BEFORE THE COMPANY LAW BOARD
PRINCIPAL BENCH
NEW DELHI
Dated 21st September 2001
C.P. No. 69 of 2000
Present: 1. Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian, Vice Chairman
AND
Versus
M/s General Sales Limited
PETITIONERS:
1. Shri Deepak
C. Shriram
2. Shri Luv D.
Shriram
3. Shri Kush D.
Shriram
4. Smt. Santosh
D. Shriram
5. Shri Arjun D.
Shriram
6. Shri Krishna
Shriram
7. Miss Chhaya
Shriram
8. Dr. Charat
Ram
9. M/S Manisha
Commercial Ltd.
RESPONDENTS:
1. General Sales
Limited
2. Shri N.R.
Dongre
3. Shri Baldev
Kalra
4. Shri K.P.
Malhotra
5. Shri P.K.
Chopra
6. Shri S.
Wadhawan
7. Shri A.K.
Jain
8. C & N
Investments Pvt. Ltd.
Present on behalf of
parties:
1. Shri Shanti Bhushan,
Sr. Advocate
.. for petitioners
2. Ms. Bina Gupta,
Advocate
.. for petitioners
3. Shri N.K. Malhotra,
Advocate
.. for petitioners
4. Shri Rabindra Singh,
Advocate
.. for petitioners
5. Shri Krishna Kumar,
Advocate
.. for petitioners
6. Shri S. Ganesh,
Advocate
.. for respondent 7
7. Shri A.T. Patra,
Advocate
.. for respondent 7
8. Dr. A.M. Singhvi, Sr.
Advocate
.. for respondent 2
9. Shri D.A. Dave, Sr.
Advocate
.. for respondent 2
10. Shri A.S. Chandiok,
Sr., Advocate
.. for respondent 1
11. Shri U.K. Choudhary,
Sr.Advocate
.. for respondent 8
12. Shri v. Ganda,
Advocate
.. for resp. 4,5 & 6
13. Shri R. C. Srivastava,
Sr. Advocate ..
for respondent 3
14. Ms. Pallavi Shroff,
Advocate
.. for resp.2 & 8
O R D E R
(Date of final hearing:
24.7.2001)
S. BALASUBRAMANIAN:
1. The
petitioners, claiming to collectively hold
49% shares in M/S General Sales Limited ( the company ),
have filed this petition under Sections 397/98 of the Companies Act (the Act) alleging that the company, by issuing/allotting
further shares in exclusion of the petitioners, has acted in a manner oppressive to the
petitioners meriting the cancellation of the allotment. Alternatively they have also
prayed that the 8th respondent to whom the shares have been allotted, be
directed to transfer proportionate shares to the petitioners.
2. This company
was incorporated in the year 1965 as a private limited company which was taken over by the 8th petitioner with
60% shares and the 2nd respondent with 40% shares in 1980. Later on, it became
a deemed public company. The present authorized
capital of the company is Rs.1.25 crores divided into 1,25,000 equity shares of
Rs.100/-each. In 1984, the 8th
petitioner transferred his shares to his HUF, sons and children including the 9th
petitioner and likewise the 2nd respondent transferred his holdings to his own
three companies. In 1990, the 9th petitioner,out of its 19%
holding, transferred 10,846 shares constituting 11% to
a Trust known as Manisha Benefit Trust (the Trust) of which the sole life Trustee was/is the 2nd respondent and the sole
beneficiary was/is the 9th petitioner. Thus while the petitioner controlled 49%
voting rights, the 2nd respondent controlled 51% voting rights as the 11% Trust shares were registered in the name of the 2nd
respondent. The only allegation in the petition is that the 2nd respondent-Shri
Dongre, with a view to gain absolute majority
control of the company, had clandestinely issued the remaining 26400 shares of the
authorized capital to the 8th
respondent which is under his control and thus has acted in a manner oppressive to the
petitioners notwithstanding the fact that as per Section 81 of the companies Act, 1956 (
the Act), proportionate shares should have been offered to the petitioners. However, on filing of documents/replies by the respondents, the petitioners have alleged
fraud and fabrication on the part of the 2nd respondent in allotting the shares
to the 8th respondent exclusively.
3. When this
petition was mentioned and interim reliefs
were sought on 25th August 2000, the respondents filed certain documents to
indicate that the decision to allot further shares on a right basis was taken in a Board meeting on 3.6.99
attended by Dr Charat Ram and that in a Board
meeting attended by him on 12.7.99, 26,400 shares were allotted to the 8th
respondent as no other shareholder had applied for the shares in spite of the offers made
to them on 14.6.99 by registered post. Dr
Charat Ram has denied his attendance in either of the two meetings and the petitioners
have also denied the receipt of the offer for further shares.
4. It is on record
that a number of proceedings have been going on between the parties before Delhi High
Court prior to the filing of this petition, more particularly Suit No. 1279/99 filed by
the 9th petitioner on 8.6.99 seeking
a mandatory injunction in respect of the Trust shares. Even though certain interim orders
have been passed in respect of this suit, it is still pending.
5. In the hearing
held on 16.6.2000, Dr Singhvi, Sr Advocate appearing for the respondents contended that
the Bench should not proceed with the petition since the petitioners had already filed CM
1078/2000 in Delhi High court challenging the allotment of shares impugned in the present
petition. According to him the petitioners were guilty of forum shopping which should not
be encouraged. He contended that the petitioners having elected to move the High Court are
estopped from prosecuting this petition especially when the High Court exercises appellate
jurisdiction over this Board. Legal opportunism, he contended should be curbed and as this Board has stayed its proceedings in
many cases where parallel proceedings were pending
in civil courts, this petition should also be stayed and no exception should be made in
the present case. Shri Shanti Bushan, appearing for the petitioners gave an undertaking
that the petitioners would withdraw CM 1078/2000 before the next date of hearing. In view of this undertaking, the matter was
proceeded with.
6. Shri Shanti Bhushan, Senior Advocate appearing for
the petitioners submitted as follows: The company was taken over by Dr Charat Ram- the 8th
petitioner- in 1980 by purchasing 60% shares when the company was in bad shape and he associated the 2nd
respondent to purchase the balance 40% shares in his own name. In 1984, when Dr Charart
Ram transferred his shares, he also resigned as a director/chairman of the company reposing full faith and confidence
in the 2nd respondent. Thereafter, the company had 4 directors, three from the
2nd respondent group (Dongre group) and the 7th respondent from the
petitioners’ group (Shriram group). Even though the relationship between both the
groups was cordial from the beginning, yet,
sometime in 1998, certain differences arose between Shriram group and Dongre group in
regard to certain investment proposals initiated by the company as would be evident from
Annexure -3 - a letter dated 21.10.1988 written by Dr Charat Ram to the Shri Dongre. In that letter, Dr Charat Ram had also sought for
co-opting him as a director of the company in the Board Meeting to be held on 23.10.1998. However, his co-option was not considered in that
Board Meeting nor in the subsequent Board Meetings held on 6.11.1998 and 22.3.1999. Since at the relevant time, the Board consisted of
only 4 directors as against 7 directors provided in the Articles, the 1st, 2nd and the 3rd
petitioners jointly requisitioned an EOGM
under Section 169 of the Act for appointment of 3 directors including Dr Charat Ram, by a
notice dated 23rd April, 1999. On
28th April, 1999, some of the petitioners filed a suit No.911/99 in Delhi High
Court seeking for restraining the company from co-opting any director pending the
requisitioned EOGM. This suit was dismissed
by an order dated 5th May, 1999 on the ground that the matter was one to be agitated before the CLB. Thereafter, the 2nd respondent convened
a Board Meeting on 17.5.1999, in which 3 more directors including Dr Charat Ram were
appointed as additional directors notwithstanding the fact that these appointments would
frustrate the requisition of the petitioners. On 28.5.99, the 9th petitioner
sent a letter to Shri Dongre directing him to
exercise his votes in respect of the Trust shares in favor of the resolutions proposed in
the EOGM. The Board convened the requisitioned EOGM on 10th
June, 1999 and in the Explanatory Note, the company had indicated that in view of there
being no vacancy in the Board, no business could be transacted in that EOGM. Therefore, it is abundantly clear that with a view
to oppress the petitioners holding 49% shares in the company from having adequate
representation on the Board, the vacancies were filled up.
However, prior to the EOGM on 10.6.1999, the 9th petitioner filed a suit
No.1279 of 1999 on 8.6.99 seeking an order of mandatory injunction against Shri Dongre to act in accordance with the
directions of the beneficiary as far as the Trust shares were concerned. In that suit, an undertaking was given by the
company that the EOGM convened on 10.6.1999 would not be held and would be postponed to a
later date. . On 16th June, 1999, each of the petitioners received, by registered
post, a letter dated 11th June, 1999 appending therewith a notice placed on the
venue of the EOGM that in view of the pending suit, the EOGM fixed on 10th
June, 1999 would be held on a date to be fixed by the High Court. The envelopes sent by registered post did not
contain the offer of shares as claimed by the company. Further, the increase in the share
capital was not disclosed any of the proceedings before the High Court for nearly a year.
With a view to ensure that the directors belonging to Shriram group were kept in dark
about the proceedings of the Board Meetings, the company abruptly stopped the long
standing practice of circulation of draft
minutes to the directors from May, 1999 only with the view to commit fraud and
manipulation in the shareholding in the company. The practice of sending notices by UPC
was also allegedly started only from May 1999
as against the long standing practice of hand delivery.
7. The learned
counsel urged that the above back ground should be kept in mind in examining the
allegations of the petitioners. By the time the decision to allot shares was allegedly
taken in the Board Meeting held on 12.7.99, the
petitioners were fighting to get certain positions in the Board and have also challenged
the right of Shri Dongre to vote in respect of the 11% shares held by the Trust. This being the case, the question of Dr Charat
Ram approving issue of right shares in the Board Meeting held on 3.6.99 and later approving the allotment of the entire shares to
the 9th respondent on 12.7.99 does not stand to reason. More so, the petitioners not subscribing to the shares
offered. The petitioners being seasoned
businessmen knowing fully well that if they did not subscribe to the shares, the same
would be allotted to Dongre group by which his shareholding control would be consolidated
could have never rejected the offer.
8. He also pointed
out that the contention of the company that Dr Charat Ram attended the Board Meeting on
3.6.99 could never be accepted in facts of this case.
Originally, the respondents filed a set of documents in the hearing on 25.8.99 in
which a copy of the minutes of the meeting on 3.6.99 was enclosed. According to these minutes, the meeting was held
at 11.00 AM in Malcha Marg Office and was attended by Dr Charat Ram. During the hearing on 25.8.99, after it was pointed out that at 11.00 AM
on 3.6.99, Dr Charat Ram was on his way from
Tokyo to Delhi, the respondents had subsequently fabricated the minutes to show as if the
meeting was held at 7.30 PM. None present in the hearing on behalf of the respondents made
any mention that the meeting had taken place
only at 7.30 PM. According to the respondents, since they had come to know that Dr Charat
Ram would be arriving in the evening, they had adjourned the meeting scheduled at 11.00 AM
to 7.30 PM. If it is so, there is no
recording in the minutes book about the 11AM
meeting and the decision to adjourn to 7.30 PM. Further,
there is nothing on record to show as to how
Dr Charat Ram was advised about the adjournment of the meeting to 7.30 PM. Dr Charat Ram arrived at the airport only around
5.00 PM on that day and it is inconceivable that a man of over 80 years old could have attended the meeting within a
short interval after having traveled the whole day. Since, they had already taken a stand that a Board meeting was
held on that day attended by Dr Charat Ram, on coming to know that he could not have
attended the meeting at 11 AM, they altered the minutes to show the time of the meeting 7.30PM. Such alteration was possible as the
minutes book was being maintained in loose leaf form.
Therefore, no reliance should be placed on
the minutes. Further, the respondents have shown that
Dr Charat Ram attended the Board meeting on 12.7.99, wherein shares were allotted to the 9th respondent and claim that this
allotment had the approval of Dr Charat Ram. He never attended this meeting as he did not
receive the notice for this meeting. Even the 7th respondent, who is the
nominee of the Shriram group on the Board of the company also did not receive the notice
for this meeting. The falsity of the claim of
the respondents about these meetings is evident from the fact that in the entire
history of the company, no Board Meeting had taken place in Malcha Marg. Further, no Board Meeting had been held after 6.00
PM on any day. Usually, Board Meetings are held in Himalaya
House Kasturba Marg, for which room booking requisition has to be given in writing
in advance. By producing a schedule of the Board meetings of the group companies, the
learned counsel pointed out that the Board meetings of the group companies are decided in
advance and is circulated to all and all these meetings are scheduled to be held in
Himalaya House and no meeting is shown to be held after 6.00PM. Therefore he contended
that the change of venue was only with a view to ensure that no written record is
available about holding a meeting and with the view to show the presence of whomever they
liked fraudulently. The only evidence adduced by the respondents is the signatures of Dr
Charat Ram in the attendance register marking his presence in these two meetings. He pointed out that even though the signatures
contained in the register are that of Dr
Charat Ram, yet, since he did not attend the meeting, the respondents should have misused
the signature of the petitioner obtained in connection with some other matter or must have
used his specimen signatures. According to
the learned counsel, it is evident from the fact that
the attendance register produced by
the respondents in this regard contains the signatures of the directors only in respect of
4 Board Meetings i.e. on 17.5.1999, 24.5.1999, 3.6.1999 and 12.7.1999. Otherwise, there is
a regular attendance register on which the signatures of the directors had been taken
right from 1991. Again, for the Board
Meetings from 29.9.1999, a third register was being used.
If for any reasons the company had brought in the 2nd register, then the
same must have been used to obtain the signatures for the subsequent meetings. However, with a view to ensure that neither Dr
Charat Ram nor the 7th respondent noticed the signatures of Dr Charat Ram in regard to the
meetings on 3.6.1999 and 12.7.1999, the third register was brought into use. To further his stand that the signature of Dr
Charat Ram had been misused he pointed out various differences between the 1st attendance register ( the one used from 1991 to
November 1998) and the 2nd register containing the signatures only for 4
meetings including the two impugned in the petition. He pointed out that in the 1st
register, the names of all the directors are written on the left side page and in the
columns on the right side of the names, the dates of the meetings are noted at the top so
that the directors can sign against their names in the respective columns of dates to mark
their attendance on these dates. But
in the 2nd register, the names of the directors are indicated both on the right
side page and the left side page. The signatures of Dr Charat Ram appear on the right side
page for both the meetings. There is definite sign of the register having been rebound as
threads of rebinding are visible. Further there is a sign of the headings of the columns
relating these two meetings having been manipulated.
Thus, the learned counsel submitted that no reliance should be placed on the
signatures of Dr Charat Ram in the attendance
register in regard to the meetings on these two dates.
Referring to the copy of the
engagement diary which was being maintained by the personal assistant of Dr Charat Ram, he
pointed out that this diary which is maintained meticulously noting down all the
engagements of Dr Charat Ram does not contain any entry in regard to these two meetings
since no notice for these meetings was received by him.
Further, the 7th respondent has never missed any of the Board Meetings
of the company during his entire tenure as a director of the company and therefore there
was no reason as to why he did not attend these two meetings if he had received the
notices for these meetings. Therefore,
the decision to allot shares as well as allotment of shares has been done behind the back
of the petitioners' group even though they hold 49% shares in the company.
9. As far as the
receipt of offer for the right shares is concerned, the learned counsel pointed out that
none of the petitioners received the alleged offer. Even
though the company contends that offers were
made through registered post, yet, the registered envelopes
received by the petitioners contained only the letter dated 11th June,
1999 intimating the postponement of the EOGM convened on 10th June, 1999.
