Sections 52 & 53
SERVICE OF DOCUMENTS ON
REGISTRAR/ON MEMBERS
[1969] 39 COMP. CAS. 33 (AP)
HIGH COURT OF ANDHRA PRADESH
v.
Sirpur Paper Mills Ltd.
P.
JAGANMOHAN REDDY, CJ.
AND MADHAVA REDDY, J.
O.S. APPEAL NO. 2 OF 1963
June 11, 1968
T. Atlanta Babu and Chalapathi
Rao for the Aappellant.
J.V.
Suryanarayana Rao and D. Narasaraju for the Respondent.
Jaganmohan
Reddy, C.J.—This
is an appeal against the judgment of Satyanarayana Raju J. (as he then was)
dismissing the application of the appellants made under section 155 of the
Companies Act praying, inter alia, that this honourable court:
(a) direct the rectification of the
register of members of the first respondent-company by re-entering the names of
Abdul Karim Babu Khan, Bishiruddin Babu Khan and Sharfuddin Babu Khan as the
holders of shares Nos. 103326 to 103765 in the register.
(b) grant a decree for Rs. 40,000 as
damages against the first respondent in favour of the petitioners and the
second respondent (who was subsequently transposed as the third petitioner).
(c) for
costs.
The
allegation of the petitioners is that they were the holders of 1,840 shares in
the respondent-company apart, from 440 shares on which they had paid the
allotment and application money amounting to Rs. 25 per share. So far as the
latter shares are concerned, they were called upon by the respondent to pay the
balance of Rs. 75 per share, the time for which was being extended
periodically. In or about March, 1952, the first petitioner sent to the first
respondent a sum of (O.S.) Rs. 60,000 towards arrears of call money, which
amount was adjusted by the respondent-company towards arrears of interest and
part payment of call monies on shares on which these amounts were due. The
board of directors at their meeting held on 4th March, 1954, further extended
time for payment of cad monies up to 31 st May, 1954. The board also decided to
waive interest in the case of shareholders who paid their arrears before that
date and to forfeit those shares where arrears were not paid.
The
first petitioner, presumably on behalf of himself and the other petitioners,
wrote to the first respondent on 17th April, 1954, disputing the adjustment
towards interest of the amount of Rs. 60,000 sent by him and claimed that the
interest ought to have been waived. Thereafter, certain correspondence ensued
between the petitioners and the first respondent and by a letter purported to
be dated 26th May, 1954, the first petitioner sent a cheque for Rs. 16,086-4-0
towards the arrears of call money. As this amount had not fully discharged the
arrears of call, he sent another cheque for Rs. 13,241-12-9 on 11th June, 1954,
under protest. The company acknowledged the receipt of both these cheques and
informed the first petitioner that the amounts were kept under suspense. On 1st
June, 1954, the first petitioner says he received a notice informing him that
the 440 shares stood forfeited as on 1st June, 1954. With this letter the
amounts of the two cheques were returned.
The
petitioner alleged that the forfeiture was illegal because (1) the procedare
prescribed in articles 39 to 42 of the articles of associatior of the company
was not complied with ; (2) that since they sustained damage by reason of this
illegal forfeiture they are entitled to recover the sum of Rs. 40,000.
In
so far as the first point is concerned, it was urged before Satyanarayana Raju
J. that the notice required to be sent by the respondent-company, in accordance
with article 40 of the articles of association, was not sent to the petitioners
or, at any rate, it was not received by them ; (2) even if it was received, the
particulars as prescribed in article 41 have not been furnished nor was he
intimated the place at which the amounts had to be paid.
The
company in its counter stated that the petitioners have been in default in
respect of 440 shares now claimed by the petitioners and in spite of several opportunities being given
and time being extended they did not pay the amounts ; that the allegation that
they are not liable to pay interest is untenable having regard to article 34 of
the articles of association under which a shareholder is liable to pay interest
at 9% per annum from the date appointed for the call money or installments till
the date of actual payment; as such the petitioners were bound to pay interest
on the arrears of call money unless specifically exempted by a proper resolution
passed by the board of directors; and that the board of directors in fact did
condone the payment of interest for a particular period and, even after the
condonation, interest which accrued on the arrears of call monies was due from
the petitioners. It was further averred that though the forfeiture and
confirmation of the forfeiture took place as long ago as 1954, the petitioners
did not take any action till the date of filing of the petition and that,
therefore, it is not a case in which the court ought to exercise its
jurisdiction in directing rectification of the share register. The claim for
damages was also described as absolutely untenable. In any case, the respondent
averred, the petition is barred by limitation and the petitioners are not
entitled to any dividend as is claimed.
The
learned company judge considered the two questions arising out of the averments
in the petition and the counter, viz., (1) whether the forfeiture of the shares
was valid, and (2) if not, whether the petitioners are entitled to damages.
In
considering the first question he came to the conclusion that exhibit B-3 dated
20th March, 1954, the receipt of which was denied by the first petitioner, was
posted by the respondent-company and that in the ordinary course of business it
must be presumed to have reached the petitioners. In view of this finding as
well as on a consideration of other letters and correspondence, the learned
judge held that the procedure prescribed in articles 39 to 42 was complied with
and that the petitioners, notwithstanding time being extended till 31st May,
1954, did not pay the amount by that date but had only paid a part of the
arrears on 2nd June, 1954, after the expiry of the period specified and not in
full. In this view, he dismissed the petition.
Before
us the learned advocate for the appellants reiterated the same contentions and
had strenuously urged that exhibit B-3 was not issued on the date it is
purported to have been issued and must have been subsequently got up. He relied
upon the difference in the ink in exhibit B-5 of the entry pertaining to the
subject of the letter which states that it is in respect of extension of time
while the letter which is purported to have been issued under that entry deals
with forfeiture of shares. This contention, it may be stated, was urged before
the learned company judge and was rejected not only on a perusal of the entry
but also on a consideration of the evidence of R.W. 1, an assistant in the
share department of the company.
We
have also inspected the register, exhibit B-5. While, no doubt, the ink in the
entry is different in some columns, there can be no question that the entry was
made at the time when it was purported to have been made. The subsequent
entries which are not challenged come according to the time and serial number
which itself shows that no entry was left blank for the purposes of
subsequently bringing into existence some other letter—an allegation which has
not been made and in our view would be farfetched if it had been. A perusal of
exhibit B-3 would show that it is an office copy of a pro forma issued to all
the defaulting shareholders in which they were informed that their shares will
stand forfeited if the amount was not paid by 31st August, 1954. The fact that
time was given till 31st August, 1954, might have been considered by the
respondent-company in making an entry in the despatch register as an extension
of time. No significance, in our view, can be attached to this entry as
negativing the despatch of the letter.
It
was contended that, if exhibit B-3 was in fact issued, it should have been sent
by registered post as indeed the other letters of similar purport were sent
previously by registered post. While it is true that this letter was sent by
ordinary post, this by itself cannot justify a conclusion that the letter was
not sent by ordinary post or was not received by the first petitioner. Section
53 of the Companies Act prescribes the mode of service of notices. Sub-section
(2) thereof states that:
"Where
a document is sent by post,—
(a) service
thereof shall be deemed to be effected by properly addressing, prepaying and
posting a letter containing the document, provided that where a member has
intimated to the company in advance that documents should be sent to him under
a certificate of posting or by registered post with or without acknowledgment
due and has deposited with the company a sum sufficient to defray the expenses
of doing so, service of the document shall not be deemed to be effected unless
it is sent in the manner intimated by the member".
This
provision clearly shows that the normal mode of serving is by posting the
notice unless, of course, the shareholder intends it to be served in a
particular v ay, for which he must deposit the costs.
Apart
from this, a finding of fact arrived at by the learned company judge is
conclusive and cannot be assailed in an appeal under section 155(4) of the
Companies Act. An appeal against a judgment or order of the company judge will
only lie on the grounds mentioned in section 100 of the Code of Civil
Procedure. It is not disputed that the grounds upon which an appeal will lie
under section 100, Civil Procedure Code, could only be in respect of a decision
being contrary to law or to some usage having the force of law ; or the
decision having failed to determine some material issue of law or usage having the force of law ; or a substantial error or
defect in procedure provided by the code or by any other law for the time being
in force which may possibly have produced an error or defect in the decision of
the case upon the merits. The grounds upon which an appeal lies under section
100 do not, therefore, admit of a finding of fact being reversed unless that
finding can be challenged under any of the grounds enumerated above. We are,
therefore, clear in our minds that the finding that a letter in terms of
exhibit B-3 was sent by the respondent-company and that the same was received
or at least presumed to have been received by the petitioners, cannot be
interfered with and we accordingly hold that exhibit B-8 was in fact received
by the petitioners. We are also fortified in this conclusion by the subsequent
letter written by the first petitioner to the respondent-company which
indicates that he must have bad knowledge of the contents of the letter.
The second contention of
the learned advocate for the petitioners is that, even assuming that exhibit
B-3 has been served, the procedure prescribed in articles 39 to 42 has not been
complied with. In order to understand this contention, it is necessary to give
below the contents of the articles :
"39.
If any member fails to pay any call
or installment on or before the day appointed for the payment of the same, the
directors may at any time thereafter, during such time as the call or
installment remains unpaid, serve a notice on such member requiring him to pay
the same, together with any interest that may have accrued, and all expenses
that may have been incurred by the company, by reason of such non-payment.
40. The notice shall name a day not being less
than fourteen days from the date of the notice, and a place, or places, on and
at which such call or installment and interest and expenses as aforesaid are to
be paid. The notice shall also state that in the event of non-payment at or
before the time and at the place appointed, the shares, in respect of which the
call was made or installment is payable, will be liable to be forfeited.
41. If the requisitions of any such notice as
aforesaid are not complied with, any shares in respect of which such notice has
been given may, at any time thereafter, before payment of all calls or
installments, interest and expenses, due in respect thereof, be forfeited by a
resolution of the directors to the effect. Such forfeiture shall include all
dividends deck red in respect of the forfeited shares and not actually paid
before the forfeiture.
42. When any share shall have been so
'forfeited' notice of the resolution shall be given to the members in whose
name it stood immediately prior to the forfeiture, and an entry of the
forfeiture with the date thereof, shall forthwith be made in the
register".
A perusal of the above
articles would show that (1) before shares are forfeited the directors must
have a notice served on such a member who is in default of payment of call, requiring him to pay the
same together with any interest that may have accrued and all expense that may
have been incurred by the company by reason of such non-payment; (2) that the
notice shall call upon the members to pay the amounts due as aforesaid at a
specified place and on a date not less than 14 days from the date of notice ;
(3) that the notice will further state that on default of payment at or before
the time and at the place appointed all shares in respect of which call was
made or installment was payable will be liable to be forfeited ; (4) if after
receipt of the notice there is non-compliance with the requisitions thereof,
viz., arrears of calls or of installments or interest or expenses have not been
paid, the shares, in respect of which default has taken place, will be
forfeited by a resolution of the directors. On such forfeiture the dividends
declared in respect of the forfeited shares and not actually paid before the
forfeiture will also be deemed to be forfeited ; (5) when any shares have been
so forfeited notice of the resolution shall be given to the member in whose
name they stood immediately prior to the forfeiture.
The
question now before us is whether these terms have been complied with by the
respondent-company. We may at the very outset state that the procedure
prescribed for forfeiting shares has to be strictly complied with inasmuch as
not only a shareholder is deprived of his right in the participation of the
capital of the company but, in so far as the creditors of the company are
concerned, any forfeiture would mean reduction in the capital by which they are
likely to be adversely affected. For these reasons it has been uniformly held
by the highest courts that the requirements prescribed by the articles of
association of the company must be strictly adhered to. But, even so, there are
certain matters relating to service of notice, fixing of time and place of
payment of arrears which have been held to be directory, while mandatory
provisions are those relating to the intimation that arrears of call, interest
and expenses are due and of the amounts which have been paid.
The
history of the call and the arrears which remain unpaid by the
petitioners-appellants is a long one. The respondent-company had decided in
1946 to increase its capital and for every one share held by the shareholder
the directors decided to allot two new shares. In terms of the resolution, the
petitioners were entitled to 1,517 shares. The petitioners applied for these
shares on February 27, 1946, by paying Rs. 5,600, though we think this is a
mistake for Rs. 5,500 as at the rate of Rs. 12-8-0 application money, the
amount required to be deposited by him at the time of the application is Rs.
5,500. The petitioners had to pay the balance of Rs. 12-8-0 per share making a
total of Rs. 25 per share being the application money and allotment money, but
this was not paid till nearly an year after, when an amount of Rs. 5,500 was
paid on June 14, 1947. The balance of the call money on shares applied for ought "to have
been paid in three installments, the first call of Rs. 25 per share to be paid
on or before 27th February, 1947, the second call of Rs. 25 per share to be
paid on or before 31st August, 1947, and the third call of Rs. 25 on or before
15th April, 1948. Apart from paying the money on application and allotment, the
latter of which also was paid long after the due date, the petitioners did not
pay the calls on the due dates. Evidently, the company kept on extending time
and in several instances the first petitioner himself, though a director of the
company, was requesting for time. It is unnecessary for us to catalogue all
that correspondence which has been referred to by Satyanarayana Raju J., as he
then was. We will only refer to the important letters which throw light upon
the entire transaction.
On
18th December, 1950, the respondent wrote exhibit 6 to the first petitioner in
continuation of a previous letter dated 21st October, 1950, drawing attention
to the fact that a sum of (O.S.) Rs. 1,13,775 is due from him and the members
of his family in respect of 1,517 shares and that also a sum of Rs. 1,633-14-4
is outstanding as interest on delayed payment of the allotment money besides
interest payable on calls in arrears. After setting out these facts, the first
petitioner was asked to arrange for payment of the dues on or before 31st
December, 1950, which is the last date for payment of the call money as decided
by the board of directors He was also informed that the dividends amounting to
Rs. 4,606 payable to him on his personal and joint holdings will be adjusted
against the dues and the dividend warrants would be sent for discharge. In
reply to this letter, the first petitioner on 2nd January, 1951, informed the
respondent-company that large amounts were due to him from parties and as soon
as he could collect them, he would pay them to the company. In the meanwhile he
sent a cheque for Rs. 20,394. The first petitioner requested that this amount
together with the sum of Rs. 4,606, being the dividend payable to him on his
personal and joint account, amounting to Rs. 25,000 be adjusted towards the
arrears. No objection was raised in this letter that no interest was due by him
in respect of not only allotment money but also arrears of call. The
respondent-company by their letter dated 17/18th April, 1951, informed the
first petitioner that the sum of Rs. 25,000 was adjusted making 272 shares
fully paid as per details given thereunder which included Rs. 6,800 each in
respect of the first, second and third calls and Rs. 4,538-12-6 towards
interest on calls. In this way Rs. 24,938-12-6 was adjusted and the balance of
Rs. 61-3-6 was kept in suspense account. Subsequently reminders were sent for
payment of arrears on other shares but nothing was paid till he received the
notice, exhibit B-6, dated 25th June, 1953, in the following terms:
"The
directors, at their meeting held on 6th June, 1953, have decided to extend the
time for payment of arrears of call money, up to 31st August, 1953, as a last and final
concession and that the shares in respect of which there are arrears thereafter
be treated as forfeited without further notice after that date.
A
sum of Rs. O.S./I-G.....................is still due from you in respect
of..........shares held by you. You are, therefore, requested to pay the above
amount with interest due
thereon up to the date of payment on or before 31st August, 1953, failing which
your shares will be treated as forfeited".
This
letter, exhibit B-6, was sent by registered post acknowledgment due and it was
not disputed that the same was received as per acknowledgment, exhibit B-8, in
which the first petitioner signed in token of his having received this letter
on June 27, 1953. The original of it which has been received by him has not
been produced and, therefore, it if not possible to say what is the amount
stated by the company to have been due from the first petitioner and what are
the number of shares in respect of which that amount was due. Inasmuch as the
first petitioner is in possession of that letter and has not produced the same,
we must presume that the correct amount has been demanded as being due in
respect of the shares specified therein. There is no doubt that only 330 shares
seem to have been fully paid for and arrears were due in respect of 1,187
shares. When the arrears were not paid, the board of directors at their meeting
held on 12th December, 1953, at which evidently the first petitioner was not
present, passed the following resolution, exhibit 26 :
"It
was reported that in pursuance of the board's resolution passed in the meeting
dated 6th June, 1953, certain shareholders failed to pay the call money by 31st
August, 1953, and as directed by the resolution their shares stood forfeited
after the 31st August, 1953. The board discussed the matter and deferred
decision on confirmation of the forfeiture of the shares to the next
meeting".
It
may be pointed out that earlier resolutions, exhibits P-24 and P-25, dated 27th
December, 1952, and 6th June, 1953, respectively, to which the first petitioner
was a party, show that not only a resolution as required by article 40 of the
articles of association was passed directing notices to be served on the
shareholders who are in arrears that if they do not pay on or before 31st August,
1953, their shares are liable to be forfeited but also a resolution was passed
that the time for payment was extended till 31st August, 1953, as a last and
final concession and that the shares be treated as forfeited thereafter,
without further notice and the shareholders be informed accordingly. The
constituted attorneys were authorised to take necessary action in this behalf.
It is pursuant to these resolutions that exhibit B-6 was issued. On receipt of
this notice, on default of payment of arrears, the shares could be treated as
forfeited, but the company deferred decision. Subsequently, however, the first
petitioner by his letter dated 2nd March, 1954 (exhibit P-27), sent a sum of
(H.S.) Rs. 60,000 received by the company on April 6, 1954, and requested that
this sum might be credited towards the call moneys on their shares. The
balance, it was stated, was being arranged and will be sent shortly. While
sending this amount the first petitioner wrote as follows:
"I
am paying the arrears of calls on the express understanding that you would
kindly and justifiably waive the entire interest charged by you on our arrears
of call moneys as has been waived by the company in other cases and more
particularly in consideration of the peculiar circumstances I have been
undergoing all these years of which you are well aware".
This
amount of Rs. 60,000 made a further number of 727 shares fully paid after
adjustment of arrears of call money and interest. In this way 1,057 shares
became fully paid and arrears of call money was due in respect of 460 shares.
On March 4, 1954, the board of directors including the 1st petitioner passed a
resolution, exhibit P-28, in the following terms :
"In
pursuance of the decision of the board at the last meeting held on 12th
December, 1953, the question of forfeiture of shares of those shareholders who
failed to pay the call money by 31st August, 1953, vide Board's decision dated
6th June, 1953, was considered. It was decided that shares totalling 2,564 in
all as per details given hereunder be and are hereby forfeited provided the
call money is not paid on or before the 31st May, 1954, and the sharenolders
whose shares are forfeited under this decision be informed accordingly in terms
of article 42 of the articles of association of the company and, as regards
waiving of interest, it was decided that in the case of those who pay call
money now, they be given the same benefit as was given to one of the
shareholders—vide Board's Resolution No. 8, dated December 12, 1953, i.e., the
interest be waived from July 1, 1952, to August 29, 1953, and that interest be
collected from them thereafter till the date of payment".
Pursuant
to this resolution exhibit B-3 was issued, the issue and receipt of which we
have already held to have been proved.
This
correspondence read together with the board's resolutions clearly establishes
that the appellants were informed of the arrears due from them in respect of
shares held by them. They were further informed of the interest which they
would be liable to pay. Whenever money was paid the same was adjusted towards
arrears of call and interest and the petitioners were informed of these facts,
except on the last occasion and even on that occasion no protest was made that
interest was illegally demanded or adjusted but only that it should be waived
which is more in the nature of a request for favour to be shown than a
challenge to the legality of the action taken by the respondent.
Mr.
Chalapathi Rao contends that exhibit B-3 did not show the amount due or the
interest due, nor did it indicate the place where the amount should be paid. We
have already stated that in the earlier notices the amount due in respect of
calls was clearly set out and also the petitioners were" informed that
they would be liable to interest, which, even without that intimation, under
the articles of association, they were bound to pay unless the board of
directors exonerated them, which is not the case even according to the
petitioners. Exhibit B-3, it may be stated, was a notice intimating forfeiture
of shares and, therefore, it was not necessary to set out therein the amount
due or the shares in respect of which that amount was due. In so far as the
place of payment is concerned, it was clearly stated that the amount should be
paid in the registered office of the company, the address of which was given at
the very beginning of the letter head.
Relying
on a decision of a single judge of the Calcutta High Court in In re Bengal
Electric Lamp Works,
the learned advocate or the petitioners contends that the address given in the
letter should be stated to be the registered office and, since that was not
stated, the forfeiture is illegal because the shareholder has not been told
where the amount should be paid. It may be stated that in that case Lort
Williams J. was considering the question of a defect in a notice where it
omitted to state the expenses which were required to be paid and, therefore,
that notice was held to be invalid. In that connection it was stated that there
can be no waiver by the shareholder of his right to object to the forfeiture of
his shares by the company and that even the smallest requirements should be
complied with. While there can be no exception to this principle, it is
difficult to contend that when the respondent had required that the amount of
arrears be paid at the registered office of the company and has given the
address at the top of the letter, it should be considered insufficient or that
the shareholder, particularly the first petitioner, who was a director of the
company, did not know where to pay the amount.
The
decision, however, was dissented from by a Bench of the Madras High Court
consisting of Rajamannar C.J. and Raghava Rao. J. in Mahalakshmi Textile Mills
Ltd. v. Meyyappa Chetliar.
But before we deal with this case it is necessary to deal with two other cases
of the Bombay High Court which were considered by the Madras High Court as also
by the Calcutta High Court. In Pioneer Alkali Works Ltd. v. Amiruddin Shalebhoy
Tyebji,
Taraporwala J. held that the directors in their resolution must indicate the
time and place of payment of arrears and, if that is not done, a notice issued
pursuant to a resolution which did not specify these particulars is bad. This
decision was disapproved by a Bench of the same High Court in Dhanraj Keshrimal Jhalani v.
H.H. Wadia,where
Beaumont C. J., after an exhaustive review of the case law in Johnson v.
Little's Iron Agency,
held that it is not necessary for a resolution making the call to specify the
time for payment or the person to whom or the place where the call is to be
made nor is it necessary to have a formal resolution of the directors
specifying the person to whom and the place where a call is to be made when the
agents sign in the notice of calls "by order of the board" as there
is the presumption that the agents act properly and even if such a resolution
is necessary it is a matter which the parties can waive. While referring to the
observation of Lord Esher, Master of the Rolls, in In re Cawley & Co. that he takes it
to be of the very essence of the call that the time and place for payment
should be determined, Beaumont C.J. observes at page 83 :
"If
the learned Master of the Rolls intended to say that whatever the articles
might provide no resolution for a call could be valid, which did not specify
the time and place of payment, his opinion seems to me to be directly at
variance with the previous decisions quoted, and I respectfully dissent from
it".
After
making these observations he referred to Pioneer Alkali Works v. Amiruddin
Shalebhuy and
said it was distinguishable and, at any rate, he observed:
"The
judgment seems to me open to the same criticism as the judgment under appeal,
namely, that it attaches to the articles falling for construction a meaning
other than they naturally bear in deference to a decision upon articles
differently worded".
These
observations were criticised by Lort Williams J. in In re Bengal Electric Lamp
Works Ltd:'s case.
But, as pointed out by Raghava Rao J., delivering the judgment of the Bench in
Mahalakshmi Textile Mills Ltd. v. Meyappa Chetttiar, the criticism
directed against the observations of Beaumont C.J. by Lort Williams J. was not
correct, because that criticism is only in general terms and does not attempt
to show specifically how or where exactly the Chief Justice's view of Jessel,
Master of the Rolls's judgment, or James I-J.'s judgment in Johnson v. Lyttle's
Iron Agency goes
wrong. The Bench held :
"It
is not necessary that the persons to whom, and the place at which, the call is
to be paid, should be mentioned in the resolution making the call or in the
notices, making the call though these matters must be fixed by the Board,
because the articles so provide. In the absence of any evidence upon the point,
the court is entitled to assume that these notices were sent out by the agents of the company with
the sanction of the directors, and that the directors had in fact appointed the
persons and the place to whom and at which the call is to be paid. A forfeiture
on non-payment of the call money cannot be attacked on the ground of any
irregularity or illegality because the particulars as to its payment were not
mentioned in the resolution making the call".
It
is apparent from these decisions that the provision relating to the time and
place are not mandatory but directory and the resolution need not contain the
particulars as long as a company has directed the issue of the same by its
authorised agents, giving necessary particulars, viz., time and place at which
the payment should be made.
In
In re North Hallenbeagle Mining Company the question
whether the issue of notice of forfeiture was mandatory or directory was
considered. Sir H. M. Cairns L.J. observed at page 328 :
"The
question seems to me to be this—Is that provision (23rd clause 'where any share
has been so declared to be forfeited, notice of such forfeiture shall be given
to such shareholder') what I may term a mandatory or directory provision, the
convenience of which is obvious; or is it a statement of something which is of
the essence of the forfeiture, and without which a good forfeiture cannot take
place ? In the first place, the words I have read do not make the notice
expressly of the essence of the forfeiture. They are merely, in form at all
events, directory words. But, in the next place, there is this very remarkable
circumstance, that the notice which is there to be given is spoken of as a
notice of forfeiture which has actually taken place. Moreover, the forfeiture
is clearly, on that clause, to date, not from the giving of any notice, but
from a resolution of the directors declaring a forfeiture".
At
page 329 he further observed :
"These circumstances lead me to the conclusion that the clause which I have read is simply directory, and that neither the company, nor anybody representing the company, could set up as a bar to the validity of the forfeiture the circumstance that no notice had been given under this clause".
In
any case the resolutions to which we have referred have stated the time of
payment at and also authorised the constituted attorneys to give notice and
this notice fixed the place of payment, and thus all the requirements, in our
view, have been complied with.
It
is again contended that the resolution of the board of directors of 4th March,
1954, is a prospective resolution and, therefore, a further resolution was
necessary to forfeit the shares. What is meant by a prospective resolution has
not been stated by the learned advocate. As we understand a prospective
resolution, it is a resolution forfeiting shares in respect of the calls which have not yet fallen
due. But where arrears have fallen due and several demands have been made and
forfeiture notices have been given and the non-payment of monies on due dates
entailed forfeiture according to the resolution of the board of directors, a
further resolution that the shares are forfeited unless the amounts are paid on
a particular date, would not amount to a prospective resolution, because the
directors are entitled to forfeit the shares there and then but instead they
gave effect to that decision as and from a particular date, merely to give the
shareholder a facility. This cannot, in our view, be said to be a prospective
resolution.
In
what is known as Woollaston's case a similar
question was considered by Lord Justice Turner, who, at page 173, observed as
follows:
"By
this notice, they made a plain declaration of forfeiture, to take effect upon a
certain event which happened, and for three years this declaration was treated
as having taken effect and as being in force......It is not as if the directors had made a
prospective declaration of forfeiture as to a class of shareholders whose calls
should afterwards fall into arrear ; they were dealing with shareholders who
were already in arrear ; and it could not make any material difference in the
exercise of their discretion as to forfeiture, whether they waited till the
expiration of the twenty-one days from the notice before declaring it, or
declared it conditionally before sending the notice. The directors had power to
declare a forfeiture in the events which happened, they clearly intended that
there should be a forfeiture, and, though their mode of declaring it may have
been not strictly regular, the variation appears to me to be one of form and
not of substance".
In
our view the requirements of articles 39 to 42 have been fully complied with
and even apart from it, if there be any defect of any of the requirements, even
that has been satisfied, in that the first petitioner, being a director of the
company, took part in every resolution of the board dealing with the forfeiture
of his shares; not only was he a party to the resolution in respect of a number
of shares to be forfeited but also the details thereof, which seem to have been
considered by the board at the time of the resolution, as they specifically
referred to "as per details given below".
The
learned advocate states that the requirements relating to the forfeiture cannot
be waived, but we have the high authority of their Lordships of the Privy
Council in Jones v. North Vancouver Land and Improvement Company, where one of the
plaintiffs, the husband of a shareholder (wife) who was a director of a company
had himself seconded a resolution for forfeiture of the shares of his wife
along with others of which notice was given to the wife at the address at which
both have lived and of which knowledge was imputed to his wife. It was held
that the plaintiffs, viz., the husband and wife had by their conduct disentitled
themselves to the relief prayed for ; that the notice fulfilled all the
requirements of the Canadian Companies Act; and that any objections to the
absence of due formalities in the service on the husband of acts to which he
was a party, and to the illegality of the allotment, calls and forfeiture of
the shares due to technical irregularities in the original appointment of the
husband and others as directors, must be disallowed. Their Lordships observed
at page 328 :
"The
principles laid down in Prendergast v. Turton and by Lord
Lyndhurst on the appeal, and in the line of cases which followed it,
fortunately it would seem, in the interest of that honesty and fair dealing
which ought to regulate the conduct of commercial affairs and the management of
companies such as this, are strong enough to defeat such mischievous designs.
These authorities show that the plaintiffs must in this case be held to have by
their own conduct disentitled themselves to the relief they pray for".
In
the view we have taken there are no merits in this appeal and it is accordingly
dismissed with costs.
companies
act
[2002] 37 SCL 183 (
High
Court of
v.
Reliance Industries Ltd.
R. DAYAL AND PRABIR KUMAR SAMANTA, JJ.
F.M.A.T.
NO. 232 OF 1998
AND
F.M.A. NO. 1634 OF 1998
FEBRUARY
27, 1998
Section 10, read with sections 2(11) and 84, of
the Companies Act, 1956 and section 9 of the Code of Civil Procedure, 1908 -
Court - Jurisdiction of - Whether in respect of matters regarding which Act
does not provide for adjudication by Court, adjudicating authority can mean
‘court’ as defined by section 2(11) - Held, no - Whether definition clause of
section 10 can be given interpretation that whenever there is a dispute
relating to a company, it is company court as defined in section 2(11) that
will have jurisdiction - Held, no - Whether ‘court’ as defined in section
2(11), read with section 10, has no jurisdiction to decide subject-matter of
suit concerning issue of duplicate shares and as such jurisdiction of Civil
Court vested under section 9 of Code of Civil Procedure will not get ousted by
Companies Act - Held, yes - Whether where shares were sent from Calcutta to
respondent-company at Bombay for effecting transfer, a part of cause of action
could be said to have arisen at Calcutta - Held, yes
Section 53 of the Companies Act, 1956 -
Service of documents - On members of company - Whether where a document has
been sent by registered post and for some reason same has not been delivered to
addressee, it could not be said that company stands discharged from its
obligation and no right remains with addressee - Held, yes - Whether section 53
raises a presumption about service of a document sent by registered post but
that presumption is rebuttable - Held, yes
Facts
The plaintiff purchased equity shares of the
respondent-company and thereafter sent the same to the company along with duly
signed and stamped transfer deeds with the request to transfer the same in the
name of the plaintiff. The company received the shares vide acknowledgement
memo dated 4-8-1997 and intimated the plaintiff that the aforesaid shares had
been duly transferred in the name of the plaintiff and despatched to the
address of the plaintiff on 24-9-1997 under registered cover. However, the
plaintiff did not receive them back. The plaintiff prayed for a declaration
that the plaintiff was the lawful owner of 2,000 shares of the
respondent-company and that the company was bound to transfer the same or issue
duplicate share certificates in the name of the plaintiff. However, the City
Civil Court rejected the application on ground that the matter related to the
loss of equity shares and consequential reliefs and in view of the provisions
of section 84 and the provisions of the City Civil Courts Act, such type of
matter was not triable in the City Civil Court but was under the exclusive jurisdiction
of the High Court.
On appeal :
Held
Nothing has been provided in the Act for
adjudication of a dispute with respect to issue of duplicate shares. Section
2(11) does not specify the powers of the company court. It only defines the
expression ‘the court’ occurring in the statute, with reference to any matter
relating to a company as meaning the court having jurisdiction under the Act
with respect to that matter as provided in section 10. Section 10 specifies the
court which has jurisdiction under the Act. In respect of certain matters, with
respect to which conditions specified in clause (b) of section 10(1) are
fulfilled, such court is the district court of the district in which the
registered office of the company is situate. But, where no notification has
been issued under sub-section (2), or in respect of such matters as are not
covered under clause (b), such Court is the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate. To fall within the jurisdiction of ‘the court’ as defined in
section 2(11) read with section 10, the matter should be such as is provided by
the Act to be adjudicated by ‘the court’. In respect of matters regarding which
the Act does not provide for adjudication by the court, the adjudicating
authority cannot mean ‘the court’ as defined by section 2(11). It is only where
the Act provides for adjudication by ‘the court’, ‘the court’ would mean the
court as defined in section 2(11). The definition clause cannot be given the
interpretation that whenever there is a dispute relating to a company, it is
the company court as defined in section 2(11), that will have the jurisdiction.
Therefore, the ‘court’ as defined in section
2(11), read with section 10, does not have the jurisdiction to decide the
subject-matter of the suit concerning issue of duplicate shares and as such the
jurisdiction of the Civil Court vested under section 9 of the Code of Civil
Procedure, 1908, would not get ousted by the Companies Act.
The respondent also submitted, in the
alternative, that the City Civil Court, Calcutta, did not have the jurisdiction
because all the defendants resided or worked at Bombay, that is, outside the
jurisdiction of the courts in West Bengal and also because no part of the cause
of action arose within West Bengal. It was, no doubt, true that all the
defendants resided or worked at Bombay. The question for decision, therefore,
was whether any part of the cause of action arose within West Bengal. The case
of the plaintiff was that the shares were sent by the plaintiff from Calcutta
to the defendants at Bombay for effecting transfer in the name of the plaintiff
and it was the duty of the defendants to send the same back to the plaintiff at
Calcutta and to deliver the same at Calcutta and since the defendants failed to
deliver the same at Calcutta, need arose for seeking the declaration prayed for
and a direction for issue of duplicate share certificates and so a part of the
cause of action for the reliefs sought by the plaintiff, particularly, the
issue of duplicate share certificates, arose at Calcutta.
Section 53 raises a presumption about service
of a document sent by registered post but that presumption is rebuttable. As
such where a document has been sent by registered post, and for some reason the
same has not been delivered to the addressee, it cannot be said that the
company stands discharged from its obligation and no right remains with the
addressee.
The question whether a part of the cause of
action arose within the jurisdiction of the court in West Bengal was to be
determined with reference to the allegations made in the plaint and if from the
allegations so made, an obligation arose in favour of the plaintiff and against
the defendants, there could be, no doubt, that a part of the cause of action
for the reliefs claimed had arisen within the jurisdiction of the court in West
Bengal. Furthermore, the presumption arises only where the registered post has
been properly addressed. That is a question which remains to be considered by
the court. There is no presumption that the registered post is properly
addressed.
Therefore, a part of the cause of action arose
within the jurisdiction of the City Civil Court, Calcutta, and, therefore, that
court had the jurisdiction to deal with the civil suit from which instant
appeal had arisen.
Cases referred to
Asansol Electric Supply Co. v. Chunilal Daw 75
CWN 704 (Cal.) and Hirendra Bhadra v. Triton Engg. Co. (P.) Ltd. [1975-76] 80
CWN 242 (Cal.).
P.P. Banerjee and Tapas Saha for the Applicant.
P.C. Sen, Soumen Sen, Supratik Banerjee and S.K. Samanta for the
Respondent.
Judgment
R. Dayal, J.—This appeal is directed against the order dated 23-12-1997, passed by
the City Civil Court at Calcutta, rejecting the application filed by the
plaintiff-appellant under Order 39, rules 1 and 2 read with section 151 of the
Code of Civil Procedure, 1908 (‘the Code’) on the ground that the matter
relates to loss of equity shares and consequential reliefs and in view of the
provisions of section 84 of the Companies Act, 1956 (‘the Act’) and the
provisions of the City Civil Courts Act, particularly, item 10 of the First
Schedule, such type of matter is not triable in the City Civil Court but is
under the exclusive jurisdiction of this court, that is, the High Court.
2. We
have heard Shri P.P. Banerjee, Advocate for the appellant and Shri P.C. Sen,
Advocate on behalf of the respondents, Shri Banerjee submits that the Act does
not provide for adjudication of the dispute that has arisen between the parties
and the jurisdiction of the City Civil Court vested in it by section 9 of the
Code is not ousted by any provision in the Act. On the other hand, Shri Sen
submits that a combined reading of sections 2(11), 10 and 84 of the Act would
show that it is the Company Court that has jurisdiction with respect to any
matter relating to a company and since the subject-matter of the suit relates
to a company, it is the Company Court that has the exclusive jurisdiction to
deal with the matter.
In order to appreciate the controversy
involved, it would be beneficial to refer to the cause of action pleaded by the
plaintiff-appellant in the civil suit. The plaintiff has pleaded to have
purchased 2,000 equity shares of respondent No. 1-company in July, 1997, and
thereafter to have sent the same along with duly signed and stamped transfer
deeds to respondent No. 2 with the request to transfer the same in the name of
the plaintiff and send back the share certificates to its office. The
defendant-company received the shares through defendant No. 3 vide
acknowledgement memo dated 4-8-1997, and intimated the plaintiff through
defendant No. 3 that the aforesaid shares had been duly transferred in the name
of the plaintiff and despatched to the address of the plaintiff on 24-9-1997.
The plaintiff enquired in the local post office whether the registered cover
alleged to have been addressed to the plaintiff, was lying undelivered or
returned but the postal authority informed that they had not received any cover
addressed to the plaintiff. Thereafter, the plaintiff, vide letter dated
25-11-1997, intimated the matter to the defendants and requested them to
enquire into the matter from the post office from where the registered cover
had been posted. The plaintiff has further pleaded that it apprehends that the
shares have been lost either in transit or some persons of the
defendant-company having vested interest, after getting possession wrongfully,
were trying to make illicit gain in an unauthorised manner. The plaintiff has
prayed for a decree of declaration that the plaintiff is the lawful owner of
2,000 shares of defendant No. 1-company and that the defendants are bound to
transfer the same or issue duplicate share certificates in the name of the
plaintiff. Mandatory injunction is also sought directing the defendants to make
over the duly transferred 2,000 shares in the name of the plaintiff or to issue
duplicate share certificates to the plaintiff in respect of the shares. Even
though relief of declaration of title is sought, yet, having regard to the
admission that the company has transferred the shares in its books, the real
dispute is about the issue of duplicate shares.
3. Section 84(4) makes
provision, inter alia, for issue of a duplicate certificate as under :
“(4) Notwithstanding anything contained in the
articles of association of a company, the manner of issue or renewal of a
certificate or issue of a duplicate thereof, the form of a certificate
(original or renewed) or of a duplicate thereof, the particulars to be entered
in the register of members or in the register of renewed or duplicate
certificates, the form of such registers, the fee on payment of which, the
terms and conditions, if any (including terms and conditions as to evidence and
indemnity and the payment of out-of-pocket expenses incurred by a company in
investigating evidence), on which a certificate may be renewed or a duplicate
thereof may be issued, shall be such as may be prescribed.”
4. The expression ‘the court’
is defined in section 2(11) as under :
“Definitions.—In this Act, unless
the context otherwise requires,—
(1) to (10)** ** **
(11) ‘the court’ means,—
(a) with respect to any matter relating to a company (other
than any offence against this Act), the court having jurisdiction under this
Act with respect to that matter relating to that company, as provided in
section 10;
(b) with respect to any offence against this Act, the court of
a magistrate of the first class or, as the case may be, a presidency
magistrate, having jurisdiction to try such offence.”
5. Reference
was also made during arguments to rule 4(3) of the Companies (Issue of Share
Certificates) Rules, 1960, which reads as under :
“(3) No duplicate share certificate shall be
issued in lieu of those that are lost or destroyed, without the prior consent
of the Board or without payment of such fees, if any, not exceeding Rs. 2 and
on such reasonable terms, if any, as to evidence and indemnity and the payment
of out-of-pocket expenses incurred by the company in investigating evidence, as
the board thinks fit.”
A perusal of the aforesaid legal provisions
would show that as provided by section 84(4), the manner of issue of duplicate
share certificates may be prescribed by rules and the manner has, in fact, been
provided by rule 4(3) of the Companies (Issue of Share Certificate) Rules.
However, no machi-nery has been provided in the Act for adjudication of a
dispute with respect to issue of duplicate shares. Section 2(11) does not
specify the powers of the Company Court. It only defines the expression ‘the
court’ occurring in the statute, with reference to any matter relating to a
company as meaning the court having jurisdiction under the Act with respect to
that matter as provided in section 10. Section 10 specifies the court which has
jurisdiction under the Act. In respect of certain matters, with respect to
which conditions specified in clause (b) of section 10(1) are fulfilled, such
court is the District Court of the district in which the registered office of the
company is situate. But, where no notification has been issued under
sub-section (2), or in respect of such matters as are not covered under clause
(b), such Court is the High Court having jurisdiction in relation to the place
at which the registered office of the company concerned is situate. To fall
within the jurisdiction of ‘the court’ as defined in section 2(11) read with
section 10, the matter should be such as is provided by the Act to be
adjudicated by ‘the court’. In respect of matters regarding which the Act does
not provide for adjudication by the court, the adjudicating authority cannot
mean ‘the court’ as defined by section 2(11). It is only where the Act provides
for adjudication by ‘the court’, ‘the court’ would mean the court as defined in
section 2(11). The definition clause cannot be given the interpretation that
whenever there is a dispute relating to a company, it is the company court as
defined in section 2(11), that will have the jurisdiction. A similar view was
taken by a Division Bench of this Court in Asansol Electric Supply Co. v.
Chunilal Daw 75 CWN 704 :
“Section 2(11) is the definition section of
the words ‘the court’. Therefore, whenever the words ‘the court’ are mentioned
in the provisions of the Act, the same will mean the court having jurisdiction
under the Act with respect to that matter relating to a company as provided in
section 10. Section 10 refers to the High Court as the court having
jurisdiction under the Act. The cumulative effect of section 2(11) and section
10 is that the expression ‘the court’ occurring in any provision of the Act
will mean the High Court. It does not mean that in all matters the High Court
will have jurisdiction and the Civil Court will not have jurisdiction in
respect of any matter relating to a company.
In our view, on a proper construction of the
provisions of section 2(11) and section 10, it must be held that the Act does
not altogether exclude the Jurisdiction of the Civil Court.”
6. Reliance
has, however, been placed on behalf of the respondents on the decision rendered
by a learned single Judge of this Court in Hirendra Bhadra v. Triton Engg. Co.
(P.) Ltd. [1975-76] 80 CWN 242, where having regard to the controversy
involved, it was held that the matters, “which have been alleged against the
petitioner are all matters under the Companies Act and that being so, it is
only the court it has been mentioned in section 10 of the Act that has
jurisdiction to entertain any suit”. As observed earlier, it has already been
held by a Division Bench of this Court, with which we are in respectful
agreement, that all matters under the Act are not within the exclusive
jurisdiction of the court mentioned in section 10.
7. We,
therefore, hold that the ‘court’ as defined in section 2(11), read with section
10, does not have the jurisdiction to decide the subject-matter of the suit
from which the present appeal has arisen and as such the Jurisdiction of the
Civil Court vested under section 9 of the Code does not get ousted by the Act.
8. The
learned counsel for the respondent also submits, in the alternative, that the
City Civil Court, Calcutta, does not have the jurisdiction because all the
defendants reside or work at Bombay, that is, outside the jurisdiction of the
courts in West Bengal and also because no part of the cause of action arose
within West Bengal. It is, no doubt, true that all the defendants reside or
work at Bombay. The question for decision, therefore, is whether any part of
the cause of action arose within West Bengal. The case of the plaintiff is that
the shares were sent by the plaintiff from Calcutta to the defendants at Bombay
for effecting transfer in the name of the plaintiff and it was the duty of the
defendants to send the same back to the plaintiff at Calcutta and to deliver
the same at Calcutta and since the defendants failed to deliver the same at
Calcutta, need arose for seeking the declaration prayed for and a direction for
issue of duplicate share certificates and so a part of the cause of action for
the reliefs sought by the plaintiff, particularly, the issue of duplicate share
certificates arose at Calcutta. In support of the argument, reference has been
made by the learned counsel to section 53 of the Act which provides that a
document may be served by a company on any member thereof either personally, or
by sending it by post to him to his registered address, or if he has no
registered address in India, to the address, if any, within India supplied by
him to the company for the giving of notices to him. Sub-section (2)(a) of that
section provides that where a document is sent by post, service thereof of
shall be deemed to be effected by properly addressing, pre-paying and posting a
letter containing the document, provided that where a member has intimated to
the company in advance that documents should be sent to him under a certificate
of posting or by registered post with or without acknowledgement due and has
deposited with the company a sum sufficient to defray the expenses of doing so,
service of the document shall not be deemed to be effected unless it is sent in
the manner intimated by the member. The learned counsel submits that the duty
of delivery the share certificates after effecting the transfer was duly
discharged by the defendant-company by sending the same by registered post and
since the registered cover was delivered to the post office at Bombay, no part
of the cause of action arose in West Bengal. However, we are unable to persuade
ourselves to agree with this submission. Section 53 raises a presumption about
service of a document sent by registered post but that presumption is
rebuttable. As such, where a document has been sent by registered post, and for
some reason the same has not been delivered to the addressee, it cannot be said
that the company, stood discharged from its obligation and no right remained
with the addressee. The question whether a part of the cause of action arose
within the jurisdiction of the court in West Bengal is to be determined with
reference to the allegations so made in the plaint and if from the allegations
so made, an obligation arises in favour of the plaintiff and against the
defendants, there can be, no doubt, that a part of the cause of action for the
reliefs claimed has arisen within the jurisdiction of the court in West Bengal.
Furthermore, the presumption arises only where the registered post has been
properly addressed. This is a question which remains to be considered by the
court. There is no presumption that the registered post was properly addressed.
Therefore, we are of the view that a part of the cause of action arose within
the Jurisdiction of the City Civil Court, Calcutta, and, therefore, that court
has the jurisdiction to deal with the civil suit from which this appeal has
arisen.
9. We
make it clear that the question as to territorial jurisdiction of the
10. In the result, we allow the appeal, set aside the order of the City Civil Court and direct the City Civil Court to proceed to dispose of the injunction application expeditiously according to law. The parties shall maintain status quo with respect to the shares in question till the disposal of the injunction application. Parties shall appear before the Court on 16-3-1998. There shall no order as to costs.
[1961] 31 COMP.
CAS. 573 (PUNJ.)
v.
Liquidator,
Hindustan Petroleum Co. Ltd.
MEHAR
SINGH J.
F.A.O.
No. 2D of 1957
APRIL
7, 1961
MEHAR
SINGH J. - This judgment will dispose of five direst appeals against orders
Nos. 2-D and 14-D to 17-D of 1957. The appeals are by five different appellants
arising out of the objections filed by each to his being entered in the list of
contributories in the matter of liquidation of Hindustan Petroleum Co. Ltd. and
against five different orders of the learned company judge, all of which orders
are of November 14,1956 . These appeal have been taken together because the
substantial facts in all the five are the same and the main arguments are also
the same though in each appeal there is also a separate additional argument.
But it is convenient to deal with these five appeals in one judgment in the
circumstances.
The appellants
are (1) Major Teja Singh, (2) Raja Maheshinder Singh, (3) Gurinder Singh, (4)
Hardam Singh, and (5) Gurbakshish Singh, and they have been named respectively
as the numbers of their appeals have been given above. All the five appellants
were directors of the Hindustan Petroleum Co. Ltd. The head office of this
company has been Darya Ganj at
Copies of
resolutions Nos. 3 and 4 passed in the meeting of the directors held on April
30,1953, at I-Nihal Bagh, I Paradari,
|
Proceedings and discussions |
Conclusions & resolutions. |
|
3. S. Jasbir Singh proposed that a call of 25% on each
ordinary share be made. S. Hardam Singh seconded the proposal. |
Resolved that a 25% call on all shares be made and notices of
call be sent by the managing agents. |
|
4. S. Jasbir Singh proposed that all directors be asked to
make their shares fully paid-up. S.Gurbakshish Singh seconded the proposal . |
Resolved that call on shares held by the directors be made to
make their shares fully paid-up. |
So
under this resolution a call was made towards unsubscribed shares capital as
stated in the resolution.
In
February 1954, proceedings for winding up of the company were started before
the company judge at
Each
one of the appellants as director took 2,000 shares of the company, each share
of the value of Rs. 10. Each one of them paid Rs.5,000 towards the allotment of
shares. The official liquidator in trying to settle the list of contributories
of the company issued notice to each one of the appellants why he should not be
shown in the list as a contributory to the extent of Rs. 15,000 the remaining
amount of the value of the shares due from him and payable by him pursuant to
the call made by resolution No. 4 of the directors’ resolution of April 30,
1953. He has also pointed out in the notice that each one of the appellants is
liable to pay interest on the amount from the date of that resolution to the
date of payment. It is in regard to this notice that each appellant filed
objections before the company judge to his being entered in the list of
contributories.
In
the appeals of Major Teja Singh and Gurinder Singh one of their objections was
that each one of these two had made payment of Rs. 5,000 to the company as
advance call payment and that that has not been taken into account. Of the
other three Raja Maheshinder Singh and Gurbakshish Singh each claimed credit
for an amount of Rs. 2,500 and Hardam Singh for an amount of Rs. 500 paid to
the company. Each one of the appellants has raised a number of objections in
his objection application and in substance the objection that was pressed
before the learned company judge and has been urged here is that there has been
no valid call made by the company and consequently, the notice given by the
liquidator is wrong. As stated there are other objections listed in the
objection application but at this stage nothing turns upon them as no argument
has been founded in reference to them. In the case of Gurinder Singh,
appellant, before he put in his objection application through his counsel on
June 12,1950, he sent reply, dated March 19,1956, to the notice given to him by
the liquidator and this was sent by post. In this application he first points
out that apart from his payment of Rs. 5,000 for the allotment of the shares,
he has paid another sum of Rs. 5,000 as advance call money. He then pointedly
says that no call for share money has been made from him prior to the
liquidation of the company and further says that no meeting whatever was held
or resolution has been passed by the company for the call of share money from
him. He then denies his liability to pay any interest. After this he says that
he was already paid Rs. 10,000 and on the total number of shares allotted to
him he is liable only to pay Rs. 10,000. The objection- applications of the
appellants were of course opposed by the liquidator.
The
learned company judge settled issues in each objection application but one set
of issues need only be given here for the issues in all the five objection
applications are the same. They are :
1. Was
a valid call of 75% of the share money made by the Hindustan Petroleum Co. Ltd.
in the meeting of the board of directors held on April 30,1957?
2.
If so, what has been paid by the
objector towards the call?
3.
Whether the amount paid in advance
can be adjusted towards the call money?
4.
What interest, if any, is
chargeable on the amount of call remaining unpaid ?
5.
Relief?
The
learned company judge has found on issue No. 1 that a valid call as referred to
in this issue has been made, on issue No. 2, in the case of each
objection-application, he has found that no payment other than the first amount
of Rs. 5,000 has been made towards the call made by the resolution of April
30,1953 on issue No. 3 his finding is that advance towards call money has not
been shown to have been proved except in the case of Gurinder Singh, and in
regard to Gurinder Singh benefit of this has been allowed to him, and on the
fourth issue his finding is that each appellant is liable to pay interest at
the rate of 9 per cent. Per annum on the amount of the call due from him. In
consequence each objection - application has been dismissed with costs, and
each one of the appellants, as stated,has come in appeal against the order of
the learned company judge in his own objection application.
The
learned counsel for the appellants has put forward three arguments questioning
the validity of the call under the directors; resolution of April 30,1953, and
the arguments are (a) that the resolution does not fix or give the time of
payment of the call, (b) that, when both the resolutions are read together, on
shareholders who were directors, the call was for the total balance of the
amount remaining due on the shares, in other words , 75 per cent. of the value
of the shares, whereas in the case of shareholders, other than directors the
call was only confined to 25 per cent. of the value of the shares, which
discriminatory calls were outside the powers and authority of the directors as
also the company, and (c) that no notice was given to any of the appellants of
the making of the call and of the demand on them to pay the call in terms of
the resolution. These three arguments are common to all the five appeals. There
is an additional argument in each appeal with regard to the amounts paid by
each appellant to the company over and above the first amount of Rs. 5,000 as
payment made on the allotment of shares, and credit is claimed in regard to
such subsequent payment. The reply of the learned counsel on behalf of the
liquidator is to split the cases into two sets, one of the three directors who
were parties to resolution Nos. 3 and 4 of April 30,1953, and the other the
remaining two directors, namely, Major Teja Singh and Gurinder Singh,
appellants, who were not present at the meeting when those resolutions were
passed. In regard to the first set of three directors what the learned counsel
contends is that, even assuming that there is some irregularity or defect in
the resolutions, they are stopped from taking advantage of the same. In so far
as the remaining two directors are concerned, with regard to Gurinder Singh
(appellant) the learned counsel refers to his application of March 19,1956, and
presses that it contains his admission of his liability to the extent of Rs.
10,000 thereby implying further an admission on his part in regard to the
correctness of the call made on him for the amount of at least Rs. 5,000 under
the resolution of April 30,1953. In fact what the learned counsel says is that
he admits the correctness of the call in substance and says that his liability
is only confined to Rs. 10,000. In regard to the fifth director, Major Teja
Singh (appellant), the substance of the argument of the learned counsel for the
liquidator is that he being a director of the company and in the know of all
the business of the company, he must be credited with the knowledge of what
transpired at the meeting of the directors on April 30,1953, and he is bound by
the resolution passed by the meeting of directors on that day. On the question
of want of notice, the learned counsel refers to the evidence of the
accountant, Saran Das, whose evidence is that according to an entry in the
dispatch register of the company a circular letter was dispatched to each one
of the appellants to pay the call according to resolution No 4 of April
30,1953, and there is further entry in the same register of a reminder of the
letter having been sent at a later date. So he contends that notice in fact was
given to each one of the five appellants to pay the call. On the question of
other payments pleaded by each one of the appellants, in the case of Gurinder
Singh (Appellant) the learned company judge has already given him the benefit
of Rs. 5,000 paid by him after the first payment of Rs. 5,000 at the time of
the allotment of shares and this matter is no longer one of controversy between
the parties, but with regard to the remaining for appellant the learned Counsel
contends that in the case of the three, other than major Teja Singh (appellant)
no payment is proved to have been made and in the case of Major Teja Singh
(appellant) the payment of Rs. 5,000 was not an advance towards call but merely
a loan to the company. In addition, the learned counsel appearing for the
liquidator has raised a preliminary objection that of the three main arguments
urged in all the five appeals the first two have not been raised at all in the
objection applications of the appellants and were not subject-matter of
argument before the learned company judge.
The
last argument on behalf of the appellants with regard to the payment of
additional amount by each may be disposed of first. The only evidence that Raja
Maheshinder Singh (appellant) paid Rs. 2,500 is his bare statement not
supported by anything else and as this has not been accepted by the learned
company judge as sufficient I see no reason to differ from him in this respect.
He has not succeeded in proving the payment of this amount. In so far as the
payment of Rs. 500 said to have been made by Hardam Singh, appellant, is
concerned there is not even his own statement in support of this payment. So
the payment of this amount by him is not proved. The payment of Rs. 2,500 said
to have been made by Gurbakshish Singh, appellant, was not made , even
according to his own allegations, as a payment in cash but what he has alleged
is that a meeting of the board of directors of the company was held at his
residence at Dehra Dun and in connection with that meeting he incurred as much
expenditure and for that expenditure he has been given no credit by the
company. The evidence of the accountant of the company is that such a meeting
was held that but that in the books of the company there is no entry in regard
to any expenditure on behalf of the company by this appellant. There is no
proof of this amount having been paid by the appellant to the company in any
form. So that in the case of these three appellants not one of them has paid
anything apart from a sum of Rs. 5,000 paid when the allotment of shares was
made to him. It has already been stated that another amount of Rs. 5,000 paid
by Gurinder Singh (Appellant) has been accepted by the learned company judge
and there is no controversy over this matter at this stage. There remains only
the claim in this respect of Major Teja Singh (Appellant). It is not denied on
behalf of the liquidator that he has made a payment of Rs. 5,000 to the company
and it is further admitted in the reply of the liquidator that this amount was
paid by this appellant as advance call money. There is, therefore, no dispute
in regard to the nature of this payment. It was not a loan as that term is
ordinarily understood. it was a payment by this appellant to the company and
the object of this payment was that it would be utilised towards meeting the
demand of call on shares that may in future be made on him by the company.
Assuming for a moment that the call made upon this appellant under resolution
no. 4 of April 30,1953, is a valid call, as soon as the call was made this much
amount for the purpose being in the hands of the company from this appellant
must be taken to this purpose immediately. So that in my opinion if he is
liable for the call made under the resolution for any amount then that amount
has to be less by Rs. 5,000 and would leave against him a demand of Rs. 10,000
only. This disposes of the last argument on behalf of he appellants.
The
first three arguments are common to all the appeals. On behalf of the
appellants their learned counsel has made reference to articles 17 and 18 of
the articles of association of the company. These articles read :
“17. The
directors may from time to time make such calls upon the members in respect of
all moneys unpaid on their shares and not by the conditions of allotment
thereof made payable at fixed times, as they think fit, or as may be hereafter
determined by the company in the general meeting. A call may be made payable in
installments. One month’s notice at least shall be given of each call and each
member shall be liable to pay the amount of calls so made, to the persons at
the times and places appointed by the directors and specified in such notice.
18. A
call shall be deemed to have been made at the time when the resolution of the
directors authorizing such call was passed.”
The
learned counsel contends that the first part of article 17 provides for a call
on shares on unpaid part of the share capital but further provides the call to
be “payable at fixed times” and the second part of this article then first
refers to the matter of payment by installments and secondly to at least one
month’s notice of the call and to the liability of each member of the company
to pay the amount of the call made to the persons at the time and place
appointed by the directors and specified in the notice. It will be seen that
statement about the time or times at which the call is to be paid appears in
the articles twice. In the first part of the articles it apparently is made an
imperative part of the resolution making the call and the requirement is that
the resolution is to fix the time of payment. In the second part is the
direction about the payment to the persons at the times and places appointed by
the directors. The first, the learned counsel contends, is imperative and
invites the call but the second being merely a direction may or may not be
complied with or it may not come in the resolution but may come in the
subsequent Bengal Electric Lamp Works, In re and East and West Insurance Co.
ltd. v. Kamla Jayantilal Mehta. The first of these two case holds the call to
be invalid if it is not stated either in the resolution or in the notice to
whom the amount is to be paid and at what that did not arise in that case. The
learned judge has held that the omission ubtgus respect invalidates the call.
But the second is directly in point and there the learned Chief Judge held,
after review of cases here and also in England, that when time is not fixed for
payment of the call, the call is invalid, though he thinks that if it is not
stated to whom it is to be paid and at what place, the non fulfillment of these
two requirements will not invalidate the call. In these two cases the learned
judges have discussed all the case law bearing on the subject and it will be
idle on my part to repeater the same here. I agree with the learned Chief
Justice of Bombay that the fixation of the time of payment of the call is
imperative and if that is not done as has been the case here, the call is not
valid. the learned counsel for the liquidator refers to Collector of Moradabad
v. Equity Insurance Co. Ltd. but all that that case decides is that it is not
necessary that the time and payment should be specified in three resolution authorising
the making of the call and that this should be done subsequently. probably what
the learned judge means is, in the notice making a demand of the payment of the
call. he refers to the first of the two above mentioned cases in this respect.
I do not consider that this case advances the argument on behalf of the
liquidator any further. The learned counsel for the liquidator then points out
that the two cases relied upon by the appellants in this respect and all the
other cases relied upon by the appellants in this respect and all the other
cases referred to in these cases deal with calls made on ordinary shareholders
and not with a call made on directors, which as a factual matter is true, but I
do not see that this makes the least difference, deal in so far as those
directors are concerned who were actually present at the meeting when the
resolution was passed. So that for this omission in the resolution the call
must be held to be not a valid call. the learned counsel for the liquidator has
then urged that the appellants were given notice of demand pursuant to the call
and it must be assumed that in that notice the time of payment of the call was
given. the notice has not been produced. the only witness who has appeared to
make reference to it says nothing of the sort. No such assumption can be made.
So hat on this ground I would hold the call to be bad under resolution No. 4 of
April 30, 1953.
When
both the resolutions are looked at there is obvious disparity in the calls
made, one from an ordinary shareholder and the other from a director. This is a
case that has to be considered under the Indian Companies Act, 1913. Section 49
of the Act provides that “A company, if so authorised by its articles, may do
any one or more of the following things, namely : (I) make arrangements on the
issue of shares for a difference between the shareholders in the amounts and
times of payment of calls on their shares ;....” It is obvious that the company
has this power only if so authorised by its articles and not otherwise. In
Table A, clause 16, an instance of providing for such power is given. It reads
: “The directors may make arrangements on the issue of shares for a difference
between the shareholders in the amount of calls to be paid and in the times of
payment.” This is one of the clauses in Table A which is not compulsorily part
of the articles of association of the company, and it is a clause which has not
been adopted by the company as an article its articles of association. The
company has, therefore, taken no power under section 49 of the Said Act to make
any arrangement on the issue of shares for a difference between the holders in
the amount of calls to be paid, and it is obvious that the power not having
been taken apparently the resolutions of April 30, 1953, will have to be
considered as bad on that account but the learned counsel for the liquidator
says that, though he does not accept this even if this was so, the call on the
directors must be held to be good to the extent of 25 percent as on an ordinary
shareholder of the company, but I think that would amount to modification of
the resolution and I am convinced that that cannot be done in the manner in
which the learned counsel seems to me to suggest. So on this ground also I
would consider the resolution No. 4, as bad and not making a proper and valid
call.
On
the third argument I have already stated that the notice alleged to have been
sent as a circular letter to the directors has not been produced and it is not
known what are its contents. The learned counsel for the liquidator refers to
articles 156 and 158 of the articles of association and contends that once
letters were posted the presumption is that they were delivered in the ordinary
cousel of post. Article 158 draws such a presumption but then provides that the
letter containing the notice must be properly addressed, prepaid and put into
the post box. What the learned counsel wishes to say is that because the
accountant says that according to the dispatch register such letters were
dispatched all these conditions had been fulfilled. But it is not inconceivable
that even after entry in the dispatch register of the letter going out of the
office of the company they may never have reached the post box. To draw such a
presumption proof of posting must be given and there is no such proof in the
present case. So that no notice of the demand has been given.
