TaxTMI 
TaxTMI 
1989 (4) TMI 268
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....staying the operation of that order, there is no Bar for this court to hear these petitions on the question of admission and interim relief. Company Petitions Nos. 32 and 67 of 1987 are filed by the petitioner under the provisions of sections 397 and 398 of the Companies Act, 1956 (in short "the Act"). Company Petitions Nos. 49 and 50 are filed by the very same petitioner under the provisions of section 433(f) of the Act. The facts in all these petitions are not in serious controversy since they could be culled out from a number of agreements entered into between the parties and from a number of letters exchanged by the parties and produced as annexures to these petitions. The petitioner, Srikanta Datta Narasimharaja Wadiyar, is the son of late His Highness the Maharaja of Mysore (hereinafter referred to as "the late Highness") and, in these petitions, he has prayed for a number of reliefs against the members of Chamaraju family (who are described as the Chamaraju group in these petitions) and the two companies now under their control. Late Chamaraju was a renowned building contractor in this part of the State and it is not in dispute that he had advanced huge sums of money t....
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....sion of the schedule A property had already been handed over entirely and exclusively in favour of Venkateswara on November 30, 1970; that the power of attorney holder, one H. Nagarajappa, advocate, Mysore, would execute the registered sale deed and complete the sale transaction for and on behalf of the late Highness in due course and when reasonably required. In case the sale transaction fell through, late Highness bound himself not only to repay the entire advance received, as mentioned above, but also to pay interest on the said advance at the rate of 12% per annum from the date of advance or from the respective dates of advance in addition to such damages as may be suffered by Venkateswara in the circumstances of the case until such repayment is made in full. The other clauses are not very material for the purpose of this petition. A similar agreement was also entered into by late Highness on the very same day with Chamundi. In that agreement, late Highness agreed to sell to Chamundi represented by its managing director, Chamaraju, an extent of 110 acres of land situate in Bangalore palace area for a consideration of Rs. 1,25,00,000. A sum of Rs. 11 lakhs was paid as advance an....
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....discussion in the Rajya Sabha on November 22, 1973. But, later on, a clearance was issued by the Central Government for alienating these properties. But, there were again inter se disputes amongst the members of the family of the late Highness, which resulted in a number of suits being filed. These suits were filed by the petitioner against late Highness and also against his mother and the first wife of late Highness. O. S. No. 430 of 1974 renumbered as O. S. No. 622 of 1980 on the file of the Civil Judge at Bangalore was filed by the petitioner against his father, his mother, his father's first wife and his sisters who are defendants Nos. 1 to 7, respectively, and his brother-in-law, K. B. Ramachandraraj Urs who is defendant No. 8 and his (brother-in-law) daughters, viz., defendants Nos. 9 to 12, minors represented by their father and natural guardian, Ramachandraraj Urs. In that suit, he claimed the following reliefs : "Judgment and decree against the defendant : (a)directing the taking of accounts of the management of the family, its assets as and from 1953 up-to-date, and holding the late Highness liable therefor and denying him any further share from the properties and f....
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.... companies and the working of the said two companies and consequently certain suits and legal proceedings were commenced by the members of the first party hereto or at their instance which are more fully detailed in Schedule I herebelow and similarly party No. 2 also had to institute legal proceedings against the members of the first party now pending as specified in Schedule II herebelow. And, whereas, now in the meanwhile, H. H. Jayachamaraja Wadiyar, ex Maharaja, died on September 23, 1974, leaving behind him, the members of the first party and Smt. Satyaprema Kumariyavaru as his only representatives ; And, whereas, well-wishers of both the parties intervened and proposed that all the disputes should be settled amicably, the suits and legal proceedings should be compromised and the two companies aforesaid, viz., parties Nos. 3 and 4 hereto, should be run in the best interests of both the parties. And, whereas, pursuantly after negotiations and talks between the parties, the disputes have now been settled and the parties have agreed to compromise the suits and other legal proceedings and to run the two companies in co-operation with one another in the best interests of b....
