramani was present on 31st May, 1979, when the transaction was completed. He has deposed that he has signed the subscription letter which is at Ex. 9 part II, p. 3500, of theNot only that but the notice of exercising option (Ex.part II, p. 2388) has also been given to the company under his signature and he had deposed that he handed over that notice to the company on 31st May, 1979. He has then added that he has attended the meeting of 28th June, 1979. It will not, therefore, be correct to say that Atmaramani has not deposed anything about the transaction including the giving of notice of exercising the option. In view of this position, we will not be able to accept the contention of Mr. Cooper that there was no necessity ofAtmaramani by putting the plaintiffs case about the alleged hurry or alleged mala fides in waiving the notice.79. All the above factors will be relevant while considering the contention that Mr. Cooper urged, that an adverse inference should be drawn because none of the directors have entered the witness box. Similarly, they would have relevance while appreciating the plaintiffs cases about the mala fides in waiving theis on the basis of these various circumstances that a submission was made that the waiver of notice was a mala fide one. The learned single judge has come to a conclusion that a prima facie case of mala fides in the waiver of notice has been made out and that it was necessary for the company to lead evidence to disprove this prima facie case. It is also observed that in the absence of such evidence, the plaintiffs would be entitled to succeed on the question of these mala fides. We have already observed the reason why the directors have not entered the witness box. But the more important question is whether, in fact, the plaintiffs have made our any case of mala fides.In addition Mr. Cooper did not advance any arguments before us to suggest that the allotment of shares is itself mala fide. The only mala fides alleged are with respect to the waiver of notice. The effect of the waiver was to accelerate the allotment of shares earlier, i.e., before the expiry of one months notice.83. It is true that by and large, the directors of the company are not expected to act maliciously or improperly and that the main idea in their mind should be the interest of the company.It is thus clear that the allotment of shares should not be made for any improper motive and if there is evidence of such motive, the allotment is liable to be struck down asis true that Mr. Nariman argued that the period of notice and its waiver would be a contractual obligation and the directors would not be under any fiduciary duty similar to one while allotting shares. However, one must not forget that the directors are not expected to act with any mala fide motive and Mr. Cooper would be right when he contends that the waiver of notice would be bad if mala fides areis, however, material to note that such a voting strength would have been acquired by the financial institutions even by giving one months notice. The only thing in that case would have been that the financial institutions would have obtained that strength not earlier that the end of June, 1979. What has happened by the waiver of the notice is that the financial institutions obtained the additional voting strength by 5th June, 1979. The question is as to whether this grant of additional voting strength in an accelerated manner by waiving notice is mala fide. This would be primarily a question of fact. What has happened in 1977 and 1978 would not be decisive though it may be remotely relevant. Wewill have to find out as to whether there was any immediate or urgent apprehension in the mind of the company and the financial institutions that the financial institutions ever thought that the financial institutions should require this additional voting strength in the meeting of 28th June, 1979. Was there anything suggest that the company or the financial institutions ever thought that they would be requiring additional voting strength of 43,750 shares None of the plaintiffs have entered the witness box to depose that he intended to raise certain objections or to put certaIn resolutions which would require voting. As a matter of fact nothing controversial took place in the said meeting. No resolution was moved on which there was any debate. There was thus no occasion for exercising voting power for or against any resolution. There is no evidence to suggest that the plaintiffs or any other shareholder had given prior indication to the company or the financial institutions that there was the possibility of any debatable issue being raised in the meeting. The plaint also does not allege anything in this respect. Thus, the evidence, as it stands in this respect. Thus, the evidence, as it stands in this case, does not prove that there was any immediate need to increase the voting strength of the financial for being utilised in the meeting of 28th June, 1979. In the absence of such evidence, it will be very difficult for the plaintiffs to contend that there were any mala fides simply because the notice was waived.89. The question of waiver of notice and its mala fides can also be viewed from another angle. There is no legal provision that the debenture trust deed or the debenture must contain a clause that for exercising an option for converting the debentures into shares, a notice of a particular period should be given by the debenture holder. Statute does not provide for any such notice. It is only the debenture trust deed and the debenture which has to make provision as to how the option should exercised and there is no legal bar if a provision is made that the option should be exercised by giving a simple notice without