After
all this has been said the cases of two different sets of directors may now be
considered. There are three directors, namely, Raga Maheshinder Singh, Hardam
Singh and Gurbakshish Singh, appellants who were present when the resolution of
April 30, 1953, was passed and they have been parties to it. In spite of the
omission and defects in the resolutions, the learned counsel for the liquidator
urges that they are estoppel from taking the three objections that have been
already discuss above and here I am inclined to agree with him. The reason is
this. The first defect is with regard to the fixation of the time of payment of
the call. these directors were themselves present at the meeting and they
decided even with regard to themselves that they shall pay the whole of the
balance of the share money remaining due on their shares. then in their case
there was the fixation of the immediate time for payment and this objection
cannot thus be available to them. They cannot say that they have had no notice
of the time when their liability to pay arose. They have known this all the
time and knew this immediately as the resolution was passed. In regard to the
discriminatory nature of the calls it is open to a shareholder to agree to pay
all what is due on a share and as they have themselves agreed it is not now
open to them to say that they will not pay what they have already agreed to
pay. On the question of want of notice, surely they do not need any notice for
they are the persons who have decided this matter and in their case to ask for
notice would be to ask for something which is basically a redundancy. So that
the substance of the three arguments would render the call not valid qua those
who were not present and does not apply to the directors who are themselves a
party to the call. On this consideration those three appellants are stopped
from questioning the validity of the call and they cannot have the benefit of
the first three arguments. The learned counsel for these appellants raises an
objection that stopped may operate against them in regard to an irregularity in
the resolution but cannot do so where the resolution is not valid. But the
question of the validity of the call comes in because of want of due and proper
notice of liability to a shareholder but that basis does not exist in the case
of these three appellants and therefore they are stopped from raising these
arguments to the demand of the call against them. So, in their cases,
therefore, it is not necessary to go into the question whether or not those
three arguments have in so many words been raised by them in their objection
applications. The learned company judge has, in my opinion, rightly dismissed
their objection applications and as the call upon them was immediate and on
their consent they must pay interest on the amount of the call not paid and on
this also I agree with the conclusion of the learned company judge. The appeals
of Raja Maheshinder Singh, Hardam Singh and Gurbakshish Singh, appellants, thus
fail and are dismissed with costs.
The
one argument that has been pressed, in so far as Gurinder Singh (appellant) is
concerned, on the side of the liquidator to my mind is entirely without
substance. No doubt in his earlier application he does say that at most his
liability is only at Rs. 10,000, but that cannot be read as an admission on his
part of acceptance of the call made on him under the resolution, for stray
sentences from his application cannot be picked up and used against him and the
application must be read as a whole. When it is read as a whole, it is clear
that he is questioning the validity of the call but would consider that his
language is not couched strictly in the form which would perhaps have pleased
the liquidator. But there is no doubt that he is questioning the validity of
the call. He says that no call has been made and what more could he say is
there is no valid call in law than that there is no call. So that this argument
does not negative his claim.
In
so far as Major Teja Singh (appellant) is concerned the learned counsel for the
liquidator says that because he was a director he must be credited with the
knowledge of what happened in the meeting and how the business of the company
was being conducted but I do not see how, when it is established as a fact that
he did not attend the meeting, any such knowledge can be imputed to him. Then
the learned counsel says that it must be assumed that he has known what has been
going on in the company but then there is not material that on any subsequent
meeting, if attended by him, the minutes of the proceedings of the meeting of
April 30, 1953, came before the meeting. No such knowledge can, therefore, be
imputed to this appellant. so the cases of Major Teja Singh and Gurinder Singh,
appellants, must proceed on the same basis. In so far as they are concerned the
call cannot be, on that account, placed in the list of contributories. Now
there remains for consideration one argument of the learned counsel for the
liquidator, which has been urged by him as a preliminary argument, and that is
that the first three arguments as detailed above have not been set out by these
appellants in their objection applications and they were not in this form urged
before the learned company judge. Those appellants have in their objection
applications stated that no call has been made against them and they have
questioned their liability. Once they have done that the details of their
argument need not appear in their applications. What must appear in their
applications are the facts necessary for the decision of the question on which
they ask for decision and the omission of arguments in the application does not
bar them from pressing these arguments. Nor do I consider, as the arguments are
matters that raise the questions of law, that they are barred from pursuing the
same at this stage in these appeals even if as arguments they were not placed
before the learned company judge in the form in which they have been urged
here. So these two appellants succeed and their objection applications are
accepted that there has been no valid call against them under the resolutions
Nos. 3 and 4 of April 30, 1953, and on this account they cannot be in the list
of contributories.
At
this stage the learned counsel for Raja Maheshinder Singh, hardam Singh and
Gurbakshish Singh appellants says that this decision is inconsistent in this,
that it is found that the resolution, No. 4, of April 30 1953, does not make a
valid call and yet these three appellants have been held to be bound by the
call made under that resolution. If this is an inconsistency, it is only a
seeming inconsistency for the defect in the call which is available to others
is not available to these three appellants for they were parties to the
resolution and are stopped from relying upon this defect to escape liability.
The learned counsel then says that there is a distinction between what is due
and what is presently due and he points out that in the case of these
appellants the call cannot be said to be presently due but that is exactly with
what I do not agree for as they are stopped from questioning the propriety of
the call so under the resolutions the demand of the call is a present demand
from them.
In
the result the appeals of Major Teja Singh and Gurinder Singh appellants are
accepted. Counsel’s fee in each appeal is fixed at Rs. 60.
[1952] 22 COMP CAS 248 (
HIGH
COURT OF
v.
Muir Mills Co. Ltd.
HARRIES, C.J.
AND BANEBJEE, J.
Appeal from Original Order No. 19 of 1951
MARCH 5, 1952
S.M. Bose and A.K. Sen, for the appellants.
S.K. Mitter, for the respondents.
Banerjee, J.—This is an appeal from an order made by S.R. Das Gupta, J., on January 5, 1951, revoking leave granted to the plaintiffs to institute the suit under clause 12 of the Letters Patent. That clause provides that if the cause of action shall have arisen in part within the local limits of the Ordinary Original Jurisdiction of this court, the plaintiffs may file the suit with leave of the court first obtained. The leave under this clause is a condition precedent to jurisdiction. Unless the condition is fulfilled by obtaining the necessary leave to sue, the court will have no jurisdiction to entertain the suit. If the suit is instituted with the leave, and thereafter the leave is revoked, the court will have no jurisdiction to try the suit. The revocation of leave deprives the plaintiff of his right to have his suit tried by the court of his choice. The matter, therefore, is very serious to the plaintiff.
The granting and revocation of the leave is a matter in the discretion of the court, to be exercised on well-established judicial principles.
In our court the practice is that such leave is asked for at the time of the presentation of the plaint to the Master. The Master goes through the plaint, and if he finds that the allegations in the plaint require that such leave should be obtained, he makes an endorsement on the plaint to the effect that such leave has been asked for. Then the plaint is presented before a Judge of this court sitting on the Original Side for the grant of the leave. The Judge after perusal of the plaint grants such leave if he thinks fit. But the whole thing in the first instance is done ex parte, and naturally so, because until the leave is granted, there is no suit filed, and therefore no question arises as to hearing the defendant on an application for granting the leave. If the defendant is so advised, he may make an application to the court for revocation of the leave, and the matter is then heard on notice to the plaintiff, and suitable orders are made. If a case is made out, the leave granted is revoked.
The plaintiffs in this case allege in their plaint that as all the defendants do not reside or carry on business within the local limits of the Ordinary Original Jurisdiction of this court, and inasmuch as it may be contended that a part of the cause of action has arisen outside the jurisdiction, they ask for leave under clause 12 of the Letters Patent to file the suit. The leave was asked for and, as usual, it was granted ex parte.
The defendants took out a Master's summons dated August 5, 1950, for, inter alia, revocation of the leave. The summons was supported by the petition of the defendant company duly affirmed, and an affidavit was filed in opposition to the petition. The matter came up before S.R. Das Gupta, J., who, after hearing the parties, made the order revoking the leave. From this order the appeal which we have heard has been taken.
The plaintiffs are small shareholders of the defendant
company, Muir Mills Co. Ltd.,—referred to in this judgment as the defendant
company,—described in the cause title as carrying on business through its
managing agent, the Indian Textile Syndicate Ltd., and its sole selling agent,
the Cotton Textile Corporation Ltd., at 9-A, Esplanade East, Calcutta, within
the local limits of the Ordinary Original Jurisdiction of this court. The first
plaintiff is described in the cause title as a merchant residing at No. 26,
The plaintiffs' case as pleaded in the plaint shortly put is as follows:
Prior to September 25, 1947, two directors of the company, called the managing directors, were in charge of the management of the affairs of the company. They have since retired. Some time prior to February, 1947, the defendant Hanuman Prasad Dhanuka and two Nepalese gentlemen entered into a partnership for the purpose of buying the majority of the shares of the defendant company with a view to get a controlling power in the affairs of the company. Pursuant to the agreement, the partners acquired 19,540 preference shares and 5,085 ordinary shares of the company. As the preference shares carry with them the right to vote, it is alleged that the three partners have got a controlling interest in the affairs of the company.
On or about February 15, 1947, defendant Dhanuka was appointed a director of the defendant company. On or about June 20, 1947, a company under the name of the Cotton Textile Corporation Ltd. was registered under the Indian Companies Act. On July 5, 1947, another company, namely, the said Indian Textile Syndicate Ltd. was likewise incorporated. The shares of both these companies were held by the partners in equal shares, each having an one-third share in his name or in the name of his nominee.
On or about July 1, 1947, the Directors of the defendant company appointed the Cotton Textile Corporation Ltd. as the selling agent of the defendant company. The said appointment has been accepted by the Cotton Textile Corporation Ltd. It is alleged in the plaint that having acquired a controlling power in the defendant company, the defendants Nos. 3, 5, 6 and 7 decided to appoint the Indian Textile Syndicate Ltd. as its managing agent and also to change the articles of the defendant company in such a manner as would give them the entire control of the defendant company and stifle the minority shareholders. It is further alleged that with that end in view they issued a notice and a circular on September 25, 1947, for a meeting to be held on October 20, 1947. The said notice and circular were sent to and received by the plaintiffs at their residence in Calcutta. It is alleged in the plaint that there was no managing agent before this time, and the directors were proposing to get their nominee appointed as the managing agent. The plaint further alleges that the notice was misleading and was intended to be so. In the notice it was alleged that the proposed changes in the articles were necessary for the management of the company's affairs by a managing agent instead of the managing directors. It is also alleged that the real object of the meeting and of the proposed changes and the managing agency agreement was not disclosed to the plaintiffs or the other shareholders. It is submitted that such non-disclosure amounted to fraud and was made with the deliberate object of misleading the shareholders into the belief that no important or unusual or extraordinary change was going to be made in the meeting. The plaintiffs allege that they did not attend the meeting being misled by the notice into the belief that no radical change would be made in the articles of association nor any extra provision would be made in respect of the remuneration, and terms of appointment, of the managing agent.
The changes in the articles made at the meeting held on October 29, 1947, are large in number; two of them at least are very important, namely, relating to (1) the appointment of the managing agent and (2) the voting right. Under the old articles, each share carried with it the right to vote. Under the new article that was not so. The old article 97 read as follows:
"97. On a show of hands, every member present in person shall have one vote, and upon a poll, every member present in person or by proxy shall have one vote for every share held by him, provided that no company shall vote by proxy so long as a resolution of its directors under the provisions of Section 80 of the Act is in force."
The new article which replaces the old article reads:
"99. Subject to any special rights or restrictions as to voting upon which any shares may be held on a show of hands, every member present in person or by general proxy (as defined by article 103 hereof but who is not a member of the company or who is a member not qualified to vote) shall have one vote and upon a poll, every member present in person or by proxy shall have one vote provided that no company shall vote by proxy so long as a resolution of its directors under the provisions of Section 80 of the Act is in force."
The difference in the two articles is obvious. The right to vote is a very important right of a shareholder, and the new articles have restricted that right. There is no dispute before us that the changes are many and are material.
The notice which was served on the shareholders on September 25, 1947, did not disclose the changes that were intended to be effected in the articles of the defendant company at the meeting, which was held on October 20, 1927. The notice ran as follows:
The Muir Mills Company Ltd.
Notice is hereby given that an extraordinary general meeting of the above-named company will be held at the registered office of the company, Kanpur, on Monday, the 20th day of October, 1947, at 3 p.m. to consider and, if thought fit, to pass, with or without modification, the following resolutions:—
1. (As a special resolution)—that the regulations contained in the document submitted to this meeting, and for the purpose of identification subscribed by the Chairman thereof, be and the same are hereby approved and that such regulations be and they are hereby adopted as the articles of association of the company in substitution for and to the exclusion of all existing articles thereof.
2. (As a special resolution)—that Indian Textile Syndicate Ltd., be appointed managing agents of the company for the period, at the remuneration, and on the terms contained in the draft of an agreement, providing for the same, submitted to this meeting and signed in the margin by the Chairman of the meeting by way of identification, which said agreement be and the same is hereby approved and that the directors shall be and they are hereby authorised to carry the said agreement into effect as on and from the 1st day of October, 1947, with full liberty, subject nevertheless to the provisions of the Indian Companies Act, 1913, to agree to any modification of such agreement before the same is executed.................."
Along with the notice there was a circular in which it was, inter alia, stated that copies of the proposed new articles of association and of the managing agency agreement were available for inspection at the office,—meaning the registered office of the defendent company, which is at Kanpur.
The plaintiffs claim various reliefs, inter alia, a declaration that the special resolutions Nos. 1 and 2 passed on 20th October, 1947, are void, inoperative and should be set aside. There is no dispute in this case between counsel who appear for the parties that that is the main prayer. The other reliefs claimed in the plaint follow as a matter of course. Indeed it has been admitted by the counsel for the plaintiffs who are the appellants before us, that this declaration is the real relief claimed.
The defendant company was under no misapprehension as to the contents of the plaint and the nature of the relief claimed. In the defendant company's petition for revocation, it summarises the plaint as follows:—
"The plaint alleges—
(1) that the appointment of the selling agents and the managing
agents was not in the interest of the company;
(2) that the articles were altered to stifle
the minority;
(3) that due notice of the changes proposed to be brought about in the articles was not given to the shareholders;
(4) that the full terms on which the managing agents were going
to be appointed were not disclosed to the shareholders;
(5) that the non-disclosure mentioned above was fraudulently made
with the deliberate object of misleading the shareholders;.............."
It is quite clear from the summary given by the defendant company that it understood that the plaintiffs had based their suit on the ground that by not making a frank and free disclosure in the notice of the changes that were going to be made at the meeting, the defendant company had misled the shareholders including the plaintiffs, thereby preventing them from attending the meeting at which the changes were made on October 20, 1947.
Mr. G.K. Mitter, counsel for the respondent, has not denied that the notice did not convey a true picture of what was done at the meeting, but he said that inasmuch as information had been given to the shareholders that a copy of the proposed changes could be inspected at the registered office of the defendant company, it was incumbent on the plaintiffs to go to the registered office and inspect, if they so desired, the new articles of association and the proposed changes. Therefore, according to counsel, there was no non-disclosure at all. If the plaintiffs did not come to know what changes were going to be made, it was their fault.
In support of this contention, Mr. Mitter relied on a passage in Palmers's Company Precedents, 15th Edition, Part I, page 1002, where it is said:
"Where a large number of alterations have to be made, it is generally more convenient to adopt a new set of articles altogether. Where this course is adopted, a copy of the new regulations should lie for inspection at the office, and the notice convening the meeting should state the fact".
Relying on this passage, Mr. Mitter argued that that was the course which the defendant company followed. The alterations were large in number. So a new set of rules was adopted and a copy of the new regulations was kept for inspection at the registered office of the company. It was available for the inspection of the plaintiffs, and if they did not take inspection, they cannot complain of the alleged nondisclosure.
But Mr. Mitter has overlooked a further statement which occurs in the same paragraph in Mr. Palmer's book:
"And in some cases it may be deemed expedient to send
printed copies of the proposed new articles with the notices. According to the
decision of Kekewich, J., in Normandy v. Ind. Coope & Co., the notice
should call attention to any material alterations and in Baillie v. Oriental
Telephone and Electric Co., the Court of Appeal (in England) held that the
notice of a proposed resolution to alter articles involving a large increase in
the remuneration of the directors was invalid on the ground that the proposed
increase was not fully and frankly disclosed".
In Baillie's case, a shareholder brought an action on behalf of himself and all the other shareholders of a company for a declaration that certain resolutions were not binding on the ground of insufficient notice of the meeting at which they were passed, and for an injunction to restrain the company and the directors from acting upon them. The plaintiff moved for an interim order. The Court of Appeal held that the notice did not give a sufficiently full and frank disclosure to the shareholders of the facts upon which they were asked to vote; and that the resolutions were invalid and not binding upon the company. Baker, J., considered this case in Narayan Lal v. Maneckji Petit Manufacturing Co. Ltd., and also reviewed other English cases. In that case the directors convened an extraordinary general meeting of the shareholders to pass the necessary resolution for substitution of a new set of up-to-date articles for the old ones and fixing the duration of the agency and defining the agent's power. The notice convening the meeting set out the necessary resolutions and was accompanied by a circular, but sufficient particulars regarding important changes to be effected were not set out. The resolutions were passed and confirmed. In a suit by a shareholder suing on behalf of himself and other shareholders for a declaration that the resolutions were inoperative on the ground of insufficiency of notice and for injunction restraining the directors from acting upon them, it was held that the notice should have given sufficiently full and frank disclosure of the facts and the effect of the resolutions and the. agreement, and consequently the resolutions were inoperative and not binding upon the company. The learned Judge observed that if the directors issued a circular in which they referred to certain alterations and said that the only alterations were with regard to clause "X" of the articles of association, whereas there were equally important alterations in clause "Y", it could not be said that the shareholders had sufficient notice of the alterations in clause "Y".
In the case before us, the documents referred to in the clauses of the notice which we have set out above, were not sent to the shareholders. Mr. Mitter's contention was that that might be so, but the shareholders had notice that the new regulations were lying at the registered office of the company; so it was not necessary to send the documents to them. According to counsel it was quite sufficient to tell them that they could have inspection of the new regulations at the registered office of the company, and for this contention he relied on Mr. Palmer's observation which I have already set out.
But it should be observed that Mr. Palmer did not say that it was not necessary to send copies of the proposed articles with the notice. All that he said was that where a large number of alterations had to be made, it was generally more convenient to adopt a new set of articles altogether and that where this course was adopted, a copy of the new regulations should lie for inspection at the registered office of the company, and the notice convening the meeting should state that fact. But nowhere did he say that it was not necessary to send copies of the new proposed regulations with the notices. On the other hand, from the latter passage which I have quoted, it is clear that the learned author said that in some cases it was expedient to send printed copies of the proposed new articles with the notices and he has cited two English cases for that proposition. Assuming, however, that Mr. Plamer's observation supports Mr. Mitter's contention, it may not be possible for us to adopt that view in India, having regard to the local conditions and a variety of other considerations that prevail in India. It will not in all cases be sufficient in India to leave a copy at the registered office and state that fact in the notice, inviting the shareholders to inspect the proposed changes at the registered office. The travelling facilities here are not the same as in England, neither the country is so small as England. There are various difficulties that prevent the shareholders from going to the registered office and having inspection. Besides whether such a course should be adopted or not depends on the facts of each case. For example, it may be that the shareholders of a company live very near the registered office. In such a case possibly it would be sufficient to give them notice that the proposed changes could be inspected at the registered office. But in a case like the one under our consideration, where there is a large body of shareholders who reside at great distances from the registered office of the company, we do not think it would be fair on the part of the company to leave the proposed regulations at the registered office and give the shareholders notice of that fact. In a case like this we entirely agree with Mr. Palmer that printed copies of the proposed new articles should be sent with the notice. In this case that was not done, and therefore, we take the view that the notice did not disclose fully and frankly the facts upon which the shareholders were asked to vote.
It is quite possible to argue in this case that the notice in question was a 'tricky' notice, as was said in Kaye v. Croydon Tramways Co., and in Baillie's case (p. 515). In this case there is no dispute that there was a partnership between defendant No. 5 and the two Nepalese gentlemen. There is no dispute further that they acquired a very large number of shares in the defendant company. There is no dispute that the partners have acquired and now control the majority of the shares in the two companies, namely, the Indian Textile Syndicate Ltd., and the Cotton Textile Corporation Ltd., one of which companies has been appointed the selling agent of the defendant company. It is quite clear therefore that the three partners through the said two companies have acquired a preponderance of voting power in the defendant company and are in a position to divide practically the entire profit of the company amongst themselves. On these facts we are of opinion that it was necessary for the defendant company to disclose to the shareholders the controlling interest of the partners in the two companies. But that was not done. An argument is quite plausible that the notice deliberately withheld material facts from the knowledge of the shareholders including the plaintiffs and committed fraud on the plaintiffs. In this case it may be fairly argued that not only there has been a suppression of true facts, but also a false suggestion. Such an argument, we cannot say, would be unreasonable.
In the Indian Contract Act, "fraud" means and includes the suggestion as a fact of that which is not true by one who does not believe it to be true; the active concealment of a fact by one having knowledge or belief of the fact. A fraud may consist of the suppression of what is true as well as the representation of what is false. Therefore, it can be fairly argued that this notice comes within the mischief of Baillie's case and may be called a 'tricky' notice.
The main question then is: Has any part of the cause of action arisen within the jurisdiction of this court? For, if no part of the cause of action has arisen within that jurisdiction, leave or no leave, this court cannot entertain or try the suit. On this part of the case, Mr. Mitter's contention is that no part of the cause of action arose within the jurisdiction of this court and consequently the learned Judge was right in revoking the leave which the plaintiffs obtained by representation that a part of the cause of action had arisen within the jurisdiction.
Let us analyse the position. (1) The plaintiffs are shareholders of the defendant company, however small their shares may be. (2) They reside within the jurisdiction of this court. (3) They are entitled to get at their place of residence a notice which frankly and fully discloses all material facts.
The plaintiffs have stated in their plaint that they received a notice in Calcutta. There is no denial of this fact in the written statement, which the defendant company has filed. Therefore this is an undisputed fact, namely, that the notice was received by the plaintiffs within the jurisdiction of this court.
Mr. Mitter's argument is that it is perfectly immaterial that this notice was received by the plaintiffs in Calcutta. According to him, all that mattered was the posting of the notice. He contends that the service of the notice took place at Kanpur where the letter was posted and for this contention he relied on article 182 (now replaced by article 186). Article 182 of the old articles read as follows:—
"182. (1) A notice may be given by the company to any member either personally or by sending it by post to him to his registered address or (if he has no registered address, in British India) to the address, if any, within British India, supplied by him to the company for the giving of notices to him.
(2) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice and in proving such service, it shall be sufficient to prove that the letter or wrapper containing the notice was properly addressed, pre-paid and put in the post office.”
In the new article the word "British" has been omitted and the words, "In proving such service...............in the post office" have been replaced by the words- "Unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post"—This change has been made in view of regulation 112 of the Companies Act. But Mr. Mitter relying on the articles contended that immediately the notice was posted, the plaintiffs were served.
In this case there is no dispute that the notice was posted at Kanpur and, therefore, according to Mr. Mitter, the service was effected at Kanpur. We cannot accept this contention. The old article is contrary to the regulation which reads as follows:
"Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post."
What does this mean? It means that if a notice is sent by post, the service of it shall be deemed to have been effected at the time when in the ordinary course of post the letter would be delivered. If the company proves the posting of the notice, it has not to prove the service. The court is to presume that the addressee has received the letter when it should have been delivered to him in the ordinary course of post. The word "deem" is significant. What does it mean? It means—"to think of as existing": "to believe a thing to be true till the contrary is proved." The articles only raise the presumption as to the time of service and not the place. The presumption only goes this far and no further: namely, until the contrary is proved, it should be presumed that the addressee received the notice at the time when the letter would be delivered to him in the ordinary course of post. That is all. But the question arises, where did the service take place? At Kanpur or in Calcutta? Neither the regulations nor the articles on which Mr. Mitter relies give him any assistance on this point. The service must be at the place where the notice is received. Further it was held in London and Staffordshire Fire Insurance Co., that the provisions of articles 95 and 97 of Table A to the Companies Act, 1862, for the service of notices by a company on its members, apply only to notices relating to the ordinary business of the company, and service in the way there pointed out is not sufficient for the purpose of fixing a shareholder with knowledge of a misrepresentation which would entitle him to repudiate his shares, unless he had been guilty of laches after notice of the misrepresentation. The article or Regulation 112 does not apply so as to affect the member with notice of misrepresentation (which notice was in fact given by the document), if the document does not reach his hands; in other words, the misrepresentation by non-disclosure or otherwise must be taken to have been made at the place where the letter was received; and this is only common sense. A sends a letter to B containing a misrepresentation. Can it possibly be said that the misrepresentation was made at the place where the letter was posted? It must be at the place where the letter reaches him. For there only the letter is read or may be supposed to have been read by the addressee. This argument applies to cases of misrepresentation where there is suppression of what is true as well as a representation of what is false.
The defendant company was bound to give a notice containing all the material facts. The defendant company did post the notice at Kanpur and under the articles the defendant company need not prove the actual receipt of the notice by the plaintiffs. It will be presumed to have been received by them. But then the misrepresentation is made when the letter reaches the hands of the plaintiffs and at the place where it is read. Consequently a part of the cause of action of this suit has arisen within the jurisdiction of this court.
For, what is a cause of action? It means every fact which, if traversed, it will be necessary for the plaintiff to prove in order to get a judgment of the court. It means every fact which the plaintiff must prove to get a decree and which, if not proved, would entitle the defendant to get a judgment in his favour. It is a bundle of essential facts which, it is necessary for the plaintiff to prove before he can succeed. It has no relation whatsoever to the defence which may be set up by the defendants. The test for determination of what a cause of action is, has been thus stated by Rankin, C.J., in Engineering Supplies Ltd. v. Dhandhania & Co.
"The only definition that will work, if it has to be applied to cases of all kinds, is the entire set of facts that gives rise to an enforceable claim, or in the words of Fry, L.J., 'everything which if not proved gives the defendant an immediate right to judgment'; every fact which is material to be proved to entitle the plaintiff to succeed, every fact, which the defendant could have a right to traverse."
Now, apply this test to the present case. The plaintiffs must prove in order to succeed: (a) that they received the notice; (b) that the notice did not disclose all the material facts. Where was the notice received? The answer must be, in Calcutta. Where was the misrepresentation made? It must be in Calcutta. These two facts are material to be proved and they must be proved by the plaintiffs; otherwise the defendant company would be entitled to get judgment in its favour forthwith. There cannot be any doubt, therefore, that a part of the cause of action has arisen within the local limits of the Ordinary Original Civil Jurisdiction of this court, and if so, the plaintiffs with leave of the court obtained under clause 12 of the Letters Patent can file the suit on the Original Side of the High Court. The plaintiffs have the right to file the suit in the High Court subject to the court granting them leave for the purpose. They have obtained the leave and filed the suit.
It must be remembered that it is entirely for the plaintiff to choose his forum. The plaintiff as arbiter litis or dominus litis has the right to choose his own forum or rather any forum the law allows him. Of course this right is subject to control under the provisions of the Code of Civil Procedure or the Letters Patent as the case may be.
The next question is whether the leave granted should be revoked.
On this point in recent years there have been several decisions of this court, and it is sometimes said they are not consistent. I am unable to see that there is any difference, though the decisions have been couched in different words. It is unnecessary for me to discuss these cases. It is quite sufficient if I rely on the last pronouncement on the subject of our court of appeal. In Manindra Bhusan Biswas v. The Benares Hindu University, my Lord, the Chief Justice, observed:—
".............The learned Judge in my view expressed quite accurately the principles governing cases of this kind. He pointed out that before leave can be revoked on the ground of balance of convenience in favour of a trial elsewhere, something more is required than a finding that, on balancing the evidence for and against, there is a balance in favour of one side or the other. In other words, in dealing with this matter, the convenience of the respective parties must not be weighed too carefully............This was a matter in which the learned Judge had a discretion. As I have said, he has stated the principle upon which the discretion has to be exercised with absolute accuracy."
The judgment which was thus affirmed by the court of appeal contains the following statement of the law:
"In considering the question whether leave granted should be revoked or not, the question of convenience is a material factor, though the convenience of the parties is not to be weighed in a delicate balance. The nature of the suit and the question of comparative expenses are material considerations. But mere balance of convenience is not enough. It must be proved to the satisfaction of the court that either the expenses or the difficulties of trial in this court are so great that injustice will be done to the defendant. But at the same time the court ought not to exercise the jurisdiction, if by so doing an injustice is caused to the plaintiff."
Unless the inconvenience is so great as to cause injustice to the defendant, the leave granted by the court should not be revoked.
In another case, Bhualka Bros. Ltd. v. Gobindram Bros. Ltd., the learned Chief Justice observed:
"The plaintiff is the dominus litis and has the right to choose his own forum. This right of choice is, however, not absolute, and the court has the power in a proper case to interfere with the plaintiff's choice and revoke leave if the court considers that the forum has been chosen by the plaintiff mala fide or that the forum chosen is such that if the court permits the suit to go on, the other party would be so handicapped in his defence that it would lead to injustice or that the balance of convenience is decidedly or overwhelmingly against the suit going on in the forum chosen by the plaintiff."
The law on this point therefore is well-settled, so far as our court is concerned.
It ramains for us only to apply that law to the facts of this case. In this case the learned Judge has held that the convenience is to allow the suit to go on at Kanpur. And he says that convenience is great. With great respect to the learned Judge we are unable to agree with him on this point. For, what have the plaintiffs to prove in this case? They have to prove that the notice was defective. The notice is proved by its production. The service has been admitted. The changes in the articles are proved by a comparison of the old articles with the new and it becomes at once clear what the changes are and whether the changes are material. On a perusal of these two documents the learned Judge who will try the suit will be able to decide as to whether or not the notice frankly and freely discloses the material facts. I do not think any other evidence is necessary on this part of the plaintiffs' case. The learned Judge has observed that witnesses have to be called from Kanpur; the books of account would have to be brought down from Kanpur. But why? The books of account will not throw any light on the question as to whether there has been nondisclosure or not. The witnesses will not be able to say whether there was non- disclosure or not. These points are proved by the notice and the old and the new articles. It is not the defendant company's case that the plaintiffs had inspected the new articles at the defendant company's registered office and with that knowledge went to the meeting and cast their vote. If that was the defendant company's case, it would have been necessary to bring down witnesses from Kanpur to prove that the plaintiffs had inspected the new articles, attended the meeting and voted. But that is not the defendant's case. Therefore, with great respect to the learned Judge, I cannot see why it should be necessary to bring witnesses from Kanpur or bring down the books of account from that place to disprove this part of the plaintiffs' cause of action.
As to the three partners having a preponderating voting power, it would be proved by the production of the partnership deed, the fact of purchase of the shares, the certificates of incorporation of the two companies (the Textile and the Cotton Companies), the selling agency agreement, the managing agency agreement. The rest is a matter of inference. On this part of the cause of action also, prima facie, no witness nor any books of account need be brought down from Kanpur.
That being the case, we are unable to agree with the learned Judge that the convenience of the trial being held at Kanpur is so great that the leave should be revoked.
Mr. G.K. Mitter may be right in his criticism of the plaint that it contains many paragraphs not strictly relevant. But it is not for us at this stage to enter into a critical review of the plaint or the allegations it contains.
I have not overlooked the fact that the revocation of leave was entirely a matter of discretion with the learned Judge and a court of appeal would be very slow to set aside the discretion, unless it is proved that he has misdirected himself as to the facts or on the law. It may be that the court of appeal does not see eye to eye with the trial Judge in such a matter. But that is no ground for setting aside the discretion exercised by the learned trial Judge. But in this case, with great respect to the learned Judge, we think there has been a misdirection as to the facts and therefore we are bound to set aside the order.
Mr. G.K. Mitter then contended that this was a mala fide suit. He drew our attention to a petition filed on behalf of the plaintiffs (paragraphs 14 and 15) on 26th June, 1950, in this suit. Arguing on those paragraphs, he said that the suit was mala fide. But we are unable to discover anything in those two paragraphs which support Mr. Mitter's contention. We are unable to agree with him that the suit is a mala fide one.
Mr. Mitter also said that as result of a quarrel between two sets of rich people, the Singhanias and the Baglas of Kanpur, the plantiffs have filed the suit at the instigation of the Singhanias and that the Singhanias are helping the plaintiffs in the conduct of the suit, and the suit really is a suit of the Singhanias. Assuming that the Singhanias are helping the plaintiffs financially or otherwise, I cannot see how the suit can be called a mala fide suit, if the plaintiffs have a cause of action. If they have chosen a forum which the law allows them to choose, what does it matter if the plaintiffs are helped by the Singhanias or the Baglas to institute the suit or in its conduct? What does it matter if either of these two sets of people helps the plantiffs with money or material? There may be various reasons for which pecuniary help may be given to the plaintiffs. But for that only, I cannot hold that the suit is a mala fide one.
It is to be noted, however, that the selling agent and the managing agent of the defendant company have all on a sudden removed their office from Calcutta to Tollygunge. It is not denied that their office is now located at the residence of a member of the firm of solicitors of the defendant company. Why did they remove their office? It has been suggested on behalf of the appellants that the defendant company has removed the office in order to deprive the plaintiffs of a contention that the suit has been properly filed in this court inasmuch as the defendant company carries on business within the jurisdiction of this court. This point is of minor importance in view of the broad facts of the case, which I have already analysed. But we have mentioned it as it was suggested by counsel.
Since the learned Judge in exercise of his discretion revoked the leave, we have taken great care to consider the matter, and have given it our fullest consideration. But we are constrained to hold that the learned Judge was not right in the exercise of his discretion. We must, therefore, set aside the order revoking the leave, with the result that the leave granted to the plaintiffs to file the suit under clause 12 of the Letters Patent remains.
The appellants are entitled to the costs of this appeal. Certified for two counsel.
There is another appeal which was preferred from an order of the learned Judge refusing to grant an injunction. The learned Judge revoking the leave, rightly held that he could not grant the injunction, because the court had no jurisdiction to entertain the suit, and therefore, naturally had no jurisdiction to make any order in the suit. The learned Judge accordingly dismissed the application for injunction. He has not expressed his views on the merits of that application. We send back that application to be heard by the learned Judge according to his convenience. We set aside the order of the learned Judge dismissing the application for injunction. The costs of the appeal preferred from the order refusing the injunction will be costs in the suit.
Harries,
C.J.-—I agree.
[1986] 60
COMP. CAS.1075 (P&H)
HIGH COURT OF PUNJAB AND HARYANA
v.
Paragaon
Utility Financiers (P.) Ltd.
R. N. MITTAL J
C. NO. 158 OF 1983 IN COMPANY PETITION NO. 79
OF 1982
MAY 8, 1984
N.
K. Sodhi for the Applicant.
J. S.
Narang for Respondent.
JUDGMENT
Rajendra
Nath Mittal J.—Paragaon Utility Financiers
(P.) Limited (hereinafter referred to as "the company") was
incorporated on August 21, 1961, under the provisions of the Companies Act
(hereinafter referred to as "the Act"). The registered office of the
company is situated at
The
question arises whether Col. P. S. Dhillon and Smt. Rattan Kaur or Ramesh Inder
Singh should be allowed to defend the petition on behalf of the company. Ramesh
Inder Singh filed a Civil Miscellaneous Petition No. 158 of 1983, stating that
the management of the company vests in the board of directors headed by Dr.
Vikram Singh as managing director and that Col. P. S. Dhillon and Smt. Rattan
Kaur have nothing to do with the affairs of the company. He has annexed 20
affidavits of the shareholders of the company alleged to be holding 625 shares
of Rs. 1,000 each. He has prayed that affidavits be read for determining the
issue. Reply to the application has been filed on behalf of Smt. Rattan Kaur.
In
order to determine the issue, a few other facts are required to be stated. Col.
P. S. Dhillon was admittedly elected as the managing director of the company
and continued to be so up to April 20, 1982. The case of Col. P. S. Dhillon is
that the board of directors held a meeting on November 7, 1981, in which it was
decided that ten per cent, of the nominal value of each share be called and the
same be paid by the shareholders on or before January 5, 1982. In pursuance of
the decision, letters were posted to the shareholders to pay the call money.
Most of the shareholders supporting Dr. Vikram Singh did not pay the call
money. The matter was taken up again in the meeting of the board of directors
on August 7, 1983, and it was decided that notice be issued to the
defaulter-shareholders stating that if they failed to make the payment in
respect of the call money on or before September 2, 1983, their shares shall be
liable to be forfeited. In pursuance of the notice, ten out of the total number
of defaulter-shareholders came forward and made payment in respect of the call
money and the rest of the defaulter-shareholders neither asked for any
extension nor made the payment. The matter in respect of the arrears of the
call money was again discussed in the meeting of the board of directors on
September 9, 1983, and it was decided that if any shareholder had not made. the
payment till that date, his share be forfeited and consequently the shares of
the following shareholders stood forfeited :
1. S.
Pavitar Singh
2. Ramesh
Inder Singh
3. Ravinder
Singh
4. Smt.
Nasib Kaur
5. Dr.
Vikram Singh
6. Mrs.
Gurbax Kaur
7. Mrs.
Inderjit Kaur
8. Mrs.
Bhagya Vikram
9. S.
Gurcharan Singh s/o Atma Singh
10. Mrs.
Prem Piari
11. S.
Mohan Singh
12. Smt.
Gurmej Kaur w/o S. Mohan Singh
13. Smt.
Gurcharan Kaur
14. S.
Swaran Singh and
15. Mohan
Singh
It is
alleged that out of the above defaulter-shareholders, some of them were posing
themselves to be shareholders and directors of the company.
The case
of Ramesh Inder Singh and his party is that some shareholders gave a
requisition on January 25, 1982, to Col. P. S. Dhillon, that an extraordinary
general meeting be requisitioned for removal of Col. P. S. Dhillon and the
board of directors and appointment of another managing director and board of
directors. Col. P. S. Dhillon did not requisition the meeting within the period
of 21 days. Consequently, the requisitionists called the meeting for April 21,
1982, on March 22, 1982. In the meeting, all the resolutions were passed
unanimously and were recorded in another set of books as Col. P. S. Dhillon did
not hand over the books to them. In the meeting, Dr. Vikram Singh was appointed
as the director-cum-managing director and Mrs. Bhagya Vikram, Smt. Nasib Kaur,
Niranjan Singh Domeli, Gurcharan Singh, Ramesh Inder Singh, Ravinder Singh,
Swaran Singh, Amar Singh, Avtar Singh, Bir Singh and Rajinder Singh Johl were
appointed as directors of the company. It is further stated that they did not
receive any notice for depositing the call money in pursuance of the alleged
meeting dated November 7, 1981. The party represented by Ramesh Inder Singh
claims that Dr. Vikram Singh and the abovesaid persons were duly elected as
directors in the meeting on April 21, 1982, and, therefore, he could represent
the company.
In
order to determine the aforesaid question, the pivotal point to be decided is
whether the meeting dated April 21, 1982, was a validly convened meeting or not
and the shareholders who attended the meeting had the right to vote. The
contention of Mr. Narang is that in case any sum is payable by a shareholder to
the company and he has not paid the same, he has no right of voting in a
meeting. He submits that after the meeting of November 7, 1981, notice for call
money was served upon all the shareholders and those who did not pay the call
money had no right of voting in the meeting held on April 21, 1982. According
to him, the majority of the shareholders who attended the meeting on that date
had not paid the call money and, therefore, they could not elect the managing
director and other directors. On the other hand, Mr. Sodhi has argued that no
meeting of the board of directors was held on November 7, 1981, and no notices
in pursuance of the alleged meeting were issued to the shareholder. He further
submits that, therefore, it cannot be held that any money was due to the
company and thus the meeting held on April 21, 1982, was a valid meeting.
I
have given due consideration to the arguments of learned counsel. The first
matter to be determined is whether any meeting took place on November 7, 1981,
or not. It is not disputed that up to April 20, 1982, Col. P. S. Dhillon was
the managing director of the company and the old board of directors was
continuing. Col. Dhillon has produced the register containing the minutes of
the meeting of the board of directors dated November 7, 1981. The meeting was
attended by ten directors whereas the quorum for the meeting was six. The
directors who attended the meeting were Niranjan Singh Domeli, Col. P.S.
Dhillon, Puran Singh, Bir Singh Johl, Ravinder Kaur, Col. K. S. Dhillon, Smt.
Inder Kaur, Didar Singh, Puran Chand and Hardev Singh Minhas. Niranjan Singh
Domeli was in the chair. The original proceedings book contains the signatures
of all the directors present at the meeting. At the conclusion of the minutes,
Niranjan Singh Domeli signed the register on the same date. One of the proposed
resolutions was to consider further call on shares. The resolution which was
passed by the board of directors reads as follows :
"Resolved
unanimously that a fourth call on shares of the company be and is hereby made
at 10% of the nominal value of each share, i.e., Rs. 100 per share, to be paid before
5-1-82."
Niranjan
Singh Domeli, Bir Singh Johl and Smt. Inder Kaur, who were present in the
meeting dated November 7, 1981, and passed the above resolution, are also
amongst the requisitionists for calling a meeting on March 22, 1982, for April
21, 1982. Out of them, Niranjan Singh Domeli and Bir Singh Johl were elected as
directors on that date, i.e., on April 21, 1982. It has not been denied by them
that they were present in the meeting on November 7, 1981. Their presence in
the meeting dated November 7, 1981, proves beyond a shadow of doubt that that
meeting was held and the resolution reproduced above was passed therein. I,
therefore, do not find any substance in the contention of Mr. Sodhi that in
fact no meeting was held on November 7, 1981, and false entries have been made
in the proceedings book.
Now,
it is to be seen whether notices were sent to the shareholders in pursuance of
the resolution dated November 7, 1981. Col. P.S. Dhillon produced the despatch
register in the court along with the photostat copy of the relevant entries.
The relevant entires regarding despatch of the letter calling the share money
are contained in the register at serial Nos. 250 to 289. A copy of the letter
is also annexed to the register which reads as follows:
** ** **
"Ref.
No./PUF/250 to 289 Dated : 20-11-81.
All shareholders
Call on shares
In
the meeting of the board of directors held on 7-11-81, it has been resolved
that a further call of 10% (Rs. 100) per share be made, to be paid on or before
5-1-82.
2.
You are accordingly called upon to pay the above call in this office by the due
date."
** ** **
The
register continues till date. The last entry in the register is dated March 27,
1984. From the register it is evident that the letters were despatched by the
company to the shareholders. Section 53 deals with service of documents on
members by a company. Sub-section (1), inter alia, provides that a document may
be served by a company on any member thereof either personally, or by sending
it by post to him to his registered address. Sub-section (2)(a) says that where
a document is sent by post, service thereof shall be deemed to be effected by
properly addressing, prepaying and posting a letter containing the document. A
proviso had been added to the sub-section saying that where a member has
intimated to the company in advance that documents should be sent to him under
a certificate of posting or by registered post with or without acknowledgment
due and has deposited with the company a sum sufficient to defray the expenses
of doing so, service of the document shall not be deemed to be effected unless
it is sent in the manner intimated by the member.
From
a reading of the above sub-sections, it is clear that if a letter is posted to
a shareholder on his registered address by affixing the requisite postal
stamps, the service shall be deemed to have been effected on him, unless he had
issued instructions to the company that he should be served after obtaining a
certificate of posting or under registered cover and provided funds for that
purpose. It has not been shown that any instructions had been issued and funds
were provided by the requisitionists for sending letters to them after
obtaining certificate of posting or under registered covers. I am, therefore,
of the opinion that the company complied with the provisions of law in sending
the notices to the shareholders. It is further relevant to mention that in
pursuance of the notice dated November 20, 1981, Niranjan Singh Domeli, Smt.
Inder Kaur and Smt. Pritam Kaur wives of Niranjan Singh Dimeli, Smt. Vaneet,
daughter of Niranjan Singh Domeli, Raghuvinder Singh, Bir Singh Johl, Col. P.
S. Dhillon, Smt Kir-pal Kaur, Smt. Gurmej Kaur, Smt. Rattan Kaur, Hardev Singh
Minhas, Puran Singh, Didar Singh, Col. K. S. Dhillon and K. Gurdev Singh paid
the call money. Since notices were not received, it was not possible for Smt.
Vaneet, Raghuvinder Singh, Smt. Kirpal Kaur, Smt. Gurmej Kaur, Smt. Rattan Kaur
and K. Gurdev Singh to pay the call money as they were not present in the meeting
of the board of directors.
Faced
with that situation, Mr. Sodhi argued that the requisitionists stated on
affidavit that they did not come to know about the resolution nor did they
receive any letter dated November 20, 1981 and, therefore, it cannot be held
that they came to know of the resolution. He tried to support his argument by
making a reference to this court's decision in Escorts Ltd. v. Industrial Tribunal, Haryana [1983] Lab IC
223. I am not impressed with the submission of
learned counsel. In view of the provisions of the Companies Act, it cannot be
held that the mode in which the service was effected was not a proper mode of
service. M/s. Escorts Ltd.'s case, referred to by learned counsel, is under the
Industrial Disputes Act. There is no such provision in the Industrial Disputes
Act as contained in section 53 of the Companies Act. That case is thus
distinguishable and the observations therein are of no assistance to learned
counsel.
Mr.
Sodhi next argued that the notice dated November 20, 1981, did not contain all
the particulars, namely, the exact amount, the place of payment, and interest,
if any, and unless these were provided, the notice was bad and the shares could
not be forfeited. To support his contention, he made reference to Public Passenger
Service Ltd. v. M. A. Khader, AIR 1962 Mad 276, Public Passenger Service Ltd.
v. M. A. Khadar, [1966] 36 Comp Cas 1; AIR 1966 SC 489 and Karachi Oil Products
Ltd. v. Kumar Shree Narendrasinghji, [1948] 28 Comp Cas 215 ; AIR 1950 Bom 149.
I
have duly considered the argument of learned counsel. The question to be
decided at this stage is not the one whether the shares of the requisitionists
are to be forfeited or not. The question is whether prima facie they had the
right to requisition the meeting and to vote therein. This question is required
to be determined for the purpose of deciding whether the board of directors
headed by Dr. Vikram Singh should be allowed to defend the petition under
sections 397 and 398 of the Act. In my view, the point raised by Mr. Sodhi has
no relevance for the purpose of deciding the aforesaid question. In Public
Passenger Service Ltd.'s case, it is observed by the Madras High Court that
when the company forfeited the shares, the shareholder whose shares are
forfeited ceases to be a member of the company. He loses the privileges and
rights of the membership. The money he paid on the shares is irrecoverable.
But, on the other hand, he continues to remain liable to pay to the company the
moneys which are due and payable by him on the date of forfeiture in respect of
his shares and he becomes a debtor qua the company. Forfeiture, being a penalty
and sometimes a very severe one, the greatest care should be taken to comply
strictly with all the provisions relating to it in the articles. It is further
observed that any irregularity in the procedure or any departure from the rules
laid down, however slight, will, as against the company, invalidate the
forfeiture. An appeal against the judgment of the Madras High Court was
dismissed by the Supreme Court in Public 'Passenger Service Ltd.'s case, AIR
1966 SC 489. Similarview was taken by the Bombay High Court in Karachi Oil
Products Ltd.'s case. There is no quarrel with the proposition laid down in the
aforesaid cases but as no shares are being forfeited, the ratio therein is not
applicable to this case. Section 181, inter alia, provides that notwithstanding
anything contained in the Act, the articles of a company may provide that no
member shall exercise any voting right in respect of any shares registered in
his name on which any calls or other sums presently payable by him have not
been paid. Article 36 of the articles of association had made a provision in
this regard. It reads as follows :
"No
member shall be entitled to vote at any general meeting unless all sums
presently payable by him in respect of shares in the company or otherwise have
been paid."
From
conjoint reading of the section and the article, it is clear that if any sum is
due from a shareholder in respect of a share, he is not entitled to vote at any
general meeting. It consequently follows that the requisitionists who had not
paid the call money in pursuance of the resolution dated November 7, 1981, were
not entitled to vote in the alleged meeting. Even the meeting dated April 21,
1982, cannot be held to be a properly convened meeting. Section 169 deals with
calling of extraordinary general meeting on requisition. Sub-section (4) says
that the number of members entitled to requisition a meeting in regard to any
matter shall be in the case of a company having a share capital, such number of
them as hold at the date of the deposit of the requisition, not less than
one-tenth of such of the paid up capital of the company as at that date carry
the right of voting in regard to that matter. From a reading of the sub-section
it is clear that only those shareholders who have a right of voting can
requisition a meeting. It has already been held that many of the
requisitionists had no right of voting and, therefore, they were not entitled
to requisition the meeting. After taking into consideration all the facts and
circumstances of the case, I am of the opinion that the meeting dated April 21,
1982, was not a valid meeting, that the board of directors represented by Dr.
Vikram Singh is not a validly constituted board and, therefore, the party
represented by Ramesh Inder Singh has no right to defend the present
proceedings on behalf of the company.
Before
parting with the judgment, it may be mentioned that the observations made in
the judgment shall not be taken into consideration at the time of deciding the
civil suit between the parties.
[1972] 42 COMP. CAS. 473 (KER.)
HIGH COURT OF KERALA
v.
E.K. MOIDU, J.
C.R.P. NO. 500 OF 1970
NOVEMBER 2, 1971
V. Rama Shenoi and R. Raya Shenoi for the Petitioner.
K.N. Narayanan Nair, L.K. Chandrasekharan and N. Sudhakaran
for the Respondent.
JUDGMENT
E.K.
Moidu J.—The point that arises for
determination in this civil revision petition is whether the notice issued to a
member of a banking company by sending by post to his registered address or to
the address which was supplied by him to the company for giving notice to him
was not sufficient in the circumstances of the case. One deceased, Thanu
Pillai, was a shareholder of the Bank of Kerala Ltd., which was subsequently
amalgamated with the plaintiff bank which was then the Canara Bank Ltd.
Deceased Thanu Pillai paid the first call of Rs. 500 at the rate of Rs. 50 each
for 10 shares and he was to pay the balance of Rs. 500 in respect of such 10
shares. The balance was not paid. So notices had been sent to him why the
amount of the shares should not be forfeited. One such notice is marked exhibit
P-4 dated July 8, 1964, by which he was called upon to pay the call money on a
specified date and on failure of payment he was informed that the share money
which he had already paid would be liable to be forfeited. There was no reply.
Again another notice was sent on August 20, 1964, exhibit P-5, forfeiting the
share money which he had already paid. The suit was instituted for the balance
amount of Rs. 500 due to the plaintiff bank at the rate of Rs. 50 for 10
shares.
It is
now admitted that Thanu Pillai died in December, 1949. It is contended on
behalf of the respondents, as the legal representatives for Thanu Pillai, that
the forfeiture notice was not valid and that they are not liable to pay any
amount to the bank. It is established that exhibits P-4 and P-5 notices had
been sent to the address of Thanu Pillai, which was the address registered in
the bank’s books as it was the address supplied by him to the bank. If such a
notice was sent the forfeiture passed against Thanu Pillai is valid. Section 53
of the Companies Act, 1956, provides for sending notices of documents.
Sub-section (5) of section 53 reads as follows :
“(5)
A document may be served by the company on the persons entitled to a share in
consequence of the death or insolvency of a member by sending it through the post in
a prepaid letter addressed to them by name, or by the title of representatives
of the deceased, or assignees, of the insolvent, or by any like description, at
the address, if any, in India supplied for the purpose by the persons claiming
to be so entitled, or until such an address has been so supplied, by serving
the document in any manner in which it might have been served if the death or
insolvency had not occurred.”
It is clear from the provisions of the above sub-section
that it is the duty of the legal representatives to furnish their address for a
notice to be sent and if they failed to send the intimation to the company, the
company would serve the document or notice in any manner in which it might have
been served if the death of the member did not take place. The lower court did
not consider the provisions of sub-section (5) of section 53 of the Companies
Act in dealing with the question as to the validity of the notice. In this
case, the evidence of P.W. 1 as well as exhibits P-4 and P-5 established that
notices had been sent to Thanu Pillai to the address which was recorded in the
bank’s books. Such a notice is valid under law. If there was such a notice it
is not open to the respondents to contend that the forfeiture of the payments
already made was not in accordance with law. The forfeiture order passed by the
bank is valid and correct and it cannot be questioned. The notice, in the
circumstances of this case, is sufficient and valid. There is no other
contention in the suit excepting the question as to the validity of the notice.
Having found that the notice is valid, the plaintiff will be entitled to a
decree as prayed for against the assets of deceased Thanu Pillai, if any, in
the hands of the defendants.
In the result, the revision petition is allowed and the
suit is decreed as prayed for against the assets of deceased Thanu Pillai, if
any, in the hands of the defendants. The plaintiff bank is now a nationalised
bank. So the Canara Bank will be entitled to get the decree as prayed for.
[1986] 60 COMP. CAS. 353 (
HIGH COURT OF
v.
Apparels
Exports Promotion Council.
M. K. CHAWLA J.
SUIT NO. 759 OF 1984
FEBRUARY 13, 1985
Arun Kumar and S. K. Kaul for the
Plaintiff.
G. L. Rawal and Sunil Aggarwal for the Defendant.
JUDGMENT
M. K. Chawla J.—The plaintiff, M/s. Maharaja Exports, through its sole
proprietor, Ms. Sushma Gulati, has claimed the following reliefs in her suit
for declaration:
(a) A
decree for declaration declaring that the impugned notice dated April 4, 1984,
issued by the defendant, M/s. Apparels Export Pro motion Council, regarding the
holding of the fourth annual general meeting of the defendant on May 14, 1984,
is illegal, invalid and inoperative and that no annual general meeting can be
held in pursuance thereof ;
(b) declaring
that all the 27 members of the existing executive committee are not entitled to
hold the respective offices in view of the judgment of Hon'ble Mr. Justice S.
S. Chadha referred to above;
(c) declaring
that the 18 members of the executive committee have retired by rotation and are
not entitled to continue in office as members of the executive committee;
(d) declaring
that the 9 members of the executive council whose names are mentioned in the
impugned notice have automatically ceased to be the members of the executive
committee and are not entitled to function as such after May 14/15, 1984 ;
(e) declaring that all the proxy forms
lodged with the council regarding the fourth annual general meeting to be
invalid and illegal particularly those on the forms other than the official
forms ;
(f) declaring the fourth annual general
meeting purportedly held on May 14/16, 1984, in so far as it relates to
election of 9 executive committee members who have retired by rotation to be
illegal and invalid.
In
order to understand the true scope of the plaintiff's suit, it will be relevant
to keep in mind the salient features as given in the plaint. The plaintiff is
carrying on business as manufacturers and exporters of ready-made garments of
which Ms. Sushma Gulati is the sole proprietor; that M/s. Apparel Exports
Promotion Council (hereinafter referred to as "the council") is a
public limited company registered under the provisions of the Companies Act,
1956 (hereinafter to be referred to as "the Act"), as per the
certificate of incorporation issued by the Registrar of Companies, Delhi and
Haryana; that the defendant is also licensed under section 25 of the Act by the
Central Government; that the objects for which the defendant company has been
established are given in the memorandum of association which amongst other
things includes "to promote, advance, increase, develop export, of all
types of ready-made garments excluding woollen knitwear, garments of leather,
jute and hemp, to undertake all export promotion measures including appointment
of representatives, agents or correspondents in foreign markets to conduct
propaganda and publicity" ; that the plaintiff is a member of the
defendant council as provided under article 5(a) of the articles of association
; that the membership of the defendant is about 5,000; that as per the articles
of association of the defendant, the executive committee is to be elected to
manage the affairs of the council; that the executive committee can have
maximum 30 members besides four Government nominated members; that the
membership of the executive committee is on regional basis since the council is
an all India body ; that as per the provisions contained in the articles of
association, one-third of the elected members of the executive committee will
retire by rotation every year and the vacancy so caused shall be filled up
after the annual general meeting every year; that a member of the council is
entitled to be elected as a member of the executive committee ; that the
articles of association of the defendant authorise the defendant to frame rules
and procedure for election to the executive council; that the council framed
certain rules which were, however, challenged by certain members through a suit
filed in this court being Suit No. 873 of 1981 entitled Pramod Chopra v.
Apparels Exports Promotion Council, that the said suit was ultimately decreed
on May 19, 1983, and the impugned rules were declared to be invalid ; that the
appeal against the said single judge's judgment filed by the council also
failed ; that as far as the plaintiff understands, the council has not framed
any rules of procedure for election so far, though they were required to do so
under the amended article 48 of the articles of association.
That
on April 30, 1984, the plaintiff received a notice regarding the fourth annual
general meeting of the defendant to be held on Monday May 14, 1984, at 11 a.m.
at FICCI auditorium, New Delhi, to transact the business incorporated in the
notice ; that though the notice is purportedly dated April 4, 1984, the same is
understood and reasonably believed by the plaintiff to have been posted only on
April 26, 1984. by the defendant to the various members; that this notice is totally
illegal, invalid and mala fide for the grounds mentioned in the plaint; that in
view of these grounds, it is apparent that the fourth annual general meeting
convened through the impugned notice is illegal, invalid and the defendant
cannot be permitted to hold the same. Hence, the present suit.
Along
with this suit the plaintiff also filed an application (I.A. No. 2448 of 1984)
under Order 39, rules 1 and 2, CPC, praying for the issuance of an ad interim
restraint order against the defendant from giving effect to the notice dated
April 4, 1984, which is illegal and void and from holding the annual general
meeting in pursuance thereof.
After
the suit was registered and after hearing the learned counsel for the plaintiff
on the injunction application, S.B. Wad J. passed the following order on May
11, 1984:
"I. A. No. 2448 of 1984 :
It is
stated by the counsel for the plaintiff that no election rules laying the
procedure for the election are framed by the defendant company. The notice for
the annual general meeting purported to be issued on April 4, 1984, is actually
issued on April 26, 1984. Counsel for the plaintiff states that it was received
by the plaintiff on April 30, 1984. The notice was also published in the
Economic Times,
The
plaintiff preferred to serve the defendant with the restraint order only 15
minutes before the start of the annual general meeting. Immediately after the
service of the restraint order, the defendant rushed to the court, filed the
reply to the plaintiff's application and obtained the following order on May
15, 1985:
"Having
heard the counsel for the parties, I find that an order one way or the other
will dispose of the suit itself. The complexity of the matter is such that a
full trial with evidence of both the parties is necessary for the proper
disposal of the suit. However, considering the urgency of the matter, I order
that the suit itself be disposed of expeditiously in the month of July, 1984.
Since all the arrangements for the election are already made and a lot of
expenses have already been incurred, I direct that the election/annual general
meeting shall be held on May 16, 1984, at 2 p.m. However, the result of the
election shall not be declared till the disposal of the suit."
On
the same day, the defendants were further directed to deposit with the Deputy
Registrar (0) the ballot papers, the proxies and other relevant papers relating
to the elections within 2 days after the annual general meeting is held. The
venue of the meeting was also shifted from FICCI auditorium to
"After
hearing counsel for the parties, we are of the opinion that the old arrangement
should continue, but the result of the election shall be declared. The members
declared to have been elected as directors shall not act till the decision is
given by the learned single judge. The learned single judge will hear and
decide the matter on the date fixed by him. We are not expressing any opinion
at this stage since he has not given any decision on the merits of the
controversy.
The
F. A. Os. are disposed of."
Before
the defendant could file the reply, the plaintiff was allowed to amend the
plaint.
In the written statement, the defendant took up a number of preliminary objections, inter alia, alleging that the present suit of the plaintiff is false, frivolous and vexatious and otherwise the same is a misuse of the process of law; that the alleged disputes fall within the purview of the company court jurisdiction and, as such, the suit for declaration is not maintainable; that no suit without consequential relief is maintainable; that no suit can be brought in the name of trading name when the same is a sole proprietorship firm; that the suit is bad for delay and laches. On merits, the defendant admitted the correctness of the various provisions of the articles of association under which one-third of the elected members of the executive committee were to retire at the conclusion of each annual general meeting and the vacancies so caused were to be filled in. The defendant also admitted the filing of the suit by one of the members of the council and the issuance of directions to the defendant for framing of the rules. In compliance with the directions of the Company Law Board and also the observations made in the judgment of this court in Suit No. 873 of 1981, necessary amendments were carried out which ultimately resulted in the dismissal of their appeal. The defendant also admitted the issuance of a notice for holding the fourth annual general meeting on May 14, 1984, at FICCI auditorium but denied the fact that the plaintiff received the notice on April 30, 1984. The notice which was posted on April 26, 1984, was strictly in accordance with the provisions of section 53(2) of the Act and its service must be deemed to have been effected immediately on the expiry of 48 hours from the time of posting. In these circumstances, in law, service on the plaintiff has been effected on April 28, 1984, which gave full 16 days' notice to the plaintiff whereas she was entitled (only) to 14 days' notice. The defendant also denied each and every ground mentioned in paragraph 14 of the plaint which were made the basis for the issuance of notice and holding of the fourth annual general meeting as illegal. The fourth annual general meeting has already been held. The defendant also took up the objection that not only the suit is mala fide but is also bad for delay and laches. The plaintiff has been taking an active interest in the election of the members of the executive committee and has been a party to signing a number of pamphlets in this behalf. Even though the notice was allegedly served on the plaintiff on April 30, 1984, the plaintiff intentionally filed the present suit on May 11, 1984, when May 12 and 13, 1984, were holidays being second Saturday and Sunday. Even after ex parte injunction, the plaintiff intentionally did not serve the notice on the defendant or on any of its officers either on May 11, 12 or 13, 1984, even though the office of the defendant was open for making the arrangements for the holding of the annual general meeting on May 14, 1984. The plaintiff got the service of the notice effected only at about 10.45 a.m. on May 14, 1984, when all the arrangements for the holding of the meeting were complete. Under these circumstances, the plaintiff has not come to the court with clean hands and is not entitled to the discretionary relief on this account also. It was prayed that the suit which is a mala fide one and has been filed with the only motive of stalling the elections deserves dismissal with special costs.
In
the replication, the plaintiff controverted the pleas raised by the defendant
in the written statement and reiterated the facts as stated in the plaint.
On
the pleadings of the parties, the following issues were framed:
1. Whether the defendant was enjoined in law to
frame fresh rules for holding elections of the defendant council after they
were struck down by a judgment of this court?
2. Whether
this court has the jurisdiction to try this suit?
3. Whether fourteen days' notice of the proposed
fourth annual general meeting of the defendant council was not served on the
plaintiff in accordance with law?
4. Whether the defendant was bound to hold
elections to all the 27 posts of executive committee members in view of the
judgment of this court in Suit No. 873 of 1981, when the articles of
association and rules for election of the defendant council were struck down?
In any case, was the defendant enjoined to hold election for at least 18
members of the execucutive committee as the annual general meeting was being
held after two years?
5. Whether the delay in the despatch of the notice
shows mala fides and oblique motives on the part of the defendant council to
secure re-election of the retiring members. If so, to what effect?
6. Whether the list of members as circulated by
the defendant council contained the names of some members from whom certain
sums were still payable to the defendant council and its effect?
7. Whether the suit of the plaintiff is bad for
delay and laches and/or otherwise the conduct of the plaintiff is such as to
disentitle her to any relief in the suit as alleged in paras 13 and 14 of the
written statement?
8. Relief.
Learned
counsel for the parties agreed that the evidence in the case be allowed to be
led by filing affidavits and documents. The plaintiff filed her own affidavit
while the defendants relied upon the affidavit of Shri S. K. C. Mathur,
Secretary of the defendant council. Later on, the learned counsel for the
plaintiff agreed to produce the proprietor of the plaintiff for her
cross-examination by the learned counsel for the defendant. She was
cross-examined on September 20, 1984.
I
have heard the arguments of the learned counsel for the parties and with their
help gone through the record carefully. My findings on the above issues are as
follows :
Issue No. 1 :
The
onus of this issue has rightly been placed on the plaintiff. During the course
of the arguments, the learned counsel for the plaintiff did not press this
issue nor did he address any arguments, nor refer to the various provisions of
the memorandum and articles of association of the defendant firm indicating
that the defendants were enjoined in law to frame fresh rules for holding the
elections to the defendant council after the previous rules were struck down by
the judgment dated May 19, 1983, of this court in Suit No. 873 of 1981 titled
as Pramod Chopra v. Apparels Exports Promotion Council. This issue is,
therefore, decided against the plaintiff.