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....f 1977 Civil Judge, Bangalore City. To be got decreed as mutually agreed to between the parties." Notwithstanding this compromise, no understanding was reached between the petitioner and the Chamaraju group as could be seen from the subsequent agreement, which is the sheet anchor of the petitioner's case in all these petitions. The Subsequent agreement, viz., the agreement of January, 29, 1982, shows that notwithstanding the earlier compromise entered into in the year 1978, the parties could not come to any amicable understanding in the running of these two companies and they realised that they cannot jointly carry on the business of both the companies and, therefore, they decided that they should part company in good grace, allowing the petitioner to manage the affairs of Venkateswara and the Chamaraju group to manage the affairs of the Chamundi. The shareholdings of both the groups (hereinafter referred to as "the Maharaja group and the Chamaraju group") in both the companies were not in any way affected. The Maharaja group retained 60S. of the shareholding and the Chamaraju group retained 40% of the shareholding and it was agreed that the management of Venkate....
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....aju group) under this agreement. 3.(a)The parties hereby agree that if the exemption in obtained in regard to 110 (one hundred ten) acres in schedule B then the first party (petitioner) will convey 45 (forty-five) acres of the property subject to verification marked red therein in the plan annexed hereto with an easementary right of way over the portion marked in red in the plan annexed hereto from the Palace road through the palace main gate to the said portion in favour of the third party (Chamundi) company at the expense of the third party (Chamundi) company and also see to it that the shares in the names of his father and nominees in the company would be completely transferred in the names of the members of the second party (Chamaraju group) or their nominees. It will be the sole responsibility of the first party (petitioner) to see that the members of the second party (Chamaraju group) get the complete share holding of the third party (Chamundi) company. It is clearly understood that the conveyance in respect of the 45 (forty-five) acres aforesaid will be done in favour of the company simultaneously with the transfer of all shares therein by the first party (petitioner) and....
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.... for exemption under the UrbanLand (Ceiling and Regulation) Act, 1976, is rejected, then the first party hereinagrees and undertakes to repay to the second (Chamaraju group) and third(Chamundi) parties the amounts borrowed by the late H. H. Jayachamaraja Wadiyar from them and more fully detailed in the agreement of compromisedated March 26, 1978, with interest at the rate of 12% per annum from the respective dates of borrowings from the said parties within twelve months of any rejection of the application for exemption in respect of schedule A property or any portion thereof. This will be in addition to the liability of the estate of late Sri Jayachamaraja Wadiyar. 6. It is specifically agreed and understood that the 45 (forty-five) acresof land should be retained by the third party (Chamundi) in case exemption isgranted in respect of schedule B property. 7. It is specifically understood that if, by any chance, no exemption isobtained in respect of schedule B property but obtained in respect of scheduleC property, then the first and fourth parties (petitioner and Venkateswara) will convey 45 (forty-five) acres of the schedule C property marked green in a plan annexed hereto, ....
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....states of late Shri Jayachamaraja Wadiyar except a specified portion of the immovable property of Bangalore palace were agreed and admitted to belong to the petitioner absolutely. Accordingly, the petitioner became and is the sole and absolute owner of the equity shares of the first respondent company standing in the name of late Shri H. H. Jayachamaraja Wadiyar transmitted to the name of the petitioner." To this memorandum, neither Chamundi nor Venkateswara were parties though there is an endorsement in that agreement that Venkateswara had agreed to the terms of that agreement and given effect to the terms of the agreement by parting with the possession of the property under its control to the petitioner. The effect of that agreement which was entered into without notice to Chamundi or to Venkateswara or to the Chamaraju group will have to be considered while dealing with the acts of oppression and mismanagement alleged against the respondents by the petitioner. The allegations of oppression in C. P. No. 32 of 1987 are that the petitioner's group was not served with the notice of the meetings, that is to say, notices of members' meeting or extraordinary general meeting or an....
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....of association and Shri A. C. Srinivasa Raju was authorised to operate the bank account of the company with Canara Bank." In paragraph 31 of the petition, the petitioner says that he had gone to the U.K. in December, 1985, and he was out of India till February, 1986 ; that he and other members of his group were not given any notice of the aforesaid meetings alleged to have been held on January 23, 1986 ; that, for convening the meeting of the shareholders and board of directors, twenty-one days' notice was required which was not issued or given ; that the letter dated January 13, 1986, written by Sri A. C. Chandrashekhar Raju shows that the meetings of January 23, 1986, were not contemplated at that time, for, otherwise, he would not have affirmed and recognised the agreement, dated January 29, 1982, if such meeting was proposed to be convened on January 23, 1986; that the meetings alleged to have been convened on January 23, 1986, were bogus and in fact no meeting of the shareholders or the board of directors was held on that day and if they were so held (which the petitioner denies) the same are fraudulent, improper and illegal. In paragraph 32 of the petition, the petitioner ....
