Summarize the following court judgment. Civil Appeals Nos. 2139	 2483 and 2484 of 1978. Appeals by Special Leave from the judgment and order dated the 6th October	 1978 of the Madras High Court in O.S.A. No. 64 of 1978. F.S. Nariman	 A.K. Sen	 Dr. Y.S. Chitaley	 S.N. Kackar	 T. Dalip Singh	 K.J. John	 Ravinder Narain	 A.G. Menses and R. Narain for the Appellants. H.M. Seervai	 Anil B. Divan	 A.R. Wadia	 S.N. Talwar	 I.N. Shroff and H.S. Parihar for Respondent No. 1. D.N. Gupta for Respondents Nos. 2 7	 10 12	 15	 16	 18 22	 26 and 28 33. The Judgment of the Court was delivered by CHANDRACHUD	 C. J. These three appeals by special leave arise out of a judgment of a Division Bench of the High Court of Madras dated October 6	 1978 allowing an appeal against the judgment of a learned Single Judge	 dated May 17	 1978 in Company Petition No. 39 of 1977. The main contending parties in these appeals are: (i) the Needle Industries (India) Limited and (ii) the 715 Needle Industries Newey (Indian Holdings) Limited. These two companies have often been referred to in the proceedings as the Indian Company and the English Company respectively	 but it would be convenient for us to refer to the former as 'NIIL ' and to the latter as the 'Holding Company '. The Holding Company has been referred to in a part of the proceedings as 'NINIH '. In Civil Appeal 2139 of 1978	 which was argued as the main appeal	 NIIL is appellant No. 1 while one T.A. Devagnanam is appellant No. 2. The latter figures very prominently in these proceedings and is indeed one of the moving spirits of this acrimonious litigation. He was appointed as a Director of NIIL in 1956 and as its Managing Director in 1961. He is referred to in the correspondence as 'TAD ' or 'Theo ' but we prefer to call him 'Devagnanam '. The Holding Company is Respondent 1 to the main appeal	 the other respondents being some of the Directors and shareholders of NIIL. Civil Appeal 2483 of 1978 is filed by some of the shareholders of NIIL while Civil Appeal 2484 of 1978 is filed by some of its directors and officers. The Holding Company is the contesting respondent to these two appeals. We will deal with the main appeal and our judgment therein will dispose of all the three appeals. The NIIL was incorporated as a Private Company under the Indian Companies Act	 1913 on July 20	 1949 with its Registered Office at Madras. Its factory is situated at Ketty	 Nilgiris. At the time of its incorporation	 NIIL was a wholly owned subsidiary of Needle Industries (India) Ltd.	 Studley	 England (hereinafter called 'NI Studley '). The authorised capital of NIIL was Rs. 50	00	000 divided into 50	000 equity shares of Rs. 100 each. Its issued and paid up capital prior to 1961 was Rs. 6	75	600 divided into 6	756 equity shares of Rs. 100 each. The issued and paid up capital was increased to Rs. 11	09	000/ in 1961. In that year	 NI Studley entered into an agreement with NEWEY BROS. LIMITED	 Birmingham	 England	 (hereinafter called NEWEY)	 under which NEWEY agreed to participate in the equity capital of NIIL to the extent of Rs. 4	33	400/ 	 consisting of 4	334 equity shares of Rs. 100/ each. Thus	 in 1961	 the position of the share holding in NIIL was that NI Studley held approximately 60.85% of the issued capital and NEWEY held the balance of 39.14%. In 1963	 NIIL increased its share capital by issuing 2	450 additional shares to NI Studley	 as a result of which the latter became the holder of about 68% shares in NIIL	 the rest of the 716 32% belonging to NEWEY. Later in the same year	 NI Studley and NEWEY combined to form the Holding Company	 of which the full official name. as stated earlier is the Needle Industries Newey (Indian Holding) Ltd. The Holding Company was incorporated in the United Kingdom under the English Companies Act	 1948 with its Registered Office at Birmingham	 England. The entire share capital of NIIL	 held by NI Studley and NEWEY	 was transferred to the Holding Company in which NI Studley and NEWEY became equal sharers. As a result of this arrangement	 the Holding Company came to acquire 99.95% of the issued and paid up capital of NIIL. The balance of 0.05%	 which consisted of 6 shares being the original nominal shares	 was held by Devagnanam. The NIIL	 it shall have been noticed	 was incorporated about two years after India attained independence. As a result of an undertaking given by it to the Government of India at the time of its incorporation and pursuant to the subsequent directives given by the said Government for achieving Indianisation of the share capital of foreign companies	 three issues of shares were made by NIIL in the years 1968	 1969 and 1971	 all at par. There was also an issue of Bonus shares in 1971. As a result of these issues	 about 40% of the share Capital of NIIL came to be held by the Indian employees of the Company and their relatives while the balance of about 60% remained in the hands of the Holding Company. In terms of the number of shares	 by 1971 72 the Holding Company owned 18	 990 shares and the Indian shareholders owned 13	010 shares. Out of the latter block of shares	 Devagnanam and his relatives held 9	140 shares while the remaining 3	870 shares were held by other employees and their relatives	 amongst whom were N. Manoharan and his group who held 900 shares and D.P. Kingsley and his group who held 530 shares. The total share capital of NIIL thus came to consist of 32	000 equity shares of Rs. 100 each. In or about 1972	 a company called Coats Paton Limited	 Glasgow	 U.K. (hereinafter called 'Coats ') became an almost 100% owner of NI Studley. The position at the beginning of the year 1973 thus was that 60% (to be exact 59.3%) of the share capital of NIIL came to be owned half and half by Coats and NEWEY	 the remaining 40% being in the hands of the Indian group. The bulk of this 40% block of shares was held by Devagnanam 's group	 which came to about 28.5% of the total number of shares. 717 Though NIIL was at one time wholly owned by NI Studley and later	 by NI Studley and NEWEY	 the affairs of NIIL were managed ever since 1956 by an entirely Indian management	 with Devagnanam as its Chief Executive and Managing Director with effect from the year 1961. The Holding Company which was formed in 1963	 had only one representative on the Board of Directors of NIIL. He was N.T. Sanders. He resided in England and hardly ever attended the Board meetings. The Holding Company reposed great confidence in the Indian management which was under the direction and control of Devagnanam. But the acquisition of NI Studley by Coats in 1972 and their consequent entry in NIIL created in its wake a sense of uneasy quiet between the Coats on one hand	 which came to own half of the 60% share capital held by the Holding Company	 that is to say	 30% of the total share capital of NIIL	 and the Devagnanam group on the other hand	 which owned 28.5% of that share capital. By the mere size of their almost equal holding in NIIL	 Coats and Devagnanam developed competing interests in the affairs of NIIL. Coats were in the same line of business as NIIL	 namely	 manufacture and sale of needles for various uses	 fish hooks etc.	 and they had established trading centres far and wide	 all over the world. It is plain business	 involving no moral turpitude as far as business ethics go	 that Coats could not have welcomed competition from NIIL with their world interests. Devagnanam was a man of considerable ability and foresight and in NIIL he saw an opportunity of controlling and dominating as industrial enterprise of enormous potential in a rapidly growing market. The turnover of NIIL had increased from 2.80 lakhs in 1953 to 149.93 lakhs in 1972 and the profits ran as high as 19.4% of the turnover. Implicit confidence in the Indian management which was the order of the day almost till 1974 gradually gave way to an atmosphere of suspicion and distrust between Coats and Devagnanam. NEWEY apparently kept away from the differences which were gradually mounting up between the two but	 evidently	 they nursed a preference for Devagnanam. Coats are a giant multinational organization. NEWEY	 comparatively	 are small fish though	 they too had their own independent business interests to protect and foster. NEWEY owned a flourishing business in Malaysia	 Hong Kong	 Taiwan	 Japan and Australia and from 1972 onwards they drew Devagnanam increasingly into the orbit of their Far Eastern 718 interests. In July	 1972 he was offered the office of Managing Director of a group of four companies in Hong Kong and Taiwan on a five year contract	 with an annual salary of six thousand pounds. He had already been appointed to the Board of the NEWEY joint venture company in Osaka and Japan and acted as the liaison Director for that company. He had also been asked to coordinate sales with NEWEY Brothers	 Australia. Willing to accept these manifold responsibilities	 Devagnanam became strenuously involved therein. He and his wife began to reside in Hong Kong and he cogitated over resigning from his position in NIIL. Coats	 on their part	 were clear that Devagnanam should relinquish his responsibilities in NIIL	 in view of the time his role in NEWEY 's Far Eastern interests was consuming. The question of appointing his successor as Managing Director in NIIL then began to be discussed	 the Holding Company wanting to have Manoharan as a substitute. Devagnanam carried the feeling that he was already persona non grata with Coats	 because of certain incidents which had taken place some years ago. The Foreign Exchange Regulation Act	 ( 'FERA ')	 46 of 1973	 which came into force on January 1	 1974 provided to Coats and Devagnanam a legal matrix for fighting out their differences. The provisions of FERA	 which was passed	 inter alia	 for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country are stringent beyond words. Putting it broadly and briefly	 section 29 (1) of FERA prohibits non residents	 non citizens and non banking companies not incorporated under any Indian Law or in which the non resident interest is more than 40%	 from carrying on any activity in India of a trading	 commercial or industrial nature except with the general or special permission of the Reserve Bank of India. By section 29 (2) (a)	 if such a person or company is engaged in any such activity at the commencement of the Act	 he or it has to apply to the Reserve Bank of India	 for permission to carry on that activity	 within six months of the commencement of the Act or such further period as the Reserve Bank may allow. Since the Holding Company is a non resident and its interest in NIIL exceeded 40%	 NIIL had to apply for the permission of the Reserve Bank for continuing to carry on its business. Section 29 (4) (a) imposes a similar restriction on such person or company from holding shares in India of any company referred to in clause (b) of section 29 (1)	 without the permission of the Reserve Bank. Therefore	 the Holding Company also had to apply for the permission of 719 the Reserve Bank for continuing to hold its shares in NIIL. The time for making application for the requisite permission under section 29 was extended by the Reserve Bank by two months generally	 that is to say	 until August 31	 1974. The need to comply with the provisions of section 29 of FERA is the pivot round which the whole case revolves. NIIL applied to the Reserve Bank for the necessary permission through its Director and Secretary	 D.P. Kingsley	 on September 3	 1974 By its letter dated May 11	 1976	 the Reserve Bank allowed that application on certain conditions. NIIL 's application was late by three days but the delay was evidently ignored or condoned. One of the conditions imposed by the Reserve Bank on NIIL was that it must bring down the non resident interest from 60% to 40% within one year of the receipt of its letter. That letter having been received by NIIL on May 17	 1976	 the dead line for reducing the non resident interest to 40% was May 17	 1977. The Holding Company applied to the Reserve Bank for a 'Holding Licence ' under section 29(4)(a) of FERA	 on September 18	 1974. That application which was late by 18 days is	 we are informed	 still pending with the Reserve Bank. Perhaps	 it will be disposed of after the non resident interest in NIIL is reduced to 40% in terms of section 29 (1) of FERA. Devagnanam was residing in Hong Kong to fulfil his commitment to NEWEY 's far eastern business interests. FERA had its implications for him too	 especially since he could be regarded as a nonresident and did consider himself as such. He obtained a holding licence dated March 4	 1975 from the Reserve Bank in respect of his shares in NIIL. But	 his interest in the affairs of NIIL began to flag for one reason or another and he started looking out for a purchaser who would buy his shares on convenient and attractive terms. In a note dated April 29	 1975 which he prepared on "further Indianisation Needle Industries (India) Ltd." he pointed out that Indianisation should be considered on the footing that the non resident interest should be reduced to 40% and that	 as between the two feasible methods of Indianisation	 namely	 (1) Going to public and (2) placement of shares	 the latter was preferable. He said: 720 There can be no question of my becoming in any way involved with Ketti and its future as I am committed to NEWEY. There appears to be no possibility of returning to India in what is left of my working life. I therefore have little choice but to sell my shares. ( 'Ketty ' in Nilgiris	 is the place where NIIL 's factory is situated and is treated as synonymous with NIIL). Devagnanam referred in his note to an inquiry from a Mr. Khaitan	 the head of a powerful group with diverse interests and investment in industry	 who was already involved in the manufacture of products allied to NIIL 'section Coats were alarmed that Devagnanam was negotiating the sale of his shares "to a Marwari	 one Khaitan of Shalimar	 a sewing needle competitor to Ketti". In a letter dated August 6	 1975 addressed to Doraiswamy	 a partner in a Madras firm of solicitors called 'King and Partridge ' who was a Director of NIIL	 Sanders	 a Director of the Holding Company on NIIL 's Board	 expressed his grave concern at the proposed deal thus: No doubt Mr. Khaitan would pay the earth to acquire NIIL and judging by what Theo (Devagnanam) had said about him in the past	 he may be prepared to arrange or facilitate payment abroad	 a most attractive possibility from Theo 's point of view	 since he has said clearly that he intends leaving India for good	 finally settling in Australia. Sanders added that the deal was so dangerous from the point of view of NIIL that the Holding Company "would feel obliged to prevent it by whatever means were open" to it. By his reply dated August 12	 1975	 Doraiswamy said that the news of the proposed sale came as no surprise to him and that he had heard that Silverston	 a former Solicitor partner of his	 was acting as a "go between" in Devagnanam 's deal with Khaitan. On September 16	 1975 Devagnanam wrote to M.M.C. NEWEY of NEWEY	 Birmingham. pointing out the advantages that would accrue by the sale of the shares to Khaitan. Devagnanam reiterated his total identification with NEWEY 's Far Eastern interests and expressed his anxiety to free himself from all commitments to or involvement with NIIL	 as early as possible. On October 22	 1975 an important meeting was held in which Alan Machrael	 a Director of the Holding Company	 made it clear 721 on behalf of Coats that neither Khaitan nor any other single purchaser would be acceptable to the Holding Company if that meant the acquisition of 30% share holding. The notes of the meeting record that Devagnanam had confirmed that the offer which he had received from Khaitan was at Rs. 360 per share	 out of which a substantial proportion (perhaps 50%) would be payable outside India. Mackrael stated at the meeting that the price in rupees could be matched but not the method of payment which was illegal and reiterated that the Holding Company would prevent any attempt by Devagnanam to sell his holding to Khaitan. The notes of the meeting were signed by Mackrael on October 30	 1975. On that date	 Sanders wrote a letter to Manoharan stating that the Holding Company was not prepared that 30% of the share capital should get into the hands of any one person	 bearing in mind the problems that had arisen in allowing Devagnanam to acquire a holding of nearly that proportion. On November 7	 1975 M.M.C. Newey wrote to Devagnanam making it clear beyond the manner of any doubt that Coats	 will not accept Khaitan and that according to Bannatyne of Coats	 they were put to considerable trouble in finding Indian residents who would match Khaitan 's offer of 3.6 times par. Newey made it clear that in any event	 the sale price would have to be paid in India and that they would not be a party to any illicit currency deal. Finding that Coats were determined not to allow him to sell his shares to Khaitan	 Devagnanam changed his mind and decided against disposing of his holding in NIIL. On November 13	 1975	 he wrote to Newey saying: "I do not think any of us want to see Coats dominate Ketti. Hence there can be no question of selling any part of my shares to their nominee. As they in turn will not approve of anyone we choose	 there is no way of solving the problem. The best thing to do	 therefore	 is for me to revert to the original basis and they should have no cause to complain. This will of course include effectively managing the Indian company. Let me however assure you that it will not be at the expense of Newey." And so did Devagnanam remain in NIIL	 with the stage set for a battle between him and Coats for acquisition of control over the affairs of NIIL. Yet another statutory provision which has an important bearing on the issues arising in these appeals is the one contained 722 in section 43 A of the Indian 	 which was introduced in 1961 by Act 65 of 1960. NIIL was incorporated as a Private Company in 1949 under the Indian Companies Act	 1913. It was a Private Company as defined in section 3 (1) (iii) of that Act since	 by its Articles of Association	 it restricted the right to transfer its shares	 limited the number of its members to fifty and prohibited any invitation to the public to subscribe to any of its shares or debentures. By section 43 A	 it became a Public Company	 since not less than twenty five per cent of its paid up share capital was held by a body corporate	 namely	 the Holding Company. But	 under the first proviso to section 43A (1)	 it had the option to retain its Articles relating to matters specified in section 3 (1) (iii) of the Companies Act. NIIL did not alter the relevant provisions of its Articles after it became a Public Company within the meaning of section 43A. One of the points in controversy between the parties is whether	 in the absence of any positive step taken by NIIL for exercising the option to retain its Articles relating to matters specified in section 3 (1) (iii) of the Companies Act	 it can be held that NIIL had in fact exercised the option	 which was available to it under the 1st proviso to section 43A	 to include provisions relating to those matters in its Articles. To resume the thread of events	 on receipt of the letter of the Reserve Bank dated May 11	 1976 Kingsley	 as NIIL 's Secretary	 sent a reply on May 18	 1976 to the Bank confirming the acceptance of the various conditions under which permission was granted to NIIL to continue its business. On August 11	 1976 the term of Devagnanam 's appointment as the Managing Director of NIIL came to an end but in the meeting dated October 1	 1976 of NIIL 's Board of Directors	 that appointment was renewed for a further period of five years. On being informed of the renewal of Devagnanam 's appointment	 NEWEY 's Chairman	 C. Raeburn	 who used to attend to the affairs of the Holding Company	 did not object as such to the Board 's decision ("It may well be that the reappointment in itself is right") but he demurred to the modality by which the decision was taken since	 according to him	 questions relating to appointments to senior positions in the Company ought to be decided in consultation with the U.K. Shareholders so that they could have an opportunity to express their views. Sanders	 it may be mentioned	 had received the notice of the meeting duly. On October 20 and 21	 1976	 a meeting took place at Ketti between the U.K. shareholders and the Indian shareholders of NIIL. The former were represented by Alan Mackrael	 the Managing Director 723 of the Holding Company	 and C. Raeburn	 the Chairman of NEWEY the latter by Devagnanam and Kingsley. One Martin Henry	 the Managing Director of 'Madura Coats '	 an Indian Company in which the Holding Company had substantial interest	 also attended that meeting and took part in its deliberations. Silverston	 an Englishman who was practising in India asa Solicitor	 attended the meeting as an advisor to the Indian shareholders. C. Raeburn chaired the meeting. Para 2 of the note prepared by him of the discussions held at the meeting says that it was agreed that Indianisation should be brought about by May 1977	 as requested by the Government	 so as to achieve 40% U.K. and 60% Indian shareholding. But the meeting virtually ended in a stalemate because whereas the Holding Company wanted a substantial part of the share capital held by it in excess of 40% to be transferred to Madura Coats as an Indian shareholder	 Devagnanam insisted that the existing Indian share holders of NIIL alone had the right	 under its Articles of Association	 to take up the shares which the Holding Company was no longer in a position to hold because of the directives issued by the Reserve Bank pursuant to FERA. Thus	 the difference between the two groups who were fast falling out was not	 as it could not be	 whether the Holding Company had to reduce its share holding in NIIL from 60% to 40%	 but as regards the mode by which that reduction was to be brought about. The bone of contention was as to which Indian Party should take up the excess of 20% the existing Indian shareholders of NIIL or an outside Indian Company	 the Madura Coats. Raeburn played the role of a mediator but did not succeed. On the conclusion of the Ketty meeting	 Silverston wrote a letter to Kingsley conveying his appreciation of the efforts made by Raeburn to bring the parties together and his distress at the attitude of Coats which	 according to Silverston	 showed that they were trying to circumvent the provisions of FERA. Raeburn too wrote a letter on October 23	 1976 to Devagnanam saying that Coats were not really interested in any independent Indians taking their excess share holding. On December 11	 1976 Devagnanam wrote to Raeburn expressing the resentment of himself and his group at the attempts made by Coats to maintain their control over NIIL by indirect means. On December 14	 Devagnanam offered a package deal under which the existing Indian shareholders would augment their holding to 60%	 Mackrael and Raeburn would be on the Board of Directors but not Martin Henry	 and even B.T. Lee	 a Senior Executive of NI Studley	 could be appointed as a wholetime Director of NIIL to be in charge of its export programme. On January 20	 1977 the Reserve Bank sent a reminder to NIIL asking 724 it to submit at an early date the progress report regarding dilution non resident interest. By its reply dated February 21	 1977 NIIL confirmed its commitment to achieve the desired Indianisation by the stipulated date	 viz.	 May 17	 1977. On March 9	 1977 Raeburn wrote to Devagnanam	 saying that after a discussion with Mackrael and three other high ranking persons of Coats	 it was clear that Coats were not agreeable to allowing the present Indian shareholders to acquire 60% of the equity capital of NIIL	 since such a course carried in the long run too great a risk to their world trade. Raeburn made certain fresh proposals by his letter in the hope that they would be acceptable to Coats and invited Devagnanam to come to Birmingham for negotiations. On March 18	 1977 a notice was issued by NIIL 's Secretary	 D.P. Kingsley	 intimating that a meeting of the Board of Directors will be held on April 6	 1977. One of the items on the agenda of the meeting was shown as "Policy Indianisation". Sanders received the notice of the meeting duly but did not attend the meeting. Devagnanam went to Birmingham in the last week of March 1977. Between 29th and 31st March	 he held discussions with four out of the six Directors of the Holding Company	 namely NEWEY	 Jackson	 White house and Raeburn. The other two Directors	 Mackrael and Sanders	 did not take any part in those discussions. During his visit to Birmingham	 Devagnanam expended considerable time in discussing various matters with NEWEY	 pertaining to their Far Eastern business. On April 4	 1977 NIIL received a reminder letter dated March 30	 1977 from the Reserve Bank which pointed out that the Company had not yet submitted any concrete proposal for reduction of the non resident interest and asked it to submit its proposal in that behalf without any further delay. The letter warned the Company that if it failed to comply with the directive regarding dilution of foreign equity within the stipulated period	 the Bank would be constrained to view the matter seriously. Raeburn had written a letter to Devagnanam on 4th April on the question of the compromise formula and Devagnanam too had written a letter to Raeburn on the 5th	 saying that he would place the formula before his colleagues. These letters evidently crossed each other. The 6th April was then just at hand. 725 The meeting of NIIL 's Board of Directors was held on April 6	 1977 as scheduled. Seven Directors were present at the meeting	 with Devagnanam in the chair at the commencement of the proceedings. C. Doraiswamy	 solicitor partner of 'King and Partridge '	 was one of the Directors present at the meeting. He had no interest in the proposal of "Indianisation" which the meeting was to discuss and was	 therefore	 considered to be an independent Director. In order to complete the quorum of two independent Directors	 the other Directors apart from C. Doraiswamy being interested in the business of the meeting	 Silverston	 an ex partner of Doraiswamy 's firm of solicitors	 was appointed to the Board as an additional Director under article 97 of the Articles of Association. Silverston chaired the meeting after his appointment as an additional Director. The meeting resolved that the issued capital of NIIL be increased to Rs. 48	00	000/ by a new issue of 16	000 equity shares of Rs. 100/ each	 to be offered as rights shares to the existing shareholders in proportion to the shares held by them. The offer was to be made by a notice specifying the number of shares which each shareholder was entitled to	 and in case the offer was not accepted within 16 days from the date on which it was made	 it was to be deemed to have been declined by the concerned shareholder. The minutes of the meeting recorded that as a matter of abundant caution	 the Directors who were holding shares in NIIL did not take part either in the discussions which took place in the meeting or in the voting on the resolution. After the aforesaid meeting of the Board dated April 6	 1977	 Devagnanam wrote a letter bearing the date April 12 to Raeburn	 explaining that every alternative proposal was discussed in the meeting and setting out the compelling circumstances arising out of the requirements of FERA which led to the passing of the particular resolution. It was stated in the letter that a copy of the Reserve Bank 's letter of March 30	 1977 to NIIL was enclosed therewith	 but in fact it was not so enclosed. The letter of offer dated April 14	 1977 was prepared pursuant to the resolution passed in the meeting of 6th April. The envelope containing Devagnanam 's letter dated April 12 (without the copy of the letter of the Reserve Bank dated March 30	 1977) and the letter of offer dated April 14 were received by Raeburn on May 2	 1977 in an envelope bearing the Indian postal mark of April 27	 1977	 The letter of offer which was sent to one of the Indian shareholders	 Manoharan	 was posted in an envelope which also bore the postal mark of 27th April. The next meeting of the Board was due to be 726 held on May 2	 1977 and it is on that date that Raeburn received the letter of offer dated April 14	 which evidently	 was posted at Madras on April 27	 1977. The Holding Company was thereby denied an opportunity to exercise its option whether or not to accept the offer of rights shares	 assuming that any such option was open to it. Whether such an option was open to it and whether	 if it could not or did not want to take the rights shares	 it could transfer its rights	 under NIIL 's letter offering the rights shares	 to a person of its choice depends upon the provisions of FERA	 the necessity to Comply with the directives of the Reserve Bank the terms of NIIL 's Articles of Association and the provisions of the Indian Companies Act. On April 19	 1977 a notice was issued by NIIL 's Secretary intimating that a meeting of the Board of Directors will be held on May 2	 1977. One of the items of agenda mentioned in the notice was "Policy (a) Indianisation	 (b) Allotment of shares". The notice of the meeting was sent to the Holding Company in an envelope which also bore the Indian postal mark of April 27	 1977. The notice was received by Sanders in England on May 2	 1977 i.e. on the date when the meeting was due to be held in India. Even the fastest and the most modern means of transport could not have enabled Sanders to attend the meeting. In between	 on April 26	 1977 Raeburn had written a letter to Devagnanam at Malacca	 following a telex message which said: HAD HELPFUL DISCUSSIONS COATS YESTERDAY PLEASE MAKE NO DECISIONS RE INDIANISATION PENDING LETTER" By his letter of 26th April	 which is said to have been received by Devagnanam on May 4	 1977	 Raeburn stated that Coats were still unwilling to grant majority shareholding control to the existing Indian shareholders	 but that they were equally not keen to do any thing which would be regarded as circumventing the proposal for Indianisation or the law bearing on the subject	 since that would undermine the position of the Indian shareholders. A meeting of the Board of Directors was held on May 2	 1977 as scheduled. The minutes of that meeting show that Kingsley	 the Secretary of NIIL	 pointed out in the meeting that applications for allotment of the rights shares offered as also the amounts payable 727 along with the acceptance of the offer had been received from all the shareholders except the U.K. shareholders and the Manoharan group. The offer to Manoharan was sent at Virudh Nagar but Silverston pointed out to the meeting that Manoharan was working in Jaipur and that therefore	 he should be given further time to participate in the rights issue. The Manoharan group was accordingly allowed twenty days ' time from the date of the allotment letter for payment of the allotment amount. In the meeting of 2nd May	 the whole of the new issue consisting of 16	000 rights shares was allotted to the Indian shareholders	 including members of the Manoharan group. Out of these	 the Devagnanam group was allotted 11	 734 shares. A dividend of 30%	 subject to tax	 amounting to Rs. 9	60	000/ was recommended by the Board	 and it was resolved that the Annual General meeting of the Company be held on 4th June	 1977. Silverstone was appointed as an additional Director of the Company and his election as such at the Annual General meeting was recommended by the Board. Further	 it was resolved that deposits be invited from the public. On the same day i.e. 2nd May	 Devagnanam wrote a letter to Raeburn intimating to him that in a meeting held that morning the formalities relating to allotment of shares were completed	 bringing the Company under the control of the Indian shareholders. Devagnanam reiterated by his letter the hope of a closer association with the NEWEY group. Raeburn reacted sharply to Devagnanam 's letter of April 12 and to the letter of offer dated April 14. As stated earlier	 he had received both of these on May 2 in an envelope which bears the postal mark of Madras dated April	 27. Raeburn sent a telex	 message to Devagnanam on 2nd May and another to Kingsley on 3rd May. By the first telex	 he complained about the inadequacy of the notice of the meeting and by the second	 he conveyed that there was considerable doubt on the question whether the necessary disinterested quorum was available at the meeting of the Directors held on April 6. On receipt of the telex message	 Devagnanam wrote a letter to Raeburn on May 4 explaining the pressure of circumstances which compelled the Board to take the decision which it did in the meeting of May 2	 1977. Raeburn followed up his telex messages by a letter to Devagnanam on May 3. While expressing his distress and displeasure at the manner in which the decision regarding the issue of rights shares was taken and the allotment of the shares was made	 Raeburn stated in his letter that the rights issue at par	 which was considerably less than the fair value 728 of the shares	 was most unfair to the shareholders who could not take up the rights issue. After making the allotment of shares in the meeting of May 2	 NIIL sent a letter to the Reserve Bank reporting compliance with the requirements of FERA by the issue of 16	000 rights shares and the allotment thereof the Indian shareholders which resulted in the reduction of the foreign holding to approximately 40% and increased that of the Indian shareholders to almost 60%. Reference was made in the letter to the fact that the allotment money of Rs. 1	10	700/ had yet to be received	 which was obviously in reference to the amount due on the 1	107 rights shares which were allotted to the Manoharan group in the meeting of 2nd May. The Manoharan group did not evidence any interest even later in taking up those shares. Manoharan	 it may be stated	 who was a Director and General Manager of NIIL had resigned his post in April 1976	 after serving the Company for nearly 17 years. Between the 2nd and 9th May	 there was an exchange of cables between Mackrael and Doraiswamy which led to the latter writing a letter on the 9th to the former. Doraiswamy stated in that letter that he had thoroughly investigated the position by perusing all available records placed before him by Devagnanam and Kingsley and that he was of the opinion that	 in the meeting of the 6th April	 there was the required quorum of two disinterested Directors consisting of Silverston and himself and	 therefore	 there could be no doubt whatsoever about the legality of the resolution passed in that meeting. He admitted that although the time limit fixed by the Reserve Bank had expired on 17th May	 1977	 "it may have been possible for the Company to get further time from the Reserve Bank of India". As regards the decision to issue the additional shares at par	 he explained that if the issue had been made at a premium	 it would have necessitated an approach to the Controller of Capital Issues	 a process which was time consuming and complicated. He pointed out that the authorities would not have allowed the Company to issue the rights shares at a premium and that even if they were to allow such a course	 the premium permissible would have been only nominal. He asserted that the delay caused in the offer of new shares being received by the U.K. shareholders was of little consequence because they would not have been able to take up the shares in any event. He expressed the hope that Mackrael would agree that the decision regarding the issue of rights shares taken at the Board meeting on April 6	 1977 was bona fide and in the best interests 729 of the Company. He concluded his letter by an assurance that as regards the late despatch of the notice of the Board Meeting of 2nd May	 further enquiries were being made. On May 11	 Devagnanam wrote to Raeburn apologising for the manner in which the foreign shareholding had been reduced and for good measure	 he projected the various advantages which the NEWEY group would enjoy under the new Indian management and control of NIIL. As if to illustrate that it is better late than never	 he enclosed with his letter a copy of the Reserve Bank 's letter dated 30th March	 1977 which was to have been sent along with the letter dated April 12 but was in fact not so sent. On May 17	 1977 Mackrael	 acting on behalf of the Holding Company	 filed a Company Petition in the Madras High Court under sections 397 and 398 of the Indian out of which the present appeals arise. It is alleged in the petition that the Indian Directors abused their fiduciary position in the Company by deciding in the meeting of April 6 to issue the rights shares at par and by allotting them exclusively to the Indian shares holders in the meeting of 2nd May	 1977. In so doing	 they acted mala fide and in order to gain an illegal advantage for themselves. The Indian Directors	 according to the company petition	 either knew or ought to have known that the fair value of the shares of the Company was about Rs. 204 per share. By deciding to issue the rights shares at par	 they conferred a tremendous and illegitimate advantage on the Indian shareholders. Devagnanam delayed deliberately the intimation of the proceedings of the 6th April to the Holding Company. By that means and by the late giving of the notice of the meeting of the 2nd May	 the Devagnanam group presented a fait accompli to the Holding Company in order to prevent it from exercising its lawful rights. Thus	 according to the petition the conduct of the Indian Directors lacked in probity and fair dealing which the Holding Company was entitled to expect. By the Petition	 the Holding Company asked for the following reliefs: (a) That the Board of Directors of the Company be superseded and one or more Administrators be appointed to administer the affairs of the Company or	 in the alternative	 the Board of Directors be reconstituted so as to ensure that the Holding Company had adequate representation on it; 730 (b) That the proceeding of the meeting of the Board of Directors held on April 6 and May 2	 1977 be declared illegal	 void and inoperative; (c) That Silverston 's appointment as an Additional Director of the Company be declared as void and inoperative and he be restrained from functioning as a Director of the Company; (d) That the purported allotment of 16	000 shares pursuant to the impugned resolution of the Board of May 2	 1977 be declared void; (e) That the Indian group of shareholders to whom the rights shares were allotted be restrained from exercising any voting rights in regard to any part of those shares; (f) That the Company be restrained from giving effect to the allotment of the 16	000 rights shares and from making any payment of dividend on those shares; (g) That the Articles of Association of the Company be amended so as to permit the transfer of the shares to persons other than the existing members of the Company in order to enable the Holding Company to comply with the requirement of disinvestments without prejudice to its interest as a shareholder; and (h) That a special majority for decisions of the Board be prescribed in regard to all important matters and provision be made for the appointment of Directors by proportional representation. The learned Acting Chief Justice who tried the Company Petition	 found several defects and infirmities in the Board 's meeting dated May 2	 1977 and concluded that appropriate relief should be granted to the Holding Company under section 398 of the . The learned Judge was of the view that the average market value of the rights shares was about Rs. 190 per share on the crucial date and that	 since the rights shares were issued at par	 the Holding Company was deprived unjustly of a sum of Rs	 8	54	550/ at the rate of Rs. 90/ per share on the 9	495 rights shares to which it was 731 entitled. Exercising the power under section 398(2) of the 	 the learned Judge directed NIIL to make good that loss which	 according to him	 could have been avoided by it "by adopting a fairer process of communication" with the Holding Company and "a consequential dialogue" with them	 in the matter of the issue of rights shares at a premium. The learned Judge directed NIIL to pay to the Holding Company the aforesaid sum of Rs. 8	54	550/ as a "solatium" in order to meet the ends of justice. Being aggrieved by the aforesaid judgment	 the Holding Company filed O.S. Appeal No. 64 of 1978 while NIIL filed cross objections to the decree. The appeal and cross objections were argued before the Division Bench of the High Court on the basis of affidavits	 the correspondence that had passed between the parties and certain additional documents which were filed before the Appellate Court by consent of parties. Though the Company Petition was filed under section 397 as also under section 398 of the and though the trial court had granted partial relief to the Holding Company under section 398	 it was stated in the Appellate Court on its behalf that its entire case was based on section 397 and that it did not want to invoke the provisions of section 398. A similar statement was made before us also. On a consideration of the matters and material before it	 the Division Bench formulated its view in the form of 18 conclusions on various aspects of the case. They may be summed up thus: (a) As soon as Devagnanam became involved in the far eastern ventures of NEWEY	 he decided to sell his share holding in NIIL to an Indian concern or party from which he expected to receive at least a part of the consideration in a foreign country. (b) Seeing that Coats were opposed to his receiving any part of the consideration for the sale of his shares in a foreign country	 Devagnanam decided not to part with his shares but to obtain the control of the Company. (c) The directives of the Reserve Bank of India on the question of Indianisation were exploited by Devagnanam for compelling the Holding Company to part with its shares in favour of the Indian shareholders. 