According to the respondents, this letter was sent by UPC on 11th June, 1999
and the registered post containing offer on 14th June, 1999. The respondents are not in a position to
substantiate as to why the letter of 11th June, 1999 should have at all
been sent to the petitioners by UPC,
since a similar notice had been placed at the venue of the meeting itself on 10th
June, 1999. Since the petitioners' group knew
about the directions of the court to postpone the meeting, there was no need for the
company to again inform them by this letter. Even otherwise, if any body had reached the
venue of the meeting, he would have known
about the postponement from the notice placed at the venue. Therefore, it is evident that
the letter of 11th June, 1999 was decided upon to enclose the same with the
registered letter alleged to be containing the offer for the right shares. The learned counsel asserted that other than the registered envelope containing the letter dated 11th June,
1999, none of the petitioners received the UPC alleged to have been posted on 11th
June, 1999.
10. The learned counsel
contended that if the petitioners had received
the offer for the right shares, they would have definitely applied for the shares in as
much as the litigation for control of the company was going on at that time and therefore
it is unthinkable that all the petitioners would have decided to commit hararkari by deliberately not accepting the shares offered
thus enabling Dongre group to gain absolute majority by subscribing to all these shares.
In this connection, he referred to the decision of the Calcutta High Court in Ramashankar
Prosad vs. Sindri Iron Foundry Private Limited ( AIR
1966 Cal. 512) wherein the
court observed as follows: "It is
unimaginable that the petitioners would have allowed an extraordinary general meeting to
be held in their absence when the object of the meeting was to increase the authorised
capital of the company from Rs.10 lacs to Rs.15 lacs and to repay the alleged loans of
several creditors by the issue of new shares in the company is to say the least a fraud of
the worst character….I can see no reason why if they had been served with notices of
these meetings, the petitioners and their associates should again abstain from attending
the same in a body. Such conduct is
tantamount to committing hara-kari. Is it to
be believed that the petitioners who held majority of shares in a company would sit
quietly and allow the respondents to effect alteration in the Articles of Association by
increasing the number of directors and creation of new shares to suit their purpose so as
to reduce the majority into a helpless minority both on the Board and that General
Meetings of the company? The answer can only
be in the negative. …A man may no doubt behave strangely on a particular occasion,
but it is impossible to believe that a number of hard boiled business people will keep
themselves away from a meeting where their
doom may effectually sealed in their absence and they have only to attempt and win the day
by their superiority in number and voting strength…. If it had been the case of a
particular shareholder or director not
receiving the notice sent through the post,
one may possibly take the view that it had gone astray but it is impossible to believe
that all the notices of the Board Meeting as also those of the EOGM should have failed to
reach all the addresses. The company had
sixteen shareholders, those in the respondents' group being four, while the number of
members in the petitioners' group was twelve. If
any person in the petitioners came had received the notice, he or she would have
undoubtedly made it known to the others and although the letter are known to loose their
way in the post, I find myself unable to believe
that the notices addressed to all the 12 persons in the petitioners camp had gone astray.
In my opinion, the conclusion is irresistable that these notices had never been put in the
post although certificates of posting purported to have obtained in respect
thereof"…………If the Board Meeting……. and the EOGM had
been motivated by the desire to exclude the petitioners, clearly there was an oppression
which could not be neutralised by the petitioners short of coming to court and praying for
necessary relief. The oppression was not of
long duration when the petitioners came to court but it was of such a nature that it
affects would have persisted indefinitely and kept the petitioners already mercy of the
respondents". Therefore, he contended that the facts and circumstances of the
case would clearly exhibit the falsity of the claim of the respondents that offers were
made to the petitioners for the right shares. He
also submitted that the real worth of the shares of the company is over Rs.2200 per share
and even if not for getting control of the company, the petitioners would have definitely
accepted the offer in view of the real worth of the shares.
11. Continuing his arguments
further, the learned counsel pointed out that the company had kept the further allotment
of shares as a closely guarded secret till the same was disclosed before the Delhi High
Court in July, 2000. Even though the company contends that further shares were
issued/allotted on 12.7.99, yet, nothing was
mentioned about the increase in the share capital of the company in the Directors' Report
in connection with the AGM for the year 1998-99 held on 30th December, 1999
even though Section 217 (1) (d) of the Act stipulates that material changes affecting the
financial position of the company occurring after the end of the financial year have to be
disclosed in the Directors' Report. This
omission is against the past practice of the company wherein the Directors' Report used to
contain the details of shares issued after the closure of the financial year. Further, in none of the proceedings before the
Delhi High Court that took place after the allotment of shares, the respondents had
disclosed this allotment. Even in December,
1999, it was contended before the learned Single Judge of the High Court that the 11%
shares held by the Trust were crucial to the battle between Shriram and Dongre groups and
as a matter of fact this has been recorded by
the learned Judge himself in his judgment
dated 24th December, 1999. If the petitioners had known about the allotment, as
contended by the respondents, then, the shareholding of Dongre group being 52.6% shares in
the company even without the 11% shares of the Trust, there was no meaning in the
petitioners continuing their fight in the High Court regarding the 11% shares. Therefore, there is absolutely no merit in the
contention of the respondents that the petitioners had voluntarily decided not to accept
the shares or they had known about the allotment. In this connection, he referred to the
averment of the Shri Dongre at Page 52 of the
reply wherein he has averred that no sane and
right minded or rational person would refuse to subscribe to the shares offered. This itself, the learned counsel contended would
indicate that the reason for not accepting the right offer is that the petitioners never
received the offer. He accordingly prayed that the allotment of shares, being oppressive
to the petitioners, should be declared and the shares cancelled or in the alternate, the 8th
respondent should be directed to transfer 49% of these shares to the petitioners. He also
submitted that as per the undertaking before this Bench, his clients had withdrawn CMA
1078/2000.
12. Shri Chandiok, Sr. Advocate,
appearing for the company contended that this petition is not maintainable for the reasons
that in the Delhi High Court, the petitioners had filed an application CMA No.1078 of 2000
seeking the same reliefs which, later on, they
withdrew without any liberty to re-agitate the same.
In this connection, he referred to the application made by the petitioners before
the High Court wherein they have sought for unconditional withdrawal of the motion. Since
it is an unconditional withdrawal, the petitioners have no right to move the CLB for
relief on the same ground. Referring to order XXIII Rule 1 (4) of Code of Civil Procedure,
he pointed out that the petitioners have no right to file this petition since they have
not sought leave from the High Court when they withdrew the motion containing similar
allegations. Therefore, in terms of Order XXIII
Rule 1 of Code of Civil Procedure once a
person files a suit and withdraws the same unconditionally without liberty, then, he
cannot file a fresh suit on the same cause of action. He elaborately dealt with the
principle underlying this Rule. He referred
to Upadhay & Co. vs. State of UP ( 1999 1
SCC 81 ) wherein the Supreme Court
has said that once an SLP filed against an order of the High Court had been withdrawn
without obtaining liberty to file an SLP
again, fresh SLP filed against the impugned
order was not maintainable in view of the principle of
policy in terms of Order XXIII Rule 1 ( 4) of CPC. Even though the petitioners may
contend that in that motion the petitioners were not common, yet, considering the
observation of the High Court in its order dated 19.10.2000 that the plaintiffs in all the
suits were common, the identity of the petitioners has been established to be one and the
same. According to him, withdrawal of the
application, without leave, amounted to
abandonment of the claim and as such in terms of Order XXIII Rule 1, the petitioners are
disentitled to agitate the same afresh. He cited the following cases in which the courts
have held that without leave, no fresh suit on the same cause of action could be filed. K.S Bhoopathy v Kokila (2000 5
SCC 458): Sarguja Transport Service v State Transport Appellete Tribunal( 1987 1 SCC 5): Rangacharya v Guru Revti Raman Acharya (AIR
1928 All.
639) U[padyaya &Co v State of UP ( 1991 SCC 81
) .He further submitted that even in case of withdrawal of an application, as in
the present case, the provisions of Order XXIII
Rule 1 would apply as held in S.Narain Singh v Ram Gopal Madan Lal ( AIR 1981 Del. 88 ) and Aftab Ahmad v Nariuddin (AIR 1977 Del. 121). He also relied on Central
Inland Water Transport Corporation Ltd v Brojo Nath Ganguly (AIR 1986 SC 1571) to
state public policy demands that agitating the same issue after abandoning the claim at
the first instant should not be allowed. Therefore,
he prayed that once the petitioners had withdrawn the application CM 1078/2000
unconditionally, this petition on the same cause of action does not survive and should be
dismissed.
13. He further pointed out that
this petition is not maintainable on another principle that a single past and concluded
act cannot constitute an act of oppression since in the entire petition the only
allegation relates to the issue/ allotment of 26400 shares.
On this proposition, he relied on Shanti Prasad Jain vs. Kalinga Tubes Ltd. ( AIR 1965 SC 1535
) wherein the apex court observed that that to constitute oppression, there should
be continuous acts on the part of the majority shareholders continuing up to the date of
petition showing that the affairs of the company were being conducted in a manner
oppressive to the members. On the same
proposition, he relied on Needles Industries Limited
vs. Needle Industries Newey ( India ) Ltd. (
51 CC 743):
J. Chakraborti vs. Power Tools &
Appliances Co. Ltd. ( 79 CC 505) and Hungerford Investment Trust Ltd v Turner
Morrison Ltd (ILR 1972 Cal 283). He
contended that Shri Dongre controlled 51% of the voting powers of the company right from
1984 and even after the allotment of shares, he continues to control the affairs of the
company. Thus, the allotment of shares has
not created a new majority. Therefore, the
allotment of 26400 shares cannot in any way be construed as an act of oppression against
the petitioners. Even though some of the petitioners sought for restraining Shri Dongre
from exercising voting rights in respect of the 11% shares held by the Trust, the Delhi
High Court permitted him to exercise voting rights in respect of these 11 % shares. Thus,
by allotment of 26400 shares, Shri Dongre and his group has not derived any advantage as
far as controlling the affairs of the company is concerned. Referring to Shanti Devi
Gaekwal vs. Sangram Singh Gaekwal (1996 1 CLJ 72)
wherein it was held that there is nothing wrong in one seeking to retain control of a
company legally and in the present case Shri Dongre who had always been in control of the company has only
consolidated his position and as such the same cannot be construed as an act of
oppression.
14.
He pointed out that this
present petition can not be considered in isolation of the various attempts made by the
petitioners to put a spoke in the affairs of the company and to wrest a control from Shri
Dongre to themselves. Initially, they
requisitioned a general body meeting to induct 3 directors, which, if the general body had approved, would have
allowed them to have 4 directors in the company as against 3 from Dongre group. Thereafter, they filed a suit in Delhi High Court
being 911 of 1999 for restraining the company from appointing additional directors which
suit was dismissed even without notice to the company/the respondents. This fact of filing of the suit and dismissal was
not disclosed by the 7th
respondent in the Board Meeting held on 17.5.1995 when Dr Charat Ram was appointed as an
additional director. Thereafter, a second
attempt was made to stall the affairs of the company when the petitioners filed IA 5882 of
1999 in suit no.911 of 1999 for staying the company from disposing of its assets including
investments made in other companies, which was also dismissed. They once again filed a suit 1749 of 1999 for
restraining the company from dis-investing the shares held by it in various companies
including Shriram Pistons and Rings Ltd. This suit was also dismissed. Thereafter, they filed three more applications before the Delhi High
Court without any success. Thus, the main
object of filing this present application after having failed in their various attempts is
to get control of the company in one way or the other by making false allegations without
full particulars and such the same should be dismissed as held in Bengal Luxmi
Cotton Ltd Case (35 CC 187 Cal).
15. As far as the need for the
capital is concerned, the learned counsel pointed out that further shares were issued only
to meet the requirement of the Bankers of the company.
Referring to the letter of Dr Charat Ram at Annexure -3, he pointed out that in
this letter, Dr Charat Ram himself had accepted the precarious financial position of the
company as early as in October, 1998. It
is not the first time that at the requirement of the Bank, the company raised its share
capital. In September, 1984, at the requirement of the Bank, the authorized capital of the
company was raised from Rs.5 lacs to Rs.25 lacs and 5500 shares of Rs.100/- each were
allotted on right basis to all the existing shareholders.
In the present instant, the company had applied to the Bank in September, 1996 for
renewal/enhancement of credit limits. The Bank did not take any action on this application
in view of losses incurred by the company. He further submitted that the need for funds to
overcome the liquidity problem was discussed in a Board Meeting held on 24.5.1999 and a
Committee was constituted to dispose of various
assets including investment in shares. The
petitioners filed a civil suit to restrain the company from taking further action in
pursuant to this resolution. However, since the company needed additional facilities,
discussions were going on with the Bank. In
April, 1999, when the discussions were in advance stage, the Bank required the company to
bring in additional funds by the promoters. Referring
to Annexure R-1 of the reply of the company, he pointed out that on 6th May,
1999 and 19th May, 1999, the
company had in its letters to the Punjab
National Bank had expressed its reservation on the requirement of the Bank to increase the
capital of the company. He also referred to the Office Note dated 18th May,
1999 at Page 57 of the R-1 reply wherein it was suggested that the company should increase
the share capital. On this note, Shri Dongre
had remarked that since the losses incurred by the company had not affected repayment of
Bank loans, the matter should be discussed with the Bank.
He also pointed out that in the note to the Chairman on the letter dated 19.5.1999,
it was specifically indicated that the Bank was withholding communication of sanction for
want of the company's undertaking to increase the capital.
In a note to the Chairman on 25.5.1999, a summary of the discussion with the Bank
in which the Bank had advised to increase the capital at least to the level of the
existing authorized capital was put up on which the Chairman had directed to arrange for a
Board Meeting. Again, in a note dated
26.5.1999, it was indicated that the Bank had prepared a sanction letter on 21.5.1999 but
the same was being withheld and the Bank has intimated that if a Board resolution
confirming increase in the share capital was not sent by
4th June, 1999, it would be considered that the company had declined to
have the limits renewed. On this note, the
Chairman had recorded that a Board Meeting will have to be convened before 4th
June, 1999. Accordingly, notice and agenda papers were circulated on 28.5.1999 by UPC to
all the directors including Dr Charat Ram and the 7th respondent for a meeting to be held on 3.6.1999. When the other directors assembled at 11.00 AM on
that day they were informed that Dr Charat Ram would be arriving at Delhi only in the
evening and therefore it was decided to hold the meeting at 7.30 PM. Accordingly a message
was left at his residence and also at the office of the 7th respondent about
the change of timing of the meeting. Since
the Malcha Marg office is within 20 minutes drive from the residence of Dr Charat Ram, he
attended this meeting at 7.30 Pm which is evidenced by his signature in the attendance
register. Even though, the learned counsel for the petitioners contended that in the
documents filed on 25.8.2000 before the Bench, a copy of the minutes of the Board Meeting
held on 3.6.1999 indicating that the meeting had taken place at 11.00 AM was filed, he
pointed out that it was a photo copy of an unchecked and unsigned draft minutes
inadvertently enclosed and it was not a true copy of the minutes as recorded in the
minutes book. The correct minutes of the
meeting held at 7.30 PM was filed in the High
Court even before the commencement of the proceedings before the CLB on 25.8.2000. This meeting was held on the same day only in view
of the insistence of the Bank that the resolution to increase the paid up capital was to
be sent to the Bank by 4th June, 1999. Accordingly, the Board Meeting was held
on 3.6.1999 at 7.30 PM to increase the paid up capital of the company up to the authorized
capital. Once the Board resolution dated
3.6.1999 was sent to the Bank on 4.6.1999 the Bank released the sanction letter dated
21.5.1999 as is evident from the office copy of the sanction in the Bank Records noting
the date of receipt as 4.6.99. Therefore,
the allegation of the petitioners that the share capital was increased only with a view to
consolidate the position of Shri Dongre is not founded on facts. Dr Charat Ram did attend the meeting
on 3.6.1999 when the Board took the decision
to issue shares on a right basis and also
the meeting held on 12.7.1999 when shares were allotted to the 8th respondent. His presence in these two meetings is evident from his
signatures on the Attendance Register on these two days. Even though, the petitioners claim that some
specimen signatures of Dr Charat Ram had been used to evidence his attendance on these
days, yet, they have not furnished any particulars as to when, why and where such alleged
specimen signatures were taken. He also
pointed out that the original attendance register was with the 7th respondent,
who had not handed over the same to the company and therefore a fresh register was opened
for the meetings on 17.5.1999. This register
recorded the attendance of the directors for the meetings on 24.5.1999, 3.6.1999 and
12.7.1999. By this time, the original
attendance register was returned and in the Board Meeting held on 29.9.1999, the second
register was not available and therefore a third register was opened to record the
attendance of the directors. Therefore, there
is no malafide intention in not continuing either the first register or the second
register as alleged by the petitioners.