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.... could not have been allotted to the three directors as Chamaraju group had no power or authority to appoint the directors by the resolution alleged to have been passed in the aforesaid meeting. The next act of oppression alleged to have been committed against the petitioner is that the Chamaraju group had illegally constituted the board of directors by increasing the strength from 11 to 18; that, as per the articles of association of Venkateswara, the maximum number of directors could only be 11, but the board as constituted by Chamaraju group consists of 15 to 18 directors; that the board having been illegally constituted, the same is contrary to the articles of association of Venkateswara ; that the aforesaid actions amounted to illegal usurpation of the affairs of the company and that the same is illegal, fraudulent, wrongful against the right of the petitioner and his group and contrary to the compromise agreement dated January 29, 1982. According to the petitioner, the alleged meetings and the resolutions passed thereat were also forbidden, oppressive and mala fide and intended to oust the petitioner and his group from the management of Venkateswara. The next act of oppres....
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....be filed by the alleged directors of Venkateswara. It is also alleged that one of the shareholders of the company, i.e., Nagarajappa, who was the power of attorney of late Highness, had filed a civil suit in the Civil Court at Bangalore in O. S. No. 10136 of 1986 challenging the validity of the resolution passed in the meeting held on January 23, 1986. There is also a reference to the police complaint dated February 12, 1986, informing the Commissioner of Police about the aforesaid illegal resolutions and further informing that the Chamaraju group, along with some other persons, were trying to take control and management of the portion of land of the Bangalore palace and also trespass upon the property and take possession of the same. There is a reference to the letter dated April 27, 1986, in the petition by the petitioner to the Canara Bank inviting their attention to the compromise agreement dated January 29, 1982, and requesting them not to take any action on the basis of the resolution passed at the company meeting held on January 23, 1986. The grievance of the petitioner is that the Canara Bank did not take any action on this letter on the ground that in the absence of an inj....
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....hose meetings. These are the allegations of the petitioner against the respondents. On these allegations, the petitioner wants this court to take action under sections 397 and 398 of the Act. He has also pressed into service the plea of loss of confidence. In para 46 of the petition, the petitioner says that there is absolute loss of confidence and faith amongst the parties which was the very basis for incorporating Venkateswara; that, if the company is wound up, irreparable loss will be caused to the petitioner's group and interim order should be passed at an early date as prayed for. Otherwise, the petitioner and his group would suffer an irreparable loss which cannot be compensated in terms of money and the interest of Venkateswara and the public interest will also suffer. The reliefs claimed by the petitioner are as follows : "(a)To declare that the compromise agreement dated January 29, 1982, is binding by and between the parties thereto and, in particular, is binding on the petitioner, the members of the Chamaraju group, i.e., respondents Nos. 2 to 11 and Venkateswara ; (b)To direct that the regulation, conduct and the management of the affairs of Venkateswara is to be ....
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....hamundicontrary to the said agreement ; (E)The companies were established on the basis of the mutual trust and confidence between the parties and that the same no longer exist. But, on the contrary, the Chamaraju group is acting in a manner which is oppressive, mala fide,, illegal, arbitrary and injurious to the interest of Maharaja group and the company and the public interest ; (F)Chamaraju group has committed a number of acts of mismanagement as stated hereinabove and they are trying to oust the Maharaja group from the affairs of Chamundi and also Venkateswara and that their sole object is to establish complete control over both the companies which is illegal, oppressive, mala fide and contrary to the agreements entered into between the parties and the provisions of the Companies Act ; (G)Having regard to the provisions of the Urban Land (Ceiling and Regulation) Act, 1956, it is not possible to transfer the land in favour of Chamundi and that having regard to the compromise dated January 29, 1982,the said agreement of sale has come to an end and that it is not possible for Chamundi to carry on any business in future and no useful purpose would be served by continuing th....
