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On behalf of the respondents three answers were submit- ted. The first was that the section deals with the case of increase of capital by the directors beyond the authorised limit and as in the present case the new shares were issued within the authorized limit of capital, the section has no application. The second was that the terms of the section should be construed in a practical way and there was no difference between Regulation 42 in Table A of the Companies Act and section 105-C in respect of the scheme to offer the proportion of shares to the existing shareholders. It was argued that so long as they were offered "as nearly as circumstances admit" the directors had complied with the requirements of the section and therefore their action was not illegal. The third answer was that in fact the direc- tors had not committed any breach of the terms of section 105-C up to now and therefore their action cannot be held to be illegal. In view of my conclusion on the third point it is not necessary to ex- press any opinion on the first two answers submitted on behalf of the respondents. It seems to me that section 105-C, interpreted strictly as contended by the appellants, casts on the directors two obligations. They have to offer the shares issued to the shareholders on the register of the company and not to anyone else, and secondly, the offer must be in the same proportion to all the shareholders and there should be no discrimination amongst them. It is not con- tended that by the offer made by the directors to the share- holders there has been any discrimination amongst the share- holders on the register of the company. It was contended on behalf of the appellant that the directors had failed to offer all the shares resolved to be issued by them to the existing shareholders and therefore the requirements of the section had not been complied with. It was argued that the directors having resolved to issue 4,596 shares, they had to offer that whole lot at once to the shareholders on the register and the result of the offer made by them was to retain in their hands 272-4/5 shares. In my opinion, this contention is unsound. By their resolution of the 21st February, 1945, the directors resolved to issue 4,596 shares out of the authorized capital of the company. They have offered shares to the existing shareholders in the propor- tion of four new shares to five shares held by them. Inas- much as the offer does not absorb the whole lot of 4,596 shares I am unable to construe the offer as an offer of the whole lot at once to the existing shareholders. Unless the whole lot of shares in pursuance of the. offer could be accepted and taken up I am unable to consider the offer contained in the circular as an offer of the 4,596 shares. That however does not establish the contention of the appel- lants. I find nothing in the section to justify the conclu- sion that the directors must offer all the shares resolved to be issued in one lot to the shareholders. I can Conceive of. numerous cases where a limited company with a growing business does not require its capital to be called up at once. For instance, soon after a company is formed it may issue shares of, say a lakh of rupees required for the construction of the build- ings, and after a year when it requires further capital for payment of machinery etc. it can issue further shares. I do not think the section as worded prevents the directors from issuing shares to existing shareholders from time to time in that way. As noticed before, the object of the section is to prevent discrimination amongst shareholders and prevent the directors from offering shares to outsiders before -they are offered to the shareholders. So long as these two requirements are complied with, the action of the directors in selecting the time when they will issue the shares as also the proportion in which they should be issued is a matter left to their discretion and it is not the province.of the Court to interfere with the exercise of that discretion. This is of course subject to the general excep- tion that the directors are not to act against the interest of the company or mala fide. No such question arises in this case and therefore it is unnecessary to discuss that aspect of the situation. In my opinion therefore on this third ground this contention of the appellants should be rejected. The appeal therefore fails and is dismissed with costs. MAHAJAN J.--This is an appeal by special leave from the judgment and decree of the High Court of Judicature at Bombay (Chagla C.J. and Tendolkar J.) dated 11th March, 1948, confirming the judgment of the said High Court in its Original Jurisdiction (Bhagwati J.) dated 10th November, 1947.

not accepted, will be deemed to be declined; and after the expiration of such time, or on receipt of an intimation from the member to whom such notice is given that he de- clines to accept the shares offered, the directors may dispose of the same in such manner as they think most bene- ficial to the company."

This section was added to the Indian Companies Act in 1936.

The first question is whether the section contemplates increase of capital above the authorised limit, or only below the authorised limit. Learned Attorney General appear- ing for the company urges that the words further shares" must be read in conjunction with the words "decide to increase the capital of the company" and, so read, must mean shares which are issued for the purpose of increasing the capital beyond the authorised capital. He contends that section 105-C has no application to this case. Section 50 deals with, among other things, alteration of the conditions of the Memorandum of Association of the company by increasing its share capital by the issue of new shares. The very idea of alteration of the memorandum by the issue of new shares clearly indicates that it contemplates an increase of the share capital above the authorised capi- tal with which the company got itself registered. This increase can only be done by the company in a general meet- ing as provided in sub-section (2) of section 50. This increase above' the authorised limit cannot possibly be done by the directors on their own responsibility. Section 105-C, however, speaks of increase of capital by the issue of further shares. The words used are capital and not share capital and further shares and not new shares. It speaks of increase by the directors. Therefore, the section only contemplates such increase of capital as is within the competence of the directors to decide upon. It clearly follows from this that the section is intended to cover a case where the directors decide to increase the capital by issuing further shares within the authorised limit, for it is only within that limit that the directors can decide to issue further shares, unless they are precluded from doing even that by the regulations of the company. It is said that section 105-C becomes applica- ble after the company in a general meeting has decided upon altering its memorandum by increasing its share capital by issuing new shares. If the company at a general meeting has decided upon the increase of its share capital by the issue of new shares, then it is wholly inappropriate to talk of the directors deciding to increase capital, because the increase has already been decided upon by the company itself. Further, after the company has at a general meeting decided to increase its share capital by the issue of new shares, the increased capital becomes its authorised capital and then ii the directors under section 105-C decide to increase the capital by the issue of further shares, then this decision is nothing more than a decision to raise capital within the newly authorised limit. Final- ly, if section 105-C were to be held applicable to the case of an increase of capital above the authorised limit then such construction will lead to anomalous results so far as the companies which have adopted Table A, for the section is not consonant with Regulation 42 of Table A which, as will be shown hereafter, applies to increase of capital beyond the authorised limit. If the Legislature intended that section 105-C should apply to all companies in the matter of increase of capital above the authorised limit, then the simplest thing would have been to make Regulation 42 a compulsory regulation, instead of introducing a section which in its terms differs from Regulation 42 and which therefore makes the position of companies which have adopted Table A anomalous. It appears to me, therefore, for reasons stated above, that section 105-C becomes applicable only when the directors decide to increase capital within the authorised limit by the issue of further shares. In this view of the matter that section is clearly applicable to the facts of this case.

