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3. Whether the shares in question have been issued in category C and they were ever changed to category D or could be changed to category D lawfully.

11. So far as the first question is concerned the writ petition had been filed on 24th September, 1990 and the process of the election and started on 1-9-1990 when the Notification for election was issued and the nominations were invited on 11-9-1990. The last date of deposit of proxy was 8-9-1990 and the petitioner had already filed the proxy forms which were issued to all the shareholders in accordance with the list of shareholders of category `D' of Sub-section (3)(a) of Section 4 of the Act as on 31-3-1990. On 15-9-1990 a Notification was again issued in Rajasthan Patrika informing about holding of special general meeting of the shareholders on 26-9-90 and the names of the two candidates, namely, the petitioner and respondent No. 3 were notified therein in between. On 22-9-1990 a new list of shareholders came to be made available which was sought to be acted upon by RFC as on 16-9-1999 which ran counter to the proxy forms issued. In this view of the matter after hearing both the parties court directed the elections to be conducted as scheduled in accordance with the Notification issued on 1-9-1990 ignoring the list of shareholders as on 16-9-1990 made available on 22-9-1990 because the elections were to take place only on the next day and arguments on merits were to consume long time coupled with the fact that courts were closed for Dasehara break. However, it was specifically mentioned in the order that the order is subject to be final disposal of the application petition. The elections were conducted and the petitioner had been declared elected. The petitioner's contention that election can be challenged by election petition, cannot be accepted. This writ can also not be dismissed as infructuous as elections had been conducted under the orders of the court and it was made specific that the same would be subject to the final disposal of this petition. Besides this, only questions of law are involved and for that reason also the writ petition cannot be dismissed on the ground of alternative remedy. Hence I proceed to examine the writ petition on merits.

(4) No instruments of proxy shall be valid unless it is in prescribed form and dated.

A perusal of the aforesaid provisions of law makes it clear that the management of the Financial Corporations had been given in the hands of the Board of Directors wherein a restriction has been imposed that there will be only one Director who represents the shareholders of the Financial Corporation belonging to category D, i.e., representing the individual shareholders. Category (A) shares are held by the State Government, of category (B) by the Reserve Bank, category (BA) by the Development Banks and category (C) by Scheduled Banks, Assurance Company including LIC of India which is established under S3 of the Life Insurance Corporation Act, 1956, Investment Trust Cooperative Banks or other Financial Institutions and the further restriction is that individuals i.e., parties otherwise than in categories A, B, BA and C would in no case be allocated more than 25% of the shares of the total number of the shares issued. Only the State Government had been given power under Sub-section (4) of Section 4. The task has been assigned to the Financial Corporation for allocating the shares among the parties referred to in Clause (c) or Clause (d) of Sub-section (3) of Section 4 and in case the shares allocated to any of the parties referred to in these two classes i.e., Clause (c) and Clause (d) of Sub-section (3) of Section 4 remained unsubscribed then they were required to be subscribed by the State Government. However, the State Government was further given powers to dispose of such shares to the parties which was eligible in the First Instance which means that the Legislature wanted the shares allotted in the first instance to be meant for the same category and even the State Government if held, unsubscribed shares and intended to subscribe them subsequently could not have subscribed to any other party except for whom they were meant. The only rider in such case is contained in Section 5 which puts restriction on the transfer of shares. A perusal of Section 5 makes it clear that further restriction was imposed on the Financial Corporation and it could not transfer its share to anyone else except the State Government, Reserve Bank (Development Bank) or any other Financial Institution or class of Financial Institution recognized in this behalf by the State Government. The only exception to it was that shares subscribed by the parties referred to in Clause (a) of Sub-section (3) of Section 4 could be freely transferable meaning thereby 25% shares allocated to the parties other than that referred to in categories A, B, BA and C can be transferred to any of the aforesaid categories but vice a versa is was not permissible, i.e., shares of categories A, B, BA and C could not be transferred to category D and obviously because firstly the number of shares allocated to this category were limited to 25% and secondly there was to be only one member elected from this category to Board of Directors. Thus the legal position is quite clear and in my opinion there is absolutely no ambiguity that the shares which have been allocated to any of the class, may be A, B, BA, and C, can, by no stretch of imagination, be transferred to category D and it is only if the shares allocated to any party would have remained unsubscribed in category C or category D, then too it was only the State Government who could subscribe them and later on dispose of to the party eligible to subscribe for it in the First Instance. Thus, even the State Government cannot dispose of to any category other than the one to whom it had been allotted in the First Instance. However, individuals in category D have been given a right to transfer their shares freely.

The directors may issue shares only for a proper purpose i.e. in the best interest of the company and an issue for an ulterior motive, such as altering the voting in the company or for serving self interest of the directors would be void.
The directors may issue shares only for a proper purpose i.e. in the best interest of the company and an issue for an ulterior motive, such as altering the voting in the company or for serving self interest of the directors would be void.

16. There is no dispute with the preposition of law mentioned above but they are not relevant and germane to the issue involved in the instant case in this writ petition, I have already stated hat this court would not enter into the history of transfers and has also nc concern with the initial wrong mentioning on the category of the shares but is only concerned with the process of the elections which have taken place for which it can be stated without fear of contradiction that process of elections had already started and no list of voters was made available us requried by law. The list produced by the petitioner as Ex. 1 has neither been finally issued nor verified and signed as a list which shows the true position of shareholders. The Board of Directors subsequently in its meeting which took place on 22-9-1990 taking decision of publishing a new list of shareholders was contrary to the spirit of Regulation 32. Even according to the general principles initial list of voters is required to be published before the nominations are called and the proxy forms are also to be issued or the basis of the list prepared. It is neither disputed nor can be disputed that a decision was taken in the meeting of the Board of Directors dated 22-9-1990 to prepare new list of shareholders entitled to vote. This was not just and permissible. Elections have been held on the basis of list Ex. 1 under the orders of the Court was also not proper election because that said list is neither according to the register nor in accordance with the marking given on the share certificates. The said list has also not been made available and wrongly issued prior to the elections. In my opinion therefore, the elections held on 26-9-1990, though under the orders of the court, were not proper elections and the same are liable to be set aside.