BEFORE THE COMPANY LAW BAORD, PRINCIPAL BENCH, NEW DELHI

                                                                                                            CP NO.86/2003

                                                                                    Present: Sh.K.C. Ganjwal,Member

In the matter of Companies Act, 1956 Section 397/398 and 399 read withSec.402 and 403.

                                                And

In the matter of

1.      Mr. Mahendra Sahai

2.      Mr. Ajit Sahai

3.      Mr. Arun Sahai

4.      Smt. Kamlawati                                                                        ..Petitioners

Vs

1.      M/s Dhruv Theatres and Productions Pvt. Ltd

2.      Mr. Ajit Singh

3.      Smt. Madhu Singh

4.      Ch. Ravinder Singh

5.      Mr. Sidharth Singh

6.      Mr. Nikhilesh Singh

7.      M/s Kailash Apartments Pvt. Ltd.                                             ..Respondents

 

Present on behalf of the parties

1.      Shri U.K. Chaudhary, Sr, Advocate                                          ..for petitioner

2.      Ms. Ranjana Roy Gawai, Advocate                                          ..for petitioner

3.      Shri H.L. Tikkoo, Sr. AdvocatE                                               ..for respondents

4.      Shri Kirat Nagra, Advocate                                                      ..for respondents

5.      Shri V.P. Singh, Advocate                                                        ..for respondents

6.      Ms. Jasmeet, Advocate                                                            ..for respondents

 

K.C. GANJWAL

 

O R D E R

 

  1. This Company petition NO.86/2003 has been filed by Mr. Mahendra Sahai and Ors against M/s Dhruv Theatre and Productions Pvt. Ltd. under Section 397/398 read with Section 402 and 403 of the Companies Act 1956.  M/s Dhruv Theatres and Productions Pvt. Ltd., the respondent company, having its registered. office at “Chand” Cinema Bldg, Trilok Puri, Delhi was incorporated on 26.10.1976 under the Companies Act, 1956.  The company is a private limited company limited by  shares.  The main object of the company was of acquiring land, premises to build, construct and run a cinema hall or place of amusement or entertainment.  The authorized share capital of the respondent was initially Rs.5 lakhs divided into 500 equity shares of Rs.1000 each as per the memorandum and articles of association of the company.  Subsequently, the authorized capital was increased to Rs.10 lakhs divided into 1000 shares of Rs.1000 each was which further increased to Rs.25 lakhs divided into 2500 shares of Rs.1000 each. 
  2. The learned counsel for the petitioner submitted:  The petitioner NO.1 Shri Mahendra Sahai, resident of T-34, Green Park Main, New Delhi-16 has been the Managing Director of the respondent company since 21.10.1978 to 1.3.2002, when he was illegally removed from the post of Managing Director by the respondent No.2 vide  purported form 32 dated 1.3.2002 filed with the Office of Registrar of Companies.  The petitioner No.1 is holding 120 shares of Rs.1000 of the respondent company. The petitioner NO.2 Shri Ajit Sahai is also a shareholder of the respondent company holding 36 shares of Rs.1000 each and belongs to Shri Mahendra Sahai Group, Petitioner NO.1.  The petitioner NO.3 Shri Arjun Sahai is also  a shareholder of the respondent company holding 25 shares of 1000 each and belongs to the same group of Mr. Mahender Sahai.  The petitioner No.4 Smt. Kamla Wati is also a shareholder holding 40 shares of Rs.1000 each.
  3. There are other members of the group who are holding 1 share each of the respondent company.  Thus the petitioner’s group holding 225 shares out of 977 shares fully paid which constitutes 23.03% of the total issued shares.
  4. The Learned Counsel submitted that the respondent NO.2 illegally and unlawfully appointed himself as managing director on 1.3.2002 in place of Shri Mahender Sahai, Petitioner No.1 without holding any meeting and seeking his resignation.  He also subsequently issued and allotted 1523 equity shares of Rs.1000 each to a company holding by himself and to his other family members, without giving any notice to other shareholders of the company and without holding any meeting of Board of Directors as per the provisions of the Companies Act, 1956.  The form No.2 filed with the ROC in respect of allotment of shares, the date of alleged allotment mentioned is 13.3.2002 whereas the same is dated 1.3.2002.  This shows that the said document is doctored and is false and fabricated.  The said act of the respondent updating the form No.2 with the Registrar of Companies even before the date of allotment speaks about the malafide and illegal intentions of the Respondent No.2 and falsehood of the documents and its contents.. 
  1. M/s Kailash Apartment Pvt. Ltd. Co. is a co-owned and controlled by R-2 with his family members.  Respondent NO.2 has illegally  allotted 1200 equity shares purportedly on 13.3.2002 to strengthen his shareholding.  The share allotment to R-2,3 5 and 7 was just entered in the books of accounts and no new funds were received in the company.  The allotment was effected by mere a book entries.  The balance sheet for the year ending 31.3.2002 filed in the Department of Income Tax does not form part of the record of ROC and this balance sheet was not signed by petitioner No.1 which shows the malafide on the part of Respondent’s group.  The company was incorporated on 26.10.1976 and purchased on perpetual lease a plot of land measuring 2880 sq. mtr from Delhi Development Authority for constructing and running a cinema Hall on the said land for Rs.7,17,000.  This lease deed was registered in favour of company on 1.12.1977.  The first of Board of Directors of the then management of the company did not have sufficient funds and the management of the company was changed and two families namely, family of Chaudhry Harpal Singh/Ajit Singh and family of Shri Mahendra Sahai jointly purchased all the shares of the company in the ratio of 3:1.  Even the directors were appointed in the same ratio of 3:1.  As on 21.10.1978 the composition of Board of Directors was as follows:-

