NEW DELHI
(Dated _____November,
2001)
Present: 1. Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian,
Vice chairman
AND
In the matter of Smt. Namita
Gupta and Ors.
Versus
M/S Cachar Native Joint
Stock Company Limited and Ors.
PETITIONERS:
1. Smt. Namita
Gupta
2. Shri Somnath
Ray
3. Shri Pradip
Kumar Roy
4. Shri Ranendra
Kumar Gupta
5. Dr. Bhaskar
Madhab Gupta
6. Shmt. Rekha
Gupta
7. Shmt. Lena
Gupta
8. Shmt. Anita
Das Verma
9. Shri B.C.
Gupta & Sons Ltd.
10. Shri Ramesh Kumar Tusnial
11. Shri Bithal Das Tusnial
12. Shri Sriratan Tusnial
13. Shri Pradip Tusnial
14. Shri Pravin Tusnial
15. Shri Rakesh Tusnial
16. Shri Brij Ratan Tusnial
17. Shri Ananta Kumar Paul
RESPONDENTS:
1. Cachar Native
Joint Stock Co. Ltd.
2. Shri Hamir
Kumar Roy Chowdhury
3. Shri Braja
Mohan Gupta
4. Shri
Dibyajyoti Narayan Dutta
5. Shri
Baddhadeb Sen
6. Shri Basudeb
Gupta
7. Shri Subha
Mohan Deb
8. Shri Ajit
Kumar Goswami
9. Surma Valley
Stock Limited
10. Shri Bibhas Chandra Gupta
Present on behalf of
parties:
1. Shri Sudipto Sarkar,
Sr. Advocate
.. for petitioners
2. Shri Sanjib Banerjee,
Advocate
.. for petitioners
3. Ms. Reema Bhandari
Chaterjee
.. for petitioners
4. Shri A.K. Ganguly, Sr.
Advocate
.. for respondents
5. Shri A. Bhattacharjee,
Advocate
.. for respondents
(Date of final hearing:
3.7.2001)
S. BALASUBRAMANIAN:
1. This petition
is in sequence to an earlier petition CP No.8
of 1998 filed by the petitioners alleging acts of oppression and mismanagement in the
affairs M/S Cachar Native Joint Stock Company Limited ( the company) filed under Section
397/398 of the Companies Act, 1956 ( the Act). The
main issue involved in that petition was to decide as to which group of
shareholders- whether the petitioners or the respondents- controlled the majority voting
power in the company. Considering the nature
of the shareholding, this Bench by an order dated 1st June, 1999 directed that the company should convene an EOGM to elect
directors. This order was challenged by both the parties before the Gauhati High Court
which upheld the order of this Bench. This Bench also appointed Shri Justice J.M.
Srivastava ( Retired ) to preside over the meeting that was convened on 29.11.1999. In the
EOGM, the respondents had proposed the
election of the then 7 directors while the petitioners had proposed election of 6
directors in place of 6 existing directors. In
that meeting, according to the report of the Chairman, 6 of the existing directors had
been elected. Thereafter, the petitioners
filed CA 302 of 1999 challenging the result of the election on various grounds. Considering the grounds of challenge, this Bench
passed an order on 10th April, 2000 setting aside the results of the election
and declaring that the directors proposed by the petitioners had been elected as directors of the company. It was also directed that the Board of Directors
of the company should hand over the Board to the directors whom this Bench had declared as
elected, within a period of 10 days from the date of receipt of that order. The said order
was challenged on an appeal before the Gauhati High Court which passed an interim order on 5.5.2000 directing that the status quo as on
that date should be maintained.
2. In the present
petition, the petitioners have raised mainly
two issues – one relating to the sale and transfer of 2000 shares held by the company
in one M/S Surma Valley Stock Limited ( 9th respondent) and increase
in the paid up capital of the company by
accepting unpaid amount on the of 400 shares
held by M/S Surma in the company. In
addition, they have also sought for handing over of the assets and properties of the company to the Board consisting the
petitioners’ group as directors in terms of the order of this Bench dated 4th
April, 2000.