That section 105-C should be construed in the light of Regulation 42 in Table A of the Indian Companies Act, 1913;

(b) That in order to prevent absurdity and to give business efficacy to the section, the words "as nearly as circumstances admit" should be read into the section; and

(c) That in any event the directors have not contravened the provisions of the section even if the same be literally construed.

Each of these points requires serious consideration. As to the first point it should be remembered that section 105-C was introduced in the Act only in 1936. There is no counterpart of it in the English Act even now. Prior to 1936 there was no check on the powers of the directors to issue blocks of shares, within the authorised limit, to themselves or to their nominees, unless their powers were circumscribed by the Articles of Association. One of the mischiefs of the managing agency system which prevails in this country was that the managing agents, who usually dominated the board of directors, could, to secure their own position, induce the board to issue blocks of preference shares to the managing agents or their nominees. To check this mischief section 105-C was introduced in the Indian Act in 1936. As regards the increase of capital beyond the authorised limit it could only be done by the company. The shareholders could, while sanctioning such increase, protect themselves by giving special directions to the directors as to the mode of disposal of the new shares.. In the model Regulations set forth in Table A of the 1882 Act under the heading "Increase of Capital" are grouped three Regulations 26 to 98. Regulation 27 was in the following terms:

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 that time, or on the receipt of an intima- tion from the person to whom the offer is made that he declines to acccpt 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 shares held by persons entitled to an offer of new shares) cannot, in the opinion of the directors, be conveniently offered under this article." The words underlined are new and are not to be found in Regulation 27 of Table A of the 1882 Act. The scheme of the 1882 Act, as of our present Act, and the language used in the two regulations quoted above clearly indicate, to my mind, that they deal with that kind of increase of share capital which involves an alteration of the conditions of the memorandum which the company alone can do by issuing new shares. These Regulations do not purport to deal with in- crease of capital which is within the competency of the directors to decide upon. In that kind of increase of capi- tal beyond the authorised limits these regulations give the directors certain latitude, subject, of course, to any directions to the contrary that may be given by the resolu- tion of the shareholders in general meeting sanctioning such increase. The only difference between Regulation 27 of 1882 and Regulation 42 of our present Act is that under the last mentioned Regulation, in the absence of any direction to the contrary, the discretion of the directors has been widened by the introduction of the words underlined above. This company was incorporated in 1908 under the Act of 1882. It did not adopt the Regulations of Table A of the 1882 Act but article 45 of its Articles of Association proceeds more or less on the lines of Regulation 27 of Table A of the 1882 Act. The discretion given to the directors under article 45 is, therefore, obviously narrower than that left to the directors under Regulation 42 of Table A of the present Act. Then came section 105C in 1936. As already pointed out, that section deals with increase of capital within the authorised limit which the directors can decide upon without reference to the shareholders in a general meeting of the company. The legislature had before it both Regulation 27 of Table A of 1882 and Regulation 42 of Table A of the Act of 1913. It chose to adopt the language of Regulation 27 in prefer- ence to that of Regulation 42. The absence in section 105-C of the words I have underlined in Regulation 42 cannot but be regarded as deliberate. And I can conceive of very good reasons for this departure. In the case of increase beyond the authorised limit, that can be done only by the company in general meeting and the shareholders can protect them- selves by giving directions to the contrary and, therefore, subject to such directions a wider latitude may safely be given to the directors. But in the case of increase of capital within the authorised limit which the directors may do without reference to the shareholders the legislature did not think it safe to leave an uncontrolled discretion to the directors. The mischief sought to be remedied required this curtailing of the directors' discretion. In my judgment it is impossible to construe section 105-C in the light of Regulation 42 for several reasons. Regulation 42 and section 105-C do not cover the same field and cannot be said to be in pari materia. The omission of the underlined words was obviously deliberate. The difference in the language of the two provisions in the same statute cannot be overlooked as merely accidental. And lastly the reading of these words of Regulation 42 in section 105-C will frustrate what I con- ceive to be the underlying reason for the introduction of the section. In my judgment the first point urged by the learned Attorney-General which found favour with the Courts below cannot be accepted.