16. Shri Chandiok, further
submitted that the very allegation of the petitioners that they had been converted from
majority to minority is not borne on facts. Shri Dongre has always been in majority with
51% voting rights in the company as the 11% shares of the Trust are held in his name. Even the High Court has permitted Shri Dongre to
exercise voting rights in respect of these shares notwithstanding the objections raised by
the petitioners. Therefore, these shares are
not in limbo but are actively voted upon. He
also pointed out that the Trust is a perpetual Trust and Shri Dongre is the sole life
Trustee and as such he can control the voting rights on the shares throughout his life. In this connection, he pointed out that on 21st
February, 2000, the Division Bench of Delhi High Court gave the liberty to the petitioners
to apply before the Single Judge for permission to exercise voting rights as and when
occasion arose but the petitioners never exercised the liberty because they knew by the
time Shri Dongre had even otherwise became the majority shareholder. Therefore, they had
already waived their right to challenge the majority of Shri Dongre. Even then, it was Shri Dongre who applied to the
court to confirm his right to vote on the 11% shares.
He also pointed out that in the High Court proceedings, the petitioners only sought
for freezing the voting rights and not for permitting them to vote on the Trust shares. He
also pointed out that in the written statement dated 20.8.1999 filed by the company in suit no.174 of 1999, in para 5, it had disputed
that the shareholding in the company remained unchanged since December, 1980 and that the
petitioners did not challenge the statement as they were fully aware of the further issue
of shares. Therefore it is wrong on
the part of the petitioners to contend that they came to know of the increase in capital
only in July, 2000. He also pointed out that
in CM No.1078 of 2000, the petitioners have alleged fabrication in regard to the allotment
of shares. In the present petition, their only complaint is that shares were allotted
without any offer to them. Thus, he contended
that the petitioners themselves are not sure as to what they are challenging.
17. He further argued that the
petitioners attempted to gain majority control on the Board by requisitioning a general
body meeting for appointment of 3 directors and in addition they also filed a suit to
restrain the company from appointing additional directors even though such appointments
are squarely within the powers of the Board. Even
then, when the Board appointed 3 additional directors, Dr Charat Ram was one of them which
establishes the bonafide of Shri Dongre.
18. In regard to the knowledge
of the petitioners about further issue of shares, he contended that they should have known
about the same through Dr Charat Ram since he attended the meeting on 12.7.1999. Even
otherwise in the AGM held on 30.12.1999, the petitioners demanded a poll in which the 8th respondent voted
on the additional shares. Since the poll
results were announced, the petitioners knew on that day about the additional shares, if
not earlier. Therefore, it is inconceivable
that a person who demands poll does not bother to find out the number of votes polled for
and against the resolution on which the poll was demanded.
In this connection, he referred to Section 185 of the Act to state that it is
obligatory on the part of the Chairman to indicate the number of votes polled. Therefore, according to the learned counsel, the
claim of the petitioners that they came to know of the further issue of shares only in
July, 2000 cannot be accepted. He also
pointed out that if the petitioners came to know
about the further issue of shares on 7.7.2000 as claimed by them, then, they have not
given any reason as to why they did not object to this in the EOGM held on 8.7.2000 when
also the 8th respondent voted on the new shares.
If it is so, then, the petition having been filed belatedly deserves to be
dismissed.
19. As far as offers made to the petitioners is
concerned, he produced the dispatch register of the company wherein entries relating to
dispatch of both the UPC dated 11.7.1999 as well as the registered letters sent on
14.7.1999 are found to have been made. Therefore,
he contended that there is enough proof to show that two letters were sent to the
petitioners - one by UPC and another by registered post.
The letter containing the intimation regarding the postponement of the EOGM was
sent by UPC not only to the petitioners but also to all other directors as well as the
auditors of the company as is evident from the dispatch register. However, the registered letters containing the
offer for the right shares were sent only to
the shareholders. He also referred to the
affidavit filed by one Shri Jarnail Singh
who is looking after the dispatch work of the company wherein he has affirmed the dispatch of both the UPCs as
well as the registered letters and has also enclosed copies of the relevant sheets of the
Dispatch Register and also the postal receipts for
the UPCs dispatched. The learned counsel also
pointed out that if some insignificant communication as alleged by the petitioners had
been enclosed in the registered envelops, none of the petitioners questioned the same. Therefore, according to him, the petitioners must
have received both the communications - one relating to the postponement of the EOGM and
other the offer for right shares.
20. As far as the notice for the
Board Meeting on 3.6.1999 is concerned, he submitted that notices for this meeting
together with agenda were sent to all the directors on 28.5.1999 by UPC as is evident from
the UPC receipt as well as entries in the Dispatch Register. Originally, the meeting was to be held at 11.00
AM. However, since it came to the knowledge
of the Shri Dongre that Dr Charat Ram would be reaching Delhi only in the evening and
since the Shri Dongre desired the presence of Dr Charat Ram, it was decided to adjourn the meeting to 7.30 PM. He contended that nothing prevented the Board from
holding the Board Meeting in the absence of Dr Charat Ram.
The very fact that they even adjourned to meeting to seek the convenience of Dr
Charat Ram, it would only mean that the Shri Dongre had acted bonafide. In this connection, he also referred to the
affidavits filed by the other directors who had attended this meeting wherein they have
affirmed the presence of Dr Charat Ram in this meeting.
He also contended that the mere resolution to increase the share capital does not
affect any one even assuming that such a decision was taken in a meeting not attended by
Dr Charat Ram. However, he did attend the meeting on 12.7.1999 when the shares were
allotted to the 8th respondent as is evident from the signatures of Dr Charat
Ram in the attendance register. The only ground on which the petitioners challenge his
attendance is that there is no entry in the diary of Dr Charat Ram in respect of this
meeting as no was notice received by him.
The non entry in the diary has to be weighed with his signature in the attendance
register and if it is done so, the signature in the attendance register gets precedents
over the non entry in the diary. In this
connection, he referred to the schedule of Board Meetings of the Shriram Group of
companies as produced by the petitioners and stated that this schedule was always subject
to changes and since these two Board Meeting were unscheduled, they could not have found a place when the schedule was
prepared. Therefore, non appearance of
these two Board Meetings in the schedule does not mean that these meetings had not taken
place. As far as holding of these meetings in Malcha Marg is concerned, he pointed out that in the recent past also meetings were held in
that address and therefore the venue of the meeting cannot be a ground to doubt the
holding of these meetings.
21. As far as the claim of the
petitioners that they did not subscribe to the shares only because they did not receive
the offer and that when the value of the shares was more than twenty times of the face
value and as such they would not have refused the offer, the learned counsel pointed out that in another company,
namely, Usha Shriram Furniture Industries Pvt. Ltd., right shares were offered to the
petitioners and even though the shares were worth more than the face value, all the shares
offered were not subscribed by the petitioners by which their shareholding in this company has come down from
42% to 26%. No reasons have been adduced by
them as to why they did not subscribe to the entitled shares. In the same way, they must have had their own
reasons for not subscribing to the offers made to them by registered post on
14.6.1999 in respect of the company. Perhaps,
they did not have sufficient funds at that
point of time to subscribe to the shares or they had felt that in a loss making company it
was not worth investing or that all their
attempts in the High Court to restrain the 2nd respondent from exercising
voting rights in respect to the Trust Shares had failed.
22. Summing up his arguments,
Shri Chandiok submitted that the shares were issued for the benefit of the company and
that the petitioners only aim is to gain control of the management of the company
notwithstanding the fact that there are no allegations of mismanagement and that the Shri
Dongre never acted in a manner prejudicial to the interest of the petitioners as is
evident from the fact that at no point of time he had exercised voting rights in respect
of the 11% shares of the Trust against the petitioners.
Referring to Rights and Issues Investment Trust Ltd V Stylo Shoes Ltd
1964 (3
AER 628,) he pointed
out that when shares are issued for
maintaining the continuity of the management which is for the benefit of the company, then
the same cannot be considered to be an act of oppression.
In regard to the validity and proof of service through UPC, he relied on R.Kemka
v Deccan Enterprises P Ltd (1998 5 CLJ
258 AP) at Page 319 wherein it has been observed that certificates having been
given by the postal authorities in the normal course should be presumed to be genuine
unless the presumption is rebutted by cogent proof.
23. Shri Dave, Sr. advocate
appearing for the Shri Dongre submitted that the controversy as to whether Dr Charat Ram
attended the Board Meetings on 3.6.1999 and 12.7.1999 can not be decided on affidavits. In the same way whether the petitioners received
the offers for right shares sent by registered post or not can also not be decided on
affidavits especially when there are documentary proof that the registered post had been
received by them. Accordingly, he submitted
that in the circumstances, oral evidence should be taken.
It is more so since the petitioners have alleged fraud on the part of Shri Dongre.
In this connection, he referred to Needle Industries case (51 CC 743 )
wherein the Supreme Court has observed that in case allegations of fraud etc. , oral
evidence should be taken.
24. He further submitted that
the relationship between Dr Charat Ram and Shri Dongre was so cordial that Dr Charat Ram invited Shri Dongre to shoulder
the responsibility as Chairman of the company and giving him 40% shares in the company. Reading through certain
passages of the Biography of Dr Charat Ram, he pointed out that the 2nd respondent was brought into the
company only because of his excellent performance in other Shriram Group companies and the
same has been acknowledged by Dr Charat Ram himself
in his own words in this book. After
Shri Dongre assumed the responsibility, a defunct company became a thriving one by which
not only the turnover of the company went up substantially, it had also declared, during
the period of 10 years, over Rs.11 crores as
dividend. However, during the last two
years due to Russian problems, the company suffered losses and Bank finance was not
available. Therefore, it became necessary to
approach the Bank for additional facilities and the Bank sought for increase in the paid
up capital of the company. Since Dr Charat
Ram knew the predicament of the company, he supported the proposal to increase the paid up
capital in the meeting held on 3.6.1999. He
also signed the attendance register. His
signatures in the attendance register are not disputed.
The other family members of Dr Charat Ram did not like the cordial relationship
between the two and therefore they have raked up the entire controversy. Therefore, when the share capital was increased
with a view to benefit the company, there could be no complaint of lack of probity and
even if such an issue of shares creates a majority, the same cannot be considered to be an
act of oppression. In this connection, he
referred to Section 397 (1) and (2) of the
Act to point out that this section would be applicable only for a series of acts of
alleged oppression and not to a single and isolated act.
Referring to Nanalal Zaver case ( AIR 1950 SC 172
) wherein the Supreme Court observed
that once it is established that a company is in need of funds, the issue of shares
towards this end even if such an issue benefits the directors, then, it cannot be
considered to be an act of oppression. He
contended that the present demand of the petitioners for shares to be allotted to them
would also indicate that they do not dispute the need for funds for the company. Referring
to Shanti Prasad Jain vs. Kalinga Tube Limited
(35 CC 351 ), he pointed out that in this case, even though the allegation
was that proportionate shares were not allotted to the minority shareholders, the Supreme
Court held that there was no oppression in terms of Section 397 of the Act nor there was
mismanagement in terms of Section 398 of the Act. He also pointed out that the court will
have to take into consideration the conduct of the petitioners. They have enjoyed the fruits of the company under
the management of Shri Dongre but now they want to gain control of the company, which a
court of equity should not allow. In this
connection, he again referred to Needle Industries case wherein at Page 809, the court has
observed that by issue of shares if the directors benefit incidentally in maintaining
their control, it does not amount to an abuse of their fiduciary powers. The same
observation was also reiterated at Page 813
also. Therefore, he contended that by issue
of additional shares which was for the benefit of the company, the Shri Dongre has not
abused his fiduciary position.
25. He further contended that
the petitioners, other than making bald statements that the company did not need funds in
view of the satisfactory reserve position, have
not bothered to find out whether there was liquidity in the company and they have also not
bothered to check up from the Bank whether the Bank had asked the company to increase the
share capital. He further submitted that even otherwise, increase in share capital is a
management decision and as such neither the shareholders nor the court could question the
wisdom of the management. In this connection,
he also referred to Rights and Issues Investment Trust Limited vs. Stylo Shoes
Limited ( 1964 3 All. ER 68 ) wherein it was held that a court
shall not interfere in the internal management of the company especially in regard to
issue of further shares when the same is for the benefit of the company. He further pointed out that in this case it was
also held that such an issue of shares can not constitute oppression. In regard to the prayer of the petitioners for
rectification of the Register of members, he pointed out that such rectification could be
ordered only if sufficient cause is shown to exist for such rectification. Sufficient cause would mean an act not done in
accordance with the provisions of law as held in Ammonia case ( 1998 7 SCC 105 ).
In the present case, the company had followed the provisions of law in allotment of
shares and as such the question of existence of sufficient cause for rectification does
not arise.
26. Dealing with merits of the
case, Shri Dave argued to state that right from the beginning the understanding between Dr
Charat Ram and Shri Dongre was that the later would have majority voting rights in the
company. That is the reason why 11% shares
held by Charat Ram group were transferred to a Trust and Shri Dongre was made its sole
Trustee and the shares were registered in his name. This
enabled him to have 51% voting rights in the company.
He pointed out that at the time of making Shri Dongre as the sole Trustee to enable
him to exercise 11% voting rights, none from Dr Charat Ram group objected to it.
Therefore, they cannot now complain that Shri Dongre has perfected his control over the
company by allotment of further shares to one of his group companies. The principle of
constructive res-judicata should be
applied. Now by this present petition, they
are trying to take away the control from Shri Dongre.
He also pointed out that the petitioners had initiated various other proceedings
and they could have agitated this matter in those proceedings. He contended that they did not choose to agitate
this matter earlier only because they were in the full knowledge of the consent of Dr
Charat Ram for the allotment of shares to the 8th respondent. Accordingly, he prayed for dismissal of this
petition.
27. Shri U.K. Choudhary, Sr.
Advocate appearing for the 8th
respondent submitted as follows: The petition suffers from both procedural and legal
infirmities. The petitioners have not averred in the petition that circumstances exist for
winding up of the company on just and equitable grounds and that such winding up is
prejudicial to the interest of the shareholders. He
pointed out that this averment is a condition precedent in a 397 petition. Referring to page 778 of 51 Company Cases 743( Needles case) he pointed out that such an averment is necessary. Since there is no allegation of mismanagement to
bring the petition under Section 398 of the Act, the non fulfillment of the condition
precedent makes the petition not maintainable under Section 397. In this connection, he also referred to Shanti
Prasad Jain v Kalinga Tube Ltd case. According
to him the allegations in the petition relate to non
allotment of proportionate shares to the petitioners, non compliance with the provisions
of Section 81 (1A), non compliance with the Articles. Further they have also alleged that the allotment of shares to the 8th
respondent is fraudulent and that the same was kept as a secret. These allegations can never warrant winding up of
a company on just and equitable grounds. He
contended that this petition has been filed with an oblique motive and not with a view to
get the grievances redressed. The only aim of
the petitioners is to gain control of the company from the Shri Dongre. All their attempts in the High Court having
failed, they have filed this petition. Even
assuming that the allotment is wrong, yet, the petitioners who were never in the
management of the company cannot complain that Shri
Dongre who has always been in the management gaining absolute control of the company by
this allotment. The manner in which the
petitioners have gone about to gain control is evident from the fact that first they
wanted to appoint 3 directors so that they could
get majority on the Board and thereafter they
challenged the voting rights of Shri Dongre
in relation to 11% shares of the Trust with a view to get majority in the voting rights
also. The CLB being a court of equity cannot
allow oblique motive being achieved through this petition.