732 (d) Coats were willing to carry out the directives of the Reserve Bank but they did not want to transfer their shares to the existing Indian shareholders because thereby	 the latter would have acquired a controlling interest in NIIL which Coats wanted to prevent. Coats were willing to part with their excess shares in favour of other Indian residents. (e) Though Coats originally contemplated the transfer of 15% of their excess 20% shares to Madura Coats	 or the incorporation of a company to take over their excess 20% shares	 they were ultimately agreeable that the existing Indian shareholders should get 9% out of that 20% so as to have a 49% holding in the share capital of NIIL and that 11% should go to new	 independent	 Indian Institutional shareholders. The object of Coats was that any one group of shareholders should not have a dominating position in the affairs of NIIL. (f) At the Ketti meeting held on October 20 and 21	 1976	 the issue of rights shares was considered as an alternative to disinvestment	 but that was subject to two conditions: one	 that it should be shown that there was a viable development plan which required additional funds which the existing cash flow of NIIL could not meet	 and two	 that the value of the U.K. equity interest required to be transferred would be no less favourable than what would be achieved by a direct sale of that interest. (g) Though by his letters of December 11 and 14	 1976 Devagananam had informed Raeburn of the decision of the Indian shareholders to acquire 60% shares for themselves	 he did not ever say one word about the issue of rights shares in any of the numerous communications which he sent to Raeburn. No reference was made to the issue of rights shares even in the memorandum of discussions which took place during the visit of Devagnanam to U.K. from March 29 31	 1977. Thus	 the issue of rights shares was sprung as a surprise on the U.K. shareholders. 733 (h) The notice dated March 13	 1977 for the meeting of the Board of Directors held on April 6	 1977 referred to the main item on the agenda in ambiguous terms as: "Policy Indianisation". In the context of the discussions which had taken place until then between the parties	 N.T. Sanders who represented the Holding Company on the Board had no means or opportunity of knowing that the particular item on the agenda involved the question of the issue of rights shares. (i) Since every major decision was taken by the Board of Directors in consultation with the Holding Company and since there was no agenda for the appointment of an additional Director under article 97 of Articles of Association of NIIL	 the decision taken by the Board in its meeting of April 6 on the issue of rights shares and the appointment of Silverston as an Additional Director constituted a departure from established practice and showed want of good faith and lack of fair play on the part of the Board of Directors of NIIL. (j) The letter dated April 12	 the letter of offer dated April 14 and the notice for meeting of the Board of Directors to be held on May 2	 were all got posted by Devagnanam as late as on April 27	 1977 at Madras	 so as to ensure that these important documents should not reach the Holding Company in time to enable it to participate in the all important meeting of the 2nd. Davagnanam wanted to present a fait accompli to the Holding Company so as to prevent it from taking any preemptive action. (k) Whenever NIIL wrote to the Reserve Bank alleging that the Holding Company was not willing to carry out the directives of the Bank or to comply with the provisions of FERA	 its object was to prejudice the Bank against the Holding Company by drawing a red herring across the track. (l) The directives of the Reserve Bank of India had the provisions of FERA were not concerned with who should be the Indian shareholders of NIIL. All that they were concerned with was that 60% of the share 734 holding must be with the Indian residents. For the purpose of achieving that result	 three courses were available to NIIL: (1) Disinvestment by foreign shareholders in favour of Indian shareholders; (2) Issue of rights shares pursuant to section 81 of the 	 and (3) Action under section 81 (1 A) of the for issuing additional shares to Indian residents other than the existing Indian shareholders by passing an appropriate special resolution	 or if no special resolution was passed	 then	 by a majority of the shareholders approving such a course with the consent of the Central Government. The first course was ruled out since Coats had taken a definite stand that they will not allow the existing Indian shareholders to obtain the excess shares. As far as the second alternative was concerned	 the Holding Company had the right to renounce shares offered to it in favour of any other person under section 81 (1) (c) of the 	 which right was denied to it because	 the letter of offer dated April 14 did not contain a statement regarding renunciation of the right to take shares and also because that letter was not posted in time. As regards the third course	 if the Holding Company were given adequate notice of the proposal to issue rights shares	 it might have taken appropriate action under section 81 (1 A) of the . (m) The object of the Directors of NIIL in deciding upon the issue of rights shares	 and that too in the manner in which they did so	 was clearly to obtain control of the Company and to eschew and eliminate the controlling power which the Holding Company had over NIIL. The conversion of the existing minority of Indian shareholders into a majority	 far from being a matter of statutory compulsion	 was an act of self aggrandizement on the part of the existing Indian shareholders. (n) The action taken by the Indian shareholders was against the interest of the Company itself because the rights shares were issued at par which was far below their market price. (o) The true motivation of the various steps taken by the Devagnanam NEWEY Combination was the furtherance 735 of the interest of NEWEY 's Far Eastern enterprises	 coupled with the personal interest of Devagnanam himself. Devagnanam was receiving Rs. 96	000/ per annum in addition to substantial fringe benefits as the Managing Director of NIIL. He was also getting a large salary from NEWEY which was $10	000 in 1075 $11	000 in 1976 and $12	000 for the Year ending July 31	 1977. (p) The fact that NIIL informed the Holding Company on May 21	 1977 which was after the Company Petition was filed	 that the Holding Company could not exercise and will not be allowed to exercise any rights in respect of the whole of 18	990 shares held by it since its application under section 29 (4) of FERA was not granted by the Reserve Bank shows that the object of the Board of Directors in taking the impugned decision was to exclude the Holding Company from all control over NIIL. That is why NIIL advised the Reserve Bank of India by its letter dated May 24	 1977 that no application for holding any shares by a non resident should be allowed by the Bank without the knowledge and consent of NIIL. That also is the reason why NIIL conveyed to the Reserve Bank by its letter of September 20	 1977 that until such time as the Company Petition was finally disposed of	 no licence should be issued to non resident shareholders and no remittance of dividend out of India should be permitted with out the non resident share holders reducing their holding in NIIL to less than 40%. The two other conclusions are comprehended within the 16 set out above. On the basis of the aforesaid formulations	 the Division Bench concluded that the affairs of NIIL were being conducted in a manner oppressive	 that is to say	 burdensome	 harsh and wrongful to the Holding Company. After referring to certain passages from Palmer 's Company Law and Gore Browne on Companies	 and the decisions of the House of Lords	 this Privy Council	 and our own Courts including the Supreme Court	 the Division Bench held that since the action of the Board of Directors of NIIL was not in the interest of the Company but was taken merely for the purpose of 736 welding the Company into NEWEY 's Far Eastern complex	 it was just and equitable to wind up the Company. NIIL had filed cross objections in the High Court appeal contending that	 in any event	 the learned Acting Chief Justice was in error in directing it to pay the sum of Rs. 8	 54	550/ to the Holding Company. While dealing with the cross objections	 the Division Bench held that the injury suffered by the Holding Company on account of the oppression practised by the Board of Directors of NIIL could not be remedied by the award of compensation and	 therefore	 the action of the Board of Directors in issuing the rights shares had to be quashed. Having found that the Holding Company was entitled to relief under section 397 of the and the award of solatium made by the trial Court was not the appropriate relief to grant	 the Division Bench allowed the appeal filed by the Holding Company	 dismissed the cross objections in substance and adjourned the appeal for a fortnight for hearing further arguments on the nature of the relief to be granted in the case. Eventually	 by its order dated October 26	 1978 the Division Bench granted the following reliefs: (a) Devagnanam was removed forthwith both as the Managing Director and Director of NIIL and was asked to vacate the bungalow occupied by him	 by November 1	 1978. He was paid one Year 's remuneration as compensation for the termination of his appointment as the Managing Director. (b) The Board of Directors was superseded and an interim Board consisting of nine directors proposed by the Holding Company was constituted	 with Shri M.M. Sabharwal as an independent Chairman. (c) Harry Bridges	 an executive of COATS	 was appointed as the Managing Director for a period of four months. (d) The rights issue made on 6th April	 1977 and the allotment of shares made on 2nd May	 1977 at the Board meetings were set aside and the Interim Board was directed to make a fresh issue of shares at a premium to the existing shareholders	 including the Holding Company which was to have a right of renunciation. The new Board was directed to apply to the Controller 737 of Capital Issues for determining the amount of premium. (e) The Articles of Association were to be altered by appropriate additions and deletions in order to provide for election of Directors by proportional representation; and (f) Devagnanam was asked to pay to the Holding Company the costs of appeal and cross objections quantified at Rs. 25	000/ . He was also asked personally to reimburse the expenses incurred by NIIL in the appeal and cross objections. These appeals were heard in the first instance by Justice Untwalia and Justice Pathak. In view of the importance of the questions arising therein	 on some of which our learned Brothers	 it seems	 were unable to agree	 they desired that the appeals be heard by a larger Bench. That is how the appeals are now before us. The petition of the Holding Company out of which these appeals arise sought relief under sections 397 and 398 of the . The case under section 398 not having been pressed except before the learned trial Judge	 we are only concerned with the question whether the Holding Company is entitled to relief under section 397 which reads thus: "397(1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section: provided such members have a right so to apply in virtue of section 399. (2) If	 on any application under sub section (1) the Court is of the opinion: (a) that the company 's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members	 but that other 738 wise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Court may	 with a view to bringing to an end the matters complained of	 make such order as it thinks fit. " Section 398 provides for relief in cases of mismanagement. Section 399(1) restricts the right to apply under sections 397 and 398 to persons mentioned in clauses (a) and (b) of sub section (1) It is necessary to refer briefly to the relevant part of the pleadings before examining the charge of oppression made by the Holding Company against a group of the minority shareholders of NIIL After tracing the history of formation and composition of NIIL	 the company petition states that the management of NIIL was in the hands of the Board of Directors in which the Indian group had a large majority. The Holding Company had implicit trust in them and was content to leave the management in their hands. After referring to the impact of section 43A of the 	 the company petition says that in the wake of FERA	 discussions and negotiations were held between the representatives of the Holding Company and the Management of NIIL amongst themselves as well as with the Reserve Bank of India	 in order to enable NIIL to obtain the requisite permission for carrying on its business. Paragraph 13 of the company petition states that the Reserve Bank of India by its letter dated May 11	 1976 granted to NIIL the necessary permission subject to the condition	 inter alia	 that it reduced non resident shareholding to 40 per cent on or before May 17	 1977. The case of the Holding Company in regard to its own attitude is stated succinctly in paragraph 14 of the company petition which may with advantage be reproduced: "Discussions were thereafter held on a number of occasions between the petitioner and the management of the Company to effectuate the aforesaid condition imposed by the Reserve Bank of India which the petitioner was at all times ready and willing to comply with. The petitioner did not	 however	 desire to dilute its holding of shares in the company by a further issue of capital and preferred to effectuate the said intention by disinvesting or selling 20% of its holding in the company. The Reserve Bank of India was agreeable to such dilution taking place by the petitioner selling a part of its holding to an Indian resident or Indian residents. The Reserve Bank had indicated that 739 they would be willing for such dilution taking place by a further issue of shares provided that additional capital was required for purposes of expansion. The petitioner was not willing to sell a part of its holding to the Indian group as such a sale would result in the Indian group acquiring an absolute majority interest. Further more under the Articles of Association of the Company the consent of the existing shareholders would be required (apart from the approval of the Reserve Bank) before the petitioner sold any of its shares to an Indian party	 other than to a member." According to the Holding Company	 the various steps which culminated in the allotment of rights shares to the existing Indian shareholders were vitiated by mala fide	 their dominant object being to convert an existing minority into a majority. The decision taken in the meeting of the Board on April 6	 1977 was taken deliberately in haste and hurry in order to pre empt any action by the Holding Company to restrain the Board from taking the desired decision. The Reserve Bank	 according to the company petition	 would not have been so unreasonable as not to extend the time for complying with its directive	 especially since the Holding Company had agreed in principle to dilute its holding and the only difference between the parties was as regards the method by which such dilution was to be effected. In Paragraph 27 of the company petition it is stated that the Devagnanam group decided to issue the rights shares with a view to securing an illegal and unjust advantage for itself	 for improving its own position in the Company and in order to deprive the Holding Company of its lawful rights as majority shareholders. In this behalf	 reliance is placed on the following facts and circumstances	 inter alia: (a) The Holding Company was never informed of any specific proposal to make the rights issue. (b) The notice of the Board meeting of April 6	 1977 did not refer to the said proposal. (c) The notice offering rights shares to the Holding Company was not prepared till April 14 and was not posted till April 27	 1977. By the time the notice was received by the Holding Company	 the Board of NIIL had met to allot the rights shares. 740 (d) The time given in the notice was much less than was customary. (e) The notice did not contain a statement relating to the right of the shareholders to renounce the rights shares. (f) The notice of the Board meeting of May 2	 although dated 19th April 1977	 was posted to Sanders on 27.4.1977	 thereby ensuring that it would reach him only after the date of the meeting. (g) By issuing shares at par	 though their value was much higher than Rs. 100/ per share	 existing Indian share holders were enabled to acquire the shares at a gross undervalue and the Company was put to a heavy loss. (i) The Reserve Bank of India had indicated that dilution of the foreign holding by a rights issue could be considered if the Company required further capital for expansion. At the discussions and negotiations held between the Holding Company and the Indian group it was inter alia agreed that the rights issue would be made only if there was a viable development plan requiring further funds. The rights issue was made even though no such need for expansion or development existed or was referred to. (j) Though the Reserve Bank had inter alia stipulated that the said dilution should be effectuated on or before 17th May	 1977	 the time schedule is never strictly insisted upon. There have been numerous instances when the Reserve Bank has granted reasonable extension of time to comply with such conditions. The Board of NIIL never requested the Reserve Bank to grant further time. C. Doraiswamy	 the 8th respondent stated in his letter dated 9.5.1977 to Mackrael	 a Director of the Holding Company	 that it would have been possible for the Company to get further time from the Reserve Bank of India. The Holding Company contends further that M.J. Silverston was not a disinterested person	 that his vote on the resolution for the 741 issue of rights shares had therefore to be ignored in which case there was no quorum of two disinterested directors and that his appointment as an Additional Director was not valid since the notice for the meeting of the Board of Directors to be held on 6.4.1977 did not contain in the agenda any subject regarding appointment of an additional Director under Article 97 of the Company 's Articles of Association. In answer to these contentions	 Devagnanam filed an elaborate counter affidavit on his behalf as well as on behalf of NIIL. In that counter affidavit	 every one of the material contentions put forward by the Holding Company has been denied or disputed. Devagnanam contends that it was the Holding Company which wanted to retain its control over NIIL contrary to the directive of the Reserve Bank of India	 the national policy of the Central Government and the provisions of FERA. According to Devagnanam	 every action taken in the Board meetings of 6.4.1977 and 2.5.77 was in accordance with law	 that Sanders never used to attend the meetings of the Board	 being a non resident he was not entitled to have notice of the Board meetings	 that there was no violation of section 81 of the at all	 that section 81 (c) of the did not apply to the present case and that	 in view of the attitude adopted by Coats	 NIIL	 in order to comply with the restrictions imposed by the Reserve Bank and to carry out its directive	 had no option but to decide upon the issue of rights shares to bring about the reduction in the non resident shareholding. Devagnanam repudiates emphatically the charge of mala fides or of conduct in breach of the fiduciary duty of NIIL 's Board of Directors. Having regard to these pleadings	 the main question for consideration is whether the decisions taken in the meetings of the Board of Directors of NIIL on April 6 and May 2	 1977 constitute acts of oppression within the meaning of section 397 of . The High Court has answered this question in the affirmative and has issued consequential directions in regard to the management of NIIL 's affairs. The findings recorded by the High Court in appeal have been challenged before us with vehemence and ability in an equal measure	 matched equally in both respects on either side. Learned counsel who led the arguments on the rival sides	 Shri F.S. Nariman for the appellants and Shri H.M. Seervai for the respondents	 have drawn our attention in copious details to 742 the correspondence that transpired between the parties	 the correspondence with the Reserve Bank of India	 the discussions at Ketty and Birmingham which preceded the impugned decisions	 the conduct of Devagnanam as a man and a Managing Director	 the attitude of Coats stated to arise out of their world wide business interests and the predicament of NEWEY which was willing to strike but was afraid to wound its partner Coats. We have also been taken through several decisions and texts bearing particularly on: (a) The meaning of 'oppression ' of the members of a Company within the terms of section 397 and the circumstances in which a Company can be wound up under the just and equitable clause under section 433 (f) of the ; (b) The approach which the court should adopt in cases wherein mala fides and abuse of power on the part of Directors are alleged but no oral evidence is led; (c) The fiduciary powers of Directors in issuing shares; (d) The impact of the provisions of the Foreign Exchange Regulation Act	 1973 with particular reference to section 2 (p)	 (q) and (u) and section 29; (e) The question as to whether it is necessary to issue a prospectus under section 81 (1) (c) of the ; (f) The constraints on public and private companies under the 	 and their duties and obligations	 with particular reference to sections 2 (35)	 2(37)	 3 (1) (iii) and (iv) and sections 43A and 81 of the ; (g) The relationship of partnership between the Indian shareholders	 Coats and NEWEY who owned respectively 40%	 30%	 and 30% of the shareholding in NIIL; (h) The question whether Silverston was an 'interested ' Director within the meaning of section 300 of the ; and (i) Whether Silverston 's appointment as an Additional Director in the meeting of the Board held on April 6	 1977 was	 in the circumstances	 valid. 743 Coming to the law as to the concept of 'oppression ' section 397 of our follows closely the language of section 210 of the English of 1948. Since the decisions on section 210 have been followed by our Court	 the English decisions may be considered first. The leading case on 'oppression ' under section 210 is the decision of the House of Lords in Scottish Co op. Wholesale Society Ltd. vs Meyer. (1) Taking the dictionary meaning of the word 'oppression '	 Viscount Simonds said at page 342 that the appellant society could justly be described as having behaved towards the minority shareholders in an 'oppressive ' manner	 that is to say	 in a manner "burdensome	 harsh and wrongful". The learned Law Lord adopted	 as difficult of being bettered	 the words of Lord President Cooper at the first hearing of the case to the effect that section 210 "warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view". Dealing with the true character of the company	 Lord Keith said at page 361 that the company was in substance	 though not in law	 a partnership	 consisting of the society	 Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination	 one result followed from the method adopted	 "which is common to partnership	 that there should be the utmost good faith between the constituent members". Finally	 it was held that the court ought not to allow technical pleas to defeat the beneficent provisions of section 210 (page 344 per Lord Keith; pages 368 369 per Lord Denning). In Meyer (supra) above referred to	 the House of Lords was dealing with a case in which the appellant company was accused of having committed acts of oppression against its subsidiary. In that context it was held that the parent company must	 if it is engaged in the same class of business	 accept as a result of having formed such a subsidiary an obligation so to conduct	 what are in a sense its own affairs	 as to deal fairly with its subsidiary. In Re Associated Tool Industries Ltd. (2) of which judgment a photographic copy was supplied to us	 Joske J. held that the rule in Meyer (supra) involved the consequence that the subsidiary companies must also exercise good faith to the holding company and not merely that the latter should so act to the former. 744 In an application under section 210 of the English 	 as under section 397 of our 	 before granting relief the court has to satisfy that to wind up the company will unfairly prejudice the members complaining of oppression	 but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. The rule as regards the duty of utmost good faith	 on which stress was laid by Lord Keith in Meyer	 (supra) received further and closer consideration in Ebrahim vs Westbourne Galleries Ltd.	(1) wherein Lord Wilberforce considered the scope	 nature and extent of the 'just and equitable ' principle as a ground for winding up a company. The business of the respondent company was a very profitable one and profits used to be distributed among the directors in the shape of fees	 no dividends being declared. On being removed as a director by the votes of two other directors	 the appellant petitioned for an order under section 210. Allowing an appeal from the judgment of the Court of Appeal	 it was held by the House of Lords that the words 'just and equitable ' which occur in section 222 (f) of the English Act	 corresponding to our section 433 (f)	 were not to be construed ejusdem generis with clauses (a) to (e) of section 222 corresponding to our clauses (a) to (e) of section 433. Lord Wilberforce observed that the 'words ' just and equitable ' are a recognition of the fact that a limited company is more than a mere legal entity	 with a personality in law of its own; and that there is room in company law for recognition of the fact that behind it	 or amongst it	 there are individuals	 with rights	 expectations and obligations inter se which are not necessarily submerged in the company structure: "The 'just and equitable ' provision does not	 as the respondents suggest	 entitle one party to disregard the obligation he assumes by entering a company	 nor the court to dispense him from it. It does	 as equity always does	 enable the court to subject the exercise of legal rights to equitable considerations; considerations	 that is	 of a personal character arising between one individual and another	 which may make it unjust or inequitable	 to insist on legal rights	 or to exercise them in a particular way". (p 379) 745 Observing that the description of companies as "quasi partnerships" or "in substance partnerships" is confusing	 though convenient	 Lord Wilberforce said: "company	 however small	 however domestic	 is a company not a partnership or even a quasi partnership and it is through the just and equitable clause that obligations	 common to partnership relations	 may come in". (p 380) Finally	 it was held that it was wrong to confine the application of the just and equitable clause to proved cases of mala fides	 because to do so would be to negative the generality of the words. As observed by the learned Law Lord in the same judgment	 though in another context: "Illustrations may be used	 but general words should remain general and not be reduced to the sum of particular instances." (pp 374 375) In his judgment in Re Westbourne Galleries (supra) Lord Wilberforce has referred at two places to the decision in Blissett vs Daniel	 (1) which is recognised as the leading authority in the Law of Partnership on the duty of utmost good faith which partners owe to one another. Lindley on Partnership (14th Edition	 pages 194 95) cites Blissett vs Daniel (1) as an authority for the proposition that: "The utmost good faith is due from every member of a partnership towards every other member; and if any dispute arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm	 he will be required to show	 not only that he has the law on his side	 but that his conduct will bear to be tried by the highest standard of honour". The fact that the company is prosperous and makes substantial profits is no obstacle to its being wound up if it is just and equitable to do so. This position was accepted in the decision of the Court of Appeal in Re Yenidge Tobacco Co. (2) and of the Privy Council in Loch vs John Blackwood (3). 746 The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said	 as was done by one of us	 N.H. Bhagwati J. in a decision of the Gujarat High Court in S.M. Ganpatram vs Sayaji Jubilee Cotton & Jute Mills Co.	 (1) that "a resolution passed by the directors may be perfectly legal and yet oppressive	 and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company". On this question	 Lord President Cooper observed in Elder vs Elder (2): "The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable ' jurisdiction	 and	 conversely	 that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up	 especially where alternative remedies are available. Where the 'just and equitable ' jurisdiction has been applied in cases of this type	 the circumstances have always	 I think	 been such as to warrant the inference that there has been	 at least	 an unfair abuse of powers and an impairment of confidence in the probity with which the company 's affairs are being conducted	 as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy". Neither the judgment of Bhagwati J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder a complaint was made that Elder had not received the notice of the Board meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present	 no complaint of oppression could be entertained merely on the ground that the failure to give notice of the Board meeting was an act of illegality. The true position is that an isolated act	 which is contrary to law	 may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome	 harsh and wrongful. But a series of illegal acts following upon one another can	 in the context	 lead justifiably to the conclusion that they are a part of the same transaction	 of which 747 the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biassed; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biassed and that the party complaining of the orders will not get justice at his hands. In England	 after the decision of the House of Lords in Meyer	 (supra) a restricted interpretation has been given to section 210 by the Court of Appeal in re Jermyn St. Turkish Baths	(1) which has adversely criticised by writers on Company Law (see Palmer 's Company Law	 22nd ed.	 page 613	 paras 57 06	 57 07; Gore Brown on Companies	 43rd ed.	 para 28 12). In India	 this restrictive development has no place	 for	 in S.P. Jain vs Kalinga Tubes	 (2) Wanchoo J. accepted the broad and liberal interpretation given to the Court 's powers in Meyer. In Kalinga Tubes	 Wanchoo J. referred to certain decisions under section 210 of the English including Meyer (supra) and observed: "These observations from the four cases referred to above apply to section 397 also which is almost in the same words as section 210 of the English Act	 and the question in each is whether the conduct of the affairs of the company	 by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated	 it is not enough to show that there is just and equitable cause for winding up the company	 though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders	 748 continuing upto the date of petition	 showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome	 harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company 's affairs	 and such oppression must involve at least an element of lack of probity of fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts. .with reference to section 397". (page 737) At pages 734 735 of the judgment in Kalinga Tubes	 Wanchoo J. has reproduced from the judgment in Meyer	 the five points which were stressed in Elder. The fifth point reads thus: "The power conferred on the Court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the Court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding up order". It is clear from these various decisions that on a true construction of section 397	 an unwise	 inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity	 conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word 'Oppression ' in section 210 of the English Act by the words 'unfairly prejudicial ' in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower 's Company Law	 4th edn.	 page 668). But that recommendation was not accepted and the English Law remains the same as in Meyer and in Re H.R. 749 Harmer Ltd.	 (1) as modified in Re Jermyn St. Turkish Baths. (supra) We have not adopted that modification in India. Having seen the legal position which obtains in cases where a member or members of a company complain under section 397 of the that the affairs of the company are being conducted in a manner oppressive to him or them	 we can proceed to consider the catena of facts and circumstances on which reliance is placed by the Holding Company in support of its case that the conduct of the Board of Directors of NIIL constitutes an act of oppression against it. There is	 however	 one matter which has to be dealt with before adverting to facts	 namely	 the provisions of FERA their impact on the working of NIIL and on the right of the Holding Company to continue to hold its shares in NIIL. This we consider necessary to discuss before an appraisal of the factual situation since	 without a proper understanding of the working of FERA	 it would be impossible to appreciate the turn of intertwined events. It is in the setting of FERA that the significance of the various happenings can properly be seen. The Foreign Exchange Regulation Act	 46 of 1973	 is "An Act to consolidate and amend the law regulating certain payments	 dealings in foreign exchange and securities	 transactions indirectly affecting foreign exchange and the import and export of currency and bullion	 for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country". It repealed the earlier Act	 namely	 The Foreign Exchange Regulation Act	 1947	 and came into force on January 1	 1974. "Person resident in India" is defined in clause (p) of section 2 to mean: (i) a citizen of India	 who has	 at any time after the 25th day of March 1947	 been staying in India	 but does not include a citizen of India who has gone out of	 or stays outside	 India	 in either case (a) for or on taking up employment outside India	 or (b) for carrying on outside India a business or vocation outside India	 or 750 (c) for any other purpose	 in such circumstances as would indicate his intention to stay outside India for an uncertain period; (ii) a citizen of India	 who having ceased by virtue of paragraph (a) or paragraph (b) or paragraph (c) of sub clause (i) to be resident in India	 returns to or stays in India	 in either case (a) for or on taking up employment in India	 or (b) for carrying on in India a business or vocation in India	 or (c) for any other purpose	 in such circumstances as would indicate his intention to stay in India for an uncertain period. "Person resident outside India" according to clause (q) means "a person who is not resident in India". Under clause (u) "security" means "shares	 stocks	 bonds	 etc. Section 19 (1) provides: Notwithstanding anything contained in section 81 of the 	 no person shall	 except with the general or special permission of the Reserve Bank. . (a) take or send any security to any place outside India; (b) transfer any security	 or create or transfer any interest in a security	 to or in favour of a person resident outside India; (d) issue	 whether in India or elsewhere	 any security which is registered or to be registered in India	 to a person resident outside India;" Section 29 which is directly relevant for our purpose reads thus: 751 "29. (1) Without prejudice to the provisions of section 28 and section 47 and notwithstanding anything contained in any other provision of this Act or the provisions of the 	 a person resident outside India (whether a citizen of India or not) or a person who is not a citizen of India but is resident in India	 or a company (other than a banking company) which is not incorporated under any law in force in India or in which the non resident interest is more than forty per cent	 or any branch of such company	 shall not	 except with the general or special permission of the Reserve Bank	 (a) carry on in India	 or establish in India a branch	 office or other or other place of business for carrying on any activity of a trading	 commercial or industrial nature	 other than an activity for the carrying on of which permission of the Reserve Bank has been obtained under section 28; or (2) (a) where any person or company (including its branch) referred to in sub section (1) carries on any activity referred to in clause(a) of that sub section at the commencement of this Act or has established a branch	 office or other place of business for the carrying on of such activity at such commencement	 then	 such person or company (including its branch) may make an application to the Reserve Bank within a period of six months from such commencement or such further period as the Reserve Bank may allow in this behalf for permission to continue to carry on such activity or to continue the establishment of the branch	 office or other place of business for the carrying on of such activity	 as the case may be. (b) Every application made under clause (a) shall be in such form and contain such particulars as may be specified by the Reserve Bank. (c) Where any application has been made under clause (a)	 the Reserve Bank may	 after making such inquiry as it may deem fit	 either allow the application subject to such conditions	 if any	 as 752 the Reserve Bank may think fit to impose or reject the application: . . (4) (a) Where at the commencement of this Act any person or company (including its branch) referred to in sub section (1) holds any shares in India of any company referred to in clause (b) of that sub section	 then	 such person or company (including its branch) shall not be entitled to continue to hold such shares unless before the expiry of a period of six months from such commencement or such further period as the Reserve Bank may allow in this behalf such person or company (including its branch) has made an application to the Reserve Bank in such form and containing such particulars as may be specified by the Reserve Bank for permission to continue to hold such shares. (b) Where an application has been made under clause (a) the Reserve Bank may	 after making such inquiry as it may deem fit	 either allow the application subject to such conditions	 if any	 as the Reserve Bank may think fit to impose or reject the application :" It is clear from these provisions that NIIL	 being a Company in which the non resident interest of the Holding Company was more than 40%	 could not carry on its business in India except with the permission of Reserve Bank of India. An application for permission to continue to carry on such business had to be filed within a period of six months from the commencement of the Act or such further period as the Reserve Bank may allow. The time for filing the application was extended in all cases by two months and	 therefore	 it could be filed by August 31	 1974	 NIIL filed its application three days late on September 3	 1974	 and the application was granted by the Reserve Bank on certain conditions	 by its letter dated May 10	 1976. Under the terms and conditions imposed by the Reserve Bank	 the non resident interest of the Holding Company	 which came to about 60%	 had to be brought down to 40% within one year of the receipt of the letter dated May 10	 1976	 that is to say before May 17	 1977. 753 By reason of section 29 (4) of FERA	 the Holding Company too had to apply for permission to hold its shares in NIIL. It applied to the Reserve Bank for a Holding licence on September 18	 1974. The application which was filed late by 18 days is still pending with the Reserve Bank and is likely to be disposed of after the non resident interest of the Holding Company in NIIL is reduced to 40%. There is a sharp controversy between the parties on the question as to whether May 17	 1977 was a rigid dead line by which the reduction of the non resident interest had to be achieved or whether NIIL could have applied to the Reserve Bank before that date for extension of time to comply with the Bank 's directive	 in which case	 it is urged	 no penal consequences would have flown. We will deal later with this aspect of the matter	 including the question of business prudence involved in applying to the Reserve Bank for such an extension of time. Shri Nariman raised at the outset an objection to a finding of mala fides or abuse of the fiduciary position of Directors being recorded on the basis merely of affidavits and the correspondence	 against the NIIL 'S Board of Directors or against Devagnanam and his group. He contends. Under the Company Court Rules framed by this Court	 petitions	 including petitions under section 397	 are to be heard in the open court (Rules 11 (12) and Rule 12 (1)	 and the practice and procedure of the Court and of the Civil Procedure Code are applicable to such petitions (Rule 6). Under Order XIX Rule 2 of the Code	 it is open to a party to request the Court that the deponent of an affidavit should be asked to submit to cross examination. No such request was made in the Trial Court for the cross examination of Devagnanam who	 amongst all those who filed their affidavits	 was the only person having personal knowledge of everything that happened at every stage. Why he did or did not do certain things and what was his attitude of mind on crucial issues ought to have been elicited in cross examination. It is not permissible to rely argumentively on inferences said to arise from statements made in the correspondence	 unless such inferences arise irresistibly from admitted or virtually admitted facts. The verification clause of Mackrael 's affidavit shows that he had no personal knowledge on most of the material points. Raeburn who	 according to Mackrael	 was the Chief negotiator on behalf of the Holding Company in the Birmingham meeting did not file any affidavit at all. Whitehouse	 the Secretary 754 of the Holding Company and N.T. Sanders who was the sole representative of the Holding Company on NIIL 's Board of Directors	 did file affidavits but they are restricted to the question of the late receipt of the letter of offer of shares and the notice for the Board meeting of May 2	 1977. Their affidavits being studiously silent on all other important points and the affidavit filed on behalf of the Holding Company being utterly inadequate to support the charge of mala fides or abuse of the Directors ' fiduciary powers	 it was absolutely essential for the Holding Company to adduce oral evidence in support of its case or at least to ask that Devagnanam should submit himself for cross examination. This	 according to Shri Nariman	 is a fundamental infirmity from which the case of the Holding Company suffers and therefore	 this Court ought not to record a finding of mala fides or of abuse of powers	 especially when such findings are likely to involve grave consequences	 moral and material	 to Devagnanam and jeopardise the very functioning of NIIL itself. In support of his submission	 Shri Nariman has relied upon many a case to show that issues of mala fides and abuse of fiduciary powers are almost always decided not on the basis of affidavits but on oral evidence. Some of the cases relied upon in this connection are: Re. Smith & Fawcett Ltd.	(1) Nanalal Zaver vs Bombay Life Assurance	(2) Plexcy vs Mills	(3) Hogg vs Cramphorn(4) Mills vs Mills	(5) Harlowe 's Nominees(6) and Howard Smith vs Amphol.(7) We appreciate that it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit to cross examination. It is true that men may lie but documents will not and often	 documents speak louder than words. But a total reliance on the written word	 when probity and fairness of conduct are in issue	 involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inferences said to arise from the documents. But then	 Shri Nariman 's objection seems to us a belated attempt to avoid an inquiry into the 755 conduct and motives of Devagnanam. The Company Petition was argued both in the Trial Court and in the Appellate Court on the basis of affidavits filed by the parties	 the correspondence and the documents. The learned Appellate Judges of the High Court have observed in their judgment that it was admitted	 that before the learned trial Judge	 both sides had agreed to proceed with the matter on the basis of affidavits and correspondence only and neither party asked for a trial in the sense of examination of witnesses. In these circumstances	 the High Court was right in holding that	 having taken up the particular attitude	 it was not open to Devagnanam and his group to contend that the allegation of mala fides could not be examined	 on the basis of affidavits and the correspondence only. There is ample material on the record of this case in the form of affidavits	 correspondence and other documents	 on the basis of which proper and necessary inferences can safely and legitimately be drawn. Besides	 the cases on which counsel relies do not all support his submission that from mere affidavits or correspondence	 mala fides or breach of fiduciary power ought not to be inferred. In Re Smith & Fawcett Ltd.	 (supra) Lord Greene	 after stating that he strongly disliked being asked on affidavit evidence alone to draw up inferences as to the bona fides or mala fides of the actors	 added that this did not mean that it is illegitimate in a proper case to draw inferences as to bona fides or mala fides in cases	 where there is on the face of the affidavits	 sufficient justification for doing so. In Nanalal Zaver	 (supra) the judgment of Kania C.J. contains a statement at page 394 that 'Considerable evidence was led in the trial Court on the question of hona fides ' but it is not clear what kind of evidence was so led and besides	 the fact that oral evidence was led in some cases does not mean that it must be led in all cases or that without it	 the matter in issue cannot be found upon. We may mention that in Punt vs Symons	(1) Fraser vs Whalley(2) and Hogg vs Cramphorn	 (supra) the breach of fiduciary duty was inferred from affidavit evidence. We have therefore no hesitation in rejecting the submission that we ought not to record a finding of mala fides or abuse of fiduciary power on the basis of the affidavits	 correspondence and the 756 other documents which are on the record of the case. May it be said that these are on the record by consent of parties. Not merely that	 but more documents were placed on the record	 mostly by consent of parties	 as the case progressed from stage to stage. A very important document	 namely	 Devagnanam 's telex to Raeburn dated May 25	 1977 was put on the record for the first time before us since Shri Nariman himself desired it to be produced	 waiving the protection of the caveat "without prejudice". That shows that the parties adopted willingly a mode of trial which they found to be most convenient and satisfactory. That takes us to the question as to whether on the basis of the material which is on the record of the case	 it can be said that the decision taken by NIIL 's Board of Directors in their meetings of April 6 and May 2	 1977 constitute acts of oppression as against the Holding Company. The case of the Holding Company as put forward by Shri Seervai is like this: (i) Devagnanam kept Raeburn and Coats under the impression that negotiations were still going on and were not to be treated as concluded while	 in reality	 he had made up his mind to treat the matter as at an end. (ii) He kept the Holding Company in total ignorance of the steps which he was taking in behalf of the issuance and allotment of the rights shares. The copy of the letter of the Reserve Bank dated March 30	 1977 which is said to have spurred the decision taken in the meetings of April 6 was not sent to the Holding Company though Devagnanam had stated in his letters dated April 12 to Raeburn that the said copy was being enclosed along with that letter. Deliberately and designedly	 the letter of offer dated April 14	 1977 meant for the Holding Company in England was not posted until April 27. Similarly	 the notice calling a meeting of the Board on May 2 was not posted till April 27. The notice to Manoharan too was posted as late as on April 27	 since he was believed to be siding with Coats. The letter of offer and the notice of meeting of May 2 which were posted at Madras on April 27 were received by the Holding Company on May 2	 after the Board 's meeting for allotment of rights shares was held. 757 (iii) The Reserve Bank of India was not informed of the proposal to issue right shares to the existing shareholders although it was the most obvious thing to do	 in response to its letter dated March 30	 1977	 calling upon NIIL to submit its proposal for reducing its non resident interest without delay. (iv) No application was made to the Controller of Capital Issues for fixing the premium on rights shares	 not withstanding that the Reserve Bank had informed NIIL	 that if necessary	 an application to that effect may be made to the Controller of Capital Issues. (v) The whole idea was to cut off all sources of information from Raeburn and Coats and to confront them with the fait accompli of the allotment of rights shares to the Indian shareholders	 including the shares formally offered to the Holding Company which were not allotted to it on the ground of its non compliance with the letter of offer. (vi) The agenda of the meetings of April 6 and May 2	 1977 was purposely expressed in vague terms: 'Policy Indianisation '	 in order that the Holding Company should not know that the reduction of the non resident interest was proposed to be effected by the issue of rights shares. By suppressing from the knowledge of the Holding Company what was its right to know	 and what was the duty of the Board 's Secretary to convey to it	 Devagnanam succeeded in achieving his purpose on the sly and pre empted any action by the Holding Company to restrain the holding of the meeting	 the issue of rights shares and the allotment thereof exclusively to the existing shareholders (barring Manoharan). (vii) Silverston was appointed as an additional Director in the meeting of April 6 to make up the quorum of two "disinterested" directors even though he was in the true sense not a disinterested person in the decision taken in that meeting. The appointment of additional directors was not even an item on the agenda of the meeting. 758 (viii) Devagnanam was emboldened to take this course because he believed that no matter how wrongful his conduct	 he could count upon the support of NEWEY to see that he was not brought to book in a court of justice for his wrongful conduct. He even attempted to thwart the Company Petition and render it infructuous by persuading NEWEY to withdraw the power of attorney executed by them	 authorizing the filing of the petition. (ix) In these machinations	 Devagnanam was actuated by the sole desire to acquire the control of NIIL for his personal benefit	 by ousting the Holding Company from its control over the affairs of NIIL. (x) In fact	 the rights shares were issued at par	 though their market value was far greater	 as a measure of personal aggrandisement in the supposition and forethought that such shares will inevitable go to Devagnanam and his group. This was blatantly in breach of the fiduciary obligation of the Directors. (xi) By these means and methods	 which totally lacked in probity	 Devagnanam succeeded in converting the existing majority into a minority and the minority into a majority	 a conduct which is burdensome	 harsh and unlawful	 qua the existing majority. According to Shri Seervai	 the question before the Court is not whether the issue of rights shares to the existing Indian shareholders only	 amounted to oppression but whether	 the offer of rights shares to all existing shareholders of NIIL but the issue of rights shares to existing Indian shareholders only	 constituted oppression of the Holding Company on the facts and circumstances disclosed in the case. This argument raises questions regarding the interpretation of sections 43A and 81 of the . These contentions of the Holding Company have been controverted by Shri Nariman	 according to whom	 the appellate Court has taken a one sided view of the matter which is against the weight of evidence on the record. Counsel contends that Devagnanam had done all that lay in his power to persuade the Holding Company to disinvest so as to reduce its holding in NIIL to 40%	 that the Direc 759 tors of NIIL were left with no option save to decide upon the issue of rights shares	 since disinvestment was a matter of the Holding Company 's volition	 that the wording of the agenda of the meetings of April 6 and May 2 conveyed all that there was to say on the subject since	 in the background of the negotiations which had taken place between the parties	 it was clear that what was meant by 'Policy Indianization ' and 'Allotment of Shares ' was the allotment of rights shares in order to effectuate the policy of the Reserve Bank that the Indianization of the Company should be achieved by the reduction of the non resident holding to 40% that Coats refused persistently	 both actively and passively	 either to disinvest or to consider the only other alternative of the issue of rights shares	 and that the impugned decisions were taken by the Board of Directors objectively in the larger interests of the Company. According to Shri Nariman	 Coats left no doubt by their attitude that their real interest lay in their worldwide business and they wanted to bring the working of NIIL to a grinding halt with a view to eliminating an established competitor from their business. It is denied by counsel that important facts or circumstances were deliberately suppressed from the Holding Company or that the letter of offer and the notice of the Board 's meeting of May 2 were deliberately posted late on April 27. It is contended that neither by the issue of rights shares nor by the failure to give the right of renunciation to the Holding Company was any injury caused to its proprietary rights as a shareholder in NIIL. As a result of the operation of FERA	 the directives issued by the Reserve Bank thereunder and because of the fact that NIIL had retained its old Articles after becoming a public company under section 43A of the 	 the Holding Company could neither have participated in the issue of rights shares nor could it have renounced the rights shares offered to it in favour of an outsider	 not even in favour of a resident Indian Company like Madura Coats. It is denied that Silverston was not a disinterested Director or that his appointment as an additional Director was otherwise invalid. Counsel sums up his argument by saying that the Board of Directors of NIIL had in no manner abused its fiduciary position and that far from their conduct being burdensome	 harsh and wrongful	 it was the attitude of Coats which was unfair	 unjust and obstructive. Coats having come into an equitable jurisdiction with unclean hands	 contends Shri Nariman	 no relief should be granted to them assuming for the sake of argument that Devagnanam from the position of Managing Director	 are characterised by counsel as wholly uncalled for	 transcending the exigencies of the situation. 760 It seems to us unquestionable that Devagnanam played a key role in the negotiations with the Holding Company and ultimately master minded the issue of rights shares. He occupied a pivotal position in NIIL	 having been its Director for over twenty years and a Managing Director over fifteen years	 in which capacity he held an undisputed sway over the affairs of NIIL. The Holding Company had nominated only one Director on the Board of NIIL	 namely	 N.T. Sanders	 who resided in England and hardly ever attended the Board 's meetings. Devagnanam was thus a little monarch of all that he surveyed in Ketty. He had a large personal stake in NIIL 's future since he and his group held nearly 30% shares in it	 the other Indian shareholders owning a mere 10%. In the 60% share capital owned by the Holding Company	 Coats and NEWEY were equal sharers with the result that Coats	 NEWEY and Devagnanam each held an approximately 30% share capital in NIIL. This equal holding created tensions and rivalries between Coats and Devagnanam	 NEWEY preferring to side with the latter in a silent	 unspoken manner. Eventually. after the filing of the Company Petition	 Coats bought over NEWEY 's interest in NIIL sometime in July 1977. The picture which Devagnanam has drawn of himself as a person deeply committed to Ketty	 and as having built up the business with scrupulous regard to the observance of Foreign Exchange Regulations and Indian Laws in contradistinction to Coats who	 he alleged	 wanted to contravene the Foreign Exchange Regulations of our country is not borne out by the correspondence. In fact	 the letter which he wrote to Shread of Newey Goodman Ltd. on August 11	 1973 (which was filed by consent in the Appeal Court) shows that he wanted to dispose of his shares at a large premium by officially receiving the par value in Rupees in India and obtaining the balance in foreign currency outside India. Nevertheless	 he stated on oath in para 13 of his rejoinder affidavit that "it is not true that in selling my shares	 I wanted a part of the consideration in foreign exchange". The said letter discloses that over and above proposing to make a large profit in contravention of the Foreign Exchange Regulations and the tax laws of India by receiving money outside India	 Devagnanam proposed to take away from Ketty its "select key personnel and technicians" to Malacca and to manufacture competitively	 products which were then manufactured by Needle Industries	 U.K. The foot note to the letter to Shread asked him to keep these matters secret from Coats till the shares had been sold	 and till the deed had been done. 761 There is another aspect of Devagnanam 's conduct to which reference must be made. The statement made by him in para 15 of his reply affidavit denying that he was a non resident is not entirely true because at least between August 26	 1974 and June 9	 1976 he was a non resident within the meaning of section 2 (p) (i) (a) of FERA. By his letter dated August 26	 1974 to the Reserve Bank	 he asked	 though out of abundant caution	 for permission under section 29 (4) of FERA to hold his shares in NIIL. He referred in that letter to his contract with Newey and Taylor under which he was to be a full time Managing Director of that Company for five years from August 1	 1974 to July 31	 1979 and asked the Reserve Bank to determine his status. On September 3	 1975 he wrote to the Reserve Bank contending that he was a 'resident '	 referring this time not to his contract with Newey Taylor but to the agreement between NILL and Newey Goodman Ltd.	 a Company about to be formed	 under which he was to be on deputation with it as an employee of NIIL. Devagnanam 's letter dated August 11	 1973 to Shread of Newey Goodman	 the gloss which he put on his status as a resident in his letters to the Reserve Bank dated August 26	 1974 and September 3	 1975 and the clever manner in which he had his status determined as a resident	 cast a cloud on his conduct and credibility. And though	 as contended by Shri Seervai	 we do not propose to apply to Devagnanam 's affidavit evidence the rule of 'corroboration in material particulars ' which is generally applied in criminal law to accomplice evidence	 we shall have to submit Devagnanam 's conduct to the closet scrutiny and statements made by him	 from time to time	 to the most careful examination. We shall have to look to something beyond his own assertion in order to accept his claim or contention. Shri Nariman attacked the conduct of Coats almost as plausibly as Shri Seervai attacked that of Devagnanam	 though in terms of a saying in a local language we may say that 'a brick is softer than a stone '	 Coats being the brick. Coats	 as will presently appear	 are not to be outdone by Devagnanam in the matter of lack of business ethics. But that is no wonder because when the dominant motivation is to acquire control of a company	 the sparring groups of shareholders try to grab the maximum benefit for themselves. If one decides to stay on in a company	 one must capture its control. If one decides to quit	 one must obtain the best price for one 's 762 holding	 under and over the table	 partly in rupees and partly in foreign exchange. Then	 the tax laws and the foreign exchange regulations look on helplessly	 because law cannot operate in a vacuum and it is notorious that in such cases evidence is not easy to obtain. Alan Mackrael says in paragraph 20 of his reply affidavit in the Company Petition that it was made clear to Devagnanam that neither Coats nor the Needle Industries (U.K.) would ever be a party to any transaction which was illegal under the Indian law. In a letter dated May 24	 1976 to Devagnanam	 A.D. Jackson of NEWEY has this to say: "In broad terms the proposition is that Alan Mackrael	 Martin Henry and myself should meet with you in Malacca during September to discuss arrangements whereby an Indian gentleman known to Coats would purchase both your shares and our own share of the NINTH holding in the manner which I outlined to you on the telephone. In order to provide a base for the calculations	 Kingsley is to be asked to obtain the government approved price but	 of course	 the basis of our discussions has been that the actual payment will be higher than this". In the same letter Jackson	 after warning that Coats/Needle Industries (U.K.) are "certainly not going to relinquish control of Ketty without a major struggle"	 proceeds to describe the helpless condition of NEWEY by saying that in the financial position in which they found themselves	 they were "in no state to do battle with this particular giant". Leaving aside the determination of Coats to engage in a major struggle with NIIL 's Board of Directors	 Jackson 's letter leaves no doubt that Coats were willing to be a party to the arrangement whereby the shares of Devagnanam and NEWEY would be sold to an 'Indian gentleman '	 under which the actual payment would be higher than the government approved price ascertained by Kingsley	 the Secretary of NIIL. This is doubtful ethics which justifies Shri Nariman 's argument that he who comes into equity must come with clean hands; if he does not	 he cannot ask for relief on the ground that the other man 's hands are unclean. The "Notes on further Indianization" made by Devagnanam on April 29	 1975	 at a time when the relations between the parties were not under a strain	 show that N.T. Sanders who was nominated by the Holding Company as a Director of NIIL was "aware of an inquiry from a Mr. Khaitan". This shows that Devagnanam was not trying 763 to dispose of his shares secretly to Khaitan and Coats were aware of that move. In para 20 of his reply affidavit	 Alan Mackrael says that none of the proposals put forward by the Holding Company for achieving Indianization to comply with the requirements of FERA would have given the control of NIIL to the Holding Company. This is falsified by Raeburn 's letter dated October 25	 1976 to Devagnanam	 in which he says that the idea of an outside independent party holding 15% of the share capital of NIIL was raised	 but this did not appear to be acceptable to Coats since "they want to achieve not only that the present Indian shareholders hold a minority but that they (Coats) hold and influence a substantial block	 thereby hoping to influence NEWEY to their views". Thus	 there is a wide difference between what Coats practised earlier and pleaded later. Towards the end of paragraph 21	 Mackrael asserts that the shareholders of the Holding Company	 namely	 Coats and NEWEY	 were unanimous in the filing of the Company Petition and the prosecution of the proceedings following upon it	 which is said to be clear from the fact that two powers of attorney were attested by the Directors of the Holding Company	 both of whom were Directors of NEWEY also. The fact that Coats and NEWEY were not of one mind is writ large on the face of these proceedings and	 in fact	 the charge against NEWEY is that because of their Far Eastern interests in which Devananam was a great asset to them	 they were supporting Devagnanam. We may in this connection draw attention to a letter dated June 8	 1977 by Raeburn to Mackrael	 saying that the insistence of Coats ( 'Glasgow ') to hold on to the 60% shareholding in NIIL or at least to ensure that 60% did not get into the hands of the Indian shareholders will involve a long and costly legal battle. Raeburn proceeds to say: "We	 as Neweys	 have neither the will nor the means to participate in that battle	 nor do we think it right to do so bearing in mind the legal position regarding Indianisation	 the provision in the Articles and the fact that substantially the modern business of N.I.I.L. has been built up by the efforts of the present Indian shareholders". In paragraph 5 of the aforesaid letter	 Raeburn clarifies the attitude of NEWEY by saying that if Coats were unable to agree to the arrangement suggested by NEWEY	 then	 NEWEY will be compelled to notify to those concerned in India that they can no longer be parties to the power of attorney granted by the Holding Company 764 to Mackrael or to any other proceedings in the Indian Courts. In spite of this letter of Raeburn (dated June 8	 1977)	 Mackrael had the temerity in his reply affidavit dated July 8	 1977	 to say that Coats and NEWEY were unanimous in the prosecution of the proceedings consequent upon the filing of the Company Petition. There was no agreement between Coats and NEWEY either in regard to Indianisation of NIIL or in regard to the legal proceedings instituted to challenge the issue of rights shares. There are many other contradictions on material points between the actual state of affairs and what Coats represented them to be	 but we consider it unnecessary to cover the whole of that field. We will refer to one of these only	 in order to show how difficult it is to choose between Coats and Devagnanam. In paragraph 19 of the Company Petition	 which is sworn by Mackrael	 it is stated that Devagnanam was in U.K. sometime towards the end of March 1977 and that he held several discussions with the representatives of the Holding Company. In paragraph 40 of his reply affidavit	 Mackrael says that as to the contents of paragraph 19 of the Company Petition	 he himself was not present at such meeting	 since it was a meeting between Devagnanam and the officials of NEWEY for the purpose of discussing matters concerning NEWEY 's Far Eastern interests. The verification clause of Mackrael 's affidavit in support of the Company Petition shows that the contents of paragraph 19 are based on information which he believed to be true. A clearer contradiction between the parent petition and the reply affidavit is difficult to imagine. It would appear that it was not until quite late that Coats realised that they had to plead all ignorance of the discussions which were held in U.K. towards the end of March 1977 between Devagnanam and the representatives of the Holding Company. We will now shift our attention to another scene in order to show how unethical the Coats are. Coats ' subsidiary called the Central Agency Ltd.	 who were sole selling agents of NIIL 's products in various markets in the world	 ceased to be so after NIIL put an end to the agreement with them. The Central Agency never applied during the time that they were sole selling agents of NIIL 's products for registration of the Indian Company 's Trade Marks as a protective measure. The learned Trial Judge	 Ramaprasada Rao	 Acting C.J.	 delivered the judgment in the Company 's Petition on May 17	 1978. Immediately thereafter	 Application No. 34991 of 1978 was filed by the Japanese Trade Marks Agents of Needle Industries	 765 U.K.	 for registration of the Trade Marks 'Pony ' and 'Rathna '	 which were the registered Indian Trade Marks of NIIL. That application was made under the authority of a Power of Attorney signed by Alan Marckrael. In June 1978	 Application No. 102987 was filed in Thailand on behalf of the Needle Industries U.K. as owners of the Trade Mark 'Pony ' which is clear from the Trade Mark Attorney 's letter dated January 22	 1979. In October 1978	 Coats Patons	 Hong Kong	 got the Indian Company 's Trade Mark 'Pony ' registered. In November 1978	 the Trade Mark Agents and Solicitors of NIIL in Hong Kong had to give a notice to Coats Patons	 Hong Kong	 that the latter had registered the 'Pony ' Trade Mark in Hong Kong with the full knowledge that NIIL was the legal owner of that Trade Mark and threatening legal action. As a result of that notice	 the Indian Company 's Trade Mark 'Pony ' which was registered by Coats Patons in Hong Kong as their own Trade Mark	 was assigned to the Indian Company on December 21	 1978 for a nominal sum of 10 dollars. Items 7 and 8 of the minutes dated March 28	 1979 of the meeting of the interim Board of Directors of NIIL refer to the registration in Hong Kong by Coats Patons of the Indian Trade Mark of NIIL and subsequent assignment thereof to NIIL when legal action was threatened. Harry Bridges	 who was appointed as a temporary Managing Director by the High Court	 has stated in his counter affidavit dated March 27	 1980 that the application for registration of the 'Pony ' Trade Mark was made in Hong Kong and other places in order to protect that Trade Mark from its improper use by other traders. This is a lame explanation of an act of near piracy. Were this explanation true	 the application for registration of the Trade Mark would have mentioned that it was being filed on behalf of NIIL	 and that 'Pony ' was in fact the Trade Mark of NIIL. It is quite amazing that any one should claim that the registration of the Trade Mark was being sought as a protective measure when a battle royal was raging between the Holding Company and NIIL and after the Trial Court had delivered its judgment. We may mention that by a letter dated June 15	 1977 Mackrael had informed Devagnanam that he was removed from the Board of Directors of the Holding Company and M.D.P. Whiteford was appointed in the vacancy. The fact that Needle Industries	 U.K.	 had surreptitiously made an application for the registration of NIIL s Trade Mark 'Pony ' came to light fortuitously in January 1979 when NIIL applied for the registration of the 'Pony ' Trade Mark in Thailand and Japan. NIIL 's Trade Mark Agents there found	 on inspection of the registers	 that certain 766 applications made by Needle Industries	 U.K.	 claiming the same mark as their own pending consideration. The decision	 in appeal	 of the High Court appointing Harry Bridges as a Managing Director for 4 months was pronounced on October 26	 1978. As a Managing Director appointed by the Court	 Bridges called a Board meeting of their members of the Board appointed by the Appellate Court	 for November 2	 1978. Bridges took away many files	 documents and statements from the NIIL 's factory at Ketty on October 28	 1978	 his explanation being that he wanted to carry these documents to Madras where the Board meeting was to be held. A little before Bridges left Ketty for Madras	 he was informed that this Court had passed an interim order on November 1	 1978. Consequently	 the meeting of the 2nd November did not take place. Bridges says that when it became clear that he was no longer required to act as a Managing Director of NIIL	 he took the earliest opportunity of returning the documents which he had taken from the office of the factory at Ketty. It is understandable that Bridges wanted to take with him certain documents to help him perform his functions as a Managing Director in the meeting of November 2	 1978. But it is surprising that	 in addition to the documents which Bridges returned on November 8	 he had taken with him several other documents which he returned when pressed to do so. He took away with him (1) Design drawing (2) Statistical Returns (3) the Master Budget summary	 1978 (4) Cash forecast for 1978 79 (5) Detailed Project Report with cash flow forecast (6) Details of Project Investment (7) Note on activity upto October 1978 and one or two other documents. These were eventually returned by the Holding Company 's Advocate	 