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 sub judice before the Calcutta High Court.

CASES REFERRED TO

Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd AIR 1966 Cal. 512, ShivKumarv. State of Haryana [1994] 4 SCC 445, Shoe Specialities (P.)Ltd v. Stridewell Leathers (P.) Ltd [1995] 82 Comp. Cas. 836 (Mad.), Smt. Kanak Lata Ghose v. Amal Kumar Ghose AIR 1970 Cal. 328, Mrs. Achamma Thomas v. E.R. Fairman AIR 1970 Mys. 77, Parmanand Choudhary v. Smt. Shukla Devi Mishra [1990] 67 Comp. Cas. 45 (MP), A.E.G. Carapiet v. AY. Derderian AIR 1961 Cal. 359, G.H. Hook v. Administrator General of Bengal AIR 1921 PC 11, Satyadhyan Ghosal v. Smt. Deorajin Debi AIR 1960 SC 941, Y.B. Patil v. Y.L. Patil AIR 1977 SC 392, Madugula Jermiah, In re AIR 1957 AP 611, Bahadur Singh v. MCD 1973 Punjab LR (D) 145, Mrs. Om Prabha Jain v. Abnash Chand AIR 1968 SC 1083, Ram Saurp Gupta v. Bishun Narain Inter College AIR 1987 SC 1242, Davuluri Venkata Hanumantha Rao v. Kasinaddhuni Chengalvarayudu AIR 1954 AP 25, Manchineni Venkayya v. Manchineni Seshayya AIR 1954 AP 29, Allam Gangadhara Rao v. Gollapalli Ganga Rao AIR 1968 AP 291, Ebrahimi v. Westbourne Galleries Ltd [1972] 2 All ER 492, Yenidje Tobacco Co. Ltd, In re [1916] 2 CL 426 (CA), Hind Overseas (P.) Ltd v. Raghunath Prasad Jhunjhunwala AIR 1976 SC 565, Loch v. John Blackwood Ltd 1924 AC 783 (PC) Baird v. Lee 1924 SC 83, D. Davis & Co. Ltd v. Brunswick (Australia) Ltd [1936] 6 Comp. Cas. 227 (PC), Rajahmundry Electric Supply Corpn. Ltd v. A. Nageshwara Rao AIR 1956 SC 213, Mohan Lal v. Grain Chamber Ltd AIR 1968 SC 772, Mrs. Bacha F. Guzdar v. CIT AIR 1955 SC 74, Bird Precision Bellows Ltd, In re [1984] 1 Ch. 419 Nourse, G. Kasturi v. N. Murali [1992] 74 Comp. Cas. 661 (Mad.), Kilpest (P.) Ltd v. Shekhar Mehra [1996] 87 Comp. Cas. 615 /10 SCL 233 (SC), C.N. Shetty v. Hillock Hotels (P.) Ltd [1996] 87 Comp. Cas. 1 /12 SCL 340 (AP), Elder v. Elder & Watson Ltd 1952 SC 49, George Meyer v. Scottish Co-operative Wholesale Society Ltd 1954 SC 381, Scottish Co-operative Wholesale Society Ltd v. Meyer [1959] 29 Comp. Cas. 1 (HL), H.R. Harmer Ltd, In re [1959] 29 Comp. Cas. 305 (CA), Shanti Prasad Jain v. Kalinga Tubes Ltd AIR 1965 SC 1535, Bellador Silk Ltd, In re 1965 (1) All. ER. 667, Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd AIR 1962 Cal. 127, Mohta Bros. (P.) Ltd v. Calcutta Landing & Shipping Co. Ltd [1970] 40 Comp. Cas. 119 (Cal.), Needle Industries (India) Ltd v. Needle Industries Newey (India) Holding Ltd [1981] 51 Comp. Cas. 743 (SC), Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton & Jute Mills Co. Ltd [1964] 34 Comp. Cas. 777 (Guj.), Thakur Hotel (Simla) Co. (P.) Ltd, In re [1963] 33 Comp. Cas. 1029 (Punj.), Tea Brokers (P.) Ltd v. Hemendra Prosad Barooah [Company Appeal No. 186 (Cal.) of 1971], Shooter, In re [Company No.00789 of 1987] and Broadhurst, In re [Company No. 3017 of 1987]

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

JUDGMENT

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.

Pleadings and Counter Pleadings

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 Rastrapathi Road, Secunderabad. The authorised capital of the Company was Rs. 10 lakhs and issue capital was Rs. 5 lakhs divided into 50,000 shares of Rs. 10 each. The petitioner No. 1 Shri R. Khemka (for short P-1) and Petitioner No. 2 possessed 11,320 of shares and thus they held more than l/10th share under the 1st Respondent Company. The 7th Respondent Shri S.G. Jalan (for short R-7) was sought to be inducted to the Board of Directors of the 1st Respondent Company in January, 1987 and the validity of such appointment is being questioned. P-1 and the 9th Respondent Shri R.N. Jalan (for short R-9) conceived the idea of setting-up of a personal business for himself and R-9 as a partnership in recognition of their close and cordial relations with a view to provide opportunity to the children of two families namely Khemka and Jalan families. During 1965 the son of P-1 and R-9 were students and they intended to hand over the business after they completed their studies. Therefore, the company was promoted in April, 1966 as a Private Limited Company, but in fact it is a partnership concern inter alia for manufacturing of rubber rings. Since its inception the P-1, R-9 were the Directors. Respondent No. 3 Shri O.P. Jalan (for short R-3) was brought on Board for looking after the affairs of the Company as P-1 and R-9 were already pre-occupied with the employment in the management of the large public limited company namely Hyderabad Asbestos Company Limited (later on re-named as Hyderabad Industries Limited) (for short HIL). It was the understanding that the R-3 will function under the guidelines of P-1 and R-9. All the major decisions like capital expenditure, increase of share capital, financial arrangement etc. were being done with the consultation of these two persons. Thus, it is the case of the petitioners that two groups namely Khemka Group and Jalan Group were to function as partners and reposed implicit faith in each other. It is the case of the petitioners that the proportionate of shareholdings in the company has always in the ratio of 1/3 and 2/3 as between Khemka Group and Jalan Group and it was maintained whenever the share capital was increased. The son of P-1 is the 11th Respondent Shri Mahesh Khemka in the Petition and subsequently he was transposed as Petitioner No. 3 (for short P-3). After completing the Engineering Degree he was appointed as Executive Director of the R-1 company for looking after the affairs of the company. It is the case of the petitioners that the P-1 and R-9 had rendered invaluable technical management and support for the improvement of the company. There was always mutual consultation whenever major decisions were being taken. The Company grew leaps and bounds and it bagged Export Awards continuously for Foreign Exchange earnings. The company had built-up large reserves and had been getting huge profits with the cooperative efforts of Khemkas and Jalans (for Short 'K' and 'J' group). However, this prosperous trend continued upto 1982-83. It is the case of the P-1 that he was regularly being furnished with the Agenda Minutes of the Board and A.G.M. of the company and he used to sign the balance sheet. However, this practice continued till J group conceived ways and means to pave the way for exclusion of K group in or around 1983. The scheme could not be understood by the petitioners till March, 1984. The Company had established good commercial links with the foreign buyers and has also been rendering technical know-how to the foreign companies. The Company acquired joint-venture project for the manufacture of similar products in Saudi Arabia by investing 20% equity interest in Amiant Rubber Industries Limited (for short ARIL) in Saudi Arabia. Thus, the P-1 and R-3 became directors of the Foreign Company ARIL and P-3 was the General Manager of ARIL in 1977. Accordingly, P-3 shifted the residence to Saudi Arabia for supervising construction and commission of the project till 1982. After P-3 returned in 1982 from Saudi Arabia, he was expecting that he would be associated with the management of the R-1 company as Executive Director, when the Company was in a very prosperous and sound state of affairs. However, the P-3 was not inducted on the Board on his return from Saudi Arabia. Thus, the disproportionate management took its seeds in the administration of the company. In March, 1985 in furtherance of the idea of J group to oust K group from the joint venture company informed the K group not to deal with any longer with P-3 on behalf of the R-1 Company. Thus the humiliation and harassment was being caused to P-3. It is the case of the petitioners that from about 1983, R-3 of J group unilaterally stopped sending the monthly reports, statement of affairs, notices, minutes of the meetings or AGM. They did not receive any such notices or the audited annual accounts from 1983 and thus the K group was completely kept in dark and it was being surreptitiously excluded from the management and participating in the affairs of the company for the benefit of the J group. The scheme of exclusion was known by March, 1985 when a resolution was passed on 21-8-1984 interfering with the Directorship of the P-3 on the Board of Joint venture company ARIL. Under the said resolution, nomination of the 3rd petitioner was withdrawn from the Board of joint-venture company, Saudi Arabia and the said company removed the P-3 in the middle of 1985. Thus, the expectation of K group that the 3rd petitioner would suitably accommodated in the R-1 company and also in the joint venture company became futile. Even then, the petitioners were made to sign the balance sheet and statement of accounts for 1982-83 on the assurance of proper management participation held out by R-9. But, however, the J group continued to work against the interest of P-3. Even though the son of R-9 was accommodated in a suitable management capacity in a position in another company, yet the P-3 was kept in lurch. During March, 1985 R-9 also left the employment in the Public Limited Company HIL. Under these circumstances, P-1 addressed a letter dated; 25-3-1985 expressing his anguish over the affairs of the company and filed a suit in Calcutta High Court challenging the resolution dated 21-8-1984 withdrawing P-3 from the Board of Joint venture company and the same is pending. It is stated that the said resolution is illegal and invalid and no notice of meeting dated 21-8-1984 was issued to K group. Thereafter, R-3 assumed the role of representation of the R-1 company on the Board of Joint Venture company in Saudi Arabia and continued to enjoy the extensive and rich benefits. During the year 1984 also it is the case of the petitioners that no notice of the Board meetings were sent to P-1, no AGM was held, no notices of the AGM which should be held statutorily in 1984 was sent to the petitioners. In effect it is their case that upto January, 1985 no notices were received by them. R-3 used unfair means and thereby lacked probity and thereby the affairs of the company were conducted in a manner prejudicial to the interest of K group. By letter dated 25-3-1985, the petitioners complained about the non-receipt of the notices etc. However, by letter dated 30-4-1985, the R-3 falsely alleged that the notices were sent. It is only along with the letter dated 30-4-1985, the annual statement and balance sheet of 1984-85 were sent to him. But, it was not disclosed as to when the balance sheet was placed before the Annual General Meeting and how the notices of the meetings were sent to all the shareholders. None of the K group shareholders received the notices. However, after a lapse of 18 months for the first time, notices for two board meetings scheduled to be held on 27-6-1985 and 8-7-1985 were sent. For 1984-85 Annual General Meeting no notices were received and there has been statutory violation of holding minimum four meetings of the Board for the year 1984-85. On account of the differences between R-3 and R-9, R-2 and R-3 started excluding R-9 of J group from the participation in the affairs of the company and thus R-9 and his wife and children isolated. R-9 also did not receive the notice of any Board in the year 1984-85 or Annual General Meeting. This was brought to the notice of the R-2 and R-3 by R-9 by letters dated 21-10-1985 and 29-10-1985. The petitioner also by letter dated 17-12-1985 hinted R-3 not to attempt to alter the pattern of shareholding. The petitioner also by letters dated 9-2-1986 and 22-10-1986 brought to the notice of R-1 company the violations of the provisions of the Companies Act. The Registrar of Companies (R.O.C.) issued a show-cause notice dated 6-11-1986 to the petitioner and other Directors alleging breach of the provisions of the Act and the petitioner by his letter explained the various developments in the company including wrongful exclusion. He also called upon the R-3 to intimate the action taken. It is also the case of the P-1 that even in the year 1986, he received certain notices for Board meetings, but they either reached on the date of the meeting or beyond the date of the meeting making it impracticable to attend the meetings. The Respondent No. 2 Shri V.K. Chemariya, Company Secretary (for short R-2) has also been conspiring with R-3 to keep the K group out of participation. The petitioner was not furnished with the minutes of the meetings nor the audited copy of the balance sheet and accounts. Though the R-2 and R-3 claimed to have held board meetings dated 8-11-1985 and 11-11-1985 at which the accounts and the balance sheet for the year 1984-85 was supposed to have been considered and that the Annual General Meeting was said to have been held in respect of the same on 18-2-1985, no such meeting took place and no notices were issued. Even though the requisition was made to R-3 for copies of the balance sheet and annual accounts for the year 1984-85 and 1985-86, they were not supplied. The notices for Annual General Meeting for the year 1984-85 and 1985-86 have not been issued to any members of the K group. One of the resolutions alleged to have been passed on 11-11-1985 relating to grant of Power of Attorney in favour of R-3 with regard to joint venture company was not passed and no notices of the meeting was issued to the petitioners. On account of calculated silence the petitioners seriously apprehended that fraudulent resolutions were brought on record and R-3 appears to have resorted to unauthorised and wrongful allotment of shares contrary to understanding of proportionate representation. The induction of R-7 as Director was illegal and unwarranted. The petitioner recorded his dissent for such induction. Thus, the petitioners stated that there was a systematic oppression of K group, although they were substantial shareholders of the company. Even R-9 and his relations were persistently excluded from the management. R-3 has been mismanaging the affairs of the company and flouted the provisions of the Act. In the balance sheet for 1983-84 it was shown as if the company had incurred a loss of Rs. 13 lakhs and it was not real and accounts were manipulated. The Company has been lending money to other concerns where R-3 had substantial interest. There was a systematic channeling out of funds by way of lending to related concerns. The income-tax arrears made the authorities to initiate compulsory recovery proceedings. Any further control in the hands of R-2 and R-3 would cripple the company and cause severe loss to the petitioners and other shareholders of both K group and R-9 group. There was a deliberate oppression of the petitioners. Therefore, the petitioners sought various reliefs referred to above.

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 Hyderabad as ancillary to HIL. Then R-3 applied for availability of name to ROC on 6-1-1966. The draft Memorandum and articles of association were submitted through letter dated 25-1-1966 and they were approved in February, 1966. The petitioner No. 1 was working as Vice-President of HIL. On coming to know this venture, he approached R-3 and R-9 for investment in the new company and his request was accepted by the family members of R-3. Thereafter other procedures were complied with. There was no agreement that the R-3 should function under the guidelines of P-1 and R-9 and that they would be consulted on all major matters. It was also not true that there was a contemplation to induct son of P-1 (P-3) in the management after completion of his studies. P-1 and R-9 were preoccupied with their employment in HIL, and the question of their participation did not arise. Moreover they did not have business expertise in the products of the R-1 company. The decision of raising share capital was always taken by the board of directors. All other decisions regarding the financial arrangements, marketing were taken in accordance with the settled procedure. R-3 established his name and status in the business circle very soon. He was elected as Chairman of the Chemicals & Allied Products Export Promotion Council in 1984-85. He was the President of All India Rubber Industries Association in 1983-84. He was appointed to the Rubber Board by the Government of India in 1984. It was denied that there was an allotment of shares in the ratio of 1/3rd and 2/3rd to K and J group. There was no such practice with regard to the increase of share capital. It was stated that the petitioners did not subscribe to the further issues. P-3 was never inducted in furtherance of the concept of joint and equal participation in the management. He was inducted to the Board on 1-2-1970 and on 10-3-1973 he was appointed as Executive Director and he resigned the same on 2-4-1977. This was only made to appease the P-1 and P-3 never involved himself in the management of the company. It was denied that the P-1 was guiding the affairs of the Company and that he was advancing huge amounts to the Company. Whatever the amounts advanced were repaid at the request of the petitioner and the loans carried 18% interest. During 1981 the petitioners hatched conspiracy to start parallel competitive business and started withdrawing their monies and by March, 1982, all the monies advanced were withdrawn. In 1982 P-1 got incorporated a Company by name M/s. Andhra Polymers Private Limited (for short APPL) with the object of manufacturing and dealing in rubber products. P-3 and his wife were the Directors in that Company. All the shareholders were members of K family. They tried to entice the know-how of the R-1 company. They also employed the experienced staff of R-1 company in their company. When the R-9 resigned as President of HIL the P-1 was promoted as President. The APPL company floated by P-3 went into production in 1984 and taking advantage of the position of the P-1, the purchases from the R-1 company were diverted to APPL. Thus they were systematically operating to the detriment of the R-1 company. P-3 for some years was employed by the R-1 in its affairs at Saudi Arabia. During that process he gained acquaintances with the foreign companies and started offering the goods produced by Andhra Polymers at lower rates. Thus, they have been acting to the detriment of R-1. The R-1 company was solely managed by R-3 and it has been making strides in all fields. It developed business with various foreign companies in Kuwait, Saudi Arabia, Dubai, Behrain etc. The R-3 took initiative to start the joint venture with ARIL for manufacture of rubber rings and in effect he is responsible for approval of joint venture. P-1 never evinced any interest. The last meeting he has attended was 31-3-1983. Thereafter even though the notices were sent he did not attend the meetings. It was also denied that the company was promoted for the children of P-1 and R-9. It was denied that J group conceived ways and means to exclude the K group and in fact there were no groups at all. It is the case of R-3 that P-1 and R-9 never made any contributions for the joint venture company ARIL and it is the result of his sole efforts. Initially, the P-1 and R-3 were appointed as Directors in ARIL Board, but however, P-1 ceased to be the Director from April, 1978. R-3 was sent to Saudi Arabia in the capacity of Manager. He never upervised the project. He was only trained for a short period, and R-3 also made frequent visits in this regard. After return of P-3 from abroad he was in Board of the Foreign company for some time and there was no understanding that the P-3 will be the Executive Director of R-1 company after his return. It was denied that J group tried to ease out the K group by taking advantage of absence of P-3. In fact P-1 was very much in India. There was no understanding of any proportionate management. The alleged harassment by the R-3 was absolutely incorrect. The P-1 filed a suit in Calcutta High Court and could not succeeded in getting the interim orders. In fact after the return of P-3 to India, the family of the P-1 started two separate business concerns namely M/s Andhra Polymers Private Limited and M/s Ramak Enterprises Private Limited and they were designed to carry on the business as Competitors to R-1 Company despite the prohibition contained in Articles of Association of R-1 Company that no shareholder directly or indirectly concerned or interested in or associated with shall carry on the business in competition with the company. On the other hand, P-1 and P-3 have been committing various acts causing damage and loss to the R-1 company. They diverted the order meant for R-1 company to be supplied to the International Airport Authority. They also started manufacturing the same items as that of R-1 company in violation of the Articles of Association. The HIL started placing orders on Andhra Polymers instead of R-1 Company with the active connivance of the P-1. The allegations that the R-3 stopped sending the P-1 monthly reports, the statement of affairs of the Company or notices or minutes of the Board of Annual General Meeting from 1983 were denied. However, that there was a practice of sending the monthly accounts to all the Directors, but it was only for a short period and it was discontinued being not practicable. The notices of meetings and Annual General Meeting were sent to all the shareholders. As per written request of the P-1 dated 25-3-1985, notices of Board meetings were sent by Registered Post for the meetings held after 25-3-1985. In fact P-1 after starting the competitive business avoiding attending the meeting of the Board of Directors of the R-1 Company and after March, 1983 he did not attend any meeting at all. Petitioners did not choose to attend any meetings from 1983 and they ceased to take any interest as they were busy in the rival organisation. On 21-8-1984 the Board of the R-1 company passed resolution withdrawing the nomination of P-3 from Directorship of the Board of the Joint Venture Company ARIL, Saudi Arabia. The said meeting was held at Calcutta and notices were issued to all the Directors of the Board. Petitioner did not attend the meeting. Subsequently, when the joint venture company in its annual general meeting held on 7-5-1985 proposed to remove P-3 then the P-1 filed a suit in Calcutta High Court and sought for injunction and the same was rejected. Therefore, the joint venture company in its Annual General Meeting held on 7-5-1985 removed the P-3 from the Directorship. It was also denied that the resolution dated 21-8-1984 passed by the Board meeting of the R-1 Company came to the knowledge of the P-1 only in March, 1985. In fact he was aware of the said resolution. He did not choose to attend the meeting. In fact during the year 1983-84 seven meetings took place and notices were sent to all the Directors under Certificate of Posting. Even in respect of Annual General Meeting held on 28-9-1984 the notices were sent on 3-9-1984. Similarly during 1985, four meetings were held. Notices were sent in respect of meetings dated 5-1-1985 and 28-2-1985 under Certificate of Posting and in respect of the meetings dated 25-6-1985 and dated 26-7-1985 notices were sent under Registered Post as desired in his letter dated 25-3-1985 to send the letters by Registered Post. From March, 1983 to July, 1985 P-1 never protested in any manner about the conduct and affairs of the company. By letter dated 25-3-1985 for the first time, P-1 complained of the non-receipt of the notices etc. This itself showed that the P-1 was not interested in the affairs of the company. He could not have kept quite for such a long time. By letter dated 30-4-1985 it was made clear that all the notices of the Board meetings and Annual General Meeting were duly sent to all the shareholders. The Company did not violate any provisions of law. It was admitted that some differences arose between R-3 and R-9, but it was only a family dispute. There was no exclusion of R-9 at any point of time. It was also denied that the notices were not sent to R-9. When R-9 sent a letter dated 21-10-1985 the same was replied by the Company Secretary on 13-11-1985. So also to a letter written to R-3 by R-9 on 29-10-1985, the same was replied on 8-11-1985. P-1 was trying to exploit the strained relations between R-3 and R-9. The letter of P-1 dated 17-12-1985 was suitably replied on 16-1-1986. The show-cause notice issued by the ROC was suitably replied. In the meeting held on 11-11-1985, R-3 was appointed as Attorney to represent the R-1 company in the affairs of the foreign company and this was sent to all the Directors. Even during 1986, six board meetings were held and the notices were sent to the petitioners by Registered post, the allegation that the notices were not received by K group in respect of Annual General Meetings was denied. The draft annual accounts of the company were approved in the meetings held on 8-11-1985 and 11-11-1985. The allegation that the R-3 had manipulated the records was denied. It is the case of R-3 that company has issued further share capital of Rs. 5 lakhs in its board meetings held on 28-2-1985 and the notice for the said meeting was issued on 18-2-1985 and they were served on all the Directors. There was no understanding of proportionate holding of shares. P-1 had already started rival business and he stopped attending the Board meetings of the company. In the Board meeting held on 26-11-1984, it was decided to issue further share capital of Rs. 5 lakhs to meet its capital requirement. The notice for the said meeting was sent to all the Directors on 10-11-1984 and the Board in its meeting held on 26-11-1984 decided to issue further share capital of Rs. 5 lakhs and the notices for the said meeting were sent to all the shareholders on 26-11-1984 asking them to send their applications along with the application money before 30-12-1984. The Board again met on 5-1-1985 and granted extension of time upto 15-2-1985. The notices for the said meeting were sent to all the Directors on 28-12-1984. On 5-1-1985 notices were sent to all the shareholders fixing the last date for receipt of the applications upto 15-2-1985. In the Board meeting held on 28-2-1985 it was resolved to allot further shares to the shareholders who made applications. The notices for the said meetings were duly sent on 18-2-1985, allotment of shares was done in accordance with law. Shares were issued on 4-3-1985, and a return was filed before the ROC on 21-3-1985. The said issue was legal and valid. The allegations of sending unrelated matters in the covers sent by R-1 Company were denied. It is only to evade the receipt of the several communications sent by the R-1 company under Registered post. The Board meeting was held on 15-1-1987 and R-7 was validly appointed as Additional Director. Even though the P-1 indicated dissent, the majority resolution was carried out. The allegation of systematic oppression was denied. The R-3 with his wife and children have been holding 63,934 shares in the company which is 63.93 per cent. The allegations of mismanagement of the company was denied. The allegations of manipulation of books and records were also denied. The reasons for decrease in the profits during 1983-84 was on account of reduction of sales. The reason for reduction of sales was on account of unfair competition by the company put-up by the Petitioners and the worldwide recession in the Export Market. In 1984-85 and 1985-86 the Company incurred losses on account of increase in cost of production and unfair competition. The lending by the Company as on 31-3-1984 was about Rs. 63 lakhs. But, it was denied that the loans were given to the concerned in which R-3 had substantial interest. In fact Rs. 50 lakhs were given to the concerns in which the P-1 was substantially interested. Number of employees of R-1 company were made to resign and join the Andhra Polymers Private Limited. R-3 was never interested in keeping the management in his hands to the exclusion of K group.

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 Hyderabad Asbestos Company Limited now HIL and also the family business of the Jalan group. He was virtually supporting the P-1 in this regard. He admits that there was an understanding between him and P-1 as to the proportionate of allotment of shares in the ratio of 1/3rd and 2/3rd. In fact the company was started by mutual agreement between the P-1 and R-9. R-3 was inducted only in pursuance of the decision taken by these two persons. The Company went into commercial production in 1966 and it started earning huge profits with the assistance of R-9 and P-1. It also secured 20% shares in ARIL. In 1972 another private company was floated in the name of Nucon Industries Private Limited. Even in the said company, the Indian share-holding was divided between the K group and J group in the ratio of 1/3rd and 2/3rd. The Nucon was making huge losses and it was established by Jalan and Khemka families. Thus, the pattern of investment by Jalan and Khemka families was always in the ratio of 1/3rd and 2/3rd in all its ventures. Even in Deccan Polymers Limited, the pattern was same and even in Secunderabad Commercial Company (S.C.C.), a partnership firm the ratio of interest was always was 33% and 67%. R-9 claims that with the assistance of P-1 all these common joint ventures were established. The R-3 was only looking after the day-to-day management of the business of all the three companies namely R-1, Deccan Polymers and S.C.C. However in 1982, when P-3 who was deputed as General Manager, returned back to India, differences arose between R-3 and P-3. The efforts of the P-1 and R-9 to patch all the differences failed as a consequences of these differences, P-3 floated his own company Andhra Polymers Private Limited. Therefore, it was decided by J group that the nomination of P-3 on the Board of ARIL should be withdrawn and accordingly resolution was passed. But, this step on the part of Jalan group cannot be said to be a step to ease out Khemka group. Since Nucon was making heavy losses, R-9 had to resign from HIL in March, 1985 and started devoting full time to revive Nucon, which was not relished by R-3, differences arose between R-3 and R-9 and the relationship started straining. It is the case of R-9 that 12 Board meetings were held by R-1 company between March, 1983 to July, 1985 out of which he chaired all the meetings except the meeting dated 21-8-1984. The Minutes of the said meetings were duly prepared and signed by him as Chairman. One Mr. P.V. Subba Rao was the Secretary for some time and in the meeting held on 21-2-1985 R-2 was appointed as Secretary. It is his case that in July, 1985 one Mr. S.C. Kedia, General Manager of R-1 Company informed him that R-3 was planning to issue allotment of unissued capital of Rs. 5 lakhs in the company and to allot the shares to himself and his nominees converting the Petitioners from majority into minority. To ascertain the factual information, he requested R-2 to send the true copies of the Board meetings of the company and accordingly Minutes of 12 Board meetings were sent. But, they were unsigned. Therefore, on 16-8-1985, a letter was sent to R-2 stating that he had sent only unsigned copies of the Minutes Board Meetings from 28-7-1983 to 8-7-1985 and the same were not certified by him. Therefore, he sent the photostat copies of the meetings duly initialled by him for record. Although R-2 received the letter dated 16-8-1985 no reply was sent. He sent another letter dated 21-10-1985 to R-2 referring to letter dated 16-8-1985. Further he sent two other letters on 27-10-1985 and 29-10-1985 requesting the R-2 to send all the letters of the Board meetings and other communication by Registered Post. It is the case of the R-9 that R-3 embarked upon fabricating and antedating Minutes of the meetings. R-3 secured several certificate of postings to create evidence and these certificate of posting receipts are from a small post office Sanjiva Reddy Nagar which is 6 Kms. away from the Registered Office. On 29-10-1985 a letter was written stating that R-3 and his associates are changing the shareholding of the company to the detriment of the other Directors and Shareholders and requested to send all the notices of the Board meetings and other communication by Registered Post. Petitioners also requested similar letters. It is his case that except the 12 meetings, no other board meetings were held between March, 1983 to July, 1985. He also denies that the Board meeting was held on 26-11-1984 and 5-1-1985. He apprehended that the R-3 manipulated and fabricated the Directors Loose Leaf Minutes Book. The Minutes of the meetings held on 28-2-1985 was manipulated and fabricated. The Story of allotment in February, 1985 was false. He had chaired the Board meeting of 28-2-1985 and no resolution for allotment of any shares was passed in the said board meeting. R-9 and Petitioners would have contributed to the additional shares, had they been put on notice. The ROC also was not intimated of the increased share capital, and it is only in the September, 1985, the return was filed. It is the case of R-9 that the Board meetings and Annual General Meetings were not being conducted properly and there were statutory violations under the Act. Therefore, he called for meeting of the Board of Directors on 18-11-1985 and issued notice on 30-10-1985 to discuss the affairs of the company and it was intimated by R-2 that the meeting called by R-9 was illegal as he was not authorised to convene the Board meeting. The meetings alleged to have taken place on 8-11-1985 and 11-11-1985 were not at all held and no notices were sent for considering the annual accounts for the year 1984-85. The notice dated 11-11-1985 for Annual General Meeting was to be held on 18-12-1985 was not received. The minutes of meeting dated 8-11-1985 and 11-11-1985 were manipulated. The reply to his letter dated 30-10-1985 was sent only on 13-11-1985 after the alleged meetings of 8-11-1985 and 11-11-1985. After Board meeting dated 8-7-1985, for the first time, he received notices of board meetings. He did not receive the notices of Board meeting for 19-9-1986 and 20-9-1986. He states that he received the Annual General Meetings notice to be held on 31-10-1987 along with the final accounts for the year 1986-87 and for the first time he came to know that the share capital of the company was increased from Rs. 5 lakhs to Rs. 10 lakhs. He states that the resolutions passed in the Board meetings dated 8-11-1985, 11-11-1985, 19-8-1986 and 20-9-1986 and Annual General Meeting dated 18-12-1985, 18-10-1986 and 31-10-1987 wherein the accounts for the years 1984-85, 1985-86 and 1986-87 were passed were illegal and invalid. The purported issue was in violation of the understanding.