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....gs, marriages, etc., and most of the income is not accounted for in the accounts of Chamundi and it has never declared any profit and most of the income is being appropriated by the Chamaraju group; (O)A portion of the property has been leased to Krishnadevaraya Education Trust and to run Vishweswaraiah College of Technology and one of the managing trustees, Shri A. S. Kupparaju, of the said trust, is the director of Chamundi and the said transfer of the property in favour of the aforesaid college is not authorised and is contrary to the memorandum and articles of association. The aforesaid act is oppressive, harsh and injurious to the Maharaja group and is contrary to law ; (P)The main building of the palace is in the possession of the petitioner and the furniture and other household goods of the petitioner are lying in the palace and it is impossible for Chamundi to carry on any business in future having regard to the aforesaid circumstances ; and (Q)The Chamaraju group by their various acts, have tried to usurp the management and affairs of Chamundi and they have committed a number of illegal acts inasmuch as the meetings are not called as required by law and that the m....
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....this court should stay its hand and desist from making a declaration as prayed for as the agreement in question is a void agreement as on this date and does not admit of any declaration as sought for ; that all the parties to the agreement are not before this court and, therefore, no declaration could be made by this court so as to bind the persons who are parties to the agreement but have not been impleaded as parties to these petitions. A consideration of all these legal issues will necessarily take me to the detailed objections filed by the respondents. But the question is whether, on the facts of these cases, this court should go into the objections and determine the issues for consideration on merits. In my considered view, this petition could be disposed of on the preliminary issue, viz., whether the petitioner has filed this petition in good faith in order to work out his rights within the framework of the Act. It is well-settled that the relief under sections 397 and 398 of the Act is an equitable relief which is entirely left to the discretion of the company court. In the 5th edition of Pennington's Company Law, dealing with relief from acts of oppression, it is stated ....
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....ner in presenting these company petitions. The question of good faith has to be tested by the conduct of the petitioner as reflected not only in the proceedings before this court but also in the parallel proceedings in the civil courts and in other civil litigations in other courts. I have earlier noticed that the litigation against Chamaraju group started as early as in the year 1974. The two agreements which late Highness entered into with late Chamaraju were with a view to preserve the family fortune and with a view to meet certain financial commitments which he had incurred consequent on the abolition of the privy purse. The very basis of those agreements was challenged by the petitioner in the civil suits filed by him. In O. S. No. 145 of 1974, the relief claimed is that the two agreements entered into by late Highness with late Chamaraju are null and void on the ground that they were not for the benefit of the family; that the properties were of the joint family and not the absolute properties of late Highness, that he had no right to deliver possession of the property to late Chamaraju, that all the amounts realised by the transfer of the land were utilised for immoral pu....
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....as for my physical condition, I am like any other normal person of my age and status. With the leave of the Hon'ble court, I reserve my right to initiate proceedings in respect of the defamatory allegations made against me in paragraph 3 of the affidavit. The allegations in paragraph 4 of the affidavit that defendant No. 3 and Dharanipalan have actually planned and completed a scheme to 'knock off the property' and thereafter are likely to throw me out and that the said Dharanipalan and others had kept me out of the reach of the members of my family and also have disconnected the phone, etc., are imaginary and a clear distortion of facts. I am not aware of the allegations that the third defendant had issued instructions to close the gates of the palace and had placed restrictions on the entry even of the royal family members to meet me. Prior to the handing over of possession of the suit schedule property to the first and second defendant companies, the palace authorities had their own system of regulating entry into the palace. But, after November 30, 1970, it was left to the first and second defendants to regulate the entry into the suit premises. It is not correct to contend ....
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.... who could invest millions of rupees and take the burden of facing the ceiling and urban taxes, that I, as a prudent person, negotiated with the third defendant to form the two companies. In the said companies, the other members of the family and I would have shares and some of us are also directors thereof. I am the chairman of the two companies. The third defendant, representing the two companies, required that all the members of the family should give their consent and execute an agreement. Accordingly, the other members of the family and I executed a deed of agreement on November 30, 1970, agreeing to dispose of the suit schedule property in favour of the said companies of which the third defendant was one of the chief promoters. On February 11, 1970, I executed two agreements of sale in favour of the first and second defendant companies wherein the earlier agreement of November 30, 1970, and the delivery receipt of the same date have been referred to. At the time of taking decision on November 30, 1970, the plaintiff was a minor and the other members of the family were present in the family meeting and I signed that deed as the natural guardian on behalf of my minor children i....