Shri Raghavan. When NIIL wrote on November 21	 1978 to Shri Raghavan asking him to call upon Bridges to confirm that he had not retained copies of any of the documents which he had removed from Ketty	 Bridges replied by his letter dated November 29	 1978 that he had taken copies of such documents which he considered relevant and that he proposed to retain such copies since "as director of the Company	 I am entitled to peruse and take copies of whatever records I choose". This is a wee bit high and mighty. The Design drawing is not the drawing of a bungalow (with a swimming pool) which was being built for Devagnanam but it is a 'Ring spring fastener tool design '. The other documents which Bridges had taken away and of which he got copies made in assertion of his Directorial right	 contain important matters like details 767 of production	 sales and exports of NIIL 's products	 orders outstanding and sales	 the proposed additional turnover and the working capital requirements	 etc. The fact of Harry Bridges 's taking away these documents and making copies thereof for his own use leaves not the slightest doubt that the motivation of Coats at all times was to advance their own world interests at the expense of NIIL. In the background of such conduct	 it becomes difficult to appreciate the Holding Company 's contention	 so strongly pressed upon us	 that Coats	 NEWEY and Devagnanam being in the position of partners	 the greatest good faith and probity were expected to be displayed by them. The contention	 as a bald proposition of law is sound. The snag is: who should harp upon it ? Not Devagnanam	 we agree. But	 not Coats either	 we think. We have said	 while discussing the conduct of Devagnanam	 that it would be difficult to accept his word unless there is support forthcoming to it from other circumstances on the record. We feel the same about Coats. It would be equally unsafe to accept their word unless it finds support from the other facts and circumstances on the record of the case. It is true that in saying this	 we have partly taken into account facts which came into existence after the Company Petition was filed. But those facts do not reflect a new trend or a new thinking on the part of Coats	 generated by success in the litigation. Finding that they had succeeded in the High Court	 Coats took courage to pursue relentlessly their old attitude with the added vigour which success brings. On the question of oppression	 there is a large mass of correspondence and other documentary evidence on the record before us. We shall have to concentrate on the essentials by separating the chaff from the grain. In the earlier part of this judgment we have already referred to the course of events generally	 which culminated in the meetings of NIIL 's Board of Directors	 held on April 6 and May 2	 1977. We propose now to refer to these events selectively. FERA having come into force on January 1	 1974	 D.P. Kingsley	 the Secretary Director of NIIL	 applied on September 3	 1974 to the Reserve Bank for the necessary permission under section 29 (2) of that Act. The Reserve Bank intimated to NIIL by its letter dated November 5	 1975 that permission would be accorded to NIIL under section 29 (2) (a) read with section 29 (2) (c) of FERA to carry on its activities in India subject to the conditions enumerated 768 in paragraph 2 of the letter. One of the conditions mentioned in the aforesaid paragraph was that the non resident interest in the equity capital must be reduced to a level not exceeding 40%	 within a period of one year from the date of receipt of the letter. The Reserve Bank asked NIIL to submit a scheme within a period of three months	 showing how it proposed to achieve the required reduction in the non resident interest: "(a) whether by disinvestment by non resident shareholders	 or (b) whether by issue of additional equity capital to Indian residents to the extent necessary to finance any scheme of expansion diversification	 or (c) by both". Kingsley wrote a letter to Mackrael on November 19	 1975	 enclosing therewith a copy of the letter of the Reserve Bank dated November 5. On February 4	 1976 Kingsley wrote to the Reserve Bank that NIIL was prepared to agree to reduce the non resident interest in the equity capital to a level not exceeding 40% and that the Company was proposing to bring this about by disinvestment though	 depending upon future developments	 the Company reserved its right to reduce the non resident interest by issue of additional equity capital to Indian shareholders. Kingsley requested the Bank to extend the stipulated time one year in case NIIL was not able to comply with the Bank 's directive by reason of circumstances beyond its control. A copy of this letter dated February 4	 1976 was sent by Kingsley to Whitehouse	 the Secretary of the Holding Company. It is significant that there was no response as such to this communication	 from the Holding Company. On May 11	 1976 the Reserve Bank of India sent a letter to NIIL granting permission to it under FERA to carry on its business on certain conditions	 one of them being that the non resident interest in the equity capital had to be reduced to a level not exceeding 40% within a period of one year from the date of receipt of the letter. The Reserve Bank stated in the aforesaid letter that until such time as the non resident interest was not reduced to 40%	 the manufacturing activity of the Company shall not exceed such capacity as was validly approved or recognised by the appropriate authority on December 31	 1973 and that the Company shall not expand its manufacturing activities beyond the level so approved or recognised. It is clear from this letter that all developmental activities of NIIL stood frozen as of the date December 31	 1973	 until the non resident interest was reduced to 40%. The Reserve Bank stated further in the letter that NIIL should submit quarterly reports to it indicating the progress made in implementing the reduction of the non resident interest and that the transfer of shares from non residents to Indian residents would be required to be confirmed by the Reserve Bank under section 19 (5) of FERA. 769 The letter of the Reserve Bank was received by NIIL on May 17	 1976	 which meant that the reduction of the non resident interest had to be achieved by May 17	 1977. It shall have been seen that by the time the permission was granted by the Reserve Bank to NIIL in May 1976	 FERA had been in force for a period of about 2 1/2 years. A period of one year and eight months had gone by since the filing by NIIL of the application for dilution of the non resident interest. Over and above that	 the Reserve Bank had granted a long period of one year for bringing about the dilution of the non resident interest. It is true that public authorities are not generally averse	 in the proper exercise of their discretion	 to extending the time limit fixed by them	 as and when necessary. But an elementary sense of business prudence would dictate that the time schedule fixed by the Reserve Bank had to be complied with. The firm tone of the Reserve Bank 's letter conveyed that it would not be easy to obtain an extension of time for complying with its directive	 while the stringent conditions imposed by it	 particularly in regard to future developmental activities	 dictated an early compliance with the directive. Kingsley sent a letter to the Reserve Bank on May 18	 1976	 confirming the acceptance of the various conditions under which permission was granted to NIIL to carry on its business. Kingsley pointed out a difficulty in implenting one of the conditions regarding the sale of petroleum products	 but the Reserve Bank by its letter dated May 29	 1976 informed him that after a careful consideration of the request	 the Bank regretted its inability to enhance the ceiling on the turnover from the Company 's trading activity	 as stipulated in the letter dated May 11	 1976. In the meeting of the Board held on October 1	 1976	 Devagnanam 's appointment as Managing Director was renewed for a further period of five years. Raeburn	 Chairman of NEWEY who was looking after the affairs of the Holding Company	 wrote to Devagnanam on October 4	 1976	 complaining that it was necessary that the Holding Company should be kept informed in ample time of the Board 's meetings on important organisational matters. Raeburn and Mackrael came to India to discuss the question of dilution of the non resident holding in NIIL. A meeting was held at Ketty on October 20 and 21	 1976 in which the U.K. shareholders were represented by Mackrael and Raeburn and the Indian shareholders by Devagnanam and Kingsley. Silverston took part 770 in the meeting as an adviser to the Indian shareholders. Martin Henry	 the Managing Director of Madura Coats which is an Indian company in which the Needle Industries (U.K.) and Cotas have substantial interest	 attended the meeting and took part in the discussions. A note of the discussions which took place at Ketty on October 20 and 21 was prepared by Raeburn and forwarded along with a letter dated November 10	 1976 to Devagnanam	 with copies to Mackrael	 Newey	 Jackson and Whitehouse. Paragraph 2 of this note	 which is important	 says: "It was agreed that Indianization should be brought about by May	 1977	 as requested by Government	 so as to achieve a 40% U.K. and 60% Indian shareholding". The main features of the discussions which took place in the Ketty meeting are these: (1) Mackrael and Martin Henry suggested acceptability of Madura Cotas as holding part of the 60% of the equity to be held by Indian shareholders. The latter "saw no reason to give up the right which the Indianization legislation	 combined with the Company 's Articles	 conferred upon them and	 therefore they insisted on taking up the whole of their entitlement to 60% of the equity". Silverston who was an Englishman by nationality and a Solicitor by profession in India and was acting as an Adviser to the Indian shareholders in the Ketty meeting plainly and rightly pointed out that Government 's approval of a holding by Madura Coats of 15% of NIIL shares would be unlikely	 because by that method Coats would indirectly and effectively with NEWEY hold over 40%	 approximately 46%	 share in NIIL. It is apparent that this would have been a clear violation of FERA. (2) To allay the concern of U.K. shareholders when they became in minority by the Indian shareholders coming to hold 60%	 some safeguards were suggested which	 amongst others	 were	 (i) the Articles of the Company could be altered only by a special resolution which requires a 75% majority of the members voting in person or by proxy. Thus	 either group of the shareholders could prevent the sale of shares to any one not 771 approved	 (ii) the Board could be reconstructed as mentioned in para 4.3 of the note to give U.K. shareholders sufficient safeguards and hand in the management of the Indian Company. (3) The preferred method of transferring 20% of the equity to Indian shareholders was thought to be by sale by U.K. members of the appropriate number of shares at the price to be determined by the Government and the advice to be taken from Price Waterhouse in this regard. As an alternative it was suggested that a rights issue	 with the Indian shareholders taking up the U.K. Members ' rights would also be considered	 provided it was demonstrated by Ketty that there was a viable development plan requiring funds that the expected NIIL cash flow could not meet. The value of the U.K. equity interest thus transferred was not to be less favourable than by a direct sale of shares. (4) Approval was given in principle to the renewal of contract of Devagnanam as Managing Director of NIIL. Devagnanam agreed to devote adequate time to the affairs of Ketty and was authorised to continue to supervise the NEWEY affairs in Hong Kong and Malacca. At the resumed discussion on October 21	 1976	 both sides stuck to their stand. Devagnanam was insistent that he will "not accept on behalf of the Indian shareholders anything less than the full entitlement of 60% of the shares"	 while Mackrael	 equally insistent	 "could not accept on behalf of NI/Coats that the full 60% be held by the present Indian shareholders	 even with the safeguards and assurances discussed previously". The Ketty meeting thus ended in a stalemate	 both sides insisting on what	 what they considered to be their right and entitlement. Raeburn attempted to play the role of a mediator but failed. In this situation	 the parties decided to give further consideration to the matter and to adhere to the following time table: "Mid December TAD (Devagnanam) to submit to the U.K. shareholders 772 both the decisions reached by the Indian shareholders as regards the 60% and the case	 if any	 for a Rights Issue. Mid January U.K. shareholders to decide on their reaction to the Indian shareholders ' decision". Silverston conveyed to Kingsley his regret that the Ketty meeting could product no outcome because of the attitude of Coats who wanted to put pressure on the Directors of NIIL by giving 15% of the shareholding to Madura Coats and thereby avoiding the provisions of FERA. This reaction of Silverston finds support in the reaction of Raeburn himself	 which he described in his letter dated October 23	 1976 to Devagnanam. Raeburn says in that letter that he had learnt from Martin Henry that Coats were keen to introduce Prym technology in India in their Madura Coats factory. It may be mentioned that the Prym technology when introduced in Madura Coats would have created a direct competition between it and NIIL. It would also appear from Devagnanam 's letter of October 21	 1976 to Jackson that Coats were intending to start an Engineering Division at Bangalore for the manufacture of Dynecast and Prym products with an investment of the tune of Rs. 3	00	00	000 (Rupees three crores). Compared with that	 the interest of Coats in NIIL was just about Rs. 10 lakhs	 even if the shares of NIIL were to be valued at Rs. 190/ per share. Devagnanam wrote a letter dated December 11	 1976 to Raeburn	 informing him that they had just closed the Board 's meeting in which the principal subject of discussion was "Indianization". Devagnanam expressed resentment of himself and his colleagues that after they had faithfully served the Holding Company for almost the whole of their working lives	 the Holding Company should be unwilling to accept them as partners	 especially when they were legally entitled to be so considered. Devagnanam made it clear in this letter that any attempt by Coats to retain an indirect control in the management of NIIL will not be acceptable to the Indian shareholders. Then comes the important letter of December 14	 1976	 which was written by Devagnanam to Raeburn. Devagnanam informed Raeburn by that letter that he had further discussions with his colleagues and was able to persuade them to agree to a kind of Package deal. The terms of the deal so suggested were: "(1) 773 Indianization should take place with the existing Indian shareholders acquiring 60% of the stock; (2) Mackrael and Raeburn should be taken on NIIL 's Board as Directors	 but in no event Martin Henry who was connected with Madura Coats which had a powerful plan of development of Prym technology; (3) the Indian shareholders were prepared to take B.T. Lee	 a senior executive of Needle Industries/Coats	 Studley	 as a permanent whole time Director of NIIL to be put specifically in charge of exports". Some other suggestions were made by Devagnanam to show the bona fides of the Indian shareholders and to alleviate the apprehensions in the minds of the U.K. shareholders. Devagnanam asked Raeburn to convey his reactions in the matter. This letter has been gravely commented upon by the Holding Company on the ground that it did not contemplate the issue of rights shares. We are unable to see the validity of this criticism. There is not the slightest doubt that the Indian shareholders were insisting all along that they should become the owners of 60% of the equity capital of NIIL. A simple method of bringing this about was the transfer by the Holding Company of 20% of its shareholding to the existing Indian shareholders. It was only when this plain method of bringing about reduction in the equity holding failed and the deadline fixed by the Reserve Bank was drawing nearer	 that the Board of NIIL decided upon the issue of rights shares	 which was the only other alternative that could be conceived of for reducing the non resident interest. The issuance of rights shares	 after all	 was not like a bolt from the blue. In any event	 it was mentioned in the Ketty meeting. On December 20	 1976 Silverston wrote a letter to Raeburn saying that he would be proceeding to U.K. early in January in connection with his personal matters and that he would then visit Raeburn also. Silverston stated candidly in the letter that the situation which was developing between the U.K. and the Indian shareholders	 if allowed to continue	 could do much damage to the British interests and "as one who is still concerned with the interests of British industry	 I feel I cannot sit by and allow matters to deteriorate to their detriment	 without making some attempt towards bringing the issues between the parties to a fair conclusion. " Raeburn wrote to Kingsley on January 14	1977 stating that he had a discussion with Silverston a couple of days back	 during which Silverston had stated clearly the legal position and given his advice upon it. In the last paragraph of this letter	 Raeburn said: 774 "We have now put our views quite clearly to Mr. Makrael and we are awaiting the reaction of Needle Industries and Coats. Therefore	 I am hoping but I cannot be sure of this	 to be able to let you know fairly soon what the formal decision of the U.K. shareholders is. It needs to be emphasised	 especially since its importance was not fully appreciated by the Appellate Bench of the High Court	 that the Indian point of view was communicated with the greatest clarity to Raeburn in Devagnanam 's letter dated December 14	 1976	 which was within the time schedule which was agreed to be adhered to in the Ketty meeting. The views of the U.K. shareholders were most certainly not communicated to the Indian shareholders by the middle of January 1977 as was clearly agreed upon in the Ketty meeting. In fact	 they were never communicated. On January 20	 1977	 the Reserve Bank sent a reminder to NIIL. After referring to the letter of May 11	 1976	 the Reserve Bank asked NIIL to submit at an early date the progress report regarding dilution of the non resident interest. In reply	 a letter dated February 21	 1977 was sent by NIIL to the Bank	 stating: "We confirm that we are following up the matter regarding dilution of non resident interest and we confirm our commitment to achieve the desired Indianization by the stipulated date	 i.e. 17th May	 1977. " It is very important to note that a copy of this letter was forwarded both to Whitehouse and Sanders. They must at least be assumed to know that not only was Indianization to be achieved by May 17	 1977	 but that NIIL had committed itself to do so by that date. It is contended by Shri Seervai that the negotiations with Coats had in fact not come to an end and that Coats were never told that the compromise talks will be regarded as having failed. It is urged that Coats were all along labouring under the impression	 and rightly	 that the compromise proposals which were discussed with Raeburn in the meeting of March 29 31	 1977 in U.K. would be placed by Devagnanam before the Indian shareholders	 and the 775 U.K. shareholders apprised whether or not the proposals were acceptable. Shri Seervai relies strongly on a letter dated March 9	 1977 written by Raeburn to Devagnanam. After saying that on the Friday preceding the 9th March	 he had discussions with Mackrael and three high ranking personnel of Coats	 Raeburn says in that letter that Coats had refused to agree that the Indian shareholders should acquire a 60% shareholding in NIIL that this had created a new situation and that he was appending to the letter an outline of what he believed	 but could not be sure	 would be agreeable to Coats/Needle Industries. Raeburn stated further in that letter: "I know that all this will be difficult for you and your fellow Indian shareholders	 but I urge you to support this view and get their acceptance	 and to come here to be able to negotiate. If these or similar principles can be agreed during your visit	 I have no doubt that the detailed method can be quickly arranged. " Raeburn stated that the proposal annexed to the letter had not been agreed with Coats but he	 on his own part	 believed that Coats could be persuaded to agree to it. Stated briefly	 the proposal annexed by Raeburn to his letter aforesaid involved (i) the existing Indian shareholders holding 49% of the shares	 (ii) new Indian independent institutional shareholders holding 11% of the shares	 and (iii) the existing U.K. shareholders	 either directly or indirectly	 holding 40% of the shares. The proposed Board of Directors was to consist of representatives of the shareholders appointed by them thus: "Existing Indian shareholders 3	 New independent Indian shareholders 1	 existing U.K. shareholders 2	 and an independent Indian Chairman acceptable to all parties. " It is contended by Shri Seervai that these proposals are crucial for more than one reason since	 in the first place	 the proposal to increase the holding of the existing Indian shareholders to 49% and the offer of 11% to new Indian independent institutional shareholders was inconsistent with the charge that Coats wanted to retain control over NIIL	 directly or indirectly. The second reason why it is said that the proposal is crucial is that Raeburn 's letter of 776 March 9 must have been received by Devagnanam before March 14 since it was replied to on the 14th. Therefore	 contends Shri Seervai	 the negotiations between the parties were still not at an end. Counsel says that it was open to Devagnanam to refuse to negotiate on the terms suggested and insist that the Indian shareholders must have 60% of the shares. Instead of conveying his reactions to the proposal Devagnanam	 it is contended	 went to the United Kingdom to discuss the question. The minutes of discussions which took place in U.K.	 Mackrael and Sanders not taking any part therein	 show that NEWEY continued to plead that the Indian shareholders and Coats should consider the compromise formula and that Devagnanam undertook to put to the Indian shareholders further proposals for compromise and to consider what other proposals or safeguards they might suggest. Reliance is also placed by counsel on a letter which Devagnanam wrote to Raeburn on April 5	 in support of the submission that the negotiations were still not at an end. The last but one paragraph of that letter reads thus: "As undertaken	 I shall place the compromise formula	 very kindly suggested by you	 before my colleagues later today. We shall discuss it fully at the Board Meeting tomorrow and I shall communicate the outcome to you shortly thereafter. " We are unable to agree that the proposal annexed to Raeburn 's letter of March 9 1977 was either a proposal by or on behalf of Coats or one made with their knowledge and approval. Were it so	 it is difficult to understand how Raeburn could write to Mackrael on June 8	 1977 that Coats were still insistent on the entire 20% of the excess equity holding not going to the existing Indian shareholders. There is also no explanation as to why	 if the proposal annexed to Raeburn 's letter of March 9 was a proposal by or on behalf of Coats	 Raeburn said at the U.K. meeting of March 29 31	 1977 that it was better to 'let Coats declare their hand '. It is indeed impossible to understand why Coats	 on their own part	 did not at time communicate any compromise proposal of theirs to the Indian shareholders directly. They now seem to take shelter behind the proposal made by Raeburn in his letter of March 9 adopting it as their own. Even in the letter which Crawford Bayley & Co.	 wrote on June 21	 1977 on behalf of Sanders to the Reserve Bank of India	 no reference was at all made to any proposal by or on behalf of Coats to the Indian shareholders. The vague statement 777 made in that letter is that 'certain proposals ' were being considered and would be submitted 'shortly ' before the authorities. No such proposals were ever made by the Solicitor or their client to anyone. These letters and events leave no doubt in our mind that the negotiations between the parties were at an end that there were no concrete proposals by or on behalf of Coats which remained outstanding to be discussed by the Indian shareholders. To repeat	 Devagnanam declared his hand in his letter of December 14	1976 by reiterating	 beyond the manner of doubt	 that nothing less than 60% share in the equity capital of NIIL would be acceptable to the Indian shareholders. Coats never replied to that letter nor indeed did they convey their reaction to it in any other form or manner at any time. In fact	 it would be more true to say that Coats themselves treated the matter as at an end since	 they were wholly opposed to the stand of the Indian shareholders that they must have 60% share in the equity capital of NIIL. What happened in the meeting of April 6	 1977 has to be approached in the light of the finding that the negotiations between the parties had fallen through	 that Coats had refused to declare their hand and that all that could be inferred from their attitude with a fair amount of certainty was that they were unwilling to disinvest. On March 18	 1977 NIIL 's Secretary gave a notice of the Board meeting for April 6	 1977. The notice was admittedly received by Sanders in U.K.	 well in time but did not attend the meeting. The explanation for his failure to attend the meeting is said to be that the item on the agenda of the meeting	 'Policy Indianisation ' was vague and did not convey that any matter of importance was going to be discussed in the meeting	 like for example	 the issue of rights shares. We find it quite difficult to accept this explanation. Just as a notice to quit in landlord tenant matters cannot be allowed to split on a straw	 notices of Board meetings of companies have to be construed reasonably	 by considering what they mean to those to whom they are given. To a stranger	 'Policy Indianisation ' may not convey much but to Sanders and the U.K. shareholders it would speak volumes. By the time that Sanders received the notice	 the warring camps were clearly drawn on two sides of the battle line	 the Indian group insisting that they will have nothing less than a 60% share in the equity capital of NIIL and the U.K. shareholders insisting with equal determination that they will not allow the existing Indian 778 shareholders to have anything more than 49%. In pursuance of a resolution passed by the Board	 a letter had already been written to the Reserve Bank confirming the commitment of NIIL to achieve the required Indianisation by May 17	 1977. A copy of NIIL 's letter to the Reserve Bank was sent to Sanders and Whitehouse. In view of the fact that to the common knowledge of the two sides there were only two methods by which the desired Indianisation could be achieved	 namely	 either disinvestment by the Holding Company in favour of the existing Indian shareholders or a rights issue	 the particular item on the agenda should have left no doubt in the mind of the U.K. shareholders as to what the Board was likely to discuss and decide in the meeting of the 6th. Disinvestment stood ruled out of consideration	 a fact which was within the special knowledge of the Holding Company	 since whether to disinvest or not was a matter of their volition. After the despatch of the notice dated March 18	1977 two important events happend. Firstly	 Devagnanam went to Birmingham	 where discus ions were held from March 29 31	 1977 in which Indianisation of NIIL was discussed	 as shown by the minutes of that discussion. NEWEY were willing to accept Indianisation	 by the existing Indian shareholders acquiring a 60% interest in the share capital of NIIL while "COATS were adamantly opposed" to that view. It is surprising that during the time that Devagnanam was in Birmingham	 Sanders did not meet him to seek an explanation of what the particular item on the agenda of the meeting of April 6 meant Sanders had received the notice of March 18 before the Birmingham discussions took place	 and significantly he has made no affidavit at all on the question as to why he did not meet Devagnanam in Birmingham	 or why he did not attend the meeting of April 6 or what the particular item on the agenda meant to him. The second important event which happened after the notice of March 18 was issued was that on April 4	 1977 NIIL received a letter dated March 30	 1977 from the Reserve Bank. The letter which was in the nature of a stern reminder left no option to NIIL 's Board except to honour the commitment which it had made to the Reserve Bank. By the letter the Reserve Bank warned NIIL: "Please note that if you fail to comply with our directive regarding dilution of foreign equity within the stipulated period	 we shall be constrained to view the matter seriously." 779 We do not see any substance in the contention of the Holding Company that despite the commitment which NIIL had made to the Reserve Bank	 the long time which had elapsed in the meanwhile and the virtual freezing of its developmental activities as of December 31	 1973	 NIIL should have asked for an extension of time from the Reserve Bank. In the first place	 it could not be assumed or predicated that the Bank would grant extension	 and secondly	 it was not in the interest of NIIL to ask for such an extension. The Board meeting was held as scheduled on April 6	 1977. The minutes of the meeting show that two directors	 Sanders and M.S.P. Rajes	 asked for leave of absence which was granted to them. Sanders	 as representing the U.K. shareholders on NIIL 's Board	 did not make a request for the adjournment of the meeting on the ground that negotiations for a compromise had not yet come to an end or that the Indian shareholders had not yet conveyed their response to the "Coats ' compromise formula". Nor did he communicate to the Board his views on 'Policy Indianisation '	 whatever it may have meant to him. Seven Directors were present in the meeting	 with Devagnanam in the chair at the commencement of the meeting. C. Doraiswamy	 a Solicitor by profession and admittedly an independent Director	 was amongst the seven. In order to complete the quorum of two "independent" directors	 other directors being interested in the issue of rights shares	 Silverston was appointed to the Board as an Additional Director under article 97 of NIIL 's Articles of Association. Silverston then chaired the meeting	 which resolved that the issued capital of the Company be increased to Rs. 48	00	000/ by the issue of 16	000 equity shares of Rs. 100/ each to be offered as rights shares to the existing shareholders in proportion to the shares held by them. The offer was decided to be made by a notice specifying the number of shares which each shareholders was entitled to	 and in case the offer was not accepted within 16 days from the date of the offer	 it was to be deemed to have been declined by the shareholder concerned. The aforesaid resolution of the Board raises three important questions	 inter alia	 which have been passed upon us by Shri Seervai on behalf of the Holding Company: (1) Whether the Directors of NIIL	 in issuing the rights shares	 abused the fiduciary power which they possessed as directors to issue shares; (2) Whether Silverston was a 'disinterested Director '; and (3) Whether Silverston 's appointment was otherwise invalid	 since there was no item on the agenda 780 of the meeting for the appointment of an Additional Director. If Silverston 's appointment as an Additional Director is bad either because he was not a disinterested director or because there was no item on the agenda under which his appointment could be made	 the resolution for the issue of rights shares which was passed in the Board 's meeting of April 6 must fall because then	 the necessary quorum of two disinterested directors would be lacking. On the first of these three questions	 it is contended by Shri Seervai that notwithstanding that the issues of shares is intra vires the Directors	 the Directors ' power is a fiduciary power	 and although an exercise of such power may be formally valid	 it may be attacked on the ground that it was not exercised for the purpose for which it was granted. It is urged that the issue of shares by Directors which is directed to affect the right of the majority of the shareholders or to defeat that majority and convert it into a minority is unconstitutional	 void and in breach of the fiduciary duty of Directors	 though in certain situations it may be ratified by the Company in the General Meeting. Any reference by the Company to a general meeting in the present case	 it is said	 would have been futile since	 without the impugned issue of rights shares	 the majority was against the issue. It was finally argued that good faith and honest belief that in fact the course proposed by the Directors was for the benefit of the shareholders or was bona fide believed to be for their benefit is irrelevant because	 it is for the majority of the shareholders to decide as to what is for their benefit	 so long as the majority does not act oppressively or illegally. Counsel relies in support of these and allied contentions on the decision of the Privy Council in Howard Smith Ltd. and of the English Courts in Fraser	 Punt	 Piercy and Hogg. (supra) In Punt vs Symons	 (supra) which applied the principle of Fraser vs Whallcy	 (supra) it was held that: Where shares had been issued by the Directors. not for the general benefit of the company	 but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power	 they ought to be restrained from holding the meeting at which the votes of the new shareholders were to have been used. But Byrne J. stated: 781 There may be occasions when Directors may fairly and properly issue shares in the case of a Company constituted like the present for other reasons. For instance it would not be at all an unreasonable thing to create a sufficient number of shareholders to enable statutory powers to be exercised. In the instant case	 the issue of rights shares was made by the Directors for the purpose of complying with the requirements of FERA and the directives issued by the Reserve Bank under that Act. The Reserve Bank had fixed a deadline and NIIL. had committed itself to complying with the Bank 's directive before that deadline. Peterson J. applied the principle enunciated in Fraser and in Punt in the case of Piercy vs section Mills & (Company Ltd. (supra) The learned Judge observed at page 84: "The basis of both cases is	 as I understand	 that Directors are not entitled to use their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs of the company	 or merely for the purpose of defeating the wishes of the existing majority of shareholders. " The fact that by the issue of shares the Directors succeed	 also or incidentally	 in maintaining their control over the Company or in newly acquiring it	 does not amount to an abuse of their fiduciary power. What is considered objectionable is the use of such powers merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the Company. In Hogg vs Cramphorn Ltd.	 (supra) 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 J. reiterated the principle in Punt and in Piercy	 (Supra) and observed: "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 782 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." (p. 268) Applying this principle	 it seems to us difficult to hold that by the issue of rights shares the Directors of NIIL 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 requirement of 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 the interests of the majority cannot invalidate their action. The conversion of the existing majority into a majority was a consequence of what the Directors were obliged lawfully to do. Such conversion was not the motive force of their action. Before we advert to the decision of the Privy Chuncil in Howard Smith Ltd. vs Ampol Petroleum Ltd.	 (supra) we would like to refer to the decision of the High Court of Australia in Harlowe 's Nominees Pty. Ltd vs Woodside (Lakes Entrance) oil Company No Liability and another	 (supra) and to the Canadian decision of Berger J. of the Supreme Court of British Columbia	 in the case of Teck Corporation Ltd. vs Miller et al(1)	 both of which were considered by Lord Wilberfore in Howard Smith. On a consideration of the English decisions	 including those in Punt and Plercy	 Barwick C.J. said in Harlowe 's Nominees (supra): "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 783 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 the 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." (p. 493) We agree with the principle so stated by the Australian High Court and	 in our opinion	 it applies with great force to the situation in the present case. In Teck Corporation	 (supra) the Court examined several decisions of the English Courts and of other Courts	 including the one in Hogg. (supra) The last headnote of the report at page 289 reads thus: "Where directors of a company seek	 by entering into an agreement to issue new shares	 to prevent a majority shareholder from exercising control of the company	 they will not be held to have failed in their fiduciary duty to the company if they act in good faith in what they believe. on reasonable grounds	 to be the interests of the company. If the directors ' primary purpose is to act in the interests of the company	 they are acting in good faith even though they also benefit as a result". In Howard Smith	 no new principle was evolved by Lord Wilberforce who	 distinguishing the decisions in Teck Corporation and Harlowe 's Nominees	 (supra) said: "By contrast to the cases of Harlowe and Teck	 the present case	 on the evidence	 does not	 on the findings of the trial judge	 involve any consideration of management	 within the proper sphere of the directors. 