1)      Shri Mahinder Sahai, Managing Director.

2)      Chaudhry Harpal Singh, Director

3)      Chaudhry Ajit Singh, Director (Finance)

4)      Smt. Madhu Singh, Director

  1. Subsequently, Shri Chaudhry Harpal Singh expired on 12.6.91 and Shri Ravinder Singh respondent No.4 was taken on Board of Directors.  Smt. Madhu Singh, resigned from Board of Directors on 1.9.95 and Shri Siddharth Singh was taken in her place.  It was submitted that during the last one and half years, Respondent No2 has illegally taken over as Managing Director of Respondent Company.  The petitioners No.1 has not received any notice of the meetings of the Board of Directors of the company which he is entitled to as Director.  Thus the petitioners are denied for participation in the affairs of the respondent company.  The respondent No.2 debited and his family members for an Indian traveling under the head Tours and Travels in company’s account.
  2. The cinema hall has been closed on 14.3.2002 and thereafter the management of the company has not called any Board Meeting to decide future course of action to be taken in the interest of the company.  The respondents have siphoned of the funds to the tune of Rs.1.71 crores for their personal expenses shown as cash in hand and also for buying cars etc.  It is submitted that no notice of the Board Meeting was ever given or produced or shown by the respondents.  It was admitted by the respondent even before the Hon’ble Board during the course of arguments and the same is recorded in the order dated 8.3.2004.  It was also submitted that by manipulation and illegal transaction, the petitioner group has been reduced in shareholding of 23.03% to the minority of 9%.  On the basis of admission that no notice of the Board Meeting was issued wherein Mr .Ajit Singh was appointed as Managing Director and further allotment 1523 shares to the respondent is illegal and without sufficient reason.
  3. The Learned Counsel for petitioner submitted that the company is in the nature of quasi partnership, the basic tenet between the working of the partners is mutual trust and confidence which has been breached by the respondent by their serious of illegal acts.  It is impossible for both the working partners to work together and the only option is to part ways.  The learned counsel relied on following judgments to press his  point  that in many cases to bring to the end the conflict between the parties, this Board has allowed partners to part ways:-
    1. D.H. Vuthria v K.S. Malik (1992(3) CLJ 119 CLB).
    2. H.M. Pincha v Kettela Tea Co. Pvt. Ltd. (1999 (2) CLJ 90)
    3. Gurmit Singh & Ors v. Polymer Papers Ltd. & Ors (C.P. NO.28 of 2002)
  4. The Learned Counsel for petitioner further submitted that no notices were issued to petitioner for the Board Meetings held on 01.03.2002 and 13.03.2002 and the petitioners are oppressed by the majority and relied on the judgment: -

1.JE 1958 (3) AER 66-Scottish Co-operative Wholesale Society.