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....he has stated as follows : "That, subsequent to the filing of the suit, at the instance of well-wishers, the plaintiff, defendants Nos. 1 to 3 and 6 to 14 met and verified the material facts regarding the property known as the Bangalore palace. The plaintiff is satisfied that, under an agreement of sale entered into between the fourth defendant and the first defendant represented by the third defendant, possession of the properties forming part of Bangalore palace more fully described in schedule A has been delivered by the fourth defendant to the first defendant and similarly the fourth defendant had handed over the possession of the portion of the Bangalore palace property more fully described in schedule B hereinbelow. Under the circumstances, defendant No. 1 has got possessory title to properties described in schedule A herebelow and defendant No. 2 has got possessory title to properties described in schedule B herebelow. In view of the above and other circumstances, the plaintiff and defendants Nos. 1 to 3 and 6 to 14 have settled all the disputes outstanding between them in particular with regard to the Bangalore palace property and have entered into an agreement dated Mar....
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....aid from Chamaraju group. This one fact is sufficient to show that the petitioner's allegations in these petitions cannot be taken at their face value ; they are lacking in candour and also in good faith. Secondly, a substantial portion of the reliefs claimed by the petitioner are admittedly subject-matters of litigations in civil courts in the pending suits. No reasons are forthcoming from the petitoner as to why he is not pursuing those civil suits in the civil courts against the Chamaraju group. Thirdly, the petitioner seems to be completely oblivious of his legal obligations to the Chamaraju group under the agreement of December 29, 1982. The two letters exchanged between the parties in the year 1985, i.e., just a year or so before the filing of the petitions would show that the petitioner did not want to abide by any of his commitments to the Chamaraju group. In his letter dated November 18, 1985, regarding the transmission of shares of late Highness to his name, he has invited the attention of Chamaraju group to the agreement dated March 26, 1978, the compromise decree and the court order amongst the members of the family, the agreement dated January 29, 1982, will of his mot....
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....rom Urban Land Ceiling authorities and convey 45 acres of land as a matter of settlement. Your Highness agreed to give the heirs of late Shri A. Chamaraju 45 acres of land in the palace compound which your Highness is aware of." In para 10, it had stated as follows : "Thus, an agreement was entered into between the heirs of late Shri A. Chamaraju on the one side and your Highness on the other side along with these two companies on January 29, 1982. Terms of the agreement I hope you are undoubtedly aware of fully. Believing your words and believing your representations without demur, we signed the agreement in good faith even before the lapse of one month from the death of my father." In para 11, it had stated as follows : "After signing of the agreement, the management of Sri Venkateswara Real Estate Enterprises Pvt. Ltd. was handed over to you. After taking the management of the said company, your Highness continued to manage the affairs in a feudalistic fashion. Sri A. S. Kupparaju, Sri A. V. Humpa Urs and Sri K. Rama Raju who were directors of the said company were not called for any of the board meetings or for the annual general body meetings of the shareholders to....
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....to implement this agreement with sincerity." In paragraph 16, it had stated as follows : "I entreat your Highness to bury the litigation and the unhappy past with the dead. The past has no meaning unless it gives a lesson for the present for guiding the future. From the past, let us take a lesson for the present to guide our future and avoid all litigation. I assure I shall honour in letter and spirit the agreement dated January 29, 1982, on my part as a gentleman. I expect similarly your Highness, both as a gentleman and as the Maharaja to honour the agreement dated January 29, 1982, in letter and spirit and avoid litigation. Please pause for a moment and ponder at my supplicative suggestions. Please do not dismiss them as impertinent sentiments of a plebeian and allow us to turn over a new leaf of implementing the January 29, 1982, agreement in letter and spirit." The tone of this letter is conciliatory and also borders on veneration of the petitioner and his royal lineage though he had gone back on the earlier agreements and the commitments made in the said agreements. So, from this correspondence, it is clear that the petitioner was fully aware of the agreements betwee....
