176 SEBI & Corporate Laws - Reports [Vol. 154
29. In the present case we are concerned with the propriety of issue of additional
share capital by the Managing Director in his own favour. The facts of the case do
not pose any difficulty particularly for the reason that the Managing Director has
neither placed on record anything to justify issue of further share capital nor has
it been shown that proper procedure was followed in allotting the additional share
capital. Conclusion is inevitable that neither was the allotment of additional shares
in favour of Ramanujam bona fide nor was it in the interest of the company nor
was a proper and legal procedure followed to make the allotmentthe. The motive for
Th^ earlelfootrme,ent^ was^ mala fide,^ the^ only^ motive^ being^ to^ gain^ control^ of^ the^ company.^
aside.’^ in^ our^ view,^ the^ entire^ allotment^ of^ shares^ to^ Ramanujam^ has^ to^ be^ set^
(Emphasis
supplied)
In
Firestone Tyre & Rubber Co.(
supra),
it
was
observed:
‘Section 300 of the Companies Act, 1956 , embodies, just as section 91 B of the Indi-
an Companies Act, 1913 , did, the general rule of equity (see Pratt (T.R.) (Bombay)
Ltdbe. v. M.T. Ltd. [^1938 ] 8 Comp. Cas. 137. The clearest exposition of this rule is to
ca^ sfe,ound^ in^ Aberdeen Rly.^ Co.^ v.^ Blaikie.^ [^1854 ]^1 Macq.^461 -^471 -^72 (H.L.).^ In^ that^
Lord Cranworth said:
“A corporate body can only act by agents and it is course the duty of those agents
so to act as best to promote the interests of the corporation whose affairs they are
conducting. Such agents have duties to discharge of a fiduciary nature towards
their
principal.
And it is a rule of universal application, that no one, having such
duties to discharge, shall be allowed to enter into engagements in which he has, or
can have, a personal interest conflicting, or which possibly may conflict, with the
interest of those whom he is bound to protect.
So
strictly
is
this
principle
adhered
to,^
that
no
question
is
allowed
to
be
raised
as
to
the
fairness
or
unfairness
of
a
contract^
so
entered
into.
It
obviously
is,
or
may
be,
impossible
to
demonstrate
how^
far
in
any
particular
case
the
terms
of
such
a
contract
have
been
the
best
for
the^
hap^ ipnetnerest^ of^ cestui que^ trust,^ which^ it^ was^ possible^ to^ obtain.^ It^ may^ sometimes^
estate^ that^ the^ terms^ on^ which^ a^ trustee^ has^ dealt^ or^ attempted^ to^ deal^ with^ the^
have^ or^ interests^ of^ those^ for^ whom^ he^ is^ a^ trustee,^ have^ been^ as^ good^ as^ could^
bette^ r.been^ obtained^ from^ any^ other^ person,^ they^ may^ even^ at^ the^ time^ have^ been^
But still so inflexible is the rule that no inquiry on that subject is permitted.”
Though this was a case from Scotland, the rule of English law is the same, for,
as observed by Swinfen Eady. L.J., in Transvaal Lands Company v. New Belgium
(Transvaal) Land and Development Companytrine [^1914 ] 2 Ch. 488 , 502 (C.A.), the doc-
ther^ erests^ on^ such^ obvious^ principles^ good^ sense^ that^ it^ is^ difficult^ to^ suppose^ that^
could be any system of law in which it would not be found, In Transvaal
Land Company’s case it was held at page 503 that:
“Where a director of a company has an interest as shareholder in another company
or is in a fiduciary position towards, and owes a duty to, another company which
is
proposing
to
enter
into
engagements
with
the
company
of
which
he
is
a
director,
he^
is
in
our
opinion
within
this
rule.
He has a personal interest within this rule or
owes a duty which conflicts with his duty to the company of which he is a director.
It is immaterial whether this conflicting interest belongs to him beneficially or as
trustee for others.”This rule was characterised by Lord Cairns L.C. in Parker v. McKenna [1874] LR
10 Ch. App. 96, 118, as not a technical or arbitrary rule but a rule founded upon