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 Saudi Arabia. The R-3 was the Managing Director of R-1 company. He also functioned as Managing Director of the other companies held by these families, and these details are not necessary for the purpose of this case. The Company was incorporated with the authorised capital of Rs. 2,50,000 initially which was subsequently increased to Rs. 10 lakhs in the year 1979. It is also on record that initially issued capital was Rs. 50,000 divided into 500 shares of Rs. 10 each. However, the issued capital was increased in February, 1970, March, 1974, March, 1976 and March, 1982 by which time, the issued capital became 0000000Rs. 5 lakhs. It is the case of the petitioners and R-9 that there was no further increase of issued capital at any point of time after March, 1982 and no Board Meetings took place for consideration of the increase of the issued capital and no such resolutions were passed. However, it is the case of the R-9 that only 12 board meetings were held for the period from June, 1983 to July, 1985 and that no decision was taken with regard to the increase of the issued capital at any point of time. On the other hand, it is the case of R-3 that the board meetings were being held in accordance with the procedure prescribed under the articles of association and the notices were sent to the board of directors in case of board meetings and in case of Annual General Meetings to all the shareholders. The resolutions were passed in the Board meetings to increase the share capital to Rs. 10 lakhs and therefore, the claim put-up by P-1 and R-9 is completely baseless and mala fide.

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 Saudi Arabia in 1982 and that he was not given proper assignment in R-1 Company. It is only for the first time he received notice for the Annual General Meeting for the year 1986-87 and he did not get the copies of the balance sheets. Since he was not given proper assignment he decided to establish another company M/s Andhra Polymers Private Limited in 1982 and it commenced its production in the end of 1984. He accepted that the orders were diverted to APPL from R-1 Company by HIL. He was appointed as Director in the year 1970 and he was an Executive Director from 1973 to 1977. He was on the Board of ARIL for some time and finally he came back in 1982. When he was withdrawn from the Board of ARIL he filed a suit in Calcutta High Court and the resolution dated 21-1-1984 withdrawing his nomination to the Board of ARIL has been challenged before the Calcutta High Court. He specifically stated in the cross-examination that as far as he was concerned he had decided in 1984 itself not to do with Mr. R.N. Jalan or with Jalan group and wanted to do some business in spite of his father's dissuation. In 1984 he approached Mr. C.K. Birla for obliging some business to APPL by diverting the same from DEPL and he has accepted. There is also evidence with regard to the establishment of URIL company, which is competitor to ARIL and that APPL was supplying the material to URIL and that the ARIL also lost the business on account of competition. In the cross examination in respect of Ex. B-70, he stated that he admitted the signature, but denied contents. But, I feel that it is not relevant for the purpose of this case as discussed below. He also referred to mediation by Mr. Khaitan which was already spoken to him by P-1 and R-9. He stated that he did not pay anything to R-9 from APPL funds. Not because it was in loss, but because he did not want to deal with Jalans in any way after his experience with them. He has come to this conclusion since about 1984.

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 Calcutta. The notice dated 18-2-1985 (Ex. B-87) in respect of the Board meeting held on 28-2-1985 was also not received by him. He cannot remember whether he received Ex. B-88. By Ex. A-21, dated 25-3-1985 for the first time, he wrote a letter to the R-1 that he was not receiving the letter for the last 18 months. It is only after sending a letter requesting the R-1 to send the notices by Registered Post he has been receiving the notices. He did not attend the meetings because he did not receive the notices. He could not say how many meetings he attended in NUCON and DPL from 1983 onwards. In the year 1985 APPL started producing the items. He did not write any letter to R-9 prior to Ex. A-21 about the non receipt of the notices from the R-1 company as he was staying next door to him and he was daily contacting R-9. He became President of HIL in February, 1985. Till such time, R-9 was the President and he resigned. He stated that it may be possible that by the end of December, 1985 R-1 lost all its orders in HIL. He denied the suggestion that Ex. A-118 dated 25-3-1985 was written for settling all the matters with Jalan. He has been asking R-9 to accommodate his son in the board of R-1 company and there was no fruitful settlement. He was the Director of Ramak Enterprises. He came to know about the issue of additional share capital by R-1 company only when the company petition was filed. He did not receive any notice of Annual General Meeting for the year ended 31-3-1985. Ex. B-89 is the acknowledgement signed by Watchman Anjaiah. He could not remember whether Anjaiah, who received the registered letter handed over to him or not. Therefore, he cannot say the contents which were received under Ex. B-89. He cannot identify the signature of the person, who signed Ex. B-90. He did not receive Ex. B-91 relating to the year 31-3-1986. He says that from 1984 Khemkas were excluded from the affairs of R-1 company. The information that R-9 was also excluded from the affairs was passed on to him by R-9 himself some time in August, 1985. Between 1982 and 1985 himself and R-9 did not take any action on R-3 and from 1985 to 1987 also no action was taken. He denied the suggestion that the nomination of his son was withdrawn as they started APPL. He states that he did not see Ex. B-70 and the contents are false. The signature appeared to be that of Mr. Mahesh and he has no authority to sign on behalf of Khemkas. R-3 and R-9 had partitioned their house. He had received the notice for the Board Meeting on 28-6-1985 and 17-6-1985 and the Acknowledgement is Ex. B-92. He also received the notice of board meeting dated 27-6-1985 and acknowledgement is Ex. B-93. But, he took leave of absence. He had received the notice of Board meeting on 18-7-1985 and the acknowledgement was signed by his daughter-in-law under Ex. B-95. Ex. A-28 was addressed in connection with item No. 4 of the Agenda of the Board meeting held on 8-7-1985. He did not know that Board meetings were held on 8-11-1985 and 11-11-1985. He only confirmed that the Board meetings were held on 27-6-1985, 8-7-1985, 6-3-1986, 15-3-1986 and 16-10-1986. R-9 did not inform about the Board meetings dated 8-11-1985 and 11-11-1985. He only came to know about the additional share capital in 1986. Ex. B-89 is the acknowledgement received on 6-3-1986 and he cannot identify the signature. Ex. B-90 and B-98 also received by the same person who received Ex. B-98. He received the notice for the Board meeting for 16-10-1986 under Ex. B-99 and he cannot identify who signed the acknowledgement. Similarly he received the notice for Board meeting for 4-11-1986 and he cannot identify the signature who signed the acknowledgement. He could not say whether he attended the single Board meeting during 1983 to 1987. He did not receive the notice for Annual General Meeting dated 11-11-1985 Ex. A-125 and that he did not receive the annual accounts for the year ended 31-3-1985 Ex. B-126. He could not say whether he received the notice dated 18-2-1985 Ex. B-87 of the Board meeting to be held on 28-2-1985. He also could not say whether he received any notice of the Board of Directors meeting dated 5-1-1985. He agreed that Khemkas were aggrieved because they did not give the benefit of Directorship after Mr. Mahesh Khemka was removed from ARIL. There was cross examination with regard to the Ramak Enterprises and other companies which is not relevant for the purpose of this case. He denied the suggestion that he was aware of the issue of the additional shares in February, 1985 and deliberately he did not subscribe to the additional shares. He also denied the suggestion that he lost interest in R-1 company after establishing APPL and that the Company Petition was filed at the behest of the R-9.

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 Saudi Arabia and he did not agree to work in Nucon as he was not agreeable to work under R-3, who was Managing Director. Therefore, differences arose between the P-3 and R-3 and on account of such differences, the P-3 floated his own company APPL. In such circumstances, it is decided by Jalan group that the nomination of P-3 on the Board of ARIL should be withdrawn. Accordingly, the resolution was passed in the Board meeting of the Directors on 21-8-1984. As the Nucon was running in losses and in order to improve its state of affairs he resigned from HIL in February, 1985 and started devoting full time to the Nucon. This was not relished by R-3. Therefore, differences arose between R-3 and R-9 and relations started straining. Between July, 1981 and June, 1983 ten Board meetings were held, out of which he chaired 7 Board meetings and between 20-7-1983, and 8-7-1985, twelve Board meetings were held and he chaired all the Board meetings except one held on 21-8-1984. In the Board meeting held on 20th February, 1984, R-2 was appointed as Secretary. In July, 1985 one Mr. S.C. Kedia, the then General Manager of R-1 company informed him that R-3 was planning to issue and allot unissued capital of Rs. 5 lakhs and distribute the same to himself and his nominees with a view to convert the Petitioners and R-9 into minority. It is his case that no resolution was passed for issue of additional shares. When he requested for copies of minutes, the Secretary R-2 sent the Minutes of 12 Board meetings, but unsigned copies were sent. Therefore, he had kept the originals with himself and sent the photostat copies with his initials. He says that they were sent under letter dated 16-8-1985 under Registered Post Ex. R-2. Again by letters dated 21 -10-1985 Ex. R-4,27-10-1985, Ex. R-5,29-10-1985, Ex. R-6, requested R-2 to send all the notices of the Board meetings and other communication by Registered Post. On 29-10-1985 a personal letter Ex. R-7 was sent by him to R-3 stating that R-3 was planning to change the shareholding of the company to the detriment and prejudice of the other directors and shareholders. The Certificate of Postings are all fabricated and they were introduced only to create evidence of having despatched notices of Board meetings under Certificate of Posting. Prior to June, 1985, no formal notices were given to any director and the meetings were held with the mutual consent of the parties. There was no decision in the Board meeting on 22-5-1982 to send the notices by Certificate of Posting. By letter dated 21 -10-1985 Ex. R-4 he reminded the R-2 to hold the Board meeting. Again on 27-10-1985 and 29-10-1985, he requested to send all the notices by Registered Post. No notices of Board meeting dated 8-11-1985 and 11-11-1985 to consider the annual accounts for the year 1984-85 were received by him. The Minutes of the said meetings were fabricated by R-2 and R-3. After Board meeting dated 8-7-1985, first notice is received for Board meeting was dated 3-3-1986. Thus, it is his case that he did not receive the notices for Annual General Meeting 1984-85 and 1985-86. He also referred to certain other meetings, some of that he attended, some of them he did not attend due to his personal inconvenience and details of these meetings are not necessary. The Minutes of Board meeting held on 3-11-1984 as disclosed by R-3 was not correct. He did not resign from the Chairmanship of the company. R-3 changed the minutes of 3-11-1985 with a view to fabricate and introduce the Board meeting dated 26-11-1984 and 5-1-1985. The Board meeting of 26-11-1984 was attended by R-3 and his wife and no Board meeting was held on that date. In none of the earlier Board meetings, the matter relating to issue of additional shares had come-up for discussion and there was no financial crisis. The allotment of additional shares was illegal. The purported purchase of machinery was also not real, and the documents were fabricated. Notice of Board meeting of 5-1-1985 was not given. The notice dated 18-2-1985 for convening the Board meeting on 28-2-1985 was not given to R-9. But, however, he attended the meeting on 28-2-1985 and minutes as disclosed by him were only drafted. No decision was taken to allot any additional shares. No resolution was passed to that effect. It was only with a view to convert the shareholding of R-3 to majority. There was no practice of sending the notices for Board meetings. It was started only in June, 1985 when a specific request was made to send the notices by Registered Post. There was no discussion with regard to family settlement in August/September, 1984 and no decision was taken in pursuance of the settlement. From July to November, 1985 he exchanged some correspondence relating to the fraudulent issue of unissued capital. On 8-11-1985 R-3 wrote a letter stating that the father would have to mediate and resolve the dispute. However, certain tentative proposals were made with regard to family settlement in 1985 with the assistance of the father. In 1986, R-3 approached him for partition and separate purchase of shares which was agreed and bills were sent and R-3 refused to honour the bills. It is his case that R-8 had always been supporting the R-3 in this case. He stated that he reposed the faith in R-3, and that he had given certain signed papers which R-3 had misused. In the cross examination the witness stated that his father and R-3 are the legal owners of the shares allotted to them before 1984 in R-1 company and he has no rights in those shares. He did not provide any funds for R-3 or father to acquire shares in R-1 company. But, there was large number of inter se transactions between the members of Jalan family. The witness stated that the request to send the certified copies of the minutes for the Board meeting of the R-1 Company mentioned in para 31 of the chief examination was oral. In Ex. R-2 letter written by him enclosing photo copy of the meetings of the board of directors initialled by him, he might have committed mistake in stating earlier that the request to supply the Minutes was oral. He must have written a letter earlier requesting for supply of Minutes. He denied the suggestion that he never made any request for supply of such copies. The unsigned copies of Minutes of D.E.P.L. referred to in para 31 of his chief examination were sent by R-2 to Mr. S.K. Jalan and Mr. S.K. Jalan had handed over those minutes to him (R-9). R-2 did not write to him any letters sending him a copy of the minutes. He denied the suggestion that R-2 did not hand over the copies of the minutes to Mr. S.K. Jalan. He also denied the suggestion that he did not send Ex. R-2 by registered post either by receipt cover by receipt No. 5802 or 5803. He did not have the acknowledgements. He admits that he attended 12 meetings conducted between 1983 and 1985 of R-1 company, out of 12 he chaired on 11 occasions. Between 1981 and 1983 he attended 10 meetings and he chaired 7 meetings. The minutes of the Board meeting dated 4-8-1982 Ex. B-156 and he attended the meeting. He cannot say whether he attended the Board meeting dated 28-2-1982. Ex. B-157 is in his handwriting and it does not represent the family settlement entered by Jalan family in August/September, 1984. He states that the document was prepared in August, 1985. The marked portion in Ex. B-157-b is not in his hand-writing, but the remaining portion is in his handwriting. The agreement entered on 25-4-1981 was implemented and that is the settlement of the disputes between the brothers. The blank signed papers were given to his father for income-tax proceedings and this practice was prevailing in the family and he also possessed certain blank papers signed by R-3. Ex. B-71 is not a genuine document. He did not receive the notices for Board meetings of 8-11-1985 and 11-11-1985 and he did not attend the same. He received Ex. R-11 cover by postal receipt No. 2688 dated 11-11-1985 and he denied the suggestion that he received Ex. B-125 under postal receipt No. 2466. He received Exs. R-11 and R-12 under postal receipt No. 2466. He denied the suggestion that he received the statement of accounts for the year 1984-85 of D.E.P.L. He did not write any letter to R-1 company that he has not received the accounts for the year 1984-85. But, he states that he called for a meeting of the Board of Directors to be held on 18-11-1985 to discuss the affairs of the company. He did not attend Board meeting dated 6-3-1986. He received notice for the Board meeting to be held on 15-3-1986. All Minutes in Ex. R-2 are correct. He admits that the contents in para 6 of the Minutes dated 8-7-1985 were approved. He did not receive Ex-B-165 Notice or Agenda. He did not also receive Ex. B-66 Notice for the meeting or agenda for the meeting dated 24-8-1982. He also did not receive the Notice for the Meeting dated 2-6-1983 and for the Meeting dated 20-7-1983 and 27-7-1983, 1-11-1983, 3-3-1984. He stated that there was no practice of sending the Notices by Certificate of Posting. He came to know only in the year 1987 about the additional share capital and this was in September/October, 1987. He heard the rumours from Mr. Kedia and thereafter he wrote a letter on 29-10-1985 to R-3. He came to know only after the receipt of the accounts for the year 1986-87 that the share capital was increased. He did not write to the company at that point of time. He sent the Proxy to attend Annual General Meeting for the year 1986-87 as he was not well.

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 Saudi Arabia. He stated that the P-3 borrowed technical information from ARIL. P-3 returned to India in 1982 and intended to start a small plastic manufacturing company, but however it is his case that they started manufacturing rubber rings etc. From 1983 onwards P-1 also stopped attending the Board meetings in spite of Notices. R-1 was successful in getting Tenders in International Airport Authority, but APPL also submitted offer as competitor and 50 per cent orders were got diverted to APPL. The R-1 was set-up as an ancillary to HIL for supply of rubber rings which is an essential component for manufacture of A.C. Pressure Pipes. In the years 1982 and 1983 the orders were to the tune of about 80 lakhs and 60 lakhs respectively, but showed downward trend in 1984 which was Rs. 38 lakhs, in 1985 which was Rs. 12 lakhs and in 1986 it was only Rs. 2 lakhs and it was nil subsequently. These orders were being diverted to APPL. It is his case that the P-1 is responsible for exit of R-9 from HIL which is not relevant for the purpose of this case. As Mr. Khemka started rival business clashing with the interest of R-1, Jalan family decided to withdraw nomination of P-1 as director of ARIL on behalf of R-1 company and accordingly resolution was passed on 21-8-1984 to the effect and against this the P-1 and P-3 also filed suit in Calcutta High Court which is pending. After return of P-3 in 1982 Khemka intended to sell their holdings in DEPL, DPL, Nucon and SCC. They initially approached R-9 who declined to interfere. They also approached Mr. Pintu Khaitan for arbitration. He was a party to the conciliation with his father Mr. S.K. Jalan. He was negotiating on behalf of Jalan family. The negotiations went about upto May, 1986. A settlement was in the offing, but however, P-1 backed out of the settlement. Till February, 1985, P-1 did not correspond with R-1 on any matters, it is only after they filed suit in Calcutta High Court they corresponding, they could not get injunction before the High Court. The letters written by P-1 to R-3 were replied suitably. Taking advantage of the correspondence entered between Jalan family with Khaitan and P-1 they filed the Company Petition. The allegations that the P-1 did not receive Notice from 1983 is denied. On the other hand Khemkas stopped attending these meetings from 1983. In 1986, the settlement between Khemkas and Jalan also fell through and Khemkas backed out because P-1 and R-9 entered into a private agreement with Khemka under Exs. B-70 and B-71. It was reiterated that the Notices were sent to all the Directors and shareholders in case of general body meetings which is required to be held under the Companies Act. It is his case that in the Board meeting held on 22-3-1982 which was attended by P-1, R-9 and R-3, a decision was taken at the instance of R-9 to maintain the minutes of the Board meetings, General body meetings and Attendance Registers under the Loose Leaf Register. Ex. B-142 is the minutes of the Board meeting. After the said meeting, all the Notices were being sent under Certificate of Posting instead of ordinary post. Notices for Board meeting dated 4-6-1984 along with Agenda for approval of accounts for the year 1983-84 was sent to P-1. He did not attend, but R-9 attended. Ex. B-227-AA are the original minutes held on 4-6-1984. The office copy of the Annual Report of R-1 for the year 1983-84 made upto 28-9-1984 was filed with the Registrar of Companies under Ex. B-488. In July, 1982, another company was set up by him in the name of Nucon. The request of P-1 for investment in shares was accepted by Jalan family. Son of R-9 was appointed as Manager and in subsequent family settlement in 1989, Nucon was taken over by R-9. DPPL was incorporated as Public Limited Company and P-1 was not allotted any shares from the Promoters quota, they applied for shares in Public subscription and were allotted 1130 equity shares. He also incorporated Golconda Investments Company, a Public Limited Company. Petitioners applied for shares in Public Issue and they were not granted in Promoters shares. He stated that there was an understanding between the family of Jalans in or around August/September, 1984. In the said understanding DEPL went to R-3 and Nucon went to R-9. In furtherance of the said understanding he resigned from Managing Director of Nucon on 15-12-1984 and R-9 became Managing Director in the said meeting. He also nominated his wife as Additional Director in the said meeting. Mr. P.V. Subba Rao, Company Secretary was removed and Mr. Beemal was appointed as Company Secretary of Nucon. The Registered Office, which was in the DEPL premises was shifted to the residence of R-9. All the records of the Nucon were handed over to them. In the Board meeting held on 28-12-1984 excessive powers were given to R-9 and R-9 was also given power to operate Bank account individually. The share capital of Nucon was increased in August, 1984 which was contributed by Mr. R.N. Jalan and his family. The personal guarantees extended by R-9 to the Bank institutions was withdrawn and he has substituted the same. With regard to R-1 company meeting was held on 3-11-1984 in which R-9 resigned as Chairman and he took over under Ex. B-227-c the minutes of the said meeting. In the Board meeting held on 3-9-1984 he was given additional powers similar to that of powers given to R-9 in Nucon, on 28-12-1984 calling for the independent control of the companies. New Bank of Account of DEPL was opened on 3-9-1984 and thus complete control was given to him while the control of Nucon was given to R-9. Similar other companies were also allotted to other brothers. Thus, he says that there was a family understanding in which the DEPL was allotted to R-3 and Nucon was allotted to R-9. Thus, they have been running the companies with their own individual skills and abilities. The State Bank of India has been insisting for increase of share capital for consideration of renewal-cum-enhancement limits of working capital. In view of the business being diverted by HIL to APPL instead of DEPL and it had suffered set-back and therefore diversification was thought for which funds were necessary and therefore in the Board meeting held on 26-11-1984 it was decided to issue further share capital of Rs. 5 lakhs. Notice of Board meeting was sent to all the Directors by Certificate of Posting on 10-11-1984 as per normal practice. Ex. B-292 is the Certificate of Posting. Ex. B-304 is the leave of absence of Mr. S.K. Jalan. R-9 and P-1 did not attend and P-1 stopped attending since 1983. Pursuant to the family settlement, R-9 also became disinterested and he did not attend the meeting on 26-11-1984. Ex. B-227-D is the minutes of the Meeting and item No. 4 related to the increase of the share capital. On 26-11-1984 itself Notices were sent to the shareholders asking them to send applications along with the application money before 15-12-1984. Ex. B-130 is the Office copy of the Notice. Ex. B-131 is the Certificate of Posting. Against the said Notice, applications were received only from R-3, Mrs. Sudha Jalan, Ms. Kavitha Mittal and Mr. Vikas Jalan and cheques were also sent by them, and they were credited to DEPL share application money account on 30-11-1984, subsequently transferred to share capital account on 4-3-1985. This was also certified by the Chartered Accountants. The Board meeting was again held on 5-1-1985 and the Notice was sent by Certificate of Posting on 28-12-1984 Ex. B-133. P-1 and R-9 did not attend Ex. B-227 is the minutes of it. In the Board meeting held on 5-1-1985 it was decided to extend the date for receipt of the applications for additional shares upto 15-2-1985. Ex. B-132 is the copy of Notice. Ex. B-133 is the Certificate of Posting. To the Notice dated 5-1-1985 Mr. S.N. Jalan and his wife, son and daughter sent letter expressing their unwillingness. His father and mother also followed the suit. His father informed that R-9 and P-1 and Mr. S.G. Jalan declined to subscribe to the new share capital. P-3 also wrote a letter on 16-1-1985 to R-9 declining to subscribe. It is Ex. B-64. R-9 also wrote a letter on 21 -1 -1985 to Mr. S.K. Jalan's father declining to subscribe. In the said letter he also forwarded Ex. B-61. Ex. B-201 is the letter dated 21-1-1985 from R-9 to Mr. S.K. Jalan. Ex. B-64 and B-205 were given by his father. Board meeting was called on 28-2-1985 for allotment of further capital. Notice dated 18-2-1985 for the Board meeting was sent under Certificate of Posting, Ex. B-87 is the copy of the notice. Ex. B. 87-A is the Agenda, Ex. B-128 is the Certificate of Posting. Ex. B-321 is the leave of absence of Mr. S.K. Jalan. P-1 and R-9 did not attend, R-9 also confirmed that he received Notices of Board meetings held on 28-2-1985, Ex. B-227-F is the minutes, R-2 was appointed as Company Secretary in place of Mr. Subba Rao. In March, 1985, P-1 wrote a letter to him to send Notice of Board meetings by Registered Post and they were complied-with. 21st Annual General Meeting was held on 31 -10-1987, R-3, his wife, P-1 and P-3 and Mr. Bimal Aggarwal as Proxy of R-9 and Mr. S.B. Jalan attended. Two Agendas regarding the adoption of accounts for the year 1986-87 and 1985-86 were carried by show of hands. Ex. B-334-F is the original Minutes of meeting of 21st Annual General Meeting. P-1 sent a letter on 31 -10-1987 and his spn also sent on 9-11-1987. They were suitably replied by the Company Secretary. Audited Accounts of the Company for the year 1986-87 were filed before the Registrar of Companies on 24-11 -1987 and Annual returns of the company for the year 1986-87 upto 31-10-1987 was filed before the Registrar of Companies on 27-11-1987. The additional share capital was utilised to the extent of Rs. 4.55 lakhs for purchase of machinery from DPL. Apart from that R-1 company also purchased further plant and machinery for over Rs. 16 lakhs during 1984-85, and from November to March, 1985 plants and machinery for over Rs. 14 lakhs were purchased for diversification. The then General Manager Mr. S.C. Kedia in his letter dated 5-4-1985 informed the SBI of having increased the capital. Ex. B-301 is the said letter which is in the files of the Bank and Ex. B-335 is the office copy in the files of the company. The provisional balance sheet as on 31-3-1985 was filed with the Bank on 16-7-1985, Ex. B-302 is the Certified copy. They have also filed certain other documents with the Bank. R-9 wrote a letter on 23-7-1985 asking for the latest balance sheet of R-1 company vide Ex. B-503 and the same was sent. Thereafter on 27-10-1985 he sent a note in respect of certain provisions in the balance sheet, Ex. B-160 is the note. R-9 wrote a letter dated 29-10-1985 as a counter-blast and the same was suitably replied on 8-11-1985. Thereafter certain incidents took place between R-9 and R-3, wherein some criminal cases appear to have been initiated which were not concerned. He did not give any copies of the minutes of 12 Board meetings held between 20-7-1983 to 28-8-1985 to his father Mr. S.K. Jalan. He also did not give copies to R-9. He did not see the letter dated 16-8-1985 addressed to R-3. In the Board meeting held on 3-11-1984, R-3 resigned from the Chairmanship and thereafter he has been functioning as Chairman and there was no objection from any quarters. R-9 valued the shares of DEPL in the wealth-tax returns. P-1 showed the value at Rs. 10 per share in his wealth-tax return. Since the amount which is due to R-1 company was not paid by Nucon, he filed C.P. No. 67 of 1987 for creditors winding-up. Though elaborate cross examination was conducted on behalf of R-9 and P-1 it is not necessary for the purpose of this case. The evidence regarding formation of the company is not relevant. The evidence with regard to the issue of Notices and conduct of meetings to ascertain the consent of the parties for additional issue is only relevant for the purpose of this case and they are only referred to. It is also in the cross examination that R-3 was looking after the accounts of P-1 for certain period and in that process he used to send the cheques for signature of members of Khemkas family. He denied the suggestion that P-1 and R-9 were responsible for Export of R-1 products. The suggestion that till the exclusion of Khemkas in 1983, the monthly reports of working of R-1 company was sent to P-1 was denied and it was stated that P-1 stopped speaking with R-1 company since they were setting up of rival business. When Mr. Mahesh Khemka returned from Saudi Arabia in 1982, there was no contemplation for his appointment as director of R-1 company and in fact he was already planning to set-up rival company. He denied the suggestion that he excluded Khemkas in 1983. He also admits that the commercial production of the APPL was started some time in December, 1984. He stated that Ex. B-65 was handed over by one of the Committee members of HIL staff union, who came to met Mr. P. Janardhan Reddy, Labour Leader. He denied the suggestion that Ex. B-65 was fabricated. He denied the suggestion that Ex. B-70 and B-71 were typed on the same Typewriter. To a suggestion put on behalf of P-1, the settlement talks through Mr. Khaitan is not merely for sale of Khemkas shares to Jalan but for the purpose of finding a solution to the disputes that had arisen between them as to who should remain in R-1 company. The witness stated that mediation through Mr. Pintu Khaitan was for selling of Khemkas shares in all Jalan group companies because Khemkas had already established APPL and also in order to. avoid action under Article 26. The settlement reached before Khaitan could have been in 1986. He received Ex. B-478 and no payment was made to Khemkas in pursuance of the settlement. On behalf of Jalan family Mr. Shree Narayan Jalan, elder brother was required to make payments. By that time he came back from Amarnath pilgrimage, the settlement was backed out by P-1. It was around in July, 1986. He also denied that he had misused the blank signed letter-heads of P-3. He denied the suggestion that R-1 company did not issue any Notices to P-1 from July, 1983 to June, 1985. With regard to Ex. A-203, witness stated that it bore his signature and explained that some times P-1 and R-9 used to say that they would sign the Attendance Registers at the end of the meeting, but after the meeting they used to leave suddenly, in such cases, the Attendance Register was sent to the residence of the Directors for signature. In this context, he signed Ex. A-203. This was done whenever R-9 and P-1 were attended, but failed to sign the Attendance Register. Similarly Ex. A-193 was written in the same circumstances as Ex. A-203. Ex. B-330-A, Ex. B-330-B, and Ex. B-330-C are the minutes of the Board meetings held on 2-6-1983,20-7-1983 and 27-7-1983. As per the instructions of R-9, Chairman of the meetings directed the Company Secretary to remove the name of P-1 shown as present as he refused to sign the Attendance Register. As per the procedure in the company, the draft minutes were first required to be approved by the Chairman and finally they are to be typed in the Minutes book. R-9 must have directed the Company Secretary to delete P-1's name at the time of approval of draft minutes. He denied the minutes of Board meeting dated 2-6-1983, 20-7-1983, 27-7-1983 were fabricated. He also denied the suggestion that minutes dated 26-10-1983, 5-1 -1985,25-1 -1985 are fabricated. He also denied the suggestion that the losses shown by the Company were false. He also denied the suggestion that Ex. B-128 to B-133 and B-87 and B-87-A were fabricated. Similarly, he denied the suggestion that Ex. B-411, B-411-A, B.-412, B-412-A, B-413 and B-413-A were fabricated. He denied the suggestion that he diverted the funds of R-1 company to his own concerns and claiming financial stringency. He admitted that two sheets covered by Ex. B-227-C and Ex. B-227-D have different texture and colour compared to Ex. B-227-A, B-227-B, B-227-C, B-227-F, he denied the suggestion that these sheets are fabricated. He denied the suggestion that note Ex. B-401 related to 1983-84, as the Balance Sheet for the year 1983-84 was already signed on 3-9-1984. He stated that Ex. R-43 and R-44 are not signed by him and he did not give any blank signed papers to R-9. To a suggestion that R-1 company had adequate and more than surplus reserves, liquidity, assets and was having larger transactions and therefore there was no necessity for increasing the capital and it was only with a view to gain wrongful majority, the witness replied that the company was started making losses from 1983 and it had given substantial loans to Nucon and SCC and they were not being paid, bankers were tightening the credit facilities and that the shares holding by foreign joint venture company was not readily saleable and that P-1 may not accept for sale of HIL shares and the valuable land was occupied by P-1 at Somajiguda and therefore the company required much more than Rs. 5 lakhs for the purpose of diversification plans and in fact he brought Rs. 21 lakhs of additional funds by way of loans from him. It was also increased in pursuance of the promise made to the Bank earlier. The machinery of Rs. 5 lakhs was not only purchased, but other machinery worth Rs. 20 lakhs was purchased from others during that period. He denied that there was no practice of sending the Notices and that the meetings were held informally as P-1 and R-9 were being neighbours. He also denied the suggestion that there was no decision to send the Notices by certificate of posting in 1982. He added that it was his personal decision as Managing Director of R-1 company. He denied that all the Certificate of Postings were bogus. Except that Ex. B-157 is a draft proposal and denies that it was not acted upon. He stated that whatever the amounts were invested by Khemkas were withdrawn by 31-3-1982.

