BEFORE THE COMPANY LAW BOARD

PRINCIPAL BENCH

NEW DELHI

 

Dated 16th October 2001

C.P.No.46 of 1997

 

      Present: 1. Justice A.K. Banerji, Chairman

2. Shri S. Balasubramanian, Vice Chairman

 

In the matter of Companies Act,1956-Sections 397/398

AND

In the matter of Shri Radhe Shyam Tulsian & Ors

Versus

M/S Panchmukhi Investment Ltd.  & Ors

 

PETITIONERS:

1.     Shri Radhe Shyam Tulsian

2.     Shri Mahendra Kumar Jalan

3.     Shri Shrawan Kumar Himatsingka

RESPONDENTS:

1.     Panchmukhy Investments Ltd.

2.     Shri Ram Autar Garg

3.     Shri Pankaj Garg

4.     M Ramlata Garg

5.     Shri Sanjay Garg

6.     Miss Brinda Garg

7.     Shri B.S. Somnath

8.     Shri Sanjiv Kumar Tulsian

9.     Shri Sanwar Mal Tulsian

Present on behalf of the parties:

1. Shri P.C.Sen, Sr. Advocate                      .. for petitioners

2. Shri S. Mitra, Advocate                            .. for petitioners

3. Shri C.K. Jain, Advocate                          .. for petitioners

4. Shri P. Sinha, Advocate                            .. for petitioners

5.Shri P. Chatterjee, Sr. Advocate                 .. for resp.1,8 & 9

6.Shri K.G. Raghavan, Advocate                  .. for respondents 1-7

7. Shri Neeraj Sharma, Advocate                  ..        -do-

8. Shri S.L. Singal, CA                                 ..        -do-

9. Shri Vibhu Bakru, Advocate                     .. for respondent 2

 

O R D E R

(Date of final hearing: 12.4.2001)

 

S. BALASUBRAMANIAN:

 

1.     The petitioners claiming to hold, together with their associates, 90% shares  in M/s Panchmukhi Investments Ltd (the company)  have filed this petition under Sections 397/398 of the Companies Act, (the Act), with the allegations that by virtue of issue of further shares illegally and by denying the fact of transfer of shares to the petitioners, the company contends that the petitioners’ hold only around 9% shares.  Further, they have also alleged  that there had been changes in the composition of the Board of directors by which their majority in the Board has been reduced to a minority. Accordingly, the petitioners have sought for cancellation of the further issue/allotment of shares and also for a declaration that the petitioners hold 90% shares in the company and also for the restoration of the Board with the petitions in majority. 

2.     The undisputed facts of the case are that this company was incorporated in August, 1992 with an authorized capital of 25 lacs divided into 25000 shares of 100/- each.  Later on the authorized capital was raised to 1 crore consisting of 10 lakh equity shares of 10/- each on 1.2.95.  As on 31.7.95, the paid up capital was Rs. 36 lacs comprised in 3,60,000 shares and all the shares were entirely held by the 2nd respondent and his family members With a view to promote a Group Housing Scheme, the company entered into an agreement to purchase 8 acres of land in Bangalore in March, 1992. On 1.8.1995, the petitioners entered into a Memorandum of Understanding (first MOU) with the company and the 2nd respondent by which the cost of development of the land was estimated at Rs. 21.78 crores of which the petitioners were to bear 90% and the 2nd respondent the remaining 10%.  It was also agreed that 90% of the shares held by the respondents would be transferred to the petitioners for a consideration of Rs 3.24 crores and that all the directors except the 2nd respondent would resign as directors and the petitioners would have not more than 4 directors on the Board of the company.  It was also agreed that the paid up capital of the company would be increased by Rs. 1 crore by issue of fully paid equi-preference shares of 10/- each to be initially subscribed by the 2nd respondent of which 90% would be transferred to the petitioners after expiry of 12 months from the date of allotment. The agreement also provided for termination of the agreement in case of failure of the 2nd respondent to get the land registered in the name of the company, in which case all the money paid by the petitioners would be refunded with interest at the rate of 24% per annum compounded quarterly. In terms of the MOU, all the then existing directors except the 2nd  and the 7th respondents resigned from the Board and the 2nd and 3rd petitioners and the 8th and 9th respondents were appointed as directors. In December, 1996, the petitioners sent a letter terminating the MOU  and demanding payment of their investment at 24% interest.  After some correspondence  on this letter, the parties entered into another  MOU on 6th April, 1997(2nd MOU) by which the investment made by the petitioners was agreed to be refunded together with interest over a period of time. Nothing came out of the MOU.  Thereafter, certain proceedings had been initiated by the petitioners in Calcutta High Court and by the respondents in a Civil Court at Bangalore.

3.     The disputed issues  are that, according to the petitioners, they had paid consideration for 88.6% shares  ( 3,19,200 shares) in the company and that all the shares constituting 88.6% had been transferred and registered in their names, while according to the respondents, only 30%  shares (1,25,100 shares)  had  been transferred since the petitioners had paid consideration only for that many  shares. Another dispute relates to the contention of the 2nd respondent that, in terms of the MOU, 10 lakh equi-preference shares of Rs 10 each  had been issued to his group and that these shares  have now been converted into equity shares and therefore the petitioners hold only 9% shares in the company. The petitioners challenge this issue on the ground that the same is in violation of the Articles and the Act and that the same had been done only with the view to reduce the petitioners into a negligible majority. There is also a dispute regarding the composition of the Board of Directors of the company.

4.     Shri Sen, Sr Advocate,  appearing for the petitioners submitted as follows: When the 2nd respondent acquired the land, with a view to perfect the title to the land which needed funds, entered into an MOU with the petitioners on 1.8.1995 (Annexure –A-2 ) by which the petitioners were to acquire 90% of the shares held by the 2nd respondent and his group for a sum of Rs 3.24 crores.   Clause 11 of the MOU specifically stipulates that on payment of Rs 3.24 crores representing full consideration towards acquisition of 90% shares, the management and control of the company together with movable and immovable assets including the land shall be handed over to the petitioners.  Accordingly, the entire amount of Rs 3.24 crores was paid to the 2nd respondent and 1,25,100 shares were initially  transferred to the petitioners  on 29.2.96 and a further 1,94,100 shares were subsequently transferred on 5.4.97.  The share certificates in respect of all these shares are in possession of the petitioners wherein 2nd respondent, in his capacity as the authorized signatory/director has  endorsed the  registration of transfers in the reverse of the share certificates.  These shares constitute about 88.6% of the then paid up capital of Rs 36 lacs consisting of 3.6 lakh shares of 10/- each.  The consideration of Rs 3.24 crores for  3,19,200 shares would work out to roughly over 100/- per share. In other words, for getting the control of the company, the petitioners have paid a premium of Rs 90 per share. This amount was paid  in various installments, including a sum of over  Rs 1 crore by cash. The total amount paid includes a sum of Rs 75lakhs paid as a loan to the company and also Rs 10 lakhs paid as advance towards the shares.  The investment made by the petitioners was utilized by the 2nd respondent to pay for the land.

5.     In accordance with the terms of MOU, all the then directors other than the 2nd respondent and one Shri B.S. Somnath (7th respondent)  resigned from the post of Directors and the 2nd and the 3rd  petitioners and the 8th and the 9th respondents who are  also from the petitioners’ group were appointed as directors. Thus, both in terms of percentage of shares and also in terms of the number of directors on the Board, the petitioners should have absolute control of the company. On 11.12.1996, the Bangalore Development Authority, while issuing an order for de-notification for 8 acres of land also stipulated that 12% of the built up area would have to be given to that Authority.  Since such a stipulation was not envisaged at the time  of the MOU and since the 2nd respondent had breached  his obligations under the MOU by  failing  to register 1/8th share of the land, the petitioners issued a letter dated 17.12.1996 in terms of Clause 19 of the MOU demanding repayment of all their  investment in the company together with 24% interest  ( Annexure A-4 ).  In response to this, the 2nd respondent sent a fax on 27.12.1996 ( Annexure A-5 ) stating that  he was willing to repay the entire investment with 24% interest subject to the petitioners returning 90% shares standing in their names and also submission of resignation letters of the directors belonging to the petitioners’ group.  Thereafter, certain negotiations took place between the parties and a second  MOU was entered into on 6.4.1997 between the parties           ( Annexure A-8 ) according to which the amount invested by the petitioners was to  be repaid by the 2nd respondent together with certain rate of interest over a period of time. It is also recorded in that MOU that 90% of the shares had been transferred and already given to the petitioners group. In this MOU, calculations had been based on the investment of the petitioners of  over Rs 3.24  crores, being the consideration for  88.6% shares. However, this MOU was not honoured by the 2nd respondent.