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. So far as authority goes	 an issue of shares purely for the purpose of creating voting power has repeatedly been condemned". (page 837) 784 The dictum of Byrne J. in Punt (supra) that "there may be reasons other than to raise capital for which shares may be issued" was approved at page 836 and it was observed at page 837 "Just as it is established that directors	 within their management powers	 may take decisions against the wishes of the majority of shareholders	 and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office (Automatic Self Cleansing Filter Syndicate Co. Ltd. vs Cuninghams	 	 so it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority	 or creating a new majority which did not previously exist. To do so is to interfere with that element of the company 's constitution which is separate from and set against their powers. If there is added	 moreover	 to this immediate purpose	 an ulterior purpose to enable an offer for shares to proceed which the existing majority was in a position to block	 the departure from the legitimate use of the fiduciary power becomes not less	 but all the greater. The right to dispose of shares at a given price is essentially an individual right to be exercised on individual decision and on which a majority	 in the absence of oppression or similar impropriety	 is entitled to prevail". In our judgment	 the decision of the Privy Council in Howard Smith	 (supra) instead of helping the Holding Company goes a long way in favour of the appellants. The Directors in the instant case did not exercise their fiduciary powers over the shares merely or solely for the purpose of destroying an existing majority or for creating a new majority which did not previously exist. The expressions 'merely '	 'purely '	 'simply ' and 'solely ' virtually lie strewn all over page 837 of the report in Howard Smith. The Directors here exercised their power for the purpose of preventing the affairs of the Company from being brought to a grinding halt	 a consummation devoutly wished for by Coats in the interest of their extensive world wide business. In Nanalala Zaver and another vs Bombay Life Assurnnce Co. Ltd.	 (supra) Das J.	 in his separate but concurring judgment deduced the following principle on the basis of the English decisions: 785 "It is well established that directors of a company are in a fiduciary position vis a vis the company and must exercise their power for the benefit of the company. 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 and prevent the directors from doing so. The very basis of the Court 's interference 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". (pp. 419 420) It is true that Das J. held that Singhanias were complete strangers to the company and consequently the Directors owed no duty	 much less a fiduciary duty	 to them. But we are unable to agree with the contention that the observations extracted above from the judgment of Das J. are obiter. The learned Judge has set forth the plaintiffs ' contentions under three sub heads at page 415. At the bottom of page 419 he finished discussion of the 2nd sub head and said: "This leads me to a consideration of the third sub head on the assumption that. . the additional motive was a bad motive". The question was thus argued before the Court and was squarely dealt with. Before we leave this topic	 we would like to mention that the mere circumstance that the Directors derive benefit as shareholders by reason of the exercise of their fiduciary power to issue shares	 will not vitiate the exercise of that power. As observed by Gower in Principles of Modern Company Law	 4th edn. 	 p. 578: "As it was happily put in an Australian case they are 'not required by the law to live in an unreal region of detached altruism and to act in a vague mood of ideal abstraction from obvious facts which must be present to the mind of any honest and intelligent man when he exercises his power as a director". The Australian case referred to above by the learned author is Mills vs Mills	 (supra) which was specifically approved by Lord Wilberforce in Howard Smith. In Manala Zaver (supra) too	 Das J. stated at page 425 that the true principle was laid down by the Judicial Committee of the Privy Council in Hirsche vs Sims(1)	 thus: 786 "If the true effect of the whole evidence is	 that the defendants truly and reasonably believed at the time that what they did was for the interest of the company they are not chargeable with dolus malus or breach of trust merely because in promoting the interest of the company they were also promoting their own	 or because the afterwards sold shares at prices which gave them large profits". Whether one looks at the matter from the point of view expressed by this Court in Nanala Zaver or from the point of view expressed by the Privy Council in Howard Smith	 (supra) the test is the same	 namely	 whether the issue of shares is simply or solely for the benefit of the 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 it has incidentally benefited the Directors in their capacity as shareholders. We must	 therefore	 reject Shri Seervai 's argument that in the instant case	 the Board of Directors abused its fiduciary power in deciding upon the issue of rights shares. The second of the three questions arising out of the proceedings of the Board 's meeting dated April 6	 1977 concerns the validity of the appointment of Silverston as an Additional Director. Under section 287(2) of the the quorum for the said meeting of Directors was two. There can be no doubt that a quorum of two Directors means a quorum of two directors who are competent to transact and vote on the business before the Board. (see Greymouth vs Greymouth and Palmer 's Company Precedents.(1) 17th Edn.: p. 579	 f.n.3). The contention of the Holding Company is that Silverston was a Director "directly or indirectly concerned or interested" in the arrangement or contract arising from the resolutions to offer and allot rights shares and consequently	 the resolutions were invalid: firstly on the ground that they were passed by a vote of an interested director without which there would be no quorum and secondly because	 Silverston 's appointment as an Additional Director was for the purpose of enabling the said resolution to be passed for the benefit of interested directors. Relying upon a decision of the Bombay High Court in Firestone Tyre & Rubber Co. vs Synthetics & Chemicals Ltd.	(2) Shri Seervai contends that section 300 of the embodies the general rule of equity that no person who has to discharge duties on behalf of a corporate body shall be 787 allowed to enter into engagements in which he has a personal interest conflicting	 or which may possibly conflict	 with the interests of those whom he is bound to protect. The reason why it is said that Silverston was interested in or concerned with the allotment of the rights shares to the existing shareholders is	 firstly because at the Ketty meeting held in October 1976 he had acted as an 'Advisor to the Indian shareholders ' and secondly	 because on October 25	 1976 he had written a letter to Kingsley purporting to convey his advice to the Board of Directors. That letter contains allegations against the Needle Industries	 U.K. and of Coats. In other words	 it is contended	 Silverston was hostile to Needle Industries	 U.K.	 and to Coats	 and no person in his position could possibly bring to bear an unbiased or disinterested judgment on the question which arose between the Holding Company and the Indian shareholders as regards the issue of rights shares. It is also said that certain other aspects of Silverston 's conduct	 including his attitude in the meeting of the 6th April	 show that he was an interested director. We are unable to accept the contention that Silverston is an 'interested ' director within the meaning of section 300 of the . In the first place	 it is wrong to attribute any bias to Silverston for having acted as an adviser to the Indian shareholders in the Ketty meeting. Silverston is by profession a solicitor and we suppose that legal advisers do not necessarily have a biassed attitude to questions on which their advice is sought or tendered. The fact that Silverston was received cordially in U.K. both by Raeburn and Mackrael when he went there in January 1977 shows that even after he had acted as an adviser to the Indian shareholders it was not thought that he was in any sense biassed in their favour. Silverston 's alleged personal hostility to Coats cannot	 within the meaning of section 300(1) of the 	 make him a person "directly or indirectly	 concerned or interested in the contract or arrangement" in the discussion of which he had to participate or upon which he had to vote. Section 300(1) disqualifies a Director from taking part in the discussion of or voting on any contract or arrangement entered into or on behalf of the company	 if he is in any way concerned or interested in that contract or arrangement. Under section 299(1) of the 	 "Every director of a Company who is in any way	 whether directly or indirectly	 concerned or interested in a contract or arrangement or proposed contract or arrangement	 entered into or to be entered into	 by or on behalf of the company	 shall disclose the nature of his concern or interest at a meeting of the Board 788 of Directors. " The concern or interest of the Director which has to be disclosed at the Board meeting must be in relation to the contract or arrangement entered into or to be entered into by or on behalf of the company. The interest or concern spoken of by sections 299(1) and 300(1) cannot be a merely sentimental interest or ideological concern. Therefore	 a relationship of friendliness with the Directors who are interested in the contract or arrangement or even the mere fact of a lawyer client relationship with such directors will not disqualify a person from acting as a Director on the ground of his being	 under section 300(1)	 an "interested" Director. Thus	 howsoever one may stretch the language of section 300(1) in the interest of purity of company administration	 it is next to impossible to bring Silverston 's appointment within the framework of that provision. In the Firestone (supra) the Solicitor Director was held to be concerned or interested in the agreement for the appointment of Kilachands as selling agents	 as he had a substantial shareholding in a private limited company of Kilachands. Besides	 he was also a shareholder director in various other concerns of Kilachands. We must	 accordingly	 reject the argument that Silverston was an interested director	 therefore his appointment as a Additional Director was invalid and that consequently	 the resolution for the issue of rights shares was passed without the necessary quorum of two disinterested directors. We have already held that the resolution was not passed for the benefit of the Directors. There is therefore no question of Silverston 's appointment having been made for the purpose of enabling such a resolution to be passed. The third contention	 arising out of the proceedings of the meeting of 6th April	 to the effect that Silverston 's appointment as an Additional Director is invalid since there was no item on the agenda of the meeting for the appointment of an Additional Director is equally without substance. Section 260 of the preserves the power of the Board of Directors to appoint additional Directors if such a power is conferred on the Board by the Articles of Association of the Company. We are not concerned with the other conditions laid down in the section	 to which the appointment is subject. It is sufficient to state that Article 97 of NIIL 's Articles of Association confers the requisite power on the Board to appoint additional Directors. We do not see how the appointment of an additional Director could have been foreseen before the 6th April	 on which date the meeting of the Board was due to be held. The occasion to 789 appoint Silverston as an Additional Director arose when the Board met on 6th April	 with Devagnanam in chair. Sanders was absent and no communication was received from or on behalf of the Holding Company that they had decided finally not to disinvest. They always had the right to such a locus penitentia. Were they to intimate that they were ready to disinvest	 there would have been no occasion to appoint an additional Director. That occasion arose only when the picture emerged clearly that the Board would have to consider the only other alternative for reduction of the non resident holding	 namely	 the issue of rights shares. It is for this reason that the subject of appointment of an additional Director could not have	 in the then state of facts	 formed a part of the Agenda. Silverston 's appointment is	 therefore	 not open to challenge on the ground of want of agenda on that subject. It is necessary to clear a misunderstanding in regard to the Directors to issue shares. It is not the law that the power to shares can be used only if there is need to raise additional capital. It is true that the power to issue shares is given primarily to enable capital to be raised when it is required for the purposes of the company but that power is not conditioned by such need. That power can be used for other reasons as	 for example	 to create a sufficient number of share holders to enable the company to exercise statutory powers (Punt vs Symons and Co.)	 (Supra) or to enable it to comply with legal requirements as in the instant case. In Hogg vs Cramphorn (supra). Buckley J. (p 267) agreed with the law of Byrne J. in Punt And so did Lord Wilberforce (pp 835 836) in Howard Smith (supra) where he said: "It is	 in their Lordships ' opinion	 too narrow an approach to say that the only valid purpose for which shares may be issued is to raise capital for the company. The discretion is not in terms limited in this way: the law should not impose such a limitation on Directors ' powers. To define in advance exact limits beyond which directors must not pass is	 in their Lordships ' view	 impossible. This clearly cannot be done by enumeration	 since the variety of different types of Company in different situations cannot be anticipated". The Australian decision in Harlowe Nominees (supra) took the same view of the directors ' power to issue shares. It was said therein: "The principle is that although primarily the power is given to enable capital to be raised when required for the 790 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 hand of the directors themselves or their friends". We have already expressed our view that the rights share were issued in the instant case in order to comply with the legal requirements	 which	 apart from being obligatory as the only viable course open to the Directors	 was for the benefit of the company since	 otherwise	 its developmental activities would have stood frozen as of December 31	 1973. The shares were not issued as a part of takeover war between the rival groups of shareholders. The decision to issue rights shares was assailed on the ground also that the company did not	 as required by the Reserve Bank 's letter dated May 11	 1975 submit any scheme indicating whether the reduction in the non resident interest was proposed to be brought about by issue of additional equity capital to Indian residents to the extent necessary to finance any scheme of expansion or diversification. It is true that by the aforesaid letter	 the Reserve Bank had asked NIIL to report to it as to how the Company proposed to reduce the non resident interest: whether by disinvestment by non resident shareholders	 or by issue of additional equity capital to Indian residents to the extent necessary to finance any scheme of expansion/diversification	 or by both. We are	 however	 unable to read the Bank 's letter as requiring or asking the Company not to issue the additional capital unless it was necessary to do so for financing a scheme of expansion or diversification. The Reserve Bank could not have intended to impose any such condition by way of a general direction in face of the legal position	 which we have set out above	 that the power of the Directors to issue shares is not conditioned by the need for additional capital. We are not suggesting that the Reserve Bank	 in the exercise of its statutory functions	 cannot ever impose such conditions as it deems appropriate	 subject to which alone a new issue may be made. But neither the wording of the Bank 's letter nor the true legal position justifies the stand of the Holding Company. The minutes of the Ketty meeting of October 20 21	 1976 saying that it was agreed that the rights issue	 with the Indian share holders taking up the U.K. members ' rights	 would be considered provided it was demonstrated by NIIL that "there is a viable development plan requiring funds that the expected NIIL cash flow 791 cannot meet"	 cannot also justify the argument that the power of the company to issue rights shares was	 by agreement	 conditioned by the need to raise additional capital for a development plan. In fact	 the occasion for consideration by the Holding Company of NIIL 's proposal to issue rights shares did not arise	 since the Holding Company virtually boycotted the meeting of April 6. Assuming for the sake of argument that there was any such understanding between the parties	 the minutes of the meeting of April 6 show that the Company needed additional capital for its expansion. The minutes say: "As per the final budget for the year 1977	 the working capital requirements amounted to nearly Rs. 100 lakhs and even after tapping the facilities that we will be entitled to obtain from the Banking sector	 we will be left with a gap of about Rs. 25 lakhs which can be met by only increasing equity capital and attracting deposits from public". There is no reason to believe that this statement does not accord with the economic realities of the situation as assessed by the Directors of the Company. Finally	 it is also not true to say	 as a statement of law	 that Directors have no power to issue shares at par	 if their market price is above par. These are primarily matters of policy for the Directors to decide in the exercise of their discretion and no hard and fast rule can be laid down to fetter that discretion. As observed by Lord Davey in Hilder and others vs Dexter(1). "I am not aware of any law which obliges a company to issue its shares above par because they are saleable at a premium in the market. It depends on the circumstances of each case whether it will be prudent or even possible to do so	 and it is a question for the directors to decide". What is necessary to bear in mind is that such discretionary powers in company administration are in the nature of fiduciary powers and must	 for that reason	 be exercised in good faith. Mala fides vitiate the exercise of such discretion. We may mention that in the past	 whenever the need for additional capital was felt	 or for other reasons	 NIIL issued shares to its members at par. 792 We are therefore of the opinion that Devagnanam and his group acted in the best interests of NIIL in the matter of the issue of rights shares and indeed	 the Board of Directors followed in the meeting of the 6th April a course which they had no option but to adopt and in doing which	 they were solely actuated by the consideration as to what was in the interest of the company. The shareholder Directors who were interested in the issue of rights shares neither participated in the discussion of that question nor voted upon it. The two Directors who	 forming the requisite quorum	 resolved upon the issue of rights shares were Silverston who	 in our opinion	 was a disinterested Director and Doraiswamy	 who unquestionably was a disinterested Director. The latter has been referred to in the company petition	 Mackrael 's reply affidavit and in the Holding Company 's Memorandum of Appeal in the High Court as "uninterested"	 "disinterested" and "independent". At a crucial time when Devagnanam was proposing to dispose of his shares to Khaitan	 Sanders asked for Doraiswamy 's advice by his letter dated August 6	 1975 in which he expressed "complete confidence" in Doraisway in the knowledge that the Holding Company could count on his guidance. Disinvestment by the Holding Company	 as one of the two courses which could be adopted for reducing the non resident interest in NIIL to 40% stood ruled out	 on account of the rigid attitude of Coats who	 during the period between the Ketty meeting of October 20 21	 1976 and the Birmingham discussions of March 29 31	 1977 clung to their self interest	 regardless of the pressure of FERA	 the directive of the Reserve Bank of India and their transparent impact on the future of NIIL. Devagnanam and the disinterested Directors	 having acted out of legal compulsion precipitated by the obstructive attitude of Coats and their action being in the larger interests of the company	 it is impossible to hold that the resolution passed in the meeting of April 6 for the issue of rights shares at par to the existing shareholders of NIIL constituted an act of oppression against the Holding Company. That cannot	 however	 mark the end of the case because 2nd May has still to come and Shri Seervai 's argument is that the true question before the Court is whether the offer of rights shares to all existing shareholders of NIIL but the issue of rights shares to existing Indian shareholders only	 constitutes oppression of the Holding Company. That takes us to the significant	 and if we may so call them	 sordid	 happenings between April 6 and May 2	 1977. Devagnanam wrote a letter to Raeburn on April 12	 1977 stating that a copy of 793 the Reserve Bank 's letter dated March 30	 1977 was enclosed therewith. It was in fact not enclosed. Pursuant to the decision taken in the Board 's meeting of April 6	 a letter of offer dated April 14 was prepared by NIIL. Devagnanam 's letter to Raeburn dated April 12	 (without a copy of the Reserve Bank 's letter dated March 30) and the letter of offer dated April 14 were received by Raeburn on May 2	 1977 in an envelope bearing the postal mark of Madras dated April 27	 1977. The letter of offer which was posted to the Holding Company also bore the postal mark of Madras dated April 27	 1977 and that to was received in Birmingham on May 2	 1977. The letter of offer which was posted to one of the Indian shareholders	 Manoharan	 who was siding with Coats	 was also posted in an envelope which bore the postal mark of Madras dated April 27	 1977. On April 19	 1977	 a notice of the Board 's meeting for May 2	 1977 was prepared. One of the items on the Agenda of the meeting was stated in the notice as "Policy (a) Indianisation (b) Allotment of shares". The notice dated April 19 of the Board 's meeting for May 2 was posted to Sanders in an envelope which bore the postal mark of Madras dated April 27	 1977 and was received by him in Birmingham on May 2	 1977	 after the Board 's meeting fixed for that date had already taken place. It puts a severe strain on one 's credulity to believe that the letters of offer dated April 14 to the Holding Company	 to Raeburn and to Manoharan were posted on the 14thitse If but that somehow they rotted in the post office until the 27th	 on which date they took off simultaneously for their respective destinations. The affidavit of Selvaraj	 NIIL 's senior clerk in the despatch Department and the relevant entry in the outward register are quite difficult to accept on this point since they do not accord with the ordinary course of human affairs. Not only the three letters of offer above said	 but even the notice dated April 19	 of the Board meeting for May 2	 was received by Sanders at Birmingham in an envelope bearing the Madras postal mark of April 27. Selvaraj 's affidavit	 apparently supported by an entry in the outward register	 that the envelope addressed to Sanders containing the notice of 19th April was posted on the 22nd is also difficult to accept. It takes all kinds to make the world and we do not know whether the NIIL 's staff was advised astrologically that 27th April was an auspicious date for posting letters. But if only they had sought a little legal advice which	 at least from Doraiswamy and Silverston	 was readily available to them	 they would have seen the folly of indulging in such behaviour. Add to that the circumstance that Devagnanam 's letter to Raeburn dated April 12 was put in the same envelope in which the letter of 794 offer dated April 14 was enclosed and the envelope containing these two important documents bore the postal mark of Madras dated 27th April. These coincidences are too tell tale to admit of any doubt that someone or the other	 not necessarily Devagnanam	 unduly solicitous of the interest of NIIL and of the Indian shareholders manipulated to delay the posting of the letters of offer and the notice of the Board meeting for 2nd May	 until the 27th April. What is naively sought to be explained as a mere coincidence reminds one of the 'Brides in the Bath Tub ' case: The death of the first bride in the bath tub may pass off as an accident and of the second as suicider but when	 in identical circumstances	 the third bride dies of asphyxia in the bath tub	 the conclusion becomes compelling	 even applying the rule of circumstantial evidence	 that she died a homicidal death. The purpose behind the planned delay in posting the letters of offer to Raeburn and to the Holding Company	 and in posting the notice of the Board 's meeting for May 2 to Sanders	 was palpably to ensure that no legal proceeding was taken to injunct the holding of the meeting. The object of withholding these important documents	 until it was quite late to act upon them	 was to present to the Holding Company a fait accompli in the shape of the Board 's decision for allotment of rights shares to the existing Indian shareholders. We are	 however	 unable to share the view expressed in the '12th Conclusion ' in the appellate judgment of the High Court that Devagnanam and "his colleagues in the Board of Directors" arranged to ensure the late posting of the letters of offer and the notice of the meeting. We do not accept Shri Nariman 's argument that Devagnanam must be exonerated from all responsibility in this behalf because he was away in Malacca from April 13 to 26. In the first place	 to be in a place on two dates is not necessarily to be there all along between those dates and therefore we cannot infer that Devagnanam was in Malacca from 13th to 26th since he was there on the 13th and the 26th. Besides	 it was easy for a man of Devagnanam 's importance and ability to pull the strings from a distance and his physical presence was not necessary to achieve the desired result. That is how puppets are moved. But there is no evidence	 at least not enough	 to justify the categorical finding recorded by the appellate Bench of the High Court. The fact that Devagnanam stood to gain by the machination is a relevant factor to be taken into account but even that is not the whole truth: NIIL	 not Devangnanam was the real beneficiary	 a thesis 795 which we have expounded over the last many pages. And the involvement of the other Directors by calling them Devagnanam 's colleagues is less than just to them. There is not a shred of evidence to justify the grave charge that they were willing tools in Devagnanam 's hands and lent their help to concoct evidence. We clear their conduct	 expressly and categorically. In so far as Devagnanam himself is concerned	 there is room enough to suspect that he was the part author of the late postings of important documents	 especially since he was the prime actor in the play of NIIL 's Indiansation. But even in regard to him	 it is difficult to carry the case beyond the realm of suspicion and 'room enough ' is not the same thing as 'reason enough '. Section 15 of the Evidence Act which carries the famous illustration of a person obtaining insurance money on his houses which caught fire successively	 the question being whether the fire was accidental or intentional or whether the act was done with a particular knowledge or intention	 will not help to fasten the blame on Devagnanam because	 it is not shown that he was instrumental or concerned in any of the late postings complained of. Were his complicity shown in any of these	 it would have been easy to implicate him in all of them. On the contrary	 there is an admitted act	 described as a lapse	 on Devagnanam 's part which shows that he failed to do what was to his advantage to do. It may be recalled that in his letter dated April 12 to Raeburn	 Devagnanam stated that he was enclosing therewith a copy of the Reserve Bank 's letter dated March 30	 1977 but that was not enclosed. Nothing was to be gained by suppressing the Reserve Bank 's letter from Raeburn who was always sympathetic to the Indian shareholders. If anything	 there was something to gain by apprising Raeburn of the urgency of the matter in view of the Reserve Bank 's letter. The strongest point in favour of the Indian shareholders was the last para of the Reserve Bank 's letter which they would have liked the U.K. shareholders to know. Raeburn 's response of 2nd May to Devagnanam 's letter of 12 April and the letter of offer was without the knowledge of Reserve Bank 's letter of March 30. When the Bank 's letter was sent to Racburn along with Devagnanam 's letter of May 11	 Raeburn categorially supported the stand of the Indian shareholders	 as is clear from paragraph 4 of the letter dated June 8	 1977 by Raeburn to Mackrael	 a copy of which was sent by Raeburn to Devagnanam along with his letter dated June 17	 1977. 796 The inferences arising from the late posting of the letter of offer to the Holding Company as also of the notice of meeting for May 2 to Sanders and the impact of inferences on the conduct and intentions of Devagnanam are one thing: we have already dealt with that aspect of the matter. Their impact on the legality of the offer and the validity of the meeting of May 2 is quite another matter	 which we propose now to examine. In doing this	 we will keep out of consideration all questions relating to the personal involvement of Devagnanam and his group in the delay caused in sending the letters of offer and the notice of meeting for May 2. First	 as to the letter of offer: The letter of offer dated April 14	 1977 sent to the Holding Company at Birmingham	 like all other letters of offer	 mentions	 inter alia that it was resolved in the meeting of April 6 to increase the issued capital of the company from 32	000 shares of Rs. 100 each to 48	000 shares of Rs. 100 each by issuing Rights Shares to the existing shareholders on the five conditions mentioned in the letter. The second condition reads thus: "If the offer is not accepted within 16 days from the date of offer	 it shall be deemed to have been declined by the shareholder". The Holding Company was informed by the last paragraph of the letter of offer that in respect of its holding of 18	990 shares	 it was entitled to 9495 rights shares and that its acceptance of the offer together with the application money (at Rs. 50/ per share) should be forwarded so as to reach the registered office of NIIL on or before April 30	 1977. A postal communication by air between U.K. and Madras	 which is the normal mode of communication	 generally takes five days to reach its destination. If the letter of offer were to be posted on the 14th itself in Mardas	 it would have reached the Holding Company in Birimingham	 say	 on the 19th. Even assuming that the 16 days ' period allowed for communicating the acceptance of offer is to be counted from the 14th and not from the 19th	 it would expire on 30th April	 To that has to be added the period of five days which the Holding Company 's letter would take to reach Madras. That means that the Holding Company would be within its rights if its acceptance reached NIIL on or before May 5	 1977. The Board of Directors had	 however	 met in Madras three days before that and had allotted the entire issue of the rights shares to the Indian shareholders	 on the ground that Holding Company had not applied for the allotment of the shares due to it. In these circumstances	 it is quite clear that the rights shares offered to the Holding Company could not have been allotted to anyone in the meeting of May 2	 for the supposed failure of the Holding Company to communicate its acceptance before April 30. The meeting of May 2	 of which the 797 main purpose was to consider 'Allotment ' of the rights shares must	 therefore	 be held to be abortive which could produce no tangible result. The matter would be worse if April 27	 and much worse if May 2	 were to be taken as the starting point for counting the period of 16 days. Except for circumstances	 hereinafter appearing the allotment to Indian shareholders of the rights shares which were offered to the Holding Company would have been difficult to accept and act upon. The objection arising out of the late posting of the notice dated April 19 for the meeting of 2nd May goes to the very root of the matter. That notice is alleged to have been posted to N.T. Sanders	 Studley	 Warwickshire	 U.K. on April 22. But we have already held that in view of the fact that the envelope in which the notice was sent bears the postal mark of Madras dated April 27	 1977	 this latter date must be taken to be the date on which the notice was posted. The notice was received by Sanders on May 2	 on which date the Board 's meeting for allotment of rights shares was due to be held and was	 in fact	 held. The utter inadequacy of the notice to Sanders in terms of time stares in the face and needs no further argument to justify the finding that the holding of the meeting was illegal	 at least in so far as the Holding Company is concerned. It is self evident that Sanders could not possibly have attended the meeting. There is	 therefore	 no alternative save to hold that the decision taken in the meeting of May 2 cannot	 in the normal circumstances	 affect the legal rights of the Holding Company or create any legal obligations against it. The next question	 and a very important one at that on which there is a sharp controversy between the parties	 is as to what is the consequence of the finding which we have recorded that the objection arising out of the late position of the notice of the meeting for 2nd May goes to the root of the matter. The answer to this question depends upon whether the Holding Company could have accepted the offer of the rights shares and if	 either for reasons of volition or of legal compulsion	 it could not have accepted the offer	 whether it could have at least renounced its right under the offer to a resident Indian	 other than the existing Indian shareholders. The decision of this question depends upon the true construction of the provisions of FERA and of sections 43A and 81 of the . We have already reproduced the relevant provisions of FERA	 namely	 section 2(p)	 (q) and (u); section 19(1)(a)	 (b) and (d); 798 section 29(1)(a); section 29(2)(a)	 (b) and (c); and section 29(4)(a) and (b). Section 29(1) provides that: . notwithstanding anything contained in the provisions of the a company which is not incorporated under any law in force in India or in which the non resident interest is more than forty per cent shall not	 except with the general or special permission of the Reserve Bank carry on in India any trading	 commercial or industrial activity other than the one for which permission of the Reserve Bank has been obtained under section 28. The other provisions are of ancillary and consequential nature	 following upon the main provision summarised above. NIIL had applied for the necessary permission	 since the non resident interest therein was more than 40% the Holding Company owing nearly 60% of its share capital. That permission was accorded by the Reserve Bank on certain conditions which	 inter alia	 stipulated that the reduction in the non resident holding must be brought down to 40% within one year of the receipt of its letter	 that is	 before May 17	 1977 and that until then	 the manufacturing and business activities of the Company shall not be extended beyond the approved level as of December 31	 1973. It is contended by Shri Seervai that non compliance with the condition regarding the dilution of non resident interest within the stipulated period could not have resulted in the RBI directing NIIL to close down its business or not to carry on its business. It is also argued that noncompliance with the conditions imposed for permission to carry on its business would not have exposed the Indian directors to any penalties or liabilities and that	 in the absence of a power to revoke the permission already granted (as in other sections like sections 6 and 32)	 the RBI had no power to revoke the permission granted to NIIL even if the conditions subject to which the permission was granted were breached. According to counsel	 closing down a business which the RBI had allowed to be continued by granting permission would have such grave consequences public and private that the power to direct the business to be discontinued was advisably not conferred	 even if the conditions are breached. Section 29(4)(c)	 it is urged	 which enables the RBI to direct non residents to sell their shares or cause them to be sold where an application under section 29(4)(a)	 for permission to continue to 799 hold shares	 was rejected is the only power given to the Reserve Bank where a condition imposed under section 29(2) is breached. We are unable to accept these contentions. The Reserve Bank granted permission to NIIL to carry on its business	 "subject to the conditions" mentioned in the letter of May 11	 1976. It may be that each of those conditions is not of the same rigour or importance as e.g. the condition regarding the progress made in implementing the other conditions	 which could reasonably be relaxed by condonation of the late filing of any particular quarterly report. But the dilution of the non resident interest in the equity capital of the Company to a level not exceeding 40% "within 'a period of 1(one) year from the date of the receipt of" the letter was of the very essence of the matter. A permission granted subject to the condition that such dilution shall be effected would cease automatically on the non compliance with the condition at the end of the stipulated period or the extended period	 as the case may be. The argument of the Holding Company would make the granting of a conditional permission an empty ritual since	 whether or not the company performs the conditions	 it would be free to carry on its business	 the only sanction available to the Bank being	 as argued	 that it can compel or cause the sale of the excess non resident interest in the equity holding of the Company	 under section 29(4)(c) of FERA. This particular provision	 in our opinion	 is not a sanction for the enforcement of conditions imposed on a Company under clause (c) of section 29(2). Section 29(4)(c) provides for a situation in which an application for holding shares in a Company is not made or is rejected. The sanction for enforcement of a conditional permission to carry on business	 where conditions are breached	 is the cessation	 ipso facto	 of the permission itself on the non performance of the conditions at the time appointed or agreed. This involves no element of surprise or of unjustness because permission is granted	 as was done here	 only after the applicant agrees to perform the conditions within the stipulated period. When NIIL wrote to the Bank on February 4	 1976 binding itself to the performance of certain conditions	 it could not be heard to say that the permission will remain in force despite its non performance of the conditions. Having regard to the provisions of section 29 read with sections 49	 56(1) and (3) and section 68 of FERA	 the continuance of business after May 17	 1977 by NIIL would have been illegal	 unless the condition of dilution of non resident equity was duly complied with. It is needless	 once again	 to dwell upon the impracticability of NIIL applying for extension of the period of one year allowed to it by the 800 Bank. Coats could be optimistic about such an extension being granted especially	 since thereby they could postpone the evil day. For NIIL	 the wise thing to do	 and the only course open to it	 was to comply with the obligation imposed upon it by law	 without delay or demur. It seems to us quite clear	 that by reason of the provisions of section 29(1) and (2) of FERA and the conditional permission granted by the RBI by its letter dated May 11	 1976	 the offer of rights shares made by NIIL to the Holding Company could not possibly have been accepted by it. The object of section 29	 inter alia	 is to ensure that a company (other than a banking company) in which the non resident interest is more than 40% must reduce its to a level not exceeding 40%. The RBI allowed NIIL to carry on its business subject to the express condition that it shall reduce its non resident holding to a level not exceeding 40%. The offer of rights shares was made to the existing shareholders	 including the Holding Company	 in proportion to the shares held by them. Since the issued capital of the Company which consisted of 32	000 shares was increased by the issue of 16	000 rights shares	 the Holding Company which held 18	990 shares was offered 9495 shares. The acceptance of the offer of rights shares by the Holding Company would have resulted in a violation of the provisions of FERA and the directive of the Reserve Bank. Were the Holding Company to accept the offer of rights shares	 it would have continued to hold 60% share capital in NIIL and the Indian shareholders would have continued to hold their 40% share capital in the Company. It would indeed be ironical that the measure which was taken by NIIL 's Board of Directors for the purpose of reducing the non resident holding to a level not exceeding 40% should itself become an instrument of perpetuating the ownership by the Holding Company of 60% of the equity capital of NIIL. We are not suggesting that the offer of rights shares need not have been made to the Holding Company at all. But the question is whether the offer when made could have been accepted by it. Since the answer to this question has to be in the negative	 no grievance can be made by the Holding Company that	 since it did not receive the offer in time	 it was deprived of an opportunity to accept it. We see no substance in Shri Nariman 's contention that the letter of offer could not have been sent to the Holding Company without first obtaining the RBI s approval under section 19 of FERA. Counsel contends that under section 19(1)(b)	 notwithstanding anything contained in section 81 of the 	 no person can	 except with 801 the general or special permission of the Reserve Bank	 create `any interest in a security ' in favour of a person resident outside India. The word "security" is defined by section 2(u) to shares	 stocks	 bonds	 etc. We are unable to appreciate how an offer of shares by itself creates any interest in the shares in favour of the person to whom the offer is made. An offer of shares undoubtedly creates "fresh rights" as said by this Court in Mathalone vs Bombay Life Assurance Co.