Discussions and findings

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 Saudi Arabia in 1982 and his son started rival industry APPL in 1982. It went into commercial production in December, 1984. The said industry was patronised by HIL as P-1 became President of HIL and substantial orders were diverted from D.E.P.L. R-3 further stated that there was a family settlement in August/September, 1984 and as per the settlement Nucon went to R-9 and R-1 Company went to R-3. Keeping in view the settlement R-3 had resigned as Managing Director of Nucon and absolute powers were conferred on R-3 in respect of R-1 company. It is also his case that after the settlement R-9 took over Nucon and his wife was also taken on Board of Nucon as Additional Director. It is the case of R-9 that the Notices were never sent under Post at any time. Yet, it is the case of P-1 and P-3 that Notices were not sent at all from 1983 till 1985, and only when a specific request was made in March, 1985 to send them under Registered Post, they are being sent. The Secretary R-2 had filed various Notices right from 1982 and also the Certificate of Postings to say that they were sent under Certificate of Posting. It was also stated that under the provisions of the Companies Act and also the Articles of Association, the Notice of meeting required to be sent to the Directors in writing and a presumption has to be drawn as stated in the statute, if the Notices were sent under post and if the same Notice is exhibited it is sufficient compliance of the requirement under Articles of Association. For this purpose, it has to be considered whether the Notice in writing is necessary or oral Notice among the directors is sufficient and whether any such practice is in vogue and if so such practice is in accordance with the statutory provisions or in conformity with the Articles of Association. Under Article 40 of the Articles of Association, the powers and duties of the directors have been enumerated, which is extracted below:

"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 India and at his usual address in India to every other Director.

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.

Minutes of the Meeting of the Board of Directors of M/s Deccan Enterprises Private Limited, held on Monday the 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.

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.

Whether the Company is in substance a partnership?

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.

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(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.

Whether the Acts alleged would constitute oppression/mis-management?

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.

Relief

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.

[1998] 92 COMP. CAS. 631 (HP)

HIGH COURT OF HIMACHAL PRADESH

Mrs. Surjeet Malhan

v.

John Tinson and Co. Pvt. Ltd.

KAMLESH SHARMA AND ARUN KUMAR GOEL JJ.

R.F.A. Nos. 231 and 230 of 1985

NOVEMBER 14, 1996

D.K. Khanna and Mrs. Pritma Malhotra for the appellant.

P.N. Lekhi, Anand Sharma, Tarlok Chauhan and Ankush Sood, Ravikant Chadha and Mrs. Pritma Malhotra for the respondent.

JUDGMENT

Arun Kumar Goel J.—We propose to dispose of both these appeals by a common judgment. R.F.A. No. 231 of 1985, has arisen out of judgment and decree dated March 4, 1985, passed by a learned single judge of this court in Civil Suit No. 1 of 1973, and R.F.A. No. 230 of 1985 has arisen out of the same judgment passed by the learned single judge in Civil Suit No. 2 of 1973. Both these suits were filed by the plaintiffs for declaration, permanent and mandatory injunction. In Civil Suit No. 1 of 1973, filed by Smt. Surjeet Malhan and in Civil Suit No. 2 of 1973 filed by her husband, Shri B.K. Malhan, defendants Nos. 1 to 3 were common. However, in Civil Suit No. 1 of 1973, defendant No. 4 is Shri B.K. Malhan, who is the plaintiff in Civil Suit No. 2 of 1973. Both the suits were taken together and by a common judgment were dismissed. The parties in both the appeals are being referred to as "the plaintiff" and "the defendants". Defendant No. 1 is the company, defendant No. 2, R.D. Bhagat and defendant No. 3 is Mrs. Salochana Bhagat, wife of defendant No. 2, R.D. Bhagat, and in Civil Suit No. 1 of 1973, Shri B.K. Malhan is defendant No. 4.

Both the suits were filed by the plaintiffs claiming declaration, permanent injunction as well as mandatory injunction. The prayer made in both the suits is identical in terms except the number of shares is different, because the plaintiff, Mrs. Surjeet Malhan, was holding 1,500 ordinary shares and 10 preference shares, whereas Mr. B.K. Malhan was holding 2,330 ordinary shares and 64 preference shares. Both the plaintiffs who are husband and wife along with their relatives, family members and friends had acquired the entire shareholdings of defendant No. 1-company and Shri B.K. Malhan plaintiff became the managing director of the said defendant company and continued to work till January 15, 1971, when he resigned from the managing directorship of the company. In the year 1970, the defendant company had some setback in its business, as such, in order to salvage itself, it was in need of some additional finance for working capital. With a view to generate funds, Shri B.K. Malhan intended to let out some area, approximately 3,000 square feet in premises bearing No. 54 Janpath, New Delhi (this property belongs to defendant No. 1-company). Since defendant No. 2, Shri R.D. Bhagat was interested in opening an office in Delhi and wanted to shift from Calcutta, as such, he had given advertisement in the newspapers at Delhi. In these circumstances, defendant No. 2 met Shri B. K. Malhan, the plaintiff and offered to make financial investment in the company and after several meetings between both of them, an agreement was arrived at on September 11, 1970, wherein, Shri R.D. Bhagat was to have an effective representation on the board of directors of defendant No. 1-company. In these circumstances, it was desired by defendant No. 2, Shri R.D. Bhagat, that the total shares belonging to the plaintiffs in both the suits be handed over to him and the price and the terms and other conditions of the sale were to be fixed on September 12, 1970. It was in these circumstances, that the shares held by Mrs. Surjeet Malhan were delivered by her to her husband defendant No. 4, Shri B.K. Malhan. According to the plaintiff, her husband assured her that he would be procuring a good price for her shares in case those were sold to Shri R.D. Bhagat so as to enable him to have controlling interest in the company. Accordingly, the plaintiff handed over the share scrips along with blank transfer forms to her husband who informed the plaintiff that he has handed over all those documents to Shri R.D. Bhagat on September 11, 1970, and terms and conditions were to be settled on September 12, 1970. According to the plaintiff, instead of finalising the other terms and conditions for transfer of her shares, Shri R.D. Bhagat kept on postponing the matter for some time and the case of this plaintiff further was that there was no valid transfer/sale of her shares in favour of Shri R.D. Bhagat. The alternative case set up by the plaintiff was that the sale is void being without consideration. The plaintiff's case further was that after taking possession of the share certificates and blank transfer forms, defendant No. 2 never settled the terms and conditions, not only this but she further pleaded that her husband Shri B.K. Malhan had no authority either in fact or in law on her behalf to transfer the shares held by her to Shri R.D. Bhagat without settlement of terms and other conditions of the sale as was mutually agreed to on September 11, 1970. The plaintiff further alleged that after obtaining control over the company, Shri R.D. Bhagat and Mrs. Salochana Bhagat became members of its board of directors and they were trying to maneuver the transfer of immovable assets of defendant No. 1-company. In addition to this defendants Nos. 2 and 3 had leased out from valuable area in building bearing No. 54, Janpath, New Delhi, i.e., the asset of the company. Since defendants Nos. 1 to 3 have wrongfully refused to recognise her as a shareholder of the company, it was in these circumstances that declaration was sought that she continues to be owner of 1,500 ordinary and 10 preference shares. In this context, it may be worthwhile to mention that 900 shares were held by Mrs. Surjit Malhan in her own right, whereas 600 shares were held by her along with her relatives and friends jointly and her name being the first in the share certificates. In these circumstances, the plaintiff has also prayed for mandatory injunction against defendants Nos. 2 and 3 directing them to hand over the share certificates taken over by them from defendant No. 4, Shri B.K. Malhan, her husband, and to return those to her. The further prayer made in the plaint was that defendant No. 1 be also directed to amend the register of shareholders. In addition to this relief, a decree for permanent injunction was also sought for against defendants Nos. 1 to 3 restraining them from disposing of by sale, lease, mortgage or in any other manner immovable property owned by the defendant-company.

That in Civil Suit No. 2 of 1973, the plaintiff, Shri B.K. Malhan, has made identical averments against defendants Nos. 1 to 3 and in his case, 2,330 ordinary shares and 64 preference shares of the defendant-company were handed over by this plaintiff to Shri R.D. Bhagat and these shares stood in his name. Shri B.K. Malhan received one rupee as a token consideration from R.D. Bhagat, defendant No. 2 for the physical handing over of the shares and the terms and conditions of sale were to be considered on the next day, i.e., September 12, 1970. According to this plaintiff a written contract was to be entered on this day, i.e., September 12, 1970, after the price and other terms and conditions between the parties had been finalised and thus in these circumstances the price of rupee one was no consideration because the shares were of great value and thus the contract was void ab initio for lack of valuable consideration. Shri B.K. Malhan has further pleaded that he had no authority from his wife, Mrs. Surjeet Malhan, for handing over of the shares to Shri R.D. Bhagat, defendant. In these circumstances prayer for declaration, and permanent mandatory injunction as claimed by Mrs. Malhan was also claimed by this plaintiff in his suit.

Defendants Nos. 1 to 3 filed similar written statements in both the cases and a number of preliminary objections were raised, which related to the maintainability of the suit as also the suit being for rectification of the register of members could only be filed under the Companies Act, 1956. Estoppel was also pleaded against the plaintiff in both the cases, the suit being bad for non-joinder of the brothers and sisters of the plaintiff, Mrs. Surjeet Malhan, who were jointholders of shares with her. The suit for permanent injunction was pleaded not to be maintainable as also the court lacked jurisdiction to try the same. It was further pleaded by defendants Nos. 1 to 3 that there is a valid and lawful transfer of the shares held by both the plaintiffs which is the subject-matter of the respective suits. According to defendants Nos. 1 to 3 since the financial health of the company was going from bad to worse, besides suffering losses, according to the defendants both husband and wife, Mr. and Mrs. Malhan, were keen to sell their shares in the company to Mr. Bhagat which proposal of theirs was agreed to by defendant No. 2, Mr. Bhagat. According to the defendants, no written agreement was to be executed on September 12, 1970, and they further pleaded that the transaction of sale of shares held by both the plaintiffs and detailed in their suits was complete with the signing of the blank transfer deeds coupled with delivery of share scrips. According to the defendants, looking to the financial health of the company, the plaintiffs were keen to finish the dispute. It was also the case of the defendants that mere inadequacy of the consideration was no ground to allow their prayer. The allegations of defendants Nos. 2 and 3 to dispose of the building 54, Janpath, New Delhi, were denied. The jurisdiction of the court was disputed since the plaintiff had ceased to be a member of the company. In the replication filed, all the averments made in the plaint were re-asserted and those of the written statement were denied.

On March 15, 1974, the issues framed in Civil Suit No. 1 of 1973, are to the following effect:

1. Whether there is any mis-joinder of causes of action?

2. Whether the court has no jurisdiction because the relief of rectification of register of members can only be granted under the provisions of the Companies Act, 1956?

3. Whether the suit is time-barred, as alleged?

4. Whether a suit for declaration simpliciter is barred and no relief can be granted?

5. Whether the court fee paid is insufficient?

6. Whether the plaintiff is the owner of the disputed shares?

7. Whether the disputed shares were handed over to defendant No. 2 without consideration and there was no legal and complete transfer of such shares?

8. Whether defendant No. 4 had no authority to hand over the share belonging to the plaintiff to the defendant No. 2 ? If so, its effect?

9. Whether defendants Nos. 2 and 3 could not become members of the board of directors because they did not acquire qualifying shares within a period of two months ? If so, its effect?

10.Whether defendants Nos. 2 and 3 are likely to sell or otherwise alienate the immovable assets of defendant No. 1 ? If so can the relief of permanent injunction be granted?

11.Whether defendants Nos. 2 and 3 can be asked to hand over the share certificates to the plaintiff and a mandatory injunction to that effect be passed in favour of the plaintiff?

12.Whether the mandatory injunction can be granted directing defendant No. 1 to amend its register of shareholders by substituting the name of the plaintiff for these shares?

13.Whether for the reasons stated by defendants Nos. 1 and 2, the suit is barred by waiver, acquiescence and estoppel?

14.Whether a fraud was practised by defendant No. 2 for the reasons alleged by the plaintiff ? If so, its effect?

15.To what relief, if any, is the plaintiff entitled?

Besides these, additional issues Nos. 1-A and 2-A were framed on December 4, 1975, as under:

1-A Whether the court has no jurisdiction as alleged? OPD

2-A Whether the suit is bad for non-joinder of necessary parties? OPD

Thereafter, two O.M.Ps., i.e., O.M.P. No. 73 of 1976 in C.S. No. 1 of 1973 and O.M.P. No. 74 of 1976 in C.S. No. 2 of 1973, were filed and, vide orders dated July 14, 1976, issue No. 8 was re-cast in two parts to the following effect :

8-A. Whether the transfer forms were handed over by defendant No. 4 without any authority of the plaintiff to defendant No. 2 ?

8-B. Whether the plaintiff was present when the blank transfer forms were handed over ? If so, what is its effect ?

In Civil Suit No. 2 of 1973, the following issues were framed on March 15, 1974 :

1. Whether the suit is bad for misjoinder of causes of action ?

2. Whether the court has no jurisdiction because the relief of rectification of register of members can only be granted under the provisions of the Companies Act, 1956?

3. Whether a suit for declaration simpliciter is barred and no relief can be granted ?

4. Whether the court fee paid is insufficient ?

5. Whether the plaintiff is the owner of the shares in dispute and defendants Nos. 2 and 3 can be directed to hand over all the share certificates to the plaintiff ?

6. Whether the alleged transaction for the sale of shares in favour of defendants Nos. 2 and 3 was not completed and the plaintiff has not been divested of the ownership of such shares ?

7. Whether the plaintiff and his wife have transferred the disputed shares for a consolidated consideration of Re. 1 to defendants Nos. 2 and 3 ? If so, its effect ?

8. Whether the plaintiff had no authority or power to hand over the share certificates owned by his wife and other relatives ? If so, did defendants Nos. 2 and 3 become the owners of such shares ?

9. Whether defendants Nos. 2 and 3 could not become members of the board of directors because they did not acquire qualifying shares within a period of two months ? If so, its effect ?

10.Whether the control of defendant No. 1 was passed on to the defendant No. 2 ? If so, its effect ?

11.Whether the plaintiff has resigned from the managing directorship of the defendant No. 1 as alleged ? If so, its effect ?

12Whether defendant No. 1 be directed to amend its register of shareholders and the name of the plaintiff is to be substituted in place of defendants Nos. 2 and 3 ?

13.Whether the defendants are disposing of by sale, lease, mortgage or in any other manner immovable property owned by defendant No. 1 ? Can the plaintiff be granted permanent injunction to restrain such alienation ?

14.Whether for the reasons stated by defendants Nos. 2 and 3, the suit is barred by waiver, acquiescence and estoppel ?

15Whether a fraud was practised by defendant No. 2 for the reasons alleged by the plaintiff ? If so, its effect ?

16.To what relief, if any, is the plaintiff entitled ?

Issue No. 8. was split in two parts on July 14, 1976, and additional issues Nos. 1-A and 2-A were framed on December 4, 1975, and these issues are reproduced here in below :

8-A. Whether the transfer forms were handed over by defendant No. 4 without any authority of the plaintiff to defendant No. 2 ?

8-B. Whether the plaintiff was present when the blank transfer forms were handed over ? If so, what is its effect ?

Additional Issues :

1-A. Whether the court has no jurisdiction as alleged ? OPD

1-B. Whether the suit is bad for non-joinder of necessary parties ? OPD

During trial it was agreed between learned counsel for the parties that the market value of property in question held by defendant No. 1, i.e., 54, Janpath, New Delhi, as in September, 1970, for the purpose of both suits if found relevant be taken at Rs. 22 lakhs and it was further agreed that the evidence produced by either party on the point of valuation be ignored. In these circumstances, and on the basis of the submissions of learned counsel for the parties, the learned single judge directed that the market value of the property, i.e., 54, Janpath, New Delhi, as in September, 1970, was to be taken as Rs. 22 lakhs. The learned single judge after hearing the counsel for the parties dismissed both the suits. It was in these circumstances that the present appeals had been filed.

By way of preliminary submission, Shri P.N. Lekhi, had argued that both the suits were filed by same counsel on the same date i.e., January 9, 1973. According to him, counsel was aware of all the facts and while doing so he concealed the facts which would form the grounds agitated by Mrs. Malhan for annulling the transfer in her case. This, according to him, was a speculative act on the part of the plaintiff which according to him in civil litigation is not only vexatious but was also an abuse of the process of law and court and thus the provisions of Order 7, rule 11, of the Civil Procedure Code, were attracted to the facts of this case. Since according to learned counsel for defendants Nos. 1 to 3, the powers of this court in appeal are identical as in a suit, therefore, on that analogy he prayed for dismissal of the present appeals on this short ground alone. In support of his this preliminary submission, Shri P.N. Lekhi referred to Radakishen v. Wali Mohammed, AIR 1956 Hyd 133 and Arivandandam (T.) v. Satyapal (T.V.), AIR 1977 SC 2421.

On the other hand, Shri D.K. Khanna, learned counsel for the appellants, has submitted that this objection ought to have been taken before the learned single judge and because no foundation has been laid in the written statement filed by the defendants in both suits, as such, this objection is firstly not open and secondly in no case, should the appellant be permitted to take it up in appeal. The further submission of Shri D.K. Khanna was that the case law cited in support of the preliminary submissions does not bar, much less prohibit, the filing of suits by the same counsel and above all the cases cited are not attracted in the peculiar facts and circumstances of the present case.

In Radakishen v. Wali Mohammed, AIR 1956 Hyd 133 , it has been held that instances given in Order 7, rule 11 of the Civil Procedure Code cannot be regarded as exhaustive of all the cases in which a court can reject a plaint or as limiting the inherent powers of the court in respect thereof. It has further been held in this judgment that in case a court comes to the conclusion that the person signing the plaint was not authorised, it should call upon the plaintiff to cure the defect and it is only on his failure to do so that the court should proceed to decide the question either dismissing it under Order 17, rule 3 or rejecting it under Order 7, rule 11. This was also permissible to be done under inherent powers of the court. According to the learned judges, an omission to sign the plaint is a mere irregularity and a defect of procedure does not affect the jurisdiction of the court and this omission is not fatal to the suit as it is curable. It is only after the plaintiff had been given a chance to remove the defect and it fails to do the needful, as such this case has no applicability to the facts of the present case.

In Arivandandam (T.) v. Satyapal (T.V.), AIR 1977 SC 2421, 2423, it has been held as under :

"We have not the slightest hesitation in condemning the petitioner for the gross abuse of the process of the court repeatedly and unrepentently resorted to. From the statement of the facts found in the judgment of the High Court, it is perfectly plain that the suit now pending before the First Munsif's Court, Bangalore, is a flagrant misuse of the mercies of the law in receiving plaints. The learned Munsif must remember that if on a meaningful—not formal—reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, he should exercise his power under Order VII, rule 11 of the Civil Procedure Code, taking care to see that the ground mentioned therein is fulfilled. And, if clear drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order X of the Civil Procedure Code. An activist judge is the answer to irresponsible law suits. The trial courts would insist imperatively on examining the party at the first hearing so that bogus litigation can be shot down at the earliest stage. The Penal Code is also resourceful enough to meet such men (Chapter XI) and must be triggered against them. In this case, the learned judge to his cost realised what George Bernard Shaw remarked on the assassination of Mahatma Gandhi: 'It is dangerous to be too good'."

On a perusal, the plaint does not disclose any such defect or lead to a conclusion that it does not disclose a clear cut right to sue inviting rejection of the plaint under Order VII, rule 11 of the Civil Procedure Code. In these circumstances, this judgment also does not advance the case of defendants Nos. 1 to 3. Needless to point out, for the purpose of determining whether the plaint discloses any cause of action or not, a reference needs to be made to the plaint which prima facie discloses a cause of action and it may not be said to be vexatious after having gone through the plaint. In this view of the matter, the preliminary submission made on behalf of defendants Nos. 1 to 3 are hereby rejected.

Shri D.K. Khanna urged that the shares which were handed over to Shri R.D. Bhagat, the transaction relating to the transfer of such shares is incomplete, as such the plaintiffs in both the cases are entitled to declaration being the owners there of. Further, according to him, the learned single judge has fallen into error as according to learned counsel for the appellant, the matter was about some price and number of shares as pleaded in both the suits but while dealing with exhibits PW-5/A, it has been wrongly held in both the suits that all the shares including those which were pledged with the Frontier Bank, as well as held by the sisters and other relations of both the plaintiffs were also taken into account. Besides this, there was no concluded agreement in respect of the shares either of Mrs. Surjeet Malhan or Shri B.K. Malhan, the plaintiffs. Since defendants Nos. 2 and 3 had failed to acquire qualifying shares within the prescribed time of 60 days, after their co-option as directors, their office stood automatically vacated, as co-opted directors can hold office up to the date of the next annual general meeting and not thereafter. Accordingly, defendants Nos. 2 and 3 ceased to be directors of defendant No. 1-company with effect from June 30, 1971, when the annual general meeting was to be held. It was further pointed out by Mr. D.K. Khanna that there could not be transfer of shares without complying with the provisions of the memorandum and articles of association of defendant No. 1-company (exhibit PW-6/1). Admittedly, no previous sanction was obtained for the transfer of shares and in this view of the matter the so-called transfer in favour of defendants Nos. 2 and 3 is void ab initio. With special reference to the case of Mrs. Surjeet Malhan, Mr. Khanna urged that no consideration was given to her for transfer of her shares as also no previous permission of the board of directors of defendant No. 1-company was there and above all, she had never authorised her husband Shri B.K. Malhan to give away the shares as was being claimed by defendant No. 2, Shri R.D. Bhagat. Lastly, it was urged that the minutes book of the company is forged in order to deprive the plaintiffs of their claim as resolutions were incorporated therein after the interim order had been passed on January 18, 1973, in Civil Suit No. 1 of 1973.

All these submissions have been repudiated by Shri P.N. Lekhi who has pointed out that the company was in a complete financial mess and both the plaintiffs wanted to get rid of the same. Defendant No. 2 had taken over all the shares not only of the plaintiffs but of their friends and relations. In fact, according to Mr. Lekhi, the plaintiffs were happy and satisfied as there was pressure of creditors on Shri B.K. Malhan for the refund of their deposits, to a few of whom even the interest was not being remitted. The bank from whom limits had been obtained by defendant No. 1-company were pressing hard and, thus, it was felt that in order to overcome the situation and finding that the plaintiff, Mr. B.K. Malhan, was not in a position to retrieve defendant No. 1-company out of the financial mess, so the consideration of one rupee was enough for the entire shareholding of all the shareholders which was agreed to be transferred and had in fact been transferred in favour of defendants Nos. 2 and 3. Estoppel as well as waiver was pleaded against the plaintiffs as they slept over the matter from September 11, 1970, to January 9, 1973, to assert their rights, if any, and, thus, the story woven by them was unnatural. According to him, the transaction was complete with the writing of exhibit PW-5/1 and receipt of one rupee, vide exhibit DW-2/1. Blank transfer deeds when executed complete the contract and there is no difference in case of such transfer of shares whether in the case of a private limited company or a public limited company, as according to him the net result of signing such blank transfer deeds and handing over of the share certificates to the transferee is that the transferors lose all their rights. The whole issue, according to defendants Nos. 1 to 3, is whether the plaintiffs, Mrs. Malhan and Mr. Malhan, have executed the transfer deeds or not and in support of his this submission he has referred to the provisions of the Sale of Goods Act, 1930. It was urged that the price was not at variance in terms of exhibit PW-5/1, so the suit is not maintainable and remedy, if any, can be availed of by the defendants for the recovery of the price of the shares.

Shri P.N. Lekhi has also further pointed out that defendant No. 1-company is bound to give effect to the transfer as it has no concern with any transferee or the transferor, i.e., the plaintiff on one side and defendants Nos. 2 and 3 on the other, in the present case. So far as exhibit PW-6/1 memorandum and articles of association are concerned, that is a matter between the company and its shareholders and it does not affect the rights of the transferees. He also referred to the pleadings.

On the conduct of Shri B.K. Malhan who was the managing director of defendant No. 1-company till January 15, 1971, it was submitted that he never raised any objection against the transfer of shares in favour of the defendants. On the other hand, Mrs. and Mr. Malhan were happy and satisfied that they are being relieved of the problems in which defendant No. 1-company was placed at that point of time. According to Mr. P.N. Lekhi, these were voluntary transactions to show that the plaintiffs in both cases had voluntarily transferred shares belonging to them and the plea of there being any duress, undue influence or misrepresentation is without any merit and the plaintiffs are precluded from urging that the transaction is void.

Reference was also made to the provisions of the Companies Act, 1956, by Shri P.N. Lekhi while urging that instead of having recourse to those provisions, for reasons best known to the plaintiffs, they approached the Registrar of Companies. As according to him, in case the meeting was not called as per the provisions of section 169 of the Companies Act, then the requisitionist, if he is a member of the company, can hold the meeting in accordance with section 169(6) of the Companies Act, and then they can pass a resolution which is binding on the company. Similarly, it was pointed out on behalf of the defendants that the transfer deeds exhibit DW-2/2 and exhibit DW-2/3 were duly proved. Lastly, it was urged that the powers of this court in appeal are limited and the plaintiffs cannot ask for reassessment of the evidence and reference was made to certain decided cases in this behalf.

The main issue in this case is what was intended to be conveyed by exhibit PW-5/1 and how and in what manner and on what terms the shares were to be transferred, whether after the first meeting held on September 11, 1970, the subsequent meeting was held at 4 p.m. or at about 6 p.m. The further question also arises as to whether the transaction was complete with the execution of exhibit PW-5/1 and receipt of rupee one, vide exhibit DW-2/1 or in order to complete the transfer something more was required to be done by the parties.