6.      In the meanwhile, the petitioners came to know that the 2nd respondent had appointed his son Shri Pankaj Garg ( 3rd respondent ) as an additional director w.e.f. 10.4.1996.  This respondent had actually resigned from the position of director on 29.2.1996 in terms of the MOU.  His appointment as an  additional director was not in the knowledge of the petitioners in as much as no notice for the Board Meeting in which he was appointed as an additional director was given to the petitioners even though the same is required in terms of Section 286 of the Act.  Further since none from  the petitioners side attended  the purported meeting on 10.4.1996 for want of notice, there was no valid quorum for the Board Meeting as out of the two directors who attended this meeting, namely, the 7th respondent and the 2nd respondent, the 2nd respondent was an interested director in as much as the 3rd respondent is his son. Further, the 2nd respondent contends that in an AGM allegedly held on 27.9.96, the 3rd respondent was purported to have been appointed as a regular director and that the 8th and the 9th respondents, being additional directors, were not elected as directors. None of the directors from the petitioners side received any notice of the Board meeting on 2.9.96 in which the decision to convene the AGM on 27.9.96 was taken, nor any of the shareholders from the petitioners group received the notice for the AGM. Further, as per the minutes of the AGM at Annexure R-14, only two shareholders had attended that meeting ( the 7th respondent who also attended the meeting  is not a shareholder) and therefore there was no quorum to transact any business in that meeting. The UPCs relied on by the 2nd respondent are fabricated and produced after the disputes between the parties started. Further, the fabrication is manifest from the Annual Report as on 27.9.96 (Annexure R-18) wherein neither the appointment of the 3rd respondent as a director nor the cessation of the 8th and 9th respondents in the AGM held on that day had been recorded. This Report was filed with the ROC on 22.4.97, that is, after the disputes had  started. Therefore, there is no truth in the appointment of the 3rd respondent either as an additional director or as a regular director. The same is the position in regard to the cessation of office by the 8th and 9th respondents. Even assuming that the AGM was held and the decisions were taken there at, since all these decisions are detrimental to the interest of the petitioners by which their majority in the Board had been affected  without notice to them, these decisions are oppressive to the petitioners.

7.     On 30.5.1997, the petitioners issued a notice under Section 169 of the Act for convening an EOGM for the purpose of removal of 2nd and 7th respondents as directors of the company and also for shifting the registered office from Bangalore to Calcutta.  On receipt of this notice, by a letter dated 3.6.1997, the 2nd petitioner, in his capacity as a director, issued a notice to all the directors   convening a Board Meeting on 9.6.1997 at Calcutta to consider the requisition.  By a fax message dated  5.6.1997, the 2nd respondent also issued a notice to convene a meeting on 9.6.1997 at Bangalore to consider the requisition notice.  By a fax dated 6.6.1997 ( Annexure A-16), the 2nd respondent contended that he and his group had transferred only 30% shares in the company to the petitioners and further that the 2nd respondent and his group held more than 90% shares in the company.  The petitioner directors held a meeting on 9.6.1997  at Calcutta and passed a resolution to convene the requisition meeting on 7.7.1997 at Bangalore.  Accordingly, a notice was issued on 10.6.1997 for the EOGM on 7.7.1997.  On 18.6.1997, the 1st and 2nd respondent filed a suit in Bangalore OS No.4640 of 1997 seeking for a declaration that the agreement dated 1.8.1995 had been cancelled and unenforceable  and also seeking for restraining the petitioners from holding out as directors of the company.  In that suit, for the first time it was disclosed that the authorized capital of the company had been increased from Rs 1 crore to Rs 1.36 crores and 10 lakhs equi- preference shares had been created in an EOGM held on  4.7.1995.  It was also disclosed that 10 lakh equi-preference shares were allotted to the respondents’ group on 10.4.1996.  With the contention of the respondents that only 30% shares had been transferred to the petitioners and with the  alleged issue of these equi-preference shares which had allegedly  been converted into equity shares on 10.4.97, now the respondents claim that the percentage holding of the petitioners is less than 10%. 

8.     Shri Sen further argued as follows: The entire episode relating to issue of further shares in the form of equi-preference shares and conversion thereof is a concocted story tried to be established as genuine by fabrication of documents.  The 2nd respondent claims that in an EOGM held on 4.7.1995, the authorised capital was increased  to      Rs 1.36 crores with a provision for issue of  10 lakh equi-preference shares.    It is  patently a false statement. Firstly,  the Annual Return for the year 1994-1995 made up to 28.9.1995 indicates the share capital as Rs 1 crore comprising of equity shares only. The Balance sheet for the year ended 31st March, 1996 signed on 2nd September, 1996 shows the authorized capital of the company as Rs  1.36 crores as on 31.3.1995.  Actually on that day, the authorised capital was only Rs 1 crore and the decision to increase the same was allegedly taken only on 4.7.1995. Secondly, even though, 10 lakh equi-preference shares had allegedly been issued/allotted on 10.4.96,  the Annual Return for 1995-96 made up to 27.9.1996 does not indicate the allotment of equi-preference shares. Even the Annual Return for 1996-97 made up to 22nd April, 1997 does not indicate the issue of equi-preference shares.  Thirdly, Form No.5 relating to increase in capital which should have been filed by 4th September, 1995 was actually filed only on 15h April, 1997 and the Stamp Duty was paid only on 28.4.1997 ( Page 205 of the Petition ).  Likewise, Form No.2 relating to Allotment of Shares which should have been filed by 10th June, 1996 was filed only on 30.4.1997.  Since the contemporaneous documents filed before the litigation started between the parties do not indicate either the increase in the authorized capital or issue of equi-preference shares,  all the statutory returns filed after the litigation started showing the increase in authorized capital  and issue/allotment of Equi-preference shares are undoubtedly fabricated.  Without an increase in the authorized capital, further shares beyond   Rs 1 crore could not have been issued as the same would ultra-vires the Memorandum. 

9.     As far the payment of consideration for 1,9,4,100 shares is concerned, Shri Sen referred to page 331 of Vol. III  and pointed out that during the period  2.8.95 to 31.12.96, the petitioners and their group had paid a sum of  Rs 4,25,71,000 including a sum of  Rs  1,24,61,000 paid in cash. Out of the total amount, the 2nd respondent had repaid an amount of  Rs 90 lakhs which was paid on 4.9.95 by a demand draft,  with interest on  the understanding that the same would be replaced by cash payment  later by the petitioners. Accordingly,   the same was  paid in cash in installments.  This is the cash payment which the 2nd respondent now denies to have received.  He referred to the auditors certificates at pages 333 to 352 of Vol. III, wherein, the auditors, on the basis of the accounts of the petitioners group have certified the cash payment to the 2nd respondent for acquisition of shares in the company. Thus, the amount of investment made by the petitioners and their group is the order of  Rs 3.35 crores.    Therefore, he submitted that there is absolutely no doubt that the petitioners had paid for 1,94,100 shares and that the 2nd respondent had transferred these shares to the petitioners/their group.

10.                        Summing up his arguments, Shri Sen submitted: In view of the failure of the 2nd respondent to honour his commitment in terms of MOU, the petitioners filed  a suit in Calcutta High Court in May 97 challenging the appointment of the 3rd respondent as a director and praying for restraining the 2nd respondent from dealing with the land of the company and also for allowing the petitioners to have effective participation in the affairs of the company.    In that suit certain interim orders were passed more particularly with reference to maintenance of the status quo in regard to the shareholding and also restraining the company from dealing with the fixed assets of the company including the land.   The respondents filed an appeal against the said order which was modified by the Division Bench to the extent that the status quo in regard to the shareholding as on 6.4.1997 shall be maintained. Further, the respondents also filed an application for dismissal of the suit on the ground that the Calcutta High Court had no jurisdiction to entertain the suit.  It is in this suit that for the first time the respondents took a stand that the petitioners held only 30% shares in the company and not 90% shares.  Therefore, in that suit, none of the allegations made in the petition has been agitated and as such, the petitioners are not prosecuting parallel proceedings. In regard to staying of the proceedings, he pointed out that when the reliefs sought in the petition under Section 397 are different from the one in the civil suit, there is no bar in the CLB considering the petition as held in Piyush Kanti Guha  Vs. West Pharmaceuticals Company Limited ( AIR  1982  Cal. 94 ). Referring to C.N. Shetty Vs. Hillock Hotels Private Limited ( 87 CC 1 ), he pointed out that this company is practically in the nature of a partnership between the petitioners and the 2nd respondent arising out of personal relationship and mutual confidence between them.  This being the position, any breach of confidence would entitle the aggrieved person to seek dissolution of the partnership.  Notwithstanding this, the petitioners were prepared to go out of the company on receipt of their investment and even though the 2nd respondent entered into the second MOU, he did not comply with the terms of the said MOU.  Further, he also challenged the actual amount of investment made by the petitioners in spite of his having admitted receipt of over Rs 1 crore in cash during the negotiations held in the Chamber of the Members of the Board. Under the circumstances, he prayed that the management of the company should be handed over to the petitioners after declaring them to be the holders of 90% shares in the company. He contended that the company has taken a stand on issue of equi-preference shares only with a view to reduce the petitioners from majority to minority and therefore is a grave act of oppression ( Howard Smith Limited Vs. Amtol Petroleum Limited 1974  1  AER 1126 ) and Nana Lal Zaver Vs. Bombay Life Assurance Company Ltd. (AIR  1950  SC  172 ).  He also pointed out that by issue of the equi-preference shares, the 2nd respondent has acted in breach of his fiduciary duties of a director and as such the issue is invalid as decided in Piercy Vs. S. Mills & Company Ltd. ( 1920  Ch.D 77 ).

11. Shri Chatterjee, Advocate appearing for respondents 1, 8 and 9 submitted as follows: The claim of the respondents that equi preference shares were issued is nothing but a concocted story. In the suit in Calcutta High Court, the 2nd respondent had taken a stand  on 27.5..97 that the petitioners held only 30% shares.  If these shares had actually been issued on 10.4.96, then they would have been converted into equity shares on 10.4.97 and the petitioners shareholding would have been below 10% on 27.5.97 and as such the 2nd respondent could not have taken the stand that the petitioners’ holding was 30%. Only by the letter dated 6.6.97, the respondents informed the petitioners of the issue of equi- preference shares and therefore, if at all  these shares had been issued, it must be between the period from 25.5.97 and 6.6.97. All documents relating to the increase in the authorized capital and  issue of equi preference shares had been fabricated after the disputes had started between the parties. Even assuming that the petitioners had agreed for issue of equi preference shares in terms of the MOU, yet the company should have followed the legal provisions, first by amending the Articles and in consultation with the petitioners.