Issue No. 2 :
The
objection of the defendants is that as the disputes raised in the suit fall
within the purview of the company court jurisdiction, the present suit for
declaration is not maintainable. This objection appears to have been raised
only for the sake of raising an objection. Section 10 of the Companies Act
defines the jurisdiction of the court to entertain suits in such like matters.
The definition of "court" in clause (11) of section 2 and section 10
of the Companies Act, 1956, dealing with jurisdiction of courts read together
enables the shareholders to decide as to which court they should approach for
remedy in respect of a particular matter. This provision does not purport to
invest the company court with the jurisdiction over every matter arising under
the Act. In view of the eloborate provisions contained in the 1956 Act in regard
to management and conduct of a company's affairs, including even important
internal matters of administration, the scope for interference by the civil
court may have become more limited, but the power has not at all been taken
away. It has been rightly observed in a case reported as R. Prakasam v. Sree
Narayana Dharma Paripalana Yogam [1980] 50 Comp Cas 611 (Ker) that except in
cases where the Companies Act, 1956, confers jurisdiction on the company court
or some other authority like the Central Government or the Company Law Board,
either expressly or by implication, all other disputes pertaining to a company
are to be resolved through the forum of civil court when the disputes are kept
on being resolved by them. Where wrong is done to an individual member, he can
insist, by recourse to a civil suit, on "strict observance of the legal
rules, statutory provisions and provisions in the memorandum and articles of
association which cannot be waived by a bare majority of shareholders".
Similar view was taken in a judgment reported as Panipat Woollen and General
Mills Company Ltd. v. P. L. Kaushik [1969] 39 Comp Cas 249 (Punj). While
interpreting the provisions of section 9 of the Code of Civil Proceduce
vis-a-vis the Companies Act, during the course of the judgment, it was observed
as under (headnote).
"Under
section 9 of the Code of Civil Procedure, 1908, civil courts have jurisdiction
to try all suits of a civil nature excepting suits of which their cognizance is
expressly or impliedly barred. Unlike some statutes, the Companies Act does not
contain any express provision barring the jurisdiction of the ordinary civil
courts in matters covered by the provisions of the Act. In certain cases like
winding-up of companies, the jurisdiction of civil courts is impliedly barred.
Where
a person objects to the election of directors and claims a decree for a
declaration that he was one of the directors, there is no provision which bars
the civil court either expressly or by implication from trying such a
suit."
In
the present suit also, besides other reliefs, the plaintiff has sought a
declaration that all the 27 members of the existing executive committee are not
entitled to hold the respective offices in view of the judgment of this court
and further that the 18 members of the executive committee who have retired by
rotation are not entitled to continue in office as members of the executive
committee. The judgment, referred to above, fairly and squarely applies to the
facts of the present case and there is no reason to oust the jurisdiction of
this court to entertain the present suit. Under these circumstances, this issue
is decided in favour of the plaintiff and against the defendants.
Issue No. 3 :
This is the most material issue, the decision of which will
decide the fate of the parties. Before the relevant facts are taken into
consideration as to whether the plaintiff was duly served with a clear 14 days'
notice of the proposed fourth annual general meeting of the defendant council,
the relevant provisions of the Companies Act have to be kept in view. Section
171(1) of the 1956 Act reads as follows :
"A general meeting of the company may be called by
giving not less than 21 days' notice in writing..."
Admittedly, the defendant council falls within the
categories specified in clause (6) of section 25 of the Companies Act. In
exercise of powers conferred by this provision, the Central Government notified
that under section, 171(1) the general body meeting may be called by giving a
notice in writing of not less than 14 days instead of 21 days.
The next relevant provision is section 53(2); It reads as
under :
"Where a document is sent by post,—
(a) service thereof
shall be deemed to be effected by properly addressing, pre-paying and posting a
letter containing the document......
(b) such service shall be deemed to have been
effected—...
(i) in the
case of a notice of a meeting, at the expiration of 48 hours after the letter
containing the same is posted ; and
(ii) in any
other case at the time at which the letter would be delivered in the ordinary
course of post ;
Section
172(3) lays down that the accidental omission to give notice to, or the
non-receipt of notice by, any member or other person, to whom it should be
given shall not invalidate the proceedings at the meeting.
Section
173 requires the company to annex along with the notice the explanatory
statements sought to be considered during the meeting.
It is
not disputed that the date of service of notice of the general meeting and the
date of the meeting have to be excluded while counting 14 days, the period of
notice prescribed under section 171 of the Companies Act. The expression
"not less than 14 days" used in section 171 (as amended by virtue of
the Central Government Notification) normally implies notice of 14 whole or
clear days ; part of the day, after the hour at which the notice is deemed to
have been served, cannot be combined with the part of the day before the time
of the meeting, on the date of the meeting, to form one day. Each of the 14
days must be a full or a calendar day so that the notice can be said to be
"not less than 14 days' notice".
With
this background, let us now revert to the facts as have been brought out in the
pleadings and the documents, to determine if the plaintiffs have been served
with 14 days' clear notice of the annual general meeting of the defendant
company or not. According to the learned counsel for the plaintiff, on April 4,
1984, the meeting of the executive committee of the defendant company was
called to fix the date of the fourth annual general meeting. Before the
convening of this meeting, all the formalities of carrying out the amendments
as directed by the Company Law Board had been complied with. The executive
committee decided to hold the annual general meeting on May 14, 1984, at 11.00
a.m. in the FICCI, Golden Jubilee Auditorium,
According
to the plaintiff, the impugned notice even though dated April 4, 1984, was
posted to the plaintiff and many other members on April 27, 1984. It was
received by the plaintiff on April 30, 1984, as is clear from the postal stamp
affixed on the envelope, exhibit P-8, which was an officially declared holiday
in the area where the plaintiff carried on business. It is also alleged that
April 29, 1984, was a Sunday while May 1, 1984, was again a public holiday and,
therefore, it came to the plaintiff's notice only on May 2, 1984. This notice
did not allow clear 14 days' time before the annual general meeting and, as such, is bad and invalid
and the annual general meeting cannot be held in pursuance thereof. It is also
alleged that even if 48 hours are computed from the date of the despatch of the
notice, then April 29, 1984, being a Sunday has to be excluded and the
plaintiff must be deemed to have been served with notice only on the next date.
The service of the notice, according to the learned counsel, is not a mere
formality and the notice appears to have been posted on April 27, 1984, with a
view to avoid the presence of a large number of persons and deprive them of
their right to vote and to contest the election for the membership of the
executive committee. It is also contended that when a statute enacts that
something shall be deemed to have been done, which in fact and in truth was not
done, the court is entitled and rather bound to ascertain for what purposes and
between what persons the statutory fiction is to be resorted to and full effect
must be given to the statutory fiction and it should be carried to its logical
conclusion. If the purpose of the statutory fiction, mentioned above, is kept
in view, then, according to the learned counsel, it follows, that the purpose
of that fiction would be completely defeated if the defendant company
intentionally and wilfully defaulted in sending the notices on the date which
will deprive most of its members from exercising their statutory duty.
After giving careful consideration to each and every point
urged by the learned counsel for the plaintiff during the course of the
arguments, I do not find any substance in the same. At the outset, it may be
mentioned that in the prayer clause, the plaintiff has not raised any grievance
that she was not given 14 days' clear notice of the holding of the meeting. In
sub-para (a) of paragraph 20 of the prayer clause, a declaration has been
sought that the impugned notice dated April 4, 1984, issued by the defendants
regarding the holding of the fourth annual general meeting of the defendants on
May 14, 1984, is illegal, invalid and inoperative and that no annual general
meeting can be called in pursuance thereof. Exhibit P-2 is the notice of the
holding of the fourth annual general meeting on May 14, 1984, at 11 a.m. at
FICCI Golden Jubilee Auditorium,
(1) To consider
and adopt the audited balance-sheets and the income and expenditure accounts of
the council for the years ended December 31, 1981 and December 31, 1982, along
with reports of the auditors and the executive committee of the council.
(2) To
appoint auditors of the council to hold the office from the conclusion of this
meeting until the conclusion of the next annual general meeting and to fix
their remuneration.
(3) To
appoint members to the
(a) Executive committee in place of
Shri........................who retire by rotation and is eligible for
reappointment....
Admittedly,
this notice complies with all the requirements of section 173 of the Companies
Act. Prima facie this notice cannot be said to be illegal.
On
the second aspect, the facts mentioned in the plaint are to be taken at its
face value. In paragraph 14 of the unamended plaint, the plaintiff alleged that
the impugned notice dated April 4, 1984, was posted only on April 26, 1984, by
the defendant to the various members. However, in the amended plaint, the
plaintiff advanced the date of posting of the notice as on April 27, 1984,
which was received by her on April 30, 1984. Even assuming that the impugned
notice was issued by the defendant company on April 27, 1984, even then, in my
opinion, the company has complied with the provisions of section 171 of the
Companies Act. In this case 48 hours will expire on April 29, 1984. Even if we
exclude the date of the posting of the notice and the date of the receipt of
the notice as per the provisions of clause (b) of sub-section (2) of section 53
of the Companies Act, even then the notice must be presumed to have been served
on the plaintiff 14 days prior to the holding of the meeting. In the
corresponding provision in the 1913 Act, the word implied was "time"
at which the would be deemed to be delivered in the ordinary course of post.
"Ordinary
course of post" in a vast country like ours with many far-places at
inaccessible distance, where the time taken for delivery of letters varied from
place to place induced an element of uncertainty. In order to do away with this
state of affairs and to import certainty to such an important matter, as to the
length of notice of general meetings of companies, legal fiction was pressed
into service, by indicating in the 1950 Act, that the notice shall be deemed to
have been served 48 hours after posting. The words "48 hours" are
meant to make the service certain and to fix the date of service as the date on
which the said 48 hours expired. Under these circumstances, as already observed
earlier, the notice issued on April 27, 1984, will expire on April 29, 1984,
which is well within the phrase "14 days' clear notice".
This
aspect can also be looked into from another angle. Sub-section (3) of section
172 of the Companies Act lays down that even the accidental omission to give
notice to, or the non-receipt of the notice by, any member or other person
shall not invalidate the proceedings at the meeting. The "accidental
omission" means that the omission must be not only not designed but also
not deliberate. This expression implies absence of intention or deliberate
design. The word "or" appearing in this sub-clause is of great
significance. The company has only to prove on record that they have sent the
notice to its members on the addresses furnished by them. The non-receipt of
the notice, under no circumstances, shall invalidate the holding of the meeting
or the proceedings thereof. In this case, it is the admitted case of the
parties that the defendant company did send the notice and it in fact was
received by the plaintiff. Even the non-receipt, as observed earlier, would not
have made any difference.
At
this stage, it will be relevant to mention that the learned counsel for the
plaintiff is mixing up the service of the notice of the holding of the meeting
with the filing of the nomination for the membership of the executive committee
of the defendant company. By virtue of section 257 of the Companies Act, a
person who is not a retiring director shall be eligible for appointment to the
office of director at any general meeting, if he or some other member intending
to propose him has, not less than 14 days before the meeting, left at the
office of the company a notice in writing under his hand signifying his
candidature for the office of director or the intention of such member to
propose him as a candidate for that office. Mere knowledge of the holding of
the meeting is sufficient. The plaintiff has nowhere alleged in the plaint or
in her affidavit that she was not aware of the holding of the fourth annual
general meeting on May 14, 1984. It is also not alleged that the notice of the
meeting was served on her on the night of April 30, 1984, or that she made
efforts in securing the signature of a proposer and that she was not able to
contact them. On the other hand, the defendants have placed on record the
numerous advertisements which have been appearing from time to time, in the
various newspapers and in different parts of the country, intimating the
members, to intimate the change in address, if any, latest by April 12, 1984,
and to clear the annual subscription so that they may be eligible to vote at
the forthcoming annual general meeting of the council. Such notices were issued
from April 5, 1984, till April 15, 1984. The notices for the holding of the
annual general meeting on May 14, 1984, were also advertised in the various
newspapers from April 14, 1984. The defendant council also took care to publish
the list of the nominations which had been received from the members signifying
their candidature for the appointment to the office of the defendants in the
fourth annual general meeting. Furthermore, the plaintiff has been taking an
active part in the affairs of the defendant council, inasmuch as it is a party
to the issuance of posters/pamphlets opposing the candidature of Shri Mohanjit
Singh and his associates as they are alleged to have committed some
malpractices, etc. All these facts go to show that the plaintiff was fully
aware of the holding of the fourth annual general meeting on May 14, 1984, and
was well within time to have filed her nomination, if she was desirous of
contesting the election. It has nothing to do with the notice of the holding of
the meeting which too has been held to have been properly served on the plaintiff.
In
view of these circumstances, is it open to the court to extend the period of 48
hours in order to give more time to the members enabling them to file the
nominations? The simple answer to this query raised by the learned counsel for
the plaintiff is in the negative. The Legislature in its wisdom reduced the
period of 21 days to 14 days by virtue of sub-section (6) of section 25 of the
Companies Act. The Legislature was also aware of the 14 days' notice as
contemplated in section 257 of the Companies Act. It is not desirable for the
courts to say that the period of service of the notice should be reasonable. By
doing this the court will be extending the period which has purposely been
limited to minimise the scope of the mischief which used to be created in the
holding of the annual general meetings. In view of the fact that the plaintiff
was fully aware of the date of the meeting prior to the receipt of the notice,
the plaintiff cannot come forward and throw the blame on the defendant company.
Taking an overall view of the circumstances brought out on record and discussed
earlier, there is no hesitation for this court to hold that the plaintiff was
duly served with 14 days' clear notice of the holding of the fourth annual
general meeting of the defendant council. This issue, therefore, is decided
against the plaintiff.
Issue No. 4 :
In
order to appreciate the scope of this issue, one has only to refer to the
various dates admitted by the parties. On October 29, 1981, the third annual
general meeting was held. On June 12, 1982, notice was issued to the members
for the correction of addresses, etc., so that the fourth annual general
meeting is held within the stipulated period. One of the members filed an
application and obtained the stay of the holding of the annual general meeting
and for taking steps in this direction, from this court on June 28, 1982. This
ad interim stay dated August 25, 1982, was confirmed till the disposal of the
suit. The plaintiff ultimately succeeded in the suit and a decree was passed by
S. S. Chadha J. on May 19, 1983. The respondent company preferred to file an
appeal before a Division Bench. This appeal was admitted on August 8, 1983, but
they refused to vacate the injunction. Being not satisfied with the dismissal
of their miscellaneous application, the defendant company filed a special leave
petition. The order dated May 19, 1983, was stayed by the Hon'ble Supreme Court
but the court made it clear that it would not have any effect on the Central
Government (Company Law Board) if they proposed to take any steps for the
amendment of the rules. Finally, the Company Law Board directed the defendant
company to amend their rules in order to bring them in conformity with the
judgment of S.S. Chadha J. dated May 19, 1983. On January 5, 1984, the
defendant company held an extraordinary general meeting and approved the
amended rules and immediately thereafter sought the approval of the Central
Government. Within thirty days of the Central Government's approval, the rules
were submitted before the Registrar of Companies at
The
contention of the learned counsel for the plaintiff is that the election be now
held for all the 27 posts the holders which were to retire after the holding of
the third annual general meeting in the year 1981, in case the convening of the
fourth annual general meeting is held to be in order. It is not disputed that
the defendant council has on its board 27 elected members and four Government
officials. One-third of such directors have to retire every year by virtue of
the provisions of section 256 of the Companies Act. The plaintiff is not one of
the retiring directors. It may be that by virtue of the judgment of S. S.
Chadha J., the rules of the defendant company were held invalid and they were
directed to amend the same. At this stage, I do not propose to interpret the
judgment of S. S. Chadha J. but the fact remains that it will have prospective
effect. The defendant company cannot be held negligent or blamed for not
holding the annual general meetings. In fact, they were helpless in view of the
circumstances created by the filing of the various suits. As per the order
sheet dated May 15, 1984, during the pendency of the suit, the defendant
council was directed to hold the elections of the executive committee members
on May 16, 1984, at 2 p.m. but the result of the election was not to be
declared. This order was modified by the Division Bench of this court, wherein
the council was directed to declare the result of the election but the members
declared elected were required not to act till the decision of the present
suit. It comes to this that the 9 members of the executive committee have
already been declared elected. It is not denied that the fifth annual general
meeting has already been held except for the election of the executive
committee members because of the order of the Division Bench. Learned counsel
for the defendant states at the Bar that immediately after the decision of this
case, they propose to hold the election of the 9 members for the fifth annual
general meeting in the month of February, 1985, and they will hold the next
annual general meeting and in this way all the 27 members will be declared
elected. For the reasons explained above, I am not inclined to issue any
directions to the defendant council for holding the election for at least 18
members as urged by the learned counsel for the plaintiff because this
direction will not only be a harsh one, but will also create lot of
complications. The law must take its own course. Under no circumstances, the
defendant council can be blamed for not holding the annual general meetings or
electing one-third members. At this stage, I am not inclined to grant this
discretionary relief in favour of the plaintiff. Ordered accordingly.
Issue No. 5 :
Learned
counsel for the plaintiff in support of this issue contended that the defendant
council acted mala fide and with oblique motive to despatch the notices for the
holding of the fourth annual general meeting on a day which will deprive the
members for contesting the election for the membership of the executive
committee of the council. According to him, if the executive committee of the
council had held the meeting on April 4, 1984, and decided to hold the fourth
annual general meeting on May 15, 1984, there was no occasion for them to have
despatched the notices at such a late stage. Their intention obviously is to
keep the people in dark about the holding of the annual general meeting and
deprive the eligible members to contest the election.
Prima
facie none of these arguments has any substance. To start with, the plaintiff
unfortunately has not named the officer of the defendant company or the office bearers
who could be said to be in league for not despatching the notices within
reasonable time. Mala fides have to be alleged against some person. The
defendant in this case is the council. The particulars about the fraud or mala
fides or motive are missing. The general allegations of mala fides/motive,
however strong the words in which they are stated may be, if unaccompanied by
particulars, are insufficient to amount to an averment of the fraud or mala
fides or motive of which any court can take notice. Even otherwise, as observed
earlier, section 53(2) of the Companies Act gives the right to the defendant
council to serve the members with the notice of the meeting at the expiration
of 48 hours after the letter containing the same is posted. This legal obligation
has been duly complied with by the defendant council. Furthermore, as already
discussed earlier, the council started issuing notices by citations in the
various newspapers throughout
Issue No. 6:
Learned
counsel for the plaintiff has not pressed this issue and the same is hereby
decided against the plaintiff.
Issue No. 7 :
It is
the case of the defendant that the plaintiff even after having been duly served
with the notice giving her clear 14 days, preferred to file the present suit on
May 11, 1984, when May 12, 13, 1984, were holidays for the courts, being Second
Saturday and Sunday. After having obtained the ad interim injunction on May 11,
1984, the same was not got served intentionally immediately thereafter. The
defendants made all arrangements for the holding of the annual general meeting
on May 14, 1984. Many members have reached
Learned
counsel for the plaintiff, on the other hand, submits that May 11, 1984, was a
Friday and 12th and 13th being holidays, the plaintiff had no other option but
to serve the defendant with the ad interim order on May 14, 1984, which she did
in the early hours of the next working day.
The
defendant cannot impute motive or hold the plaintiff responsible for the delay
or laches in the filing of the present suit.
On a
consideration of the material on record, in my opinion, the defendant has
something to say on this aspect. As already observed, the plaintiff not only
was served with a notice of the holding of the annual general meeting but she
was also aware of the annual general meeting from other sources, including that
of publication in the various newspapers. In her cross-examination, she had
also admitted that by writing the letter, exhibit D-1, that Shri Mohanjit Singh
had betrayed their association (GEA), she meant to say that Mohanjit Singh had
betrayed the association by his entering into an agreement with another
association of garment exporters, other than the defendant council. She has
also been participating in the affairs of defendant No. 1 council by issuing
pamphlets and taking up the cause of the members of the council. If she had any
grievance, the cause of action had arisen immediately after the service of the
notice of the holding of the annual general meeting. There was no reason for
her to have delayed the action and disturb the annual general meeting at the
last moment thereby causing inconvenience not only to the defendant council but
also to the various members who had reached
Relief:
As a
result of the above discussion, I see no force in the suit and the same is
hereby dismissed with costs.
[1988] 63 Comp. Cas. 310 (Bom)
High Court OF
v.
Sardar Zorawarsingh Hushnak Singh
Anand
TATED, J.
APPEAL FROM ORDER NO. 820 OF 1987 WITH CIVIL
APPLICATION NO. 5212 OF 1987.
SEPTEMBER 19, 1987
Ajit P. Shah and Amrit R. Kini for the
Appellant.
P.K.
Pandit, Mrs. S.I. Jayakar and G.K. Masand for Respondent.
Tated,
J.—Respondent No. 1 filed Short Cause Suit
No. 6738 of 1987 in the Bombay City Civil Court, Bombay, against respondent No.
2 and the appellant for a declaration that the requisition contained in the
letter dated July 27, 1987, being exhibit A-1, is not a valid and lawful
requisition for calling an extraordinary general body meeting and as such it is
not capable of being acted upon and that the appellant-defendant No. 2 either
for himself or on behalf of the requisitionists is not entitled to convene a
meeting of respondent No. 2, defendant No. 1, in pursuance of the said
requisition dated July 27, 1987. Respondent No. 1 also sought a permanent
injunction restraining the appellant-defendant No. 2 and other requisitionists
from convening the extraordinary general body meeting. He took out a notice of
motion for an injunction restraining defendant No. 2 from holding the meeting
pending the decision of the suit. The trial court, after allowing the parties
to file their affidavits in support and in rebuttal, by its order dated
September 17, 1987, granted an interim injunction in terms of prayer (a) of the
notice of motion. Feeling aggrieved, defendant No. 2 preferred this appeal and
also filed civil application for stay of the order passed by the trial court
pending the hearing of this appeal.
Appellant-defendant
No. 2 has not filed either a certified copy or even an ordinary copy of the judgment
and order of the trial court. Learned counsel for the appellant submitted
before me that though the appellant applied for a certified copy, he has not
received it. According to him, the oral judgment and order passed by the
learned trial judge is yet to be transcribed by the stenographer and as such
even an ordinary copy of the same could not be produced. He submits that the
matter being of very vital importance to the appellant, as the learned trial
judge by the judgment and order under appeal prohibited the appellant from
holding the extraordinary general body meeting convened for September 21, 1987,
at 3.30 p.m., I should hear him and after hearing him, if I am not satisfied
that the judgment and order passed by the learned trial judge is prima facie
wrong and there is a case for staying the interim injunction order, the appeal
and the civil application both may be rejected, as no purpose is likely to be
served by keeping the appeal pending when the appellant cannot hold the meeting
convened on September 21, 1987. Counsel for the respondents-plaintiff and
defendant No. 1 also agree that the matter may be heard.
I
have heard learned counsel for the appellant-defendant No. 2 at length. He has
covered all the points that were raised by respondent No. 1-plaintiff for not
holding the extraordinary general body meeting. I may briefly indicate the
points dealt with by learned counsel before me. He submitted that the plaintiff
objected to the convening of the meeting on the following grounds :
(1) One of the persons who has signed
the requisition for the meeting is not a member of respondent No. 2-defendant
No. 1-association.
(2) There was no explanatory note
required under section 173 of the Companies Act, 1956 (hereinafter referred to
as "the Act"), and as such the requisition was invalid.
(3) The venue of the meeting was
deliberately fixed at a far off place in
(4) Subject No. 3 in the requisition
regarding constitution of an ad hoc committee was not as per the Act or the
bye-laws of respondent No. 2- defendant No. 1-association.
(5) The
notice for requisitioning the meeting was signed by only one of the
requisitionists.
(6) It was not made clear in the notice
whether voting could be by proxy.
(7) Some of
the notices have been posted on August 31, 1987, and some on September 1, 1987,
and, therefore, some of the members of respondent No. 2-defendant No. 1-association
could not have clear notice of 21 days.
Learned counsel for the appellant-defendant No. 2 submitted
that in case I was not with him on the last point, I may not deal with the
other points involved in the matter, though he argued all the points. I am not
with learned counsel for the appellant that there has been clear 21 days'
notice as provided in the bye-laws of respondent No. 2-defendant No.
1-association. The respondents-plaintiff and defendant No. 1 have produced
before me some of the envelopes containing notices received by 16 members of
defendant No. 1-association. On those envelopes, there are postal date stamps
of August 31, and September 1, 1987. Learned counsel referred to section
53(2)(a) and (b)(i) of the Act. It reads thus :
"53. (2) Where a document is sent by post,—
(a) service thereof
shall be deemed to be effected by properly addressing, prepaying and posting a
letter containing the document, provided that where a member has intimated to
the company in advance that documents should be sent to him under a certificate
of posting or by registered post with or without acknowledgment due and has
deposited with the company a sum sufficient to defray the expenses of doing so,
service of the document shall not be deemed to be effected unless it is sent in
the manner intimated by the member ; and
(b) such service shall be deemed to have been
effected—
(i) in the
case of a notice of a meeting, at the expiration of forty-eight hours after the
letter containing the same is posted."
The notices posted on August 31, 1987, and September 1, 1987, will have to be deemed to have been received as per the provisions contained in section 53(2)(b)(i) of the Act after 48 hours from the day of posting, that is, on 2nd and 3rd respectively of September, 1987. As the meeting is to be held on September 21, 1987, the notices posted on August 31, 1987, and September 1, 1987, cannot be held to be 21 days' clear notice to the members of defendant No. 1-association. Learned counsel for the appellant contends that the appellant had delivered the notices by hand on August 27, 1987, and by way of abundant caution, he sent the notices also by post under certificates of posting on August 29, 1987. The total membership of defendant No. 1-association is 484. He produced before me the posting certificates in respect of 42 letters and they have been as per the certificates of posting posted on August 20, 1987. He has not produced before me the certificates of posting in respect of other members of defendant No. 1-association. Learned counsel for the respondent-plaintiff and defendant No. 1-association produced before me packets addressed and posted to the members of defendant No. 1-association by the appellant-defendant No. 2. Twelve packets bear the postal date stamp of August 31, and four bear the postal date stamp of September 1, 1987. After giving the margin of 48 hours as per the provisions of section 53(2)(b)(i) of the Act, they must be deemed to have been received by the members on September 2, and 3, 1987. Therefore, it is clear that those members have not received 21 days' clear notice of the extraordinary general body meeting to be held on September 21, 1987. The appellant has not obtained any acknowledgment for hand delivery of the notices, and, therefore, it is difficult to accept that all the members of defendant No. 1-association were given notices by hand delivery by defendant No. 2. Some of the notices which have been produced by counsel for the respondents-plaintiff and defendant No. 1 clearly indicate that they have not been posted on August 29/30, 1987, so as to reach the addressees with a clear margin of 21 days.
In
the result, I find that the appellant-defendant No. 2 has not made out a prima
facie case so as to interfere with the impugned order of the learned trial
judge.
In
the circumstances set out above, the appeal and the civil application are
dismissed.
[1996] 86
COMP CAS 842 (P&H)
HIGH COURT OF PUNJAB AND HARYANA
Bhankerpur Simbhaoli Beverages (P.) Ltd.
v.
Sarabhjit Singh
V.K. JHANJI
J.
C.R. NO. 1109
OF 1994.
FEBRUARY 14,
1995
G. Ramaswamy, M.L. Sarin and Ms. Alka for the Petitioners.
Dr. A.M. Singhvi, Harbhagwan Singh, S. Mitra, P.K. Bansal, Arun Bansal,
Arun Monga and B.S. Jandu for the Respondents.
V.K. Jhanji J.—This
shall dispose of Civil Revision No. 1109 of 1994 and also application under
Order 39, rules 1 and 2 read with section 151 of the Code of Civil Procedure,
1908, praying for ad interim injunction against the defendants in Civil Suit
No. 460 of 1994 titled as Bhankerpur Simbhaoli Beverages Pvt. Ltd, v. Utpal
Kumar Ganguly, pending in the court of the Additional Senior Sub-Judge,
Rajpura. Civil Revision No. 1109 of 1994 has been directed against the ad
interim order dated March 18, 1994, passed by Sh. G.S. Khurana, Additional
District Judge,
Initially, Civil Revision No. 1109 of 1994 directed against the order
of the Additional District Judge,
The facts are taken from Civil Suit No. 460 of 1994 at Rajpura, titled
as Bhankerpur Simbhaoli Beverages Pvt. Ltd. v. Utpal Kumar Ganguly.
The suit at Rajpura has been filed by Bhankerpur Simbhaoli Beverages
Pvt. Ltd. (B.S.B. in short) through Sh. Sarabhjit Singh, stated to be managing
director and ex-factory manager of B.S.B. The suit is for declaration with the
prayer that extraordinary general meeting (E.G.M. for short) of B.S.B. pursuant
to the alleged notice dated January 3, 1994, or January 27, 1994, was not held
at 4, Community Centre, Lawrence Road, Industrial Area, New Delhi, or at any
other place ; that resolutions alleged to have been passed at the said
extraordinary general meeting on February 22, 1994, as claimed by defendants
Nos. 1 to 9 are non-existent, fictitious and are of no effect; that resolution
purported to be passed at the extraordinary general meeting of B.S.B. allegedly
held on February 22, 1994, even if actually held, are illegal and void and are
of no effect. A perpetual injunction is being sought to restrain defendants
Nos. 1 to 10 or any of them or servants and agents from giving effect to or
relying upon or touching within furtherance of the alleged resolution dated
February 22, 1994, allegedly passed at the said impugned extraordinary general
meeting of B.S.B. allegedly held on February 22, 1994, and further restraining
defendants Nos. 1 to 9 from acting or holding themselves out as directors of
B.S.B. in reliance upon the resolutions purported to be passed in the alleged
extraordinary general meeting and further restraining defendants Nos. 1 to 10
from interfering with or obstructing or disputing the acting of defendants Nos.
10 and 16 to 25 as directors of B.S.B. It has been averred in the plaint that
B.S.B. is a company incorporated under the provisions of the Companies Act,
1956 (in short, the Companies Act), and has its registered office at Bhankerpur
Simbhaoli Beverages Pvt. Ltd., Bhankerpur, Dera Bassi, District Patiala,
Punjab. The main objects of the company, i.e., B.S.B., are to carry on the
business of brewers, distillers, bottlers, wine manufacturers and to prepare,
buy, store, sell, distill, manufacture, redistill and deal in all kinds of
beers, wine, liquors, etc. B.S.B. was earlier owned by Simbhaoli Industries Pvt.
Ltd. (S.I.L. in short). The shareholding position of B.S.B. immediately before
the takeover of the same by S.I.L. was as under :
|
"1. |
Mr. S.
Sandhu |
: |
10 equity
shares of Rs. 10 each. |
|
|
2. |
Mr. Gurpal
Singh |
: |
10 equity
shares of Rs. 10 each. |
|
|
3. |
Mr. G.S.
Mann |
: |
10 equity
shares of Rs. 10 each. |
|
|
4. |
Mr. J.S.
Mann |
: |
10 equity
shares of Rs. 10 each. |
|
|
5. |
Simbhaoli
Industries Pvt. Ltd. |
: |
5,50,000 |
-do.- |
|
|
Total |
|
5,50,040" |
|
The management of the Shaw Wallace group of companies entered into
negotiation with S.I.L. and it was agreed that the entire issued equity shares
amounting to 5,50,000 as held by S.I.L. would be taken over by a subsidiary
company of Shaw Wallace and Company (in short, the SWC) under the control of
the Shaw Wallace group at the face value aggregating to Rs. 55 lakhs. The
management of the Shaw Wallace group selected one Budgam Finance and Investment
Co. Pvt. Limited (in short, Budgam) for the said takeover of the shares. The
said Budgam had no funds to pay the price of the said shares as the paid-up
issued share capital of the Budgam was only Rs. 100 and the said company was
having only a nominal amount in its bank account. One SICA Breweries Private
Limited advanced an amount totalling Rs. 60,50,000 as inter-corporate deposit
to Budgam. It was from this amount that Budgam acquired its 5,50,000 shares
from S.I.L. After the acquisition of shares by Budgam from S.I.L., the
following was the shareholding position of B.S.B. :
|
"1. |
Mr.P.S.
Sandhu |
: |
10 equity
shares of Rs. 10 each. |
|
|
2. |
Mr. Gurpal
Singh |
: |
10 equity
shares of Rs. 10 each. |
|
|
3. |
Mr. G.S.
Mann |
: |
10 equity
shares of Rs. 10 each. |
|
|
4. |
Mr. J.S.
Mann |
: |
10 equity shares
of Rs. 10 each. |
|
|
5. |
Mr. P.R.
Pandya |
|
10 equity
shares of Rs. 10 each. |
|
|
6. |
Budgam
Finance and Investment Co. |
: |
5,50,000 |
-do.- |
|
|
Total |
|
5,50,050" |
|
Ten equity shares of Rs. 10 each were allotted to one P.R. Pandya after
the takeover of shares by Budgam. It has further been stated that Mr. P.S.
Sandhu has since expired and is not a shareholder any more. It is further
averred that as per the articles of association of B.S.B., there has to be a
minimum of two directors and the maximum limit of directors has been fixed at
11 which can be changed. The first directors of the company were S/Sh. Pritam
Singh Sandhu, Gurmeet Singh Mann, Jagraj Singh Mann and Gurpal Singh. However,
after acquiring B.S.B., S.W.C. nominated its employees on the board of
directors of B.S.B. Seven additional directors namely S/Sh. Y.P. Sud, T.K.
Ramaswamy, M.G. Ramachandran, Madan Mohan Suri, R. Ganesan, A. Roy Chowdhury
and S.N. Pandey were appointed on July 8, 1989. The original four directors of
the B.S.B. namely S/Sh. Pritam Singh Sandhu, Gurmeet Singh Mann, Jagraj Singh
Mann and Gurpal Singh ceased to be the directors with effect from June 27,
1990. It is further averred that presently, the lawfully constituted board of
directors of B.S.B. are S/Sh. Sarabhjit Singh, managing director, P.R. Pandya,
director (secretary, SKOL Breweries Ltd.—a subsidiary of SWC), A.S. Chatterjee,
director (manager, SWC), A. Sadasivam, director, (asst. vice-president, SWC),
V. Jayaraman, director (general manager, Cruickshank and Co.—A subsidiary of
S.W.C), Srijit Mullick, director (manager, SWC), M.M. Gupta, director (general
manager, SWC), T.K. Ravishanker, director (general manager, SWC), A. Sabharwal,
director (general manager, SWC), Rajiv K. Viz, director (deputy general
manager, SWC) and Harsh Wardhan Sen, director (vice-president, SWC). It has
been alleged that B.S.B. is/has been under the supervision and control of SWC
as the whole of the board of directors consists of employees of SWC.
The written statement has been filed on behalf of defendant No. 8,
namely, Arun Kumar Jain and by defendant No. 15 purported to be on behalf of
Budgam. Arun Kumar Jain in his written statement has taken exception to the
filing of the suit by Sarbjit Singh, alleging to be the managing director of
B.S.B. It has been alleged in the written statement that he has no right,
title, interest, authority or competency to institute the suit, and the name of
the said company shown as the plaintiff is illegal, unauthorised, wholly
without jurisdiction and without authority. It has further been stated that the
company, i.e., B.S.B., is wholly owned and controlled by Budgam having its
registered office in
One S.S. Sanyal, purporting to be director of Budgam, has filed a
written statement on behalf of defendant No. 15 which contains almost the
identical averments as in the written statement filed by Arun Kumar Jain.
The plaintiff, B.S.B., has filed replication to the written statements
filed by Arun Kumar Jain, defendant No. 8 and defendant No. 15 wherein the plaintiff
has denied the averments made in the written statements and has reiterated the
stand taken by it in the plaint. The pleadings in Civil Suit No. 33 of 1994 out
of which Civil Revision No. 1109 of 1994 has arisen are not necessary to be
mentioned because the plaint and the written statements filed in Civil Suit No.
460 of 1994 cover the controversy raised in Civil Suit No. 33 of 1994.
From a perusal of the pleadings of the parties, it is evident that
S/Sh. P.S. Sandhu, Gurpal Singh, G.S. Mann, J.S. Mann and P.R. Pandya hold 10
shares of Rs. 10 each, whereas Budgam holds 5,50,000 equity shares of Rs. 10
each. The total shareholding of the company is 5,50,050 shares of Rs. 10 each.
P.S. Sandhu has since expired and on the date when the extraordinary general
meeting is alleged to have been held, only five shareholders were in existence
which includes Budgam. It may also be noticed at this stage that as to who owns
Budgam, is a matter pending before the Additional District Judge,
"(1) The appellants shall
file written statement in the suit before the trial court before March 5, 1993.
The suit shall be taken up by the trial court, along with the application for
temporary injunction on March 5, 1993, irrespective of any date earlier fixed
by him. Objections to the application for temporary injunction shall also be
filed by the appellants before March 5, 1993.
(2) Uninfluenced by the order
dated January 20, 1993, in any manner whatsoever and totally uninfluenced by
any observations or comments, made by this court in this order, the trial court
shall reconsider the question of grant or otherwise of the temporary injunction
in its entirety after perusing the pleadings on the file, the documents and
after hearing the parties in all respects. The trial court shall not postpone
the proceedings in the matter of consideration of the temporary injunction by
more than a day till the order is ultimately passed. The order dated January
20, 1993, impugned in this appeal is modified and altered to the following
extent :
(i) The plaintiffs in the
suit, like the defendants in the impugned order are also restrained from
alienating, selling, altering, transferring or encumbering in any manner, any
assets, investment or property of the plaintiff's company.
(ii) The plaintiffs shall
not take or execute any policy decision and if the plaintiff company has to
exercise any voting right in other company, this right shall be exercised
provisionally only and shall remain subject to the orders to be passed
ultimately.
(iii) The operative part of
the impugned order as also the arrangements made hereinabove shall immediately
come to an end on the passing of fresh order by the trial court."
The issue as to who is the true owner of Budgam, is pending and hotly
disputed before the Jammu and Kashmir court and does not call for consideration
in the present proceedings. During the course of arguments of Dr. A.M. Singhvi,
senior advocate, who argued on behalf of the plaintiffs in Civil Suit No. 460
of 1994 and contesting the respondents in Civil Revision No. 1109 of 1994 and Mr.
G. Ramaswami, senior advocate, who argued on behalf of the contesting the
defendants in Civil Suit No. 460 of 1994 and on behalf of the petitioners in
Civil Revision No. 1104 of 1994, it was repeatedly clarified that no enquiry
could be contemplated or conducted in the present proceedings to enquire as to
who is the true owner of Budgam. In these proceedings, it was also fairly
admitted by Mr. G. Ramaswami, senior advocate, that at no time prior to
February 22, 1994, did the contesting defendants in the Rajpura suit come to
control, run or manage the B.S.B. Mr. Ramaswami has accepted that the
management, control and operation of B.S.B. at all times prior to February 22,
1994, was in the hands of the plaintiffs, i.e., S.W.C. employees. The sole
issue raised in this case is prima facie the holding of the meeting on February
22, 1994, or its legal validity. It was also agreed that in case this court
finds that in fact the valid extraordinary general meeting was held on February
22, 1994, then the plaintiffs in Civil Suit No. 460 of 1994 would not be
entitled to any injunction, but in turn the contesting respondents, i.e., the
plaintiffs in Civil Suit No. 33 of 1994 pending before the Senior Sub-Judge,
Patiala, shall be entitled to the injunction.
It may also be mentioned at this stage that on April 18, 1994, the
defendants in Civil Suit No. 33 of 1994 approached the Jammu and Kashmir High
Court in a contempt petition, alleging that the convening of the extraordinary
general meeting on February 22, 1994, was a violation of the order of Mr.
Justice V.K. Gupta, dated February 22, 1993. The
"5. On a consideration of the matter, it appears to us that if the
respondents were aggrieved by the convening of the extraordinary general
meeting of Bhankerpur and the subsequent resolution dated February 22, 1994,
they ought to have had recourse to appropriately constituted, substantive
proceedings to assail their validity and not invoke the contempt jurisdiction.
It is a moot question whether that part in para 2(ii) of the earlier order,
whose violation was complained of in contempt, merely constituted terms of
agreement between the parties or whether there was, in addition, the imprimatur
of the court placed on it and, whether it was a 'direction' or only an
'observation' of the court. In view of the latter part of para 2(ii) of the earlier
order dated February 22, 1993, the subsequent convening and holding of the
extraordinary general meeting of Bhankerpur and the resolution dated February
22, 1994, cannot be said to be a willful disobedience of the said earlier
order.
6. We, accordingly, set aside the order dated April 18, 1994, of the
High Court of Jammu and Kashmir in CMP(COA) No. 139 of 1994. We also dismiss
the contempt proceedings."
Pursuant to the order of the Supreme Court, Civil Suit No. 460 of 1994
has been filed.
Dr. A.M. Singhvi, senior advocate, has contended that no extraordinary
general meeting of B.S:B. was held on February 22, 1994, and :he minutes, if
any, and notices alleged to have been sent under certificate of posting have
been manipulated by the defendants. In the alternative, he has contended that
the meeting, if any, held was illegal and was in violation of the
The plaintiffs as well as the defendants have filed on record numerous
documents in order to prove or disprove the factual existence of the
extraordinary general meeting alleged to have been held on February 22, 1994.
Thus, the first question which arises for consideration is with regard to the
factual existence of the holding of the extraordinary general meeting on
February 22, 1994, at
One man could not hold a meeting within the meaning of the Companies
Act.
According to The Law Lexicon, 1989 edition, "in the second case,
East v. Bennett Bros. Ltd. [1911] 1 Ch. 163, Warrington J. following Sharp v.
Dawes [1876] 2 QBD 26 (CA) and also the decision of Jessel M.R. in Sanitary
Carbon Co., In re [1877] WN 223, observed that in an ordinary case it was quite
clear that a meeting must consist of more than one person, Awadhoot v. State of
Maharashtra, AIR 1978 Bom 28 at 39, 40 ; [1977] Mah L.J. 689." In C.A.
Lyon v. S.W. Oppenheim [1970] 1 Comp LJ (Ch D) edition, appointment of himself
as liquidator at a meeting consisting of only one shareholder present was
declared as nullity because when he proposed himself as liquidator, the other shareholders
had left the meeting and from that moment, only one shareholder was present.
In State of Kerala v. West Coast Planters Agencies Ltd. [1958] 28 Comp
Cas 13 ; AIR 1958 Ker 41, the meaning of the word "meeting" has been
described thus (headnote of AIR 1958 Ker 41) :
"The common sense view is that for a meeting there must be at
least two persons. This common sense view is also the true view in law.
According to the ordinary use of the English language, a meeting can no more be
held by one person than it can be by none : [1876] 2 QBD 26 and [1911] 1 Ch
163, relied on."
The minutes of the extraordinary general meeting of the shareholders of
B.S.B. alleged to have been held on Tuesday, February 22, 1994, at 10 a.m. at
No. 4, Community Centre, Lawrence Road, Industrial Area, New Delhi, have been
placed on record. A reading of the said minutes reveals that only three persons
were present in the meeting, namely, T.K. Ramaswamy who has been described as
director, B.S.B. ; Mr. Shalendra Sharma who has been described as authorised
representative of Budgam, and Gurpal Singh, as member. The minutes of the
meeting further show that T.K. Ramaswamy was elected chairman of the meeting
and thereafter, the chairman declared the meeting open. Notice dated January
27, 1994, alleged to have been served by Budgam, convening of the extraordinary
general meeting of the shareholders of B.S.B. was tabled and read. Notice dated
January 3, 1994, was also tabled and read. Thereafter, in the meeting, special
business of removal of directors and appointment of directors was allegedly
taken up and resolutions to that effect were passed. The minutes of the meeting
appear to have been signed by T.K. Ramaswamy, chairman.
A reading of the minutes shows that out of the shareholders who hold 10
shares of Rs. 10 each, only one shareholder, namely, Gurpal Singh was present
and Shalendra Sharma, alleged authorised representative of Budgam, second
shareholder, was present. On the record, there is a letter of Gurpal Singh
dated April 7, 1994, whereby he had informed the board of directors of B.S.B.
that he neither received notice regarding convening of the extraordinary
general meeting of B.S.B., nor did he attend any such meeting purported to have
been held on February 22, 1994, at New Delhi, either in person or by proxy. He
has also mentioned that the question of his father, P.S. Sandhu, attending the
meeting does not arise as he had expired last year. Gurpal Singh has also filed
an affidavit dated July 27, 1994, in Civil Suit No. 460 of 1994 in which he has
affirmed and sworn that he never attended any meeting, nor received notice of
convening of the extraordinary general meeting alleged to have been held on
February 22, 1994, at
If the contents of letter dated April 7, 1994, and affidavit dated July
27, 1994, are accepted, the extraordinary general meeting allegedly held on
February 22, 1994, has to be declared as invalid for the reason that only one
shareholder, namely, Shalender Sharma, representing Budgam, was present. Mr. G.
Ramaswami, counsel for the defendants, has submitted that at the relevant time,
Gurpal Singh not only attended the meeting, but was supporting the defendants.
He is now seeking to get out of the same under the pressure of the plaintiffs.
Mr. Ramaswami on the basis of presumption to be drawn under section 195 of the
Companies Act, as also on the basis of notice dated January 3, 1994, served by
Budgam on B.S.B. and to all those directors sought to be removed, certificate
of posting of letters dated January 3, 1994, notice dated January 27, 1994,
served by Budgam on the other shareholders of B.S.B., certificate of proof of
posting of letter dated January 27, 1994, copy of Form No. 32, dated February
22, 1994, filed with the Registrar of Companies, Jalandhar, minutes of the
extraordinary general meeting of B.S.B., affidavit of T.K. Ramaswamy and
affidavit of Shalendra Sharma, authorised by Budgam to vote and represent at
the said extraordinary general meeting, has contended that this court should hold
that a valid extraordinary general meeting was held and the board of directors
were reconstituted. The course suggested by Mr. Ramaswami cannot be accepted
for the reason that suspicious circumstances as pointed out by Dr. A.M.
Singhvi, senior advocate, are so many and their consideration gives rise to an
inference that the meeting was not held. The following are the suspicious
circumstances :
(i) Apart from
certificate of posting—no evidence has been brought on record to show that
notice of the extraordinary general meeting was served on Gurpal Singh or any
other shareholder ;
(ii) No signature of
Gurpal Singh are claimed to have obtained in any attendance register or any
attendance slip or even by way of initials or in the so-called minutes book ;
(iii) Defendants in para 7 of their
replication in Civil Suit No. 33 of 1994 have stated to the following :
"The plaintiffs reaffirm and reiterate that an extraordinary
general meeting of the first plaintiff was held after compliance of all the
provisions of the Companies Act, and the defendants who have no interest and/or
can possibly claim no interest in the first plaintiff are making feeble
attempts to attack the validity of the said meeting. The plaintiffs crave
reference to the minutes book, attendance register and the other statutory
records of the first plaintiff to unequivocally demonstrate the veracity of the
stand of the plaintiffs." (emphasis
supplied). Having averred that the attendance register was maintained, no
attendance register has been placed on record ; rather during the course of
hearing of the matter, it was fairly conceded by counsel for the defendants
that in fact there exists no attendance register.
(iv) Budgam had allegedly issued notice
dated January 3, 1994, to the directors sought to be removed and notice dated
January 27, 1994, to other shareholders for convening of extraordinary general
meeting, but no mention of these notices calling for the extraordinary general
meeting was made by Arun Kumar Jain in his application dated February 21, 1994,
which he had filed before the Sub-Divisional Magistrate, Rajpura, under section
145 of the Criminal Procedure Code, 1973. In his application under section 145
of the Criminal Procedure Code, 1973, he has given the history of the
litigation between the parties, but has conveniently not mentioned in regard to
the meeting which had already been convened for February 22, 1994.
(v) Arun
Kumar Jain filed Civil Suit No. 154 of 1994, on February 21, 1994, at Rajpura,
praying for a declaration that he is a director and shall not be removed from
the board of directors except in due course of law. If the extraordinary
general meeting had already been convened for February 22, 1994, then where was
the apprehension. In this suit, he had also prayed for ad interim injunction,
but the same was not granted.
(vi) Again
on February 22, 1994 itself, another suit, namely, Civil Suit No. 158 was filed
at Rajpura, seeking permanent injunction, restraining the defendants therein
(plaintiffs in Civil Suit No. 460 of 1994) from interfering in any manner in
the affairs and management of the company. A reading of the plaint, Civil Suit
No. 154 of 1994 reveals that no mention with regard to the extraordinary
general meeting has been made. In this suit, relief of temporary injunction was
sought for, but was not allowed. Later on, the suit was withdrawn after the
filing of Civil Suit No. 33 of 1994 at
It be noticed that in Company Petition No. 29 of 1993 before the
Company Law Board, apart from other reliefs, the defendants had sought the
relief of convening of the extraordinary general meeting and to restrain the
respondents therein to act as directors and also from interfering in the affairs
and management of the company. In this petition, they had prayed for interim
relief, but the interim relief was not granted. One of the interim reliefs
sought in the company petition was convening of the extraordinary general
meeting. It appears that having failed to obtain that relief from the Company
Law Board, the records have been manipulated by the defendants to show that the
extraordinary general meeting was held on February 22, 1994. It may also be
noticed at this stage that the Company Petition No. 29 of 1993 was filed with
the specific averment that "the remaining 5 shareholders who holds 10
shares each in the first respondent-company have started acting according to
the whims and fancies of SWC and MRC and consequently prejudicial to the interest
of the petitioners who undisputedly hold 99.99 per cent. paid-up equity capital
of the first respondent-company". The stand of the respondents thus
clearly was that all the shareholders of B.S.B. except Budgam were colluding
with the S.W.C. group. The stand now taken that Gurpal Singh had come to attend
the meeting, seems to be improbable. Moreover, having made the averment that
the remaining five shareholders including Gurpal Singh were colluding with the
S.W.C. group, the simplest thing for the defendants to have done would have
been to take signatures of Gurpal Singh on the requisition notice or on the
attendance register. The contention of Mr. Ramaswami is that the modes provided
under section 53 of the Companies Act for serving of notice or documents by the
company are either by way of certificate of posting or by registered post, with
or without acknowledgment due and in this case, the requisitionists having sent
the notice under certificates of posting, the presumption in law is required to
be drawn. According to him, once a certificate of posting has been placed on
record, the court has to presume valid service of notice. It is true that under
section 53 of the Companies Act, the only modes for the service of
documents/notices are the one as suggested by Mr. Ramaswami, but the
presumption to be drawn under section 53 of the Companies Act is not absolute,
but. rebuttable. The court, on the facts and circumstances of a case, may
refuse to draw a presumption. In L.M.S. Ummu Saleema v. B.B. Gujral, AIR 1981
SC 1191 ; [1983] 53 Comp Cas 312 in the context of certificates of posting and
drawing of presumption under sections 16 and 114 of the Evidence Act, the
Supreme Court opined that (at page 318) :
"The certificate of posting might lead to a presumption that a
letter addressed to the Assistant Collector of Customs was posted on August 14,
1980, and in due course reached the addressee. But, that is only a permissible
and not an inevitable presumption. Neither section 16 nor section 114 of the
Evidence Act compels the court to draw a presumption. The presumption may or
may not be drawn. On the facts and circumstances of the case, the court may
refuse to draw the presumption. On the other hand, the presumption may be drawn
initially, but on a consideration of the evidence the court may hold the
presumption rebutted and may arrive at the conclusion that no letter was
received by the addressee or that no letter was ever despatched as claimed.
After all, there have been cases in the past, though rare, where postal
certificates and even postal seals have been manufactured". Again, in Shiv
Kumar v. State of Haryana [1994] 87 FJR 66, 68 ; [1994] 4 JT 162, 163, the apex
court held that "we have not felt safe to decide the controversy at hand,
about the service of notice on employees, on the basis of the postal
certificates produced before us, as it is not difficult to get such postal
seals at any point of time". In Malleswara Finance and Investments Company
P. Ltd. v. CLB [1995] 82 Comp Cas 836, a Division Bench of the Madras High
Court in some dispute between some parties to these proceedings had also an
occasion to deal with the presumption required to be raised in regard to
service of notice/documents sent under certificate of posting. Before the
Division Bench, it was argued that reading of the section amounts to a deemed
fiction and once a certificate of posting is produced with the address of the
addressee, there is a deemed fiction that the cover is received by the
addressee. The learned judges of the Division Bench repelled the argument by
saying that (at page 881) : "A presumption can be drawn only if there is
no other evidence available. In this case, the primary evidence regarding the
posting of the letter is not produced. The best evidence that can be produced
in this case is the despatch register of the company and the books of account
showing the expenses incurred by the company for posting the letters, etc. None
of these documents is produced. When the primary evidence is not produced, a
presumption on the basis of section 53(2) of the Companies Act cannot be made
use of since the posting of the letter is in dispute. Only if a document is
sent by post, the presumption under section 53 of the Companies Act can arise.
When there is no evidence regarding the posting of the letter, the document
relied on by the appellant cannot be made use of". In the circumstances of
that case, service of documents/letters sent under alleged certificates of
posting was not accepted. In this case, what has been produced are the plain
papers on which addresses are typed, containing seals of one post office
situate at
In order to determine as to whether proceedings of the meeting and
resolution passed therein are valid, it is necessary to notice the provisions
of section 169 of the Companies Act. Under the section, the board of directors
of the company on requisition of such number of members of the company as is
specified in sub-section (4), has the duty to call forthwith the extraordinary
general meeting of the company. If the board does not, within 21 days from the
date of valid requisition, proceed to call the meeting for consideration of the
matter set out in the requisition, the requisitionists themselves are empowered
to call a meeting of the company. Under sub-section (7), the meeting of the
requisitionists is to be called in the same manner as nearly as possible, in
which meetings are to be called by the board. The meeting held in pursuance of
a valid requisition is an extraordinary general meeting of the company. In the
present case, the record reveals that Budgam vide notice dated January 3, 1994,
addressed to B.S.B. and to the directors, called upon the company to convene
the extraordinary general meeting. The operative part of it reads—"Pursuant
to section 169 of the Companies Act, 1956, we, Budgam Finance and Investment
Co. Pvt. Ltd. holding 5,50,000 out of the total 5,50,050 paid up equity shares
of Bhankerpur Simbhaoli Beverages Pvt. Ltd., amounting to 99.9 per cent. of the
paid-up equity capital of (and voting rights in) Bhankerpur Simbhaoli Beverages
Pvt. Ltd., require you to convene an extraordinary general meeting and if
thought fit, passing ordinary resolutions, the resolutions set forth of which
we give you special notice in accordance with sections 190 and 284(2) of the
said Act". The notice appears to have been sent by one Utpal Kumar
Ganguly, director. Along with the notice, the explanatory statement has been
annexed, giving the purpose of calling of the extraordinary general meeting. In
the explanatory statement, it has been mentioned that the directors who are
employees/associates of S.W.C., namely, S. Roy, A.S. Chatterji, A. Sadasivam,
Deepak Das Gupta, Srijit Mullick, R.S. Ahluwalia, V. Jayaraman and P.R. Pandya
(who is alleged to have resigned with effect from May 29, 1992), are acting
against the interest of the company and their removal and acceptance the
resignation of P.R. Pandya from the board is sought by the requisitionists. It
has further been mentioned therein that persons proposed to be appointed as
directors of the company are—S/Sh. M.D. Chhabria, Utpal Kumar Ganguly, Ashok
Jain, Shyam Luthria, C.K. Wasu, Shiv Shankar Sanyal and Nandu "
Dr. A.M. Singhvi, senior advocate, as well as Mr. G. Ramaswami, senior
advocate counsel, had cited various judgments for and against the proposition
that under sub-section (2) of section 166 of the Act, the meeting could be held
only at the registered office of the company or at some other place of the
city, town or village in which the registered office of the company is situate.
In view of my finding that the meeting was not held and that the resolution, if
any, passed was not valid, it is not necessary to go into the merits of
contentions of the respective counsel and also the judgments cited by them.
The question of suppression of material facts is not academic as has
been contended by Mr. G. Ramaswami, learned counsel. Civil Suit No. 33 of 1994
was filed on March 2, 1994, purporting to be on behalf of B.S.B. and Budgam
through Arun Kumar Jain, director. The relief sought in the suit was for
injunction against the defendants therein restraining them from holding out as
directors/representatives of B.S.B. and from interfering in any manner in the
management and affairs of the company. It was in this case for the first time
that it was revealed that the extraordinary general meeting was held on
February 22, 1994, in pursuance of notices dated January 3, 1994, and January
27, 1994, and the board was reconstituted on February 22, 1994. A suit was
filed before the Senior Sub-Judge, Patiala, but in the plaint, no mention has
been made about Civil Suit No. 154 of 1994, dated February 21, 1994, which Arun
Kumar Jain had filed at Rajpura, and relief of interim injunction was not
given. A mention has also not been made of Civil Suit No. 158 of 1994, dated
February 22, 1994, filed at Rajpura, seeking injunction restraining the
defendants therein from interfering in any manner in the affairs and management
of the company. In this suit too, interim relief was not given. It was to the
knowledge of Arun Kumar Jain that B.S.B. through Sarabhjit Singh had filed a
suit at Rajpura against Budgam and others, i.e., Suit No. 831 of 1993 and also
Civil Suit No. 261 of 1993 against Arun Kumar Jain, seeking the declaration of
his appointment as director as void and illegal and also injunction against the
defendants for restraining them from interfering in the affairs and management
of the company, but no mention of these suits too was made. The filing of
Company Petition No. 29 of 1993 before the Company Law Board and declining of
the prayer for the interim relief of convening the extraordinary general meeting
too was within the knowledge of Arun Kumar Jain, but this fact has been
omitted. The Senior Sub-Judge,
"Mala fide and calculated suppression of material facts which, if
disclosed, would have disentitled the petitioners to the extraordinary remedy
under the writ jurisdiction or in any case would have materially affected the
merits of both the interim and ultimate relief claimed—Failure to mention all
these material facts was neither inadvertent nor was occasioned by any bona
fide omission—Held that the writ petitioners, in the present case, had by their
own conduct disentitled themselves to the relief which they sought to
claim".
Although some of the judgments, referred to earlier, are in regard to
special leave petitions and writ petitions, there is no reason as to why the
principle as laid down in the said judgments cannot be applied to suits and
applications for injunction filed under Order 39, rules 1 and 2 of the Code of
Civil Procedure. For this (see AIR 1992
Last, but not least, "forum-shopping" by the plaintiffs in
Civil Suit No. 33 of 1994 deserves to be taken note of. In para 20 of the
plaint, the plaintiffs have mentioned "that the cause of action to file
the present suit has arisen to the plaintiffs when the defendants hatched the
conspiracy at
During the course of arguments,
some controversy was raised as to who was in possession as on the date when the
suit at Patiala was filed, but it was fairly conceded by Mr. G. Ramaswami that
the plaintiffs in the Patiala suit, at no time prior to February 22, 1994, came
to control, run or manage B.S.B. The reason for this concession is apparent
from the proceedings before the Sub-Divisional Magistrate, Rajpura. Arun Kumar
Jain filed a complaint on February 21, 1994, under section 145 of the Criminal
Procedure Code, in the Court of the Sub-Divisional Magistrate, Rajpura, and the
prayer made in this complaint was for restraining the respondents therein from
interfering in the peaceful possession of the property in dispute, besides a
prayer for police protection. On this complaint, the Sub-Divisional Magistrate
vide his order of even date, having found a prima facie case for taking action
under section 145 of the Criminal Procedure Code, ordered the summoning of the
respondents therein for March 17, 1994,
and meanwhile, the respondents were restrained from interfering in the possession
of the rightful claimants, including Arun Kumar Jain who described himself as
the director of B.S.B. The order also mentions that a copy of the order be sent
to the S.H.O. of P.S. Dera Bassi for compliance. It was on the strength of this
order that the plaintiffs in the
Mr. G. Ramaswami, senior advocate, has also contended that the civil
suit at Rajpura is liable to be stayed because the same was filed subsequent to
the filing of the suit at
In view of what has been discussed above, I am of the considered view
that the plaintiffs in Civil Suit No. 33 of 1994 have miserably failed to
satisfy this court that they have in their favour a prima facie case or the
court's interference is necessary before their rights can be established on
trial. On the other hand, I am also of the considered view that the plaintiffs
in Civil Suit No. 460 of 1994 have a prima facie case and the balance of
convenience is also in their favour and they would suffer an irreparable loss
and injury in case the defendants in that suit are not restrained from
interfering with the working/affairs of the company on the basis of the alleged
resolutions passed in the extraordinary general meeting purportedly held on
February 22, 1994. Thus, during the pendency of the suit, an ad interim
injunction is granted in favour of the plaintiffs in Civil Suit No. 460 of 1994
restraining the defendants from interfering in the affairs of the company and
acting on the basis of the alleged resolutions passed in the extraordinary
general meeting purportedly held on February 22, 1994. The Chief Judicial
Magistrate,
In consequence of the aforementioned order, the revision petition and
also the application for injunction filed in Civil Suit No. 33 of 1994 shall
stand dismissed. As a result of dismissal of the revision petition and
application under Order 39, rules 1 and 2 of the Code of Civil Procedure, the
appeal pending before the Additional District Judge,
It is made clear that the decision given in this revision petition is
only for the purpose of deciding the revision petition as also the application
under Order 39, rules 1 and 2 of the Code of Civil Procedure, filed in Civil
Suit No. 460 of 1994 as had been agreed by learned counsel for the parties.
Therefore, any observation made herein shall not be construed to be an
expression on the merits of the cases.
Records of the civil suits and also the documents which have been filed
in this court be sent to the Court of the Additional Senior Sub-Judge, Rajpura,
who has been ordered to decide both the suits on the merits.
[1998]
16 SCL 1 (AP)
HIGH
COURT OF ANDHRA PRADESH
v.
G.
BIKSHAPATHY, J.