It may be appropriate to point out here that the company is governed under the provisions of the Companies Act, as well as under its memorandum of articles of association exhibit PW-6/1. When a reference is made to the terms of exhibit PW-6/1, it will be seen that no transfer of share in the capital of the company could be made without previous sanction of the board of directors who had the power to decline such sanctions, besides this the directors of defendant No. 1-company were also required to hold qualifying shares and unless a director held the requisite number of shares, as such, till these conditions are fulfilled under the terms of articles, a person could not remain director. This was the position under the terms of the memorandum of articles of association whereas the co-opted director could continue till the next annual general meeting which in the present case was to be held on June 30, 1971.

The admitted case of the parties is that there was no sanction accorded by the board of directors of defendant No. 1-company authorising the transfer of all shares, held by the plaintiffs to alienate those in favour of defendants Nos. 2 and 3. Shri P.N. Lekhi has urged that there was implied sanction on the part of defendant No. 1 and plaintiff Shri B.K. Malhan who was the managing director never agitated against such transfer of shares in favour of his clients. We are not impressed by this argument raised on behalf of the defendants. Needless to point out in this behalf, when the law requires a particular thing to be carried out in a particular manner, there is no question of there being any implied sanction. In this view of the matter, we are of the view that there was no transfer of shares in accordance with exhibit PW-6/1, as such, no benefit can be derived by the defendants therefrom.

Now, coming to exhibit PW-5/1, the letter dated September 11, 1970, written by Mr. B.K. Malhan, the plaintiff, to defendant No. 2, it may be appropriate to point out here that B.K. Malhan alone was not the shareholder of defendant No. 1-company, his father, his wife, relations of his wife and other persons were also the shareholders of defendant No. 1-company. Besides such persons, a number of other persons were the creditors whose money was lying in deposit with defendant No. 1, therefore, perusal of exhibit PW-5/1 shows that there is nothing which could be read to mean, much less presume, that, firstly, Shri B.K. Malhan had any authority on behalf of any of the other shareholders to have transferred the shares for the price at rupee one; and, secondly, if the transaction of transfer was concluded at one rupee, then where was the occasion of mentioning in exhibit PW-5/1, further the terms and conditions of sale as agreed upon between ourselves will be signed by us tomorrow. After the transaction was complete and there was a concluded and binding contract entered into between the parties, i.e., B.K. Malhan on one side and defendant No. 2 on the other, there was no need of having mentioned what has been re-produced hereinabove. Similarly, there is nothing on record to suggest that any other shareholders ever authorised Shri B.K. Malhan to agree much less undertake the transfer of their shareholdings held by them in defendant No. 1-company in favour of defendant No. 2. Thus, the receipt of rupee one, vide exhibit DW-2/1 cannot by any stretch of imagination be taken to be a concluded contract for the purpose of transfer of shares of all the shareholders of defendant No. 1 in favour of defendant No. 2 or his nominee. The findings recorded in this behalf by the learned single judge are contrary to the records and are thus set aside. Further, the consequence of the aforesaid discussion is that the matter was at the negotiation stage and the terms and conditions of the sale were to be settled between the parties on September 12, 1970, which position is clear.

Regarding execution of exhibit DW-2/1, after a reference is made to the statement of Shri R.D. Bhagat, DW-2, as well as to the statement of DW-4, Shri Vidya Sagar, advocate, who was the solicitor of defendant No. 2, it is clear that one says that it was executed at the residence of Shri Malhan whereas DW-4 states that DW-2/1 was executed at his office, after exhibit PW-5/ 1 had been typed out there. It is very strange that on what basis DW-2 had courage of conviction to say that the shares which were in the possession of Mr. and Mrs. Malhan would be handed over to him for a consideration of one rupee and later on shares mortgaged with the Frontier Bank were to be got released by Shri Malhan and handed over to him. Not only this but DW-2 further stated that B.K. Malhan was to transfer all the shares of his relations, friends, etc., that too for the consideration of one rupee.

Shri Bhagat appears to be interested in taking undue advantage of the financial position of defendant No. 1-company and had further gone on record to say that it was also agreed that the shares of B.K. Malhan's sister from Bangalore would also be transferred to him. If these were the terms and conditions, why he did not get those incorporated in exhibit PW-5/1 as he was having proper legal advice at the point of time. Mr. Bhagat was well aware about the financial position of the company and the works which were being carried out by defendant No. 1-company at different places as complete information had been given to him by the staff of the company, i.e., PW-7, Uma Dutt Pathak and PW-8, H.S. Bhalla. In addition to these, balance-sheet(s) of the company was also available with Shri Bhagat.

Nothing has been brought on record by any of the defendants to show that Mrs. Malhan had ever agreed much less consented for the transfer of her shareholdings. Similarly, no previous sanction of the board of directors was brought on record to show that she had ever asked the board to permit her to transfer the shares in question, and in no case exhibit PW-5/1 can be read down to mean that not only her own shareholding but that of Mr. Malhan and other persons was also intended to be transferred by him for a consideration of one rupee. From the statement of DW-2, it is clear that he is a businessman of long standing and was having proper legal advice in all the matters while dealing with B.K. Malhan plaintiff.

In this view of the matter, it is held that Shri B.K. Malhan had no authority either express or implied on behalf of Surjeet Malhan to transfer her shares as urged on behalf of the defendants and consequently merely because blank transfer deeds coupled with the share certificates were handed over to Shri R.D. Bhagat, defendant No. 2, is of no consequence. In fact before transfer, sanction of the board of directors was necessary and admittedly no sanction was ever accorded permitting the transfer of shares by either Shri B.K. Malhan or Smt. Surjeet Malhan, so even if any transfer is made as claimed by defendant No. 2, it is no transfer in the eyes of law and it is declared accordingly. The submissions of Mr. P.N. Lekhi that the plaintiffs could have recourse to the provisions of the Companies Act under sections 163, 169 and 195, as such why did Shri Malhan approach the Registrar of Companies. This plea was pressed into service on behalf of the defendants for pleading estoppel against the plaintiffs. In this behalf it may be appropriate to point out that under the provisions of the Companies Act, defendant No. 1 was required to file returns, from time to time. PW-4, Om Parkash is a Superintendent from the office of Registrar of Companies, Jullundur, who had categorically pointed out that returns were not filed as envisaged under the Companies Act and for not filing the returns, the defendants were prosecuted in the court at Jullundur and have been fined. Auditors in their reports have categorically stated that the records were not shown to them. Had there been any transfer those would have been reflected in the books of defendant No. 1-company and defendant No. 2 would not have hesitated in showing those to the auditors. The thrust of the argument of Mr. Lekhi was that at the meeting held at 4.30 p.m. on September 11, 1990, the matter relating to transfer was complete. In this behalf, it may be appropriate to mention that there are serious doubts about the holding of this meeting and further if what is pleaded by the defendants is correct, then there ought to have been a resolution of the board that the transfer deeds along with share certificates were put up before the board and the further consequence would be that in the event of the transfer forms and share certificates being there, the board would have sanctioned the transfer in favour of defendant No. 2 as well as his nominees.

Another salient feature in this case is that there is nothing to show when the share transfer forms exhibits DW-2/2 and DW-2/3 were lodged by the transferee Shri R.D. Bhagat with defendant No. 1-company. Admittedly, defendant No. 2 was the managing director and it has come on record in his statement that he was in charge of the affairs of defendant No. 1-company. In case the transfer forms were ever lodged with the company, they would have found mention in its records and defendant No. 2 would not have hesitated in producing those in the court. Similarly, if a reference is made to exhibit PW-5/2 and exhibit PW-5/3, transfer forms which relate to the shares of Surjit Malhan, the position remains the same as there is nothing to suggest as to when these were lodged with defendant No. 1-company. Further, exhibit PW-5/4 is a list of share scrips which were handed over to Shri R.D. Bhagat on September 11, 1990, with two blank transfer deeds of Mrs. Surjit Malhan. In this view of the matter, no benefit could be derived by the defendant out of blank transfer deeds executed by either Shri B.K. Malhan or by Smt. Surjit Malhan, plaintiff. Similarly, in exhibit DW-2/2, there is no mention of 268 shares Nos. 1118 to 1268 and 400 shares Nos. 2431 to 2830 and defendant No. 2 had not been able to produce any transfer deed in respect of these shares. In this view of the matter, no reliance can be placed on the board meeting purported to have been held on September 11, 1970, at 4.30 p.m., the minutes whereof have been produced by defendant No. 2 as exhibit DW-2/4. We further hold that no meeting was held at 4.30 p.m. So, exhibit DW-2/4 is of no consequence. A reference to exhibit PW-4/39 checking up of annual return made up to June 6, 1972, in respect of defendant No. 1-company issued from the office of the Registrar of Companies clearly shows that defendant No. 2 has failed to meet the queries and one of the queries raised was :

"3. May ask to send A.R. made up to June 30, 1971, along with written statement under section 159 of the Companies Act, 1956."

This position is clear from the statement of PW-4, Superintendent of the office of the Registrar of Companies, Jalandhar.

In the context of transfer of shares, the defendants in their wisdom have chosen not to specify the date(s) relating to the transfer of such shares of both the plaintiffs.

In the context of transfer of shares, it may be necessary to examine the background wherein the parties were placed when the negotiation between them took place. Defendant No. 2 was interested in taking on rent the premises and for that he had given an advertisement in the newspapers. This court cannot lose sight of the fact that the locality where the premises were located and wherein a part was to be let out by Shri B.K. Malhan is situate at a prime location at New Delhi. The plaintiff Shri Malhan could have negotiated terms for accepting premium and rent. It appears that Shri Bhagat having got full information regarding the financial affairs of defendant No. 1-company appeared to be interested in entering into a business venture with Shri Malhan although DW-4, his solicitor had advised him against such exercise. But it is not understandable as to without settling the terms and conditions of sale between the parties and without signing the terms and conditions of the sale as agreed upon between the parties, why would even Shri B.K. Malhan have parted with everything. May be that defendant No. 1-company was passing through a financially lean period although the situation was not of such a nature that it was totally out of control of the management of defendant No. 1-company.

In this view of the matter, it is held that there was no transfer of shares in favour of Shri R.D. Bhagat, defendant No. 2 or his nominee (and nothing) has been brought on record by defendants Nos. 2 and 3 to show that any shares were transferred in favour of defendant No. 3 and thus, how she continued to be on the board of directors of defendant No. 1-company after the expiry of two months is not known.

Similarly, the plea of the defendants that there was no question of signing a written agreement on September 12, 1970, and this plea having been concocted is not correct in the face of exhibit PW-5/1. Replication in this case has been filed under the orders of the court and it forms a part of the pleadings. All the facts have been detailed by the plaintiff in the replication filed in both the cases. In these circumstances, it was, thereafter, that the so-called terms and conditions of transfer were suggested to the witnesses on behalf of the plaintiffs. In this context, it may be appropriate to refer to the provisions of section 93 of the Evidence Act, 1872, and, thus, no amount of oral evidence can be allowed to be brought on record in the face of written documents being there. That being the position, the contention raised on behalf of defendants Nos. 2 and 3 that there was nothing to be signed on September 12, 1970, is not correct.

From whatever angle the case may be viewed the fact remains that defendant No. 2 has miserably failed to establish lawful transfer of shares either in his favour or in favour of any of his nominees much less defendant No. 3. Similarly, no advantage can be derived by any of these two defendants by merely being in possession of either the blank transfer deeds signed by the plaintiff B.K. Malhan or by Mrs. Surjeet Malhan together with the share scrips.

Consequently, the judgment and decree passed by the learned single judge in Civil Suit No. 1 of 1973 and Civil Suit No. 2 of 1973 are hereby set aside and the suits filed by the plaintiffs are decreed and it is declared that the plaintiff, Smt. Surjeet Malhan in Civil Suit No. 1 of 1973 is the owner of 1,500 ordinary shares and ten preferential shares of defendant. No. 1. Defendants Nos. 2 and 3 are commanded by a decree of mandatory injunction to hand over the share scrips of these shares to this plaintiff. In case those have been transferred in the names of defendant No. 2 or any of his nominees, defendant No. 1 is directed to rectify the register by substituting the name of the plaintiff by amending the register of its shareholders and showing this plaintiff to be the holder of these shares. Similarly, Civil Suit No. 2 of 1973 of Shir B.K. Malhan is also decreed and it is declared that he is the owner of 2,230 ordinary shares and sixty four preferential shares of defendant No. 1-company and defendants Nos. 2 and 3 are directed to hand over all shares certificates in relation to these shares to this plaintiff. In case the name of defendants Nos. 2 and 3 or any other person has been substituted in respect of these shares, than defendant No. 1 is commanded by a decree of mandatory injunction to amend its register of shareholders and show the name of the plaintiff to be the rightful owner of these shares. In both Civil Suits Nos. 1 and 2 of 1973, defendants Nos. 2 and 3 are restrained from transferring and/or alienating as well as encumbering any of the property of defendant No. 1-company in any manner. Costs on the parties.

KARNATAKA HIGH COURT

Companies Act

HIGH COURT OF KARNATAKA

Ferrom Electronics (P.) Ltd.

v.

Vijaya Leasing Ltd.

Ashok Bhan and R. Gururajan, JJ.

Company Petition No. 26 of 1990

October 14, 1999

Section 111, read with section 292 of the Companies Act, 1956 - Transfer of shares - Rectification of register of members - Whether refusal to register transfer of shares in favour of transferee company would be notified on ground that the transferee-company had not complied with requirement of section 292 - Held, no

Facts

One ‘S’ approached the petitioner-company with an offer to sell shares of the respondent-company. The Board of Directors of the petitioner-company resolved to purchase those shares. ‘S’ executed share transfer deed. The petitioner-company lodged with respondent-company all relevant documents/papers for transferring those shares. The respondent-company pointed out certain discrepancies in some papers which were rectified by the petitioner-company but the respondent-company raised a new plea that the resolution of the Board of Director of the petitioner-company was not in compliance with the provisions of section 292. Even though the petitioner claimed that all resolutions were passed in accordance with law, the respondent, repeating its earlier stand, returned the petitioner all papers relating to transfer without registering their name.

In the instant petition under section 155, the petitioner submitted that section 292 was for internal management of the company and transfer of shares could not be denied on ground of non-compliance of section 292. The respondent-company, however, raised primary objection that the petitioner-company having failed to carry out its main object to set up business of electronic industry could not come into operation for incidental and ancilliary object e.g. investment in share and doing so would be ultra vires the memorandum of association of the petitioner-company. They further alleged that one ‘A’, in control of the petitioner-company, in order to destabilise working of the respondent-company, had purchased those shares of the respondent-company.

On appeal :

Held

Shares of the company registered under the Companies Act whose shares are quoted at the stock exchange are freely transferable. A shareholder has a right to transfer his shares. Correspondingly, in the absence of any impediment in this behalf the transferee of a share, in order to enable him to exercise the rights of a shareholder as against the company and third parties, is entitled to have the shares transferred in his name. In case a company refuses to transfer the shares, it is entitled to have rectification of the register by registering therein as a registered shareholder of the shares transferred to him. The company whose shares have been purchased cannot refuse to register the shares arbitrarily or for any collateral purpose. It can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders.

In the instant case, the respondent-company had very evasively resisted admitting and effecting the necessary changes in the register of members on the ground that the application for registration of the transfer was in violation of the Act. Despite specific query on the aspect of the violation of the provisions of the Act, except to state that there was violation of section 292 no material particulars had been given regarding the violation. Case set up by the respondent that it had refused to register the shares as the petitioner-company did not comply with the provisions of section 292 was wholly untenable and clearly an after-thought. In the various objections, regarding transfer of shares, the respondent-company did not at all set up that the provisions of section 292 had not been complied with. Moreover section 292 does not at all relate to transfer of shares.

Section 292 being a matter of internal management of the company the respondent-company should have proceeded with the assumption that the petitioner-company had complied with the provisions of section 292 in the absence of any specific evidence to the contrary. Refusal of the respondent-company to register the transfer on this ground was unjustified. In spite of repeated queries raised by the petitioner-company asking the respondent-company to identify the aspect of section 292 which the petitioner-company failed to comply with, the respondent-company could not specifically say as to which clause of section 292 had not been complied with by the petitioner-company. Refusal to register the shares by the respondent-company under the circumstances could not be held to be justified at all.

Under the provisions of section 22A of the Securities Contracts (Regulation) Act, 1956, the Board of Directors of the company the share of which are listed on the stock exchange, as in the case of the respondent-company, can refuse to transfer such share only on one or more of the grounds set out in section 22A(3). It was not the case of the respondent-company nor it had been pointed out during the course of arguments that the petitioner-company was guilty of violating any of the conditions stipulated in section 22A(3). Consequently, the respondent-company was not entitled to refuse the transfer of shares in question in favour of the petitioner herein. Defects, if any, pointed out by the respondent-company in its letter regarding the 18 transfer deeds stood rectified by the subsequent resolution passed by its board of directors. The Board can rectify its actions by a subsequent resolution and the rectification would relate back to the date of the original act.

The conduct of the respondent-company in refusing to register the shares in the name of the petitioner-company was unfair and unjustified. The same was not bona fide. Simply because the petitioner-company was unable to carry out the business of setting up the electronic industry and decided to diversify in the business of investment in shares, it would not mean that the act of acquiring shares by the petitioner-company for the purpose of investment was ultra vires the Act. The second preliminary objection raised by the respondent-company that the conduct of the petitioner-company disentitled it to the discretionary relief for the reasons stated therein was also untenable. The respondent-company had failed to show any cogent evidence in spite of the opportunity given to it to do so.

Hence, the respondent-company acted illegally and was not justified in refusing to register the shares in the name of the petitioner-company. The petitioner-company would be entitled to get the shares transferred in its name from the date of the purchase of the shares. Besides, in justness of the cause the petitioner-company would be entitled to the dividend which might have accrued on the shares in question from year to year. It would be incidental and consequential to the transfer of the shares in favour of the petitioner-company. The respondent-company had not paid the dividend either to the petitioner or to the transferor. Claim of the respondent- company that it was entitled to appropriate the amount payable as dividend towards any of the amounts due to the company from its earlier managing director was illegal and without any authority of law.

For the reasons stated above, the instant petition was to be allowed. The respondent-company should rectify its register of members and include the name of the petitioner-company as transferee of the shares to the extent of the share purchased by the petitioner-company and also pay the dividend which might have accrued on the shares in question from year to year from the date of purchase of the shares with interest at 12 per cent per annum from the day the amount became due till its repayment.

Cases referred to

Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1989] 4 SC 350, Shailesh Prabhudas Mehta v. Calico Dyeing & Printing Mills Ltd. [1992] 2 Comp. LJ 58 (SC), Parameshwari Prasad Gupta v. Union of India [1974] 44 Comp. Cas. 1 (SC), Ambala Electric Supply Co. Ltd. v. Walaiti Lal Kohli [1970] 40 Comp. Cas. 1121 (Punj. & Har.).

Order

Ashok Bhan, J.—Does the transferee of shares of a Public limited company registered under the Companies Act, 1956 (‘the Act’) have the right to get the shares registered in his own name and on what grounds the public limited company can refuse to register the shares are the twin questions which fall for consideration in this petition.

2. The petitioner is a private limited company incorporated under the Act having its registered office at Bangalore. The petition has been under section 155 of the Act for issuance of a direction to the respondent - a public limited company for the rectification of the register of the members of the respondent-company to include the name of the petitioner-company as its shareholder in respect of the shares purchased by it. Objects of the petitioner-company incorporated in the memorandum of association of the company entitling the petitioner-company to invest or purchase the shares of other companies is produced as Annexure-A.

3. The respondent-company has been incorporated under the Companies Act with its office at Bangalore.

4. It is submitted by the petitioner-company that in its meeting of the Board of Directors held on 20-7-1988 (annexure-B) decided to carry on the business of investment in shares and securities of other companies as provided in the memorandum of association of the petitioner-company. During the year 1988 Mrs. Sarvani K. Alva on behalf of herself and her children who were the owners of 52,000 fully paid equity shares of Rs. 10 each in the respondent-company approached the petitioner-company with an offer to sell the shares in favour of the petitioner. The said Smt. Sarvani K. Alva initially quoted a price of Rs. 14 per share and offered to sell the same in favour of the petitioner-company. Consequent upon this offer the Board of Directors of the petitioner-company met on 10-7-1989 and resolved to purchase the aforementioned shares from Mrs. Sarvani K. Alva and her family members at a price not exceeding Rs. 12 per share. Copy of the extract of the Minutes of the Board of Directors of the petitioner-company dated 10-7-1989 has been produced as annexure-C. Pursuant to the said Board meeting resolution, the petitioner-company negotiated for purchase of aforementioned shares held by her and her family members at a price of Rs. 12. The transferors executed the share transfer deed for transfer of 51,195 shares and handed over to the petitioner-company along with other documents to enable the petitioner- company to get shares transferred in its name. Petitioner’s case is that the petitioner sent the share transfer deeds and the share certificates to the respondent-company on 7-8-1989 under the cover of their letter annexure-D along with other documents referred to therein with a request to transfer the shares. The said letter was acknowledged by the respondent- company by its letter dated 9-8-1989 annexure-E. Subsequent thereto, the Board of Directors of petitioner-company also passed another resolution-annexure-F reconfirming the action taken by the Directors of the petitioner-company to purchase the shares of the respondent-company.

5. The respondent-company wrote a letter dated 9-9-1989 (annexure-G) pointing out certain discrepancies in the papers sent by the petitioner regarding the transfer of 51,195 equity shares of the respondent-company as aforementioned. In this letter the respondent-company raised the following objections :

“(a) that the certified copy regarding the transfer of the registered office of the petitioner-company from one State to another State has not been notarised :

(b) that the name of the transferors, viz. Smt. Supriya Shetty and Smt. Sharmila Shetty mentioned in the general power of attorney submitted, do not tally with the names appear in the register of members of the company;

(c) that the certified true copy of the resolution passed by the Board of Directors of the petitioner-company held on 10-7-1989 does not specifically empower the directors therein to acquire shares of any other company;

(d) that the spelling of Smt. Sarvani Kunhanna Alva as appear in the transfer deed differs from the spelling as it appears in the share certificates;

(e) that the transfer deed for transfer of 1,200 shares under folio No. 349, the occupation of the transferee has not been mentioned;

(f) that the name of Miss Soumya Alva has been wrongly spelled as Sowmya Alva, and that the spelling in the transfer deeds and the share certificates differ;

(g) that the transfer deed pertaining to three folio numbers specified in the letter, the over-written has not been duly initialled by the parties.”

It was also stated in the said letter that the respondent-company was unable to proceed further with the transfer in view of the aforementioned objections raised by them. Shares pertaining to 18 transfer deeds which were defective were returned along with the letter. 7 transfer deeds and the share certificates which were in order were retained by the respondent-company. Subsequent to the receipt of transfer deeds, the petitioner rectified all the material defects pointed out by the respondent as per the aforementioned letter and returned the 18 transfer deeds after duly rectifying the defects under cover of their letter dated 18-10-1989 (Annexure-H).

6. In response thereto, the respondent-company wrote a letter dated 24-10-1989 (Annexure-J) to the petitioner-company stating that they are unable to process the papers as the resolutions dated 10-7-1989 and 21-8-1989 do not fully comply with the provisions of the Act. The petitioner company vide annexure-J1 4-11-1989 sought clarification from the respondent-company as to what it meant by saying that the resolutions did not comply with the provisions of the Act. In reply, the respondent- company wrote a letter dated 8-11-1989 (Annexure-J) informing the petitioner-company that the resolutions of the Board of Directors of the petitioner-company, as per the copies submitted, do not satisfy or comply with the entire mandatory provision of section 292 of the Act.

7. Claiming that there was no contravention of the provisions of the Act by the petitioner-company and that the resolution passed by the Board of Directors of the petitioner-company were in accordance with law, petitioner wrote another letter dated 22-11-1989 (annexure-K) specifically stating that it has complied with all the requirements of the Act and requested the respondent-company to process the transfer papers and transfer the shares in the name of the petitioner-company. In reply thereto the respondent sent notices dated 18-12-1989 numbering nine (L1 to L9) rejecting the request of the petitioner for transfer of shares on the ground that the copies of board Resolutions dated 10-7-1989 and 21-8-1989 did not fully comply with the mandatory provisions of section 292 and returned all the share transfer deeds and share certificates and two other documents sent by the petitioner-company.

8. The petitioner-company asserting that the respondent-company had refused to transfer the shares which had been validly purchased by the petitioner-company for a total consideration of Rs. 6,15,540, filed the present petition under section 155 seeking an appropriate direction for rectification of the register of members of the respondent-company and to include the name of the petitioner-company as a shareholder of the respondent-company. According to the petitioner, the respondent being a public limited company whose shares are quoted in the stock exchange both at Bangalore as well as at Bombay, could not refuse to transfer the shares in its name. It is claimed that the petitioner-company had complied with the provisions of section 292. Objections regarding non-compliance of section 292 had not been taken by the respondent in its first letter dated 9-9-1989 annexure-G. Subsequent stand taken by the respondent-company that the petitioner had not complied with the provisions of section 292 was, therefore, an afterthought and, therefore, untenable. According to the petitioners, section 292 does not at all relate to the transfer of shares and there is no bar under section 292 to transfer the shares in question. That section 292 is for the internal management of the company and the respondent could not refuse to transfer shares in the name of the petitioner-company on the ground that the petitioner-company had not complied with the provisions of section 292. That the respondent-company could refuse to register the share certificates only on one or more of the grounds set out in sub-section (3) of section 22A of the Securities Contracts (Regulation) Act, 1956, (‘The Securities Regulation Act’). Such being not the case, the respondent-company was bound in law to transfer the share certificate in the name of the petitioner-company along with the dividends accrued thereon. The respondent-company had refused to pay the dividend in spite of the letter annexure-M written by the transferor asking the respondent-company to pay the dividend to the petitioner company. The petitioner-company demanded from the respondent-company to pay the dividend pertaining to these shares which was mandatory. The prayer has been made for the grant of petition as prayed for and for grant of such other further reliefs as may be justified which would include a direction to the respondent-company to pay the dividend of the shares purchased by the company from the date the application was filed by the company for transfer of the shares in its name.

9. The respondent in its reply statement has taken the preliminary objection that the main business of the petitioner-company is to set up the business of electronic industry. As the petitioner had failed to carry out the main business, the incidental and ancillary objects would not come into operation at all and the act of acquiring shares for the purpose of investment is an act which is ultra vires the memorandum of association of the petitioner-company. That the petitioner-company has no power to carry on with the business of acquiring shares at all. That the conduct of the petitioner-company disentitles it to discretionary relief from this Court as it has not acted fairly, reasonably and bona fide.

10. It is submitted by the respondent that the petitioner-company is under the control of one Shri M. Ashok Kumar Shetty. He is the son of late M. Sundaram Shetty who is the Chairman of Vijaya Group of Companies. Both the Associate Companies, namely Vijaya Commercial Credit Ltd., and Vijaya Leasing Ltd., are carrying on business under the Chairmanship of Shri B.T.R. Punja, son-in-law of Shri M. Sundaram Shetty and brother-in-law of Shri M. Ashok Kumar Shetty. For long time, Shri Ashok Kumar Shetty was attempting to destabilise the management of the respondent- company and to acquire control to disrupt its smooth working. He had set up several persons to file suits against the respondent-company but his attempts did not succeed. Some times during 1982, one T.K. Alva a professionally qualified Chartered Accountant and the Company Secretary was inducted as a Director of the respondent-company. He was in complete charge of the affairs of the respondent-company for over 7 years till his demise on 7-6-1989 in USA. That during the last years of his tenure, late T.K. Alva mismanaged the affairs of the company and amassed large personal wealth by diverting funds from the respondent- company and its associated company through a company called Vijaya Management Services (P.) Ltd., which was owned and controlled by his mother-in-law Smt. Bellipadi Kalyani, who held 75 per cent of the issued and paid-up capital of the said company. By various devices T.K. Alva aggrandised unto himself and cornered shares of both the respondent- company and its associated company. The shares were standing in the joint names of T.K. Alva along with either his wife or one of his children. Some shares were held by his wife and children. Just before the death of T.K. Alva, the acts of misconduct came to light and negotiations were held to reach a settlement. Unfortunately, no settlement was reached and T.K. Alva passed away. The respondent-company and its associated company filed company petitions 83/89 and 84/89 seeking winding up of Vijaya Management Services (P.) Ltd. The associate of the respondent-company has also filed suit against respondent-company for the recovery of money which Shri T.K. Alva had clandestinely drawn from the company. After the demise of T.K. Alva and in order to take advantage of the situation arising and to prevent the company from realising its dues from heirs of T.K. Alva, Shri Ashok Kumar Shetty purchased the shares from the family of Shri T.K. Alva. This has been done to create instability in the affairs of the company and the conduct of the petitioner-company, therefore, disentitles it to the equitable relief sought in the petition and the petition is liable to be rejected on this short ground.