12. He further argued: At Page 272 of the Petition which is a part of the Annual Return as on 27.9.1996, the 2nd respondent has signed a list of persons holding shares in the company indicating therein that the total number of shares issued on that date as 3,60,000 shares.  If the equi-preference shares had been issued/allotted  as contended by the respondents on 10.4.1996, the same should have been reflected in this list.    Further, the directors’ report for 1994-95 signed in September, 1996, does not indicate this important financial matter. If one were to take  into consideration these aspects and also the fabrications pointed out by Shri Sen, it would be clear that  the 2nd respondent’s claim on the issue of equi-preference shares and conversion thereof is nothing but an after thought. Neither the memorandum was altered nor equi-preference shares issued.  The respondents have taken the stand of increasing the authorized capital and issue of equi-preference shares and conversion thereof only with a view to claim that the petitioners hold less than 10% shares.  Article 5 of the Articles of Association of the company deals only with redeemable preference shares which are to be redeemed out of profits or out of the proceeds of fresh  issue of shares.  There is no provision for conversion of preference shares into equity shares. Section 80(1) of the Act, permits a company to issue preference shares only if so authorized by the Articles and Section 80(1)(a) of the Act also stipulates that preference  shares are to be redeemed only out of the profits of the company or out of proceeds of a fresh issue.  Provision of Section 80(4) of the Act deals with calculation of fees and does not permit conversion of preference shares into equity shares.  As per Section 80(6) of the Act, any issue in violation of the provisions of Section 80 would be void.  Therefore, even assuming that the equi-preference shares were issued and converted into equity shares as claimed by the respondents, the same being in violation of the provisions of Section 80 of the  Act and also of  Article 5, the same is invalid and has to be cancelled.

13. Shri Raghavan, Advocate appearing for the respondents submitted as follows: The main  issues for consideration in this petition are whether the petitioners hold 1.24 lakh shares or 3.19 lakh shares and whether  equi-preference shares could be issued and whether the same were issued.  Before examining the same, it is to be first examined as to whether the petitioners are trying to enforce their rights as shareholders or treating this petition as a suit for recovery of money or a suit for specific performance.  Further, the petitioners have already filed a suit in Calcutta High Court on similar issues and as such have elected an alternate remedy. In addition, the contesting respondents have filed a suit in Bangalore, in which one of the declarations sought is that the petitioners are not shareholders. If such a declaration is made by that Court, then the petitioners cannot maintain this petition. Actually, this petition is a counter to that suit. Further, in both the proceedings, the MOUs are the subject matter and the CLB cannot adjudicate the disputes de-hors the MOUs.  Therefore, in all fairness to prevent forum shopping and to avoid conflict of decisions, the present proceedings should be stayed. As a matter of fact, in Bengal Luxmi Coton Mills Ltd ( 35 CC 187), the Calcutta High Court has held that if an alternate remedy has been availed of, then a petition under Sections 397/98 does not lie. In the same manner, evenì¥Á7

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14.<ated 1.8.1995.  Therefore, but for this MOU, there would have been no relationship between the parties and as such the allegations in the petition have to be considered in terms of the MOU.  A reading of the various clauses in the agreement would clearly establish that mere investment in the shares alone would not entitle the petitioners to have the control of the company.  Besides the consideration for the shares, the agreement also provided for making substantial payment to the 2nd respondent towards land cost.   Since the petitioners have failed  in discharging their obligations, they cannot gain control of the company by virtue of their investment in shares.  This agreement clearly states that the paid up capital would be increased by Rs 1 crore  by issue of fully paid up equi-preference shares and therefore the petitioners cannot now claim any legal infirmity in the issue of equi-preference shares.  

15. Shri Raghavan continued his arguments as follows:  As far as the transfer of shares to the petitioners is concerned, the actual position is that only 1,25,100 shares  were transferred as indicated by the petitioners in the petition at para (i) of page 10 of the petition. Only in the rejoinder, as an after thought, the petitioners have claimed that further 1,94,100  shares had been transferred.  Even at this time, they had not indicated how and when the consideration for these shares was paid. They had only sought leave for producing the details. Only in the affidavit dated 3.11.98, the petitioners furnished the details of the alleged payment wherein an amount of Rs 4,25,71,000 is shown to have been paid by them. This includes a sum of Rs 75,00,000 paid as a loan to the company. This also includes a sum of Rs 20.1 lakhs paid on 31.12.96, after the date of termination letter. No one would make such a substantial payment after demanding repayment of investment on 17.12.96.  Further, the petitioners have not produced any voucher in respect of the cash payments and the entries in the books of accounts of a litigant cannot be relied on. Further, since these details were furnished nearly after a year, they are all fabricated. In case they had paid the entire consideration for the shares by June 96, they would not have waited to get the transfers registered for more than 10 months.  In the reply to this affidavit, the 2nd respondent has given the details of the receipt of money from the petitioners, which works out to only Rs 2,10,10,000 including Rs 75 lakhs given as loan. Therefore, the petitioners had not paid consideration for 1,94,100 shares.  The  share  certificates in respect of these shares were only handed over to the petitioners without filling up all columns in the reverse of the certificates. Even assuming that the 2nd respondent had signed the certificates in token of registration of transfer, since no consideration had been received for these shares, the transfers were invalid as decided by the Apex Court in  John Tinson and Co Pvt Ltd V M Surjeet Malhan ( AIR 1997 SC 1411). Further, the transfer of these shares cannot be decided de-hors the MOU which stood terminated with the notice dated  17.12.96 claiming the refund of their investment. As per Section 62 of the Contract Act, once the parties to a contract agree to substitute/amend/or alter it then the original contract need not be performed. The respondents had no occasion to point out the allotment  of equi-prference shares in the Calcutta High Court as the  issue therein was only in relation  to the 3.6 lakh shares and the claim of the petitioners on 90% of the same and therefore, the petitioners cannot derive any advantage on  the ground that it was averred in that suit that the petitioners held 30% shares in the company. In the letter  dated 27.12.96 ( page 129 of the petition), the 2nd respondent has not admitted the transfer of 90% shares. If the same is read with clause 1 of the MOU dated 6.4.97 which reads “All share certificates to be signed by Shri Am Avtar Garg” it is evident that these certificated had not been signed even on that date and therefore, the petitioners’ claim that they were signed on 5.4.97 has no basis.

16. He further submitted:   If the notice issued by the petitioners at page 128 of Vol. I claiming their investment was on account of the BDA stipulation of handing over 12% built up area to it as averred at para J at page 10 of the petition, then the disputes actually relate to the property and not the management of the company. This being the case, there is no cause of action to allege oppression against the 2nd respondent.  With the second MOU, their  relation ship with the company as shareholders had ended and now the relationship is that of a creditor and debtor. Since the whole matter had been renegotiated and the second MOU had been  signed, the only course available to the petitioners is to get this MOU executed through a civil suit and there is no scope for a 397 petition.

17.                         As regards the contention of the petitioners that the transfer of 1,94,100 shares had been registered in the register of members, the learned counsel submitted as follows: It is not denied that blank transfer forms were handed over to the petitioners along with the share scripts in respect of these shares. Even though in these share scripts, the 2nd respondent had made endorsement of registration, yet, other columns relating to the folio numbers and the date of registration had been left blank. Perhaps, the 2nd respondent made a mistake of handing over the share scripts to the petitioners, but not definitely after registration. The copies of the transfer forms produced by the petitioners show that their  validity had been extended for a period of one month from 19.2.97. By this time, the petitioners had issued the notice dated 17.12.96 seeking for   refund of their investment and with the signing of the MOU on 6.4.97, the entire agreement between the parties had come to an end.  Therefore, it is inconceivable that on 5.4.97, the  2nd respondent would have effected the registration of the transfers. Further, the stamps on the transfer instruments had not been cancelled, which is a mandatory requirement, a breach of which would merit rectification of the register of members as  decided in Mathrubhumi  Printing and Publishing Co Ltd ( 73 CC 80 and  Nudea Tea Co Ltd V Ashok Kumar Shah ( 64 CC 775). In addition, there are no minutes to show that the Board of Directors of the company had approved the registration of these shares in the name of the petitioner. If the Board had not approve of the transfers, then the registration is void as held in John Tinsons case (supra) 

18. In regard to the directorship, he submitted: the 2nd and the 3 petitioners were appointed as directors in the vacancy arising out of the resignation  of two directors in terms  of the first MOU, and the 8th and 9th respondents from the petitioners’ group were appointed as additional directors.  Since the petitioners had not paid the full consideration for 90% shares, the 3rd respondent, who had resigned on 29.2.96 was once again, in consultation with the petitioners,  appointed as an additional director on 10.4.96. Since the 3rd, 8th and 9th respondents were appointed only as additional directors, they could hold office only upto the next annual general meeting. In the AGM held on 27.9.96, while the 3rd respondent was appointed as a regular director, the other two respondents were not appointed as such. Notices for the Board meeting on 10.4.96 were sent to all the directors (page 74 of Vol. II), but none from the petitioners group attended this meeting. Likewise for the AGM also notices were sent to all the shareholders by UPCs(page 96 of Vol. II). The business to be transacted in the AGM was approved in the Board meeting on 2.9.96 for which also, notices were sent by UPCs, but none from the petitioners group attended this meeting. Therefore, the change in the composition of the Board was done transparently with notices to the petitioners. In so far as the list of directors filed with the ROC along with the Annual Return is concerned (page 124 of Vol. II), it is to be noted that this list reflected the position on that day before the AGM and not after the AGM and therefore the appointment of  the 3rd respondent and cessation of the 8th and 9th respondent were not reflected.  As regards the absence of the name of the 3rd respondent in that list as appointed as an additional director on 10.4.97,  it occurred due to mistake and was an omission.