28. He further submitted: As far
as the EOGM requisitioned by the petitioners for appointment of 3 directors is concerned,
the requisition notice dated 23.4.1999 was received by the company only on 28.4.1999. On that day, they filed a suit for restraining the
company from appointing additional directors. What
provoked them to file the suit when there was no agenda item for appointment of additional
directors has not been explained by them so far. Even though the suit was dismissed on
5.5.1999, yet, the company was never aware of the suit till an appeal was filed. The
petitioners cannot complain of the appointment of 3 additional directors when the same was
necessitated to protect the interest of the Shri Dongre in view of the EOGM notice. Any legal action to protect the interest of
oneself can never constitute an act of oppression. Since
the petitioners failed to get any relief from the High Court in the various proceedings,
perhaps, the petitioners realized that all their attempts to gain control of the company
had proved to be futile and as such they did not apply for the right shares to which they
had to make substantial investment. Only when
the High Court made some observation favourable to the petitioners on 10.2.2000 in
relation to the 11% shares of the Trust, the petitioners decided to challenge the
allotment belatedly. On 8.5.2000, they requisitioned another meeting for removal of 3
directors and appointment of 3 new directors. This
meeting was scheduled to be held on 22.6.2000. When
the Shri Dongre filed an interim application 509 of 2000 seeking permission of the court
to vote on the 11% shares, the prayer was granted by an order dated 16.6.2000. The court also appointed Justice A.K. Mehra to
preside over the EOGM on 22.6.2000. All the
resolutions were defeated on poll and the 8th respondent had exercised voting
rights in respect of the new shares allotted to it. Thus,
the petitioners fully knew that Shri Dongre was in a position to control the voting rights
in respect of the new shares even on this date. Therefore, the stand of the petitioners
that they came to know of the increase in the paid up capital of the company only on
7.7.2000 is false to their knowledge and as such they cannot seek any equitable relief
from the CLB. Having demanded a poll on
22.6.2000, they cannot say that they were not aware of the number of shares voted upon on
the ground that the minutes do not disclose the figures.
They should have taken inspection of the votes polled.
29. In regard to the allotment
of shares to the 8th respondent, the learned counsel pointed out that his
client - the 8th respondent - is an NBFC governed by RBI Regulations.
As per the RBI circular dated 31.3.98, the company had to increase its share
capital. Therefore the Articles of this
company were amended to increase the share capital. Since
the company belongs to Shri Dongre, he applied for shares by an application dated 3.7.1999
with a cheque dated 2.7.1999 for Rs. 26.5 lakhs.
By this time, the 8th respondent had received offers for right shares
from the company. Since it would be getting
money for the shares allotted to Shri Dongre, it applied for all the shares of ( 26,400) the company by an application dated 2.7.1999
enclosing therewith a cheque dated 3.7.1999 for Rs 26.4 lahks. This cheque was cleared on 8.7.1999 and
shares were allotted by the company on 12.7.1999. Since
Shri Dongre is Chairman of the company, he knew that no other shareholder of the company
had applied for the shares by 2.7.1999 and accordingly his company viz. the 8th
respondent applied for all the shares. Therefore,
there is nothing mysterious about the 8th respondent applying for all the
shares offered as right shares.
30. In regard to the allegation of under valuation of shares, Shri
Choudhary pointed out that this company is a closely held company with restrictions on
transfer of shares and therefore the question of issue of shares on the basis of the net
worth does not arise. He also pointed out that the earning capacity of the company is very
low and as such the real value of shares cannot be more than Rs.100/-. Even otherwise, he
contended that his client being a bonafide applicant for the consideration, the allotment
to his client cannot be challenged, more so as
his client is not concerned with the indoor management of the company. He also pointed out that the allegations of the
petitioners that the directors' report does not contain the increase in the paid up
capital is not supported by any legal provision. Even
section 217(1)(d) of the Act does not require
any disclosure about increase in the share capital after the closure of the financial
year.
31. Shri Ganda appearing for 3rd,
4th and 5th respondents adopting the arguments of the counsel for the other contesting respondents, also
referred to the affidavits of his clients wherein they have confirmed the attendance of Dr
Charat Ram in the Board Meetings held on 3.6.1999 and 12.7.1999. He pointed out that the company started sending
UPCs only for the meetings from 24.5.1999 since by that time disputes had started between
the parties.
32. Shri Ganesh, Sr Advocate, appearing for the 7th respondent
replying to the arguments of the counsel for the contesting respondents submitted as
follows: The stand of the Shri Dongre is inconsistent.
According to him, at page 24 of the Reply, he has averred that the petitioners
wanted to prevent the Bank giving any assistance to the company. If it is so, there is absolutely no logic in Dr
Charat Ram attending the Board Meeting on 3.6.1999 and agreeing for issue of right shares
with a view to meet the requirement of the Bank for giving further facilities. When the petitioners were willing to subscribe to the
shares in August, 2000 immediately after
coming to know of the issue of shares, by sending the requisite consideration, there is no
reason as to why they could not have done so in July, 1999 if the offers had really been
made to them by the company at that time. The
whole episode has been master minded by the Shri Dongre as would be evident from the fact
that all the established procedures that were in existence for a long time were given a go
by just before the allotment of shares. He pointed out that notices for all the Board
Meetings used to be personally handed over up to 17th May, 1999. However, the company resorted to the alleged UPC
mode of dispatch for the meetings from 24.5.1999. In
the same way the practice of circulating draft minutes was also stopped. This change in procedure was only to enable manipulation of records.
33. He also pointed out that
when the petitioners were fighting for the control of 11 % shares, they would never allow
control of over 13% to be handed over on a
silver platter to the Shri Dongre by not accepting the offers made to the petitioners. Referring to Annexure RJ-6, he pointed out that
the Shri Dongre felt insecure about the 11% shares notwithstanding the allotment of shares
to the 8th respondent which is under his control. In none of the proceedings, the further allotment
of shares was disclosed apprehending that the same would be challenged. In this connection, he pointed out that there was
no reason for the company to have obtained certificates from the Post Office in relation
to the registered posts alleged to have been sent on 14.7.1999, in November, 1999 when
there was no challenge to the allotment. He
also pointed out that in 1984, when shares were allotted, the offers were hand delivered
while in the present case the offers were allegedly sent by the registered post only for
the purposes of creating records. He also
pointed out that the Shri Dongre, with a pre-meditated plan increased the capital of the 8th
respondent in May, 1999 itself for the exact amount which would be required for
subscription to the shares in July, 1999 and allotted shares worth the same amount to Shri
Dongre on 16.6.1999. He further pointed out that the allotment of shares to the 8th
respondent is clouded with pre-planning. The authorized
capital of the 8th respondent was increased from Rs 5 lakhs to 35 lakhs
on 5.6.99. The 2nd respondent applied for
the shares in C&N on 3.7.99 with a
cheque dated 2.7.99 and was encashed on 8.7.99 and shares were allotted on the same day.
Similarly, the 8th respondent applied for all the shares in the company on
2nd July, 1999 with a cheque dated 3.7.1999. The last date of application was 4.7.1999. The amount remitted by the 2nd
respondent for shares in C&N and credited in its account on 8.7.99 is used for payment
for the shares in the company. The sequence of these events would clearly demonstrate that
allotment of shares to the 8th respondent was a pre-planned one and all the
documents relating to the alleged offer having been made to the petitioners are
fabricated. Even assuming that the 8th respondent had to increase its capital
to Rs.25 lacs as per the RBI Guidelines, yet, since the said company had a reserve of Rs.5
lacs, there was no need to increase the share capital to Rs.35 lakhs. It was done only
because it needed money for subscription to the shares of the company. He also pointed out that the date of application
with remittance expired on 4th July 1999 and since company could not have encashed the cheque for
want of funds in the bank account of the 8th respondent which was only Rs 1.7
Lakhs on that day, its application should
have been rejected.
34. As far as the communication
between the Bank and the company is concerned, he pointed out that in the hearing held on
25.8.2000 before the CLB, the company had produced only two letters from the company to
the Bank but no letter from the Bank to the company requiring increase in the capital was produced.
He further pointed out that the dispatch register of the company does not contain
any entry relating to the dispatch of the letters of
6th and 19th May to the Bank and therefore these letters were
not actually sent to the Bank. Even in the reply nor during further hearings any letter
from the Bank was produced. After he had repeatedly pointed out about the absence of any communication from the
Bank in writing in regard to the increase in the capital, only in the hearing held on
14.1.2001, an unsigned letter dated 27.5.99, in
the letter head of the Bank was produced
wherein the Bank had allegedly threatened to keep the limits in abeyance in case the paid up capital
was not increased within a week. Shri Ganesh pointed out that this
letter being an important one supporting the stand of the company that the share capital
was being increased as per the requirement of the Bank, should have been produced at the
first instance. The late production of
an unsigned letter from the Bank indicates that it is a fabricated document. The
fabrication is evident, he contended, by pointing out that the said letter bears the
letter head of the Bank as in 1995 while the other two conveying the sanction are on
the 1999 letter head. He elaborated this point by pointing out to various differences
between the two letter heads. He also
pointed out that even the sanction letter 21.5.99, produced
by the company, does not contain the enclosure which Shri Ganesh himself produced and
pointed out that this annexure containing conditions does not require the company to
increase the share capital. Producing another
letter of the Bank dated 22.5.1999, Shri Ganesh pointed out that this letter makes a
reference to the sanction letter of 21.5.2000 and the company has not produced before the
CLB the letter of 22.5.1999 nor it has indicated the date on which this letter was
received. In regard to the acknowledgment for receipt of the sanction
letter dated 21.5.99 on 4.6.99, Shri Ganesh
pointed out that this copy of the Bank also does not contain either the signature or
initials of the Manager and the person who has acknowledged the same is also not
identified. Further, there is nothing on record to show that the company had advised the
Bank about the Board meeting on the 3rd
June, for the Bank to release the sanction on 4th June. Therefore, he submitted
that there is no evidence that the Bank required the company to increase the share
capital. According to Shri Ganesh, by
disclosing the allotment of further shares,
the 2nd respondent could have taken a stand in the High Court that the
petitioners had handed over the company to him by not subscribing to the shares offered
and therefore the entire proceedings in
relation to the Trust shares was infructuous.
Accordingly he contended that the claim of the respondents that the share capital was
increased to meet the requirement of the Bank is a concocted story and the only purpose
was to allot the shares to the 8th respondent.
35. Shri Ganesh further
submitted: The Board of the Directors could
not have issued further shares without the approval of the general body as Articles 3 to 7
of the Articles of Association of the company require general body approval even for issue
of shares within the authorized capital. Producing a copy of the Board resolution dated
30.7.84 in connection with the earlier issue of shares, he pointed out that at that time,
even though the Board recorded that the general body approval was necessary, yet in view
of the cordial relationship between the parties, shares were issued without a formal
approval from the general body. However, in the present case, in view of the strained
relationship between the parties, general body approval should have been obtained. Since
shares have been issued in violation of the Articles, the same is null and void.
36. As far as the arguments
relating to absence of averment in the
petition about winding up of the company on just and equitable grounds, the learned
counsel argued that there is no such
requirement prescribed either in the Act or in the Regulations and as per the provisions
of Section 397, it is the CLB which has to form an opinion on the basis of the allegations
that winding up of the company on just and equitable grounds is justified. He pointed out
that it is not like Section 16 of the
Specific Relief Act wherein the statute itself has prescribed an averment that the
plaintiff is ready and willing to perform. Even this requirement has been held to be not necessary by the Apex Court in Syed Dastagir v T.R.Gopalakrishna
Setty (1999 6 SCC 337)
wherein it has been held that the pith and substance of the pleading has to be
considered. On the same proposition, he also relied on Motilal Jain v Ramdasi Devi
(2000 6 SCC 420).
37. Shri Shanti Bhushan, Sr. Advocate appearing for the
petitioners argued in rebuttal, as follows: The
allotment of 26400 shares was kept as a secret and was never disclosed even in the various
proceedings before the High Court till 7.7.2000. Immediately
thereafter, this petition has been filed challenging the said allotment. The 9th petitioner being the
beneficiary of 11% shares has already filed a suit against the Trustee under section 56 of
the Trust Act for transfer of the shares in the name of the beneficiary. With these 11% shares, the petitioners would
become absolute majority in the company with 60% shares.
To safeguard his interest as a majority shareholder in case the decision in the
suit goes against him, the Shri Dongre had clandestinely issued and allotted 26400 shares
to the 8th respondent, a company under his control. If the company had allotted these shares in
July, 1999, by which the Shri Dongre had become absolute majority in the company, there
was no reason for the Shri Dongre to seek the permission of the court to vote on the Trust
shares in December, 1999. The very fact that
the allotment was made in July, 1999 after the 9th petitioner had filed the
suit would indicate that the motive of the allotment of shares to the 8th
respondent was only to gain absolute majority. Referring to Needle Industries
case ( Pages 106-107), he pointed out that fraudulent allotment of shares is a gross act
of mismanagement. He also pointed out that
the potential majority of the petitioners has been affected by the allotment of shares
exclusively to the 8th respondent. In
regard to the knowledge of the petitioners about the allotment of shares, he referred to
Annexure-34 and pointed out that the petitioners came to know of the allotment only
through affidavit filed by the 2nd respondent in Delhi High Court on 7th
July, 2000. He pointed out that in its letter at Annexure-35, the company has not
mentioned that Dr Charat Ram had attended the
Board Meetings in which the decisions to increase the capital and allot further shares
were taken. According to him, the petitioners
came to know of the alleged Board Meetings on 3.6.99 and 12.7.99 only from the instant proceedings. He also pointed out that even though, according to
the respondents, Dr Charat Ram attended the meeting on 3.6.1999, yet, there is nothing on
record to show that Shri Jain, the 8th respondent was informed of the
postponement of the meeting at 7.30 PM. He
argued to state that all the proceedings before the
High Court were being prosecuted on the basis that the petitioners held 49% shares and at
no point of time till July, 2000, the respondents disclosed about the allotment of further
shares.
38. In regard to the argument of
the respondents that since the petitioners had demanded a poll in the AGM held in
December, in which the 8th respondent had exercised its votes in respect of the
26,400 shares, on announcement of the results, the petitioners should have known about the
issue of these shares, Shri Shanti Bhushan submitted that since the 2nd
respondent had exercised votes in respect of the 11% shares of the Trust in that meeting,
the petitioners knew that he controlled 51% shares and therefore there was no occasion for
the petitioners to ascertain the number of votes polled. He also pointed out that if the
petitioners had known about the issue of shares, there was no meaning in their
requisitioning a general meeting in June 2000. Such requisitioning a meeting itself would
indicate that the petitioners were not aware of the issue of further shares.
39. Shri Shanti Bhushan continuing his arguments
submitted that the withdrawal of the application by the petitioners cannot dis-entitle
them from proceeding with the present petition before the CLB since the said application
was with reference to voting in a general body meeting. According to him, provisions of
Order XXIII Rule I are not applicable to
miscellaneous applications. Even otherwise,
these provisions deal with only a suit in a civil court.