11. On merits the respondent-company has admitted the exchange of correspondence regarding transfer of shares referred to in the petition between the petitioner and the respondent-company. It has reiterated its position taken by it in its correspondence. It is stated that the petitioner- company failed to comply with the provisions of section 292 and other related issues and, therefore, was not entitled to the transfer of shares in its files. It has also been stated that the petition is premature inasmuch as the question of rectification of register of shares would arise only after the Board of Directors of the respondent-company considers the share transfer subsequent to the petitioner-company providing that such investments are not ultra vires of the memorandum and all other mandatory provisions of law.

12. On 13-7-1999 the respondent filed a memorandum, saying that the respondent-company is agreeable to transfer the shares in the name of the petitioner-company and confer the benefit relating thereto with effect from the date of transfer; that the dividend declared by the respondent- company with regard to the shares which are subject-matter of this petition have been appropriated from time to time by the respondent- company against the amount due to the company from its earlier managing director Shri T.K. Alva in whose name the shares stood. The counsel appearing for the petitioner-company stated that it is ready and willing for the transfer of share, but the arrangement suggested by the respondent that it is prepared to transfer the shares and confer the benefits relating thereto with effect from the date of transfer and that the respondent- company be allowed to appropriate the amount due towards the dividends against the amounts due to the respondent-company from its earlier managing director T.K. Alva, is not acceptable.

13. Evidence was recorded. The petitioner produced Ashok Kumar Shetty P.W.1 and the respondent produced A.S. Krishna Moorthy, the managing director of the respondent-company as R.W.1. In their statements they have taken the same stand which has been taken by them in their respective pleadings. Cross-examination is also on the same lines.

14. Shares of the company registered under the Act whose shares are quoted at the stock exchange are freely transferable. A shareholder has a right to transfer his shares. Correspondingly, in the absence of any impediment in this behalf the transferee of a share in order to enable him to exercise the rights of a shareholder as against the company and third parties, is entitled to have the shares transferred in his name. In case a company refuses to transfer the shares, it is entitled to have rectification of the register by registering therein as a registered shareholder of the shares transferred to him. The company whose shares have been purchased cannot refuse to register the shares arbitrarily or for any collateral purpose. It can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. It is seen from the correspondence between the petitioner-company and the respondent- company that the respondent-company has very evasively resisted admitting and effecting the necessary changes in the register of members on the ground that the application for registration of the transfer was in violation of the Act. Despite specific query on the aspect of the violation of the provisions of the Act, except to state that there was violation of section 292, no material particulars have been given regarding the violation. The Supreme Court of India in Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1989] (4) SC 350 considered the question regarding the rectification of shares register of a company under section 155 of the Act. It was held that the transferee has a right to have the rectification carried out and the respondent-company could defeat the right if the rectification of the register only on specified bona fide grounds. It was observed :

“Having heard learned counsel for the parties we are of the opinion that unless there is any impediment in the transfer of a share of a public limited company, such as the appellant, a shareholder has the right to transfer his share. Correspondingly, in the absence of any impediment in this behalf the transferee of a share, in order to enable him to exercise the rights of a shareholder as against the company and third parties, which is not possible until the transfer is registered in the company’s register, is entitled to have a rectification of the share register of the company by inserting his name therein as a registered shareholder of the share transferred to him. To have such rectification carried out is the right of the transferee and can be defeated by the company or its Directors only in pursuance of some power vested in them in this behalf. Such power has to be specified and provided for. It may even be residuary but in that case too it should be provided for and traceable either in the Act or the articles of association. Even if the power of refusal is so specified and provided for the registration of a transferred share cannot be refused arbitrarily or for any collateral purpose, and can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. If neither a specific nor residuary power of refusal has been so provided, such power cannot be exercised on the basis of the so-called undeclared inherent power to refuse registration on the ground that the company or its Directors take the view that in the interest of the company and the general interest of the shareholders, registration of the transfer of shares should be refused. Indeed making a provision in the Act or the Articles of Association etc. conferring power of refusal would become futile if existence of an inherent power such as claimed by the company in the instant case is assumed, for the simple reason that the amplitude of the so-called undeclared inherent power would itself take care of every refusal to register the transfer of share. Assumption of such a power would result in leaving the matter of transfer of share and its registration at the mercy and sweet will of the company or its Directors, as the case may be. In the absence of any valid and compelling reason it is difficult to comprehend such a proposition.”

Similarly in Shailesh Prabhudas Mehta v. Calico Dyeing & Printing Mills Ltd. [1992] 2 Com. L.J. 58 again the Supreme Court held that the transferee has a right to have the rectification of the register of shares of the company. The company can refuse to register the shares only on specified grounds in exercise of its bona fide reason and not arbitrary or for collateral purposes. Case set up by the respondent that it has refused to register the shares as the petitioner-company did not comply with the provisions of section 292 is wholly untenable and clearly an afterthought. The respondent in its objections regarding the transfer of shares as per letter dated 9-9-1989 annexure ‘G’ had specifically set out the various objections they had regarding the transfer of shares. In the said objections, the respondent-company did not at all set up that the provisions of section 292, had not been complied with. Moreover section 292 does not at all relate to transfer of shares. Under section 292, the powers which can be exercised by the Board of Directors by passing a resolution have been specified to be :

“(a) the power to make calls on shareholders in respect of money unpaid on their shares;

(b) the power to issue debentures;

(c) the power to borrow moneys otherwise than on debentures;

(d) the power to invest the funds of the company; and

(e) the power to make loans.”

Section 292 being a matter of internal management of the company the respondent-company should have proceeded with the assumption that the petitioner-company had complied with the provisions of section 292 in the absence of any specific evidence to the contrary. Refusal of the respondent-company to register the transfer on this ground was unjustified. In spite of repeated queries raised by the petitioner-company asking the respondent-company to identify the aspect of section 292 which the petitioner-company failed to comply with, the respondent-company could not specifically say as to which clause of section 292 had not been complied with by the petitioner-company. Refusal to register the shares by the respondent-company under the circumstances cannot be held to be justified at all.

15. Under the provisions of section 22A, the Board of Directors of the Company, the share of which are listed on the stock exchange, as in the case of the respondent-company, can refuse to transfer such share only on one or more of the grounds set out in sub-section (3) of the said section which reads :

“Notwithstanding anything contained in its articles or in section 82 or section 111 of the Companies Act, 1956 (1 of 1956), but subject to the other provisions of this section, a company may refuse to register the transfer of any of its securities in the name of the transferee on any one or more of the following grounds and on no other ground, namely :

(a) that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with :

(b) that the transfer of the security is in contravention of any law :

(c) that the transfer of the security is likely to result in such change in the composition of the Board of Directors as would be prejudicial to the interests of the company or to the public interest :

(d) that the transfer of the security is prohibited by any order or any court, Tribunal, or other authority under any law, for the time being in force.”

16. It is the case of the petitioner-company that there is no violation of any of the conditions stipulated in sub-section (3) of section 22A. It is not the case of the respondent-company nor it has been pointed out during the course of arguments that the petitioner-company is guilty of violating any of the conditions stipulated in sub-section (3) of section 22A. Consequently, the respondent-company is not entitled to refuse the transfer of shares in question in favour of the petitioner herein. Defects, if any, pointed out by the respondent-company in its letter Annexure ‘G’ regarding the 18 transfer deeds stood rectified by the subsequent resolution passed by its Board of Directors. The Board can rectify its actions by a subsequent resolution and the rectification would relate back to the date of the Original Act. Reference may be made to the observations of the Supreme Court in Parameshwari Prasad Gupta v. Union of India [1974] 44 Comp. Cas. 1 wherein their Lordships held :

“. . . The point is that even assuming that the chairman was not legally authorised to terminate the services of the appellant, he was acting on behalf of the company in doing so, because he purported to act in pursuance of the invalid resolution. Therefore, it was open to a regularly constituted meeting of the board of directors to ratify that action which, though unauthorised, was done on behalf of the company. Ratification would always relate back to the date of the act ratified and so it must be held that the services of the appellant were validly terminated on December 17, 1953. . . .” (p. 5)

17. The petitioner made repeated request and the respondent-company kept on refusing to register the shares on one ground or another. It kept on changing its position from time to time. It goes to show that the conduct of the respondent-company in refusing to register the shares in the name of the petitioner-company was unfair and unjustified. The same was not bona fide. The petitioner-company may not have been able to carry on the business of setting up an electronic industry and may have decided to diversify in the business of investment of shares. Simply because the petitioner-company was unable to carry out the business of setting up the electronic industry and decided to diversify in the business of investment in shares would not mean that the act of acquiring shares by the petitioner-company for the purpose of investment was ultra vires the Act as contended by the respondent-company by way of preliminary objections. The second preliminary objection raised by the respondent-company that the conduct of the petitioner-company disentitles it to the discretionary relief for the reasons stated in the statement of objections is also untenable. The respondent-company has failed to show by any cogent evidence in spite of the opportunity given to it to do so.

18. For the reasons stated above, we hold that the respondent-company acted illegally and was not justified in refusing to register the shares in the name of the petitioner-company. The petitioner-company would be entitled to get the shares transferred in its name from the date of the purchase of the shares. The petitioner-company has, apart from claiming the rectification of the register of members to include the name of the petitioner-company in the shareholders of the respondent-company has also prayed for grant of such other and further relief as was just. In justness of the cause we feel that the petitioner-company is entitled to the dividend which may have accrued on the shares in question from year to year. It would be incidental and consequential to the transfer of the shares in favour of the petitioner-company. Offer made by the respondent-company that it is prepared to transfer the shares in the name of the company in future and that it is entitled to adjust the dividends due on the shares towards any sums payable by Shri T.K. Alva to the respondent- company, cannot be accepted. The Respondent-company failed to pay the dividend pertaining to the shares in question even though a letter (annexure-’M’) was written by the transferor of the shares to the respondent- company to pay the dividend to the petitioner-company. Despite this the respondent-company has not paid the dividend either to the petitioner or to the transferor. The claim of the respondent-company that it is entitled to appropriate the amount payable as dividend towards any of the amounts due to the company from its earlier managing director Shri T.K. Alva is illegal and without any authority of law.

19. A Division Bench of the Punjab and Haryana High Court in Ambala Electric Supply Co. Ltd. v. Walaiti Lal Kohli [1970] 40 Comp. Cas. (Punj. & Har.) 1121 under the similar circumstances in addition to the direction issued for rectifying the register of members had ordered the payment of dividend from the date the shares were ordered to be transferred being consequential to the transfer of shares. It was held :

“. . . As regards objection No. 4, we have gone through the petitions filed under section 155 of the Act and we find that in paragraph 21 of the petitions, a claim is clearly made for the dividend to be paid on the shares in dispute in all the three cases. Thus it is factually incorrect to say that no claim was made in the petitions for the dividend by the respondent, Walaiti Lal. Regarding the question that this court has no power under section 155 of the Companies Act to grant dividend, it is to be seen that the same is also without any force. When a finding is being recorded that Shri Walaiti Lal is entitled to get his shares transferred from the date on which he purchased the shares, it is incidental and consequential that the question of payment of dividend from that date onwards has to be decided by the Court. Section 155 of the Act even provides for the payment of damages in a suitable case. We fail to understand how this court has no jurisdiction to grant the dividend when it is found that Shri Walaiti Lal was entitled to get the shares transferred and get his name registered from the date of purchase of shares. This contention is without any merit and the same is liable to be rejected.” (p. 1127)

20. For the reasons stated above, we accept this petition and direct the respondent-company to rectify its register of members and include the name of the petitioner-company as transferee of the shares to the extent of the share purchased by the petitioner-company. The respondent- company is also directed to pay the dividend which might have accrued on the shares in question from year to year from the date of purchase of the shares with interest at 12 per cent per annum from the day the amount became due till its repayment. As the respondent-company has refused to enter the name of the petitioner in the register of companies without sufficient cause thereby causing loss to the petitioner-company, the petition is allowed with costs which are determined at Rs. 10,000. Notice of the rectification be filed by the respondent-company with the Registrar of Companies within 30 days from today as required under section 156.

[1990] 67 Comp. Cas. 533 (Bom.)

HIGH COURT OF BOMBAY

Shailesh Prabhudas Mehta

v.

Calico Dyeing and Printing Mills Ltd.

S.N. Variava J.

Company Petition No. 39 of 1985

February 27, 1987

S.U. Kamdar and G.B. Kedia for the Petitioner.

J.I. Mehta, A.N. Desai and V.B. Trivedi for the Respondent.

JUDGMENT

S.N. Variava J.—This petition is for rectification of the register of members of the respondent-company by deleting the name of one Prabhudas V. Mehta and substituting in its place and stead the names of the petitioners herein in respect of 100 shares of Rs. 100 each in the respondent-company bearing distinctive numbers 9101 to 9200. The said Prabhudas V. Mehta died intestate on August 26, 1974. Prior to his death, the said deceased P.V. Mehta was holding the abovementioned shares and was working as an employee of the respondent-company. There were certain disputes between the said P.V. Mehta and the directors of the respondent-company and efforts were made by the directors to purchase the shares held by him. Some negotiations had taken place, but they could not be completed in view of the sudden death of P.V. Mehta. It appears that subsequent to the death of P.V. Mehta, the petitioners also entered into negotiations for sale of shares in favour of the directors of the company and those negotiations were carried on for several years. On May 28, 1977, a letter had been addressed by the petitioners for transmission of the above-mentioned shares in favour of the petitioners as the heirs and legal representatives of the deceased. This letter is at exhibit "A" to the petition. As no reply was received to this letter, a reminder was also sent on June 27, 1977, which is at exhibit "B" to the petition. On July 9, 1977, an advocate's notice had also been addressed to the respondent-company in this behalf. Thereafter, it seems that as a result of negotiations, nothing further was done until June 23, 1984, when the respondent-company wrote a letter, exhibit "D", asking the petitioners to approach the respondent-company after obtaining a succession certificate. On September 23, 1984, letters of administration/heirship certificates were issued in favour of the petitioners by the Second Joint Senior Judge, Senior Division, Rajkot, inter alia, in respect of these 100 shares and even though the petitioners addressed two letters dated August 31, 1984, and September 16, 1984 (exhibits "E" and "F" to the petition), it was only on November 21, 1984, that the petitioners forwarded to the company the heirship certificate along with a notice exercising right of election to become a member of the company and complying with all the requisitions of the respondents as laid down in the company's letter dated September 19, 1984. Therefore, as admitted by Mr. Kamdar, learned counsel for the petitioners, it was only on November 21, 1984, that a requisition complete in all respects was made to the respondent-company for substituting the names of the petitioners in the records of the company in place and stead of the deceased. On December 29, 1984, a reminder was sent by the petitioners and even before two months were over, this petition was filed on January 14, 1985, under section 155 of the Companies Act. This petition was initially filed, inter alia, on the grounds that there is unreasonable delay in granting transfer of shares and that the respondent-company was trying to close down its business and dispose of substantially all its properties. The company filed an affidavit on April 6, 1985, pointing out that the company had decided to refuse the transfer of shares in the names of the petitioners in exercise of powers conferred under the articles of association and, thereafter, the respondent-company on April 9, 1985, passed a resolution refusing to register the transfer which resolution has been annexed to the affidavit of the respondent-company dated April 17, 1985. The resolution seeks to reject the said transmission without assigning any reasons. In the meantime, the petitioners had on April 10, 1985, filed an affidavit in rejoinder in which it was alleged that the refusal of the company was not supported by any resolution of the board of directors and that the company had exercised the power mala fide and arbitrarily and that the alleged non-communication was bad in law.

On the basis of the above affidavits, the petition came up for hearing and was dismissed by this court on April 17, 1985, on the ground that the petitioners had an alternate remedy under section 111 of the Companies Act, and, therefore, the petition was not maintainable. As against this order, the petitioners went in appeal, being Appeal No. 388 of 1985, which appeal was finally disposed of by the appellate court on December 2, 1985, by which order the said company petition had been remanded to this court for disposal. However, by the said order, liberty was reserved to the parties to file further affidavits if they so desired. The respondent-company thereafter filed two affidavits, one dated January 29, 1986, and the second dated February 18, 1986, and the petitioners have filed an affidavit dated February 27, 1986. It is under these circumstances that the petition has come up for hearing today.

Mr. Kamdar has argued a very interesting point of law. His first submission has been that the time limit provided under article 26 of the articles of association of the respondent-company, as read with section 111(2) of the Companies Act, was the maximum time permitted and that if the power to decline to register is not exercised within the stipulated period, that is the period of two months, then that power is lost. Mr. Kamdar has also submitted on merits that an exercise of power of refusal to transmit shares after a period of time is itself an indication of mala fide exercise of power and that a power given under the articles of association to refuse registration of shares can be exercised only in cases where the directors can be said to have acted in the interest of the company.

The first contention of Mr. Kamdar is based on articles 26 and 34 of the articles of association of the respondent-company and section 111 of the Companies Act, 1956, which provide as follows :

"26. Subject to the provisions of section 111 of the Act, the directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of any share, whether or not it is a fully paid share. If the directors decline to register a transfer of any shares, they shall, within two months after the date on which the transfer was lodged with the company, send to the transferee and the transferor notice of the refusal."

"34. Any person becoming entitled to a share in consequence of the death or insolvency of a member may, upon such evidence as to the title being produced as may from time to time be required by the directors, and subject as hereinafter provided, elect, either to be registered himself as holder of the share (or to make such transfer of the share) as the deceased or insolvent member could have made. The directors shall, in either case, have the same right to decline or suspend registration as they would have had, if the deceased or insolvent member had transferred the share before his death or insolvency."

"Section 111 of the Companies Act, 1956, reads as follows :

Power to refuse registration and appeal against refusal.—(1) Nothing in sections 108, 109 and 110 shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company.

(2) If a company refuses, whether in pursuance of any power under its articles or otherwise, to register any such transfer or transmission of right, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be.

If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.

(3) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be ; may, where the company is a public company or a private company which is -a subsidiary of a public company, appeal to the Central Government against any refusal of the company to register the transfer or transmission, or against any failure on his part, within the period referred to in sub-section (2), either to register the transfer or transmission or to send notice of its refusal to register the same.

(4) An appeal to the Central Government under sub-section (3) shall be made—

(a) in case the appeal is against the refusal to register a transfer or transmission, within two months of the receipt by him of the notice of refusal ; and

(b) in case the appeal is against the failure referred to in sub section (3) within two months from the expiry of the period referred to in sub-section (2).

(4A)Every appeal under sub-section (3) shall be made by a petition in writing and shall be accompanied by such fee not exceeding fifty rupees as may be prescribed by the Central Government.

(5) The Central Government shall, after causing reasonable notice to be given to the company and also to the transferor and the transferee or, as the case may require, to the person giving intimation of the trans mission by operation of law and the previous owner, if any, and giving them a reasonable opportunity to make their representations, if any, in writing, by order, direct either that the transfer or transmission shall be registered by the company or that it need not be registered by it ; and in the former case, the company shall give effect to the decision within ten days of the receipt of the order.

(5A) Before making an order under sub-section (5) on an appeal against any refusal of the company to register any transfer or transmission, the Central Government may require the company to disclose to it the reasons for such refusal, and on the failure or refusal of the company to disclose such reasons, that Government may, notwithstanding anything -contained in the articles of the company, presume that the disclosure, if made, would be unfavourable to the company.

(6) The Central Government may, in its order aforesaid, give such incidental and consequential directions as to the payment of costs or otherwise as it thinks fit.

(7) All proceedings in' appeals under sub-section (3) or in relation thereto shall be confidential, and no suit, prosecution or other legal proceeding shall lie in respect of any allegation made in such proceedings, whether orally or otherwise.

(8) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company, is transmitted by a sale thereof held by a court or other public authority, the provisions of sub-sections (3) to (7) shall apply as if the company were a public company :

Provided that the Central Government may, in lieu of an order under sub-section (5), pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order require the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him therefor or such other sum as the Central Government may determine to be a reasonable compensation for the right in all the circumstances of the case.

(9) If default is made in giving effect to the order of the Central Government within the period specified in sub-section (5) or to a direction of that Government given under the proviso to sub-section (8), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand' rupees, and with a further fine which may extend to one hundred rupees for every day after the first during which the default continues."

It is the submission of Mr. Kamdar that under article 34, on the death of the deceased, the petitioners are the persons entitled to the shares in consequence of the death and that in this respect the directors of the respondent-company have the same rights to decline or suspend registration as if the deceased had transferred shares before his death which is in the manner laid down under article 26. Under article 26 as well as under section 111(2) of the Companies Act, there is a duty cast on the respondent-company to send to the transferee, as well as transferor, notice of refusal. According to Mr. Kamdar, this necessarily implies that there must be first a refusal and, according to Mr. Kamdar, since a notice of intimation of refusal has to be compulsorily sent within a period of two months, it automatically follows that the right of refusal must be exercised within this period of two months. According to Mr. Kamdar, if the directors have not exercised this right of refusal within the prescribed period of two months by passing an appropriate resolution, then the said right is lost for ever as the period of two months is the outer limit available to the directors. Further, according to Mr. Kamdar, on this right being lost, the transferee gets an absolute and unrestricted right to have the share register rectified by having his name entered therein. Mr. Kamdar submita that on November 21, 1984, a requisition complete in all respects was sent to the respondent-company and it was only by their purported resolution dated April 9, 1985, that the directors have sought to refuse and in the submission of Mr. Kamdar, therefore, the right of the directors to refuse was lost within the period of two months after November 21, 1984, and the refusal and/or the resolution passed on April 9, 1985, is of no effect and void as against the petitioners who now have an absolute right vested in them to have the shares transferred in their names. Mr. Kamdar in support of his contention has relied on an English decision in the case of Swaledale Cleaners Ltd., In re [1968] 1 All ER 1132 (Ch D), wherein Lord Justice Pennycuick, whilst considering whether by reason of delay the power of veto is lost, has held as follows (at page 1136) :

"(i) ....the period of two months mentioned in clause 19 of Table A under the Act of 1929, and specified in section 78 of the Act of 1948, may, I think, safely be taken as the outside limit after which there is unnecessary delay.

(ii) The power of veto is a restriction on the right of alienation and as such must, I think, be exercised at the proper time for its exercise, if it is to be exercised at all. For this purpose, the proper time is the occasion on which the transfers are placed before the board for confirmation if—and it seems to me only if—they are so placed without unnecessary delay. If there is unnecessary delay in placing the transfers before the board, the power of veto must, I think, be regarded as lost, so that the right of transfer becomes unrestricted. It .cannot be the law that the board of a company can improperly delay considering a transfer and then when driven to do so, as for instance here, by the launching of a motion, exercise the power of veto......"

This case came to be considered by the Court of Appeal as reported in Swaledale Cleaners Ltd., In re [1968] 3 All ER 619. It may be stated that the Court of Appeal, whilst dismissing the appeal, has watered down the broad proposition laid by Lord Justice Pennycuick by stating as follows (at page 622) :

"As to unreasonable delay, I take the view of the judge (and it seems to me merely, if I may say so, common sense), that, as there is an obligation on directors who refuse to register a transfer to inform the persons who are aggrieved within two months of such a refusal, the Act of 1948 quite clearly indicates that a reasonable time, other things being equal, within which directors must make up their minds either to accept the transfer or to refuse it must be the two months within which they have to make an answer. Therefore, it does seem to me that waiting for four months without any decision at all was an unreasonable delay. One has, however, to go one step further than that ; one has to say that unreasonable delay has destroyed the right so that when, in December, 1967, the new board purported to refuse, they were no longer in a position to exercise that discretion which, if they had acted promptly, undoubtedly would have been theirs, to consider and, if they thought fit in the interests of the company, to refuse registration of the transfers" (emphasis supplied).

This case was under section 78 of the English Companies Act which provides as under :

"(1) If a company refuses to register a transfer of any shares of debentures, the company shall, within two months after the date on which the transfer was lodged with the company, send to the transferee notice of the refusal."

It is to be noted that section 78, unlike section 111 of our Act, does not provide for any penalty nor for any appeal.

Mr. Kamdar, relying upon these authorities, states that these clearly support his contention that once the period laid down under article 26 and section 111(2) of the Companies Act expires, the right of veto is lost and that it was not open to the respondent-company to pass any resolution as purported to be done on April 9, 1985, as by that time an absolute right to have the shares transferred in the names of the petitioners had already accrued in their favour. Mr. Kamdar has also referred to the case of Vidyasagar Cotton Mills Ltd. v. Mt. Nazmunnessa Begum [1964] 34 Comp Cas 704 (Cal), wherein it is, inter alia, laid down as follows (at page 711) :

"Mr. Sen next contended that there has been no default or unnecessary delay within the meaning of section 155(1)(b) and, consequently, the court has no jurisdiction to pass the order of rectification under section 155. On the point of unnecessary delay, the practice is well stated in Buckley on the Companies Acts, 12th edition, page 290, thus : 'A transfer to which no objection can be made ought to be confirmed by the directors at the first meeting at which in the ordinary course of business it can be confirmed, and thereupon registered. If not so confirmed, there is "unnecessary delay".' ....The section thus covers all cases of improper refusal or neglect. It has even held that default on the part of the company is not essential and that if upon deciding the question of legal title it appears that the right name is not registered, there is jurisdiction to rectify (see Buckley on the Companies Acts, 12th edition, page 263 : Ex parte Ward [1868] LR 3 Exch 180 and Diamond Rock Boring Co., In re [1877] LR 2 QBD 463. In the case last cited, the dispute was between two rival claimants and the company did not oppose, whereas in the case before us the company opposes the rectification....."

However, this authority deals with the powers of the court under section 155 of the Companies Act and does not lay down what Mr. Kamdar is urging. Mr. Kamdar then cited the case of State of Orissa v. Indian Chemical Products Ltd. [1958] 28 Comp Cas 500 (Orissa) where, inter alia, it is laid down that the attitude of the company in refusing to register was not bona fide. However, that is on the facts of that particular case and does not avail Mr. Kamdar much as far as this particular case is concerned.

Mr. Mehta, on the other hand, has argued that no such implication as urged by Mr. Kamdar can be presumed. Mr. Mehta argues that if the Legislature intended that on the expiry of a period of two months, the right of refusal was to come to an end and/or that an absolute right was to be created in favour of a transferee, then the Legislature would have so categorically provided. Mr. Mehta submits that when the Legislature wants to provide for a deeming provision, the Legislature always so provides. According to Mr. Mehta, neither under article 26 nor under section 111(2) of the Companies Act was there any provision regarding a vesting of right in favour of the transferee on the expiry of a period of two months or a restriction on the right of refusal of the company. According to Mr. Mehta, what section 111 of the Companies Act provided was that on a refusal, intimation of such refusal should be sent to the transferee and the transferor and that if there was a failure on the part of the company to send such an intimation, then a penalty would be levied as laid down under sub-clause (2). According to Mr. Mehta, if an absolute right was to be created in favour of a transferee on the expiry of two months, then there is no reason why a penalty should be levied on the company. Mr. Mehta also drew my attention to the case of Amraoti Electric Supply Co. v. R.S. Chandak [1954] 24. Comp Cas 465 (Nagpur) where a Division Bench of the Nagpur High Court has, inter alia, provided as follows (at page 471) :

"It was, however, contended that as a default was made in intimating the refusal to register the transfer in excess of the period specified in subsection (4) of section 34 of the Indian Companies Act, the company was bound to register the transfer. In this connection, it may be noted that the application for registering the transfer was returned by the company within one month of the date of its presentation. This was tantamount to an intimation of the refusal to register the transfer of the shares. It is also clear from sub-section (5) that a breach of sub-section (4) only entails a penalty and does not entitle the transferee to an automatic rectification of the register."

Mr. Mehta further submits that section 111 also provides for a right of appeal to the Central Government and that the matters in respect of which appeals are provided for are, inter alia, a failure to send a notice of refusal. According to Mr. Mehta, if on a failure to send a notice within the time stipulated an absolute right vested in the transferee, then the question of the transferee having to file an appeal before the Central Government and the Central Government thereafter deciding whether or not a transfer should be registered in favour of the transferee would not arise at all. These arguments of Mr. Mehta have a lot of substance. It is to be noted that section 111 of the Companies Act does not specifically provide for the vesting of any right in favour of a transferee or of the right of refusal of the company coming to an end at the expiry of the period stipulated therein. In fact, all that section 111(2) provides is that in the event of a company refusing to register any transfer or transmission, it must within two months send notice of intimation of its refusal to the transferor or transferee. Sub-section (2) further provides that if such notice is not sent, then every officer of the company who is in default shall be punishable with fine as stipulated therein. Thus, this section merely deals with a right to receive a notice and the consequence of non-sending of a notice is a penalty. Further, under sub-section (3), one of the matters on which an appeal can be filed to the Central Government is non-sending of a notice and Mr. Kamdar does not dispute that the appeal which may be filed may be only in respect of non-sending of a notice and even in that case, the Central Government under sub-section (5) will have the power to decide whether or not the transfer or transmission should be registered. If, as Mr. Kamdar submitted, an absolute right vested in a transferee, then the question of the Central Government having power to decide in an appeal of the sort mentioned hereinabove would not arise because in that case, automatically, the transferee would have a right to insist that his name be registered. Realising this difficulty, Mr. Kamdar modified his arguments to say that it is the right to refuse without assigning any reason that would be lost under section 111 but that even after the period of two months, if there was any valid ground for refusal, e.g., the transfer forms not being properly stamped, then in that event, the company could refuse. Thus, even according to Mr. Kamdar, no absolute right would vest in the transferee and the company could under certain circumstances act even beyond the period of two months. But this argument is not acceptable as section 111 does not make any such distinction and says that only in cases where the company is exercising its right to refuse without assigning reasons, notice of refusal shall be given within two months and/or that in other cases notice can be sent later. Thus, it is clear that what was intended under section 111 was to provide for a notice of refusal to be sent and that the failure thereof only entailed penalty. This view is also supported by the observations of the Division Bench of the Nagpur High Court in the case of Amraoti Electric Supply Co. v. R.S. Chandak [1954] 24 Comp Cas 465 (Nagpur). Mr. Kamdar, however, contended that these observations were made on the facts of that particular case. What Mr. Kamdar, however, overlooks is that the observations were made in answer to a similar argument as in this case, i.e., whether on a failure to send notice of refusal within the stipulated period, the right of refusal is lost. Under the circumstances, the argument of Mr. Kamdar that on the expiry of a period of two months, the right of veto is lost and that the petitioners are as a matter of right entitled to have the shares transferred to their names and to have the register rectified accordingly cannot be accepted and is rejected.