3. Shri Sarkar,
Sr. Advocate appearing for the petitioners submitted: The entire issue in the earlier
petition CP No.8 of 1998 related to the control of the company and the composition of the
Board. The CLB, considering the facts and
circumstances of the case directed that the composition of the Board should be decided by
the general body and accordingly an EOGM was held. Even
in that EOGM, the respondents manipulated the results with a view to gain majority on the
Board. However, on an examination of the
proceedings of that meeting, the CLB declared that the persons representing the
petitioners were elected as directors in that meeting.
Even though the respondents have appeal against that order, apprehensive of their
loosing control of the company, the respondents have, by virtue of the interim order of
the Gauhati High Court which ordered the maintenance of status quo, taken various decisions solely with a view to
usurp the control of the company. They
increased the paid up capital of the company, sold the shares held in Surma Valley Stock Limited which had
substantial shares in the company and have also decided to issue duplicate certificates in
regard to shares which are not operational. Implementation
of all these decisions straightway created a new majority and as such would tantamount to
a grave act of oppression against the petitioners.
4. Elaborating the
initial submissions, Shri Sarkar submitted: M/S Surma held 400 shares in the company which
were partly paid of Rs 10 per share right
from 1936. No call was ever made on these shares to pay the balance of Rs.40/- due on
these shares. Since as per the decision of this Bench in CP 8 of 1998, voting rights in
respect of partly paid shares would be restricted only to the extent of its share in the
paid up capital of the company in terms of Section 87(1)(b) of the Act. During the proceedings in CP 8 of 1998, the
respondents had disclosed that M/S Surma had already remitted the balance of unpaid money
of Rs.40/- per share. The company could not
have accepted this amount without any call and even otherwise, by an order dated 26.6.98,
this bench had restrained the company from increasing its paid up capital. The very
purpose of accepting the money, when the restraint order was in force was to increase the voting power of the shares held by
M/S Surma. The CLB in its order dated
1.8.1999 has clearly recorded that the company had not adduced evidence to show that the
company was in need of funds and it had also observed that if the paid up capital was
increased with a view to gain voting rights, then, such an act is an act of oppression. In view of this, the CLB had restrained the
company from increasing the paid up capital till the EOGM as ordered was held. Further it
is also doubtful whether the company had received the money from M/S Surma before the
restraint order was passed by this Bench on 23.6.1998 since in the affidavit sworn on
21.1.1999 by the respondents as at Page 188 of the petition, this amount is not reflected. It now transpires that on 30th
November, 1999 i.e. a day after the EOGM was held on 29.11.1999, the company had accepted the unpaid portion of Rs.16,000 i.e.
Rs.40/- per share on 400 shares held by M/S Surma. This was done by the Board comprising
of the respondents allegedly elected on 29.11.1999 only with a view to increase the total
voting power in the company. The malafide
intention of the respondents would be evident from the subsequent events as elaborated
later. This decision of the Board is not only
oppressive to the petitioners but also illegal and void in as much as this Board could not
have taken any decision in respect of the affairs of the company in view of the order of
this Bench holding that they were not validly elected and only the persons should be from
petitioners’ group were validly elected in the EOGM on 29.11.1999. Therefore, the increase in the paid up capital on
these 400 shares should be declared as null and void.
5. He further
submitted: Having increased the paid up capital by making shares held by M/S Surma fully
paid, the respondents had engineered to hand over the control of M/S Surma to some unknown
persons. The company held 2000 shares in M/S
Surma. Even though the paid up capital of
Surma is 7027 shares of Rs.10/- each, more than 3227 shares are dormant and the persons
holding the shares are either dead or untraceable. Therefore,
the effective active shares were only 3800. This
company with 2000 shares was having effective control over M/S Surma and the Board of M/S
Surma was being controlled by the company. Now
by sale of these shares held in Surma, the control of Surma has been handed over to a
unknown person who will be in a position now to control the voting right rights on 400 shares held by Surma in the company. These 400 shares which have now become fully paid
will determine the control of the company and therefore this transfer had been effected
only to reduce the majority of the petitioners in the company into minority and to create
a new majority. Further, these 2000 shares
were being held by the company right from incorporation of Surma in 1936 and also forms
part of the substantial asset of the company which could not have been sold without
general body’s approval. Therefore, the transfer of these 2000 shares in Surma should
be held to be oppressive to the petitioners and therefore be declared as null and void.