19. In regard to equi- preference shares, he submitted: The first MOU specifically provides for issue of equi-preference shares for Rs  1 crore. It also provides for increase in the paid up capital of the company to that extent without mentioning any  increase in the authorized capital since the same had already been increased on 4.7.95, that is,  earlier to the date of the first  MOU on 1.8.95 and the petitioners were aware of the same. Late filing of Form 5 would not vitiate the alteration to the Memorandum. In the Board meeting held on 10.4.96, equi-preference shares of Rs 10 each were issued/allotted to the 2nd respondent and his group, in terms of the first MOU. Once the petitioners had agreed for the issue of equi preference shares and allotment of the same to the 2nd respondent group, they cannot now complain of the same. Estoppel against statute cannot come in the way of enforcing a contractual agreement. In regard to the conversion of these shares into equity shares, Section 80 of the Act as also Article 5 permit the same.

20. Summing up his arguments, Shri Raghavan pointed out that the petitioners are trying to enforce the second MOU through this petition and as such the same is a motivated one. Since the petitioners had failed in their obligations in terms of the MOU, they cannot complain of oppression, especially after invoking the jurisdiction of Calcutta High Court. Accordingly, he prayed for dismissal of the petition.

21. Shri Vibhu Bakru, Advocate for the 2nd respondent submitted as follows: This petition is not maintainable under Section 399 of the Act in as much the petitioners do not hold 10% shares in the company.  As a matter of fact they cannot even  exercise the rights of members as they do not have any  beneficial interest in the shares held by them in view  of the second MOU dated 6.4.97 which has actually cancelled the first MOU by which they acquired the shares. Further, this petition is not for redressal of oppression but for claiming  their investment back. The foundation of the 397 petition should be the oppressive conduct meriting winding up of the company on just and equitable grounds. Further, they have already invoked the jurisdiction of the Calcutta High Court and as such they cannot approach the CLB to exercise its equitable jurisdiction.  The MOU dated  1.8.95 is the basic understanding among the parties by which the petitioners acquired the shares. Since the petitioners had acted in breach of the MOU, they cannot seek any equitable relief on the basis of the MOU and the shares acquired there under. It is a fallacy to suggest that the petitioners were to control the company for mere  Rs 3.24 crores. They were to pay over a sum of  Rs 19  crores for acquiring 90% shares in the company over a period of time. This consideration consisted of two components- share price and the land price. While the share price was to be paid immediately, the land price was to be paid over a period of time. Initially, they were to pay Rs  5 crores, including the consideration for the shares,  of which they had paid only  Rs 2.21 crores and not Rs 3.34 crores as claimed by them. Therefore, before claiming any relief, they have to prove that they had paid consideration for 90% shares and also that 90% shares had been transferred to them. A comparison of the figures of payment made by the petitioners, as revealed by them in pages 207 of Vol. II and 331 of Vol III would reveal the contradictions in their claim. In page 127 of the petition, the petitioners themselves  have averred  that they had paid  Rs 1.25 crores for 1,25,100 shares. There are no other details of further payment in the petition. As per Section 58 of the Evidence Act, pleadings constitute waiver of proof. Since they have not mentioned anything over Rs  1.25 crores in the petition, they are estopped from claiming anything further. Even though the petitioners rely on the second MOU dated 6.4.97 for their contention that the figures indicated therein would prove that the 2nd respondent had admitted the receipt of Rs  3.24 crores, yet from the figures mentioned therein, the petitioners are not in a position to pin point to the figure of Rs 3.24 crores or the basis on which the figures there in had been arrived at. If as contended  by the petitioners that over a sum of Rs  1 crore had been paid in cash, which claim is also false, then the same could not have been for the shares, as they could not have paid such a large sum in cash for acquisition of shares. Therefore, he submitted that the petitioners had not paid consideration for 1.94 lakh shares to claim title  to these shares.  In regard to the contention of the counsel for the petitioners that  the 2nd respondent had admitted, in the Chambers of the Members of the Bench, the  receipt of over  Rs 1 crore in cash, the learned counsel pointed out that the discussions were without prejudice and as such should not bind the 2nd respondent.

22. He further argued: Originally, the petitioners paid a sum of Rs  1.25 crores to the 2nd respondent and therefore 1,25,100 shares transferred and registered in the name of the petitioners. However, in terms of the MOU, share scripts with blank transfer forms  in respect of 1,94,100 shares were lodged with the petitioners with the signature of the 2nd respondent in the reverse but in blank. The columns relating to the dates of registration and the folio numbers had been left blank as no actual registration had taken place. A perusal of the transfer register, copies of which are enclosed at pages 219-225 (Vol. II) would clearly demonstrate that the transfer numbers noted on the reverse of the share certificates do not tally with the entries in the register. Since, the petitioners had not paid consideration for these shares, they were never registered in their names nor their names entered in the register of members in respect of these shares. If the transfers had been effected on the basis of the transfer instruments, then, these instruments of transfers should be with the company and the petitioners could not have obtained the copies of the same. The share certificates indicate that these shares were registered on 5.4.97. It is to be noted that the petitioners had claimed their investment back by the letter dated 17.12.96  and in view of this, the first  MOU had been terminated on that day. If so, how would the 2nd  respondent register the transfers after that day?. Therefore, the claim of the petitioners to the title to the shares being false, this petition should be dismissed.

23. Shri Sen, in rejoinder  submitted as follows: This petition has not been filed with the view to get the MOUs executed as contended by the counsel for the respondents.  The petitioners have filed this petition in their capacity as share holders of the company on the allegations that their majority in the Board and the shareholding had been altered by the 2nd respondent and his group and that such action is oppressive to the petitioners who are not just financiers of the project, but equity partners as admitted by the 2nd respondent himself at page 264 of Vol. II. When the 2nd respondent refuses to recognize the majority of the petitioners, it is a grave act of oppression against them, meriting the winding up of the company on just and equitable consideration.

24. In regard to the majority of the petitioners, Shri Sen submitted: The 2nd respondent has admitted in his letter of 27.12.96  that the petitioners were the registered shareholders of 90% shares and therefore, now he cannot resile from that position and he is estopped from denying this assertion. Even  in the MOU dated 6.4.97, the same is admitted and all the calculations had been made on the basis of investment of Rs 3.35 crores by the petitioner. Therefore, the petitioners do not have to prove the fact of payment of  3.35 crores when the 2nd respondent has admitted the same. Not withstanding this, the petitioners have furnished full details of their investment along with their group of shareholders supported by certificates from their auditors. Just because the payment of over Rs 1 crore was by way of cash, the 2nd respondent denies the receipt of the same. However, he himself had  admitted this amount as received by him in cash when attempts were made for amicable settlement in the Chamber of the Members of the Bench. Therefore his denial   during the proceedings should  be rejected.  Further, the 2nd respondent would not have handed over the Board to the petitioners, if he had not received the consideration for 88.6% shares.

25. In so far as the transfer of 88.66% shares is concerned, the learned counsel submitted: Since the 2nd respondent does not dispute the transfer  of 1,25,100 shares, the only issue is about the transfer of the balance 1,94,100 shares. The share certificates in respect of these shares are with  the petitioners with the endorsement of transfer in their favour. This endorsement has been made by the 2nd respondent himself and he also admits the same. The contention of the 2nd respondent that he had handed over the share certificate with blank relating to the folio numbers and the dates of transfer, in terms of the MOU is not borne on facts as there is no such stipulation in the MOU. From the additional affidavit dated 20.2.99 filed by the petitioners, it is evident that the share certificates were lodged with the share transfer agent Shri S.K. Ranguta appointed by a Board resolution dated 12.10.95 and signed by the 2nd respondent, on 7.10.96 ( page 235 Vol II). These transfer  instruments were returned by the share transfer agent on 8.10.96  on the ground that the validity of the transfer  instruments had  expired. In view of this, these transfer instruments were got revalidated by the Registrar of Companies, Calcutta on 13.2.99 for a month and were and submitted to the company.  The second respondent  thereafter, endorsed the registration of transfer as is evident from his signature on the reverse of the share certificates. Further, if the registration of the transfer had been endorsed on the reverse of the certificate at the time when the shares were handed over to the petitioners, as alleged by the respondents, the ROC would not have revalidated the transfer instruments.  Further, the dates on the instruments being  7th/8th October 96,  could not have been handed over on 1.8.95 as claimed by the respondents. In regard to the stand of the respondents that the that the transfer numbers and the register numbers etc do not tally with the register of transfer, this stand has no bearing as the register is with the company and is susceptible to manipulation. It has been held by the CLB  in Satish Chand Sanwalka V Tinplate DealeRs Association Pvt Ltd (93 CC 70) that in between the share register and the share certificate, the prima facie evidence of the share certificate has primacy over the share register.  Therefore, when the proof of payment of consideration is established and the registration of transfer is endorsed on the certificates and when the share certificates are in possession of the petitioners, the 2nd respondent cannot claim that the shares had not been transferred/registered  for want of consideration.  