COMPANY
PETITION NO. 27 OF 1987
SEPTEMBER 29,1997
Section 53(2) of the Companies Act, 1956 - Service on
documents on members by company - Whether presumption of service of notice
contemplated under section 53(2) cannot be said to be absolute or irrebuttable
but burden is on party alleging that he did not receive notice - Held, yes
Section 286 of the Companies Act, 1956 - Board meetings - Notice of -
Whether telephonic invitation/oral invitation could amount to notice within
meaning of section 286 - Held, no - Whether convening of meetings and taking
decisions in board meetings and sending intimations to shareholders is a purely
in-house procedure regulated by articles of association of company and it would
not be proper for courts to interfere with internal administration of company,
unless contrary is established including contravention of articles of
association or statutory provisions - Held, yes
Section 81 of the Companies Act, 1956 - Further issue of capital -
Whether if member did not respond to offers made by company, it has to be
necessarily held that he was not inclined to subscribe to additional shares,
thereby impliedly consenting for allotment of shares to others - Held, yes -
Whether enhancement of capital is a purely an internal administration of
company and courts do not interfere in normal course - Held, yes
Section 397/398 of the Companies Act, 1956 - Oppression and
mismanagement - Whether if it is found that apparent structure of company is
not real structure and it is in substance a partnership, principle of
dissolution of partnership may be applied in adjudicating petition - Held, yes
- Whether shareholding pattern in another company (sister concern) can form
basis for determination of shareholding in company which is subject matter of
petition under section 397/398 for purpose of application of principles of
partnership - Held, no -Whether oppression is core element to be proved and
nature of oppression is to be tested in context of 'cause of winding up' -
Held, yes - Whether word 'oppression' is a chamelionic word and it changes its
colour, content and form from time to time, place to place, event to event,
depending on circumstances of case - Held, yes - Whether where a petitioner has
alleged that he was subjected to oppression not in his capacity as a
shareholder but as director of company it could be said there was oppression
within meaning of section 397 -Held, no - Petitioner alleged non-invitation for
board meetings and allotment of additional shares by respondent to themselves
without offer to petitioner -Facts on record revealed that notices for board
meetings were sent by certificate of posting and in fact opportunity to
subscribe additional shares was given to petitioner - Whether though case of
oppression and mismanagement was not made out but on facts, petitioner could be
directed to sell shares to respondent and on failure of respondent to purchase
he could be directed to sell his shares to petitioners in interest of company -
Held, yes
Section 398 of the Companies Act, 1956 - Mismanagement - Whether relief under section 398 is geared to save the company and it is in the interest of the company alone and not to any particular member/members - Held, yes -Whether section 398 aims at maintaining public interest and interest of company unlike section 397 which protects interest of shareholders - Held, yes - Whether in case of private limited company, public interest may not fall for consideration under section 398/397 - Held, yes - Whether there need be any oppression under section 398 - Held, no
It was the case of the petitioners that P-1 and R-9 conceived the idea
of setting up of a personal business as a partnership in recognition of their
close and cardial relation with a view to provide opportunity to their children
and accordingly the R-1, the company, was promoted. R-3, the brother of R-9,
was brought on the board for looking after the affairs of the company. The
proportion of shareholdings in the company was in the ratio of one-third and
two-third in between 'K' group (belonging to P-1) and T group belonging to R-9.
The company also acquired joint venture project in ARIL in
The allegations of the petitioners were that, (z) no notices for board meetings were sent to him from the year 1983 onwards, (ii) K group was not given chance to subscribe to the further issue of share capital which itself was a decision taken in board meeting to which no notice was given to the petitioners and R-3 surreptitiously got allotted the entire further issue in the names of J group, (iii) decision to subscribe the additional share capital by meeting of the board of directors was not necessary as the company was having tremendous reserves and the additional share capital was brought into books only for the purpose of converting the minority shareholders represented by R-3 into majority shareholders; and (iv) that though there was no partnership firm earlier to the incorporation of the company, but if the corporate veil was pierced the company was in substance a partnership. Thus alleging that K group was oppressed by J group and the company was being mismanaged by R-3, the petitioners filed the petition under sections 397 and 398. R-9 supported the case of the petitioners.
R-9 and P-1 had been stating that no formal notices were sent and meetings were being held on informal intimation being neighbours. Their case was that notices were never sent by post much less under certificate of posting. On the other hand R-3 stated that notices for all the meetings were invariably sent along with agenda by post under certificate of posting and they were sent under registered post after specific instructions from R-9 and P-1. Section 286 mandates sending of notices in writing and omission attracts penalty. Article 49 of articles of association of the company clearly stipulated that the notices for the meetings shall be in writing. Even though P-1 and R-9 stated that there was no practice of sending the notices, yet the practice could not be in violation of statutory provision and articles of association. Such a practice even assuming was in existence, would be illegal Section 286 read with section 53 and article 67 leads to inevitable conclusion that the notices shall be in writing. Therefore, it had to be held that R-1 company had issued notices in writing in respect of all the meetings.
It was the case of R-1 company that prior to 1982 the notices were being sent under ordinary post, but after 1982, when a decision was taken to maintain the minutes of the board in Loose Leaf Papers, R-3 as a managing director took a decision to send the letters thereafter under certificate of posting. It was only on 25-3-1985, P-1 for the first time wrote a letter to R-1 company, stating that for the last 18 months, he did not receive any notices or agendas or invitations for any of the meetings. On the very same day he also addressed a letter to R-9 stating that he came to know that the board resolution withdrawing (P-3) his son's nomination to ARIL Board In the said letter there was no mention about the non-receipt of any notices for the last 18 months as mentioned in the letter on 25-3-1985. From letter dated 25-3-1985, it implied that P-1 knew that the meetings were held The articles of association also said that the Board meeting should be held once in a three months. It was not as if he was not aware of this position. No reasons were forthcoming as to why he kept quite beyond 3 months when he did not receive any notice after March, 1983. It was beyond any body's comprehension that a person of his status possessing vast knowledge of Corporate Law, could have kept quiet for such a long time. It was also not understood as to why he did not take up the matter with R-9 when he did not receive the minutes of various board meetings. When it was brought to his notice by R-3 that system of circulating the minutes was dispensed with P-1 did not take up the issue with R-9 and no information was forthcoming fromP-1 in this regard It was also worth-noticing that P-1 also wrote to R-9 on the same day, i.e., 25-3-1985. It was the case of R-9 that on 16-8-1985 he had sent two letters one relating to despatch of the minutes from 20-7-1983 to 8-7-1985 duly initialled by him and other relating to request to give minimum 10 days' notice for holding Board meeting. However, it is the case of P-1 that they never received letter dated 16-8-1985 sending the minutes of the Board meeting, but only a letter dated 16-8-1985 was received to the effect that the notices should be sent in advance. But, it was curious to note that R-9 did not file two registered postal receipts in which the 16th August letter for sending the notices in advance and also returning the photo copies of minutes initialled by him separately were sent. He also did not file the two acknowledgements in respect of two registered letters. The reasons for asking the minutes also were not explained in the evidence by R-9. Moreover, R-9 being a director, it could have been open for him to seek inspection of the records instead of indulging in correspondence. It was in he counter that in July 1985 K, the then General Manager had informed him that the R-3 was planning to issue and allot the unissued capital to himself and he nominees and thereby convert him and the petitioners from majority to minority. Therefore, he requested R-1 to send the certified true copies of the minutes of the Board meetings of the company. In pursuance of he request, R-2 sent him the unsigned minutes of the copies of the 12 Board meetings of the company held between 20-7-1983 to 8-7-1985 and that by letter dated 16-8-1985 he drew the attention of R-2 that these minutes were not certified by him and he sent photostat copies of the minutes duly initialled by him. As could be seen from letter dated 16-8-1985 R-9 earlier sent the letter requesting for furnishing certified copies of the Board meeting, but that crucial letter referred in the said letter was not forthcoming. Even the office copy covering letter dated 16-8-1985 alleged to have been sent to R-1 had not been filed by R-9 and only a true copy was filed When he said that he had sent two letters on 16-8-1985 he should have office copies of such letters. None of the office copies of these letters were filed by R-9. He also did not file the office copy of letter dated 16-8-1985 requesting for sending notice 10 days in advance. On the other hand it was the evidence of R-2 that they received the letter dated 16-8-1985 to the effect that the notices should be sent much in advance. Though R-9 submitted that this was referred to in letter dated 21-10-1985 and the said letter of dated 21-10-1985 was received by the Secretary, no objection was raised as to non-receipt of the alleged initialled minutes, but at the same time, it had to be seen that the non-mention will not ratify the action of R-9. It was for R-9 to establish that he had sent the letter dated 16-8-1985 which he failed to do so. There were number of inconsistencies in his statement and, therefore, his version that he had received the minutes of only 12 Board meetings could hardly be believed Further, when he received definite information from K that the plans were being moved by R-3 to allot the unsubscribed capital to his own persons, there was no reason why R-9 did not take steps to verify by taking inspection of records. Even P-1 in his letter dated 17-12-1985 stated that he apprehended on the basis of information received by him that the J group was attempting to change the pattern by unwarrantedly issuing the unsubscribed capital of the company and allotting it to the nominees of the J group. It was not known why P-1 resorted to brow beating instead of straightaway asking for the information about the issue of unsubscribed capital Even R-3 also could not be said to be plain. He also equally tried to shield the information. Obviously, everybody wanted to indulge in shadow fighting. It was also seen that the suit challenging the withdrawal of the nomination of P-3 from the Board of A.R.I.L. was filed in Calcutta High Court in May, 1985 and the correspondence started between P-1 and R-3 only in March, 1985. Thus, it showed that the entire gamut of litigation only started after/around March, 1985 and around that period the suit was filed in Calcutta High Court by P-1. The dates of some of the letters of P-1 and R-9 also strengthen the suspiciously collusive nature of litigation. On 16-8-1985 P-1 wrote letter to R-3. On the same day R-9 was alleged to have sent a letter R-2 to R-3 returning the minutes of meetings. There was no reason why P-1 did not endorse all copies of correspondence entered with R-1/R-2/R-3. Similarly R-9 could have endorsed the copies of letters exchanged by him with R 1/R-2/R-3 to P-1. The intention obviously appeared to keep the matters in haze. R-9 apparently tried to buttress the case of P-1 by means of invincible conduct, but when the veil was removed the very first document which he tried to introduce had shaken the entire edifice of his stand. Under these circumstances, letter dated 16-8-1985 suffered from inextricable disabilities and the efforts of R-9 to salvage the document to his advantage went in vain. Consequently, his evidence was not worth consideration being incredible. Accordingly, it must be held that the said letter of 16-8-1985 was not a genuine document.
The only requirement under section 53 and also the articles of association of the company is that the notice in writing may be given either personally or sent by post. There is a statutory presumption under section 53(2)(b) of the Act that the service is deemed to have been effected under certain conditions stipulated therein.
The presumption arises when the condition laid down in section 53(2) are complied with. Even the articles of association was to the same effect. If the facts establish the service of notice, then the question of drawing presumption does not arise. Thus, the presumption of service of notice as contemplated under section 53(2) cannot be said to be absolute or irrebuttable as there may be cases where the parties may collude with the postal authorities for procuring postal seals. But, at the same time the burden is on the party alleging that he did not receive the notice to rebut the presumption by adducing satisfactory evidence. Such issue has to be decided keeping in view the facts and circumstances of each case.
It was in evidence that the notices in writing were sent for various board meetings and also general meetings. Right from 1982, the notices issued for the board meetings, agendas and certificate of postings and also the minutes were filed on behalf of R-1 company. While it was the case of R-9 that he did not attend certain meetings and in respect of certain meetings, minutes were not properly recorded, it was the case of the P-1 that no notices were ever received by him at all It was also the case of P-1 and R-9 that the notices for the meetings and the certificate of postings were manipulated with a view to justify the validity of resolutions and consequential actions in conformity with the statutory procedures. As noticed from the minutes of the meetings, P-1 did not attend the meeting after 31-3-1983. The reasons for absence were non-receipt of the notices. On the other hand, R-9 attended most of the meetings. However, it was denied that two meetings dated 26-11-1984 and 5-1-1985 had taken place. It was also the case of R-9 that he attended meeting on 3-11-1985 and 25-2-1985 and the resolutions were not passed as reflected in the minutes produced by R-3 and they were approved as contained in the letter on 16-8-1985 sent by R-9 to R-1, which as held earlier was not a genuine document. The initial burden lay on the company to establish that the notices were sent in accordance with the articles of association keeping in view the statutory provision. Even though, R-9 and P-1 categorically stated that no notices were sent and the certificate of postings were fabricated, but at the same time, it had to be tested from the angle of statutory provision. Inasmuch as the notices have been sent, and the certificate of postings have been marked on behalf of the company, the presumption under section 53 comes into play and the said presumption is rebuttable. The onus thereafter fell on P-1 andR-9 to establish that the notices were never posted and that the certificate of postings were procured Except stating that they did not receive any notices no other evidence was forthcoming from P-1 and his supporters, R-9 and his family members. It was also in the evidence that when P-1 and R-9 gave specific instructions to send the notices under registered post, they were complied with and R-1 company had filed number of documents marking the postal registrations and other documents.
It was curious that P-1 being a person in a highly placed position could have kept quite if really he had not received the notices for board meetings. It was more so when he was sailing with R-9 in the company petition, who was his immediate neighbour. It was not the case of P-1 that R-9 was not in talking terms. On the other hand upto February, 1985, they were working in the same company ML in top, executive position-R-9 was President and P-1 was Vice-President. If the notices in fact had not been sent to any person, then R-9 also could not have attended any of meetings at all The fact that R-9 attended and participated in the meetings of course with certain objections in respect of minutes of certain meetings, would only go to establish that the notices were sent and it was also the case of R-3 that decision was taken by him as managing director to sent the notice under certificate of posting in 1982 when the board passed resolution to maintain the minutes of the board meetings in Loose Leaf Folders. It was also not understood as to why P-1 kept quite for nearly 18 months when he did not receive any notices or agendas, for board meetings or AGM. It was also not his case that he asked R-1 at any time during 1983 and 1984 that he was not receiving the notices for the board meetings, which should have been normal reaction of a human being in the ordinary course of events. It was also beyond anybody's comprehension that R-9 could not have inquired the P-1 for not attending the various meetings.
The contention of P-1 that R-1 company did not discharge the burden to prove that the notices were properly sent and it had filed only notices and certificate of postings and the connected postage stamp account were not filed This submission could not be accepted for the reason that R-1 company discharged the burden of proof placed on it, namely, sending of notices and the postal certificate of posting. When R-3 and R-2 were in witness box and subjected to cross-examination at length, it was not suggested that R-1 company did not file the postage account. It was also not the case of P-1 andR-9 that the addresses in the certificate of posting were incorrect and there were any other irregularity. The witnesses were offered for cross-examination only for the purpose of bringing out important and crucial matters which could be only ascertained by means of effective cross- examination. Except stating that these letters were not posted and the certificate of postings were manipulated, no other evidence worth considering had been brought on record. The conduct of the parties and the status held by them was also very relevant for the purpose of ascertaining whether they had acted in a bona fide manner or with an ulterior motive. The version of R-9 relating to letter dated 16-8-1985 was not accepted and as regards P-1, even though he had stated that he did not receive any notices for general meetings and the board of directors meetings, it could not be believed for the simple reason that out of two directors who were to participate in the meetings, R-9 had already attended number of meetings. If the notices had not been sent at all, then R-9 could not have also attended any meetings and chaired the meetings and it was also not possible to perceive that R-9 might not have brought to the notice of P-1 about these meetings. Moreover the trouble started not on account of non-receipt of the notices and minutes, but due to other reason i.e., scheme of J group to the total ouster of the K group which allegedly came to the knowledge of the K group in 1985.
The silence on the part of P-1 for such a long time without making any objection with regard to the notices of various meetings from 1983 till 1985, only established that he had notice of the meetings and that he deliberately did not attend the meetings for the reason that his son was not properly accommodated in R-1 company. He only initiated the correspondence in March 1985, but however, he did not proceed further. Then he filed a suit in May, 1985 in the Calcutta High Court challenging the withdrawal of nomination of his son on the Board of A.R.I.L. Again he took up the matter with R-1 company in August 1985 which also coincided with the initiation of correspondence by R-9. Further the 1st letter dated 16-8-1985 alleged to have been written by R-9 to R-1 company was not a genuine document. It was hard to believe that R-2 and R-3 had manipulated all the notices, agendas and minutes and also the certificate of postings from March 1983 to June 1985. But, coming to conduct of P-1, the grievance also did not appear to be not that of non-receipt of the notices of meetings, but the withdrawal of the nomination of his son from A.R.I.L. Board A person of a status of P-1 could not be expected to be non-vigilant. More especially when he had pursued the matter with R-1 company so vigorously after 16-8-1985. A person who is not vigilant cannot have any right to claim equity before the Court. The equity comes to the aid of the vigilant and not the slumbering (Vigilanti bus non dormienti bus Jura subveniunt). Therefore, theP-1 having remained intentionally dormant for a considerable length of time, could not complain that he had not received the notices. Further, he was a neighbour and it could not be said that the neighbours cannot have this information, more especially when they were very cordial and P-1 himself had categorically stated that R-9 was also being kept aloof by R-3 from the affairs of the company and that there were strained relations between R-3 and R-9. Therefore, it had to be presumed that the neighbour knows the neighbourhood as the maxim goes Vicini vicini-ora prae prae sammantur scire (neighbours are presumed to know things of the neighbourhood).
Admittedly, R-1 was a private limited company consisting of P-1, R-3 and R-9, with their respective members and they being immediate neighbours and it was beyond the comprehension of any person of ordinary prudence that P-J and R-9 were not aware of the meetings and minutes. It was also pertinent to note that statutory provision requires that the notice should be sent in writing either personally or by post. There is no provision for intimating on telephone. Therefore, the stand of the R-9 that he used to attend the meetings on telephonic information would not stand When the statute requires certain thing to be done in certain manner, it has to be presumed that the acts were done in furtherance of that statutory provision, unless it is proved to the contrary. Moreover, there was ample evidence that notices were sent to the parties under certificate of posting right from 1983 onwards.
Under these circumstances, it was to be held that notices were issued to the directors in the case of Board meetings and the shareholders in case of AGM in accordance with the statutory provisions and accordingly it was to be that P-1 and R-9 had received the notices for the board and general meetings.
The consequential crucial question that arose for consideration was whether any offer was made to P-1, R-9 or any other persons on their behalf and as alleged by R-3 whether they consented to the allotment of additional shares to other persons and if any had not consented to the above, whether allotment of shares as alleged by the petitioners was an act of oppression attracting the action under sections 397 and 398.
In pursuance of the decision taken in the minutes dated 26-11-1984, the company sent letters to all the shareholders on 26-11-1984 offering the additional shares. The said letter was sent by post under certificate of posting on 26-11-1984. There was no definite and specific pleading by P-1 in the company application to the effect the additional shares were issued without his knowledge and if any shares were issued that should be treated as illegal and invalid Thus, the P-1 was not at all sure of additional share capital and he had beer taking shelter by making general pleading that no notices were being sent and, therefore, he was not in a position to attend any meetings. In the instant case, the question of consent could not be directly established and only the circumstantial evidence had to be scrutinised meticulously. The main contention of P-1 was that he never received any notices, while the stand of R-9 was that he attended the meeting on 28-2-1985 and that he had no notice of Board meetings of 26-11 -1984 and 5-1-1985. As already held the company did issue the notices for various meetings. Therefore, it had to be necessarily held that the notices for the meetings dated 26-11-1984, 5-1-1985 and 28-2-1985 were issued to the directors. With regard to the offer made by R-1 company to the shareholders, it was in evidence that the letters were sent on 26-11-1984 and 5-1-1985 offering the additional shares to the shareholders and there was no response except from few. The parties tried to level allegations against each other stating that fraud was played and forged documents were pressed into service and that manipulations were made with regard to Certificate of Postings and postal registration receipts. But to ascertain whether they had consented for issue of additional shares, it was necessary to establish whether any notice was sent offering the shares. Though R-9 and P-1 in so many words stated that they had not received any notices, but except denying the receipt of the letters of offer, they did not lead any evidence on this aspect. The burden lay on P-1 to establish that he did not receive the notices at all, except making a bold statement to that effect. Equally the burden lay on R-9 to establish that the notices were not sent for the board meeting on 26-11-1984 and 5-1-1985 and that he attended the meeting on 28-2-1985 and that the minutes were not properly recorded on 28-2-1985. It was curious to note that in the letter dated 16-8-1985 Ex-R-2, he only referred to various Board meetings as having attended including 28-2-1985, but however, there was no mention about 16-11-1984 and 5-1-1985. In the said two meetings crucial decision was taken to subscribe to the additional share capital and now R-9 was coming out with his version that there was no meeting on 26-11-1984 and 5-1-1985 which version of R-9 could not be believed
When once it was held that proper notices were issued and the procedure as contemplated had been followed, it was not open for P-1 and R-9 to contend that no meetings took place. As already held that when R-9 attended number of meetings, of course excluding the Board meetings on 26-11-1984 and 5-1-1985, the contention of P-1 that he did not receive notices at all could not be believed P-1 and R-9 for the reasons best known did not elicit any information with regard to the postage account maintained by R-1 company nor was there any cross examination by R-9 in respect of the meeting which was held on 26-11-1984 and 5-1 -1985 wherein the leave of absence was granted to R-8 and R-9. He did not even elicit either from R-2 or R-3 that he did not make any request for leave of absence and that there was no evidence before R-1 company to that effect and the entry in the minutes that leave of absence was granted was false.
It is well established rule of evidence that a party should put to each of his opponent's witness so much of his case as concerns that particular witness. If no such questions are put the Court may presume that the witness's version has been accepted If it is in tended to suggest that a witness was not speaking the truth upon a particular point, his attention must first be directed to the fact by cross-examination, so that he may have an opportunity to give an explanation. It is also beyond controversy that if the witness is offered for cross examination, he should be cross examined on material point. Failure to cross-examine witness on certain points amounts to acceptance of truth of his testimony, except when the testimony itself is inherently improbable and incredible. Therefore, cross examination is powerful and valuable weapon for the purpose of testing the veracity of a witness and the accuracy and completeness of this story. Hence, when the witness was not tested by cross-examination, his evidence may be accepted subject to the above exception.
There was no cross-examination on this point. There was also no suggestion. Therefore, it had to be concluded that R-9 did seek for leave of absence, thereby establishing that he had the notice of meeting. Any resolutions passed in such meeting were valid unless properly challenged
According to P-1 and R-9 the burden placed on them was discharged by stating that they did not receive any notices and the burden shifted to R-3 to establish that notices were sent. In this regard it had to be noted that proof of burden on the respective parties paled into insignificance when they adduced the evidence at length. Yet, if they failed to elicit the necessary information, then it had to be taken note of. Suffice it to say that if the notices were issued properly and they failed to attend the meetings, the consequential resolutions passed in the said meetings could not be challenged nor could it be said that the minutes were manipulated. It is duty cast on the party to put his case in the cross-examination of the witnesses of the opposite party. This rule is of essential justice, not merely a technical one. The contention that the notices for offering the additional shares was never issued and certificate of postings produced by R-3 could not also be accepted, because in pursuance of the orders of the Court, an Advocate-Commissioner was appointed to take charge of the documents of the company and in pursuance of the said order, various documents were taken charge of by the Advocate-Commissioner by putting her initials on each and every document on 11-7-1987. The notice issued for the meetings dated 26-11-1984, 5-1-1985 and 28-2-1985 bore the signature of the Advocate-Commissioner and the certificate of postings also bore the signature of the Commissioner. That went to establish that these documents were in the files of the company as on the said date and it could not be said that they were manufactured or fabricated subsequently. It was also one of the circumstances which went to show that these documents were maintained during the course of the company's business.
For all these reasons, it must be held that proper notices were issued for the meetings dated 26-11 -1984, 5-1-1985 and 28-2-1985 and the minutes were recorded in those meetings could not be said to be irregular or manipulated When once it was found that the offers were made to all the shareholders if they did not respond to the offers it had to be necessarily held that they did not consent for subscribing to the additional shares.
In this regard, it has to be noted that convening of meetings and taking decisions in the Board meetings and sending intimations to the shareholders is a purely a in-house procedure regulated by the articles of association of the company and it would not be proper for the Courts to interfere with the internal administration of the company, unless the contrary is established including the contravention of the articles of association or the statutory provisions as contained in the Act.
So long as the company functions in accordance with the statutory provisions, its activities need not be probed further. Therefore, when R-9 andP-1 with their respective members did not respond to the offers made by R-1 company, it had to be necessarily held that they were not inclined to subscribe to the additional shares, thereby impliedly consenting for allotment of shares to the others.
AS REGARD'S BINDING NATURE OF FINDING IN INTERLOCUTORY APPLICATION FOR GRANTING INTERIM RELIEF
The finding in interlocutory application for interim relief as to genuineness of issue of additional share could not be binding on the Court while adjudicating the issue on merit.
The principle of res judicata is conceived in the larger public interest which requires that all litigation must sooner than later, come to an end The principle is also founded on basis of justice and good conscience, which require that a party which once succeeded on an issue should not be permitted to be harassed by a multiplicity of proceedings involving determination of the same issue. However, it is not in dispute that the finality of orders and their binding nature depends on the type of orders passed and the nature of relief granted in interlocutory orders.
In the instant case, the Company Application No. 184of 1988 were made by R-9 seeking reconstitution of the board represented by R-9 and P-1, for appointment of joint managing director, for declaring proceedings of AGM dated 5- 7-1985 for carrying out of the functions of joint managing director and managing director for conducting fresh audit. The Single Judge very clearly stated in the order on the interlocutory application that the examination of material was for appreciating the controversy raised for ascertaining the prima facie and balance of convenience for the purpose of interlocutory applications. Therefore, the Single Judge on the basis of such examination came to a prima facie conclusion. Even the Division Bench also confirmed the order of the Single Judge. It only establishes that the prima facie findings for this purpose of balance of convenience for appropriate orders shall be deemed to have confirmed The prima facie finding rendered by the Single Judge for purpose of granting interim relief could not be said to be binding in subsequent proceedings in the same case. Thus, any findings recorded by the Single Judge in the interlocutory application, could not be treated as res judicata in subsequent proceedings. In fact the Judge himself proceeded with the matter for ascertaining the existence of a prima facie case and balance of convenience. Therefore, findings given in that proceedings could not come in way of decision of the main petition.
AS REGARDS APPLICATION OF PRINCIPLES OF PARTNERSHIP
It is well within the competence of the
Court to determine the real structure of the company. It is open for the Court
to pierce the veil for such determination. If it is found that the apparent
structure of the company is not real structure and it is in substance a
partnership the principle of dissolution of the partnership may be applied in
adjudicating the petition for winding up.
In order to determine whether the company though incorporated under the Act, yet in substance it is a partnership, the following norms may create a possible inferential circumstances:
(a). There should have been
pre-existing business of partnership.
(b). An
understanding to convert the partnership into a limited company to be run on
the same terms and pattern as that of partnership.
(c). It
should have been formed among the relations or close friends with an
understanding to run the company with joint participation on the basis of
personal relationship coupled with mutual trust and confidence.
(d). An
agreement and understanding that all or some of the shareholders will
physically participate in the conduct of the business.
(e). There
should have been an understanding that the persons investing in shares in the
company would be appropriately remunerated by way of salary and perquisites
with a right to participate in the management of the company.
(f) The members should
hold some proprietary right,
(g) Shareholding should be equal with minor variation.
(h) A clause or clauses in the articles of association of the company signifying either expressly or impliedly that the business is run on the lines of partnership.
(i) Complete restriction on transfer of shares to outsiders to indicate the continuity of trust and confidence among the shareholders.
(j) To appoint the directors on the basis of shareholdings of members of each family or set of associates.
These are only illustrative and not exhaustive. The Court has to decide the matter on the particular facts and circumstances of each case.
There was no dispute that the company was found by the members of J and K families. The shareholding was not equal between J and K. As already noticed there was a split in the J group and R-3 stated that there was no partners hip formula in the instant case. It was only when the shareholding was equal, a possible inference could be drawn that there were symptoms of partnership. Further, it was not the case where prior to the incorporation of the company, the business was run on partnership basis. It was for the first time, the company was incorporated straightaway under the provisions of the Act nor it was the case of the parties that any of the parties were conducting the business analogous to the business of the R-1 company prior to the incorporation. Altogether it was a new business, not undertaken by any of the members previously. It was only established for the purpose of supply of rubber rings to HIL which was the main principal component for manufacture of A.C. Pressure Pipes. There was also no agreement which was forthcoming between the parties to the effect that the business shall be conducted on the lines of the partnership and no such understanding could be culled out from the facts of the instant case. The memorandum of articles of association of the company did not contain any clauses suggestive inference of partnership. Even the directors were not elected on the basis of shareholdings. Initially there was five directors out of which only one director was from K group. Even in 1987 when there were six, P-1 was only the director on behalf of K group. All that could be said was that the members of two families formed the private limited company. There was also no stipulation with regard to the representation of the directors from each family. Even in the articles of association, no such understanding was contained nor could it be inferred from the reading of the various clauses of the articles of association. Clause 9 of the articles of association empowered the board absolute and uncontrolled discretion to refuse to register any transfer of the shares and it shall not be required to give any reasons. Further under clause 10 any share may be transferred by any member to any other member or his wife or husband of another member, etc., by which it only went to show that a member was free to transfer the shares of any member or the relations of the members as stipulated therein and in such cases of transfer, the power of refusal given to the board under article 9 shall apply to any of such transfer. Therefore, even if a member wished to transfer his shares to other members, the decision of the board was final and uncontrolled discretion was vested with the company to refuse to register the transfer without giving any reasons. Under clause 7, the number of directors of the company shall not be less than two, not more than nine. Thus, it was seen that the power of a transfer by a member was not automatic and that there was no stipulation in the articles of association that a director should be appointed from K Group or J Group. There was also no stipulation with regard to the participation in the management of the company by the members of both families. Though, P-1 and R-9 were submitting that it was a partnership concern having joint participation in the management, no such evidence was forthcoming except stating that P-1 and R-9 used to guide the management of R-1 company and decisions were being taken after consulting them. P-1 and R-9 were the directors apart from the other directors. It was sought to be contended that there was always an implied understanding that the shareholding of K and J family should be in the ratio of one-third and two-third In the absence of any positive evidence, it was not possible to hold that the shareholding was in the ratio of one-third and two-third Of course, in the evidence, it was brought out that whenever the share capital was raised the shares were allotted in the ratio in which they were holding earlier, but that could not be construed as a determinative factor for treating R-1 company as a partnership firm. Evidence was also adduced to say that even other companies established by the K and J family, the shareholding was in the ratio of one-third and two-third; however, that could not be taken into consideration inasmuch as the holding in other companies could not form basis for the holding in the present company. Moreover, the evidence adduced on behalf of P-1 and R-9 did not indicate that there was an understanding or agreement to the effect that the shareholding of K should always be one-third at the level of incorporation and also at the points when the shareholdings were increased from time to time. Even assuming that the shareholding of the K family and J family was 30 per cent above and 60 per cent above respectively, that situation by itself was not a conclusive proof that it was a partnership concern. Having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 and 3 98. The powers which are now exercised under section 402 of the Act were hitherto being exercised by the Courts and now they are being exercised by the CLB. Therefore, applying the principles settled in catena of decisions, the plea of the P-1 that the company was ostensibly incorporated under the provisions of the Company Law and that in substance it was a partnership, had to be rejected
AS REGARDS OPPRESSION/MISMANAGEMENT
The oppression is the core element to be proved and the nature of oppression to be tested in the context of 'cause for winding up'. But it has to be remembered that the provision is intended to avoid winding up and to mitigate and alleviate oppression. The relief under section 397 is geared to help the members who were oppressed The relief under section 398 is geared to save the company and it is in the interest of the company alone and not to any particular member/members. The right of members to apply under sections 397 and 398 is hedged in with certain restrictive conditions. This is to avoid frivolous applications from dissatisfied members approaching the Court (now the CLB). The provision regarding member/members having one-tenth share capital of the company alone can file applications under sections 397 and 398 is intended to avoid frivolous petitions. Of course, under section 399(4), it is provided that the Central Government may authorise any member or members of the company to apply to the CLB for relief, if in its opinion circumstances exist which make it just and equitable to do so.
The expression 'oppression' and 'mismanagement' which are the basic and foundational concepts in the section are left by the Parliament without defining them. When once it is left without definition, the task of the Court is difficult and more responsible. The word 'oppression' is a chamelionic word and it changes its colour, content and form from time to time, place to place, event to event, depending on the circumstances of the case. Therefore, no general frame can be made to this word confining its limits. Hence, the oppression has to be made out on the facts and circumstances of each case. The word 'oppression' denotes the exercise of authority or power in a burden-some, harsh and wrongful manner, or unjust, cruel treatment or the imposition of unreasonable or unjust burdens, in the circumstances, which would almost always entails some impropriety on the part of oppressor. Naturally, the Court will always incline to wade through precedents to find out and to assign the correct meaning of these two words 'oppression 'and 'mismanagement' in the context in which they are used Certainly, the Courts have to decide on the facts of each case as to whether there is a real cause of action under sections 397 and 398.
Under section 397, the court has to be satisfied that the affairs of the company are being conducted in a manner oppressive to any member or members. Therefore, the acts of oppression have not only to be alleged with sufficient precision, but they must be proved to the satisfaction of the Court. In a petition under sections 397 and 398, it is to be specifically pleaded and established by the party not only the existence of circumstances warranting winding up of the company under the 'just and equitable' clause, but also it should be further established that winding up order if passed would act adverse to the interest of the shareholders. Further, when this clause is invoked, there must be material to show that it is just and equitable not only for the persons applying for winding up but also to the company and all its shareholders. Even in certain cases, violation of statutory provisions was held to be not oppressive act warranting interference under section 402. In the instant case, it was already found that P-1 had notice of meetings, but deliberately he failed to attend the meetings. Therefore, the contention that P-1 had an interest in the company and that he was willing to purchase the shares had the offer for additional share issue had been made to him, could not be accepted R-9 did participate in the meetings and he was aware of the increase of the share capital and intentionally did not contribute. R-9 also accepted that after resignation from H.I.L. he started devoting his time for Nucon as it was in losses. It was also noticed that various powers were given to R-9 in respect of Nucon Company and also the documents and records were handed over after he took over. Even though his disinterestedness was not directly established, the fact remained that the decision for additional share capital was taken in the meeting held on 26-11-1985 and other meetings, he failed to respond Therefore, it was to be only presumed that he was not interested Moreover, the way in which he initiated the litigative process from the alleged letter dated 16-8-1985 it was established that he was not coming with true facts. Hence, the contention that R-9 would have purchased the additional shares had he been offered could not be swallowed with confidence.
Further enhancement of capital is a purely an internal administration of the company and Courts do not interfere in the normal course. When the resolution was held to be valid, it would not be in the fitness of things to construe that there was no genuine requirement. It could not also be said that R-1 company could have taken a decision to go for loan from the financial institutions or sold some of its assets rather than increasing the capital because, the decision vested with the board of directors which could not be scrutinised when it was found that valid resolution was passed in accordance with the provisions of the Companies Act and also the articles of association. It was found that proper notices were given for Board meetings and minutes were properly drafted. When there was no response for the offer for additional shares from P-1 andR-9, the shares were allotted to R-3 and his family members. Therefore it could not be said that subscription of additional capital was mala fide. According to, P-1 and R-9 that whatever was brought by R-3 as an additional share-capital did not remain with the company for two days and the amount came back to their hands within two days of the transaction. It was also their case that extention of time granted to the shareholders to subscribe to the additional share capital upto 15-12-1984 was only imaginary as by 1-12-1984 R-3 and his family members had already sent the cheques for Rs. 5 lakhs for additional shares and the amount was brought into the accounts of R-1 company and the amount was also paid to D.P.P.L. for purchase of machinery and part of amount was also sent to the bank towards the liquidation of the over-draft amount.
It was not in dispute that R-3 and his family members had paid the amount of Rs. 5 lakhs which he obtained from Poddar Company and it came to the records of R-1 company on 30th November and again on 1st/2nd December, cheques were issued to R-3, and his family members on the directions of D.P.P.L. It was also in evidence that R.M. Trading Company wanted to advance the amount to R-3 and since they had no account in Hyderabad, it requested D.P.P.L. to advance the money as D.P.P.L. had to receive the amounts from R-1 company, it directed the R-1 company to issue cheques in favour of R-3 and his family members and finally it was in evidence that the amount was also paid by R.M. Trading Company to D.P.P.L. company and R-3 and his family members also paid to R.M. Trading Company. By this transaction, P-1 and R-9 tried to submit that it was purely a bogus transaction and the company did not receive any physical benefit and it was only a paper transaction. Though the contention appeared to be appealing at the first blush, but a deeper scrutiny would reveal that the contention had no merits. It had been the case of R-3 throughout that the amount brought in by him towards the share capital was most insufficient for purchasing the various machineries. Only part of the share capital was paid to D.P.P.L. towards the purchase of Extruder, etc. But on the other hand, the machineries were more than Rs. 15 to 20 lakhs were purchased from other companies in the country. It was his case that machinery worth more than Rs. 20 lakhs was purchased during that period This statement was never contradicted by P-1 or R-9. Thus, it was to be held that not only the machinery from D.P.P.L. was purchased, but also various other machineries was purchased from outside agencies with the funds raised by R-3. Therefore, it was not as if only one transaction of purchase was made from D.P.P.L., but the several other transactions were made with regard to the purchase of machinery from other companies. Therefore, it could not be heard to say that the capital alleged to have been brought by R-3 was only on paper and there was no real transaction in substance. It was also the case of P-1 and R-9 that when once the company had already been contributed by R-3 and his family members, there was no necessity to extend the date in the guise of extended offer dated 5-1-1985 to the shareholders and it made a belief that arrangement was purely planned by R-3.
The contention that since the capital had already been subscribed by
R-3 and his family members, by 30-11-1984 and the same was utilised, there
could not have been any further offer to any other member, could not be
accepted In fact, in spite of another offer given to the members and in the
absence of response the decision was taken on 24-2-1984 only to allot the
shares to R-3. The contention on behalf of R-3 was that if there had been any
subscription of the capital by P-1 or R-9 and their respective family members,
then the value of the shares that would have been purchased by P-1 and R-9
could have been returnedtoR-3. The other contention was also raised to the
effect that the alleged family settlement was a farce and no such family
settlement had taken place and the documents were introduced by R-3 in a most
suspicious circumstances and that R-3 had manipulated these documents to suit
his convenience. It was true that number of documents were introduced by R-3
stating that there was a family settlement and that P-3 also had written to P-1
for settlement of the accounts and that there was private agreement between P-3
andR-9 to the effect that K Group will support R-9 in their efforts to fight
against R-3. One thing was clear, that P-1 had reconciled to settle his
accounts and P-1 and J family submitted to the mediation and arbitration of KT.
It was also evident from the letter of KT that a settlement was arrived and
payment schedule was to be finalised At this point of time, entire exercise was
blown off. Therefore, it had to be seen that there was some steps towards the
settlement of the accounts between K and J families. But, that was not a much
relevant factor for deciding the issue. Therefore, in view of the findings
recorded above, it could not be said that R-3 acted in a manner oppressive to
other shareholders. Normally oppression is alleged against majority
shareholders by the minority shareholders. But, in the instant case it was
turned to be otherwise. The oppression was now being alleged by majority
shareholders (prior to additional share capital) namely P-1 andR-9. As already
stated the genesis appeared to be not that the meetings were not being
conducted, notices were not being issued, but P-3 was not properly accommodated
after his return in 1982 from
The company had been running right from 1987 after the company petition
had been filed and the issue of lack of probity had not been established by any
proper evidence. It was also not established that the company had been not functioning
in accordance with the provisions of the Companies Act and that the situation
warranted the winding up of the Company on just and equitable ground It is not
open for the court to interfere with the management and administration of the
company in each and every issue, but it could only interfere when the company
has been acting to the detriment of the interest of the shareholders in general
Further, it had to be seen whether R-3 had acted in a manner detriment to the
interest of the other shareholders or he changed the set up of administration
after he became the majority shareholder. Admittedly, P-1 andR-9 continued to
be the directors even after the majority shareholders and they were being
invited to participate in all the meetings and affairs of the company. It was
not as if they were completely excluded from the management of the company. On
the other hand, P-1 never attended meetings after 31-3-1983. Therefore, even
after the additional allotment of shares in favour of R-3, it could be said that
the position of P-1 and R-3 changed in a manner prejudicial to their interest
or their members. The genesis took place when P-3 was not properly accommodated
in 1982 when he returned back from
The company being a private limited company, public interest may not fall for consideration. If it found that the affairs of the company are being conducted prejudicial to the interest of the company, the Court may with a view to bring an end or preventing the matters complained of or apprehended make such an order as it thinks fit. Therefore, section 398 aims at maintaining the public interest and the interest of the company unlike section 397 which protects the interest of the shareholders. The section is very clear that the Court is vested with the power to make orders as it thinks fit in order to bring an end to the dispute or preventing the matter complained of or apprehended
In the instant case, the petitioner had categorically stated that the R-3 had been misusing his position and mismanaging the affairs of the company and that it was a fit case where appropriate directions should be issued directingR-3 to sell his shares to P-1 andR-9. On the other hand, it was the case of R-3 that there was no misuse whatsoever and that P-1 andR-9 had been creating hurdles in the proper running of the company. They subjected the company and R-3 to unending litigation. It was also the case of R-3 that if this type of attitude was adopted by P-1 and R-9 the affairs of the company would not be conducted in the best interest of the company. Admittedly, there was no public interest involved in the instant case. The only issue that had to be considered was whether the affairs of the company were being conducted in a manner prejudicial to the interest of the company. As narrated in the preceding paras, P-1 ignited an issue alleging oppression and mismanagement under sections 397 and 398 andR-9 came to the support of P-1 by stating in his counter that he was supporting P-1.
The principal participants in the dispute were P-1, R-9 and R-3. But, now in view of the support which was being extended to P-1 by R-9, there remained only two participants in the field namely P-1 and R-9 on one side and R-3 on the other side. On account of personal differences between P-1, R-9 and R-3, the interest of the company could not be allowed to be sacrificed even though it was a private limited company. The way in which P-1 had conducted himself in initiating the matter in the guise of non-receipt of notices of board meetings, general meetings and minutes after a silence of 18 months and that too after filing a suit before the Calcutta High Court, only established that he had no bona fide interest in the affairs of the company. Similarly, R-9 could not be said to evince any interest as he had been devoting full time in another company, after his resignation from the H.I.L. in February, 1985.
It was also clear case of P-1 and R-9 that R-1 company was conceived by them for benefit of their sons namely P-3 and 'HJ' after their education. The case of P-1 was that his son was not properly fixed after 1982 in R-1 company and that son of R-9 was suitably accommodated in and therefore P-3 had to eke out his livelihood and hence P-3 established A.P.P.L. andalso RE. It was also in evidence that A.P.P.L. had been producing rubber rings and supplying to H.I.L. which was hitherto being supplied by R-1 company P-1 was also holding a very highest position in the H.I.L. as President. Therefore, under these circumstances, it could not be said that P-3 and R-9 could the function themselves in the interest of the company. It was also in evidence that criminal cases erupted between R-3 and R-9. It was also in evidence that K family represented by P-1 and P-3 and J family represented by R-3 and R-8 consented for arbitration of 'K' for settlement of the accounts. It was also noticed from the letter which was written by R-3 to P-1 in response to the letter of the letter dated 17-12-1985, wherein R-3 had not only expressed dissatisfaction about the fake allegations made against him including non-receipt of various notices, but also stated that P-1 had utilised some of the information from the company for his personal benefit to the detriment of the interest of the R-1 company by assisting his son P-3 to establish a rival business.
It was manifest from the records that P-1 and R-9 were agreeable for settlement of their respective shares, but the dispute was with regard to the value of the shares. In those circumstances, it could be safely concluded that P-1 and R-9 were not prepared for participation in the affairs of the company. But on the other hand, an unending litigation was created by P-1 having the blessings of R-9. Every notice, minutes, certificate of posting and postal registration was being sought to be subjected to unending correspondence and the relations between P-1 and R-3 were strained as could be seen from the various letters exchanged between the parties. So also R-9 could not be relied on that he would play safe game with the company in view of the conduct which he had exhibited before the Court.
The position of directors in the company is one of trust and confidence. They stand in a fiduciary capacity and they are duty bound to conduct the affairs of the company in the best interest of not only of the shareholders, but also the company as well, which is manifest from sections 397 And 398. Lack of probity in the conduct of the affairs of the company by the shareholders in control may be a suggestive inference of functioning of such shareholders to the prejudice of other shareholders or company. But, at the same time the directors are to devote their efforts and exercise their powers, in the interest of the company and the shareholders within the framework of Memorandum and articles of association. Otherwise their actions are ultra vires. They cannot usurp the powers not vested in them nor can they misuse the powers for personal aggrandisements. Thus in Company Law the directors enjoy a very important responsible position making themselves answerable to the shareholders and the company. Therefore they are not only expected to exhibit trust and transparency as directors while managing the company, but also it is all the more necessary to maintain the same position among the directors themselves. Developing suspicion on one director(s) or counter suspicions are not conducive in the general interest of the Company, which ultimately leads to allegation of oppression and mismanagements.
Section 402 has been engrafted with wide discretionary powers to ensure smooth functioning of the companies. The Court is entitled to grant the relief as it thinks fit in the interest of the shareholders and company. That is the reason for both ailments under sections 397 and 398, the treatment is common under section 402. The Court is empowered to pass order both as a curative and preventive measures if it finds that the affairs of the company are being conducted detrimental to the interest of the company, for bringing an end or for preventing the matter complained of or apprehended
The Court is interested in the affairs of the company as a whole and the personal quarrels are wholly irrelevant. The interest of the company cannot be at the altars of bickerings among the directors for their personal ends. It was also understood that in later years, R-9 resigned the directorship of the company. The company had already faced litigation for over a decade for the reasons as set out earlier. The affairs of the company had not been conducted nor would be conducted in future in the interest of the company. Apprehension of stalemate was writ at large. Consequently, the situation had arisen that company could not function in the hands of P-1, R-9 and R-3 jointly. Three powerful horses yielding strength in different directions cannot bring the chariot safely to the destination. Therefore, the company should be run either by R-3 or by P-1 and R-9 jointly. It could be safely concluded that a quietous could not be brought in the company unless the matters complained of or apprehended were resolved once for all and the Court is fully empowered to meet such a situation in the interest of the company.
In sub-section (2) of section 398 it is clearly stated that if the Court finds that the affairs of the company are being conducted as contemplated under clauses (a) and (b) of sub-section (1), or likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company, the court may pass orders curative, preventive and prohibitive in respect of existing and apprehended acts prejudicial to the interest of the company. There need not be any oppression under section 398.
The directors are expected to function in the best interest of the company and lack of probity inter se directors is cancerous element for the phased destruction of company. Though, in the instant case, the oppression by one group of shareholders, to the other group of shareholders, was not established and the lack of probity was not established among the shareholders, but, yet, it was a case where the conduct of parties could not put the company on safe rolls. Therefore, when the affairs were not being conducted by the parties in the interest of the company, it is also open for the Court to pass appropriate orders. The company had been running throughout by R-3 and after Company Petition had been filed, for some time by the Interim Administrator and now it was again being run by R-3 as managing director. Though the P-1 did not ask for direction for selling of shares of R-3 to him it was only after filing of affidavit by R-3 reply to the counter affidavit of R-9, a further affidavit was filed by P-1 in which he had stated that P-1 was ready and willing to purchase the shares so as to save R-1 company from the clutches of R-3. R-9 also in his counter did not say that he was willing to purchase the shares, but only in his rejoinder to the counter of R-3, he stated that direction may be issued to R-3 and his family members to share their shareholding at a price as may be determined by the Court. Thus, P-1 and R-9 never expressed their readiness to purchase the shares. R-3 had been managing the company for several years and also presently he was managing the company, it was desirable to offer the management of the company to R-3 by passing appropriate directions.
RELIEF
Keeping in view the above factors, the situation prevailing as on the date of the filing of the Company Petition it was to be held—
(i) The value of the shares held by P-1, P-2 and R-9 and the members of his group viz., his wife and son and R-3 and members of his group viz.., R-4, R-5 and R-6 shall be assessed by competent Chartered Accountant.
(ii) The value of the shares possessed by P-1 and P-2 shall be assessed as on 30-6-1986 and the value of the shares possessed by R-9 and his members of family shall be valued as on 31-7-1986. The value of shares held by R-3 and members of his family viz., R-4, R-5 and R-6 shall be assessed as on l-l-1985 i.e., prior to the allotment of additional shares. Though the value of shares were to be normally reckoned on the date of presentation of Petition, since P-1 and R-9 were agreeable for settlement during respective periods, the dates were fixed accordingly.
(iii) The share held by P-1, P-2, R-9 and his wife and son after so valued as directed above shall be offered to R-3, who would give consent for purchase of the same within two weeks from the date of such offer. He would pay the amount to the respective shareholders within three weeks of consent and necessary transfer formalities would take place as per law.
(iv) In case R-3 failed to purchase the shares as offered above, the value of shares of R-3 and his family members namely R-4, R-5 and R-6 should be as assessed by the competent Chartered Accountant as on 1-1-1985. The said shares should be purchased by P-1, and R-9 either jointly or individually. The amounts should be paid to R-3, R-4, R-5 and R-6 within three weeks and other formalities should be completed as per law.
(v) The value of the shares of the parties referred to above should be assessed on the basis of paid-up share capital of Rs. 5 lakhs divided into 50,000 of Rs. 10 each.
(vi) The shares held by P-3 should not be disturbed as the matter relating to withdrawal of his nomination was s ub judice before the Calcutta High Court.
Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd AIR 1966
K. Srinivasa Murthy and Vedanatham Srinivasan for the Petitioner. S.B. Mukherjee, Y. Ratnakar, S.K. Kapoor, S. Ravi, and Mahmood Ali Raghunandan Rao for the Respondent
1. The petition is laid under sections 397 to 399 of the Indian Companies Act, 1956. It has been orbiting for over a decade. Final curtain was laid by this Court by hearing the matter on day-to-day basis. Voluminous documentary evidence and enormous oral evidence was pressed into service. The following reliefs were claimed in the company petition:
(i) Declare the induction of the Respondent No. 7 as additional Director on to the Board purported to have been made at the Board meeting held on 15-1-1987 as void and illegal and injunct the said respondent No. 7 from exercising any power or authority as a Director of the Respondent No. 1 company.
(ii) Declare that there were no Annual General Meetings held on 18-12-1985 or 18-10-1986 and the Board Meeting held on 9-11-1985, 11-11-1985 and 20-8-1986, 20-9-1986, if there were any such meeting or meetings and that each of the said meetings are illegal and the resolutions if any passed thereat are void and inoperative.
(iii) Declare that the purported allotment of further/fresh shares in the year 1985 or 1986 if any, by the Board of the respondent No. 1 is void, illegal and to injunct the respondent Nos. 2 and 3 as Secretary and Managing Director from permitting any rights of such allottee shareholders under such further/fresh allotment including the voting right in respect of such further/fresh allotted shares.
(iv) Declare that the respondent No. 3 is not the Managing Director of the Company and/or in the alternate to terminate his appointment as Managing Director on the ground that he has shown himself to be unfit to be entrusted with the management of the company.
(v) Declare that the respondent No. 2 is not the Secretary of the Company and in alternate to terminate his appointment as the Secretary on the ground that he has shown himself to be unfit to be entrusted with such functions.
(vi) Restrain the respondent Nos. 2 and 3 ie., Secretary and Managing Director by an injunction from giving effect to any resolutions of the Board of the company at the meeting purportedly to have been held on 11-11-1985 and restrain respondent No. 3 from acting pursuant to the power of Attorney said to have been executed in his favour based on the said illegal resolution dated 11-11-1985.
(vii) Give appropriate directions for the convening of the Annual General Meetings of the Company for the year ended March, 1985 and March, 1986 after due notice, and in accordance with the provisions of the Act so that the shareholders of the company may consider and transact such business as may be permitted by law to be transacted at that meeting including the appointment or reappointment or removal of the Directors.
(viii) Appoint a special officer or officers to take charge of the business and affairs of the company and to arrange for running the same till the Board is duly reconstituted.
(ix) A scheme be framed by this court for administration of the company with proportionate representation of the petitioners on the Board in the alternate the special officer be directed to convene and hold and conduct an extraordinary general meeting of the company for the purpose of appointment of Directors.
(x) Give such other directions as this Honourable Court may deem necessary to put an end to the matters of mismanagement and oppression referred above and to ensure the appropriate conduct of the affairs of the company in accordance with the understanding of the joint participation and management of the affairs of the respondent No. 1 and the foreign joint venture company and in accordance with the provisions of the Act and the Articles of Association of the Respondent No. 1 company.
2. The averments in support of the petition can be narrated in nut-shell for proper appreciation of the case:
The Deccan Enterprises Private Limited (D.E.P.L.) is the 1st respondent
Company (for short R-1) was incorporated on 15-4-1966 under the provisions of
the Companies Act with Registered Office at
3. In this regard, it is necessary to note the names of respective parties and relationship which is as detailed below:
P-1 Mr. R.Khemka
P-2 Mrs. Radha Devi Khemka (wife of P-1)
P-3 Mr. Mahesh Khemka (son of P-1)
R-1 Company
R-2 Mr. V.K. Chemariya, Company Secretary.
R-3 Mr. O.P. Jalan
R-4 Mrs. Sudha Jalan (wife of R-3)
R-5 Mr. Vikas Jalan (son of R-3)
R-6 Miss Kavita Jalan (daughter of R-3)
R-7 Mr. S.N. Jalan (brother of R-3 and R-9)
R-8 Mr. S.K. Jalan (father of R-3, R-7 & R-9)
R-9 Mr. R.N. Jalan (brother of R-3 & R-7)
R-10 Mr. Ajay Kumar Ghuwalewala.
R-11 Mr. Mahesh Khemka (Transposed as P-3)
R-12 Registrar of Companies.
4. To the said Company Petition,
Counter Affidavit was filed by R-3 on behalf of R-1 and R-3 on 17-7-1987. While
admitting that the authorised capital of R-1 Company was Rs. 10 lakhs, it was stated
that issued paid-up capital of the Company was Rs. 10 lakhs divided into one
lakh shares. The petitioners altogether were having 11,400 shares and not
11,320 shares. R-7 was validly appointed as director in the Board meeting held
on 15-1-1987. It was denied that the idea of setting-up R-1 Company was
conceived by P-1 and R-9. It was also denied that the Company was promoted
though ostensibly private company, but in fact and in effect was a partnership,
neither the law permits such arrangement nor the Memorandum and Articles of
Association contained any clause suggestive such an arrangement. The 3rd
respondent was one of five brothers including R-9 and R-7. R-9 was holding an
important executive position in Birla Enterprise HIL. During consultations with
Mr. G.P. Birla, he agreed for setting-up of a company for manufacturing of
Rubber Rings at
5. The 2nd Respondent filed a Memo adopting the counter of the 1st Respondent.
6. Respondents No. 4 and 5 adopted the Counter
of the 1st Respondent.
7. Respondents No. 6, 7 and 8 also adopted the
Counter of the 1st Respondent.
8. A reply was filed by P-1 to the Counter filed
by the R-3 on 21-9-1987. It was reiterated by P-1 that the Company was
established at the instance of P-1 and R-9. It was also reiterated that the P-1
and R-9 were always guiding R-1 company and they have always been attending the
board meetings regularly. It was also reiterated that it was agreed to have the
share holding in the ratio of 1 /3rd and 2/3rd between J and K groups and
whenever new shares were floated the allotment took place on the basis of the said
ratio only. The alleged share issue of Rs. 5 lakhs in 1985 was illegal. Some of
the instances were also quoted by the P-1 to the effect that he has been
responsible for the export business, on account of his acquaintance with the
foreign companies as he and R-9 held high position in HIL. It was stated that
the joint venture was promoted by them. Various events were narrated which are
not relevant for the purpose of this case. With regard to establishment of
rival business, it was stated that Andhra Polymers Private Limited was
originally intended to take-up the manufacturing of plastic package film. Upto
1984 there was no activities and its commercial activities started only in
1985, in view of the total exclusion of P-3. It was further stated that two companies
namely Andhra Polymers Private Limited and Ramak Enterprises Private Limited
were established with the knowledge of Jalan group and initially they had their
Registered Office in the premises of R-1 Company and subsequently they were
shifted to some other premises. After having excluded from the participation of
the R-1 company, P-3 was forced to seek an independent source of living. On the
other hand, it was stated that the R-3 established another company by name
Golconda Investments Limited, Deccan Polymers Limited with the intention of
diversifying the business of Andhra Polymers Private Limited. The P-1 with the
assistance of R-9 are claiming the credit for profits of the R-1 company upto
1983. The losses for 1983 onwards were only book manipulations. The P-1
reiterated that K group did not receive any notices for the Board meetings and
that the Certificate of Postings were fabricated. The allegation of
disinterestedness of the P-1 was denied. Though a lengthy reply was filed, the
sum and substance of the reply which is relevant for the purpose of this case
is that the petitioners never received any notices for the Board meetings and
Annual General Meetings that the companies established by them have no rival
business and that the petitioners were subjected to oppression in the hands of
R-3, that the withdrawal of the son of P-1 namely P-3 was illegal that the
losses alleged to have taken place from 1984 onwards are only mere book
entries.
9. A further additional counter affidavit has been filed on behalf of R-1 and R-3 in effect reiterating same contentions raised in the counter except further elaborating the points referred to in the reply of the Petitioners.
10. There was exchange of affidavits and counter affidavits between the rival parties denying the contentions of each other.
11. A detailed counter affidavit was filed
by the R-9 on 29-2-1988. He stated that purported allotment of shares in 1985
was illegal and only intended for the benefit of the R-3 to R-8 and their
nominees. No offer was made. In the counter he traced out the background of his
employment in
12. Affidavit was filed on behalf of the Respondents No. 1 and 3 in reply to the counter affidavit of the R-9 again reiterating the same averments. But, however, some more averments were pressed into service with regard to the necessity for increase of share capital. It was stated that R-1 company had lent substantial funds to Nucon and Secunderabad Commercial Corpn. etc. and the amounts were not returned by the said companies. The break-up value of the shares when the additional capital was inducted was 59 per cent. It was also brought out in the affidavit that during September/October, 1984, the R-9 proposed that he would take Nucon Industries along with son and that R-3 will take R-1 company. After several meetings and with the assistance of their father, the consensus was arrived at to the above effect and R-9 resigned the Chairmanship of R-1 company and simultaneously R-3 resigned as Managing Director of Nucon. Accordingly, R-9 was appointed as Managing Director of Nucon and wife of R-9 was co-opted as Additional Director. It was also agreed for disinvestment of shares held in R-1 company by R-9 at mutually agreed price and for non-renewal of personal guarantees for R-1 company. So also R-3 had withdrawn his financial exposure in Nucon and in pursuance of the understanding the R-9 and his family members also sent bills for the sale of their shares, claiming excessive amounts which was not agreeable. Thus, it is the case of R-3 that R-9 had no interest in fresh investment in the light of the settlement. Therefore, he did not choose to subscribe to the new share capital. R-3 again reiterated that proper notices were issued in respect of the meetings and the minutes were properly drafted.
13. It is the case of R-3 that since the P-1 has established rival business he had no face to take part in the board meeting of R-1 company.
14. Rejoinder was filed by R-9 to the Counter
affidavit filed by R-1 and R-3. Same contentions were reiterated in a more
elaborate and repetitive manner. So also the P-1 filed further affidavit in
relation to R-3's Counters to R-9's affidavit.
15. The affidavits, counter affidavits, reply
affidavits and additional affidavits would only disclose that the parties were
virtually engulfed in wordy battle and to each word and each sentence, there
was a reply and counter reply.
16. After considering the respective pleadings, this Court initially framed the following issues on 8-4-1988:
"1. Whether the petitioner No. 1 and Respondent No. 9 and members of their family and associates have been excluded from the joint management and participation and enjoyment of the benefit of the 1st respondent Company and of the foreign joint venture company from and by about 1983?
2. Whether
the allegations of oppression of the petitioner's and Respondent No. 9, their
family members and associates, shareholders and of mismanagement of 1st
Respondent Company, by Respondent No. 3 and his family members and associates,
prejudicial to the interests of the company, are made out?
3. Whether
the alleged issue of additional shares of Rs. 5 lakhs in the year 1985 of the
1st respondent Company, is valid, legal and binding on and/or is in the
interests of, the said company or were they issued solely for the benefit of
respondent Nos. 3-6, 7 and 10?
4. Whether
the Board and/or the Annual General Meetings of the 1st Respondent Company in
respect of the years 1984-85, 1985-86 and 1986-87 are validly held and the
Annual Accounts and Balance Sheet of the said years are validly approved and
passed by the Board and/ or the General Body of the 1st Respondent Company?
5. Whether
there has been any violation by Respondent 3 or respondent 2 of any of the
provisions of Companies Act in respect of the affairs of the 1st Respondent
Company for the years 1984-85, 1985-86, and 1986-87 as alleged in the petition
and reply affidavit?
6. Whether
the alleged resolution of the Board of the 1st Respondent Company dated
21-8-1984 withdrawing the nomination of respondent No. 11 from the Board of
Directors of Joint venture foreign Company is valid and binding on the 1st
Respondent Company and R-11?
7. Whether the affairs of the 1st Respondent Company are mismanaged and its assets and profits misappropriated and not duly accounted for by R-3 and members of his family and associates on the Board of the 1st Respondent Company or otherwise, in the years 1983-84, 1984-85, 1985-86 and 1986-87 as alleged in the petition?
8. Whether all or any, if so, which of the reliefs sought for in the petition, are allowable? What is the effect of the proceedings pending in Calcutta High Court on these proceedings?
9. Whether there exists just and equitable ground for winding up of the 1st respondent Company?
10. Whether any other or further relief or direction is just, equitable and necessary to be ordered by the Court in the circumstances of the case?"
However, the issues were reduced in subsequent proceedings when the certain appeals were filed against Interlocutory orders. The Division Bench in OSA SR No. 24892 of 1994 on the basis of the submissions made by the learned counsel for the petitioner observed as follows:
"Mr. K. Srinivasa Murthy, learned counsel for the petitioners in Company Petition No. 27 of 1987, has stated that the only issue, if at all the same can be called an issue, to be decided in the proceeding is - 'whether there are any acts of oppression of the minority shareholders of the company by any other group of shareholders or majority shareholders' - and relevant to the above is the issue - 'whether petitioner - R. Khemka and ninth respondent and/or any other person on their behalf, as alleged by the third respondent, consented to the allotment of additional shares to several other persons and if they have not consented to the above, whether allotment of shares, as alleged by the petitioners, is an act of oppression attracting action under section 397 and/or 398 of the Companies Act. The main issue, as stated by us above, it is obvious, is comprehensive enough to bring into its fold all questions as to maintainability of an action under section 397 of the Companies Act on the ground of oppression as well as any issues suggestive of the presence of any act of oppression leading to the instant petition - Company Petition No. 27 of 1987."
Thus, it is not necessary for this Court to decide all the issues which are framed earlier, but the relevant issues which are required now to be proceeded with are as follows:
(a). Whether there are any acts of oppression of the minority shareholders of the company by any other group of shareholders or majority shareholders?
(b). Whether petitioner - R. Khemka and 9th Respondent - or any other person on their behalf, as alleged by the 3rd respondent, consented to the allotment of additional shares to the several other persons and if they have not consented to the above, whether allotment of shares as alleged by the petitioners, is an act of oppression attracting action under section 397 and/or 398 of the Companies Act?
17. Enormous oral evidence and voluminous
documentary evidence was pressed into service by the parties. However, the
evidence which is relevant only for the purpose of deciding the issue are being
considered in this petition. Two witnesses were examined on behalf of the
petitioners P. W-1 is Mr. Mahesh Khemka and P. W-2 is Mr. R. Khemka. Five
witnesses were examined on behalf of Respondents. R. W-1 is Mr. R.N. Jalan, who
is R-9 in the Petition, R.W-2 is Mr. Hemanth Jalan (son of R-9), R. W-3 is Mr.
S.G. Jalan (son of R-8), R. W-4 is Mr. V.K. Chemariya (R-2 in the Company
Petition), R. W-5 is Mr. O.P. Jalan (R-3 in the Company Petition). Exs. A-1 to
A-308 were marked on behalf of the Petitioners and Exs. R-1 to R-110 were
marked on behalf of R-9 and Exs. B-1 to B-527 were marked on behalf of R-3.