6. He further
submitted: Having illegally gained control of Surma and through that the control of 400
shares in the company, the respondents have further engineered to issue duplicate
certificates in respect of many shares, the holders of which are unknown. The company has issued an advertisement on 23rd
December, 2000 stating that in respect of a large number of shares, duplicate certificates
have been sought. No details have been
furnished as to who are the shareholders who have applied for duplicate certificates
especially when substantial shares in the company are dormant. Therefore, the company should be restrained from
issuing any duplicate certificates.
7. Summing up his
arguments, Shri Sarkar submitted that in the EOGM held on 29.11.99, the majority of the
petitioners had been established and in terms of the later
order of this Bench, it is the petitioners’ group which should control the
Board. However, by virtue of the interim of
the Gauhati High Court, the respondents have taken decisions relating to the matters which
would completely upset the shareholding position of the parties resulting in the
petitioners being reduced to minority. He also pointed out that the oppressive manner in
which the respondents are acting is evident from the fact that the respondents have not
registered 177 shares lodged by the petitioners for registration of transfer as early as
in 1998 till today. Therefore, all the
prayers sought for should be granted including direction to the company to register these
shares.
8. Shri Ganguly,
Sr. Advocate appearing for the respondents submitted: This petition is misconceived and is a process of abuse of this Board. The petitioners
had already raised similar issues in CA 184 of 2000 and by an order dated 19.11.2000, this
Bench had declined to pass any order on that application. Further in the last para of that
order, the CLB has specifically recorded that the petitioners would have liberty to
approach this Board with a fresh application only after seeking clarification from Gauhati
High Court or after the disposal of the appeal before the High Court. However, the
petitioners have filed this petition without doing so.
Therefore, this petition itself is not maintainable.
9. On merits he
submitted: In relation to acceptance of money from Surma towards the party paid shares and
increasing the paid up capital of the company, it is to be noted that in its order dated 1st
june 99, the Bench had restrained the company
from increasing the paid up capital only up to the holding of the EOGM on 29th
November, 1999. M/S Surma had remitted this money as early as on 21.7.1998 and therefore
in the Board Meeting held on 30.11.1999, the shares held by Surma were made fully paid.
Therefore, the company had not acted in
violation of the order of this Bench. Further,
it is not that the company had issued further shares in exclusion of the petitioners. The unpaid money on the shares can lawfully called
up as the same is due to the company. The
petitioners’ group having been in control of the company for a long time should have
by themselves called up this money long time back. No
legal act done by the company could be considered to be oppressive. Therefore, there is no
cause of action for the petitioners to allege oppression as far as this issue is
concerned. In so far as sale of 2000 shares
is concerned, according to the admission of the petitioners themselves, Surma does not
have any business activities. Therefore the
company is not benefited in any way in holding on these shares and therefore the Board of
Directors decided to sell 2000 shares held in Surma and the sale cannot be in any way
considered to be an act of oppression against the petitioners. Further, the company was in
need of funds and therefore in a Board Meeting held on 19.7.2000, these 2000 shares were
sold to 7 individual buyers for valuable consideration.
As far as issue of duplicate share certificates are concerned, the company is bound to issue the duplicate
certificates as and when a shareholder on valid grounds applies for the same. The
contention of the petitioners that many of the shares of the company are dormant and
shareholders are not known does not mean that such shares would always remain dormant and
no shareholder would like to make it active. Since
the company is duty bound to issue the duplicate certificates, no motive could be
attributed to the respondents. In regard to registration of transfer of 177 shares, this
Board had observed in it order dated 1.6.99, that the instruments of transfer were
invalid. If so the company cannot act on invalid instruments and as such the petitioners
cannot raise any grievance on this score.
10. Summing up his arguments,
Shri Ganguly submitted that this petition is nothing but a fraud and a waste of public
time. The decisions taken by the Board in the interest of the company cannot be questioned
by any shareholder as acts of oppression. Whether
the status quo order would mean only the composition of the Board or in regard to all the
activities of the company is a matter to be decided by the Gauhati High Court and not by
this Board. Therefore he submitted that this petition should be dismissed as not
maintainable.