Since CLB is not a civil court, the provisions of the Code are not applicable to
the proceedings before the CLB. In this
connection, he referred to Section 10E (4) of
the Act to point out that only a certain provisions of the Code are applicable to the
proceedings before the CLB. He also pointed
out that in a number of cases the CLB has held
that provisions of the Code are not applicable to the proceedings before it. He further pointed out that at the time when the
miscellaneous application was withdrawn, the present petition had already been filed and
therefore the provisions of Order XXIII cannot be applied in as much as these provisions
are applicable only in case of institution of a fresh suit after withdrawal. On this
proposition, he relied on Girdhari Lal Bansal v The Chairman Bhakra Beas Management
Board ( AIR 1985 Punj 219). Even
otherwise, he pointed out that the said application was withdrawn at the instance of the
respondents and as such they are estopped
from raising the objection now. Even otherwise, he pointed out that the respondents
opposed CMA 1078 as not maintainable. He also pointed out that even the High Court in its
order dated 5.5.99 had advised the
petitioners to move the CLB. In view of this,
Shri Shanti Bhushan submitted that the objections raised by the respondents on the
maintainability of the petition in terms of Order XXIII should be rejected. He also pointed out that when frauds are
committed against the shareholders, it is a clear case of oppression warranting winding up
of the company on just and equitable grounds. Further,
since by the allotment of further shares, the shareholding of Shri Dongre has become 52%,
there has been a change in the shareholding resulting in change in the composition of the
Board and as such even the provisions of Section 398 are attracted. He also questioned the logic of convening an EOGM
in June, 2000 if the petitioners had known about the allotment of further shares. He also questioned the authenticity of the minutes
purported to have been made with reference to the meeting at 7.30 PM on 3.5.1999 on the
ground that the alleged draft minutes filed before the CLB on 25.8.2000 is found to have
been signed on 16th May i.e. after 13 days of the meeting. If actually, the meeting had been held at 7.30 PM
as claimed by the respondents, there was no need to indicate the time of the meeting at
11.00 AM after 13 days. He also pointed
out that the respondents have not been able to indicate as to how and when the notice for
the adjournment was given to Dr Charat Ram or the 7th respondent nor the
respondents are in a position to answer as to why there are no signatures for the meeting
at 11.00AM and why no minutes were recorded about the adjournment of the meeting to 7.30
PM. Accordingly, he submitted the lack of probity on the part of the 2nd
respondent straightway attracting the just and equitable clause. As far as the delay in filing of the petition
after having come to know of the increase in capital in July, 2000, he submitted that the
petitioners had to collect all the materials before filing this petition, even though they
had filed the application before the High Court on 20.7.99. Further, they proceeded on the
assumption that the provisions of Section 81 of the Act had not been complied with. Only
after filing of the documents by the respondents, the petitioners came to know that a
fraud had been perpetrated by the respondents on the petitioners. He pointed out that the
CLB has in Vijay Soubhayachand Vipani vs Jai Jalram
Fabricators Pvt Ltd ( 2000 4 CLJ 167) after
observing that it is inconceivable that the petitioner directors would have agreed for
allotment of shares which would result in their shareholding coming down from over 50% to
about 35%, held that this allotment was an act of oppression as it has reduced the
percentage holding of the petitioners. Similarly, in Mrs Farhat Sheikh vs Easemen
Metalao Chemicals Pvt Ltd (1995 1 CLJ 158) the CLB has held that issue of further
shares in breach of the fiduciary duties of the directors by which the percentage holding
of the petitioner came down was an act of oppression.
40. Shri Chaudhary, in rejoinder
argued as follows: The CLB or the petitioners cannot question the wisdom of sending the
letter dated 11th July, 1999 as it was purely a management decision to keep the
members informed of the postponement of the EOGM and therefore, petitioners cannot derive any benefit by
imputing any motive to the sending of that letter. As
far as the provisions of Section 398 are concerned, it should be established that the
change in the ownership of shares or management should be detrimental to the interest of
the company or public interest. An alleged
oppressive act cannot come under Section 398 as this Section does not deal with interest
of members. There are no allegations in the petition about mismanagement in the affairs of
the company nor any such allegations were made in the High Court. Further, a single isolated act which had taken
place one year earlier cannot give a right under Section 398 of the Act. If the
petitioners desire to set aside the allotment the proper course would be to move the civil
court by way of a suit. In
regard to the allegation that the letters relied on by the respondents as having been sent
but not found in the dispatch register of the company, he submitted that there are many occasions when letters are hand
delivered through peons and therefore are not
entered in the dispatch register. ( He
produced copies of some other letters sent to
the Bank but not entered in the dispatch register) As far as non circulation of the draft
minutes is concerned, there are no provisions in the Act for such circulation and the
practice was stopped since the 7th respondent was misusing the draft minutes. No one could complain about non circulation when
the same was done in the interest of the company. As
far as the meeting on 3rd May, 1999 is concerned, the same is of no consequence
since by deciding to allot shares on a right basis, no body is prejudiced. Further, there was no need for the 2nd
respondent to fabricate the attendance register to indicate the presence of Dr Charat Ram
in as much as the company could have taken the same decision even without the presence of
Dr Charat Ram. As far as the increase in share capital of the 8th respondent is
concerned, the same was done for two reasons - one
is to comply with the requirements of RBI and the other is in the interests of the
company. The petition being with an oblique
motive is evident from the fact that the petitioners had taken inspection of the ROC
records on 7th July, but wrote to the company only on 17th August.
Further, in the EOGM on the next day (on 8th July) no objection was taken on
this issue as is evident from the minutes of the meeting chaired by court appointed
Chairman. Even the letter of 17th August is only with the view to strengthen
their claim in this petition as the petition is dated 18th August. The doctrine
of potential majority as claimed by the petitioners is unknown to company law and cannot he taken cognizance. Having
decided not to subscribe to the right shares when offered, now they cannot allege fraud
etc without an iota of evidence and as such the petition should be dismissed as held in Bengal Laxmi Cotton case ( 35 CC 187 Cal). A reading of the judgment of Andra Pradesh in Kemkas’s (supra) case would reveal that in that case all the
allegations were practically similar to the allegations in the present petition and the
Court had dismissed the said petition. Therefore following that case, this petition should
also be dismissed.
41. We have considered the
pleadings and the arguments of the counsel. Even though the arguments on the petition were
concluded on 2.2.2001, certain applications were filed later the arguments on which were
concluded only on 24.7.2001. At the outset we would like to make it abundantly clear that in this order we have not taken into
consideration the written submissions given by the parties as both the sides had raised
objections on the contents of the written submissions as containing fresh arguments not
advanced during the hearing. Accordingly we have taken into consideration only those
arguments that were advanced during the hearings.
42. Before we deal with the
merits of the case, we shall deal with certain main preliminary
objections of the respondents that the petition is not maintainable in terms of Order
XXIII Rule 1(4) of the Code, that a single and isolated act cannot constitute an act of
oppression, that an act to consolidate ones present position cannot constitute an act of
oppression etc.
43. In regard to the
applicability of the provisions of the Code to the proceedings before this Board, the same
was examined in detail by this Board in Rajender Kumar Malhotra v Harbans Lal
Malhotra & Sons Ltd ( 87 CC 146) and the finding was that neither the
provisions of Evidence Act nor that of the Code were applicable to the proceedings before
this Board except to the extent provided in Section
10 E (4C) of the Act and that this Board was being guided by the principles of Natural
Justice as provided in Section 10 E (5) of the Act. No
doubt in TNK Govindaraju Chettiar & Co Ltd v Kulki Leather P Ltd (2000 4 CLJ
427) this Board has held that the principles of the Code could be applied in facts
of a particular case. So far this Board has not applied the provisions of Order XXIII Rule
1 in any case for the reason that the powers of this Board under Section 402 of the Act
are exclusive and cannot be granted by the civil court. However, in Pradip Kumar
Sengupta v Titan Engineering Pvt Ltd (94 cc 825). the petitioner had filed a civil suit covering practically the
same allegations as in the petition filed later before the CLB. On the date of filing
the petition, he also filed an application before the civil court praying for withdrawal
of the suit with liberty to approach the CLB. The court passed an order “That the plaintiff is at liberty to withdraw the suit
subject to payment of cost of Rs.100/-.No liberty is given to file any suit afresh on the
same cause of action”. Since the
petition was on the same cause of action to which liberty had been refused, the CLB
dismissed that petition on the ground of legal propriety. Excepting this case, whenever this Board finds that recourse had been
taken to the civil court on the same issues as before this Board, the proceedings before
this Board are stayed following the
principles of Section 10 of the Code and has
not dismissed any petition. For example in Guljarilal
Kanoria v Lopchu Tea Co Ltd (2000 36 CLA 391) and Sardar Iqbal Singh v Sardar Gurbaksh Singh
(2000 37 CLA 99): Mrunalini Deve Paur of Dhar v Gaekwad Investment Corpn. Ltd (82 CC 899),
this Board stayed its proceedings
since parallel proceedings instituted prior in time were pending in the civil courts. Such
stay was not withstanding that the civil courts had passed some interim orders. As a
matter of fact Dr Singhvi himself had only urged us to stay the present proceedings in
line with the decision of this Board in a number of cases. In a number of cases, at the
instance of this Board itself, the parties had withdrawn the earlier civil proceedings after which this
Board has considered the petitions before it. Further it is to be noted that the
petitioners had disclosed in the petition about CM 1078/2000 and had also undertaken, in paragraph 52, that the said CM will be confined only to an
interim order and direction relating to the EOGM held on 8.7.2000. In the reply also, the
respondents have only sought for staying the present proceedings in terms of Section 10 of
the Code. Thus, in the present
case, we find no bar in proceeding with the matter for the for various other reasons:
Firstly, since the present petition had already been filed before withdrawal of the
proceedings before the High Court, the provisions of Order XXIII Rule 1 cannot be strictly
applied. The case of Girdhari Lal Bansal(supra) cited by the learned counsel
for the petitioners is to this point. In
Sarguja Transport Service case (supra) the provisions of this Rule were
applied when after withdrawing a writ petition without liberty, another writ petition was
filed on the same cause of action. But in the
same case, the Apex court also observed that the petitioner had other remedies like a suit
or a writ petition under Article 32 before the Supreme Court. In Upadyay case also the
position was that after withdrawing an SLP without liberty, the petitioner filed a fresh
SLP. Thus it is seen that a fresh proceeding
was initiated after withdrawal of an earlier case and as such these decisions are not
applicable to the case before us. Secondly, CM 1078/2000 in which the issue relating to
further shares was raised was an interlocutory application, the withdrawal of which, we do
not think would disentitle the petitioner to agitate the same in a substantive proceedings
under Sections 397/98. The decision of Delhi High Court in Aftab Ahmad and Narian
Singh cases (supra) related to filing a fresh application in the same proceedings
after withdrawal of an application on the same cause of action: thirdly, in
that application, the complaint was not one of oppression
and the main relief sought in that application was to restrain the
voting rights on the shares issued and not for
cancellation of the shares as an act of
oppression as in the present proceedings:
fourthly, no order had been obtained from the Court on that application: fifthly, it was at the instance of the counsel for
the respondents, that the learned counsel undertook to withdraw the application and on
that undertaking the arguments were proceeded with and within a few days the said
application was withdrawn. A party cannot blow hot
and cold at the same time- first insisting on withdrawal of the application and later
claiming that such withdrawal would be a bar
to proceed with the petition. Since, the
practice of this Board has been to proceed
with the matter once the parallel proceedings are withdrawn, we would like to continue
that practice and as such we declare that this petition does not deserve to be dismissed
in terms of Order XXIII Rule 1.
44. The next objection is that a
single and isolated act cannot give raise to a petition under Section 397 and on this
proposition reliance has been placed on Kalinga Tube and Needles cases. In
both the cases it has been held that a single and isolated act cannot constitute oppression and that there should be continuous acts on the part of the
majority shareholders continuing up to the date of the petition showing that the affairs
of the company were being conducted in a manner oppressive to some part of the members. To apply this dictum, one has to examine the nature of the single act. If the effect of a
single act has permanent or continuous effect and if is alleged to be an act of oppression
then the same can be agitated in a proceeding under Section 397. As a matter of fact in
both Kalinga Tube and Needles cases, the only substantive allegation related
to a single act of issue of further shares and the Court dealt with the allegation to find
out whether the directors had misused their fiduciary power to their own advantage by
issuing further shares. In Re Sindry
Iron Foundry Pvt Ltd ( 34 CC 510), the Calcutta High Court observed “ If
the court is satisfied the conduct arising from a single oppressive act, that its effects
will be a continuous course of oppression and there is no prospect of remedying the
situation by the voluntary act of the party responsible for the oppressive act, the court
is competent to interfere by appropriate order under Section 397” . Similar view
has been expressed by the same Court in Tea Brokers Pvt Ltd v Hemendra (1998 5 CLJ
463) wherein the Court observed that a single act having perpetual damage to a
part of the shareholders can be examined in a 397 petition. In Motion Pictures
Association case ( 55 CC
375), the court observed that if an act is alleged to be harsh, burdensome and
wrongful, the same is oppression. Since , issue of shares, even if is a single act, has
continuous and perpetual effect, if it is alleged that
such an issue is harsh, burdensome and wrongful, then the same can be examined in a
397 petition. This Board has considered the
single act of issue of further shares in a number
of cases as oppressive in facts of those cases. Even in Khema’s
case, relied on by Shri Choudhary, even though many issues were framed, the only issue examined by the Court finally was the further issue of shares. Since in the present case, the petitioners claim
that further shares have been issued fraudulently with a view to gain absolute control of
the company by the respondents, this complaint cannot be dismissed on the ground of being a single and isolated act.
45. Another objection raised is
that with the support of 11% shares of the Trust, Shri Dongre has always been in majority
and therefore by the issue of further shares
to his own group, no new majority has been created and as such the question of oppression
against the petitioners does not arise. While
conversion of a majority into a minority and creation of a new majority has always been
held to be an act of oppression, depending on the nature of a company--say a family
company or in a company in the guise of partnership, any change in the shareholding by further issue of shares could
be considered to be an act of oppression. In a case when
the majority holding 52% shares allotted further shares to itself without offering
shares to the Group holding 48% shares, this Board had held that such an issue of shares
was oppressive ( Standard Industries Limited vs. Mafatlal Services Limited 81 CC 764 CLB ).
Likewise in Cachar Native Ltd case
( 1999 34 CLA 287) this Board
held that issue of further shares to maintain one’s majority would be an act of
oppression. Similar decision was given in Dipak
Mehta vs Shree Anupar Chemical Pvt Ltd case also ( 98 CC 575). Even in Needles case, the Court has
observed “ The fact that by issue of shares the directors succeed, also
incidentally, in maintaining their control over the company or in newly acquiring it, does
not amount to an abuse of their fiduciary power. What is considered to be objectionable is the use of such powers merely for an extraneous
purpose like the maintenance or acquisition of control over the affairs of the
company…” (emphasis supplied). Therefore, irrespective of one’s
holding, if further issue shares is alleged to be in breach of fiduciary duties leading to
an act of oppression, the same has to be
examined to find out whether the same is oppressive in facts of that case. Even otherwise,
in the present case, by the time further shares were issued, certain disputes were pending
in Delhi High Court in regard to the 11% shares of the Trust and as such there was
uncertainty in respect of control of Shri Dongre on the 11% shares. It was contended by the counsel for the
contesting respondents, that, when the petitioners were trying to wrest the control of the
company from Shri Dongre, he is fully justified in taking steps to maintain his control.
We do agree that any lawful steps taken in this regard, may not necessarily be considered
to be oppressive. But the allegations of the petitioners are that while they were adopting lawful means to gain
control transparently, Shri Dongre has adopted and clandestine and fraudulent means in the
allotment of shares with the view to gain/maintain control. If so, then, such allegations
have to be examined.