Exs. C-1 to C-11 were marked by the Court. Learned counsel for the parties
objected for marking certain documents and their objections, wherever found
necessary, were adverted to.
18. Before referring to evidence and
dealing with the same, it is necessary to note certain admitted facts. The 1st
respondent company was incorporated in the year 1966. At the relevant time, the
P-1 and R-9 were holding important positions in Hyderabad Asbestos Company
Limited subsequently re-named as Hyderabad Industries Limited HIL as President
and Vice-President of the company respectively. Though, it is claimed that P-1
and R-9 had conceived the idea of setting-up of R-1 company and claimed credit
for bringing R-1 into lime-light these issues are not necessary to be
considered, and the fact remains that it was incorporated under the provisions
of the Companies Act. It is also admitted case of the parties that the
principal ancillary item namely rubber rings which are required for the
manufacture of A.C. Pressure Pipes by HIL are being produced apart from other
products and the main source of supply of the products of the R-1 company was
only to the HIL. It is also admitted fact that Khemkas family and Jalans family
have also established certain other industries namely Nucon Industries, Deccan
Polymers Private Limited, Secunderabad-Commercial Company Limited (partnership
firm). The R-1 company also acquired 20% of equity in ARIL in
Brief Summary of relevant evidence.
19. Before dealing with the relevant issue it is necessary to refer to the relevant evidence. As referred to elsewhere the evidence both oral and documentary is in extenso. This Court had to identify the real grain by eliminating chaff.
20. P.W-1 is Mr. Mahesh Khemka (P-3 and
son of P-1). He narrated his assignments held in R-1 Company and also ARIL and
he stated that R-1 company was established for the benefit of himself and son
of R-9. He also stated that he did not receive any notices for Board meetings
and annual general meetings and he did not make any complaint to the company
directly and he only brought it to the notice of his father, who was looking
after the affairs. He along with his father filed suit in Calcutta High Court
when he was withdrawn from the Board of Foreign Joint Venture Company ARIL. He
came back from
21. It is in the evidence of P-1 Mr. R. Khemka as
P. W-2 that a resolution dated 21-8-1984 was passed by the Board of R-1 company
withdrawing the membership of P-3 on the Board of foreign joint Venture
company. Though he made efforts with R-9, but there is no meeting point.
Therefore, he immediately wrote a letter to R-9, on 25-3-1985 regretting for
the unfortunate development. On the very same day, he also wrote a letter to
R-1 company and R-3 and sought for copies of the Board meetings and the Annual
General Meetings since 1983. He also requested Annual Report for the year ended
31-3-1984. He also requested that future notices should be sent by Registered
Post. As there was no response from R-9 with regard to the Directorship of his
son to foreign company, he filed the suit before the Calcutta High Court in
May, 1985. R-3 replied by a letter dated 30-4-1984 but the minutes were not furnished.
But, only copy of the annual report and balance sheet for the year ending
31-3-1984 was furnished. He did not receive any notice for the meeting of the
Board which held on 21-8-1984. It is only for the first time he received notice
dated 13-6-1985 of the meeting of the board which was scheduled to be held on
25-6-1985. Subsequently also he received certain notices and he sought leave of
absence on account of pre-occupation. He also states that R-9 was also being
ignored by R-3 on account of certain differences between them. The telegraphic
notice issued by R-3 dated 30-10-1985 he did not intend to attend. Under letter
dated 1-11-1985, he received only the proceedings of Annual General Meeting
held in 1983 and 1984. Prior to that neither he nor his family members or other
shareholders received any notices of the meetings of 29-9-1983 or 28-9-1984.
Even in the letters sent by R-3 on 6-3-1986 there was no mention about the
board meetings held or Annual General Meeting upto July, 1985. However, during this
period one Mr. Pintoo Khaitan was chosen as mediator for settling the issues
between the parties and negotiations fell out finally. Under the registered
letter dated 21-9-1986 he received a copy of the letter addressed by R-3 to R-9
and R-9's wife. The letter dated 16-9-1986 it was addressed by R-3 to R-9. The
letter dated 22-9-1986 addressed by R-3 to R-9 was received by him in the
registered cover and he informed R-3 accordingly. Thus, this witness only tried
to establish that the unconnected letters were being sent in the
registered covers, but, however, he was not furnished with the Minutes of the
meetings prior to 25-3-1985. He also wrote number of letters to the Registrar
of Companies, but there was no reply. He attended the board meetings on 31-10-1987
and opposed the voting strength on the basis of the alleged additional issue.
It was only by then he learnt for the first time that the additional capital
was allotted to R-3 and members of his family. Till then he was not aware of
such issue. He also states that there were several lendings and there was no
necessity for raising the capital for the purpose of more funds. Increase in
the share capital is only to gain the control and majority in the R-1 company.
If there had been a proper notice, they must have contributed to the additional
shares to the extent of 33 per cent. He did not have any interest with Andhra
Polymers either direct or indirect. It is his case that there is no necessity
for purchase of machinery in 1984-85 for any diversification and there is no
financial stringency and that the machinery was already available with R-1
company. There was several other assets in the company which could have been
sold if real necessity arose. In effect he says that there was no necessity and
the issue relating to additional share capital is nothing but a ruse to gain
the majority in the company. He also said the sale of shares of HIL was illegal
and contrary to the statutory provisions. He also narrated certain events
subsequent to the filing of the company application inasmuch as the issues are
very specific it would be a futile exercise to refer to the events which would
not be relevant for the purpose of deciding the matters in dispute. He also
states that R-3 had established other companies—Deccan Industrial Products
Private Limited and Deccan Auto Sales Private Limited and they are being
represented by benamidars who are the close associates. It is also his case in
the cross examination that Shreyans Finance Private Limited is also established
under benami name. R-3 brought about diversification of business with a view to
favour his new companies to thrive. The events subsequent to the company
petition are not much relevant. Among other notices, he stated that he did not
receive the notice dated 21-5-1984 (Ex. B-85) for the meeting of the Board of
Directors to be held on 4-6-1984. He also did not receive the notice dated
10-8-1984 (Ex. B-86) for the meeting of the board of directors to be held on
21-8-1984 at
22.
R-9 Mr. R.N. Jalan was examined as
R. W-1. It is in the evidence of R. W-1 that apart from other statements which
are almost in tune with the counters and additional counters, that in 1982 P-3
returned from
23. R. W-2 is Mr. Hemanth Jalan
(Son of R-9). He stated that he did not receive any notices for Board Meeting
or Annual General Meeting and that he did not write to the company, he only
reported the matter to his father and his father must have taken action. He
also stated that he did not receive any notices calling upon him to subscribe
the additional shares. R. W-2 is son of R-9. Nothing is elicited in his cross
examination.
24. R. W-3 is son of R-8. It is
his case that he holds 1/5th share in all the business of Jalan family, that no
partition took place in the year 1984. He also stated that in February/March,
1985 there were differences and it was decided that all the members of the
Jalan family should prepare balance sheets of all the companies on 31-7-1985.
But, however, no partition took place. He says that in December, 1984 or
January /February, 1985 he did not receive any notice with regard to the
subscription for additional shares. No notice was also received in respect of
Annual General Meeting for 1984-85 and 1985-86. In the cross examination he
said that he did not implead himself in the Company Petition, yet he came to
give evidence in his own interest. He also said that he did not write any
letter to the D.E.P.L. after 4 years after he came to know increase in the
share capital. He states that he gave blank signed papers to his father and he
did not return even though he asked for return of the papers after 1984. Except
these related facts, other evidence is not relevant.
25. The R-2 Mr. V.K. Chamariya
is examined as R. W-4, the Company Secretary of R-1 Company. According to him, he
joined the company around 1978. He was looking after the Company Law matters,
Taxation. He stated that the notices for General Body and Board of Directors
were being regularly sent by post. Upto 1981 Govindas was the Company Secretary
and till 1984, one Mr. Subba Rao was the Secretary. The Secretary was
consulting him in all the company matters. According to him, for the Board
meeting took place on 10-5-1982, Notice for the Board meeting was dated
3-5-1982, Ex. B-275. It was sent under Certificate of Posting Ex. B-274. Agenda
for the meeting is Ex. B-275-a. Similarly for the Board Meeting held on
4-8-1982, Notice was issued on 26-7-1982. Certificate of Posting is Ex, B-276
while the Notice is Ex. B-165, Agenda is Ex. B-165-a. For the next Board
meeting held on 24-8-1982, the Notice was issued on 16-8-1982 Ex. B-166 and the
Certificate of Posting is Ex. B-276 and Agenda is Ex. B-166-a. For Board
meeting dated 27-8-1982, the Notice dated 23-8-1982 was issued and Certificate
of Posting is Ex. B-278, Agenda is Ex. B-167-a. For the Board meeting held on
21-11-1982, Notice was issued dated 18-11-1982 were posted under Ex. B-279. For
the Board meeting dated 3-2-1982 the Certificate of Posting Notice dated
31-1-1983 is Ex. B-280. Similarly for the Board meeting held on 31-3-1983, the
Certificate of Posting for Notice dated 31-3-1983 is Ex. B-281. For the board
meeting dated 2-6-1983, the Certificate of Posting for the Notice dated
25-8-1983 was marked as Ex. B-282. Notice dated 25-8-1983 is Ex. B-67 for Board
meeting held on 2-6-1983. Agenda for Board meeting dated 2-6-1983 is Ex.
B-167-a. For Board meeting held on 20-7-1983 the Certificate of Posting Notice
dated 9-7-1983 is Ex. B-283. Notice for the Board meeting dated 9-7-1983 for
Board meeting dated 20-7-1983 is Ex. B-168. Agenda for the Board meeting dated
20-7-1983 is Ex. B-168-a. The Certificate of Posting for Notice dated 20-7-1983
for Board meeting held on 27-8-1983 is Ex. B-284. The Notice dated 20-7-1983 is
Ex. B-169. Agenda for the Board meeting is Ex. B-169-a. For Board meeting dated
1-11-1983, Notice Ex. B-170 was sent under Certificate of Posting Ex. B-285.
Notice dated 21-10-1983 is Ex. B-170. Agenda for the Board meeting dated
1-11-1983 is Ex. B-170-a. Certificate of Posting for Notice dated 2-1-1984 for
Board meeting held on 13-1-1984 is Ex. B-286. Notice is Ex. B-284, Agenda is
Ex. B-284-a. For Board meeting held on 3-3-1984 Notice is dated 24-2-1984 sent
under Certificate of Posting Ex. B-287. Notice is Ex. B-171 and Agenda is Ex.
B-171-a. For the Board meeting dated 4-6-1984, the Notice was sent under
Certificate of Posting Ex. B-288, Notice is Ex. B-85 and Agenda is Ex. B-85-a.
For Board meeting dated 21 -8-1984 Notice dated 10-8-1984 was sent under
Certificate of Posting Ex. B-289. Notice is Ex. B-86 and Agenda is Ex. B-86-a.
For the Board meeting dated 3-5-1984 Notice was sent under Certificate of
Posting on 28-4-184 Ex. B-290. The Certificate of Posting dated 23-10-1984 for
the Board meeting held on 3-11-1984 is Ex. B-291. Certificate of Posting dated
10-11-1984 for notice dated 10-11-1984 for the Board meeting held on 26-11
-1984. Minutes of the Board meeting dated 4-6-1984 are Ex. B-277-a, while
Minutes dated 21-8-1984 are Ex. B-227-b, Minutes dated 3-9-1984 are Ex.
B-227-a. Minutes of Board meeting dated 3-11-184 is Ex. B-227-c, Minutes of the
Board meeting dated 26-11-1984 is Ex. B-227-b, Minutes of the Board meeting
dated 5-1-1985 are Ex. B-227-e, and Minutes of the Board meeting dated
28-2-1985 are Ex. B-227-f. For the Board meeting dated 5-1-1985, the Notice was
sent under Certificate of Posting on 28-12-1984 under Ex. B-133. For the Board
meeting held on 28-2-1985, the Notice was sent under Certificate of Posting
dated 18-2-1985 under Ex. B-128, Notice dated 18-2-1985 is Ex. B-87, Agenda for
the Board meeting is Ex. B-87-a. Till March, 1985, no Director complained about
the non-receipt of the Notice for the Board meeting or General Meetings.. He
states that at the end of March, 1985, P-1 wrote a letter complaining of the
non-receipt of the Notice for the Board meeting and general meetings and
requested to send the future notices by Registered Post Acknowledgement Due. He
says that after incorporation of A.P.P.L. the substantial orders of R-1 company
were diverted. The witness further stated that after March, 1985 all the
Notices of the Board meetings and general meetings of the R-1 company were sent
to P-1 by Registered Post Acknowledgement Due. The postal receipt under
Registered Post of Notice dated 30-6-1985 is Ex. B-343. The acknowledgement is
Ex. B-92. Notice dated 13-6-1985 is Ex. B-344 and Agenda is Ex. B-344-a. The
meeting scheduled under Ex. B-344 was adjourned to 27-6-1985. Again the Notices
were sent on 18-6-1985 under Registered Post to P-1 under Ex. B-346 and Ex.
B-93 is the Acknowledgement for Ex. B-346. Notice is Ex. B-347. In respect of
Board meetings held on 8-7-1985, the certificate of Posting sent to all the
Directors except P-1 under Ex. B-348 and the postal receipt in respect of P-1
is Ex. B-349. Ex. B-94 is the Acknowledgement of Ex. B 349. Notice dated
28-6-1985 is Ex. B-350 and Agenda is Ex. B-350-a. Minutes of the Board meetings
are marked as follows:
|
Date of Minutes of Board Meeting/A.GM. Meeting/A.G.M. |
Exhibit No. |
||
|
(a) |
Board
Meetings: |
|
|
|
|
2-6-1983 |
|
B-330-a |
|
|
20-7-1983 |
|
B-330-b |
|
|
27-7-1983 |
|
B-330-c |
|
|
1-11-1983 |
|
B-330-d |
|
|
13-1-1884 |
|
B-330-e |
|
|
3-3-1984 |
|
B-330-f |
|
|
27-6-1985 |
|
B-331-a |
|
|
8-7-1985 |
|
B-331-b |
|
|
8-11-1985 |
|
B-331-c |
|
|
11-11-1985 |
|
B-331-d |
|
|
6-3-1986 |
|
B-331-e |
|
|
15-3-1986 |
|
B-331-f |
|
|
19-9-1986 |
|
B-332-a |
|
|
20-9-1986 |
|
B-332-b |
|
|
16-10-1986 |
|
B-332-c |
|
|
4-11-1986 |
|
B-332-d |
|
|
15-1-1987 |
|
B-332-e |
|
|
29-9-1982 |
|
B-332-f |
|
(b) |
A.G.M. |
|
|
|
|
For the year |
Held on |
|
|
|
1982-83 |
29-9-1983 |
B-334-b |
|
|
1983-84 |
28-4-1984 |
B-334-c |
|
|
1984-85 |
18-12-1985 |
B-334-d |
|
|
1985-86 |
18-10-1986 |
B-334-e |
|
|
1986-87 |
31-10-1987 |
B-334-f. |
He stated that he never sent any unsigned copies of the Board meetings of R-1 Company to R-9 and that he never received any letter from R-9 stating that he had sent unsigned copies of the minutes. He also did not receive from R-9 any communication initiated by him pertaining to R-9. He did not receive any letter dated 16-8-1985 from R-9 containing any minutes of 12 Board meetings. He did not receive Ex. R-2 along with enclosures. Letter dated 16-8-1985 from R-9 addressed to him as Secretary of D.E.P.L. asking him to send the Notices of Annual General Meeting and Emergency General Meeting by Registered Post to all the shareholders is Ex. B-351. This letter was sent under envelope bearing No. 5802 which is Ex. B-352. Ex. B-351 is the only paper which is received under Ex. B-352. He had sent letter dated 21-10-1985 Ex. R-4. By letter dated 13-10-1985 Ex. R-11 he replied to R-9 (R-9's letter dated 21-10-1985). No reply was received from R-9 to the letter dated 13-10-1985. R-9 did not ask for any inspection of the records of R-1. He received letter dated 27-10-1985 Ex. R-5 from R-9 asking him to send all the letters, Notices of Board meetings and shareholders to his address at Nucon factory by Registered Post Acknowledgement Due. He also received similar letters from Smt. Satyabhama Jalan, Mr. Hemanth Jalan. He received telegram dated 3-10-1985 issued by R-9 proposing to call the Board meeting of R-1 company on 18-11-1985. He stated that the relationship between the directors was very much strained. Two groups were formed, 1st group consisted of R-9 and P-1 and the 2nd group consisted of R-3. As a company Secretary he was being put to harassment by various letters and phone calls from the Directors particularly from R-9. He informed the telegram dated 30-10-1985 to R-3 by that time Notice was already sent calling for the Board meeting on 8-11-1985 and 11-11-1985. As the director is not entitled to call for the Board meeting under the Article 48 of articles of association, he was asked by R-3 to reply suitably explaining the position, which he did under Ex. R-12 dated 13-11-1985. Notice dated 31-10-1985 for Board meeting dated 8-11-1985 and 11-11-1985 is Ex. B-353 and the Notice sent under the Registered Post to P-1 is Ex. B-97. Acknowledgement of the Notice from P-1 is Ex. B-95. Similarly the Notice sent to R-9 under Registered Postal receipt is Ex. B-354. Both P-1 and R-9 did not attend the meeting of 8-11-1985 and 11-11-1985. Mr. S.K. Jalan was granted leave of absence. In the meeting held on 8-11-1985, the draft annual accounts for the year 1984-85 were approved. In the meeting held on 11-11-1985 the annual accounts for the year 1985-86 along with the directors report and Auditors report prepared and approved and it was also decided to call for 19th Annual General Meeting on 18-12-1985. The Certificate of Posting dated 11-11-1985 along with the Audited accounts for the year 1984-85 sent to all the shareholders for Annual General Meeting to be held on 18-12-1985 as Ex. B-127. Notice of Annual General Meeting was sent by Registered Post and Postal Receipt is Ex. B-355, Ex. B-258 is the Registered Post Receipt. Similarly for R-9 was sent under Postal Receipt Ex. B-356. For notice of Annual General Meeting dated 18-12-1985 was sent to Mrs. Hemalatha Jalan. Ex. B-256 is the Registered Post sent to Mr. S.B. Jalan. Ex. B-257 is the Acknowledgement for Ex. B-256. Ex. B-125 is the Notice of Annual General Meeting, Ex. B-126 is the Audited Accounts of R-1 company for the year 1984-85. The Notices were sent to all those persons who requested for sending the Notices by Registered Post and the accounts were sent to all the shareholders under Certificate of Posting. None of the persons complained. Similarly for the Board meeting held on 8-11-1985 and 11-11-1985 the Notice dated 31-10-1985 is Ex. B-96. Agenda for the Board meeting dated 8-11-1985 is Ex. B-96-a, and Agenda for the Board meeting dated 11-11-1985 is Ex. B-96-b. The annual returns of R-1 company dated 18-12-1985 for the year 1984-85 was filed with the Registrar of Companies under Ex. B-357. The letter of the Company is Ex. B-358. Similarly for 1984-85 for filing the Audited accounts is Ex. B-359 and money receipt is Ex. B-360. The Certified Copy of the Annual Return upto 18-12-1985 is Ex. B-361. It is in evidence that he received a letter on 12-2-1986 Ex. A-44 from Mr. Subba Raju, the Secretary of P-1 stating that while going through the correspondence, he found the copies of the settlement of accounts of Mahesh Trading Company received by him in November, 1985. A similar letter dated 12-2-1986 was received from Mahesh Trading Company under Ex. A-43. He did not send any letter to P-1 pertaining to accounts of Mahesh Trading Company. On 5-3-1986 under Ex. A-3 he sent letter to P-1 denying sending of any such statement of Mahesh Trading Company and copy of the said letter was also sent to Mahesh Trading Company under Ex. A-46. In respect of the Board meetings held on 6-3-1986, the Notices were sent under Ex. B-362. In respect of P-1 its Registered Post Receipt is Ex. B-363 and Acknowledgement is Ex. B-98. In respect of R-9 it is Ex. B-364 and B-365. R-9 and P-1 did not attend the meeting. Similarly in respect of the Board meetings held on 15-3-1986, the P-1 sought for leave of absence, R-9 did not attend. For Board meeting dated 19-9-1986 and 20-9-1986 even though the Notices were acknowledged, P-1 and R-9 did not attend. The draft Annual Accounts of R-1 company for the year 1985-86 were approved in the meeting held on 18-9-1986 and in the meeting held on 20-9-1986 the Audited Accounts of R-1 Company for the year 1985-86 along with the Directors and Auditors Report were approved and it was also decided to hold 20th Annual General Meeting on 18-10-1986. Notices were sent as per the instructions of the parties and Acknowledgements were also received and they were marked. R-9 and P-1 did not attend the meetings held on 18-10-1986. R-1 wrote a letter on 31-12-1986 to the Registrar of Companies for filing the annual return upto 18-10-1986 under Ex. B-382, and under Ex. B-383, the audited accounts were filed before the Registrar of Companies. Certified Copy of the annual return of R-1 as Certified by the R.O.C. is Ex. B-384. Board meeting was held on 4-11-1986. The Notice sent under Registered Post was acknowledged by P-1. So also though notice was sent under Registered Post to R-9 he did not attend. Next meeting was held on 15-1-1987. Notices were sent under Registered Post as directed by R-9. But, they did not attend the meeting. Subsequent meeting dated 6-6-1987 also they did not attend. In the cross examination, the witness stated that Notices for meetings were sent under Registered Post to R-9 and P-1 and the accounts were sent under Certificate of Posting as usual along with other shareholders. He denied the suggestion that the audited accounts were not sent to P-1 and R-9. He also denied the suggestion that the Minutes of Annual General Meeting dated 18-12-1985 were fabricated and that no Notices were sent. They also denied that the Notices for Annual General Meeting for the year 1985-86 not sent. In the cross examination he further stated that when the bank limits were sanctioned in 1981, the R-1 Company had undertaken to increase the capital upto Rs. 10 lakhs. In March, 1982 the capital was increased to Rs. 5 lakhs After 1981 the next proposal for renewal of limits was submitted by R-1 Company in 1984 and in between there was no occasion for the Bank to remand the capital. When the proposal submitted in 1984, the Bank had reminded for increase of the capital and to this extent there are some inter-departmental correspondence. He denied the suggestion that the typed matter in Ex. B-301 was filled later and that blank letter-head was signed by Mr. Kedia. The increase of the capital was informed to the Bank in April, 1985 by Mr. Kedia and enhanced limits were sanctioned by the Bank in December, 1985. He also denied that there was no diversification of the production after the installation of the new machinery in 1985. He further stated that apart from the machinery purchased from D.E.P.L. some more machinery for over more than Rs. 14 lakhs was purchased from other companies. He denied the suggestion that Ex. B-340 was obtained by influencing the then Branch Manager. He also denied the suggestion that capital brought by R-3 and his family was only a paper transaction. He also denied the suggestion that the sole purpose of issue of additional share capital was gained in majority and the reasons assigned were not genuine. He also denied the suggestion that the Notices for 20th Annual General Meeting were not sent at all. The witness stated that in the meeting held on 3-11-1984 R-9 expressed his inability to continue as Chairman. Therefore, R-3 was appointed as Chairman. There was no written letters from R-9. The company issued Notice and Agenda for the meetings dated 3-11-1984 and 26-11-1984. But, they were not filed by him. The minutes of the meeting dated 3-11-1984 were signed by R-3. He did not file the Notice and Agenda in respect of the meeting dated 26-11-1984. In the said meeting the decision was taken to increase the capital from Rs. 5 lakhs to Rs. 10 lakhs. He was present in the Board meeting held on 26-11 -1984. In the Board meeting held on 5-11 -1984 time was extended for subscription of new shares and Mr. Subba Rao was the Secretary till February, 1985. To a question that he deliberately failed to produce the Notices and Agenda for three meetings dated 3-11-1984, 26-11-1984 and 5-1-1985 the witness answered that from November, 1984 Mr. Subba Rao was not attending to his duties as he was under the threat of removal and in his absence R-3 was looking after the Secretarial work and the Board meetings were signed by R-3 in his absence. The Notices for the Board meeting dated 3-114984, 26-11-1984 and 5-1-1985 were available in the company. He admits that a sum of Rs. 5 lakhs was received towards additional share capital from R-3 and his members, but there was no response from other shareholders, even though offers were sent. He also denied the suggestion that all the Certificate of Posting receipts from Sanjeeva Reddy Nagar post office were got fabricated at a later date and in fact Notices were never sent under Certificate of Posting. He also denied that Ex. B-411, B-411-a, B-412, B-412-a, Ex. B-413 and Ex. B-413-a, were all fabricated. He further stated that Mr. Subba Rao was not attending the company and therefore, R-3 was looking after the secretarial work.
26. R-3 Mr. O.P. Jalan was
examined as R. W-5. He filed lengthy affidavit in lieu of examination in chief.
Most of the statements referred are not relevant for the purpose of deciding
the issue under this Company Petition. However, to narrate certain important
statements, he stated that the D.E.P.L. was started only for his benefit
as a member of Jalan family and P-1 was only a investing shareholder and there
was no understanding of any partnership. He made an application in 1965 to the
Registrar of Companies for available of name. He prepared the draft Memorandum
and articles of association and submitted to the Registrar. He was responsible
for construction of factory building and also for recruiting necessary
technical persons and also for opening the Bank accounts with various banks. He
asserts that since inception Notices of the Board meetings along with the
Agenda were being sent on ordinary post to all the Directors. He was appointed
as Managing Director in the Board meeting held on 26-2-1969 and it was
established only for his benefit and none-else. He was also Chairman of the Board
from November, 1984. He was responsible for efficient management of the company
and the company was developed by his efforts only with his contacts with
various business circles. He also developed Export Market and narrated various
events. He also held various posts as the President of All India Rubber
Industries Association, Chairman of CAPACIL, Member of Rubber Board etc. He was
also responsible for establishment of a Joint Venture Company ARIL in
27. It would be convenient to
decide the Issue No. 2 as to whether there was any consent by the P-1 and his
group and R-9 and his group for additional share issue. As already stated the P-1
is only representing the group of Khemkas family while the Jalan family is
being represented by two persons namely R-9 representing by himself and his
family members while R-3 representing himself, his family members and other
Respon dents.
28. Let us now consider the procedure in general relating to issue of Notices and the conduct of the Board of Directors and Annual General Meetings. It is the case of the P-1 and R-9 that the meeting of the Board of Directors were being held on intimation over telephone and the Notices some times were being sent by the messengers as the P-1, R-3 and R-9 were staying as neighbours. It is also the case of P-1 and R-9 that these Notices were never sent by post much less under Certificate of Posting. It is also his case that the Minutes of the meetings of the Board of Directors were being circulated after the Minutes were finalised and this practice was not continued from the year 1983 onwards. Having waited for considerable time and having noticed that the P-1 was not being sent with any Notices for the meetings of the Board of Directors nor Annual General Meetings and the accounts were not being circulated to him, he sent letter to Managing Director of R-1 company dated 25-3-1985 Ex. A-21 stating that the various Board meetings and General meetings of the Company were held for the last 18 months and no Notice, Agenda or Invitation were received for these meetings. He did not also receive the annual report, balance sheet for the year ending by 31-3-1984 for his signature and he has also not been receiving the monthly reports of the company. Therefore, he requested R-3 to send various Minutes of Board of Directors and General meetings held since June, 1983 for his perusal and record and also a copy of the Annual Report and Balance Sheet for the year ending 31-3-1984. Further, he also requested to send all the Notices to reach one week before the date of the meeting. To the said letter R-3 sent a reply on 30-4-1985. Ex. A-22 controverting the allegations that the Notices, Agendas and other documents in connection with the meetings of the Board of Directors and Shareholders of the company were not being sent. However, a copy of the Annual Report and the Balance Sheet was enclosed. It was also stated in the said letter that the practice of sending the monthly Reports was discontinued. It is in evidence of P-1 that the subsequent Notices were received by him and in respect of certain Notices he also sought for leave of absence. Later after about four months on 16-8-1985 again another letter was sent by P-1 to R-1 under Ex. A-28 requesting to send the Minutes as per the practice. On the very same day another letter under Ex. A-29 was written to R-1 in reply to latter's letter dated 30-4-1985. Apart from other issues he also requested the Minutes of various General meetings since June, 1983 may be despatched to him. To the said letter a reply was sent on 1-11-1985 Ex. A-31 by R-3 sending the Minutes of various General meetings held since June, 1983 while reiterating the contents of letter dated 30-4-1985 and Ex. A-32 dated 1-11-1985 is also to the same effect while reiterating the contents of letter dated 2-5-1985. To a letter dated 30-10-1985 of R-9 it was informed by the Secretary R-2 of R-1 company vide Ex. A-33 and all meetings of the Board were held upon proper Notice and under Article 48 of the Articles of Association and R-9 cannot convene the meetings of the board of directors. This letter was endorsed to P-1. Hence, the request of R-9 for holding the meeting was not accepted. To the said letter another letter was sent by P-1 dated 17-12-1985 Ex. A-34 stating that the Minutes of the meetings dated 27-6-1985 and 8-7-1985 were not sent apart from the papers requested in letter dated 16-8-1985. He expressed certain apprehensions that the Jalan group was attempting to change the pattern of shareholding of the Company viz. issue of unsubscribed capital and allotting to the nominees of the Jalan group. On the same day another letter was sent to R-3 under Ex. A-3 5. In this letter he sent a draft for Rs. 100 requesting the R-3 to send the Notices, Agenda and relevant materials and all other communication by Registered Post with Acknowledgement due. Again on 17-12-1985 another communication was sent under Ex. A-36 requesting certain documents. On 16-1-1986 Ex. A-37 a reply was sent by R-3 expressing concern about the false allegations made against him including the non-receipt of the various Notices of meetings and that in fact he has not been attending any meetings since about 1983. He also expressed that he did not wish to go into this matter as the negotiations are in progress with regard to various pending matters. Ex. A-38 is the Telegram received by R-3 from Mr. Khaitan to the effect that the talks with regard to resolving the disputes between Jalan group and Khaitan would be held from 24th to 26th January, 1986. By Ex. A-41 dated 6-2-1986 in confirmation of telegram was sent in that connection. It is his case that till date he has not received any Notice of Directors meeting or General meeting after 8-7-1985. By Ex. A-42 dated 9-2-1986 he also sent another letter stating that he had not received the Notices of Board meeting dated 8-7-1985. Two letters dated 6-2-1986 and 9-2-1986 written by P-1 to R-3 reply was sent on 6-3-1986 under Ex. A-48 stating that he was unwilling to enter into any controversy or settlement in view of the negotiations for the settlement and requested him to resolve various pending matters amicably. P-1 also received certain other Notices for other meetings but sought for leave of absence. Mr. Khaitan by letter dated 3-7-1986 Ex. A-52 wrote to R-3 it was mentioned that Mr. Shree Narayan may kindly arrange for payment within next week. From this it appears that some settlement was arrived between the parties with the intervention of Mr. Khaitan and the amount appears to have been assessed and the payment was directed to be made to Khaitan in reply to the letter of R-3 as written to Mr. Pintu Khaitan vide Ex. A-53 stating that Mr. Shree Narayan was leaving for Amarnath and Contacting him in the first week of August, 1986. The letter of Mr. Khaitan and reply letter of R-3 was endorsed to Mr. Mahesh Khemka P-3. On 18-10-1986 Ex. A-59 R-2 has written as a Secretary of R-1 Company to P-1 stating that the time stipulated in the Notice was in accordance with the Companies Act and that the P-1 had not been attending any Board meeting since 31-3-1983 including the meetings which were held on 16-10-1986. To this a detailed letter was written by P-1 to R-3 vide Ex. A-60. In the subsequent events there was exchange of various Notices and letters between R-3 and P-1, but they are not relevant for the purpose of this case as we are only on the issue as to what was the practice with regard to sending the Notices.
29. As far as the R-9 is concerned, who was examined as R.W-1 it is in evidence that he has been attending all the Board meetings. But, there was no practice of sending the Notices by post or under Certificate of Posting. The Directors were being informed either orally or on telephone and the meetings were taking place. He also says that the Certificate of Posting are not genuine and they are fabricated for the purpose of establishing that the Notices were sent under Certificate of Posting. The board of directors passed resolutions in 1982 to the effect that Minutes of the Board of Directors should be maintained in Loose Leaf Papers and subsequently It appears that they were got bound for safe custody in view of the pendency of the case. Exs. B-156, B-332, B-227, B-333 are the copies of the Minutes of the Board of meetings from April, 1982 to March, 1983. From the said Minutes it is seen that the following persons attended the meeting:
|
Date of Meeting |
Persons attended |
|
Ex. No. |
|
10-5-1982 |
O.P. Jalan (R-3) |
|
A-14 |
|
|
Smt. Sudha Jalan (R-4) |
|
|
|
|
Leave of absence was granted to R.N.
Jalan (R-9), R. Khemka (P-1), and S.K. Jalan (R-8). |
|
|
|
4-8-1982 |
R.N. Jalan (R-9) |
|
B-156 |
|
|
R. Khemka (P-1) |
|
|
|
|
O.P. Jalan (R-3) |
|
|
|
|
Smt. Sudha Jalan (R-4) |
|
|
|
24-8-1982 |
R.N.
Jalan (R-9) |
|
|
|
|
R.
Khemka (P-1) |
|
A-12 |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to |
|
|
|
|
Mr.
S.K. Jalan (R-8) |
|
|
|
27-8-1982 |
O.P.
Jalan (R-3) |
|
A-11 |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to R.N. Jalan (R-9), R. Khemka (P-1) and S.K. Jalan
(R-8) |
|
|
|
22-11
-1982 |
R.N.
Jalan (R-9) |
|
R-102 |
|
|
R.
Khemka (P-1) |
|
|
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
3-2-1983 |
R.N.
Jalan (R-9) |
|
R-103 |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
31
-3-1983 |
R.N.
Jalan (R-9) |
|
R-104 |
|
|
R.
Khemka (P-1) |
|
|
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
2-6-1983 |
R.N.
Jalan (R-9) |
|
B-330-A |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
20-7-1983 |
R.N.
Jalan (R-9) |
|
B-330-B |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
27-7-1983 |
R.N.
Jalan (R-9) |
|
B-330-C |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
1-11-1983 |
R.N.
Jalan (R-9) |
|
B-330-D |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
13-1-1984 |
R.N.
Jalan (R-9) |
|
B-330-E |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
3-3-1984 |
R.N.
Jalan (R-9) |
|
B-330-F |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
4-6-1984 |
R.N.
Jalan (R-9) |
|
B-227-AA |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
21-8-1984 |
O.P.
Jalan (R-3) |
|
B-227-B |
|
|
S.K.
Jalan (R-8) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to R.N. Jalan (R-9) |
|
|
|
3-9-1984 |
R.N.
Jalan (R-9) |
|
B-227-A |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
3-11-1984 |
R.N.
Jalan (R-9) |
|
B-227-C |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
26-11-1984 |
O.P.
Jalan (R-3) |
|
B-227-D |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to S.K. Jalan (R-8) and R.N. Jalan (R-9) |
|
|
|
5-1-1985 |
O.P.
Jalan (R-3) |
|
B-227-E |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to S.K. Jalan (R-8) and R.N. Jalan (R-9) |
|
|
|
28-2-1985 |
O.P.
Jalan (R-3) |
|
B-227F |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to S.K. Jalan (R-8) and R.N. Jalan (R-9) |
|
|
|
19-9-1986 |
O.P.
Jalan (R-3) |
|
B-332-A |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
20-9-1986 |
O.P.
Jalan (R-3) |
|
B-332-B |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
16-10-1986 |
O.P.
Jalan (R-3) |
|
B-332-C |
|
|
Smt.
Sudha Jalan (R-4) |
|
|
|
|
Leave
of absence was granted to R. Khemka (P-1) and S.K. Jalan (R-8) |
|
|
|
4-11-1986 |
S.K.
Jalan (R-8) |
|
B-332-D |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Leave
of absence was granted to Smt. Sudha Jalan (R-4) |
|
|
|
15-1-1987 |
S.K.
Jalan (R-8) |
|
B-332-E |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Sudha
Jalan (R-4) |
|
|
|
|
S.N.
Jalan (R-7) on invitation. Leave of absence was granted to R. Khemka(P-1) |
|
|
|
6-6-1987 |
S.K.
Jalan (R-8) |
|
B-333 |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
S.N.
Jalan (R-7) |
|
|
|
|
Leave
of absence was granted to R. Khemka (P-1) and Smt. Sudha Jalan (R-4) |
|
|
|
21-9-1987 |
S.K.
Jalan (R-8) |
|
B-333 |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
S.N.
Jalan (R-7) |
|
|
|
|
Leave
of absence was granted to Smt. Sudha Jalan (R-4) |
|
|
|
22-9-1987 |
S.K.
Jalan (R-8) |
|
B-333 |
|
|
S.N.
Jalan (R-7) |
|
|
|
|
O.P.
Jalan (R-3) |
|
|
|
|
Leave
of absence was granted to Sudha Jalan (R-4) |
|
|
|
31-12-1987 |
S.K.
Jalan (R-8) |
|
B-333 |
|
|
O.P.
Jalan (R-3) |
|
|
|
|
S.N.
Jalan (R-7) |
|
|
|
|
Leave
of absence was granted to Smt. Sudha Jalan (R-4) and R. Khemka (P-1). |
|
|
With regard to Annual General Meeting Ex. B-334 is the relevant document. It contains the Minutes of the Annual General Meeting from 1982 to 1990. The details of the Meetings are as follows:
|
Date
of Annual General Meeting |
Persons
attended |
Ex. No. |
|
29-9-1982 |
O.P.
Jalan (R-3) |
B-334-A |
|
|
R.N.
Jalan (R-9) |
|
|
|
Hemanth
Jalan |
|
|
|
(R.W-2
& son of R-9) |
|
|
|
Satyabhama
Jalan |
|
|
|
Sudha
Jalan (R-4) |
|
|
|
Radha
Devi Khemka (P-2) |
|
|
|
Kamla Devi Khemka |
|
|
|
R. Khemka (P-1) |
|
|
29-9-1983 |
R.N. Jalan (R-9) |
B-334-B |
|
|
O.P. Jalan (R-3) |
|
|
|
Satyabhama Jalan |
|
|
|
Sudha Jalan (R-4) |
|
|
28-9-1984 |
R.N. Jalan (R-9) |
B-334-C |
|
|
O.P. Jalan (R-3) |
|
|
|
Satyabhama Jalan |
|
|
|
Sudha Jalan (R-4) |
|
|
18-12-1985 |
O.P. Jalan (R-3) |
B-334-D |
|
|
Sudha Jalan (R-4) |
|
|
|
Sanjay Jalan |
|
|
18-10-1986 |
O.P. Jalan (R-3) |
B-334-E |
|
|
Sudha Jalan (R-4) |
|
|
|
Sanjay Jalan |
|
|
31-10-1987 |
O.P. Jalan (R-3) |
B-334-F |
|
|
Sudha Jalan (R-4) |
|
|
|
Sanjay Jalan |
|
|
|
R. Khemka (P-1) |
|
|
|
Mahesh Khemka (P-3) |
|
|
5-7-1988 |
O.P. Jalan (R-3) |
|
|
|
Sudha Jalan (R-4) |
B-334 |
|
|
R.N. Jalan (R-9) |
|
|
|
R. Khemka (P-1) and others. |
|
|
6-2-1990 |
O.P. Jalan (R-3) |
B-334 |
|
|
Sudha Jalan (R-4) |
|
|
|
R.N. Jalan (R-9) |
|
|
|
R. Khemka (P-1) and others. |
|
30. It is in evidence of R-9 and P-1 that the shares were being allotted among Khemkas and Jalan families in the ratio of 1:2 approximately in all the joint ventures established by these two families. They stated that there was implied understanding to this effect. Thus they say that R-1 company was essentially a partnership concern even though it was incorporated under the Companies Act. The tussle started only in August, 1985. Till such time, R-9 never put anything in writing either about the affairs of the company or about the other matters relating to the functioning of the company. According to him he wrote two letters on 16-8-1985. In the 1st letter Ex. R-2 which was alleged to have been sent under Registered Post Acknowledgement due to the Secretary of R-1 company stating that in response to his letter, he has received Minutes of 12 Board meetings but they were not certified by the Secretary. Therefore, the Minutes initialled by R-9 and photocopies were sent for the records. The Minutes of 12 Board meetings stating to have been received by him were 20-7-1983,27-7-1983,1-11-1983,13-1-1984,3-3-1984,4-6-1984,21-8-1984,3-9-1984,3-11-1984, 28-2-1985, 27-6-1985 and 8-7-1985. It has to be noted in this regard that according to the R-1, R-2 and R-3 apart from these meetings two more meetings were also held on 26-11-1984 and 5-1-1985. Vide Ex. R-4 letter dated 21-10-1985, R-9 wrote letter to the Secretary stating that he had sent on 16-8-1985, the photocopies of the Minutes from 20-7-1983 to 8-7-1985 after initialling and thereafter no Board meeting was held. In the same letter he has also stated that on 16-8-1985 he sent another registered letter requesting the Secretary to give him 10 days Notice for holding the Board meetings. Therefore, he requested for necessary action. On 27-10-1985 Ex. R-5 he again wrote to the Secretary requesting to send all communications by Registered Post Acknowledgement Due to the addressees care of Nucon Industries. On 29-10-1985 again he wrote another letter to the Secretary Ex. R-6 requesting to arrange delivery of Notice etc. to him in person either to him or to Hemanth Jalan at Nucon address and sent Rs. 50 towards postal charges. Ex. R-7 is a personal letter written by R-9 to R-3. Ex. R-8 is the letter dated 1-11-1985 written by R-3 to R-9 asking R-9 to remit a sum of Rs. 1,17,938.93 which is outstanding from Nucon Industries. Similarly another letter on the same day Ex. R-9 written asking R-9 to pay a sum of Rs. 26,36,931.17 ps. outstanding from the Nucon. To the personal letter Ex. R-7 written by R-9 it was replied by R-3 by his letter dated 8-11-1985 Ex. R-10 wherein he had stated that he did not wish to enter into any controversy in view of the conciliatory efforts being undertaken by his father to resolve the differences. On 13-11 -1985 the Secretary R-2 also wrote a letter to R-9 Ex. A-11 stating that he was unable to enter into any controversy in view of the factual position. Again on the same day, vide Ex. R-12 it was intimated in response to his letter dated 30-10-1985 that all the Board meetings are being held under proper Notice and that R-9 cannot convene a meeting of Directors. Some letters were exchanged between R-3 and R-9 with regard to the directorship in Nucon which we have no concern.
31. It is the case of R-3 and
also R-2 that the Notices were being sent by post and also under Certificate of
Posting after 1982. R-9 and P-1 did not attend the meetings deliberately being
disinterested in the Company affairs. R-9 after resignation from HIL Post in
February, 1985 started devoting his time to Nucon, in which his son Mr. Hemanth
Jalan was suitably accommodated. P-1 also was equally disinterested as his son
was not given suitable position after his return from
"40. Subject to the provisions of the Act, the control of the Company shall be vested in the Board who shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorised to exercise and do. Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by the Act or any other statute or by the Memorandum of the Company or by these Articles or otherwise, to be exercised or done by the Company in General Meeting. Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions in that behalf contained in the Act or any other statute or in the Memorandum of the Company or in these Articles, or in any regulations not in consistent there with and duly made thereunder, including regulations made by the Company in General Meeting but no regulation made by the Company in General Meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made."
Articles 49 to 56 relate to holding of Board meetings, which are extracted below:
"49. The Board shall meet together at
least once in every three months and atleast four such meetings shall be held
in every year for the despatch of business
and may adjourn and otherwise regulate its meetings and proceedings as it
thinks fit. Notice in writing of every meeting of the Board shall be given to
every Director for the time being in
50. The Secretary and/or any other authorised
officer of the Company shall from time to time and also upon the request of a Director
shall convene a meeting of the Board.
51. At every meeting of the
Board, the Directors present shall choose some one of their members to be
Chairman of such meeting until a permanent Chairman of the Board is appointed
by them.
52. The quorum necessary for
the transaction of the business of the Directors shall be one-third of its
total strength or two Directors whichever is high.
53. A meeting of the Board at which a quoram
be present shall be competent to exercise all or any of the authorities, powers
and discretions by or under these Articles for the time being vested in or
exercisable by the Board.
54 The board may, subject to the provisions of the Act, from time to time and at any time delegate any of its power to a Committee consisting of such Director or Directors as it thinks fit and may from time to time revoke such delegation. Any Committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board.
55. The meetings and proceedings of any such
Committee consisting of two or more members shall be governed by the provisions
herein contained for regulating the meetings and proceedings of the Board as
far as the same are applicable thereto, and are not superseded by any
regulations made by the board under the last preceding Article.
56. Acts done by a person as a Director shall
be valid, notwithstanding that it may afterwards be discovered that his
appointment was invalid by reason of any defect or disqualification or had
terminated by virtue of any provisions contained in the Act or in these
Articles. Provided that nothing in this Article shall be deemed to give
validity to acts done by a Director after his appointment has been shown to the
Company to be invalid or to have terminated."
32. The matters relating to service of Notices has been stipulated in Article 67 which is extracted below:
"67. (1) A Notice or other document may be given by the Company to any member either personally or by sending it by post to him to his registered address or (if he has no registered address in India) to the address, if any, within India supplied by him to the Company for the giving of Notices to him.
(2) Where a Notice or other document is sent by post:
(a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the Notice or document, provided that where a member has intimated to the Company in advance that notices or documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the Company a sufficient sum to defray the expenses of doing so, service of the notice or document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and
(b) unless the contrary is proved, such service shall be deemed to have been effected:
(i) In the case of a notice of meeting at the expiration of forty-eight hours after the letter containing the same is posted; and
(ii) In any other case, at the time at which the letter would be delivered in the ordinary course of post."
Under Article 73 it is open for any member or other persons to have inspection of the documents and enter into the premises with the permission. The said Article is extracted below:
"73. No member or other persons (not being a Director) shall be entitled to enter upon the property, of the Company or to inspect or examine the Company's premises or properties of the Company without the permission of the Board, to require discovery of or any information respecting any detail of the trading of the Company or any matter which is or may be in the nature of a trade secret, mystery of trade, or secret process or of any matter whatsoever which may relate to the conduct of the business of the Company and which in the opinion of the Board it will be inexpedient in the interest of the members of the Company to communicate."
This Articles of Association was signed by R-9 and P-1. In this regard, a reference can also be made to sections 53 and 286 of Companies Act, with regard to service of documents on members by the Company. The said provisions are extracted below:
"53. Service of documents on members by company—(1) A document may be served by a company on any member thereof either personally, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.
(2) Where a document is sent by post,—
(a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a Certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and
(b) such service shall be deemed to have been effected:
(i) in the case of a notice of a meeting, at the expiration of forty-eight hours after the letter containing the same is posted, and
(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.
286. Notice of meetings.— (1) Notice of every meeting of the board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.
(2) Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees."
33. R-9 and P-1 have been
stating that no formal Notices were sent and meetings were being held on
informal intimation being neighbours. Their case was that Notices were never
sent by post much less under Certificate of Posting. On the other hand R-3
stated that Notices for all the meetings were invariably sent along with Agenda
by post under Certificate of Posting and they were sent under Registered Post
after specific instruc tions from R-9 and P-1. Section 286 mandates sending of
Notices in writing and omission attracts penalty. Article 49 clearly stipulates
that the notices for the meetings shall be in writing. Even though P-1 and R-9
stated that there was no practice of sending the Notices, yet the practice
cannot be in violation of statutory provision and articles of association. Such
a practice even assuming was in existence, would be illegal. Section 286 read
with section 53 and Article 67 leads to inevitable conclusion that the Notices
shall be in writing. Therefore, I have to hold that R-1 Company had issued
notices in writing in respect of all the meetings.
34. The next question that falls for consideration is whether the Notices were sent by R-1 Company in accordance with the statutory provisions. As already narrated, it is the case of R-1 Company that prior to 1982 the Notices were being sent under ordinary post, but after 1982, when a decision was taken to maintain the Minutes of the Board in Loose Leaf papers, R-3 as a Managing Director took a decision to send the letters thereafter under Certificate of Posting. Before we refer to these letters and respective Certificate of Postings, it is necessary to refer to the correspondence which emanated from P-1 and R-9 in this regard which would be relevant for the purpose of the disposal of the issue. As far as the correspondence from P-1 was concerned, it is only in March, 1985, P-1 for the first time wrote a letter to R-1 company Le., on 25-3-1985 vide Ex. A-21 stating that for the last 18 months, he did not receive any Notices or Agendas or invitations for any of the meetings. On the very same day he also addressed a letter to R-9 Ex. A-1 18 stating that he came to know that the Board resolution withdrawing Mr. Mahesh Khemka (P-3) nomination to ARIL Board. In the said letter there is no mention about the non-receipt of any Notices for the last 18 months as mentioned in Ex. A-21. The relevant letters are extracted below. Ex. A-21 reads thus:
"The Managing Director,
M/s Deccan Enterprises Pvt. Ltd.
I am surprised to learn that various board meetings and general meetings of the Company have been held for the last 18 months whereas during this period I have received no notices, agenda or invitation for any of these meetings. I have also not received, as yet, the annual report and balance sheet for the year ending 31-3-1984 for my signature and records. Since last year I have also not been receiving the monthly reports of the company as was our usual practice.
I would, therefore, request you to please let me have copies of the minutes of various board and general meetings since June, 1983 for my perusal and record and also a copy of the annual report and balance sheet of the company for the year ended 31-3-1984.
In future I would request you to please send me the notice for the board and general meetings by "Regd. Post Ack. Due" at my above address so as to reach me a week before the date of the meeting. The monthly reports of the company may also be sent to me regularly as usual in future.
Sd/-R. Khemka"
To the said letter, the reply was sent by R-1 company under Ex. A-22 dated 30-4-1985 which is extracted as follows:
"Mr. R. Khemka
This is with reference to your letter dated 25th March, 1985.
At the outset we express our great surprise at the contents of your letter under reference. The notices, agendas and other documents in connection with the meetings of the Board of Directors and the Shareholders of the Company held during the period mentioned in your letter were duly sent to each of the Directors of the Company including yourselves as was being done in the past. The Annual Report and Balance Sheet of the Company for the year ending 31-3-1984 was placed before the meeting of the Board of Directors held on 3rd September, 1984 and was signed by all the Directors present at the said meeting. A copy of the said Annual Report and the balance sheet of the Company is enclosed.
As you are aware we had discontinued the practice of despatching monthly reports to each of the directors individually.
Save and except as stated herein we deny each and every allegation made in your letter under reference.
Sd/- O.P. Jalan."
By Ex. A-29, again P-1 addressed a letter dated 16-8-1985 to the R-1 in the following terms:
“M/s Deccan Enterprises Private Ltd.
Please refer to your letter dated 30-4-1985.
I reiterate the contents of my letter dated 25-3-1985. I see no reason for your feigned surprise expressed in your letter. I deny that during the last 18 months, notices, Agenda and other documents in connection with the meetings of the Board of Directors and Shareholders of the Company were being sent. It appears that unilaterally the earlier practice in this regard is given a go-bye for reasons best known to you. I now realise that this has been deliberately resorted to.
I acknowledge receipt of the Annual Report and Balance Sheet for the year ending 31-3-1984. However, you have failed to obtain my signature as the Director on the Annual report and Balance Sheet for this year as it has always been the practice hitherto. As you are aware this practice has been justifiedly in vogue having regard to our joint interest and management.
I find that you have not forwarded to me copies of the Minutes of various General Meetings since June, 1983 despite my specific request in my last letter. Please comply.
In view of the common interest and understanding of the joint management. I was being kept informed through these monthly reports of the working of the company, I was not aware that these reports are not being received by me pursuant to unwarranted decision solely of your own. Please, therefore, send me copies of earlier reports of past months since the discontinuance thereof and also ensure such information in future also regularly and without fail.
Sd/-R. Khemka."
In pursuance of the letter dated 16-8-1985, P-1 was furnished with the Minutes of various general meetings held since June, 1983 vide letter Ex. A-31 R-1 company also addressed one more letter Ex. A-33 (same is marked as Ex. R-12) dated 13-11-1985 to R-9 and a copy of the letter was endorsed to P-1 to the following effect:
"Sri. R.N. Jalan.
I refer to your letter dated 30-10-1985.
All meetings of Board of Directors are duly held upon proper notices. Under Article 48 of the Articles of Association of the Company, you cannot convene meeting of Board of Directors. There is therefore no question of complying with your request in your letter under reply. The purported meeting called by you if held, would be illegal, resolutions purported to be passed at such meeting if any, would be of no consequence.
For Deccan Enterprises Pvt. Limited
Sd/— Secretary."
No reply was given to this letter by R-9 while the same was replied by P-1 after 1½ months vide Ex. A-34 dated 17-12-1985 which is in the following terms:
"The Managing Director, Deccan Enterprises Pvt. Ltd. I refer to above cited letter addressed to Mr. R.N. Jalan and copied to me.
I have not received any notice(s) of Board meeting(s) beyond that of 8-7-1985.1 still await copies of Minutes of the meetings dated: 27-6-1985 and 8-7-1985, besides the other papers and matters sought for in my two letters of 16-8-1985.
On the basis of information received by me, I apprehend that the 'Jalan Group' is attempting to change the pattern of shareholding of the company by unwarrantedly issuing the unsubscribed capital of the company and allotting it to the nominees of the Jalan group only. I must reiterate that such an action would be contrary to the original understanding between the two groups. We call upon you to refrain from taking any such wrongful and illegal action.
Sd/- R. Khemka."
On 1-11-1985 a letter was sent to P-1 (Ex. A-31) to the following effect:
"Sri R. Khemka,
We refer to your letter 16-8-1985.
We reiterate the contents of our letter dated 30-4-1985 in this regard.
As a matter of cooperation, we are enclosing herewith copies of Minutes of various General Meetings held since June, 1983.
for Deccan Enterprises Pvt. Ltd.
Sd/—
O.P. Jalan,
Managing Director."
While so, on 17-12-1985, two communications were sent vide Exs. A-35 and A-36, which are extracted below:
"Ex. A-35, dated 17-12-1985. The Managing Director, Deccan Enterprises Pvt. Ltd.
I acknowledge with thanks the receipt of your letter dated 1-11-1985 enclosing therewith copies of Minutes of the Annual General Meeting dated 29-9-1983 and 28-9-1984.
I invite your kind attention once again to my two letters both dated 16-8-1985 of which several other requests remain still to be attended to and complied with.
I am particularly concerned that I have not still received Minutes of the Board meetings since June, 1983 including those of recent meetings and also copies of monthly performance reports, despite my repeated requests. This practice I reiterate has been justifiedly in vogue having regard to our joint interest in management. Please, therefore, adhere to the same.
Your contentions and claims in your letter dated 30-4-1985 are again denied as being incorrect and untenable. I reiterate my letter dated 16-8-1985.
You would please appreciate my anxiety in view of the unsatisfactory operating results reflected in the Audited Balance Sheet for the year ending 31-3-1984. You are also aware that these results of the year 1983-84 were got approved at the Annual General Meeting at which no member of the Khemka group including myself was present as no notice was received for such meeting. I am also unable to understand why no Annual General Meeting of the company has been called as yet to review the working results for 1984-85.
I once again request you to send me all notices, Agenda and relative minutes and all other communications of the company to me by Registered Post with Acknowledgement due. For this purpose I am sending herewith Banker's cheque No. 2489553 dated 17-12-1985 in your favour on State Bank of Hyderabad, Sanatnagar Branch for Rs. 100 to defray the expenses towards the postage and delivery etc. Please ensure that the notices for Board meetings are received by me at least 3 days prior to such meeting.
Thanking you and awaiting your compliance in the above regard.
Sd/- R. Khemka.
Ex.A 36, dated 17-12-1985
The Managing Director, Deccan Polymers Ltd.
I acknowledge with thanks the receipt of your letter dated 1-11-1985 enclosing therewith copies of Minutes of the Annual General Meetings dated 29-9-1984, 27-9-1985 and 4-10-1985.
I invite your kind attention once again to my letter dated 16-8-1985 of which several other requests remain still to be attended to and complied with by you. Please comply.
I request you to send me all notices, agenda and relative minutes and other communications in connection with meetings of the Board and shareholders of the company by Registered Post Acknowledgement due. I am sending herewith a pay order for Rs. 100 to defray the expenses towards such postage and delivery.
Sd/
R. Khemka."
and under Ex. A-37, the Company by its letter dated 16-1-1986 addressed P-1 in the following terms:
"Mr. R. Khemka
I am in receipt of your two letters both dated 17th December, 1985 addressed in my official capacity.
I take this opportunity to express my anguish at various false allegations made by you including non-receipt of various notices of meetings which in fact you are not attending since about 1983 for reasons best known to you. As a matter of fact, you have utilised some of the information taken from the company for your personal benefit directly against the interests of the company by assisting your son to establish a rival business.
In view of the negotiations taking place between us for resolving various pending matters, I am not dealing further with your letters. I am confident that the present negotiations would be successful and all of us should actively help each other in settling our differences.
I look forward to receive your kind co-operation in this matter.
Sd/- O.P. Jalan."
In the letter dated 6-2-1986 vide Ex. A-41 P-1 had stated that he had not received any Notice of board of directors meeting or Annual General Meetings after 8-7-1985. It is in evidence of R-2 that the Notice dated 31-10-1985 Ex. B-96 for Board meetings dated 8-11-1985 and 11-11-1985 were sent under Registered Acknowledgement Due. Ex. B-96 is the office copy of the Notice dated 31-10-1985 and Ex. B-96-A and Ex. B-96-B are the Agendas for the Board meeting held on 8-11-1985 and 11-11-1985. Ex. B-97 is the Registered postal receipt No. 3236 dated 31-10-1985. Ex. B-95 is the Acknowledgement for Ex. B-96. It is the case of P-1 that letter Ex. A-31 dated 1-11-1985 was sent under Ex. B-97 which is denied by R-2. As can be seen from Ex. A-31, it was not sent under Registered Post, whereas the Notice Ex. B-96 was sent under Registered Post Acknowledgement Due. With regard to 19th Annual General Meeting to be held on 18-12-1985, it is in evidence that Notice dated 11-11-1985 Ex. B-125 for Annual General Meeting to be held on 18-12-1985 were sent to all shareholders. Ex. B-355 is the Registered Postal receipt No. 1874, dated 11-11-1985 and Acknowledgement is Ex. B-89. The accounts were sent to all shareholders including P-1 under Certificate of Posting dated 11-11-1985. There is evidence also that for subsequent meetings Notices were sent under Registered Post by the company. Coming to the correspondence entered by P-1 with R-9 he wrote a letter for the first time to R-9 on 25-3-1985 in Ex. A-1 18 about the withdrawal of P-3 from the ARIL Board. In the said letter P-1 did not mention about non-circulation of Minutes and non-receipt of Notices for various meetings. But, there was no response from R-9 in reply. Further R-9 himself stated that he did not reply and further said that he did not know the reasons for not replying. Thereafter P-1 did not pursue the matter with R-9. It is thus seen that after long gap of 18 months P-1 started corresponding with R-1 and R-3 only from March, 1985 and no explanation is coming forth from him for not writing such a letter at the earliest possible opportunity. From letter dated 25-3-1985 Ex. A-21, it implies that P-1 knew that the meetings were held. The Articles of Association also says that the Board meeting should be held once in a three months. It is not as if he was not aware of this position. No reasons are forthcoming as to why he kept quite beyond 3 months when he did not receive any Notice after March, 1983. It is beyond anybody's comprehension that a person of his status possessing vast knowledge of Corporate Law, could have kept quiet for such a long time. It is also not understood as to why he did not take up the matter with R-9 when he did not receive the Minutes of various Board meetings. When it was brought to his Notice by R-3 that system of circulating the Minutes was dispensed with P-1 did not take up the issue with R-9 and no information is forthcoming from P-1 in this regard. It is also worth-noticing that P-1 also wrote to R-9 on the same day i.e., 25-3-1985.
Let us consider the action by R-9. He is alleged to have initiated correspondence with R-1, R -2 and R-3 for the first time in August, 1985. According to R-9 he wrote a letter on 16-8-1985 Ex R-2 which is extracted below:
"The Secretary,
Company Law,
Deccan Enterprises Pvt. Ltd.
In response to my letter I have received (twelve) copies of Board of Directors meetings from 20th July, 1983 to 8th July, 1985. You seem to have forgotten to certify them as requested. I have initialled these minutes. A photocopy of these minutes is being sent to you for your records.
Sd/- R.N. Jalan."
The reverse of Ex. R-2 is as follows:
"Deccan Enterprises Private Limited
Annexure to Letter dated 16th August, 1985
(1) Board Minutes of Meeting held on:
(a) 20th July, 1983
(b) 27th July, 1983
(c) 1st November, 1983
(d) 13th January, 1984
(e) 3rd March, 1984.
(f) 4th June, 1984
(g) 21st August, 1984 (h) 3rd September, 1984
(h) 3rd November, 1984
(i) 28th February, 1985
(j) 27th June, 1985
(l) 8th July, 1985."
He did not also inform R-3 about letter Ex. A-118 dated 25-3-1985 written to him by P-1 and it reads thus:
"My dear Jalan Ji,
I am surprised to learn that Deccan Enterprises has submitted a Board resolution to Amiantit Rubber Industries Ltd. withdrawing Mahesh's nomination to ARIL's Board. It is all the more regretable that this issue was not discussed with me at any time during the last several months, even though I am sure you are fully aware of its implications.
When we decided that we would do further business independently, I had suggested to you that we should request a mutual friend to act as an arbitrator to help arrange an amicable separation between us in respect of our existing joint business i.e., Deccan enterprises, Nucon, Deccan Polymers, ARIL and Secunderabad Commercial Company. They mean as much to me as they mean to you and for both of us these businesses represent an entire life time's effort and savings. Besides, like you. I have always looked upon these businesses to provide working responsibilities for our children when they grow up and are capable of such responsibility.
Since our last talk, I have been waiting for some sort of response from you. There has been no response from you and unfortunately now the status quo is being seriously disturbed by the attempted withdrawal of Mahesh's nomination on ARIL's Board and that too, by keeping me completely in the dark.
We have known each other, and worked together for almost 30 years during which period we have been extremely close and I have reposed the utmost trust and confidence in you. You have yourself always said that an understanding of partnership between two people is far more binding than an agreement on paper and during the last 18 years we have been extremely business partners.
The attempted withdrawal of Mahesh's nomination has shaken my confidence. I had requested you to reverse certain loan transactions routed through accounts of my family members and in particular the entry of approximately Rs. 15 lacs being a loan from Deccan Polymers to Nucon but routed through Mahesh Trading Co. This has not been done as yet and I would request you to kindly get the needful done immediately.
I find that I have also not been receiving any Notices/Minutes of board and general meetings and monthly reports as was our normal practice nor being consulted in the usual manner.
I, therefore, request you to let me know your views in the matter and let me know if you are agreeable to discuss this matter with a view to finding a solution.
With best regards,
Sd/- R. Khemka."