(1) but	 the right which it creates is either to accept the offer or to renounce it	 it does not create any interest in the shares in respect of which the offer is made. But though it could not have been possible for the Holding Company to accept the offer of rights shares made to it	 the question still remains whether it had the right to renounce the offer in favour of any resident Indian person or company of its choice	 be it an existing shareholder like Manoharan or an outsider like Madura Coats. The answer to this question depends on the effect of section 43A and 81 of the . We will first notice the relevant parts of sections 3	 43A and 81 of the . Section 3(1)(iii) defines a "private company" thus : "private company" means a company which	 by its articles : (a) restricts the right to transfer its shares	 if any; (b) limits the number of its members to fifty and (c) prohibits any invitation to the public to subscribe for any shares in	 or debentures of	 the company. Clause (iv) of section 3(1) define a "public company" to mean a company which is not a private company. Section 43A of the 	 which was inserted by Act 65 of 1960	 reads thus : 43A. (1) Save as otherwise provided in this section	 where not less than twenty five per cent of the paid up share capital of a private company having a share capital	 is held by one or more bodies corporate	 the private	 company shall. 802 become by virtue of this section a public company : Provided that even after the private company has so become a public company	 its articles of association may include provisions relating to the matter specified in clause (iii) of sub section (1) of section 3 and the number of its members may be	 or may at any time be reduced	 below seven : (2) Within three months from the date on which a private company becomes a public company by virtue of this section	 the company shall inform the Registrar that it has become a public company as aforesaid	 and thereupon the Registrar shall delete the word "Private" before the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association. . (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has	 with the approval of the Central Government and in accordance with the provisions of this Act	 again become a private company. Section 81 of the reads thus : 81. (1) Where . . it is proposed to increase the subscribed capital of the company by allotment of further shares	 then	 (a) such further shares	 shall be offered to the persons who at the date of the offer	 are holders of the equity shares of the company in proportion	 as nearly as circumstances admit	 to the capital paid up on those shares at that date ; 803 (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer	 if not accepted	 will be deemed to have been declined ; (c) unless the articles of the company otherwise provide	 the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person	 and the notice referred to in clause (b) shall contain a statement of this right ; (d) after the expiry of the time specified in the notice aforesaid	 or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered	 the Board of directors may dispose of them in such manner as they think most beneficial to the company. . (1A) Notwithstanding anything contained in sub section (1) the further shares aforesaid may be offered to any persons (whether or not those persons include the persons referred to in clause (a) of sub section (1) ) in any manner whatsoever (a) if a special resolution to that effect is passed by the company in general meeting	 or (b) where no such special resolution is passed if the votes cast. . in favour of the proposal . . exceed the votes	 if any	 cast against the proposal . . and the Central Government is satisfied	 on an application made by the Board of directors in this behalf that the proposal is most beneficial to the company. . (3) Nothing in this section shall apply (a) to a private company. . 804 While interpreting these and allied provisions of the 	 it would be necessary to have regard to the relevant Articles of Association of NIIL	 especially since Section 81(1)(c) of that Act	 which is extracted above	 is subject to the qualification : "Unless the articles of the Company otherwise provide". The relevant Articles are Articles 11	 32	 38 and 50 and they read thus : Article 11: In order that the Company may be a private Company within the meaning of the Indian Companies Act	 1913	 the following provisions shall have effect	 namely : (i) No invitation shall be issued to the public to subscribe for any shares	 debentures	 or debenture stock of the Company. (ii) The number of the members of the Company (Exclusive of persons in the employment of the Company) shall be limited to fifty	 provided that for the purposes of this Article where two or more persons hold one or more shares in the Company jointly	 they shall be treated as a single member. (iii) The right to transfer shares of the Company is restricted in manner hereinafter provided. (iv) If there shall be any inconsistency between the provisions of this Article and the provisions of any other Article the provisions of this Article shall prevail. Article 32 : A share may subject to article 38 be transferred by a member or other person entitled to transfer to any member selected by the transferor; but	 save as aforesaid	 no share shall be transferred to a person who is not a member so long as any member is willing to purchase the same at the fair value. Such value to be ascertained in manner hereinafter mentioned. Article 38 : The Directors may refuse to register any transfer of a share (a) where the Company has a lien on the share	 or (b) in case of shares not fully paid up	 where it is not proved to their satisfaction 805 that the proposed transferee is a responsible person	 or (c) where the Directors are of opinion that the proposed transferee (not being already a member) is not a desirable person to admit to membership	 or (d) where the result of such registration would be to make the number of members exceed the above mentioned limit. But clauses (b) and (c) of this Article shall not apply where the proposed transferee is already a member. Article 50 : When the Directors decide to increase the capital of the Company by the issue of new shares such shares shall be offered to the shareholders in proportion to the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered and limiting a time within which the offer	 if not accepted	 will be deemed to be declined and after the expiration of such time	 or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered	 the Directors may dispose of the same in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to the shares held by persons entitled to an offer of new shares) cannot	 in the opinion of the Directors	 be conveniently offered under this Article. It is contended by Shri Nariman that by reason of the articles of the Company and on a true interpretation of section 81	 the right of renunciation of the shares offered by NIIL was not available to the Holding Company since NIIL was not a full fledged public company in the sense of being incorporated as a public company but had become a public company under section 43A(1) and had	 under the first proviso to that section	 retained its articles relating to matters specified in section 3(1) (iii). According to Shri Nariman	 section 81(1A) can have no application to a `section 43A (1) proviso company ' (for short	 the `proviso company ') because it contemplates issue of shares to the public and to persons other than members of the company	 which cannot be done in the case of a company which falls under the proviso to section 43A(1). 806 Section 81(1A)	 it is urged	 is complementary to section 81 and since the latter cannot apply to the `proviso company '	 the former too cannot apply to it. In any event	 according to counsel	 section 81 (1) (c) cannot apply in the instant case since the articles of NIIL provide	 by necessary implication at any rate	 that the members of company shall have no right to renounce the shares in favour of "any" other person	 because such a right would include the right to renounce in favour of persons who are not members of the company	 and NIIL had retained its articles under which	 shares could not be transferred or renounced in favour of outsiders. Shri Seervai has refuted these contentions	 his main argument being that the definitions of `public company ' and `private company ' are mutually exclusive and	 between them	 are exhaustive of all categories of companies. There is	 according to the learned counsel no third category of companies recognised by the Companies Act	 like the `proviso company '. Shri Seervai further contends : (a) The right of renunciation is not a `transfer ' and therefore the directors ' power to refuse to register the shares under the articles does not extend to renunciation ; (b) Before considering Section 43A	 which was inserted for the first time in the Act of 1956 by the amending Act of 1960	 it should be noted that Section 81 as enacted in the Act of 1956 contained three sub sections (1)	 2 and 3	 and sub section 3 provided that "nothing in this section shall apply to a private company". The opening words of Section 81	 as they now stand	 were substituted by the Amending Act of 1960	 and sub section (1A) was inserted by the said Amending Act	 and sub section (3) was substituted by the Amending Act of 1963. But subsection 3 (a) reproduced sub section (3) of the Act of 1956	 namely	 "nothing in this section shall apply to a private company". It is clear therefore that the rights conferred by Section 81 (1) and (2) do not apply to a private company	 and this provision in the Act of 1956 was not connected with the insertion Section 43A for the first time in 1960. (c) The provisos to Section 43A (1)	 (1A) and (1B) are very important in connection with Section 81 of the 807 Act of 1956. Just as the crucial words in Section 27(3) are "shall contain"	 the crucial words in the provisos are "may include" (or may retain). The words "shall contain" are mandatory and go to the constitution of a private company. The words "may include" are permissive and they do not go to the constitution of a company which has become a public company by virtue of Section 43A because whether the articles include (or retain) those requirements or do not include those requirements	 the constitution of the company as a public company remains unaffected; (d) No statutory consequence follows	 as to the company being a public company	 on the retention of the three requirements or one or more of them	 or in not complying with those requirements. But in the case of a private company which does not comply with the requirements of Section 3 (1)(iii) serious consequences follow under Section 43	 and in the case of a private company altering its articles so as not to include all the matters referred to in Section 3 (1) (iii) serious consequences follow under Section 43	 and in the case of a private company altering its articles so as not to include all the matters referred to in Section 3 (1) (iii) serious consequences follow under Section 44. In short	 the inclusion	 or retention	 of all the matters referred to in Section 3(1) (iii) has a radically different part of function in a private company which becomes a public company by virtue of Section 43A from that which it has in a private company. More particularly the non compliance with the three requirements of Section 3 (1)(iii) included	 or retained	 in the articles of a private company which has become a public company by virtue of Section 43A	 involves no statutory consequences or disabilities	 since such a company is a public company and Section 43 is not attracted. (e) It is wrong to contend that the whole of Section 81(1) does not apply to a `proviso company ' because it is a private company entitled to the protection of subsection 3 (a). Section 81(3) (a) applies to a private 808 company; a `proviso company ' is one which has become	 and continues to remain	 a public company; (f) Section 81 (1) (c) applies to all companies other than private companies. The articles of a public company may include all of the matters referred to in Section 3 (1) (iii)	 or may include one or two of the matters referred to therein without ceasing to be a public company. A public company which has become such by virtue of Section 43A can delete all the matters referred to in Section 3 (1) (iii) or may delete one or two of them or may include (or retains) all the three matters referred to in Section 3 (1) (iii). The retention of the three matters mentioned in Section 3(1) (iii) does not in any way affect the constitution of the company because it has become and continues to be a public company ; (g) Section 81 when enacted in 1956 consisted of 3 subsections. The need to exempt private companies arose from Section 81(c)	 for the right to renounce in favour of any person might	 (not must)	 conflict with the limitation on the number of members to 50 and since that was one of the matters which went to the constitution of a company as a private company	 private companies were expressly exempted. No such exemption was necessary in the case of a `proviso company ' which retains in its articles all the three matters referred to in Section 3(1) (iii)	 because an increase in the number of its members above 50 will not affect the constitution of the company which remains that of a public company; (h) Section 81 as enacted in 1956 did not contain subsection (1A) which was inserted for the first time by the Amending Act of 1960	 which Amending Act also inserted Section 43A. After the insertion of subsection (1A) the effect of the exemption of private companies from the operation of section 81 became even more necessary for the provisions of sub section (1A) (a) and (b) override the whole of Section 81 (1) and shares need not be offered to existing shareholders. Section 81 (1A) also overrides Article 50 of NIIL; 809 (i) The Articles of NIIL provide for the transfer of shares	 and Article 38 sets out the circumstances under which the directors may refuse to transfer the shares. However	 since renunciation of shares is not a transfer	 the restriction in Article 11(iii) is not violated by an existing member of NIIL renouncing his share in favour of any other person; (j) The opening words of Sections 81 (1) (c) are "unless the articles of the company otherwise provide". Section 81 (1) (c) contains no reference to "expressly provide" or "expressly or by necessary implication provide". According to the plain meaning of the words "other wise provide"	 there must be a provision in the Articles which says that the offer of shares to existing members does not entitle them to renounce the shares in favour of any person. Article 11 of NIIL merely states the matters necessary to constitute a company a private company. Such companies are exempt from Section 81 and so	 the questions of its `otherwise providing ' does not arise. Article 50 refers to the rights shares but it makes no other provision with regard to the right of renunciation than is made in Section 81(1)(c). Unless such other provision is made	 the opening words of Section 81(1)(c) are not attracted. Secondly	 Section 81(1)(c) provides that unless the articles otherwise provide "the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any person". The right conferred by the deeming clause can be taken away only by making a provision in the Articles to prevent the deeming provision from taking effect. The deeming provision cannot be avoided by implications; and (k) The Holding Company could have renounced the rights shares offered to it at least in favour of the Manoharan group and the fact that after the shares were allotted	 the Manoharans stated that they were not interested in subscribing to the shares offered does not affect the question of the legal right. Besides	 it was one thing to refuse to subscribe to the shares offered; it was another thing to accept the renunciation of merely 6	190 shares 810 which would have given the Manoharans a substantial stake in the affairs of the company. Shri Seervai relies upon many a text and authority in support of the proposition that the classification of companies into private and public is mutually exclusive and collectively exhaustive. He relies upon a decision in Park vs Royalty Syndicates(1) in which Hamilton J. (later Lord Summer) observed that a public company is simply one which is not a private company and that there is no "intermediate state or terbium quid". In support of the proposition that the right to renunciation of shares is not a transfer	 counsel relies upon a decision in Re Pool Shipping Co. Ltd.(2). Reliance is also placed in this behalf on the statement of law in Halsbury (Vol. 7	 4th edition	 p. 218)	 Palmer 's Company Law Vol. 1	 22nd edition p. 393)	 Palmer 's Company Precedents (Part 1	 17th edition	 p. 688)	 Gore Brown on Companies (43rd edition	 para 16.3) and Buckley on Companies Act (13th edition	 p. 815). While indicating his own reasons as to why the legislature enacted identical provisos to sub sections (1)	(1A) and (1B) of section 43A	 counsel mentioned that no light is thrown for enacting these provisos	 either by the Shastri Committee Report which led to the Companies (Amendment) Act	 1960 or by the Notes on clauses	 or by the Report of the Joint Select Committee. In regard to the opening words of section 81 (1)(c); "Unless the articles of the company otherwise provide"	 counsel cited the Collins English Dictionary	 the Random House Dictionary and the Oxford English Dictionary. An interesting instance of the use of the word "provide ' is to be found in the Random House Dictionary	 1967	 p. 1157	 to this effect : "The Mayor 's wife of the city provided in her will that she would be buried without any pomp or noise". It shall have been noticed that the entire superstructure of Shri Seervai 's argument rests on the foundation that the definitions of `public company ' and `private company ' are mutually exclusive and collectively exhaustive of all categories of companies	 that is to say	 that there is no third kind of company recognised by the . The argument merits close examinations since it finds support	 to an appreciable extent	 from the very text of the . The definition of `private company ' and the manner in which a `public company ' is defined ("public company means a company which is not a private company") bear out the argument that these 811 two categories of companies are mutually exclusive. If it is this it cannot be that and if it is that it cannot be this. But	 it is not true to say that between them	 they exhaust the universe of companies. A private company which has become a public company by reason of section 43A	 may include	 that is to say	 may continue to retain in its articles	 matters which are specified in section 3 (1)(ii)	 and the number of its members may at any time be reduced below 7. This provision itself highlights the basic distinction between	 on one hand	 a company which is incorporated as a public company or a private company which is converted into a public company under section 44	 and on the other hand	 a private company which has become a public company by reason of the operation of section 43A. In the first place	 a section 43A company may include in its articles	 as part of its structure	 provisions relating to restrictions on transfer of shares	 limiting the number of its members to 50	 and prohibiting an invitation to the public to subscribe for shares	 which are typical characteristics of a private company. A public company cannot possibly do so because	 by the very definition	 it is that which is not a private company	 that is to say	 which is not a company which by its articles contains the restrictions mentioned in section 3 (1)(iii). Therefore	 the expression `public company ' in section 3(1) (iv) cannot be equated with a `private company which has become a public company by virtue of section 43A '. Secondly	 the number of members of a public company cannot fall below 7 without attracting the serious consequences provided for by section 45 (personal liability of members for the company 's debts) and section 433(d) (winding up in case the number of its members falls below 7). A section 43A company can still maintain its separate corporate identity qua debts even if the number of its members is reduced below seven and is not liable to be wound up for that reason. Thirdly	 a section 43A	 company can never be incorporated and registered as such under the . It is registered as a private company and becomes	 by operation of law	 a public company. Fourthly	 the three contingencies in which a private company becomes a public company by virtue of section 43A (mentioned in sub sections (1)	 (1A) and (1B) read with the provisions of subsection (4) of the section) show that it becomes and continues to be a public company so long as the conditions in sub sections (1)	 (1A) or (1B) are applicable. The provisos to each of these sub sections 812 clarify the legislative intent that companies may retain their registered corporate shell of a private company but will be subjected to the discipline of public companies. When the necessary conditions do not obtain	 the legislative device in section 43A is to permit them to go back into their corporate shell and function once again as private companies	 with all the privileges and exemptions applicable to private companies. The proviso to each of the subsections of section 43A clearly indicates that although the private company has become a public company by virtue of that section	 it is permitted to retain the structural characteristics of its origin	 its birth marks	 so to say. Any provision of the which would endanger the corporate shell of a `proviso company ' cannot be applied to it because	 that would constitute an infraction of one or more of the characteristics of the `proviso company ' which are statutorily allowed to be preserved and retained under each of the three provisos to the three sub sections of section 43A. A right of renunciation in favour of any other person	 as a statutory term of an offer of rights shares	 would be repugnant to the integrity of the Company and the continued retention by it of the basic characteristics under section 3(1)(iii). Fifthly	 section 43A	 when introduced by Act 65 of 1960	 did not adopt the language either of section 43 or of section 44. Under section 43 where default is made in complying with the provisions of section 3(1)(iii)	 a private company "shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act	 and this Act shall apply to the company as if it were not a private company". Under section 44 of the Act	 where a private company alters its Articles in such a manner that they no longer include the provisions which under	 section 3(1)(iii) are required to be included in the Articles in order to constitute it a private company	 the company "shall as on the date of the alteration cease to be a private company". Neither of the expressions	 namely	 "This Act shall apply to the company as if it were not a private company" (section 43) or that the company "shall . cease to be a private company (section 44) is used in section 43A. If a section 43A company were to be equated in all respects with a public company	 that is a company which does not have the characteristics of private company	 Parliament would have used language similar to the one in section 43 or section 44	 between which two sections	 section 43A was inserted. If the intention was that the rest of the Act was to apply to a section 43A company "as if it were not a private company" nothing would have been easier 813 than to adopt that language in section 43A	 and if the intention was that a section 43A company would for all purposes "cease to be a private company"	 nothing would have been easier than to adopt that language in section 43A. Sixthly	 the fact that a private company which becomes a public company by virtue of section 43A does not cease to be for all purposes a "private company" becomes clear when one compares and contrasts the provisions of section 43A with section 44 : when the Articles of a private company no longer include matters under section 3(1)(iii)	 such a company shall as on the date of the alteration cease to be a private company (section 44(1)(a)). It has then to file with the Registrar a prospectus or a statement in lieu of prospectus under section 44(2). A private company which becomes a public company by virtue of section 43A is not required to file a prospectus or a statement in lieu of a prospectus. These considerations show that	 after the Amending Act 65 of 1960	 three distinct types of companies occupy a distinct place in the scheme of our : (1) private companies (2) public companies and (3) private companies which have become public companies by virtue of section 43A	 but which continue to include or retain the three characteristics of a private company. Sections 174 and 252 of the which deal respectively with quorum for meetings and minimum number of directors	 recognise expressly	 by their parenthetical clauses	 the separate existence of public companies which have become such by virtue of section 43A. We may also mention that while making an amendment in sub clause (ix) of Rule 2 of the Companies (Acceptance of Deposits) Rules	 1975	 the Amendment Rules	 1978 added the expression : "Any amount received. . by a private company which has become a public company under section 43A of the Act and continues to include in its Articles of Association provisions relating to the matters specified in clause (iii) of sub section (1) of section 3 of the Act"	 in order to bring deposits received by such companies within the Rules. The various points discussed above will facilitate a clearer perception of the position that under the 	 there are three kinds of companies whose rights and obligations fall for consideration	 namely	 private companies	 public companies and companies which have become public companies under section 43(1) but which retain	 under the first proviso to that section	 the three characteristics of private companies mentioned in section 3(1)(iii) 814 of the Act	 private companies enjoy certain exemptions and privileges which are peculiar to their constitution and nature. Public companies are subjected severely to the discipline of the Act. Companies of the third kind like NIIL	 which become public companies but which continue to include in their articles the three matters mentioned in clauses (a) to (c) of section 3(1)(iii) are also	 broadly and generally	 subjected to the rigorous discipline of the Act. They cannot claim the privileges and exemptions to which private companies which are outside section 43A are entitled. And yet	 there are certain provisions of the Act which would apply to public companies but not to section 43A companies. Is section 81 of the one such provision ? and if so	 does the whole of it not apply to a section 43A company or only some particular part of it ? These are the questions which we have now to consider. On these two questions	 both the learned counsel have taken up extreme positions which	 if accepted	 may create confusion and avoidable inconvenience in the administration of section 43A companies like NIIL. Shri Nariman contends that a section 43A company becomes a public company qua the outside world	 as e.g. in matters of remuneration of directors	 disclosure	 commencement of business	 information to be supplied but it remains a private company qua its own shareholders. Therefore	 says counsel	 no provision of the can apply to such companies	 which is inconsistent with or destructive of the retention of the three essential features of private companies as mentioned in section 3(1)(iii). Section 81	 it is said	 is one such provision and in so far as private companies go	 it can apply only to (a) such companies which become public companies under section 43A but which do not retain the three essential features and to (b) private companies which are duly converted into public companies. It is urged that even assuming that the expression "private company" occurring in the various provisions of the (including section 81(3)(a)) does not include a section 43A proviso Company	 that does mean that section 81 would be applicable to a 43A Proviso Company	 because : (a) The proviso to section 43A(1) and section 81 are both substantive provisions and neither is subordinate to the other ; in fact section 43A was introduced later in 1960; and (b) An offer of rights shares to a member in a section 43A proviso company cannot include a right to renounce the shares in favour of any other person	 because such a right would be inconsistent with the article of the company limiting the number of its members to 50 and with the article prohibiting invitation to the public to subscribe for shares in the company. The fact that the statute overrides the 815 articles is not a sufficient ground for rendering the provisions of section 81 applicable to a section 43A(1) proviso company since the right to continue to include provisions in its articles specified in section 3(1)(iii) is itself a statutory right. Counsel says that in these circumstances and this is without taking the assistance of the words "unless the articles of the company otherwise provide" in section 81(1)(c) the provision regarding the right of renunciation cannot apply to section 43A proviso company. The answer of Shri Seervai to this contention flows from what truly is the sheet anchor of his argument	 namely	 that the definitions of `public company ' and `private company ' are mutually exclusive and between them	 they are exhaustive of all categoric of companies. Counsel contends that section 81(1A) overrides section 81(1); that by reason of sub section (3) of section 81	 section 81 is not applicable to a "private company" but NIIL is not a "private company ' since it became a public company by virtue of section 43A; and that	 therefore	 the offer of rights shares made by NIIL can be renounced by the offerees in favour of any other person. Neither of the two extreme positions for which the counsel contend commends itself to us. The acceptance of Shri Nariman 's argument involves tinkering with clause (a) of section 81(3)	 which shall have to be read as saying that "Nothing in section 81 shall apply to a `private company ' and to a company which becomes a public company by virtue of section 43A and whose Articles of Association include provisions relating to the matters specified in clause (iii) of sub section (1) of section 3". Section 81(1) does not contain a non obstante clause. But	 if Shri Nariman is right	 there would be no alternative save to exclude the applicability of all of its provisions to a company like NIIL	 by reading into it an overriding provision which alone can achieve such result. On the other hand	 to accept wholesale the argument of Shri Seervai would render the first proviso to section 43A(1) nugatory. The right to retain in the Articles the provision regarding the restriction on the right to transfer shares	 the limitation on the number of members to fifty and the prohibition of any invitation to the public to subscribe for the shares or debentures of the Company will then be washed off. The truth seems to us to lie in between the extreme stands of the learned counsel for the two sides. There is no difficulty in giving full effect to clauses (a) and (b) of section 81 (1) in the case of a company like NIIL	 even after it 816 becomes a public company under section 43A. Clause (a) requires that further shares must be offered to the holders of equity shares of the Company in proporation	 as nearly as circumstances admit	 to the capital paid up on those shares	 while clause (b) requires that the offer of further shares must be made by a notice specifying the number of shares offered and limiting the time	 not being less than fifteen days from the date of the offer	 within which the offer	 if not accepted	 will be deemed to have been declined. The real difficulty arises when one reaches clause (c) according to which	 the offer shall be deemed to include the right of renunciation of shares or any of them in favour of any other person. We will keep aside for the time being the opening words of clause (c) : "unless the articles of the company otherwise provide". Clause (c) further requires that the notice referred to in clause (b) must contain a statement as to the right of renunciation provided for by clause (c). Having given to the matter our most anxious consideration	 we are of the opinion that clause (c) of section 81(1) cannot apply to the earth while private companies which have become public companies under section 43A and which include	 that is to say which retain or continue to include	 in their articles of association the matters specified in section 3(1)(iii) of the Act	 as specified in the first proviso to section 43A. If clause (c) were to apply to the section 43A proviso companies	 it would be open to the offerees to renounce the shares offered to them in favour of any other person or persons. That may result directly in the infringement of the article relating to the matter specified in section 3(1)(iii) (b) because	 under clause (c) of section 81(1)	 the offeree is entitled to spilt the offer and renounce the shares in favour of as many persons as he chooses	 depending partly on the number of shares offered by the company to him. The right to renounce the shares in favour of any other person is also bound to result in the infringement of the article relating to the matter specified in section 3(1)(iii)(c)	 because an offer which gives to the offeree the right to renounce the shares in favour of a non member is	 in truth and substance	 an invitation to the public to subscribe for the shares in the company. As stated in Palmer 's Company Law (22nd Ed.	 