26. We have considered the pleadings and arguments of the counsel including the written  submissions filed by the parties other than the one filed by the petitioners on 25.7.2001 in view of the  objection raised by the respondents in considering the same.   This petition was mentioned on 2.7.97 and was adjourned to 1.8.97 for considering the interim reliefs prayed for by the petitioners On that day when this Bench expressed a view that the disputes deserved to be settled amicably, the counsel for the 2nd respondent   Shri Raghavan made a statement that his client was agreeable to repay all the investments of the petitioners together with an interest at the rate of 30% within a year. Since the counsel for the petitioners desired time to consult his clients, the mater was adjourned to 22.8.97. The company was also restrained from dealing with the assets of the company in the meanwhile. Since, there was no progress towards amicable settlement, this Bench itself  discussed the terms of settlement, in the Chamber,  with  the parties on 5th and 6th January 98 and in consultation with them, a draft proposal also was prepared and given to them according to which certain amount was to be  paid by the 2nd respondent  to the petitioners in full and final settlement of their investment along with interest over a period of time. Later, however, the 2nd respondent was  not willing to go by these terms of settlement and accordingly the hearing on the petition commenced. In midst of the hearings, the parties once again expressed their desire to amicably settle the matter and on account the negotiations between them, further hearings were adjourned from time to time and when the compromise efforts had  reportedly failed, the petition was heard on merits and concluded on 12.4.2001. Even during the later stages of hearings, some attempts were made to settle the disputes amicably, but, the position that appeared  was  that the 2nd respondent was  willing to refund the investments made by the petitioners but did  not have the resources and the efforts to sell the land had also not succeeded in view of the land price having gone done. The other issue in the amicable settlement was  the dispute relating to the quantum of the investments made by the petitioners and their group and the amount to be paid to them.

27. The learned counsel for the respondents raised an issue of parallel proceedings in view of the suit in Calcutta High Court and the suit in Bangalore civil court. As far as the suit in the Calcutta High Court is concerned, the petitioners have filed an affidavit on 18.5.2001 stating that the said suit had been dismissed for non prosecution and have also enclosed a copy of the order of that Court dismissing the suit for non prosecution. Therefore, the objection relating to the parallel proceedings in relation to the suit in Calcutta High Court no longer survives. In regard to the civil suit in Bangalore, it is a suit filed by the respondents and not the petitioners Therefore, the same cannot be held against the petitioners.From the copy of the plaint filed by the petitioners,we find that in that suit the 2nd respondent has sought for a declaration that the first MOU  is cancelled and therefore unenforceable and also for a permanent injunction restraining the petitioners as holding themselves as  directors and interfering with the respondents as directors.  We note that the civil court has only granted an interim relief to the  extent that the status quo in regard to the EOGM convened on 7.7.97 was to be maintained. The learned counsel for the respondents also contended that  that this petition cannot be decided      de-hors the MOU which is a  subject matter of the suit in Bangalore. This Board had occasions to consider  similar cases wherein the parties had entered into MOUs whereafter disputes had started between them.  In B.M Jain & Sons V Bombay Cable Car Pvt Ltd (2001 41 CLA 5 ) the petitioners therein acquired 50% shares in the company in terms of an MOU and also got  equal number of directors appointed on the Board. As per the MOU the petitioners were to invest Rs 1.6 crores including investment in shares of  about Rs 19 lakhs for implementing a cable car project. The allegations in that petition related to further issue of shares and removal of the directors from the petitioner’s group. The respondents therein filed a suit in Bombay High Court  complaining that the petitioners had failed to bring in the agreed amount and as such they should be directed to transfer their shares to the respondents in terms of the MOU. The Bombay High Court, as an interim measure,  restrained the petitioners from holding themselves as directors. When they filed the petition before the CLB, the respondents contended  that the relief sought for by the petitioner in the  proceedings before the CLB ran  against the relief sought by the respondents in their suit in Bombay High Court and since the suit was filed prior in time CLB cannot consider granting of any of the reliefs in the petition.  Noting that, since in the Bombay proceedings, the issue relating to whether the petitioners’ group had committed any breach of the agreement was pending, this Board decided not to refer the MOU and held that   “Now we have to see whether the allegations of the petitioner, de-hores the agreement, could be considered as  acts of oppression. No doubt the Jain Group became a shareholder of the company by virtue of the agreement, but once it has become a member it has  all the rights of a shareholder as provided in the Act and in the Articles.”  This Board also held in that case that it is an established principle of law that in a 397/398 petition, it is the shareholders' rights that could be agitated and not for the purposes of enforcing private agreements. In Ador- Samia Ltd.  Vs. Indocan Engg.Systems Limited ( 1999  35  CLA  224), the petitioners therein entered into an MOU for acquiring 60% shares in the company for a sum of Rs 2.3. crores. The MOU provided for 3 directors from the petitioners group on the Board of the company. While the petitioners acquired 18% shares for a sum of Rs 84 lakhs, the balance 42% were not acquired as the same were held by foreign shareholders the acquisition of which required various clearances. In the meanwhile the petitioners had also given an inter corporate deposit of Rs 2.15 crores. Certain disputes arose between the parties and the petitioners therein filed a suit in Bombay High Court for a decree for cancellation of the MOU and also for repayment of their investment of 2.99 crores. In view of this, the respondents took the stand that if the Bombay High Court were to grant the prayers of the petitioners, then the petitioners would not be members of the company to pursue the petition before the CLB and as such, the proceedings should be stayed/the petition be dismissed. This Board held that in view of the civil proceedings in relation to the MOU, the Board would only consider the allegations of oppression in their capacity as members .  Thus this Board has been taking the view   that in a petition under Sections  397/98, this Bench is only concerned with as to whether the allegations in the petition could be considered to be oppressive or whether there is mismanagement in the affairs of the company. Private agreements can neither be sought to be enforced nor its breach could give cause of action to file a petition under Sections 397/98. In other words our examination of the allegations would be de-hors the MOU and therefore, the pendency of the suit in which the MOU has sought to be cancelled is not a bar to our proceeding with this petition.

28. . The learned counsel for the respondents  also raised an objection on the maintainability of the petition in terms of Section 399 on two grounds-that the shares presently held by them are in trust for the 2nd respondent and his group and as such the petitioners are not shareholders of the company and the second is that percentage holding of the petitions being around 9% is below the 10% stipulated in Section 399. Both the objections have to be rejected straight away. The question of holding shares in trust would arise only if the respondents had funded the consideration for the shares and that the shares were registered in the names of the petitioner. Even the respondents have admitted that the petitioners had paid consideration for 1,25,100 shares and that these shares are registered in their names. Therefore, the question of the petitioners holding the shares in trust for the respondents does not arise and therefore there is no doubt that they are the members of the company in their own right. In regard to the satisfaction of the provisions of Section 399 of the Act, the consistent view taken by this Board is that, if issue of further shares is challenged in a petition, but for which, if the petitioners satisfy the provisions of Section 399, then the petition would be maintainable subject to the allegation relating to the issue of shares going in favour of the petitioners. Since, in this petition, the petitioners have challenged the issue of equi preference shares and also the stand of the respondents that only 30% shares had been transferred to the petitioners, we have to examine these issues to decide whether the petition is maintainable. Further, we also note that the total  number of members in the company as on 27.9.96 was only 11 (page 272 of the petition) and equi preference shares had been issued only to the existing members of the 2nd  respondents group and therefore,  the petitioners being 3 in number, satisfy the alternate requirement of Section 399 that a petition could be filed by members constituting 10% of the numerical strength of the membership of the company. Therefore, this petition is maintainable.

29. While dealing with the merits of the case, it is necessary to note that both the sides have engaged advocates on behalf of the company even though only the 2nd respondent has filed a common reply on behalf of the company and also on his own behalf. Thus, the disputes are really between the 2nd respondent and the petitioners. The main complaint of the petitioners is that the 2nd respondent does not recognize the petitioners as holders of 88.6% shares in the company.  It is not in dispute that the 2nd respondent admits that  1,24,100 shares were  registered in the names of the petitioners. The dispute relates to the balance of 1,94,100 shares.  Even in respect of these shares, the admitted position is that the share certificates in respect of these shares are in possession of the petitioners.  We have seen the original share certificates in respect of these shares as produced by the learned counsel for the petitioners and found that these shares had been registered in the names of the petitioners/their group on 5.4.1997 and the 2nd respondent has signed in the back (reverse) of the certificate in token of the registration in the names of the petitioners/their group.  As per Section 84 of the Act, the share certificates are prima facie evidence of the title of the members in respect of the shares mentioned therein. However,  as rightly pointed out by Shri Raghavan, relying on John Tinson case, since transfer of shares without consideration is void,  we have to examine as to whether consideration for the shares had been paid by the petitioners. In so far as 1,25,100 shares are concerned, neither the receipt of consideration nor the fact of transfer/registration is denied  by the 2nd respondent.  According to the respondents, since no details regarding the consideration for 1,94,100 shares had been given in the petition, the details  relating to the same furnished  later is an after thought. We do not find substance in this stand in as much, in the petition, the petitioners had claimed ownership of 90% shares and thereafter, they furnished further details. Before we examine the details of payment  furnished by the petitioners at page 331 of Vol III,  with the counter statement on the same by  the 2nd respondent in his affidavit dated 10.11.98 , it is necessary to note that in the second MOU, the 2nd respondent had admitted receipt of certain amount of money from the petitioners. In this  MOU an amount of Rs 4,26,33,000 is shown as  due as on 1.1.97. This amount is written in words also. This amount has been computed at 24% interest on quarterly compounded basis on all the amount due to the petitioners as  on 31.12.96. If the contention of the 2nd respondent that the petitioners had invested only Rs 2,10,10,000, then with 24% interest  on the same, the amount due as on 1.1.97 could not have been more than Rs 3 crores even   assuming that the interest is charged for 1 year 5 months  on the entire amount ( the first payment of Rs 75 lakhs was in August 95) even though the amount has been paid over a period of  6 months till February 96 ( excluding the cash payment made thereafter).  A rough reverse calculations made by us, even during the hearing, indicated that the principal amount should have been more than Rs 3 crores to arrive at the figure of Rs  4,26,33,000 as on 1.7.97 at 24% interest at quarterly rest. Even though it was contended by the learned counsel for the 2nd respondent that since this calculation is subject to verification even as per the MOU, there is no finality in the figure, we note that the amount noted  was  “subject to  recheck calculation mistakes, if any” indicating clearly it was the interest calculation which was subject to recheck and not the principal amount. Therefore, there is clear admission on the part of the 2nd respondent to have received more than Rs 3 crores from the petitioners as their investment in  the company/shares.   Even though Shri Sen urged that we should also  take note of the admission of the 2nd respondent in the Chamber, of cash receipt of over  Rs one crore,  as rightly pointed out by Shri Raghavan, we have to ignore the same as the discussions were without prejudice. However, his admission in the second MOU of receipt of over Rs 3 crores has to be taken note of.