As can be seen from this letter he only concentrated on the withdrawal of his son (P-3) from the Board of ARIL. Incidentally he stated that he has not been receiving the Notices/Minutes of Board and General Meetings. He wanted to know his views. To this letter there was no response from R-9. Even in his evidence he said that he did not know the reasons for not sending reply to Ex. A-118. There was no immediate reaction. It was incumbent on him to have expressed his views when his close associate had brought the issues before him. But he kept quiet for some time and started writing letters to R-1 and R-3. R-9 did not refer to Ex. A-118, in the Counters. It is also noted that on 25-3-1985, P-1 had written two separate letters. One to R-1 company (Ex. A-21) and another letter to R-9 (Ex. A-118), with regard to the affairs of the R-1 company. It is not understood why he had sent separate letters to R-1 and R-9 separately. He should have made known his correspondence to R-3 and R-9 as well since it is of common interest. At least P-1 could have endorsed the copy of Ex. A-21 to R-9 and similarly copy of Ex. A-118 could have been endorsed to R-3. Obviously it appears that P-1 wanted to keep them in dark and had been expecting some clues from them independently as R-3 and R-9 were admittedly not in a position to exchange all views on the business ventures. The tenor of letter dated 25-3-1985 Ex. A-1 18 speaks for itself. On 29-10-1985 again he wrote another letter under Ex. R-6 which is extracted below:
"To
The Secretary,
Company Law
Deccan Enterprises Pvt. Ltd.
I have already sent you a letter dated 27-10-1985 (copy enclosed) to send all communications to me by Regd. A/D at the following address:
Mr. R.N. Jalan, Managing Director
C/o Nucon Industries Private Limited,
88, Cooperative Industrial Estate,
Expansion Scheme,
Balanagar,
Hyderabad — 500017
You are further requested to arrange delivery in person a copy of all the communications mentioned above either to me or to Mr. Hemanth Jalan at the above address. A pay order No. 073482 of Andhra Bank of Rs. 50 is being sent to you along with the letter to defray the expenses towards such postage / delivery.
Please acknowledge the receipt of this letter.
Sd/- R.N. Jalan."
He also wrote another personal letter to R-3 vide Ex. R-7 dated 29-10-1985 in the following terms:
"My dear Omprakash,
I have already addressed a letter dated 21 st October, 1985 to the Secretary Company Law of Deccan Enterprises (P.) Ltd. that no Board meeting has been held after 8th July. I had further informed him that a Board meeting should have been held before 31st October, 1985 as per practice in the Company. I had further requested him to call a Board meeting immediately. I have not heard anything from him so far. I have therefore decided to call a Board meeting on 18th November at the Registered Office at 11 a.m.
In the meantime I sincerely believe that information received by me, that you and your wife in connivance with Secretary Company Law, with a view to change the shareholding of the Company to your benefit in detriment to the interests of other Directors have planned by wrongful and improper means to allot the unsubscribed Capital of the Company to you and your nominees by keeping either Directors and Shareholders totally in the dark by not issuing properly, notice of Board meetings and other communications notices, etc. are not true. However, you are advised to desist from such improper acts. It is needless to say that any such board resolution, notice to shareholders, allotment of shares, calls for payment, issue of share certificate against issue of new capital will be null and void will be of no effect.
I have already sent a letter dated 27-10-1985 and 29-10-1985 advising Secretary Company Law to send notices, resolutions and other communications by Registered A/D and have one copy delivered personally to myself or Hemanth Jalan. I have also sent a Pay Order of Rs. 50 to defray the expenses towards such postage/delivery. I regret to inform you that the Secretary Company Law refused to receive the above mentioned letter dated 29-10-1985. I have therefore sent the same by Registered Post and also sent a telegram and am writing again to him in the matter.
Sd/- (R.N. Jalan)
Chairman
Board of Directors,
Deccan Enterprises (P.) Ltd."
The said letter was replied by R-3 vide Ex. R-10 dated 8-11-1985 which is as follows:
"My Dear R.N. Bhaiya,
I am in receipt of photocopy of your letter dated 29-10-1985 by Registered post.
Your letters to the Secretary will be attended by him. As I do not wish to enter into any controversy with you at this stage in view of the efforts being made by respected Kakoji to resolve our differences, I am not dealing with your letter in detail. I am sorry, however, for the scandalous and untrue insinuation made against me and my wife involving the Secretary. For the rest I would depend upon the records of the Company.
Sd/- O.P. Jalan.
Sri R.N. Jalan,
Managing Director,
C/o Nucon Industries Pvt. Ltd. 88, Cooperative Industrial Estate Extension Scheme,
Balanagar,
Hyderabad 500037."
R-2 also wrote a letter under Ex. R-11. Therefore, it has to be seen that P-1 initiated correspondence in March, 1985 while R-9 initiated correspondence in August, 1985. It is the case of R-9 that on 16-8-1985 he had sent two letters one relating to despatch of the minutes from 20-7-1983 to 8-7-1985 duly initialled by him and other relating to request to give minimum 10 days Notice for holding Board meeting. However, it is the case of R-1 that they never received letter dated 16-8-1985 sending the Minutes of the Board meeting, but only a letter dated 16-8-1985 Ex. B-404 was received to the effect that the Notices should be sent in advance. The cover under which Ex. B-404 was sent was marked as Ex. B-405. The letter Ex. R-2 alleged to have been sent by Ex. R-9 containing the Minutes of the meetings was disputed by the Company. It has to be seen whether this letter Ex. R-2 is genuine letter which R-9 could establish. In the letter dated 16-8-1985 it was stated that in response to his letter he received the Minutes of the meetings, but what is the date of the said letter was not mentioned nor he filed the copy of the letter. Similarly in his letter dated 21-10-1985 Ex. R-5 he stated that he sent a letter on 16-8-1985 requesting for giving 10 days advance Notice for holding the Board meetings. That letter was not filed by R-9 for the reasons best known to him. It is un-understandable as to why R-9 had written a letter when he chaired all the meetings. Moreover, the Minutes are finalised immediately after the meetings are held. It is not understood why he retained original copy of the Minutes and sent photostat copies to the Company with him initially, while it is the case of the Company that he never sent such a letter Ex. R-2. It is stated by R-9 that he sent a letter under Registered Post and postal receipt No. 5805 is the relevant postal receipt under which the Minutes were sent and it is the case of the company that under the said posted receipt they received only a letter dated 16-8-1985 Ex. B-404 intimating the despatch of Notices in advance. But, it is curious to note that R-9 did not file two Registered postal receipts in which the 16th August letter for sending the Notices in advance and also returning the photocopies of Minutes initialled by him separately were sent. He also did not file the two acknowledgements in respect of two Registered letters. The reasons for asking the Minutes also are not explained in the evidence by R-9. Moreover, R-9 being a Director, it could have been open for him to seek inspection of the records instead of indulging in correspondence. It is in his counter that in July, 1985 Mr. S.C. Kedia, the then General Manager has informed him that the R-3 was planning to issue and allot the unissued capital to himself and his nominees and thereby convert him and the Petitioners from majority to minority. Therefore, he requested R-1 to send the certified true copies of the Minutes of the Board meetings of the company in pursuance of his request, the R-2 sent him the unsigned Minutes of the copies of the 12 Board meetings of the company held between 20-7-1983 to 8-7-1985 and that by letter dated 16-8-1985 he drew the attention of R-2 that these Minutes were not certified by him and he sent photostat copies of the Minutes duly initialled by him. Para 's' of his counter is extracted below:
"(s) In July, 1985 Mr. S.C. Kedia the then General Manager of Respondent No. 1 informed me that respondent No. 3 was planning to issue and allot the unissued capital of Rs. 5 lakhs in the company and to distribute the newly issued and allot shares to himself and his nominees and thereby convert me and the petitioners from majority into minority so as to oust us and to convert himself from minority to majority. Since no resolution had been passed until July, 1985 by the Board of Directors of the company for issue of further shares out of the unissued share capital, I requested Respondent No. 2 to send my certified true copies of the Minutes of the Board Meeting of the company. In pursuance of my request, the Secretary, Respondent No. 2 sent me unsigned copies of Minutes of the 12 Board Meetings of the Company held between 20th July, 1983 and 8th July, 1985. In the premises by a letter dated 16-8-1985,1 drew the attention of the Respondent No. 2 that he had sent me only unsigned copies of the Board Minutes from 20th July, 1983 to 8th July, 1985 and the same were not certified by him. I also sent a photocopy of the said Minutes to the Secretary duly initialled by me for his record. A copy of the said letter dated 16-8-1985 together with all the enclosures thereto ie., to say Board Minutes from 20th July, 1983 to 8th July, 1985 are hereto annexed and collectively marked 'B'. I say the copies of the Minutes sent by me under the cover of my letter dated 16th August, 1985 are all true and correct and any contrary and/or inconsistent recording in the purported directors Minutes book of the company, are wholly untrue and false. The said minutes show that the affairs of the company upto July, 1985 was being conducted in usual course of business and no further shares whatsoever had been issued by the company during the said period."
In his examination in chief, he did not refer to another letter of dated 16-8-1985 regarding the sending of Notices in advance. He only stated in his chief examination thus:
"I requested Respondent No. 1 to send me certified true copies of the minutes of the Board Meeting of the company. In pursuance of my request, the Secretary, Respondent No. 2 sent me unsigned copies of minutes of the 12 Board Meetings of the company held between 20th July, 1983 and 8th July, 1985. By a letter dated 16-8-1985, I drew the attention of the Respondent No. 2 that he had sent me only unsigned copies of the Board Minutes from 20th July, 1983 to 8th July, 1985 and the same were not certified by him. I sent photo copies of the said minutes to Respondent No. 2 duly initialled by me for his record. A copy of the said letter dated 16-8-1985 together with all the enclosures thereto ie., to say Board Minutes from 20th July, 1983 to 8th July, 1985 and postal receipt No. 5805 dated 16-8-1985 and are hereby annexed and marked Exhibit "R-9 Ex. 2, R-9 Ex. 3". The copies of the minutes sent by me under the cover of my letter dated 16th August, 1985 are all true and correct and any contrary and/or inconsistent recording in the purported directors minutes books of the company, are wholly untrue and false. The said minutes show that the affairs of the company upto July, 1985 was being conducted in usual course of business and no further shares whatsoever had been issued by the company during the said period."
In the cross examination he stated that these Minutes were handed over to him by Mr. S.K. Jalan (R-8) and he further added that they were handed over personally. He did not know how his father obtained these Minutes under Ex. R-2. He added that Mr. S.K. Jalan (R-8) was Director in the company and he was at Hyderabad in July/August, 1985. But, however, R-8 was not examined on this issue. The following is the relevant extract from his cross examination:
"The request to send certified copies of the Minutes of the Board meetings of DEPL mentioned at para 31 of my chief examination evidence is oral. It is true that Ex. R-2 is letter written by me enclosing photocopy of meeting of Board of Directors initialled by me. I might have made mistake in stating earlier that the request to supply minutes was oral. I must have written a letter earlier requesting for supply of minutes. I will look into my records and try to show the letter. It is not true to suggest that I never made any such request for supply of copies of minutes to R-2. The unsigned copies of minutes of DEPL referred to at para 31 of my chief examination evidence were sent by the respondent No. 2 to S.K. Jalan and Mr. S.K. Jalan has handed over his minutes to me. R-2 did not write to me any letter, sending to me copy of minutes, it is not true to suggest that R-2 has not handed over any copies of minutes referred to at para 31 to Mr. S.K. Jalan. It is not true to suggest that Mr. S.K. Jalan has not handed over to me any such minutes. It is not true to suggest that I have not sent Ex. R-2 by registered. Post either by receipt covered by Receipt No. 5802 or 5805. I do not have acknowledgements relating to the above registration numbers. Ex. R-3 does not indicate the person who registered the article as the rules do not require it. It is not true to suggest that Ex. R-3 is sent by Nucon. Ex. R-2 could have been sent either under registered No. 5802 or 5805."
Therefore, this statement is quite inconsistent with the tenor of letter Ex. R-2. Further R-9 filed counter only in February, 1988, by which time R-3 has already filed his counter on behalf of R-1 to R-3. Further P-1 had filed Reply to the R-3's counter and R-3 had filed additional counter. No reasons are forthcoming for not filing counter within reasonable time. Obviously he wanted to know the final stand of P-1 and R-3. Yet when he filed counter belatedly he did not even state that there was no practice of sending the written Notices, Agendas. Obviously he could not have stated since it is in evidence that he himself signed Agendas of the previous meetings and some of them are dated 24-7-1967, 5-8-1967 and 2-9-1968 (Ex. B-152 to B-154), and Ex. B-480 to B-485. Even P-1 had signed the Agendas as can be seen from Ex. B-82 and B-83. Moreover as can be seen from Ex. R-2, he earlier sent the letter requesting for furnishing certified copies of the Board meeting, but that crucial letter referred in Ex. R-2 is not forthcoming. Even the office copy covering letter dated 16-8-1985 alleged to have been sent to R-1 has not been filed by R-9 and only a true copy was filed. When he said that he had sent two letters on 16-8-1985 he should have office copies of such letters. None of the office copies of these letters were filed by R-9. He also did not file the office copy of letter dated 16-8-1985 requesting for sending Notices 10 days in advance. The witness admittedly is highly educated person and was in a top Executive position in HIL. When he stated that he received Minutes of 12 meetings in response to his letter, it is not understood why that letter was not filed. On the other hand, it is the evidence of R-2 that they received the letter dated 16-8-1985 to the effect that the Notices should be sent much in advance. Though the learned counsel for R-9 submits that this was referred to in letter dated 21-10-1985 and the said letter of dated 21-10-1985 was received by the Secretary, no objection was raised as to non-receipt of the alleged initialled minutes, but at the same time, it has to be seen that the non-mention will not ratify the action of R-9. It is for R-9 to establish that he had sent Ex. R-2 which he failed to do so. As already stated that there are any number of inconsistencies in his statement and therefore his version that he had received the Minutes of only 12 Board meetings can hardly be believed. We may also consider the issue from another angle. When he received definite information that Mr. Kedia has informed him that the plans are being moved by R-3 to allot the unsubscribed capital to his own persons, there is no reason why R-9 did not take steps to verify by taking inspection of records. Even P-1 in his letter dated 17-12-1985 stated that he apprehended on the basis of information received by him that the Jalan group was attempting to change the pattern by unwarrantedly issuing the unsubscribed capital of the Company and allotting it to the nominees of the Jalan group. It is not known why P-1 resorted to brow beating instead of straight away asking for the information about the issue of unsubscribed capital. Even R-3 also cannot be said to be plain. He also equally tried to shield the information. Obviously, everybody wanted to indulge in shadow fighting. It is also seen that the suit challenging the withdrawal of the nomination of P-3 from the Board of ARIL was filed in Calcutta High Court in May, 1985 and the correspondence started between P-1 and R-3 only in March, 1985. Thus, it shows that the entire gamut of litigation only started after/around March, 1985 and around that period the suit was filed in Calcutta High Court by P-1. The dates of some of the letters of P-1 and R-9 also strengthen the suspiciously collusive nature of litigation. On 16-8-1985 P-1 wrote letter to R-3 Ex. A-29. On the same day R-9 is alleged to have sent a letter Ex. R-2 to R-3 returning the Minutes of meetings. There is no reason why P-1 did not endorse all copies of correspondence entered with R-1/R-2/R-3. Similarly R-9 could have endorsed the copies of letters exchanged by him with R-1/R-2/R-3 to P-1. The intention obviously appears to keep the matters in haze. R-9 apparently tried to buttress the case of P-1 by means of invincible conduct, but when the veil was removed the very first document which he tried to introduce had shaken the entire edifice of his stand. Under these circumstances, I find that Ex. R-2 suffers from inextricable disabilities and the efforts of R-9 to salvage the document to his advantage went in vain. Consequently, his evidence is not worth consideration being incredible. Accordingly, I hold that Ex. R-2 is not a genuine document.
36. Let us now consider the
action taken by P-1 in respect of the alleged non-receipt of the Notices and
Agendas. As already stated supra, he initiated the proceedings only in March,
1985 after having waited for 18 long months.
37. The learned counsel for the
petitioner submits that P-1 could have definitely attended all the meetings had
notices been given to him more so when the decision was taken to increase the
capital and the shares were allotted. He was very much interested as the
company was in very prosperous state and its reserves were 15 times more than
its share capital. He relies on the judgment of the Calcutta High Court in Ratnashankar
Prosad v. Sindri Iron Foundry (P.) Ltd AIR 1966 Cal. 512 Para 50 is extracted
below:
"(50) If the case was such that it could be suggested that the petitioners had some motive in abstaining from attending the extraordinary general meeting one might have hesitated to come to a definite conclusion that the petitioners had not been served with notice of the meeting. A man may no doubt behave strangely on a particular occasion, but it is impossible to believe that a number of hardboiled business people will keep themselves away from meetings where their doom may be effectually sealed in their absence and where they have only to attend and win the day by their superiority in number and voting strength. The fact that no reference has been made in the petition either to the board meeting of January 22,1963 or the extraordinary general meeting of February 21,1963 is only consistent with the conclusion that the petitioners had no knowledge of them on March 14 and 15, 1963 when they moved this Court. The happenings at the extraordinary general meeting could have been made capital of by the petitioners as regards their case of oppression. If it had been the case of a particular share-holder or director not receiving the Notice sent through the Post, one might possibly take the view that it had gone astray, but it is impossible to believe that all the notices of the Board meetings as also those of the extraordinary general meeting should have failed to reach all the addressees. Leaving aside the shares which were alleged to have been issued after the extraordinary general meeting of February 21, 1963 the company had 16 shareholders those in the respondents' group being 4 while the number of members in the petitioners' group was 12. If any person in the petitioners' camp had received the notice, he or she would undoubtedly have made it known to the others, and although letters are known to lose their way in the post, I find myself unable to believe that the notices addressed to all these 12 persons in the petitioner' camp had gone astry. In my opinion the conclusion is irresistible that these notices had never been put in the post, although certificates of posting purport to have been obtained in respect thereof. It is only too well known that certificates of posting can be got hold of without actually putting letters in the post and the respondents must have adopted that course so far as the board meeting of January 22, 1963 or the extraordinary general meeting of February 21, 1963 was concerned." (P. 528)
38. The learned counsel for the P-1 also relied on the judgment of the Supreme Court in Shiv Kumar v. State of Haryana [1994] 4 SCC 445 to the effect that evidentiary value of the postal certificate cannot be construed as a conclusive proof as it is not difficult to get such a postal seals at any point of time. Para 6 is extracted below:
"We have not felt safe to decide the controversy at hand on the basis of the certificates produced before us, as it is not difficult to get such postal seals at any point of time. To assure our mind that the notices had really been sent out to the workmen concerned, we perused the application which had been filed by the management seeking permission. We did so because Rule 76A(2) requires that the application shall be made in triplicate and copies of the same shall be served by the employer on the workmen concerned and 'proof to that effect shall also be submitted by the employer along with the application.' But the application (Annexure A) has not mentioned anything about 'proof of service to the workmen concerned. The statement in the counter-affidavit that proof of service had been submitted to the specified authority has not satisfied our mind in this regard."
The matter arose under Industrial Disputes Act. The Workmen sought to be retrenched were required to be served with Notice and proof of service ought to be filed before the authority. What is relevant is the service of Notice which is mandatory. In the instant case service of Notice is not contemplated. The only requirement under section 53 and also the Articles of Association that the Notice in writing may be given either personally or sent by post. There is a statutory presumption under section 53(2)(b) of the Act that the service is deemed to have been effected under certain conditions stipulated therein. The reliance was also placed on the observations made by the Division Bench of Madras High Court in Shoe Specialities (P.) Ltd v. Stridewell Leathers (P.) Ltd [1995] 82 Comp. Cas. 836. While dealing with section 53(2), it held thus:
"...A presumption can be drawn only when there is no other evidence available. In this case, the primary evidence regarding the posting of the letter is not produced. The best evidence that can be produced in this case is the despatch register of the company, and the books of account showing the expenses incurred by the company for posting the letters, etc. None of these documents is produced. When the primary evidence is not produced, a presumption on the basis of section 53(2) of the Companies Act cannot be made use of since the posting of the letter is in dispute. Only if a document is sent by post, the presumption under section 53 of the Companies Act can arise. When there is no evidence regarding the posting of the letter, the document relied on by the appellant cannot be made use of.
We have also a doubt whether the paper in which the address is typed, can be construed as a certificate of posting. The paper bears the date May 2, 1992, whereas the postal stamp is dated May 3, 1992. There is also a discrepancy in the address of one of the addressees. The address of the first petitioner is not correct. In the certificate of posting, the pin code number of the first petitioner is mentioned as '110036' whereas the pin code number of the first petitioner is New Delhi -110035. So, it cannot be presumed that a letter was sent to the correct address." (P. 881)
39. The learned counsel for R-1 and R-3 submits that there is a presumption that all the Notices were sent by post and taking a clue from section 114 of the Evidence Act read with section 53 of Companies Act and also Articles of Association, it must be presumed that the Notices are genuine and the presumption must be drawn in favour of the company. In Smt. Kanak Lata Ghose v. Amal Kumar Ghose AIR 1970 Cal. 328, the Division Bench of the Calcutta High Court observed as follows:
"As to the posting of the letter written by Kalipada there cannot be any question of discrepancy, because the wife has said nothing about that letter. It is difficult to believe that all the three certificates of posting, Exts. F, F(1) and H dated respectively 16-7-1962,22-1-1963 and 22-7-1963 were obtained from the Post Office without actually posting the letters mentioned therein. The certificates having been given by the postal authorities in the ordinary course of business must be presumed to be genuine unless the presumption is rebutted by cogent proof. The contents of the certificates must be presumed to be true unless they are proved to be false. No evidence has been adduced on behalf of the husband that the certificates are forged or spurious. Therefore, it must be taken that the three letters, copies whereof have been marked as Exts. E, E(1) and G, were duly posted according to the tenor of the certificates Exts. F, F(1) and H. Under section 114 illustration (f) of the Evidence Act it must further be presumed that the three letters, two by the wife and one by Kalipada were received by the husband in due course. A reference may be made in this connection to the case of ChhayaDebi v. Lahoriram [1963] 67 Cal. WN 819 at P. 834, where under similar circumstances, their Lordships of the Division Bench held that the certificate of posting not only raised the presumption that the letter was duly posted but also the presumption that the letter was received by the addressee.
A presumption, however, may be rebutted. In the instant case no attempt has been made to rebut the presumption of posting....
24. No adverse inference can be drawn against the wife of Kalipada for not taking the precaution of sending these three letters by registered post. They might have acted imprudently by sending the said letters under certificate of posting, but from that it cannot be inferred that the story of sending the said letters by certificate of posting is a myth." (p. 332)
The learned counsel for R-3 also relied on the decision in Mrs. Achamma Thomas v. E.R. Fairman AIR 1970 Mys. 77, the High Court while considering section 27 of the Mysore General Clauses Act, 1899, which is to the following effect:
"27. Meaning of service by post—Where (any Mysore Act) (substituted by Act 12 of 1953) made after the commencement of this Act authorises or requires any document to be served by post, whether the expression 'serve' or either of the expressions 'give' or 'send' or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, prepaying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.'
(Held) Service of notice by registered post, shall be deemed to be effected on the addressee if the letter is properly addressed, pre-paid and contains the document in this case the notice of termination of tenancy. It is contended by the respondent's counsel that in this case the very fact that the registered letter has come back with the endorsement as mentioned above, shown that the contrary has been proved, namely that there has been no due service effected on the tenant; on the other hand, it is submitted that the service should be deemed to be effected if the four conditions are fulfilled namely, sending the letter by registered post, it being properly addressed, prepaid and the letter contains the document; the contrary that is required to be proved to take away the presumption is with reference to the four requirements referred to above. It appears to me that this contention is not without force. It is only to meet the contingency of a person who is to be served with the notice trying to evade it, that the service shall be deemed to have been effected if the four conditions are fulfilled. If the contrary to be proved has reference to the actual service, then provision of section 27 could be rendered useless by the addressee avoiding to receive the letter or even refusing the registered letter. Therefore, it appears to me that in this case the notice having been sent by registered post complying with the four requirements referred to earlier, in law, it must be deemed that there is due service of the notice of termination of the tenancy." (p. 80)
Again he takes the assistance from Paramanand Choudhary v. Smt. Shulcla Devi Mishra [1990] 67 Comp. Cas. 45 (MP), wherein it was held that "sending of Notice by Certificate of Posting was proper service."
40. From the case law referred to above, it is clear that the presumption arises when the conditions laid down in section 53(2) are complied with. Even the Articles of Association is to the same effect. If the facts establish the service of notice, then the question of drawing presumption does not arise. Thus, the presumption of service of Notice as contemplated under section 53(2) cannot be said to be absolute or irrebuttable as there may be cases where the parties may collude with the postal authorities for procuring postal seals. But, at the same time the burden is on the party alleging that he did not receive the Notice to rebut the presumption by adducing satisfactory evidence. Such issue has to be decided keeping in view the facts and circumstances of each case.
41. From the point of view of the above perspective, let us consider, whether Notices for various Board meetings were sent by R-1 company? It is in evidence that the Notices in writing were sent for various Board meetings and also general meetings. Right from 1982, the Notices issued for the Board meetings, Agendas and Certificate of Postings and also the Minutes were filed on behalf of R-1 company. While it is the case of R-9 that he did not attend certain meetings and in respect of certain meetings, Minutes were not properly recorded, it is the case of the P-1 that no Notices were ever received by him at all. It is also the case of P-1 and R-9 that the Notices for the meetings and the Certificate of Postings are manipulated with a view to justify the validity of resolutions and consequential actions in conformity with the statutory procedures. As noticed from the Minutes of the meetings, P-1 did not attend the meeting after 31-3-1983. The reasons for absence were non-receipt of the Notices. On the other hand, R-9 attended most of the meetings. However, it was denied that two meetings dated 26-11-1984 and 5-1 -1985 had taken place. It is also the case of R-9 that he attended meeting on 3-11-1985 and 25-2-1985 and the resolutions were not passed as reflected in the Minutes produced by R-3 and they were approved as contained in the enclosures to Ex. R-2.1 have already held that Ex. R-2 is not a genuine document. The initial burden lies on the Company to establish that the Notices were sent in accordance with the Articles of Association keeping in view the statutory provision. Even though, R-9 and P-1 categorically stated that no Notices were sent and the Certificate of Postings were fabricated, but at the same time, it has to be tested from the angle of statutory provision. Inasmuch as the Notices have been sent, and the Certificate of Postings have been marked on behalf of the company, the presumption under section 53 comes into play and the said presumption is rebuttable. The onus thereafter falls on the P-1 and R-9 to establish that the Notices were never posted and that the Certificate of Postings were procured. Except stating that they did not receive any Notices no other evidence is forthcoming from P-1 and his supporters, R-9 and his family members. It is also in the evidence that when the P-1 and R-9 gave specific instructions to send the Notices under Registered Post, they were complied with and R-1 company has filed number of documents marking the postal registrations and other documents.
42. It is curious to observe that P-1 being a person in a highly placed position could have kept quite if really he had not received the Notices for Board meetings. It is more so when he is sailing with R-9 in the Company Petition, who is his immediate neighbour. It is not the case of P-1 that R-9 was not in talking terms, on the other hand upto February, 1985, they were working in the same company HIL in top Executive position— R-9 was President and P-1 was Vice-President. If the Notices in fact had not been sent to any person, then R-9 also could not have attended any of meetings at all. The fact that R-9 attended and participated in the meetings of course with certain objections in respect of Minutes of certain meetings which I deal latter, would only go to establish that the Notices were sent and it is also the case of R-3 that decision was taken by him as Managing Director to send the Notices under Certificate of Posting in 1982 when the Board passed resolution to maintain the Minutes of the Board meetings in Loose Leaf Folders. It is also not understood as to why P-1 kept quite for nearly 18 months when he did not receive any Notices or Agendas, for Board meetings or Annual General Meetings. It is also not his case that he asked Rs at any time during 1983 and 1984 that he was not receiving the Notices for Board meetings, which should have been normal reaction of a human being in the ordinary course of events. It is also beyond anybody's comprehension that R-9 could not have enquired the P-1 for not attending the various meetings.
43. The learned counsel for P-1 submits that R-1 company did not discharge the burden to prove that the Notices were properly sent. R-1 Company filed only Notices and Certificate of Postings and the connected postage stamp account were not filed. This submission cannot be accept ed for the reason that R-1 company discharged the burden of proof placed on it namely sending of Notices and the postal Certificate of Posting. When R-3 and R-2 were in witness box and subjected to cross examination at length, it was not suggested that R-1 company did not file the postage account. It is also not the case of P-1 and R-9 that the addresses in the
Certificate of Posting were incorrect and there were any other irregularity. The witnesses are offered for cross examination only for the purpose of bringing out important and crucial matters which could be only ascertained by means of effective cross examination. Except stating that these letters were not posted and the Certificate of Postings were manipulated, no other evidence worth considering has been brought on record. The conduct of the parties and the status held by them is also very relevant for the purpose of ascertaining whether they have acted in a bona fide manner or with an ulterior motive. The version of R-9 relating to Ex. R-2 was not accepted and as regards P-1, even though he had stated that he did not receive any Notices for General meetings and the Board of Directors meetings, it cannot be believed for the simple reason that out of two Directors who are to participate in the meetings one Mr. R.N. Jalan (R-9) had already attended number of meetings. If the Notices had not been sent at all, then R-9 could not have also attended any meetings and chaired the meetings and it is also not possible to perceive that R-9 might not have brought to the Notice of P-1 about these meetings. More over the trouble started not on account of non-receipt of the Notices and Minutes, but due to other reason. According To R-9 the dispute began as narrated in the counter in para 'o' which reads thus:
"(o) The beginning of disputes—In or about 1982, on return of Mahesh Khemka, the son of Petitioner No. 1 who was looking after the business of ARIL in Saudi Arabia as General Manager of the said company, difference arose between Respondent No. 3 & Respondent No 1. Respondent No. 9 being a senior member of the Jalan family and being a prime mover in setting up Respondent No. 1 and other companies along with Petitioner No. 1 tried to devise ways of reaching an amicable settlement and with this and in view attempted to start a steel cylinder pipe project in collaboration with Ameron, USA and a Gypsum Project with M/s Kauf of Germany with Respondent No. 11 being entrusted with the task of looking after the same."
According to R-1 also the reasons are same as can be discerned from paras 23,24,27,29 and 34 of the Company Petition and they are extracted below:
"23. After his return in 1982, it was expected that the respondent No. 11 (now P-3) would be again associated with the management and affairs of the company as Executive Director or in other similar important capacity.
24. This return of Respondent No. 11 (now P-3) however, signalled a change in the attitude of J-Group towards the K-Group. By 1982-83 the Respondent Company was very prosperous and sound with reserves amounting to 20 times of the capital and with assured foreign market and flow of funds from the joint venture company.
27. The J-group started the process of ousting the K-group from the Joint venture company by informing them in about March, 1984 not to deal any longer with Respondent No. 11 (now P-3) on behalf of Respondent No. 1. Simultaneously the Respondent No. 11 was also being subjected to harassment in many petty ways by denial of various facilities in Respondent No. 1 Company on the instructions of Respondent No. 3. Similarly Petitioner No. 1 and Respondent No. 11 are sought to be denied operational informations of vital importance concerning the working of Respondent No. 1 company or as to the major decisions like capital investments and senior appointments, contrary to the earlier established course of practice.
29. The scheme of exclusion came to be definitely known and realised in about March, 1985, by the Petitioner No. 1 and Respondent No. 11 when the J-group, brought into open alleged resolution dated 21-8-1984, interfering with the Directorship of Respondent No. 11 on the Board of the Joint Venture Company. Under the aforesaid resolution the respondent No. 1 Company purported to withdraw the 'nomination' of Respondent No. 11 on the Board of the Joint Venture Company, based on which the foreign company resolved and removed respondent No. 11 (now P-3) from its Board in middle 1985.
34. All hopes were totally belied, when the alleged resolution dated 21-8-1984 came to light in March, 1985. It also happened that almost simultaneously the 9th respondent left his employment in the public limited company. The Petitioner No. 1 realised that during the prior few years the J-group has been merely gaining time to facilitate the total ouster of K-group. In this situation the Petitioner No. 1 besides expressing his anguish to the respondent No. 9 under his letter dated 25-3-1985 is also forced to take recourse to legal proceedings before the High Court of Calcutta for setting aside the alleged resolution dated 21-8-1984. These proceedings are pending."
Therefore, the silence on the part of P-1 for such a long time without making any objection with regard to the Notices of various meetings from 1983 till 1985, only establishes that he had Notice of the meetings and that he deliberately did not attend the meetings for the reason that his son was not properly accommodated in R-1 company. He only initiated the correspondence in March, 1985, but however, he did not proceed further. Then he filed a suit in May, 1985 in Calcutta High Court challenging the withdrawal of nomination of his son on the Board of ARIL. Again he took up the matter with R-1 company in August, 1985 which also coincided with the initiation of correspondence by R-9.1 have already found that the 1st letter dated 16-8-1985 Ex. R-2 alleged to have been written by R-9 to R-1 Company is not a genuine document. It is hard to believe that R-2 and R-3 had manipulated all the Notices, Agendas and Minutes and also the Certificate of Postings from March, 1983 to June, 1985. But, coming to conduct of P-1, the grievance also did not appear to be not that of non-receipt of the Notices of meetings, but the withdrawal of the nomination of his son from ARIL Board. A person of a status of P-1 cannot be expected to be non-vigilant. More especially when he had pursued the matter with R-1 Company so vigorously after 16-8-1985. A person who is not vigilant cannot have any right to claim equity before this Court. The equity comes to the aid of the vigilant and not the slumbering (Vigilanti bus non dormienti bus Jura subveniunt). Therefore, the P-1 having remained intentionally dormant for a considerable length of time cannot complain that he has not received the Notices. Further, he was a neighbour and it cannot be said that the neighbours cannot have this information, more especially when they are very cordial and the P-1 himself has categorically stated that R-9 was also being kept aloof by R-3 from the affairs of the Company and that there were strained relations between R-3 and R-9. Therefore, it has to be presumed that the neighbour knows the neighbourhood as the maxim goes Vicini vicini-ora prae prae sammantur scire (neighbours are presumed to know things of the neighbourhood).
44. What is required to be seen in this case is whether the approach of the P-1 in alleging that he did not receive any Notice from 1983 and the approach of R-9 that he did not receive any Notice in respect of certain meetings only can be believed. Admittedly, it is a private limited company consisting of P-1, R-3 and R-9, with their respective members and they being immediate neighbours and it is beyond the comprehension of any person of ordinary prudence that P-1 and R-9 were not aware of the meetings and minutes. It is also pertinent to note that statutory provision requires that the Notice should be sent in writing either personally or by post. There is no provision for intimating on telephone. Therefore, the stand of the R-9 that he used to attend the meetings on telephonic information cannot stand. When the statute requires certain thing to be done in certain manner, it has to be presumed that the acts were done in furtherance of that statutory provision, unless it is proved to the contrary. More over, there is ample evidence before this Court that Notices were sent to the parties under Certificate of Posting right from 1983 onwards.
45. Under these circumstances, I have to necessarily hold that Notices were issued to the Directors in the case of Board meetings and the Shareholders in case of Annual General Meetings in accordance with the statutory provisions. Accordingly, I hold that P-1 and R-9 had received the Notices for Board and General meetings.
46. The consequential crucial question that arises for consideration is whether any offer was made to P-1, R-9 or any other persons on their behalf and as alleged by R-3 whether they consented to the allotment of additional shares to other persons and if they have not consented to the above, whether allotment of shares as alleged by the Petitioners is an act of oppression attracting the action under sections 397 and 398 of the Companies Act.
47. For the purpose of ascertaining the consent of Shareholders on the side of P-1 and R-9, the meetings which are relevant are 26-11-1984, 5-1-1985 and 28-2-1985. It is in the evidence that Notices were sent to all the Directors with Agendas. In respect of Board meetings held on 26-11-1984, the Notice dated 10-11 -1984 was sent to all the Directors under Certificate of Posting. The Notice was marked as Ex. B-412 and Certificate of Posting is marked as Ex. B-292. On 26-11-1984, R-3 and his wife were present, leave of absence was granted to Mr. S.K. Jalan and Mr. R.N. Jalan. The following is the extract of Notice:
"Ex. B-412, dated 10-11-1984
To
All Directors,
Mr. S.K. Jalan,
Mr. R.N. Jalan,
Mr. R. Khemka,
Mr. O.P. Jalan.
Mrs. Sudha Jalan,
Please take Notice that the meeting of the Board of Directors of the Company will be held on Monday the 26th November, 1984 at 11.00 A.M. at the Registered Office of the Company to discuss the matters as per the enclosed Agenda.
Please make it convenient to attend.
For Deccan Enterprises Pvt. Ltd.
Sd/- Managing
Director."
Agenda Ex. B-412-A sent along with Notice reads thus:
"Agenda for the Board Meeting to be held on 26th November, 1984 at 11.00 A.M. at the registered office of the Company at 5-2-175/1, Rashtrapathi Road, Secunderabad — 500003
Andhra Pradesh
1. To take note of or
Election of the Chairman of the Meeting.
2. To consider the approval confirmation of the
Minutes of the Previous Meeting of the Board of Directors of the Company held
on 3rd November, 1984.
3. To consider, about
issue of further share capital of Rs. 5.00 lakhs.
4. General.
For Deccan Enterprises Pvt. Ltd.
Sd/-
Managing Director."
The Notice and Agenda were sent by post under Certificate of Posting. Ex. B-128 is the Certificate of Posting. The following Minutes were recorded:
"Ex. B-227-D.
Present: Mr. O.P. Jalan
Mrs. Sudha Jalan.
1. Mr. O.P. Jalan took
the Chair,
2. Leave of absence was
granted to Mr. S.K. Jalan and Mr. R.N. Jalan.
3. Minutes of the Previous Meeting of the Board
of Directors held on 3rd November, 1984 were read, confirmed, initialled and
signed by the Chairman.
4. The Managing Director informed the Board
that presently Company is having recession for the products presently being
manufactured by the company. It is therefore envisaged to diversify and start
producing new range of products for which additional capital equipments etc.
are required. The financial position of the Company is very tight. It was
therefore suggested to the Board to increase the paid up capital of the Company
by creation and issue of new shares and accordingly it was "Resolved that
in accordance with Article 6 of the Articles of Association of the Company and
other applicable provisions of the Companies Act, 1956 if any, the issued share
capital of the company be increased from Rs. 5.00 lakhs to Rs. 10.00 lakhs by
the issue and allot Rs. 10.00 lakhs by the issue and allotment of 50,000 equity
shares of Rs. 10 each for subscription for cash at par."
Further Resolved that the amount of Rs. 10 each per share shall be payable with application in full.
Further Resolved that the new shares shall be subject to the Memorandum and Articles of the Association of the Company.
Further Resolved that the new equity shares shall rank pan passu, with the existing shares.
Further Resolved to offer the new shares to the existing shareholders and invite applications for the same.
Further Resolved that a member shall have right to apply for additional shares if he so desires.
Further Resolved that the last date for receipt of application along with application money be 15th December, 1984.
The Managing Director was directed to send notice/intimations to all shareholders of the company and to place application along with the amount received in full before the Board for allotment.
"Further Resolved that for the purpose of giving effect to this resolution, Mr. O.P. Jalan, Managing Director of the Company be and is hereby authorised to do all such acts, deed, matters and things as he may in his absolute discretion deem necessary to settle any question, difficulty, or default that may arise in regard to the issue and distribution of new equity shares as he may think fit."
After General discussions, the meeting terminated with a vote of thanks to the Chair.
Sd/-
Chairman."
In pursuance of the decision taken in the Minutes dated 26-11-1984, the Company sent letters to all the shareholders on 26-11-1984 under Ex. B-130 offering the additional shares. The said letter was sent by post under Certificate of Posting on 26-11-1984. The Certificate of Posting is Ex. B-131. The share offer letter is extracted below:
"Ex. B-130, dated:
26-11-1984
All shareholders,
The Board of Directors of the Company have decided at the Board Meeting held on Monday, 26th November, 1984 to increase the Share Capital of the Company from Rs. 5 lakhs to Rs. 10 lakhs by the issue and allotment of 50,000 New Equity Shares of Rs. 10 each for subscription for cash at par. The amount of Rs. 10 each per share shall be payable with application in full.
The new Shares shall be subject to the Memorandum and Articles of Association of the Company and shall rank pari passu with the existing shares.
The Board of Directors have decided to offer the new shares to the existing shareholders and invite application for the same. The members shall have right to apply for additional shares, if they so desire. The last date of the receipt of the application along with application money is 15th December, 1984.
You are holding Shares of the Company as on date. You are requested to send your application along with application money for as many shares as you wish to apply and your application should reach our office by 15th December, 1984.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing Director.
|
S. No. |
Name |
No. of Shares
|
|
|
1. |
Sri Ramniranjan Jalan |
7,030 |
|
|
2. |
Sri Rajkumar Khemka |
11,370 |
|
|
3. |
Sri Om Prakash Jalan |
7,080 |
|
|
4. |
Sri Shubhkaran Jalan |
5,730 |
|
|
5. |
Sri Mahesh Kumar Khemka |
370 |
|
|
6. |
Smt. Satyabhama Jalan |
4,690 |
|
|
7. |
Smt. Sudha Jalan |
5,154 |
|
|
8. |
Smt. Kamala Devi Khemka |
4,966 |
|
|
9. |
Sri Shree Gopal Jalan |
50 |
|
|
10. |
Smt. Bimla Devi Jalan |
50 |
|
|
11. |
Miss. Kavita Jalan |
1,650 |
|
|
12. |
Master Vikas Jalan |
50 |
|
|
13. |
Miss. Bela Jalan |
50 |
|
|
14. |
Master Pramod Jalan |
50 |
|
|
15. |
Master Bimal Kumar Ghuwalewala |
25 |
|
|
16. |
Mr. Hemanth Jalan |
50 |
|
|
17. |
Smt. Anandi Devi Jalan |
710 |
|
|
18. |
Sri Shree Narayan Jalan |
100 |
|
|
19. |
Smt. Manju Jalan |
50 |
|
|
20. |
Miss. Rita Jalan |
50 |
|
|
21. |
Mr. Sanjay Jalan |
400 |
|
|
22. |
Master Ajay Kumar Ghuwalewala |
25 |
|
|
23. |
Miss. Sumita Jalan |
50 |
|
|
24. |
Smt. Premlata Ghuwalewala |
25 |
|
|
25. |
Smt. Hemalata Khemka |
125 |
|
|
26. |
Smt. Radha Devi Khemka |
50 |
|
|
27. |
M/s Kohinoor Trading Company Pvt. Ltd. |
50 |
|
|
|
Total: |
50,000." |
|
48. Similarly for the Board meeting held on 5-1-1985 Notices were sent under Certificate of Posting. Ex. B-413 is the Notice and the Agenda is Ex. B-413-A, Ex. B- 133-B is the Certificate of Posting. R-3 and his wife only attended the meeting. Leave of absence was granted to Mr. S.K. Jalan and Mr. R.N. Jalan (R-9), the Notice reads thus:
"Ex. B-413, dated 28-12-1984
To
All Directors,
Mr. S.K. Jalan,
Mr. R.N. Jalan,
Mr. R. Khemka,
Mr. O.P. Jalan,
Mrs. Sudha Jalan.
Please take notice that the meeting of the Board of Directors of the Company will be held on 5th January, 1985 at 11.00 A.M. at the Registered Office of the Company as per enclosed Agenda.
Please make it convenient to attend.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing Director."
The Notice and Agenda were sent by post under Certificate of Posting. Ex. B-133-B is the Certificate of Posting. The Agenda is extracted below:
"Agenda for the Board of Directors Meeting to be held on 5th January, 1985 at the registered office of the company at 5-2-175/1, Rashtrapathi Road, Secunderabad-500003, Andhra Pradesh
1. To take note of or Election of the
Chairman of the meeting.
2. To consider the approval/confirmation of
the Minutes of the previous meeting of the Board of Directors held on 26th
November, 1984.
3. To consider and grant extension upto
15th February, 1985 for receipt of application for further issue of share
capital.
4. General.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing
Director."
The Minutes recorded were marked as Ex. B-227-E which reads thus:
"Minutes of the Meeting of the Board of Directors of M/s Deccan Enterprises Private Limited held on Saturday the 5th January, 1985 at 11.00 A.M. at the Registered Office of the Company at 5-2-175/1, Rashtrapathi Road, Secunderabad - 500003, Andhra Pradesh.
Present:
Mr. O.P. Jalan.
Mrs. Sudha Jalan.
1. Mr. O.P. Jalan took the Chair.
2. Leave of absence was granted to Mr. S.K.
Jalan and Mr. R.N. Jalan.
3. Minutes of the Previous Meeting of the
Board of Directors held on 26th November, 1984 were read, confirmed, initialled
and signed by the Chairman.
4. Extension of last date for recall of
application for further issue of share capital:
The Board reviewed the position regarding further issue of shares capital and noted that the last date fixed for the receipt of application for shares offered to them has expired on 15th December, 1984. To provide some more time to the shareholders to enable them to make necessary remittances, it is hereby decided that the last date fixed for the receipt of applications be extended from 15th December, 1984 to 15th February, 1985.
After general discussions the Meeting terminated with vote of thanks to the Chair.
Sd/-
Chairman."
For the Board Meeting held on 28-2-1985 Notices were sent under Certificate of Posting Ex. B-128. The Notice dated 18-2-1985 marked as Ex. B-87 is extracted below:
"To
All Directors,
Mr. S.K. Jalan,
Mr. R.N. Jalan,
Mr. R. Khemka,
Mr. O.P. Jalan,
Mrs. Sudha Jalan.
Please take notice that the meeting of the Board of Directors of the Company will be held on 28th February, 1985 at 11-00 A.M. at the Registered Office of the Company to discuss the matters as per the enclosed Agenda.
Please make it
convenient to attend.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing
Director."
The Agenda Ex. B-87-A, for the meeting reads thus:
"Agenda for the Board meeting to be held on 28-2-1985 at 11.00 A.M. at the Registered Office of the Company at 5-2-175/1, Rashtrapathi Road, Secunderabad - 500003 Andhra Pradesh.
1. To take note of or Election of the
Chairman, of the Meeting.
2. To consider the Approval/Confirmation of
the Minutes of previous meeting of the Board of Directors of the company held
on 5th January, 1985.
3. To take note of the resignation of Mr.
P.V. Subba Rao as Secretary of the Company and appoint Mr. V.K. Chamariya, ACA
as Secretary of the Company.
4. To consider and allot further issue of
share capital of Rs. 5 lacs.
5. General.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing Director."
The Notice and Agenda were sent by post under Certificate of Posting. Ex. B-128 is the Certificate of Posting. It was attended by R-3 and his wife. Leave of absence was granted to Mr. S.K. Jalan and Mr. R.N. Jalan. The following are the Minutes:
"Ex. B-227-F, dated 28-2-1985
Minutes of the Meeting of the Board of Directors of M/s Deccan Enterprises Private Limited, held on Thursday the 28th February, 1985 at 11.00 A.M. at the Registered Office of the Company at 5-2-175/1, Rashtrapathi Road, Secunderabad - 500003, Andhra Pradesh.
Present:1. Mr. O.P. Jalan
2. Mrs. Sudha Jalan.
Also Present Mr. V.K. Chamariya on Invitation.
1. Mr. O.P. Jalan took the Chair.
2. Leave of absence was granted to Mr. S.K.
Jalan and Mr. R.N. Jalan.
3. Minutes of the Previous Meeting of the
Board of Directors held on 5th January, 1985 were read, confirmed, initialled
and signed by the Chairman.
4. Mr. O.P. Jalan put before the Board the
resignation letter of Mr. P.V. Subba Rao, Secretary of the Company. The Board
considered the matter and decided to relieve Mr. P.V. Subba Rao as Secretary of
the Company with immediate effect. Mr. O.P. Jalan further informed the Board
that he has selected Mr. V.K. Chamariya, B. Sc (Hons.) ACA, Finance Manager of
the Company as Secretary of the Company also. The Board considered and
continued the appointment of Mr. V.K Chamariya as Finance Manager and Secretary
of the Company.
5. The Secretary produced before the Board
a statement showing the details of the Shares applied by the Shareholders for
further issue of the share capital of Rs. 5 lakhs (Rupees five lakhs only).
The Board considered the same and decided that in case if the applications for further shares have not been received from any of the shareholders, the same may be allotted by the Board in its discretion to any of the shareholders who applied for more than the shares offered to them. Accordingly, the following resolutions have been passed.
"Resolved that 50,000 Equity Shares of Rs. 10 each (Distinctive Nos. from 50001 to 100, 000) be and are hereby allotted to the persons as per list placed before the Board and reproduced below and as shown against their respective name.
|
S.No. |
Name |
No. of shares allotted |
Distinctive Nos. |
||
|
|
|
From |
To |
||
|
|
|
|
|
(both inclusive) |
|
|
1. |
Mr. Om Prakash Jalan |
40,000 |
|
50001 |
90000 |
|
2. |
Mrs. Sudha Jalan |
6,000 |
|
90001 |
96000 |
|
3. |
Miss Kavita Jalan |
2,000 |
|
96001 |
98000 |
|
4. |
Master Vikas Jalan |
2,000 |
|
98001 |
100000 |
Further Resolved that the Share Certificate in respect of the shares allotted as aforesaid be issued to the aforesaid persons under the common seal of the Company and under the signature of any two directors of the Company and counter signature of the Secretary of the Company.
Further Resolved that for the purpose of giving effect to the above resolutions Sri V.K. Chamariya, Secretary of the Company be and is hereby authorised to do all such acts, deeds, matters and things as he may in his absolute discretion deem necessary.
6. The following statement placed before the Board were perused, noted and approved:
(a) Statement
showing the purchases/acquisitions/additions/sale of disposal of capital assets
from 1-11-1984 to 31-1-1985.
(b) tatement showing the borrowings as on
31-1-1985.
(c) tatement showing the Loans and Advances
given as on 31 -1 -1985.
After general discussions the meeting terminated with a vote of thanks to the Chair.
Sd/-Chairman."
In pursuance of the decision taken in the Minutes of the Board meeting dated 5-1 -1985 again the offer was sent to all the Shareholders on 5-1 -1985 under Ex. B-132. The said offer was sent by post under Certificate of Posting vide Ex. B-129. The letter extending the date for subscribing to the additional capital is extracted below:
"Ex. B-132:
All Shareholders,
We refer to our letter dated 26th November, 1984 inviting application for issue and allotment of Equity Capital of the Company. Please note that the Board of Directors of the Company at the Board Meeting held on Saturday 5th January, 1985 have extended the last date of receipt of application from 15th December 1984 to 15th February 1985. You are requested to send your application along with application moneylatestbyl5th February, 1985.
for Deccan Enterprises Pvt. Ltd.
Sd/-
Managing
Director."
To
1. Sri Ramniranjan Jalan
2. Sri
Rajkumar Khemka
3. Sri Om Prakash Jalan
4. Sri Shubhkaran Jalan
5. Sri Mahesh Kumar Khemka
6. Smt. Satyabhama Jalan
7. Smt. Sudha Jalan
8. Smt. Kamala Devi Khemka
9. Sri Shree Gopal Jalan
10. Smt. Bimla Devi Jalan
11. Miss. Kavita Jalan
12. Master Vikas Jalan
13. Miss Bela Jalan
14. Master Pramod Jalan
15. Master Bimal Kumar Ghuwalewala
16. Mr. Hemant Jalan
17. Smt. Manju Jalan
18. Sri Shree Narayan Jalan
19. Smt. Manju Jalan
20. Miss Ritu Jalan
21. Mr. Sanjay Jalan
22. Miss Sumita Jalan
23. Master Ajay Kumar Ghulwalewala
24. Smt. Premlata Ghuwalewala
25. Smt. Hemlata Khemka
26. Smt. Radha Devi Khemka
27. M/s Kohinoor Trading Company Private
Limited.
It is thus the case of R-1 Company that meeting of the Board of Directors was held on 26-11-1984 wherein the decision was taken to subscribe the additional share capital of Rs. 5 lakhs and consequent on the said decision, offer was made to the Shareholders to send their offers on or before 15-12-1984. However, again the same was extended upto 15-2-1985. It is also the case of the Company that only few Shareholders responded namely Mr. O.P. Jalan (R-3), Smt. Sudha Jalan (R-4), Mr. Vikas Jalan (R-5), and Miss. Kavita Jalan (R-6). It is also the case of R-1 that they have also sent cheques. Further, it is also in evidence that some Shareholders sent intimations Exs. B-317, B-318, B-319 and B-320 that they were not interested to contribute to the additional share capital. The theory propounded by each Director namely P-1, R-3 and R-9 travel in different directions. It is the case of P-1 that he never received any intimation of Notices of meeting and therefore he did not attend any of the meetings from 1983. It is his case that had he known that the additional shares were issued and had an offer been made to him would he have definitely contributed to the shares as the Company was in a prosperous condition. He states that all Certificate of Postings and Notices and also the Minutes were manipulated to suit the convenience of R-3 so as to gain majority shareholding. He also submits that additional issue was manipulated and in fact there was real and substantial contribution towards the share capital. On the other hand the R-9 says that he attended some of the meetings and he did not receive any Notices for the Board meetings dated 26-11-1984 and 5-1-1985. However, he attended the Board meeting dated 28-2-1985, but the Minutes are different. He also submits that there was no information to him with regard to additional share capital. He also could have contributed had the intimation been sent to him. None of the family members received the letters offering the additional shares vide letters dated 26-11-1984 or letters dated 5-1-1985. He also says that the contribution of additional share capital is only artificial and in effect, no money was brought into the company. It is also the case of P-1 and R-9 that there was no necessity for additional share capital as the Company was having tremendous reserves and that contribution of Rs. 5 lakhs as additional capital is only a pittance. The Company had sufficient resources to mobilise this small amount instead of creating additional share capital. Therefore, they contend that the additional share capital was brought into books only for the purpose of converting the minority Shareholders represented by R-3 into majority Shareholders. On the other hand, it is the case of R-3 that P-1 and R-9 were very much disinterested in the affairs of the Company and they did not take any active role from 1983. P-1 did not evince any interest after his son returned from Saudi Arabia and when his son is not provided with appropriate position in R-1 company, he was not attending to the meetings even though Notices were sent for each and every meeting. In fact P-3 had already incorporated a Company in 1982 and commenced the production in end of 1984. The products are identical with the products of R-1 Company. After February, 1985 when R-9 resigned from HIL P-1 was promoted as President of HIL and using the said capacity, he had diverted the orders from R-1 Company to APPL Company. Thus, the Company was made to suffer heavy losses on account of non:purchase of its products by HIL P-1 used his influence and diverted the orders and therefore the sales which were to the tune of Rs. 70 to 80 lakhs in 1981 -82 slowly came down and by 1986-87 it became to nil It is also his case that the Company was required to diversify its products for various reasons including the competition put-up by P-3 and for that purpose it required machineries and finances for purchase of machineries. It is also his case that the financing bank has been insisting for increase of share capital from Rs. 5 lakhs to Rs. 10 lakhs so as to increase the credit limits. It is also his case that there was a family partition in August/September, 1984 and in the said family partition, R-1 Company fell to the share of R-3 and Nucon Company went to the share of R-9. Accordingly, R-9 became the Managing Director of Nucon and he started concentrating on this Company. Accordingly, extensive powers were conferred on R-9, as far as the Nucon was concerned and on R-3 as far as R-1 company is concerned. The cheque signing powers were also changed giving complete liberty to R-3 and R-9 in respect of R-1 company and Nucon respectively. It is also in evidence that P-1 was not at all interested in R-1 company and they were insisting on settlement of their shares in all the companies held in Jalan and Khemka families. P-1 also initiated conciliatory talks with the intervention of one Mr. P. Khaitan and ultimately when the matter was settled and when the payment was to be made by his brother Mr. S.G. Jalan, P-1 backed out. It is also the case of R-3 that since the Company is loosing orders from HIL from year to year and that Company requires diversification of products and it has been incurring heavy losses from year to year and also it requires various machineries for the purpose of diversification of products including the finances and that the Bank had been insisting from 1981 onwards to increase the share capital from Rs. 5 lakhs to Rs. 10 lakhs so as to consider the enhancement of credit limits, it was decided to subscribe to the additional share capital of Rs. 5 lakhs and accordingly Board meeting was convened on 26-11-1984 and a decision was taken to subscribe to the additional share capital of Rs. 5 lakhs. Accordingly, letters were sent on 26-11-1984 to all the Shareholders offering them additional shares and requesting them to apply for additional shares if they so desire on or before 15-12-1984 with the application money. In response to the said offer, only four Shareholders sent the application together with the application money by 30-12-1984. But, however in the Board meeting held on 5-1 -1985 one more chance was given to the Shareholders to apply for additional shares fixing the date of receipt of the application together with application money to 15-2-1985. Even in response to that letter of offer, there was no application from any Shareholders. However, some Shareholders declined to subscribe to the additional shares. Therefore, in the Board meeting held on 28-2-1985, a decision was taken to allot the shares to the Shareholders who responded and sent the application money. Thus it was submitted on behalf of R-3 that when the Notices were in accordance with the Articles of Association and when there is no response from the Shareholders, it has to be treated that they did not wish to contribute to the additional share capital and that it shall be presumed that they did not consent for additional share capital. In this regard, it has to be observed that there was no definite and specific pleading by P-1 in the Company Application to the effect that additional shares were issued without his knowledge and if any shares were issued that should be treated as illegal and invalid. Thus, the P-1 was not at all sure of additional share capital and he has been taking shelter by making general pleading that no Notices were being sent and therefore he was not in a position to attend any meetings. Enormous evidence was let in by P-1 and R-9 on the issue relating to the additional share capital saying that there was no requirement of additional capital at all and that all the Certificate of Postings, registered postal receipts and the Minutes were fabricated and that the letter written by Mr. Kedia, former General Manager, intimating the Bank that they had increased the share capital to Rs. 10 lakhs was also a manipulated letter. That the contribution of additional share capital by R-3 and his family members is only a paper transaction and in effect the Company did not get any physical benefit out of additional share capital, that there was no family settlement in Jalan family and that some of the documents introduced by R-9 namely Ex. B-64 letter written by P-3 to R-9, Ex. B-65 written by P-3 to P-1 and the agreement signed by P-3 Ex. B-70 and the letter of R-9 Ex. B-71 written to P-3 are all false and fabricated. Evidence was tried to be pressed into service saying that there was no contribution of additional share capital in fact as the return was filed with the ROC only in September, 1985. Had the additional share capital issue been real they should have immediately intimated to the ROC. This was refuted by R-3 by stating that on 25-3-1985 itself the ROC was intimated about the allotment of additional share capital, but it was not taken note of as necessary fee was not paid along with the papers. The ROC had intimated to resubmit the return by paying necessary fee, it was paid in September, 1985 and the return was accepted by the ROC. It is the case of R-3 that he had obtained the loan of Rs. 5 lakhs from Poddar Industries for payment of share capital for his additional share capital on his behalf and also on behalf of his family members and the same was credited to the Company Account. With the said money some used machinery was purchased from DPPL for a sum of Rs. 4,55,000 and the balance Rs. 45,000 was credited to the Bank towards the payment of over-draft amount. It is also his case that on instructions of DPPL who sold the machinery to R-1 Company, cheques were issued by R-1 company in favour of the R-3 and his family members within two days of subscribing to the share capital and that again the amount was paid to Poddar Industries. While it is seriously contested by P-1 and R-9 that this transaction is nothing but purely imaginery and that the money brought by R-3 did not remain with the Company for two days and again the money was returned to him. Evidence was adduced in-extenso on this aspect. It is also the case of R-3 that apart from the machinery purchased from DPPL for Rs. 4,50,000 he also purchased the machineries worth Rs. 20 lakhs from other firms through out the country by borrowing monies from various institutions.
49. I have given my serious and anxious consideration to the issue which is contested tooth and nail by all the parties. But, the question remains is whether the P-1 and R-9 consented for the additional share capital. In the instant case, the question of consent cannot be directly established and only the circumstantial evidence has to be scrutinised meticulously. The main contention of P-1 was that he never received any Notices, while the stand of R-9 was that he attended the meeting on 28-2-1985 and that he had no Notice of Board meetings of 26-11-1984 and 5-1-1985. I have already discussed the matter relating to the issue of Notices by R-1 Company in preceding paragraphs and after considering the evidence with reference to the clauses in the Articles of Association and also the statutory provisions in section 53 and section 286 and also the evidence adduced, held that the Company did issue the Notices for various meetings. Therefore, it has to be necessarily held that the Notices for the meetings dated: 26-11-1984, 5-1-1985 and 28-2-1985 were issued to the Directors. With regard to the offer made by R-1 Company to the Shareholders, it is in evidence that the letters were sent on 26-11 -1984 and 5-1-1985 offering the additional shares to the shareholders and there was no response except from few. It is sought to be contended by the learned counsel for P-1 and R-9 that the meetings were never held and that no Notices were sent at all and that the resolution passed on 5-1-1985 extending the time upto 15-2-1985 was nothing, but an empty formality of show that one more opportunity was given to the Shareholders, when in fact R-3 and his family members had already contributed to 50,000 shares and paid the money on 28-11-1984, and the machinery was purchased with the said money, the question of again sending another offer to the Shareholders is only an eye wash. I am inclined to observe that the parties tried to level allegations against each other stating that fraud was played and forged documents were pressed into service and that manipulations were made with regard to Certificate of Postings and postal registration receipts. But, to ascertain whether they have consented for issue of additional shares, it is necessary to establish whether any Notice was sent offering the shares. Though R-9 and P-1 in so many words stated that they have not received any Notices, but except denying the receipt of the letters of offer, they did not lead any evidence on this aspect. It is also seen from the Minutes dated 26-11-1984 that R-3 and Mrs. Sudha Jalan attended Board meeting. Leave of absence was granted to Mr. S.K. Jalan and Mr. R.N. Jalan (R-9). Similarly, in the Board meeting held on 5-1-1985 R-3 and Mrs. Sudha Jalan (R-4) only attended the meeting and leave of absence was granted to Mr. S.K. Jalan and Mr. R.N. Jalan (R-9). Again in the Board meeting held on 28-2-1985 Mr. S.K. Jalan (R-8) and Mr. R.N. Jalan (R-9) apart from R-3 and R-4 attended the Board meetings in which the resolution was passed and following shares were allotted:
|
Mr. O.P. Jalan |
40,000 |
|
|
Mrs. Sudha Jalan |
6,000 |
|
|
Miss. Kavitha Jalan |
2,000 |
|
|
Master Vikas Jalan |
2,000. |
|
I have already held that the version as narrated by R-9 in Ex. R-2 cannot be believed and therefore whatever the Minutes that were alleged to have been sent under R-2 letter cannot be relied as the letter itself was not a genuine letter. Therefore, the contention of R-9 that the Minutes as enclosed by him vide his letter dated 16-8-1985 Ex. R-2 were only the correct Minutes cannot be accepted. It is also to be noted in this regard that R-3 was examined himself as R. W-5. When he was offered for examination, it is for P-1 and R-9 to have elicited the relevant information from him. When he was offered for cross examination even though he was subjected to lengthy cross examination, the relevant points touching the issue in question were never raised. The burden lies on P-1 to establish that he did not receive the Notices at all, except making a bold statement to that effect. Equally the burden lies on R-9 to establish that the Notices were not sent for the Board meeting on 26-11-1984 and 5-1-1985 and that he attended the meeting on 28-2-1985 and that the Minutes were not properly recorded on 28-2-1985. It is curious to note that in the letter dated 16-8-1985 Ex. R-2, he only referred to various Board meetings as having attended them including 28-2-1985, but however, there was no mention about 26-11-1984 and 5-1-1985. In the said two meetings crucial decision was taken to subscribe to the additional share capital and now R-9 is coming out with his version that there was no meeting on 26-11-1984 and 5-1-1985 which version of R-9 cannot be believed. When once it is held that proper Notices were issued and the procedure as contemplated has been followed, it is not open for P-1 and R-9 to contend that no meetings took place. As already held by me that when R-9 attended number of meetings of course excluding the Board meetings on 26-11-1984 and 5-1-1985, the contention of P-1 that he did not receive Notices at all cannot be believed. P-1 and R-9 for the reasons best known did not elicit any information with regard to the postage account maintained by R-1 company nor is there any cross examination by R-9 in respect of the meeting which was held on 26-11-1984 and 5-1-1985 wherein the leave of absence was granted to Mr. S.K. Jalan (R-8) and Mr. R.N. Jalan (R-9). He did not even elicit either from R-2 or R-3 that he did not make any request for leave of absence and that there was no evidence before R-1 company to that effect and the entry in the Minutes that leave of absence was granted was false.