The second submission of Mr. Kamdar was that in any case, reasons given by the respondent-company for refusing to register the transmission and transfer shares were such that it cannot be said that the directors had acted in the interest of the company. According to Mr. Kamdar, the exercise of the power of refusal to transmit shares after such a long period was itself a clear indication of a mala fide exercise of power on the part of the directors of the company and that in all such cases where the directors purport to give reasons, the court can and should test the reasons and see whether the refusal was in the interest of the company or whether it was motivated out of personal interest of the directors of the company. Mr. Kamdar has, for this purpose, relied on the case of Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Comp Cas 1 (SC) wherein it has been laid down that where a company purports to give reasons, it was open to the court to consider whether the reasons were legitimate and/or genuine and whether the directors had acted in the interest of the company. Mr. Kamdar also relied upon this authority to show that the reasons given in that case were not considered to be legitimate by the Supreme Court and he submits that in the present case also reasons of a similar nature are given and that they should also be rejected on the reasoning given by the Supreme Court. It may only be mentioned at this stage that the proposition that the court must consider the reasons and test them is accepted. However, whether the reasons given are to be accepted or not has to be tested on the facts of each particular case. Mr. Kamdar also relied on the case of LIC v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC) wherein in paragraph 83, the earlier judgment of Bajaj Auto Ltd. [1971] 41 Comp Cas 1 (SC) is cited with approval and it is laid down as follows (at page 617) :

"....The nature and extent of the power of the company to refuse to register the transfer of shares has been explained by this court in Bajaj Auto Ltd. v. N.K. Firodia [ 1971 ] 41 Comp Cas 1, 6, 7 (SC). It was said that 'even if the articles of the company provided that the directors might at their absolute and uncontrolled discretion decline to register any transfer of shares, such discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal, in the facts and circumstances of the case. In the exercise of that discretion, the directors will act for the paramount interest of the company and for the general interest of the shareholders because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive.' Where the articles permitted the directors to decline to register the transfer of shares without assigning reasons, the court would not necessarily draw adverse inference against the directors but will assume that they acted reasonably and bona fide. Where the directors gave reasons, the court would consider whether the reasons were legitimate and whether the directors proceeded on a right or wrong principle. If the articles permitted the directors not to disclose the reasons, they could be interrogated and asked to disclose the reasons. If they failed to disclose that reason, adverse presumption could be drawn against them."

Mr. Mehta, on the other hand, had submitted that unless it if shown that the power of refusal was exercised oppressively, capriciously or corruptly or in some ways mala fide or for any collateral purpose, the court cannot overrule the decision of the directors and substitute its own judgment to that of the directors. Mr. Mehta has in this behalf relied upon the case of Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala [1961] 31 Comp Cas 387 (SC) and the case of Balwant Transport Co. Ltd. v. Y.H. Deshpande, AIR 1956 Nag 20. In support of this contention, Mr. Mehta also points out that in fact no allegations of mala fides are made in the petition at all, and for that reason also the court should not interfere.

In the present case, the reasons are to be found in the affidavits dated April 6, 1985, January 29, 1986, and February 18, 1986. Briefly summarised, the reasons given by the company in these affidavits are that at an earlier stage, there had been in fact negotiations between the deceased-shareholder and the company for the purposes of enabling the company to buy over the shares of the deceased shareholder and that at one stage it had been agreed that the directors would buy over these shares for adequate compensation, and, therefore, it was alleged by the company that this petition had been filed merely with a view to pressurise the directors of the company into paying the petitioners a much higher compensation for the said shares. According to Mr. Kamdar, this statement clearly shows that the real reason for refusing the transfer is because the directors want to buy over the shares at an undervalue, and, therefore, they are not willing to transfer the shares in the names of the petitioners. I do not think that from the statement made by the company any such intention can be presumed. The other reason which has been stated in the affidavit is that the deceased shareholder was in fact one of the directors of the company and an employee of the company. However, for a few years prior to his death, the deceased had behaved in a manner prejudicial to the interest of the company and had attempted to hamper the working of the company. Mr. Kamdar points out, and to my mind rightly, that while such an allegation is made, no particulars or details of this allegation have been given till date even though the deceased died in 1974. However, I do not agree with Mr. Kamdar that this itself shows mala fides on the part of the company. Another reason given is that the deceased had an interest along with other directors of the company in Calico Industrial Engineers, Sonex Machine Tools, Rajkot Sonex and Jacobi and Power Tools and Equipment Company, Rajkot, and that in respect of all these concerns also disputes and differences had arisen between the deceased and the other directors and that even during the lifetime of the deceased, petitioner No. 1 had taken an active part in all these disputes and had always taken a very obstinate stand. It is also mentioned that even in 1976, the first petitioner had approached one B.M. Kothari and had requested him to act as a mediator and that the said Mr. Kothari had agreed to act as a mediator. However, it was the first petitioner who refused to co-operate, and, therefore, mediation could not take place. In this regard, the report of the mediator was shown to me which clearly shows that it was the first petitioner who had refused to permit the mediation to proceed and it was under those circumstances that the mediator declined to act any further. Mr. Kamdar submits that these reasons are no grounds for refusing transmission. However, I cannot agree with Mr. Kamdar on this. It is very clear that between the deceased and the other directors of the company there were disputes and that even now amongst the petitioners and the various concerns mentioned hereinabove, there are disputes which have resulted, I am told, in at least two suits being filed in Rajkot courts and also certain other proceedings. The company has also set out in the affidavit dated February 18, 1986, certain facts which had come to their knowledge regarding enquiries which were being made by the deceased and the petitioners, according to the company, with mala fide intention. According to the company, the inimical attitude of the petitioners can also be seen from the fact that in the letter dated May 23, 1977, which they addressed to the company and which is at exhibit "A" to the petition, wherein the petitioners purportedly asked for variation of shares, they make allegations of mismanagement and not auditing of accounts and threaten action and even go to the extent of addressing this letter to the Registrar of Companies for investigation. Similarly, even in the letter dated June 27, 1977, which is at exhibit "B" to the petition wherein the petitioners asked that the meeting be adjourned, again a threat is given and the letter is addressed to the Registrar of Companies. According to the company, it is very clear that the petitioners had animosity towards the company and its directors and that the petitioners were, therefore, undesirable persons and it was not in the interest of the company to register a transfer in their favour. In view of the fact that there are a number of disputes pending and counter allegations between the company and its associate concerns and the petitioners merely on affidavits and without evidence, it cannot be said that the decision of the directors to refuse transmission of shares in favour of the petitioners is not bona fide and/or that it is for an ulterior motive and that it is not in the interest of the company. Further, in the absence of any such allegation in the petition, the petitioners cannot be permitted to now urge any such mala fides. Mr. Kamdar, however, submits that in the petition it is mentioned that the company is trying to close down and dispose of all its properties including the shares in question and the shares are not transferred in the names of the petitioners as awkward questions may be asked by a shareholder. In this behalf, Mr. Kamdar has drawn my attention to the suits filed against the company in this court, one for specific performance of an agreement to sell the assets of the company and another for specific performance of an agreement to sell all the shares in the company. Mr. Mehta objects on the ground that no reference has been made to any such suits and that Mr. Kamdar is not entitled to rely upon any such proceedings. I have, however, permitted Mr. Kamdar to show me the suit proceedings, but even then merely by perusing these proceedings and from the fact that such suits have in fact been filed, mala fides cannot be imputed. It is possible that in a separate suit or any other proceeding which the petitioners may adopt, after evidence and proper investigation, the petitioners may be able to sustain the plea of mala fides and, therefore, while I reject this petition, I make it clear that it shall in no way affect the petitioners' right to file a suit or adopt such other proceedings as they may be advised.

The petition accordingly stands dismissed. There will, however, be no order as to costs.

[2001] 103 COMP. CAS. 557 (DELHI)

HIGH COURT OF DELHI

Vinod K. Patel

v.

Industrial Finance Corporation of India Ltd.

MS. USHA MEHRA, J.

CO. A(B.)1 OF 1997

JANUARY 27, 1999

Jatin Zaveri for the Appellant.

S. Khan for the Respondents.

JUDGMENT

Ms. Usha Mehra, J.—Shri Vinod K. Patel, the appellant has assailed the impugned order of the Company Law Board (in short "the Board"), inter alia, on the ground that the Board could not have dismissed his appeal on the ground of maintainability. It was the appellant who felt aggrieved by illegal and unlawful action of the respondent-company, thereby not transferring the shares sold by the petitioner to the transferee. Even though the appellant was neither the transferor nor the transferee, still being an aggrieved person because of the action of the respondent, his appeal was maintainable under the provisions of sub-section (2) of section 111 of the Companies Act (in short "the Act").

In order to appreciate the points raised, let us have a quick glance at the facts of this case. The appellant herein had sold 100 shares to one Shri Kanwarpal Singh. The shares were delivered along with the transfer deed on which the appellant put his signatures witnessing the execution. The said Kanwarpal Singh lodged the shares with the registrar as well as with the transfer agents for the registration of transfer of the said shares in his name. No reply was received from the respondents in spite of repeated reminders nor were the shares transferred. However, in March, 1995, an envelope was received from the respondent containing the share certificate, transfer deed and other documents. The share certificates indicate that the respondent transferred those shares in the name of Shri Kanwarpal Singh by affixing the stamps. This the respondents did after satisfying" themselves about the authenticity of the signatures of the transferor, namely, Smt. and Shri Suresh G. Thakkar. Hence, the subsequent action of the respondent in refusing the transfer in the name of Shri Kanwarpal Singh was not justified. On the respondent refusing transfer, Shri Kanwarpal Singh approached the appellant. The appellant replaced those 100 shares sold to Shri Kanwarpal Singh by issuing another set of 100 shares. Because of the refusal to transfer those 100 shares by the respondent, the appellant suffered financially. He, therefore, approached the Board by filing an appeal under sub-section (2) of section 111 of the Act.

By the impugned order the Board found that since the appellant was neither the transferor nor transferee hence he had no right to file the petition. He was also not the person who had given intimation of the transmission by operation of law. In this regard, reference can be made to the provisions of sub-section (2) of section 111 of the Act, which is reproduced as under;

"(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Company Law Board against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1), either to register the transfer or transmission or to send notice of its refusal to register the same".

Relying on the above provision, the appellant contends that the appeal ought to have been accepted by the Board because even if the appellant was not a transferor or a transferee, still being an aggrieved person his appeal was maintainable. He was the one who sold the shares to Shri Kanwarpal Singh on behalf of the transferor, i.e, Smt. and Shri Suresh G. Thakkar. Therefore, in the absence of the transferor or transferee he was the aggrieved person who suffered heavily financially.

The expression "aggrieved person" would include the transferor of the shares who handed over the documents for the transfer. It was the transferee who lodged the shares certificate with the company. It was these 100 shares which were refused by the company to be transferred in the name of the transferee on account of the signatures of the transferor not tallying.

The question for consideration is whether in the present appeal any question of law has been raised. The contention of counsel for the appellant that "any other person" appearing under section 10F of the Act would also include besides the transferor or transferee, a person whose right has been affected. To my mind, this argument is without substance. Admittedly, this appellant being neither the transferor nor transferee nor the person giving intimation of the transmission his appeal could not have been covered under the provisions of sub-section (2) of section 111 of the Act. The appellant's status was merely an intermediary in the transaction. He never made any request to the company for registration of the shares. Because of this transaction if the appellant has suffered some monetary loss, that prayer could not have been covered under section 111(2) of the Act. Since the substantive prayer could not have been invoked by the appellant hence the ancillary prayer of compensation for monetary loss could not have been claimed. The substantive relief could have been registration of transfer of shares, which relief was not sought by the appellant. In fact no legal infirmity has been pointed out in the approach of the Board in the impugned order. Having failed to make out any legal infirmity in the impugned order of the Board, appeal would not lie to the High Court. Section 10F of the Act which is reproduced as under provides:

"Appeal against the orders of the Company Law Board.—Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days".

This appellant has not been able to formulate any question of law which requires consideration. As already observed above, the appellant being merely a intermediary in the transaction, no legal right had accrued in his favour to file appeal before the Board. The word "any person" appearing under section 10F of the Act has direct reference to the provisions of section 111(2) of the Act. Against the decision of the Board only that person can file appeal who had a right to file appeal to the Board and against whom decision had been given by the Board. But a person other than the transferor or transferee cannot file appeal before the Board. This shows that any person aggrieved appearing in section 10F of-the-Act has a direct nexus with the transferor or the transferee as the case may be. A stranger to sub-section (2) of section 111 of the Act by no stretch of imagination can be called "any person aggrieved". The word "aggrieved" refers to a person having substantial grievance who has been denied some personal or property rights. Merely because the transferor and transferee choose not to prefer appeal before the Board was no ground to permit the appellant to prefer appeal on account of his alleged pecuniary loss. He cannot be called an aggrieved person. Refusal to transfer the share certificate was not to the appellant nor had he demanded the same. Therefore, by no stretch of imagination can the appellant be called an aggrieved person. He never claimed substantial relief before the Board nor did this appeal show any cause of action arising under section 111(2) of the Act. This appeal does not raise any question of law by a person aggrieved by the order of the Board. He being neither transferor nor transferee cannot be called the person aggrieved.

Even otherwise, this appeal is barred by time. The appellant ought to have filed the appeal within sixty days from the date of communication of the decision or order of the Board. The impugned order is dated March 6, 1997, whereas the appeal was filed on May 17, 1997, i.e. beyond the period of sixty days. No explanation has been given for this delay. In fact no application seeking condonation of delay has been filed nor sufficient cause shown in the appeal for condoning the delay.

For the reasons stated above, it can be said that this appeal by the present appellant is not maintainable and it is also barred by time. The same is, accordingly, dismissed.

KARNATAKA HIGH COURT

COMPANIES ACT

[1995] 5 SCL 212 (KAR.)

HIGH COURT OF KARNATAKA

Karnataka Theatres Ltd.

v.

Venkatesan

RAJENDRA BABU, J.

WRIT PETITION NOS. 6162 TO 6178 OF 1988

MARCH 20, 1995

Section 637B of the Companies Act, 1956 read with article 226 of the Constitution of India - Condonation of delays in certain cases - Whether exercise of discretion by CLB in granting condonation of delay in filing appeal by respondent could be interfered with in a proceeding under article 226 -Held, no

Section 111 of the Companies Act, 1956 - Register of members - Rectification of - Board of directors of petitioner-company declined to register certain shares acquired by respondent - CLB allowed respondents appeals on grounds, Inter alia, that (a) shares were fully paid up; (b) price paid by transferees was not higher than price paid in respect of certain forfeited shares; (c) payment of higher price was not to detriment to company - Whether CLB was justified - Held, yes - Whether company could exercise no power other than available under articles of association or Act - Held, yes - Whether even assuming that there was residuary power either in Act or articles, when company found reasons for its refusal to register transfer of shares that reason alone would have to be examined as good or bad and CLB had done that in instant case -Held, yes

FACTS

The petitioner-company at the Board of Directors' meeting decided not to register certain shares said to have been acquired by the first respondent on the ground that one RP had been making attempts to corner the shares by offering exorbitant price therefor. The CLB held that the petitioner had not made out a case to establish that the respondents were undesirable persons warranting refusal of registration of transfer of shares in their names and that the high consideration paid for the transfer was not justifiable ground for refusing to register the shares. According to the CLB, the company should not feel aggrieved because of any particular amount being mentioned as consideration in the instrument of transfer since such consideration amount was of no significance insofar as the finances or the paid-up capital of the company were concerned. They also took the view that there was no material to hold that the respondent was acting at the instance of RP. The CLB accordingly allowed the respondents' appeal after condoning the short delay in filing the same.

On writ:

HELD

Section 111(4) enables a transferee who has purchased shares and applies for registration to prefer an appeal on intimation of refusal by a company as provided therein within a period of two months thereof. Such an appeal will have to be filed before the Central Government. At the relevant time the Central Government delegated the power under section 111 to be exercised by the CLB subsequently. Hence, in these circumstances appeals were filed before the CLB. Thus, all the powers which vested with the Central Government in the matter of an appeal under section 111 could be exercised by the CLB in that regard. Therefore, if power under section 637B was available to the Central Government, the same power was available to the CLB as well In that view of the matter, there was no substance in the contention urged on behalf of the petitioner that in these cases section 637B could not be applied. Condonation of delay in section 637B is with reference to an application. An appeal could be filed by a memorandum or a petition or an application or in any other manner. If an application could be understood in a generic sense as a prayer made to an authority for some relief to set aside an order of another authority and such an application is under the statute, it would amount to an appeal. Section 637B squarely applies to the proceedings before the CLB. If that provision is applicable, the exercise of discretion by the Board in that regard could not be interfered with because it had given certain cogent reasons such as the shortness of delay and advancing cause of justice by removing hardship that might arise, if delay was not condoned. Thus, such an order could not be interfered with in a proceeding under article 226 of the Constitution.

Further in the instant case, the reasons given by the Board of Directors were that the shares had been sold at a high price and, therefore, it would not be in the interest of the company to allow the transfer. Possibly what lurked in their minds was that RP had been behind the sales but that was not spelt out in any of the resolutions. All that was stated in the resolutions was that in view of the legal opinion tendered it would not be appropriate to transfer the shares and the legal opinion tendered had been considered in detail by the CLB, i.e., that the transaction could not be considered to be genuine in view of the high price paid for the shares. It was not at all stated that high price for the shares were given by RP for and on behalf of the transferees and transferees were holding the same benami That was not the case put forth by them at the time when the Board of Directors passed the resolutions. Therefore, in the instant case, when reasons were set out by the company for refusal to transfer the shares, the question of placing further material before the CLB might not arise because reasons had already been disclosed by them. If reasons had not been disclosed, perhaps the CLB would have called upon them to disclose the reasons or company itself could have disclosed the reasons. However, the material sought to be placed before the CLB had also been considered by the CLB.

The CLB took note of the following circumstances: shares were fully paid up, the price paid by the transferees was not higher than the price paid in respect of certain forfeited shares. The payment of higher price was not to the detriment of the company. No material was placed that the transfer of shares had taken place at the instance of RP and even if it were held that they were held benami, it could not allow the transaction. None of these reasons could be said to be not based on material on records; it could not be said that the CLB's decision was not based on irrelevant material or had any relevant material eschewed from consideration. In that view of the matter, the view taken by the CLB in this regard was not incorrect. The company cannot exercise any power other than available under articles or Act. Neither the Act nor articles gives any power which is residuary in character. Even assuming that there is residuary power, when the company was found reasons for its refusal to register transfer of shares, that reason alone will have to be examined as good or bad. That was exactly what the CLB had done in this case. Hence, the petitions were to be dismissed.

CASES REFERRED TO

Lingamma v. State of Karnataka AIR 1982 Kar. 18, Nagendranath Dey v. Suresh Chandra Dey AIR 1932 PC 165, Naveen Kumar v. Jaganjiva Hegde [Appeal No. 6 (SR) of 1986], Ossor Estates v. Union of India [W.A. No. 1335 of 1988 dated 9-1-1991], Coalport China Company (John Rose & Co.) Ltd., In re [1895-9] All E.R. Rep. 2021, Weinbergers. Inglis [1918-19] All E.R. Rep. 1263, Smith & Fawcett Ltd., In re [1942-l] All E.R. 542, Charles Forte Investments Ltd v. Amanda [1963-2] All E.R. 940, Luxmi Tea Co. Ltd v. Pradip Kumar Sarkar [1990] 67 Comp. Cas. 518 (SC) and Bajaj Auto Ltd. v. N.K. Firodia AIR 1971 SC 321.

S.G. Sundaraswamy and Naganand for the Petitioner. T.K. Seshadri and K.A. Ariga for the Respondent.

ORDER

1. These petitions are directed against an order made by the Company Law Board (hereinafter referred to as 'CLB') in appeals filed before it under section 111 of the Companies Act, 1956 (for short the Act) against the decision of the Board of Directors of the petitioner-company (hereinafter referred to as BOD of 'Company') declining to register certain shares of the company said to have been acquired by the first respondent in each of these cases.

2. Before the CLB the petitioner contended that the appeals filed by first respondent in each of these cases before it were barred by limitation, as the same were not filed within a period of two months from the date of receipt of the petitioner's letter regarding refusal to transfer shares. On this aspect of the matter, the Board classified the appeals into three categories :

(i) that there are certain appeals in which there was no delay at all;

(ii) certain appeals in which there was delay; and

(iii) certain other appeals have been forwarded to the Board within the prescribed time, but reached the Board a little late.

On an overall consideration of the matter it held that in order to avoid undue hardship to the appellants before it, the CLB was inclined to condone the 'short delay'.

3. Attacking this finding, the learned counsel for the petitioner urged that there is no specific provision for condonation of delay in the matter of an appeal filed under section 111 of the Act on any ground including one of hardship. Elaborating his submission, the learned counsel for the petitioner stated that section 111 provides for power to refuse registration and also the appeal that could be filed against such refusal. The decision as to refusal of registration of transfer of any share should be communicated within two months from the date of delivery of intimation of such refusal and if there is any default in complying with the aforesaid provision, the company and every officer of the company would be punishable with fine, which may extend to Rs. 50 per day during the period of default continues. He invited my attention to section 111(4) thereof. It provides that in case an appeal is filed against such refusal to transfer the shares, the same should be made within a period of two months from the date of receipt of the notice of refusal. In the present case it is submitted that at the relevant time there was no provision made in the Rules framed by the Central Government for the conduct of the business of the CLB empowering them to condone the delay. It is also submitted that under section 637 of the Act there should be a specific delegation of powers to the CLB by the Central Government to exercise such powers. Neither section 111 nor section 637B is subject-matter of delegation. Rules framed under section 642 do not provide for condonation of such delay. It is therefore submitted that there is no scope for condoning the delay at all in the case of the appeals which are filed beyond the time fixed in section 111(4) of the Act. He further contended relying upon a decision of this Court in Lingamma v. State of Karnataka AIR 1982 Kar. 18, that when there is no specific power conferred upon an authority functioning under a special statute no inherent power is available for condonation of delay, however hard the circumstances in a given case may be.

4. The learned counsel for the first respondent in each of these cases submitted that this is a case where CLB had exercised its powers squarely under section 637B of the Act, which opens with a non obstante clause and has overriding effect on all other provisions of the Act and that the power that is exercised by the CLB is that of the Central Government itself in the matter of entertaining an appeal and therefore that provision would be attracted. He explained that section 637B of the Act though refers to an application includes an appeal and for that purpose relied upon a decision in Nagendranath Dey v. Suresh Chandra Dey AIR 1932 PC 165. He further submitted that there is only one case in which there is one day's delay, that is M. Naveen Kumar v. Jaganjiva Hegde [Appeal No. 6 (SR) 1986], and all appeals were filed in time or communication in that regard had already been despatched by the party within the time prescribed under law and in that context relied upon a decision of this Court in Ossor Estates v. Union of India [W.A. No. 1335 of 1988, dated 9-1-1991], wherein this Court held that what is required in the relevant provision is to make an appeal and not actual presentation of an appeal. The moment the party concerned despatches such an appeal by post, it must be deemed that such an appeal has been made. Based on that principle enunciated by this Court, the learned counsel contended that in these cases there is no difficulty at all in coming to the conclusion that appeals had been made within that time.

5. Since at least in one of the cases I have to decide that question as to whether an appeal is in time or not, I need not embark upon a discussion on the aspect as to when an appeal is said to have been filed. I would rest content by referring to the provisions of the Act to find out in cases of time barred appeals whether any delay in filing them could be condoned.

6. Section 111(4) of the Act enables a transferee who has purchased shares and applies for registration and on intimation of refusal by a company can prefer an appeal as provided therein within a period of two months thereof. Such an appeal will have to be filed before the Central Government. At the relevant time the Central Government delegated the power under section 111 to be exercised by the CLB subsequently. Hence, in these circumstances appeals were filed before CLB. Thus, all the powers which vested with the Central Government in the matter of an appeal under section 111 of the Act could be exercised by the CLB in that regard. Therefore, if power under section 637B was available to Central Government, the same power was available to the CLB as well. In that view of the matter, I think there is no substance in the contention urged on behalf of the petitioner that in these cases section 637B could not be applied. Condonation of delay in section 637B is with reference to an application. An appeal could be filed by a memorandum or a petition or an application or in any other manner. If an application could be understood in a generic sense as a prayer made to an authority for some relief to set aside an order of another authority and such an application is under the statute, would amount to an appeal. The Privy Council considered this very question as to whether an application could be understood as an appeal in Nagendranath Dey's case (supra) and stated that in the absence of definition of an appeal or an application, there cannot be a doubt that an application would include an appeal asking the Appellate Court to set aside an order made by any authority and, therefore, the ordinary connotation of the expression application would include an appeal. Hence, I am of the view that section 637B squarely applies to the proceedings before the CLB. If that provision is applicable, the exercise of discretion by the Board in that regard cannot be interfered with by this Court because it has given certain cogent reasons such as the shortness of delay and advancing cause of justice by removing hardship that may arise, if delay is not condoned. I do not think that such an order could be interfered with in a proceeding under article 226 of the Constitution. Hence, I reject the first contention advanced on behalf of the petitioner.

7. The next contention urged on behalf of the petitioner is one touching upon the merits of the matter.

8. It is the contention of the petitioner that one Ratnavarma Padival had been making attempts to corner the shares and was offering exorbitant price thereto and therefore the company considered after obtaining legal advice that it was not in the interest of the company to allow the transfer of shares; that as long as reasons had been assigned by the authority concerned and those reasons are germane to the refusal of the transfer of the shares and such exercise of power is bona fide, it would not at all be open to the CLB to interfere with such a matter and in this context relied upon the following decisions :

(1) Coalport China Company (John Rose & Co.) Ltd., In re [1895-9] All E.R. Rep. 2021;

(2) Weinberger v. Inglis [1918-19] All E.R. Rep. 1263;

(3) Smith & Fawcett Ltd., In re [1942-1] All E.R. 542;

(4) Charles Forte Investments Ltd. v. Amanda [1963-2] All E.R. 940

that it was not at all open to the CLB to substitute its views to that of the BODs of 'Company' who had ample authority under the Articles of Association to refuse to transfer the shares and such power as long as exercised by them in a proper manner could not be interfered with by any authority; that the CLB had misdirected itself in wrongly casting the burden upon the petitioner that it should prove that its decision was valid, while it should have placed such onus upon the transferee; that a commercial reality is within the knowledge of BODs and not of the CLB; that in this context referred to the object behind article 15 of the Articles of Association, which restrict the extent of holding of shares of the company and also referred to section 182 of the Act; that the CLB could not have ignored the material placed by them in the matter of non-suitability or desirability of not transferring the shares in favour of the first respondent in each of these cases though not disclosed in the resolution, which was not within its purview at the time when it decided the matter.

9. The learned counsel for the first respondent in each of these cases submitted that in the light of the decision of the Supreme Court in Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1990] 67 Comp. Cas. 518 it is no longer open to any party to contend that in the matter of transfer of shares of a Public Limited Company the Board of Directors could refuse to transfer the shares unless such power is traced either under the Act or under any particular provision in Articles of Association; that in the present case, the only provision that could be pointed out was Article 20 of Table-A of Companies Act, 1913, as it was applicable to the company in question when it was incorporated; that in the case where shares had been fully paid up, the question is only one of want of suitability of the person and no other question would arise in such a case; that in a case where lien is held in respect of shares it is open to the company to refuse to register the shares; that except in these two circumstances, in no other circumstances it is open to the BODs of 'Company' to refuse to transfer the shares. He also explained the scope of powers of the CLB to refuse to transfer the shares by reference to Bajaj Auto Ltd. v. N.K. Firodia AIR 1971 SC 321 and W.P. No. 776/78 and connected matters, disposed of by the Madras High Court, wherein the situation was almost identical. He further brought to my notice certain observations made by this Court in Ossor Estates' case (supra) particularly in the context of the contention advanced on behalf of the petitioner that one Ratnavarma Padival wanted to corner all the shares and the transferees are merely holding those shares benami on his behalf or on its associates. He also pointed out that the only material before the BODs of 'Company' on the relevant date when they refused to transfer the shares was that certain shares had been sold at an exorbitant price, but he countered the same by pointing out that there was enough material to show that the company itself has sold certain shares at Rs. 1,000 while the shares transferred was only of the value of Rs. 950 and thus contended that the interference by the CLB in this regard was perfectly in order.