2.AER 1966 Cal 512: Ramashanker Prasad v. Sindri Iron Foundry Pvt. Ltd.

3. 68 CWN 118: Respondents Sindhri Iron Foundry.

It was further prayed that in order to make permanent solution either the petitioners may be asked to go out of the company for the consideration for their shares to be paid by the Respondents to the Petitioner forthwith or the Respondents may be asked to go out in case, they are unable to pay the value of the shares of the Petitioners after bringing in the money in the Respondent company, which has been siphoned off by the Respondents.

  1. The Learned Counsel for Respondents submitted: - The petitioner No.1 Sh. Mahendra Sahai was a Managing Director of the company for over 23 years and has been managing the day-to-day affairs of the company till 1st March 2002.  Accordingly, the petitioners cannot allege any mis-management during that period. The petitioners group held 225 shares out of 977 shares fully paid up constituting 23.03% while the answering Respondents Group including the family members held rest of the Shares i.e. 76.9% of the total share capital. Due to mis-management by the petitioner No.1,  the company incurred huge losses and had to take loans from sister concern of the Respondents. The Cinema by name “Chand” was forced to be closed down and it was decided to start a commercial complex in the said premises.  For this purpose more funds were required to be generated and to run the company and the petitioner was enable to generate such fund in the interest of the company. He has become very old and has been very ill since long.  A meeting was called in accordance with rules in which it was decided that in order to liquidate the loan upon the company shares be allotted to the creditors. Accordingly, shares were allotted to Respondent No.1 to 7 the transfer of shares was within the knowledge of petitioner since the very beginning and the cinema was closed down on 14.3.2002 due to huge losses.  The petitioner is now creating obstructions to convert cinema into commercial complex.
  2. The Learned Counsel for Respondent further submitted that there was no illegality in removal of Mahendra Sahai as Managing Director of the company.  Issuance of 1523 shares to M/s Kailash Apartment Pvt. Ltd. and Ors.  is well within the constitutional documents of the company and confirm the provisions of Companies Act, 1956.  The allotment of shares was made on 1.3.2002 and the typing of the dates as 13.3.2002 is just a typographical or clerical mistake and do not show any malafide intention on the part of the company or any of its directors. The appointment of Sh. Ajit Singh Managing Director is legal and duly made by the majority decision of the Board. 
  3. The Learned Counsel for Respondent during the arguments stated that without prejudice petitioner contention, they are willing to restore petitioner No. 1 as the MD and revoke the allotment of shares in terms of Board’s resolution dated 1.3.2003. The petitioners should withdraw the petition. However, the petitioner did not accept this proposition.   The Respondent further stated that without prejudice to Respondent contention on the merit are prepared to offer a discharge of the amounts shown as outstanding against the name of the Petitioners in the balance sheet totaling Rs.,3,08,000-  to help them tide over any financial difficulties. It was also brought out by the Respondent that the contention of the Petitioner that Respondent ought to buy out the Petitioners’ shareholdings is not correct.  There is not even a whisper as to buy out either as its main relief or an incidental or consequential reliefs in the petition.  The Learned Counsel for Respondents further submitted that the instant case is not one which merits the exercise of such powers of this Board to direct one party to buy out the shareholding of the other. given the fact that the petitioners have not made any such  prayer. The Petitioner having not sought the leave of this Board at the time of preferring the petition, to claim other and entirely distinct reliefs are precluded from raising the same and such omissions amounts to relinquish on the part of the Petitioners. The Learned Counsel for Respondents has relied his contention at para 14 of the judgement of Hon’ble Supreme court Rajendra Tewary vs. Basudeo Prasad AIR 2002 SC 136 according to which a relief larger than one claimed by the Petitioner cannot be granted.  The bar against the grant of the buy out relief is also highlighted by the fact that there exist no pleading on record to with respect to the said issue which not only militates against the general rules that the relief should be founded on the pleadings but also has also  precluded the Respondents from contesting the same (Bhagwati Prasad v. Chandramaul, AIR 1966 SC 735).  The Respondent submitted that lack of opportunity to meet the case, set up independent of any pleadings in support, has caused them grave prejudice.   It was further submitted that respondent  accept the proposal given by them to restore Petitioner No. 1 as Managing Director of the company, the petition become in fructuous and ought to be disposed off accordingly.   It was further submitted that Petitioners should not be granted the relief of a buy out as the same is neither supported by pleadings nor made out by the Petitioners.