50. It is well established rule
of evidence that a party should put to each of his opponent's witness so much
of his case as concerns that particular witness. If no such questions are put
the Court may presume that the witness's version has been accepted. If it is
intended to suggest that a witness was not speaking the truth upon a particular
point, his attention must first be directed to the fact by cross-examination,
so that he may have an opportunity to give an explanation. It is also beyond
controversy that if the witness is offered for cross examination, he should be
cross examined on material point. Failure to cross-examine witness on certain
points amounts to acceptance of truth of his testimony, except when the
testimony itself is inherently improbable and incredible. Therefore, cross
examination is a powerful and valuable weapon for the purpose of testing the
veracity of a witness and the accuracy and completeness of his story. Hence,
when the witness was not tested by cross examination, his evidence may be
accepted subject to the above exception.
51. There is no cross
examination on this point. There is also no suggestion. Therefore, it has to be
concluded that R-9 did seek for leave of absence, thereby establishing that he
had the Notice of meeting. Any resolutions passed in such meeting are valid
unless properly challenged.
52. The learned counsel for P-1 and R-9 contended that the burden placed on P-1 and R-9 was discharged by stating that they did not receive any Notices and the burden shifted to R-3 to establish that Notices were sent. In this regard it has to be noted that proof of burden on the respective parties pales into insignificance when they adduced the evidence at length. Yet, if they failed to elicit the necessary information, then it has to be taken note of. I am for the purpose of this issue not considering the circumstances to establish that P-1 and R-9 was disinterested to contribute for additional share capital for various reasons as set out by R-3 nor am I inclined to consider that P-1 and R-9 was very much interested to contribute the additional share capital as the company was in a prosperous state. Suffice it to say that if the Notices were issued properly and they failed to attend the meetings, the consequential resolutions passed in the said meetings cannot be challenged nor can it be said that the minutes are manipulated. It is duty cast on the party to put his case in the cross-examination of the witnesses of the opposite party. This rule is of essential justice, not merely a technical one. The Division Bench of the Calcutta High Court in A.E.G. Carapiet v. A. Y. Derderian AIR 1961 Cal. 359, observed as follows:
"The law is clear on the subject. Whenever the opponent has declined to avail himself of the opportunity to put his essential and material case in cross examination it must follow that he believed that the testimony given could not be disputed at all. It is wrong to think that this is merely a technical rule of evidence. It is a rule of essential justice. It serves to prevent surprise at trial and miscarriage of justice, because it gives notice to the other side of the actual case that is going to be made when the turn of the party on whose behalf the cross examination is being made comes to give and lead evidence by producing witnesses. It has been stated on high authority of the House of Lords that this much a counsel is bound to do when cross-examining that he must put to each of his opponent's witnesses in turn, so much of his own case as concerns that particular witness or in which that witness had any share. If he asks no question with regard to this, then he must be taken to accept the plaintiff's account in its entirety. Such failure leads to miscarriage of justice, first by springing surprise upon the party when he has finished the evidence of his witnesses and when he has no further chance to meet the new case made which was never put and secondly, because such subsequent testimony has no chance of being tested and corroborated."
53. The contention that the
Notices for offering the additional shares was never issued and Certificate of
Postings produced by R-3 cannot also be accepted, because in pursuance of the
orders of this Court, an Advocate- Commissioner was appointed to take charge of
the documents of the Company and in pursuance of the said order, various
documents were taken charge of by the Advocate Commissioner by putting her
initials on each and every document on 11 -7-1987. The notice issued for the
meetings dated 26-11-1984 and 5-1-1985 and 28-2-1985 bears the signature of the
Advocate-Commissioner and the Certificate of Postings also bear the signature
of the Commissioner. That goes to establish that these documents were in the
files of the Company as on the said date and it cannot be said that they were
manufactured or fabricated subsequently. It is also one of the circumstances
which goes to show that these documents were maintained during the course of
the company's business.
54. For all these reasons, it must be held that proper Notices were issued for the meetings dated 26-11-1984, 5-1-1985 and 28-2-1985 and the Minutes were recorded in those meetings cannot be said to be irregular or manipulated. When once it is found that the offers were made to all the shareholders if they did not respond to the offers it has to be necessarily held that they did not consent for subscribing to the additional shares. In this regard, it has to be noted that convening of meetings and taking decisions in the Board meetings and sending intimations to the Shareholders is a purely a in-house procedure regulated by the Articles of Association of the Company and it would not be proper for the Courts to interfere with the internal administration of the company, unless the contrary is established including the contravention of the Articles of Association or the statutory provisions as contained in the Companies Act. So long as the Company functions in accordance with the statutory provisions, its activities need not be probed further. Therefore, when R-9 and P-1 with their respective members did not respond to the offers made by R-1 Company, it has to be necessarily held that they were not inclined to subscribe to the additional shares, thereby impliedly consenting for allotment of shares to the others. I accordingly, hold the issues against P-1 and R-9.
55. The learned counsel for R-3
submits that there is no obligation to compulsorily allot the shares to the
existing Shareholders under law and also the Articles of Association, it is
purely the discretion of the Board to allot to any member. I need not go into
this aspect as I found that P-1 and R-9 shall be deemed to have consented for
allotment of shares to other shareholders.
56. The learned counsel for P-1 and P-2 Mr. K. Srinivasa Murthy submits that the learned Single Judge Upendralal Waghray, J. while adjudicating certain Interlocutory applications recorded finding that the issue of additional share capital was not genuine and that it was a sham transaction. He also submits that the order of learned Judge was the subject matter before the Division Bench which confirmed the order of the learned Single Judge. Thereafter the matter was went upto the Supreme Court in a S.L.P. and the S.L.P. was dismissed. The learned Judge proceed ed on the footing that the Board meetings did take place and attended by R-3 and additional shares were allotted as per the resolution. But the validity of allotment was gone on the basis of the pleadings of the parties and that the learned Judge recorded a finding that the alleged additional allotment made by R-3 was a sham and not a genuine transaction. The said finding was arrived by the learned Single Judge after fullfledged arguments and after application of mind to full facts of the case duly consi dering the documents referred to in the respective pleadings. He submits that when there is a finding that the issue relating to additional share capital is fishy and clouded with great suspicion, the said finding has become final, even though it is a prima facie finding. Thus he submits the orders in the Interlocutory applications are not only binding in the separate proceedings, but also in various stages in the same proceedings and consequently they constitute res judicata. He takes the assistance of the judgment of Privy Council in G.H. Hook v. Administrator General of Bengal AIR 1921 PC 11. The Privy Council observed as follows:
"The learned Judge held that this matter had already been definitely settled and in addition gave reasons why he adhered to his former opinion. This was, in fact, superfluous. The question as to the perpetuity had been definitely and properly before him on the former hearing, and, was, in fact, decided without any reservation, as is made plain by the terms of the judgment itself, which show that the determination of the disputes as to the perpetuity was the foundation of the whole judgment and that the questions left over were those to which attention has been directed and which themselves are abundant to explain the meaning of the passage in the decree on which reliance is placed.
It is not, and indeed it cannot be, disputed that, if that be the case, the matter has been finally settled between the parties, for the mere fact that the decision was given in an administration suit does not affect its finality (See: Peareth v. Marriott [1882] 22 Ch. D. 182. The Court of Appeal, however, took a different view, and regarding the question as still open decided it against the appellant, but the error in their judgment is due to the fact that they regarded the question as completely governed by section 11 of the Code of Civil Procedure. That section prevents the re-trial of issues that have been directly and substantially in issue in a former suit between the same parties, and this question obviously arises in the same and not in a former suit, but it does not appear that the learned Judge's attention was called to the decision of this Board in Ram Kirpal Shukul v. Mt. Rup Kuari [l884] 11 LA. 37, which clearly shows that the plea of res judicata still remains apart from the limited provisions of the Code, and it is that plea which the respondents have to meet in the present case. In the words of Sir Barnes Peacock (at p. 41)—
'The binding force of such a judgment in such a case as the present depends not upon section 13, Act-X of 1877' (now replaced by section 11 of the Code of Civil Procedure), 'but upon general principles of law. If it were not binding there would be no end to litigation'." (p. 12)
This decision is not applicable to the contention as the issue was finally decided in an administration suit and rightly it was held that Section 11 of C.P.C. was applied. The said decision was referred to by the Supreme Court in Satyadhyan Ghosal v. Smt. Deorajin Debi MR 1960 SC 941. On the strength of this decision the learned counsel submits that the Principle of Res Judicata applies as between two stages in the same litigation. In paras 7 and 8 it is held:
"(7) The principle of res judicata is based on the need of giving a finality to judicial decisions. What it says is that once a res is judicata, it shall not be adjudged again. Primarily it applies as between past litigation and future litigation. When a matter-whether on a question of fact or a question of law - has been decided between two parties in one suit or proceeding and the decision is final, either because no appeal was taken to a higher court or because the appeal was dismissed, or no appeal lies, neither party will be allowed in a future suit or proceeding between the same parties to canvass the matter again. This principle of res judicata is embodied in relation to suits in section 11 of the Code of Civil Procedure; but even where section 11 does not apply, the principle of res judicata has been applied by courts for the purpose of achieving finality in litigation. The result of this is that the original Court as well as any higher Court must in any future litigation proceed on the basis that the previous decision was correct.
(8) The principle of res judicata applies also as between two stages in the same litigation to this extent that a Court, whether the trial court or a higher court having at an earlier stage decided a matter in one way will not allow the parties to re-agitate the matter again at a subsequent stage of the same proceedings. Does this however mean that because at an earlier stage of the litigation a Court has decided an interlocutory matter in one way and no appeal has been taken therefrom or no appeal did lie, a higher court cannot at a later stage of the same litigation consider the matter again?" (p. 943)
In this case, in an earlier proceedings the High Court on the basis of amendment to Calcutta Thika Tenancy Act, held that the respondent was Thika tenant and holding the Section 28 was applicable to pending proceedings, remanded the matter for fresh disposal. After the remand, the Munsiff rescinded the decree. Land Lord was unsuccessful before the High Court. The Land Lord tried to raise the question of applicability of Section 28 which was rejected as barred by res judicata. Allowing the appeal, the Supreme Court observed thus:
"(22) In our opinion the order of remand was an interlocutory order which did not terminate the proceedings and so the correctness thereof can be challenged in an appeal from the final order. We hold therefore that the appellant is not precluded from raising before us the question that section 28 of the original Thika Tenancy Act was not available to the tenants after the Thika Tenancy Amendment Act came into force. On this question we have already decided, as already, indicated above, in Mahadeolal Kanodia's case, Civil Appeal No. 303 of 1956 AIR 1960 SC 936, that section 28 after its omission by the amending Act is not available in respect of proceedings pending on the date of the commencement of the Thika Tenancy Ordinance of 1952." (p. 947)
Therefore, this decision is not applicable to the case on hand. He also takes the assistance of the judgment of the Supreme Court in Y.B. Patil v. Y.L. Patil MR 1977 SC 392. In the said case, the Supreme Court observed as follows:
"Principles of res judicatacan be in invoked not only in separate subsequent proceedings; they also get attracted in subsequent stage of the same proceedings. Once an order made in the course of a proceeding becomes final, it would be binding at the subsequent stage of that proceeding." (p. 392)
This case also does not apply to the facts of the present case. In that case A applied for restoration of land under the provisions of Bombay Hereditary Officers Act. The Assistant Commissioner allowed the application. B aggrieved party having been unsuccessful before the appellate authority moved the revision before the Tribunal, which allowed the revision. It held that the Watan was acquired by Basangouda-I. A filed Writ Petition and the same was allowed holding that it was not open for the Tribunal to reopen and set aside finding of fact in revision and accordingly remanded the matter. On remand, the Tribunal held against A holding that Watan was acquired by Basangouda-IInd, not Basangouda-I. Having been unsuccessful before the High Court, A carried the matter before the Supreme Court. It was contended that the High Court was in error in not interfering with the order of the Tribunal, whereby the Revision Petition filed by the Appellants had been dismissed. It was also urged that the Tribunal in affirming the finding of the Assistant Commissioner and Deputy Commissioner recorded question of Appellants being strangers qua, the law in dispute took a very restricted view of section 79 of the Act, dealing with the Revision. This contention was repelled. The Supreme Court observed "that the High Court at the time of the decision of the earlier Writ Petition, of the 18-12-1964, recorded a finding and gave directions to the Tribunal not to reopen the questions of fact in Revision. The Tribunal, while passing the order dated 12-9-1967 compared with those directions of the High Court. The Appellants are bound by the judgment of the High Court and it is not open to them to go behind that judgment in this appeal. No appeal was filed against that judgment and it has become final. In that context, the Supreme Court held that the principles of res judicata can be invoked not only in subsequent proceedings, but also they get attracted at the stage of subsequent proceedings." Therefore, the earlier order of the High Court become final and that could not be re-agitated in the subsequent proceedings. But, in the instant case, there is no such final order. Hence, this decision is not applicable to the facts of this case. He also relied on the decision of Patna High Court in Ramsarup Dass v. Pyare Das to say that the Interlocutory orders once confirmed in revision under section 115 operate as res judicata. On the other hand, the learned counsel for R-3 submits that the preliminary findings on the interlocutory orders cannot be treated as final orders, so as to bind parties by the principles of res judicata. If the order of the learned Judge Upendralal Waghray J. was understood to be final orders, nothing remains in the Company Petition and that finding itself would be sufficient to allow application. The principle of res judicata is conceived in the larger public interest which requires that all litigation must sooner than later, come to an end. The principle is also founded on basis of justice and good conscience, which require that a party which once succeeded on an issue should not be permitted to be harassed by a multiplicity of proceedings involving determination of the same issue. While, it is not in dispute that the finality of orders and their binding nature depends on the type of orders passed and the nature of relief granted in interlocutory orders, in the instant case, the Company Application Nos. 184 to 1988 were made by R-9 seeking reconstitution of the Board represented by R-9 and P-1, for appointment of Joint Managing Director, for declaring proceedings of Annual General Meeting dated 5-7-1988 for carrying out of the functions of Joint Managing Director and Managing Director for conducting fresh Audit. The learned Judge very clearly stated din the order that the examination of material was for appreciating the controversy raised for ascertaining the prima facie and balance of convenience for the purpose of interlocutory applications. Therefore, the learned Judge on the basis of such examination came to a prima facie conclusion. Even the Division Bench also confirms the order of the learned Single Judge. It only establishes that the prima facie findings for this purpose of balance of convenience for appropriate orders shall be deemed to have been confirmed. Therefore, I am not in agreement with contention of the learned counsel for P-1. The prima facie finding rendered by the learned single Judge for purpose of granting interim relief cannot be said to be binding in subsequent proceedings in the same case. Thus, any findings recorded by the learned single Judge in the interlocutory application, cannot be treated as res judicata in subsequent proceedings. In fact the learned Judge himself proceeded with the matter for ascertaining the existence of a prima facie case and balance of convenience. Therefore, I have to necessarily reject the contention of the learned counsel on this issue.
57. The learned counsel for P-1 and P-2 Mr. Srinivasa Murthy submits that the documents which are sought to be inducted by R-3 cannot be given any credence and no presumptions can be drawn under section 114 of the Evidence Act. Taking assistance from the decisions in Madugula Jermiah, In re AIR 1957 AP 611, Bahadur Singh v. MCD 1973 Punjab LR (D) 145 the learned counsel submits that when the documents were not proved they could not be relied upon and arguments could not have been advanced based upon other presumptions, which is not permissible under any statute or decisions rendered by the Courts. He submits that Ex. B-64 and B-201 were dated 16-1 -1985 and 21-11-1985 and they were only produced in 1993 by R-3 and they were never referred to in any counter filed by him. Even R-8 when he filed appeal against the orders of Upendralal Waghray, J. this was not brought out. I find that these documents were filed only to establish that there was a family settlement and that the parties reconciled to settle their respective accounts. Even though it is argued by the learned counsel for P-3 had no authority to enter into an agreement binding his father and other family members, that issue has now becomes redundant in view of my findings referred to above. Therefore, this Court is not taking any assistance from Exs. B-61 and B-201. Similar case is that Ex. B-70 and B-71. These documents are tried to press into service for the purpose of settlement alleged to have been entered between the parties which issue is not necessary to be gone into. The learned counsel further submits that the documents filed by R-3 implicating P-3 are wholly fabricated and they were not genuine documents. Suffice it to say that this Court is not entitled to go into the act whether there was a fraud or whether the documents were fabricated. Further these documents are not at all necessary to be considered for the purpose of deciding the issue. The learned counsel also submits that R-3 has been changing his version from time to time. The pleadings taken by him in the first counter in July, 1987 were changed in the next counter filed in December, 1987 and further changed in the counter filed in July, 1988. He submits that Order VII of C.P.C. is applicable to the pleadings. Therefore, he cannot develop the case, stage by stage contrary to the provisions of the C.P.C. Hence any evidence lead to sustain the contentions raised in the counter filed by R-3 in July, 1988 cannot be looked into. In Mrs. Om Prabha Jain v. Abnash Chand AIR 1968 SC 1083, the Supreme Court observed at para 11 which is extracted below:
"... The ordinary rule of law is that evidence is to be given only on a plea properly raised and not in contradiction of the plea. Here the pleas were made on two different occasions and contradicted each other. The evidence which was tendered contradicted both the pleas. The source of the information was not attempted to be proved and the witnesses who were brought were found to be thoroughly unreliable. In these circumstances we do not propose to refer to the evidence in this judgment any more." (p. 1086)
The Supreme Court in Ram Saurp Gupta v. Bishun Narain Inter College AIR 1987 SC 1242, observed thus:
"6. The question which falls for consideration is whether the respondents in their written statement have raised the necessary pleadings that the license was irrevocable as contemplated by section 60(b) of the Act and, if so, is there any evidence on record to support that plea. It is well settled that in the absence of pleading, evidence, if any, produced by the parties cannot be considered. It is also equally settled that no party should be permitted to travel beyond its pleading and that all necessary and material facts should be pleaded by the party in support of the case set up by it. The object and purpose of pleading is to enable the adversary party to know the case it has to meet. In order to have a fair trial it is imperative that the party should state the essential material facts so that other party may not be taken by surprise. The pleadings however should receive a liberal construction, no pedantic approach should be adopted to defeat justice on hair splitting technicalities. Sometimes, pleadings are expressed in words which may not expressly make out a case in accordance with strict interpretation of law, in such a case is the duty of the Court to ascertain the substance of the pleadings to determine the question. It is not desirable to place undue emphasis on form, instead the substance of the pleadings should be considered. Whenever the question about lack of pleading is raised the enquiry should not be so much about the form of the pleadings, instead the Court must find out whether in substance the parties knew the case and the issues upon which they went to trial. Once it is found that in spite of deficiency in the pleadings parties knew the case and they proceeded to trial on those issues by producing evidence, in that event it would not be open to a party to raise the question of absence of pleadings in appeal. In Bhagwati Prasad v. Shri Chandramaul AIR 1966 SC 735, a Constitution Bench of this Court considering this question observed (at p. 738 of AIR):
'If a plea is not specifically made and yet it is covered by an issue by implication, and the parties knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matters relating to the title of both parties to the suit are touched, though indirectly or even obscurely in the issues, and evidence has been led about them, then the argument that a particular matter was not expressly taken in the pleadings would be purely formal and technical and cannot succeed in every case. What the Court has to consider in dealing with such an objection is: did the parties know that the matter in question was involved in the trial, and did they lead evidence about it? If it appears that the parties did not know that the matter was in issue at the trial and one of them has had no opportunity to lead evidence in respect of it, that undoubtedly would be a different matter. To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had no opportunity to lead evidence, would introduce considerations of prejudice, and in doing justice to one party, the Court cannot do injustice to another.'" (p. 1246)
Assistance was also taken from para 3 of the case in Davuluri Venkata Hanumantha Rao v. Kasinadhuni Chengalvarayudu AIR 1954 AP 25 which is to the following effect:
"3. The first question raised is that the surrender of the suit lands by Purnachandramma, the widow of Sadasivalingamurthi, was invalid as the plaintiffs were not the next reversioners to the estate of her husband. This argument is based upon the contention, that in regard to unenfranchised inams, the rule of succession is different from that which obtains in the case of other property and that in regard to the said property, neither the widow nor the divided brothers of Sadasivalingamurthi were heirs to his estate. The learned Judge rightly pointed out that this case was not set up in the pleadings, and on that ground rejected the contention.
In our view, the learned Judge was right in not allowing the defendants to raise a plea at the time of arguments, which was not specifically raised in the pleadings." (p. 26)
Further, the learned counsel relied on paras 5 and 6 of the case in Manchineni Venkayya v. Manchineni Seshayya AIR 1954 AP 29 which are extracted below:
"…..It is well settled that parties ought not to be permitted to raise new points not covered by the pleadings or the issues. In Eshan Chunder Singh v. Shama Churn Bhutto, 1 Moo Ind. App. 7 at p. 20 (PC) (A), Lord Westbury described it as an absolute necessity that the determination of a cause shall be founded upon a case to be found in the pleadings, or involved in or consistent with the case thereby made. And this decision was followed by Sir Lionel Leach who delivered the judgment of the Judicial Committee in - Kanda v. Waghu AIR 1950 PC 68(B). In this connection, it may be pertinent to quote the observations, of Viscount Dunedin in - Siddik Mahomed Shah v. Mt. Saran AIR 1930 PC 57(1) at p. 57(1)(c):
'...but that claim was never made in the defence presented, and the learned Judicial Commissioners therefore very truly found that no amount of evidence can be looked into upon a plea which was never put forward.'
In - Lala Hemchand v. Pearey Lal AIR 1942 PC 64 at p. 66(D), Sir Madhavan Nair in delivering the judgment of the Judicial Committee has condemned the practice of allowing parties to adduce evidence on points not raised in the pleadings in the following terms:
'Their Lordships desire to observe that, though the case has been decided on all the points which arose on the evidence led by the parties, the procedure adopted by the trial court of allowing the parties to adduce evidence on points not raised in the pleadings or issues was irregular and should not have been allowed without amending the pleadings and raising necessary issues.'
6. So in the present case, the lower appellate court was wrong in reversing the judgment of the trial court on the question of repudiation without the pleadings being amended and the necessary issues being raised." (p. 30)
He also relies on para 7 of the decision of our High Court in Allam Gangadhara Rao v. Gollapalli Ganga Rao AIR 1968 AP 291, which is extracted below:
"7. It is trite to say that a party is expected and is bound to prove the case as alleged by him and as covered by the issues framed. This is in accordance with the main principle of practice that a party can only succeed according to what was alleged and proved: secundum allegate et probata He should not be allowed to succeed on a case which he has failed to set up. He should not be permitted to change his case or set up a case which is inconsistent with what he had himself alleged in his pleading except by way of amendment of the plaint. It is pertinent in this connection to remember what Lord Westbury had to say in this connection, in Eshanchunder Singh v. Shamachurn Bhutto (1866-67) 11 Moo Ind. App. 7 (PC).
'This case is one of considerable importance, and their Lordships desire to take advantage of it, for the purpose of pointing out the absolute necessity that the determination in a cause should be founded upon a case either to be found in the pleadings or involved in or consistent with the case thereby made... It will introduce the greatest amount of uncertainty into judicial proceedings if the final determination of causes is to be founded upon inferences at variance with the case that the plaintiff has pleaded, and, by joining issue in the cause, has undertaken to prove... They desire to have the rule observed, that the state of facts and the equities and ground of relief originally alleged pleaded by the plaintiff shall not be departed from'." (p. 294)
58. The principles as
enunciated in the above cases cannot be disputed. The entire gamut of exercise
is to find out the truth or otherwise of the allegations made in the company
petition and that should come only in the first blush and the parties cannot be
allowed to improve their respective stands from time to time. In this case all
the parties have adduced evidence extensively fully knowing the issues. More
over the documents which are sought to be objected are not being considered in
the petition. Hence, I reject the contention of the learned counsel.
59. The next important issue that falls for consideration is whether the acts of R-3 amounted to oppression and mismanagement under the provisions of sections 397 and 398 of the Companies Act. Though the issue of oppression was compressed by the Division Bench, yet by observing that "the main issue, as stated by us above, it is obvious, is comprehensive enough to bring into its fold all questions as to maintainability of an action under section 397 of the Companies Act on the ground of oppression as well as any issues suggestive of the presence of any act of oppression leading to the instant petition-company Petition No. 27 of 1987", it acquired higher status. Consequently, it necessitated this Court to consider whether the ingredients as contained in the statutory provisions are present so as to maintain the Petition and if so the acts alleged in the given circumstances constituted oppression/mis-management under sections 397 and 398 of the Act. The counsel appearing for the parties addressed Marathon arguments and cited catena of case law.
60. The learned counsel for P-1 and R-9 argued with vehemence at length that R-3 and R-4 conducted themselves in a manner un-becoming of a Director under the Company Law. They acted oppressively to the interest of the other Shareholders. It is also the contention that R-2 also actively connieved with R-3 for successfully performing the oppressive activities. Therefore, they requested the Court to set aside the allotment of additional share capital and order appointment of Interim Administrator until the regular Board is constituted. Alternatively they also prayed for directions to sell the shares held by R-3 and his family members to the P-1 and R-3. On the other hand the learned counsel appealing for R-3 submits that there was no oppression at all, but it is only in order to cause humiliation and harassment to R-3 and his family members and also to destroy the R-1 Company, such a Petition has been filed with false and frivolous allegations. It is also contended that the Petition was filed by P-1 and his family members ostensibly, but in fact R-9 was the actual person who lead the litigation by joining the hands with P-1. The learned counsel also submits that there are no bona fides in the petition and the same should be dismissed.
61. It is to be noted that P-1 and R-9 are sailing together in this Company Petition. The P-1 throughout his case in the Company Petition contended that Jalan group has been acting to the detriment of the interest of the Khemka family, but in later stages of averments in the Petition, it is brought out that R-9 also been subjected to similar treatment as the relations between R-3 and R-9 were strained and thus the P-1 tried to make out a case that R-3 has been acting oppressively to the interest of the other Shareholders.
62. The learned counsel for P-1 and R-9 submit that the Company in fact is a partnership and it is only incorporated under the Companies Act for the purpose of various benefits. It is also contended that Khemka family and Jalan family have always been maintaining 1/3rd and 2/3rd share in all the ventures undertaken by both these families. Therefore, there was an implied understanding to run the business on partnership lines and that in effect it is a partnership firm, though it was ostensibly incorporated under the Companies Act. When there is mutual distrust among the partners and there is lack of probity in the functions discharged by the Managing Director, the just and equitable clause has to be invoked and the Company should be wound-up on the principles enunciated in the Partnership Act. But, however winding up of the Company would jeopardise the interest of the other members, the Petition was filed for appropriate directions. On the other hand, the learned counsel for R-3 submits that it is not a partnership firm as contended by the learned counsel for P-1 and R-9. There is no such understanding at any point of time. Moreover, the Articles of Association and Memorandum of Association do not speak of such a partnership and that it is purely a legal entity incorporated under the Companies Act. Hence, the contention that it is a partnership concern has to be rejected. It is true that the Company consists of the members of Jalan family and Khemka family and outside share-holding is very negligible. They possess the shares in R-1 company and other companies. P-1 also tried to depict that it was 1/3rd in all the other Companies. Even it was also sought to be established that whenever the capital was raised in R-1 company, the allotment of shares was also made on the basis of understanding that Khemka family will have 1/3rd share and Jalan family will have 2/3rd share. But, the question that arises for consideration is whether in the given facts and circumstances of the case, can R-1 company though incorporated under the Companies Act, can be treated as a partnership in substance. The argument advanced on behalf of P-1 was that there were only two promoter families namely Khemka family and Jalan family and they held 1/3rd and 2/3rd shares, the shareholdings were only among the relations. Since it was aimed at joint management the principles applicable to partnership were relevant. It was tried to be contended that even though there was no partnership firm earlier to the incorporation of the Company, but if the corporate veil is pierced the Company is in substance a partnership, and therefore the partnership is liable to be wound-up if it is found by the Court that it is just and equitable to wind-up as and when the confidence between the partners is lost and business cannot be carried on successfully. Hence, the same principle can also be invoked in the Company Law as contained in Section 433. Since the oppression is writ at large, it is necessary that appropriate directions should be passed by this Court.
63. As can be seen from the Company Petition, the case is sought to be made out that R-3 has been conducting in oppressive manner to the interest of other Shareholders which will be sufficient ground for winding up of the R-1 company under just and equitable clause on the analogous provisions contained in the Partnership Act. It is necessary to consider whether the case on hand in effect is a partnership firm or a Company incorporated under the Companies Act. The Counsel for P-1 relied on the judgment of House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All. ER 492 and Yenidje Tobacco Co. Ltd In re [1916]2CL 426 (CA). The said judgments were referred by the Supreme Court in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwak. AIR 1976 SC 565. In Hind Overseas (P.) Ltd's case (supra), there was a petition filed for winding-up under section 433(f) of the Act. The learned company judge dismissed the petition holding that the principle of dissolution of partnership applied to companies either on the ground of complete deadlock or on the ground of being domestic or family companies. A complete deadlock would be created where the board has two real members or the ratio of shareholding is equal. In the case of domestic or family companies, the courts have applied the dissolution of partnership principle where shareholdings are more or less equal and there is ousting not only from management but from benefits as shareholders. Lack of probity has to result in prejudice to the company's business, affecting rights of complaining parties as shareholders and not as directors. If a deadlock can be resolved by the articles there is no deadlock to bring in winding up and if there are alternative remedies the company should not be wound-up. The learned company judge also held that he was unable to hold that the substratum of the company had gone. However, in the appeal, it was reversed and winding-up was ordered. The matter was taken to the Supreme Court. The question that arose before the Supreme Court related to the scope of Section 433(f) of the Companies Act, 1956 and in particular whether the principles applicable in case of dissolution of partnership could be invoked in the case of the Company. The facts of Ebrahimi's case (supra) were set out in Hind Overseas (P.) Ltd's case (supra) thus:
"18. In Ebrahimi s case 1973 AC 360, the Company which was first formed by the two erstwhile partners, Ebrahimi and Nazar, was joined by Nazar's son, George Nazar, as the third director and each of the two original shareholders transferred to him 100 shares so that at all material times Ebrahimi held 400 shares, Nazar 400 shares and George Nazar 200 shares. The Nazars, father and son, thus had a majority of the votes in general meeting. Until the dispute all the three remained directors. Later on an ordinary resolution was passed by the company in general meeting by the votes of Nazar and George Nazar removing Ebrahimi from the office of director. That lead to the petition for winding-up before the Court." (p. 571)
The Supreme Court noted the following features which were found in Ebrahimi's case (supra):
"(1) There was a prior partnership between the only two members who later on formed the company.
(2) Both
the shareholders were directors sharing the profits equally as remuneration and
no dividends were declared.
(3) One of the shareholder's son acquired shares from his father and from the second shareholder, Ebrahimi, and joined the company as the third shareholder-director with two hundred shares (one hundred from each).
(4) After that, there was a complete ouster of Ebrahimi from the management by the votes of the other two directors, father and son.
(5) Although
Ebrahimi was a partner, Nazar had made it perfectly clear that he did not
regard Ebrahimi as a partner but regarded him as an employee in repudiation of
Ebrahimi's status as well as of the relationship.
(6) Ebrahimi
though ceasing to be a director lost his right to share in the profits through
directors' remuneration relating only the chance of receiving dividends as a
minority shareholder.”
Bearing in mind the above features in the case, the House of Lords allowed the petition for winding-up by reversing the judgment of the court of appeal and restoring the order of Plowman, J. (p. 571)
The Supreme Court in Hind Overseas (P.) Ltd. 's case (supra) observed thus:
"31. Although the Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its own lines. Our law is also making significant progress of its own as and when necessary. Where the words used in both the Acts are identical, the English decisions may throw good light and reasons may be persuasive. But, as the Privy Council observed long ago in Ramanandi Kuer v. Kalawati Kuer AIR 1928 PC 2.—
'It has often been pointed out by this Board that where there is a positive enactment of the Indian legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning uninfluenced by any considerations derived from the previous state of the law— or of the English law upon which it may have been founded.'
If it was true in the twenties it is more apposite now that the background, conditions and circumstances of the Indian society, the needs and requirements of our country call for a somewhat different treatment. We will have to adjust adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to manage the company." (p. 574)
The Supreme Court further observed thus:
"32. When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding upon the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company." (p. 574)
In Ebrahimi's case (supra), the House of Lords after reviewing all the earlier cases held:
"The foundation of it all lies in the words 'just and equitable' and, if there is any respect in which some of the cases may be open to criticism, it is that the Courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; that there is a room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the Court to dispense him from it. It does, as equity always does, enable the Court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way ...
The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements:
(i) an association formed or continued on the basis of a personal relationship, involving mutual confidence— this element will often be found where a pre-existing partnership has been converted into a limited company;
(ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members) of the shareholders shall participate in the conduct of the business;
(iii) restriction upon the transfer of the members' interest in the company— so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere'." (p. 570)
The principles settled by the Supreme Court in Hind Overseas (P.) Ltd.'s case (supra), are very relevant for the purpose of solving the issue as to what are the considerations that would apply to the winding up Petition. In case where on piercing the veil, it is found that in reality it is a partnership, although constituted as Company, the management is more or less in the nature of a partnership, then the Company may be said to be in substance a partnership. The Supreme Court reversed the judgment of the Calcutta High Court saying that merely because the shareholding is between two family groups, it could not be said that the Company thereby takes the image of partnership. The Supreme Court also made reference to the principles laid down in Yenidje Tobacco Co. Ltd's case (supra). The Supreme Court narrated the facts of Yenidje Tobacco Co. Ltd's case (supra) as follows:
"24. This was a company of two shareholders and two directors who had earlier traded separately but amalgamated their businesses and formed a private limited company. The constitution of the company was such that under its articles of association for any case of difference or dispute between the directors there was a provision for arbitration. In fact in one of such disputes a reference was made to arbitration which resulted in an award to which one of the two shareholders declined to give effect. It was proved in that case that the two directors were not on speaking terms, that the so-called meetings of the board of directors had been almost a farce or comedy, the directors would not speak to each other on the board, and some third person had to convey communications between them which ought to go directly from one to the other. Under the above situation it was observed by the learned Master of the Rolls as follows:
'It is possible to say that it is not just
and equitable that this stage of things should not be allowed to continue, and
that the court should not intervene and say this is not what the parties
contemplated by the arrangement into which they entered?' Certainly, having
regard to the fact that the only two
** ** **
directors will not speak to each other, and no business which deserves the name of business in the affairs of the company can be carried on, I think the company should not be allowed to continue. I have treated it as a partnership and under the Partnership Act of course the application for a dissolution would take the form of an action; but this is not a partnership strictly, it is not a case in which it can be dissolved by action. But ought not precisely the same principles to apply to a case like this where in substance it is a partnership in the form or the guise of a private company? It is a private company, and there is no way to put an end to the state of things which now exists except by means of a compulsory order. It has been urged upon us .... that the just and equitable clause ... has ... been held .... not to apply except where the substratum of the company has gone or where there is a complete deadlock. Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that they are strictly the limits of the "just and equitable" clause as found in the Companies Act'……
** ** **
If ever there was a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed and which ought to be terminated as soon as possible." (p. 572)
The precise question posed by the learned Master of the Rolls was "I think it right to consider as the precise position of a private company such as this and in what respects it can be fairly called a partnership in the guise of a private company. The Supreme Court has then concluded:
"It is clear that although Yenidje Tobacco Ltd's case [1916] 2 Ch. 426 was a case of complete deadlock, that was not stated to be the sole basis for a conclusion to wind-up the company. The House of Lords in Ebrahimi's case [1973] AC 360 (HL) approved the decision in Yenidje Tobacco Co. Ltd 5 case [ 1916] 2 Ch. 426. We may also point out that the House of Lords did not approve of the undue emphasis put on the contractual rights arising from the articles over the equitable principles, derived from partnership law." (p. 572)
The Supreme Court also referred to the Privy Council decision in Loch v. John Blackwood Ltd [1924] AC 783, 793, wherein section 127 of the Companies Act, 1910, Barbados, identical with Section 433(f) of the Act was considered and in which, a passage from the case of Baird v. Lees [1924] SC 83 was quoted as follows:
" 'I have no intention of attempting a definition of the circumstances which amount to a 'just and equitable' cause. But I think I may say this. A shareholder puts his money into a company on certain conditions. The first of them is that the business in which he invests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the court to wind-up the company'." (p. 572)
The Supreme Court also referred to another decision of the Privy Council in D. Davis & Co. Ltd. v. Brunswick (Australia) Ltd. [1936] 6 Comp. Cas. 227, which was from the decision of the full court of the Supreme Court of New South Wales. Section 84(3) of the New South Wales Companies Act, 1899, also provides for winding up, inter alia, on the just and equitable ground. In dealing with that clause, according to the Supreme Court, the Privy Council observed as follows:
"'The position of the court in determining whether it is just and equitable to wind up the company requires a fair consideration of all the circumstances connected with the formation and the carrying on of the company during the short period which had elapsed since 12th May, 1930: and the common misfortune which had befallen the two shareholders in the company does not, in their Lordships' view, involve the consequence that the ultimate desires and hopes of the ordinary shareholders should be disregarded merely because there is a strong interest in favour of liquidation naturally felt by the holders of the preference shares.'
** ** **
'Nor on the other hand can any general rule be laid down as to the nature of the circumstances which have to be borned in mind in considering whether the case comes within the phrase.'" (p. 573)
64. The Supreme Court while dealing with the 'just and equitable' clause under section 162(vi) of the Indian Companies Act, 1913 in Rajahmundry Electric Supply Corpn. Ltd v. A. Nageshwara Rao AIR 1956 SC 213, quoted with approval the following passage in Loch's case (supra):
"'It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound-up.'" (p. 573)
Again in Mohan Lal v. Grain Chamber Ltd AIR 1968 SC 772 the Supreme Court held thus:
"'Primarily the circumstances existing at the date of the petition must be taken into consideration for determining whether a case is made out for holding that it is just and equitable that the company should be wound up.'" (p. 573)
In Mrs. Bacha F. Guzdar v. CIT'AIR 1955 SC 74, the position of a shareholder with respect to company assets was considered and it was held thus:
"That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. A shareholder has not got a right in the property of the company. There is nothing in the Indian Law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole [1924] 8 Tax. Cas. 704 (710), Exph AIR 1951 SC 41 (54,55)." (p. 74)
In Bird Precision Bellows Ltd. In re [1984] 1 Ch. 419 Nourse 2, it was held thus:
"The classical definition of partnership which subsists between persons carrying on a business in common with a view to profit. It seems to me that that is exactly what Mr. Armstrong, Mr. Bird, Mr. Nin, Mr. Rowden and Pipe-Chem were doing. More particularly, and with reference to the typical and important elements previously referred to, I find the following facts in relation to the company and the roles which Mr. Armstrong and Mr. Nin were intended and expected to play, and did play, in its affairs. First, the company represented an association which was formed on the basis of a personal relationship involving mutual confidence. Mr. Bird accepted in his evidence in chief that there was trust between himself and Mr. Armstrong and Mr. Nin, although he said that it was no more than in any other business connection. That is quite enough. The personal relationship involving mutual confidence does not have to be one which extends beyond the confines of business, for example into social life. Secondly, there was an agreement or understanding that Mr. Armstrong and Mr. Nin should participate in the conduct of the business. In my judgment that element is found where there is an agreement or understanding that a shareholder shall participate in all major decisions relating to the company's affairs, for example by acting as a director, even if not in the day-to-day conduct of the business. Thirdly, there were restrictions on share transfers. Fourthly, both Mr. Armstrong and Mr. Nin did provide capital for the company in substantial amounts.
In the circumstances, it seems to me to be clear that the company was a quasi-partnership within Lord Wilberforce's criteria or, indeed within any other criteria which might be material. Mr. Jacob sought to argue that there was a partnership only in relation to the company's premises, but there was nothing in that point. The proposition implicit in his submission that there can only be a quasi-partnership in a case where all the shareholders make similar contributions to the company is supportable neither on authority nor in principle. Further, to compare the roles of Mr. Armstrong and Mr. Nin with that of consultants to a partnership is most unrealistic. Each of them was intended and expected to play a central and regular part in the affairs of the company, and that is exactly what they both did."
The Supreme Court in Hind Overseas (P.) Ltd. case (supra), made it clear that it is not always necessary to follow the decisions of the English Courts, even though the Indian Companies Act is modelled on English Companies Act. The similar question was considered by the Division Bench of Madras High Court in G. Kasturi v. N. Murali [1992] 74 Comp. Cas. 661. Speaking for the Bench P.S. Mishra J. (as he then was) after surveying all the cases both English and Indian cases on the subject observed that "the members of quasi-partnership was founded on a personal relationship involving mutual confidence as between the members." It was also observed by the Division Bench that "the absence of an essential ingredients in the relationship of member and the character of the company to qualify it to answer the discretion of a quasi-partnership company was enough to hold that the petitioners had no justification to ask for interference by the Court on just and equitable grounds." The case considered by Division Bench related to a Public Limited company. The Supreme Court in Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 87 Comp. Cas., 615/10 SCL 233, after referring to Ebrahimi's case (supra), and Hind Overseas (P.) Ltd's case (supra), observed:
"The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 and 398." (p. 622)
The learned single Judge of this Court in C.N. Shetty v. Hillock Hoteb (P.) Ltd [1996] 87 Comp. Cas. 1/12 SCL 340, observed thus:
"Held (i) that the shareholding of the petitioner and the second respondent was equal till 1987, seven years from the formation of the company. The company was formed on the basis of the personal relationship involving mutual confidence between the petitioner and the second respondent. Outsiders held an insignificant minority of 9 per cent. of the shares. The petitioner and the second respondent being also directors were participating in the conduct of the business. Restrictions were imposed on transfer of shares by members under articles 2A, 4, 5 and 6 of the articles of association of the company. Therefore, the tests for determining whether the company was in substance a partnership were satisfied.
** ** **
(ii) That admittedly at the time of increase of capital in 1987 no shares were offered to the petitioner. Issuing additional shares to the respondents to the complete exclusion of the petitioner, the unfair conduct of the respondents and the construction of flats which meant that the construction of hotel project was abandoned, cumulatively showed that there was oppression of the petitioner by group of the second respondent. The complaint of the petitioner that the affairs of the company were being conducted by the majority shareholders in a manner oppressive to the interests of the petitioner was justified and there were sufficient grounds to wind up the company. There was, therefore, to be an order for purchase by the respondents of the petitioner's shares." (p. 2)
Held that in substance it was a partnership."
After holding that the affairs of the company were conducted by the majority shareholders in a manner oppressive to the interest of the petitioner and that there was sufficient ground to wind up the company, directed purchase of shares by the Respondents (majority shareholders).
65. It is well within the competence of the Court to determine the real structure of the company. It is open for the court to pierce the veil for such determination. If it is found that the apparent structure of the company is not real structure and it is in substance a partnership the principle of dissolution of the partnership may be applied in adjudicating the petition for winding up.
66. However, on consideration of both English and Indian cases, in order to determine whether the Company though incorporated under the Companies Act, yet in substance it is a partnership, the following norms may create a possible inferential circumstances:
(a) There should have been pre-existing business of partnership.
(b) An understanding to convert the partnership into a limited Company to be run on the same terms and pattern as that of partnership.
(c) It should have been formed among the relations or close friends with an understanding to run the Company with joint participation on the basis of personal relationship coupled with mutual trust and confidence.
(d) An agreement and understanding that all or some of the share holders will physically participate in the conduct of the business.
(e) There should have been an understanding that the persons investing in shares in the company would be appropriately remunerated by way of salary and perquisites with a right to participate in the management of the company.
(f) The
members should hold some proprietary right,
(g) should be equal with minor variation.
(h) clause or clauses in the articles of association of the Company signifying either expressly or impliedly that the business is run on the lines of partnership.
(i) Complete restriction on transfer of shares to outsiders to indicate the continuity of trust and confidence among the shareholders.
(j) To appoint the directors on the basis of shareholdings of members of each family or set of associates.
These are only illustrative and not exhaustive. The Court has to decide the matter on the particular facts and circumstances of each case.
67. Keeping the principles
enunciated in the aforesaid cases, it has to be considered whether the R-1
company is a partnership firm in reality even though it was incorporated under
the Companies Act.
68. There was no dispute that the Company was found by the members of Jalan and Khemka families. The shareholding is not equal between Jalan and Khemkas. As already noticed there is a split in the Jalan Group and R-3 states that there was no partnership formula in the instant case. It is only when the shareholding is equal, a possible inference could be drawn that there are symptoms of partnership. Further, it is not the case where prior to the incorporation of the Company, the business was run on partnership basis. It is for the first time, the Company was incorporated straightaway under the provisions of the Companies Act nor it is the case of the parties that any of the parties were conducting the business analogous to the business of the R-1 company prior to the incorporation. Altogether it is a new business, not undertaken by any of the members previously. It was only established for the purpose of supply of rubber rings to HIL which is the main principal component for manufacture of AC Pressure Pipes. There is also no agreement which is forthcoming between the parties to the effect that the business shall be conducted on the lines of the partnership and no such understanding could be culled out from the facts of this case. The Memorandum of Articles of Association of the Company did not contain any clauses suggestive inference of partner ship. Even the Directors are not elected on the basis of shareholdings. Initially there were five directors out of which only one Director was from Khemkas. Even in 1987 when there were six, P-1 was only the Director on behalf of Khemkas. All that can be said is that the members of two families formed the private limited company. There is also no stipulation with regard to the representation of the Directors from each family. Even in the Articles of Association, no such understanding is contained nor can it be inferred from the reading of the various clauses of the Articles of Association. Clause 9 of the Articles of Association empowers the Board absolute and uncontrolled discretion to refuse to register any transfer of the shares and it shall not be required to give any reasons. Further under clause 10 any share may be transferred by any member to any other member or his wife or husband of another member etc. by which it only goes to show that a member is free to transfer the shares of any member or the relations of the members as stipulated therein and in such cases of transfer, the power of refusal given to the Board under Article 9 shall apply to any of such transfer. Therefore, even if a member wishes to transfer his shares to other members, the decision of the Board is final and uncontrolled discretion is vested with the Company to refuse to register the transfer without giving any reasons. Under clause 7, the number of Directors of the Company shall not be less than two, not more than nine. Thus, it is seen that the power of a transfer by a member is not automatic and that there is no stipulation in the Articles of Association that a Director should be appointed from Khemka family or Jalan family. There is also no stipulation with regard to the participation in the management of the Company by the members of both families. Though, P-1 and R-9 were submitting that it is a partnership concern having joint participation in the management, no such evidence is forthcoming except stating that P-1 and R-9 used to guide the management of R-1 company and decisions were being taken after consulting them. P-1 and R-9 were the Directors apart from the other Directors. It is sought to be contended that there was always an implied understanding that the shareholding of Khemka and Jalan family should be in the ratio of 1/3rd and 2/3rd. In the absence of any positive evidence, it is not possible to hold that the shareholding is in the ratio of 1/3rd and 2/3rd. Of course, in the evidence, it is brought out that whenever the share capital is raised the shares are allotted in the ratio in which they were holding earlier, but that cannot be construed as a determinative factor for treating R-1 company as a partnership firm. Evidence was also adduced to say that even other Companies established by the Khemka and Jalan family, the shareholding is in the ratio of 1/3rd and 2/3rd, I am not inclined to go into those details in-as-much as the holding in other companies cannot form basis for the holding in the present Company. Moreover, the evidence adduced on behalf of P-1 and R-9 do not indicate that there was an understanding or agreement to the effect that the shareholding of Khemkas should always be 1/3rd at the level of incorporation and also at the points when the shareholdings were increased from time to time. Even assuming that the shareholding of the Khemka family and Jalan family is 30 per cent above and 60 per cent above respectively, that situation by itself is not a conclusive proof that it is a partnership concern. The Supreme Court also held in Kilpest (P.) Ltd. 's case (supra), that limited company should not be easily treated as a quasi-partnership. The Supreme Court observed "the promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 and 398". The powers which are now exercised under section 402 of the Companies Act were hitherto being exercised by the Courts and now they are being exercised by the Company Law Board. Therefore, applying the principles settled in catena of decisions, I have to necessarily reject the plea of the P-1 that the Company was ostensibly incorporated under the provisions of the Company Law and that in substance it was a partnership.
69. For proper appreciation of the case it is necessary to extract sections 397 and 398 of the Companies Act. Sections 397 and 398 as it stood prior to the amendment of the Companies Act, reads thus:
"397. Application to Court for relief in cases of oppression - (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section, Provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the Court is of opinion:
(a) that
the company's affairs are being conducted in a manner prejudicial to public
interest or in a manner oppressive to any member or members; and
(b) that
to wind up the company would unfairly prejudice such member or members, but
that otherwise the facts would justify the making of a winding-up order on the
ground that it was just and equitable that the company should be wound up:
The Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
398. Application to Court for relief in cases of mismanagement— (1) Any members of a company who complain:
(a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or
(b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors, or of its managing agent or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company;
may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit."
70. The aforesaid sections are in Chapter-VI of the Act which deal with prevention of oppression and mismanagement and also the remedial measures that can be imposed by the Court. Chapter VI of the Act is obviously intended for the purpose of giving protection to shareholders from oppression and mismanagement of the controlling shareholders. Though by the Amendment Act, 1988, the power to grant relief under section 397 of the Act is given to the Company Law Board with effect from May 31,1991, before the amendment, the power was vested with the court under the Companies Act, 1956. The parallel provision in the English Companies Act, 1948, since repealed is section 210. For the first time in the Indian Companies Act, 1913, protection to shareholders was made in section 153C by the Companies Amendment Act, 1951. This is a protection to avoid winding up in the case of mismanagement or oppression. Certainly, winding up is a drastic procedure. In many cases, it may not help the prejudiced and oppressed members who could seek for it, on account of mismanagement and oppression and so the courts were always circumspect and reluctant to grant the relief of winding up. If we trace the legislative history which resulted in a less drastic provision of giving wide powers to the court to pass appropriate orders in case of oppression and mismanagement, necessarily we have to refer to the Cohen Committee Report which recommended that "the court should have the power to impose upon the parties to the dispute whatever settlement the court considers just and equitable". On the report of the Cohen Committee section 210 was incorporated in the English Companies Act, 1948 and we followed in India by introducing section 153C in the Indian Companies Act, 1913. The recommendation of the Babha Committee in 1952 widened the scope and area still further. The remedy was extended by not confining it to cases of minority oppression, but also the cases of mismanagement of company affairs in a manner prejudicial to the interests of the Company. In 1963, the provision of the Companies Act, 1956, was amended extending the scope of the provision to include where the affairs of the Company were being conducted in a manner prejudicial to the public interest.
71. The oppression is the core element to be proved and the nature of oppression to be tested in the context of "cause for winding up". But it has to be remembered that the provision is intended to avoid winding up and to mitigate and alleviate oppression. The relief under section 397 of the Act is geared to help the members who were oppressed. The relief under section 398 of the Act is geared to save the company and it is in the interest of the company alone and not to any particular member/members.
72. The right of members to apply under sections 397 and 398 of the Act is hedged in with certain restrictive conditions. This is to avoid frivolous applications from dissatisfied members approaching the court (now the Company Law Board). The provision regarding member/members having one-tenth share capital of the company alone can file applications under sections 397 and 398 of the Act is intended to avoid frivolous petitions. Of course, under section 399(4), it is provided that the Central Government may authorise any member or members of the Company to apply to the Company Law Board for relief, if in its opinion circumstances exist which make it just and equitable to do so.
73. The expression "oppression" and "mismanagement" which are the basic and foundational concepts in the section are left by the Parliament without defining them. When once it is left without definition, the task of the Court is difficult and more responsible. The word 'oppression' is a Chamelionic word and it changes its colour, content and form from time to time, place to place, event to event, depending on the circumstances of the case. Therefore, no general frame can be made to this word confining its limits. Hence, the oppression has to be made out on the facts and circumstances of each case. The word oppression denotes the exercise of authority or power in a burden-some, harsh and wrongful manner, or unjust, cruel treatment or the imposition of unreasonable or unjust burdens, in the circumstances, which would almost always entails some impropriety on the part of oppressor. Naturally, the Court will always incline to wade through precedents to find out and to assign the correct meaning of these two words "oppression" and "mismanagement" in the context in which they are used. Certainly, the Courts have to decide on the facts of each case as to whether there is a real cause of action under sections 397 and 398 of the Act.
74. The learned counsel for the
parties have cited number of cases both English and Indian, on the question of
oppression. Let us consider these cases before applying the principles to the
facts of the present case.
75. The first of the Scottish
case is Elder v. Elder & Watson Ltd. 1952 SC 49. It was observed by Lord
Cooper thus:
"Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase 'oppressive to some part of the members' acquires a certain colour from its collocation in section 165 with such stronger expressions as 'intent' to 'defraud', 'fraud', 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. This, broadly speaking, was the class of case which the draftsman of section 210 evidently had in mind, and the question is whether the petitioners have brought themselves within the scope of the section." (p. 55)
Lord Keith in his judgment stated:
"But, apart from this, the question of absence of mutual confidence perse between partners, or between two sets of shareholders, however relevant to a winding up, seems to me to have no direct relevance to the remedy granted by section 210. It is oppression of some part of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not, I think, come within section 210.
It is not lack of confidence between shareholders per se that brings section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." (P- 59)
Among the important considerations, which have to be kept in view in determining the section 402, the following matters were stressed in Elder's case (supra) as summarised at page 394 in George Meyer v. Scottish Co-operative Wholesale Society Ltd [1954] SC 381:
"(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders.
(2) It
follows that the oppression complained of must be shown to be brought about by
a majority of members exercising as shareholders a predominant voting power in
the conduct of the company's affairs.
(3) Although
the facts relied on by the petitioner may appear to furnish grounds for the
making of a winding up order under the 'just and equitable' rules, those facts
must be relevant to disclose also that the making of a winding up order would
unfairly prejudice the minority members qua shareholders.
(4) Although
the word 'oppressive' is not defined it is possible by way of illustration to
figure out a situation in which majority shareholders by an abuse of their
predominant voting power are 'treating the company and its affairs as if they
were their own property' to the prejudice of the minority shareholders and in
which just and equitable grounds would exist for the making of a winding up
order... but in which the alternative remedy provided by section 210 by way of
an appropriate order might well be open to the minority shareholders with a
view to bringing to an end the oppressive conduct of the majority.
(5) The
power conferred on the court to grant a remedy in an appropriate case appears
to envisage a reasonably wide discretion vested in the court in relation to the
order sought by a complainer as the appropriate equitable alternative to a
winding-up order."
76. The next case which is
quoted in all cases of oppression, mismanagement under the Companies Act is
Scottish Co-operative Wholesale Society Ltd v. Meyer [1959] 29 Comp. Cas. 1
(HL). The said appeal arose out of the order passed by the First Division of
Court of Sessions. It was a case in which a parent company was in control of a
subsidiary company which also had a minority of independent members. A time
came when trading conditions were such that it would be to the advantage of the
parent company to do away with the subsidiary company. The question before the
Court was whether the conduct of the parent company in seeking to achieve that
result amounted to oppression or oppressive conduct of the affairs of the
Company within section 210 and the court answered in affirmative, holding that
the affairs of the Company were conducted in oppressive manner.
77. As to the meaning of oppression, Viscount
Simmonds. J observed:
"... it appears to me incontrovertible that the society have behaved to the minority shareholders of the company in a manner which can justly be described as oppressive. It had the majority power and exercised its authority in a manner 'burdensome, harsh and wrongful' - I take the dictionary meaning of the word. But, it is said, let it be assumed that the society acted in an oppressive manner; yet it did not conduct the affairs of the company in an oppressive manner. My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of the company. Every step taken by the latter was determined by the policy of the former. I will give an example of this. I observed that, in the course of the argument before the House, it was suggested that the company had only itself to blame if, through its neglect to get a contract with the society, it failed in a crisis to obtain from the Falkland Mill the supply of cloth that it needed. The short answer is that it was the policy of the society that the affairs of the company should be so conducted, and the minority shareholders were content that it should be so. They relied - how unwisely the event proved - on the good faith of the society, and in any case they were important to impose their own views. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the company that it is illegitimate to regard the conduct of the company's affairs as a matter for which it had no responsibility. After much consideration of this question, I do not think that my own views could be stated better than in the late Lord President Cooper's words on the first hearing of this case. He said ([1954] SC 381, 391):
'In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary.'"
The House of Lords affirmed the order directing the society (appellant) to purchase the shares of the minority. In this regard, it was observed as:
"Some criticism was made of the relief given by the order of the Court. It was said that only that relief could be given which had as its object and presumably its effect the 'bringing to an end of the matters complained of and that an order on the society to purchase the respondents' shares in the company did not satisfy that condition. This argument is without substance. The matter complained of was the oppression of the minority shareholders by the society. They will no longer be oppressed and will cease to complain if the society purchase their shares." (p. 9)
Lord Denning pointed out that, in such a situation, the most useful order is to order the oppressor to buy the shares of the oppressed at a fair price. Lord Denning observed:
"... The object of the remedy is to bring 'to an end the matters complained of that is the oppression, and this can be done even though the business of the company has been brought to a standstill. If a remedy is available when the oppression is so moderate that it only inflicts wounds on the company, whilst leaving it active, so also it should be available when the oppression is so great as to put the company out of action altogether. Even though the oppressor by his oppression brings down the whole edifice -destroying the value of his own shares with those of every one else - the injured shareholders have, I think a remedy under section 210.
One of the most useful orders mentioned in the section - which will enable the court to do justice to the inured shareholders - is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has brought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them, but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands.
True it is that in this, as in other respects, your Lordships are giving a liberal interpretation to section 210. But it is a new section designed to suppress an acknowledged mischief...." (p. 33)
78. In H.R. Harmer Ltd. In re
[1959] 29 Comp. Cas. 305 (CA) the company was formed to acquire a business. Two
of the sons of the founder went into the business and the shares in the company
were held by the founder, his wife and the two sons. Under the articles of the
company the father was the governing director and each of the two sons became
life directors. The father was also appointed Chairman of the board of
directors with a casting vote. On the basis of the shares held by the parties,
the two sons had the major beneficial interest, but were in a minority in
voting rights. The father as the Chairman assumed power which he did not
possess, and exercised them against the wishes of the shareholders, namely, the
two sons, who had the major beneficial interest in the company. On these facts
the sons applied for an order under section 210 of the Companies Act, 1948,
alleging that the affairs of the company were being conducted by the father in
a manner oppressive to some part of the members, including themselves. It was
held that the affairs of the company had been conduct ed in a manner oppressive
to the sons as members of the company, and that, even if the father's acts
might have been done lawfully with the sanction with the general meetings, the
sons were entitled to require that proper procedure should be followed by the
father.
79. The nature of oppression to be established
under section 210 of the Companies Act stated thus:
"... This indicates that the oppression complained of must be complained of by a member of the company and must be oppression of some part of the members (including himself) in their or his capacity as members or a member of the company as such. Secondly, it is to be noted that the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression. Thirdly, the phrase 'the affairs of the company are being conducted' suggests, prima facie, a continuing process and is wide enough to cover oppression by anyone who is taking part in the conduct of the affairs of the company, whether de facto or de jure. Fourthly, the section gives no guidance as to the meaning of the word 'oppressive', although it does, as already mentioned, indicate that the victim or victims of the oppressive conduct must be a member or members of the company as such. Prima facie, therefore, the word 'oppressive' must be given its ordinary sense and the question must be whether in that sense the conduct complained of is oppressive to a member or members as such. Inasmuch as in the present case it is not in dispute that the facts would justify a winding up order under the 'just and equitable' rule and it is recognised that such an order would unfairly prejudice the complaining members, this would appear to be in effect the only question in issue." (p. 319)
As to the 'just and equitable' jurisdiction, the court quoted Lord Cooper's observations, part of which reads:
"…Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase 'oppressive to some part of the members' acquires a certain colour from its collocation in section 165 with such stronger expressions as 'intent to defraud', 'fraud' 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. This, broadly speaking, was the class of case which the draftsman of section 210 evidently had in mind, and the question is whether the petitioners have brought themselves within the scope of the section….."(P-321)
The discussion, at page 324, shows that though the majority is entitled to use their voting power in what they believe to be in the interests of the company, the power should be used "in the only legitimate way".
80. In Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR [1965] SC 1535 the Supreme Court after referring to Scottish Co-operative Wholesale Society Ltd.'s case (supra) and H.R. Harmer Ltd's case (supra), approved the broad and liberal interpretation given to the Courts power and while referring to analogous section in English Companies Act (section 210) observed:
"19. These observations from the four cases referred to above apply to section 397 also which is almost in the same words as section 210 of the English Act, and the question in each is whether the conduct of the affairs of the company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder...." (p. 1543)
81. In Bellador Silk Ltd., In re [1965] (1) All E.R. 667 it was held that the presentation of the petition under section 210 in order to bring the pressure to bear to achieve the collateral purpose, was an abuse of the process of the Court and on the facts, it was held that the contributory's had no tangible interest in the liquidation that the consequences that the contributory would not be entered into a winding-up order of just and equitable grounds. It was pointed out that the cure might be worse than the disease owing to the prejudice likely to be inflicted on the petitioner as a result of compulsory liquidation and in that situation the Act empowers the Court in certain circumstances to afford relief by various methods falling short of extreme expedient of winding up. The condition on existence of which the jurisdiction of the Court depends, is that the facts would justify the making-up a winding up order on the ground that it is just and equitable that the company should be wound-up that is, that, if the petition had been presented as a contributory's petition for the winding-up of the Company, the Court could have made such an order.