30. The petitioners have given a statement of their investment in the shares/company  according to which  the total amount paid by the petitioners works out to Rest. 4,25,71,000. Of this amount a sum of Rs 1,24,61,000 is found to have been paid by cash while the balance amount  had been paid in the  form of DD/TT. The 2nd respondent admits all the amounts paid in the form of DD/TT, but denies to have received any amount in cash. The amount paid by DD includes a sum of Rs  75,00,000 given as a  loan to the company on 2.8.95 and the same is admitted by the 2nd respondent and is also figuring in the Balance Sheet of the company as on 31.3.1996. A sum of Rs  90,00,000 is found to have been paid by demand draft to the 2nd respondent  on 4.9.95.  Both the sides admit that this amount had been refunded by the 2nd respondent with  interest. However, according to the petitioners, this was repaid on the understanding this amount would be paid again by the petitioners in  cash while according to the 2nd respondent, this amount was taken as loan from one M/s Dempo Mercantile Ltd, Calcutta and was refunded with interest.  As per  the statement furnished by the petitioners and confirmed by the 2nd  respondent, this amount of Rs 90 lakhs had been refunded  in installments on 18.10.95 ( Rs 25 lakhs), 5.2.95 (Rs 39 lakhs), 9.2.96 (Rs 15 lakhs),  and 16.2.96 (Rs 16 lakhs). These installments more or less match the amounts remitted by the petitioners by DD/TT one or two days prior to the dates of   refund. The petitioners had remitted Rs 25 lakhs on  17.10.95, Rs 39 lakhs on 28.1.96, Rs 16 lakhs on 2.2.96 and Rs 6 lakhs on 12.2.96 and Rs 10.6 lakhs on 14.2.96. But for some understanding, there would not have been these cross transactions, that is, the petitioners remitting money by DD/TT to the 2nd respondent and his  paying back the same immediately to the petitioners group ( M/s Dempo Mercantile Ltd is reportedly belongs to the petitioners’ group).  We have already noted that the 2nd respondent would not have handed over the certificates without receipt of consideration. If so, with the auditors certificates produced by the petitioners regarding the cash payments and his admission in the 2nd MOU of receipt of  more than Rs  3 crores, we have no hesitation to  come to the conclusion that the petitioners had paid Rs 124.61 in cash which together with the amount of Rs 2,10,10,000 admitted by the 2nd respondent as received from the petitioners, the petitioners have invested Rs 3.347 crores in the shares/company. According to the 2nd respondent, out of the amount of Rs 75 lakhs given as a loan to the company, he has repaid Rs 23 lakhs and has also produced the bank account in support of the same. ( This is to be confirmed by the petitioners). Even then,  we find that the petitioners had invested a sum of Rs 3.117 crores in the shares/company. If so, there had been consideration for the shares.  The respondents have raised  a issue whether the petitioners would pay an amount of Rs.20,10,000 on 31.12.1996 after having terminated the MOU by their letter dated 19.12.1996.  We find that after this letter was issued, there seems to have been some further discussions between the parties in respect of the project as is evident from the letter of the petitioners dated 13.1.1997 at Annexure A-6. Therefore, it appears that even after the issue of a notice of termination on 19.12.1997, the petitioners evinced an interest in continuing their association with the company.  If it is so, then, they could have paid an amount of Rs.20,10,000 on 31.12.1996. 

31. The receipt of full consideration for the entire 3,19,200 shares is also evident from the fact that according to the version of the 2nd respondent himself he had handed over all the share certificates in respect of these shares to the petitioners.  No man of ordinary prudence, leave alone a businessman like the 2nd respondent, would  hand over share certificates with blank transfer forms without receipt of consideration.  It appears to us that both the parties had decided, whatever may be the reason, to pay/receive consideration in the form of cash.  Taking into consideration our conclusion that the  petitioners had invested more than Rs.3 crores in the company/ shares and the fact that the 2nd respondent had handed over share certificates in respect of 88.6% shares in the company, the 2nd respondent cannot now claim that the petitioners have not paid the consideration for these shares. While coming to this, conclusion we have also taken in to consideration the amount of Rs 75 lakhs paid as a loan to the company.

32. Now the next issue is whether 1,94,100 shares were registered in the names of the petitioners/their group on 5.4.97.  The stand of the respondents in this connection are that the entry of the folio numbers and the date of registration on the reverse of the share certificates are fabricated that the Board had never approved the transfer of 1,94,100 shares and that the registration even if it had been recorded,  is void since the stamps on the instruments of transfer had not been cancelled. The admitted position is that the signature of the 2nd respondent appears on the reverse of the share certificates in respect of these shares.  In addition to this, his signature also appears on the instrument of transfer for having tallied the signature.  We do not believe that when according to the 2nd respondent he had delivered the share certificates with the signature on the reverse of the share certificates to the petitioners on 1.8.95 that he would have also delivered the blank instruments of transfer with signatures for having tallied the signatures.  This is too far fetched a stand to be given any credence.  He could not have handed over the blank transfer forms on 1.8.95 as they are found to have been 7th and 8th October 96. we also note that these transfer forms had been presented to the prescribed authority on different dates- 15.9.95, 11.10.95 and 8.3.96, that is after 1.8.95 indicating very clearly that these forms were not in existence on 1.8.95. Further, we also note that while in respect of registration of 1,25,100 shares, the 2nd respondent has signed  in the “ initial” column on the reverse of the share certificates, in respect of 1,94,100 shares, he has signed on the reverse as “authorized signatory”.  If his contention  that all the share certificates in respect of all the 3,19,200 shares were handed over to the petitioners on 1.8.95 with blank signature on the reverse, is to be accepted,  then,  there is no reason for him to have adopted different methods of signing the share certificates – signing in the initial column in respect of 1,25,100 shares and signing as authorized signatory in respect of 1,94,100 shares. In addition, the 2nd respondent is not in a position to explain as to how and when he had signed the transfer instruments indicating tallying the signatures.  Further, as rightly pointed out by the learned counsel for the petitioners, the ROC Calcutta would not have revalidated the instruments if the share certificates bore  the endorsement of the company in token of registration of the transfer of shares at the time when they were presented for revalidation. Further, the 2nd respondent has also not explained the documents filed by the petitioners in regard to the Board Resolution appointing M/S Ranguta as Share Transfer Agents.  Taking into consideration that the parties were  negotiating for a settlement as is evident from the second MOU, and since cash transactions had been involved, the parties must  have agreed to perfect the title of the petitioners in respect of the shares and accordingly the 2nd respondent should have signed the transfer instruments in token of having tallied the signatures and the reverse of the share certificates as token of having registered the transfer of shares on 5.4.1997. The learned counsel for the 2nd respondent pointed out that if the share certificates had been signed on 5.4.1997, there was no need to have indicated in the MOU on 6.4.1997 that all share certificates to be signed by the 2nd respondent. It is to be noted that in the same MOU it is also indicated that 90% shares in the company had been duly transferred and already given to the petitioners. This being a contemporaneous record signed immediately after the registration of transfer had been effected on 5.4.1997, it  very clearly indicates that these shares had been transferred and registered  in favour of the petitioners on 5.4.97. It appears that all the share certificates were authenticated as a token of registration taking into consideration all the investments made by the petitioners including the loan of Rs 75 lakhs given to the company. In the circumstances of this case, this is the only reasonable conclusion that we could arrive at.

33. The learned counsel for the 2nd respondent  pointed out, with reference to the photo copies of the Transfer Register at Pages 218 to 225 of Volume II to contend that the Transfer Register does not contain any of the transfer numbers and folio noted on the reverse of the share certificates in respect of 1,94,100 shares and therefore these entries on the share certificates are fabricated. These pages contain entries of transfers effected during the period from July 1985 to Feb. 1996. From a perusal of the  pages, it appears that  that all the entries therein  have been at a single point of time since  the handwriting, the pen used etc. appear to be common.  Therefore, the probability of this Register having been written after the disputes started cannot be ruled out. Any way, as rightly pointed out by Shri Sen, that in between the share certificates and the Register of Members, the share certificate gets precedence over prima facie evidential value under Section 84  over prima facie evidence of the  Share Register under Section 164,  in as much as the later is under the control of the company and is susceptible to manipulation.  This is what this Board has held in Tin Plate Company  case (supra) and in Rajendra Prasad Gupta V Scientific Instruments Company Ltd ( 1999 1 CLJ 121).  Thus, taking into consideration our finding that the 2nd respondent had received the consideration for the shares and that these shares had been transferred and registered in the names of the petitioners/their group,  and since the share certificates are in possession of  the petitioners,  we have no hesitation to come to the conclusion that the petitioners are validly registered legal owners of 3,19,200 shares in the company  for valuable consideration.