11. We have considered the
pleadings and arguments of the counsel. The
complaint of the petitioners are two fold. One
is that the acts complained of are oppressive and the other is that the same is in
violation of the order of the Gauhati High Court. However,
Shri Sarkar stressed more on the allegations of oppression on the ground that the acts
complained of were with a view to gain majority control of the company and to reduce the
petitioners into minority. It is to be noted
that a war of gaining control over the company had been going on for quite some time as is
evident from the proceedings in CP 98 of 2000. With
a view to ascertain the majority which would be reflected in the election of directors,
this Bench had directed holding of an EOGM on 29.11.1999.
Even though in that meeting as per the report of the independent Chairman appointed
by this Bench, the respondents had established their majority, yet, later on this Bench
found that it is the petitioners who had established their majority in that meeting. This order was challenged in the Gauhati High
Court which had ordered maintenance of status quo. The
petitioners filed an application CA 184 of 2000 in CP 8 of 1998 challenging the acts
complained of in this petition on the ground that the respondents in the capacity as
directors of the company could not have taken these decisions since this Board has held
that it is the petitioners’ group which constituted majority on the Board. This application was disposed of giving liberty to
the petitioners to seek clarification from the High Court as to the import of the status
quo order. Under these circumstances, the
respondents have now urged dismissal of this petition on the ground of resjudicata. Shri Sarkar rightly pointed out that this petition
has been filed on the ground of oppression since the decisions taken by this Board as
complained of in the petition could result in conversion of majority into minority and
creation of new majority. We do agree that
in the earlier application the challenge was more towards illegality of the action while
in the present petition the petitioners have alleged oppression. Further, in the earlier order, this Board has not
given any findings on the allegations to act as restjudicata. Therefore, this petition is
maintenance notwithstanding the earlier order.
12. As this Board had noted in
its order dated 1st June, 1999 in CP No.8 of 1998, the shareholding in the
company is so diverse with so many shares being dormant, it was difficult to determine as
to who controls majority shares in the company. It
was that reason that prompted this Board to order holding of an EOGM which would determine
the majority control in the company. In the
order dated 10th April, 2000, this Board found that the petitioners’ group
effectively controls more than 50% shares. Even
though, this order is under challenge, yet, that finding would continue to prevail till
negatived by the High Court. Therefore, if we find that the action of the Board of
Directors has resulted in creating a new majority by the acts complained of in the
petition, then, the petitioners would be justified in alleging oppression.
13. As far as the 400 shares
held by Surma is concerned, the admitted position is that right from 1936, these shares
were partly paid to the extent of Rs.10/- per share as against the face value of Rs.50/-.
Since, many of the shares in the company were dormant, the petitioners apprehended that
the then Board of Directors might make the shares fully paid with the view to secure more
voting rights, and as such they sought for restraining the company from increasing the
paid up capital in CP 8 of 1998 and the prayer was granted in the order dated 23.6.98.
However, later the respondents in that petition submitted that Surma had remitted Rs
16,000, being the balance on the shares. In its order dated 1st June 1999, this
Board restrained the company from increasing the paid up capital till the EOGM on 29th
November 1999. Now it is seen that the partly paid up
shares had been made fully paid up in
the Board meting on 30.11.1999, that is on the next day of that meeting. The respondents have not produced any evidence to
show that the company had by a resolution of the Board called up the unpaid amount nor
have they furnished any evidence as to the date and mode of receipt of this money from
Surma. In the reply, it is stated that the amount was received on 21.7.98 which means the
company had accepted the money after the restraint order was passed on 23.6.98. Even
though that order related to increase in the paid up capital, the company should have
observed that order in spirit and should have declined to accept this amount. Further,
there is nothing on record that the company had called up this money at any time by a
resolution of the Board. In addition, as pointed out by Sarkar, even in the statement of
shareholding as on 21.1.99 furnished by the respondents at page 108 of the petition, the
receipt of this amount is not indicated. Therefore, not only the factum of receipt of this
amount is doubtful for want of full particulars, the manner
in which the shares were made fully paid immediately after the EOGM indicates that
the act of the respondents in this regard is not bonafide and has been done for an
ulterior purpose. Since the Boards of both the companies are controlled by the
respondents, this transactions of receipt and payment cannot be considered to be
independent of each. Thus the entire transaction appears to
be treated as malafide. This is evident from the subsequent event of sale of all
the 2000 shares held by this company in Surma by which the control of that company has
been given up. It clearly exhibits that by increasing
the paid up value of the shares held by Surma and handing over the control of Surma
by sale of these 2000 shares, the respondents have tried to create a new majority in the
company. It is worthwhile noting that the respondents have not furnished any details as to
the identity of the 7 persons who had purchased the shares and also the consideration at
which the shares were sold. If the justification for the sale of Surma is that it is dormant without having any business activities,
unless otherwise there has been some ulterior motive, no one would have purchased the
shares of such a dormant company. Non disclosure of these essential details gives rise to
a presumption that the transaction is not a bonafide one and cannot be considered to be
for the purposes of raising funds for the company. In
this connection, we may beneficially refer to the case of Tracstar Investments
Limited Vs. Gordon Woodroffe ( 87 CC 941 CLB).