46. Before we deal with the
merits of the case, it is necessary to record that the respondents had filed an
application CA 79/2001 to record oral evidence/cross examination of one Shri Rao, an
officer of the Punjab National Bank in the circumstances indicated below: One of the main contentions of the petitioners was
that further shares were issued without any financial need of the company and was done
only with a view to allot the shares to Dongre Group.
The stand of the respondents was that the shares were issued at the instance of the
Punjab National Bank which had required the company to issue shares up to the authorized
capital of the company to consider the company’s request for sanction of credit
facilities. This requirement was
reportedly by way of oral instructions. To
substantiate this, the company had produced two letters written by them to the Bank but
there was no written communication from the Bank in this regard. However, during the hearing, the learned counsel
for the respondents produced a letter dated 27.5.1999
on the letter head of the Bank without
any signature but with an initial stating
that if the paid up capital was not increased within a week, the Bank would keep the
renewal of the credit limits in abeyance. The
learned counsel for the petitioners questioned the authenticity of the letter and also the
receipt of the two letters allegedly written by the company
to the Bank. With a view to ascertain
the correct position, we passed an order on 7.3.2001 asking the Bank to furnish the
following information:
a. (1) The date on
which the application for facility was received by the Bank from M/S General Sales Ltd. (
Usha Inter-Continental)
b. (2) The date
and the level at which the decision to grant the facility was taken.
c. (3) The date on
which the letter of Sanction dated 21.5.1999 was posted or delivered to the company.
d. (4) The date on
which the letter dated 22.5.1999 regarding Packing Credit Limit was posted or delivered to
the company
e. (5) The date on
which the letter dated 27.5.1999 cautioning the company that the renewal would be kept in
abeyance if the share capital was not increased, was posted/delivered to the company.
f. (6) In addition
to the terms and conditions stipulated in the sanction letter, whether any oral directions
were given , more particularly in regard to
enhancing the capital of the company and if so:
i.
(a) Why the same were not
incorporated in the sanction letter itself?
ii.
(b) At what level the
decision to give oral direction regarding increase in the share capital was taken- whether by the same authority who sanctioned the credit
facility or by any other authority? ( Furnish written decision in this regard, if any,
within the Bank).
iii.
(c) Whether in respect of
any other customer, without giving in writing, such directions had been given orally in
the past ( furnish details).
iv.
(d) Along with the
affidavit, the Bank is also directed to enclose copies of all letters/communications sent
to the company and received from the company in relation to the credit facility.
47. The above information was to
be furnished by the Bank by 25th March, 2001.
However, the Bank sought for extension of the time to get the information from the
concerned persons. Thereafter, an affidavit
was filed by one Shri K.V.B.N. Rao, Assistant General Manager of the Bank ( ECE House
Branch) stating that being conversant to the facts of the matter from the record, he was
furnishing the following information:
1. (a) In respect
of Sr.No.1, I state that last renewal was made in May 1999.
The revised application for renewal of facilities, in the above respect, was received by the Bank on 26.6.98. Copy of the
revised application is filed herewith.
2. (b) In respect
of Sr.No.2, I state that as ascertained from Head Office, the decision to grant the
facility was taken by Executive Director of the Bank on 11.5.99.
3. (c) In respect
of Sr. No.3, I state that the date on which the letter of sanction dated 21.5.99 was
posted or delivered is not available. It
seems that the same has been personally delivered.
4. (d) In respect
of Sr. No.4, the date on which the letter of sanction dated 22.5.99 was posted or
delivered is not available. It seems that the
same has been personally delivered. Copies of
sanction dated 21.5.99 are filed herewith.
5. (e) In respect
of Sr.No.5, I state that the Bank has not issued any such letter as referred to in Sr.
No.5.
6. (f) In respect
of Sr. No.6, I state that as per record of the Bank, there is no indication of Bank’s
officers having given any oral directions in regard to enhancement of the capital of the
company.
48. On receipt of this
Affidavit, the respondents filed an application seeking for cross examination of Shri Rao
on the ground that in his affidavit, he had not indicated the various letters written by
the company to the Bank and also about the letter dated 27.5.1999. On hearing this application, we permitted both the
sides to take joint inspection of the
documents of the Bank and file their comments thereafter. On inspection of the Bank
records, and on filing of the comments, the respondents once again sought for an order for cross examination of Shri Rao or else to ignore the said affidavit. On hearing their arguments, we reserved the order. We do not propose to order cross examination of
Shri Rao for various reasons. The respondents
themselves in their affidavit dated 25.5.2001 have averred that in view of Shri Rao having
joined the ECE House branch only recently, he is not fully aware of the facts and
circumstances of the case and as such is not competent to swear the affidavit for want of
personal knowledge. If so, there is
absolutely no meaning in calling him to give oral evidence on matters of which he would
have no personal knowledge. Further, we feel
that in view of the averment of the respondents that there had been regular interaction
between the officers of the Bank and the officers of the company in relation to the credit
facilities, it would have been more appropriate for the company to have identified the
person with whom interaction was had and called him to either file an affidavit or give
oral evidence rather than asking someone who does not have the personal knowledge to give
oral evidence. Since as recorded in the
office note dated 26.5.99 at page 59 of the
reply of the 1st respondent “The
concerned Manager felt bad that just because he had agreed not to put this condition in
writing and had been able to seek approval from the authorities on the basis of our
assurance we were now putting him into trouble by finding excuses” the right
person who should have been asked by the company to
file an affidavit or give oral evidence is the concerned manager. Further, we also feel that in view of the stand
of the company itself in its affidavit dated 25.5.2001 that there had been
substitution/addition of papers in the Bank records, it would not be appropriate to rely
on the Bank records. Therefore, we have decided to go by the records placed before us and
the arguments of the learned counsel thereon and also on the comments of the parties after
they had taken inspection of the Bank records. In other words, we are ignoring the
affidavit filed by Shri Rao and as such the question of calling him for cross examination
does not arise.
49.
In a Section 397 petition, if the allegation relates to issue
of further shares, we have to examine as to whether the same could be considered to be an
act of oppression. There can be no readymade yardstick in this regard. It would depend on
the relationship between the parties, the purpose and object of the issue etc. As a normal
rule, if the motive to issue further shares is to
create a new majority or to convert a majority into minority, or in a closely held
company, such issue is made at the detriment of a
part of the shareholders, then such a further issue could be considered to be an act of
oppression. It is also a settled law that if the shares are issued for the benefit of the
company and incidentally it results in
creation of a new majority or conversion of a majority into minority, then such issue need
not necessarily be an act of oppression. Keeping
this mind we have to examine the allegations in the petition. In the present case, the
admitted position is that there are two groups of shareholders- one headed by Dr Charat
Ram and another by Shri Dongre. These two, who held shares in the ratio of 60 and 40 at
the time when the company was taken over, transferred their shares to their own group.
According to the 2nd respondent
himself, 11% shares were transferred by the petitioners to the Trust and he was made the
sole trustee so that he would have 51% voting strength. As a matter of fact this point of
voluntarily allowing Shri Dongre to have control of 51% was stressed a number of times by
the learned counsel for the contesting respondents. If
so, any increase in his voting strength without justification or without the consent of Dr
Charat Ram, could be an act of oppression as
it would change the proportionate shareholding/voting strength of the groups. Therefore,
if one group were to act against the interest of the other group in the management of the
affairs of the company, then the other group is justified in alleging oppression. In this
connection, we may beneficially refer to the
case of Shantadevi Pratapsinh Gaekwad V Snagramsinh P. Gaekwad, cited by Shri Shanti Bhusan, werein at paragraph 13.6,
the Gujarat High Court has indiated the circumstances in which a Court can interfere in
the issue of shares in a company. It observed “Self interest is the commonest
instance of improper motive leading to abuse of power. Where the question Is one o abuse
of powers, the state of mind of those who exercised power as reflected from the
surrounding circumstances and the materials which throw light upon that aspect so as to
show whether they were honestly acting in discharge of the powers in the interest of the
company or were acting for their own advantage of improperly favouring themselves or one
section of the shareholders against another is to be examined. Where directors have acted
in what they believe to be an interest which they were entitled to serve, their exercise
of power can only be set aside, if it be found that the interest they were serving was an
inadmissible or corrupting interest, such as self interest. The power to issue shares
being of fiduciary nature, its exercise can be set aside when it is exceeded or abused.
There can be no dispute over the proposition
that a majority shareholders cannot control the directors as to the exercise of their
fiduciary powers. The directors of a company, however, cannot use their fiduciary powers
over the shares of a company for their purpose of destroying an existing majority. The
purpose of altering the balance of voting power is never permissible. If for the purpose
of issuing shares was solely to alter the voting power, the issue would be invalid. The
directors cannot manipulate the issue of share for private purpose or merely to secure
voting power. A power of the directors to issue shares must be exercised for the benefit
of the company because primarily it is given to them for the purpose of enabling them to
raise capital when required for the purpose of the company. There may be occasions when
the directors may fairly and properly issue shares in case of a company. However, when
shares are issued to persons who are obviously meant and intended to secure necessary
statutory majority that will not be fair and bonafide exercise of power. If the shares are
issued under the general and fiduciary powers of the directors for the express purpose of
acquiring an unfair majority for the purpose of altering the rights of parties under the
Articles, the Court ought to interfere because it would be unconstitutional for the
directors to use their fiduciary powers over the shares in the company purely for the
purpose of destroying an existing majority or creating a new majority” In the present case, the allegation is that,
with a view to gain control of the company, shares have been issued to one group malafide excluding the other group. Even though,
during the arguments it was contended that the company was in dire need for funds and that
Dr Charat Ram himself had recognized this, for further issue of shares, the stand of the
company was only that the Bank had required the company to increase the capital. In other
words, the company has not justified any other ground to increase the capital. It was contended that that the issue of shares was on a
right basis with the approval and consent of
Dr Charat Ram and since the petitioners group had
not accepted the offer of right shares, the
same were allotted to the respondent’s group. Since the issue of further shares is an
admitted fact, we have to examine whether the same was at the behest of the bank, whether
the petitioners group consented to the issue of right shares and whether they were offered
the right shares. If the answer to all these issues is in the affirmative, then the
petitioners have no cause of action.
50.
The stand of the
respondents is that in view of the company incurring losses during the 3 previous years due to which the net worth of the company
had eroded, the Bank had insisted on increasing the capital of the company before it could
renew the credit facilities. At the time when the petition was mentioned on 25.8.2000, the
respondents had produced the following documents to establish that the Bank had required
the company to increase the capital and all these notes and the letters are signed by one
Shri Vinod Singhania.
a. A copy of a
letter dated 6.5.99 written by the company to the Bank interalia stating: “ We do
not think that in the circumstances it would be fair to put a condition that the company
should immediately increase its capital to reach the level of net worth as at 31.3. 95
before renewal of our limits and consideration of our request for temporary enhancement in
packing credit limit”.
b. An office note
dated 18.5.99 wherein it is stated among other things:“Taking note of reduced
turnover, recurring losses and reduced net worth, the Bank is insisting upon our inducting
fresh capital into the company so as to bring back the net worth of the company to the
level of f.y.e March 1996. The net worth of the company as on 31.3.96 and as on 31.3.99
has been Rs 1262 lacs and Rs 1170 lacs respectively. Efforts have been made to persuade
the Bank not to put forth such condition but we have not been able to make them agree so
far. Increase in share capital of the company in for review”. On this note, the 2nd
respondent had noted –what is the
authorized capital- how can we increase beyond that-loans have not affected repayment of
Bank loans-any case co made a profit last year- pl discuss with Bank on above basis.
c. A copy of a
letter dated 19.5.1999 addressed by the company to the Bank wherein the points noted by
the 2nd respondent in the note of 18/5/99 had been elaborated with the request
that the sanction be accorded without any new/additional conditions. On a copy of this
letter endorsed to the 2nd respondent it is noted:“It is understood that the Bank has already sought the
approval of the higher authorities for renewal/sanction of our limits on the assurance
that the company would increase the capital. Bank is withholding communication of sanction
to us for want of our undertaking.” On this copy, the 2nd respondent
had noted on 21.5.99 : - It would not be
possible to make amendments – however, we would consider a nominal increase in paid
up capital in the interest of our limits continuing.
d.
A copy of an office note
dated 25/5/99 stating “ The matter of precondition of increase in capital imposed
by Bank was rediscussed with the Bank. Copy of background note submitted earlier is
enclosed. Although the branch Manager is not very happy on the rigid stand being taken by
us and on our not agreeing to a bonafide suggestion of the Bank, he has agreed to release
the sanction on the basis of our assurance that we would increase the capital, atleast to
the level of existing authorized capital, on immediate basis and would take further action
for further increase in due course. It is therefore suggested that to maintain the good
will and credibility and for the sake of continuing our limits without any
margin/collateral security,/and personal guarantee, we should increase the paid up capital
to the full extent of authorized capital on immediate basis. Once we do this, it is likely
that the Bank may not follow up/insist for further increase”. On this note, the 2nd respondent had
recorded: -You should have taken this up in
the yesterday Board meeting- Send to Dubey to arrange another meeting very early.
a. Article 5: The
company, in general meeting may, from time to time increase the capital by creation of new
shares of such amount as may be deemed expedient.
b. Article 6: The
new shares shall be issued upon such terms and conditions, and with such rights and
privileges annexed thereto as the General Meeting resolving upon the creation thereof
shall direct and if no direction be given, as the directors shall determine; and in
particular such shares may be issued with a preferential or qualified right to dividends
and in the distribution of assets of the company, and with a special or without any right
of voting.
c. Article 7: The company in General Meeting may, before the
issue of any new share determine that the same or any of them shall be offered in the
first instance, and either at par or at a premium, to all the then holders of any class of
shares, in proportion as nearly as the circumstances admit, to the amount of the capital
held by them or make any other provisions as to the issue and allotment of the new shares. Any offer made under this clause shall be made by
notice specifying the number of shares offered and limiting and the time within which the
offer, if not accepted, will be deemed to be declined.
After the expiration of the time; or on the receipt of an intimation form the
person to whom the offer is made that he declines to accept the shares offered, the Board
may dispose of the same in such manner as they think fit.
The Board 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 option of the Board be conveniently offered under this Article.
61. These Articles talk of new
shares. Article 5 deals with creation of new shares, Article 6 with issue of new shares
with differential rights and Article 7 with offer of new shares on a proportionate basis.
A reading Articles 5 and 6 would indicate
that the general body approval is necessary
only when authorized capital is increased by creation of new shares and shares are
proposed to be issued with differential rights. ( In terms of Section 88 of the Act, the
provisions contained in Article 6 are void as Section 88 prohibits issue of shares with
differential rights. It may be noted that this Section has been omitted by amendment Act
2000). Article 7 also deals with new shares created in terms the earlier two Articles.
Since the company was a deemed public company when the issue was made, it was governed by
Section 81 (1) of the Act, according to which, the Board can issue shares on a right basis
and as per Section 81(1)(A), general body approval is necessary only when the shares are
not issued on a right basis. In this connection, it may also be noted that on an earlier
occasion of issue of right shares also, only the Board’s approval was taken and not
the general body approval. Therefore, the contention
of Shri Ganesh that the general body approval should have been taken is not correct
and the Board has the power to issue shares within the existing authorized capital.
Recently, this Bench examined practically similar provisions in the Articles and came to
the same conclusion as in the present case. (PIK Securities Pvt Ltd Vs United
Western Bank Limited).