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....mpany : (1)Articles of association and memorandum of the company. (2)Date of registration of your company. (3)Authorised capital of your company. (4)Paid-up capital of your company. (5)Names of chairman and managing director and directors of the past and the present. (6)Names of all the shareholders of the company. (7)Number of shares held by each person in the company. (8)Minutes books of the company from 1970 to March, 1985. (9)Audited balance-sheets of your company from 1970 to March, 1985. I would like to draw your attention to the fact that your company is in unauthorised occupation of the premises and/or others and not paying rent also which will be dealt with separately, which may please be noted." When the contents of this letter were specifically brought to the notice of learned counsel for the petitioner, Mr. Nanavathi submitted that this letter was written out of a sense of frustration without knowing the consequences of writing such a letter. I am not prepared to accept this explanation offered by learned counsel on behalf of the petitioner, as the petitioner cannot plead ignorance of the earlier agreements and his obligation under the s....
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.... condition precedent releases the other party from his obligation to perform the contract, unless he has received a substantial part of the consideration for his promise, or unless he has in some way lost the right to rescind, in which case he can only recover damages for breach of the other's promises ; where the promises are concurrent, the effect is to bind each party to be ready and willing to perform his promise on tender of performance by the other party." In paragraph 516, it is stated thus : "Criteria for determining whether promises independent or dependent. The question whether the promise of one party is a condition precedent to the liability of the other party or is independent depends upon the construction of the contract taken as a whole, and is to be determined by the intention of the parties as appearing from the terms of the contract and the surrounding circumstances. The test applied is whether the particular stipulation goes to the root of the matter so that a failure to perform it would render the performance of the rest of the contract by the party in default a thing different in substance from what one other party has stipulated for, or whether it merely....
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....ing Act. As the matter stands now, the petitioner, instead of pursuing his efforts to obtain exemption has, by his petition, dated January 9, 1985, effectively and completely deprived the Chamaraju group from obtaining the benefit of exemption for 45 acres under the agreement dated January 29, 1982. What the petitioner says in that petition is : "The petitioner submits that looking to the above-mentioned facts, the Bangalore palace properties is in the absolute ownership of Shri Srikantadatta Narasimharaja Wadiyar and the said company Chamundi Hotels Pvt. Ltd., has no right or title to the said Bangalore palace properties. The petitioner submits that, looking to the above mentioned facts, the petitioner being the chairman of Chamundi Hotels Pvt. Ltd., requests your honour not to take any action, to process the Form No. 6 filed by the then managing director of Chamundi Hotel Pvt. Ltd., and as a chairman, I may be given liberty to withdraw the said Form No. 6 in favour of Srikantadatta Narasimharaja Wadiyar who is the absolute owner of the said property known as 'Bangalore palace' property at Bangalore. The petitioner has filed this petition to avoid multiplicity of proceedi....
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....titions. But the matter does not end there since the first two petitions are under sections 397 and 398 of the Act and the powers of this court are not controlled by the prayers made in the petitions. The entire controversy between the parties could have been resolved at a very early stage if either of the parties had pursued the matter before the competent authorities under the Ceiling Act and obtained the necessary clearance for the benefit of both sides. But, unfortunately, the petitioner and the Chamaraju group have not seen eye to eye in regard to the management of both Chamundi and Venkateswara. However, a suggestion made by this court in this regard was gracefully accepted by both the sides and they have filed, their respective memos suggesting the terms of an order to be made under section 402 of the Act. I have cleared myself of the legal hurdle to make such an order in the light of the decision of the Supreme Court in Needle Industries' case [1981] 51 Comp Cas 743 (SC) to which I have already adverted. The Supreme Court having found that the petitioner in that case was not entitled to any relief under section 397 of the Act, observed (page 845 of 51 Comp Cas) : "Eve....
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....n the opinion of the court, be just and equitable in all the circumstances of the case, provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned and further the section provides for termination, setting aside or modification of any other matter for which, in the opinion of the court, it is just and equitable that a provision should be made. The court should first make an order under sections 394, 397 and 398 and, in that order, it has to provide for matters more particularly stipulated in section 402 of the Act. This section read with rule 9 of the Companies (Court) Rules, 1959, which deals with the inherent powers of the court to give such direction to meet the ends of justice was the basis of the decision of the Supreme Court in Needle Industries' case [1981] 51 Comp Cas 743. In my view, that power of the company court is wide enough on the facts and circumstances of these cases and, on the basis of the memos of compromise filed by the parties to make suitable provisions under section 402 of the....