34. The learned counsel for the respondents raised an issue that any transfer in violation of Section 108 of the Act which mandates cancellation of the stamps on the instruments of transfer is void if the stamps are not cancelled. He relied on Mathrubhumi and Nudea Tea Company Cases.  In both these cases, the challenge of non cancellation of stamps was raised before registration was effected and accordingly the courts held that the Board of Directors of the companies  had rightly decided to refuse registration in terms of Section 108 of the Act.  However, in the present case, registration had already been effected.  In M/S Kothari Industrial Corporation Ltd. Vs. Lazor Detergent Limited, ( 81 CC 617) wherein when the petitioner company  sought for rectification of its Register of Members on the ground that it had registered the transfer of shares lodged by the respondents even though the stamps had not been cancelled, this Board ordered rectification of the register of members on the ground that  non cancellation of the stamps was in violation of the mandatory provisions of Section 108 of the Act. This order was challenged in the High Court of Madras which held that a company should not raise its own  irregularity after a lapse of time and seek rectification of the register of members. ( 85 CC 79). Accordingly, it  set side the order of this Board. Therefore, while the non cancellation of adhesive stamps could be a ground for refusal to register the  transfer of shares, once the registration had been effected, such non cancellation cannot be a ground for the company to seek rectification of the Register of Members.  Therefore, in the present case, even though the stamps had not been cancelled, since the company had already registered the transfers, it cannot take a stand that the registration is invalid and therefore the petitioners are not legal owners of these shares. 

35. Yet another objection taken by the learned counsel for the respondents was that the Board of Directors had not resolved to register the transfer of shares and therefore there is no valid registration as decided in John Tinson case (supra).  In that case, the company was a private limited company and the Articles provided that no transfer of any shares in the capital of the company shall be made or registered without the previous sanction of the directors.  In view of this provision in the Articles, the Apex court held that in a private limited company, the Articles of Association is a contract between the parties and since the transfer had been effected without the approval of the Board in terms of the Articles, the same was void.  In the present case, the company is a public limited company and we find from the Articles 34 to  43 of the company that there is no specific provision as in that of  John Tinson  case.  Therefore, the decision of the apex court in that case are not applicable in the present case.   Further, we also note that the 2nd respondent has not produced any evidence to show that in respect of registration of 1,25,100 shares  the same was approved by the Board.  In the present case, unfortunately, the separate identity  of the 2nd respondent and the company/Board has been lost and therefore once he has signed the reverse of the share certificates as a token of registration of the shares, the same has to be taken as if the same had the  approval of the Board. 

36. The next issue relates to the issue of equi-preference shares.  According to the petitioners the issue is void in terms of the provisions of the Act and the Articles and also the Memorandum  while according to the 2nd respondent, the issue was valid in all respects.  It is an admitted position that the first MOU contemplates issue of equi-preference shares for an amount of Rs. 1 crore initially to the 2nd respondent/his group of which 90% was to be bought by the petitioners after expiry of 12 months from the date of allotment.  The only issue for consideration is whether the allotment had  been made in compliance with the legal provisions or was done with a view to reduce the petitioners from majority to minority. It is the stand of the petitioners that at the time when the MOU was entered into, the authorized capital was Rs.1 crore and the paid up capital Rs.36 lacs and therefore without increase in the authorized capital, the equi-preference shares for Rs.1 crore could not have been issued as the same would be ultra vires the Memorandum.  According to the 2nd respondent, authorized capital was increased to Rs.1.36 crore in an EOGM held on 4.7.1995 i.e. before the date of the first MOU. They have enclosed a copy of the minutes of the alleged EOGM at Annexure –R-8. It reads “ Resolved that the authorized capital of the company  be increased from Rs.1,00,00,000 to Rs.1,36,00,000 by creation of 3,60,000 1% non cumulative convertible preference shares of Rs.10/-each and resolved further that the un-issued 6,40,000 1% non cumulative convertible preference shares of Rs.10/- each be created and that the clause 5 of the memorandum of Association be altered accordingly”.  This resolution is ambiguous.  On that day, there were no un-issued 6,40,000 non cumulative convertible preference shares. The Annual Return as on 28.9.1995 indicates the authorized capital as only Rs.1 crore. We also find that in the Form No 32 filed on 11.6.96 (Annexure R-9) notifying the appointment of the 8th and 9th respondents as additional directors on 11.10.95, the nominal capital is noted as Rs 1 crore. Same is the position in Form No 32 at page 193 of Vol II in relation to the appointment of the 2nd and 3rd petitioners as directors on 29.2.96.  If the authorized capital had been increased on 4.7.1995, then the increased authorised capital should have been reflected  in the Annual Return as on 28.9.1995 and also in the Forms 32 filed after that date.      Further, amended Memorandum has not been filed before us.  Form No.5 indicating the alteration in the Memorandum relating to the capital clause was filed only on 15.4.1997 after the disputes between the parties had started.  Therefore, in the absence of any contemporaneous records to show that the authorized capital was  increased before the date of the  first MOU and when actually such records indicate  the authorized capital as on that date as Rs.1 crore, we find justification in the contention of the  petitioners that the authorized capital had not been increased on 4.7.1995 and the EOGM resolution is a fabricated one.  The learned counsel for the 2nd respondent contended that since there is no mention in the first MOU regarding the increase in the authorised capital while stipulating issue of preference shares, it would indicate that the authorised capital had already been increased and the petitioners were aware of it. We would have agreed with the counsel, if there had been some independent evidence in the form of Form 2  or amended Memorandum filed with the Registrar, before the disputes had started. Unfortunately, no independent evidence has been produced and on the contrary, the Annual Report as on 28.9.95 shows the authorized capital only as Rs 1 crore.   Therefore we are inclined to agree with the petitioners that the alleged issue of equi-preference shares for Rs.1 crore is  ultra vires the Memorandum and therefore is a nullity.

37. Even though  we have held that the issue and allotment of equi-preference shares is a nullity, since the factum of  issue/allotment of these shares  has also been challenged, we shall examine the same.  According to the 2nd respondent, 10 lakh  equi-preference shares were issue/allotted in a Board Meeting on 10.4.1996. A copy of the Board Resolution on that date is filed at Annexure R-5.  In the same Board Meeting, the 3rd respondent was also reportedly appointed as an additional Director.  On this day, the petitioners’ group had 4 directors and none of them had attended this meeting, which according to them was on account of non receipt of notice.  Whether this meeting was actually held and the decisions were taken up is a point of dispute.  The petitioners have pointed out that if these equi-preference shares had been issued/allotted on 10.4.1996, then, the Annual Report made up to 27.9.1996 should indicate the names of the holders of these shares, but,   the list of shareholders in the Annual Report made up to that date, does not contain the names of  holders of these shares.  Further, they have also pointed out that Form No.2 ( Return of Allotment ) which should have been filed with the ROC within 30 days of allotment was filed only on 28.4.1997 i.e. after the disputes between the parties started.  Further, they have also pointed out that the Directors’ Report dated 2.9.1996 does not mention this important financial matter.  In view of this, they have alleged fabrication.  We are inclined to agree with the petitioners. One information which would have settled the matter in favour of the respondents was that they should have produced the details of receipt of consideration for these shares.  If the 2nd respondent had produced evidence of receipt of consideration for these shares on or before 10.4.1996, the factum of allotment could have been established.  In the absence of these details and in view of what have been pointed out by the counsel for the petitioners, we are inclined to agree that there had been no allotment of equi-preference shares on 10.4.1996 and the resolution dated 10.4.1996 in this regard is a fabricated one to claim that as on 10.4.1997 they had been converted into equity shares in view of which the petitioners have become absolute minority.  While taking this view, we have also noted that in the Calcutta proceedings, the 2nd respondent had taken a stand that the petitioners were holding 30% shares which would not have been possible if the equi-preference shares had become equity shares on 10.4.1997.  We are not convinced with the contention of the   counsel for the respondents that the stand of the respondents in that case that the petitioners held 30% shares was on account of their  stand that they were holding 90% shares.

38.                        The legality of issue of these equi-preference shares has also been raised by the petitioners.  Section 80 of the Act deals with issue of redeemable preference shares according to which no preference share shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the fresh issue of shares made for the purposes of redemption.  This  Section also provides that subject to the provisions of this Section, redemption of preference shares may be effected on such terms and in such manner as may be provided by the Articles of the company.  Thus, the issue of redeemable preference shares is governed by the provisions of the Act as well as the Articles.  The Article 5 of the company reads “ Subject to the provisions of these Articles, the company shall have the power to issue preference shares carrying a right to redemption out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of such a redemption or liable to be redeemed at the option of the company and the Board may subject to the provisions of Section 80 of the Act exercise such power in such manner as may be provided in these Articles”.  Thus, we find that this Article is practically a re-production of Section 80 of the Act.  The issue for our consideration is whether preference shares could be redeemed by  conversion  into equity shares.  Since, Section 80 of the Act as well as Article 5 of the Articles of Association of the company permit redemption of preference shares only out of profits or out of the proceeds of fresh issue of shares, redemption of preference shares in any other manner is ultra vires the Act and therefore is a nullity.  In this connection, we may refer to the decision of this Board in M/s Tinplate Dealers Association Pvt Ltd case 9supra), wherein this Board had held that issue of bonus shares against the  revaluation reserve was invalid when the Articles provided for issue of bonus shares only against share premium account and capital redemption account.  In other words, the issue of shares should be in accordance with the Articles.  Shri Raghavan contended that when the petitioners had agreed for issue of equi-preference shares and conversion thereof in the first MOU, they cannot now complain of illegality in issue and he also contended that   estoppel  against statute cannot be pleaded in enforcing contractual terms.  He further relied on the commentary in Ramaiya ‘s  Companies Act to urge that preference shares can be converted into equity shares.   We are of the view that when the Articles do not contain any provision for conversion of preference shares into equity shares, a private  agreement between the parties cannot override the provisions of the Statute/Articles. Further, according to the commentary of Ramaiya, the redemption of preference shares should be only by way of cash and  any scheme of conversion would require the compliance with the provisions of  Sections 81, 106, 391 and 392 of the Act. 