62. According to the company, in
the Board meeting on 3rd June 99,
it was resolved to issue further shares. In the normal circumstances, this meeting would
have been of no consequence since the decision taken there at was to issue shares on a
right basis which would not affect the interest of any shareholder. We are examining this
issue only in view of the allegation of the petitioners that the minutes are fabricated to
the extent that it shows the presence of Dr Charat Ram who did not or could not have
attended this meeting. If we find that these minutes are fabricated, then it would have
bearing on other issues raised in the petition. The
respondents heavily rely on this meeting to contend that the issue of right
shares was with the consent and approval of Dr Charat Ram. A controversy has arisen about
the time of the meeting. When this petition was mentioned on 25th August 2000,
the respondents produced a compilation of documents of about 120 pages in which a copy of the minutes of the meeting held
on 3rd June 99 at 11 AM was
included in which the presence of Dr Charat
Ram had also been shown in that meeting. On a
perusal of this document, Shri Shanti Bhusan vehemently
argued that Dr Charat Ram could have never attended this meeting at 11 AM as he was on his
way from Tokyo to Delhi at that time and as such alleged that the respondents had
fabricated the minutes showing the presence of Dr Charat Ram. However, when we permitted the petitioners
to inspect the records of the company, they were shown
the minutes containing the time of the meeting as 7.30 PM. The counsel for the
respondents contended that the minutes showing the time at 11AM were draft minutes and
were inadvertently included in the
compilation of documents and that the meeting which was convened at 11 AM was adjourned to
7.30 PM to enable Dr Charat Ram to attend the same. They also pointed out that in the
morning of 25th August 2000, the
respondents had filed with the High Court, a
copy of the minutes indicating the time of the meeting at 7.30 PM and as such there was no
fabrication. The minutes produced on 25th August starts
“These are the minutes of the Board of Directors meeting of the company held on
3.6.99 at 11.00 AM at Commercial Complex,
Malcha Marg , Chanayapuri, New Delhi”. The one relied on by the respondents,
starts “These are the minutes of the Board of Directors meeting of the company
held on 3.6.99 at 7.30PM as adjourned from
11.00 AM at Commercial Complex, Malcha Marg , Chanayapuri, New Delhi”. Except for the addition of the words “7.30 PM as
adjourned from”, both the minutes match in all other respects. We are inclined to agree with the learned counsel
for the petitioners on all the points urged by him in this connection. First, when Shri
Shanti Bhusan pointed out that Dr Charat Ram could not have attended the meeting at 11 AM,
none from the respondents’ side- be their counsel or the officers of the company who
were present ( it appears that Shri Vinod Singhania and Shri Dubey were also present) on
that day pointed out that the said minutes were draft minutes and that the meeting was held at 7.30 PM not withstanding the
fact that Shri Shanti Bhushan was fairly vehement in urging his point. This silence on
their part is all the more significant, if, on the same morning they had filed a copy of
the minutes in the High Court showing the time of the meeting at 7.30.PM. Secondly, the usual practice is that when a meeting is adjourned, the same is minuted. There are no minutes recording the adjournment nor the attendance
register records the attendance of any director at 11 AM.
We are pointing out this only because we find that the record keeping of the
company, as seen from the pleadings, is meticulous. Thirdly, when the draft minutes were prepared after 15
days, we are doubtful whether any responsible
officer preparing the draft minutes would make a mistake about the timing of the meeting
especially if the meeting had been adjourned as claimed. As a matter of fact, more care would have been taken to note the
correct time of the meeting in facts of this case. Fourthly, the contention of the respondents that the
incorrect draft minutes were placed before us is not convincing as we find that the compilation of the documents
was thorough and complete with most of the documents to establish the case of the
respondents and therefore, they could have never made a mistake of placing a wrong
document. Even though the respondents claim
that a copy of the minutes showing the time at 7.30 PM was filed in the High Court in the
forenoon of 25th August, while the incorrect minutes were filed before us in
the afternoon, we would like to go by what has been placed before us as we have no means
to find out as to what was filed in the High Court especially in view of certain
discrepancies pointed out by Shri Ganesh in this regard. In view of all the above, the
learned counsel for the petitioners are fully
justified in claiming that the meeting, if at all held, must have been held at 11 AM and
the presence of Dr Charat Ram in that meeting had been fabricated and that he was not a
party to the decision to issue right shares.
63. According to the company,
the notices with the agenda for the meeting at 11 AM on 3rd June 99, were sent on 28th May 99 by UPC to all directors. On this day, as we have seen from the passport of
Dr Charat Ram, he was in Japan. It is an admitted position that he returned to Delhi only
on 3rd June 99 at about 5 PM.
According to the petitioners, the alleged letter containing the notice was not received
and they have relied on the personal diary maintained by the personal secretary of Dr
Charat Ram to substantiate this by pointing out that there is no entry in the register in respect of
this meeting. According to the
respondents, a message was left at his residence about holding the meeting at 7.30 PM and
accordingly he attended the meeting at 7.30PM. Inspite of our repeated query as to the
mode and manner of communication, no satisfactory reply was given. Assuming that some
message was left about the meeting at 7.30 PM and that
he had the agenda sent by UPC, whether he
would have attended this meeting after a tiring day is a question to be examined with
reference to the business to be transacted in that meeting. As we have already pointed out earlier, this notice did not contain details of the agenda items from
which he could have known about the urgency of the meeting. While deciding this issue, it
is also necessary to note that Shri Jain did
not attend this meeting as according to him, neither the notices for the meeting at 11.00
AM nor any message for the meeting at 7.30 PM was received by him. It is on record that in none of the earlier Board
Meetings, the issue relating to increase in share capital was discussed. Another important aspect to be noted is that Dr
Charat Ram was appointed as an additional director only on 17.5.99 (during his absence)
and therefore, this meting would have been the first one to be attended by him as a
director. Therefore, assuming that he had
decided to attend the meeting, without having any details as to why the share capital was
being increased, he would have definitely ascertained from Shri Jain the reasons/the
necessity to increase the share capital, even if he had no occasion to ascertain the same from Shri Dongre. Therefore, to
hold that a person of over 80 years, who had
been on a flight for practically the entire day and whose is found to be very meticulous
on details as seen from the additional documents filed by the petitioners, would attend a meeting at an odd hour, at a venue at
which no Board Meeting of the company had
been held in the past, and without knowing
the purpose of increasing the share capital and while doing so would not even to bother to
ascertain the urgency of the meeting, is difficult.
It is to be remembered that 7.30PM would have been nearly 11 PM for Dr Charat Ram
due to time difference between India and Japan. Dr Charat Ram has filed an affidavit in
which he has not only denied his attendance in that meeting but has also pointed out as to
how he could not have attended that meeting. Assuming that he had attended this meeting,
he would have definitely enquired about the urgency of the meeting and the respondents
would have referred to the office note dated 26th May 99 according to which the
resolution of the Board had to be sent to the Bank by 4th June. We have already
pointed out that there is no reference to
this note in the minutes of the meeting. Therefore, the
irresistable conclusion that we have to arrive
at is that he did not attend the meeting on 3.6.1999.
Our view is strengthened by the fact
that Shri Jain also did not attend the meeting, which according to him, was on account of
non receipt of the notice for the meeting at 11.00 AM and the alleged message for the
meeting at 7.30 PM. It is on record that in
no earlier meetings, the issue relating to increase in share capital had been discussed. Therefore, if Shri Jain had received the notice
for the meeting at 11.00 AM, he would have definitely advised the company to adjourn the
meeting to enable Dr. Charat Ram to attend the meeting since he is the only other
shareholder Director besides Shri Dongre. Or else he would have at least ascertained the
reasons for increase in the share capital. It
is on record that in the Board meeting on 17th May 1999, he had sent a letter expressing his dissent on some of the items and the same
had been recorded in the minutes. Therefore, if he had received the notice for the meeting
at 11 Am, knowing that Dr Charat Ram was not in station, he would have certainly taken
some action in this regard. Therefore, we have to only conclude that no notice for this meeting was received either by Jain or by Dr
Charat Ram. But for his signature in the attendance register, we would have straight away
rejected the stand of the respondents that Dr Charat Ram attended that meeting, on the
grounds indicated above.
69. The stand of the respondents is that the petitioners
had also not applied for right shares in full in
Usha Sriram Furnishing Industries Pvt Ltd for their own reasons and therefore they
must have had their own reasons for not having applied for the shares in the company also. This analogy may not be appropriate as the
petitioners have already initiated certain proceedings in respect of the company while no
such proceedings have been initiated in respect of Sriram Furnishing. In regard to the contention of the learned counsel for the
petitioners that the real worth of the shares is over Rs.2000 and as such the petitioners
would not have refused the offer, we do not find much substance in this argument in as
much as in a going concern the real value has no meaning. Further, since the proposal was
for right issue of shares, the benefit would have been passed on to all the shareholders
if every one had applied for the right shares. On the other hand, if the petitioners had
raised the issue of loss of dividend on account of non subscribing to the right shares,
there would have been some merit as according to the respondents, in 10 years time, the
company had declared dividend of about Rs 11
crores, working out to nearly 100% on an average per year on the paid up capital. If it is
so, considering the reserve that the company
has accumulated, the petitioners could claim that they
had no reason to ignore the offer for
investment of barely Rs 13 lakhs if they had received the offer for shares, even if they
were to lose their case on the 11% Trust shares.
70. The next is about the meeting on 12.7.1999 in which the
shares were allotted to the 8th respondent. Both Dr.Charat Ram and the seventh respondent have
denied to have received any notice for this meeting even though the respondents have produced documentary evidence
to show that the notice for this meeting had been sent to all the directors including
these two directors. As we have observed in
connection with the meeting of the 3rd June, 1999, the notices for this meeting did not contain the details of the agenda
items to be discussed in that meeting as is evident from
the fact that the respondents have not disclosed copies of the same, if any, in their pleadings.
Since according to the respondents, Dr.
Charat Ram had been a party to the decision to allot right shares in the meeting on
3.6.1999, there is nothing in the minutes of 12.7.1999 that any of the directors present
in that meeting enquired from him as to why
having approved issue of right shares, his group had not applied for these shares. Nor anything is recorded that Dr.Charat Ram suo
moto made any mention about not accepting the right shares.
This appears to be completely contrary to normal human behaviour that having
approved a particular proposal, the same is not acted upon by the person approving the
same nor any reason given for not acting upon the same.
It is also to be noted that by this time, the difference between the
parties had escalated further. The ninth
petitioner filed Suit no 1279/99 in regard to the Trust shares accounting to 11% shares in
the company. Therefore, if Dr Charat Ram had attended this meeting as claimed, he would
not have allowed 13% shares being allotted to the 8th respondent even without
any reservation. Therefore, we have only to
hold that his presence in that meeting is a fabricated one, notwithstanding the fact that
his signature is recorded in the attendance
register about which we have already
expressed our reservation in connection with the meeting on 3.6.1999.
71. It was contended before us
by the learned counsel for the respondents that since the petitioners never questioned the
allotment of shares to the 8th respondent till July 2000, it is apparent that
they were fully in the knowledge of the said allotment.
According to the respondents, in
the EOGMs held on 28.12.1999 and also on
8.7.2000, poll was demanded by the petitioners and the results were announced, wherein the
voting of the 8th respondent in respect of
26,400 shares was recorded but at they never raised any objection in this regard as they
were aware of the allotment of the shares to the 8th respondent, since they had not applied for the shares. According to
the respondents, the petitioners have raised
this issue of allotment of shares in this petition only in view of the High Court making
certain observations in their favour in
respect of the Trust shares in its order dated 21.2.2000.
According to the petitioners, as far as the December meeting was concerned, since
one of the petitioners had not exercised his
voting rights and that Shri Dongre had exercised the
voting rights in respect of the Trust shares, they knew that all the result of the poll would be in favour of the respondents group
and as such they did not bother to know the number of shares voted upon and even
otherwise, the results of the poll were also
not announced.
72. We do agree that a person
seeking a poll should also have ascertained the results of the poll including the number
of votes polled. However, the petitioners deny to have ascertained the results of the poll
and the number of shares voted upon. Assuming that the petitioner had known about the
voting on the shares issued to the 8th respondent
in that meeting, there was no reason for them to issue a notice dated 8.5.2000
requisitioning EOGM for removal of the directors from the respondent group subsequently as
even without the 11% shares of the Trust, voting on which had been restrained by the High Court by the order of 21.2.2000, all the resolutions proposed by the petitioners
would have been defeated in view of the issue of further shares of 13 % to the 8th
respondent. Therefore, even
though we fully agree with the contention of the learned counsel for the respondents that
when a poll was demanded the person demanding the poll would have definitely ascertained
the results of the poll, yet, in view of the subsequent conduct of the
petitioners in making applications to the High Court and calling for an EOGM, it is difficult to discount the possibility
of the petitioners not knowing the resolutions of the poll in December, 1999. Further if the petitioners had known about the
results of the poll, they would have known about the issue of further shares and they
would not have waited so long to challenge the issue of further shares. Eventhough it was contended that only due to some
favourable observation made by the High Court the petitioners have filed this petition, we
note that the said observation of the High
Court was made in the order dated 10.02.2000 and if the petitioners had known about the
issue of further shares before that date, they would have definitely taken action
challenging the same immediately thereafter, as
they have done now on the basis of their
alleged knowledge of the issue of shares from the affidavit of the respondent in the High
Court on 7.7.2000. Even though there is some
dispute as to whether in the meeting held on 8.7.2000 when the voting rights in respect of
the new shares were exercised, whether the petitioners questioned the same or not, we are of the view that the same
is irrelevant in as much as immediately thereafter they filed CM 1078 of 2000 in the High
Court on 20.07.2000 and the present petition on 20.08.2000. It s also to be noted that not
withstanding the issue of further shares by which Shri Dongre could have defeated all the
resolutions, yet he applied for permission of the High Court to exercise voting in respect
of the Trust shares by an application dated 24.5.2000. This also indicates that Shri
Dongre had tried to keep the issue of further shares as a secret as long as possible.
Further, the petitioners are right in pointing out that issue of shares made during the
period from the close of the accounting year and the holding of the AGM for that year, the
same should have been disclosed in the
Directors report as enjoined in Section 217 of the Act. Section 217(d) requires disclosure
of any material changes affecting the financial position of the company in the Directors
report. In the present case, even though the quantum of the increase in the capital is
only Rs 26.4. lakhs, yet, it constituted more than 25% of the then existing paid up
capital and therefore the same is a material
change and should have been disclosed in the directors report. This omission to disclose,
perhaps, as allleged by the petitioners, was with the view to prevent challenge of the
issue by the petitioners. Therefore, we do
not find that
the petitioners were aware of the
issue of further right from the beginning as
alleged by the respondents.
73. Shri Choudhary heavily
relied on Khemka’s case to urge that the allegations in that petition being
similar to the one in the present petition, this Bench should dismiss this petition as the
High Court had done in that case. In Khemka,s case the allegations were that no notices were
sent for Board and general body meetings,
that the minutes were fabricated and manipulated, that the certificate of postings were
not genuine, postal registration certificates were not genuine, that the increase
in share capital was not genuine, that the need for capital was not genuine etc. These allegations were countered by the respondents.
After an extensive examination of the facts and circumstances of that case, the Court
found that none of the allegations was established
and therefore concluded that there was no oppression or lack of probity. Therefore, he contended that this petition
containing practically similar allegations and facts being more or less similar, the CLB should also follow the decision of Khemka’s case. While we agree that the allegations are similar,
yet the facts and circumstances are not similar. In that case even though various
allegations on acts over a period of 4 years from 1983 to 87 were made in the petition,
finally, the Court decided to examine only one issue,
that is allotment of shares made in 1985. While doing so, the Court took into
consideration the conduct of the parties prior to that period also. To come to the
conclusion that the UCPs were genuine , the Court found that the 1st petitioner
in that case had not bothered about non receipt of notices for a long period of 18 months and that the 9th respondent who was
supporting him had attended some meetings and therefore it held that it could not be
believed that no notices were sent by UCPs. In the present case, the questioning of UCPs
is restricted to the ones relating to the
meetings on 3.6.99, 12.7.99 and the letter of 11th July 99- that is within a
short period of about 45 days. In regard to the offer of further shares, in that case, the Court found that when many
shareholders had not applied for shares, the Board extended the time for applying for
shares and some of the shareholders expressly
declined the offer in writing. Therefore, it
held that the petitioners should have received the offers but had not accepted the offers.