In that case, one Shoe Speciality Private Limited (SSPL) held 5,00,000 shares in
M/S Gordon Woodroffe Ltd.(GWL). They were the
sole asset of SSPL. These 5 lakh shares were
relevant in deciding the majority in GWL. The majority shares in SSPL were held by one
group while the Board was controlled by the other group.
Both these groups held shares in GWL and were fighting for control of GWL. The Board of Directors of SSPL sold these shares
to some outsiders by which the majority shareholders of SSPL lost control over these
shares. This
was challenged under Section 111 of the Act on various grounds, one being the
motive behind the sale. This Board held that
not only the sale was in violation of the various provisions of the Act it was also in
breach of the fiduciary duties of the Board of Directors of SSPL and accordingly ordered rectification of the
Register of Members. This Board also directed that the consideration received of over
nearly Rs.55 lacs for the shares should be paid back to the purchasers of these shares. While the order of this Board was upheld by the
Division Bench of the Madras High Court in ( reported in 88 CC 471), it also
held that the sale was not a bona fide sale
but was a fraudulent transaction and as such
set aside the order relating to re-payment of the consideration to the purchasers. In the
present case, the malafide intention of the respondents is writ at large on the face of
the transaction. While the voting power of
Surma which was stagnant for over sixty years was increased thereafter its control was
handed over to unknown persons. In the
absence of the details of these persons, we have to draw adverse inference that these
persons owe allegiance to the respondents. If
so, by these transactions the respondents have created a new majority and as such is an
act of oppression against the petitioners. While
coming to this conclusion, we take note that till such time the Gauhati High Court decides
the appeal, the question of determination as to who has controlling voting powers in the
company – whether the petitioners or the respondents – cannot become conclusive
on the basis of the voting in the EOGM on 30.11.1999.
Yet, by these transactions, the voting power of the respondents has been
consolidated which itself is an act of oppression. Therefore
it is a fit case wherein the sale of 2000 shares to the 7 persons should be cancelled and
the shares restored in the name of the company. Since
the purchasers of these shares are not before us due to non disclosure of the names by the
respondents, we direct the company to furnish their names
and addresses by an affidavit within 15 days
from the date of receipt of this order after which notices will be issued to these
purchasers to show cause as to why the purchases made by them of these shares should not
be cancelled. After issue of notice and receipt of replies from these purchasers, this
matter will be further considered. As far as the paid up value of 400 shares in Surma is
concerned is concerned, since we have found that the same had been done only to increase
the voting power and not for any bonafide purposes, the company will not allow voting on
the shares beyond Rs 10 per share till the disposal of the appeal before the Gawhati High
Court, where after, the Board of the company will take a decision either to retain the
paid up value at Rs 50 or reduce it to Rs 10 after refunding the balance Rs 40 and effect
reduction in the share capital.
14. In so far as the
registration of 177 shares, since the stand of the respondents is that the transfer
instruments are defective, we direct the company to return the share certificates along
with the transfer instruments, if they are with the company, within 15 days from the date
of this order to the petitioners. The petitioners may relodge the same with proper
instruments of transfer. The company should register the transfer of these shares within 15 days of relodgement.
15. In so far as the issue of
duplicate certificates is concerned, considering the nature of shareholding in the company
and the controversies surrounding the
same, we direct the company to keep all the requests received for issue of duplicate
certificates pending, till the Gauhati High Court disposes of the appeal.
(S. Balasubramanian)
(A.K.
Banerji )