Vol. I	 para 21 18) : "Where the Company issues renounceable letters of allotment the circle of original allottees can easily be broken by renunciation of those rights and complete strangers may become the allottees; here the offer will normally be held to be made to the public. " There is statement to the same effect in Gower 's Company Law 4th Ed.	 page 351) : 817 "It is therefore clear that an invitation by or on behalf of a private company to a few of the promoter 's friends and relations will not be deemed to be an offer to the public. Nor	 generally	 will an offer which can only be accepted by the shareholder of a particular company. On the other hand it is equally clear that an offer of securities in a public company even to a handful people may be an offer to the public if it is calculated (which presumably means "Likely" rather than "intended") to lead to the securities being subscribed (i.e. applied for on original allotment) or purchased (i.e. bought after original allotment) by persons other than those receiving the initial offer. In particular	 if securities to be issued under renounceable allotment letter or letter of right the invitation to take them up must be deemed to be made to the public	 since these securities are obviously liable to be subscribed or purchased by others. " The learned author says at page 430 that in the case of a private placing an issue by a private company allotment letters will probably be dispensed with	 "in any case they cannot be freely renounceable". In foot note (22) the author points out that the real danger is that if renounceable allotment letters are issued	 the company may be regarded as having made an offer to the public. We cannot construe the provision contained in clause (c) in a manner which will lead to the negation of the option exercised by the company to retain in its articles the matters referred to in section 3 (1)(iii). Both these are statutory provisions and they are contained in the same statute. We must harmonise them	 unless the words of the statute are so plain and unambiguous and the policy of the statute so clear that to harmonise will be doing violence to those words and to that policy. Words of the statute	 we have dealt with. Its policy	 if anything	 points in the direction that the integrity and structure of the section 43A provisio companies should	 as far as possible	 not be broken up. The exemption in favour of private companies would appear to have been inserted in section 81(3)(a) because of the right of renunciation conferred by section 81(1)(c). Section 105C of the Companies Act 1973 which contained substantially all the provisions that are to be found in section 81(1)(a)	 (b) and (d) applied to all companies. The right of renunciation in favour of any other person was conferred for the first time by the Act of 1956. That led to the insertion of the exception in favour of private companies since	 a right of renunciation in favour of other persons is wholly inconsistent 818 with the structure of a private company	 which has to contain the three characteristics mentioned in section 3(1)(iii). When section 43A was introduced by Act 65 of 1960	 the legislature apparently overlooked the need to exempt companies falling under it	 read with its first proviso	 from the operation of clause (c) of section 81(1). That the legislature has overlooked such a need in regard to other matters	 in respect of which there can be no controversy	 is clear from the provisions of sections 45	 and 433 (d) of the Companies Act. Under section 45	 if at any time the number of members of a company is reduced	 in the case of a public Company below seven	 or in the case of a Private Company below two	 every member of the company becomes severally liable	 under the stated circumstances	 for the payment of the whole debt of the company and can be severally sued therefor. No exception has yet been provided for in section 45 in favour of the section 43A proviso companies	 with the result that a private company having	 say	 three members which becomes a public company under section 43A and continues to function with the same number of members	 will attract the rigour of section 45. Similarly	 under section 433(d)	 such a company would automatically incur the liability of being wound up for the same reason. If and when these provisions fall for consideration	 due regard may have to be given to the principle of harmonious construction	 in order to exclude section 43A proviso companies from the application of those provisions. We hope that before such and occasion arises	 the Legislature will make appropriate amendments in the relevant provisions of the Companies Act. Such amendments have been made in sections 174(1)	 clause (iii) of the second proviso to sub section (1) of section 220	 and section 252(1) in order to accord separate treatment to private companies which become public companies by virtue of section 43A	 as distinguished from public companies of the general kind. In coming to the conclusion that clause (c) of section 81(1) cannot apply to section 43A proviso companies	 we have not taken into consideration the impact of the opening words of clause (c) : "Unless the articles of the company otherwise provide". The effect of these words is to subordinate the provisions of clause (c) to the provisions of the articles of association of the company. In other words	 the provisions that the offer of further shares shall be deemed to include the right of renunciation in favour of any other person will not apply if the articles of the company "otherwise provide". Similarly the requirement that the notice of offer must contain a statement of the right of renunciation will not apply if the articles of 819 the company otherwise provide. The question which we have to consider under this head is whether the articles of association of NIIL provide otherwise than what is provided by clause (c) of section 81(1). We have already extracted the relevant articles	 namely	 articles 11	 32	 38 and 50. To recapitulate	 article 11	 which has an important bearing on the subject now under discussion	 provides that in order that the company may be a private company	 (i) no invitation shall be issued to the public to subscribe for any shares	 debentures	 etc; (ii) the number of members of the company shall be limited to 50; and (iii) the right to transfer shares of the company will be restricted in the manner provided in the articles. By article 32	 a share may be transferred	 subject to article 38	 by a member to any member selected by the transferor but no share shall otherwise be transferred to a person who is not a member so long as any member is willing to purchase the same at a fair value. Article 38 confers upon the directors the power to refuse to register the transfer of a share for four reasons	 the last of which is that the transfer will make the number of members exceed the limit of 50. Article 50	 which also	 is important	 provides that the offer of new shares shall be made by a notice specifying the number of shares offered and limiting the time within which the offer	 if not accepted	 will be deemed to have been declined. If the offer is declined or is not accepted	 before the expiration of the time fixed for its acceptance	 the directors have power to dispose of the shares in such manner as they think most beneficial to the company. It is urged by Shri Seervai that none of the articles of the company provides otherwise than what is provided in clause (c) of section 81(1) and therefore	 clause (c) must have its full play in the case of NIIL. On the other hand	 it is contended by Shri Nariman that the opening words	 of clause (c) do not require or postulate that the articles of the company must contain an "express" provision	 contrary to what is contained in clause (c). The contention	 in other words	 is that if the articles of a company contain a provision which	 by necessary implication	 is otherwise than what is provided in clause (c); that clause can have no application. In view of our finding that keeping aside the opening words of clause (c)	 the provisions of that clause cannot apply to section 43A proviso companies	 it is academic to consider whether the word "provide" in the opening part of clause (c) postulates an express provision on the subject of renunciation or whether it is sufficient compliance with the opening words	 if the articles contain by necessary implication a provision which is otherwise than what is provided in clause 820 (c). We would	 however	 like to express our considered conclusion on this point since the point has been argued fully by both the counsel and needs to be examined	 as it is likely to arise in other cases. In the first place	 while construing the opening words of section 81(1)(c)	 it has to be remembered that section 43A companies are entitled under the proviso to that section to include provisions in their Articles relating to matters specified in section 3(1)(iii). The right of renunciation in favour of any other person is wholly inconsistent with the Articles of a private company. If a private company becomes a public company by virtue of section 43A and retains or continues to include in its Articles matters referred to in section 3(1)(iii)	 it is difficult to say that the Articles do not provide something which is otherwise than what is provided in clause (c). The right of renunciation in favour of any other person is of the essence of clause (c). On the other hand	 the absence of that right is of the essence of the structure of a private company. It must follow	 that in all cases in which erstwhile private companies become public companies by virtue of section 43A and retain their old Articles	 there would of necessity be a provision in their Articles which is otherwise than what is contained in clause (c). Considered from this point of view	 argument as to whether the word "provide" in the opening words of clause (c) means "provide expressly" loses its significance. On the question whether the word "provide" means "provide expressly"	 we are unable to accept Shri Seervai 's submission that the Articles must contain a provision which is expressly otherwise than what is provided in clause (c). In the context in which a private company becomes a public company under section 43A and by reason of the option available to it under the proviso	 the word "provide" must be understood to mean "provide expressly or by necessary implication". The necessary implication of a provision has the same effect and relevance in law as an express provision has	 unless the relevance of what is necessarily implied is excluded by the use of clear words. Considering the matter from all reasonable points of view	 particularly the genesis of section 43A proviso companies	 we are of the opinion that in order to attract the opening words of clause (c) of section 81(1)	 it is not necessary that the Articles of the Company must contain an express provision otherwise than what is contained in clause (c). We do not think it necessary to consider the decision of the Privy Council in Shanmugam vs Commissioner for Registration	 821 cited by Shri Nariman	 which says that to be an "express provision" with regard to something it is not necessary that the thing should be specially mentioned; it is sufficient that it is directly covered by the language	 however broad the language may be which covers it	 so long as the applicability arises directly from the language used and not by inference therefrom. We may only mention that though Articles of NIIL do not contain an express provision that there shall be no right of renunciation	 the right is wholly inconsistent with the Articles. We have already stated above that the right of renunciation is tantamount to an invitation to the public to subscribe for the shares in the company and can violate the provision in regard to the limitation on the number of members. Article 11	 by reason of its clause (iv)	 prevails over the provisions of all other Articles if there is inconsistency between it and any other Article. For these reasons we are of the opinion that clause (c) of section 81(1) of the Companies Act	 apart from the consideration arising out of the opening words of that clause	 can have no application to private companies which have become public companies by virtue of section 43A and which retain in their Articles the three matters referred to in section 3(1)(iii) of the Act. In so for as the opening words of clause(c) are concerned	 we are of the opinion that they do not require an express provision in the Articles of the Company which is otherwise than what is provided for in clause (c). It is enough	 in order to comply with the opening words of clause (c)	 that the Articles of the Company contain by necessary implication a provision which is otherwise than what is provided in clause (c). Articles 11 and 50 of NIIL 's Articles of Association negate the right of renunciation. The question immediately arises	 which is of great practical importance in this case	 as to whether members of a section 43A proviso company have a limited right of renunciation	 under which they can renounce the shares offered to them in favour of any other member or members of the company. Consistently with the view which we have taken of clause (c) of section 81(1) our answer to this question has to be in the negative. The right to renounce shares in favour of any other person	 which is conferred by clause (c) has no application to a company like NIIL and therefore	 its members cannot claim the right to renounce shares offered to them in favour of any other member or members. The Articles of a company may well provide for a right of transfer of shares by one member to another	 but that right is very much different from the right or 822 renunciation	 properly so called. In fact	 learned counsel for the Holding Company has cited the decision in Re Pool Shipping Co. Ltd.	 (supra) in which it was held that the right of renunciation is not the same as the right of transfer of shares. Coming to sub section (1A) of section 81	 it provides	 stated briefly	 that notwithstanding anything contained in sub section (1)	 the further shares may be offered to any persons in any manner whatsoever	 whether or not those persons include a person referred to in clause (a) of sub section (1). That can be done under clause (a) of sub section (1A) by passing a special resolution in the General Meeting of the company or under clause (b)	 where no such special resolution is passed	 if the votes cast in favour of the proposal exceed the votes cast against it and the Central Government is satisfied that the proposal is most beneficial to the company. For reasons similar to those which we have come to the conclusion that clause (c) of section 81 cannot apply to a section 43A proviso company	 we must hold that sub section (1A) can also have no application to such companies. To permit the further shares to be offered to the persons who are not members of the company will be clearly contrary to the Articles of Association of a section 43A proviso company	 in regard to the three matters which bear on the structure of such companies. At the highest	 the method provided for in clauses (a) and (b) of sub section (1A) may be resorted to by a section 43A proviso company for the limited purpose of offering the net shares to its members otherwise than in proportion to the capital paid up on the equity shares of the company. That course may be open for the reason that sub section (1A) permits the further shares to be offered "in any manner whatsoever". A change in the pro rata method of offer of new shares is not necessarily violative of the basic characteristics of a private company which becomes a public company by virtue of section 43A. To this limited extent only	 but not beyond it	 the provisions of sub section (1A) of section 81 can apply to such companies. The following proposition emerge out of the discussion of the provisions of FERA	 sections 43A and 81 of the Companies Act and of the articles of association of NIIL: (1) The Holding Company had to part with 20% out of the 60% equity capital held by it in NIIL; (2) The offer of Rights Shares made to the Holding Company as a result of the decision taken by Board of 823 Directors in their meeting of April 6	 1977 could not have been accepted by the Holding Company; (3) The Holding Company had no right to renounce the Right Shares offered to it in favour of any other person	 member or non member; and (4) Since the offer of Rights Shares could not have been either accepted or renounced by the Holding Company	 the former for one reason and the latter for another	 the shares offered to it could	 under article SO of the articles of association	 be disposed of by the directors	 consistently with the articles of NIIL	 particularly article 11	 in such manner as they thought most beneficial to the Company. These proposition afford a complete answer to Shri Seervai 's contention that what truly constitutes oppression of the Holding Company is not the issue of Rights Shares to the existing Indian shareholders only but the offer of Rights Shares to all existing shareholders and the issue thereof to existing Indian shareholders only. The meeting of 2nd May	 1977 was unquestionably illegal for reasons already stated. It must follow that the decision taken by the Board of Directors in that meeting could not	 in the normal circumstances	 create mutual rights and obligations between the parties. But we will not treat that decision as non est because a point of preponderating Importance is that the issue of Rights Shares to existing Indian shareholders only and the non allotment thereof to the Holding Company did not cause any injury to the proprietary rights of the Holding Company as shareholders	 for the simple reason that they could not have possibly accepted the offer of rights shares because of the provisions of FERA and the conditions imposed by the Reserve Bank in its letter dated May 11	 1976	 nor indeed could they have renounced the shares offered to them in favour of any other person at all because section 81(1)(c) has no application to companies like NIIL which were once private companies but which become public companies by virtue of section 43A and retain in their articles the three matters referred to in section 3(1)(iii) of the Act. It was neither fair nor proper on the part of NIIL 's officers not to ensure the timely posting of the notice of the meeting for 2nd May so as to enable Sanders to attend that meeting. But there the 824 matter rests. Even if Sanders were to attend the meeting	 he could not have asked either that the Holding Company should be allotted the rights shares or alternatively	 that it should be allowed to "renounce" the shares in favour of any other person	 including the Manoharan group. The charge of oppression arising out of the central accusation of non allotment of the rights shares to the Holding Company must	 therefore	 fail. We must mention that we have rejected the charge of oppression after applying to the conduct of Devagnanam and his group the standard of probity and fairplay which is expected of partners in a business venture. And this we have done without being influenced by the consideration pressed upon us by Shri Nariman that Coats and NEWEY	 who were two of the three main partners	 were not of one mind and that NEWEY never complained of oppression. They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by section 397 of the Companies Act. Shri Seervai drew our attention to the decision in Blissett vs Daniel (supra) the facts of which as they appear at pp 1036 37	 bear	 according to him	 great resemblance to the facts before us. The following observations in that case are of striking relevance; "As has been well observed during the course of the argument	 the view taken by this Court with regard to morality of conduct amongst all parties most especially amongst those who are bound by the ties of partnership is one of the highest degree. The standard by which parties are tried here	 either as trustees or as co partners	 or in various other relations which may be suggested	 is a standard	 I am thankful to say so	 far higher than the standard of the world; and	 tried by the standard	 I hold it to be impossible to sanction the removal of this gentleman under these circumstances". (p 1040) Not only is the law on the side of Devagnanam but his conduct cannot be characterised as lacking in probity	 considering the extremely rigid attitude adopted by Coats. They drove him into a tight corner from which the only escape was to allow the law to have its full play. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression	 the court is not powerless to do substantial justice between the parties and place them	 as nearly as it may	 in the same 825 position in which they would have been	 if the meeting of 2nd May were held in accordance with law. The notice of the meeting was received by Sanders in U.K. On the 2nd May when everything was over	 bar the post meeting recriminations which eventually led to this expensive litigation. If the notice of the meeting had reached the Holding Company in time	 it is reasonable to suppose that they would have attended the meeting	 since one of the items on the Agenda was "Policy (a) Indianisation	 (b) allotment of shares". Devagnanam and his group were always ready and willing to buy the excess shares of the Holding Company at a fair price as clear from the correspondence to which our attention has been drawn. In the affidavit dated May 25	 1977	 Devagnanam stated categorically that the Indian shareholders were always ready and willing to purchase one third of the shareholding of the non resident shareholders	 at a price to be fixed in accordance with the articles of Association by the Reserve Bank of India. On May 27	 he sent a cable	 though 'without prejudice '	 offering to pay premium if the Holding Company were to adopt disinvestment as a method of dilution of their interest. In the Trial Court	 counsel for the Indian shareholders to whom the rights shares were allotted offered to pay premium on the 16	000 rights shares. The cable and the offer were mentioned before us by Shri Nariman and were not disputed by Shri Seervai. There is no reason why we should not call upon the Indian shareholders to do what they were always willing to do	 namely	 to pay to the Holding Company a fair premium on the shares which were offered to it	 which it could neither take nor renounce and which were taken up by the Indian shareholders in the enforced absence of the Holding Company. The willingness of the Indian shareholders to pay a premium on the excess holding or the rights shares is a factor which	 to some extent	 has gone in their favour on the question of oppression. Having had the benefit of that stance	 they must now make it good. Besides	 it is only meet and just that the Indian shareholders	 who took the rights shares at par when the value of those shares was much above par	 should be asked to pay the difference in order to nullify unjust unjustifiable enrichment at the cost of the Holding Company. We must make it clear that we are not asking the Indian shareholders to pay the premium as a price of oppression. We have rejected the plea of oppression and the course which we are now adopting is intended primarily to set right the course of justice	 in so far as we may. The question then is as to what should be taken to be the reasonable value of the shares which were offered to the Holding Company but taken over by the bulk of the Indian shareholders. In 826 his letter dated December 17	 1975 to M.M.C. Newey	 D.P. Kingsley	 the Secretary of NIIL	 had assessed the value of NIIL 's shares at Rs. 175 per share. That value was arrived at by averaging the break up value	 the yield and the average market price in the case of quoted shares. Citing a paragraph from a book on the Foreign Exchange Regulation Act	 Kingsley says in his letter that the method which was adopted by him far valuing the shares was also followed by the Controller of Capital Issues. Copies of Kingsley 's letter were sent to Alan Mackrael and Devagnanam. On June 9	 1976 Price Waterhouse	 Peat & Co.	 Chartered Accountants	 Calcutta wrote a letter to Mackrael in response to the latter 's cable	 valuing the shares of NIIL at Rs. 204 per share. That letter shows that while valuing the shares	 they had taken into account various factors including "the average of the net asset value and the earnings basis"	 which	 according to them	 are considered as relevant factors by the Controller of Capital Issues while valuing the shares of companies. The Chartered Accountants applied "the CCI formula" and after making necessary adjustments to the fixed assets	 the proposed dividend and the gratuity liabilities for 1975	 they valued NIIL 's business	 on a net asset basis	 at Rs. 50 lakhs. On an earnings basis	 the valuation of the Company based on the past three years ' net profits capitalized at 15% was Rs. 80 lakhs. That gives an average valuation of Rs. 65 lakhs for the business or Rs. 204 per share. The purported offer to Devagnanam by Khaitan "a sewing needle competitor to Ketti"	 at 3.6 times par	 cannot afford any criterion for valuing NIIL 's shares. Khaitan	 purportedly	 had competitive business interests and was therefore prepared to "pay the earth to acquire NIIL". According to the learned trial Judge	 one thing which appeared to be certain was that the market value of the shares of NIIL at or about the time when disputes arose between the parties	 and particularly during the period when the controversial meetings of the Board of Directors were held	 ranged between Rs. 175 and Rs. 204. We agree with the learned Judge and hold that it would be just and reasonable to take the average market value of the rights shares on the crucial date at Rs. 190 per share. The learned trial Judge awarded a sum of Rs. 90 per share on 9495 shares to the Holding Company by way of "solatium"	 which	 with respect	 is not an accurate description of the award and is likely to confuse the basis and reasons for directing the payment to be made. Since the average market price of NIIL 's shares in April May 1977 can be taken to be Rs. 190 per share	 the Holding Company	 which was offered 9495 rights shares	 will be entitled to receive from the Indian shareholders 827 an amount equivalent to that by which they unjustifiably enriched themselves	 namely	 Rs. 90x9495 which comes to Rs. 8	54	550. We direct that Devagnanam	 his group and the other Indian shareholders who took the rights shares offered to the Holding Company shall pay	 pro rata	 the sum of Rs. 8	54	550 to the Holding Company. The amount shall be paid by them to the Holding Company from their own funds and not from the funds or assets of NIIL. As a further measure of neutralisation of the benefit which the Indian shareholders received in the meeting of 2nd May	 1977	 we direct that the 16	000 rights shares which were allotted in that meeting to the Indian shareholders will be treated as not qualifying for the payment of dividend for a period of one year commencing from January 1	 1977	 the Company 's year being the Calendar year. The interim dividend or any further dividend received by the Indian shareholders on the 16	000 rights shares for the year ending December 31	 1977 shall be repaid by them to NIIL	 which shall distribute the same as if the issue and allotment of the rights shares was not made until after December 31	 1977. This direction will not be deemed to affect or ever to have affected the exercise of any other rights by the Indian shareholders in respect of the 16	000 rights shares allotted to them. We have not considered the possibility of Manoharans taking up the rights shares offered to them because	 by a letter dated May 11	 1977 to NIIL 's Secretary	 N. Manoharan had declined the offer on the ground that he was "not in a position to take those shares". Finally	 in order to ensure the smooth functioning of NIIL	 and with a view to ensuring that our directions are complied with expeditiously	 we direct that Shri M.M. Sabharwal who was appointed as a Director and Chairman of the Board of Directors under the orders of this Court dated November 6	 1978 will continue to function as such until December 31	 1982. The Company will take all effective steps to obtain the sanction or permission of the Reserve Bank of India or the Controller of Capital Issues	 as the case may be; if it is necessary to obtain such sanction or permission for giving effect to the directions given by us in this judgment. In the result	 the appeals are allowed with the directions above mentioned and the judgments of the learned single Judge and of the Division Bench of the High Court are set aside. We make no order as to costs since both the sides are	 more or less	 equally to 828 blame	 one for creating an impasse and the other for its unjust enrichment. All parties shall bear their own costs throughout. The interim orders passed by this Court are vacated. The amount of Rs. 8	54	550 which the Indian shareholders have been directed to pay to the Holding Company shall be paid in two instalments	 the first of which shall be paid before August 31	 1981 and the second before November 30	 1981. The interim Board of Directors shall forthwith hand over charge to the Board which was superseded	 but with Shri M.M. Sabharwal as a Director and Chairman of the Board of Directors. After taking the charge from the interim Board	 the Board of Directors will take expeditious steps for convening an Annual General Meeting for the year 1976 77 and the years thereafter for the purpose of passing the accounts	 declaring dividends electing all Directors and for dealing with other necessary or incidental matters. N.V.K. Appeals allowed.

M/s. Needle Industries (India) Ltd. (NIIL)	 the appellant was incorporated under the Indian Companies Act 1913 as a Private Company on 20.7.1949 with its Registered office at Madras and at the time of its incorporation it was a wholly owned subsidiary of Needle Industries (India) Ltd.	 Studley	 England (NI Studley). In 1961	 NI Studley entered into an agreement with Newey Bros. Ltd.	 Birmingham	 England (Newey) to invest in the Indian Company. In 1963	 NI Studley and Newey combined to form the Holding Company in England M/s Needle Industries Newey (India) Holding Ltd.	 the respondent. The entire share capital of NIIL held by NI Studley and Newey was transferred to the Holding Company in which NI Studley and Newey became equal shares. 699 As a result of this arrangement	 the Holding Company came to acquire 99.95 per cent of the issued and paid up capital of NIIL. The balance of 0.05 cent	 which consisted of six shares being the original nominal shares	 was held by Devagnanam the managing director of NIIL. By virtue of the introduction of section 43A in the Companies Act in 1961	 NIIL became a public company	 since not less than twenty five per cent of its paid up share capital was held by a body corporate	 the Holding Company. However	 under the first proviso to section 43(1) it had the option to retain its articles relating to matters specified in section 3(1)(iii) of the Companies Act. NIIL did not alter the relevant provisions of its articles after its became a public company within the meaning of section 43A. By 1971 about 40 per cent of the share capital of NIIL came to be held by the Indian employees of the company and their relatives and the balance of about 60 per cent remained in the hands of the Holding Company NINIH Ltd. In 1972 Coats Paton Ltd. became an almost 100% owner of NI Studley. The position at the beginning of the year 1973 was that 60% (to be exact 59.3%) of the share capital of NIIL came to be owned half and half by Coats and NEWEY	 the remaining 40% being in the hands of the Indian Group of which 28.5% was held by the Devagnanam 's group. Though NIIL was at one time wholly owned by NI Studley and later by NI Studley and Newey	 the affairs were managed ever since 1956 by an entirely Indian Management with Devagnanam as its Chief Executive and Managing Director with effect from the year 1961. The Holding Company which was formed in 1963 had only one representative on the Board of Directors of NIIL. He was N.T. Sanders	 who resided in England and hardly ever attended the Board Meetings. The holding company reposed great confidence in the Indian management which was under the direction and control of Devagnanam In July 1972 Mr. Devagnanam was offered by the office of Managing Director of group of four companies in Hong Kong and Taiwan and his family began to reside in Hong Kong and he cogitated over resigning from his position in NIIL. Coats	 on their part were clear that Devagnanam should relinquish his responsibilities in NIIL. in view of the time his role in Newey 's Far Eastern interests was consuming. The Foreign Exchange Regulation Act 1973	 came into force on Junuary 1	 1974. S.29(1) prohibited non residents	 non citizens and non banking companies not incorporated under any Indian law or in which the non resident interest was more than 40 per cent	 from carrying on any activity in India of a trading	 commercial or Industrial nature except with the general or special permission of the Reserve Bank of India. By section 29(2)(a) if such person was engaged in any such activity at the commencement of the Act	 he or it had to apply to the Reserve Bank of India	 for permission to carry on that activity	 within six months of the commencement of the Act or such further period the Reserve Bank may allow. section 29 (4) (a) imposed a similar restriction on such person or company from holding shares in India	 of any company referred to cause (b) of section 29(1)	 without the permission of the Reserve Bank. The 700 time for making the application for the requisite permission under section 29 was extended by the Reserve Bank until August 31	 1974. Since the Holding Company was a non resident and its interest in NIIL exceeded 40% NIIL had to apply for the permission of the Reserve Bank under section 29 (1) FERA for continuing to carry on its business. The Holding Company had also to apply for the permission of the Reserve Bank under section 29 (4) (a) FERA for continuing to hold its shares in NIIL. NIIL applied to the Reserve Bank for the necessary permission on September 3	 1974. By its letter dated May 11	 1976 the Reserve Bank condoned the delay and allowed the application and imposed conditions on NIIL that it must bring down the non resident interest from 60% to 40% within one year of the receipt of its letter. The Holding Company applied to the Reserve Bank for a Holding Licence under section 29 (4) (a) of FERA	 on September 18	 1974; which application was late by 18 days and was still pending with the Reserve Bank Devagnanam who was residing in Hong Kong obtained a holding licence dated March 5	 1975 from the Reserve Bank in respect of his shares in NIIL. On receipt of the letter of the Reserve Bank dated March 11	1976 NIIL 's secretary sent a reply on May 18	 1976 to the Bank confirming the acceptance of the various conditions under which permission was granted to NIIL to continue its business. On August 11	 1976 the term of Devagnanam 's appointment as the Managing Director of NIIL came to an end but in the meeting dated October 1	 1976 of NIIL 's Board of Directors his appointment was renewed for a further period of 5 years. On October 20th and 21st	 1976 a meeting took place between the U.K. shareholders and the Indian shareholders of NIIL. But the meeting ended in a stalemate because whereas the Holding Company wanted a substantial part of the share capital held by it in excess of 40 per cent to be transferred to Madura Coats an Indian company in which the Holding Company had substantial interest as an Indian shareholder. Devagnanam insisted that the existing Indian shareholders of NIIL alone had the right under its Articles of Association to take up the shares which the Holding Company was no longer in a position to hold because of the directives issued by the Reserve Bank pursuant to FERA. As negotiations were going on between the competing groups regarding the Indianisation of NIIL	 on April 4	 1977 NIIL received a reminder letter dated March 30	 1977 from the Reserve Bank which pointed out that the company had not submitted any concrete proposal for reduction of the non resident interest and asked it to submit its proposal in that behalf without any further delay and that failure to comply with the directive regarding dilution of foreign equity within the stipulated period would be viewed seriously. A meeting of NIIL 's Board of Directors was held on April 6	 1977. All the directors were present in the meeting with Devagnanam in the chair at the commencement of the proceedings. Mr. C. Doraiswamy	 solicitor partner of 701 King and Partridge was one of the directors present at the meeting. He had no interest in the proposal of Indianisation which the meeting was to discuss. In order to complete the quorum of two independent directors	 the other directors apart from C. Doraiswamy being interested in the business of the meeting	 Silverston an ex partner of Doraiswamy 's firm of solicitors	 was appointed to the board as an additional director under article 97 of the Articles of Association. Silverston chaired the meeting after his appointment as additional director. The meeting resolved that the issued capital of NIIL be increased by a new issue of 16	000 equity shares of Rs. 100 each to be offered as rights shares to the existing shareholders in proportion to the shares held by them. The offer was to be made by a notice specifying the number of shares which each shareholder was entitled to and in case the offer was not accepted within 16 days from