In the present case, even on 2nd July, even though the last date was 4th
July, according to Shri Choudhary, Shri Dongre had advised the 8th respondent
to apply for all the shares. Therefore, the findings in that case cannot be straight away
be applied in the present case. Further there is another significant difference between
the two cases. In that case, there were no proceedings pending between the parties in
relation to the control of the company as against the present case, wherein all acts complained in the petition took place
during a period of just about 45 days before and
during which there were certain proceedings pending before the High Court relating to
control over the shares as well as the Board. Normally,
in examining the allegations in a petition, the facts and circumstances of the case have
also to be kept in mind. Therefore, the decision of Khemka’s case is not applicable in the
facts and circumstances of the present case.
74. While examining the issue before us, we are also inclined
to agree with Shri Shanti Bushan that the entire exercise had been pre-planned as is
evident from the fact that all the established procedures in existence, over a period of
time had been given a go by in the month of May, 1999. Any change in the procedure which
has been in vogue for a long time has to be properly justified. In the present case, as a practice, notices for
Board Meeting were being hand delivered, the draft minutes of the Board Meeting used to be
circulated, and the meetings used to be held in Himalaya House. All these procedures were changed for the meeting
from 17th May, 1999 by which time the disputes between the parties had started. As far as changing the mode of delivery of
notices, no justification has been given either in the pleadings nor during the arguments. For stopping the procedure of circulating the
draft minutes, it is seen that in his letter to Dr Charat Ram, Shri Dongre had mentioned
that due to court cases between the parties, as per legal advise, the practice of
circulation of the minutes was stopped while in the hearing, Shri Choudhary argued that
the 7th respondent was misusing the draft minutes. It is to be noted that in
the minutes of the meeting on 17th May, 1999, it is recorded that the minutes of the Board minutes would not be
circulated in future but would be read out in the next Board meting. At this point of
time, there was no proceedings pending between the parties and even the suit No. 911/99,
the first proceeding between the parties, was not in the knowledge of the respondents on
that day as submitted by them. Therefore,
there is no proper explanation for stopping the circulation of the draft minutes near
about the dates in dispute. As far as change
in the venue is concerned, no satisfactory explanation was given other than stating that
further meetings had been held in Malcha Marg after these meetings and as such change of
venue could not be a relevant factor. Considering
the fact that all these changes had taken place suddenly and without any justification, we
have to necessarily hold that the change in the procedure had been made only with a view
to facilitate the fabrication of documents.
Further, it also appears to us that the issue of further shares was attempted to be
kept as a secret for as much time as possible so that the same is not challenged. It is on record that after the shares were
issued there were a number of proceedings before the High Court and except in one affidavit dated 20.8.99, wherein the company had denied the shareholding position, however,
without disclosing the issue of further shares and the real shareholding position. As a matter of fact in the order dated 24.12.99 the learned single judge had made an observation
that the control of 11% per cent shares would decide the control of management. By this time, further shares have been issued by
which the 11% shares would have had no
bearing on the control of the company.
75. It is also to be noted that the learned counsel for the
respondents repeatedly pointed out that the petitioners having failed in their various
attempts to gain control of the company
before the High Court, have now filed this petition for the same purpose and as such, this
petition is a malafide one and therefore should not be entertained. It is true that the
petitioners had failed in their attempts in the High Court but not in the matter that is
before us. Further, their claim on 11% Trust shares is still pending. When their claim on
11% shares in pending before the High Court, and when they needed only about Rs 13 lakhs
to subscribe to their entitlement of right shares, it
is beyond one’s comprehension that such petitioners would have , without any protest,
hand over on a platter, 13% shares
voluntarily. Further, if the real purpose was
to meet the requirements of the Bank and the object was to allot shares on a right basis, now that the petitioners are
interested in the shares, instead of fighting the case, the 2nd respondent
could have straight away agreed to the transfer of
proportionate shares from the 8th respondent to the petitioners, which
would have not only established the
bonafides of the 2nd respondent but also demolished the allegation of the petitioners that the issue
was made with an ulterior motive.
76. Shri Dongre has taken a stand that since he was the sole
Trustee of the Trust and since the 11% shares of the Trust had been registered in his
name, he always held 51% control over the Company and as such he was always in majority.
While this position was valid and
unassailable till June, 1999, once his right to exercise voting rights on the 11% shares
of the Trust had been challenged in the High Court, he cannot claim absolute control over
these shares till the proceedings in the High Court are concluded. Further, by an order dated 21.2.2000,
the Division Bench of the High Court has also restrained that the voting rights in respect of these 11%
shares and had directed that the same had to
be decided on a case to case basis on an application to be made to the learned single
judge. As a matter of fact, Shri Dongre made
an application before the learned single judge seeking for permission to exercise voting
in respect of the 11% shares in the EOGM held on 8.7.2000.
But, for these 11% shares, which is in dispute at the time when further shares were
allotted, Shri Dongre was in minority with 40 per cent shares and therefore any attempt by
him to gain majority (which is now 52 percent besides the disputed 11% shares) could give
a cause of action to the petitioners to the allege oppression. One other point raised was
that Dr. Charat Ram had always desired Shri Dongre to have controlling interest in the
company and that is why even though he was a party to the decision to issue right shares
and also to the allotment of all the shares to the 8th respondent, he has
changed his stand only in view of the protest by the other petitioners afterwards. While it is a fact that Dr. Charat Ram
voluntarily transferred 11% shares to the Trust and made Shri Dongre as the sole trustee
by which Shri Dongre could control 51% shares in the company, there would have been no
reason for him to approve issue of right shares which ultimately went completely to Shri
Dongre, thus raising his control to nearly 62%. Therefore, we do not believe that Dr
Charat Ram has filed a false affidavit denying his attendance in the meetings on 3/6/99
and 12.7.99, after having really attending the same. In this connection, we may also
mention that even though it was argued that the determination of the issues in the
petition warranted cross examination of some of the parties, yet no formal application was
made by any one in this regard except relating to Shri Rao about which we have given our
decision at paragraph 49 ante.
77. To sum up, our findings on the various issues raised in the
proceeding are as follows:-
(i)
The Bank had not required the Company
to increase the share capital and all documents relied
on by the respondents to establish
that the Bank had required the Company to increase the capital are found to be fabricated.
(ii)
In view of the above, the claim of the company that the share capital
was raised by issue of further shares at the requirement of the Bank is false.
(iii)
Whether the Board meeting was held at
11 AM or at 7.30 PM on 3.6.99, Dr Charat Ram did not and could not have attended the same
and therefore all the documents relied on to show his attendance are fabricated.
(iv)
In view of the above, Dr Charat Ram
was not a party to the decision to issue right shares.
(v)
The registered envelopes alleged to
contain the offer for rights shares did not contain the offers but only the letter dated
11th May 99
(vi)
In view of the above, no offers were
made to the petitioners.
(vii)
From the above and the manner in which
the 8th respondent was enabled to apply for all the shares clearly establishes
that the purpose and motive to issue further shares was only to allot all the shares to
the 8th respondent and not with the view to benefit the company.
(viii)
By allotting all the shares to the 8th
respondent, the Board of directors under the control of Shri Dongre had acted in breach of
their fiduciary duties/responsibilities in the allotment of shares for the benefit of one
of the two groups of shareholders in the company.
78. In addition to the above
findings after detailed examination of the facts of this case, we can also examine the
mater from a common man point of view. It is the stand of the respondents that Shri Chart
Ram, in the first meeting after his appointment as a director (made during his absence),
approves the issue of shares on a right basis even without knowing the urgency and purpose
of the same on 3.6.99, his group files a Suit on 10.6.99 to wrest control of the 11% Trust
shares, all the petitioners ignore the offer for shares made within a week thereafter on
14.6.99, thus enabling the 8th respondent to apply for all the shares and Dr
Chart Ram approves allotment of all the 13% shares to the 8th respondent on
12.7.99 and thereafter, the petitioners continue to fight for 11% Trust shares. On the
face of it, the sequence of events appears absurd and illogical. Common sense should never
be made a casualty of in a litigation. The
crystal clear object of the issue was only to
benefit Shri Dongre group and a colour had been given as if it was a right issue. The mode
and manner of issue of shares in this case
prompts us observe, as was done by learned Shri Bijayesh Mukherji J in Sindri
case at paragraph 78, that the claim of the
respondents that the Bank had required the company to increase the capital is a sham, that the claim that Dr Charat Ram attended the
meetings on 3.6.99 and 12.7.99 is a sham, that
the purported offer of shares to the petitioners is a sham and that the manner of allotment to the 8th
respondent is also a sham. Production of fabricated documents to establish the case of the
respondents is all the more a sham.
79. Therefore, the only issue
now for consideration is whether our
findings above could be considered to be acts of oppression against the petitioners
warranting winding up of the company on just and equitable consideration. Shri Choudhary
contended that, in the absence of the averment relating to “winding up on just and
equitable ground” in the petition, no relief could be granted. A similar contention
was examined by this Board in MMTC Vs Indo-French Biotech Enterprises (35 CLA 292)
and this Board held “Whether there is justification for winding up of the company
on just and equitable grounds under Section 397 could be considered by the CLB only after
going through the merits of the case and not at the outset, as the Section itself very
specifically mentions that it is the CLB which has to form an opinion as to whether the
affairs of the company are being conducted in a manner prejudicial in public interest or
in a manner oppressive to any member or members and that to winding up the company would
unfairly prejudice such member or members but otherwise the facts would justify the making
of a winding up order on the ground that it was just and equitable that the company should
be wound up. In other words, the onus of
forming the opinion is on the Company Law Board in facts of a particular case. The formation of an opinion cannot be made at the
outset but only at the end of the proceedings”. This
being the legal position, whether there is averment in the petition in terms of Section
397(2)(b) or not in the petition, it is the CLB that has to form the said opinion.
Therefore, whether in this case, on the basis of the findings given on the allegations,
there is justification to form such opinion has to be decided. There is no particular
standard to determine the just and equitable grounds as
the same would differ from case to case depending on the facts of a particular
case. As we have observed earlier, the Company had only two shareholders, i.e., Dr. Charat Ram and
Shri Dongre, right from the beginning when the Company was taken over by them. Thereafter, they transferred that shares to their
own group of persons/companies and thus there are only two groups of shareholders in the
Company. In other words, the company is in the nature of a partnership between two groups
of share holders where equitable considerations as applicable to a partner ship could be
applied. It is on record that though, Dr. Charat Ram resigned
from the post of Chairman/Director in 1990, yet he was actively associated with the Company as an advisor with the right to participate in the Board meetings as
is evident from the minutes of various Board meetings, wherein his presence is recorded. From the additional documents filed by the
petitioners, we also find that no major decision in the Company is taken without
consulting Dr. Charat Ram and as a matter of fact we also note that even after the
disputes had started and even during the year 2000, his advise is being sought as is seen
from the additional documents. Now he has also
been appointed as a regular director. In
addition, the petitioners’ group is also represented by the seventh respondent on the
Board. Thus, there is active participation of the petitioners group in the
management of the affairs of the Company. As
indicated by us earlier, the understanding
between the two groups that Shri Dongre would have control over 51 per cent shares and
Shri Charatram over 49 per cent shares had continued for over a period of 10 years. By issue of further shares, this parity in the
shareholding has been affected, which, in a
company of this nature, having only two groups of shareholders, could be considered to be
an act of oppression meriting winding up of the Company on just and equitable
consideration. The learned counsel for the
company citing Stylo Shoes Ltd case, contended that maintaining one’s
control by further shares cannot be an oppression. In that case, the proposal was to
increase the voting rights from 8 per management share to 16 per management share so that
when the company issued further ordinary shares, the percentage voting rights of the
management shares remained the same. When the proposal was approved, the management
shareholders did not participate in the meeting and only ordinary shareholders
participated and approved the proposal with 89% in
favour. This was challenged as oppressive. The Court held “So long as the
resolution is passed by the requisite majority and the majority have no personal interest
in the matter, I see no ground on which such a resolution can be said to be invalid.”
A reading of the decision in that case would indicate that
those who were benefited did not participate in that meting and that more tha 89%
of ordinary shareholders approved the increase in the voting rights of the management
shares with the view to maintain continuity in the management. In the present case, the 2nd
respondent himself has used his majority control on the Board to allot shares to his own
group to maintain/consolidate his control over the company. Therefore, the decision in
Stylo Shoes Ltd case has application in the
present case.
80. Once we have held that there is justification for winding up of the company on
just and equitable consideration, the question of appropriate relief arises. In a number
of cases under Section 397 of the Act, this
Board has held that if there are only two groups of shareholders in a company, in the interest of the company, one group will have to go out of the Company and
practically in most of the cases this Board
directed the minority group to go out of the
Company for a fair consideration for the shares held by that group. However, such an order is not possible in the
present case in view of the pendency of proceedings relating to the 11% shares of the
Trust in the High Court, the decision of which would determine the majority before the
issue of shares impugned in the petition.
81. Now that we have held that the purpose of allotment of
shares was only with a view to gain absolute control over the Company and not in the
interest of the company brought about by abusing the fiduciary powers of the Board, which in facts of this case is oppressive to the
petitioners, the said issue/allotment of the shares has to be held to be invalid and has to be cancelled especially when we have
held that the increase in capital was not required by the Bank. However, since the petitioners have sought for an
alternate prayer of directing the 8th
respondent to transfer proportionate shares to the petitioners, we are inclined to order so. In
this connection, it is necessary to consider the argument
of Shri Choudhary that the 8th respondent being a bonafide allottee of the
shares, not concerned with the internal management of the
respondent company, cannot be subjected to
any order of this Bench. This argument has to
be rejected straightaway. Shri Dongre is the
Chairman of the company as well as the 8th
respondent. During the arguments, Shri
Choudhary pointed out that Shri Dongre being
Chairman of the 8th respondent knew that as on 2nd July, 1999,
the other petitioners had not applied for the shares and as such the 8th respondent applied for all the shares. This
argument alone is sufficient to establish
that there is no separate identity between Shri Dongre
and 8th respondent and
therefore the 8th respondent
cannot claim the immunity on the principle of indoor management. Since the petitioners held 49 per cent shares in
the Company before the issue of further shares, the 8th respondent is bound to transfer 49 per cent
of 26,400 shares to the petitioners. Annexures
to the reply of the Company wherein copies of letters of offer allegedly sent to the
petitioners indicate the number of shares that each of the petitioners is entitled on a
right basis. Accordingly we direct: Within 15
days from the date of receipt of this order, each of the petitioners, desiring to
subscribe to the shares, will send an
application for the shares that he is entitled, to
the Company, (with a copy to the 8th respondent) along with a cheque drawn in favour of the 8th respondent towards consideration for the shares. Since the Company has issued one
consolidated share certificate to the 8th
respondent for all these 26,400 shares, the 8th respondent will surrender the said share certificate to the
company within a week of receipt of the copies of the applications made by the
petitioners. Within a week thereafter, the company will
split the same into such number of share certificates
as is necessary as per the entitlement of the petitioners and deliver the same to
them after entering their names in the register of members. The procedure relating to the
transfer of shares is dispensed with. On
entering the names of the petitioners in the register of members in respect of such
shares, the company will forward the cheques given by the petitioners to the 8th
respondent. The whole exercise should be completed within 6 weeks from the date of receipt
of this order. Till the shares are registered
in the names of the petitioners as directed above, the 8th respondent shall not
exercise any voting rights on the shares impugned in the petition. We are not dealing with
the entitlement of the Trust for the right shares, since the Trust is not a party before
us.
82. The petition is disposed of in the above terms with no
order as to cost.
(S.Balasubramanian)
(A.K. Banerji)