10. The CLB in this case after referring to article 20 of Table-A of Companies Act, 1913 held that the petitioner had not made out a case to establish that the first respondent in each of these cases are undesirable persons warranting refusal of registration of transfer of shares in their name. They noticed that the reason given in the letter of refusal is that the consideration of transfer is high. They went through the legal opinion placed before them also. They were of the opinion that the high consideration paid for the transfer is not justifiable ground for refusing to register the shares. They referred to the forfeited shares having been issued by the company at a high price of Rs. 1,000 per share and also its earlier decision in Appeal No. 9/77 that it is not for the company or its management to sit in judgment as to in the shares of which company and in what price an investor should invest his funds. The company should not feel aggrieved because of any particular amount being mentioned as consideration in the instruction of transfer since such consideration amount is of no significance in so far as the finances or the paid-up capital of the company are concerned. They took the view that there was no material to hold that the first respondent in each of these cases was acting at the instance of the said Ratnavarma Padival. That the emphasis in such matters is on the personal objections to the transferee and not to the transferor on the ground that the transferee is the nominee of someone whom they consider objectionable. They also referred to certain legal proceedings between Ratnavarma Padival and others against the company and the same was found to be irrelevant to the case on hand. They took note of the scope of article 15 of the Articles of Association that no member can hold shares exceeding 1/10th of the total number of shares and the contention of the counsel for the company was on the assumption that the shares were not held for and on behalf of the said Padival. On that basis they rejected the stand of the company and allowed the appeals.

11. The parameters of the powers of a company in the matter of transfer of shares is available in Bajaj Auto Ltd.'s case (supra). The Supreme Court noticed that if the articles permit the Directors to decline to register transfer of shares without stating the reasons, the Court would not draw unfavourable inferences against the Directors because they did not give reasons. On the other hand, the Court would assume in such cases that the Directors acted reasonably and bona fide and those who allege to the contrary would have to prove and establish the same by evidence. Where however the Directors gave reasons the Court would consider whether they were legitimate and whether the Directors proceeded on a right or wrong principle.

12. Further, I may refer to another decision of the Supreme Court in Luxmi Tea Co. Ltd.'s case (supra), wherein the entire scope of the provisions relating to transfer of shares in a Public Limited Company has been considered by the Supreme Court. It was noticed therein that a shareholder has a right to transfer his share correspondingly in the absence of any impediment in this behalf. The transferee of a share can get the transfer effected and that right of the transferee cannot be defeated by the company or by its Directors except in pursuance of power vested in them in this behalf, which is specifically provided for - it may be residuary, but it should be provided for and traceable to some provision either in the Act or in the Articles of Association of the company. The registration of a transferred share cannot be refused arbitrarily or for any collateral purpose and can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. If neither a specific nor residuary power of refusal has been so provided, such power cannot be exercised on the basis of the so-called undeclared inherent power to refuse registration. In view of the declaration of law made by the Supreme Court in these cases it is not necessary to refer to the decisions relied upon by the learned counsel for the petitioner in any detail.

13. In the present case, the reason given by the BODs is that the shares had been sold at a high price and therefore it would not be in the interest of the company to allow the transfer. Possibly what lurked in their minds was that Ratnavarma Padival had been behind the sales but that was not spelt out in any of the resolutions. All that was stated in the resolutions was in view of the legal opinion tendered it would not be appropriate to transfer the shares and the legal opinion tendered had been considered in detail by the CLB that the transaction could not be considered to be genuine in view of the high price paid for the shares. It was not at all stated that the high price for the shares were given by Ratnavarma Padival for and on behalf of the transferees and transferees were holding the same benami. That was not the case put forth by them at the time when the BODs passed the resolutions. Therefore, in the present case when reasons are set out by the company for refusal to transfer the shares, the question of placing further material before the CLB may not arise because reasons had already been disclosed by them. If reasons had not been disclosed, perhaps the CLB would have called upon them to disclose the reasons or company itself could have disclosed the reasons. However, the material sought to be placed before the CLB has also been considered by the CLB. The learned counsel for the petitioner contended that the valuation given by the Chartered Accountant on 3-10-1987 should be taken note of. However the said valuation was not and could have been in contemplation of the company as it decided refusal to grant registration long prior to the date of the said valuation. The CLB felt, the mere circumstances that the shares are likely to be held benami would not itself be a circumstance to refuse to transfer the shares. That view finds support in the decision of this Court in Ossor Estates' case (supra).

14. The CLB took note of the following circumstances :

(1) Shares were fully paid up.

(2) The price paid by the transferees was not higher than the price paid in respect of certain forfeited shares.

(3) The payment of higher price was not to the detriment of the company.

(4) No material was placed that the transfer of shares had taken place at the instance of Padival.

(5) Even if it were held that they were held benami, it could not allow the transaction.

None of these reasons could be said to be not based on material on records, it is not based on irrelevant material or has any relevant material eschewed from consideration. In that view of the matter, I do not think the learned counsel for the petitioner can contend that the view taken by the CLB in this regard is in any way is incorrect.

15. The contention advanced on behalf of the petitioner that the CLB could not have decided the matter sitting in the arm chair of the BODs of 'Company' since commercial reality is not within their knowledge, but that of the Company. I do not think this argument has any substance because the CLB considered the scope of article 20 and was of the view that unless it could have held that except in case of matters personal to the transferees, on no other ground could they have refused to transfer the shares, particularly when there are fully paid up shares. However, learned counsel for the petitioner wanted me to read article 20 in a different manner. He wanted me to split the article into two categories :

The Directors may decline to register :

(a) any transfer of shares, not being fully paid shares, to a person to whom they do not approve.

or

(b) any transfer of shares on which the company has a lien.

Contention of this nature is futile. Even on the basis of the argument of the learned counsel, the language of article 20, the company could not have refused to register transfer of shares, firstly that the shares are fully paid up and company has no lien. Thus neither first para nor second para is applicable as argued by the learned counsel for the petitioner. In view of the law declared by the Supreme Court in Luxmi Tea Co. Ltd.'s case (supra) and Bajaj Auto Ltd.'s case (supra), the company could not exercise any power other than available under articles or Act. Neither the Act nor Articles give any power which is residuary in character. Even assuming that there is residuary power, when the company find reasons for its refusal to register transfer of shares, that reason alone will have to be examined as good or bad. That is exactly what the CLB has done in this case. Hence, I find no merit in any of the contentions of the learned counsel for the petitioner.

16. The other submission raised is that a proceeding arising under Companies Act is pending for rectification of registers and hence this matter could not be decided. I do not think I can put off consideration of this matter for in no proceeding arising under Companies Act can correctness of the order of CLB be examined. If that is so, it would be proper to decide this matter now.

17. Thus, I find no substance in these petitions. Petitions are therefore dismissed. Rule discharged.

18. In the circumstances, the company will have to comply with the order of the CLB within a period of two weeks from today.

BOMBAY HIGH COURT

COMPANIES ACT

[1999] 20 SCL 243 (BOM.)

HIGH COURT OF BOMBAY

National Insurance Co. Ltd.

v.

Glaxo India Ltd.

F.I. REBELLO, J.

COMPANY APPEAL NO. 8 OF 1998

IN PETITION NO. 14/111/CLB/WR/95

FEBRUARY 16, 1999

Section 111 of the Companies Act, 1956 - Transfer of shares - Refusue of registration - Whether when Apex Court has recognized that it is Company Court which would be court of exclusive jurisdiction under section 111 but issues regarding very title or ownership of shares, fraud or forgery in holding shares, etc., will have to be decided by Civil Court, order of Company Law Board in refusing to entertain application under section 111 though contrary to said ratio of Apex Court could not be set aside for reasons that dispute related to very title of transaction, and as to who were the persons holding shares on account of forged document - Held, yes

FACTS

According to appellants SHC & L had sent 10,750 equity shares of the respondent-company for transfer in the name of the appellants but the respondent-company transferred only 4,700 shares. The respondent-company had also issued right issue and bonus shares which would not be allotted to the appellant and consequently the name of the appellant would not be entered in the register of members of respondent-company.

The appellants sought rectification of register in respect of remaining shares by entering the name of the appellants. The respondent-company in their reply stated that it received only 4,700 shares and 6,050 missing shares were not lodged with the company for transfer. The respondent-company did riot admit that the petitioner was a lawful owner of the said 6,050 shares. The CLB held that the matter involved complicated questions of fact which could not be decided in a petition under section 111.

On appeal :

HELD

The provisions of section 111 will be applicable insofar as the petition filed before the CLB is concerned. Against an order passed under section 111 an appeal lies under section 10F. By virtue of the said section from an order of the CLB an appeal lies to the High Court within the time as set out.

The question which arose was whether by virtue of sub-section (4)(c) of section 10F the CLB can exercise all the powers of the Court and as such the jurisdiction of the civil court will be ousted. Sub-section (4) of section 111 before its substitution in section 111 was section 155. Thus, section 155 and sub-section (4) of section 111 is in pari materia. The Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. AIR 1998 SC 3153 has held that insofar as the matters of rectification are concerned, it is the company court alone which would have jurisdiction; if issues which have to be answered are not peripheral to rectification but issues regarding title, etc., then such other issues will have to be decided by the civil court. The Apex Court has now recognized that it is the company court which would be the Court of exclusive jurisdiction insofar as rectification is concerned. However, if issues arise, whether the applicant is the owner of the shares; whether there is fraud or forgery in holding the shares or the very title to the shares, then such issues will be beyond the jurisdiction of the company court and will have to be decided by the civil court. It was right that the order of the CLB would be contrary to the aforesaid ratio of the Apex Court. However, insofar as the final order was concerned, it would be difficult to interfere which the said order for the following reasons:

The respondent-company at the threshold had informed the appellants that they had not received 6,050 shares. In other words there was a dispute as to the very transaction itself which was not merely a matter for rectification. Secondly, there were dispute as who were the persons holding the shares on account of forged documents. In other words it was not merely the case of the appellant being the owner of the shares and the company for wrong reasons refusing to rectify the Register without cause. When there were disputes as to whether the appellants were the owners of the shares, it would not be a case exclusively pertaining to rectification which could be decided by the CLB. In that light of the matter though the reasons given by the CLB could not be sustained, its ultimate conclusion could not be set aside. As to the other point that the CLB had not given the reasons and for that purpose the order had to be set aside for giving fresh decision, the matter was in appeal It is now well-settled that the appellate court can exercise the same powers as the trial Court. After the Court had come to the conclusion that the issues raised could not be decided by the CLB it would be futile to send the matter back to the CLB to merely undergo the same exercise in a different manner and reject the company petition. Accordingly, the appeal stood dismissed.

CASES REFERRED TO

Ammonia Supplies Corpn. (P.) Ltd v. Modern Plastic Containers (P.) Ltd [1994] 79 Comp. Cas. 163 (Delhi) (FB), Harnam Singh v. Bhagwan Singh [1992] 74 Comp. Cas. 726 (Delhi) Public Passenger Service Ltd. v. M.A. Khadar [1966] 36 Comp. Cas. 1 (SC) (FB), Ammonia Supplies Corpn. (P.) Ltd v. Modern Plastic Containers (P.) Ltd AIR 1998 SC 3153.

A.Y. Bookwala, Ashwin Ankhad and Ms. Swapnila Rane for the Applicant. P.K. Samdani, Rajeev Menon, S.H. Merchant for the Respondent.

JUDGMENT

1. The appellants aggrieved by the order dated 24-7-1998 passed by the CLB, Western Region Bench, Mumbai, have preferred the present appeal. The main contention urged on behalf of the appellants is that the CLB erred in holding that the disputes raised in the petition raise complicated questions which could not be decided by the CLB in exercise of its jurisdiction under section 111 of the Companies Act, 1956. In addition, it is also submitted that no reasons have been given by the Board for the order passed and, consequently, the matter must be remanded to the Board for disposing of the matter by giving reasons for its order.

2. The short facts which are necessary for disposal of the appeal may now be stated.

It is the case of the appellants that the Stock Holding Corpn. of India Ltd. (SHCIL) had sent 10,750 equity shares of the respondent-company for transfer in the name of the appellants on 15-3-1991. The respondent-company transferred only 4,700 shares. The respondent-company also had issued rights issue in the ratio of 1:5 in the year 1993 and had also issued Bonus Shares in the ratio of 1:1. The appellants felt that the shares issued as rights shares and bonus shares would not be allotted to the appellants and consequently the name of the appellants will not be entered in the Register of Members of respondent-company in respect of 14,520 shares. It is their case that the Register should be rectified in respect of 14,520 shares by entering the name of the appellants.

The respondent-company filed their reply dated 6-7-1995. The respondent-company stated that they received a letter dated 15-3-1991 from SHCIL giving the details of 10,750 shares. The respondent-company, however, received only 4,700 shares. A letter dated 13-5-1991 was addressed to SHCIL. The respondent-company also sent an acknowledgement dated 16-5-1991 for the receipt of 4,700 shares. SHCIL made enquiries as late as in December 1993 after the rights issue. The respondent company did not admit that the petitioner is a lawful owner of the said 6,050 shares. It is thereafter set out that as the respondent-company did not receive the missing shares it cannot under any circumstances be made responsible for the same. The 6,050 missing shares were not lodged with the company for transfer and this was intimated to the appellants time and again. It is also pointed out that the appellants had filed a civil suit and in view of that the petition ought not to be entertained.

At this stage it may be pointed out that the appellants have averred that though they had filed a suit on account of some observations made by the CLB suit was withdrawn. It may further to be noted that in respect of these very 6,050 shares there are subsequent transfers effected by the respondent-company.

3. The CLB after considering the matter arrived at a conclusion that the matter involve complicated questions of fact which could not be decided in a petition under section 111 and the controversy could be decided only by a civil court. With the above background the points urged can now be decided. It may be relevant to mention at this stage that section 111 was substituted by the Companies (Amendment) Act, 1988, with effect from 31-5-1991. Pursuant to this section 155 was omitted from the Act. Section 111 thereafter was again amended by introduction of sub-section (4) which came into effect from 20-9-1995. By virtue of the said amendment section 111 applies only to a private company which includes a private company which had become a public company by virtue of section 43A of this Act. The appellants are a public limited company. However, the petition was filed before the said amendment. There is no dispute at the Bar that the provisions of section 111 would be applicable insofar as the petition filed before the CLB is concerned. Against an order passed under section 111 an appeal lies under section 10F of the Act. By virtue of the said section from an order of CLB an appeal lies to the High Court within the time as set out.

4. The question which arises is whether by virtue of sub-section (4)(c) of section 10F the Company Law Board can exercise all the powers of the Court and as such the jurisdiction of the civil court will be ousted. In other words the question that arises is whether in the cases covered by section 111 the jurisdiction of the civil court is ousted. The matter need not detain me for long. Sub-section (4) of section 111 before its substitution in section 111 was section 155 of the Companies Act. Section 155 and sub-section (4) of section 111 is in pari materia. Various High Courts including this Court had considered section 155. Some High Courts had taken one view as to the scope of the power under section 155. Two Division Benches of the Delhi High Court had taken different views of the matter and as such the matter was referred to the Full Bench of the Delhi High Court in the case of Ammonia Supplies Corpn. (P.) Ltd v. Modern Plastic Containers (P.) Ltd. [1994] 79 Comp. Cas. 163. After considering the various views of the other High Courts as also its earlier judgment in the case of Harnam Singh v. Bhagwan Singh [1992] 74 Comp. Cas. 726 (Delhi) on account of which the reference was made as also the observation of the Apex Court in the case of Public Passenger Service Ltd. v. M.A. Khadar [1966] 36 Comp. Cas. 1 (SC), the Full Bench of the Delhi High Court answered the reference as under:

1. The jurisdiction exercised by the company court under section 155 of the Act is discretionary and summary in nature.

2. In exercise of discretionary and summary jurisdiction, the company court can decline to entertain petitions involving disputed and complicated questions requiring examination of extensive oral and documentary evidence.

3. The remedy of suit for adjudication of dispute relating to title to share is not barred.

5. The scope of section 155 of Civil Procedure Code came up for consideration before the Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd AIR 1998 SC 3153 which matter arose from a judgment of the Delhi High Court, which relied on the Full Bench judgment in the case of Ammonia Supplies Corpn. (P.) Ltd. (supra). The Apex Court was answering the following question :

"Whether in the proceedings under section 155 of the Companies Act the Court has exclusive jurisdiction in respect of the matters raised therein or have only summary jurisdiction ?"

It may be noted that insofar as the facts of that case were concerned, the appellant-company before the Apex Court had made investment in shares of Modern Plastic Containers (P.) Ltd. to the extent of 50 per cent shares. Shri D.P. Bhargava, Son of M.L. Bhargava married the sister-in-law of one V.K. Bhargava, one of the Managing Directors of the respondent-company. On account of this relationship the appellant-company invested in the aforesaid shares of the respondent-company. The dispute pertains to this investment. According to the respondent-company, there was no such investment made by the appellant-company nor any share was transferred by the respondent-company in favour of the appellant-company. On the other hand, the bone of contention of the appellant-company was that in spite of the payment of the aforesaid amount of the shares it was not invested in such shares. The appellant-company had become 50 per cent shareholder of the respondent-company about which there was an acknowledgement of the respondent-company. Reliance was placed on the balance sheet of the appellant-company, as also the audited statement of accounts and the income-tax assessment orders. On 18-1-1983 Shri V.K. Bhargava died in a car accident and according to the appellant is the reason for the dispute between the appellant-company and the respondent-company being raised by the brothers of deceased Shri V.K. Bhargava. A petition came to be filed amongst others under section 155. The petition was, however, confined to relief under section 155. The only issue before the Apex Court was the jurisdiction of the Court under section 155 while dealing with the application. It was contended that the sole beneficiary was Shri M.L. Bhargava. There are certain other facts which need not be stated. The Apex Court, thereafter referred to para 7 of its earlier judgment in the case of Public Passenger Service Ltd. (supra). It was sought to be contended before the Apex Court that the said judgment was per incuriam. In the alternative it was contended that the attention of both the Full Bench of the Delhi High Court and of the Apex Court in Public Passenger (P.) Ltd. 's case (supra) was not drawn to the definition of 'Court' as defined under section 2(11) and section 10. It was argued that if that had been considered a different interpretation would have followed. If that definition is read into section 155 the Court would only be a company judge and not civil judge. In para 14 insofar as its own judgment in Public Passenger Service Ltd. 's case (supra) the Apex Court observed that the argument that the judgment was per incuriam had to be rejected as the issue was directly in issue and was considered with respect to the interpretation of section 155 and, hence, it could not be said by any stretch of imagination that the decision was per incuriam. In para 13 the Apex Court culled the ratio in Public Passenger Service Ltd. 's case (supra) and held that by reasons of its complexity or otherwise if the matter can more conveniently be decided in a suit, the court may refuse relief under section 155 and relegate the parties to a suit. Thereafter considering the various provisions and case law cited, the Apex Court in para 26 observed as follows :

"... There could be no doubt any question raised within the peripheral field of rectification, it is the Court under section 155 alone which would have exclusive jurisdiction. However, the question raised does not rest here in case any claim is based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the Court feels such claim does not constitute to be a rectification ...its discretion to send a party to seek his relief before Civil Court first, for the adjudication of such facts, it cannot be said that such right of the Court to have been taken away merely on account of the deletion of the aforesaid proviso. Otherwise under the garb of rectification one may lay claim of many such contentious issues for adjudication not falling under it. Thus, in other words, the Court under it has discretion to find whether the dispute raised are really for rectification, or is of such a nature, unless decided first it would not come within the purview of rectification..." (p. 3161)

Thereafter in para 27 the Apex Court observed as under :

"...The Court has to examine one the facts of each case, whether an application is for rectification, or something else..." (p. 3162)

Thereafter is proceeded to observe as under :

"... So far exercising of power for rectification within its field there could be no doubt the Court as referred under section 155 read with section 2(11) and section 10, it is the company court alone which has exclusive jurisdiction..." (p. 3162)

The following observations are also material from para 31 :

"...So whenever a question is raised Court has to adjudicate on the facts and circumstances of each case. If it truly is rectification all matter raised in that connection should be decided by the Court under section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by civil court..." (p. 3163)

Thereafter the Apex Court observed as under :

"...We have already held above the jurisdiction of the 'court' under section 155, to the extent it has exclusive, the jurisdiction of civil court is impliedly barred. For what is not covered as aforesaid the Civil Court would have jurisdiction..." (p. 3163)

It is, therefore, now clear from the judgment of the Apex Court in Ammonia Supplies Corpn. (P.) Ltd's case (supra), the Apex Court has held that insofar as the matters of rectification are concerned, it is the company court alone which would have jurisdiction. If issues which have to be answered are not peripheral to rectification but issues regarding title, etc., then such other issues will have to be decided by the civil court. The Apex Court has now recognized that it is the company court which would be the Court of exclusive jurisdiction insofar as rectification is concerned. However, if issues arise, whether the applicant is the owner of the shares; whether there is fraud or forgery in holding the shares or the very title to the shares, then such issues will be beyond the jurisdiction of the Company Court and will have to be decided by the Civil Court. To that extent, the judgment of the Full Bench of the Delhi High Court where it held that there is a jurisdiction in the Company Court to relegate the parties to a suit has been departed from. The earlier judgment of the Apex Court in the case of Public Passenger Service Ltd's (supra) will have to be read in the context of the observations of the Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd (supra).

6. Applying that ratio can it be said that the order of the CLB is liable to be set aside on the ground that there are complicated questions of fact which the CLB cannot go into. The learned counsel for the appellant would be right that the order of the CLB would be contrary to the ratio of the Apex Court in Ammonia Supplies Corpn. (P.) Ltd s case (supra).

However, insofar as the final order is concerned I find it will be difficult for this Court to interfere with the said order for the following reasons.

The respondent-company at the threshold had informed the appellants that they had not received 6,050 shares. In other words there is a dispute as to the very transaction itself which is not merely a matter for rectification. Secondly, there are disputes as to who are the persons holding the shares are holding the shares on account of forged documents. In other words it is not merely the case of the appellant being the owner of the shares and the company for wrong reasons refusing to rectify the Register without cause. When there are disputes as to whether the appellants are the owners of the shares, would not be a case exclusively pertaining to rectification which could be decided by the Company Law Board. In that light of the matter though the reasons given by the CLB cannot be sustained, its ultimate conclusion cannot be set aside.

7. That leaves us with the other point as raised, that the CLB has not given the reasons and for that purpose the order has to be set aside for giving fresh decision. The matter is in appeal. It is now well-settled that the Appellate Court can exercise the same powers as the trial Court. After the Court has come to the conclusion that the issues raised cannot be decided by the CLB it will be futile to send the matter back to the CLB to merely undergo the same exercise in a different manner and reject the company petition. The appellants have pointed out in the appeal memo that the suit was withdrawn based on certain observations made by the CLB. That cannot be an answer for the CLB to assume jurisdiction.

At this stage I may point out that some other judgments had been cited at the bar. I have not referred to them as in my view the matter could be answered on the touchstone of the judgment of the Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd. (supra).

With the above observations, the appeal stands dismissed. In the circumstances of the case there shall be no order as to costs.

ANDHRA PRADESH HIGH COURT

COMPANIES ACT

[1999] 20 SCL 419 (AP)

HIGH COURT OF ANDHRA PRADESH

T.G. Veera Prasad

v.

Sree Rayalaseema Alkalies & Allied Chemicals Ltd.

KRISHNA SARAN SHRIVASTAV, J.

COMPANY APPEAL NOS. 5 AND 6 OF 1995

MARCH 31, 1999

Section 111 of the Companies Act, 1956-Transfer of shares - Power to refuse registration and appeal against refusal-Whether CLB should decide all matters pertaining to rectification under section 111 and if it is found that matter in question does not fall under it, then only it may direct a party to get its right adjudicated by Civil Court-Held, yes-Whether where CLB without recording a finding whether proper procedure prescribed under Act and Rules had been complied with or not before recording name of transferee in register of members of company and without recording finding whether without sufficient cause name of transferee had been entered in register of members of company after omitting names of appellants, dismissed petition holding that these were complicated questions of fact which could not be decided in summary proceedings, CLB was to be directed to decide whether cases came within scope of rectification or not after giving reasonable opportunities to parties and after pursuing relevant records-Held, yes

FACTS

The appellants 'P' and 'TMIL' possessed certain shares in SRAC Ltd. The second respondent who was managing director of SRAC Ltd. at the relevant time, floated a private limited company (third respondent) with his wife and children controlling 99 per cent of its share capital. 50 lakhs shares of one TGL group of which the appellants were also members, were transferred to the third respondent including shares of the appellants. P filed a petition alleging that all the shares belonging to the TGL Group together with blank transfer forms were entrusted to the 2nd respondent for the purpose of pledging them, if so required, with the financial institutions and banks, only for raising finances, but he committed breach of trust and misappropriated them surreptitiously by transferring the said shares to the third respondent without payment of any consideration to the original shares-holders. 'P' contended that the third respondent had no funds to purchase the shares in question and the company without making proper investigation regarding the genuineness of the transaction and without sufficient cause omitted the names of the members of the company and entered the name of the transferee in the register of the members of the company.

Making similar allegations, TMTL had also filed petition. It had been further alleged (i) that the shares could not be transferred as the company was to announce book closure, (ii) that being the listed company, the shares should have been dealt with through stock exchange and there was violation of section 13 of the Securities Contracts (Regulation) Act, 1956, (iii) that the appellant TMTL had not given any authority to the appellant P to dispose of these impugned shares and the alleged resolution of the appellant TMTL dated 15-6-1998 was a fabricated document as no meeting of the board was held on that day, (iv) that one B who was the commercial Director of the appellant TMTL, had signed the balance sheet of the appellant TMTL upto 1991 wherein the investment in these shares were shown to be held in the name of the appellant TMTL and, therefore, the copy of the alleged resolution dated 15-6-1988 signed by him only as a true copy, was a concocted document.

The CLB dismissed the petitions holding that these were the complicated questions of fact which could not be decided in summary proceedings.

HELD

Under section 111, proceeding is summary in nature. The CLB has to examine on the facts of each case whether it is an application for rectification or something else. In order to qualify for rectification, every procedure as prescribed under the Companies Act, before recording the name in the register of company, has to be complied with. Without sufficient cause, the name of any person entered in the Register of company can neither be entered in the register of members of the company nor can be omitted therefrom. The CLB should decide all matters pertaining to rectification but has to act within the provisions of the Act and the Rules. The CLB should decide all matters in that connection under section 111; if it is found that the matter in question does not fall under it, then only, it may direct a party to get its right adjudicated by Civil Court.

It had been urged on behalf of the respondents that allegations against the second respondent had been made that he had misused that alleged blank transfer forms duly signed by the concerned shareholders and, therefore, the appellants might take action against the 2nd respondent and on account of his alleged misconduct it could not be said that the company had not entered in the register of members of the company the name of the third respondent without sufficient cause.

True that allegations regarding misuse of blank transfer forms had been made against the 2nd respondent but it was equally true that there were other allegations made in both the applications which, if proved, might establish that the names of the appellants were omitted without sufficient cause. Similarly if it was proved that the blank transfer forms had been actually misused by the second respondent, it would definitely have an effect on the validity of the transfer of shares and consequently might affect the decision of the company of making necessary entries in the register of its members. Under these circumstances, it could not be accepted that the applications deserved to be dismissed merely on the ground that allegations against the second respondent had been made by the appellants.

Whether the third respondent had capacity to pay the consideration at the relevant time or not was a question which could be prima facie decided on perusal of its balance sheet of relevant year. Whether the appellant Pwas duly authorised by the appellant TMTL to dispose of the impugned shares or not could also be decided on the basis of the resolutions of the appellant TMTL. Whether the authority letters for the alleged adjustment bore the signature of the appellant TMTL or not could be verified by the CLB, at least prima facie, by comparing the disputed signature with the admitted signatures. Similarly whether the appellants owed monies to the company or not was also a question of fact which could be verified from a perusal of the record of the first respondent-company. Whether during the book closure period, the first respondent-company could have effected the registration and whether it being a listed company the shares should have been dealt with through stock exchange or not were also the questions which could be considered and decided by the CLB.

The CLB had not recorded a finding whether proper procedure prescribed under the Companies Act and the Rules had been complied with or not before recording the name of the third respondent in the register of members of the company. The CLB should have for itself seen whether on the basis of the material on record and on perusal of the affidavits and circumstantial evidence, it could be concluded that without sufficient cause the name of the third respondent had been entered in the register of members of the company after omitting the names of the appellants or not.

