TaxTMI 
TaxTMI 
1997 (9) TMI 467
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.... 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 respo....
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....s they held more than 1/10th 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 Limit....
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....gly, 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....
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....hen 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.) ....
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....own 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. 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....
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....cedure. 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 t....
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....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 associ-ated 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 v....
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.... 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....
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....5-1- 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....
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....eceive any notices for the Board meetings and that the Certificate of Postings were fabricat- ed. 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....
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....etween 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 21-10-19....
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....s 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....
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....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, sharehold-ers and of mismanagement of 1st Respondent Company, by Respond-ent 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? ....
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....ading 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 sharehold- ers 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....
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....4, March, 1976 and March, 1982 by which time, the issued capital became Rs. 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 associ-ation 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 ....
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....o 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 wer....
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....ve 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 Indus-trial 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....
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....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 acknowledge-ment 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 16-10-1....
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....rs 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 l....
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....ng 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 whi....
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..... 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,....
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....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. Certifi-cate 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 ....
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...., 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 a....
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....bhama 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....
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....he 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 ....
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....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 a....
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....oard 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 submit-ted 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 ....
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....any 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 nominat-ed 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 th....
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....rs. 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 ....
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....s 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 examina-tion 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 p....
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....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 proce- dure 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....
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.... 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 ....
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....tings 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 un-subscribed capital and allotting to the nominees of the Jalan group. On the same day another letter was sent to R-3 under Ex. A-35. 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 ....
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....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) 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). A-14 4-8-1982 R.N. Jalan (R-9) R. Khemka (P-1) O.P. Jalan (R-3) Smt. Su....
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....-1-1987 S.K. Jalan (R-8) 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) B-332-E 6-6-1987 S.K. Jalan (R-8) 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) B-333 21-9-1987 S.K. Jalan (R-8) O.P. Jalan (R-3) S.N. Jalan (R-7) Leave of absence was granted to Smt. Sudha Jalan (R-4) B-333 22-9-1987 S.K. Jalan (R-8) S.N. Jalan (R-7) O.P. Jalan (R-3) Leave of absence was granted to Sudha Jalan (R-4) B-333 31-12-1987 S.K. Jalan (R-8) 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). B-333 With regard to Annual General Meeting Ex. B-334 is the relevant docu-ment. 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) 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) B-334-A ....
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.... 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. 26,36,931.17ps. 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 ....
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....ent 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 enumerat- ed, 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 Com....
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....anding 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 address-ing, prepaying and posting a letter containing the Notice or docu-ment, 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 ....
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....ompany 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....
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....tion 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 mee....
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....re 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. ....
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....cted 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 here- with 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....
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....be seen from Ex. A-31, it was not sent under Registered Post, whereas the Notice Ex. B-96 was sent under Registered Post Acknow-ledgement 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 corre-spondence 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-118 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 afte....
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....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 comple....
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....d 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-118 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: ....
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.... 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 correspon-dence 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 contain....
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....d 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, I drew the attention of the Respondent No. 2 that he had sent me only unsigned copies....
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.... 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....
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....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 a....
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....serves were 15 times more than its share capital. He relies on the judgment of the Calcutta High Court in Ramashankar 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 mad....
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....g 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 obser-vations 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 o....
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....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 Chhaya Debi 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....
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.... 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. Shukla 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 kee....
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....nd R-9 gave specific instructions to send the Notices under Registered Post, they were complied with and R-1 company has filed number of docu- ments 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 th....
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....ice 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) ....
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....-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. I 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 ....
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....al 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 fol....
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....dance 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 pari 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 ....
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.... 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: ....
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....ter 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 resig....
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....he 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)Sta....
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.... 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 inter-ested 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 da....
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.... 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 Compa- ny went to the share of R-9. Accordingly, R-9 became the Managing Director of Nucon and he started concentrating on this Company. Accord-ingly, 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 diversi-fication of products and it has been incurring heavy losses from year to year and also it requires variou....
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....stered 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 alo....
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....ngs 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 i....
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....cision 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 evi....
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....ty 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.....
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....nce 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 consent- ing 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 transac- tion. He also submits that the order of learned Judge was the subject matter before the Division Bench which confirme....
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....inst 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 [1884] 11 I.A. 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 Se....
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....ried 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 AIR 1977 SC 392. In the said case, the Supreme Court observed as follows: "Principles of res judicat....
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..... 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 ....
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....erred 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 re- conciled 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.....
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....e 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....
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....e 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 deci....
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....at 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 Petitio....
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....anding 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 Part-nership 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 negli-gible. They possess the shares in R-1 company and other com....
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.... 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....
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....dian 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 p....
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....om 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 com-pany- 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 pur....
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....ictly, 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 preci....
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.... 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 th....
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....y 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), Expl; 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....
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....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 Hotels (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 th....
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....anding 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 confi-dence. (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)Shareholding should be equal with minor variation. (h)A clause or clauses in the articles of association of the Company signifying either expressly or impliedly that the business is run on the lines of partnership. (i)Complete restriction on transfer of shares to outsiders to indicate the continuity of trust and confidence among the shareholders. (j)To appoint the directors on the basis of shareholdings of members o....
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....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 uncon-trolled 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 b....
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....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 deci-sions, 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: ....
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.... 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. Certain-ly, 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 circum- spect 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....
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....t 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....
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....f 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 alte....
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....ormer. 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 ....
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....n 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....
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.... 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 mis-conduct', 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 pe....
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....n 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....
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....et 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 expr....
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....itle 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 Baird v. Lees [1924] (SC) 83, which is as follows:....
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....hin 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....
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....e 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....
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....essive 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 ....
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....o 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....
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....he 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 ....
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....ere 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. I 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 ....
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.... 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 ....
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....he 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 no....
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....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 ....
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....n 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 con....
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.... 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 dis-satisfaction 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 follow....
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....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. I 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,....
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....ding 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 wou....
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....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....
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....ng 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 Accoun-tant. (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 ....