providing that the option should be exercised by giving a simple notice without providing that the said notice should be of a particular period. Notice of 1979 AGM was issued on 28th April, 1979. The draft of the debenture trust deed was prepared on 24th May, 1979. On that day, the parties were knowing that the next AGM was to be held on 28th June, 1979. The board of directors held the meeting on 24th May, 1979, and had passed a resolution authorising certain directors to finalise, settle and incorporate any modifications and changes in the draft debenture trust deed. The resolution also authorised the execution of the debenture trust deed with any such modifications or changes. There was nothing to prevent the board of directors to amend the draft by deleting the clause of one months notice. This is very important as on deletion of the clause (at the time of finalisation of the draft, there would not have been any question of waiving the notice and that too with a mala fide intention. The debenture trust deed was executed on 31st May, and the financial institutions have given notice of option on that very day. This shows that the financial institutions were keen on exercising the option as soon as possible. Plaintiffs allegation is that the financial institutions haveto exercise the option on 31st May, 1979 (that is, the date on which the debenture trust deed was executed). Mr. Nariman is right when he contends that in this background, it will be very difficult to hold that the parties to the transaction, namely, the company and the financial institutions, initially purposefully created a hurdle by providing one months notice and thereafter they got over that hurdle by maliciously waiving the notice. There would not have been any question of malice in waiving the notice if such a notice clause was not at all provided for. As discussed above, the provision for such one months notice as not compulsory and nothing prevented the parties to provide the exercise of option without such one months notice.90. In para. 29, we have already referred to theof Shri Nareshchandra Singhal and the statement (Ex.part II, p. 3232, onwards), which he has produced at the instance of the plaintiffs. That statement shows that there are a number of instances when the period of option was agreed to commence even before the advancement of loan. Similarly, there are instances where the option was exercisable at any time during the currency of the loan and not on or before a particular date. The loan to motor industries was advanced on 1st October 1973. The option was exercised and the shares were allotted on the very day, though 15 days notice was contemplated before exercising such an option. Mr. Nariman is right when he contends that this is another indication that there was anything irregular or mala fide in getting the shares immediately. We, therefore, hold that the allotment of shares is not at all vitiated as there were no mala fides when the notice was waived. Similarly, it will not be possible for the plaintiffs to contend that adverse inference should be drawn against the defendants because they have not examined any director of the company as a witness. We have already discussed in the earlier part of the judgement this contention of the plaintiffs in details. The net result, therefore, is that the plaintiffs fail on all the counts and the suit is liable to be dismissed.91. The defendants have also raised certain defences to the suit. These defences need not be considered as the suit is liable to be dismissed in view of the above findings. However, in order to make the judgement complete, we propose to discuss and decide them as they have been urged before us. It was urged on behalf of the defendants that the suit is not maintainable and would be bad for not joining the debenture trustee, namely, the Bank of Baroda, as a party. The said debenture trust has made a provision for the issue of debentures worth Rs. 350 lakh. It also contains a convertibility clause as discussed above. The plaintiffs case is that the conversion of 20 per cent. of the debentures is bad. On account of the conversion, the total value of debentures, was reduced to Rs. 280 lakh. The plaintiffs grievance is that the convertibility is bad and thus the debentures would continue to be of Rs. 350 lakh. Mr. Nariman, therefore, urged that in this background, the trustee, namely, the Bank of Baroda, is a necessary party. In our opinion, the debenture trustee has no concern with the dispute as to whether particular debentures have been properly converted into shares or not. The trustee is entitled to take certain steps if NRC fails to repay the debenture debt and the interest thereon. The trustee is not at all concerned as to who are the debenture holders. It is a matter solely between the company and the particular holder. The relief that certain debentures have been illegally or improperly converted into equity shares can be appropriately granted in the absence of the trustee as a party to this litigation. The question as to whether a particular party is necessary or not depends upon the facts of each case, namely, pleadings and the reliefsdo not think it necessary to make mention thereof, as we are satisfied that the learned single judge has rightly held that the trustee, namely, the Bank of Baroda, is not a necessary party to thissubmission will have to be rejected outright inasmuch as an act which is illegal from its inception, cannot become legal by applying the principle of estoppel, laches andcan be seen from the courts order dated 28th June, 1982, at p. 940 of theIn our opinion, the rejection of the minutes of the meeting dated March 27, 1980, was not proper, particularly when the plaintiffs themselves want