Under section 10(E) the CLB is empowered to summon witnesses. The CLB had not recorded a finding as to whether the case came with in the purview of section 111. The CLB, under the aforementioned circumstances of the case, was to be directed to decide whether the cases came within the scope of rectification or not, keeping in view the above observations after giving reasonable opportunity to the parties to the appeals and after perusing the relevant records.

CASE REFERRED TO

Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. AIR 1998 SC 3153.

V.S. Raju for the Appellant. Ravi. S. for the Respondent.

JUDGMENT

1. Due to commonality of law and similarity of facts, both these appeals are being disposed of by this common order.

2. The appellant T.G. Veera Prasad and the appellant Tungabhadra Machinery and Tools Limited ('TMTL') possessed 40,000 equity shares and, 50,000 equity shares respectively in Sree Rayalaseema Alkalies and Allied Chemicals Ltd. ('the Company'). The second respondent was its managing director at the relevant time. On 1-2-1988 he had floated a private limited company namely Brilliant Investments Private Limited ('Brilliant') - the third respondent - with his wife and children controlling 99 per cent of its share capital. On 21-6-1998, 50 lakhs shares of one TGL Group of which the appellants are also members, were transferred to the third respondent including 40,000 shares of the appellant T.G. Veera Prasad and 50,000 shares of TMTL.

3. The appellant T.G. Veera Prasad filed a petition in C.P. 2/111 /SRB/91 alleging that all the shares belonging to the TGL Group together with blank transfer forms were entrusted to the 2nd respondent for the purpose of pledging them, if so required, with the financial institutions and banks, only for raising finances, but the 2nd respondent committed breach of trust and misappropriated them surreptitiously by transferring the said shares to the third respondent without payment of any consideration to the original shareholders. The third respondent had no funds to purchase the shares in question. The Company without making proper investigation regarding the genuineness of the transaction and without sufficient cause omitted the names of the members of the company and entered the name of the transferee in the register of the members of the company.

4. Making similar allegations, the appellant TMTL had also filed C.P. 3/111/SRB/91. It has been further alleged that the annual general meeting of the company was to be held on 24-6-1988 and the transfer was effected just three days in advance and, therefore, the shares could not be transferred as the company was to announce book closure. During book closure, the company could not have effected the registration. Being the listed company, the shares should have been dealt with through stock exchange and there is violation of section 13 of the Securities Contracts (Regulation) Act, 1956. It does not appear that in the share transfer committee's resolution, the interested director had taken part. The appellant TMTL had not given any authority to the appellant T.G. Veera Prasad to dispose of these impugned shares and the alleged resolution of the appellant TMTL dated 15-6-1988 is a fabricated document as no meeting of the Board was held on that day. One Bhupendra R. Shah, who was the commercial director of the appellant TMTL, had signed the balance sheet of the appellant TMTL upto 1991 wherein the investment in these shares were shown to be held in the name of the appellant TMTL and, therefore, the copy of the alleged resolution dated 15-6-1988 signed by him only as a true copy, is a concocted document. The letter dated 18-6-1988 regarding the payment of consideration signed by Bhupendra R. Shah is a fabricated document. The provisions of section 108(1A) of the Companies Act, 1956 have been violated.

5. The respondents No. 1 to 3 through separate counters denied the allegations. The company pleaded that the transfer instruments were proper and were accompanied by share certificates and, therefore, the share transfer committee approved the registration of shares. The 2nd respondent has not taken part in these proceedings. The company had registered the transfers which sufficient cause and, therefore, the appellants cannot invoke the provisions of section 111 of the Companies Act particularly after a period of three years from the date of registration. The company being the listed company was not competent to refuse registration of transfer as none of the grounds under which a listed company could refuse registration under section 22A(3) of the Securities Contracts (Regulation) Act, was satisfied. The second respondent adopting the counter of the company further denied the allegation that the impugned shares were entrusted to him to be kept only for the purpose of pledging them for raising funds in the hour of need. He also pleaded that the shares of the TGL Group were transferred in favour of the 3rd respondent, that is Brilliant, as quid pro quoior the shares of the company transferred by the 2nd respondent in favour of the TGL group. The 3rd respondent, that is Brilliant, pleaded that it is not a necessary party to the proceedings. On 17-6-1988, the appellant T.G. Veera Prasad as its director had executed transfer forms in respect of the impugned shares of the appellant TMTL. On 13-6-1988 and on 19-6-1988, he had executed the transfer deeds in respect of the shares held by him for consideration. The shares were handed over to the 3rd respondent, Brilliant, which has forwarded the same to the first respondent company for registration. On 6-6-1988 TMTL had written a letter to the 3rd respondent-Brilliant to pay the sale proceeds of Rs. 1,50,000 to the 1st respondent-company to be credited/adjusted against the 1st respondent-company and on the basis of that letter, the amount was paid to the first respondent-company. The appellant T.G. Veera Prasad had instructed the 3rd respondent- Brilliant for payment of consideration of his shares to the 1 st respondent- company.

6. The CLB held that the applications filed by the appellants are not barred by limitation. It narrated the arguments of the learned counsel of the parties to the applications and observed that the company has filed the resolution of the Board of the appellant TMTL dated 15-6-1988 authorising the appellant T.G. Veera Prasad to dispose of its impugned shares, that the appellants have also filed copy of the resolution of the Board meeting of the appellant TMTL, that the genuineness of the letter dated 18-6-1988 for adjustment of consideration has been questioned, that the respondents have filed two affidavits in which the deponents have proved the signatures of the appellant T.G. Veera Prasad on transfer instrument, that the entrustment of the shares to be used only for raising money is alleged to be oral, that there were contradictions in the replies filed by the respondents regarding the mode and nature of payment and that the capacity of the 3rd respondent-Brilliant to invest the amounts in question has also to be examined. The CLB held that these are the complicated questions of fact which can be decided only by recording oral evidence and this exercise cannot be done in summary proceedings and, therefore, dismissed both the applications. The CLB observed that the appellants may file civil suits, if so advised.

7. Feeling aggrieved by the impugned order of dismissal of the applica tions, T.G. Veera Prasad has preferred appeal 5 of 1995 while TMTL has preferred appeal 6 of 1995.

8. At the outset, it is to be remarked that arguments on the question of limitation have not been advanced by the learned counsel of the parties to the appeals and therefore, I am not concerned with the plea of limitation raised by the respondents before the CLB, and decided in favour of the appellants.

9. Before I proceed further, it would be beneficial to reproduce the relevant passages extracted from the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd AIR 1998 SC 3153.

"27... in order to qualify for rectification, every procedure as prescribed under the Companies Act before the recording the name in the register of the Company has to be stated to have been complied with by the applicant at least that part as required by the Act and assertion of what not complied with under the Act and Rule by the person or authority of the respondent-company before applicant to claim for the rectification of such register. The Court has to examine on the facts of each case, whether an application is for rectification or something else. So field or peripheral jurisdiction of the Court under it would be what comes under rectification not projected claims under the garb of rectification. So far exercising of power for rectification within its field there could be no doubt the Court as referred under section 155 read with section 211 and section 10, it is the Company Court alone which has the exclusive jurisdiction ....

28. Question for scrutiny before us is the peripheral field within which Court could exercise its jurisdiction for rectification. As aforesaid the very word 'rectification' connotes something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. Rectification in other words, is the failure on the part of the Company to comply with the directions under the Act. To show this error the burden is on the applicant, and to this extent any matter or dispute between persons raised in such Court it may generally decide any matter which is necessary or expedient to decide in connection with the rectification.

29. Both under the 1913 Act and 1960 Act a procedure is prescribed for admitting a person as member by purchase or transfer of shares of that company. With reference to 1913 Act under section 29, a certificate of shares or stock shall be prima facie evidence of the title of the number of the shares or stock therein. Section 30 defines 'member' to be one who agrees to become a member of a company and whose name is entered in its register. Section 31 is to keep register of its members. Section 34 deals with transfer of shares and application for the registration of the transfer of shares is to be made, either by the transferor or the transferee. Where such application is made by the transferor for registration of his share a registered notice is to be sent to the transferee. Section 34(3) restricts to register a transfer share until the instrument of transfer duly stamped and executed by the transferor and transferee has been delivered to the company. Thus before the name of any transferee is registered, these procedure has to be shown to have been followed, which is an obligation of any such applicant under the Act. This shows an application is to be made either by the transferor or transferee for registering the name of the transferee as members or shareholders of the company by placing before the company duly stamped and signed document both by the transferor and transferee. Similarly is the position under section 155 of Indian Companies Act, 1960 before power is exercised for rectification essential ingredients are to exist. Section 108 gives mandate to a company not to register transfer of shares, unless proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with certificates relating to the shares.

30. All the above indicates the limitation and the peripheral jurisdiction with which Court has to act. In spite of its exclusiveness it cannot take within its lap outside this scope of rectification. This is indicated even by section 155 itself:

'155. Power of Court to rectify Register of Members —(1) If—

(a) the name of any person—

(i) is without sufficient cause, entered in the Register of Members of a Company, or

(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or

(b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be a member;

the person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the register.'

31. Sub-section (1)(a) of section 155 refers to a case where the name of any person without sufficient cause entered or omitted in the Register of Members of a company. The word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the Court has to exercise its jurisdiction. It cannot be doubted in spite of exclusiveness to decide all matter pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature. So, whenever a question is raised Court has to adjudicate on the facts and circumstances of each case. If it truly is rectification all matter raised in that connection should be decided by the Court under section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by Civil Court. Unless jurisdiction is expressly or implicitly barred under a Statute, for violation or redress of any such right Civil Court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the Civil Court, but the jurisdiction of the 'court' as defined under the Act exercising its power under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the Civil Court is impliedly barred. We have already held above the jurisdiction of the 'court' under section 155, to the extent it has exclusive, the jurisdiction of Civil Court is impliedly barred. For what is not covered as aforesaid the Civil Court would have jurisdiction.

'... So we conclude the principle of law as decided by the High Court that jurisdiction of the Court under section 155 is summary in nature cannot be faulted...."(p. 3162)

10. By the Companies (Amendment) Act, 1988, section 155 of the Act has been omitted from the Act with effect from 31-5-1991 and now under section 111 of the Companies Act, the power to rectify the register of members of a company has been vested in the CLB.

11. The position of the law thus emerges from the case of Ammonia Supplies Corpn. (P.) Ltd. (supra) is that under section 111, proceeding is summary in nature. The CLB has to examine on the facts of each case whether it is an application for rectification or something else. In order to qualify for rectification, every procedure as prescribed under the Companies Act, before recording the name in the register of company, has to be complied with. Without sufficient cause, the name of any person entered in the Register of company can neither be entered in the register of members of the company nor can be omitted therefrom. The CLB should decide all matters pertaining to rectification but has to act within the provisions of the Act and the Rules. The CLB should decide all matters in that connection under section 111 and if it is found that the matter in question does not fall under it, then only, it may direct a party to get its right adjudicated by Civil Court.

12. It has been urged on behalf of the respondents that allegations against the second respondent have been made that he had misused the alleged blank transfer forms duly signed by the concerned shareholders and, therefore, the appellants may take action against the 2nd respondent and on account of his alleged misconduct it cannot be said that the company had not entered in the register of members of the company the name of the third respondent-Brilliant without sufficient cause.

13. True that allegations regarding misuse of blank transfer forms have been made against the 2nd respondent but it is equally true that there are other allegations made in both the applications which, if proved, may establish that the names of the appellants were omitted without sufficient cause. Similarly if it is proved that the blank transfer forms have been actually misused by the second respondent, it would definitely have an effect on the validity of the transfer of shares and consequently may affect the decision of the company of making necessary entries in the register of its members. Under these circumstances, I am unable to accept the contention of the learned counsel of the respondents that the applications deserve to be dismissed merely on the ground that allegations against the second respondent have been made by the appellants.

14.Whether the third respondent-Brilliant had capacity to pay the consideration at the relevant time or not is a question which can be prima facie decided on perusal of its balance sheet of the relevant year. Whether the appellant T.G. Veera Prasad was duly authorised by the appellant TMTL to dispose of the impugned shares or not could also be decided on the basis of the resolutions of the appellant TMTL. Whether the authority letters for the alleged adjustment bear the signature of the appellants or not could be verified by the CLB, at least prima facie, by comparing the disputed signatures with the admitted signatures. Similarly whether the appellants owed monies to the Company or not is also a question of fact which can be verified from a perusal of the record of the first respondent- company. Whether during the book closure period, the first respondent- company could have effected the registration and whether it being a listed company the shares should have been dealt with through stock exchange or not are also the questions which can be considered and decided by the CLB. What value is to be attached to the affidavit of B.R. Shah of 30-8-1998 also appears to be a thing to be decided by the CLB on the basis of his signing the balance sheet of the appellant TMTL upto 1991.

15. As noted above, the CLB has reproduced the arguments of the learned counsel of the parties to the applications, referred certain documents and then recorded a finding that complicated questions of fact in both the applications cannot be decided merely on the basis of the affidavits and oral evidence would be required to be recorded for adjudication of the rival claims. The CLB has not recorded a finding whether proper procedure prescribed under the Companies Act and the Rules has been complied with or not before recording the name of the third respondent- Brilliant in the register of members of the company. In my opinion, the CLB should have for itself seen whether on the basis of the material on record and on perusal of the affidavits and circumstantial evidence, it can be concluded that without sufficient cause the name of the third respondent-Brilliant has been entered in the register of members of the company after omitting the names of the appellants or not.

16. The CLB in the concluding paragraph of its order has observed that in many cases the CLB had proceeded to decide the case finally on the basis of the affidavits and the documents. Under section 10(E) of the Companies Act, the CLB is empowered to summon witnesses. The CLB has not recorded a finding as to whether the cases come within the purview of section 111 or not. The CLB, under the aforementioned circumstances of the case, is directed to decide whether the cases come within the scope of rectification or not, keeping in view the above observations made by me and in particular in the light of the law laid down by the Apex Court in the case of Ammonia Supplies Corpn. (P.) Ltd. (supra), after giving reasonable opportunity to the parties to the appeals and after perusing the relevant records. In case the CLB comes to the conclusion that the cases come under section 111, then, it should treat the affidavits on record as examination-in-chief of the deponents and such deponents may be sum moned for the purpose of cross-examination. Assistance of hand writing expert may also be taken to decide whether the signatures on the documents in question are genuine or not. Because the matter is pending since 1991, it is appropriate to direct the CLB to decide the matter expeditiously. The appeals are thus partly allowed and the cases are remanded to the CLB for decision afresh according to law. Costs as incurred.

[1995] 084 COMP CAS 0070 (SC)

SUPREME COURT OF INDIA

Canara Bank

v.

Nuclear Power Corporation of India Ltd.

J. S. VERMA, S. P. BHARUCHA AND K. S. ARIPOORNAN,.JJ.

CIVIL APPEAL NO. 206OF 1995

MARCH 6, 1995

Harish N. Salvee, Ms. Sunita Dutt, Ms. Meenakshi for the appellant

J. C. Seth, Ms. Rachana Joshi Issar, F. S. Nariman, M. H. Baig, Ms. Ritu Bhalla, Ms. Monika Sharma and S. S. Shroff for the Respondent.

JUDGMENT

S.P. Bharucha, J.—Leave granted.

FACTS:

This is an appeal from the judgment and order of the Company Law Board which raises an interesting question as to the exclusive jurisdiction of the Special Court constituted under the provisions of the Special Court Trial of Offences Relating to Transactions in Securities) Act, 1992. The Company Law Board (CLB) has held that its jurisdiction to deal with matters relating to securities, provided by the Companies Act; 1956, is not affected by the Special Court Act.

The question arose in these circumstances. The Canara Bank (the appellant) had made an application before the Company Law Board under section 111 of the Companies Act seeking relief against the Nuclear Power Corporation of India Ltd. (the first respondent), which had refused to register in its books in the name of the Canara Bank bonds of the Nuclear Power Corporation purchased by the Canara Bank. The Standard Chartered Bank (the fourth respondent) had also claimed ownership of the said bonds. The Canara Bank alleged that it had acquired the said bonds from the Andhra Bank Financial Services Ltd. (the third respondent) through one Hiten P. Dalai (the second respondent), who had acted as a broker. Hiten P. Dalai is a person notified under the provisions of section 3(2) of the Special Court Act and was, as the application of the Canara Bank before the Company Law Board showed, involved as a broker in the transaction relating to the said bonds. The application of the Canara Bank was pending disposal before the Company Law Board when, on January 25, 1994, the Special Court Act was amended by the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, and section 9A was introduced. The Canara Bank and the Nuclear Power Corporation took the stand that the application of the Canara Bank Stood transferred to the Special Court by virtue of the provisions of section 9A(2) of the Special Court Act. The Standard Chartered Bank (Stanchart) contended that the Company Law Board retained the jurisdiction to deal with the application. The Company Law Board held that it was not a court within the meaning of the Companies Act nor was it a civil court. Its jurisdiction was, therefore, unaffected by the provisions of section 9A(2) of the Special Court Act.

The Special Court Act:

The Special Court Act was enacted to provide for the establishment of a special court for the trial of offences relating to transactions in securities matters connected therewith or incidental thereto. Securities were defined in section 2(c) to include shares, scrips, stocks, bonds debentures, debenture stock, units and other marketable securities of a like nature, Government securities and rights or interests in securities Section 3(1) provided for the appointment by the Central Government of a custodian. By reason of section 5, the custodian was empowered, on being satisfied on information received that any person had been involved in any offence relating to transactions in securities after April 1, 1991 and before June 6, 1992 (the stated dates), to notify the name of such person in the Official Gazette. On and from the date of such notification, by reason of section 3(3), property, movable and immovable, belonging to the person notified stood attached and by reason of section 3(4), could be dealt with by the custodian in such manner as the Special Court directed. Section 4(1) empowered the custodian, if he was satisfied, after such inquiry as he thought fit, that any contract or agreement entered into at any time between the stated dates in relation to any property of a person notified had been entered into fraudulently or to defeat the provisions of the Special Court Act to cancel such contract or agreement and, on such cancellation, such property stood attached. Such cancellation was required to be preceded by a reasonable opportunity to the parties to the contract or agreement to be heard. Any person aggrieved by a notification under section 3(2) or section 4(1) was entitled to file a petition of objection before the Special Court. The Special Court was established by section 5. It was to consist of a sitting judge of the High, Court nominated by the Chief Justice of the High Court within the local limits of whose jurisdiction the Special Court was situated, with the concurrence of the Chief Justice of India. Section 6 empowered the Special Court to take cognizance of and try such cases as were instituted before it or transferred to it. Section 7 dealt with the jurisdiction of the Special Court and it read thus:

“7 jurisdiction of Special Court.—Notwithstanding anything contained in any other law, any prosecution in respect of any offence referred to in sub-section (2) of section 3 shall be instituted only in the Special Court and any prosecution in respect of such offence pending in any court shall stand transferred to the Special Court."

Section 9 made provision for the procedures and powers of the Special Court. It stated that the Special Court should in the trial of cases before it follow the procedure prescribed by the Code of Criminal Procedure for the trial of warrant cases before a Magistrate. It was also provided that the Special Court would be deemed to be a Court of Sessions, having all the powers of such a court. Section 10 provided that an appeal would lie from any judgment decree, sentence or order, not being an inter locutory order of the Special Court to the Supreme Court, both on facts and on law. By reason of section 11(1), the Special Court could make such order as it deemed fit directing the custodian in the matter of disposal of property under attachment. Section 11(2) set out the order in which the liabilities of the persons notified had to be discharged. Section 13 stated that the provisions of the Special Court Act would, have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, or in any instrument having effect by virtue of any law, or in any decree or order of any court, tribunal or other authority. By reason of section 15 the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992, which preceded the Special Court Act, was repealed.

The Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, was brought into effect on January 25, 1994. The provision thereof which is most relevant for our purpose is section 9A. It reads thus:

"9A. Jurisdiction, powers, authority and procedure of Special Court in civil matters.—(1) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, the Special Court shall exercise all such jurisdiction, powers and authority as were exercisable, immediately before such commencement, by any civil court in relation to any matter or claim—

(a) relating to any property standing attached under sub-section (3) of section 3;

(b) arising out of transactions in securities entered into after the 1st day of April, 1991, and on or before the 6th day of June, 1992, in which a person notified under sub-section (2) of section 5 is involved as a party, broker, intermediary or in any other manner:

(2) Every suit, claim or other legal proceeding (other than an appeal) pending before any court immediately before the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, being a suit, claim or proceeding; the cause of action whereon it is based is such that it would have been, if it had arisen after such commencement, within the jurisdiction of the Special Court under sub-section (1), shall stand transferred on such commencement to the Special Court and the Special Court may, on receipt of the records of such suit, claim or other legal proceeding, proceed to deal with it, so far as may be in the same manner as a suit, claim or legal proceeding from the stage which was reached before such transfer or from any earlier stage or de novo as the Special Court may deem fit.

(3) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, no court other than the Special Court shall have, or be entitled to exercise, any jurisdiction, power or authority in relation to any matter or claim referred to in sub-section (1).

(4) While dealing with cases relating to any matter or claim under this section, the Special Court shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and subject to the other provisions of this Act and of any rules, the Special Court shall have the power to regulate its own procedure.

(5) Without prejudice to the other powers conferred under this Act, the Special Court shall have, for the purposes of discharging its functions under this section, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying, a suit, in respect of the following matters, namely:—

(a) summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) reviewing its decisions;

(g) dismissing a case for default or deciding it ex parte;

(h) setting aside any order of dismissal of any case for default or any order passed by it ex parte; and

(i) any other matter which may be prescribed by the Center Government under sub-section (1) of section 14."

The Amendment Ordinance also introduced section 9B. It invested the special Court with the jurisdiction and powers of a court conferred under the Arbitration Act, 1940, to decide any question forming the subject-matter of a reference relating to any matter or claim mentioned in section 9A(1). Every suit or other proceeding (other than an appeal) in relation to any matter or claim referred to in section 9A(1) pending before any court and governed by the Arbitration Act stood transferred to the Special' Court on the date of commencement of the Amendment Ordinance.

An Act replaced the Amendment Ordinance. The Statement of Objects and Reasons there for said:

"Under the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, a Special Court was set up at Bombay and a custodian was appointed to deal with the situation arising out of the large scale irregularities and malpractices which were noticed in the securities transactions of banks, to ensure the speedy trial of the offenders, to recover the amounts involved and to attach h the properties of the offenders with a view to prevent diversion of such properties by the persons responsible for these offences.

2. During the course of the trial of these cases, the jurisdiction of the Special Court, particularly in matters of civil claims, was being challenged for want of specific provisions in the Act. The Special Court, therefore, needed to be conferred with civil jurisdiction. For the said purpose, the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, was promulgated by the President on the 25th January, 1994..."

Analysis of section 9A:

By reason of sub-section (1) of section 9A, on and from the date of commencement of the Amendment Ordinance, the Special Court exercises all such jurisdiction, powers and authority as were exercisable by any civil court in relation to any matter or claim (a) relating to any property standing attached and (b) arising out of transactions in securities entered in to between the stated dates in which a notified person was in any manner involved. By reason of sub-section (2) any suit, claim or other legal proceeding (other than an appeal) pending before any court immediately before the commencement of the Amendment Ordinance, being a suit or proceeding the cause of action whereof was such that it would have if it had arisen after the commencement of the Amendment Ordinance, been within the jurisdiction of the Special Court, stands transferred to the Special Court. By reason of Sub-section (3), on and from the commencement of the Amendment Ordinance no court other than the Special Court may exercise any jurisdiction, powers or authority in relation to any matter or claim referred to in sub-section (1).

Sub-section (1) of section 9A empowers the Special Court to exercise the jurisdiction, powers and authority exercisable by a civil court. It so empowers the Special Court in relation to any matter or claim, inter alia that arises out of transactions in securities entered into between the stated dates in which a notified person is involved. The words "civil court" are used in the context of the jurisdiction, powers and authority that the " Special Court may exercise. The Special Court is empowered to exercise such jurisdiction, powers or authority in relation to the matters or claims therein specified. These matters or claims include those arising out of transactions in severities entered into between the stated dates in which a notified person is involved. Sub-section (2) of section 9A deals with the transfer of certain suits, claims or other legal proceedings (other than an appeal) to the Special Court. Every suit, claim or other legal proceeding pending before any court, the cause of action whereof is such that, had it arisen after the commencement of the Amendment Ordinance, the suit, claim or other legal proceeding would have had to be filed before the Special Court, stands transferred to the Special Court. Every suit, claim or other legal proceeding pending before any court, the cause of action whereof arises out of transactions in securities entered into between the. stated dates in which a notified person is involved would, therefore, if it is pending before any court on the date on which the Amendment Ordinance came into force, stand transferred to the Special Court. By reason of sub-section (3) of section 9A, on and after the commencement of the Amendment Ordinance, no court other than the Special Court may exercise any jurisdiction, powers or authority in relation to any matter or claim referred to in sub-section (1), that is to say, in relation to any matter or claim, inter alia, arising out of a transactions in securities entered into between the stated dates in which a notified person is involved.

A “court" other than the Special Court is debarred, by reason of sub section (3) of section 9A, from exercising any jurisdiction, powers or authority, after the commencement of the Amendment Ordinance, in relation to any matter or claim arising out of transactions in securities, entered into between the stated dates in which a notified person.15-; involved. Sub-section (2) of section 9A also speaks of a "court"; a proceeding before a court, the cause of action of which arises out of a transacts in securities entered into between the stated dates in which a notified person is involved, stands transferred to the Special Court. The question, in these circumstances, is whether the use of the words "civil court" in sub-section (1) excludes the application of section 9A to the Company Law Board.

Sub-section (1) of section 9A is divisible into two parts. By the first part the Special Court is empowered to exercise, on and from the commencement of the Amendment Ordinance, all such jurisdiction, powers and authority as were exercisable before such commencement by any civil court. By the second part, the Special Court is empowered to exercise such jurisdiction, powers or authority in regard to the matters or claims therein specified, which includes matters or claims arising out of transactions in securities entered into between the stated dates in which a notified person is involved. So read, the Special Court has the jurisdiction, powers and authority of a civil court to "exercise the same in regard to matters or claims arising out of transactions in securities entered into between the stated dates in which a notified person is involved. Subsection (1) of section 9A, therefore, invests the Special Court with the jurisdiction, powers and authority necessary for the purposes of entertaining matters or claims of the nature specified therein. Sub-section (2) provides for the transfer of such matters or claims pending in any court to the Special Court on the commencement of the Amendment Ordinance. And sub-section (3) expressly debars any court other than the Special Court from exercising any jurisdiction, powers or authority in relation to such matters or claims.

The question to pose, therefore, is: is the Company Law Board a court? If it is, it is divested of the jurisdiction, powers and authority to entertain matters or claims arising out of transactions in securities entered into between the stated dates in which a notified person is involved, by reason of sub-section (3); and, by reason of sub-section (2), such matters or claims pending before it on the commencement of the Amendment Ordinance stand transferred to the Special Court.

While on section 9A, it must also be noted that sub-section (2) thereof mandates transfer to the Special Court of "every suit, claim or other legal proceedings (other than an appeal)” which is pending before any court he commencement of the Amendment Ordinance in which the cause to action, inter alia, arises out of a transaction in securities entered into between the stated dates in which a notified person is involved. It is, therefore, the proceeding in the court of first instance that stands transferred. II the court of first instance has finally disposed of the proceeding" and its order thereon is the subject of an appeal, the appeal does not stand transferred.

Section 111 of the Companies Act:

Section 111 of the Companies Act, 1956, with effect from May 31, 1991, reads thus:

"Power to refuse registration and appeal against refusal.-(1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Company Law Board against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1), either to register the transfer or transmission or to send notice of its refusal to register the same.

(3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or, where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as, the case may be, was delivered to the company.

(4) If—

(a) the name of any person—

(i) is without sufficient cause, entered in the register of member of a company, or

(ii) after having been entered in the register, is without sufficient cause, omitted therefrom; or

(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be a member [including a refusal under sub-section (1)]

the person aggrieved, or any member of the company, or the company, may apply to the Company Law Board for rectification of the register

(5) The Company Law Board, while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may after hearing the parties, either dismiss the appeal or reject the application, or by order—

(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or

(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

(6) The Company Law Board, while acting under sub-section (5), may, at its discretion, make,—

(a) such interim orders, including any orders as to injunction or stay. as it may deem fit and just.

(b) such orders as to costs as it thinks fit; and

(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.

(7) On any application under this section, the Company Law Board—

(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register;

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.

(8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture-holders as they apply in relation to the rectification of the register of members.

(9) If default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to one thousand rupees, and with a further fine which may extend to one hundred rupees for every day after the first day after which the default continues.

(10) Every appeal or application to the Company Law Board under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed.

(11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company:

Provided that the Company Law Board may, in lieu of an under sub-section (5), pass an order directing the company to register the transmission of the right unless any member or members of the Company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him there for or such other sum as the Company Law Board may determine to be a reasonable compensation for the right in all the circumstances of the case.

(12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.

(13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the sharers of such company."