  4. I have gong through the records of the case as well as the pleadings of  the Learned Counsel of both sides, it is admitted position that Sh. Mahender Sahai was working as Managing Director of the company for 23 years when he was removed on 1.3.2002 and Sh. Ajit Singh was appointed in his place. The second issue is of allotment of 1523 shares allotted to Respondent No.2, 3, 5 & 7. The other issues are frivolous  in nature and need not be discussed.  The Respondents have failed to place on record documents such as Board Meeting Notices, etc pertaining to the appointment of Mr. Ajit Singh Managing Director and allotment of 1523 shares to the Respondents.  During the course of agreements, the Learned Counsel for Respondent had specifically mentioned that no notice for the meeting was issued and it has been recorded in the order dated 8.3.2004 of this Bench.
  5. During the course of final arguments, the Respondent said that the grievances of Petitioner was that he had been removed from the post of Managing Director after 23 years and also issuance of 1523 shares to the Respondents.  The Respondents were willing to restore the Petitioner No. 1 as Managing Director and revoke the allotment in terms of the Board’s resolution dated 1.3.2002. The Learned Counsel for Petitioner did not accept this offer and stated that the Respondent have now found that they have not issued proper notices and have committed mistakes.  They are likely to lose case on these grounds and therefore they have made this offer to frustrate this petition.  After words, being in majority they can take care of rules position and throw of the Managing Director as they have done after 23 years.  The Petitioners have lost faith in Respondents.  It is impossible for both the working partners to continue to work together and the only option is to part ways.
  6. Regarding removal of Petitioner No.1 from the post of Managing Director and appointment of  Sh. Ajit Singh, Respondent No.2, the Respondents have placed on record the copy of Minutes Books on 19.6.2001 wherein they have shown presence of S/Sh. Mahendra Sahai and Ajit Singh in the meeting where as they have not signed the Minutes Books showing their presence. By a common consent, Sh. Ajit Singh was asked to chair the Meeting.  The Chairman declared that the requisite quorum was present and called the meeting to order.  No notice was issued for the Board Meeting purported to be held either of removal of Sh. Manhendra Sahai as well as appointment of Sh. Ajit Singh as Managing Director as admitted by the Learned Counsel for Respondents during the arguments.  Similarly, the Respondents allotted 1523 shares of Rs.100/- each to themselves and their family member on 13.3.2002 plus reducing shareholding of petitioners from 23.03 % to 9 %.  The Respondents have failed to place any record of Board Meeting for allotment of this shares form No.2 filed with ROC is dated 1.3.2002 whereas the allotment was made on 13.3.2002 which indicates the malafide intention of the Respondents.  The Board Meeting held on 19.6.2001 and the From No.32 filed by the Respondents are set aside. The Petitioner is reinstated as Managing Director of the company in place of Sh. Ajit Singh.  The allotment of 1523 shares of Rs.100/- each allotted to the family members of the Respondents on 13.3.2002 are also set aside.  Both the parties are not in a position to work together and Managing Director was removed without proper notice and Board Meeting after the period of 23 years. Learned Counsel for Respondents have argued that the Petitioner should not be given an option to go out of the company as they are willing to reinstate Sh. Mahendra Sahai as Managing Director and also cancell the allotment of 1523 given to their family members.  However, this position was not acceptable to petitioners, as they have lost their faith in the company.  It seems to be after thought of the Respondent to frustrate the petition.
  7. There are ample number of cases in which this Board has allowed the parties to part ways to find a permanent solution of the problem.  I am of the view that this is a fit case of giving an option to the Petitioners in case, they desires to go out of the company on return of their investment made in the respondent company.  If petitioners are willing to part with shares, then the Respondent company should purchase the shares on valuation to be made by an independent valuer, The valuation shall be based on the balance sheet as on 31.3.2001 being the approximate date after the Petitioner was removed from the Managing Directorship. In case the petitioners desire to go out the company, liberty is given to them for making an application for appointment of valuer by this Board in consultation with  both the parties.
  8. With the above direction the petition is disposed of. There is no order as to cost.

 

 

( K.C. GANJWAL )

        Member

 

New Delhi,

Dated  the      July, 2004.