82. The clause 'just and equitable' was again came up for consideration before the Supreme Court in Rajahmundry Electric Supply Corpn. Ltd. 's case (supra). It was observed as follows:
"The words 'just and equitable' in section 162 (vi) are not to be construed ejusdem generis with the matters mentioned in clauses (i) to (v) and, therefore, whether mismanagement of the directors is a ground for winding up order under section 162 (vi) becomes a question to be decided on the facts of each case. Where nothing more is established than that the directors have misappropriated the funds of the company, an order for winding up would not be just or equitable, because if it is a sound concern such an order must operate harshly on the rights of the shareholders. But, if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the company should be would up, there is nothing in section 162 (vi) which bars the jurisdiction of the court to make such an order.
It is no doubt the law that Courts will not, in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of a company by its directors, so long as they are acting within the power conferred on them under the articles of association. But this rule can by its very nature apply only when the company is a running concern, and it is sought to interfere with its affairs as a running concern. But when an application is presented to wind up a company, its very object is to put an end to its existence, and for that purpose to terminate its management in accordance with the Articles of Association and to vest it in the Court. In that situation, there is no scope for the rule that the Court should not interfere in matters of internal management...." (p. 213)
83. Under section 397, the Court has to be satisfied that the affairs of the company are being conducted in a manner oppressive to any member or members. Therefore, the acts of oppression have not only to be alleged with sufficient precision, but they must be proved to the satisfaction of the Court. This was reiterated by the Division Bench of Calcutta High Court in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. AIR 1962 Cal. 127. It was also observed in the said case that failure to give details as required by section 173(2) makes the case ipso-facto oppressive in conducting the affairs of the company. It was observed in para 5 as follows:
"5. It is also necessary to emphasis that the Court has to form an opinion on two essential points, that are set out in section 397(2) of the Act. These two points are first, the one that I have already stated, namely that the company's affairs are being conducted in a manner oppressive to any member or members of the company and secondly, that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up. It is imperative that the Court's opinion on both these points must be formed in the affirmative before any order could be made under section 397 of the Companies Act. If the Court is not satisfied on any one of these points and is of the opinion that either a company is not being conducted in a manner oppressive or that the facts do not justify the making of a winding-up order, then no further question can arise under section 397. It is also proper to emphasis that the power of the Court to make such order, as it thinks fit, under section 397(2) of the Act is expressly stamped with the purpose of 'bringing to an end the matters complained of.' Therefore, wide as the power of the Court is following from the words of the expression 'such order as it thinks fit.' It is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed 'to bringing to an end the matters complained of. The marginal note of section 397 of the Companies Act shows also that the purpose of the order of the Court in this section is to give 'relief in cases of oppression." (p. 128)
84. The learned counsel for R-3 submits that the petitioner has to plead and prove the allegations of oppression and vague and uncertain allegations cannot constitute a ground of oppression and therefore relief cannot be granted to the petitioner on such vague and uncertain grounds. He relied on the decisions in Mohta Bros. (P.) Ltd. v. Calcutta Landing & Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 (Cal.)
In the said case it was held that:
"When dealing with a petition for relief from oppression or mismanagement made under sections 397 and 398 of the Companies Act, 1956, the Court must confine itself to the case as made out in the petition and to the allegations made therein and the supporting affidavits and not look at other evidence with regard to events that might have happened subsequent to the petition. Full particulars must be given by a petition in such an application of the alleged acts of oppression or mismanagement. Vague and uncertain allegations of oppression or mismanagement, although they may constitute grounds for suspicion, do not entitle a petitioner to ask the Court to embark upon an investigation into the affairs of a company in the hope that, in consequence of such investigation, something will turn up which will enable the Court to grant relief to the petitioner. The inability on the part of shareholders, who have no access to the books of the company, to furnish full particulars, is not a ground for directing an investigation into the affairs of a company or for giving any other relief. The petitioner must prove, prima facie, at any rate, that an investigation is called for. Negligence and inefficiency, even if they are proved, do not amount to mismanagement or oppression as contemplated by the Act.
It is easy for a shareholder to allege that the company has hidden assets and that the directors are manipulating the profits and dividends, etc., but such vague, uncertain and indefinite charges in the absence of proof, will not entitle the petitioner to relief under sections 397 and 398 of the Act. There is nothing illegal, not even improper, in a person acquiring the shares of a joint stock company in the market unless such transactions in shares are proved to have been effected by unfair manipulation of the share prices. Acquisition of shares by one group of persons is not one of the matters for which relief can be granted under these sections to a minority group of shareholders unless it is proved to be oppressive. Relief, under these sections, cannot be granted to a group of shareholders merely because it has been outvoted in the matter of business policy or management of the company's affairs." (p. 119)
85. Various other English cases were also referred by the Supreme Court in Hind Overseas (P.) Ltd's case (supra) in paras 26 and 27 which are extracted below:
"26. We may also refer to the Privy Council decision in Loch v. John Blackwood Ltd [1924] (AC) 783, wherein section 127 of the Companies Act, 1910 of Barbados, identical with section 433 (f) of the Act was considered. Lord Shaw of Dunfermline quoted in the judgment a passage from the case of Bairdv. Lees [1924] (SC) 83, which is as follows:—
'I have no intention of attempting a definition of the circumstances which amount to a 'just and equitable' cause. But I think I may say this. A shareholder puts his money into a company on certain conditions. The first of them is that the business in which he invests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the court to wind up the company.'
27. We may also refer to an other decision of the Privy Council in D. Davis & Co. Ltd v. Brunswick (Australia) Ltd AIR 1936 (PC) 114 which was from the decision of the Full Court of the Supreme Court of New South Wales.
Section 84 (e) of the New South Wales Companies Act (1899) also provides for winding up, inter alia, on just and equitable ground. In dealing with that clause, the Privy Council observed as follows:—
'The position of the Court in determining whether it is just and equitable to wind up the company requires a fair consideration of all the circumstances connected with the formation and the carrying on of the company during the short period which had elapsed since 12th May, 1930; and the common misfortune which had befallen the two shareholders in the company does not, in their Lordships' view, involve the consequence that the ultimate desires and hopes of the ordinary shareholders should be disregarded merely because there is a strong interest in favour of liquidation naturally felt by the holders of the preference shares.'
** ** **
'Nor on the other hand can any general rule be laid down as to the nature of the circumstances which have to be borne in mind in considering whether the case comes within the phrase.'” (p. 572)
86. While dealing with the 'just and equitable' clause under section 162(vi) of the Indian Companies Act, 1913, in Rajahmundry Electric Supply Corpn. Ltd's case (supra) the Supreme Court quoted with the approval the following passage in Loch's case (supra):
"'It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be would up.'" (p. 573)
87. One of the important cases dealt with by the Supreme Court on this aspect is Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd [1981] 51 Comp. Cas. 743 in which the Supreme Court once again went into the question as to what the word "oppression" may mean for the purpose of section 397 of the Act and what may provide just and equitable grounds for winding up a company and referred to several judgments including the one in Shanti Prasad Jain's case (supra) and the various judgments of the Privy Council and other courts of England and observed:
"Neither the judgment of Bhagwati, J. nor the observations in Elder's case [1952] (SC) 49 are capable of the construction that every illegality is perse oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder's case [1952] (SC) 49, a complaint was made that Elder had not received the notice of the board meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present, no complaint of oppression could be entertained merely on the ground that the failure to give notice of the board meeting was an act of illegality. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one judge to another.
An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the judge is biased and that the party complaining of the orders will not get justice at his hands." (p. 780)
The Supreme Court has then said:
"It is clear from these various decisions that on a true construction of section 397, an unwise, inefficient or careless conduct of a director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word 'oppression' in section 210 of the English Act by the words 'unfairly prejudicial' in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invation of legal rights (See Gower's Company Law, 4th edition, page 668). But that recommendation was not accepted and the English law remains the same as in George Meyer's case [1959] AC 324 (HL) and in H.R. Harmer Ltd., In re [1959] 29 Comp. Cas. 305 (CA), as modified in Jermyn Street Turkish Baths Ltd, In re [1971] 41 Comp. Cas. 999. We have not adopted that modification in India." (p. 782)
88. In Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton &Jute Mills Co. Ltd [1964] 34 Comp. Cas. 777 (Guj.) it was observed thus:
"This case has been referred to by the learned Company judge. It has to be noted that the Gujarat High Court held that (i) sections 397 and 398 apply to present continuous wrongs; (ii) the remedy is essentially preventive; (iii) there must exist on the date of the petition a continuous course of oppressive, or prejudicial conduct of the affairs of the company; (iv) there is no power in the court to set aside or interfere with past and concluded transactions between a company and third party. We do not want to emphasis the fact that the remedy envisages in section 397 of the Act is not intended to set at naught what has already been done by the controlling shareholders in the management of the affairs of the company."
89. In Thakur Hotel (Simla) Co. (P.) Ltd., In re [1963] 33 Comp. Cas. 1029, Teck Chand, J. of the Punjab High Court in plain language observed thus:
"Mismanagement or misconduct of directors during earlier years is no ground for winding up a company under the 'just the equitable' clause or for making an order under section 397 if the mismanagement had ceased at the time of application. The object of section 397 is not 'to rake up the past but to redeem the future'. The quote in the above observation of Teck Chand, J. is from H.R. Harmer Ltd. 's case (supra), wherein Roxburgh, J. said: 'The purpose of this section (section 210) is not so much to rake up the past as to redeem the future.'"
90. It was further held in Thakur Hotel (Simla) Co. (P.) Ltd. s case (supra) that merely on the conduct of Directors in misappropriating the funds of the company the order for winding up would not be just and equitable; it requires further clause that, in addition to such misconduct, circum stances exist which render it desirable in the interest of the shareholders that the company should be wound up.
91. In G. Kasturi's case (supra) which came up before the Division Bench by way of appeal against the interlocutory order passed by the learned Company Judge while referring to the scope of sections 397 and 398 read with section 402 of Companies Act, P.S. Mishra, J. speaking for the Bench held thus:
"The Court has power to make such orders under section 397, read with section 402 of the Companies Act, 1956, as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in any manner oppressive to any member or members and that, otherwise, the facts would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. Section 398 of the Companies Act speaks of the affairs of the company being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. The first clause 'being conducted in a manner prejudicial to public interest' is common to both sections 397(1) and 398, the clause that the affairs of the company are being conducted prejudicially to the interests of the company being exclusive to section 398. The other ground to attract the provisions of section 398 requires proof of material change not being a change brought about by, or in the interests of, any creditors including debenture-holders or any class of shareholders of the company brought in the management or control of the company, whether by an alteration in the board of directors or of its managing agent or secretaries and treasurers or manager and proof that, by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company. The Court's power to make any interim order which it thinks fit, pending the making by it of a final order under section 397 or 398, as the case may be, for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable, is recognised by section 403 of the Act. The words 'pending the making by it of a final order under section 397 or 398' in section 403 of the Act make it necessary first to test whether a prima facie case for an order under section 397 or 398 has been made out by the person invoking the Court's jurisdiction. The words 'for regulating the conduct of the affairs upon such terms and conditions as appear to it to be just and equitable' clarify that the Court is required to take, for the purpose of interim orders, only such steps as are necessary for regulating the conduct of the company's affairs and upon such terms and conditions as appear to it to be just and equitable. When and how a Court should grant an interim injunction may vary from fact to fact and case to case, but certain principles are universally accepted and applied. In no case does a Court grant an interlocutory injunction as a matter of course. In all cases of interlocutory injunction, the Court usually has to consider whether the case is so clear and free from objection on equitable grounds that it ought to interfere to preserve the property without waiting for the rights to be finally established. Section 397(1) of the Companies Act, 1956, talks of a complaint that the affairs of the company 'are being conducted in a manner prejudicial to public interest'. The words 'are being conducted' must mean several acts in continuity and not one isolated act. The expression 'interest' in this context also must receive a meaning different from interest of a reader of a news item who, as a member of the public, may have one or other opinion. Public interest cannot be allowed to be confused with public opinion. The expression 'a matter of public or general interest' does not mean that which is interesting or gratifies curiosity or love of information or amusement; but that in which a class of the community have a pecuniary interest, or some interest by which their legal rights or liabilities are affected.
That a company's affairs are being conducted in a manner oppressive to any member or members has always been read to mean acts quoted the member, that is to say, affecting any legal or proprietary right of a member of the company as a shareholder.
If a demand made by the minority shareholders to have more shares than held by them is not acceded to by the majority shareholders, this could not be described as an act of oppression.
The principles of quasi-partnership are applied to a small private company founded on a personal relationship involving mutual confidence as between the members, but not a public company." (p. 662)
92. However, the case which was dealt with by the Bench was not a Private Limited Company but it was a Public Limited Company. Yet, the same principles also are applicable when the private limited company does not possess the characteristics of partnership and it is already held in this case that the company is not a partnership in substance. It further held that the interest of shareholders and those of company must always be preferred over the interests of any one else irrespective of the position occupied by him.
93. Keeping the above principles in view, let us consider the case on hand. It is now beyond controversy that in a petition under sections 397 and 398, it is to be specifically pleaded and established by the party not only the existence of circumstances warranting winding up of the company under the 'just and equitable' clause, but also it should be further established that winding up order if passed would act adverse to the interest of the shareholders. Further, when this clause is invoked, there must be material to show that it is just and equitable not only for the persons applying for winding up but also to the company and all its shareholders. Even in certain cases, violation of statutory provisions was held to be not oppressive act warranting interference under section 402 of the Companies Act.
94. The learned counsel for P-1 and R-9 submit that the following acts on the part of R-3 and his family members constituted oppression:
(a) Subscription of additional capital was mala fide with a view to convert R-3 and his family members from minority to majority shareholders for the purpose of capturing the control and administration of R-1 company.
(b) The alleged additional issue is a sham transaction and there was no proper notice and the certificate of posting and minutes are fabricated.
(c) There was no bona fide requirement of additional share allotment and even otherwise there were other various measures which could have been taken.
(d) The so called capital brought by R-3 and his family members is only a paper transaction and the company did not get any real benefit.
(e) Withdrawal of P-3 from ARIL Board is illegal.
95. Before going into the above contentions, it may be stated that as far as withdrawal of P-3 from the Board of Joint-venture company is concerned the matter is seized of by the Calcutta High Court in suit O.S. No. 228/85. Admittedly, the suit was filed by P-1 and P-3 challenging the resolution dated 21-8-1984. Therefore, I am not inclined to express any opinion on the resolution passed by the Board of Directors in this regard and also with regard to the withdrawal of P-3 from the Board of ARIL.
96. With regard to the alleged oppression on the ground of (a) above, it is the case of R-3 that there was total dis-interestedness on the part of P-1 and R-9 in the management of R-1 company. P-1 never attended the meetings and he continued to patronise the company APPL set up P-3.
There is also evidence to the effect that APPL established by the P-3 has been supplying the same products which were hitherto being supplied by R-1 company and that the purchase of rubber rings by HIL from R-1 company slowly decreased from 1983 onwards and by 1986, the supply of R-1 company became nil. It is also in evidence that APPL company had been supplying the rubber rings to HIL I have already discussed the role played by P-1 in attending the meetings and I have held that P-1 has notice of meetings, but deliberately he failed to attend the meetings. Therefore, the contention that P-1 has an interest in the company and that he was willing to purchase the shares had the offer for additional share issue had been made to him, cannot be accepted. It is also held in the preceding paragraph that R-9 did participate in the meetings and that he was aware of the increase of the share capital and intentionally did not contribute. R-9 also accepted that after resignation from HIL he started devoting his time for Nucon as it was in losses. It is also noticed that various powers were given to R-9 in respect of Nucon Company and also the documents and records were handed over after he took over Nucon (Ex. B-300, B-243, B-296). Even though his dis-interestedness is not directly established, the fact remains that the decision for additional share capital was taken in the meeting held on 26-11-1984 and other meetings, he failed to respond. Therefore, it is to be only presumed that he was not interested. Moreover, the way in which he initiated the litigative process from the alleged letter dated 16-8-1984 it was established that he was not coming with true facts. Hence, the contention that R-9 would have purchased the additional shares had he been offered cannot be swallowed with confidence.
97. It was contended that there was no necessity for increase of the share capital as the Company was in a prosperous state, and that it reserves for over 15 times more the share capital and it was holding shares of other companies apart from other assets. Therefore, there was no necessity to increase the share capital. On the other hand, the Company could have sold out some of its assets or capitalise its reserves or issue bonus shares or could have obtained a loan from the financial institution. By resorting to increase in the share capital, the only intention of R-3 was to gain the majority shareholding and nothing else. On the other hand, it is in the evidence that from 1981 itself, the State Bank has been insisting for enhancement of share capital upto Rs. 10 lakhs, that a commitment was given to the Bank to enhance the share capital. That in the year 1984, the position of the company became very precarious and there was immediate necessity for diverting the products, to save the company from further losses. Therefore, a decision was taken to enhance the capital. It is also the case of R-3 that he had obtained loan of Rs. 5 lakhs from Poddar Company and paid towards the share capital to R-1 company, R-1 company purchased the machinery such as Extruder, Generator etc., for Rs. 4,45,000 and the balance was paid to the bank towards the liquidation of overdraft amount. It is also the case of R-3 that not only the machinery from DPPL for Rs. 4,55,000 was purchased, but also other machinery valued more than Rs. 20 lakhs was also purchased during the said period from other companies throughout the country. As can be seen from the correspondence of the Bank, in the year 1981 (Exs. 29 & 30) Bank had directed the R-1 company to raise its capital to Rs. 10 lakhs and a commitment was given by the Company to that effect (Ex. B-31). But, however, there was no subsequent reminder. In the meanwhile the company has been increasing the share capital from time to time and finally when the decision to increase the paid-up share capital from Rs. 5 lakhs to Rs. 10 lakhs was taken in November, 1984 (Exs. 227(d), 227(e), 227(f)) there was no letter from the Bank. But, by that it cannot be construed that direction of the Bank to increase the share capital had extinguished. On the other hand, it has been established by R-2 and R-3 that after the intimation was given to the Bank about the enhanced share capital upto Rs. 10 lakhs, they have further increased the financial limits in December, 1985.1 have already held that the notice was given to P-1 and also R-9, who participated in the proceedings in the earlier paragraphs. Therefore, the only question that arises for consideration is whether there was genuine need for enhancing the capital. It is to be seen that enhancement of capital is a purely an internal administration of the Company and Courts do not interfere in the normal course. When the resolution was held to be valid, it would not be in the fitness of things to construe that there was no genuine requirement. It cannot also be said that R-1 company could have taken a decision to go for loan from the financial institutions or sold some of its assets rather than increasing the capital because, the decision vested with the Board of Directors which cannot be scrutinised when it is found the valid resolution was passed in accordance with the provisions of the Companies Act and also the Articles of Association. It was found by me that proper notices were given for Board meetings and minutes were properly drafted. When there was no response for the offer for additional shares from P-1 and R-9, the shares were allotted to R-3 and his family members. Therefore it cannot be said that subscription of additional capital is mala fide.
98. Elaborate arguments were advanced on behalf of P-1 and R-9 to say that whatever was brought by R-3 as a additional share capital did not remain with the company for two days and the amount came back to their hands within two days of the transaction. It is also their case that extention of time granted to the shareholders to subscribe to the additional share capital upto 15-12-1984 was only imaginary as by 1-12-1984 R-3 and his family members have already sent the cheques for Rs. 5 lakhs for additional shares and the amount was brought into the accounts of R-1 company and the amount was also paid to DPPL for purchase of machinery and part of amount was also sent to the Bank towards the liquidation of the overdraft amount. It is not in dispute that R-3 and his family members had paid the amount of Rs. 5 lakhs which he obtained from Poddar Company and it came to the records of R-1 company on 30th November and again on lst/2nd December, cheques were issued to R-3 and his family members on the directions of DPPL. It is also in evidence that R.M. Trading Company wanted to advance the amount to R-3 and since they have no account in Hyderabad, it requested DPPL to advance the money as DPPL has to receive the amounts from R-1 company, it directed the R-1 company to issue cheques in favour of R-3 and his family members and finally it is in evidence that the amount was also paid by R.M. Trading Company to DPPL Company and R-3 and his family members also paid to R.M. Trading Company (Ref. Ex. B.300, B.305, B.306, B.307, B.308, B.337, B.337(a), B.313, B.316, B.338, B.402, B.499 and B.498). By this transaction, the learned counsel for P-1 and R-9 tried to submit that it is purely a bogus transaction and the Company did not receive any physical benefit and it is only a paper transaction. Though the contention appears to be appealing at the first blush, but a deeper scrutiny would reveal that the contention has no merits. It has been the case of R-3 throughout that the amount brought in by him towards the share capital was most insufficient for purchasing the various machineries. Only part of the share capital was paid to DPPL towards the purchase of Extruder etc. But on the other hand, the machineries were more than Rs. 15 to 20 lakhs were purchased from other companies in the country. It is his case that machinery worth more than Rs. 20 lakhs was purchased during that period. This statement was never contradicted by P-1 or R-9. Thus it is to be held that not only the machinery from DPPL was purchased, but also various other machineries was purchased from outside agencies with the funds raised by R-3. Therefore, it is not as if only one transaction of purchase was made from DPPL, but the several other transactions were made with regard to the purchase of machinery from other companies. Therefore, it cannot be heard to say that the capital alleged to have been brought by R-3 was only on paper and there was on real transaction in substance. It is also the case of P-1 and R-3 that when once the Company has already been contributed by R-3 and his family members, there was no necessity to extend the date in the guise of extended offer dated 5-1 -1985 (Ex. 132) to the shareholders and it is purely a make belief arrangement planned by R-3. Since the capital has already been subscribed by R-3 and his family members, by 30th November, 1984 and the same was utilised, there could not have been any further offer to any other member. This contention cannot be accepted for the simple reason that merely the capital was subscribed by R-3 and his family members, the decision to extend the time could not have been taken. Inspite of another offer given to the members and in the absence of response the decision was taken on 24-2-1984 only to allot the shares to R-3. The contention on behalf of R-3 is that if there had been any subscription of the capital by P-1 or R-9 and their respective family members, then the value of the shares that would have been purchased by P-1 and R-9 could have been returned to R-3. The other contention was also raised to the effect that the alleged family settlement is a farce and no such family settlement has taken place and the documents were introduced by R-3 in a most suspicious circumstances and that R-3 had manipulated these documents to suit his convenience. It is true that number of documents were introduced by R-3 stating that there was a family settlement and that P-3 also had written to P-1 for settlement of the accounts and that there was private agreement between P-3 and R-9 to the effect that Khemka family will support R-9 in their efforts to fight against R-3 (Ex. B. 157, 157-A, 157-B). I am not inclined to refer to any of these documents as their source is very much doubtful. Apart from that, I do not find it relevant to decide the issue as to whether there was any family settlement. But one thing is clear that P-1 had reconciled to settle his accounts and P-1 and Jalan family submitted to the mediation and arbitration of Mr. Khaitan. It is also evident from the letter of Khaitan Ex. A-52 that a settlement was arrived and payment schedule was to be finalised. At this point of time, entire exercise was blown off. Therefore, it has to be seen that there was some steps towards the settlement of the accounts between Khemka and Jalan families. But, that is not a much relevant factor for deciding the issue. Therefore, in view of the findings recorded above, it cannot be said that R-3 acted in a manner oppressive to other shareholders. Normally oppression is alleged against majority shareholders by the minority shareholders. But in the instant case it is turned to be otherwise. The oppression is now being alleged by majority shareholders (prior to additional share capital) namely P-1 and R-9. As already stated the genesis appears to be not that the meetings were not being conducted, notices were not being issued, but P-3 was not properly accommodated after his return in 1982 from Saudi Arabia. Even this was confirmed by R-9 in his counter as extracted earlier.
99. The company has been running right from 1987 after the company petition has been filed and the issue of lack of probity has not been established by any proper evidence. It is also not established that the company has been not functioning in accordance with the provisions of the Companies Act and that the situation warranted the winding up of the company on just and equitable ground. As already noticed by me that it is not open for this court to interfere with the management and administration of the R-1 company in each and every issue, but it can only interfere when the Company has been acting to the detriment of the interest of the shareholders in general. Further, it has to be seen whether R-3 has acted in a manner detriment to the interest of the other shareholders or he changed the set up of administration after he became the majority shareholder. Admittedly, P-1 and R-9 continued to be the Directors even after the majority shareholders and they are being invited to participate in all the meetings and affairs of the Company. It is not as if they are completely excluded from the management of the company. On the other hand, P-1 never attended meetings after 31-3-1983 for the reasons already set out above. Therefore, even after the additional allotment of shares in favour of R-3, it cannot be said that the position of P-1 and R-3 changed in a manner prejudicial to their interest or their members. As already found by me, the genesis took place when P-3 was not properly accommodated in 1982 when he returned back from Saudi Arabia and the crisis which was brewing from 1982 took its deep route in 1985 when P-3 was withdrawn from the Board of ARIL. Saudi Arabia. This lead to the filing of the suit by P-1 and exchange of letters between P-1 and R-3 and simultaneously the correspondence was started by R-9 with R-3. Even though the additional issue was never focal issue, yet it was made the basic issue in this Company Petition, for sustaining the alleged acts of oppression. Even otherwise what is sought to be established was that P-1 and R-9 in their capacities as Directors and not as shareholders were subjected to oppression. That is not the requirement of law.
100.
For the foregoing reasons, I find that
the grounds urged by the counsel for P-1 and R-9 for establishing oppression on
the part of R-3 have not been made out.
101. The learned Counsel for P-1 and R-9 also relied on the judgment of Calcutta High Court in Tea Brokers (P.) Ltd v. Hemendra Prosad Barooah [Company Appeal No. 186 of 1971]. The Company Case was brought by Mr. Barooah alleging oppression. Two issues were considered by the learned Company Judge and held that the resolution passed by the Board of Directors declaring Mr. Barooah ceasing to be Director of the company under section 283(1)(g) of the Companies Act as illegal. The learned Company Judge also held that the issue of 1000 new shares by the Company to the 2nd respondent - Khound was highly oppressive act entitling Mr. Barooah necessary relief. The learned Company Judge also found that the 1000 shares were illegally allotted to Mr. Khound only with a view to reducing Mr. Barooah to a minority and that the allotment was not at all for the benefit of company and it was only for the gaining complete control and the management of the company turning the majority shareholder to a minority. Relying on the decision in Sindri Iron Foundary (P.) Ltd. 's case (supra), that a single act of oppression itself is sufficient for granting relief. The learned Company Judge also directed that shares of Barooah however should be purchased by Khound. The matter was carried in appeal by the Company and cross objections were also filed By Mr. Barooah. The Division Bench in appeal confirmed the findings of the learned Company Judge and on the question of oppression and also with regard to illegal allotment of 1000 shares for gaining majority. But, however, with regard to the direction of the learned Single Judge for purchase of shares of Barooah, the Bench set aside the finding and thus allowed the cross objections filed by Mr. Barooah. This decision does not help the petitioner inasmuch as the finding has been recorded in the case on hand it was found that notices were properly issued and minutes were properly drafted and shares were allotted in accordance with the procedure. The decision would only help for granting appropriate relief when only it is found that the oppression is made out.
In the instant case, I have already held that R-3 and his members did not act oppressively to the interest of P-1 or any other shareholders. The learned Counsel also relied on Chancery Division case reported in 1990 BCLC 384 in ex parte Shooter, In re [Company No. 00789 of 1987] and ex parte Broadhurst, In re [Company No. 3017 of 1987]. It was held in the said case that the repeated failure to hold Annual General Meetings and lay the accounts before the members deprived them of their rights and considered that the state of company was conducted unfairly prejudicial to the interests of the members and not to some part of the members.
103. This case also does not help the P-1 and R-9 inasmuch as there is no failure to hold that the General meetings or Annual General Meetings. It is also not established that the R-3 has acted himself in a unfit manner to control the Company.
Whether the affairs
of the company are conducted in a manner prejudicial to the interest of the
company?
104. After holding that the oppression as alleged by the P-1 and supported by R-9, was not established, the next question that arises for consideration is whether the circumstances exist for forming an opinion that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner prejudicial to the interest of the Company or any material change was brought about and by reason of such change it is likely that the affairs of the Company will be conducted in a manner prejudicial to the public interest or to the interest of the Company. But in this case, the Company being a private limited company, public interest may not fall for consideration. If it is found that the affairs of the company are being conducted prejudicial to the interest of the Company, the Court may with a view to bring an end or preventing the matters complained of or apprehended make such an order as it thinks fit. Therefore, section 398 aims at maintaining the public interest and the interest of the company unlike section 397 which protects the interest of the shareholders. The section is very clear that the Court is vested with the power to make orders as it thinks fit in order to bring an end to the dispute or preventing the matter complained of or apprehended. In the instant case, that the petitioner had categorically stated that the R-3 has been misusing his position and mismanaging the affairs of the company and that it is a fit case where appropriate directions should be issued directing R-3 to sell his shares to P-1 and R-9. On the other hand, it is the case of R-3 that there was no misuse whatsoever and that P-1 and R-3 have been creating hurdles in the proper running of the Company. They subjected the company and R-3 unending litigation. It is also the case of R-3 that if this type of attitude is adopted by P-1 and R-3, the affairs of the Company will not be conducted in the best interest of the company. Admittedly, there is no public interest involved in this case. The only issue that has to be considered is whether the affairs of the company are being conducted in a manner prejudicial to the interest of the company. As narrated in the preceding paras, P-1 ignited an issue alleging oppression and mismanagement under sections 397 and 398 and R-9 came to the support of P-1 by stating in his counter that he is supporting P-1 in this case.
105. The principal participants in the dispute are P-1, R-9 and R-3. But, now in view of the support which is being extended to P-1 by R-9, there remains only two participants in the field namely P-1 and R-9 on one side and R-3 on the other side. On account of personal differences between P-1, R-9 and R-3, the interest of the company cannot be allowed to be sacrificed even though it is a private limited company. The way in which P-1 has conducted himself in initiating the matter in the guise of non-receipt of notices of Board meetings. General meetings and Minutes after a silence of 18 months and that too after filing a suit before the Calcutta High Court, only establishes that he had no bona fide interest in the affairs of the company. Similarly, R-9 cannot be said to evince any interest as he has been devoting full time in Nucon, after his resignation from the HIL in February, 1985.
106. It is also clear case of P-1 and R-9 that R-l company was conceived by them for benefit of their sons namely P-3 and Mr. Hemanth Jalan after their education. The case of P-1 was that his son was not properly fixed after 1982 in R-1 company and that son of R-9 was suitably accommodated in Nucon and therefore P-3 had to eke out his livelihood and hence P-3 established APPL and also Ramak Enterprises. It is also in evidence that APPL has been producing rubber rings and supplying to HIL, which was hither to being supplied by R-l company. P-1 is also holding a very highest position in the HIL as President. Therefore, under these circumstances, can it be said that P-3 and R-9 can function themselves in the interest of the company. It is also in evidence that criminal cases erupted between R-3 and R-9. This Court also found that the wholesale allegations that there was no notices, for meetings that the Minutes were manipulated and fabricated, that the Certificate of Postings were not genuine, postal registration certificates are not genuine, that the increase of capital was not genuine, the necessity for increase of capital was not genuine etc. are all found against P-1 and R-9. P-1 and R-9 who according to them have been nursing the R-1 company only for the benefit of their sons, is no more alive as for the reasons already stated above. It is also in evidence that Khemka family represented by P-1 and P-3 and Jalan family represented by R-3 and R-8 consented for arbitration of Mr. Pintu Khaitan for settlement of the accounts. It is also noticed from Ex. A-37 which was written by R-3 to P-1 in response to the letter of the later dated 17-12-1985, wherein R-3 had not only expressed dissatisfaction about the false allegations made against him including non-receipt of various notices, but also stated that P-1 had utilised some of the information from the Company for his personal benefit to the detriment of the interest of the R-1 company by assisting his son P-3 to establish a rival business. Lastly also he stated in the said letter as follows:
"In view of the negotiations taking place between us for resolving pending matters, I am not dealing further with your letters. I am confident that the present negotiations would be successful and all of us should actively help each other in settling our disputes."
Ex. A-3 is Telex sent by Khaitan to R-3, which is as follows:
"With reference to our conversation on phone, please be available at Calcutta for discussing matter from Friday 24th to Sunday 26th January, 1986 (both days inclusive) - Regards -
Pradeep P. Khaitan."
Again under Ex. A-39, R-3 sent Telex to Mr. Pintu Khaitan in reply to earlier Telex as follows:
"Myself will be available in Calcutta from 25th morning onwards to any date convening you for discussion - Regards -
O.P. Jalan."
However, in reply to Ex. A-3, dated 16-1-1986, P-1 wrote another letter on 6-2-1986 Ex. A-41 in which he had categorically stated as follows:
"I have been and I am still ready and willing to resolve my various pending matters with you."
Again in conclusion he stated "any how I don't want to enter into any controversy with you and it is right time that our disputes should be amicably resolved by sitting across the table instead of corresponding with each other. From the way your letter is worded it looks as if you are not interested in any settlement, but your intention appears to have prolong litigation". This manifests that P-1 was interested for settlement of his accounts with Jalan family and Mr. Khaitan was mediating the matter between both the families. While the mediation was in progress, P-1 and R-3 appears to have entered into an unending correspondence, yet created further vacuum in their relations. By letter dated 6-3-1986, R-3 again wrote letter to P-1 wherein among other things he stated thus:
"I am unwilling to enter into any controversy or correspondence with you at this stage in view of the negotiations for settlement now going on, but would depend on the records of the Company. I assure that I have no intention of involving you being involved in any litigation. I sincerely request you to resolve the various pending matters amicably. I hope to receive your kind cooperation."
To this letter there was no reply from P-1. Further as can be seen from Ex. A-52 dated 3-7-1986 letter written by Pradeep Kumar Khaitan, Advocate, Calcutta to R-3 with a copy to P-3. That the entire matter appears to have been settled and payment was directed to be made by June, 1986. The letter of Mr. Khaitan is reproduced below:
"My dear O.P,
Please refer to your letter of 25th June, 1986 and the conversation I had with you as well as with Shri Narayan. It was agreed that the payment for the shares would be made within June, 1986 although you would attempt to do so in April, 1986. Before I left for abroad in the last week of May, I had informed everybody that I would definitely be back on 22nd June, 1986.1 would therefore have been happy if the payment could have been completed within June, 1986.
As discussed with you and Shri Narayan, kindly arrange for the payment within next week on Shri Narayan's return from Hyderabad on Monday. The exact date convenient to you should be communicated to the Khemkas so that they may also be present to receive the money from you.
With regards,
Sd/-
Pradeep K. Khaitan
Mr. O.P. Jalan,
5-2-175/1, Rashtrapathi Road,
Secunderabad.
CC noo: Mr. Mahesh Khemka,
6-3-1089/A/3/7,
Gulmahar Avenue,
Raj Bhawan Road,
Somajiguda,
Hyderabad - 500 482"
This only show that the entire matter was settled, only the payment of money was required to be complied with. It is not known what are the terms of payment, neither the petitioner nor R-3 brought before this Court. But, suffice it to say that the mediator chosen by both the parties has assessed the amount to be paid by Jalans to Khemka in settlement of their accounts. But, however, on 21-7-1986, R-3 wrote to Mr. Pintu saying that his brother Mr. S.N. Jalan had been to Amarnath and that necessary action will be taken on his return. The following is the extract of the letter Ex. A-53:
"My dear Pinto,
I am in receipt of your letter dated 3rd July, 1986.1 tried to contact you on phone at your office but understood that you are indisposed and resting at home. Therefore, I did not want to disturb you.
Meanwhile, Shree Narayan had a sudden programme to go to Amarnath and will be returning by end July, 1986. He will, therefore, be contacting you by first week of August, 1986.1 am sorry for the delay.
With kind regards,
Sd-
O.P. Jalan
Mr. Pradip Kumar Khaitan,
9 Old Post Office Road,
Calcutta-700001."
and thereafter no further information is forthcoming from both the sides. Thus, it is established that the P-1 was not interested in the Company or Khemkas participation with Jalan families, So also Jalans were inclined to settle the accounts. But, however for the reasons best known to the parties that it did not come through. Moreover, the very person from whom P-1 wanted to have proper position in R-1 company is also not interested in any association with R-l company. The very purpose for accommodating P-3 and the beneficiary himself declares that he declined to associate any further with R-9, R-3 and Jalan family, it is his categorical assertions that he has decided not to have connection with the Jalan families. Thus, it is apparent that he is no more interested in the R-1 company.
107. Coming to the participation of R-9, as already stated earlier that he was not taking much interest and that he tried to introduce document Ex. R-2 which is found to be not genuine by this Court. He was also silent spectator to the enormous correspondence exchanged between P-1 and R-3 and that he also did not respond to the letter written by P-1 to him Ex. A-118 wherein allegations were levelled that the Jalan family has been attempting to exclude Khemka family. Even in the counter, he never denied that Jalan family did not exclude Khemka family. But, on the other hand, in no uncertain terms related that he is supporting P-1. It is also in his evidence that he was agreeable for the settlement of his shares with R-3 and that an understanding was reached between R-3 and R-9 for sale of the shares. In pursuance of the said understanding R-9 and his family members sent bills to R-3 towards the value of the shares as agreed between the parties. But, however, R-3 did not honour the bills i.e. Exs. B-240 to 242. R-3 has stated that the amounts were mentioned in the bills exorbitantly and this was not the amount agreed between the parties. Even though I do not like to go into the actual amount which was agreed between the parties, yet it is a clear indication that R-9 was also reconciled to sell the shares to R-3. In the wake of the above discussion, it is manifest that P-1 and R-9 were agreeable for settlement of their respective shares, but the dispute was with regard to the value of the shares. In those circumstances, it can be safely concluded that P-1 and R-9 was not prepared for participation in the affairs of the company. But, on the other hand, an unending litigation was created by P-1 having the blessings of R-9. Every Notice, Minutes, Certificate of Posting and Postal registration was being sought to be subjected to unending correspondence and the relations between P-1 and R-3 were strained, as can be seen from the various letters exchanged between the parties. So also R-9 cannot be relied on that he would play safe game with the company in view of the conduct which he had exhibited before this Court. The position of directors in the company is one of trust and confidence. They stand in a fiduciary capacity and they are duty bound to conduct the affairs of the company in the best interest of not only of the shareholders, but also the company as well which is manifest from sections 397 and 398. Lack of probity in the conduct of the affairs of the company by the shareholders in control may be a suggestive inference of functioning of such shareholders to the prejudice of other shareholders or company. But, at the same time the directors are to devote their efforts and exercise their powers, in the interest of the company and the shareholders within the frame work of Memorandum and Articles of Association. Otherwise their actions are ultra vires. They cannot usurp the powers not vested in them nor can they misuse the powers for personal aggrandisements. Thus in Company Law the directors enjoy a very important responsible position making themselves answerable to the shareholders and the company. Therefore they are not only expected to exhibit trust and transparency as Directors while managing the company, but also it is all the more necessary to maintain the same position among the Directors themselves. Developing suspicion on one director(s) or counter suspicions are not conducive in the general interest of the company, which ultimately leads to allegation of oppression and mismanagements.
108. Section 402 has been engrafted with wide discretionary powers to ensure smooth functioning of the companies. The Court is entitled to grant the relief as it thinks fit in the interest of the shareholders and company. That is the reason for both ailments under sections 397 and 398, the treatment is common under section 402. The Court is empowered to pass order both as a curative and preventive measures if it finds that the affairs of the company are being conducted detrimental to the interest of the company, for bringing an end or for preventing the matter complained of or apprehended.
109. This Court is interested in the affairs of the Company as a whole and the personal quarrels are wholly irrelevant. The interest of the Company cannot be at the altars of bickerings among the Directors for their personal ends. Moreover the ad infenitum wordy duel undertaken by the parties endless and unwarranted prolongation of trivial and insignificant issues coupled with serious personal difference have created formidable symptoms, where P-1 and R-9 cannot go hand in glove with R-3. It is also understood that in later years, R-9 resigned the Directorship of the company. The company has already faced litigation for over a decade for the reasons as set out earlier. Therefore, this Court is of the firm opinion that the affairs of the company have not been conducted nor will be conducted in future in the interest of the Company. Apprehension of stalemate is writ at large. Consequently, the situation has arisen that company cannot function in the hands of P-1, R-9 and R-3 jointly. Three powerful horses yielding strength in different directions cannot bring the charriot safely to the destination. Therefore, I find that the company should be run either by R-3 or by P-1 and R-9 jointly. It can be safely concluded that a quietous cannot be brought in the company unless the matters complained of or apprehended are resolved once for all and this Court is fully empowered to meet such a situation in the interest of the company. In sub-section 2 of section 398 it is clearly stated that if the Court finds that the affairs of the Company are being conducted as contemplated under clauses (a) and (b) of sub-section 1, or likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the Company, the court may pass orders curative, preventive and prohibitive in respect of existing and apprehended acts prejudicial to the interest of the Company. There need not be any oppression under section 398. The Directors are expected to function in the best interest of the Company and lack of probity inter se Directors is cancerous element for the phased destruction of the Company. Though, in the instant case, the oppression by one group of shareholders, to the other group of shareholders, is not established and the lack of probity was not established among the shareholders, but, yet, it is a case where the conduct of parties cannot put the company on safe rolls. Therefore, when the affairs are not being conducted by the parties in the interest of the company, it is also open for the Court to pass appropriate orders. The Company has been running throughout by R-3 and after Company Petition has been filed, for some time by the Interim Administrator and now it is again being run by R-3 as Managing Director. Though the P-1 did not ask for direction for selling of shares of R-3 to him, it is only after filing of affidavit by R-3 reply to the counter affidavit of R-9, a further affidavit was filed by P-1 in which he had stated that P-1 was ready and willing to purchase the shares so as to save R-1 company from the clutches of R-3. R-9 also in his counter did not say that he was willing to purchase the shares, but only in his rejoinder to the counter of R-3, he stated that direction may be issued to R-3, and his family members to share their shareholding at a price as may be determined by the Court. Thus, P-1 and R-3 never expressed their readiness to purchase the shares. R-3 has been managing the Company for several years and also presently he is managing the company, it is desirable to offer the management of the Company to R-3 by passing appropriate directions.
110. Keeping in view the above factors, the situation prevailing as on the date of the filing of the company Petition and by exercising the powers under section 398(2), read with section 402 of the Companies Act, I pass the following orders:
(i) The value of the shares held by P-1, P-2 and R-9 and the members of his group viz. his wife and son and R-3 and members of his group viz. R-4, R-5 and R-6 shall be assessed by competent Chartered Accountant.
(ii) The value of the shares possessed by P-1 and P-2 shall be assessed as on 30-6-1986 and the value of the shares possessed by R-9 and his members of family shall be valued as on 31-7-1986. The value of shares held by R-3 and members of his family viz. R-4, R-5 and R-6 shall be assessed as on 1-1-1985 i.e., prior to the allotment of additional shares. Though the value of shares are to be normally reckoned on the date of presentation of Petition as per principle laid down in Scottish Co-operative Wholesale Society Ltd. 's case (supra), since P-1 and R-9 were agreeable for settlement during respective periods, the dates were fixed accordingly.
(iii) The shares held by P-1, P-2, R-9 and his wife Smt. Satyabhama Jalan and his son Hemanth Jalan after so valued as directed above shall be offered to R-3, who will give consent for purchase of the same within two weeks from the date of such offer. He will pay the amount to the respective shareholders within three weeks of consent and necessary transfer formalities will take place as per law.
(iv) In case R-3 fails to purchase the shares as offered above, the value of shares of R-3 and his family members namely R-4, R-5 and R-6 shall be as assessed by the competent Chartered Accountant as on 1-1-1985. Shall be purchased by P-1, and R-9 either jointly or individually. The amounts shall be paid to R-3, R-4, R-5 and R-6 within three weeks and other formalities shall be completed as per law.
(v) The value of the shares of the parties referred to above shall be assessed on the basis of paid-up share capital of Rs. 5 lakhs divided into 50,000 of Rs. 10 each.
(vi) The shares held by P-3 shall not be disturbed as the matter relating to withdrawal of his nomination is sub-judice before the Calcutta High Court.
111. For the purpose of carrying out the
directions as passed by this Court, this Court appoints Special Officers.
112.
Accordingly, I appoint Sri P.S. Raju, Advocate
and Shri S. Urmila, Advocate, to carry to out the directions. R-3 shall make
available necessary files/documents and information as may be required by the
Special Officers for the purpose.
113.
The Special Officers shall first refer
the matter regarding the assessment of value of the shares of P-1, R-9 and R-3
and their respective groups as indicated above to the Competent Chartered
Accountant before offering to the parties. It is also open for the Special
Officers to move this Court for further directions.
114.
P-1, R-9 and R-3 shall deposit a sum
of Rs. 15,000 each in R-1 Company for meeting the expenses and also the
remuneration of Special Officers. Out of the said sum a sum of Rs. 10,000 each
shall be paid to the Special Officers towards their remuneration tentatively.
The fee of Chartered Accountants and other expenses including the ministerial
assistance shall be paid by R-3 from the amount so deposited on intimation by
the Special Officers.
115. Before conclusion, I must say that the counsel for the parties not only argued their respective cases but also ably assisted the Court by referring to minutest details supported by catena of case law. This Court places on record the valuable assistance rendered by the learned counsel Mr. S.K. Kapoor, Mr. Vedantham Srinivasan, Mr. K. Srinivasa Murthy, Mr. S.B. Mukherjee, Mr. Y. Ratnakar, Mr. S. Ravi and Mr. Raghunandan Rao.
116. Company Petition ordered accordingly. No costs.
Ch. V. & SSB
L.R. Copy to be typed: Yes
The learned counsel for P-1 and P-2 submits that the order may be kept in abeyance to enable them to seek appropriate remedy before the appellate court.
Keeping in view the facts and circumstances of the case, that the orders shall be kept in abeyance for a period of three weeks from today.
[1999] 20 SCL 414 (AP)
HIGH COURT OF ANDHRA PRADESH
v.
Asian Coffee Ltd.
COMPANY APPLICATION NO. 535 OF 1998
IN COMPANY APPLICATION NO. 453 OF 1998
OCTOBER 16, 1998
Section 53 of the Companies Act, 1956 - Service of documents on members of company - Whether when a document is sent under certificate of posting, such service shall be deemed to have been effected in case of notice of meeting, at expiration of 48 hours after letter containing same is posted -Held, yes
FACTS
The meeting of the shareholders of the company was ordered
to be held on 23-10-1998 for approving the scheme of amalgamation of the other
four companies with this company. On 28-9-1998, notice accompanied with the
scheme of amalgamation statement, form of proxy and attendance slip was sent to
all the shareholders under certificate of posting. The case of the applicant
was that he had received the notice of the meeting only on 12-10-1998 and thus
21 days clear notice was not given to the shareholders and, therefore, the
notice being invalid the meeting should be postponed.
HELD
The notices were sent on 28-9-1998 under certificate of
posting. On perusal of the xerox copy of the letter, dated 12-10-1998 sent by
the applicant to the Chairperson, it revealed that notice containing the brief
particulars of the amalgamation was received by the applicant only in the last
week that was to say, in the first week of October, 1998, because, the letter
was dated 12-10-1998, but no specific date had been mentioned regarding the
receipt of the notice. This contradicted the allegation that the notice had
been received on 12-10-1998. Under these circumstances, it could be safely
inferred that within two to three days from the date of posting of the notice,
the applicant had received it and that appeared to be the reason for not
specifically mentioning the date of the actual receipt of the notice.
Even otherwise, as
provided in section 53, when a document is sent by post under clause (a) of
sub-section (2) of section 53, such service shall be deemed to have been
effected in case of a notice of meeting at the expiration of 48 hours after the
letter containing the same is posted and, therefore, it could be safely
concluded that notice despatched on 28-9-1998 sent under certificate of posting
was served on the applicant on 1-10-1998. Excluding 23-10-1998, the date on
which the meeting was to be convened, it was found that 21 days' clear notice
had been served as required by rule 73 of the Companies (Court) Rules, 1953.
For the foregoing
reasons, there appeared to be no force in the contention that the notice
received by the applicant was invalid and, therefore, on this count only, the
meeting ordered to be convened on 23-10-1998 should be postponed. The
application was, therefore, dismissed
V.S. Raju for the Applicant. S. Ravi for
the Respondent.
Shrivastav, J. - This order shall dispose of C.A. No. of 535
of 1998 for postponing the meeting of the shareholders to be held on
23-10-1998.
2. In C.A. No. 453 of 1998, it was ordered
on 17-9-1998 that the meeting of the shareholders of Asian Coffee Limited
should be held on 23-10-1998 at Hotel Taj Residency,
3. On 28-9-1998, notice to all the shareholders
was sent under certificate of posting from
4. It is urged on behalf of the applicant
shareholder, Challa Rajendra Prasad, that he had received the notice of the
meeting on 12-10-1998 and immediately thereafter, he had requested the
Chairperson to supply to him a copy of the order, dated 17-9-1998 passed by the
High Court, copy of the scheme of amalgamation, memorandum of articles of
association of the transferor companies, annual accounts and reports of the
transfer and transferee companies, valuation report and reports of the ANZ
Grindlays Bank Ltd., etc.
5. The main grievance of the learned
counsel of the applicant is that 21 days' clear notice was not given to the
shareholders and, therefore, the notice being invalid, the meeting ordered to
be convened on 23-10-1998, should be postponed. The learned counsel of the
applicant submits that though the postponement has been sought on other
grounds also, for the present, they are not pressed and they may be taken at
the relevant time, if so advised by his client.
6. As noted above, notices were sent on 28-9-1998 under certificate of posting. On perusal of the xerox copy of the letter, dated 12-10-1998 sent by the applicant to the Chairperson, it reveals that notice containing the brief particulars of the amalgamation was received by the applicant only in the last week, that is to say, in the first week of October, 1998, because, as noted above, the letter is dated 12-10-1998, but no specific date has been mentioned regarding the receipt of the notice. This contradicts the allegation made in para 6 of the affidavit that the notice had been received on 12-10-1998. Under these circumstances, it can be safely inferred that within two to three days from the date of posting of the notice, the applicant has received it and that appears to be the reason for not specifically mentioning the date of the actual receipt of the notice. Even otherwise, as provided in section 53 of the Act, when a document is sent by post under clause (a) of sub-section 2 of section 53, such service shall be deemed to have been effected in case of a notice of meeting at the expiration of 48 hours after the letter containing the same is posted and, therefore, it can be safely concluded that notice despatched on 28-9-1998 sent under certificate of posting was served on the applicant on 1-10-1998. Excluding 23-10-1998, the date on which the meeting is to be convened, it is found that 21 days' clear notice has been served as required by rule 73 of the Companies (Court) Rules, 1953.
7. For the foregoing reasons, there appears to be no force in the contention of the learned counsel of the respondent that the notice received by the applicant is invalid and, therefore, on this count only, the meeting ordered to be convened on 23-10-1998 should be postponed.
8. As noted above, no other point has been pressed for decision, and whatever has been urged has been answered as stated above.
9. In the result, the application is dismissed.
[2001] 32 scl 441 (Kar.)
High Court of Karnataka
v.
B. Suresh
K.R. PRASADA RAO, J.
CRIMINAL PETITION NO. 1757 OF 1998
Section 10, read with section 53, of the
Companies Act, 1956 - Courts - Jurisdiction of - Respondent-complainant was shareholder
of petitioner-accused bank which had registered office at Mangalore - He filed
complaint against petitioner in Special Court for economic offences at
Bangalore for alleged offences committed by it under sections 39(2), 219(4),
217(2)(a) and 628 of the Act and said court took cognizance and issued process
against petitioner Complained related to non-supply of entries of share
register, etc. - Whether law is settled that cause of action arises for
non-compliance with provision of section 53 at place where registered office of
company is situated from where documents are to be sent and court which has
jurisdiction for entertaining complaint for non-supply of requisite documents
is court within jurisdictional limits of which registered office of company is
situated - Held, yes - Whether in instant case cause of action arose at
Mangalore where documents in question ought to have been furnished and,
therefore, jurisdictional magistrate court situated at Mangalore alone had got
jurisdiction to entertain said complaint and as such proceedings before court
at Bangalore were without jurisdiction - Held, yes
Facts
The respondent-complainant filed a private
complaint to the Special Court for Economic Offences at Bangalore against the
petitioner-accused bank whose registered office was at Mangalore for the
offences under sections 39(2), 219(4), 217(2)(a) and 628 of the Act. It was
alleged that he being a shareholder in the petitioner-bank, had requested the
said bank by a letter dated 5-5-1997 for supply of entries pertaining to his
shares available in the share register, copy of Memorandum and articles of
association and the balance sheet including profit and loss account. The
petitioner-bank, it was alleged, vide their letter dated 13-5-1997, which was
received by the respondent-complainant on 24-8-1992, sent incomplete details of
entries in the share register along with the desired documents. Therefore, the
respondent wrote again to the bank on 26-5-1997 and in response to it, he
allegedly received the requisite particulars on 17-6-1997 vide bank’s letter
dated 6-6-1997. Later he filed a complaint alleging that by not supplying the
documents and desired particulars within seven days from the date of receipt of
the requisition by the bank in this regard, the petitioners had committed
offences as alleged in the said complaint. The Magistrate took offence of the
said offences and after recording the sworn statement of the complainant passed
the impugned order registering a case and ordering for issue of process against
the petitioner. Aggrieved by the said order, the petitioner approached this
court under section 482 of the Code of Criminal Procedure seeking for quashing
the proceedings.
On petition :
Held
Section 53 of the Act is the provision
relating to service of documents on members by the company. The provision makes
it clear that the cause of action arises for non-compliance with the said
provision at the place where the registered office of the company is situated
from where the documents are to be sent and the Court which has jurisdiction
for entertaining a complaint for non-supply of the documents is the court
within the jurisdiction limits of which the registered office of the company is
situated. This position is made clear by the Supreme Court in H.V. Jayaram v.
Industrial Credit & Investment Corporation of India Ltd. AIR 2000 SC 579.
In the instant case, since the registered
office of the first petitioner-company was situated at Mangalore, the cause of
action arose at Mangalore from where the documents sought for by the respondent
ought to have been furnished which according to the complainant had not been
furnished within seven days. So, the jurisdictional Magistrate court situated
at Mangalore alone had got the jurisdiction to entertain a complaint for the
alleged offences mentioned in the complain for not posting the documents
required from Mangalore where the registered head office of the first
petitioner-company was situated.
This petition was, therefore, allowed and the
court below was directed to return the complaint for presentation to the proper
court, i.e., for presentation to the jurisdictional
Case referred to
H.V. Jayaram v. Industrial Credit &
Investment Corpn. of India Ltd. AIR 2000 SC 579.
S.G. Bhagawan for the Petitioner. Hemachandra R. Rai
for the Respondent.
Judgment
Rao, J. - This petition is filed under section 482 of the Code of Criminal
Procedure, 1973, by the accused on the file of the Special Court for Economic
Offences at Bangalore, in C.C. No. 232 of 1998 against the order dated
15-5-1998, passed by the learned Magistrate registering the case and ordering
for issue of process against them on receipt of a complaint dated 10-11-1997,
filed by the respondent and on recording his sworn statement on 15-5-1998.
2. The
respondent-complainant filed a private-complaint in the court below for the
offences under sections 39(2), 219(4), 217(2)(a) and 628 of the Companies Act,
1956 (‘the Act’), alleging that he is a shareholder in the first
petitioner-company and that by a letter dated 5-5-1997, he requested the first
petitioner for supply of :
“(a) entries
pertaining to his shares available in the share register;
(b) copy
of memorandum of articles of association with up to date amendment, and
(c) balance-sheet including profit and loss
account and connected papers to be enclosed to balance sheet (annual general
meeting held in 1995 and 1996) for his use.”
3. In
reply to his request, he received a letter dated 13-5-1997, on 24-5-1997,
furnishing therewith the copies of memorandum and balance-sheet for 1995 and
1996 and incomplete details of entries in the share register. He further
alleged that he sent two letters on 26-5-1997, requesting the first appellant
to furnish him the following particulars :
“(a) complete entries in the share register, such
as date of acquiring the shares, mode of acquisition, name and address, etc.;
(b) statement of particulars as required under
section 217(2A) of the Companies Act, 1956, and also the names and date of
appointment of persons holding the post of secretary, company secretary and/or
assistant company secretary.”
4. The
respondent has stated that the first petitioner supplied the aforesaid
particulars along with its letter dated 6-6-1997, which he received on
17-6-1997. He further alleged that by not supplying the memorandum and articles
of association and balance-sheet within seven days from the date of receipt of
the requisition by the bank, the petitioners have committed the offences under
sections 39(2) and 219(4). By not furnishing the complete entries standing
against the name and folio number of the complainant, the petitioners-accused
also committed the offence under section 217(2A). By not furnishing the
material facts knowing them to be material and that they are obliged to furnish
the complete entries found in the share register and furnish all particulars
under various sections of the Act, the petitioners have also committed an
offence under section 628.
5. The
learned Magistrate has taken cognizance of the said offences and after
recording the sworn statement of the complainant, has passed the impugned
order registering a case, ordering for issue of process against the appellants.
It is at this stage, the petitioners have approached this court seeking for
quashing the proceedings by filing this petition under section 482 of the Code
of Criminal Procedure.
6. The learned counsel for
the petitioners, S.G. Bhagawan raised the following contentions.
(a) The court below has no jurisdiction to
entertain the complaint since the alleged offences have not taken place within
its jurisdictional limits, namely, Bangalore urban and rural areas of the said
court.
(b) Since the registered office of the first
accused-company is situated in Mangalore and the cause of action arose only at
Mangalore, the place of the head office from where the documents sought for by
the respondent-complainant are to be furnished, only the Magistrate court
situated at Mangalore has jurisdiction to entertain the complaint.
(c) Since the offences alleged are petty
offences, the learned Magistrate has not followed the procedure prescribed for
issue of summons to the accused.
(d) Since the documents sought for by the
respondent have been furnished to him, no prima facie case is made out to try
the petitioners for the offences under sections 39(2), 219(4), 217(2A) and 628.
7. I
shall now first deal with the question as to whether the court below has got
jurisdiction to entertain the present complaint. In para 11 of the complaint,
the complainant alleged that since he resides in Bangalore, the court below has
jurisdiction to entertain the complaint and initiate proceedings in accordance
with the provisions of section 621. But on a perusal of the provisions of
section 621, it is found that the said section makes it clear that the offences
against the Act are to be cognizable only on a complaint by the Registrar, a
shareholder or the Government. The said provision does not relate to the jurisdiction
of the court to entertain the complaint. It is pointed out by the learned
counsel for the petitioners that the relevant provision conferring the
jurisdiction on the court under the Act is section 53. Section 53 is the
provision relating to service of documents on members by the company. Section
53 reads as under :
“Service of documents on members by
company.—(1) A document may be served by a company on any member thereof either
personally, or by sending it by post to him to his registered address, or if he
has no registered address in India, to the address, if any, within India
supplied by him to the company for the giving of notices to him.
(2) Where a document is sent by post,—
(a) service thereof shall be deemed to be
effected by properly addressing, pre-paying and posting a letter containing the
document, provided that where a member has intimated to the company in advance
that documents should be sent to him under a certificate of posting or by
registered post with or without acknowledgement due and has deposited with the
company a sum sufficient to defray the expenses of doing so, service of the
document shall not be deemed to be effected unless it is sent in the manner
intimated by the member; and
(b) such
service shall be deemed to have been effected :
(i) in the case of notice of a meeting,
at the expiration of forty-eight hours after the letter containing the same is
posted, and
(ii) in
any other case, at the time at which the letter would be delivered in the
ordinary course of post.
(3) A document advertised in a newspaper
circulating in the neighbourhood of the registered office of the company shall
be deemed to be duly served on the day on which the advertisement appears, on
every member of the company who has no registered address in India and has not
supplied to the company an address within India for the giving of notices to
him.
(4) A document may be served by the company
on the joint holder of a share by serving it on the joint holder named first in
the register in respect of the share.
(5) A document may be served by the company
on the persons entitled to a share in consequence of the death or insolvency
of a member by sending it through the post in a pre-paid letter addressed to
them by name, or by the title of representatives of the deceased, or assignees
of the insolvent, or by any like description, at the address, if any, in India
supplied for the purpose by the persons claiming to be so entitled, or until
such an address has been so supplied, by serving the document in any manner in
which it might have been served if the death or insolvency had not occurred.”
8. Thus,
the above provision makes it clear that the cause of action arises for
non-compliance with the said provision at the place where the registered office
of the company is situated from where the documents are to be sent and the
court which has jurisdiction for entertaining a complaint for non-supply of
the document is the court within the jurisdiction limits of which the
registered office of the company is situated. This position is made clear by
the Supreme Court in H.V. Jayaram v. Industrial Credit & Investment Corpn.
of India Ltd. AIR 2000 SC 579. In para 7 it is held as follows :
“Section 113, inter alia, requires that within
three months after the allotment of any shares and within two months after the
application for the registration of the transfer of any such shares, every
company shall deliver, in accordance with the procedure laid down in section
53, the certificates of all shares allotted or transferred. Sub-section (2)
provides punishment if default is made in complying with sub-section (1).
Reading sections 113 and 53 together, share certificates are to be delivered
in accordance with the procedure laid down in section 53. A document is to be
served either personally or by sending it by post at registered address within
India. Sub-section (2) specifically mentions that where a document is sent by
post, such service thereof shall be deemed to be effected by properly addressing,
pre-paying and posting the letter containing the document. Hence, once there is
a statutory mode of delivering the document by post and deeming provision of
such delivery, the place where such posting is done is the place of performance
of statutory duty and the same stands discharged as soon as the document is
posted. Hence, the cause of action for default of not sending the share
certificates within the stipulated time would arise at the place where the
registered office of the company is situated as from that place the share
certificates can be posted and are usually posted.” (p. 581)
8.1 In para 8, it is further
observed as follows :
“. . . when the company posts the dividend
warrant at the registered address of the shareholder, the post office becomes the
agent of the shareholder and the loss of a dividend warrant during the transit
thereafter is at the risk of the shareholder. The court further held that the
place where the dividend warrant would be posted is the place where the company
has its registered office and the offence under section 207 of the Act would
also occur at the place where the failure to discharge that obligation arises,
namely, the failure to post the dividend warrant within 42 days. . . .”
[Emphasis supplied] (p. 582)
9. In
the instant case, since the registered office of the first petitioner-company
is situated at Mangalore, the cause of action arose at Mangalore from where the
documents sought for by the respondent ought to have been furnished which
according to the complainant have not been furnished within seven days. So, the
jurisdictional Magistrate court situated at Mangalore alone has got the
jurisdiction to entertain a complaint for the alleged offences mentioned in the
complaint for not posting the documents required from Mangalore where the
registered head office of the first petitioner-company is situated. It is also
pointed out by learned counsel for the petitioner that according to the Government
notification dated 1-9-1992, issued constituting the Special Court for Economic
Offences, it has jurisdiction to try offences which took place within the
limits of Bangalore District including the Metropolitan Area of the City of
Bangalore under the twelve Central Acts referred in the said notification
including the Companies Act. Thus, it is clear that the court below has no
jurisdiction to entertain the complaint in respect of the offences which took
place within the jurisdictional limits at Mangalore. In view of the said
conclusion, I find it unnecessary to go into the merits of the other
contentions urged by learned counsel for the petitioners.
10. For the above reasons, I
find that the court below has no jurisdiction to entertain the present
complaint.
11. This petition is, therefore, allowed and the court below is directed to return the complaint for presentation to the proper court, i.e., for presentation to the jurisdictional Magistrate Court in Mangalore. All other contentions urged by the petitioners are left open.