the date on which it was made it was to be deemed to have been declined by the concerned shareholder. In pursuance to the aforesaid resolution a letter of offer dated April 14	 1977 was prepared. The envelope containing Devagnanam 's explanatory letter dated April 12 (without the copy of the letter of the Reserve Bank dated March 30	 1977) and the letter of offer dated April 14 were received by the Holding Company on May 2	 1977 in an envelope bearing the Indian postal mark of April 27	 1977. The letter of offer which was sent to one of the Indian shareholders	 Manoharan was posted in an envelope which also bore the postal mark of 27th April. The next meeting of the Board was due to be held on May 2	 1977. The Holding Company was thus denied an opportunity to exercise its option whether or not to accept the offer of right shares	 assuming that any such option was open to it. The meeting of the Board of Directors was held an May 2	 1977 as scheduled and in the meeting the whole of the new issue consisting of 16	000 rights share was allotted to the Indian shareholders including members of the Manoharan group. Out of these the Devagnanam group was allotted 11	734 shares. After marking the allotment of shares a letter was sent to the Reserve Bank by NIIL reporting compliance with the requirements of F.E.R.A. by the issue of 16	000 rights shares and the allotment thereof to the Indian shareholders which resulted in the reduction of the foreign holding to approximately 40% and increased that of the Indian shareholders to almost 60%. The Holding Company filed a company petition in the High Court under section 397 and 398 of the Indian alleging that the Indian Directors abused their fiduciary position in the Company by deciding in the meeting of April 6 to issue the rights shares at par and by allotting them exclusively to the Indian shareholders in the meeting of 2nd May	 1977. In doing so	 they acted mala fide and in order to gain an illegal advantage for themselves. By deciding to issue the rights shares at par	 they conferred a tremendous and illegitimate advantage on the Indian shareholders. Devagnanam delayed deliberately the intimation of the proceedings of the 6th April to the Holding Company. By that means and by the late giving of the notice of the 702 meeting of the 2nd May	 the Devagnanam group presented a fait uccompli to the Holding Company in order to prevent it from exercising its lawful rights. The conduct of the Indian directors lacked in probity and fair dealing which the Holding Company was entitled to expect. The acting Chief Justice who tried the Company Petition	 found several defects and infirmities in the Board 's meeting dated May 2	 1977 and being of the view that the average market value of the rights shares was about Rs. 190 per share on the crucial date and that	 since the rights shares were issued at par	 the Holding Company was deprived unjustly of a sum Rs. 8	54	550 at the rate of Rs. 90 per share on the 9	495 rights shares to which it was entitled. Exercising the power under section 398 (2) of the 	 the learned Judge directed NIIL to make good that loss which	 could have been avoided by adopting a fairer process of communication with the Holding Company and 'a consequential dialogue ' with them in the matter of the issue of rights shares at a premium. The Holding Company being aggrieved by the aforesaid judgment filed an appeal and NIIL filed cross objections to the decree. The appeal and cross objections were argued before the Division Bench of the High Court on the basis of affidavits	 the correspondence that had passed between the parties and certain additional documents which were filed before the Appellate Court. The Division Bench concluded that the affairs of NIIL were being conducted in a manner oppressive	 that is to say burdensome	 harsh and wrongful to the Holding Company and held that since the action of the Board of Directors of NIIL was taken merely for the purpose of welding the Company into Newey 's Far Eastern complex it was just and equitable to wind up the Company. With regard to the cross objections	 the Division Bench held that the injuries suffered by the Holding Company could not be remedied by the award of compensation and	 therefore	 the action of the Board of Directors in issuing the rights shares had to be quashed. It accordingly allowed the appeal filed by the Holding Company and dismissed the cross objections of the appellant and directed that the Board of Directors be suspended and an interim Board consisting of nine directors proposed by the Holding Company be constituted and that the rights issue made on 6th April	 1977 and the allotment of shares made on 2nd May	 1977 at the Board Meeting be set aside and the Interim Board be directed to make a fresh issue of shares at a premium to the existing shareholders including the Holding Company which was to have a right of renunciation. In the appeals to this Court	 on the question whether the decisions taken at the meetings of the Boards of Directors of NIIL on April 6 and May 2	 1977 constitute acts of oppression within the meaning of section 397 of the . Allowing the appeals ^ HELD: 1. The charge of oppression rejected after applying to the conduct of Devagnanam and his group the standard of probity and fairplay	 which is expected of partners in a business venture. Not only is the law on his side	 but his conduct cannot be characterised as lacking in probity	 considering the extremely rigid attitude by Coats. He was driven into a tight corner from which the only escape was to allow the law to have its full play. [824 B C; G H] 703 2. Even though the company petition falls and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression	 the court is not powerless to do substantial justice between the parties and place them	 as nearly as it may	 in the same position in which they would have been	 if the meeting of 2nd May were held in accordance with law. [824 H 825 A] 3. The willingness of the Indian shareholders to pay a premium on the excess holding or the rights shares is a factor which	 to some extent	 has gone in their favour on the question of oppression. Having had the benefit of that stance	 they must now make it good. Besides	 it is only meet and just that the Indian shareholders	 who took the rights shares at par when the value of those shares was much above par	 should be asked to pay the difference in order to nullify their unjust and unjustifiable enrichment at the cost of the Holding Company. The Indian shareholders are not asked to pay the premium as a price of oppression. The plea of oppression having been rejected the course being adopted is intended primarily to set right the course of justice. [825 F G] 4. Devagnanam	 his group and the other Indian share holders who took the rights shares offered to the Holding Company shall pay	 pro rata	 the sum of Rs. 8	54	550 to the Holding Company. The amount shall be paid by them to the holding company from their own funds and not from the funds or assets of NIIL. [827 A B] 5. As a further measure of neutralisation of the benefit which the Indian shareholders received in the meeting of 2nd May	 1977	 it is directed that the 16	000 rights shares which were allotted in that meeting to the Indian shareholders will be treated as not qualifying for the payment of dividend for a period of one year commencing from January 1	 1977 the Company 's year being the Calendar year. The interim dividend or any further dividend received by the Indian shareholders on the 16	000 rights shares for the year ending December 31	 1977 shall be repaid by them to NIIL	 which shall distribute the same as if the issue and allotment of the rights shares was not made until after December 31	 1977. This direction will not be deemed to affect or ever to have affected the exercise of any other rights by the Indian shareholders in respect of the 16	000 rights shares allotted to them. [827 B D] 6. In order to ensure the smooth functioning of NIIL and with a view to ensuring that the directions are complied with expeditiously	 it is directed that Shri M.M. Sabharwal who was appointed as a Director and Chairman of the Board of Directors under the orders of this Court dated November 6	 1978 will continue to function as such until December 31	 1982. [827 F] 7. The Company will take all effective steps to obtain the sanction or permission of the Reserve Bank of India or the Controller of Capital Issues	 as the case may be	 if it is necessary to obtain such sanction or permission for giving effect to the directions. [827 G] 8. Devagnanam and his group acted in the best interests of NIIL	 in the matter of the issue of rights shares and indeed	 the Board of Directors followed in the meeting of the 6th April a course which they had no option but to adopt and in doing which	 they were solely actuated by the consideration as to what 704 was in the interest of the company. The shareholder Directors who were interested in the issue of rights shares neither participated in the discussion of that question nor voted upon it. The two Directors who	 forming the requisite quorum	 received upon the issue of rights shares were Silverston who	 was a disinterested Director and Doraiswamy who	 unquestionably	 was so. [792 A C] 9. Disinvestment by the Holding Company	 as one of the two courses which could be adopted for reducing the non resident interest in NIIL to 40% stood ruled out	 on account of the rigid attitude of Coats who	 during the period between the Ketty meeting of October 20 21	 1976 and the Birmingham discussions of March 29 31	 1977 clung to their self interest	 regardless of the pressure of FERA	 the directive of the Reserve Bank of India and their transparent impact on the future of NIIL. [792 D E] 10. Devagnanam and the disinterested Directors	 having acted out of legal compulsion precipitated by the obstructive attitude of Coats and their action it being in the larger interest of the company	 it is impossible to hold that the resolution passed in the meeting of April 6 for the issue of rights shares at par to the existing shareholders of NIIL constituted an act of oppression against the Holding Company. [792 E F] 11. It puts a severe strain on ones credulity to believe that the letters of offer dated April 14 to the Holding Company	 to Raeburn and to Manoharan were posted on the 14th itself but that somehow they rotted in the post office until the 27th on which date they took off simultaneously for their respective destinations. [793 E] 12. The purpose behind the planned delay in posting the letters of offer to Raeburn and to the Holding Company	 and in posting the notice of the Board 's meeting for May 2 to Sanders	 was palpably to ensure that no legal proceeding was taken to injunct the holding of the meeting. The object of withholding these important documents	 until it was quite late to act upon them	 was to present to the Holding Company a fait accompli in the shape of the Board 's decision for allotment of rights shares to the existing Indian shareholders. [794 C E] 13. In so far as Devagnanam himself is concerned	 there is room enough to suspect that he was the part author of the late postings of important documents	 especially since he was the prime actor in the play of NILL 's Indianisation. But even in regard to him	 it is difficult to carry the case beyond the realm of suspicion and 'room enough ' is not the same thing as 'reason enough '. [795 B C] 13A. With regard to the impact on the legality of the offer and the validity of the meeting of May 2	 (i) It is quite clear from the circumstances that the rights shares offered to the Holding Company could not have been allotted to anyone in the meeting of May 2	 for the supposed failure of the Holding Company to communicate its acceptance before April 30. The meeting of May 2	 of which the main purpose was to consider 'Allotment ' of the rights shares must	 therefore	 be held to be abortive	 [796 H 797 A] 705 (ii) The utter inadequacy of the notice to Sanders in terms of time stares in the face and needs no further argument to justify the finding that the holding of the meeting was illegal	 at least in so far as the Holding Company is concerned. It is self evident that Sanders could not possibly have attended the meeting. There is	 therefore	 no alternative save to hold that the decision taken in the meeting of May 2 cannot	 in the normal circumstances	 affect the legal rights of the Holding Company or create any legal obligations against it. [797 D E] 13B. The dilution of the non resident interest in the equity capital of the Company to a level not exceeding 40% "within a period of 1 (one) year from the date of receipt of" the letter was of the very essence of the matter. The sanction for enforcement of a conditional permission to carry on business	 where conditions are breached	 is the cessation	 ipso facto	 of the permission itself on the non performance of the conditions at the time appointed or agreed. When NIIL wrote to the Bank on February 4	 1976 binding itself to the performance of certain conditions	 it could not be heard to say that the permission will remain in force despite its non performance of the conditions. Having regard to the provisions of section 29 read with sections 49	 56(1) and (3) and section 68 of FERA	 the continuance of business after May 17	 1977 by NIIL would have been illegal	 unless the condition of dilution of non resident equity was duly complied with. [799 B; F H] 14. By reason of the provisions of section 29(1) and (2) of FERA and the conditional permission granted by the RBI by its letter dated May 11	 1976 the offer of rights shares made by NIIL to the Holding Company could not possibly have been accepted by it. [800 B] The acceptance of the offer of rights shares by the Holding Company would have resulted in a violation of the provisions of FERA and the directive of the Reserve Bank. No grievance can be made by the Holding Company that since it did not receive the offer in time	 it was deprived of an opportunity to accept it. [800 D G] 14A. An offer of shares undoubtedly creates "fresh rights" but	 the right which it creates is either to accept the offer or to renounce it; it does not create any interest in the shares in respect of which the offer is made. [801 B] Mathalone vs Bombay Life Assurance Co. ; referred to. 15(i) Before granting relief in an application under section 210 of the English as under section 397 of the Indian the Court has to satisfy itself that to wind up the company will unfairly prejudice the members complaining of oppression	 but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. The fact that the company is prosperous and makes substantial profits is no obstacle to its being wound up if it is just and equitable to do so. [744 A B; 775 G] Scottish Co op. Wholesale Society Ltd. vs Meyer 	 Re Associated Tool Industries Ltd. [1964] Argus Law Reports	 75	 Ebrahimi vs Westbourne 706 Galleries LTd. 	 Blissett vs Daniel [68] E.R. 1024. Re Yenidge Tobacco Co. & Loch vs John Blackwood ; referred to. (ii) On a true construction of section 397	 an unwise	 inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity	 conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. [748 E G] (iii) Technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by section 397 of the . Blissett vs Daniel referred to. 16. An isolated act which is contrary to law	 may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome	 harsh and wrongful. But a series of illegal acts following upon one another can	 in the context	 lead justifiably to the conclusion that they are a part of the same transaction	 of which the object is to cause or commit the oppression of persons against whom those acts are directed. [746 G 747 A] 17. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased	 but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands. [747 B C] S.M. Ganpatram vs Sayaji Jubilee Cotton and Jute Mills Co. & Elder vs Elder referred to. 18. It is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit to cross examination. Men may lie but documents will not and often	 documents speak louder than words. But a total reliance on the written word	 when probity and fairness of conduct are in issue	 involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inferences said to arise from the documents. [754 E G] Re Smith and Fowcett Ltd. 	 545; Nana Lal Zaver vs Bombay Life Assurance 	 394 Piercy vs Mills [1920] (1) Chancery 77	 Hogg vs Cramphorn	 [1967] 1	 Chancery 254	 260; Mills vs Mills [60] CLR 150	 160	 Harlowe 's Hominees [121] CLR 483	 485 & Howard Smith vs Amphol ; 	 831 Punt vs Symons ; Franzer vs Whalley ; referred to. In the instant case the High Court was right in holding that	 having taken up a particular attitude	 it was not open to Devagnanam and his group to con 707 end that the allegation of mala fides could not be examined	 on the basis of affidavits and the correspondence only. There is ample material on the record in the form of affidavits correspondence and other documents	 on the basis of which proper and necessary inferences can safely and legitimately be drawn. [755B C] These documents and many more documents were placed on the record mostly by consent of parties	 as the case progressed from stage to stage. That shows that the parties adopted willingly a mode of trial which they found to be most convenient and satisfactory. [756 A B] 19. When the dominant motivation is to acquire control of a company	 the sparring groups of shareholders try to grab the maximum benefit for themselves. If one decides to stay on in such a company	 one must capture its control. If one decides to quit	 one must obtain the best price for one 's holding	 under and over the table	 partly in rupees and partly in foreign exchange. Then	 the tax laws and the foreign exchange regulations look on helplessly	 because law cannot operate in a vacuum and it is notorious that in such cases evidence is not easy to obtain. [761 G H; 762A] 20. It is difficult to hold that by the issue of rights shares the Directors of NIIL 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 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 rights 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 the interests of 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. [782 A E] Howard Smith Ltd. vs Ampol Petroleum Ltd. [1974] A.C. 821	 874	 Punt vs Symons & Fraser vs Whalley [71] E.R. 361 Piercy vs Mills 	 Hogg vs Cramphorn 	 260 referred to 21. (i) The Directors have exercised their power for the purpose of preventing the affairs of the company from being brought to a grinding halt	 a consumption devoutly wished for by Coats in the interest of their extensive world wide business. [784 C] (ii) The mere circumstance that the Directors derive benefit as shareholders by reasons of the exercise of their fiduciary power to issue shares	 will not vitiate the exercise of that power. [785 E] (iii) The test is whether the issue of shares is simply or solely for the benefit of the Directors. If the shares are issued in the larger interest of the 708 company that decision cannot be struck down on the ground that it has incidentally benefited the Directors in their capacity as share holders	 [786 C] In the instant case the Board of Directors did not abuse its fiduciary power in deciding upon the issue of rights shares. [786 D] Harlowe 's Nominess Pvt. Ltd. vs Woodside (Lakes Entrance) Oil Company No. Liability & Anr. (121) CLR 483	 485	 Trek Corporation Ltd. vs Miller et al (33) DLR 3d. 288; Nanalal Zaver & Anr. vs Bombay Life Assurance Co. Ltd. 	 419 429; Hirsche vs Sims 	 660 661; Gower in Principles of Modern Company Law	 4th Edn. 578 referred to. 22. Under section 287 (2) of the the quorum for the meeting of the Board of Director was two. There can be no doubt that a quorum of two directors means a quorum of two directors who are competent to transact and vote on the business before the Board. [786 E] 23. (i) It is wrong to attribute any bias to Silverston for having acted as an adviser to the Indian shareholders in the Ketty meeting. Silverston is by profession a solicitor and legal advisers do not necessarily have a biased attitude to questions on which their advice is sought or tendered. Silverston 's alleged personal hostility to Coats cannot	 within the meaning of section 300 (1) of the 	 make him person "directly or indirectly	 concerned or interested in the contract or arrangement" in the discussion of which he had to participate or upon which he had to vote. [787 E G] (ii) The concern or interest of the Director which has to be disclosed at the Board meeting must be in relation to the contract entered or to be entered into by or on behalf of the company. The interest or concern spoken of by sections 299 (1) and 300 (1) cannot be a merely sentimental interest or ideological concern. Therefore	 a relationship of friendliness with the Directors who are interested in the contract or arrangement or even the mere fact of a lawyer client relationship with such directors will not disqualify a person from acting as a Director on the ground of his being	 under section 300 (1) as "interested" Director. Howsoever one may stretch the language of section 300 (1) in the interest of purity of company administration	 it is next to impossible to bring Silverston 's appointment within the framework of that provision. [788 A C] The argument that Silverston was an interested Director	 that therefore his appointment as an Additional Director was invalid and that consequently the resolution for the issue of rights shares was passed without the necessary quorum of two disinterested Directors has no force. [788 D E] 709 Firestone Tyre and Rubber Co. vs Synthetics and Chemicals Ltd.	 [1971] 41 Company Case 377 distinguished. Silverston 's appointment as an Additional Director is not open to challenge on the ground of want of agenda on that subject. Section 260 of the preserves the power of the Board of Directors to appoint additional Directors if such a power is conferred on the Board by the Articles of Association of the Company. Article 97 of NIIL 's Articles of Association confers the requisite power on the Board to appoint additional Directors. The occasion to appoint Silverston as an Additional Director arose only when the picture emerged clearly that the Board would have to consider the only other alternative for reduction of the non resident holding	 namely	 the issue of rights shares. It is for this reason that the subject of appointment of an Additional Director could not have	 in the state of facts	 formed a part of the agenda. [788 F.G; 789 A C] 25. (i) The power to issue shares is given primarily to enable capital to be raised when it is required for the purposes of the company but that power is not conditioned by such need. That power can be used for other reasons as for example to create a sufficient number of shareholders to enable the company to exercise statutory powers or to enable it to comply with legal requirements. [789 D E] Punt vs Symons and Co.	 ; Hogg vs Cramphorn	 ; Howard Smith vs Amphol	 ; (ii) The minutes of the Ketty meeting of October 20 21	 1976 saying that it was agreed that the rights issues	 with the Indian shareholders taking up the U.K. members ' rights	 would be considered provided it was demonstrated by NIIL that "there is a viable development plan requiring funds that the expected NIIL cash flow cannot meet"	 cannot also justify the argument that the power of the Company to issue rights shares was	 by agreement conditioned by the need to raise additional capital for a development plan. [790 H; 791 A] (iii) In the instant case the rights shares were issued in order to comply with legal requirements which apart from being obligatory as the only viable course open to the Directors	 was for the benefit of the company since	 otherwise	 its developmental activities would have stood frozen as of December 31	 1973. The shares were not issued as a part of takeover war between the rival groups of shareholders. [790 B C] 26. It is not true to say	 as a statement of law	 that Directors have no power to issue shares at par	 if their market price is above par. These are primarily matters of policy for the Directors to decide in the exercise of their discretion and no hard and fast rule can be laid down to fetter that discretion. Such discretionary powers in company administration are in the nature of fiduciary powers and must be exercised in faith. Mala fides vitiate the exercise of such discretion. [791 E & G] Hilder and Others vs Dexter 	 480 referred to. The definition of 'private company ' and the manner in which a 'public company ' is defined ("public company means a company which is not a private 710 company") bear out the argument that these two categories of companies are mutually exclusive. But it is not true to say that between them	 they exhaust the universe of companies. A private company which has become a public company by reason of section 43A	 may continue to retain in its articles	 matters which are specified in section 3(1)(iii) and the number of its members may be or may at any time be reduced below 7. [810 H; 811 A B] (i) A section 43A company may include in its articles as part of its structure	 provisions relating to restrictions on transfer of shares	 limiting the number of its members to 50	 and prohibiting an invitation to the public to subscribe for shares	 which are typical characteristics of a private company. The expression 'public company ' in section 3(i)(iv) cannot therefore be equated with a 'private company ' which has become a public company by virtue of section 43A. [811 D E] (ii) A section 43A company can still maintain its separate corporate indentity qua debts even if the number of its members is reduced below seven and is not liable to be wound up for that reason. [811 F] (iii) A section 43A company can never be incorporated and registered as such under the . It is registered as a private company and becomes	 by operation of law	 a public company. [811 G] (iv) The three contingencies in which a private company becomes a public company by virtue of section 43A (mentioned in sub sections (1)	 (1A) and (1B) read with the provisions of sub section (4) of that section) show that it becomes and continues to be a public company so long as the conditions in sub sections (1)	 (1A) or (1B) are applicable. The provisos to each of these sections clarify the legislative intent that such companies may retain their registered corporate shell of a private company but will be subjected to discipline of public companies. When necessary conditions do not obtain	 the legislative device in section 43A is to permit them to go back into their corporate shell and function once again as private companies	 with all the privileges and exemptions applicable to private companies. The proviso to each of the sub sections of section 43A clearly indicates that although the private company has become a public company by virtue of that section	 it is permitted to retain the structural characteristics of its origin	 its birthmark. [811 H 812 A B] (v) Section 43A when introduced by Act 65 of 1960 did not adopt the language either of section 43 or of section 44. Under section 43 where default is made in complying with the provisions of section 3(1)(iii) a private company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act	 and this Act shall apply to the company as if it were not a private company. Under section 44 of the Act	 where a private company alters its Articles in such manner that they no longer include the provisions	 which under section 3(1)(iii) are required to be included in the Articles in order to constitute it a private company	 the company "shall as on the date of the alteration cease to be a private company". Neither of the 711 expression	 namely	 "This Act shall apply to the company as if it were not a private company" (section 43) nor that the company "shall. cease to be a private company (section 44) is used in section 43A. If a section 43 A company were to be equated in all respects with a public company	 that is a company which does not have the characteristics of a private company	 Parliament would have used language similar to the one in section 43 or section 44	 between which two sections	 section 43A was inserted. If the intention was that the rest of the Act was to apply to a section 43A company "as if it were not a private company"	 nothing would have been easier than to adopt that language in section 43A; and if the intention was that a section 43A company would for all purposes "cease to be a private company"	 nothing would have been easier than to adopt that language in section 43A. [812 E H; 813 A] (vi) A private company which becomes a public company by virtue of section 43A is not required to file a prospectus or a statement in lieu of a prospectus. [813 C] After the Amending Act 65 of 1960 these distinct types of companies occupy a distinct place in the scheme of our : (1) private companies (2) public companies and (3) private companies which have become public companies by virtue of section 43A	 but which continue to include or retain the three characteristics of a private company. Private companies enjoy certain exemptions and privileges which are peculiar to their constitution and nature. Public companies are subjected severely to the discipline of the Act. Companies of the third kind like NIIL	 which become public companies but which continue to include in their articles the three matters mentioned in clauses (a) to (c) of section 3(1)(iii) are also	 broadly and generally	 subjected to the rigorous discipline of the Act. They cannot claim the privileges and exemptions to which private companies which are outside section 43A are entitled. And yet	 there are certain provisions of the Act which would apply to public companies but not to section 43A companies. [813 D; 814 A C] There is no difficulty in giving full effect to clauses (a) and (b) of section 81(1) in the case of a company like NIIL	 even after it becomes a public company under section 43A. Clause (a) requires that further shares must be offered to the holders of equity shares of the Company in proportion	 as nearly as circumstances admit	 to the capital paid up on these shares	 while clause (b) requires that the offer further shares must be made by a notice specifying the number of shares offered and limiting the time	 not being less than fifteen days from the date of the offer	 within which the offer	 if not accepted will be deemed to have been declined. [815 H; 816 A B] The provision contained in clause (c) cannot be construed in a manner which will lead to the negation of the option exercised by the company to retain in its articles the three matters referred to in section 3(1)(iii). Both these are statutory provisions and they are contained in the same statute. They must be harmonised	 unless the words of the statute are so plain and unambiguous and the policy of the statute so clear that to harmonise will be doing violence to those words and to that policy. The policy of the statute if any 712 thing	 points in the direction that the integrity and structure of the section 43 A proviso companies should	 as far as possible not be broken up. [817 E F] Park vs Royalty Syndicates and Re Pool Shipping Co. Ltd. referred to. Palmer 's Company Law 22nd. I para 12 18 Gower 's Company Law 4th End p. 351 referred to. When section 43A was introduced by Act 65 of 1960	 the legislature apparently overlooked the need to exempt companies falling under it	 read with its first proviso	 from the operation of clause (c) of sec. 81(1). That the legislature has overlooked such a need in regard to other matters	 in respect of which there can be no controversy	 is clear from the provisions of sections 45 and 433(d) of the . Undar section 45	 if at any time the number of members of a company is reduced	 in the case of a public company below seven	 or in the case of a private company below two	 every member of the company becomes severally liable	 under the stated circumstances	 for the payment of the whole debt of the company and can be severally sued therefor. No exception has yet been provided for in section 45 in favour of the section 43A proviso companies	 with the result that a private company having	 say	 three members which becomes a public company under section 43A and continues to function with the same number of members	 will attract the rigour of section 45. Similarly	 under section 433(d) such a company would automatically incur the liability of being wound up for the same reason. [818 A D] While construing the opening words of section 81(1)(c) it has to be remembered that section 43A companies are entitled under the proviso to that section to include provision in their Articles relating to matters specified in section 3(1)(iii). The right of renunciation in favour of any other person is wholly inconsistent with the Articles of a private company. If a private company becomes a public company by virtue of section 43A and retains or continues to include in its Articles matters referred to in section 3(1)(iii) it is difficult to say that the Articles do not provide something which is otherwise than what is provided in clause (c). The right of renunciation in favour of any other person is of the essence of clause (c). On the other hand	 the absence of that right is of the essence of the structure of a private company	 It must follow	 that in all cases in which erstwhile private companies become public companies by virtue of section 43A and retain their old Articles	 there would of necessity be a provision in their Articles which is otherwise than what is contained in clause (c). Considered from this point of view	 the argument as to whether the word "provide" in the opening words of clause (c) means "provide expressly" loses its significance. [820 B D] In the context in which a private company becomes a public company under section 43A and by reason of the option available to it under the proviso the word "provide" must be understood to mean "provide expressly or by necessary implication". The necessary implication of a provision has the same effect and relevance in law as an express provision has	 unless the relevance of what is necessarily implied is excluded by the use of clear words. [820 E F] 713 The right of renunciation is tentamount to an invitation to the public to subscribe for the shares in the company and can violate the provision in regard to the limitation on number of members. Article 11	 by reason of its clause (iv) prevails over the provisions of all other Articles if there is inconsistency between it and any other Article. [821 C] 28. Clause (c) of section 81(1) of the apart from the consideration arising out of the opening words of that clause	 can have no application to private companies which have become public companies by virtue of section 43A and which retain in their Articles the three matters referred to in section 3(1)(iii) of the Act. In so far as the opening words of clause (c) are concerned they do not require an express provision in the Articles of the Company which otherwise than what is provided for in clause (c). It is enough	 in order to comply with the opening words of clause (c). that the Articles of the Company contain by necessary implication a provision which is otherwise than what is provided in clause (c). Articles 11 and 50 of NIIL 's Articles of Association negate the right of renunciation. [821 D F] 29. The right to renounce shares in favour of any other person	 which is conferred by clause (c) has no application to a company like NIIL and	 therefore	 its members cannot claim the right to renounce shares offered to them in favour of any other member or members. The Articles of a company may well provide for a right of transfer of shares by one member to another	 but that right is very much different from the right of renunciation	 properly so called. [821 G H] Re Poal Shipping Co. Ltd. referred to. 30. A change in the pro rata method of offer of new shares is necessarily violative of the basic characteristics of a private company which becomes a public company by virtue of section 43A. To this limited extent only	 but not beyond it	 the provisions of sub section (1A) of section 81 can apply to such companies. [822 F] 31. The following propositions emerge out of the discussions of the provisions of FERA	 Sections 43A and 81 of the and of the Articles of association of NIIL: (1) The Holding Company had to part with 20% out of the 60% equity capital held by it in NIIL; [822 H] (2) The offer of Rights shares made to the Holding Company as a result of the decision taken by Board of Directors in their meeting of April 6	 1977 could not have been accepted by the Holding Company; [822 H; 823 A] (3) The Holding Company had no right to renounce the Rights shares offered to it in favour of any other person	 member or non member; and [823 B] (4) Since the offer of Rights Shares could not have been either accepted or renounced by the Holding Company	 the former for one reason and 714 the latter for another	 the shares offered to it could	 under article 50 of the articles of association	 be disposed of by the directors	 consistently with the articles of NIIL	 particularly article 11	 in such manner as they thought most beneficial to the Company. [822 B C] 32. These propositions afford a complete answer to the respondents ' contention that what truly constitutes oppression of the Holding Company is not the issue of Rights Shares to the existing Indian shareholders only but the offer of Rights Shares to all existing shareholders and the issue thereof to existing Indian shareholders only. [823 D] 33. It was neither fair nor proper on the part of NIIL 's officers not to ensure the timely posting of the notice of the meeting for 2nd May so as to enable Sanders to attend that meeting. But there the matter rests. Even if Sanders were to attend the meeting	 he could not have asked either that the Holding Company should be allotted the rights shares or alternatively	 that it should be allowed to "renounce" the shares in favour of any other person	 including the Manoharan group. The charge of oppression arising out of the central accusation of non allotment of the rights shares to the Holding Company must	 therefore fail. [823 H; 824 A B]