39.                        Thus on  an overall assessment  on the issue /allotment of equi-preference shares, we find that the same was ultra vires the Memorandum, the Act and the Articles and the facutm of issue/allotment on 10.4.96 has also not been established.   Even though, the settled position of law is that an isolated act in violation of statutory provisions need not be considered to be oppressive, yet, in the present case, assuming the these shares had been issued to the 2nd respondent and his group in terms of the MOU according to which, 90% of the same were to be transferred to the petitioners, which the 2nd respondent has not done so, by   the issue and allotment of equi-preference shares, the petitioners had been reduced from 88.6% shareholders to less than 10%  shareholders. Further, by investing less than 1/3rd of what the petitioners had invested (Rs 1crore as against Rs 3.34 crores), the respondents claim absolute majority, which itself is an act of oppression.

40.                         Another allegation of the petitioners is the composition of the Board of Directors.  According to the petitioners, in terms of the MOU, there should have been 4 directors from their side and the 2nd respondent on the Board of Directors of the company.  Accordingly, 2nd and 3rd petitioners and 8th and 9th respondents were appointed as directors.  Their complaint is that the 3rd respondent who had resigned from the Board on 29.2.1996 had been allegedly appointed as an additional director on 10.4.1996 and as a regular director on 27.9.96.  In  addition, the 2nd respondent also claims that 8th and 9th respondents had ceased to be directors from 27.9.96.  We find that as per the Form No.32 at Annexure  R-9, the 8th and 9th respondents were appointed as additional directors on 11.10.1995 ( Even though  the Annual Return as on 27.9.1996 records the date of their  appointment as 29.2.1996 ) and the   2nd and 3rd petitioners were  appointed as directors in the vacancy of one Shri Suresh Choudhary and the 3rd respondent who resigned as directors on 29.2.1996 in terms of the MOU as per Form No 32 at page 193 of Vol II.  According to the 2nd respondent, the 3rd respondent was  again appointed as  an additional director in the Board Meeting held on 10.4.1996 with the consent and the knowledge of the directors from the petitioners’ group since the petitioners had not paid consideration for 90% shares which was a condition precedent to have majority on the Board. There is nothing on record to show that the petitioners had agreed for the appointment of the 3rd respondent and none from the petitioners’ side attended this meeting, which according to them was due to non receipt of notice. The petitioners have questioned this appointment on many counts-that the board Minutes are fabricated, that there was no valid quorum in that meeting and that no notice for that meeting had been given to them  for this meeting and therefore, the proceedings in that meeting are a nullity. We are inclined to agree with them. In regard to fabrication of the minutes, we find support  from the Annual Report as on 27.9.96 wherein the  3rd respondent is not shown as a director on that day.  Secondly, the Form 32 regarding his resignation was filed with the ROC only on 11.6.96, by which time he had purportedly been appointed as an additional director on 10.4.96. Thirdly,  the relevant Form 32 regarding his appointment on 10.4.96 was filed only on 22.4.97, that is, after the disputes had started between the parties.   The company cannot claim that it was not aware of the statutory  provisions regarding filing of Returns, as it had filed the due Returns on previous occasions.   Therefore, the factum of his appointment is doubtful. Assuming that he was appointed as such, the appointment is also not valid since, there was no valid quorum as out of the two directors present, the 2nd respondent, being the father of the 3rd respondent was an interested director and he could not have participated in the business of appointing his son as an additional director. His appointment as regular director is also invalid in view of the fact that in the AGM held on 27.9.1996 in which he was appointed as a director, there were only two shareholders present as seen from the minutes of that meeting at Annexure R-14.  Further, no notice for this meeting appears to have been given to the petitioners as is evident from the fact that if the petitioners had the notice, they would have definitely questioned the items proposed for consideration in that meeting since there is no mention of the respondents 8th and 9th being eligible for appointment as director as has been done in respect of the 3rd respondent.  Therefore holding of the AGM without notice and conducting business thereat without quorum invalidate all the proceedings in that meeting.  If so, the 3rd respondent had not been validly appointed in that meeting and even assuming that he has been appointed as an additional director on 10.4.1996, he could hold office only upto the date of the AGM for the year 1995-96.  In regard to the non appointment of 8th and 9th respondent as directors, we find from the notice for this meeting at Annexure R-13 that there has not been even a proposal for their appointment.  At that time there was no dispute between the parties and there was no reason as to why the names of these two persons had not been proposed for appointment as additional directors.  Such non proposing the names of these directors is definitely an act of oppression against the petitioners holding 88.6% of shares at that point of time.  However, since they were admittedly appointed only as additional directors earlier, they would have  automatically ceased to be directors in accordance with Section  260 of the Act even granting that the AGM held on 27.9.1996 is invalid. Therefore, the present Board of Directors would consist of only the 2nd and 7th respondents and the 2nd and 3rd petitioners.

41.                        We sum up our findings as follows:

a.     The petitioners/their group had paid consideration of Rs 3.347 crores for 3,19,200 shares and that all these shares stand registered in their names: 

b.     The alleged issue/allotment of equi preferences shares, even if really  had been issued/allotted is  ultra vires the Memorandum and is in  contravention of the provisions of Section 80 of the Act  and Article 5 of the Articles of Association of the company and therefore is a nullity:

c.      The 3rd respondent had not been validly appointed as an additional director/director for want of a valid quorum in both the meetings.

42.                        The next issue is whether, the allegations, could be considered to be acts of oppression   against the petitioners would justifying   the winding up of the company on just and equitable grounds. When a company declines to recognize a member as a shareholder of the shares acquired for valuable consideration and registered in his name, there could be no graver act of oppression. In the present case, the 2nd respondent, having transferred 88.6% shares for valuable consideration and having registered the shares in the names of the petitioners/their group has denied the same. Such denial has prevented the petitioners from  exercising their  majority rights. Further, by the alleged illegal issue of equi-preference shares which were allegedly converted into equity shares, the 2nd respondent had also reduced the petitioners from 88.6% shareholders to about 25% shareholders even with 3,19,200 shares registered in their names. Such conversion  of a majority into minority is a grave act of oppression. In a company, where there are only two groups of shareholders, such acts of oppression would definitely justify  winding up of the company on just and equitable grounds and therefore the petitioners are entitled to appropriate reliefs.

43.                        As far as the reliefs are concerned, we have already held that the petitioners are holders of 319,200 shares  and that the issue/allotment of equi preference shares is a nullity. Therefore, the petitioners constitute absolute majority with 88.6% shares and as such are legally entitled to manage the company. This is what Shri Sen also prayed for. Even though it was contended that as per the first MOU, the petitioners had to pay over Rs 19 crores to the 2nd respondent to take over the management of the company, since we are considering the case of oppression de-horse the MOU, this stand cannot be considered by us.  Even otherwise, we find from the MOU that Clause 11 of the first MOU reads “It is agreed that the management and control of the parties hereto of the first party  together with the movable and immovable assets which includes the said property shall be handed over to the party hereto of the third, fourth and fifth part upon payment of a sum of Rs. 3.24 crores representing full consideration towards acquisition of 90% shares of the parties hereto of the first part”.  Thus, the 2nd respondent is estopped from claiming that the petitioners cannot have full control of the company. In a petition under Sections 397/98, when there are only two identifiable groups of shareholders, once acts of oppression are established meriting the winding up of the company on just and equitable grounds, with a view to put an end to the acts complained of, one  common relief granted by this Board in terms of Section 402 of the Act,  has been  to direct the oppressor to purchase the shares held by the oppressed and in most of the cases, the oppressor used to be the majority shareholder. In the present case, the petitioners who have been oppressed are the majority shareholders and we could have directed them to purchase the shares held by the 2nd respondent and his  group. However, it is on record that right from the beginning the petitioners were willing to go out of the company on receipt of their investment with interest and the 2nd respondent was also willing for the same. But, for reasons already indicated earlier, the parting of ways could not take place.  Therefore, we consider it appropriate, considering the fact that the 2nd respondent is the prime mover behind the project, to allow him to have the control of the company,  provided  he arranges to  purchase the shares held by the petitioners for a fair value. Accordingly, we give the  first option to the  2nd respondent   to purchase the shares held by the petitioners/group by  repaying  Rs  Rs.3.347 crores         ( minus Rs.23 lacs reportedly repaid by him out of the loan of Rs.75 lacs given to the company- subject to confirmation by the petitioners) with 20% simple interest from the date of investment till the date of payment. This payment should be effected by 31.3.2002.  This option should be exercised before us on 6.11.2001 at 11.30 AM. In case, the 2nd respondent does not exercise this option, then the petitioners will have the option to purchase  the 11.4% shares held by the 2nd respondent and his group at the rate of Rs 100 per share  and take over the management of the company in exclusion of the 2nd respondent/his group.  The equi preference shares converted into equity shares, being invalid, will be extinguished and the petitioners will arrange for repayment of the consideration paid for these shares, by the company. Since the 2nd respondent has been in control of the company, all the amounts payable to him/his group will be subject to verification of the accounts of the company and will be  paid by 31.3.2002. Once the option is exercised, the same will be binding on both the  sides. In either case, since we have given time for payment of the consideration, it is necessary, to protect the interests of both the sides, that,  in addition to the four existing directors, that is, 2nd and 7th respondents and 2nd and 3rd  petitioners, there should be an independent director to function as the Chairman of the Board to manage the  affairs of the company during that period. Both the sides are at liberty to suggest a suitable person to be the Chairman of the Board failing which we shall appoint the Chairman on 6.11.2001 when the parties are to appear before us for exercising the option.

44. This petition is disposed of in the above terms subject to our appointing the Chairman  and giving consequential directions in regard to the conduct of the affairs of the company. The earlier inteim orders will continue till this order is worked out.

 

(S.balasubramanian)                                               (A.K.Banerji)