15. The directors of a company bought shares from ‘A’. They disclose to him that negotiations were conducted for the sale of all the company’s shares at higher price than they were to pay to “A”. A sued to have the sale set aside will he succeed.

Facts of the Case

The directors of a company purchased shares from ‘A’. Before completing the transaction, they disclosed that the company’s shares were being negotiated for sale at a higher price than what they were paying ‘A’. ‘A’ claims that this constitutes unfair conduct and seeks to have the sale set aside, alleging that the directors acted in breach of trust and failed to exercise fair dealing. The dispute raises questions regarding directors’ duties, disclosure obligations, and the enforceability of contracts executed under potentially misleading circumstances.

Issues in the Case

1. Whether the directors’ disclosure of higher negotiation prices affects the validity of the share sale.
2. Whether ‘A’ can set aside the sale on the grounds of unfair dealing or misrepresentation.
3. The scope of fiduciary duties owed by directors to parties outside the company.
4. Applicability of equitable principles to protect ‘A’ in this transaction.

Legal Principles Covered to Support Case Proceeding and Judgements

• Fiduciary Duties of Directors: Directors are obliged to act in the best interests of the company and must not exploit their position for personal gain.
• Equity and Undue Influence: Courts may intervene where one party possesses superior knowledge or uses a position of power to influence contractual terms.
• Law of Contract Principles: Under Indian Contract Law, contracts entered under misrepresentation, fraud, or undue influence can be set aside.
• Case Reference: Bhagwandas Goverdhandas Kedia vs Girdharilal Parshottamdas (1966) – courts protect parties from contracts executed under unfair advantage.

Possible Judgement

The court is likely to evaluate whether the directors acted in breach of their fiduciary duties and whether ‘A’ was misled or disadvantaged in the transaction. If undue advantage or misrepresentation is established, the sale may be set aside. However, if full disclosure was made and ‘A’ willingly agreed to the terms, the sale may be upheld. The judgement would hinge on the balance between disclosure, consent, and fairness in the transaction.

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