to rely uponminutes show that the plaintiff No. 2 attended the meeting. In that meeting, the board of directors considered and discussed the annual accounts of the financial year ending 31st December, 1979. Similarly, theand profit and loss account for the year 1979 were approved by the board of directors. The directors report was also approved with certain changes. The said directors report as well as profit and loss account are at p. 207 onwards of vol. 8. On p. 220, there is a reference to the allotment of shares in the year 1979 to the financial institutions on account of conversion. Needless to say that this includes the allotment in dispute. The profit and loss account and more particularly the position of the share capital as mentioned therein show the increase of the share capital, and this increase pertains to the disputed allotment of shares to the financial institutions. There is also a note that the debentures were issued in the year with certain option as detailed in schedule III. From p. 235, it can be seen that there is a mention of the disputed debentures and of the debenture holders having exercised their rights and converted 20% into equity shares. There is not a serious dispute that in the AGM dated May 15, 1980, plaintiff No. 1 was present and that the above mentioned directors report and theIt would, therefore, be necessary to consider the facts of the case on the basis of the above position of law. We have already observed that plaintiff No. 2 as a director of the company was a party to the resolution showing or indicating that the disputed shares have been allotted to the financial institutions in a regular manner. The directors report as also theprepared by the board of directors is consistent with this position. Plaintiff No. 1 was present at the time of the AGM on May 15, 1980. The plaintiffs have alleged in the plaint mala fides in the waiver of notice. This means that before the filing of the suit, the plaintiffs had obtained the knowledge about the mala fide waiver. However, the plaint is silent as to when they received this knowledge. This omission has an importance. If the plaintiffs had such knowledge before the above mentioned meetings dated March 27, 1980, and May 15, 1980, they would not have acted in the manner mentioned above. On the contrary, they would have raised a grudge about the allotment of the shares. It is for this reason that the date on which they received the knowledge was relevant. Not only that there is no pleading in this respect but none of the plaintiffs have entered the witness box to depose as to when he came to know about the alleged mala fides. The question is as to on whom the burden of proving such knowledge need not detain us any longer in the background of plaintiffs omission to enter the witness box. The fact that the plaintiffs obtained the above mentioned information on a particular day would be within their exclusive knowledge and an adverse inference will have to be drawn against the plaintiffs, for not entering the witness box for deposing anything in this respect. Under these circumstances, it will not be open for the plaintiffs to contend that they had no knowledge or information about the alleged mala fides before March 27, 1980, and May 15, 1980. Their conduct on these two dates with previous knowledge would be a bar so as to prevent them from urging the alleged mala fides.111. There is another important factor which is to be borne in mind. The financial institutions were entitled to exercise option before June 14, 1980. Had the plaintiffs taken any action on the basis of the alleged mala fides prior to that date, the financial institutions would have been able to issue one months notice as contemplated by the debenture trust and on that basis they would have obtained the allotment of the shares. The position has now become precarious from the point of view of the financial institutions inasmuch as on the date on which the plaintiffs filed the suit the period for exercising option had already expired. Thus, granting any decree on the basis of the alleged mala fides would be prejudicial to the defendants. This is more so when the nature of the transaction was to be that of debentures with an option to convert 20 % thereof into equity shares. Thus, it would be unconscionable to allow the plaintiffs any relief on the basis of the alleged mala fides. We would, therefore, hold that the plaintiffs suit would be barred by equitable principles of acquiescence and ratification.112. Rectification of share register is contemplated by section 155 of the Companies Act. There cannot be any serious dispute, though Mr. Cooper does not accept this position, that rectification is a discretionaryprinciple, we do not find that there can be any difference simply because the plaintiffs have filed the suit. Before filing of the suit, the plaintiffs had made an application under Section 155 of the Companies Act. That application was withdrawn on the ground that the matter involved a complicated question. But this would (not ) alter the position in favour of the plaintiffs. Otherwise there would be an anomaly, i.e., the relief would be discretionary if an application is filed under Section 144; while the court would be bound to grant a rectification decision if the chooses to file a suit. In our opinion, rectification of share register, whether claimed in an application under Section 155 of the Act or in a substantive suit would be a discretionary relief. The present case does not appear to be a fit one for granting such an equitable relief particularly when we take into account the conduct of the plaintiffs as well as the precarious position to which the defendants would be reduced if the allotment of shares is cancelled.